Archive for the ‘Business’ Category
A “perfect storm” gathered during The Great Recession that sank much of the global shipping industry. (more…)
There are almost as many articles in all of the press (online, offline and the blogosphere) on Marissa Mayer as there are on 50 Shades of Grey. (more…)
Why the country will pay the price for its wildly overrated prime minister.
BY SADANAND DHUME | JULY 9, 2012
Is India’s economic juggernaut in danger of turning into a train wreck? Not so long ago, it seemed that the country’s rise couldn’t be stopped: the economy was expanding at nearly double-digit rates, and everyone from global shampoo manufacturers to Western think tanks was racing to put an India strategy in place.
But by the first three months of 2012, GDP growth had slowed to a nine-year low of 5.3 percent, its eighth straight quarterly decline. Now, scarcely a week passes without news of the rupee nose-diving to a new historic low against the dollar. In a report last month, credit rating agency Standard and Poor’s warned that India risks losing its investment grade rating and becoming the first “fallen angel” among the four BRIC economies. This comes on the heels of a slew of warnings by pundits that India can no longer take economic success for granted. And it’s not simply a question of riding out the current global slowdown. Flawed government priorities, poor fiscal management, and rampant corruption all threaten the inevitability of India’s rise.
It may be too early to fundamentally reassess India’s prospects. A young population, relatively high savings rate, and the lowest per capita income among the BRICs give the country the potential to return to the nearly double-digit growth rates it enjoyed until 2010. But if India’s economic future remains uncertain, one thing is clear: along with the fate of 1.2 billion Indians, one man’s reputation hangs in the balance. Will 79-year-old Prime Minister Manmohan Singh go down in history as the bold economic reformer who lifted India out of poverty? Or will he instead be remembered as a pithless technocrat whose government was, to borrow the assessment of historian Ramachandra Guha, “inept and incompetent beyond words.”
For now, it looks like history will not judge Singh kindly. Over the course of his prime ministership, he has gone from being admired for being self-effacing and honest to being derided for his lack of courage andleadership skills. But now he’s got a chance to prove what he’s made of: On June 27, a day after taking direct charge of the economy following the finance minister’s resignation to run for India’s largely ceremonial presidency, Singh’s office tweeted his intention to “revive the animal spirit in the country’s economy.” He has his work cut out for him, to put it mildly.
Everyone has been waiting with bated breath for days for the June jobs report, (more…)
In the days of the Trojan Wars, there were the Hellenes. They live on islands; strung like jewels along the coast of azure beauty, the Mediterranean Sea. (more…)
Friday 21.30 BST. Global stocks started the month on a weak note, led by declines on Wall Street, as signs the world’s largest economy is stalling added to worries over the outlook for the eurozone.
Investors sold most “growth-related” assets and favoured US government bonds after news of a surprisingly soft US non-farm payrolls report.
“The weakness in the US data is overlapping with an intensifying crisis in Europe, which means the risk-off trade continues,” said Michelle Meyer, senior economist at Bank of America Merrill Lynch.
The broad S&P 500 suffered a loss of 2.5 per cent, retrenching below the 1300 points mark. The blue-chip Dow Jones Industrial Average also fell more than 2 per cent and erased this year’s gains.
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Such was the disappointment at the job numbers that the dollar index, which usually sports an inverse correlation to investor risk appetite, also lost all its early advance and fell 0.2 per cent.
This retreat for the buck reflected an increasing belief among some traders that further monetary easing by the Federal Reserve is now more likely – a view that is being expressed in gold, which rose 4 per cent to $1,623 an ounce.
The prospect of more QE has helped some “risk” assets come off their session extremes, but still many traders are scrambling for “safety”, pushing US 10-year benchmark yields down 10 basis points to 1.45 per cent, a record low.
The extent of investor caution could be seen in the German debt market, where yields on two-year Schatz briefly turned negative by two-tenths of a basis point, meaning fund managers are so desperate for a “safe” place to park their money that they would pay Berlin for the privilege. Ten-year Bunds have touched a record low of 1.13 per cent, but are now down 4bp to 1.18 per cent.
The FTSE All-World equity index shed 1.9 per cent after the Asia-Pacific region fell 1.1 per cent and as the FTSE Eurofirst 300 relinquished early gains to drop 2.1 per cent.
The pullback in the dollar helped the euro rise 0.4 per cent to $1.2415, having earlier touched a two-year low of $1.2290. Stresses remain in the eurozone, however, where Italian and Spanish yields fell several basis points a piece but remain elevated when compared with Bunds.
For a world where US bond yields trade at a level which predates the founding of the UN, there is a new use for what is an old label: Fortress America.
It helps to explain the pessimism that appears to have driven many investors yet again to seek shelter in the safety of the country’s debt, but it also captures the resilient optimism which means that even after Friday’s sharp one-day fall in the S&P 500, it remains one of the few stock indices left in positive territory for the year so far.
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Indeed, while the US economy may not be growing rapidly, the poor employment report released on Friday was still positive, with a net 69,000 jobs added. When interest rates first started to test multi-decade lows during the crisis, more than 400,000 jobs were disappearing every month.
Meanwhile, US banks have been forced to raise capital and are now quite capable of funding themselves. The Federal Reserve remains a credible guardian of the monetary system and the chances of another deep recession seem remote.
This is not to be blithely optimistic, rather it is to view the wooden walls of the North American economy as a more sturdy home for investment than the papier-mâché turrets elsewhere. And it is to realise that, for all the advance of globalisation, the US remains a relatively closed economy.
Exports of $2.1tn last year were only 14 per cent of national output, according to the Commerce Department. The largest trading partners are its neighbours to the north and south, and all the countries that use the euro combined bought only $200bn worth of US goods and services last year, as much as Mexico.
Meanwhile China, which bought only $104bn from the US while sending consumers four times as much back in return, is another reason for reassessing the assumption that the greatest opportunity lies outside the US.
Even from 12,000 miles away the topic is hard to avoid. There are persistent bears, such as short seller Jim Chanos of Kynikos Associates, who has been betting on a sharp slowdown for the past two years.
And there are the mega bulls, with renowned value investor Jeremy Grantham of GMO embracing the Malthusian idea that emerging market growth in consumption has put commodity prices on a permanent upward track.
WASHINGTON (AP) — Americans bought more previously owned homes in April, a hopeful sign that the weak housing market is gradually improving.
The National Association of Realtors says home sales rose 3.4 percent last month to a seasonally adjusted annual rate of 4.62 million.
That brings home sales back near the pace in January and February – which was the best winter for sales in five years. Still, sales are well below the nearly 6 million per year that economists equate with healthy markets.
A mild winter encouraged some people to buy homes earlier. That drove up sales in January and February, while making March weaker.
The median price for homes sold in April rose to $177,400, up 10.1 percent from a year ago.
Modest increases in home sales are the latest sign that the market could be starting to turn around nearly five years after the housing bubble burst.
The sales pace in January was the highest since May 2010 – when a popular home-buying tax credit expired. Builders are more confident and are starting to builder more homes. Mortgage rates have never been cheaper. And the job market is improving, which has made more people open to buying a home.
Employers have added 1 million jobs in the past five months. And unemployment has dropped a full percentage point since August, from 9.1 percent to 8.1 percent in April.
Still, many would-be buyers are having difficulty qualifying for home loans or can’t afford the larger down payments being required by banks.
Tuesday 14:30 BST. Stocks are rallying for a second day as some investors perceive value after three weeks of declines took many benchmarks to 2012 lows.
But early gains for commodities have faded and the euro is softer as sentiment remains fragile.
The FTSE All-World equity index is up 0.7 per cent following a strong showing in Asia and as the FTSE Eurofirst 300 adds 1.3 per cent. Wall Street’s S&P 500 is gaining 0.2 per cent, adding to the previous session’s 1.6 per cent surge.
The eurozone bond sector is less tense, with Spanish 10-year yields easing 17 basis points to 6.10 per cent.
There has been some chatter in the market that this week’s rally is founded on hopes Wednesday’s EU summit will deliver proposals that combine growth promotion with fiscal discipline, while also ensuring Greece can remain in the eurozone and sovereign debt contagion can be contained.
A pledge by Beijing over the weekend that it will focus on boosting activity in the world’s second-biggest economy is also cited as a positive development.
But sceptics note that such optimism regarding Europe has regularly been dashed since the bloc’s crisis began. They argue that growth-focused assets were due a bounce anyway given the swiftness and depth of the relapse.
Since the start of May, equities, industrial commodities and currencies sporting a high correlation to broader bullish sentiment have faced heavy selling, with many benchmarks sliding to their lows for the year.
Intensifying worries regarding the eurozone – after the Greek electorate in effect rebuffed the EU bailout and austerity deal – were joined by heightened concerns about the strength of the US and Chinese economies to shatter investor risk appetite.
The ending of the US corporate earnings season – generally well received – removed an important support. It is also possible that Facebook’s poor debut did not help market confidence either.
That left the FTSE All-World index down 9.3 per cent in the three weeks to last Friday, while US crude typified the battering for commodities by losing 12.8 per cent over the same period.
But in some traders’ eyes the severity of the slide – regardless of the cause – was too much. The All-World’s 10-day relative strength index (RSI), a measure of market momentum, on Friday dropped to just 13, its most “oversold” mark since August last year.
Standard Chartered has issued Rmb1bn worth of commercial paper out of London in the past four weeks, as it tries to encourage the development of an offshore renminbi market in the UK.
The bank revealed the details on Tuesday as the UK Treasury met with the Hong Kong Monetary Authority and a working group of seven banks in Hong Kong to discuss the standards and products that will promote the market’s development.
StanChart said its three-to-six month commercial paper programme filled the gap between longer term bonds and short term deposits in the offshore renminbi funding market, and was another small step in the creation of a pool of renminbi liquidity in London.
StanChart said it sold the commercial paper to Middle Eastern sovereign wealth funds and European pension funds.
Commercial paper is typically used to finance trade and receivables. Ben Hung, chief executive of StanChart in Hong Kong, said the bank was encouraging its European customers to use the renminbi rather than the dollar for their trade with China.
StanChart estimates that by the first quarter of this year about 11 per cent of all trade with China was being settled in renminbi. However, only about a tenth of that was accounted for by trade between China and Europe, Mr Hung said. The vast majority was still trade between China and Hong Kong.
As debate about a Greek exit from the euro grows, the European crisis is reaching boiling point. There are three sources for the problems of Greece and other peripheral European nations.
The first and most immediate is the fear that Greek banks will convert euro deposits into a new Greek currency. This has prompted withdrawals from not only Greek, but also Spanish and Portuguese banks and sent money flowing to German banks and German government bonds. The second is the unsustainable budget and current account deficits of many of the peripheral countries.
The third, and ultimately most important and intractable source of the crisis, is that labour costs in the peripheral countries are too high and uncompetitive with the northern European countries, particularly Germany. Historically, overpriced labour markets have been cured, albeit painfully, by currency devaluation – an option which is not open to euro-based economies.
If Greece does exit the euro and establish a new currency, investors fear that Greek deposits and Greek debt will be converted into a new currency which will sell at a steep discount to the euro. If Greece took this action, it would cause bank runs in Portugal, Spain, and even Italy as depositors fear their governments will do the same.
Have you ever wondered about who runs that company that makes that status bag? You know the bag that wears the LV Logo. He is the richest man in Paris. (more…)
The great kingdom that lies along the banks of the river Niger is Nigeria. A woman controls the wealth of this natural resource rich nation. (more…)
BRUSSELS (AP) — Denmark’s finance minister says she and her European Union counterparts are close to a deal to force banks to build up bigger capital cushions against financial shocks.
Early Thursday, after more than 15 hours of debate, Margrethe Vestager said only a few “technical issues” needed to be ironed out before the ministers’ next meeting in two weeks.
The EU is in the process of writing an international agreement on capital defenses for banks into European law that regulators hope will prevent a repeat of the 2008 financial crisis.
The so-called Basel III deal would force lenders to increase their highest-quality capital gradually from 2 percent of the risky assets they hold to 7 percent by 2019. An additional 2.5 percent would have to be built up during good times.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
BRUSSELS (AP) – European finance ministers were divided Wednesday on how the region’s banks can protect themselves from future financial shocks.
The European Union is in the process to writing an international agreement on capital defences for banks into European law. This would determine the level of risk Europe’s banks can take and what regulators can do to ensure that financial crises like the one brought on by the collapse of U.S. investment bank Lehman Brothers in 2008 do not happen again.
The so-called Basel III deal would force banks gradually to increase their highest-quality capital – such as equity and reserves – from 2 percent of the risky assets they hold to 7 percent by 2019. An additional 2.5 percent would have to be built up during good times.
But several countries, including the U.K. and Sweden, want to require their banks to build up even higher defenses without having to go to the European Commission, the EU’s executive arm in Brussels, for approval. There was also some disagreement over what should count as capital. Some countries are warning that Europe could be seen as softening banking rules at a time when it is already under close scrutiny from international investors.
“If we duck the challenge of implementing Basel we could face very important challenges to confidence in Europe this year,” warned George Osborne, the U.K.’s Treasury chief.
Basel III was agreed by the world’s leading economies after the 2008 financial crisis demonstrated that many banks did not have enough of a capital cushion to absorb sudden losses on loans and other risky activities. Once agreed, the new rules would apply to more than 8,300 banks in Europe, forcing them to build up billions in extra capital by selling shares or assets or reining in bonuses and dividends.
The 2008 financial panic that followed Lehman’s collapse hit Europe hard. Between 2008 and 2010, governments across the 27-country-bloc spent (EURO)4.6 trillion ($6.1 trillion) propping up struggling banks.
What complicated efforts even more was that the open borders in the EU allow banks to operate freely across the bloc, but when lenders ran into trouble it was national governments – and taxpayers – who had to foot the bill. While the EU is now striving for a single set of banking rules, there is still no pan-European bank resolution fund that could relieve national governments.
The U.K., which had to save three major banks, has seen its debt load almost double since 2007. Meanwhile much smaller Ireland had to seek an international bailout to help stem the losses of its domestic lenders. And many economists fear that the economic recession in Spain may soon reveal massive bank losses there.
Now, the U.K. is leading a group of countries that want to be able to force their own banks to have bigger defenses than the ones prescribed by the pan-European rules without first getting approval from Brussels.
“We should make it clear that the crisis did not originate exclusively from weak fiscal policy. It originated also from insufficiently strong banks,” said Polish Finance Minister Jacek Rostowski. “So therefore a group of countries including Poland, the Czech Republic, Sweden and the United Kingdom are very determined to see that banking systems in the future should be as healthy as we expect the fiscal side, the budgetary side, to be kept.”
That demand is opposed by France and the Commission, which fear that jacking up capital requirements in one country could force banks based there to cut down lending by their foreign subsidiaries. That, they argue, could hurt small states that don’t have a big domestic banking system.
To bridge the divide between the two camps, Denmark, which currently holds the EU presidency, has proposed a compromise that would allow national regulators to require an extra capital buffer of 3 percent. Anything beyond that would have to be approved by the Commission in Brussels, which would examine not only the level of risk in the home state but also the potential impact in neighboring countries.
After several hours of public discussion, finance ministers retreated into bilateral talks. A possible compromise could include requiring not the Commission, but another European supervisor – the European Systemic Risk Board, which is led by the European Central Bank President Mario Draghi – to approve higher national buffers.
If they cannot find agreement Wednesday, several ministers said they hoped a deal could be struck at their next meeting in two weeks. Once finance ministers have struck a deal, they have to negotiate a final agreement with the European Parliament.
Don Melvin contributed to this story.
AP Photo/Richard Drew
NEW YORK (AP) — When hiring slumps, so do stock prices.
That was at least the message investors sent Wednesday, when they ignored flashes of positive news about the economy and instead homed in on troubling reports about jobs in the U.S. and Europe.
The Dow Jones industrial average fell as much as 87 points after a company that tracks payrolls said the U.S. added far fewer jobs in April than in March. The Dow ended the day down 10.75 points, at 13,268.57.
It was a turn from the day before, when investors chose to focus on a couple of positive reports on U.S. manufacturing and sent the Dow up 66 points to its highest close in more than four years.
While the market’s day-to-day fluctuations may be difficult to predict, some investors say they’re certain that stocks will generally climb for the rest of the year. As justification, they cite strong first-quarter earnings.
Of the 330 companies on the S&P 500 that have reported first-quarter earnings, 77 percent have beaten the estimates of stock analysts, said John Butters, senior earnings analyst at FactSet, a provider of financial data.
“The market has room to run,” said Karyn Cavanaugh, market strategist with ING Investment Management in New York. “It doesn’t always go up in a straight line.”
The Standard & Poor’s 500 fell 3.51 points to 1,402.31. The Nasdaq composite index was the outlier. It fell throughout the morning, then finished up 9.41 points at 3,059.85.
The report on private sector hiring weighed on investors, who see jobs as the key ingredient to an economic recovery.
The payroll processor, ADP, said U.S. businesses added 119,000 jobs in April, down from 201,000 in March. The government releases its monthly figures, which include the public sector, on Friday. The two reports can vary sharply.
Another jobs report from Europe underscored the gravity of the continuing debt crisis there. The 17 countries that use the euro reported that unemployment rose to 10.9 percent in March, the highest since the euro launched in 1999.
Markets fell across most of Europe, including Germany and Greece.
There was also good news out of Europe, even if it didn’t seem to sway investors. Standard & Poor’s lifted Greece’s credit rating out of default, noting how the country had recently secured a massive writedown on its debt to private investors.
Germany also reported that the number of people seeking work in April slipped below 3 million, a psychologically important barrier that it hasn’t broken in that month for two decades.
AP Photo/Alvaro Barrientos
LONDON (AP) — The 17 countries that use the euro are facing the highest unemployment rates in the history of the currency as recession once again spreads across Europe, pressuring leaders to focus less on austerity and more on stimulating growth.
