Saturday, May 30, 2009

Jittery Bond Market Threatens President's Agenda

The Wall Street Journal - WASHINGTON -- Senior Obama administration officials said Friday that policy adjustments necessary to contain soaring budget deficits would be made once an economic recovery takes hold, in response to growing concerns about a run-up in long-term interest rates.

Treasury Secretary Timothy Geithner, National Economic Council chief Lawrence Summers and Office of Management and Budget director Peter Orszag said in separate interviews that the administration was acutely aware that rising interest rates pose a threat to the improving U.S. economy.

Yields on 10-year Treasury notes have risen 1.5 percentage points this year as bond traders pull back amid worries about rising federal debt. Higher yields will leave the government with higher interest costs and still higher deficits. They could also push up other forms of interest rates, making borrowing more expensive for many people.

On Thursday, the Treasury Department is expected to announce an auction of roughly $65 billion in three-year, 10-year and 30-year notes and bonds, and the result will be closely watched.

"We're going to do what's necessary," Mr. Geithner said. "That's the only way you're going to get a strong, sustainable recovery." As soon as a recovery takes hold, the administration will reduce the deficit to a sustainable level, he said, adding, "That's difficult, but critically important."

Mr. Orszag said the administration's commitment to fiscal rectitude would become clear in coming weeks when President Barack Obama demands that any health-care plan drafted in Congress be fully paid for. That pledge, he said, "is ironclad, no ambiguity, not up for negotiation."

Additional steps on the deficit may become necessary, he added, and the administration is committed to turning to Social Security next.

"There is not a day that goes by that the president and the economic team do not focus on the long-term commitment to decrease the deficit," Mr. Summers said.

The comments by the administration officials were aimed at calming worries on Wall Street, and indicated concern that rising interest rates might imperil the president's domestic agenda, as they have done to the plans of previous Democratic administrations.

Some officials tried to play down market fears about federal borrowing. The jump in long-term interest rates, both in Treasurys and mortgages, is more a product of technical factors, they argue, than a reaction to Washington's borrowing.

Wednesday, May 27, 2009

Consumers Are Dealt a New Hand in Credit Cards

The New York Times - At first glance, the sweeping credit card legislation that passed the Senate on Tuesday looks like a huge victory for consumers. The bill, after all, contains relief from penalty fees and certain interest rate spikes.

But for people who pay off their bills each month, and milk the card rewards programs for everything they’re worth, there is some cause for concern.

For months now, the card companies have been threatening to cut rewards programs sharply to make up for revenue lost because of the new restrictions.

My guess, however, is that this talk is just so much saber-rattling.

Card companies want to make money, and big spenders help them do it, even if those cardholders do not go into debt.

First, let’s lay out the things we know will change because of the new legislation. The bill is chock-full of new rules, which will take effect at various points in the year after President Obama signs the final legislation.

¶There are new restrictions on when card companies can increase the interest rate on balances you’ve already run up. The bill says that banks generally must wait until you’re 60 days late in making the minimum payment before applying a penalty interest rate to your existing debt.

¶Card companies will have to give 45 days’ notice before raising their interest rates. There’s also a notice requirement for any significant change to a card’s terms, which may keep companies from surprising customers who have been saving their loyalty points for years with huge alterations in rewards programs.

¶Banks must send out your bill no later than 21 days before the due date. They cannot send it with, say, 14 days to go, hoping that you won’t get a check to the bank in time to avoid a late fee.

¶If the card company gets your payment by 5 p.m. on the due date, it’s on time, according to the new rules. No more of this early morning deadline nonsense, which led to late fees for payments that arrived with the afternoon mail. Also, no more late fees if the due date is a Sunday or holiday and your payment doesn’t arrive until a day later.

¶Let’s say you’re paying different interest rates on the debt on a single card — one for a cash advance, another for a balance transfer and a third for new purchases. Now, when you make a payment over the minimum balance, banks will have to apply it to the highest-interest debt first. I bet you can guess how some banks used to handle this sort of situation.

¶Banks will need your permission before allowing you the “privilege” of spending more than your credit limit and paying a fat $39 fee for that privilege. The card companies should be ashamed that they needed a law to make this “opt in” requirement a reality.

¶If you’re a student, it will become harder to get a credit card. No one under 21 can have a card unless a parent, legal guardian or spouse is the primary cardholder. Students with their own income can submit proof and ask for an exception to the co-signer requirement.

Credit vs. Debit:


U.S. Expected to Own 70% of Restructured G.M.

DETROIT — In better times, many employees of General Motors called their company “Generous Motors” because of its rich benefits.

Now G.M. may stand for something else: Government Motors.

The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M.

Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required.

The United Automobile Workers, meanwhile, will hold up to 20 percent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out.

Although it has been clear for weeks that Treasury would have a majority stake of a reconstituted G.M., a 70 percent share — a figure that could still change — is higher than what had been expected.

