AP
Thursday April 3, 10:21 pm ET
By Martin Crutsinger, AP Economics Writer
Bernanke, Bush Admin. Defend Decision to Rescue Bear Stearns Amid Questions by Lawmakers
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke and the Bush administration on Thursday defended the decision to rescue Bear Stearns amid questions by lawmakers about why the government was helping Wall Street investment houses but not people on Main Street.
Bernanke and Treasury Department Undersecretary Robert Steel said that the consequences to the U.S. economy and financial system would have been far more serious had the government allowed the nation's fifth largest investment house to go bankrupt.
"Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," Bernanke told the Senate Banking Committee.
The panel conducted a five-hour hearing as lawmakers sought to understand the decisions made during the hectic weekend of March 14-15 after Bear Stearns informed the Fed that it was on the verge of having to file for bankruptcy protection because nervous creditors were demanding to be repaid.
The investment house was purchased by JP Morgan Chase & Co. with assistance from the Fed in the form of a loan backed by $30 billion of Bear Stearns assets. JP Morgan has agreed to absorb the first $1 billion of losses if the value of the assets declines, but taxpayers are at risk for the remaining $29 billion.
Bear Stearns, with a stock price around $150 per share a year ago, was sold for $10 a share, becoming the biggest victim of a severe credit crisis that hit financial markets in August.
That crisis, which was triggered by a prolonged housing slump and cascading mortgage defaults, has made it harder for consumers and businesses to get loans and helped to push the country to the brink of a recession.
Democrats on the Senate Banking Committee questioned why the Fed was willing to put such a large amount of money at risk to protect Wall Street while as many as 3 million homeowners are facing the risk of defaulting on their mortgages with the administration balking at greater efforts to help them.
"Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?" Senate Banking Committee Chairman Christopher Dodd asked Bernanke and the other witnesses.
Bernanke said that government's effort was not a bailout for Bear Stearns shareholders, who will suffer big losses, but an effort to protect the financial system and ultimately the entire economy, which could have faced severe consequences from a Bear Stearns bankruptcy.
"The adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effect on asset values and credit availability," said Bernanke. On Wednesday, Bernanke had for the first time raised the possibility that the current economic troubles could push the country into a recession.
Steel said that Treasury Secretary Henry Paulson was actively monitoring four days of marathon negotiations that began after Bear Stearns notified the Fed on March 13 that it was one day away from having to file for bankruptcy protection. Steel said the administration supported the Fed's decisions.
Most of the questions on the deal centered on the value of the assets the Fed is now holding as collateral for the loan.
Bernanke and Timothy Geithner, president of the Fed's New York regional bank, said they believed $30 billion was a valid price for those assets and Bernanke said the central bank could end up making money on the deal as the assets are sold along with interest on the loan.
But some lawmakers questioned whether the Fed had done enough to properly value the Bear Stearns assets and wondered whether the entire episode had set a dangerous precedent for future risky behavior by other investment houses.
"How big do you have to be to be too big to fail?" asked Sen. Jim Bunning, R-Ky. "Who let our entire financial system become so fragile that one failure jeopardizes the health of the entire system?"
Also appearing before the committee were Alan Schwartz, the head of Bear Stearns, and Jamie Dimon, the head of JP Morgan, who described grueling marathon sessions over the weekend as executives searched for the best way out of the crisis.
Schwartz told the panel that Bear Stearns was brought down by "unfounded" market rumors that led to what was essentially a "run on the bank" as Bear Stearns creditors began demanding payment out of fears the company was about to collapse.
"Facing the dire choice of bankruptcy or a forced sale under exigent circumstances, we salvaged what we could to avoid wiping out our shareholders, bondholders and 14,000 employees," Schwartz told the panel.
Dimon took issue with reports that the Fed had taken Bear Stearns' riskiest securities as collateral for the $30 billion loan the central bank made to facilitate the sale, saying that JP Morgan did not "cherry pick" the assets it would keep on its books and that it was critical that the sale be arranged.
"A Bear Stearns bankruptcy could well have touched off a chain reaction at other major financial institutions that would have shaken confidence in credit markets that already have been battered," Dimon told the committee.
Sen. Charles Schumer, D-N.Y., said entire episode pointed out the need to overhaul the government's regulatory system. On Monday, Treasury Secretary Henry Paulson put forward a plan that would scrap the current system of overlapping agencies for three super regulators, giving the Fed greater powers to monitor the safety of the entire financial system.
Dodd said his panel would examine the need for an overhaul of financial regulations but that this exercise, because of its complexity, would have to wait until next year when a new administration is in place.
Federal Reserve: http://www.federalreserve.gov
Friday, April 4, 2008
Tuesday, April 1, 2008
Bank News, Economic Data Boosts Stocks
AP
Tuesday April 1, 4:36 pm ET
By Joe Bel Bruno, AP Business Writer
Wall Street Surges on UBS and Lehman Brothers Stock News, Better-Than-Expected Economic Data
NEW YORK (AP) -- Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.
Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the nation's credit struggles has been felt. Moreover, the banks' moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Analysts believe there must be a recovery in bank and brokerage stocks to lead major stock indexes higher. Some of the biggest financial players had their biggest moves of the year Tuesday -- Citigroup Inc. shot up 11 percent, JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.
"Investors have a difficult time making decisions about the stock market if they don't have confidence in major financial institutions, so there's been a lot of sideline cash," said Richard Cripps, chief market strategist for Stifel Nicolaus. "The extreme conditions that we've seen here over the past few months has been missing that confidence ... but that appears to be changing, and we're seeing the response."
Meanwhile, Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 -- indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
According to preliminary calculations, the Dow rose 391.47, or 3.19 percent, to 12,654.47.
Broader stock indicators also gained sharply. The Standard & Poor's 500 index rose 47.48, or 3.59 percent, to 1,370.18, and the Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.
The advance was in contrast to a lackluster session on Monday, where stocks managed a moderate gain in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses, marking the worst period since the third quarter of 2002 when Wall Street was approaching the lowest point of a protracted bear market.
Renewed enthusiasm that the credit crisis might be waning was also felt in the Treasury market, where government securities fell as investors withdrew money to take bets on stocks. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Monday.
In addition to hopes about the financial sector, Wall Street was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.
And there was also optimism that commodities prices, which have hit historic highs in recent months, have begun to retreat. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100. Meanwhile, gold dropped back below $900 an ounce.
"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definitely have not seen the last of the credit crisis, but we're getting closer."
The stock rally was underpinned by the announcements from UBS and Lehman Brothers that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared heavy losses from investments tied to subprime mortgages would be overwhelming.
Earlier this month, widespread concerns about Bear Stearns' financial position forced the investment bank to sell itself at a bargain basement price to JPMorgan in a deal engineered by the Federal Reserve -- and that stoked fears that other investment houses might follow.
JPMorgan rose $4.05, or 9.4 percent, to $47; while Bear Stearns was up 36 cents, or 3.4 percent, to $10.85 -- slightly above the $10 per share acquisition price.
UBS, one of Europe's biggest banks, said it will issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Investors chose to look past the bank's announcement that it will take a fresh $19 billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, following an $18 billion write-down last year. Its shares surged $4.21, or 14.6 percent, to $33.01 in trading on the New York Stock Exchange.
Lehman Brothers, dogged by speculation it might reveal losses big enough to cripple the company, on Tuesday raised $4 billion of capital on Tuesday to stymie questions about its financial stability. Lehman rose $6.70, or 17.8 percent, to $44.34.
The Russell 2000 index of smaller companies rose 22.67, or 3.30 percent, to 710.64.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to a heavy 1.70 billion shares.
In overseas trade, Tokyo's Nikkei closed up 1.04 percent. There were gains in Europe too, with London's FTSE rising 2.64 percent, Frankfurt's DAX gaining 2.84 percent and Paris' CAC 40 advancing 3.38 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Tuesday April 1, 4:36 pm ET
By Joe Bel Bruno, AP Business Writer
Wall Street Surges on UBS and Lehman Brothers Stock News, Better-Than-Expected Economic Data
NEW YORK (AP) -- Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.
Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the nation's credit struggles has been felt. Moreover, the banks' moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Analysts believe there must be a recovery in bank and brokerage stocks to lead major stock indexes higher. Some of the biggest financial players had their biggest moves of the year Tuesday -- Citigroup Inc. shot up 11 percent, JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.
"Investors have a difficult time making decisions about the stock market if they don't have confidence in major financial institutions, so there's been a lot of sideline cash," said Richard Cripps, chief market strategist for Stifel Nicolaus. "The extreme conditions that we've seen here over the past few months has been missing that confidence ... but that appears to be changing, and we're seeing the response."
Meanwhile, Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 -- indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
According to preliminary calculations, the Dow rose 391.47, or 3.19 percent, to 12,654.47.
Broader stock indicators also gained sharply. The Standard & Poor's 500 index rose 47.48, or 3.59 percent, to 1,370.18, and the Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.
The advance was in contrast to a lackluster session on Monday, where stocks managed a moderate gain in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses, marking the worst period since the third quarter of 2002 when Wall Street was approaching the lowest point of a protracted bear market.
Renewed enthusiasm that the credit crisis might be waning was also felt in the Treasury market, where government securities fell as investors withdrew money to take bets on stocks. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Monday.
In addition to hopes about the financial sector, Wall Street was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.
And there was also optimism that commodities prices, which have hit historic highs in recent months, have begun to retreat. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100. Meanwhile, gold dropped back below $900 an ounce.
"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definitely have not seen the last of the credit crisis, but we're getting closer."
The stock rally was underpinned by the announcements from UBS and Lehman Brothers that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared heavy losses from investments tied to subprime mortgages would be overwhelming.
Earlier this month, widespread concerns about Bear Stearns' financial position forced the investment bank to sell itself at a bargain basement price to JPMorgan in a deal engineered by the Federal Reserve -- and that stoked fears that other investment houses might follow.
JPMorgan rose $4.05, or 9.4 percent, to $47; while Bear Stearns was up 36 cents, or 3.4 percent, to $10.85 -- slightly above the $10 per share acquisition price.
