The early stock rise faltered towards the closing bell sounded as the Dow posted only a modest gain.
A good article below by Charles Kadlec from Forbes on the failure of Greece and the failure of Keynesian economics in general.
Who knows how the UBS brain surgeon in England thought he was going to get away with his scam with all the different layers of auditing.
Here are the top financial stories of the day:
1) Uncertainty Zaps Early Stock Rally-From The Wall Street Journal
A rally in U.S. stocks largely evaporated late in Tuesday's session following reports that Greece's negotiations with international inspectors may drag out, and could still fall apart.
The Dow Jones Industrial Average ended 7.65 points higher, or 0.1%, at 11408.66, although the blue-chip measure had gained as much as 148.91 points midsession. The measure came within half a percentage point of breaking even for 2011 before the afternoon selloff.
The Standard & Poor's 500-stock index lost 2 points, or 0.2%, closing at 1202.09, for its second consecutive loss. Defensive utility and health-care stocks led the measure's gainers while materials and industrial stocks led decliners. The technology-oriented Nasdaq Composite ended down 22.59 points, or 0.9%, at 2590.24.
Stocks reversed their early rally on reports that the so-called troika of the International Monetary Fund, European Commission and European Central Bank were expected to return to Athens in October, with The Wall Street Journal reporting that Greece's ongoing talks with inspectors could still fall apart. Greece's finance ministry said that it had made "satisfactory" progress in the negotiations but added that the talks would continue over the weekend.
The reports suggested that there would be no immediate assurance against a disorderly Greek default.
The lack of certainty led investors to sell and await the next cycle of news from continental Europe.
"There have been so many different headlines about Greece that investors aren't really sure what's rumor and what's the truth," said Jonathan Corpina, senior managing partner of NYSE floor broker Meridian Equity Partners.
Trading ahead of a much-awaited Federal Reserve policy statement Wednesday played a role in the early-session rally, though it wasn't enough to carry through to the close of trading.
"It looks like the market is baking in an announcement of some kind of quantitative-easing strategy," said Deirdre Dennehy, portfolio manager at Rockland Trust. "[But] for them to announce a QE3, I'm not sure how impactful that's going to be. The more times they do that, the less the effect in the market."
2) Greece And The Crisis Of The Governing Elite-From Forbes
Europe’s governing elite – and those who believe in the superiority of government in the management of the economy – is in crisis. Their visions of a more just society and economic security are being shredded by the stark reality that the governments they run are running out of money.
The looming Greek default and the nascent financial crisis in Europe is a symptom of this crisis of the governing elite. At risk is the background consensus that supported the expansion of government to the point that public spending now accounts for roughly half of all economic activity among the 17 nations in the eurozone. A destruction of that consensus would imply a massive loss of power by the elites who for decades have declared that given the power, they could produce an economy with less risk and more fairness than free market capitalism.
The pending failure of the governing elites to deliver on their most basic promises is setting off alarm bells in Washington. Treasury Secretary Timothy Geithner, former Treasury Secretary Larry Summers, and World Bank President Robert Zoellick have admonished the Europeans to move forcefully to resolve the European debt crisis lest it threaten the already meager U.S. economic recovery. Unsaid is the concern that Europe’s failure will tarnish America’s governing elite, providing additional energy to the Tea Party’s call for restoring limited, constitutional government in the U.S.
There is no one to blame for Europe’s debt crisis other than its political class. They are the ones who borrowed extravagantly with the pretense that good intentions trumped fiscal responsibility, who set the rules that require banks to hold zero capital against government debt, and who permitted the European Central Bank to buy billions of euros of that debt from banks. That has endangering the euro itself, which has fallen 20% against gold since the beginning of the year, signaling that higher inflation and increased economic turmoil in the euro-zone may lie ahead.
In the absence of the next, 8 billion euro loan from its European partners and the IMF, the Greek government will soon simply run out of money to pay public sector wages and pensions. That reality last week triggered a run by dollar depositors on European banks with exposure to government debt prompting the U.S. Federal Reserve to make emergency loans to the European Central bank so it, in turn, could provide dollar liquidity to its member banks.
There appears to be no way out. The economic policies imposed on Greece by the governing elite have made things worse. The combination of spending cuts and massive tax increases slammed the economy, which shrank 7% in 2010, and 5% in the year ending June 2011. As a consequence, tax revenues last year fell by 2 billion euros, or 8.3%, instead of rising 3.3 billion euros to 27 billion euros. Social spending rose as unemployment jumped from around 9% to 16%, and the government’s debt became an even greater percentage of a now smaller GDP.
Italy, Portugal and Spain are headed down the same destructive path. Last week, Italy increased the value added tax a full percentage point to 21%. Portugal has increased its value added tax by 1 percentage point across all categories, while increasing the top marginal tax rate by 1.5% on top earners and by 2.5% on corporations. Spain just announced it would reinstate a wealth tax on approximately 160,000 taxpayers with more than 700,000 euros ($972,000) in declared assets in hopes of raising a little over a billion euros in revenue.
Awakened to Bastiat’s warning by these tax hikes, individuals are rioting in Athens and Rome, diving into the underground economy thereby starving the state of revenue, and rebelling at the polls. All of this is especially galling to Germans, who can’t help but notice the fundamental unfairness of the welfare state writ large. In reaction to German Chancellor Angela Merkel‘s support of the Greek bailouts, which effectively punish German taxpayers in favor of irresponsible governments in southern Europe, her party has been handed significant electoral defeats in 6 out of 7 state elections in the past year.
Finnish voters have prompted their government to require collateral in exchange for any additional loans to Greece, further complicating efforts to cobble together a package in time.
The governing class’s response is a call for yet more power through a centralized European government, or institutions that would be able to exert direct control over the budgets of the zone’s member states. Treasury Secretary Timothy Geithner’s advice is for the Europeans to borrow more money by permitting the existing European bailout fund to use leverage to increase its own lending capabilities.
Others call for Greece to withdraw from the euro so it can devalue its currency. But a plummeting Greek currency would rapidly reduce the government’s revenue in terms of the euro, guaranteeing a massive default on its outstanding euro denominated debts.
All of these proposals are desperate measures designed to cover up the fundamental failure of the underlying political economic model, which assumes that those who govern can provide free goods and services to the population at large, lavish pensions for government employees, impose rigidities onto labor markets and otherwise achieve social goals through their management of the economy. What we are now seeing is that good intentions are and never were sufficient. That so-called “rights” to jobs, health care, housing and pensions require real resources that cannot be conjured out of nothing by a good speech or a government decree, but must be taken from those who produce in the private sector.
Yet, the taxes and other exactions used to take those resources have reduced economic activity and income so much that the private sector can no longer fund current government outlays. Now that investors are less willing to lend money, a rapid, jarring adjustment in which expenditures are brought down into alignment with receipts seems unavoidable.
The promises broken during this adjustment will betray the fundamental belief by many in the wisdom of the governing elites and the benevolence of government. The result may be a new background consensus that recognizes the limits of what governments can do, and the cost of empowering them to do more. Or, supported by mobs in the streets, the governing elite may declare a state of emergency and seize businesses and property, consuming capital in the name of the greater good. Either way, the European experience is sure to influence the U.S. political debate swirling around 2012 presidential election.
3) Scandal at UBS Tilts Talk on Rules-From The Wall Street Journal
Now you have your answer.
Just when bankers, analysts and even some regulators were wondering whether to slow down the burst of postcrisis banking overhauls in light of the perilous state of the global economy, along came news of UBS AG's $2.3 billion trading loss to provide a resounding "no" to that question.
The events have turned Kweku Adoboli into a well-known figure in financial circles and not because of his penchant for cerulean sweaters. On Friday, the 31-year-old UBS trader, in his sweater, was charged by U.K. authorities with fraud and false accounting. (He hasn't entered a plea, although he isn't required to at this stage.) A day earlier, the Swiss bank had disclosed a $2 billion loss—later raised to $2.3 billion—as a result of unauthorized activities by one of its traders.
Much of the affair remains shrouded in mystery, but this much is clear: The scandal will strengthen the hand of politicians and regulators who want to tighten their grip on the global banking industry. In the U.S., those on Wall Street and in Congress who wanted to repeal or roll back the Dodd-Frank law will have a hard time making inroads now.
Forget the nuances—that fraud, if this is what it is, is always difficult to spot no matter how tough rules are; that $2.3 billion isn't actually that much for a banking giant like UBS; and that, apparently, its clients didn't lose money.
Regardless of whether the charges against Mr. Adoboli prove founded, the fact that UBS lost more than $2 billion on unauthorized trades leaves the impression that, once again, a member of the global banking elite has been unable to police itself, keep a close eye on its highly paid staff and avoid unnecessary risks. Proponents of stricter regulation could hardly have asked for a better assist.
The timing of UBS's announcement—on the third anniversary of the bankruptcy of Lehman Brothers—made it almost irresistible to conclude that Wall Street has learned nothing from past mistakes.
James Dimon, for one, disagrees with the notion that some of the new rules are needed. The J.P. Morgan Chase & Co. chief didn't address the UBS situation but told me that he regards regulations such as the U.S. plans to require big banks like his to carry extra capital as "irrational and contrived."
"I am not asking regulators to be cheerleaders," he said on Friday. "I am asking them to be right and fair. Some of these things are unfair, and they should have never been agreed" on.
Fair or not, the fact is that regulation will shape the future of the financial industry for decades to come.
Take the U.K. as an example. Last week, an independent commission proposed "ring-fencing" retail activities from riskier operations such as investment banking at an estimated cost to the industry of as much as £7 billion ($11.1 billion).
"Increasing regulation…is the single-largest driver of postcrisis bank profitability in the U.S. and Europe," argues management consultancy McKinsey & Co. in its annual banking review released Monday. The report estimates that Basel III capital rules alone will force U.S. and European banks to find $1.5 trillion in additional capital by 2015.
The combustible combination of an unstable economic environment and more regulation is leading to a radical rethink of how banks work.
Three seismic shifts are already in motion:
1) European banks are changing from huge lending machines to facilitators of capital-markets flows on behalf of companies and investors. Unlike the U.S., where companies get most of their funding from equity and debt markets, European corporations rely on bank loans for the bulk of their financing.
That worked well until banks were able to finance their huge lending efforts by borrowing on short-term debt markets.
But as that type of capital was made more expensive both by the sovereign crisis and new rules aimed at curtailing banks' reliance on flighty investors, that business model is fast becoming unviable.
That, in turn, is prompting banks to shrink their loan books and build up their capital-markets business.
The catch here is that such a radical change in strategy might take years to complete and, even then, not work at all, especially if companies don't adjust their funding expectations accordingly and/or U.S. banks prove more adept at the capital-markets business than Europeans.
2) Cost cutting among Western banks will continue apace. Last year, U.S. and European banks' average returns on equity were below their cost of equity, according to McKinsey, meaning that they weren't able to put their capital to profitable use.
With sluggish economic growth and additional capital requirements on the horizon, returns will have to be boosted by cutting information technology, staff and infrastructure expenditures.
3) The rise of emerging-markets banks. Once dismissed as unsophisticated in comparison with the big boys from the developed world, national champions of fast-growing countries such as China and Brazil are establishing themselves on the international-banking stage.
Emerging markets accounted for around 40% of global industry profits in 2010, more than double the level in 2006. With the demographics and macroeconomic wind at their back, local behemoths are perfectly placed to capture an ever bigger slice of that expanding pie.
The question for the likes of Industrial & Commercial Bank of China and Brazil's Itau Unibanco Holding is whether they can take on European and U.S. rivals outside their home markets. It doesn't look feasible at the moment, but the struggles of their peers in developed markets could make it easier in the future.
These three trends could, of course, push banks toward a game plan often used when profits sag: taking on more risk in less regulated areas in order to turbocharge profits. Let's hope, for all our sakes, it doesn't come to that.
Quote of the Day from Dave Ramsey.com:
Matthew 5:16 — In the same way, let your light shine before men, that they may see your good deeds and praise your Father in heaven.
Tuesday, September 20, 2011
Monday, September 19, 2011
Financial Headline News for Monday 9/19
Stocks slid today as Greece fights for emergency funds. What happened to the celebrations of last week that Greece was solvent?
Cigna is starting a $25 million ad campaign crafted to appeal to individual consumers, signaling the industry's growing focus on a segment that is set to expand substantially under the health-overhaul law.
Red envelopes and red faces as Netflix apologizes after price hike and then causes another uproar.
Here are the top financial stories of the day:
1) Stocks slide as worries about Greek debt persist-From the AP
Pessimism about Greece's financial problems returned to the financial markets Monday. Stocks fell sharply as investors once again doubted that the country will be able to avoid a default on its debt.
Even after a late-day rally cut its losses by nearly half, the Dow Jones industrial average closed down 108.08, or 0.9 percent, at 11,401.01. The drop ended five days of gains for stocks and marked the return of the back-and-forth trading that has accompanied the uncertainty about Europe's debt crisis.
The Nasdaq composite fell 9.48, or 0.4 percent, to 2,612.83. The Standard & Poor's 500 index fell 11.92, or 1 percent, to 1,204.09. The S&P 500 gained 5.4 percent last week as it appeared Greece would get its bailout. But European finance ministers said Friday they would delay authorizing an $11 billion installment of emergency funds for Greece until October.
On Monday, the country's finance minister held an emergency teleconference with its international creditors.
They are pressuring the government on austerity measures to reduce Greece's debt. Investors fear Greece won't be able to convince lenders that it can pay its debts -- and that it won't get the money it needs to avoid a default on debts that must be paid next month.
Late Monday, Greece's finance minister said that the 2 1/2-hour conference call was "productive and substantive." Hope that Greece might be closer to qualifying for rescue funds started a late comeback. The
Dow gained about 100 points in the last hour of trading.
But investors also appeared pessimistic about a Federal Reserve policy decision expected Wednesday.
Some economists believe that since the Fed decided to hold a two-day meeting instead of the originally planned one-day session, that it was preparing to take steps to stimulate the economy. However, other analysts doubt that the Fed will announce a new plan for the economy.
There is too much disagreement among Fed officials about monetary policy for a decision right now, said Ralph Fogel, head of investment strategy at Fogel Neale Partners in New York. "They'll have to let it play out at least a little while longer, and I think they'll wait until November," Fogel said.
Separately, President Barack Obama on Monday called for $1.5 trillion in new taxes to help reduce the U.S. deficit. He said, "we can't just cut our way out of this hole."