Unemployment in the eurozone rose by 169,000 in March, official figures showed Wednesday, taking the rate up to 10.9 percent – its highest level since the euro was launched in 1999. The seasonally adjusted rate was up from 10.8 percent in February and 9.9 percent a year ago and contrasts sharply with the picture in the U.S., where unemployment has fallen from 9.1 percent in August to 8.2 percent in March. Spain had the highest rate in the eurozone, 24.1 percent – and an alarming 51.1 percent for people under 25.
Austerity has been the main prescription across Europe for dealing with a debt crisis that’s afflicted the continent for nearly three years and has raised the specter of the breakup of the single currency. Three countries – Greece, Ireland and Portugal – have already required bailouts because of unsustainable levels of debt.
Eight eurozone countries, including Greece, Spain and the Netherlands, have seen their economies shrink for two straight quarters or more, the common definition of a recession.
Economies are contracting across the eurozone as governments cut spending and raise taxes to reduce deficits. That has prompted economists to urge European Union policymakers to dial back on short-term budget-cutting and focus on stimulating long-term growth.
“The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster,” said Sony Kapoor, managing director of Re-Define, an economic think-tank and policy advisory company.
In a nod to shifting attitudes about austerity, European Central Bank president Mario Draghi recently called for a “growth pact” in Europe to work alongside the “fiscal pact” that has placed so much importance on controlling government spending.
Bailout fears have intensified in recent months as Spain, Italy and other governments face rising borrowing costs on bond markets, a sign that investors are nervous about the size of their debts relative to their economic output. Austerity is intended to address this nervousness by reducing a government’s borrowing needs, but there has been a negative side effect: As economic output shrinks, the debt burden actually looks worse.
Economists recommend pro-growth measures including reducing red tape for small businesses, making it easier for workers to find jobs across the eurozone and breaking down barriers that countries have created to protect their own industries. Some economists go a step further and say governments should actually increase spending while economies are so weak – and make reining in deficits a longer-term goal.
The central bank has tried to reinvigorate Europe’s financial system by lowering interest rates and extending $1.3 trillion in cheap, three-year loans to banks. Banks have used some of the money to purchase government bonds, which briefly eased pressure on countries’ borrowing costs. But interest rates on Spanish and Italian bonds have crept even higher in recent weeks.
Across Europe, austerity has come in the form of layoffs and pay cuts for state workers, scaled-back expenditures on welfare and social programs, and higher taxes and fees to boost government revenue.
Winds sent old newsprint soaring like white kites caught in the updraft along the concrete corridors of Wall Street, in October 29, 1929. The world had just begun to feel the horrendous pain of the Great Depression. (more…)
AP Photo/Paul Sakuma
NEW YORK (AP) — Hewlett-Packard Co. is combining its printer and PC divisions as it tries to overcome dragging profits, growing competition and the lack of clear identity.
The move announced Wednesday will help the company streamline its business and save money to invest in growing areas. HP, a Silicon Valley pioneer, is hoping a renewed focus on innovation will re-establish the 73-year-old company as a technology trailblazer
“We have got to place a few bets where we can fundamentally change the name of the game,” HP CEO Meg Whitman told shareholders Wednesday at the company’s annual meeting in Santa Clara, Calif. The Associated Press monitored a webcast of the meeting.
Whitman said printing remains one of the areas where HP can still make its mark. First, though, she said the company needs to trim its expenses, describing the combination of the PC and printing division as a “perfect example” of her streamlining plans.
“We are going to have to save to get growth going again at HP,” Whitman told shareholders.
Wednesday’s restructuring is one of the first major steps that Whitman, formerly eBay Inc.’s chief, has taken since she took the top job at HP in September. Her predecessor, Leo Apotheker, had wanted to sell or spin off the PC business, a plan that contributed to his ouster after 11 months on the job. Under Whitman, HP decided to keep the unit after all.
AP Photo/Brian Witte
ANNAPOLIS, Md. (AP) — As if gas prices weren’t high enough, several states across the U.S. are looking to raise fuel taxes they say are needed to pay for roads and bridges that are outdated, congested and in some cases, dangerous.
Maryland’s governor is proposing a phased-in 6 percent sales tax by 2 percent a year, which would raise about $613 million annually when fully implemented. Iowa is considering raising its current 21-cent-per-gallon tax by either 8 cents or 10 cents.
Such proposals were hard to even contemplate during the recession and its immediate aftermath. Now, states forced to grapple with the problem are running into record-high gas prices for this time of year and lingering effects of the recession.
In Maryland, lawmakers are questioning whether the time is right for such an increase, which is never popular even in good fiscal times.
“They understand that it’s needed,” Delegate Tawanna Gaines, a Democrat, said when asked about the proposal last month, on a day when the national average price of gasoline hit $3.65 a gallon. The average price of gas on Monday pushed toward $3.80 a gallon. “They get that, but they basically believe that you can’t get blood out of a turnip. It’s going to be a very, very tough sell.”
Maryland Gov. Martin O’Malley, a Democrat, is quick to point out that the state hasn’t raised its gas tax since 1992 – and the flat tax doesn’t buy nearly as much as it once did. But some lawmakers say they are getting significant pushback from residents who are calling their offices to express opposition at a time when Maryland, like most other states, is still trying to bounce back from the recession.
O’Malley’s plan would delay a 2 percent annual increase if gas prices rise by more than 15 percent in a fiscal year. Lawmakers also say Maryland’s $1.1 billion deficit is creating another obstacle, because his challenging budget plan includes a variety of other tax increases that legislators will be considering.
Other states also are looking at increasing revenue streams for transportation projects after years of neglect.
Michigan Gov. Rick Snyder, a Republican, is calling on lawmakers in his state to raise $1.4 billion more for transportation needs. In Arkansas, voters may be asked to consider raising two taxes to help pay for the state’s roads. In Iowa, a commission named by Republican Gov. Terry Branstad recommended late last year that the fuel tax be increased.
In Michigan, state lawmakers in both parties are considering higher fuel-related taxes and vehicle registration fees to raise more than $1 billion of the $1.4 billion the governor is seeking. Rep. Rick Olson, a Republican who supports the revenue increases, contends it’s a matter of trying to avoid larger expenses later, if maintenance is deferred.
“It’s certainly going to be difficult, and no one argues that we need $1.4 billion,” Olson said. “The longer we wait, the more it is going to cost us.”
In both Maryland and Michigan, business groups have been supportive of raising revenue for transportation.
Rich Studley, president of the Michigan Chamber of Commerce, said Michigan’s transportation system is crucial to three top industries in the state, including manufacturing, agribusiness and tourism.
AP Photo/Matt Rourke
DIMOCK, Pa. (AP) — Tugging on rubber gloves, a laboratory worker kneels before a gushing spigot behind Kim Grosso’s house and positions an empty bottle under the clear, cold stream. The process is repeated dozens of times as bottles are filled, marked and packed into coolers.
After extensive testing, Grosso and dozens of her neighbors will know this week what may be lurking in their well water as federal regulators investigate claims of contamination in the midst of one of the nation’s most productive natural gas fields.
More than three years into the gas-drilling boom that’s produced thousands of new wells, the U.S. Environmental Protection Agency and the state of Pennsylvania are tussling over regulation of the Marcellus Shale, the vast underground rock formation that holds trillions of cubic feet of gas.
The state says EPA is meddling. EPA says it is doing its job.
Grosso, who lives near a pair of gas wells drilled in 2008, told federal officials her water became discolored a few months ago, with an intermittent foul odor and taste. Her dog and cats refused to drink it. While there’s no indication the problems are related to drilling, she hopes the testing will provide answers.
“If there is something wrong with the water, who is responsible?” she asked. “Who’s going to fix it, and what does it do to the value of the property?”
Federal regulators are ramping up their oversight of the Marcellus with dual investigations in the northeastern and southwestern corners of Pennsylvania. EPA is also sampling water around Pennsylvania for its national study of the potential environmental and public health impacts of hydraulic fracturing, or fracking, the technique that blasts a cocktail of sand, water and chemicals deep underground to stimulate oil and gas production in shale formations like the Marcellus. Fracking allows drillers to reach previously inaccessible gas reserves, but it produces huge volumes of polluted wastewater and environmentalists say it can taint groundwater. Energy companies deny it.
The heightened federal scrutiny rankles the industry and politicians in the state capital, where the administration of pro-drilling Gov. Tom Corbett insists that Pennsylvania regulators are best suited to oversee the gas industry. The complaints echo those in Texas and in Wyoming, where EPA’s preliminary finding that fracking chemicals contaminated water supplies is forcefully disputed by state officials and energy executives.
Caught in the middle of the state-federal regulatory dispute are residents who don’t know if their water is safe to drink.
EPA is charged by law with protecting and ensuring the safety of the nation’s drinking water, but it has largely allowed the states to take the lead on rules and enforcement as energy companies drilled and fracked tens of thousands of new wells in recent years.
In Pennsylvania, that began to change last spring after The Associated Press and other news organizations reported that huge volumes of partially treated wastewater were being discharged into rivers and streams that supply drinking water. EPA asked the state to boost its monitoring of fracking wastewater from gas wells, and the state declared a voluntary moratorium for drillers that led to significant reductions of Marcellus waste. Yet a loophole in the policy allows operators of many older oil and gas wells to continue discharging significant amounts of wastewater into treatment plants, and thus, into rivers.
The state’s top environmental regulator, Michael Krancer, says Pennsylvania doesn’t need federal intervention to help it protect the environment. He told Congress last fall that Pennsylvania has taken the lead on regulations for the burgeoning gas industry.
“There’s no question that EPA is overstepping,” Katherine Gresh, Krancer’s spokeswoman, told the AP. “DEP regulates these facilities and always has, and EPA has never before shown this degree of involvement.”
The American Petroleum Institute urged the Obama administration last week to rein in the 10 agencies it says are either reviewing, studying or proposing regulation of fracking.
“The fact is that there is a strong state regulatory system in place, and adding potentially redundant and duplicative federal regulation would be unnecessary, costly, and could stifle investment,” API Vice President Kyle Isakower said in a statement.
EPA says public health is its key focus and insists it is guided by sound science and the law.
NEW ORLEANS (AP) — BP agreed late Friday to settle lawsuits brought by more than 100,000 fishermen who lost work, cleanup workers who got sick and others who claimed harm from the oil giant’s 2010 Gulf of Mexico disaster, the worst offshore oil spill in the nation’s history.
The momentous settlement will have no cap to compensate the plaintiffs, though BP PLC estimated it would have to pay out about $7.8 billion, making it one of the largest class-action settlements ever. After the Exxon Valdez disaster in 1989, the company ultimately settled with the U.S. government for $1 billion, which would be about $1.8 billion today.
BP still has to resolve claims by the U.S. government, Gulf states and its partners in the doomed Deepwater Horizon project, in which pressure from a well a mile below the ocean’s surface blew up a massive drilling rig, killing 11 men and spewing oil into the sea for nearly three months. That could add billions of more to its tab.
BP said it expects the money to come from the $20 billion compensation fund that it previously set out. According to the Deepwater Horizon Oil Spill Trust, current total trust assets are approximately $9.5 billion.
The spill exposed oil industry failings, forced BP chief executive Tony Hayward to step down after his repeated gaffes and led to new lexicon in American vocabulary as crews used innovative attempts to plug the spewing well, such as the top kill and the junk shot.
The spill soiled sensitive tidal estuaries and beaches, killing wildlife and shutting vast areas of the Gulf to commercial fishing. After several attempts to cap the well failed, engineers finally were successful on July 15, halting the flow of oil into the Gulf of Mexico after more than 85 days.
The main targets of litigation resulting from the explosion and spill were BP, Transocean, Halliburton and Cameron International, maker of the well’s failed blowout preventer. BP, the majority owner of the well that blew out, was leasing the rig from Transocean.
The Justice Department sued some of the companies involved in the ill-fated drilling project, seeking to recover billions of dollars for economic and environmental damage. The department opened a separate criminal investigation, but that probe hasn’t resulted in any charges.
BOSTON (AP) — Las Vegas casino owner Steve Wynn unveiled details Friday of a proposed Massachusetts resort casino he hopes to develop near the home of the New England Patriots.
Wynn mailed a brochure and 20-minute DVD to thousands of Foxborough households explaining the proposal, which has met resistance from many residents who are worried that it will add to traffic congestion and crime in the town about 25 miles south of Boston.
An artist’s rendering depicts a sprawling, six-story building that resembles a rustic lodge, rather than a high-rise Las Vegas-style casino. It would be built on vacant land across from Gillette Stadium that would be leased from Patriots owner Robert Kraft.
Wynn, the billionaire CEO of Wynn Resorts Ltd, had earlier pledged that the proposed casino would fit the character of the town and would not be as large or flashy as the typical Las Vegas casino.
In a letter accompanying the brochure and DVD, Wynn said the casino would benefit the town “both socially and economically.” He said the plans included a luxury hotel, convention space, more than 5,000 covered parking spaces, a public skating rink, high-end shops, a spa, fine dining and casual restaurants, and a performance theater.
The casino would create more than 4,000 permanent jobs and about 10,000 construction jobs, Wynn wrote, and it would generate between $10 million and $15 million for Foxborough that could be used to lower property taxes or invest in other town services. He also said an agreement could be reached with the town to cover public safety and other costs associated with the casino and that a study would be done to determine the traffic impact.
“We’re excited by the design and the unique opportunity the Wynn Resorts project presents for long-term economic growth in Foxborough,” Kraft Group spokesman Dan Krantz said.
“Since bringing forth the idea in December of last year, Wynn Resorts has followed through on a commitment to generate renderings and estimate the resort’s direct tax benefits. As we anticipated, the design and decor assimilates to its surroundings, and is likely in stark contrast to the Las Vegas-style high-rise that some may have envisioned,” he said.
Stephanie Crimmins, a spokeswoman for the group No Foxboro Casino, said casino opponents had anticipated that Wynn would launch a public relations blitz aimed at the hearts and minds of residents.
“We fully expected all along that they were going to send out some really fancy brochures,” Crimmins said.” It is certainly not going to change my mind or the minds of most people in the community.”
AP Photo/Petros Giannakouris
ATHENS, Greece (AP) — The ratings agency Moody’s downgraded Greece to the lowest rating on its bond scale late Friday, following a deal with private investors that would see them ultimately lose an estimated 70 percent of their holdings in Greek debt.
Moody’s lowered Greece’s sovereign rating to C from Ca, arguing that the risk of default remains high even a bond-swap deal with banks and other private investors, due to be completed this month, is successful.
It said it would “re-assess the credit risk profile” after Greece issues the new bonds.
Ratings agency Standard & Poor’s took similar action on Feb. 27.
The swap deal aims to cut euro107 billion ($144 billion) from the country’s debt, and would see private investors lose more than half the face value of their Greek bonds in exchange for new ones issued with more favorable repayment terms for the crisis-hit country.
The exchange is an integral part of a second bailout package for Greece by other eurozone countries and the International Monetary Fund.
“Looking ahead, the EU program and proposed debt exchanges will reduce Greece’s debt burden, but the risk of a default even after the debt exchange has been completed remains high,” Moody’s said.
“Moody’s believes that Greece will still face medium-term solvency challenges: its stock of debt will still be well in excess of 100 percent of gross domestic product for many years, the country is unlikely to be able to access the private market once the second assistance package runs out, and its planned fiscal and economic reforms will still face very significant implementation risks.”
BANGKOK (AP) — Asian stock markets rose Wednesday, powered higher by the strongest close for U.S. stocks since before the 2008 financial crisis.
Japan’s Nikkei 225 index rose 1.3 percent to 9,846.46 and Hong Kong’s Hang Seng added 0.5 percent to 21,685.33. South Korea’s Kospi gained 1.4 percent to 2,031.43. Australia’s S&P/ASX 200 rose 1.2 percent to 4,313.90.
Benchmarks in Singapore, Taiwan, Indonesia were also higher. Mainland Chinese shares were little changed.
Surging consumer confidence helped push the Dow to close at 13,005.12 on Tuesday. The last time the benchmark closed above 13,000 was in May 2008, four months before the fall of the Lehman Brothers investment bank and the worst of the financial crisis.
Investors are also anticipating the Federal Reserve’s so-called Beige Book report on economic activity which is due Wednesday. The report is expected to reflect a slowly improving U.S. economy.
“A plethora of positive developments helped to buoy markets overnight … a jump in US consumer confidence to its highest since February 2011 gave equity markets and risk assets in general a lift,” said analysts at Credit Agricole CIB in Hong Kong.
AP Photo/Mark Lennihan
NEW YORK (AP) — Americans are feeling better about the economy again, but will it last this time?
A widely watched barometer of consumer confidence surged in February to its highest level in a year as Americans took note of improving job prospects among friends and family and falling unemployment, which is now at a three-year low.
The brighter assessment released Tuesday by a private research group reflected a more upbeat attitude for the nation generally as the economy picks up. That is a boon for President Obama as he seeks re-election. Polls, including a recent Associated Press-GfK survey, show the Democratic incumbent is beginning to benefit politically from improved views of the economy.
“The economy is getting momentum. Clearly, shoppers are more optimistic about their job prospects,” said Amna Asaf, economist at Capital Economics.
The rising confidence among consumers gave confidence to Wall Street, too, helping it to reclaim the last of the ground it held before plunging into the depths of the Great Recession. The Dow Jones industrial average closed above 13,000 on Tuesday for the first time since May 19, 2008, four months before the fall of Lehman Brothers investment bank and the worst of the financial crisis.
Jack Ablin, chief investment officer at Harris Private Bank, called it “a momentous day for investor confidence.”
Tuesday’s gain puts the Dow 1,160 points below its all-time high, set Oct. 9, 2007. The Great Recession began two months later.