UBS, one of Europe's biggest banks, said it will issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Investors chose to look past the bank's announcement that it will take a fresh $19 billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, following an $18 billion write-down last year. Its shares surged $4.21, or 14.6 percent, to $33.01 in trading on the New York Stock Exchange.
Lehman Brothers, dogged by speculation it might reveal losses big enough to cripple the company, on Tuesday raised $4 billion of capital on Tuesday to stymie questions about its financial stability. Lehman rose $6.70, or 17.8 percent, to $44.34.
The Russell 2000 index of smaller companies rose 22.67, or 3.30 percent, to 710.64.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to a heavy 1.70 billion shares.
In overseas trade, Tokyo's Nikkei closed up 1.04 percent. There were gains in Europe too, with London's FTSE rising 2.64 percent, Frankfurt's DAX gaining 2.84 percent and Paris' CAC 40 advancing 3.38 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Monday, March 31, 2008
Stocks Gain on Last Day of Quarter
AP
Monday March 31, 7:49 pm ET
By Tim Paradis, AP Business Writer
Stocks Rise to Finish Weak First Quarter; Chicago PMI Tops Wall Street's Forecast
NEW YORK (AP) -- Wall Street managed a moderate gain in the final session of a dismal first quarter Monday, but stock prices and the major indexes still ended the first three months of 2008 with massive losses, the casualties of the still continuing credit crisis. The Standard & Poor's 500 index, the benchmark for many widely held investments such as mutual funds, suffered a loss for the quarter of nearly 10 percent.
It was the worst quarter for the major indexes since the third quarter of 2002, when Wall Street was approaching the lowest point of a protracted bear market.
The blip upward came from a better-than-expected reading in the Chicago Purchasing Managers Index, which is considered a precursor to the Institute for Supply Management's manufacturing survey on Tuesday. The index rose to 48.2 in March from 44.5 a month earlier; economists had been expecting a reading of 47.3, according to Dow Jones Newswires. Though the number topped forecasts, a figure below 50 nonetheless indicates a contraction in manufacturing activity.
The market's reaction, however, was likely not as enthusiastic as it might seem from Monday's gains by the major indexes. Volume was light, which tends to skew price movements.
It was a difficult quarter on Wall Street, with financial companies' ongoing credit market losses and the flagging economy wiping out many investors' appetite for stocks. While the market saw a number of up days during the quarter, the overall trend was sharply lower, with reports of asset write-downs and shaky financial companies pummeling the market -- in particular, the near-collapse of Bear Stearns Cos. in mid-March.
Investors didn't show a strong reaction Monday to a government plan to overhaul the way Wall Street is regulated. The 218-page plan would give the Federal Reserve increased power to protect the stability of the entire financial system while merging day-to-day supervision of banks into one agency, down from five under the existing system.
Scott Wren, senior equity strategist for A.G. Edwards & Sons, said many investors appeared to be focused on economic data due this week on the manufacturing and service sectors as well as employment. Investors are prepared for weak economic data, he said, but could become unnerved if there is unwelcome corporate news.
"The market is already pricing in a ton of bad economic news. Bad economic news is not going to drive the market. What's going to drive the market is headline news," he said.
On the last day of the quarter, the Dow Jones industrial average rose 46.49, or 0.38 percent, to 12,262.89.
Broader stock indicators also rose. The S&P 500 index advanced 7.48, or 0.57 percent, to 1,322.70, and the Nasdaq composite index rose 17.92, or 0.79 percent, to 2,279.10.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 4.02 billion shares compared with 3.59 billion shares traded Friday.
When investors open their quarterly brokerage account or 401(k) statements, what they see will be painful. For the quarter, the Dow fell 7.55 percent, the victim of a series of triple-digit plunges. The S&P 500 declined 9.92 percent, while the Nasdaq, whose smaller company stocks are seen as more vulnerable to economic problems, fell 14.07 percent.
The quarterly performance was the worst since the July-September period of 2002, when the aftermath of the dot-com bust, recession, the 9/11 terror attacks and corporate wrongdoing combined to send stocks spiraling downward. At that time, the Dow lost more than 16 percent, the S&P 500 tumbled nearly 18 percent and the Nasdaq fell almost 20 percent.
Many analysts have suggested that the market has been seeking a bottom in recent weeks. But it will take some time -- and a long period of at least stable trading -- before anyone can feel secure that Wall Street is ready to resume an upward track.
One reason for the uneasiness is that many on Wall Street expected the first quarter to be much stronger for stocks than it turned out to be. The theory was that big financial firms had taken their hits in the final three months of 2007. However, as the first quarter has shown, the fallout from investments in risky and possibly worthless mortgage-backed securities has continued along with the uncertainty in the credit markets.
The Fed, with a series of interest rate cuts and steps to make more credit available to banks and investment houses, helped restore some sense of calm to the Street. However, worries about recession and the health of consumers have also undermined the market's attempts to recover, and as recently as last week, bad economic news sent stocks tumbling.
The dollar was mixed against other major currencies, while light, sweet crude fell $4.04 to settle at $101.58 on the New York Mercantile Exchange. Gold fell $14.40 to finish at $916.20 an ounce on the Nymex.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.42 percent from 3.45 percent late Friday.
Merck & Co. fell $6.56, or 15 percent, to $37.95 and Schering-Plough Inc. declined $5.06, or 26 percent, to $14.41 after medical researchers said the companies' joint cholesterol drug, Vytorin, failed to improve heart disease. The researchers' findings, published by the New England Journal of Medicine, urged a return to more established treatments for cholesterol. Merck is one of the 30 stocks that comprise the Dow industrials and, as a result, dragged on the blue chips.
Citigroup Inc. rose 59 cents, or 2.8 percent, to $21.42 after announcing plans to split its consumer banking unit from its credit card business as part of a broader reorganization to cut costs and simplify the large financial institution's structure. The company suffered billions of dollars in losses from investments in poor-quality mortgages.
The Russell 2000 index of smaller companies rose 4.79, or 0.70 percent, to 687.97.
Overseas, Japan's Nikkei stock average fell 2.30 percent. Britain's FTSE 100 closed up 0.16 percent, Germany's DAX index fell 0.38 percent, and France's CAC-40 rose 0.24 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Monday March 31, 7:49 pm ET
By Tim Paradis, AP Business Writer
Stocks Rise to Finish Weak First Quarter; Chicago PMI Tops Wall Street's Forecast
NEW YORK (AP) -- Wall Street managed a moderate gain in the final session of a dismal first quarter Monday, but stock prices and the major indexes still ended the first three months of 2008 with massive losses, the casualties of the still continuing credit crisis. The Standard & Poor's 500 index, the benchmark for many widely held investments such as mutual funds, suffered a loss for the quarter of nearly 10 percent.
It was the worst quarter for the major indexes since the third quarter of 2002, when Wall Street was approaching the lowest point of a protracted bear market.
The blip upward came from a better-than-expected reading in the Chicago Purchasing Managers Index, which is considered a precursor to the Institute for Supply Management's manufacturing survey on Tuesday. The index rose to 48.2 in March from 44.5 a month earlier; economists had been expecting a reading of 47.3, according to Dow Jones Newswires. Though the number topped forecasts, a figure below 50 nonetheless indicates a contraction in manufacturing activity.
The market's reaction, however, was likely not as enthusiastic as it might seem from Monday's gains by the major indexes. Volume was light, which tends to skew price movements.
It was a difficult quarter on Wall Street, with financial companies' ongoing credit market losses and the flagging economy wiping out many investors' appetite for stocks. While the market saw a number of up days during the quarter, the overall trend was sharply lower, with reports of asset write-downs and shaky financial companies pummeling the market -- in particular, the near-collapse of Bear Stearns Cos. in mid-March.
Investors didn't show a strong reaction Monday to a government plan to overhaul the way Wall Street is regulated. The 218-page plan would give the Federal Reserve increased power to protect the stability of the entire financial system while merging day-to-day supervision of banks into one agency, down from five under the existing system.
Scott Wren, senior equity strategist for A.G. Edwards & Sons, said many investors appeared to be focused on economic data due this week on the manufacturing and service sectors as well as employment. Investors are prepared for weak economic data, he said, but could become unnerved if there is unwelcome corporate news.
"The market is already pricing in a ton of bad economic news. Bad economic news is not going to drive the market. What's going to drive the market is headline news," he said.
On the last day of the quarter, the Dow Jones industrial average rose 46.49, or 0.38 percent, to 12,262.89.
Broader stock indicators also rose. The S&P 500 index advanced 7.48, or 0.57 percent, to 1,322.70, and the Nasdaq composite index rose 17.92, or 0.79 percent, to 2,279.10.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 4.02 billion shares compared with 3.59 billion shares traded Friday.
When investors open their quarterly brokerage account or 401(k) statements, what they see will be painful. For the quarter, the Dow fell 7.55 percent, the victim of a series of triple-digit plunges. The S&P 500 declined 9.92 percent, while the Nasdaq, whose smaller company stocks are seen as more vulnerable to economic problems, fell 14.07 percent.
The quarterly performance was the worst since the July-September period of 2002, when the aftermath of the dot-com bust, recession, the 9/11 terror attacks and corporate wrongdoing combined to send stocks spiraling downward. At that time, the Dow lost more than 16 percent, the S&P 500 tumbled nearly 18 percent and the Nasdaq fell almost 20 percent.
Many analysts have suggested that the market has been seeking a bottom in recent weeks. But it will take some time -- and a long period of at least stable trading -- before anyone can feel secure that Wall Street is ready to resume an upward track.
One reason for the uneasiness is that many on Wall Street expected the first quarter to be much stronger for stocks than it turned out to be. The theory was that big financial firms had taken their hits in the final three months of 2007. However, as the first quarter has shown, the fallout from investments in risky and possibly worthless mortgage-backed securities has continued along with the uncertainty in the credit markets.