The proposal is being opposed by House Speaker John Boehner, who has said the Republican Party won't accept any tax increases to lower deficits. Obama's speech marked the start of a new round of deficit-reduction negotiations that are likely to be contentious.
For investors, the day's news added up to more uncertainty. "The market just can't stand not knowing what's going on," Fogel said.
Investors have been sensitive to each development that emerges from Europe, and that has helped feed the volatility in stocks the past few months.
"After every meeting in Europe there's a spin put on it -- either `this was good and a solution's really soon,' or someone looks the wrong way and the media says there's no solution," said Rob Lutts, president and chief investment officer of Boston-based Cabot Money Management.
If Greece were to default on its debt, other European countries with heavy debt would likely be judged less credit-worthy and have difficulty borrowing money. But the problems go beyond Europe. U.S. bank stocks have fallen on concerns that a default would make it hard for European banks to pay their bills -- including the billions of dollars that U.S. banks have lent them. There are concerns about a lending crisis similar to what the world saw in 2008.
There is also concern about a recession in Europe, which already has a weak economy. The companies in the S&P 500 get 20 percent of their net income from European countries. If their business suffers, that could also hurt the struggling U.S. economy.
The uncertainty wasn't limited to U.S. investors. In Europe, Germany's DAX closed 2.8 percent lower. France's CAC-40 fell 3 percent, and the FTSE 100 index of leading British shares fell 2 percent. Those markets closed before the news about the teleconference between Greece and its creditors.
Lutts, the Cabot analyst, said some investors are also uneasy about earnings reports that will start arriving in early October.
"In the last year or so we had a nice ramp-up in earnings -- that's history now," Lutts said. He said companies are contending with the steady rise this year in commodities and raw materials prices, and many are unable to raise their own prices because that hurt their ability to compete.
"The market is worried that (earnings reports) won't be rosy and that we'll see a downshift, not an upshift, in earnings."
Investors were again buying U.S. government debt, which is seen as a safe place when the economy is weak and stocks are falling. The yield on the 10-year Treasury note, which falls as investors buy bonds and push its price higher, fell to 1.95 percent, near its low for the year. It was at 2.07 percent late Friday.
The U.S. dollar, another asset seen as safe, also rose against a basket of foreign currencies. Concerns about the stability of the European economy pushed the Euro lower against the dollar, to $1.36 from $1.38 late Friday.
In corporate news, Goodrich Corp. rose 16 percent on speculation that United Technologies Corp. is interested in buying the aerospace manufacturer. United Technologies fell 1.2 percent.
Tyco International Ltd. rose 2 percent after the manufacturer announced a plan to split into three companies.
Lennar Corp. rose 5 percent after the homebuilder's earnings met Wall Street's expectations and revenue came in stronger than expected. The company said that while it delivered fewer homes in its fiscal third quarter, demand is picking up somewhat, driven by low home prices and all-time low interest rates. The company was cautious about the future, however, because of high unemployment.
Netflix fell 7 percent after the company said it was formally separating its online streaming service from its mail-in DVD rental service, which is being renamed Qwikster.
Chinese solar equipment factory Jinko Solar plunged 28 percent after it was forced to shut down one of its factories because of protests by local residents who claimed it was polluting the air and water.
About six stocks fell for every one that rose. Trading was light, at 3.7 billion shares.
2) Health Law Puts Cigna in Ad Mode-From The Wall Street Journal
Cigna is starting a national ad campaign Monday crafted to appeal to individual consumers, a sign of the industry's growing focus on a segment that is set to expand substantially under the health-overhaul law.
The Cigna marketing push, which is built around the slogan "Go You," will be one of the most high-profile examples so far of how health plans are trying to prepare for 2014, when the major provisions of the law kick in. They include a requirement for most people to carry health insurance, as well as new online exchanges where consumers will be able to purchase coverage, including subsidized plans for people with limited incomes.
Such provisions are expected to increase the number of consumers who choose their own plans. About 14 million people currently are covered through individual insurance, according to the Kaiser Family Foundation, a nonpartisan nonprofit organization. The Congressional Budget Office has projected that the number of people buying their own insurance will more than double by 2016 under the new health law. Some workers also may start getting a lump sum from employers to select coverage.
"The insurance industry is one that has traditionally been oriented around services to an employer or a government entity," said Cigna Chief Executive David M. Cordani. "We want to orient around the individual."
He said that focus includes consumers who get insurance through their jobs, as well as those who will purchase coverage their own.
Goldman Sachs estimates that just 1% to 2% of Cigna's current revenue comes from the individual market, and Goldman analyst Matthew Borsch calls the insurer's presence in the segment "embryonic" so far. Cigna said it doesn't disclose revenue by plan size.
Cigna's current push into the individual market, which started in 2008, is limited to just 10 states. That number is expected to expand in 2014 and beyond, though Mr. Cordani said Cigna still will enter only select markets, where it thinks it can become a strong presence.
Blue Cross and Blue Shield plans tend to have the strongest individual-market presence in most regions. WellPoint Inc., which operates many Blue Cross and Blue Shield plans, has the biggest individual business of the major national insurers.
The Cigna ad campaign, which costs around $25 million, according to a person with knowledge of the matter, will involve ads that appear to pitch health coverage as a path to self-actualization. "Deep inside you there's a person who refuses to be kept deep inside you," says a print ad. Another asks, "When's the last time you did something for the first time?" The campaign will start running nationally this week on several cable and broadcast networks, as well as in magazines and on websites. The company's last major national advertising campaign was in 2002.
Cigna said it also is designing health insurance and other coverage aimed at particular population segments. In Pennsylvania the company is trying a program for families with a member who is autistic, offering advice from a "care manager" and discounts for some types of therapists.
Other possible targets include people who have diabetes or those hoping to lose weight, who could tap into elements of the wellness initiatives Cigna currently offers for employers. These products could be sold alone or potentially wrapped into health plans, the company said. Cigna also said it plans to beef up its direct-to-consumer website and hire around 500 people in customer-service and other positions.
Other companies also are laying the groundwork for expanding sales to individuals. Seventy-three percent of insurers are planning to increase their marketing and sales capabilities in the near term, with a focus on the direct-to-consumer segment, according to a survey of industry executives this spring by Boston Consulting Group.
"Most insurers have not built enough brand equity with consumers," said Raj Bal, a former WellPoint executive who is now an industry consultant. Also, employer sales often come through brokers, whose role will likely be less important in starting in 2014, he said.
The Blue Cross and Blue Shield Association recently forged a deal with H&R Block Inc. for members' plans to be promoted at the tax-preparation firm's storefronts. The association also is targeting the growing
Hispanic population through a tie-in with Spanish-language media company Univision Communications Inc. The group is also in talks with a number of retailers about partnerships.
"You have to think about channels differently" to reach consumers, said Maureen Sullivan, a senior vice president at the association.
Aetna Inc. is working with health-care providers to create insurance products. These can take advantage of hospitals' or clinics' local name recognition and might appeal to individual consumers more than to big employers that want to ensure access to a broad range of physicians and facilities. For example, the insurer has said it will create plans with Carilion Clinic in Roanoke, Va., that will carry the Carilion and Aetna brands and be sold to individuals and businesses.
3) Netflix says it's sorry, then creates new uproar-From the AP
The CEO of Netflix said he was sorry for mishandling a recent price increase that caused customers to cancel the service in droves. But the apology was drowned out by a decision that angered subscribers all over again.
The company will split into two services -- one with an odd new name that offers the familiar discs in red envelopes and another for online streaming of TV shows and movies.
The DVD service will be called Qwikster, a name that is supposed to signify a commitment to fast service but quickly became an object of ridicule Monday on the Internet. The streaming service will keep the Netflix name.
Netflix, which had 24.6 million U.S. subscribers at the end of June and is the nation's largest video subscription service, redefined home entertainment over the past decade with its DVDs by mail. Now it's trying to prepare for the day when watching movies on a disc goes the way of driving to the video store to pick up a VHS tape.
But lately, it has bungled the transition. The company has lost half its market value since July, when it announced that customers who wanted DVDs and streaming had to pay for them separately -- and pay up to 60 percent more.
The decision to rebrand the best-known part of Netflix's business left some experts wondering whether CEO Reed Hastings is losing the touch that established him as an influential figure in technology and entertainment.
Others see the logic in trying to make sure Netflix keeps a thriving business as customers abandon DVDs and shift in greater numbers to beaming movies and TV shows into their living rooms over high-speed Internet connections.
It's going to be a painful transition, as Hastings acknowledged as he cut loose the DVD service.
"It's hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best," Hastings wrote on a Netflix blog. The CEO of the rechristened Qwikster service will be Andy Rendich, a longtime Netflix employee.
Hastings found little sympathy among the more than 10,000 people who commented on the blog posting.
Most of them lambasted him for making life more difficult for about 12 million customers who get both streaming and DVD rentals. Those people will have to visit two websites to make requests and update their billing information.
Other critics questioned the sincerity of his apology for the recent price increase and ripped him for giving DVD rentals a different identity -- and for the name Qwikster in particular.
"It's a really dumb name," said Scott Devine of Burbank, Calif., who dropped the DVD service after the price increase was announced two months ago. "You would think they would choose something that at least had `flick" in the name."
The split may seem like the natural next step to Hastings, but he appears tone deaf to subscribers, said John Tschohl, president of the Service Quality Institute, a consulting service, and author of the book "Achieving Excellence Through Customer Service."
"I don't think Netflix is listening to its customers at all," he said. "They have really blown it."
Columbia Business School marketing professor Brett Gordon thinks Hastings knows exactly what he's doing by starting to bury the DVD business, even if Hastings didn't say it in his blog post.
By the end of September, Netflix figures less than 10 percent of its expected 24 million customers in the U.S. will subscribe to DVD-only plans.
"They don't want the Netflix brand to be damaged by the inevitable death of physical digital goods," Gordon said.
Netflix was a Wall Street star until the jarring July 12 announcement about its prices. Its stock rose from about $50 at the beginning of 2009 to more than $300 in early July.
Since backlash to the price increase, investors have grown disillusioned. Netflix's market value has plummeted 53 percent from its high, wiping out about $8 billion in stockholder wealth. On Monday, the stock shed more than $11 to close at $143.75.
The steepest declines have comes since Netflix warned it expected to have 600,000 fewer subscribers at the end of this month than at the end of June, by far the worst downturn in the company's history.
Netflix's stock has been hit so hard that it made Hastings' apology seem like little more than damage control, Devine said.
In his blog post, Hastings wrote that he "slid into arrogance based upon past success" when he decided to raise prices so dramatically. He emphasized the higher prices were the right thing to do, but said he should have done more to explain them.
Hastings said his biggest fear is that Netflix will be left behind by technological upheaval, like what happened to AOL when people switched from dial-up Internet to widely available broadband, or Borders when readers gravitated to the e-book.
Netflix itself has killed off thousands of video rental stores during the past five years, and it devastated Blockbuster, which once dominated the home-video market and went bankrupt last year.
Hastings began Netflix's evolution in early 2007 when he added Internet video streaming. That option grew in popularity even faster than he anticipated, causing video distributors to demand ever higher licensing fees.
Those expenses are one reason Netflix raised prices. Hastings has promised to use the additional money it gets from its subscribers to stockpile its video streaming library with more content.
Some subscribers are upset by Netflix's inability to renew a contract with Starz Entertainment that included many recently released movies from Walt Disney Co.'s studios. The Starz deal expires in February.
More broadly, Netflix customers have complained that its TV and movie titles available for streaming pale next to its menu of more than 100,000 DVD titles. And they have other places to turn for streaming entertainment -- Amazon.com, iTunes and Hulu, among others.
In Monday's blog post, Hastings wrote that Netflix will make "substantial" additions during the next few months.
Michele Lucas of Denver is among the Netflix subscribers who think its streaming library is already losing its appeal. Her family pays only for streaming now. They stopped renting DVDs from Netflix after the price increase.
"We sit down at night and go through and we have a really hard time finding a movie to watch," Lucas said.
Spinning off the DVD services will also allow Netflix to provide studios with a clearer idea of how many people are streaming their content. That could be critical as it negotiates future licensing deals.
In addition to the split, Netflix will expand into an area Hastings had steadfastly resisted -- video game rentals. Adding it to Qwikster may not make investors happy, though, because video games are more expensive and have a shorter shelf life than DVDs.
But video-game availability could win back alienated subscribers. Devine said he might sign up for Qwikster if the selection is good enough. Hastings seems confident he won't be the only one.
"Both the Qwikster and Netflix teams will work hard to regain your trust," Hastings wrote on the blog and a mass email to subscribers. "We know it will not be overnight. Actions speak louder than words. But words help people to understand actions."
Quote of the Day from Dave Ramsey.com:
Life's challenges are not supposed to paralyze you; they're supposed to help you discover who you are. — Bernice Johnson Reagon
Cigna is starting a $25 million ad campaign crafted to appeal to individual consumers, signaling the industry's growing focus on a segment that is set to expand substantially under the health-overhaul law.
Red envelopes and red faces as Netflix apologizes after price hike and then causes another uproar.
Here are the top financial stories of the day:
1) Stocks slide as worries about Greek debt persist-From the AP
Pessimism about Greece's financial problems returned to the financial markets Monday. Stocks fell sharply as investors once again doubted that the country will be able to avoid a default on its debt.
Even after a late-day rally cut its losses by nearly half, the Dow Jones industrial average closed down 108.08, or 0.9 percent, at 11,401.01. The drop ended five days of gains for stocks and marked the return of the back-and-forth trading that has accompanied the uncertainty about Europe's debt crisis.
The Nasdaq composite fell 9.48, or 0.4 percent, to 2,612.83. The Standard & Poor's 500 index fell 11.92, or 1 percent, to 1,204.09. The S&P 500 gained 5.4 percent last week as it appeared Greece would get its bailout. But European finance ministers said Friday they would delay authorizing an $11 billion installment of emergency funds for Greece until October.
On Monday, the country's finance minister held an emergency teleconference with its international creditors.
They are pressuring the government on austerity measures to reduce Greece's debt. Investors fear Greece won't be able to convince lenders that it can pay its debts -- and that it won't get the money it needs to avoid a default on debts that must be paid next month.
Late Monday, Greece's finance minister said that the 2 1/2-hour conference call was "productive and substantive." Hope that Greece might be closer to qualifying for rescue funds started a late comeback. The
Dow gained about 100 points in the last hour of trading.