Stocks of Retailers Surge on Consumer Optimism

After a report showing increased consumer confidence, stocks in the U.S. rose following several days of declines. At the New York Stock Exchange on Tuesday, Glenn Pohs worked on the exchange’s options floor.

The New York Times - After several days of declines on concerns about the government’s borrowing needs and the soundness of the dollar, stock markets rebounded Tuesday on a surprising bounce in consumer confidence. The private Conference Board reported that consumer sentiment rose again in May, hitting its highest levels in eight months.

As traders returned to Wall Street after the holiday weekend, the glints of good news in those numbers were enough to outweigh other figures showing that housing prices continued to tumble as fast as ever. Every sector of the Standard & Poor’s 500-stock index was higher, led by financial stocks and consumer-geared companies like McDonald’s, the Home Depot and Lowe’s home improvement chains, and the Walt Disney Company.

The Dow Jones industrial average was up 196.17 points, or 2.37 percent, to 8,473.49, while the S.& P. 500 was 2.6 percent, or 23.33 points, higher at 910.33.

The technology-focused Nasdaq outpaced other indexes, rising 3.5 percent, or 58.42 points, to 1,750.43, on gains among computer makers, search engines and Internet firms as analysts upgraded Apple. Apple, the maker of iPhones and iPods, rose 6.8 percent to $130.78 a share.

Big banks like Goldman Sachs, Wells Fargo and JPMorgan Chase closed higher, bolstered by optimism that improving consumer sentiment could translate into stability for the financial system. Investors also edged back toward the dollar, a week after they pushed it to its lowest point in five months on concerns about inflation, the expanding supplies of new currency and big federal deficits. The dollar index, which measures the dollar’s performance against six major currencies, was up 0.1 percent.

As the dollar gained ground, gold prices fell moderately.

The jump in consumer confidence also helped the oil markets, where prices settled 78 cents higher, to $62.45 a barrel.

Consumer Confidence Rose Sharply in May

Associated Press - A private research group said Tuesday that consumer confidence in May soared to the highest level since last September amid tentative signs that the economy was improving.

The Conference Board said that its Consumer Confidence Index, which had sharply increased in April, zoomed past economists’ expectations to 54.9, from a revised 40.8 in April.

Economists surveyed by Thomson Reuters were expecting 42.3.

The reading marks the highest in eight months, when the level was 61.4. The levels are also closer to the year-ago reading of 58.1.

The present situation index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month. But the Expectations Index, which measures shoppers’ outlook over the next six months, climbed to 72.3 from 51.0 in April.

“Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. “While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us.”

The upbeat reading was good news for merchants, which are counting on consumers to be in the mood to spend, after confidence plummeted to record lows.

The Consumer Confidence survey — whose responses were received through May 19 from a representative sample of 5,000 households — showed a marked improvement in consumers’ outlook for jobs. The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent, from 14.2 percent, while those anticipating fewer jobs declined to 25.2 percent, from 32.5 percent. The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent, from 8.3 percent.

Friday, May 22, 2009

Recession Turns Malls Into Ghost Towns

The Wall Street Journal - CHARLOTTE, N.C. -- Malls, those ubiquitous shopping meccas that sprang up in the 1950s, are dwindling in number, with many struggling properties reduced to largely vacant shells.

The long recession is helping to empty out the promenades. Some analysts estimate that the number of so-called "dead malls" -- centers debilitated by anemic sales and high vacancy rates -- will swell to more than 100 by the end of this year.

In the 12 months ended March 31, U.S. malls collectively posted a 6.5% decline in tenants' same-store sales, according to Green Street Advisors Inc., a real-estate research firm. The recent slump was led by an average 7.3% sales drop at Simon Property Group Inc., the operator with the largest number of mall locations.

The industry's woes are worsening. Thinning customer traffic, and subsequent hits to tenants' sales and profits, prompted Standard & Poor's Corp. last month to lower the credit ratings of the department-store sector. That knocked Macy's Inc. and J.C. Penney Co. into junk territory and pushed others deeper into junk. Sears Holdings Corp., a cornerstone tenant at many malls, is expected to close 23 stores this month and next.

Wednesday, May 20, 2009

Is the U.S. Going Socialist?

Slump Creates Lack of Mobility for Americans

Stranded by the nationwide slump in housing and jobs, fewer Americans are moving, the Census Bureau said Wednesday.

The bureau found that the number of people who changed residences declined to 35.2 million from March 2007 to March 2008, the lowest number since 1962, when the nation had 120 million fewer people.

Experts said the lack of mobility was of concern on two fronts. It suggests that Americans were unable or unwilling to follow any job opportunities that may have existed around the country, as they have in the past. And the lack of movement itself, they said, could have an impact on the economy, reducing the economic activity generated by moves.

Joseph S. Tracy, research director of the Federal Reserve Bank of New York, said the lack of mobility meant less income for movers and the people they employ and less spending on renovation and on durable goods like appliances. But, Dr. Tracy said, the most troubling prospect is that people were no longer able to relocate for work.