The milestone could draw some fence-sitting investors back into the market and add to the gains, said Brian Gendreau, market strategist at Cetera Financial Group.
But consumer confidence is still below the level of a healthy economy, and trouble could lie ahead. Rising gas prices could sully shoppers’ mood and derail the economic recovery. There are also fears about a nuclear showdown with Iran and the festering European debt crisis. Those worries could hurt demand for U.S. imports and make American companies pull back in hiring.
The confidence index is closely watched because consumer spending constitutes 70 percent of U.S. economic activity.
The big question mark is the price of gasoline, which Asaf said has climbed 20 cents per gallon since the confidence survey concluded two weeks ago.
The price of gas is a big issue because it has an immediate effect on shoppers’ pocketbooks, particularly low- to middle-income households that are already squeezed by higher costs for basics such as food.
The average U.S. price of a gallon of gasoline was $3.69, according to the Lundberg Survey of fuel prices released Sunday.
The Conference Board’s Consumer Confidence Index now stands at 70.8, significantly higher than the expected 63. A reading of 90 or above indicates a healthy economy. But the index has not reached that level since December 2007, when the recession began.
Still, Tuesday’s numbers were closer to levels that indicate a stable economy than to the danger zone that would suggest trouble.
WASHINGTON (AP) — Heads up: Drones are going mainstream.
Civilian cousins of the unmanned military aircraft that have tracked and killed terrorists in the Middle East and Asia are in demand by police departments, border patrols, power companies, news organizations and others wanting a bird’s-eye view that’s too impractical or dangerous for conventional planes or helicopters to get.
Along with the enthusiasm, there are qualms.
Drones overhead could invade people’s privacy. The government worries they could collide with passenger planes or come crashing down to the ground, concerns that have slowed more widespread adoption of the technology.
Despite that, pressure is building to give drones the same access as manned aircraft to the sky at home.
“It’s going to be the next big revolution in aviation. It’s coming,” says Dan Elwell, the Aerospace Industries Association’s vice president for civil aviation.
Some impetus comes from the military, which will bring home drones from Afghanistan and wants room to test and use them. In December, Congress gave the Federal Aviation Administration six months to pick half a dozen sites around the country where the military and others can fly unmanned aircraft in the vicinity of regular air traffic, with the aim of demonstrating they’re safe.
The Defense Department says the demand for drones and their expanding missions requires routine and unfettered access to domestic airspace, including around airports and cities. In a report last October, the Pentagon called for flights first by small drones both solo and in groups, day and night, expanding over several years. Flights by large and medium-sized drones would follow in the latter half of this decade.
Other government agencies want to fly drones, too, but they’ve been hobbled by an FAA ban unless they first receive case-by-case permission. Fewer than 300 waivers were in use at the end of 2011, and they often include restrictions that severely limit the usefulness of the flights. Businesses that want to put drones to work are out of luck; waivers are only for government agencies.
But that’s changing.
Congress has told the FAA that the agency must allow civilian and military drones to fly in civilian airspace by September 2015. This spring, the FAA is set to take a first step by proposing rules that would allow limited commercial use of small drones for the first time.
Until recently, agency officials were saying there were too many unresolved safety issues to give drones greater access. Even now FAA officials are cautious about describing their plans and they avoid discussion of deadlines.
“The thing we care about is doing that in an orderly and safe way and finding the appropriate … balance of all the users in the system,” Michael Huerta, FAA’s acting administrator, told a recent industry luncheon in Washington. “Let’s develop these six sites – and we will be doing that – where we can develop further data, further testing and more history on how these things actually operate.”
Drones come in all sizes, from the high-flying Global Hawk with its 116-foot wingspan to a hummingbird-like drone that weighs less than an AA battery and can perch on a window ledge to record sound and video. Lockheed Martin has developed a fake maple leaf seed, or “whirly bird,” equipped with imaging sensors, that weighs less than an ounce.
Potential civilian users are as varied as the drones themselves.
Power companies want them to monitor transmission lines. Farmers want to fly them over fields to detect which crops need water. Ranchers want them to count cows.
Journalists are exploring drones’ newsgathering potential. The FAA is investigating whether The Daily, a digital publication of Rupert Murdoch’s News Corp., used drones without permission to capture aerial footage of floodwaters in North Dakota and Mississippi last year. At the University of Nebraska, journalism professor Matt Waite has started a lab for students to experiment with using a small, remote-controlled helicopter.
“Can you cover news with a drone? I think the answer is yes,” Waite said.
The aerospace industry forecasts a worldwide deployment of almost 30,000 drones by 2018, with the United States accounting for half of them.
“The potential … civil market for these systems could dwarf the military market in the coming years if we can get access to the airspace,” said Ben Gielow, government relations manager for the Association for Unmanned Vehicle Systems International, an industry trade group.
The hungriest market is the nation’s 19,000 law enforcement agencies.
Customs and Border Patrol has nine Predator drones mostly in use on the U.S.-Mexico border, and plans to expand to 24 by 2016. Officials say the unmanned aircraft have helped in the seizure of more than 20 tons of illegal drugs and the arrest of 7,500 people since border patrols began six years ago.
Several police departments are experimenting with smaller drones to photograph crime scenes, aid searches and scan the ground ahead of SWAT teams. The Justice Department has four drones it loans to police agencies.
“We look at this as a low-cost alternative to buying a helicopter or fixed-wing plane,” said Michael O’Shea, the department’s aviation technology program manager. A small drone can cost less than $50,000, about the price of a patrol car with standard police gear.
Like other agencies, police departments must get FAA waivers and follow much the same rules as model airplane hobbyists: Drones must weigh less than 55 pounds, stay below an altitude of 400 feet, keep away from airports and always stay within sight of the operator. The restrictions are meant to prevent collisions with manned aircraft.
Even a small drone can be “a huge threat” to a larger plane, said Dale Wright, head of the National Air Traffic Controllers Association’s safety and technology department. “If an airliner sucks it up in an engine, it’s probably going to take the engine out,” he said. “If it hits a small plane, it could bring it down.”
Controllers want drone operators to be required to have instrument-rated pilot licenses – a step above a basic private pilot license. “We don’t want the Microsoft pilot who has never really flown an airplane and doesn’t know the rules of how to fly,” Wright said.
Military drones designed for battlefields haven’t had to meet the kind of rigorous safety standards required of commercial aircraft.
“If you are going to design these things to operate in the (civilian) airspace you need to start upping the ante,” said Tom Haueter, director of the National Transportation Safety Board’s aviation safety office. “It’s one thing to operate down low. It’s another thing to operate where other airplanes are, especially over populated areas.”
AP Photo/Alvaro Barrientos
MADRID (AP) — Daniel Lorente has worked construction, flipped burgers at McDonald’s, been a camp counselor, telemarketing representative and doorman.
But Lorente’s part-time jobs never lasted more than seven months: He was laid off from each one as Spain’s economic gloom deepened into a historic crisis. Now the 21-year-old is staring into a dead-end future.
“How am I going to make it if I don’t have a steady job, to pay a mortgage, for example?” asks Lorente. “Or for a wedding, or anything involving a big expense? You can’t get anywhere.”
Lorente is stuck among Spain’s “Lost Generation” of 20-somethings, with no work and no real prospects in sight: Roughly half of all Spaniards between 16 and 24 are jobless, the highest level among the 17 nations that use the euro. It’s a devastating picture of blighted youth that threatens to distort Spain’s social fabric for years to come, dooming dreams, straining family structures and eroding the well-being of a rapidly aging population.
“This puts the whole welfare state at risk,” said Gayle Allard, a labor market specialist at Madrid’s IE Business School. “The young people who are coming on the market now are the lost generation. They are losing the advantage of their youth and energy and that does not come back.”
The staggering jobless figures – 48.6 percent for Spaniards between 16 and 24; 39 percent for those ages 20-29 – hold dire consequences for a country that grew accustomed to prosperity on the back of a property boom that collapsed in 2008.
The 1.6 million unemployed teens and young adults in the nation of 47 million risk never having a decent start to a career. They probably won’t accumulate assets like their own homes or savings until they are in their 40s. And they then will likely face much higher taxes to maintain Spain’s costly social welfare system.
What’s more, they’re expected to put off having children or have fewer than their parents, slashing a birth rate that’s already declining just as Spain’s large baby boom generation begins to retire. That means fewer people to absorb the costs of caring for the swelling ranks of pensioners.
“It’s a historic waste,” Allard said. “The economy has not been transformed into a higher-productivity economy even though all those educated young workers were available for the task. I would not be surprised if eventually they rebelled against the tax burden.”
Anger and frustration among young adults have already taken root. Thousands erected protest camps last spring and summer in Madrid and Barcelona in illegal tent cities set up in central plazas. Unrest erupted again last week when students in Valencia protesting austerity cuts clashed with riot police, generating nationwide demonstrations against alleged police brutality.
Some Spaniards fear that Spain’s relatively new democracy, launched in 1978 after decades of dictatorship, may become threatened if an entire generation ends up convinced they will never attain the same lifestyle as their parents.
“The main risk for the country is we could lose a generation who go away and the young people who stay will have less education, condemning Spain to crisis for many years to come,” said Ricardo Ibarra, the 27-year-old president of The Spanish Youth Council, which represents groups for young adults.
“In 10 years we could have populism instead of democracy, and we cannot waste our democracy and throw it away.”
Segundo Gonzalez – a 23-year-old university student majoring in economics – says the only job offers he has received are for menial positions, for no more than eight hours a week with monthly pay of euro300 ($400).
“If those of us who should be entering employment have to leave the country or can’t get a job, or can only get poorly paid and low-tax work, it’s going to be very complicated for us to be able to sustain our parents’ pensions,” said Gonzalez.
“Future prospects are very complicated, bleak.”
In a scene mirrored nationwide, Lorente lives at home with his mother and an unemployed 28-year-sister. Like many other young Spaniards, he thinks Spain’s economy is so bad as it heads toward recession for the second time in four years that he might not be able to move out until he hits 40.
But with the overall unemployment rate now at a eurozone high 22.8 percent, even family support networks are being eroded – as young people find they can rely far less on handouts and shelter from mom and dad.
It’s as if by magic that we expect the world economy to suddenly correct itself; even more to expect our populaces to elect leaders with miraculous qualities of leadership. (more…)
AP Photo/Richard Drew
NEW YORK (AP) — Stocks are closing their worst day this year after Greece hit a roadblock on its way to a critical bailout.
The Dow Jones industrial average is finishing down 89 points, or 0.7 percent, at 12,801. The broader Standard & Poor’s 500 is down nine points to 1,343. It is the first losing week for the index this year.
The Nasdaq composite is closing down 23 points at 2,904.
Stocks fell all day on news that European finance ministers were insisting that Greece cut even more in wages and spending if the nation hopes to get bailout money to pay its creditors.
Three stocks fell for every one that rose Friday on the New York Stock Exchange. Volume was light with just 3.5 billion shares trading hands.
It is almost as if the past year has just been a bad dream.
Global equities this week re-entered a bull market, having risen 20 per cent since their October lows. The gains mean that many share indices are within touching distance of their highs from 2011, or above them. The Nasdaq index of predominantly technology stocks is at its highest level since the end of 2000.
On this story
Justifications for the sharp rally are well rehearsed. Better economic data, particularly in the US but also in Europe and China, has, for now, dimmed the prospects of a global double-dip recession. And fears of a break-up of the eurozone have receded due to action from the European Central Bank.
But the question all investors are asking is: just how sustainable is the rise in equities?
Markets may have largely grown bored with the “Groundhog Day” nature of the Greek bail-out talks but few are complacent that Athens has stopped posing threats for investors. The news late on Thursday that Europe was demanding greater spending cuts from Greece weighed on equities on Friday, and the S&P 500 recorded its first weekly decline this year.
Caution also comes from the twin facts that January is historically the best month of the year as investors return to the markets with fresh optimism while the first month also proves to be good for contrarian strategies.
So far, 2012 is living up to that billing. The worst-performing stock market in Europe last year – Greece – is the best performer this year. Last year’s star, Ireland, is the laggard, according to analysts at Citi.
But many market participants say something more powerful is happening than simply a classic beginning of the year rally. “The market is behaving in a way that is very reminiscent of an early bull market,” says Ed Yardeni, founder of Yardeni Research.
UniCredit, the troubled Italian bank, has seen its shares rebound 110 per cent since their January 9 low.
Mr Yardeni says the S&P 500 should rise about 8-15 per cent this year to close at 1,450-1,550. Larry Fink, head of BlackRock, the world’s biggest asset manager, told Bloomberg this week that investors should be 100 per cent in equities.
From a valuation perspective, the S&P’s price-to-earnings ratio of 13.9 remains low and has been below its long-term average of 16.4 times for the past 18 months.
“That is the longest valuation dry spell since the 13-year stretch that began in 1973,” says Jack Ablin, chief investment officer at Harris Private Bank.
Other investors are turning cautious.
“It’s important not to get sucked in by this rally,” says James Sarni, senior portfolio manager at Payden & Rygel. “We face an environment of slow growth and low inflation. Earnings are clearly off their highs and more companies are surprising on the negative side.”
In Europe, the mood is less ebullient but still optimistic.
Sushil Wadhwani, a former member of the Bank of England’s Monetary Policy Committee who nows runs his own hedge fund, has researched the high level of the equity-risk premium, the extra reward investors demand to hold shares over bonds. He says the elevated premium late last year was due to investors fearing not just a eurozone break-up but also a Japan-style extended economic slump.
AP Photo/Henny Ray Abrams
NEW YORK (AP) — On a normal day, 4 billion shares of stock change hands on the New York Stock Exchange. One in 10 belongs to a single company. It’s not McDonald’s or IBM, both of which have been on a tear.
It’s Bank of America – bailed out by the government three years ago, reviled for being part of the mortgage frenzy that helped wreck the economy and selling for not much more than an ATM fee.
When the market goes up because of positive news about the economy, Bank of America stock shoots up past the stocks of other big banks. When traders get worried about Greek debt, Bank of America takes the biggest plunge.
The big swings are not driven by a fundamental bet that the bank will be more profitable because the economy is getting better or a real concern that it will lose more money than others if there is a default in Greece.
Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank’s single-digit stock price and flood of shares on the market – three times as many as its nearest big-bank competitor – make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.
“The movement of Bank of America stock on most days has nothing to do with Bank of America,” says Joseph Saluzzi, co-founder of brokerage firm Themis Trading.
In other words, the stock moves because it moves. Bank of America stock has risen or fallen 1 percent or more on 20 days this year. The Standard & Poor’s 500 index has only done it three times.
For the year, Bank of America is up 46 percent, best of the 30 stocks that make up the Dow Jones industrial average. Big banks collectively are up 15 percent.
In high-frequency trading, investors use computer algorithms to exploit small changes in a stock’s price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit.
Those pennies add up over tens of millions of shares a day to produce big gains. And when computers rush to buy or sell a stock like Bank of America, it can result in accelerated moves in the stock price. Buying leads to more buying, selling to more selling.
Bank of America is part of the Standard & Poor’s 500, and therefore held in mutual funds in the retirement accounts of millions of Americans. And mutual fund managers hate high-frequency trading.
Not only does it make the stocks in their portfolios more volatile, but fund managers fume that high-frequency computers can detect their stock orders, step in to change the price of a stock slightly and pocket a small profit.
“It has nothing to do with the fundamentals,” says Leon Cooperman, a billionaire investor, chairman of hedge fund Omega Advisors and former CEO of Goldman Sachs Asset Management.
For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload – 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.
The stock traded as high as $15.31 last year. Then investors, worried about how deep the bank’s mortgage problems might be, drove it below $10 in July. High-frequency traders pounced, and Bank of America’s volume exploded. It was 147 million shares last summer. On Thursday, 477 million shares changed hands.
The low price put it in the sweet spot for high-frequency trading. If a high-frequency operation is trading blocks of 100 shares at a time to capitalize on a 1-cent change, there’s a lot less risk working with a $5 stock than a $500 one.
It makes Bank of America “a juicy trade at very little risk,” says Adam Sussman, director of research at Tabb Group, a markets advisory firm.
In 2009 and 2010, Citigroup, then part-owned by the government, was in the same spot. Its price was in single digits, and it seesawed day to day. It was often the highest-volume stock – as many as 500 million shares changing hands in one day.
Last year, Citi reduced the number of shares by exchanging one share for every 10. That brought its stock price up – $33 on Wednesday – and high-frequency traders stopped flocking to it. Volume on a normal day has dropped to 50 million.
Bank of America went the opposite way in November and December and sold 400 million more shares to the market to raise $3.5 billion and improve its financial stability.
Today, some investors – the human ones – are buying Bank of America because they like CEO Brian Moynihan’s efforts to shore up the company’s finances. Other investors won’t touch it because they are afraid of the billions Bank of America is still spending to fight mortgage lawsuits. Charles Bobrinskoy, director of research at Ariel Investments, even calls the company “unanalyzable.”
But none of those groups is driving the stock. Some days, it moves with little or no tangible reason.
On Jan. 5, the stock jumped 8 percent with no explanation. The Wall Street Journal blogged that the stock was rising on “reports/rumors/blind hopes” about President Barack Obama appointing a new head to the federal housing agency.
MF Global was founded in 1870 by a barrel maker named James Man who became a successful supplier of rum to the navy. In 2007 the Man Group came to be MF Global. (more…)
NEW ORLEANS (AP) — The rig owner involved in drilling the ill-fated well that blew out in the Gulf of Mexico and spewed more than 200 million gallons of oil will not have to pay many of the pollution claims because it was shielded in a contract with well-owner BP, a federal judge ruled on Thursday. The ruling comes as BP, the states affected by the disaster and the federal government are discussing a settlement over the nation’s largest offshore oil spill.