But investors also appeared pessimistic about a Federal Reserve policy decision expected Wednesday.
Some economists believe that since the Fed decided to hold a two-day meeting instead of the originally planned one-day session, that it was preparing to take steps to stimulate the economy. However, other analysts doubt that the Fed will announce a new plan for the economy.
There is too much disagreement among Fed officials about monetary policy for a decision right now, said Ralph Fogel, head of investment strategy at Fogel Neale Partners in New York. "They'll have to let it play out at least a little while longer, and I think they'll wait until November," Fogel said.
Separately, President Barack Obama on Monday called for $1.5 trillion in new taxes to help reduce the U.S. deficit. He said, "we can't just cut our way out of this hole."
The proposal is being opposed by House Speaker John Boehner, who has said the Republican Party won't accept any tax increases to lower deficits. Obama's speech marked the start of a new round of deficit-reduction negotiations that are likely to be contentious.
For investors, the day's news added up to more uncertainty. "The market just can't stand not knowing what's going on," Fogel said.
Investors have been sensitive to each development that emerges from Europe, and that has helped feed the volatility in stocks the past few months.
"After every meeting in Europe there's a spin put on it -- either `this was good and a solution's really soon,' or someone looks the wrong way and the media says there's no solution," said Rob Lutts, president and chief investment officer of Boston-based Cabot Money Management.
If Greece were to default on its debt, other European countries with heavy debt would likely be judged less credit-worthy and have difficulty borrowing money. But the problems go beyond Europe. U.S. bank stocks have fallen on concerns that a default would make it hard for European banks to pay their bills -- including the billions of dollars that U.S. banks have lent them. There are concerns about a lending crisis similar to what the world saw in 2008.
There is also concern about a recession in Europe, which already has a weak economy. The companies in the S&P 500 get 20 percent of their net income from European countries. If their business suffers, that could also hurt the struggling U.S. economy.
The uncertainty wasn't limited to U.S. investors. In Europe, Germany's DAX closed 2.8 percent lower. France's CAC-40 fell 3 percent, and the FTSE 100 index of leading British shares fell 2 percent. Those markets closed before the news about the teleconference between Greece and its creditors.
Lutts, the Cabot analyst, said some investors are also uneasy about earnings reports that will start arriving in early October.
"In the last year or so we had a nice ramp-up in earnings -- that's history now," Lutts said. He said companies are contending with the steady rise this year in commodities and raw materials prices, and many are unable to raise their own prices because that hurt their ability to compete.
"The market is worried that (earnings reports) won't be rosy and that we'll see a downshift, not an upshift, in earnings."
Investors were again buying U.S. government debt, which is seen as a safe place when the economy is weak and stocks are falling. The yield on the 10-year Treasury note, which falls as investors buy bonds and push its price higher, fell to 1.95 percent, near its low for the year. It was at 2.07 percent late Friday.
The U.S. dollar, another asset seen as safe, also rose against a basket of foreign currencies. Concerns about the stability of the European economy pushed the Euro lower against the dollar, to $1.36 from $1.38 late Friday.
In corporate news, Goodrich Corp. rose 16 percent on speculation that United Technologies Corp. is interested in buying the aerospace manufacturer. United Technologies fell 1.2 percent.
Tyco International Ltd. rose 2 percent after the manufacturer announced a plan to split into three companies.
Lennar Corp. rose 5 percent after the homebuilder's earnings met Wall Street's expectations and revenue came in stronger than expected. The company said that while it delivered fewer homes in its fiscal third quarter, demand is picking up somewhat, driven by low home prices and all-time low interest rates. The company was cautious about the future, however, because of high unemployment.
Netflix fell 7 percent after the company said it was formally separating its online streaming service from its mail-in DVD rental service, which is being renamed Qwikster.
Chinese solar equipment factory Jinko Solar plunged 28 percent after it was forced to shut down one of its factories because of protests by local residents who claimed it was polluting the air and water.
About six stocks fell for every one that rose. Trading was light, at 3.7 billion shares.
2) Health Law Puts Cigna in Ad Mode-From The Wall Street Journal
Cigna is starting a national ad campaign Monday crafted to appeal to individual consumers, a sign of the industry's growing focus on a segment that is set to expand substantially under the health-overhaul law.
The Cigna marketing push, which is built around the slogan "Go You," will be one of the most high-profile examples so far of how health plans are trying to prepare for 2014, when the major provisions of the law kick in. They include a requirement for most people to carry health insurance, as well as new online exchanges where consumers will be able to purchase coverage, including subsidized plans for people with limited incomes.
Such provisions are expected to increase the number of consumers who choose their own plans. About 14 million people currently are covered through individual insurance, according to the Kaiser Family Foundation, a nonpartisan nonprofit organization. The Congressional Budget Office has projected that the number of people buying their own insurance will more than double by 2016 under the new health law. Some workers also may start getting a lump sum from employers to select coverage.
"The insurance industry is one that has traditionally been oriented around services to an employer or a government entity," said Cigna Chief Executive David M. Cordani. "We want to orient around the individual."
He said that focus includes consumers who get insurance through their jobs, as well as those who will purchase coverage their own.
Goldman Sachs estimates that just 1% to 2% of Cigna's current revenue comes from the individual market, and Goldman analyst Matthew Borsch calls the insurer's presence in the segment "embryonic" so far. Cigna said it doesn't disclose revenue by plan size.
Cigna's current push into the individual market, which started in 2008, is limited to just 10 states. That number is expected to expand in 2014 and beyond, though Mr. Cordani said Cigna still will enter only select markets, where it thinks it can become a strong presence.
Blue Cross and Blue Shield plans tend to have the strongest individual-market presence in most regions. WellPoint Inc., which operates many Blue Cross and Blue Shield plans, has the biggest individual business of the major national insurers.
The Cigna ad campaign, which costs around $25 million, according to a person with knowledge of the matter, will involve ads that appear to pitch health coverage as a path to self-actualization. "Deep inside you there's a person who refuses to be kept deep inside you," says a print ad. Another asks, "When's the last time you did something for the first time?" The campaign will start running nationally this week on several cable and broadcast networks, as well as in magazines and on websites. The company's last major national advertising campaign was in 2002.
Cigna said it also is designing health insurance and other coverage aimed at particular population segments. In Pennsylvania the company is trying a program for families with a member who is autistic, offering advice from a "care manager" and discounts for some types of therapists.
Other possible targets include people who have diabetes or those hoping to lose weight, who could tap into elements of the wellness initiatives Cigna currently offers for employers. These products could be sold alone or potentially wrapped into health plans, the company said. Cigna also said it plans to beef up its direct-to-consumer website and hire around 500 people in customer-service and other positions.
Other companies also are laying the groundwork for expanding sales to individuals. Seventy-three percent of insurers are planning to increase their marketing and sales capabilities in the near term, with a focus on the direct-to-consumer segment, according to a survey of industry executives this spring by Boston Consulting Group.
"Most insurers have not built enough brand equity with consumers," said Raj Bal, a former WellPoint executive who is now an industry consultant. Also, employer sales often come through brokers, whose role will likely be less important in starting in 2014, he said.
The Blue Cross and Blue Shield Association recently forged a deal with H&R Block Inc. for members' plans to be promoted at the tax-preparation firm's storefronts. The association also is targeting the growing
Hispanic population through a tie-in with Spanish-language media company Univision Communications Inc. The group is also in talks with a number of retailers about partnerships.
"You have to think about channels differently" to reach consumers, said Maureen Sullivan, a senior vice president at the association.
Aetna Inc. is working with health-care providers to create insurance products. These can take advantage of hospitals' or clinics' local name recognition and might appeal to individual consumers more than to big employers that want to ensure access to a broad range of physicians and facilities. For example, the insurer has said it will create plans with Carilion Clinic in Roanoke, Va., that will carry the Carilion and Aetna brands and be sold to individuals and businesses.
3) Netflix says it's sorry, then creates new uproar-From the AP
The CEO of Netflix said he was sorry for mishandling a recent price increase that caused customers to cancel the service in droves. But the apology was drowned out by a decision that angered subscribers all over again.
The company will split into two services -- one with an odd new name that offers the familiar discs in red envelopes and another for online streaming of TV shows and movies.
The DVD service will be called Qwikster, a name that is supposed to signify a commitment to fast service but quickly became an object of ridicule Monday on the Internet. The streaming service will keep the Netflix name.
Netflix, which had 24.6 million U.S. subscribers at the end of June and is the nation's largest video subscription service, redefined home entertainment over the past decade with its DVDs by mail. Now it's trying to prepare for the day when watching movies on a disc goes the way of driving to the video store to pick up a VHS tape.
But lately, it has bungled the transition. The company has lost half its market value since July, when it announced that customers who wanted DVDs and streaming had to pay for them separately -- and pay up to 60 percent more.
The decision to rebrand the best-known part of Netflix's business left some experts wondering whether CEO Reed Hastings is losing the touch that established him as an influential figure in technology and entertainment.
Others see the logic in trying to make sure Netflix keeps a thriving business as customers abandon DVDs and shift in greater numbers to beaming movies and TV shows into their living rooms over high-speed Internet connections.
It's going to be a painful transition, as Hastings acknowledged as he cut loose the DVD service.
"It's hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best," Hastings wrote on a Netflix blog. The CEO of the rechristened Qwikster service will be Andy Rendich, a longtime Netflix employee.
Hastings found little sympathy among the more than 10,000 people who commented on the blog posting.
Most of them lambasted him for making life more difficult for about 12 million customers who get both streaming and DVD rentals. Those people will have to visit two websites to make requests and update their billing information.
Other critics questioned the sincerity of his apology for the recent price increase and ripped him for giving DVD rentals a different identity -- and for the name Qwikster in particular.
"It's a really dumb name," said Scott Devine of Burbank, Calif., who dropped the DVD service after the price increase was announced two months ago. "You would think they would choose something that at least had `flick" in the name."
The split may seem like the natural next step to Hastings, but he appears tone deaf to subscribers, said John Tschohl, president of the Service Quality Institute, a consulting service, and author of the book "Achieving Excellence Through Customer Service."
"I don't think Netflix is listening to its customers at all," he said. "They have really blown it."
Columbia Business School marketing professor Brett Gordon thinks Hastings knows exactly what he's doing by starting to bury the DVD business, even if Hastings didn't say it in his blog post.
By the end of September, Netflix figures less than 10 percent of its expected 24 million customers in the U.S. will subscribe to DVD-only plans.
"They don't want the Netflix brand to be damaged by the inevitable death of physical digital goods," Gordon said.
Netflix was a Wall Street star until the jarring July 12 announcement about its prices. Its stock rose from about $50 at the beginning of 2009 to more than $300 in early July.
Since backlash to the price increase, investors have grown disillusioned. Netflix's market value has plummeted 53 percent from its high, wiping out about $8 billion in stockholder wealth. On Monday, the stock shed more than $11 to close at $143.75.
The steepest declines have comes since Netflix warned it expected to have 600,000 fewer subscribers at the end of this month than at the end of June, by far the worst downturn in the company's history.
Netflix's stock has been hit so hard that it made Hastings' apology seem like little more than damage control, Devine said.
In his blog post, Hastings wrote that he "slid into arrogance based upon past success" when he decided to raise prices so dramatically. He emphasized the higher prices were the right thing to do, but said he should have done more to explain them.
Hastings said his biggest fear is that Netflix will be left behind by technological upheaval, like what happened to AOL when people switched from dial-up Internet to widely available broadband, or Borders when readers gravitated to the e-book.
Netflix itself has killed off thousands of video rental stores during the past five years, and it devastated Blockbuster, which once dominated the home-video market and went bankrupt last year.
Hastings began Netflix's evolution in early 2007 when he added Internet video streaming. That option grew in popularity even faster than he anticipated, causing video distributors to demand ever higher licensing fees.
Those expenses are one reason Netflix raised prices. Hastings has promised to use the additional money it gets from its subscribers to stockpile its video streaming library with more content.
Some subscribers are upset by Netflix's inability to renew a contract with Starz Entertainment that included many recently released movies from Walt Disney Co.'s studios. The Starz deal expires in February.
More broadly, Netflix customers have complained that its TV and movie titles available for streaming pale next to its menu of more than 100,000 DVD titles. And they have other places to turn for streaming entertainment -- Amazon.com, iTunes and Hulu, among others.
In Monday's blog post, Hastings wrote that Netflix will make "substantial" additions during the next few months.
Michele Lucas of Denver is among the Netflix subscribers who think its streaming library is already losing its appeal. Her family pays only for streaming now. They stopped renting DVDs from Netflix after the price increase.
"We sit down at night and go through and we have a really hard time finding a movie to watch," Lucas said.
Spinning off the DVD services will also allow Netflix to provide studios with a clearer idea of how many people are streaming their content. That could be critical as it negotiates future licensing deals.
In addition to the split, Netflix will expand into an area Hastings had steadfastly resisted -- video game rentals. Adding it to Qwikster may not make investors happy, though, because video games are more expensive and have a shorter shelf life than DVDs.
But video-game availability could win back alienated subscribers. Devine said he might sign up for Qwikster if the selection is good enough. Hastings seems confident he won't be the only one.
"Both the Qwikster and Netflix teams will work hard to regain your trust," Hastings wrote on the blog and a mass email to subscribers. "We know it will not be overnight. Actions speak louder than words. But words help people to understand actions."
Quote of the Day from Dave Ramsey.com:
Life's challenges are not supposed to paralyze you; they're supposed to help you discover who you are. — Bernice Johnson Reagon
Friday, September 16, 2011
Financial Headline News for Friday 9/16
Stocks edged higher today to finish for the 5th straight day positive. This is dispelling the history of September being a down month for stocks.
First drop in household wealth in a year as stocks and home values dip while businesses hold more cash.
Twenty somethings will need to save much more than their parents did for retirement per the article below.
Here are the top financial stories of the day:
1) Dow Gains 4.7% in Week-From the Wall Street Journal
Stocks surged this week, rising all five days amid hopes that Europe's debt crisis won't spiral out of control.
The Dow Jones Industrial Average gained 75.91 points, or 0.7%, to 11509.09, on Friday, finishing the week with a 4.7% gain. The blue-chip index remains within striking distance of turning positive for the year.
Procter & Gamble and Intel led blue chips higher, each rising more than 2%. But financials kept the gains in check amid concern about how Europe's debt crisis will affect bank stocks. Weighing on the downside were Bank of America and J.P. Morgan Chase, which were among the Dow's biggest decliners.