“The thing that would be of deeper concern is if job-related moves are getting suppressed and workers are not getting re-sorted to the jobs that best use their skills,” he said. “As the labor market started to improve, if mobility stays low, you can worry about the allocation of workers.”

Weak Housing Data Has a Bright Spot

The Wall Street Journal - New-home construction in the U.S. fell to a new low last month. But an increase in the construction of single-family homes suggests the slump in home building is drawing to a close.

In April, the pace of construction starts fell to an annual rate of 458,000 new homes, a 12.8% drop from March. That was the lowest level since 1959, when the Commerce Department began tracking the figures.

The decline was wholly the result of a sharp drop in ground-breaking for apartment buildings and other multifamily dwellings. Single-family home construction rose 2.8% to 368,000 in April, after rising slightly in March as well.

The increase in the single-family figures adds to evidence that residential construction has begun to recover. The National Association of Home Builders said Monday that its measure of home-builder sentiment increased for a second month in May. New-home sales appear to be turning upward.

Steve Temkin, owner of T&M Building in Torrington, Conn., has started to see business pick up. After weekends when hardly anyone came by, foot traffic in his model homes is back up, and he just made the first two sales in nearly a year in one of his new projects. To adjust to the weak market, he is building smaller homes starting at about $220,000 -- in places where prices once started at more than $350,000.

Home Depot Girds for Continued Weakness

The New York Times - ATLANTA — When the collapse of Lehman Brothers froze the credit markets last September, Carol Tome quickly ordered hundreds of Home Depot’s store managers to transfer all their spare cash to headquarters — literally cleaning out their registers and each store’s safe.

Then Ms. Tome, the chief financial officer, took other emergency steps to make sure Home Depot would not have to borrow another nickel from the nation’s dysfunctional lenders. Within days, she and her boss, Frank Blake, the chairman and chief executive, had slashed capital spending and suspended a stock buy-back program, saving millions of dollars.

“We no longer needed short-term loans to operate,” Ms. Tome said at the time. And that has remained the case.

The era of operating easily on borrowed money is over, at least for now, for businesses as well as consumers. That in turn is changing the way companies operate, with profound effects on the economy. Unable to borrow on favorable terms, many companies have retrenched and some have gone into survival mode. But their caution has costs: Not only could it prolong the recession, but it could put them at a disadvantage to more aggressive competitors when the economy revives.

While Home Depot has emerged from the credit crisis strong enough to borrow at attractive rates now, it has chosen not to do so. Mr. Blake has charted a course away from expansion, one that he holds out as a template for running a big company in postrecession America. In his view, the hard times and the less generous credit are restricting consumption and undermining the corporate expansion that drove economic growth in recent years. The best response, he decided, is to focus on Home Depot’s most profitable core business: the existing retail outlets.

Wall Street Journal Article on Home Depot's Plight:

Shell Investors Revolt Over Executive Pay Plan

Editor's Note: We are seeing a revolt against pay packages - but it is occurring in Europe, not in the U.S. Will this same anger show up among U.S. investors?

The Wall Street Journal - Royal Dutch Shell PLC, Europe's largest oil company, suffered a stunning rebuke Tuesday when investors shot down its executive-compensation plan, in the latest display of shareholder anger over big paychecks and boardroom excesses amid the economic crisis.

Shell is the largest among a growing group of British companies whose shareholders have voted down compensation plans in advisory votes, including Royal Bank of Scotland Group, Bellway PLC and Provident Financial PLC.

Large numbers of shareholders, though not a majority, voted against compensation plans at miner Xstrata PLC, oil major BP PLC, and Pearson, owner of the Financial Times.

The Shell vote, although nonbinding, shows how the economic downturn has inspired a new activism among shareholders, particularly in Europe, and a greater willingness to challenge board decisions, especially those perceived as rewarding failure.

In a charged meeting at Shell's headquarters in The Hague, which was broadcast live in London to U.K.-based shareholders, a succession of investors lined up to excoriate the board of the Anglo-Dutch company for awarding performance-based shares to executives despite the company's failure to reach its own internal targets.

Investors gasped in disbelief when results of the vote were displayed.

European investors are angry over bonuses that are relatively modest by U.S. standards. At Exxon Mobil Corp., the largest U.S. oil company, Chief Executive Rex Tillerson received a 2008 compensation package valued at $23.9 million, including $1.87 million in salary, a $4 million bonus and stock grants initially valued at $17.6 million, according to the company's latest proxy.

Bond Yields May Signal a Recovery

The gap between short- and long-term Treasury rates is approaching a record as the U.S. economy shows signs of recovery and the government floods the market with new debt.

The gap between two- and 10-year Treasury yields was as wide as 2.360 percentage points at one point Tuesday, the most since the 2.619 points hit in November and nearing the August 2003 peak of 2.747 points. The gap ended Tuesday at 2.352 points, as the 10-year note fell 9/32 point, or $2.8125 for every $1,000 invested, to 99 to yield 3.243%, while the two-year note rose 1/32 point to 99 31/32, lowering its yield to 0.891%. Prices and yields move inversely.
[Treasury Yields]

Strategists said the gap could exceed three points. Two-year yield is expected to remain anchored by the Federal Reserve's interest-rate target of 0% to 0.25%. But the yield on the 10-year note is expected to rise amid a surge of new government debt and as investors sell existing government debt as they look to move out of these safe investments. Until the Fed starts to reverse its stimulative monetary policies and starts raising interest rates, the curve is likely to remain steep.