The Fed, with a series of interest rate cuts and steps to make more credit available to banks and investment houses, helped restore some sense of calm to the Street. However, worries about recession and the health of consumers have also undermined the market's attempts to recover, and as recently as last week, bad economic news sent stocks tumbling.
The dollar was mixed against other major currencies, while light, sweet crude fell $4.04 to settle at $101.58 on the New York Mercantile Exchange. Gold fell $14.40 to finish at $916.20 an ounce on the Nymex.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.42 percent from 3.45 percent late Friday.
Merck & Co. fell $6.56, or 15 percent, to $37.95 and Schering-Plough Inc. declined $5.06, or 26 percent, to $14.41 after medical researchers said the companies' joint cholesterol drug, Vytorin, failed to improve heart disease. The researchers' findings, published by the New England Journal of Medicine, urged a return to more established treatments for cholesterol. Merck is one of the 30 stocks that comprise the Dow industrials and, as a result, dragged on the blue chips.
Citigroup Inc. rose 59 cents, or 2.8 percent, to $21.42 after announcing plans to split its consumer banking unit from its credit card business as part of a broader reorganization to cut costs and simplify the large financial institution's structure. The company suffered billions of dollars in losses from investments in poor-quality mortgages.
The Russell 2000 index of smaller companies rose 4.79, or 0.70 percent, to 687.97.
Overseas, Japan's Nikkei stock average fell 2.30 percent. Britain's FTSE 100 closed up 0.16 percent, Germany's DAX index fell 0.38 percent, and France's CAC-40 rose 0.24 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Wednesday, March 26, 2008
Paulson Reviewing Financial Regulation
AP
Wednesday March 26, 11:30 am ET
By Jeannine Aversa, AP Economics Writer
Paulson Calls for Broad Look at Whether Investment Houses Should Be Under Federal Oversight
WASHINGTON (AP) -- The crash of Wall Street's once mighty Bear Stearns underscores the need to bring investment houses under the kind of federal oversight that has long been given to commercial banks, Treasury Secretary Henry Paulson said Wednesday.
In a speech to the U.S. Chamber of Commerce, Paulson said the Bush administration will soon release just such a blueprint in an effort to promote a smoother functioning of financial markets.
For months the financial markets -- rocked by the double blows of a housing and credit crises -- have been suffering through extreme turmoil, threatening to plunge the U.S. economy into a deep recession. The modern U.S. financial system is a complex web of financial players -- institutions and individuals and practices that are subject to different rules and regulations. Commercial banks, long a financial bedrock, are subject to regulations and supervision.
"This latest episode has highlighted that the world has changed as has the role of other nonbank financial institutions and the interconnectedness among all financial institutions," Paulson said. "These changes require us all to think more broadly about the regulatory and supervisory framework that is consistent with the promotion and maintenance of financial stability," he added.
In extraordinary actions aimed at preventing a meltdown of the U.S. financial system, the Federal Reserve recently backed JP Morgan's takeover of Bear Stearns and agreed to provide an important multibillion dollar financial lifeline for the deal. In addition, the Fed, in the broadest use of its lending authority since the 1930s, said it would let squeezed Wall Street investment houses go directly to the Fed for emergency loans. That has long been a privilege just for commercial banks.
Paulson said he "fully supported that action" but said it also raises important policy considerations about the oversight of investment houses.
The secretary said that commercial banks' access to the Fed's emergency lending "discount window" has traditionally been accompanied by regulatory oversight and supervision. "Certainly any regular access to the discount window should involve the same type of regulation and supervision," Paulson said, in an apparent reference to the Fed's temporary extension of this emergency lending to investment houses.
And he suggested that the Fed collect as much information as necessary on investment houses to "make informed lending decisions." He said the Fed is currently working to do that. Paulson suggested the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission also continue to work to build a framework on this.
"The combination of these steps should provide the Federal Reserve with a structure and the information that it would need to make liquidity backstop loans during periods of market instability to nonbanks," Paulson said.
These steps, he said, "would enable the Federal Reserve to protect its balance sheet, and ultimately protect U.S. taxpayers," he said.
Although he praised the Fed's decision to temporarily provide an short-term loans to investment houses, Paulson said it would be "premature to jump to the conclusion that all broker dealers or other potentially important financial firms in our system today should have permanent access to the Fed's liquidity facility."
At this time, the Fed's action "should be viewed as a precedent only for unusual periods of turmoil," Paulson said.
Fielding questions after his speech, Paulson said that "innovation always precedes regulation in our economy" and suggested that oversight needed to catch up.
Once again Paulson defended the government's role in coming to the aid of Bear Stearns -- which has been criticized by some Democrats and others as akin to a federal bailout.
"Bear Stearns found itself facing bankruptcy," Paulson said. "The Federal Reserve acted promptly to resolve the Bear Stearns situation and avoid a disorderly wind-down. It is the job of regulators to come together to address times such as this; and we did so. Our focus was the stability and orderliness of our financial markets."
Paulson said the administration will explore ways to help struggling homeowners at risk of losing their homes. But he was cool to some of the proposals put forth by Democrats on Capitol Hill, saying that "most are not yet ready for the starting gate."
In addition, he rejected the need for a "systemwide solution" to deal with homeowners who have no equity in their home. That's when one's mortgage eclipses the value of their home.
Fed Chairman Ben Bernanke recently urged lenders to help distressed homeowners by lowering the amount of their loans. He offered this because so many homeowners have little or no equity in their homes, giving them little financial incentives to stay in them.
Wednesday March 26, 11:30 am ET
By Jeannine Aversa, AP Economics Writer
Paulson Calls for Broad Look at Whether Investment Houses Should Be Under Federal Oversight
WASHINGTON (AP) -- The crash of Wall Street's once mighty Bear Stearns underscores the need to bring investment houses under the kind of federal oversight that has long been given to commercial banks, Treasury Secretary Henry Paulson said Wednesday.
In a speech to the U.S. Chamber of Commerce, Paulson said the Bush administration will soon release just such a blueprint in an effort to promote a smoother functioning of financial markets.
For months the financial markets -- rocked by the double blows of a housing and credit crises -- have been suffering through extreme turmoil, threatening to plunge the U.S. economy into a deep recession. The modern U.S. financial system is a complex web of financial players -- institutions and individuals and practices that are subject to different rules and regulations. Commercial banks, long a financial bedrock, are subject to regulations and supervision.
"This latest episode has highlighted that the world has changed as has the role of other nonbank financial institutions and the interconnectedness among all financial institutions," Paulson said. "These changes require us all to think more broadly about the regulatory and supervisory framework that is consistent with the promotion and maintenance of financial stability," he added.
In extraordinary actions aimed at preventing a meltdown of the U.S. financial system, the Federal Reserve recently backed JP Morgan's takeover of Bear Stearns and agreed to provide an important multibillion dollar financial lifeline for the deal. In addition, the Fed, in the broadest use of its lending authority since the 1930s, said it would let squeezed Wall Street investment houses go directly to the Fed for emergency loans. That has long been a privilege just for commercial banks.
Paulson said he "fully supported that action" but said it also raises important policy considerations about the oversight of investment houses.
The secretary said that commercial banks' access to the Fed's emergency lending "discount window" has traditionally been accompanied by regulatory oversight and supervision. "Certainly any regular access to the discount window should involve the same type of regulation and supervision," Paulson said, in an apparent reference to the Fed's temporary extension of this emergency lending to investment houses.
And he suggested that the Fed collect as much information as necessary on investment houses to "make informed lending decisions." He said the Fed is currently working to do that. Paulson suggested the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission also continue to work to build a framework on this.
"The combination of these steps should provide the Federal Reserve with a structure and the information that it would need to make liquidity backstop loans during periods of market instability to nonbanks," Paulson said.
These steps, he said, "would enable the Federal Reserve to protect its balance sheet, and ultimately protect U.S. taxpayers," he said.
Although he praised the Fed's decision to temporarily provide an short-term loans to investment houses, Paulson said it would be "premature to jump to the conclusion that all broker dealers or other potentially important financial firms in our system today should have permanent access to the Fed's liquidity facility."
At this time, the Fed's action "should be viewed as a precedent only for unusual periods of turmoil," Paulson said.
Fielding questions after his speech, Paulson said that "innovation always precedes regulation in our economy" and suggested that oversight needed to catch up.
Once again Paulson defended the government's role in coming to the aid of Bear Stearns -- which has been criticized by some Democrats and others as akin to a federal bailout.
"Bear Stearns found itself facing bankruptcy," Paulson said. "The Federal Reserve acted promptly to resolve the Bear Stearns situation and avoid a disorderly wind-down. It is the job of regulators to come together to address times such as this; and we did so. Our focus was the stability and orderliness of our financial markets."
Paulson said the administration will explore ways to help struggling homeowners at risk of losing their homes. But he was cool to some of the proposals put forth by Democrats on Capitol Hill, saying that "most are not yet ready for the starting gate."
In addition, he rejected the need for a "systemwide solution" to deal with homeowners who have no equity in their home. That's when one's mortgage eclipses the value of their home.
Fed Chairman Ben Bernanke recently urged lenders to help distressed homeowners by lowering the amount of their loans. He offered this because so many homeowners have little or no equity in their homes, giving them little financial incentives to stay in them.
Saturday, March 22, 2008
Fed's Moves Bring Praise, New Scrutiny
AP
Saturday March 22, 12:57 pm ET
By Tom Raum, Associated Press Writer
Fed's Moves to Stabilize Economy Bring Praise, but Also New Scrutiny to Central Bank
WASHINGTON (AP) -- The Federal Reserve has taken its boldest action since the Great Depression, invoking rarely used powers in an effort to contain a panic threatening to undermine the economy. The central bank acted with speed the White House and Congress only could envy.
The Fed is largely free from many constraints that bog down other policymakers. Also, it is the only U.S. institution with the authority and ability to create money out of thin air.
For now, the steps orchestrated by Chairman Ben Bernanke, in the first critical test of his leadership since succeeding Alan Greenspan in early 2006, are earning praise from the Bush administration, Congress and presidential contenders Barack Obama, Hillary Rodham Clinton and John McCain.