Euro-zone finance ministers, meeting in Poland, are trying to find common ground and ease market tensions caused by the region's escalating sovereign-debt problems.
"In the short term, markets are encouraged that we are going to once again avoid a crisis," said Michael Farr, president of portfolio-management firm Farr, Miller & Washington. "But there's no certainty of a successful outcome. The only certainty is that consequences will not be met for some time."
The Standard & Poor's 500-stock index rose 6.90 points, or 0.6%, to 1216.01. Telecommunication, utility and consumer-discretionary stocks were the biggest advancers. The technology-oriented Nasdaq Composite gained 15.24 points, or 0.6%, to 2622.31.
Friday's gains came a day after global markets soared on the coordinated efforts of five major central banks to bolster the European banking system.
2) Household wealth dipped in the spring-From the AP
Americans' wealth declined this spring for the first time in a year, as stocks and home values fell. At the same time, corporations increased the size of their cash stockpiles.
The combination could slow an already weak economy because it implies that families have less to spend and businesses are reluctant to expand.
Household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter, according to a Federal Reserve report released Friday. That followed three straight quarterly increases.
The value of Americans' stock portfolios fell 0.5 percent in the second quarter. Home values dropped 0.4 percent.
Corporations held a record $2 trillion in cash at the end of June, an increase of 4.5 percent from the January-March quarter.
The economy is already struggling with high unemployment and meager pay raises.
When people feel poorer, they spend less. That slows growth. Businesses then respond by cutting back on hiring and expansion plans. It can become a cycle.
Net worth is expected to fall even further in the July-September quarter because stocks plunged in late July and early August.
A key reason was the government said the economy barely grew in the first half of the year. Investors also reacted to lawmakers' battle over raising the government's borrowing limit and Standard & Poor's downgrade of long-term U.S. debt.
"August put a big dent in whatever confidence consumers had left," said Greg McBride, senior financial analyst at Bankrate.com. That's largely why retail sales were flat last month, he added.
Overall, household wealth, which mostly consists of home equity, stock portfolios, and other savings, has risen 15 percent since the recession officially ended in June 2009.
The increase is due almost entirely to one of the fastest bull markets in history. Stocks began to recover in the spring of 2009 and doubled in value by April of this year, according to the S&P 500 index.
But Americans' wealth has taken a hit since the second quarter, which was the period covered by the Fed report. The S&P index has tumbled 11 percent since its April 27 peak, and 8 percent since the end of the quarter. That likely means an even larger drop in household net worth in the July-September quarter.
Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.
An estimated 88 percent of people with 401(k) retirement savings plans now have more money in their accounts than they did at the 2007 market top, according to Jack VanDerhei of the Employee Benefit
Research Institute in Washington. That's largely because of workers' continued contributions to their accounts over the past four years.
Eighty percent of stocks belong to the richest 10 percent of Americans, who also account for a disproportionate amount of consumer spending. The richest 20 percent represent about 40 percent of consumer spending.
The likely drop in wealth comes at the same time that incomes are stagnating, particularly for middle-income households. Average household income, adjust for inflation, fell 6.4 percent last year from 2007, the year before the recession, the Census Bureau said earlier this week.
Americans also have less equity in their homes. The average homeowner has just 38.6 percent equity, down from 61 percent a decade ago.
Normally, home equity rises as you pay off a mortgage. But home values have fallen dramatically since the housing bubble burst in 2006. Many homeowners are losing equity even though the balance on their loan is getting smaller.
Home equity plays a large part in how much money people feel like they have. If they are swamped by hefty mortgage payments, they're less likely to spend freely. Home equity also serves as collateral for loans.
The report found household debt declined at an annual rate of 0.6 percent from the previous quarter, helped by a big decline in mortgage debt, which has fallen for nine straight quarters.
But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans.
Home prices are expected to keep falling until the number of foreclosures is reduced, companies start hiring in greater force, banks ease lending rules and more people believe it makes financial sense to buy a house.
Economists say that's unlikely to happen for at least another year.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
3) Gen Y's $2 Million Retirement Price Tag-From US News and World Report
Retirement won't be impossible for Generations X and Y, but they will need to save considerably more than the baby boomers to make up for less employer and government help. Fewer young people have access to generous retirement benefits, including traditional pensions and retiree health insurance. And anyone born in 1960 or later must wait an extra year, until age 67, to claim the full amount of Social Security they are entitled to. Those who claim at the same age their parents did will get less. Here are some ways 20- and 30-somethings can get on track to retire comfortably.
Set a worthy goal. In a 2010 survey of 226 registered investment advisors commissioned by Scottrade Advisor Services, more than three-quarters (77 percent) suggested a retirement savings goal of at least $2 million for members of Generation Y, defined by the study to include those ages 18 to 26. Sixty-eight percent of the investment advisers said members of Generation X should also aim to save more than $2 million. "For a generation Y person who thinks she wants to retire at around age 70 who is going to have slightly above-average annual expenses, $2 million is probably the right number," says Michael Farr, president of the Washington, D.C., investment firm Farr, Miller, & Washington and author of A Million Is Not Enough: How to Retire With the Money You'll Need. But he cautions, "Most people who have high incomes and the ability to set aside $2 million will likely have more expensive lifestyles."
However, other studies have found that young people may be able to get by on less in retirement. Human resources consulting firm Aon Hewitt calculated that Generation Y workers, who it defines as people ages 18 to 30, will need 18.7 times their final pay for retirement, including Social Security, traditional pension plans, and personal savings, to maintain their current standard of living after retirement at age 65. For someone whose final salary is $75,000, that's just over $1.4 million, and Social Security will provide part of that. For Generation Xers ages 31 to 45, Aon Hewitt estimates they will need 16.1 times their final salary to pay for retirement. "A higher earner will probably continue to spend more in retirement," says Janet Tyler Johnson, a certified financial planner and president of JATAJ Wealth Management in Fitchburg, Wis. "It's really dependent on how much you need in retirement."
Take advantage of employer help. Getting to $2 million will take some effort, even if you start saving early. A 25-year-old will need to save about $7,405 annually, or $142 per week, to get there over 40 years, assuming an 8 percent annual return. Retirement account contributions from your employer will make it much easier to hit your retirement savings goal. If your employer matches your 401(k) contributions with $2,000 per year, you'll only need to save $104 per week to have $2 million by age 65, again assuming an 8 percent annual return.
Control costs. Minimizing investment fees and expenses will help you to grow your nest egg faster. That's because high expense ratios on mutual funds can have serious drag on your long-term returns. Getting a 7 percent annual return instead of 8 percent over a 40-year career (because you are paying 1 percent in yearly fees) means you will need to save $2,255 more per year to still hit $2 million by age 65. Index funds generally charge much less in annual fees than actively managed mutual funds. "If I didn't manage my own money, I would buy a S&P 500 index fund because it is low cost," says Farr.
Get a Roth IRA or 401(k). Roth 401(k)s and IRAs allow young people, who are likely to be in a low tax bracket, to pre-pay taxes on their retirement savings. "Young folks are in a lower tax bracket now than they will be in the future, including when they begin to tap into their retirement savings," says Joe Alfonso, a certified financial planner for Aegis Financial Advisory in Lake Oswego, Ore. "You're giving up the current tax deduction, but you are basically getting tax-free retirement income that would otherwise be taxable in the future." Once your contribution is made with after-tax dollars, that money can continue to grow for the rest of your life without the drag of taxes. If you wait until age 59½ to withdraw the money, you won't have to pay taxes on any of the growth.
Maximize Social Security. Social Security provides a base level of income that your retirement savings should build upon. Take steps to maximize the amount you get by making sure you have at least 35 years of earnings under your belt before you sign up for payments, so that zeros won't be factored into your calculation. And carefully consider the age at which you begin to claim benefits. Payouts increase for each year of delayed claiming between ages 62 and 70.
Don't plan on retiring at 65. A male born in 1946 can expect to live 18 years after retirement at age 66, according to Social Security Administration projections. Men born in 1980 should plan for at least a 19.3 year retirement, after the higher retirement age of 67. For women, the average projected length of retirement jumps from 20 years for those born in 1946 to 21.2 years for those born in 1980. And these are just the averages. "Generation Y's life expectancy is going to be a lot longer," says Farr. "They have to fund more years of retirement than the old financial planning models built in."
Of course, you don't have to retire at age 65, or at what the Social Security Administration defines as the full retirement age, which is 66 for most baby boomers and 67 for younger people. Working a few extra years gives you more time to save, allows your investments a longer time to compound, and reduces the number of retirement years your savings must finance. If you're 25 now and willing to work until age 70, you could reach $2 million by saving just $95 per week, assuming an 8 percent annual return and not even counting the 401(k) match.
Don't get hung up on the number. How much you need to save for retirement largely depends on your expenses. If you're willing to pay off your mortgage before retirement, move to a smaller house or low-cost area of the country, and live a modest lifestyle, you may find a way to get by on less. Conversely, those who want a lavish retirement will need to save more. "If you've got a goal based upon assumptions about inflation and rates of return, it's actually counterproductive, because those numbers can be pretty big, especially for young folks," says Alfonso. "It's more important to focus on the things that you can control, such as the percent of your gross income that you save and to really focus on your career and moving up the salary chain."
Quote of the Day from Dave Ramsey.com:
Be miserable. Or motivate yourself. Whatever has to be done, it's always your choice. — Wayne Dyer
First drop in household wealth in a year as stocks and home values dip while businesses hold more cash.
Twenty somethings will need to save much more than their parents did for retirement per the article below.
Here are the top financial stories of the day:
1) Dow Gains 4.7% in Week-From the Wall Street Journal
Stocks surged this week, rising all five days amid hopes that Europe's debt crisis won't spiral out of control.
The Dow Jones Industrial Average gained 75.91 points, or 0.7%, to 11509.09, on Friday, finishing the week with a 4.7% gain. The blue-chip index remains within striking distance of turning positive for the year.
Procter & Gamble and Intel led blue chips higher, each rising more than 2%. But financials kept the gains in check amid concern about how Europe's debt crisis will affect bank stocks. Weighing on the downside were Bank of America and J.P. Morgan Chase, which were among the Dow's biggest decliners.
Euro-zone finance ministers, meeting in Poland, are trying to find common ground and ease market tensions caused by the region's escalating sovereign-debt problems.
"In the short term, markets are encouraged that we are going to once again avoid a crisis," said Michael Farr, president of portfolio-management firm Farr, Miller & Washington. "But there's no certainty of a successful outcome. The only certainty is that consequences will not be met for some time."
The Standard & Poor's 500-stock index rose 6.90 points, or 0.6%, to 1216.01. Telecommunication, utility and consumer-discretionary stocks were the biggest advancers. The technology-oriented Nasdaq Composite gained 15.24 points, or 0.6%, to 2622.31.
Friday's gains came a day after global markets soared on the coordinated efforts of five major central banks to bolster the European banking system.
2) Household wealth dipped in the spring-From the AP
Americans' wealth declined this spring for the first time in a year, as stocks and home values fell. At the same time, corporations increased the size of their cash stockpiles.
The combination could slow an already weak economy because it implies that families have less to spend and businesses are reluctant to expand.
Household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter, according to a Federal Reserve report released Friday. That followed three straight quarterly increases.
The value of Americans' stock portfolios fell 0.5 percent in the second quarter. Home values dropped 0.4 percent.
Corporations held a record $2 trillion in cash at the end of June, an increase of 4.5 percent from the January-March quarter.
The economy is already struggling with high unemployment and meager pay raises.
When people feel poorer, they spend less. That slows growth. Businesses then respond by cutting back on hiring and expansion plans. It can become a cycle.
Net worth is expected to fall even further in the July-September quarter because stocks plunged in late July and early August.
A key reason was the government said the economy barely grew in the first half of the year. Investors also reacted to lawmakers' battle over raising the government's borrowing limit and Standard & Poor's downgrade of long-term U.S. debt.
"August put a big dent in whatever confidence consumers had left," said Greg McBride, senior financial analyst at Bankrate.com. That's largely why retail sales were flat last month, he added.
Overall, household wealth, which mostly consists of home equity, stock portfolios, and other savings, has risen 15 percent since the recession officially ended in June 2009.
The increase is due almost entirely to one of the fastest bull markets in history. Stocks began to recover in the spring of 2009 and doubled in value by April of this year, according to the S&P 500 index.
But Americans' wealth has taken a hit since the second quarter, which was the period covered by the Fed report. The S&P index has tumbled 11 percent since its April 27 peak, and 8 percent since the end of the quarter. That likely means an even larger drop in household net worth in the July-September quarter.
Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.
An estimated 88 percent of people with 401(k) retirement savings plans now have more money in their accounts than they did at the 2007 market top, according to Jack VanDerhei of the Employee Benefit
Research Institute in Washington. That's largely because of workers' continued contributions to their accounts over the past four years.
Eighty percent of stocks belong to the richest 10 percent of Americans, who also account for a disproportionate amount of consumer spending. The richest 20 percent represent about 40 percent of consumer spending.
The likely drop in wealth comes at the same time that incomes are stagnating, particularly for middle-income households. Average household income, adjust for inflation, fell 6.4 percent last year from 2007, the year before the recession, the Census Bureau said earlier this week.
Americans also have less equity in their homes. The average homeowner has just 38.6 percent equity, down from 61 percent a decade ago.
Normally, home equity rises as you pay off a mortgage. But home values have fallen dramatically since the housing bubble burst in 2006. Many homeowners are losing equity even though the balance on their loan is getting smaller.
Home equity plays a large part in how much money people feel like they have. If they are swamped by hefty mortgage payments, they're less likely to spend freely. Home equity also serves as collateral for loans.
The report found household debt declined at an annual rate of 0.6 percent from the previous quarter, helped by a big decline in mortgage debt, which has fallen for nine straight quarters.
But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans.
Home prices are expected to keep falling until the number of foreclosures is reduced, companies start hiring in greater force, banks ease lending rules and more people believe it makes financial sense to buy a house.
Economists say that's unlikely to happen for at least another year.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
3) Gen Y's $2 Million Retirement Price Tag-From US News and World Report
Retirement won't be impossible for Generations X and Y, but they will need to save considerably more than the baby boomers to make up for less employer and government help. Fewer young people have access to generous retirement benefits, including traditional pensions and retiree health insurance. And anyone born in 1960 or later must wait an extra year, until age 67, to claim the full amount of Social Security they are entitled to. Those who claim at the same age their parents did will get less. Here are some ways 20- and 30-somethings can get on track to retire comfortably.