The decision may have spared Transocean from having to pay potentially billions of dollars in damage claims. However, U.S. District Judge Carl Barbier said the driller still is not exempt from paying punitive damages and civil penalties that arise from the April 20, 2010, blowout 100 miles off the Louisiana coast. Those penalties could amount to billions of dollars.
Law experts were split over who is a clear-cut winner.
BP has been pursuing agreements with multiple parties to reach settlements that would make an upcoming trial involving hundreds of spill lawsuits in New Orleans unnecessary, or at least resolve as many of the issues as possible.
The Justice Department also is involved, working with the states to create an outline for a settlement that would resolve their potentially multibillion dollar claims against BP and the other companies involved in the disaster, Alabama Attorney General Luther Strange told The Associated Press.
Justice led a meeting last week in Washington among the states in an effort to formulate an agreement that would satisfy government and state claims, including penalties and fines, Strange said. He also indicated if there is a settlement that officials are discussing what to do with the $20 billion fund set up by BP to pay victims.
The lead attorneys for individuals and businesses suing BP were not at the meeting.
According to Strange, a federal magistrate judge has been asked to expedite settlement discussions. The Louisiana attorney general’s office said in a statement to the AP that it is in settlement discussions with BP, which would not comment on any deals in the works. A first phase of the trial is set for Feb. 27 to determine liability for the spill.
“The closer you get to a trial date, the more pressure builds to reach a settlement,” Strange said.
Despite the decision, BP claimed victory and said Barbier’s ruling “at a minimum” left Transocean facing “punitive damages, fines and penalties flowing from its own conduct.”
Transocean spokesman Lou Colasuonno said in an emailed statement that the company was pleased to see its position affirmed.
AP Photo/Mike Groll
NEW YORK (AP) — A different kind of F-word is stirring a linguistic and political debate as controversial as what it defines.
The word is “fracking” – as in hydraulic fracturing, a technique long used by the oil and gas industry to free oil and gas from rock.
It’s not in the dictionary, the industry hates it, and President Barack Obama didn’t use it in his State of the Union speech – even as he praised federal subsidies for it.
The word sounds nasty, and environmental advocates have been able to use it to generate opposition – and revulsion – to what they say is a nasty process that threatens water supplies.
“It obviously calls to mind other less socially polite terms, and folks have been able to take advantage of that,” said Kate Sinding, a senior attorney at the Natural Resources Defense Council who works on drilling issues.
One of the chants at an anti-drilling rally in Albany earlier this month was “No fracking way!”
Industry executives argue that the word is deliberately misspelled by environmental activists and that it has become a slur that should not be used by media outlets that strive for objectivity.
“It’s a co-opted word and a co-opted spelling used to make it look as offensive as people can try to make it look,” said Michael Kehs, vice president for Strategic Affairs at Chesapeake Energy, the nation’s second-largest natural gas producer.
To the surviving humans of the sci-fi TV series “Battlestar Galactica,” it has nothing to do with oil and gas. It is used as a substitute for the very down-to-Earth curse word.
Michael Weiss, a professor of linguistics at Cornell University, says the word originated as simple industry jargon, but has taken on a negative meaning over time – much like the word “silly” once meant “holy.”
But “frack” also happens to sound like “smack” and “whack,” with more violent connotations.
“When you hear the word `fracking,’ what lights up your brain is the profanity,” says Deborah Mitchell, who teaches marketing at the University of Wisconsin’s School of Business. “Negative things come to mind.”
There exist today countries that are connected by fear of the future. Yet they are hopeful that past transgressions and poor decisions will not destroy the struggles of generations. (more…)
It’s almost like he reluctantly descended from his comfortable mountain habitat to visit us with offerings of wisdom. There is the startling appearance of the glorious mane of hair that hangs to the shoulders like a royal lion’s mane. (more…)
AP Photo/Gregorio Borgia
PARIS (AP) — France was stripped Friday of its top-notch credit rating and rumors swirled in financial markets that its debt-burdened neighbors would be next, complicating Europe’s efforts to solve its financial crisis.
Finance Minister Francois Baroin told a French TV station that France had been downgraded by one notch by credit rating agency Standard & Poor’s. That would mean a rating of AA+, the same as the United States since it was downgraded last summer.
Rumors coursed through the markets that Austria and Italy could be downgraded next, perhaps as early as the end of the day’s stock trading in New York. S&P had warned 15 European nations in December that they were at risk for a downgrade.
Baroin said France had received a change to its rating “like most of the eurozone,” referring to the 17 European nations that use the euro currency, but there was no confirmation from S&P that any other nation had been downgraded Friday.
A credit downgrade would escalate the threats to Europe’s fragile financial system and raise the costs at which the affected countries – some of which are already struggling with heavy debt loads and slow economic growth – borrow money.
AP Photo/Paul Sakuma
WASHINGTON (AP) — A sign that Europe’s crisis has begun to weigh on the U.S. economy emerged Friday from a report that exports to the continent sank in November – far more than overall U.S. exports did.
Europe, which consumes nearly one-fifth of America’s exports, may already be in a recession. A weakening Europe could further shrink demand for American goods and slow the U.S. economy just as the job market has started to strengthen.
“The decline in our sales to Europe was fairly large and may be the start of a longer-term trend in declining exports to the continent,” said Joel Naroff, chief economist at Naroff Economic Advisors.
The U.S. trade deficit rose 10.4 percent in November to $47.8 billion, the Commerce Department said.
Higher oil prices were the main reason the deficit widened. Oil rose above $100 per barrel in November. It had been as low as $75 a barrel the previous month. More expensive oil drove the value of imports up 1.3 percent, to a record $225.6 billion.
Overall exports dropped 0.9 percent to $177.8 billion. American exports to Europe fell much more sharply – nearly 6 percent.
Economic growth weakens when exports decline because factories tend to produce fewer goods. And U.S. companies earn less. Friday’s trade report led some economists to cut their growth estimates for the October-December quarter.
Many economists had expected growth to be stronger after seeing more hiring, an increase in company stockpiles and faster production at U.S. factories. Most had been predicting that the economy would grow this quarter at an annual rate of roughly 3 percent.
But Paul Dales, senior U.S. economist for Capital Economists, said he now expects growth to be closer to 2 percent, in part because of the weaker trade report and also because of December’s disappointing retail sales.
“The widening in the U.S. trade deficit in November … is perhaps the first real sign that the crisis in Europe and the more general global slowdown is starting to take its toll on the U.S.,” Dales said.
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AP Photo/(AP PHOTO/DARREN HAUCK)
WASHINGTON (AP) — Unemployment is higher than it’s been going into any election year since World War II.
But history shows that won’t necessarily stop President Barack Obama from reclaiming the White House.
In a presidential election year, the unemployment trend can be more important to an incumbent’s chances than the unemployment rate.
Going back to 1956 no incumbent president has lost when unemployment fell over the two years leading up to the election. And none has won when it rose.
The picture is similar in the 12 months before presidential elections: Only one of nine incumbent presidents (Gerald Ford in 1976) lost when unemployment fell over that year, and only one (Dwight Eisenhower in 1956) was re-elected when it rose.
Those precedents bode well for Obama. Unemployment was 9.8 percent in November 2010, two years before voters decide whether Obama gets to stay in the White House. It was down to 8.7 percent in November 2011, a year before the vote. It fell to 8.5 percent in December and is expected to fall further by Election Day.
Obama can take comfort in President Ronald Reagan’s experience. In November 1982, the economy was in the last month of a deep recession, and unemployment was 10.8 percent, the highest since the Great Depression. A year later, unemployment was down to 8.5 percent. By November 1984, it was still a relatively high 7.2 percent, but the downward trend was unmistakable. Reagan was re-elected that month in a 59-41 percent landslide.
“A sense that things are on the mend is really important to people,” says Andrew Kohut, president of the Pew Research Center. The trend holds up even when the changes in unemployment are slight. President Bill Clinton was re-elected handily even though the unemployment rate was only 0.2 percentage points lower in November 1996 than it had been two years earlier and was the same as it had been a year before.
Under Obama, unemployment peaked at 10 percent in October 2009, nine months into his presidency, before it began coming down in fits and starts. Along the way it stayed above 9 percent for 21 straight months.
AP Photo/J. Scott Applewhite
WASHINGTON (AP) — President Barack Obama is highlighting companies that have returned jobs to the U.S. and he says that’s one more way of putting people back to work.
The White House plans a forum Wednesday, called “Insourcing American Jobs,” that will bring together business leaders who shifted work back home. The president said Saturday in his weekly radio and Internet address that the event will discuss ways business leaders can return more jobs to the country.
“We’re heading in the right direction. And we’re not going to let up,” Obama said on the heels of the government reporting Friday that the unemployment rate fell to 8.5 percent in December.
Obama noted that the jobs report showed the economy added more than 200,000 private sector jobs last month and that more than 3 million private sector jobs had been added during the past 22 months. He said the nation was “starting 2012 with manufacturing on the rise and the American auto industry on the mend.”
The president said the U.S. couldn’t return “to the days when the financial system was stacking the deck against ordinary Americans,” citing his decision to install former Ohio Attorney General Richard Cordray as the director of the new Consumer Financial Protection Bureau while the Senate was on break, circumventing Republican opposition to the appointment.
Acute tensions in the eurozone banking system have been highlighted by a continued surge in emergency borrowing from the European Central Bank.
A total of €14.8bn was drawn from the ECB’s “marginal lending facility” on Monday night. That was down from the €17.3bn borrowed last Thursday, which was the highest since June 2009, but remained exceptionally high even by standards set during the turbulent past few months for the continental European financial system.
Because its use incurs a penal 1.75 per cent interest rate, the facility is only tapped by banks facing sudden difficulties and usually only for a day or two. The latest surge suggests at least one bank faced serious problems at the year end, which have still not been resolved. The ECB gave no details of how many banks used the facility or where they were based.
One or more banks may have tapped the emergency ECB facility to show stronger balance sheets at the end of 2011 but, if the use of the facility does not fall in coming days, worries could spread about a possible banking crisis somewhere in the 17-country eurozone.
It’s a bittersweet way for investors to begin a new year.
On the one hand, economic news in the U.S. has been getting steadily better. This holiday shopping season is shaping up to be the best since the Great Recession; the housing market is showing signs of life and even the job market is on the mend.
Then, there’s Europe. The region’s leaders have failed again to convince investors that they will be able to prevent a breakup of their 17-nation currency union. Greece could still default on its debt, causing huge losses for banks in France and elsewhere that hold Greek bonds. Investors fear that could cause a financial panic to spread around the world, like what happened in 2008 after the U.S. brokerage Lehman Brothers collapsed.
In the U.S., too, there are plenty reasons for investors to be cautious. Many companies are still wary of hiring, and banks are afraid to turn on the lending spigots.
Who better to guide investors during these uncertain times than Bob Doll, who helps oversee $3.6 trillion in assets as chief investment officer at the world’s biggest money manager, BlackRock.
Doll recently spoke with The Associated Press about how 2011 worked out for investors, what he’s optimistic about in 2012 and what he’s worried about. He’s hopeful that Europe can stick to its goal of greater fiscal austerity. But he acknowledges that – like his own New Year’s resolution of losing 15 pounds – enforcing the outcome is the tricky part.
Here are excerpts from the conversation, edited for clarity.
Q: How does 2011 stack up for you?
A: We entered the year hopeful. Global economies were looking better. But the tsunami disaster in Japan cast a bigger shadow on global growth than a lot of people initially thought. Then there were big political upheavals in the Middle East with the Arab Spring. Those political and social issues contributed to a rise in oil prices that didn’t help the fledgling U.S. economic recovery. Then Europe kept coming back as problem. All the wild cards that showed up were on the negative side. The year started high on hopes that were dashed.
AP Photo/Nam Y. Huh
NEW YORK (AP) — Boarding an airplane has never been safer.
The past 10 years have been the best in the country’s aviation history with 153 fatalities. That’s two deaths for every 100 million passengers on commercial flights, according to an Associated Press analysis of government accident data.
The improvement is remarkable. Just a decade earlier, at the time the safest, passengers were 10 times as likely to die when flying on an American plane. The risk of death was even greater during the start of the jet age, with 1,696 people dying – 133 out of every 100 million passengers – from 1962 to 1971. The figures exclude acts of terrorism.
Sitting in a pressurized, aluminum tube seven miles above the ground may never seem like the most-natural thing. But consider this: You are more likely to die driving to the airport than flying across the country. There are more than 30,000 motor-vehicle deaths each year, a mortality rate eight times greater than that in planes.
“I wouldn’t say air crashes of passenger airliners are a thing of the past. They’re simply a whole lot more rare than they used to be,” says Todd Curtis, a former safety engineer with Boeing and director of the Airsafe.com Foundation.
The improvements came even as the industry went through a miserable financial period, losing $54.5 billion in the past decade. Just to stay afloat, airlines eliminated meals and added fees for checked luggage.
But safety remained a priority. No advertisement of tropical beaches can supplant the image of charred metal scattered across a field.
There are still some corners of the world where flying is risky. Russia, the Democratic Republic of the Congo and Somalia have particularly high rates of deadly crashes. Russia had several fatal crashes in the past year, including one that killed several prominent hockey players. Africa only accounts for 3 percent of world air traffic but had 14 percent of fatal crashes.
Still, 2011 was a good year to fly. It had the second-fewest number of fatalities worldwide, according to the Flight Safety Foundation, with 507 people dying in crashes. Seven out of 28 planes in fatal crashes were on airlines already prohibited from flying into European Union because of known safety problems. (There were fewer fatalities in 2004 – 323 – but there were also fewer people flying then.)
There are a number of reasons for the improvements.
– The industry has learned from the past. New planes and engines are designed with prior mistakes in mind. Investigations of accidents have led to changes in procedures to ensure the same missteps don’t occur again.
– Better sharing of information. New databases allow pilots, airlines, plane manufactures and regulators to track incidents and near misses. Computers pick up subtle trends. For instance, a particular runway might have a higher rate of aborted landings when there is fog. Regulators noticing this could improve lighting and add more time between landings.
– Safety audits by outside firms. The International Air Transport Association, an industry trade group, started an audit program in 2003. Airlines prove to the industry and each other that they have proper maintenance and safety procedures. It’s also a way for airlines to seek lower insurance premiums, which have also dropped over the past 10 years.
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AP Photo/Richard Drew
NEW YORK (AP) — Stocks rose Thursday morning after the government reported that the number of claims for unemployment benefits remained at a level consistent with modest job growth. Contracts to buy homes rose to the highest level in a year and a half.
The four-week average of unemployment claims fell to a three-and-a-half-year low of 375,000, an indication that hiring could pick up.
The National Association of Realtors says its index of sales agreements jumped 7.3 percent last month. The news sent stocks of home builders sharply higher. PulteGroup Inc., Lennar Corp. and Masco Corp. all rose close to 4 percent.
The Dow Jones industrial average rose 75 points at 12,227 at 10 a.m. It fell nearly 140 points the day before.
The S&P 500 was up 7 points at 1,257, and is at breakeven for the year. The Nasdaq composite index rose 6 at 2,596.
Europe’s debt woes weighed on currency markets. The euro fell to its lowest level against the dollar this year and a decade-low against the Japanese yen. At one point the euro’s value against the dollar hit $1.28, the lowest level since September 2010.
AP Photo/Pier Paolo Cito
ROME (AP) — Italy’s borrowing costs fell for a second day Thursday but the country’s new premier said his government has more to do before it convinces financial markets it can manage the heavy debts that have made it the focus of the eurozone crisis.
Mario Monti said he was encouraged by the bond auctions at which the interest costs paid out by Italy to bond investors eased. He said his government of technocrats, in office for just a month and a half following the resignation of Silvio Berlusconi, was preparing a package of measures to get the Italian economy moving again, including efforts to boost competition and liberalize the labor market.
“Yesterday and today went pretty well, this is encouraging,” Monti said at a news conference after the Italian treasury tapped investors for around euro7 billion ($9.2 billion). “But we absolutely don’t consider the market turbulence to be over.”
The amount raised, however, was less than the euro8.5 billion ($11 billion) maximum sought and contributed to ongoing weakness in the euro, which fell to a 15-month low against the dollar of $1.2866.
The most keenly awaited result from Thursday’s batch of auctions was the euro2.5 billion ($3.3 billion) sale of ten-year bonds at an average yield of 6.98 percent. That’s lower than the record 7.56 percent it had to pay at an equivalent auction last month, when investor concerns over the ability of the country to service its massive debts became particularly acute.
However, the country’s borrowing rate on the key 10-year bond remains uncomfortably close to the 7 percent level widely considered to be unsustainable in the long run. Greece, Ireland and Portugal all had to request financial bailouts after their 10-year bond yields pushed above 7 percent. In the secondary markets, Italy’s yield continues to hover around the 7 percent mark.
“Investors are still waiting for more progress on the reform front to ensure Italy can improve its muted growth and productivity performance since the adoption of the euro,” said Raj Badiani, a senior economist at IHS Global Insight.
AP Photo/Paul Sancya
WASHINGTON (AP) — The number of people seeking unemployment benefits rose last week after three weeks of decline.
Even with the gain, applications remained at a level consistent with modest hiring. And the broader trend over the past month suggests job growth could pick up further in the new year.
Weekly applications increased by 15,000 to a seasonally adjusted 381,000, the Labor Department said Thursday.
The four-week average, a less volatile measure, dropped for the fourth straight week to 375,000. That’s the lowest level since June 2008.
“Despite the rise in the weekly claims data, the longer-term trend … suggests that the recovery in the labor market is maintaining its momentum,” said Michael Gapen, an economist at Barclays Capital, in a note to clients.
Applications generally must fall below 375,000 – consistently – to signal that hiring is strong enough to reduce the unemployment rate.
While layoffs have fallen sharply since the recession officially ended two and a half years ago, many companies have been slow to add jobs.