But the Fed's moves are raising questions about whether its regulatory powers, established in the early 20th century, need overhauling and whether it took on some responsibilities that Congress and the administration should have shouldered.
In a remarkable week, the Fed:
--engineered the fire sale of bankruptcy-headed Bear Stearns Cos. to J.P. Morgan Chase & Co. with a $30 billion loan.
--offered emergency loans to other securities dealers under terms normally reserved for regulated banks.
--slashed a key short-term interest rate by three quarters of a percentage point, to 2.25 percent. The cut was sixth since September.
These steps followed moves to lend $100 billion in cash to banks and $200 billion in Treasury bonds to cash-strapped investment banks. The goal was to keep the financial system from seizing up.
"I spent 35 years on Wall Street, have been a Fed watcher for a long time and I have never seen the potential for a more severe credit crisis than this one," said David Jones, chief economist at DMJ Advisors and a former Wall Street economist. "It looks like we turned the corner precisely because of what the Fed did."
Was this the first look at a more activist Fed or just a targeted response to a looming economic meltdown?
Either way, the financial sector and its regulators are expected to come under congressional scrutiny in the days ahead.
Lawmakers from both parties are coming up with suggestions for restructuring the regulation of financial markets. The Treasury Department is working on its own blueprint for change.
Rep. Barney Frank, chairman of the House Financial Services Committee, is proposing new regulations on investment banks similar to those that apply to regular banks. That includes mandatory requirements for cash reserves to cushion losses.
Frank, D-Mass., said the Fed or other government entity should be designated as a "financial services regulator" with the power to limit risky practices.
White House spokeswoman Dana Perino said the administration would study the concept and other ideas "as we consider if there's additional things that we need to do."
Bear Stearns' unraveling and the credit woes facing other financial companies brought new attention to the Fed, which is part of the government and part of the commercial banking system.
Congress created the Fed in 1913 to prevent financial panics such as runs on banks and set it up as an independent entity. Its powers grew in 1933 and 1935. Although the Fed is subject to congressional oversight, its decisions do not have to be ratified by the president or Congress. Fed officials are not paid with money appropriated by Congress.
It has a seven-member board of governors, led now by Bernanke, and headquarters in Washington. Fed members are nominated by the president and confirmed by the Senate. There are two vacancies currently.
The system includes 12 Reserve Banks in major cities. These banks have their own boards of directors, two-thirds of whom are elected by commercial banks in the region and one-third by the Fed board in Washington.
With this combined government-financial industry heritage, the Fed serves as the nation's central bank. It manages the money supply, sets or influences certain key short-term interest rates, engages in open market buys and sales of government securities, and oversees and provides financial services to banks.
Because of the Fed's direct influence over interest rates, the money supply, and the larger economy, some have called the Fed chairman the second most powerful job in Washington after the president.
Economist Lawrence Chimerine, president of Radnor Consulting in Philadelphia, faults the Fed, particularly under Greenspan, for not paying more attention to what was happening in mortgage markets and to the rise in subprime lending. He said Bernanke's Fed complicated the situation by "raising rates too much and being too slow to start reducing them."
Still, Chimerine said, "I don't think there's any question Bernanke did the right thing" with the recent moves. "If Bear Stearns had gone bankrupt and if this credit crunch continued to spread, we would have had a real mess."
Alice Rivlin, a former Fed vice chairman, said she does not think Bernanke exceeded his authority, even though he acted under creaky legal provisions not used since the 1930s. "The Fed has been very aggressive and imaginative, and has taken very strong actions to get the credit markets functioning again," she said. "And that's good."
Anthony Ryan, assistant treasury secretary for financial markets, said the current framework for regulating financial institutions "is a reflection of literally decades of evolution. And we have a very fragmented regulatory structure."
Before addressing any changes, "we need to continue to make sure we work through the current challenges in the markets. This has to be job one," he said in an interview with C-SPAN to air Sunday. "And the actions by the Federal Reserve to help facilitate orderliness and stability is very, very important."
Federal Reserve: http://www.federalreserve.gov/
House Financial Services Committee: http://financialservices.house.gov/
Saturday March 22, 12:57 pm ET
By Tom Raum, Associated Press Writer
Fed's Moves to Stabilize Economy Bring Praise, but Also New Scrutiny to Central Bank
WASHINGTON (AP) -- The Federal Reserve has taken its boldest action since the Great Depression, invoking rarely used powers in an effort to contain a panic threatening to undermine the economy. The central bank acted with speed the White House and Congress only could envy.
The Fed is largely free from many constraints that bog down other policymakers. Also, it is the only U.S. institution with the authority and ability to create money out of thin air.
For now, the steps orchestrated by Chairman Ben Bernanke, in the first critical test of his leadership since succeeding Alan Greenspan in early 2006, are earning praise from the Bush administration, Congress and presidential contenders Barack Obama, Hillary Rodham Clinton and John McCain.
But the Fed's moves are raising questions about whether its regulatory powers, established in the early 20th century, need overhauling and whether it took on some responsibilities that Congress and the administration should have shouldered.
In a remarkable week, the Fed:
--engineered the fire sale of bankruptcy-headed Bear Stearns Cos. to J.P. Morgan Chase & Co. with a $30 billion loan.
--offered emergency loans to other securities dealers under terms normally reserved for regulated banks.
--slashed a key short-term interest rate by three quarters of a percentage point, to 2.25 percent. The cut was sixth since September.
These steps followed moves to lend $100 billion in cash to banks and $200 billion in Treasury bonds to cash-strapped investment banks. The goal was to keep the financial system from seizing up.
"I spent 35 years on Wall Street, have been a Fed watcher for a long time and I have never seen the potential for a more severe credit crisis than this one," said David Jones, chief economist at DMJ Advisors and a former Wall Street economist. "It looks like we turned the corner precisely because of what the Fed did."
Was this the first look at a more activist Fed or just a targeted response to a looming economic meltdown?
Either way, the financial sector and its regulators are expected to come under congressional scrutiny in the days ahead.
Lawmakers from both parties are coming up with suggestions for restructuring the regulation of financial markets. The Treasury Department is working on its own blueprint for change.
Rep. Barney Frank, chairman of the House Financial Services Committee, is proposing new regulations on investment banks similar to those that apply to regular banks. That includes mandatory requirements for cash reserves to cushion losses.
Frank, D-Mass., said the Fed or other government entity should be designated as a "financial services regulator" with the power to limit risky practices.
White House spokeswoman Dana Perino said the administration would study the concept and other ideas "as we consider if there's additional things that we need to do."
Bear Stearns' unraveling and the credit woes facing other financial companies brought new attention to the Fed, which is part of the government and part of the commercial banking system.
Congress created the Fed in 1913 to prevent financial panics such as runs on banks and set it up as an independent entity. Its powers grew in 1933 and 1935. Although the Fed is subject to congressional oversight, its decisions do not have to be ratified by the president or Congress. Fed officials are not paid with money appropriated by Congress.
It has a seven-member board of governors, led now by Bernanke, and headquarters in Washington. Fed members are nominated by the president and confirmed by the Senate. There are two vacancies currently.
The system includes 12 Reserve Banks in major cities. These banks have their own boards of directors, two-thirds of whom are elected by commercial banks in the region and one-third by the Fed board in Washington.
With this combined government-financial industry heritage, the Fed serves as the nation's central bank. It manages the money supply, sets or influences certain key short-term interest rates, engages in open market buys and sales of government securities, and oversees and provides financial services to banks.
Because of the Fed's direct influence over interest rates, the money supply, and the larger economy, some have called the Fed chairman the second most powerful job in Washington after the president.
Economist Lawrence Chimerine, president of Radnor Consulting in Philadelphia, faults the Fed, particularly under Greenspan, for not paying more attention to what was happening in mortgage markets and to the rise in subprime lending. He said Bernanke's Fed complicated the situation by "raising rates too much and being too slow to start reducing them."
Still, Chimerine said, "I don't think there's any question Bernanke did the right thing" with the recent moves. "If Bear Stearns had gone bankrupt and if this credit crunch continued to spread, we would have had a real mess."
Alice Rivlin, a former Fed vice chairman, said she does not think Bernanke exceeded his authority, even though he acted under creaky legal provisions not used since the 1930s. "The Fed has been very aggressive and imaginative, and has taken very strong actions to get the credit markets functioning again," she said. "And that's good."
Anthony Ryan, assistant treasury secretary for financial markets, said the current framework for regulating financial institutions "is a reflection of literally decades of evolution. And we have a very fragmented regulatory structure."
Before addressing any changes, "we need to continue to make sure we work through the current challenges in the markets. This has to be job one," he said in an interview with C-SPAN to air Sunday. "And the actions by the Federal Reserve to help facilitate orderliness and stability is very, very important."
Federal Reserve: http://www.federalreserve.gov/
House Financial Services Committee: http://financialservices.house.gov/
Monday, March 17, 2008
Stocks Down After Bear Stearns Deal
AP
Stocks Down After Bear Stearns Deal
Monday March 17, 12:12 pm ET
By Madlen Read, AP Business Writer
Wall Street Pares Losses As Markets Digest JPMorgan Chase Buyout of Bear Stearns
NEW YORK (AP) -- Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.
Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night -- two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.
"This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again," said Robert Pavlik, portfolio manager at Oaktree Asset Management.
The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate -- the rate banks charge each other for overnight loans -- by at least a half-point on Tuesday, and perhaps even a full point.
Still, the market remained extremely volatile. The sale of Bear Stearns -- and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million -- stirred fear among investors worldwide about other banks' exposure to the troubled credit markets.
"You're going to have some very weak players pushed out of business," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan's buy of Bear Stearns and Bank of America Corp.'s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.
The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.
Broader indexes also dropped in choppy trading. The Standard & Poor's 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.
JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.
Bear Stearns shares fell 88 percent to $3.60 -- still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.
The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank's worth little more than two weeks ago. Bear Stearns' buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.