Set a worthy goal. In a 2010 survey of 226 registered investment advisors commissioned by Scottrade Advisor Services, more than three-quarters (77 percent) suggested a retirement savings goal of at least $2 million for members of Generation Y, defined by the study to include those ages 18 to 26. Sixty-eight percent of the investment advisers said members of Generation X should also aim to save more than $2 million. "For a generation Y person who thinks she wants to retire at around age 70 who is going to have slightly above-average annual expenses, $2 million is probably the right number," says Michael Farr, president of the Washington, D.C., investment firm Farr, Miller, & Washington and author of A Million Is Not Enough: How to Retire With the Money You'll Need. But he cautions, "Most people who have high incomes and the ability to set aside $2 million will likely have more expensive lifestyles."
However, other studies have found that young people may be able to get by on less in retirement. Human resources consulting firm Aon Hewitt calculated that Generation Y workers, who it defines as people ages 18 to 30, will need 18.7 times their final pay for retirement, including Social Security, traditional pension plans, and personal savings, to maintain their current standard of living after retirement at age 65. For someone whose final salary is $75,000, that's just over $1.4 million, and Social Security will provide part of that. For Generation Xers ages 31 to 45, Aon Hewitt estimates they will need 16.1 times their final salary to pay for retirement. "A higher earner will probably continue to spend more in retirement," says Janet Tyler Johnson, a certified financial planner and president of JATAJ Wealth Management in Fitchburg, Wis. "It's really dependent on how much you need in retirement."
Take advantage of employer help. Getting to $2 million will take some effort, even if you start saving early. A 25-year-old will need to save about $7,405 annually, or $142 per week, to get there over 40 years, assuming an 8 percent annual return. Retirement account contributions from your employer will make it much easier to hit your retirement savings goal. If your employer matches your 401(k) contributions with $2,000 per year, you'll only need to save $104 per week to have $2 million by age 65, again assuming an 8 percent annual return.
Control costs. Minimizing investment fees and expenses will help you to grow your nest egg faster. That's because high expense ratios on mutual funds can have serious drag on your long-term returns. Getting a 7 percent annual return instead of 8 percent over a 40-year career (because you are paying 1 percent in yearly fees) means you will need to save $2,255 more per year to still hit $2 million by age 65. Index funds generally charge much less in annual fees than actively managed mutual funds. "If I didn't manage my own money, I would buy a S&P 500 index fund because it is low cost," says Farr.
Get a Roth IRA or 401(k). Roth 401(k)s and IRAs allow young people, who are likely to be in a low tax bracket, to pre-pay taxes on their retirement savings. "Young folks are in a lower tax bracket now than they will be in the future, including when they begin to tap into their retirement savings," says Joe Alfonso, a certified financial planner for Aegis Financial Advisory in Lake Oswego, Ore. "You're giving up the current tax deduction, but you are basically getting tax-free retirement income that would otherwise be taxable in the future." Once your contribution is made with after-tax dollars, that money can continue to grow for the rest of your life without the drag of taxes. If you wait until age 59½ to withdraw the money, you won't have to pay taxes on any of the growth.
Maximize Social Security. Social Security provides a base level of income that your retirement savings should build upon. Take steps to maximize the amount you get by making sure you have at least 35 years of earnings under your belt before you sign up for payments, so that zeros won't be factored into your calculation. And carefully consider the age at which you begin to claim benefits. Payouts increase for each year of delayed claiming between ages 62 and 70.
Don't plan on retiring at 65. A male born in 1946 can expect to live 18 years after retirement at age 66, according to Social Security Administration projections. Men born in 1980 should plan for at least a 19.3 year retirement, after the higher retirement age of 67. For women, the average projected length of retirement jumps from 20 years for those born in 1946 to 21.2 years for those born in 1980. And these are just the averages. "Generation Y's life expectancy is going to be a lot longer," says Farr. "They have to fund more years of retirement than the old financial planning models built in."
Of course, you don't have to retire at age 65, or at what the Social Security Administration defines as the full retirement age, which is 66 for most baby boomers and 67 for younger people. Working a few extra years gives you more time to save, allows your investments a longer time to compound, and reduces the number of retirement years your savings must finance. If you're 25 now and willing to work until age 70, you could reach $2 million by saving just $95 per week, assuming an 8 percent annual return and not even counting the 401(k) match.
Don't get hung up on the number. How much you need to save for retirement largely depends on your expenses. If you're willing to pay off your mortgage before retirement, move to a smaller house or low-cost area of the country, and live a modest lifestyle, you may find a way to get by on less. Conversely, those who want a lavish retirement will need to save more. "If you've got a goal based upon assumptions about inflation and rates of return, it's actually counterproductive, because those numbers can be pretty big, especially for young folks," says Alfonso. "It's more important to focus on the things that you can control, such as the percent of your gross income that you save and to really focus on your career and moving up the salary chain."
Quote of the Day from Dave Ramsey.com:
Be miserable. Or motivate yourself. Whatever has to be done, it's always your choice. — Wayne Dyer
Thursday, September 15, 2011
Financial Headline News for Thursday 9/15
Despite all of the bad economic news listed below, stocks soared today as all indexes were up big.
First time unemployment claims this week of 428,000 came in way over the 410,000 that were expected.
It looks like more and more people are following Dave Ramsey's advice as most major credit card issuers report further declines in defaults and late payments for August.
Here are the top financial stories of the day:
1) Dow Win Streak at 4, With 186-Point Gain-From the Wall Street Journal
Stocks notched a fourth consecutive day of gains after a pledge by central banks to pump dollars into the European banking system.
Bank stocks led the way higher as the Dow Jones Industrial Average rose 186.45 points, or 1.7%, to 11433.18, closing a hair's width from session highs.
Bank of America was the strongest blue chip, rising 4%, followed by J.P. Morgan Chase, which gained 3.1%. The Standard & Poor's 500-stock index gained 20.43 points, or 1.7%, to 1209.11, with all sectors rising. The measure's financial components jumped 2.6%. The technology-oriented Nasdaq Composite added 34.52 points, or 1.3%, to 2607.07.
The Russell 2000 index of small-capitalization stocks posted its first four-day winning streak since July, rising 9.39 points, or 1.3%, to 713.51. Smaller stocks are generally viewed as a riskier segment of the market.
Investors were encouraged by five major central banks' decision to arrange three new funding operations aimed at stemming a liquidity crisis. The move took some pressure off European lenders that have faced trouble borrowing the U.S. currency. It also underscored the funding predicament those lenders face.
"It's a newer, bigger, slightly better Band-Aid," John Brady, vice president at MF Global, said. "There's nothing to address the value of the sovereign bonds on European banks' balance sheets."
In corporate news, Morgan Stanley was one of the S&P 500's strongest performers, rising 7.2% after disclosing that Chairman and former Chief Executive John Mack will step down from its board at the end of the year.
Stocks' gains came despite discouraging U.S. economic news. Initial claims for unemployment benefits in the latest week were worse than economists had anticipated, underscoring the weakness in the job market. A survey of New York-area manufacturing activity worsened. Also, the consumer-price index for August showed an inflation rate of 0.4%, and 0.2% when adjusted to strip out prices of food and energy.
A fourth batch of data showed that an index on manufacturing activity in the Philadelphia area remained in negative territory, but improved from a contraction in August.
2) Jobless Claims, Inflation Rise, Manufacturing Gets Weaker-From CNBC
The weekly jobless claims number, which is closely watched as an indicator for employment trends, unexpectedly rose 11,000 to 428,000, well ahead of estimates of 411,000.
3) Credit card defaults, late payments continue slide-From the AP
It was a bumpy summer for credit card issuers, but most of the top banks reported that their customers continued to make their payments on time.
Default rates were down at four of the five companies that reported their August results by midday Thursday.
Only Capital One Financial Corp. had an uptick in the rate of its write-offs of uncollectible balances.
Capital One also posted a slight increase in its rate of payments late by 30 days or more, which is considered an indicator of future default.
Discover Financial Services, American Express, Chase and Bank of America reported continued declines in both rates.
Citibank is expected to report August results to the Securities and Exchange Commission later Thursday.
The results were similar in July, with a few banks reporting slight increases but most reporting improvements in defaults, or charge-offs, and delinquencies.
Overall, both defaults and delinquencies have dropped sharply since hitting their peaks. Late payments, in particularly, are now at historically low points.
Charge-off rates for cards peaked in the second quarter of 2010 at 10.96 percent, according to Fed data, and were down to 5.6 percent in the latest second quarter. Monthly data from most card issuers has shown continued declines, which will be reflected in third-quarter figures. Industrywide delinquency rates were down to 3.62 percent in the second quarter, after peaking in the second quarter of 2009 at 6.76 percent.
One reason consumers are able to keep up with their payments is that balances have dropped sharply since the height of the recession. Lower balances translates to lower minimum payments.
The Federal Reserve said total revolving credit balances, which are mostly credit cards, dropped at an annual rate of 5.25 percent in July, to $792.5 billion. That's down 21 percent since the peak in 2008 of $957.5 billion. The drop reflects both an effort on the part of card users to pay down debt and the amount that banks have written off as uncollectible, which Moody's Investor Services estimates at more than $75 billion since 2009.
Reforms passed in 2009 are also helping consumers, industry watchers have said. Limiting the fees that banks can tack on and the speed at which they can raise interest rates has helped consumers reduce their balances.
Analysts expect rates to remain low, even while individual banks might see blips along the way.
"It's tough to say there's going to be further improvement, just because there's been so much improvement up to this point," said Cynthia Ullrich, an analyst with Fitch Ratings.
Quote of the Day from Dave Ramsey.com:
When you have vision it affects your attitude. Your attitude is optimistic rather than pessimistic. — Charles R. Swindoll
First time unemployment claims this week of 428,000 came in way over the 410,000 that were expected.
It looks like more and more people are following Dave Ramsey's advice as most major credit card issuers report further declines in defaults and late payments for August.
Here are the top financial stories of the day:
1) Dow Win Streak at 4, With 186-Point Gain-From the Wall Street Journal
Stocks notched a fourth consecutive day of gains after a pledge by central banks to pump dollars into the European banking system.
Bank stocks led the way higher as the Dow Jones Industrial Average rose 186.45 points, or 1.7%, to 11433.18, closing a hair's width from session highs.
Bank of America was the strongest blue chip, rising 4%, followed by J.P. Morgan Chase, which gained 3.1%. The Standard & Poor's 500-stock index gained 20.43 points, or 1.7%, to 1209.11, with all sectors rising. The measure's financial components jumped 2.6%. The technology-oriented Nasdaq Composite added 34.52 points, or 1.3%, to 2607.07.
The Russell 2000 index of small-capitalization stocks posted its first four-day winning streak since July, rising 9.39 points, or 1.3%, to 713.51. Smaller stocks are generally viewed as a riskier segment of the market.
Investors were encouraged by five major central banks' decision to arrange three new funding operations aimed at stemming a liquidity crisis. The move took some pressure off European lenders that have faced trouble borrowing the U.S. currency. It also underscored the funding predicament those lenders face.
"It's a newer, bigger, slightly better Band-Aid," John Brady, vice president at MF Global, said. "There's nothing to address the value of the sovereign bonds on European banks' balance sheets."
In corporate news, Morgan Stanley was one of the S&P 500's strongest performers, rising 7.2% after disclosing that Chairman and former Chief Executive John Mack will step down from its board at the end of the year.
Stocks' gains came despite discouraging U.S. economic news. Initial claims for unemployment benefits in the latest week were worse than economists had anticipated, underscoring the weakness in the job market. A survey of New York-area manufacturing activity worsened. Also, the consumer-price index for August showed an inflation rate of 0.4%, and 0.2% when adjusted to strip out prices of food and energy.
A fourth batch of data showed that an index on manufacturing activity in the Philadelphia area remained in negative territory, but improved from a contraction in August.
2) Jobless Claims, Inflation Rise, Manufacturing Gets Weaker-From CNBC
Applications for unemployment benefits continued to rise in the past week, while inflation pushed higher and a key manufacturing index weakened.
The weekly jobless claims number, which is closely watched as an indicator for employment trends, unexpectedly rose 11,000 to 428,000, well ahead of estimates of 411,000.
The consumer price index, meanwhile, gained 0.4 percent when including volatile food and energy prices, after an increase of 0.5 percent in July. The so-called core CPI, though, gained 0.2 percent, which was in line with expectations.
Consumers paid more for a range of goods and services last month, pushing up inflation and squeezing Americans' purchasing power.
For the 12 months ending in August, the core index surged 2 percent, the biggest year-over-year increase in nearly three years. That's at the top end of the Federal Reserve's informal inflation target.
It could limit the central bank's ability to take further steps to try to revive the economy.
Food prices rose 0.5 percent, the biggest increase since March. That was due to higher prices for cereals and dairy products. Energy costs increased 1.2 percent.
"The large CPI gain in the face of weakening confidence, slowing consumer spending and softening production provides a poor backdrop for expansion," said Citigroup economist Steven C. Wieting in a note to clients.
Also, the US current account deficit narrowed unexpectedly to $118 billion in the second quarter from a revised $119.6 billion in the first quarter as exports hit a record high.
Jobs Market Languishing
The number of people applying for unemployment benefits jumped last week to the highest level in three months.
Applications have been rising over the past month, a signal that the job market remains depressed.
Applications typically drop during short work weeks, as was the case with the Labor Day observation. In this case, applications didn't drop as much as the department expected, so the seasonally adjusted value rose. A Labor spokesman said the total wasn't affected by Hurricane Irene.
Still, applications appear to be trending up. The four-week average, a less volatile measure, rose for the fourth straight week to 419,500.
It was a bumpy summer for credit card issuers, but most of the top banks reported that their customers continued to make their payments on time.
Default rates were down at four of the five companies that reported their August results by midday Thursday.
Only Capital One Financial Corp. had an uptick in the rate of its write-offs of uncollectible balances.
Capital One also posted a slight increase in its rate of payments late by 30 days or more, which is considered an indicator of future default.
Discover Financial Services, American Express, Chase and Bank of America reported continued declines in both rates.
Citibank is expected to report August results to the Securities and Exchange Commission later Thursday.
The results were similar in July, with a few banks reporting slight increases but most reporting improvements in defaults, or charge-offs, and delinquencies.
Overall, both defaults and delinquencies have dropped sharply since hitting their peaks. Late payments, in particularly, are now at historically low points.