Investors profit from a steepening yield curve by buying two-year notes and selling 10-year notes. The steeper the curve, the bigger the profit potential. Banks benefit as they can borrow funds at cheap short-term rates and invest in higher-yielding long-term assets.

Yield curve explained:

Credit-Card Fees Curbed

The Wall Street Journal - Sweeping new restrictions on credit-card companies would ban extra fees and fluctuating rates and arm tens of millions of consumers with more information on their debts.

Starting in February 2010, a Senate bill passed Tuesday would ban practices such as charging consumers to pay by phone and sudden surges in interest rates. Payments above the minimum due would be applied to balances with the highest interest rates. Information once relegated to tiny print must be made clearer, and consumers will soon be told how long it would take to pay off a balance if they pay only the minimum due.

The credit-card overhaul is set to become the first major legislative change to financial regulation outside housing since the emergency bank bailout enacted last fall, and it's not the last expected this year. Tuesday's 90-5 vote followed pressure from the White House on card issuers to improve fairness and transparency for the three-fourths of U.S. households that use credit cards. The measure is likely to pass the House in the coming days, and President Barack Obama is expected to sign it into law next week.

For consumers, the legislation aims to change habits -- perhaps leading them to make fewer big-ticket purchases with credit cards -- by clarifying the cost of using card debt. Several provisions in the legislation are geared toward forcing consumers to recognize how much they're paying in interest. Card issuers would also have to provide information on consumer-counseling and debt-management services.

Consumers also wouldn't face a retroactive interest-rate increase on existing balances unless payments are 60 days overdue. Even after that rate increase, a consumer could get the old rate reinstated by paying on time for six months.

The legislation bans a practice known as double-cycle billing, in which a late-paying consumer is assessed interest on a prior month's balance that had been paid in full, in addition to the late balance. Issuers also will have to send bills 21 days before the due date and provide at least 45 days' notice before changing any significant terms on a card.

Monday, May 18, 2009

What's Trump Worth? It Keeps Changing

The Wall Street Journal - It's one of the great mysteries of the business world: How much is Donald Trump really worth?

The world famous real-estate developer and television personality has consistently said it's in the billions. A 2005 book citing anonymous sources said it was between $150 million and $250 million. Mr. Trump sued the writer for defamation. He alleged damage to his reputation that caused him to lose out on future deals in locales from Philadelphia to Kiev.

A hearing in that case will take place Monday in a state court in Camden, N.J. As part of the proceedings, the Donald, as he's known to fans and detractors alike, has provided under oath the secrets to how he values his wealth and treasure. In one case, he says, he does "mental projections."

"My net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings, even my own feeling," he told lawyers in the December 2007 deposition.

The deposition, marked "Confidential," comes to light at a time when some of Mr. Trump's projects, including several condominium developments that bear his name, are struggling. Among the problems are anemic sales, lawsuits, sharp declines in value and troubles with creditors.

In a telephone interview Sunday, Mr. Trump disputed that these are tough times for him. "We have a lot of cash right now. We're starting to buy things," he said while taking a break from playing golf at a Trump course in Bedminster, N.J. He said he stood by the statements he made in the deposition.

In the deposition, given to lawyers representing the book's author, Timothy O'Brien, and its publisher, a unit of French-based Lagardere SCA, Mr. Trump described his public persona. "I'm not different from a politician running for office," he said.
Trump on Business Operations

In the deposition, Mr. Trump said that his 2007 estimate of his net worth -- over $4 billion -- is "a very conservative number, in my opinion." He also said $6 billion is a good number, counting his brand value. (In the interview Sunday, he said he was worth $5 billion, not counting brand value.)

Mr. Trump was asked whether he has ever exaggerated in statements about his properties. "I think everybody does," he said in the deposition. "Who wouldn't?"

A follow-up question: Does that mean he inflates the value of his properties in general, nonfinancial public statements? "Not beyond reason," he said in the testimony.

The deposition reveals he told his bankers and New Jersey casino authorities in 2004 and 2005 that he was worth approximately $3.6 billion. In 2005, Deutsche Bank evaluated his net worth as part of underwriting a $640 million construction loan it made to Mr. Trump's Chicago condo and hotel project. The bank said his worth was $788 million, according to information presented by the author's lawyers present during Mr. Trump's deposition.

Thursday, May 14, 2009

It May Be Time for the Fed to Go Negative


WITH unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers.

Let’s start with the basics: What is the best way for an economy to escape a recession?