The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.
Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.
The market's concern wasn't limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.
Lehman fell $11.15, or 28.4 percent, to $28.11.
This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.
While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country's factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.
The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.
Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.
The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.
Overseas, Japan's Nikkei stock average fell 3.71 percent, while Hong Kong's Hang Seng index fell 5.18 percent. In afternoon trading, Britain's FTSE 100 fell 2.25 percent, Germany's DAX index dropped 3.09 percent, and France's CAC-40 lost 2.32 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Stocks Down After Bear Stearns Deal
Monday March 17, 12:12 pm ET
By Madlen Read, AP Business Writer
Wall Street Pares Losses As Markets Digest JPMorgan Chase Buyout of Bear Stearns
NEW YORK (AP) -- Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.
Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night -- two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.
"This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again," said Robert Pavlik, portfolio manager at Oaktree Asset Management.
The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate -- the rate banks charge each other for overnight loans -- by at least a half-point on Tuesday, and perhaps even a full point.
Still, the market remained extremely volatile. The sale of Bear Stearns -- and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million -- stirred fear among investors worldwide about other banks' exposure to the troubled credit markets.
"You're going to have some very weak players pushed out of business," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan's buy of Bear Stearns and Bank of America Corp.'s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.
The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.
Broader indexes also dropped in choppy trading. The Standard & Poor's 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.
JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.
Bear Stearns shares fell 88 percent to $3.60 -- still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.
The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank's worth little more than two weeks ago. Bear Stearns' buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.
The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.
Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.
The market's concern wasn't limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.
Lehman fell $11.15, or 28.4 percent, to $28.11.
This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.
While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country's factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.
The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.
Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.
The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.
Overseas, Japan's Nikkei stock average fell 3.71 percent, while Hong Kong's Hang Seng index fell 5.18 percent. In afternoon trading, Britain's FTSE 100 fell 2.25 percent, Germany's DAX index dropped 3.09 percent, and France's CAC-40 lost 2.32 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Fed Takes Bold Steps to Ease Crisis
AP
Fed Takes Bold Steps to Ease Crisis
Monday March 17, 10:57 am ET
By Jeannine Aversa, AP Economics Writer
Concern About Credit Crisis Leads Fed to Make Rare Weekend Move
WASHINGTON (AP) -- The Federal Reserve is urgently moving to contain a deepening credit crisis and restore confidence in panicked financial markets by becoming a lender of last resort for Wall Street investment houses, which were able to secure short-term emergency loans beginning Monday.
On Wall Street, investors remained somewhat skittish. The Dow Jones industrials, which were down more than 175 points in early trading, moved into positive territory later in the morning. Trading on world markets was down sharply.
President Bush rushed to strike a note of calm to the turbulent situation on Monday morning, hailing the Fed's action and saying: "We've taken strong decisive action." The president spoke after meeting at the White House with Treasury Secretary Henry Paulson and other members of his economic team. "We're in challenging times," Bush said.
The central bank, in an extraordinarily rare weekend move, took the bold action Sunday in an attempt to calm the markets. It also approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.
The Fed's actions come as fears have spread that other financial houses could also be on shaky ground.
"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.
Yet anxiety persisted. On world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading. The Bank of England moved Monday to inject an extra $10.1 billion into its financial system to provide relief.
Oil prices hit a record in Asian trading as the value of the dollar continued its free fall.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.
President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.
Democrats accused Bush of not doing enough to relieve the situation.
"Now we are in the soup and we better get ourselves out of it before the consequences get drastic," Democratic presidential contender Hillary Rodham Clinton told reporters.
Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."
The new lending facility -- described as a cousin to the Fed's emergency lending "discount window" for banks -- is geared to give major investment houses a source of short-term cash on a regular basis -- if they need it.
That's important because those big investment houses have key roles in the financial system and if one fails or is having difficulty it could put the whole financial system in jeopardy, said Mark Zandi, chief economist at Moody's Economy.com. These big investment houses have complex relationships with many players in the system, including hedge funds, commercial banks and others.
The lending facility will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the overnight loans.
The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.
The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street.
The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least three-quarters of a percentage point on Tuesday.
The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.
The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.
AP Business writers Joe Bel Bruno and Madlen Read contributed to this report from New York. AP Business Writer Jane Wardell contributed from London.
Fed Takes Bold Steps to Ease Crisis
Monday March 17, 10:57 am ET
By Jeannine Aversa, AP Economics Writer
Concern About Credit Crisis Leads Fed to Make Rare Weekend Move
WASHINGTON (AP) -- The Federal Reserve is urgently moving to contain a deepening credit crisis and restore confidence in panicked financial markets by becoming a lender of last resort for Wall Street investment houses, which were able to secure short-term emergency loans beginning Monday.
On Wall Street, investors remained somewhat skittish. The Dow Jones industrials, which were down more than 175 points in early trading, moved into positive territory later in the morning. Trading on world markets was down sharply.
President Bush rushed to strike a note of calm to the turbulent situation on Monday morning, hailing the Fed's action and saying: "We've taken strong decisive action." The president spoke after meeting at the White House with Treasury Secretary Henry Paulson and other members of his economic team. "We're in challenging times," Bush said.
The central bank, in an extraordinarily rare weekend move, took the bold action Sunday in an attempt to calm the markets. It also approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.
The Fed's actions come as fears have spread that other financial houses could also be on shaky ground.
"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.
Yet anxiety persisted. On world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading. The Bank of England moved Monday to inject an extra $10.1 billion into its financial system to provide relief.
Oil prices hit a record in Asian trading as the value of the dollar continued its free fall.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.
President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.
Democrats accused Bush of not doing enough to relieve the situation.
"Now we are in the soup and we better get ourselves out of it before the consequences get drastic," Democratic presidential contender Hillary Rodham Clinton told reporters.
Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."
The new lending facility -- described as a cousin to the Fed's emergency lending "discount window" for banks -- is geared to give major investment houses a source of short-term cash on a regular basis -- if they need it.
That's important because those big investment houses have key roles in the financial system and if one fails or is having difficulty it could put the whole financial system in jeopardy, said Mark Zandi, chief economist at Moody's Economy.com. These big investment houses have complex relationships with many players in the system, including hedge funds, commercial banks and others.
The lending facility will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the overnight loans.
The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.
The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street.
The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least three-quarters of a percentage point on Tuesday.
The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.
The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.
AP Business writers Joe Bel Bruno and Madlen Read contributed to this report from New York. AP Business Writer Jane Wardell contributed from London.
Friday, March 14, 2008
Stocks Rise After S&P Report
AP
Thursday March 13, 5:47 pm ET
By Madlen Read, AP Business Writer
Stocks Rebound From Steep Drop As S&P Forecasts End Is Near for Asset Write-Downs
NEW YORK (AP) -- A fractious Wall Street rebounded from an early plunge to finish moderately higher Thursday, after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.
The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortage and credit crisis might indeed be bottoming out. Standard & Poor's Ratings Services said it estimates writedowns of subprime asset-backed securities could reach $285 billion globally, up from its previous projection of $265 billion, but added that "the end of write-downs is now in sight for large financial institutions."
"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards.
Wall Street clearly remains anxious, however. On Tuesday, the stock market launched its largest rally in more than five years after the Federal Reserve said it would auction $200 billion in Treasurys to help alleviate investment banks' financial bind. But since then, stocks have been extremely volatile.
Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that while she is a market bull, it's possible investors extrapolated a bit too much good news from the S&P report. "I would rather see fewer foreclosures and housing prices bottoming out to decide that the credit crisis is drawing to a close," she said.
The S&P's note arrived on the heels of a spate of troubling news. A Carlyle Group fund warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. Meanwhile, the government reported Thursday an unexpected dip in retail sales, and a research firm said nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year.
The Dow Jones industrial average finished up 35.50, or 0.29 percent, at 12,145.74, after being down more than 220 points early in the session and then popping up more than 100.
Broader market indexes also recovered from steep early losses. The S&P 500 index rose 6.71, or 0.51 percent, to 1,315.48, while the Nasdaq composite index rose 19.74, or 0.88 percent, at 2,263.61.
Bond prices fell as stocks rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.54 percent from 3.44 percent late Wednesday.
As investors contend with tight credit markets, they also face weakness in the U.S. dollar and soaring commodities prices. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel.
Light, sweet crude rose 41 cents to settle at a record $110.33 on the New York Mercantile Exchange.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
Talk of regulatory changes for the mortgage industry Thursday were largely shrugged off by the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
The market remains worried about more evidence of weak consumer spending. The Commerce Department reported that retail sales fell 0.6 percent last month, after analysts predicted an increase of 0.2 percent. Friday, the government releases data on consumer prices.
"Things just aren't good for the consumer, and thus, they're not good for Wall Street," Caughey said. And on the corporate side of the coin, no one is positive which companies and which investors are going to end up losing money if more funds collapse. "It is going to be difficult to see who has the Old Maid card. And time will tell," she said.
In other economic news, Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February -- the second straight month of losses -- and sent a wave of unease across Wall Street.
Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 4.94 billion shares, up from 4.27 billion Wednesday.
The Russell 2000 index of smaller companies rose 12.40, or 1.86 percent, to 679.71.
Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest level in 2 1/2 years. Britain's FTSE 100 fell 1.45 percent, Germany's DAX index slid 1.50 percent, and France's CAC-40 lost 1.42 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Thursday March 13, 5:47 pm ET
By Madlen Read, AP Business Writer
Stocks Rebound From Steep Drop As S&P Forecasts End Is Near for Asset Write-Downs
NEW YORK (AP) -- A fractious Wall Street rebounded from an early plunge to finish moderately higher Thursday, after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.
The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortage and credit crisis might indeed be bottoming out. Standard & Poor's Ratings Services said it estimates writedowns of subprime asset-backed securities could reach $285 billion globally, up from its previous projection of $265 billion, but added that "the end of write-downs is now in sight for large financial institutions."
"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards.