Charge-off rates for cards peaked in the second quarter of 2010 at 10.96 percent, according to Fed data, and were down to 5.6 percent in the latest second quarter. Monthly data from most card issuers has shown continued declines, which will be reflected in third-quarter figures. Industrywide delinquency rates were down to 3.62 percent in the second quarter, after peaking in the second quarter of 2009 at 6.76 percent.
One reason consumers are able to keep up with their payments is that balances have dropped sharply since the height of the recession. Lower balances translates to lower minimum payments.
The Federal Reserve said total revolving credit balances, which are mostly credit cards, dropped at an annual rate of 5.25 percent in July, to $792.5 billion. That's down 21 percent since the peak in 2008 of $957.5 billion. The drop reflects both an effort on the part of card users to pay down debt and the amount that banks have written off as uncollectible, which Moody's Investor Services estimates at more than $75 billion since 2009.
Reforms passed in 2009 are also helping consumers, industry watchers have said. Limiting the fees that banks can tack on and the speed at which they can raise interest rates has helped consumers reduce their balances.
Analysts expect rates to remain low, even while individual banks might see blips along the way.
"It's tough to say there's going to be further improvement, just because there's been so much improvement up to this point," said Cynthia Ullrich, an analyst with Fitch Ratings.
Quote of the Day from Dave Ramsey.com:
When you have vision it affects your attitude. Your attitude is optimistic rather than pessimistic. — Charles R. Swindoll
Wednesday, September 14, 2011
Financial Headline News for Wednesday 9/14
US stock indexes rose sharply today on optimism that Greece will be able to avoid a default. Who knows what will happen by next week as this Greek situation keeps going back and forth.
Due to this ongoing three year financial crisis, median household earnings fell for the third consecutive year.
U.S. retail sales were flat in August, signaling that nervous consumers are putting off spending amid high unemployment and an anemic recovery.
Here are the top financial stories of the day:
1) Stocks jump on hopes for progress on Greece's debt-From the AP
Stocks are closing higher for the third day in a row after European leaders renewed pledges to help Greece avoid defaulting on its debts.
The Dow Jones industrial average rose 141 points, or 1.3 percent, to close at 11,247 Wednesday.
The leaders of Greece, France and Germany agreed in a teleconference that Greece was an "integral" part of the bloc that uses the euro. The statements aimed to calm fears that Greece was headed for a default or might drop the euro.
The S&P 500 index rose 16 points, or 1.3 percent, to 1,189. The Nasdaq composite rose 40, or 1.6 percent, to 2,573.
More than three stocks rose for every one that fell on the New York Stock Exchange. Trading volume was above average at 4.4 billion.
2) Income Slides to 1996 Levels-From The Wall Street Journal
The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
To be sure, there are other measures of American financial health that are more positive. The nation's per capita net worth, for instance, hit $169,691 at the end of 2010, according to the Federal Reserve, up from $147,889 in 2007.
Much of that gain is in the form of stocks, retirement accounts and other investments. The biggest asset of most American families is their homes, and those have declined in value in recent years.
And there are those who argue the Census report offers a flawed gauge of living standards. For example, the Census Bureau adjusts for inflation using government measures that attempt to reflect the improving quality as well as price of goods. But these inflation adjustments are imperfect and don't reflect advances in medicine, the wonders of the Internet or the improvements in air quality.
Deborah Bagoy-Skinner and her husband, Chester, are among the faces behind the numbers. Four years ago, the Tucson, Ariz., couple owned their home and had a combined income of around $100,000, much of which came from Mr. Skinner's job conducting safety training classes for a heavy-equipment maker. They lost their three-bedroom home in 2007 during a two-year spell of unemployment, and have since downgraded to a two-bedroom rental.
Through 2008 and 2009, the darkest days of the recession, they sold everything from golf clubs to antique nickels to pay rent and bills. Today the couple is well above the poverty line: Mr. Skinner makes about $65,000 a year doing contract safety classes. But with their savings wiped out it will be a long road back, and likely they won't own another home or ever make as much as they once did.
"We've pretty much accepted that that probably won't happen," she says.
The Census report, viewed as a key gauge of American prosperity, comes at a time of growing anxiety about the health of the U.S. economy and is likely to play into the political dialog this election year. With more than 14 million unemployed, many of them out of jobs for extended periods, the recovery is faltering and the administration and Congress are debating how to respond. Consumers account for some 70% of demand, so thinner pay checks are a major problem for anyone trying to boost growth and get the unemployed back into jobs.
The Census report was studded with data that underscore the economic strains across society in the aftermath of the worst recession in more than half a century. Poverty rates among people younger than 18 grew to 22%, compared with 20.7% the year before, while the percentage of Americans lacking health insurance edged up to 16.3%. Echoing a longer-term trend that is in part a reflection of an aging population, the share of people covered by private insurance fell last year, while the share of people on government programs such as Medicare and Medicaid increased.
As families struggle to make ends meet and young workers navigate the moribund labor market, many have turned to each other. According to the Census report, 5.9 million Americans between 25 and 34, or 14.2% of that group, lived with their parents in spring 2011, compared with 4.7 million before the recession, or 11.8%.
Meanwhile, the gap between the best-off and worst-off Americans remained largely unchanged. The top fifth of households accounted for 50.2% of all pre-tax income; the bottom two-fifths got 11.8%. In 1999, the top fifth claimed 49.4% and the bottom got 12.5% of the income.
The Census Bureau said 15.1% of Americans were living below the poverty line, set at $22,314 for a family of four in 2010. That's up from 14.3% last year and from 12.5% in 2007, before the recession. The official poverty rate overestimates the number of people living in poverty because it doesn't count many government anti-poverty programs, such as subsidized housing, food stamps and the Earned Income Tax Credit.
3) Retail Sales Unchanged-From The Wall Street Journal
U.S. retail sales were flat in August, signaling that nervous consumers are putting off spending amid high unemployment and an anemic recovery.
However, wholesale prices also were flat, which could ease inflation fears and give the Federal Reserve more leeway to try to spur growth by easing credit.
Retail and food-services sales were almost unchanged from the previous month at a seasonally adjusted $389.50 billion, the Commerce Department said Wednesday, significantly worse than many economists had predicted.
Adding to the poor performance, July retail sales were revised down to a 0.3% gain, compared with the Commerce Department's original estimate of 0.5% growth.
Retail sales are an important indicator of consumer spending, typically a major driver of economic growth.
Surveys over the summer showed shoppers growing worried about the weak economy, and Wednesday's sales figures provide evidence that such nervousness is translating into weak spending.
"The risk of renewed recession remains uncomfortably high," Jay Feldman, economist at Credit Suisse, wrote in a note.
Wednesday's retail data showed a 0.3% decline for auto and parts sales. Excluding cars, overall retail sales were up 0.1%. Clothing, furniture, restaurant and department-store sales also dropped. Electronics and appliance, sporting goods, grocery, building materials and non-store retailers—a category that includes online sales—posted some gains.
Some economists suggested the weak spending was partly driven by Hurricane Irene, which swept up the East Coast in late August, disrupting commerce in several states.
Businesses are fighting for customers in a tough environment. Best Buy Co. said Tuesday that its fiscal second-quarter profit fell 30% and projected lower earnings for the current fiscal year as the consumer-electronics retailer confronts a weak economy and strong competition.
"We're still facing an uncertain macro environment with volatile consumer shopping behavior, and this was evident in our results for the second quarter," Best Buy President and Chief Executive Brian Dunn said on a conference call.
A separate government report, which measures how much manufacturers and wholesalers pay for goods and materials, was unchanged in August from July as lower energy costs offset higher food prices.
The wholesale price report showed that energy-goods costs fell 1.0% in August, the third consecutive monthly decline, led by lower costs for liquefied petroleum gas, as well as gasoline and diesel fuel.
Declines in oil and other commodity costs are filtering through to other goods. The price of intermediate materials, supplies and parts fell by 0.5%, the first monthly drop in more than a year.
The combination of weak economic data and low inflation could make it more likely that the Federal Reserve will take new action to revive the economy when its policy-making Open Market Committee meets next week.
Fed Chairman Ben Bernanke last week said there had been little indication that higher energy and food costs so far this year had translated into permanently higher prices.
Many investors expect the central bank to announce a plan next week in which it buys long-term bonds and sells short-term securities in an effort to keep long-term borrowing rates low.
Quote of the Day from Dave Ramsey.com:
Nothing great has ever been achieved except by those who dared believe something inside them was superior to circumstances. — Bruce Barton
Due to this ongoing three year financial crisis, median household earnings fell for the third consecutive year.
U.S. retail sales were flat in August, signaling that nervous consumers are putting off spending amid high unemployment and an anemic recovery.
Here are the top financial stories of the day:
1) Stocks jump on hopes for progress on Greece's debt-From the AP
Stocks are closing higher for the third day in a row after European leaders renewed pledges to help Greece avoid defaulting on its debts.
The Dow Jones industrial average rose 141 points, or 1.3 percent, to close at 11,247 Wednesday.
The leaders of Greece, France and Germany agreed in a teleconference that Greece was an "integral" part of the bloc that uses the euro. The statements aimed to calm fears that Greece was headed for a default or might drop the euro.
The S&P 500 index rose 16 points, or 1.3 percent, to 1,189. The Nasdaq composite rose 40, or 1.6 percent, to 2,573.
More than three stocks rose for every one that fell on the New York Stock Exchange. Trading volume was above average at 4.4 billion.
2) Income Slides to 1996 Levels-From The Wall Street Journal
The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
To be sure, there are other measures of American financial health that are more positive. The nation's per capita net worth, for instance, hit $169,691 at the end of 2010, according to the Federal Reserve, up from $147,889 in 2007.
Much of that gain is in the form of stocks, retirement accounts and other investments. The biggest asset of most American families is their homes, and those have declined in value in recent years.
And there are those who argue the Census report offers a flawed gauge of living standards. For example, the Census Bureau adjusts for inflation using government measures that attempt to reflect the improving quality as well as price of goods. But these inflation adjustments are imperfect and don't reflect advances in medicine, the wonders of the Internet or the improvements in air quality.
Deborah Bagoy-Skinner and her husband, Chester, are among the faces behind the numbers. Four years ago, the Tucson, Ariz., couple owned their home and had a combined income of around $100,000, much of which came from Mr. Skinner's job conducting safety training classes for a heavy-equipment maker. They lost their three-bedroom home in 2007 during a two-year spell of unemployment, and have since downgraded to a two-bedroom rental.
Through 2008 and 2009, the darkest days of the recession, they sold everything from golf clubs to antique nickels to pay rent and bills. Today the couple is well above the poverty line: Mr. Skinner makes about $65,000 a year doing contract safety classes. But with their savings wiped out it will be a long road back, and likely they won't own another home or ever make as much as they once did.
"We've pretty much accepted that that probably won't happen," she says.
The Census report, viewed as a key gauge of American prosperity, comes at a time of growing anxiety about the health of the U.S. economy and is likely to play into the political dialog this election year. With more than 14 million unemployed, many of them out of jobs for extended periods, the recovery is faltering and the administration and Congress are debating how to respond. Consumers account for some 70% of demand, so thinner pay checks are a major problem for anyone trying to boost growth and get the unemployed back into jobs.
The Census report was studded with data that underscore the economic strains across society in the aftermath of the worst recession in more than half a century. Poverty rates among people younger than 18 grew to 22%, compared with 20.7% the year before, while the percentage of Americans lacking health insurance edged up to 16.3%. Echoing a longer-term trend that is in part a reflection of an aging population, the share of people covered by private insurance fell last year, while the share of people on government programs such as Medicare and Medicaid increased.
As families struggle to make ends meet and young workers navigate the moribund labor market, many have turned to each other. According to the Census report, 5.9 million Americans between 25 and 34, or 14.2% of that group, lived with their parents in spring 2011, compared with 4.7 million before the recession, or 11.8%.
Meanwhile, the gap between the best-off and worst-off Americans remained largely unchanged. The top fifth of households accounted for 50.2% of all pre-tax income; the bottom two-fifths got 11.8%. In 1999, the top fifth claimed 49.4% and the bottom got 12.5% of the income.
The Census Bureau said 15.1% of Americans were living below the poverty line, set at $22,314 for a family of four in 2010. That's up from 14.3% last year and from 12.5% in 2007, before the recession. The official poverty rate overestimates the number of people living in poverty because it doesn't count many government anti-poverty programs, such as subsidized housing, food stamps and the Earned Income Tax Credit.
3) Retail Sales Unchanged-From The Wall Street Journal
U.S. retail sales were flat in August, signaling that nervous consumers are putting off spending amid high unemployment and an anemic recovery.
However, wholesale prices also were flat, which could ease inflation fears and give the Federal Reserve more leeway to try to spur growth by easing credit.
Retail and food-services sales were almost unchanged from the previous month at a seasonally adjusted $389.50 billion, the Commerce Department said Wednesday, significantly worse than many economists had predicted.
Adding to the poor performance, July retail sales were revised down to a 0.3% gain, compared with the Commerce Department's original estimate of 0.5% growth.
Retail sales are an important indicator of consumer spending, typically a major driver of economic growth.
Surveys over the summer showed shoppers growing worried about the weak economy, and Wednesday's sales figures provide evidence that such nervousness is translating into weak spending.
"The risk of renewed recession remains uncomfortably high," Jay Feldman, economist at Credit Suisse, wrote in a note.
Wednesday's retail data showed a 0.3% decline for auto and parts sales. Excluding cars, overall retail sales were up 0.1%. Clothing, furniture, restaurant and department-store sales also dropped. Electronics and appliance, sporting goods, grocery, building materials and non-store retailers—a category that includes online sales—posted some gains.
Some economists suggested the weak spending was partly driven by Hurricane Irene, which swept up the East Coast in late August, disrupting commerce in several states.
Businesses are fighting for customers in a tough environment. Best Buy Co. said Tuesday that its fiscal second-quarter profit fell 30% and projected lower earnings for the current fiscal year as the consumer-electronics retailer confronts a weak economy and strong competition.
"We're still facing an uncertain macro environment with volatile consumer shopping behavior, and this was evident in our results for the second quarter," Best Buy President and Chief Executive Brian Dunn said on a conference call.
A separate government report, which measures how much manufacturers and wholesalers pay for goods and materials, was unchanged in August from July as lower energy costs offset higher food prices.