Economists caution that the figures can be volatile around the holidays. The data for seven states, including California and Virginia, were estimated because of the Monday holiday, a Labor Department spokesman said. Those estimates have in the past proven reliable, the spokesman said, and haven’t required major revision.
Hiring has improved in recent months. Employers have added an average of 143,000 net jobs a month from September through November. That’s almost double the average for the previous three months.
Next year should be even better. A survey of 36 economists by the Associated Press this month found that they expect the economy will generate an average of about 175,000 jobs per month in 2012.
More small businesses plan to hire than at any time in three years, a trade group said earlier this month. And a separate private-sector survey found more companies are planning to add workers in the first quarter of next year than at any time since 2008.
AP Photo/Richard Drew
Technology stocks fell Wednesday, dragged down by a weak earnings report from the business software maker Oracle Corp.
Broad market indexes were flat. The Dow Jones industrial average eked out a gain of 4 points after having been down 104 points at midday.
Technology stocks in the Standard & Poor’s 500 index fell 2 percent. Oracle plunged 12 percent after the business software company said it was struggling to close deals.
The rare earnings miss by Oracle seemed to reinforce worries that businesses and the government may cut back on technology spending. Especially worrying was a weak 2 percent gain in new software licenses, a key sign of demand from other businesses. Oracle had predicted gains of as much as 16 percent.
Those worries hurt other big technology companies. IBM Corp. was by far the biggest loser in the Dow, falling 3.1 percent to $181.47. A bright spot was the BlackBerry maker Research In Motion Ltd., which jumped 10 percent to $13.78 on rumors that it might be a takeover target.
Investors also had more to worry about from Europe. New data showed extensive lending from the European Central Bank to European banks. The initial reaction to the $639 billion in lending by the ECB was positive, but then worry set in that Europe’s banks needed so much help in the first place.
“Long-term, people were a little bit concerned that banks needed more money than we thought they did,” said Joe Bell, a senior equity analyst with Schaeffer’s Investment Research.
The Dow edged up 4.16 points, less than 0.1 percent, to close at 12,107.74. On Tuesday the Dow jumped 337 – its biggest gain this month – on a strong bond sale in Spain and a surge in new home construction in the U.S.
The Standard & Poor’s 500 rose 2.42 points, or 0.2 percent, to 1,243.72. Outside of the 2 percent decline for technology companies, prices rose or were flat in the rest of the S&P 500’s 10 sectors.
AP Photo/Mark Lennihan
WASHINGTON (AP) — Some say they’ll spend less on groceries. Others expect to cut back on travel. For many, there would be fewer meals out.
Across the country, Americans are bracing for another financial hardship: smaller paychecks starting in January, if Congress doesn’t break a deadlock and renew a Social Security tax cut.
The tax cut, which took effect this year, benefits 160 million Americans – $1,000 a year, or nearly $20 a week, for someone making $50,000, as much as $4,272 or $82 a week for a household with two high-paid workers.
The tax cut is set to expire Jan. 1. If lawmakers don’t renew it for 2012, analysts say the economy would slow as individuals and families looked for ways to spend less.
“Of course, it changes my plans,” said Craig Duffy, an information-technology worker from Philadelphia and new father of twins. Duffy said his family already has tightened spending, so “we’ll have to find a way to cut back.”
That might mean canceling a planned trip to visit the twins’ grandparents in Wisconsin, Duffy said.
The tax cut is part of legislation that would also renew benefits for the long-term unemployed. If the unemployment benefits aren’t renewed, starting in January nearly 6 million people would lose weekly checks averaging about $300 – the main source of income for most of them.
House Republicans have rejected a Senate-passed bill that would extend the payroll tax cut for two months and let the long-term unemployed continue to receive benefits during that time. That plan would give lawmakers time to work on a yearlong extension.
But most lawmakers have left Washington, and no negotiations are scheduled before the year ends.
If Congress doesn’t renew the two measures for 2012, analysts say the economy’s growth would slow by as much as 1 percentage point.
Less money in paychecks means less consumer spending, which powers the U.S. economy. Many people who say they already depend on each paycheck for living expenses say they can’t cut spending deeply. Instead, they’ll trim at the edges, wherever they can.
“It will limit my spending from week to week,” said Jennifer Stempel, an office manager from Denver.
Stempel said that could mean making fewer impulse buys at the grocery store, packing her lunch each day and rejoining a carpool she quit after gas prices declined this year.
“I was starting to relax about (travel expenses), but now I don’t know,” Stempel said.
Michael Allara of Raleigh, N.C., said a higher tax would further pressure his family, which includes three small children.
“I’m already trying to save as much as I can to pay for college,” Allara said. “I don’t know where the money would come from.”
The tax cut lowered the Social Security tax on incomes of up to $106,800 from 6.2 percent to 4.2 percent. It’s meant a maximum savings of $2,136 for an individual.
Without a deal, Americans would begin 2012 facing a tax increase just as an election year begins.
Smaller paychecks and reduced spending would coincide with a still-vulnerable period for the U.S. economy. Though growth has strengthened in the final months of 2011, some analysts say the gains might be hard to sustain. Workers’ pay isn’t rising much. And Europe may be on the verge of a recession that would undermine the American economy.
“A failure to extend the payroll tax holiday and the extended unemployment benefits would be a serious hit to the economy,” said Mark Zandi, chief economist at Moody’s Analytics. “The risk of a recession would rise and be uncomfortably high, particularly early next year, when the fallout from Europe’s troubles will be the greatest.”
AP Photo/Vickie D. King
WASHINGTON (AP) — The economy is ending 2011 on a roll.
The job market is healthier. Americans are spending lustily on holiday gifts. A long-awaited turnaround for the depressed housing industry may be under way. Gas is cheaper. Factories are busier. Stocks are higher.
Not bad for an economy faced with a debt crisis in Europe and, as recently as this summer, scattered predictions of a second recession at home. Instead, the economy has grown faster each quarter this year, and the last three months should be the best.
“Things are looking up,” says Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ.
When The Associated Press surveyed 43 economists in August, they pegged the likelihood of another recession at roughly one in four. The Dow Jones industrial average was lurching up or down by 400 points or more some days.
There was plenty of reason for gloom. A political standoff over the federal borrowing limit brought the United States to the brink of default and cost the nation its top-drawer credit rating.
Most analysts now rule out another recession. They think the economy will grow at an annual rate of more than 3 percent from October through December, the fastest pace since a 3.8 percent performance the spring of 2010.
Many economists still worry that the year-end surge isn’t sustainable, in part because the average worker’s pay is barely rising. And Europe may already be sliding into a recession that will infect the United States.
The outlook could darken further if Congress can’t break the impasse blocking an extension of a Social Security tax cut for 160 million Americans and emergency unemployment benefits.
Yet for now, the economy is on an upswing that few had predicted:
– JOBS: The number of people applying for unemployment benefits came in at 366,000 last week, down from a peak of 659,000 in March 2009. Even in good economic times, the figure would be between 280,000 and 350,000.
Employers have added at least 100,000 jobs five months in a row, the longest streak since 2006. And the unemployment rate fell from 9 percent in October to 8.6 percent last month, the lowest since March 2009.
Small businesses are hiring again, too, according to the National Federation of Independent Business.
Business is up at AG Salesworks in Norwood, Mass., which helps technology companies like Motorola find new customers. The firm has hired 26 workers to restore its staff to 56, erasing the job cuts from the recession. CEO Paul Alves plans to add an employee or two a month as long as growth continues.
“I do see more confidence than I saw 12 months ago,” Alves says. “But it’s good, not great. Robust isn’t the word I’d use.”
– SPENDING: The holiday shopping season has turned out better than anyone expected. Sales from November through Saturday were up 2.5 percent. Americans have spent $32 billion online, 15 percent more than a year ago. Retails sales were up in November for the sixth month in a row. People are spending, in particular, on clothes, cars, electronics and furniture.
– CONSUMER CONFIDENCE: Americans felt better about the economy in November than they had since July, according to the Conference Board, a business group that tracks the mood of consumers.
The board’s consumer confidence index climbed 15 points to 56 in November, the biggest one-month jump since April 2003. During the Great Recession, the index fell as low as 25.
“It seems like the confidence of the traditional American consumer is higher right now,” says Jim Newman, executive vice president of operations at the digital marketing company Acquity Group, which has added 100 jobs since summer.
– GAS: Falling prices at the pump have freed more money for consumers to spend on appliances, furniture, vacations and other things that help drive the economy. The national average for regular unleaded has sunk to $3.21 a gallon since peaking at $3.98 in May, according to the AAA Daily Fuel Gauge.
– INVENTORIES: Businesses are restocking shelves and warehouses, more confident that customers will buy their products. In October, their inventories were up 8.7 percent from a year earlier. An increase in inventories is expected to account for perhaps a third of growth this quarter.
The battered housing market might be showing signs of recovery. Home construction rose more than 9 percent in November from October, driven by apartment building. And the National Association of Realtors said Wednesday that sales of previously occupied homes rose 4 percent in November.
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AP Photo/J. Scott Applewhite
WASHINGTON (AP) — The Senate passed legislation Saturday extending a Social Security payroll tax cut and jobless benefits for just two months, handing President Barack Obama a partial victory while setting the stage for another fight in February.
It also brought a peaceful end to a year-long battle over spending by passing a $1 trillion-plus catchall budget bill that wraps together the day-to-day budgets for 10 Cabinet departments and military operations in Iraq and Afghanistan. The House passed the measure Friday, and the White House has signaled that Obama will sign it.
The renewal of the 2-percentage-point cut in the Social Security payroll tax for 160 million workers and unemployment benefits averaging about $300 a week for the additional millions of people who have been out of work for six months or more is a modest step forward for Obama’s year-end jobs agenda.
As a condition for GOP support of the payroll tax measure, Obama has to accept a provision that forces him to decide within 60 days whether to approve or reject a proposed a Canada-to-Texas oil pipeline that promises thousands of jobs.
Obama didn’t reference the pipeline issue in a brief appearance at the White House after the vote. He welcomed the Senate’s passage of the payroll tax cut and unemployment insurance extension and said it would be “inexcusable” for Congress not to extend them for the rest of 2012 when lawmakers return from their holiday break.
The budget bill, passed 67-32, heads to the White House for Obama’s signature; the payroll tax measure won a 89-10 tally that send it back to the House – where many Republicans only reluctantly support it – for a vote early next week.
A spokesman for House Speaker John Boehner, R-Ohio, would not predict whether the House would accept the Senate payroll tax measure, saying GOP leaders would have to discuss it with the rank and file. But Democrats assume Senate Republicans would not have allowed the short-term measure to advance without a signal from Boehner that the House would go along.
Democratic and GOP leaders opted for the short-term extension of the payroll tax and jobless benefits measure after failing to agree on big enough spending cuts to pay for a full-year renewal. The measure also provides a 60-day reprieve from a scheduled 27 percent cut in the fees paid to doctors who treat Medicare patients.
SAO PAULO (AP) — A Brazilian judge has revoked a decision that had halted some work on a massive hydroelectric dam in the Amazon jungle.
Federal judge Carlos Eduardo Martins halted construction on the $11-billion, 11,000-megawatt Belo Monte Dam in September, saying it would harm fishing on the Xingu River, which feeds the Amazon.
But on Friday, he ruled that construction could proceed because the Norte Energia consortium that is building the dam showed that the flow of the river would not be altered in a way that would harm the habitat of fish.
The judge’s ruling has been posted on the court’s website.
When completed, the dam would be the world’s third largest behind China’s Three Gorges dam and the Itaipu, which straddles the border of Brazil and Paraguay.
The government has said it will be a source of clean, renewable energy, and that it will help fuel the country’s economy.
But environmentalists and indigenous groups say the dam would devastate wildlife and the livelihoods of 40,000 people who live in the area to be flooded.
Celebrities including British rock star Sting, film director James Cameron and actress Sigourney Weaver have joined activists in lobbying against the dam.
London equities were back under pressure on Monday, with the FTSE 100’s financial stocks unable to keep the momentum seen in the immediate aftermath of Friday’s European Union summit on the euro crisis.
Banks’ shares were lower after the Financial Services Authority’s report into the near-collapse of Royal Bank of Scotland came as a timely reminder of the extent of the sector’s problems at the height of the last financial crisis. It highlighted the regulator’s own “flawed supervisory approach which failed adequately to challenge the judgment and risk assessments of the management of RBS”. It also blamed RBS for a lack of due diligence ahead of its takeover of Dutch peer ABN Amro which led to the collapse of the enlarged group.
Shares in Royal Bank of Scotland fell 5.3 per cent to 20.8p. Lloyds Banking Group fell 6.7 per cent to 26.4p, the biggest single loss on the benchmark index. Barclays fell 2.7 per cent to 185p. HSBC was 1.9 per cent weaker at 495.3p.
Overall, the FTSE 100 fell 0.5 per cent to 5,501.55, a loss of 28 points also driven by mining stocks as traders across global markets were reluctant to take on further risk. The fall came after an uneasy week spent tracking the twists and turns of the EU’s moves to address the eurozone debt crisis left the index 0.4 per cent lower on the week.
“The UK voted against being included in Europe’s treaty changes on the weekend, which was seen in some circles as the first shots fired in an attempt to depart the EU,” said Stan Shamu, market strategist at IG Markets.
Monday 12.30 GMT. Markets are skittish as the bounce delivered by last week’s European summit deal looks to be fading.
The FTSE All-World equity index is down 0.3 per cent, supported by a positive session in Asia where investors were pleased by Friday’s better than expected reading on US consumer confidence, which boosted optimism about the global economic outlook.
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But the FTSE Eurofirst 300 is suffering a loss of 0.5 per cent and S&P 500 futures point to Wall Street starting the day down 0.5 per cent, tracking a slide by the euro.
Risk appetite is weak, with the dollar index – which tends to have an inverse correlation to investor bullishness – up 0.7 per cent. Benchmark US Treasury and Bund yields are down 3 basis point to 2.03 and 6bp to 2.06 per cent respectively as funds find their way into perceived havens.
News over the weekend that China’s raw material imports surged in November is not helping commodities. Copper is down 2.3 per cent to $3.47 a pound and Brent crude is lower by 0.9 per cent to $107.64 a barrel.
Growth-focused assets rallied late last week as many investors broadly welcomed moves by the European Central Bank and eurozone leaders to calm credit markets.
Some of that improved mood was initially carrying into today’s session, but it is clear that wariness about the eurozone’s prospects are hard to dispel.
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AP Photo/Amy Sancetta
BENTONVILLE, Ark. (AP) — Wal-Mart has opened an internal investigation to determine whether its overseas operations have complied with U.S. federal law as it pertains to permitting, licensing and inspections.
The Bentonville, Ark., retailer offered few details about the investigation in a quarterly report filed Thursday with the Securities and Exchange Commission.
The company said that it opened the investigation after reviewing policies, procedures and internal controls tied to its global anti-corruption program. It said that it is taking “appropriate remedial measures.”
“We are taking a deep look at our policies and procedures in every country in which we operate,” said Wal-Mart spokesman Dave Tovar in an email. “As a result of information obtained during that review and from other sources, we have begun an internal investigation related to compliance with the” Foreign Corrupt Practice Act.
Wednesday 21:15 GMT. Global stocks and other growth-focused assets saw decent demand early in the session as investors hoped European leaders could deliver meaty proposals for tackling the region’s sovereign debt crisis at a summit later this week.
Gains have been reversed, however, after an unnamed senior German official highlighted the difficulties still facing negotiations.
The comments suggest there remains much work to be done to reconcile differences between Europe’s leaders, and the euro took the news on the chin. The single currency suffered another blow as investors noted a sudden bout of jitters in the so-called “peripheral” sovereign bond sector.
Spanish 10-year yields have spiked 21 basis points to 5.36 per cent and Italian equivalents, the market’s prime anxiety gauge, are up 15bp to 5.96 per cent, having earlier touched an 8-week low of 5.76 per cent.
The euro, which had reached above $1.3450, closed little changed, up 0.1 per cent at $1.3408, and the dollar index declined 0.1 per cent. Brent crude closed down 1 per cent to $109.60 a barrel.
After a strong start – following a solid showing out of Asia – sellers have emerged to push European bourses into the red. The FTSE Eurofirst 300 is down 0.8 per cent, but Wall Street’s S&P 500 was 0.2 per cent higher at close, helping the FTSE All-World index rise 0.3 per cent.
A dash for cash by European banks in a little watched corner of the gold market has accelerated this week, highlighting the continued scarcity of dollar funding even after a co-ordinated intervention in the market by the world’s largest central banks.
Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week.
The rush has pushed gold leasing rates – the implied interest rate for lending gold in the market in exchange for dollars – to record lows, according to Thomson Reuters data. The one-month gold leasing rate fell to a low of -0.57 per cent on Tuesday, suggesting that a bank lending gold for one month would have to pay to do so, at an annualised rate of 0.57 per cent.
“People are lending gold out to raise dollars,” said one senior metals banker.
Edel Tully, precious metals analyst at UBS, said banks were “looking to offload metal either for balance sheet reasons or funding – or both”.
Large bullion-dealing banks take gold on deposit from a range of customers such as investors, central banks and other commercial banks.
Although they often lend out some of that gold around the end of quarterly reporting periods in order to reduce their liabilities, the moves have been unusually dramatic in recent months as the eurozone debt crisis has caused growing strains in the dollar funding market.
Banks do not, however, lend all their gold and some of it is held in accounts that preclude them from using it for trading.
The rush to exchange gold for cash began in September, when one-month leasing rates fell as low as -0.48 per cent.
Traders cautioned that few, if any, banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.
Demand for dollar funding from the European Central Bank has jumped sharply after a price cut agreed with the US Federal Reserve, suggesting that banks are more comfortable about tapping the ECB for help.