Wall Street clearly remains anxious, however. On Tuesday, the stock market launched its largest rally in more than five years after the Federal Reserve said it would auction $200 billion in Treasurys to help alleviate investment banks' financial bind. But since then, stocks have been extremely volatile.
Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that while she is a market bull, it's possible investors extrapolated a bit too much good news from the S&P report. "I would rather see fewer foreclosures and housing prices bottoming out to decide that the credit crisis is drawing to a close," she said.
The S&P's note arrived on the heels of a spate of troubling news. A Carlyle Group fund warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. Meanwhile, the government reported Thursday an unexpected dip in retail sales, and a research firm said nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year.
The Dow Jones industrial average finished up 35.50, or 0.29 percent, at 12,145.74, after being down more than 220 points early in the session and then popping up more than 100.
Broader market indexes also recovered from steep early losses. The S&P 500 index rose 6.71, or 0.51 percent, to 1,315.48, while the Nasdaq composite index rose 19.74, or 0.88 percent, at 2,263.61.
Bond prices fell as stocks rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.54 percent from 3.44 percent late Wednesday.
As investors contend with tight credit markets, they also face weakness in the U.S. dollar and soaring commodities prices. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel.
Light, sweet crude rose 41 cents to settle at a record $110.33 on the New York Mercantile Exchange.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
Talk of regulatory changes for the mortgage industry Thursday were largely shrugged off by the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
The market remains worried about more evidence of weak consumer spending. The Commerce Department reported that retail sales fell 0.6 percent last month, after analysts predicted an increase of 0.2 percent. Friday, the government releases data on consumer prices.
"Things just aren't good for the consumer, and thus, they're not good for Wall Street," Caughey said. And on the corporate side of the coin, no one is positive which companies and which investors are going to end up losing money if more funds collapse. "It is going to be difficult to see who has the Old Maid card. And time will tell," she said.
In other economic news, Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February -- the second straight month of losses -- and sent a wave of unease across Wall Street.
Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 4.94 billion shares, up from 4.27 billion Wednesday.
The Russell 2000 index of smaller companies rose 12.40, or 1.86 percent, to 679.71.
Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest level in 2 1/2 years. Britain's FTSE 100 fell 1.45 percent, Germany's DAX index slid 1.50 percent, and France's CAC-40 lost 1.42 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Friday, March 7, 2008
Annual Percentage Yield (APY)
The effective annual rate of return taking into account the effect of compounding interest. APY is calculated by:
= (1 + periodic rate) to the power of # of periods - 1
The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.
The APY is similar in nature to the annual percentage rate. Its usefulness lies in its ability to standardize varying interest-rate agreements into an annualized percentage number.
For example, suppose you are considering whether to invest in a one-year zero-coupon bond that pays 6% upon maturity or a high-yield money market account that pays 0.5% per month with monthly compounding.
At first glance, the yields appear equal because 12 months multiplied by 0.5% equals 6%. However, when the effects of compounding are included by calculating the APY, we find that the second investment actually yields 6.17%, as 1.005^12-1 = 0.0617.
= (1 + periodic rate) to the power of # of periods - 1
The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.
The APY is similar in nature to the annual percentage rate. Its usefulness lies in its ability to standardize varying interest-rate agreements into an annualized percentage number.
For example, suppose you are considering whether to invest in a one-year zero-coupon bond that pays 6% upon maturity or a high-yield money market account that pays 0.5% per month with monthly compounding.
At first glance, the yields appear equal because 12 months multiplied by 0.5% equals 6%. However, when the effects of compounding are included by calculating the APY, we find that the second investment actually yields 6.17%, as 1.005^12-1 = 0.0617.
What is an Annual Percentage Rate (APR)?
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example: 30-year fixed 8% 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.
The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!
Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined.
What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a
borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
An APR does not tell you how long your rate is locked for. A lender who offers you a 10-day rate lock may have a lower APR than a lender who offers you a 60-day rate lock!
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion :
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
Example: 30-year fixed 8% 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.
The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!
Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined.
What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a
borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
An APR does not tell you how long your rate is locked for. A lender who offers you a 10-day rate lock may have a lower APR than a lender who offers you a 60-day rate lock!
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion :
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
Oil Gyrates, but Hits New Record
AP
Friday March 7, 12:10 pm ET
By John Wilen, AP Business Writer
Oil Prices Fluctuate but Hit New Record Above $106 on Interest Rate, Dollar Expectations
NEW YORK (AP) -- Oil prices jumped to a new record above $106 Friday but extended their recent pattern of choppy trading after a weak jobs report convinced many traders that the Federal Reserve's interest rate-cutting campaign will continue.
Employers cut 63,000 jobs in February, the biggest drop in five years, the Labor Department said Friday. Investors can react to such news in one of two ways: by selling on the prospect that the economy, and demand for oil, is cooling, or by buying on a conviction that bad economic data makes it more likely the Fed will cut rates.
On Friday, investors engaged in a little of both, sending oil prices down more than a dollar at one moment, and propelling them to new records the next.
"The higher the market goes, the more volatile it becomes," said Darin Newsom, senior analyst at DTN in Omaha, Neb. "Does it mean that the rally is over? No."
Light, sweet crude for April delivery rose 46 cents to $105.93 a barrel on the New York Mercantile Exchange after setting a new trading record of $106.54.
At the pump, meanwhile, gas prices extended their march toward new records, rising 0.4 cent to a national average of $3.189 a gallon, according to AAA and the Oil Price Information Service. Gas prices are 68 cents higher than a year ago, and within a nickel of last May's record price of $3.227 a gallon. Many analysts expect prices to jump much higher as driving demand picks up in the spring.
Lower interest rates tend to weaken the dollar, and many analysts believe the weak dollar is the reason why oil has set new inflation-adjusted records three times this week, and risen 23 percent in less than a month.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. On Friday, the dollar set a new low against the euro Friday before rising. But most investors believe that despite occasional rebounds, the dollar is likely to continue falling as the Fed continues to cut rates.
"The swings in the dollar are still the most critical item," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill.
Concerns about a possible conflict between oil producers Venezuela and Colombia also supported oil prices Friday. Earlier this week, rebels attacked and shut down a a Colombian oil pipeline that transports 60,000 barrels of oil a day in retaliation for a Colombian raid into Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses, and Venezuela and Ecuador have sent troops to their borders with Colombia.
Many analysts believe oil is overvalued, arguing that oil supplies are at high levels and the demand is falling. In its latest inventory report, the Energy Department said overall demand for oil dropped 3.4 percent over the last four weeks compared to the same period last year.
"We don't see oil demand accelerating while the price has its foot on the throat of consumers," said Tim Evans, an analyst at Citigroup Inc., in a research note.
But while analysts expect oil's underlying supply and demand fundamentals to eventually pull down its price, few are willing to predict when that will happen. Meanwhile, oil could continue rising to as high as $120 in the short term, according to some forecasts.
Goldman Sachs, a widely watched oil price prognosticator, said oil could average $110 a barrel by 2010, up from a previous forecast of $80, and said a price spike as high as $200 a barrel is possible, according to Dow Jones Newswires.
Other energy futures were mixed Friday. April gasoline futures rose 3.26 cents to $2.6858 a gallon, while April heating oil futures fell 0.38 cents to $2.9695 a gallon. April natural gas futures rose 15.8 cents to $9.90 per 1,000 cubic feet.
In London, April Brent crude rose 66 cents to $103.27 a barrel on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.
Friday March 7, 12:10 pm ET
By John Wilen, AP Business Writer
Oil Prices Fluctuate but Hit New Record Above $106 on Interest Rate, Dollar Expectations
NEW YORK (AP) -- Oil prices jumped to a new record above $106 Friday but extended their recent pattern of choppy trading after a weak jobs report convinced many traders that the Federal Reserve's interest rate-cutting campaign will continue.
Employers cut 63,000 jobs in February, the biggest drop in five years, the Labor Department said Friday. Investors can react to such news in one of two ways: by selling on the prospect that the economy, and demand for oil, is cooling, or by buying on a conviction that bad economic data makes it more likely the Fed will cut rates.
On Friday, investors engaged in a little of both, sending oil prices down more than a dollar at one moment, and propelling them to new records the next.
"The higher the market goes, the more volatile it becomes," said Darin Newsom, senior analyst at DTN in Omaha, Neb. "Does it mean that the rally is over? No."
Light, sweet crude for April delivery rose 46 cents to $105.93 a barrel on the New York Mercantile Exchange after setting a new trading record of $106.54.
At the pump, meanwhile, gas prices extended their march toward new records, rising 0.4 cent to a national average of $3.189 a gallon, according to AAA and the Oil Price Information Service. Gas prices are 68 cents higher than a year ago, and within a nickel of last May's record price of $3.227 a gallon. Many analysts expect prices to jump much higher as driving demand picks up in the spring.
Lower interest rates tend to weaken the dollar, and many analysts believe the weak dollar is the reason why oil has set new inflation-adjusted records three times this week, and risen 23 percent in less than a month.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. On Friday, the dollar set a new low against the euro Friday before rising. But most investors believe that despite occasional rebounds, the dollar is likely to continue falling as the Fed continues to cut rates.
"The swings in the dollar are still the most critical item," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill.
Concerns about a possible conflict between oil producers Venezuela and Colombia also supported oil prices Friday. Earlier this week, rebels attacked and shut down a a Colombian oil pipeline that transports 60,000 barrels of oil a day in retaliation for a Colombian raid into Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses, and Venezuela and Ecuador have sent troops to their borders with Colombia.
Many analysts believe oil is overvalued, arguing that oil supplies are at high levels and the demand is falling. In its latest inventory report, the Energy Department said overall demand for oil dropped 3.4 percent over the last four weeks compared to the same period last year.
"We don't see oil demand accelerating while the price has its foot on the throat of consumers," said Tim Evans, an analyst at Citigroup Inc., in a research note.
But while analysts expect oil's underlying supply and demand fundamentals to eventually pull down its price, few are willing to predict when that will happen. Meanwhile, oil could continue rising to as high as $120 in the short term, according to some forecasts.