The wholesale price report showed that energy-goods costs fell 1.0% in August, the third consecutive monthly decline, led by lower costs for liquefied petroleum gas, as well as gasoline and diesel fuel.
Declines in oil and other commodity costs are filtering through to other goods. The price of intermediate materials, supplies and parts fell by 0.5%, the first monthly drop in more than a year.
The combination of weak economic data and low inflation could make it more likely that the Federal Reserve will take new action to revive the economy when its policy-making Open Market Committee meets next week.
Fed Chairman Ben Bernanke last week said there had been little indication that higher energy and food costs so far this year had translated into permanently higher prices.
Many investors expect the central bank to announce a plan next week in which it buys long-term bonds and sells short-term securities in an effort to keep long-term borrowing rates low.
Quote of the Day from Dave Ramsey.com:
Nothing great has ever been achieved except by those who dared believe something inside them was superior to circumstances. — Bruce Barton
Tuesday, September 13, 2011
Financial Headline News for Tuesday 9/13
Stocks edged up today in another day of choppy trading as industrials led indexes higher. GE rose 2 percent to lead 30 stocks in the Dow.
Italy held talks with China's sovereign wealth fund amid reports it asked it to buy its bonds
Nearly 1 in 6 Americans are in poverty the Census says. US poverty rate rose to 15.1 percent and the number of uninsured hits high of 49.9 million
Here are the top financial stories of the day:
1) Dow Struggles for Direction-From The Wall Street Journal
Stocks bobbed between positive and negative territory, as investors kept an eye on the latest developments regarding Europe's debt woes.
The Dow Jones Industrial Average was up 29 points, or 0.3%, to 11090, in early Tuesday afternoon trading, with the index swinging about 150 points from its session lows to highs. Leading the blue chips higher were General Electric's 2.2% gain and Intel's 1.8% rise.
The Standard & Poor's 500-stock index rose seven points, or 0.6%, to 1169. Industrial and material stocks were the biggest gainers. The technology-oriented Nasdaq Composite gained 25 points, or 1%, to 2520.
The action follows Monday's session in which the Dow erased an intraday loss of as much as 167 points and finished up 69 points amid reports that China and Italy were in talks about bond purchases.
But on Tuesday, Italy said it didn't ask China to help it calm markets by buying its bonds. "We have not asked China for any aid in particular," said Antonio Gentile, a junior finance minister. "Demand for state-issued bonds remains good."
"It's just a hyper sensitive market," said Quincy Krosby, market strategist at Prudential Financial. "The question becomes at what point do you see conviction buyers coming into the market and taking positions.
It'll happen, but it could get sloppy beforehand."
In corporate news, Best Buy's fiscal second-quarter profit fell 30% as the consumer-electronics retailer continues to battle a weak economy and competition from online marketplaces. Shares tumbled 8.5%.
Aetna expects full-year operating results to exceed the company's prior target, citing a strong current-quarter performance and favorable underwriting margin. The stock rose 4%.
Cracker Barrel Old Country Store reported fiscal fourth-quarter revenue that fell shy of estimates, but raised its quarterly dividend 14% and approved a $65 million stock buyback program. Shares erased earlier losses and were up 2.7%.
Intersil lowered its fiscal third-quarter revenue forecast, but Chief Executive Dave Bell said inventory appears to be stabilizing. The semiconductor company's shares rose 3.4%.
Cummins expects annual sales to increase more than 60% in coming years, reaching $30 billion in 2015. Shares jumped 6.8%.
Meanwhile, import prices fell last month, indicating inflation pressures are benign and providing U.S. policy makers with room to give the economy additional stimulus.
Additionally, the National Federation of Independent Business said its small business optimism index fell in August for a sixth consecutive month, with most businesses surveyed saying sales remained the largest problem.
Meanwhile, a net 5% said they planned to create new jobs, a three-percentage-point increase from a month earlier.
2) Italy confirms China talks amid bond help reports-From the AP
Italy confirmed it held talks with Chinese officials amid speculation Rome is looking to persuade Beijing to buy its bonds or invest in its companies, while premier Silvio Berlusconi flew to Brussels Tuesday to discuss the market turmoil.
The eurozone's third-largest economy is trying to convince investors that it can manage its debt load, find buyers for its bonds and avoid becoming the next victim of Europe's debt crisis.
News of the talks with China sent the Milan stock market higher on the open, following market tensions across Europe. But the rebound was shaky, with stocks fluctuating.
Bond prices likewise received little support from the news especially after the country had to pay a euro-era high interest rate in a five-year bond auction.
Though the Italian Treasury raised euro3.86 billion ($5.27 billion) from the sale of five-year bonds, it had to pay an interest rate of 5.6 percent. That was the highest rate it has had to pay since the euro was established in 1999 and marked a fairly hefty rise from the previous auction's equivalent of 4.9 percent.
UniCredit bank gave a mixed review to the auction.
"While in terms of pricing we regard the auction as disappointing, demand was fine in our view, considering the current market environment and the high amount sold," said Chiara Cremonesi, a fixed-income strategist at UniCredit.
In Brussels, Berlusconi discussed the government's austerity package with European Union President Herman Van Rompuy, ahead of a key vote in the Italian parliament.
The austerity measures seek to slash spending by more than euro54 billion ($70 billion) over three years. They will be put to a vote of confidence in the lower house of parliament for final approval Wednesday, Berlusconi said. The Senate has already cleared them.
The European Central Bank has bought Italian bonds in the open market to keep down their yields, which indicate the rates at which the country would be able to borrow on the market.
But Rome appears to be looking farther away, too.
A spokesman for Finance Minister Giulio Tremonti confirmed the meeting with the chairman of China Investment Corp., Lou Jiwei, but declined further comment.
The Wall Street Journal and the Financial Times said the meeting took place last week in Rome, without citing sources. Reports said the meeting also included officials of China's foreign currency regulator and the Cassa Depositi e Prestiti, an Italian government investment vehicle.
CIC was created in 2007 to invest a portion of Beijing's $3.2 trillion in foreign reserves, the bulk of which are held in safe but low-earning assets such as U.S. Treasury debt. The fund says it has assets of $409.6 billion, which includes stocks in a wide array of major Western companies.
"Europe will continue to be one of China's main investment markets," said Foreign Ministry spokeswoman Jiang Yu at a regular news briefing. "We will also expand financial and economic cooperation and investment cooperation with European countries to jointly address the financial crisis."
Beijing hopes eurozone countries will "take effective measures to ensure the safety of China's investments," Jiang said.
Fiat and Chrysler CEO Sergio Marchionne, speaking from the Frankfurt Auto Show, said the possible involvement of China could be read in two ways: on the one hand, were Beijing to absorb some of Italy's debt, it would be a vote of confidence in Italy; on the other, the fact that Rome "had to go there, in and of itself is not a good sign."
Analyst Romeo Orlandi, an expert on China, echoed that assessment, saying the development was positive for Italy, but not without dangers.
"In principle it's a win-win situation: Italy needs money, China has the world's largest reserves. But this means that we must sell pieces of Italy to China," Orlandi said, adding that the talks may be an indication of how serious Italy's financial troubles are.
Orlandi said Beijing is usually cautious in its investment, and that the solution to Italy's woes does not lie in China. "But we are in a situation where even a little crutch can be helpful," he said.
3) Number of poor hit record 46 million in 2010-From Reuters
The number of Americans living below the poverty line rose to a record 46 million last year, the government said on Tuesday, underscoring the challenges facing President Barack Obama and Congress as they try to tackle high unemployment and a moribund economy.
The Census Bureau's annual report on income, poverty and health insurance coverage said the national poverty rate climbed for a third consecutive year to 15.1 percent in 2010 as the economy struggled to recover from the recession that began in December 2007 and ended in June 2009.
That marked a 0.8 percent increase from 2009, when there were 43.6 million Americans living in poverty.
The number of poor Americans in 2010 was the largest in the 52 years that the Census Bureau has been publishing poverty estimates, the report said, while the poverty rate was the highest since 1993.
The specter of economic deterioration also afflicted working Americans who saw their median income decline 2.3 percent to an annual $49,445.
About 1.5 million fewer Americans were covered by employer-sponsored health insurance plans, while the number of people covered by government health insurance increased by nearly 2 million.
All told, the number of Americans with no health insurance hovered at 49.9 million, up slightly from 49 million in 2010.
The economic deterioration depicted by the figures is likely to have continued into 2011 as economic growth diminished, unemployment remained stuck above 9 percent and fears grew of a possible double-dip recession.
The report of rising poverty coincides with Obama's push for a $450 billion job creation package, and deliberations by a congressional "super committee" tasked with cutting at least $1.2 trillion from the budget deficit over 10 years.
Faced with deteriorating job approval ratings, the president is trying to convince Republicans in Congress to support his package.
Analysts said poverty-related issues have relatively little hold on politicians in Washington but hoped the new figures would encourage the bipartisan super committee to avoid deficit cuts that would hurt the poor.
The United States has long had one of the highest poverty rates in the developed world. Among 34 countries tracked by the Paris-based Organization for Economic Cooperation and Development, only Chile, Israel and Mexico have higher rates of poverty.
Quote of the Day from Dave Ramsey.com:
The Lord gave us two ends—one to sit on and the other to think with. Success depends on which one we use the most. — Ann Landers
Italy held talks with China's sovereign wealth fund amid reports it asked it to buy its bonds
Nearly 1 in 6 Americans are in poverty the Census says. US poverty rate rose to 15.1 percent and the number of uninsured hits high of 49.9 million
Here are the top financial stories of the day:
1) Dow Struggles for Direction-From The Wall Street Journal
Stocks bobbed between positive and negative territory, as investors kept an eye on the latest developments regarding Europe's debt woes.
The Dow Jones Industrial Average was up 29 points, or 0.3%, to 11090, in early Tuesday afternoon trading, with the index swinging about 150 points from its session lows to highs. Leading the blue chips higher were General Electric's 2.2% gain and Intel's 1.8% rise.
The Standard & Poor's 500-stock index rose seven points, or 0.6%, to 1169. Industrial and material stocks were the biggest gainers. The technology-oriented Nasdaq Composite gained 25 points, or 1%, to 2520.
The action follows Monday's session in which the Dow erased an intraday loss of as much as 167 points and finished up 69 points amid reports that China and Italy were in talks about bond purchases.
But on Tuesday, Italy said it didn't ask China to help it calm markets by buying its bonds. "We have not asked China for any aid in particular," said Antonio Gentile, a junior finance minister. "Demand for state-issued bonds remains good."
"It's just a hyper sensitive market," said Quincy Krosby, market strategist at Prudential Financial. "The question becomes at what point do you see conviction buyers coming into the market and taking positions.
It'll happen, but it could get sloppy beforehand."
In corporate news, Best Buy's fiscal second-quarter profit fell 30% as the consumer-electronics retailer continues to battle a weak economy and competition from online marketplaces. Shares tumbled 8.5%.
Aetna expects full-year operating results to exceed the company's prior target, citing a strong current-quarter performance and favorable underwriting margin. The stock rose 4%.
Cracker Barrel Old Country Store reported fiscal fourth-quarter revenue that fell shy of estimates, but raised its quarterly dividend 14% and approved a $65 million stock buyback program. Shares erased earlier losses and were up 2.7%.
Intersil lowered its fiscal third-quarter revenue forecast, but Chief Executive Dave Bell said inventory appears to be stabilizing. The semiconductor company's shares rose 3.4%.
Cummins expects annual sales to increase more than 60% in coming years, reaching $30 billion in 2015. Shares jumped 6.8%.
Meanwhile, import prices fell last month, indicating inflation pressures are benign and providing U.S. policy makers with room to give the economy additional stimulus.
Additionally, the National Federation of Independent Business said its small business optimism index fell in August for a sixth consecutive month, with most businesses surveyed saying sales remained the largest problem.
Meanwhile, a net 5% said they planned to create new jobs, a three-percentage-point increase from a month earlier.
2) Italy confirms China talks amid bond help reports-From the AP
Italy confirmed it held talks with Chinese officials amid speculation Rome is looking to persuade Beijing to buy its bonds or invest in its companies, while premier Silvio Berlusconi flew to Brussels Tuesday to discuss the market turmoil.
The eurozone's third-largest economy is trying to convince investors that it can manage its debt load, find buyers for its bonds and avoid becoming the next victim of Europe's debt crisis.
News of the talks with China sent the Milan stock market higher on the open, following market tensions across Europe. But the rebound was shaky, with stocks fluctuating.
Bond prices likewise received little support from the news especially after the country had to pay a euro-era high interest rate in a five-year bond auction.
Though the Italian Treasury raised euro3.86 billion ($5.27 billion) from the sale of five-year bonds, it had to pay an interest rate of 5.6 percent. That was the highest rate it has had to pay since the euro was established in 1999 and marked a fairly hefty rise from the previous auction's equivalent of 4.9 percent.
UniCredit bank gave a mixed review to the auction.
"While in terms of pricing we regard the auction as disappointing, demand was fine in our view, considering the current market environment and the high amount sold," said Chiara Cremonesi, a fixed-income strategist at UniCredit.
In Brussels, Berlusconi discussed the government's austerity package with European Union President Herman Van Rompuy, ahead of a key vote in the Italian parliament.
The austerity measures seek to slash spending by more than euro54 billion ($70 billion) over three years. They will be put to a vote of confidence in the lower house of parliament for final approval Wednesday, Berlusconi said. The Senate has already cleared them.
The European Central Bank has bought Italian bonds in the open market to keep down their yields, which indicate the rates at which the country would be able to borrow on the market.
But Rome appears to be looking farther away, too.
A spokesman for Finance Minister Giulio Tremonti confirmed the meeting with the chairman of China Investment Corp., Lou Jiwei, but declined further comment.
The Wall Street Journal and the Financial Times said the meeting took place last week in Rome, without citing sources. Reports said the meeting also included officials of China's foreign currency regulator and the Cassa Depositi e Prestiti, an Italian government investment vehicle.
CIC was created in 2007 to invest a portion of Beijing's $3.2 trillion in foreign reserves, the bulk of which are held in safe but low-earning assets such as U.S. Treasury debt. The fund says it has assets of $409.6 billion, which includes stocks in a wide array of major Western companies.
"Europe will continue to be one of China's main investment markets," said Foreign Ministry spokeswoman Jiang Yu at a regular news briefing. "We will also expand financial and economic cooperation and investment cooperation with European countries to jointly address the financial crisis."
Beijing hopes eurozone countries will "take effective measures to ensure the safety of China's investments," Jiang said.