Thirty-four banks obtained $50.7bn in three-month loans yesterday and five took $1.6bn in one-week dollar liquidity, the ECB said. The offers were the first by the ECB since the world’s central banks’ took co-ordinated action last week to cut the cost of dollar funding.
The level of demand, higher than the $10bn analysts had expected, highlights the difficulties some eurozone banks have faced in obtaining dollar funding as a result of turmoil in the region. Further measures to shore up the eurozone’s weakened banking system are expected to be announced by the ECB after Thursday’s governing council meeting. Likely steps include offers of euro loans lasting as long as three years.
The ECB could also broaden the pool of assets that banks can provide as collateral when obtaining liquidity – for instance by loosening the requirements on the use of asset-backed securities or of non-euro denominated assets. The central bank already lowered the initial margin, or discount, it takes on collateral for its dollar loans from 20 per cent to 12 per cent as part of last week’s action.
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BANGKOK (AP) — Asian stocks rose Wednesday amid growing optimism that European leaders will approve aggressive plans by the end of the week to rescue the region from a debt crisis that has roiled financial markets for months.
Japan’s Nikkei 225 rose 0.8 percent to 8,645.72 and South Korea’s Kospi added 0.9 percent to 1,918.99. Hong Kong’s Hang Seng gained 0.8 percent 19,105.51. Australia’s S&P/ASX 200 climbed 0.8 percent to 4,296.80.
On Wall Street, stocks mostly rose Tuesday on a report that European leaders might create a second bailout fund to supplement the one they have already agreed to. The second fund would nearly double the capacity of Europe’s financial rescue programs, the Financial Times reported.
The plan involves allowing the existing 440 billion euros bailout fund to continue running when a new 500 billion euros facility comes into force in mid-2012, almost doubling the rescue system’s firepower, Stan Shamu of IG Markets wrote in a report. “This latest move might just be the ‘bazooka’ Europe needs to appease markets.”
Asian stocks tumbled Tuesday, hours after Standard & Poor’s credit ratings agency warned that it might downgrade 15 of the 17 countries that use the euro – even Germany, which has a top AAA rating and Europe’s strongest economy.
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AP Photo/Ted S. Warren
SEATTLE (AP) — Boeing’s Machinists union votes Wednesday on a four-year contract extension that would ensure a long stretch of elusive labor peace as the new version of the 737 is built in Washington state.
The union announced last week that it reached a tentative deal following secret talks initiated by the company. If workers ratify the pact, as expected, the Machinists say they’ll drop their National Labor Relations Board complaint over Boeing’s decision to open a nonunion plant in South Carolina.
The relationship between Boeing Co. and the union’s 28,000 workers in Washington, Oregon and Kansas has been contentious, to say the least. The Machinists have gone on strike in 1987, 1995, 2005 and 2008, the last being a 58-day bruiser that helped delay delivery of the new 787 and cost the company dearly.
“It’s been a rough ride the last 25 years,” said Robley Evans, a forklift driver and union official. “To think about having five years of labor peace and not the standard stuff we go through, it’s good. We’re hopeful this is the new way of negotiating.”
The deal calls for annual wage increases of 2 percent, cost-of-living adjustments, an incentive program intended to pay bonuses between 2 percent and 4 percent, a ratification bonus of $5,000 for each member, and improvements in the pension program. But it also would raise workers’ share of health costs.
Crucially for the union, it would ensure that jobs for Boeing’s updated 737 line – the 737 Max – stay in the Puget Sound region. Boeing said in July it was studying other locations for the new 737.
Industry analyst Wayne Plucker, of the San Antonio, Texas, research firm Frost and Sullivan, said the agreement is good for both sides. Considering the looming Defense Department budget cuts that threaten defense contracts across the industry, Boeing is going to need solid performance from its commercial airplanes division, Plucker said.
“Boeing needs a peaceful time,” he said. “Their competition with Airbus and their challenges to come on the defense side made it kind of a pivotal thing to have a quiet, peaceful time, labor relations-wise.
“It’s also a big deal for the Machinists union. They got the agreement that the 737 will be done in Seattle – that’s a huge deal. There are far more of them built than there ever will be of the 787. So it’s a win for the union, and for the Seattle area.”
NEW YORK (AP) — Citigroup Inc. is eliminating 4,500 jobs in its latest effort to cut costs. The bank will take a $400 million charge in the fourth quarter as a result.
Citigroup’s CEO, Vikram Pandit, disclosed the job cuts at an investor conference Tuesday. The cuts represent about 1.5 percent of its global workforce of 267,000. Pandit said the cuts would be made over the next few quarters.
Other banks have also been cutting staff. Last month, Swiss lender UBS told investors it is downsizing its investment bank to 16,000 people by 2016 from the current 18,000 as the bank tries to reduce its exposure to risk. In September, Bank of America Corp., based in Charlotte, N.C., said it would cut 30,000 jobs over the next few years.
Pandit also warned that Citigroup will take a $500 million hit to revenue from an accounting-related charge related to the changing value of its debt.
Citi and other banks took accounting gains in the third quarter because the cost of its debt fell in the bond market. Since the bank could theoretically buy back its debt at a lower cost, accounting rules require that a gain be recorded.
WASHINGTON (AP) — Facing bankruptcy, the U.S. Postal Service is pushing ahead with unprecedented cuts to first-class mail next spring that will slow delivery and, for the first time in 40 years, eliminate the chance for stamped letters to arrive the next day.
The estimated $3 billion in reductions, to be announced in broader detail on Monday, are part of a wide-ranging effort by the cash-strapped Postal Service to quickly trim costs, seeing no immediate help from Congress.
The changes would provide short-term relief, but ultimately could prove counterproductive, pushing more of America’s business onto the Internet. They could slow everything from check payments to Netflix’s DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines delivered by postal carrier to far-flung suburban and rural communities.
That birthday card mailed first-class to Mom also could arrive a day or two late, if people don’t plan ahead.
“It’s a potentially major change, but I don’t think consumers are focused on it and it won’t register until the service goes away,” said Jim Corridore, analyst with S&P Capital IQ, who tracks the shipping industry. “Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives. There’s almost nothing you can’t do online that you can do by mail.”
The cuts, now being finalized, would close roughly 250 of the nearly 500 mail processing centers across the country as early as next March. Because the consolidations typically would lengthen the distance mail travels from post office to processing center, the agency also would lower delivery standards for first-class mail that have been in place since 1971.
Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.
About 42 percent of first-class mail is now delivered the following day. An additional 27 percent arrives in two days, about 31 percent in three days and less than 1 percent in four days to five days. Following the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the remainder delivered in three days.
The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 postal employees could be cut as a result of the various closures, resulting in savings of up to $6.5 billion a year.
Expressing urgency to reduce costs, Postmaster General Patrick Donahoe said in an interview that the agency has to act while waiting for Congress to grant it authority to reduce delivery to five days a week, raise stamp prices and reduce health care and other labor costs.
The Postal Service, an independent agency of government, does not receive tax money, but is subject to congressional control on large aspects of its operations. The changes in first-class mail delivery can go into place without permission from Congress.
After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.
It already has announced a 1-cent increase in first-class mail to 45 cents beginning Jan. 22.
“We have a business model that is failing. You can’t continue to run red ink and not make changes,” Donahoe said. “We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money.”
Separate bills that have passed House and Senate committees would give the Postal Service more authority and liquidity to stave off immediate bankruptcy. But prospects are somewhat dim for final congressional action on those bills anytime soon, especially if the measures are seen in an election year as promoting layoffs and cuts to neighborhood post offices.
Technically, the Postal Service must await an advisory opinion from the independent Postal Regulatory Commission before it can begin closing local post offices and processing centers. But such opinions are nonbinding, and Donahoe is making clear the agency will proceed with reductions once the opinion is released next March.
“The things I have control over here at the Postal Service, we have to do,” he said, describing the cuts as a necessary business decision. “If we do nothing, we will have a death spiral.”
The Postal Service initially announced in September it was studying the possibility of closing the processing centers and published a notice in the Federal Register seeking comments. Within 30 days, the plan elicited nearly 4,400 public comments, mostly in opposition.
-Small-town mayors and legislators in states including Illinois, Missouri, Ohio and Pennsylvania cited the economic harm if postal offices were to close, eliminating jobs and reducing service. Small-business owners in many other states also were worried.
“It’s kind of a lifeline,” said William C. Snodgrass, who owns a USave Pharmacy in North Platte, Neb., referring to next-day first-class delivery. His store mails hundreds of prescriptions a week to residents in mostly rural areas of the state that lack local pharmacies. If first-class delivery were lengthened to three days and Saturday mail service also were suspended, a resident might not get a shipment mailed on Wednesday until the following week.
“A lot of people in these communities are 65 or 70 years old, and transportation is an issue for them,” said Snodgrass, who hasn’t decided whether he will have to switch to a private carrier such as UPS for one-day delivery. That would mean passing along higher shipping costs to customers. “It’s impossible for many of my customers to drive 100 miles, especially in the winter, to get the medications they need.”
-ESPN The Magazine and Crain Communications, which prints some 27 trade and consumer publications, said delays to first-class delivery could ruin the value of their news. Their magazines are typically printed at week’s end with mail arrival timed for weekend sports events or the Monday start of the work week. Newspapers, already struggling in the Internet age, also could suffer.
AP Photo/Rick Rycroft
SYDNEY (AP) — Australia’s ruling party voted Sunday to overturn a long-standing ban on exporting uranium to India, despite fierce opposition from critics who argued such sales are unsafe because India has not signed the Nuclear Nonproliferation Treaty.
Prime Minister Julia Gillard urged members of her center-left Labor Party during its annual conference to allow the exports in the interest of the national economy, arguing there are safeguards in place to ensure the uranium would be used for peaceful purposes.
“We need to make sure that across our regions we have the strongest possible relationships we can, including with the world’s largest democracy, India,” Gillard said. “That’s why today we should determine to change our platform and enable us, under safeguards, to sell uranium to India.”
The party’s vote to amend an executive policy does not need parliamentary approval.
Australia holds 40 percent of the world’s known uranium reserves. It does not sell uranium on the open market and bans nuclear power generation at home.
But it sells uranium only for the purpose of power generation under strict conditions banning any military applications in bilateral trade agreements with the United States, China, Taiwan, Japan, South Korea and several European countries.
Australia’s previous conservative government started negotiations with energy-hungry India on uranium sales. But the Labor government immediately ended the talks when it came to power in 2007, ruling out exports unless New Delhi signed the Nuclear Nonproliferation Treaty.
Gillard had previously noted that the U.S. lifted a “de facto international ban” on nuclear cooperation with India in 2005 when it signed a deal with New Delhi to trade uranium and work together on civil atomic power generation.
AP Photo/Ted S. Warren
WASHINGTON (AP) — Factories are producing more. Construction is growing. People are buying more cars. The holiday shopping season is off to a strong start.
Normally, all that would suggest a bright outlook for the economy. Problem is, employers still aren’t hiring much, the number of people seeking unemployment benefits remains high and Europe’s debt crisis poses a grave threat to the future.
Thursday’s mixed economic picture came a day before the government will report on unemployment and job growth for November. That report is expected to show a modest net gain of 125,000 jobs, scarcely enough to keep up with population growth. The unemployment rate is projected to remain 9 percent.
Analysts say the economy remains locked in a good-but-hardly-good-enough position: It’s growing consistently, yet too weakly to induce employers to hire aggressively.
“The economy is picking up momentum as we close out 2011,” said Neil Dutta, an economist at Bank of America Merrill Lynch. At the same time, it faces “an ongoing flu in Europe” and other challenges, such as uncertainty about future taxes and spending in the United States, Dutta said.
For now, factories are expanding. The Institute for Supply Management, a trade group of purchasing managers, says its manufacturing index rose to 52.7 in November, up from 50.8 in October. Any reading above 50 indicates expansion. Factories have grown for 28 straight months.
Manufacturers are slightly more hopeful about the next few months because of cheaper raw materials and healthy demand, said Bradley Holcomb, head of the ISM’s survey committee.
Still, he said, companies have tempered their outlook because of concerns about whether the economy will grow consistently, uncertainty about federal taxes and regulation and fear that Europe’s debt crisis may trigger a global economic panic.
Mark Vitner, an economist at Wells Fargo, suggested that employers are reluctant to hire freely because the U.S. economy’s future appears hazy.
For one thing, a Social Security tax cut that provided an average $1,000 in extra cash this year for about 160 million Americans could expire at year’s end. Republican lawmakers did take steps Thursday to extend the cut, along with emergency unemployment benefits. But it’s still uncertain whether the money will be renewed.
In addition, the Obama administration’s health care reform could slow hiring next year, Vitner said, because it will require companies to provide coverage by 2013 or pay a fine.
And any worsening of Europe’s financial crisis could cause U.S. and European banks to cut back on lending and hoard cash. That would slow the economy.
Concerns about a credit crunch led the Federal Reserve and five other central banks to take coordinated action this week to lower the cost of dollar loans in Europe and elsewhere.
Wednesday 21.00 GMT. Global equity markets rallied, with the FTSE All-World index wrapping up its best three-day run in more than two years, after the world’s largest central banks announced a co-ordinated move to boost liquidity.
Germany’s Dax index jumped almost 3 per cent in 10 minutes in the wake of the move and traded almost 5 per cent higher on the day. All 10 sectors in the S&P 500 Index rose, and the FTSE All-World index wrapped up a 7.1 per cent advance so far this week, the best performance since April 2009.
The US Federal Reserve, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland announced they would cut the cost of dollar swap lines in order to ease a liquidity crunch in the financial system. Just hours earlier, China’s central bank announced the first cut in reserve requirements for its banks in almost three years.
“The move will not solve fundamental problems in Europe and in the US but, at this juncture, co-ordinated moves by policymakers are welcome,” says Win Thin of Brown Brothers Harriman in New York. “Their action, combined with that of China’s central bank, is giving a boost to markets today.”
Commodity prices jumped, with copper – seen as a proxy for Chinese growth – touching $8,000 a tonne for the first time in three weeks. Gold also rose, climbing almost 2 per cent to trade at $1,746 a troy ounce.
In currency markets, the euro briefly broke through $1.34 and was last trading at $1.3445, up 1 per cent. The Aussie dollar has surged 2.6 per cent, and actively traded emerging markets currencies, such as the Brazilian real, posted sharp advancements. Brazil’s central bank was also expected to cut its benchmark lending rate at a policy meeting today.
Much of the surge in risk assets was driven by shorts running for cover, analysts said. But although it has been overshadowed by the central bank action, a slew of bullish data out of the US also helped fuel the rally.
Earlier in the US session, the ADP employment report – an indicator of what Friday’s non-farm payrolls report might hold – showed the strongest private sector job growth in 11 months, at 206,000.
The Chicago purchasing managers’ index rose to the highest since April, led by a jump in the forward-looking new orders component. Even the weak US housing market had a bullish story to tell, with an index of pending home sales at the highest in a year. In the last economic release of the day, the Fed said in its Beige Book survey that the economy has expanded at a “moderate” pace in 11 of 12 districts.
The combination has sent 10-year Treasury yields up 8 basis points to 2.07 per cent. The S&P 500 index of US equities traded up 4.3 per cent at the close. The gains this week helped trim the monthly loss in the index to 0.5 per cent.
The co-ordinated move from the central banks comes after investors have grown increasingly concerned about the funding crunch that has been caused by the eurozone crisis. Late on Tuesday, Standard & Poor’s downgraded the credit ratings of many of the world’s largest banks, from Goldman Sachs and Bank of America to Barclays and UBS.
The downgrade underscored nerves about the ability of the financial sector to fund itself. The extra cost for a eurozone bank to borrow dollars in exchange for euros for three months in the basis swap market ballooned to 162.5bp earlier today – a level only previously seen in the month after the Lehman Brothers bankruptcy.
AP Photo/Michael Probst
FRANKFURT, Germany (AP) — The central banks of the wealthiest countries, trying to prevent a debt crisis in Europe from exploding into a global panic, swept in Wednesday to shore up the world financial system by making it easier for banks to borrow American dollars.
Stock markets around the world roared their approval. The Dow Jones industrial average rose almost 500 points, its best day in two and a half years. Stocks climbed 5 percent in Germany and more than 4 percent in France.
The action appeared to be the most extraordinary coordinated effort by the central banks since they cut interest rates together in October 2008, at the depths of the financial crisis.
But while it should ease borrowing for banks, it does little to solve the underlying problem of mountains of government debt in Europe, leaving markets still waiting for a permanent fix. European leaders gather next week for a summit on the debt crisis.
The European Central Bank, which has been reluctant to intervene to stop the growing crisis on its own continent, was joined in the decision by the Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the central banks said in a joint statement.
China, which has the largest economy in the world after the European Union and the United States, reduced the amount of money its banks are required to hold in reserve, another attempt to free up cash for lending.
The display of worldwide coordination was meant to restore confidence in the global financial system and to demonstrate that central banks will do what they can to prevent a repeat of 2008.
That fall, fear gripped the financial system after the collapse of Lehman Brothers, a storied American investment house. Banks around the world severely restricted lending to each other. Investors panicked, resulting in a meltdown in stocks.
In October 2008, the ECB, the Fed and other central banks cut interest rates together. That action, like Wednesday’s, was a signal from the central banks to the financial markets that they would be players, not spectators.
This year, investors have been nervously watching Europe to see whether they should take the same approach and dump stocks. World stock markets have been unusually volatile since summer.
The European crisis, which six months ago seemed focused on the relatively small economy of Greece, now threatens the existence of the euro, the common currency used by 17 countries in Europe.
There have also been signs, particularly in Europe, that it is becoming more difficult to borrow money, especially as U.S. money market funds lend less money to banks in the euro nations because of perceived risk from the debt crisis.
European banks cut business loans by 16 percent in the third quarter. And no one knows how much European banks will lose on their massive holdings of bonds of heavily indebted countries. Until the damage is clear, banks are reluctant to lend.