Goldman Sachs, a widely watched oil price prognosticator, said oil could average $110 a barrel by 2010, up from a previous forecast of $80, and said a price spike as high as $200 a barrel is possible, according to Dow Jones Newswires.
Other energy futures were mixed Friday. April gasoline futures rose 3.26 cents to $2.6858 a gallon, while April heating oil futures fell 0.38 cents to $2.9695 a gallon. April natural gas futures rose 15.8 cents to $9.90 per 1,000 cubic feet.
In London, April Brent crude rose 66 cents to $103.27 a barrel on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.
Saturday, March 1, 2008
Six Ways to Thrive During a Recession
Everybody's aware of the pain caused by a recession: Companies lay off workers, jobs become hard to find, and those who remain employed often have their wages and benefits frozen, or even cut. General anxiety leads millions of consumers to hunker down and stop spending, which slows the economy even more.
But recessions always end, and in most downturns, the majority of consumers actually fare OK. For people with secure jobs, ample savings, or a strong financial safety net, lean economic times can even represent an opportunity to snap up bargains and exploit newfound leverage in a buyer's market.
More From USNews.com
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• Hot Cars for Lean Times
As with all financial decisions, trying to time the market and guess where the bottom is can be risky. But with a bit of luck, smart consumers, abiding by the usual prudent caveats, can turn a downturn to their advantage, whether seeking fire sales on electronics, negotiating more responsibility at work, or buying a home. Here's how:
Call the shots when buying a house. Prices in many markets are falling, of course, and while buyers need to be as careful as ever about speculating, those in for the long haul can find some great buys. It's critical to research sales of comparable homes, remodeling records, and other data available at sites like zillow.com and trulia.com. In addition to falling prices, buyers may be surprised to find that with activity drying up, they suddenly have the power to dictate the terms of a deal: Agents may be willing to cut commissions, sellers may agree to cover repairs or other costs they would have dismissed just a year ago, and contractors eager for work might lower their fees for additions or other home improvements.
Buy a distressed property. As an unfortunate outcome of the housing bust, more than a million foreclosed and distressed homes are likely to hit the market this year. It's obviously unpleasant when families lose their homes—but somebody needs to buy them, sometimes at deeply discounted prices. Buyers of distressed homes usually end up dealing with the bank that has repossessed the home, not with the original owners. If you wait for such properties to show up in traditional listing services, you'll probably miss out. Better places to look: the websites for banks and county offices that would know about foreclosures. Real-estate agents plugged into local happenings should also know.
Foreclosure deals are riskier than other real-estate transactions. Properties offered at public auctions often sell for more than they're worth, so buyers can't just assume that if it's up for auction, it's a steal. Buyers may not have time to conduct a thorough inspection or do other due diligence. Insiders may grab the best deals before they ever become public. But for careful buyers who do their homework, there may be plenty of opportunities.
Borrow cheap. True, banks have reined in loans to riskier borrowers, but rates are still historically low, and they might go lower still this year if the Fed continues its rate-cutting ways. So for people with good credit, it's a great time to borrow. That goes for mortgages, obviously, but also for loans people can use to buy a car, ramp up a small business, or remodel their current home.
Refresh your wheels. Automakers are going to need your business in 2008 and will increasingly offer deals to lure buyers into showrooms. Default rates on auto loans have been rising just as they have for mortgages, which means lenders are shunning risky borrowers but wooing those with good credit. And with overall sales slipping, automakers have already started upping rebates and other deals, even on popular models like the Toyota Sienna minivan, the Lexus RX350 SUV, and most pickup trucks. Incentives should continue to improve, predicts Jesse Toprak of Edmunds.com. And cleverly designed vehicles like the Kia Rio5, Nissan Altima, and Hyundai Santa Fe offer a mix of quality, thriftiness, and fun that make them great cars for lean times.
Boost your value to your employer. There's probably little you can do to prevent layoffs at your company. But if they happen, and you're one of the survivors, there are several steps you can take to enhance your standing with the boss. Many times, after layoffs, there's a kind of ghoulish scavenging for the spoils: newly vacant offices, stylish furniture, even phones and staplers. Don't be so crass—or narrow-minded. Instead, figure out what your company may have lost in the ax-wielding, and step in to provide it.
If the sales force has been reduced, for example, there might be key accounts that need to be salvaged. Ask if you can take them over. Many times, during layoffs, companies get rid of specialists who were nice to have during flush times but too costly when it comes to pinching pennies. Can you replace part of the skill set that just went out the door? If so, it might not bring rewards right away. But if you enhance your value to the company, you'll be at the head of the line for a raise or promotion when things improve.
If you do end up out of work, there are more opportunities than ever to start a business as a consultant, find flexible part-time work, or set up a Web operation. Yes, it's easy to talk about "rebranding" yourself and starting a second or third career. But the fact is, trends like telecommuting and flextime have made companies—and customers—more open than ever to creative work arrangements. Take advantage of it.
Pick up some cheap electronics. Fire sales by bankrupt retailers are the obvious place to look, but with rising home foreclosures, expect a flood of used appliances and electronics on craigslist and other secondary marketplaces. Buying somebody else's TV or iPod can be tricky, needless to say, since there's often no way to measure mileage or tell if there's damage to internal components. Here are some rules of thumb:
A used plasma or LCD television ought to be a pretty safe buy; if there's a problem, most likely you'll know just from the picture quality. Desktop PCs and Blu-ray DVD players might be worth buying if they're substantially discounted, less than a year old, and bear a decent brand name. For laptops, don't buy anything more than three months old. Flash-based iPods and MP3 players are pretty durable; just check that the LCD screen is intact, the USB port is clear—and the device works.
Avoid projection TVs, most computers, digital cameras and camcorders, standard DVD players, and MP3 players that rely on a hard drive for storage. In general, these types of devices have lots of moving parts that can easily wear out, or they rely on machinery that's costly to repair if it breaks, and not worth it. Also, skip newer DVD players in the HD DVD format, which Toshiba has just announced it plans to stop developing. Times are tough enough. Don't make it worse by investing in obsolescence.
Copyrighted, U.S.News & World Report, L.P. All rights reserved.
But recessions always end, and in most downturns, the majority of consumers actually fare OK. For people with secure jobs, ample savings, or a strong financial safety net, lean economic times can even represent an opportunity to snap up bargains and exploit newfound leverage in a buyer's market.
More From USNews.com
• Four Ways to Boost Your Career in Tough Times
• Used Electronics Make Good Buys
• Hot Cars for Lean Times
As with all financial decisions, trying to time the market and guess where the bottom is can be risky. But with a bit of luck, smart consumers, abiding by the usual prudent caveats, can turn a downturn to their advantage, whether seeking fire sales on electronics, negotiating more responsibility at work, or buying a home. Here's how:
Call the shots when buying a house. Prices in many markets are falling, of course, and while buyers need to be as careful as ever about speculating, those in for the long haul can find some great buys. It's critical to research sales of comparable homes, remodeling records, and other data available at sites like zillow.com and trulia.com. In addition to falling prices, buyers may be surprised to find that with activity drying up, they suddenly have the power to dictate the terms of a deal: Agents may be willing to cut commissions, sellers may agree to cover repairs or other costs they would have dismissed just a year ago, and contractors eager for work might lower their fees for additions or other home improvements.
Buy a distressed property. As an unfortunate outcome of the housing bust, more than a million foreclosed and distressed homes are likely to hit the market this year. It's obviously unpleasant when families lose their homes—but somebody needs to buy them, sometimes at deeply discounted prices. Buyers of distressed homes usually end up dealing with the bank that has repossessed the home, not with the original owners. If you wait for such properties to show up in traditional listing services, you'll probably miss out. Better places to look: the websites for banks and county offices that would know about foreclosures. Real-estate agents plugged into local happenings should also know.
Foreclosure deals are riskier than other real-estate transactions. Properties offered at public auctions often sell for more than they're worth, so buyers can't just assume that if it's up for auction, it's a steal. Buyers may not have time to conduct a thorough inspection or do other due diligence. Insiders may grab the best deals before they ever become public. But for careful buyers who do their homework, there may be plenty of opportunities.
Borrow cheap. True, banks have reined in loans to riskier borrowers, but rates are still historically low, and they might go lower still this year if the Fed continues its rate-cutting ways. So for people with good credit, it's a great time to borrow. That goes for mortgages, obviously, but also for loans people can use to buy a car, ramp up a small business, or remodel their current home.
Refresh your wheels. Automakers are going to need your business in 2008 and will increasingly offer deals to lure buyers into showrooms. Default rates on auto loans have been rising just as they have for mortgages, which means lenders are shunning risky borrowers but wooing those with good credit. And with overall sales slipping, automakers have already started upping rebates and other deals, even on popular models like the Toyota Sienna minivan, the Lexus RX350 SUV, and most pickup trucks. Incentives should continue to improve, predicts Jesse Toprak of Edmunds.com. And cleverly designed vehicles like the Kia Rio5, Nissan Altima, and Hyundai Santa Fe offer a mix of quality, thriftiness, and fun that make them great cars for lean times.
Boost your value to your employer. There's probably little you can do to prevent layoffs at your company. But if they happen, and you're one of the survivors, there are several steps you can take to enhance your standing with the boss. Many times, after layoffs, there's a kind of ghoulish scavenging for the spoils: newly vacant offices, stylish furniture, even phones and staplers. Don't be so crass—or narrow-minded. Instead, figure out what your company may have lost in the ax-wielding, and step in to provide it.
If the sales force has been reduced, for example, there might be key accounts that need to be salvaged. Ask if you can take them over. Many times, during layoffs, companies get rid of specialists who were nice to have during flush times but too costly when it comes to pinching pennies. Can you replace part of the skill set that just went out the door? If so, it might not bring rewards right away. But if you enhance your value to the company, you'll be at the head of the line for a raise or promotion when things improve.