Until recently, most economists relied on monetary policy. Recessions result from an insufficient demand for goods and services — and so, the thinking goes, our central bank can remedy this deficiency by cutting interest rates. Lower interest rates encourage households and businesses to borrow and spend. More spending means more demand for goods and services, which leads to greater employment for workers to meet that demand.

The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them.

In many ways today, the Fed is in uncharted waters.

So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.

Wal-Mart Says Its Market Share Is Rising

Wal-Mart, the giant discount chain and unofficial barometer of consumer spending, posted flat year-over-year earnings in its most recent quarter — an accomplishment in this economy.

Most retailers — even discount stores, which have been faring relatively well — are not expected to report year-over-year sales growth in the first months of their fiscal year.

Several chains, including Bon-Ton, Saks, Sears and Dillard’s, are not even expected to make a profit, according to Retail Metrics, a research firm.

For the three months ended April 30, Wal-Mart, the country’s largest retailer, had a profit of $3.02 billion, or 77 cents a share, compared with $3.02 billion, or 76 cents a share, for the period a year ago. In earlier reports, Wal-Mart had warned that results would be hurt by currency exchange rates.

SEC Poised to Charge Mozilo With Fraud

The Wall Street Journal - The Securities and Exchange Commission staff is readying civil fraud charges against Countrywide Financial Corp. co-founder Angelo Mozilo, in what would be the highest-profile government legal action against a chief executive connected to the financial crisis.

The SEC staff sent a so-called Wells notice to Mr. Mozilo several weeks ago alerting him to the potential charges, people familiar with the matter said. Mr. Mozilo's lawyers could still persuade the SEC's commissioners that there isn't sufficient evidence to bring a case.

David Siegel, a lawyer for the 70-year-old Mr. Mozilo, declined to comment on the investigation and said there is no "fair basis" for any allegations against the former Countrywide chief executive.

The charges the SEC is considering include alleged violations of insider-trading laws and alleged failure to disclose material information to shareholders, according to people familiar with the matter.

U.S. Moves to Regulate Derivatives Trade

Federal regulators outlined plans to regulate the giant market for derivatives, a move aimed at avoiding a repeat of the turmoil created last year by certain financial institutions whose risk-taking in exotic financial instruments went largely unchecked.

Under a proposed raft of reforms, regulators could be given authority to force many standard over-the-counter derivatives to be traded on regulated exchanges and electronic-trading platforms. That would make it easier to see prices and make markets more transparent.

Firms with large derivative exposures or that trade more-complex derivatives would be subject to new reporting requirements. The proposal also calls for all standardized derivatives to go through clearinghouses that will guarantee trades and help cushion the impact of a collapse of a large financial institution.

The regulatory overhauls are in response to growing concerns of outsize risk and leverage among derivatives that trade directly between pairs of firms. Much trading in this market, estimated to total hundreds of trillions of dollars, now happens privately, and contracts are typically negotiated over the phone.

Economists See Long Road to Recovery

Economists in the latest Wall Street Journal survey see an end to the recession by autumn, but say it will take years for the economy to fully recover.

"In general, I think it will be a subdued recovery," said Paul Kasriel of The Northern Trust Corp.

On average, the 52 economists who participated in the survey project that the recession will end in August. They expect gross domestic product to contract 1.4% at a seasonally adjusted annualized pace in the current quarter, compared with the 6.1% drop recorded in the first quarter. Slow growth is expected to return by the third quarter, with the economy expanding more than 2% in the first half of 2010.

Kelly Evans and Phil Izzo discuss the findings of the latest WSJ economist survey, which found that while economists have stopped being pessimists, some still see at least one more quarter of negative growth.

The survey was conducted before the Commerce Department's report this week that retail sales fell 0.4% in April from the previous month, which left some economists questioning whether consumer spending is ready to rebound. Initial unemployment claims released Thursday brought more gloomy news: Seasonally adjusted claims in the week ended May 9 increased 32,000 to 637,000 from a revised 605,000 in the preceding week. Most of the losses can be chalked up to Chrysler LLC's 27,000 layoffs following its April 30 bankruptcy filing.

Cargo Ships Treading Water Off Singapore, Waiting for Work

Sunrise in the Strait between Indonesia and Singapore, where 735 cargo ships were gathered Tuesday because of a sharp decline in global exports.
The New York Times - SINGAPORE — To go out in a small boat along Singapore’s coast now is to feel like a mouse tiptoeing through an endless herd of slumbering elephants.

One of the largest fleets of ships ever gathered idles here just outside one of the world’s busiest ports, marooned by the receding tide of global trade. There may be tentative signs of economic recovery in spots around the globe, but few here.

Hundreds of cargo ships — some up to 300,000 tons, with many weighing more than the entire 130-ship Spanish Armada — seem to perch on top of the water rather than in it, their red rudders and bulbous noses, submerged when the vessels are loaded, sticking a dozen feet out of the water.

So many ships have congregated here — 735, according to AIS Live ship tracking service of Lloyd’s Register-Fairplay in Redhill, Britain — that shipping lines are becoming concerned about near misses and collisions in one of the world’s most congested waterways, the straits that separate Malaysia and Singapore from Indonesia.