Banks are also being pressed by European governments to increase their buffers against possible losses. That helps stabilize the banking system but reduces the amount of money available to lend to businesses.
“European banks are having trouble borrowing in general, including in dollars,” said Joseph Gagnon, a former Fed official and a senior fellow at the Peterson Institute for International Economics. “The Fed did the Europeans a favor.”
The central banks are reducing by half a percentage point – to about 0.6 percent – the rate they charge banks for short-term dollar loans. The lower rate is designed to get credit flowing again. Dollars are the No. 1 currency for international trade.
The Fed had offered dollar swaps from December 2007, when world financial markets were weakening because of fear about subprime mortgages, until February 2010. It reopened the program in May 2010, as European debt concerns grew, and planned to end it Aug. 1, 2012.
Wednesday, in addition to lowering the interest rate on dollars borrowed, the Fed extended the program to Feb. 1, 2013. If it works, the rates on dollar loans will drop, and stock and bond markets will calm down.
“It shows that policymakers are on the case,” said Roberto Perli, managing director at the International Strategy & Investment Group, an investment firm. He said it has symbolic value even if it does not have a big impact on credit markets.
On the eve of “Cyber Monday,” online retailers reported an even stronger start to the holiday shopping season than brick-and-mortar stores.
Research firm comScore reported on Sunday that e-commerce spending jumped 26 percent on Black Friday, the day after Thanksgiving, compared with the same day a year ago. ComScore reported $816 million in online sales for the day, up from $648 million.
The 26 percent growth rate for online sales compares with a 7 percent retail sales increase reported for Black Friday by ShopperTrak, which gathers data from individual stores and shopping malls. At $11.4 billion, the brick-and-mortar sales total still dwarfs the online total.
Gian Fulgoni, comScore chairman, said in a statement that e-commerce enjoyed a banner day, despite some analysts’ predictions that early store openings on Black Friday could hurt online sales.
“With brick-and-mortar retail also reporting strong gains on Black Friday, it’s clear that the heavy promotional activity had a positive impact on both channels,” Fulgoni said.
Thanksgiving is also a big day for online sales, and comScore reported an 18 percent increase this year compared with a year ago, with $479 million in sales.
Online sales also have been strong throughout November. Online sales through Saturday rose 15 percent compared with the same period a year ago, according to comScore, which is based on Reston, Va. Through the first 25 days of the month, online sales have totaled $12.74 billion.
The European Union’s oil import costs have soared to more than $400bn this year as crude prices continue to trade above $100 a barrel, heightening concerns about their impact on the region’s economy, the International Energy Agency has warned.
The high prices are putting “an additional burden on recovery efforts,” said Fatih Birol, chief economist at the leading energy watchdog.
“If they stay at these levels in the coming months, they could well strangle the economic recovery,” he added.
According to BP’s Statistical Review, this year will be the first year ever with an average annual oil price above $100 a barrel. In real terms, the average annual price is the highest since 1864.
Strong demand, in particular from emerging market economies, coupled with tight supply on the back of disruptions in the Middle East and North Africa have helped underpin prices, according to economists. At the same time, “significant disappointments in non-Opec production in countries including Brazil,” have exacerbated the supply situation, said Jeffrey Currie, global head of commodities research at Goldman Sachs.
Also, “commodity markets no longer depend on economic growth in the US and Europe, but rather on economic growth in emerging markets, such as China,” added Mr Currie.
In the medium-term, the EU is seen as especially at risk from the high oil price, Mr Birol said.
The soaring import bill for the EU – it has jumped from $280bn in 2010 to $402bn this year – comes at a time of change for the bloc’s energy security.
As US crude imports begin to decline thanks to growing domestic supplies, in particular of oil trapped in rock, crude becomes a major issue for others. The IEA forecasts that the EU will overtake the US to become the biggest importer of oil in 2015. By 2020, China is forecast to overtake Europe.
“While the US will still maintain a significant interest in the stability of global oil markets, it will put the EU and China at the forefront of oil security,” said Mr Birol.
The IEA’s warning comes less than three weeks before Opec meets in Vienna in December. The Organisation of Petroleum Exporting Countries has already signalled it sees no need to increase its output. Opec members in the summer failed to agree an increase in oil production. The IEA subsequently released some of its emergency stockpiles to help compensate for the loss of Libyan oil and to help support economic recovery efforts.
The IEA said in its monthly report on the oil market in early November that supply and demand fundamentals were underpinning “stubbornly high prices”.
In the same month, in its World Energy Outlook, the agency said that to the year 2035, more than 90 per cent of future growth in oil production needed to come from countries in the Middle East and North Africa.
“If, between 2011 and 2015, investment in the MENA region runs one-third lower than the $100bn per year required, consumers could face a near-term rise in the oil price to $150/barrel,” it said at the time.
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PARIS (AP) — An “overhaul” of European treaties is needed to help restore market confidence in the eurozone’s ability to reduce high state debt and deficits, the French budget minister said Sunday.
Valerie Pecresse said a new governance pact among eurozone members could include “real regulators, real sanctions” to help restore confidence in the currency union.
Speaking on Canal Plus TV, she said the eurozone’s biggest economies – France, Germany and Italy – want to be the “motor” of a more integrated Europe.
“We won’t restore confidence unless we show proof – very quickly – about the unflailing solidity and solidarity of the eurozone,” Pecresse said.
Pecresse said each country must rid itself of the debt and deficit problems that are behind the continent’s deepening debt crisis.
German media reported this weekend that German Chancellor Angela Merkel and French President Nicolas Sarkozy are pushing for swift legal changes that would force eurozone members to comply with strict rules for budget discipline, like tough and easily enforceable sanctions for violators.
Sarkozy and Merkel have argued that the European Union’s treaties must be amended to guarantee a strict enforcement of the currency zone’s growth and stability pact.
Treaty changes, however, are complicated to engineer and take a lot of time – probably more than the troubled eurozone currently has with markets doubting the solidity of several member states such as Italy.
One alternative could be a treaty between the governments involved, which would later be merged into EU law – as has happened before with Europe’s Schengen visa-free travel agreement, German newspapers Welt am Sonntag and Bild reported.
The new initiative could be announced as early as this week and concluded early next year, Welt am Sonntag reported.
An increase in the pace of US job creation is expected this week, and although this is unlikely to have any significant impact on the overall rate of unemployment, any further signs that the world’s biggest economy has avoided recession will be applauded.
Eurozone debt fears have haunted the markets for months and some equity indices are nursing losses in a losing streak that has lasted 10 trading days. Meanwhile, havens have been sought in US Treasury markets, boosting the dollar and making export conditions tougher for US manufacturers.
On this topic
Any support that can be provided by this week’s data to help lift markets out of their malaise will be warmly welcomed.
The US labour market has continued to add jobs in recent months, although at a rather tepid rate. This has cut the unemployment rate to 9 per cent after being stuck at 9.1 per cent for the previous three months.
On Friday the latest non-farm payrolls data are expected to show an increase of between 100,000 and 125,000 jobs in November, thanks to hiring in the healthcare, food services and retail sectors. This is one of the most volatile times of the year in terms of labour statistics, however, as companies hire temporary staff to deal with extra seasonal trade.
“US data continue to look far better than in the eurozone, but unless the eurozone debt crisis is resolved quickly, this relatively healthy position will not last for long. For now, though, the economy is growing respectably and is creating jobs,” says James Knightley, senior economist at ING.
Eurozone finance ministers meet in Brussels on Tuesday to discuss leverage options for the European Financial Stability Facility.
NEW YORK (AP) — The world’s bond buyers have turned on Europe’s deeply indebted governments and fled to another deeply indebted government across the Atlantic — the U.S. As a result, U.S borrowing costs have plunged to historic lows while rising rates in Europe have many worried about a catastrophic financial crisis.
The European debt crisis has made the U.S. Treasury market the world’s most popular spot for bond investors. But Kathleen Gaffney, co-manager of the $19.1 billion Loomis Sayles Bond fund, refuses to join them.
Gaffney concedes that over the course of a few months or even a year, it might look like a bad move. The Loomis flagship fund dropped 5 percent in the three months starting in July, while the benchmark bond index gained 3.8 percent. Like bond giant Bill Gross at Pimco, she avoided U.S. government debt and refused to follow the rest of the world into Treasurys this summer. The Treasury rally has pushed the Barclay’s index up 7 percent this year, compared with her fund’s 3 percent gain.
But Gaffney is used to getting the big picture right. The $19.1 billion Loomis Sayles Bond fund she helps manage has rewarded investors with an average 10 percent return each year for a decade. Morningstar and Lipper both rank it in the top tier of bond funds.
So Gaffney plans on sticking to her call. With Treasury yields below 2 percent, U.S. government debt isn’t worth the risk. And what if other bond buyers eventually sour on U.S. Treasurys just as they have European government debt? For now, she’d rather buy corporate junk bonds.
In a recent interview, Gaffney talked to The Associated Press about why she avoids Treasurys, the prospect of another credit-rating cut for the U.S. and the appeal of Canada.
Q: If you could go back in time and get a chance to do it all over again, would you load up on Treasurys and sell them back to everybody else in August?
Nope. Not at all. We’re not trying to win a popularity contest. It’s really about the yield. You’ll never get good long-term returns if you park your money in bonds paying less than 2 percent. The best way to have success is to follow your long-term perspective.
Q: So how much in Treasurys do you hold now? Your benchmark index is about 50 percent Treasurys.
We have no Treasury position in the fund. None of any kind. It’s been that way since March. They’re the least attractive asset class for the long term. They’re return-free (they pay less than the annual rate of inflation). They’re also very risky because rates will eventually go up.
Q: How do you replace U.S. government bonds?
The alternative that we’ve found is Canadian government bonds. They make up about 9 percent of our fund. It’s a deep market. But it’s really the natural resources that we like. Countries that export natural resources such as oil and metals are tied to rising commodity prices. They can protect against inflation. We also like Australia and New Zealand. Like Canada, their government budgets are in sound shape. And they export more than they import.
Q: Will the Congressional supercommittee’s failure to reach an agreement on $1.2 trillion in budget cuts affect the Treasury market? Automatic cuts are supposed to start in 2013, but some Republicans have said they’ll try to stop that from happening.
The concern is what do they do now. I think Congress is going to find a way to repeal the automatic spending cuts. The rating agencies would not look kindly upon that. We’d be looking at another downgrade for U.S. Treasurys. After the downgrade from S&P in August, Treasurys continued to act as a safe haven. This time the market may not be as kind.
An amazing turn of global events is happening in the Euro Zone that is threatening to infect the world. (more…)
MOSCOW (AP) — Russia’s state-controlled natural gas company on Friday bought the remaining stake in Belarus’ gas pipeline system to become its sole owner in a move that strengthens Moscow’s control over gas exports to the West.
Russia is the main ally and sponsor of Belarus’ authoritarian President Alexander Lukashenko, but Lukashenko had been reluctant to yield control over the pipeline network and other Belarusian economic assets in the past, accusing Russia of trying to erode his nation’s sovereignty.
Lukashenko’s hand, however, has been softened recently by a severe economic crisis that has weakened his power and made him more prone to compromise.
Russia’s Gazprom already owned 50 percent in Belarus’ pipeline operator, Beltransgaz, and had been eager to gain full control. It said in a statement after the signing that it had agreed to pay $2.5 billion for the remaining 50 percent stake.
Russia provides about a quarter of the natural gas that Europe consumes with 80 percent of it going through Ukraine. The rest is shipped through Belarus and Turkey.
Moscow has sought to win control of existing transit routes and build new export pipelines bypassing its neighbors in order to secure its hold on energy supplies to Europe, its main export market.
Past pricing disputes between Ukraine and Belarus have led to disruptions in energy supplies to customers in the European Union, prompting EU nations to intensify a search for alternate supply routes.
Italian government 2-, 3- and 5-year bond yields rose above 8 per cent on Friday as Rome was forced to pay euro-era high interest rates in what analysts called an “awful” auction.
A peak of 8.13 per cent was reached on 3-year bonds, according to Reuters data, as Italian debt traded deeper into territory associated with bail-outs of Greece, Portugal and Ireland in the past 18 months.
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Italy raised the targeted €10bn in an auction of 2-year bonds and 6-month bills but at sharply higher yields.
“Rates have skyrocketed. It’s simply not sustainable in the long run,” said Marc Ostwald, strategist at Monument Securities in London.
Investors demanded a yield of 7.81 per cent for the 2-year bond, up from 4.63 per cent last month. The 6-month bills saw a yields of 6.50 per cent, up from 3.54 per cent. That was significantly higher than Greece paid for six-month money earlier this month when it issued bills at 4.89 per cent.
That means both Rome and Madrid have paid more than Athens for short-term debt this week.
Padhraic Garvey, interest rate strategist at ING, in Amsterdam, said: “It’s not great to be honest, not in good shape at all … The pricing is awful.”
EXECUTIVES at aircraft-makers sometimes grumble that there are too many air shows nowadays. But it was well worth their turning up to Dubai’s, held on November 13th-17th, given the bumper orders they won. The star of the show was Qatar Airways’ wonderfully outspoken boss, Akbar Al Baker, who gave Airbus the runaround for almost three days—at one point publicly accusing it of still learning how to make planes—before agreeing to buy 55 of them, worth $6.4 billion at list prices. Even this whopping order was put into the desert shade by Emirates’ $18 billion order for Boeings, with options to buy a further $8 billion-worth. As the Dubai show ended, President Barack Obama, on a visit to Indonesia, witnessed Boeing sign a record $21.7 billion deal with Lion Air, with options to buy a further $14 billion-worth.
Of course, orders this big enjoy substantial, undisclosed discounts from the sticker price. But the two main makers of full-sized commercial jets can look forward to years of guaranteed business, with firm orders at a record (see chart). The order book for Airbus’s short-to-medium-haul A320, for example, stretches into the 2020s. Ten years ago North American carriers accounted for almost 60% of all aircraft orders; now they have been overtaken by Asian ones, which so far this year have placed 32% of the orders of planes from Boeing and Airbus combined, compared with North America’s 26%.
If the world economy takes a turn for the worse, some airlines will no doubt seek to cancel or postpone orders. But Paul Sheridan of Ascend, an aviation consultancy, says that worldwide demand for air travel is growing so strongly that today’s order books represent only 25-30% of the planes that airlines are likely to need in the coming 20 years. The new generation of planes are significantly cheaper to run than those currently flying, so a harsh economic climate may in fact encourage airlines to press on with renewing their fleets. American Airlines, for example, is seeking to overcome its chronic losses with a huge programme to swap old planes for new.
AP Photo/Charles Dharapak
MANCHESTER, N.H. (AP) — Confronting Republicans, President Barack Obama on Tuesday dashed into the home of the nation’s first presidential primary, urging GOP lawmakers to support a payroll tax cut next week and stand by their own pledges not to increase taxes.
Obama sought to steal the spotlight from Republican presidential contenders who have blanketed the political battleground with anti-Obama messages while tending to a state expected to be heavily contested in the next year’s general election.
“The next time you hear one of these folks from the other side … talking about raising your taxes, you just remind them that ever since I’ve got into office, I’ve lowered your taxes, haven’t raised them,” Obama said at a high school gymnasium. “That’s worth reminding them.”
The president said “in the spirit of Thanksgiving,” Democrats in Congress would offer Republicans another chance next week to consider a plan to extend and expand the cut in payroll taxes that fund Social Security. Obama said it would save the typical middle class family about $1,000 in taxes.
“Don’t be a Grinch. Don’t vote to raise taxes on working Americans during the holidays,” Obama said.
Even as he sought to draw a bright line with Republicans over taxes, Obama was reminded about the unhappiness among some in the Occupy Wall Street movement. As he began to speak, Obama was briefly interrupted by protesters who screamed, “Mic check!” and then chanted, “Mr. President – over 4,000 protesters, over 4,000 protesters, have been arrested.”
Obama paused to let the demonstrators speak. “No, no, no. That’s OK,” Obama said. The crowd then sought to drown out the protesters with chants of “Obama!”
Working the crowd after the speech, Obama was handed a note from the protesters that amounted to a script of their chant. Captured in photographs, the note said peaceful demonstrators had been arrested while “banksters” destroy the economy “with impunity.”
The note urges Obama to stop the assault on protesters’ First Amendment rights and says his “silence sends a message that police brutality is acceptable.”
Presidential hopeful Mitt Romney, meanwhile, was airing his first TV ads in the Granite State, a spot sharply critical of Obama’s economic record. The former Massachusetts governor also ran ads in New Hampshire newspapers that say to Obama, “I will be blunt. Your policies have failed.”
Traveling to New Hampshire, White House spokesman Jay Carney swiped at the ad, which plays audio of Obama from the 2008 presidential campaign declaring “if we keep talking about the economy, we’re going to lose.”
Obama, however, was quoting the campaign of Republican presidential candidate John McCain, a distinction the ad doesn’t make and that alters its meaning. In fact, the Romney campaign statement announcing the ad includes Obama’s full quote: “Sen. McCain’s campaign actually said, and I quote, if we keep talking about the economy, we’re going to lose.”
“Seriously? I mean, an ad in which they deliberately distort what the president said?” Carney said. “It’s a rather remarkable way to start. And an unfortunate way to start.”
New Hampshire, with only 4 electoral votes, has been a key target in recent presidential elections. Republican George W. Bush carried the state in 2000, but Democrats took it back in 2004. Obama lost the 2008 New Hampshire primary in a surprise to Hillary Rodham Clinton but bounced back to win the state in the general election.
Billy Shaheen, a longtime Democratic operative in New Hampshire and the husband of Sen. Jeanne Shaheen, said Republicans’ huge gains in the state during the 2010 midterm elections served as a wake-up call for the state’s Democrats.