Fiat and Chrysler CEO Sergio Marchionne, speaking from the Frankfurt Auto Show, said the possible involvement of China could be read in two ways: on the one hand, were Beijing to absorb some of Italy's debt, it would be a vote of confidence in Italy; on the other, the fact that Rome "had to go there, in and of itself is not a good sign."
Analyst Romeo Orlandi, an expert on China, echoed that assessment, saying the development was positive for Italy, but not without dangers.
"In principle it's a win-win situation: Italy needs money, China has the world's largest reserves. But this means that we must sell pieces of Italy to China," Orlandi said, adding that the talks may be an indication of how serious Italy's financial troubles are.
Orlandi said Beijing is usually cautious in its investment, and that the solution to Italy's woes does not lie in China. "But we are in a situation where even a little crutch can be helpful," he said.
3) Number of poor hit record 46 million in 2010-From Reuters
The number of Americans living below the poverty line rose to a record 46 million last year, the government said on Tuesday, underscoring the challenges facing President Barack Obama and Congress as they try to tackle high unemployment and a moribund economy.
The Census Bureau's annual report on income, poverty and health insurance coverage said the national poverty rate climbed for a third consecutive year to 15.1 percent in 2010 as the economy struggled to recover from the recession that began in December 2007 and ended in June 2009.
That marked a 0.8 percent increase from 2009, when there were 43.6 million Americans living in poverty.
The number of poor Americans in 2010 was the largest in the 52 years that the Census Bureau has been publishing poverty estimates, the report said, while the poverty rate was the highest since 1993.
The specter of economic deterioration also afflicted working Americans who saw their median income decline 2.3 percent to an annual $49,445.
About 1.5 million fewer Americans were covered by employer-sponsored health insurance plans, while the number of people covered by government health insurance increased by nearly 2 million.
All told, the number of Americans with no health insurance hovered at 49.9 million, up slightly from 49 million in 2010.
The economic deterioration depicted by the figures is likely to have continued into 2011 as economic growth diminished, unemployment remained stuck above 9 percent and fears grew of a possible double-dip recession.
The report of rising poverty coincides with Obama's push for a $450 billion job creation package, and deliberations by a congressional "super committee" tasked with cutting at least $1.2 trillion from the budget deficit over 10 years.
Faced with deteriorating job approval ratings, the president is trying to convince Republicans in Congress to support his package.
Analysts said poverty-related issues have relatively little hold on politicians in Washington but hoped the new figures would encourage the bipartisan super committee to avoid deficit cuts that would hurt the poor.
The United States has long had one of the highest poverty rates in the developed world. Among 34 countries tracked by the Paris-based Organization for Economic Cooperation and Development, only Chile, Israel and Mexico have higher rates of poverty.
Quote of the Day from Dave Ramsey.com:
The Lord gave us two ends—one to sit on and the other to think with. Success depends on which one we use the most. — Ann Landers
Monday, September 12, 2011
Financial Headline News for Monday 9/12
Stocks soared at the end to overcome a deficit earlier in the day.
Mary Ann Bartels, Bank of America Merrill Lynch’s technical research analyst, has some dire predictions below.
E-Books prices are going up as the publishing industry is trying to access the changes going from Brick and Mortar stores to modern technology.
Here are the top financial stories of the day:
1) Stocks Claw Back-From The Wall Street Journal
Stocks erased a steep loss late in the day amid a report that China may come to the aid of the euro zone.
The Dow Jones Industrial Average closed up 68.99 points, or 0.6%, at 11061.12, its first gain in three days.
It was a volatile session in which the measure fell by as much as 167 points, before an upward burst of 183, or 1.7%, in the final hour of trading. The Standard & Poor's 500-stock index gained 8.04 points, or 0.7%, to 1162.27. The Nasdaq Composite rose 27.10 points, or 1.1%, to 2495.09.
Stocks clawed back into positive territory late in the day after a report in the Financial Times said China was in talks with Italy for "significant" purchases of government bonds, which would help one of Europe's most heavily indebted governments. Earlier in the day, investors had been preoccupied with worries that Greece's sovereign-debt crisis was coming to a head.
"For the Chinese to come in and back their debt [would be] a vote of confidence at a time when confidence is at a shortfall," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management.
Technology stocks were a source of relative strength throughout the session. Chip stocks fared especially well after Broadcom agreed to acquire NetLogic Microsystems for $3.7 billion. NetLogic soared 16.21, or 51%, to 48.12, while Broadcom shed 38 cents, or 1.1%, to 33.06.
Intel gained 58 cents, or 2.9%, to 20.28, leading the Dow. Micron Technology led the S&P 500, rising 34 cents, or 5.3%, to 6.69.
Meanwhile, stock markets in Europe and Asia ended sharply lower, with some shares hitting multiyear lows, amid fears about euro-zone sovereign debt and a possible Greek default.
Banks bore the brunt of the selloff in Europe, while financial firms and exporters led the declines in Asia. French bank stocks plunged amid worries that Moody's Investors Service could downgrade them this week due to their holdings of Greek government debt.
"Many banks, if they truly write down their Greek debt to where it probably should be, may have a capital problem," said Bernard Horn, president of Polaris Capital Management in Boston.
The Stoxx Europe 600 index ended down 2.5%, at 218.93, having hit an intraday low of 216.76, its lowest level in over two years. The U.K.'s FTSE 100 closed 1.6% lower, at 5129.62. Germany's DAX slumped 2.3%, to 5072.33, falling below the 5000-mark during the session for the first time since July 2009 before recovering. France's CAC-40 closed down 4%, at 2854.81, its lowest point since April 2009.
Japan's Nikkei Stock Average fell 2.3%, to 8535.67, its lowest closing level since April 2009, while Hong Kong's Hang Seng index fell 4.2%, to 19030.54, its lowest close since May 2010. Australia's S&P/ASX 200 lost 3.7%, to 4038.50, Singapore's Straits Times Index fell 2.9%, to 2743.58, and India's Sensex fell 2.2%, to 16501.74. South Korean, Taiwanese and mainland Chinese markets were closed for holidays.
In the U.S., Bank of America Chief Executive Brian Moynihan said the company would save billions through cost cuts in the coming years. The news provided a respite from the drumbeat of negatives on bank stocks.
The shares gained seven cents, or 1%, at 7.05.
NYSE Euronext fell 25 cents, or 1%, to 25.42, after a senior company executive said no private deal has
been struck among European regulators to bless the exchange operator's planned combination with Deutsche Börse.
Global Industries leapt 2.63, or 51%, to 7.78, after France's Technip said it was buying the construction and undersea services company in a deal valued at $1.07 billion.
McGraw-Hill said it planned to separate its markets and education businesses into two public companies and accelerate its share repurchases. The stock rose 1.54, or 4%, to 40.26.
Tenet Healthcare said it now expects 2011 adjusted earnings before interest, taxes, depreciation and amortization to be at the lower end of its previous forecast. Shares fell 50 cents, or 10%, to 4.52.
Online-dating company FriendFinder Networks added 15 cents, or 5.5%, to 2.86. The company plans to pay up to $65 million to acquire BDM Global Ventures in a move that will give it ownership of BDM's JigoCity deals site.
M&F Worldwide jumped 3.88, or 19%, to 24.25. The company agreed to be acquired by closely held MacAndrews & Forbes Holdings.
Darling International lost 40 cents, or 2.6%, to 15.15. Goldman Sachs analysts downgraded their stock-investment rating on the rendering and food recycling company to "neutral" from "buy," citing a lack of near-term catalysts for the stock.
2) S&P Could Fall 20%, 2-Year Treasury Hit 0%: Analyst-From CNBC
3) E-Book Prices Prop Up Print Siblings-From The Wall Street Journal
Quote of the Day from Dave Ramsey.com:
Nurture your mind with great thoughts, for you will never go any higher than you think. — Benjamin Disraeli
Mary Ann Bartels, Bank of America Merrill Lynch’s technical research analyst, has some dire predictions below.
E-Books prices are going up as the publishing industry is trying to access the changes going from Brick and Mortar stores to modern technology.
Here are the top financial stories of the day:
1) Stocks Claw Back-From The Wall Street Journal
Stocks erased a steep loss late in the day amid a report that China may come to the aid of the euro zone.
The Dow Jones Industrial Average closed up 68.99 points, or 0.6%, at 11061.12, its first gain in three days.
It was a volatile session in which the measure fell by as much as 167 points, before an upward burst of 183, or 1.7%, in the final hour of trading. The Standard & Poor's 500-stock index gained 8.04 points, or 0.7%, to 1162.27. The Nasdaq Composite rose 27.10 points, or 1.1%, to 2495.09.
Stocks clawed back into positive territory late in the day after a report in the Financial Times said China was in talks with Italy for "significant" purchases of government bonds, which would help one of Europe's most heavily indebted governments. Earlier in the day, investors had been preoccupied with worries that Greece's sovereign-debt crisis was coming to a head.
"For the Chinese to come in and back their debt [would be] a vote of confidence at a time when confidence is at a shortfall," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management.
Technology stocks were a source of relative strength throughout the session. Chip stocks fared especially well after Broadcom agreed to acquire NetLogic Microsystems for $3.7 billion. NetLogic soared 16.21, or 51%, to 48.12, while Broadcom shed 38 cents, or 1.1%, to 33.06.
Intel gained 58 cents, or 2.9%, to 20.28, leading the Dow. Micron Technology led the S&P 500, rising 34 cents, or 5.3%, to 6.69.
Meanwhile, stock markets in Europe and Asia ended sharply lower, with some shares hitting multiyear lows, amid fears about euro-zone sovereign debt and a possible Greek default.
Banks bore the brunt of the selloff in Europe, while financial firms and exporters led the declines in Asia. French bank stocks plunged amid worries that Moody's Investors Service could downgrade them this week due to their holdings of Greek government debt.
"Many banks, if they truly write down their Greek debt to where it probably should be, may have a capital problem," said Bernard Horn, president of Polaris Capital Management in Boston.
The Stoxx Europe 600 index ended down 2.5%, at 218.93, having hit an intraday low of 216.76, its lowest level in over two years. The U.K.'s FTSE 100 closed 1.6% lower, at 5129.62. Germany's DAX slumped 2.3%, to 5072.33, falling below the 5000-mark during the session for the first time since July 2009 before recovering. France's CAC-40 closed down 4%, at 2854.81, its lowest point since April 2009.
Japan's Nikkei Stock Average fell 2.3%, to 8535.67, its lowest closing level since April 2009, while Hong Kong's Hang Seng index fell 4.2%, to 19030.54, its lowest close since May 2010. Australia's S&P/ASX 200 lost 3.7%, to 4038.50, Singapore's Straits Times Index fell 2.9%, to 2743.58, and India's Sensex fell 2.2%, to 16501.74. South Korean, Taiwanese and mainland Chinese markets were closed for holidays.
In the U.S., Bank of America Chief Executive Brian Moynihan said the company would save billions through cost cuts in the coming years. The news provided a respite from the drumbeat of negatives on bank stocks.
The shares gained seven cents, or 1%, at 7.05.
NYSE Euronext fell 25 cents, or 1%, to 25.42, after a senior company executive said no private deal has
been struck among European regulators to bless the exchange operator's planned combination with Deutsche Börse.
Global Industries leapt 2.63, or 51%, to 7.78, after France's Technip said it was buying the construction and undersea services company in a deal valued at $1.07 billion.
McGraw-Hill said it planned to separate its markets and education businesses into two public companies and accelerate its share repurchases. The stock rose 1.54, or 4%, to 40.26.
Tenet Healthcare said it now expects 2011 adjusted earnings before interest, taxes, depreciation and amortization to be at the lower end of its previous forecast. Shares fell 50 cents, or 10%, to 4.52.
Online-dating company FriendFinder Networks added 15 cents, or 5.5%, to 2.86. The company plans to pay up to $65 million to acquire BDM Global Ventures in a move that will give it ownership of BDM's JigoCity deals site.
M&F Worldwide jumped 3.88, or 19%, to 24.25. The company agreed to be acquired by closely held MacAndrews & Forbes Holdings.
Darling International lost 40 cents, or 2.6%, to 15.15. Goldman Sachs analysts downgraded their stock-investment rating on the rendering and food recycling company to "neutral" from "buy," citing a lack of near-term catalysts for the stock.
2) S&P Could Fall 20%, 2-Year Treasury Hit 0%: Analyst-From CNBC
Rising risk aversion, a surging U.S. dollar, historical seasonal weakness and a climb in bonds could send the S&P 500 down as much as 21 percent from Friday’s close, according to Mary Ann Bartels, Bank of America Merrill Lynch’s technical research analyst.
The 2-year Treasury yield could drop to zero, Bartels added
“There is still a chance that 1100-1020 holds, but the risk is now higher, or a 50 percent probability, that the S&P [.SPX 1172.87 
10.60 (+0.91%) 
] tests 985 – 910,” wrote Bartels, who is often chosen among the top chart analysts in an annual survey by "Institutional Investor" magazine. “September historically is the worst performing month in the year, while October traditionally marks important market bottoms.”
10.60 (+0.91%) ] tests 985 – 910,” wrote Bartels, who is often chosen among the top chart analysts in an annual survey by "Institutional Investor" magazine. “September historically is the worst performing month in the year, while October traditionally marks important market bottoms.”The S&P 500 is already down 15 percent from its bull market high hit at the start of May. Bartels believes that the benchmark will retest the 1100-1020 area and if it fails there, then look out below. She gets her target in the 900s using a combination of commonly-used factors, most notably a 61.8 percent Fibonacci retracement of the March 2009 to May 2011 rally.
As for bonds, Bartels makes a simple channel around the past highs and lows of the two-year yield. The bottom part of the channel leads right down to zero percent, meaning investors will keep buying these notes and expect nothing in return except their principle. She sees a similar drop in the long-end of the curve with the 10-year Treasury yield going as low as 0.3 percent.
This flattening of yield curve will only hurt banks’ ability to make money on lending over time.
“I fear she is right on point,” said Chris Verrone, a chart analyst for Strategas Research, who correctly got bearish for his clients recently. “The biggest takeaway from me over last few weeks is continued deterioration in credit.”
3) E-Book Prices Prop Up Print Siblings-From The Wall Street Journal
Quote of the Day from Dave Ramsey.com:
Nurture your mind with great thoughts, for you will never go any higher than you think. — Benjamin Disraeli
Subscribe to:
Posts (Atom)