The root of the problem lies in an unusually steep slump in global trade, confirmed by trade statistics announced on Tuesday.

China said that its exports nose-dived 22.6 percent in April from a year earlier, while the Philippines said that its exports in March were down 30.9 percent from a year earlier. The United States announced on Tuesday that its exports had declined 2.4 percent in March.

Wednesday, May 13, 2009

U.S. Median House Price Declines 14%

The median price for a single-family house fell 14% to $169,000 in the first quarter from a year earlier, the National Association of Realtors reported.

The trade group said first-time home buyers accounted for half of all purchases in the quarter, and many of them zeroed in on foreclosed homes. That dragged down the median, the Realtors said.

The median price for the latest quarter is down 26% from a peak of $227,600 in the third quarter of 2005. The latest median price was down from a year earlier in 134 of the 152 metro areas included in the survey.

The biggest increase was in the Cumberland area of Maryland and West Virginia, where the median price climbed 21% to $114,900. Debbie Grimm, manager of the Long & Foster real-estate brokerage in Cumberland, Md., said the area is attracting retirees and second-home buyers, particularly from Washington and Baltimore.

Retail Sales Post April Decline

The Wall Street Journal - WASHINGTON -- U.S. retail sales fell a second month in a row during April, as job losses and uncertainty about the economy put pressure on spending.

Retail sales decreased by 0.4% compared to the prior month, the Commerce Department said Wednesday. Economists expected an increase of 0.1%.

Sales in March were revised down, decreasing 1.3% instead of 1.2% as previously reported. Sales rose in January and February, after sliding six straight months.

Separately, U.S. import prices jumped last month by their largest amount in almost one year, reflecting a third-straight increase in oil prices. However, excluding oil, prices actually fell for a ninth-straight month, an indication that the global economic recession continues to take pressure off inflation in the U.S.

Officials at GM Sell Their Shares

The Wall Street Journal - Seven General Motors officials dumped all of the stock they directly own in the auto maker as it faces scenarios that would either dilute or wipe out common shareholders.

On Monday, the same day Chief Executive Fritz Henderson said the company still could avoid seeking bankruptcy protection, six insiders, but not Mr. Henderson, disclosed selling an aggregate 204,711 shares at prices from $1.45 to $1.61 a share, or $323,657 in total.

In 4 p.m. New York Stock Exchange composite trading Tuesday, GM's shares fell 20%, or 29 cents, to $1.15, its lowest close in 76 years, on April 27, 1933.

Vice Chairman Robert A. Lutz, who moved into an advisory role last month and will retire by the end of the year, had the largest transaction, selling 81,360 shares for $130,990.

The recent sales followed a disclosure last month that an independent fiduciary, citing the possibility of a GM bankruptcy, sold all of the GM shares in two employee-benefit plans. Also last month, Maureen Kempston Darkes, the president of GM Latin America, Africa and Middle East, disposed of 18,471 shares for $33,433.

"These particular executives made the decision to sell their shares in advance of what we know is going to be happening over the next few weeks," GM spokeswoman Julie Gibson said.

GM is facing a June 1 restructuring deadline from the government and could file for Chapter 11 bankruptcy protection if it is unable to complete a debt-for-equity exchange for $27 billion in unsecured bonds.

Stephen J. Lubben, a bankruptcy-law professor at Seton Hall University School of Law in Newark, N.J., said bankruptcy is the likeliest outcome for GM and would render the shares practically worthless. Even if the exchange offer were to succeed, investors would be left with shares that won't be worth much, he said.

Monday, May 11, 2009

Advertising Losses Put Squeeze on TV News

The New York Times - It is getting so bad for local television stations that some are turning to newspapers for help.

The bankrupt Tribune Company has merged its TV stations and daily newspapers in Miami and Hartford, and it already produces a lighthearted morning show in south Florida with the help of the newspaper’s columnists. Bob Gremillion, the executive vice president for publishing, calls it a “circling the wagons” approach.

No one would dispute that “the two industries are very challenged,” he said. “We’re combining and fighting together.”

The mergers are an example of local TV’s agonizing search for new business models as some balance sheets turn red. Starting Monday in Chicago, four stations’ news departments are combining their camera crews. In other markets, stations are adding newscasts on the cheap even as they lay off people. On the opposite extreme, a handful of stations are closing their news divisions completely.

The news for stations has been grim lately: without election advertisements to defray the losses in automotive ads, a cross section of station owners reported 20 percent to 30 percent quarterly drops in revenue last week, suggesting that the local TV business is almost as weak as its print counterpart.

“Unfortunately, there was nowhere to hide during the current storm, as declines in both local and national advertising accelerated,” Timothy E. Stautberg, the chief financial officer for the E. W. Scripps Company, which owns newspapers in 14 markets and TV stations in 10 markets, told investors last week.