“After the 2010 election, New Hampshire got a taste of what the tea party can do, and it’s not happy. I think an undercurrent exists that’s ready to be tapped for the 2012 election,” he said. “We’re not proud of what has been going on in the state capitol, and we’re getting ready. We let our guard down in 2010, but we’ve come too far to go back.”
Eurozone banks raised sharply their borrowing from European Central Bank on Tuesday, with lending hitting a new high for the year amid signs banks are being shut out of private markets.
The ECB lent almost €250bn to eurozone banks in its weekly tender, the highest amount in 2011, as traders said more banks were finding it harder to access wholesale funding because of concerns over their creditworthiness.
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“The bank lending markets have never been as stressed as this, or not since the collapse of Lehman Brothers [in 2008]. We are talking about a credit crisis, not a liquidity crisis. There is plenty of money out there, but more and more banks are deemed too great a risk to lend to,” said a money markets broker.
The ECB is becoming an increasingly important source of funding for eurozone banks as the sovereign debt crisis has deepened with banks borrowing €247bn from the central bank on Tuesday, an increase of €17bn from the previous week and up €52bn compared with two weeks ago. The number of banks participating in the tender also rose, from 161 a week ago to 178 on Tuesday.
Lending conditions in the interbank markets have deteriorated in the past two weeks, despite the ECB reinstating some of its most potent crisis-fighting tools, including one-year liquidity injections.
A worry in the markets is that, despite the access to ECB liquidity facilities, banks still may not be able to repair their balance sheets. With possible further sovereign and bank downgrades to come, more banks may find they are being shut out of the private markets.
“It is a vicious cycle. Sovereign yields rise, leading to government and bank downgrades, which closes the market further to financial institutions, which then do not have the balance sheet to buy sovereign bonds,” said one trader at a European bank.
AP Photo/Richard Drew
NEW YORK (AP) — Stock indexes drifted between gains and losses Tuesday after the government lowered its estimate of economic growth in the third quarter. Higher borrowing costs for Spain also renewed worries about Europe’s debt crisis.
Hewlett-Packard Co. sank 2.8 percent, dragging down the Dow Jones industrial average. H-P lowered its earnings forecast for the 2012 fiscal year after the market closed Monday. The tech giant said it was being “cautious,” citing Europe’s debt crisis and weak consumer spending.
The Commerce Department said the U.S. economy grew at a 2 percent annual rate in the July-September period, down from its initial estimate of 2.5 percent. Economists had expected the figure to remain unchanged.
The Dow Jones industrial average was down 30 points, or 0.3 percent, at 11,516 as of 2 p.m. Eastern. The Dow had been down as many as 113 points shortly before noon. After H-P, aluminum maker Bank of America Corp. had the biggest fall among the 30 stocks in the index, 2 percent.
The Standard & Poor’s 500 index was down 2 points at 1,191. Both the Dow and S&P briefly turned slightly higher in early afternoon trading.
The S&P has lost 5.2 percent over the past week on worries that Spain could get dragged into Europe’s debt crisis and as Congress neared a deadlock over cutting the U.S. budget deficit.
GEORGETOWN, Guyana (AP) — Guyana has signed a $1 billion agreement with a Canadian-based company for what the government says is the largest private mining investment for the South America country.
Toronto-based Guyana Goldfields Inc. said the Aurora Gold Project agreement signed Friday is the first large-scale gold mining license that Guyana has issued since 1991.
The government said it is expected to create more than 1,900 temporary and permanent jobs and Guyana Goldfields CEO Patrick Sheridan said it is expected to generate $1.6 billion in government revenues at a time of record gold prices.
The company announcement said it will pay a mining royalty of 5 percent when gold sells for $1,000 an ounce and 8 percent when the price is greater. It will also pay a corporate income tax of 30 percent.
The agreement is for 20 years, with provisions for extension.
The company said construction should start early next year and the mine and mill should be operating by early 2014.
Guyana’s government on Friday also announced a $138 million contract with the Beijing-based China Harbor Engineering Co. to build a new airport terminal and add more than 3,200 feet (1,000 meters) to the main runway at the country’s principal airport, Cheddi Jagan International.
Advancements in forensic DNA testing are expected to improve the efficacy of our criminal justice system, but is the technology being utilized as it ought to be?
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WASHINGTON (AP) — With a special deficit-reduction supercommittee floundering, the top Republican in Congress warned Thursday that he won’t permit savings from winding down the wars in Iraq and Afghanistan to pay for President Barack Obama’s jobs spending agenda.
Democrats on the deficit panel proposed last week to use war savings to pay for a $300 billion jobs program along the lines President Barack Obama wants, plus take steps to protect the upper middle class from the alternative minimum tax and extend financing for doctors who treat Medicare patients.
“I’ve made it pretty clear that those savings that are coming to us as a result of the wind down of the war in Iraq and the war in Afghanistan should be banked, should not be used to offset other spending,” said House Speaker John Boehner. But the Ohio Republican did not address whether war savings could be used to extend expiring tax cuts such as popular business tax breaks or Obama’s expensive proposal to renew payroll tax cuts that expire at the end of December.
Boehner also said he’s frustrated that all six supercommittee Democrats have yet to unite around a specific plan, even though there’s now less than a week before the panel’s official deadline.
“They’ve never really put paper on the table. It’s very frustrating,” Boehner said.
By all accounts, the deficit panel is at a stalemate.
Despite small steps in recent weeks toward addressing core solutions to the nation’s intractable deficit problem, such as new taxes and curbs on the growth of enormously expensive government benefit programs, both sides said further progress had come to a halt.
Less than a week remains before a Thanksgiving deadline for the panel to vote on a plan cutting deficits by at least $1.2 trillion over a decade. Whatever remaining hope there was appeared to have washed away Wednesday after both Democrats and Republicans on the 12-member panel traded rhetorical salvos about whether the other side was negotiating in good faith.
AP Photo/Vincent Yu
PARIS (AP) — Global stocks slid further Thursday, as investors worried that Europe’s debt crisis was intensifying and spreading to larger countries in the 17-nation eurozone.
Bond investors pushed up borrowing rates for Spain and also for France, where the spread, or extra yield, demanded compared to safe-haven German bonds widened to a record 2 percentage points.
Meanwhile Germany’s chancellor Angela Merkel again brushed aside pressure for a quick-fix solution to the euro crisis despite the mounting market tensions, arguing that spreading debt liability could ruin Europe’s competitiveness and a massive European Central Bank bond-buying drive wouldn’t resolve its problems.
The German chancellor argued in a speech Thursday to an economic conference that rather than look for quick fixes, Europe needs to consider growth-promoting measures that don’t immediately cost money, such as labor-market reforms – and that such measures will require patience.
The results of a Spanish debt auction soured sentiment. The country paid nearly 7 percent to raise euro3.56 billion ($4.8 billion) in 10-year bonds, the highest rate since 1997 and a level seen as unsustainable over the long term.
Demand was relatively weak. The amount of debt sold came in under the euro4 billion maximum target set by the Treasury and the bid to cover ratio was 1.54, compared to 1.76 last time.
“The results of the Spanish bond auction are revisiting familiar fears for investors,” said David Jones, chief market strategist at IG Index.
After the auction, yields on Spanish 10-year bonds shot up to 6.75 percent on the secondary market. That was 4.88 percentage points above the yield of the equivalent benchmark German bund. However, the yield dropped back to end the day at 6.44 percent on mooted bond-buying from the European Central Bank, which never comments on the speculation.
France too saw its borrowing costs rise, after it raised euro6.98 billion ($9.41 billion) at an auction of mid-term bonds that saw strong demand.
Italian bond yields ended the day a little lower at 6.81 percent after new premier Mario Monti vowed to focus on restoring growth, while warning that the end of the euro “would cause the disintegration of the united market.”
AP Photo/Seth Perlman
NEW YORK (AP) — Hardly a day goes by without some politician or pundit pointing out that companies are hoarding cash – roughly $3 trillion of it. If only they would spend it, the thinking goes, the economy might get better.
But the story is not as simple as that. Though it seems to have escaped nearly everyone’s notice, companies have piled up even more debt lately than they have cash. Financial experts say it makes companies more vulnerable than they look.
“The record cash story is bull market baloney,” says David Stockman, a former U.S. budget director.
U.S. companies are sitting on $358 billion more cash than they had at the start of the recession in December 2007, according to the latest Federal Reserve figures, from June. But in the same period, what they owed rose $428 billion.
Companies borrow money all the time, of course. They borrow to build factories, cover expenses, even make payroll. The problem: Debt doesn’t go away. A business can cut costs during a recession. But it can’t just shred the IOUs.
Heavy debt means companies could have to dip into those reserves of cash to pay their lenders. And when interest rates eventually go up, companies will have to spend more money just to service the debt.
In the last recession, which ended in June 2009, small businesses that depended on credit cards and bank loans got slapped with higher rates just as sales began to drop. Some got cut off all together.
Peter Boockvar, equity strategist at Miller Tabak & Co., says business debt is too high even if the U.S. manages to stay out of a second recession. If economic growth doesn’t pick up, “they’ll be more bankruptcies, and more defaults,” he predicts.
Even if companies used cash to pay off what they owe, they would be left with plenty of debt – in fact, an amount equal to 83 percent of all the goods and services they produce, according to Federal Reserve data for incorporated businesses.
That’s an improvement from March 2009, the low point of the Great Recession, when companies owed 95 percent. To stay afloat, companies tapped credit lines at banks, increasing debt while they were bringing in less money. They burned through cash to meet expenses.
Before the recession, though, you have to go back at least six decades to find a time when companies owed so much compared with what they produce, says Andrew Smithers, a London consultant who has written extensively about debt.
DUBAI, United Arab Emirates (AP) — Dubai’s fast-growing airline Emirates kicked off the Middle East’s biggest airshow Sunday with a huge order for 50 Boeing 777s, marking the U.S. aircraft maker’s biggest-ever single order in dollar terms.
Emirates and Boeing Co. valued the unexpectedly large deal for an extended range version of the 777-300 at $18 billion – the total by list price – though the carrier is unlikely to pay that much. Airlines typically negotiate big discounts, especially when buying in bulk.
Emirates has an option to buy another 20 777s as part of the order. That would push the deal’s face value to $26 billion.
The deal further establishes Emirates as Boeing’s best customer for the twin-engine 777, a workhorse of the carrier’s long-haul fleet.
Emirates has 95 777s in service and already had another 40 on the order books. That means it now has nearly as many of the twin-aisle planes on order as it operates.
“The 777 has really served Emirates very well in terms of the seat cost, especially when we see that the fuel price today is very high,” Emirates Chairman and CEO Sheik Ahmed bin Saeed Al Maktoum said in announcing the deal.
Earlier this month, Emirates posted a profit of $225 million for the first half of its fiscal year. That was a 76 percent decline from what it made during the same period a year earlier, a drop it linked in part to soaring fuel prices.
Although the Gulf airlines are the among the world’s most ambitious in expanding their fleets and routes, a deal the size of the Emirates contract had not been expected at the airshow, which began Sunday. It and rivals such as Abu Dhabi-based Etihad and Qatar Airways have a massive backlog of planes already on order.
AP Photo/Manu Fernandez
BERLIN (AP) — Prosperous Germany has a surprising message for sinking Greece: Help Wanted.
With a shrinking labor force and buoyant economy, Germany desperately needs skilled workers to keep its industrial engine churning forward. Increasingly, it’s seeking them from Greece and other European laggards like Spain and Portugal where unemployment is soaring amid fears of financial implosion.
Germany quickly overcame the financial meltdown that started in 2008 and unemployment is now at a 20-year low of 6.6 percent. Companies are so desperate to fill skilled labor shortages that the government has taken to organizing matchmaking sessions between German firms and job seekers from crisis-hit countries.
Greek civil engineer Christos Kotanidis moved to Erlangen in southern Germany three months ago and quickly found work with industrial giant Siemens.
The 33-year-old’s former company in Saloniki put him on part-time earlier this year because, struck by the financial crisis, it could no longer afford to pay full salaries. It took Kotanidis only six weeks to land a full-time position in Germany.
“I decided to look for a job in Germany because it has a stable economy,” Kotanidis said. “In Greece the economic situation is bad now, but the future looks even worse.”
Unemployment in Greece is currently at 16.7 percent, but among young people it is even higher with more than 42 percent of people under 24 not finding any work. In Spain, overall unemployment hovers at around 20 percent, and more than 45 percent of people under the age of 25 are without a job. Portugal, Italy and Ireland, the other countries bearing the brunt of the debt crisis, also have bleak employment pictures.
There are no hard numbers on how many professionals from Europe’s crisis zone have been hired in Germany. Immigration to Germany has shot up by 13 percent in the past five years, and more than half of the newcomers are from within the European Union. EU citizens do not need to apply for a visa or work permit if they take a job within the bloc.
WHEN China joined the World Trade Organisation (WTO) in December 2001, many people hoped that this would curb the power of its state-owned enterprises. Ten years on, they seem stronger than ever. President Hu Jintao can expect to hear about this at the Asia Pacific Economic Co-operation summit this weekend. Hillary Clinton, America’s secretary of state, has warned stridently of the dangers of state capitalism. A Congressional report released on October 26th railed against the unfair advantages enjoyed by state-owned firms and lamented that China is giving them “a more prominent role”.
Indeed it is. In a new book called “China’s Regulatory State”, Roselyn Hsueh of Temple University documents how, in sectors ranging from telecommunications to textiles, the government has quietly obstructed market forces. It steers cheap credit to local champions. It enforces rules selectively, to keep private-sector rivals in their place. State firms such as China Telecom can dominate local markets without running afoul of antitrust authorities; but when foreigners such as Coca-Cola try to acquire local firms, they can be blocked (though this week China did approve Yum! Brands’ bid to acquire Little Sheep, a Chinese restaurant chain).
In the dozen or so industries it deems most strategic, the government has been forcing consolidation. The resulting behemoths are held by the State-owned Assets Supervision and Administration Commission (SASAC), which is the controlling shareholder of some 120 state-owned firms. In all, SASAC controls $3.7 trillion in assets (see chart). The Boston Consulting Group (BCG) calls it “the most powerful entity you never heard of”; though it does not always get its way. Some state-owned firms have powerful friends and are hard to push around.
In some ways, SASAC aims to modernise its enterprises. Peter Williamson of Cambridge’s Judge Business School points approvingly to the steel industry. China was once littered with small, uneconomic steel firms; SASAC has urged them to merge, creating three “emperors” and five “kings”. That, says Mr Williamson, means there are enough steel firms to foster competition at home; yet they are big enough to venture overseas. What the government’s plan lacks, however, is any idea that private steelmakers might compete, in China, with the emperors and kings.
Software maker Adobe Systems led Wall Street down on Wednesday morning, but stocks plunged across the board, as US markets took their lead from Europe, where a spike in Italian sovereign bond yields above 7 per cent caused alarm.
Adobe was down 10.9 per cent to $27.10 after the company announced it would cut 750 jobs at a cost of up to $78m in the fiscal fourth quarter.
Of greater concern to Adobe investors than the one-off cash hit is the company’s decision to shift investment to programs for digital publishing and web advertising, a departure from its traditional focus on graphic design software.
Broader markets opened on a downbeat note. The S&P 500 tumbled 2.2 per cent to 1,247.58 in the first few minutes of trading.
All 30 companies in the Dow Jones Industrial Average were down – an alarming sign of stocks moving in lock step in response to macro news from Europe.
The blue chip-heavy index fell 1.9 per cent to 11,934.66, with China-exposed stocks among the biggest fallers. Alcoa was down 3.2 per cent to $10.43 and Caterpillar fell 3.4 per cent to $92.67, as fears grew that the eurozone crisis is leading banks to tighten lending in Asia.
The Nasdaq Composite index was off 2.3 per cent to 2,685.07.
WASHINGTON (AP) — Wholesale businesses reduced their stockpiles in September for the first time in nearly two years, while their sales rose. The trend could be a good sign for future factory output because manufacturers will have to produce more if demand keeps rising.
The Commerce Department says wholesale inventories dropped 0.1 percent, the first decline since December 2009. The decline occurred largely because companies cut their stockpiles of nondurable goods, such as agricultural products, petroleum, and clothing. Inventories of durable goods, such as autos, furniture and machinery, rose.
AP Photo/Richard Drew
NEW YORK (AP) — The Dow Jones industrial average lost more than 240 points in early trading after Italy’s borrowing costs soared.
The yield on the benchmark Italian government bond spiked above 7 percent, a sign that investors are losing faith in the country’s ability to repay its debt. Analysts say Italy will not be able to refinance its debt at current rates, which will force it to either enact deep austerity measures or to receive financial assistance to prevent a default.
Greece, Portugal and Ireland required bailouts when their bond yields rose above 7 percent. But unlike those countries, Italy’s $2.6 trillion in debt is too large for other European nations to bail out.
Wednesday 14:30 GMT. Another surge in Italian bond yields to euro-era records has spooked investors, swiftly counteracting the welcome afforded some benign Chinese inflation data.
The euro has cracked and is down 1.6 per cent to $1.3606, while the FTSE Eurofirst 300 has reversed early gains to shed 1.8 per cent as the banking sub-index drops 4 per cent.
Italy’s stockmarket is getting crushed, the FTSE MIB index losing 3.5 per cent. Wall Street’s S&P 500 has greeted the opening bell with a tumble of 2.5 per cent.
Money is moving into perceived havens such as the benchmark Treasury, the yield for which is down 11 basis points to 1.97 per cent.
Many traders had initially cheered Italian prime minister Silvio Berlusconi’s pledge to resign, reasoning it makes budgetary reforms more likely and reduces the risk of the European debt crisis spreading.
Meanwhile, news that Chinese inflation fell to a five-month low, raised hopes that Beijing has more room for monetary policy easing to support growth in the world’s second-biggest economy amid the global slowdown.