About two-thirds of Americans say they regularly get news from local TV, according to the Pew Research Center. News is responsible for 40 percent to 50 percent of a station’s revenue on average, and many stations are still profitable. But owners see their audiences splintering and they see their parent networks bypassing them on the Web. What they are struggling to maintain is relevance.

Estimate of Budget Deficit Now Tops $1.84 Trillion

WASHINGTON — The economic crisis is already taking a toll on the Obama administration’s new budget projections, adding $90 billion to its already historically high estimates of deficits for both this fiscal year and next.

The changes, reported on Monday by the Office of Management and Budget, brings the deficit for this fiscal year, which ends Sept. 30, to $1.84 trillion from a February projection of $1.75 trillion. For fiscal 2010, the new estimate is $1.26 trillion, up from $1.17 trillion.

As measured against the size of the economy, this year’s shortfall would be 12.9 percent of the overall economy, or gross domestic product. Next year’s deficit would be 8.5 percent of G.D.P. Even before the latest revisions those levels are the highest in more than 60 years, since the end of World War II.

Sunday, May 10, 2009

Home Prices Continue to Crumble

New data shows existing-home sales near a 12-year low, with prices down close to 15%. J.P. Morgan economist Abiel Reinhart says there's evidence of continued pressure on the sector. Kelsey Hubbard reports.

Economists React: Jobs Report Is ‘Less Bad’

The Wall Street Journal - Economists and others weigh in on the smaller-than-expected decline in U.S. payrolls and the increase in the unemployment rate. # We remain cautious on the employment front, as job losses typically continue for 3-6 months after the trough of economic output. That suggests a peak in joblessness towards the end of the fourth quarter 2009, a peak which would cap off two full years of consistent monthly payroll declines… There’s some hope at the end of the rainbow, but the economy will keep busy hunting down the leprechaun for a few more months before we get there. –Guy LeBas, Janney Montgomery Scott

# Many are interpreting the April employment report as yet another sign that the economy is “stabilizing,” but the more accurate interpretation of these signs is that the economy’s pace of contraction is slowing, which is not quite the same as stability and s still a long way from the economy actually improving. –Richard F. Moody, Forward Capital
# This is less bad than the 690,000 average in February and March, and both manufacturing and service losses slowed, but it is hardly a triumph or even a stabilization. It is terrible, as is the rise in the unemployment rate to 8.9% from 8.5%. Soaring unemployment is depressing wage gains… There’s much further to go here; seriously bad news because without wage gains people can’t deleverage unless they cut spending deeply. –Ian Shepherdson, High Frequency Economics

Recent Grads Face Hard Knock Times

Two recent college graduates are scraping by in the toughest job market in years. They're stuck between trying to find jobs that advance their careers and landing jobs that pay the bills. WSJ's Matt Rivera reports.

Saturday, May 9, 2009

Jobless Rate Still Rising, But Not As Fast

The New York Times - The American job market remains dreadful and is still worsening, but at a slower pace than before — good news given the stomach-churning events of recent months. The government’s monthly employment report buoyed hopes that the longest, most punishing recession since the Great Depression may be relenting.

The numbers for April looked good only by comparison with recent months, with February’s net job loss revised up to 681,000, from 651,000, and March’s net losses revised up to 699,000, from 663,000. The rise in the unemployment rate, from 8.5 percent in March, was mostly because more people began seeking jobs who had not previously been looking for work

Those holding more optimistic outlooks focus on the government-led initiatives to stimulate the economy. A $787 billion spending and tax cut package is beginning to wash through the economy. The Federal Reserve and the Treasury have been pouring money into mortgage markets and other areas, bringing down the costs of borrowing..

Friday, May 8, 2009

U.S. Jobless Rate Hits 8.9%, but Pace of Losses Eases

The New York Times - The United States economy lost 539,000 jobs in April, the government reported on Friday, a sign that the relentless pace of job losses was starting to level off slightly but was still nowhere near ending.

A year ago, the loss of more than half a million jobs in a single month would have seemed like a disaster for the economy. On Friday, experts were calling it an improvement.

The Bureau of Labor Statistics reported that the unemployment rate surged to 8.9 percent in April, its highest point in a generation. But some economists saw glimpses of a bottom in the latest grim accounting of job losses.

A Shrinking Trade Deficit, at Least for Now

The New York Times - THE American trade deficit is collapsing at the fastest rate ever, a testament to the ability of a worldwide recession to sharply reduce global economic imbalances that had grown to unprecedented size.

The United States estimated this week that the trade deficit, as a percent of gross domestic product, fell to 2.4 percent in the first quarter of this year.

That is the smallest deficit in a decade, as can be seen in the accompanying chart. It is less than half of the deficit shown in the first quarter of 2008, when the American recession was new and not yet devastating other economies.

Few countries have reported first-quarter data as yet, and the American number will be revised. But what appears to be happening is that much of the pain from the fall in American consumption is being felt in other countries, since exporters in those countries supplied the products that Americans are no longer buying.

Declining trade deficits in the United States are likely to be matched by falling trade surpluses in countries that have historically been net exporters. That is one reason Germany’s economy appears to be faltering badly and China has embarked on a huge economic stimulus program.

The shrinking trade deficit is not being caused by a rebound in American exports. They are falling as well, but not nearly as much as imports are declining.

Thursday, May 7, 2009

Obama Budget Cuts Point To Fights Ahead

Budget cuts detailed by the Obama administration Thursday set the President up for some fights down the road, WSJ's Jonathan Weisman reports. Despite cutbacks in 121 programs, the country's forecast deficit is still over a trillion dollars.

Move by General Growth Rattles Malls' Investors

The Wall Street Journal - When General Growth Properties Inc. sought Chapter 11 protection last month, it took a step its biggest debt holders had believed was impossible: It took 166 of its malls into bankruptcy with it.

The surprised debt holders had believed the malls would be insulated from the parent's bankruptcy because of the way General Growth had structured the assets.

General Growth's action has rattled investors throughout the $700 billion market for securities backed by commercial mortgages, or CMBS. Investors in other deals had also figured their investment was insulated from a parent company's bankruptcy. Now they're worried that General Growth's move will set a precedent that could affect them.

General Growth is the single largest CMBS borrower in the U.S. The CMBS market has grown up over the past two decades to become the major source of financing for commercial real estate.

Some of General Growth's biggest lenders have filed objections to the company's approach in bankruptcy court. A hearing is scheduled Friday to consider, among other things, whether General Growth can use cash flow from the 166 malls as part of its restructuring.

"The filing for so many of these well-capitalized, performing malls is an outrage," says Richard Jones, a lawyer at Dechert LLP, which represents some secured creditors in the General Growth bankruptcy case. "The company is doing something that would damage the entire CMBS industry."

General Growth's goal in taking the malls with it into Chapter 11 was to improve its bargaining position with lenders down the line, company executives said in court papers and media conference calls. In particular, General Growth hoped to be better positioned to bargain with its creditors to extend the terms of its debt and avoid foreclosure, the executives said.

But arranging the bankruptcy petitions for the malls required some maneuvering because of how their debt was structured.

In past years, to get the malls' mortgages, General Growth had set up 166 "special purpose entities" whose sole purpose was to borrow money. SPEs are attractive to lenders because, according to legal experts, they are "bankruptcy remote," meaning their cash flows are dedicated to paying debt service. The lenders issued securities backed by the SPEs. Holders of securities expect the structure would ensure they'd be paid even if the parent company went bust.

General Growth had to get approval from the board of each SPE before the malls could file for Chapter 11, legal experts say. In the weeks before the bankruptcy filings, General Growth replaced directors -- originally selected by Corporation Service Co., which specializes in staffing such boards -- on roughly 90% of its SPE boards.

Economy Beers Give Brewers Lift in Downturn

The Wall Street Journal - Mark Lehr's favorite beer is Heineken, but one recent afternoon, the Chicagoan emerged from a 7-Eleven with a 12-pack of Busch that cost him $8 -- about $7 less than a dozen Heinekens.

"My funds are limited right now," said the 39-year-old house painter, noting that he has had far fewer customers during the recession.

Sales of so-called economy brews, including Busch, Miller High Life and Pabst Brewing Co.'s Pabst Blue Ribbon, are rising faster than the nation's beer sales overall, and are helping industry giants Anheuser-Busch InBev NV and MillerCoors LLC weather the economic downturn.

Anheuser, based in Leuven, Belgium, is expected to report healthy sales at its U.S. unit when it posts first-quarter results Thursday, thanks in part to its stable of low-priced brews such as Natural Light and Busch Light.

Though less profitable, these brews are helping Anheuser offset slower sales growth for its larger brands. "We feel we have brands that can meet any consumer need," said Dave Peacock, president of the company's U.S. unit.

Monday, May 4, 2009

Losing Its Cool at the Mall

BEEN THERE, SEEN THAT Abercrombie & Fitch has seen a reduction in shopping traffic among teenagers.

The New York Times - AT the entrance to almost every shopping mall in the country, you will find a directory that, if you are spatially coordinated, will give you an approximate lay of the land. You can gauge the distance from Abercrombie & Fitch to its younger-skewing cousin, Hollister, or its older cousin, Ruehl, and find the way to their closest competitors in the teenager and young adult category, AĆ©ropostale and American Eagle Outfitters.

But you will be no closer to discerning what drives the modern youth from one store to the next; what differentiates one’s frayed cargo shorts from another’s; or why one of them, Abercrombie, is facing a consumer revolt, while others are paradoxically upbeat. A clue: It has to do with price.

During years of rampant consumerism, where teenagers shopped was often more closely tied to what was happening in the pages of US Weekly or InStyle than their families’ financial circumstances. Empires like Abercrombie & Fitch were built on the premise that their products, even $80 jeans and $30 T-shirts with provocative graphics, would be perceived as luxury items if they were sold in the right way. But as teenagers’ priorities rapidly shift away from brands they now perceive as too expensive, the pecking order of mall stores has changed.


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