If you do end up out of work, there are more opportunities than ever to start a business as a consultant, find flexible part-time work, or set up a Web operation. Yes, it's easy to talk about "rebranding" yourself and starting a second or third career. But the fact is, trends like telecommuting and flextime have made companies—and customers—more open than ever to creative work arrangements. Take advantage of it.
Pick up some cheap electronics. Fire sales by bankrupt retailers are the obvious place to look, but with rising home foreclosures, expect a flood of used appliances and electronics on craigslist and other secondary marketplaces. Buying somebody else's TV or iPod can be tricky, needless to say, since there's often no way to measure mileage or tell if there's damage to internal components. Here are some rules of thumb:
A used plasma or LCD television ought to be a pretty safe buy; if there's a problem, most likely you'll know just from the picture quality. Desktop PCs and Blu-ray DVD players might be worth buying if they're substantially discounted, less than a year old, and bear a decent brand name. For laptops, don't buy anything more than three months old. Flash-based iPods and MP3 players are pretty durable; just check that the LCD screen is intact, the USB port is clear—and the device works.
Avoid projection TVs, most computers, digital cameras and camcorders, standard DVD players, and MP3 players that rely on a hard drive for storage. In general, these types of devices have lots of moving parts that can easily wear out, or they rely on machinery that's costly to repair if it breaks, and not worth it. Also, skip newer DVD players in the HD DVD format, which Toshiba has just announced it plans to stop developing. Times are tough enough. Don't make it worse by investing in obsolescence.
Copyrighted, U.S.News & World Report, L.P. All rights reserved.
Friday, February 29, 2008
Stocks Fall Sharply on Economic Worries
AP
Friday February 29, 4:50 pm ET
By Tim Paradis, AP Business Writer
Stocks Fall As Economic Reports, Disappointing Quarterly Reports Stir Concerns About Economy
NEW YORK (AP) -- Stocks fell sharply Friday after a series of depressing economic and corporate reports and high oil prices stoked concerns about the health of the economy. The major stock indexes fell more than 2.5 percent and the Dow Jones industrials lost 315 points.
Investors were unnerved by disappointing quarterly results from American International Group Inc. and Dell Inc. And an index of regional business activity that Wall Street regards as a good indicator of a broader report set to arrive next week had its weakest showing in more than six years.
Oil prices continued to stir concern about inflation after pushing past $103 per barrel for the first time.
While stocks made sharp gains in the first three days this week even amid somewhat lackluster economic readings, the litany of concerns investors succumbed to Friday reflected the undercurrent of uncertainty that has kept Wall Street on edge for months.
"We really had to face a plethora of negative news," said Art Hogan, chief market strategist at Jefferies & Co. in Boston. "We just ran out of gas this week."
Hogan said while stocks held up admirably early in the week amid an uneven flow of economic news, they couldn't hold their gains after the latest round of weak economic signals.
The Dow fell 315.79, or 2.51 percent, to 12,266.39. The decline more than erased the week's 200 point gain and sent stocks lower for February, the fourth straight month of declines.
Broader stock indicators also tumbled. The Standard & Poor's 500 index lost 37.05, or 2.71 percent, to 1,330.63, and the Nasdaq composite index declined 60.09, or 2.58 percent, to 2,271.48.
Bond prices rose sharply as stocks lost ground. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.52 percent from 3.67 percent late Thursday.
The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped 12.5 percent.
The dollar showed a slight rebound Friday after hitting a record low against the euro Thursday. The slide in the dollar has sent prices of commodities such as oil and gold soaring.
Light, sweet crude jumped to a record of $103.05 overnight before settling down 75 cents at $101.84 a barrel on New York Mercantile Exchange.
Insurer AIG announced a $5.29 billion quarterly loss largely because of steep declines in the value of a portfolio of contracts known as credit default swaps. Such contracts pledge to cover missed payments on debt. The company's losses caught analysts off guard, as many had expected the company to turn a profit.
While each of the 30 stocks that comprise the Dow industrials showed declines, those of AIG were the steepest. The stock fell $3.29, or 6.6 percent, to $46.86.
Computer maker Dell posted a 6 percent decline in its quarterly profit, falling below analysts' expectations, and warned that its business could suffer from reduced customer spending. Dell slid 97 cents, or 4.7 percent, to $19.90.
Bill Shultz, chief investment officer at McQueen, Ball & Associates, said AIG's report left investors uneasy about the prospect of further sizable write-downs of bad debt.
"Every time we get to a point where we think we've finished, another report comes out and says we're not done yet," he said.
He expects Wall Street will continue to proceed with "fits and starts" until investors sense that the bad debt from faltering mortgages has been accounted for and that balance sheets are on the mend.
Some relief for the ailing bond insurance industry is on the way, though the news did little to dislodge Wall Street's glum mood Friday. Billionaire investor Wilbur Ross agreed to invest up to $1 billion in Bermuda-based reinsurer Assured Guaranty Ltd. Assured Guaranty rose $2.87, or 12.6 percent, to $25.65.
In economic news, the Chicago purchasing managers index for February came in at 44.5, a weaker reading than the 48.5 that had been expected, according to Dow Jones Newswires. The report painted a dreary picture of the manufacturing sector and is seen as a precursor to the national Institute for Supply Management report expected Monday.
A government report showed that personal spending, when stripping out the effects of inflation, stood unchanged in January. The findings arose further concern that consumers are more hesitant to reach into their wallets amid the uncertainties facing the economy.
A parade of economic worries has weighed on consumer as well. The Reuters-University of Michigan final consumer sentiment reading for February came in at 70.8, better than the figure of 69 that had been expected. Still, the index was well off the level of 78.4 seen in January.
Declining issues outnumbered advancers by about 8 to 1 on the New York Stock Exchange, where volume came to 1.76 billion shares compared with 1.46 billion shares traded Thursday.
The Russell 2000 index of smaller companies fell 19.54, or 2.8 percent, to 686.18.
Overseas, Japan's Nikkei stock average closed down 2.32 percent. Britain's FTSE 100 closed down 1.36 percent, Germany's DAX index fell 1.67 percent, and France's CAC-40 fell 1.67 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Friday February 29, 4:50 pm ET
By Tim Paradis, AP Business Writer
Stocks Fall As Economic Reports, Disappointing Quarterly Reports Stir Concerns About Economy
NEW YORK (AP) -- Stocks fell sharply Friday after a series of depressing economic and corporate reports and high oil prices stoked concerns about the health of the economy. The major stock indexes fell more than 2.5 percent and the Dow Jones industrials lost 315 points.
Investors were unnerved by disappointing quarterly results from American International Group Inc. and Dell Inc. And an index of regional business activity that Wall Street regards as a good indicator of a broader report set to arrive next week had its weakest showing in more than six years.
Oil prices continued to stir concern about inflation after pushing past $103 per barrel for the first time.
While stocks made sharp gains in the first three days this week even amid somewhat lackluster economic readings, the litany of concerns investors succumbed to Friday reflected the undercurrent of uncertainty that has kept Wall Street on edge for months.
"We really had to face a plethora of negative news," said Art Hogan, chief market strategist at Jefferies & Co. in Boston. "We just ran out of gas this week."
Hogan said while stocks held up admirably early in the week amid an uneven flow of economic news, they couldn't hold their gains after the latest round of weak economic signals.
The Dow fell 315.79, or 2.51 percent, to 12,266.39. The decline more than erased the week's 200 point gain and sent stocks lower for February, the fourth straight month of declines.
Broader stock indicators also tumbled. The Standard & Poor's 500 index lost 37.05, or 2.71 percent, to 1,330.63, and the Nasdaq composite index declined 60.09, or 2.58 percent, to 2,271.48.
Bond prices rose sharply as stocks lost ground. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.52 percent from 3.67 percent late Thursday.
The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped 12.5 percent.
The dollar showed a slight rebound Friday after hitting a record low against the euro Thursday. The slide in the dollar has sent prices of commodities such as oil and gold soaring.
Light, sweet crude jumped to a record of $103.05 overnight before settling down 75 cents at $101.84 a barrel on New York Mercantile Exchange.
Insurer AIG announced a $5.29 billion quarterly loss largely because of steep declines in the value of a portfolio of contracts known as credit default swaps. Such contracts pledge to cover missed payments on debt. The company's losses caught analysts off guard, as many had expected the company to turn a profit.
While each of the 30 stocks that comprise the Dow industrials showed declines, those of AIG were the steepest. The stock fell $3.29, or 6.6 percent, to $46.86.
Computer maker Dell posted a 6 percent decline in its quarterly profit, falling below analysts' expectations, and warned that its business could suffer from reduced customer spending. Dell slid 97 cents, or 4.7 percent, to $19.90.
Bill Shultz, chief investment officer at McQueen, Ball & Associates, said AIG's report left investors uneasy about the prospect of further sizable write-downs of bad debt.
"Every time we get to a point where we think we've finished, another report comes out and says we're not done yet," he said.
He expects Wall Street will continue to proceed with "fits and starts" until investors sense that the bad debt from faltering mortgages has been accounted for and that balance sheets are on the mend.
Some relief for the ailing bond insurance industry is on the way, though the news did little to dislodge Wall Street's glum mood Friday. Billionaire investor Wilbur Ross agreed to invest up to $1 billion in Bermuda-based reinsurer Assured Guaranty Ltd. Assured Guaranty rose $2.87, or 12.6 percent, to $25.65.
In economic news, the Chicago purchasing managers index for February came in at 44.5, a weaker reading than the 48.5 that had been expected, according to Dow Jones Newswires. The report painted a dreary picture of the manufacturing sector and is seen as a precursor to the national Institute for Supply Management report expected Monday.
A government report showed that personal spending, when stripping out the effects of inflation, stood unchanged in January. The findings arose further concern that consumers are more hesitant to reach into their wallets amid the uncertainties facing the economy.
A parade of economic worries has weighed on consumer as well. The Reuters-University of Michigan final consumer sentiment reading for February came in at 70.8, better than the figure of 69 that had been expected. Still, the index was well off the level of 78.4 seen in January.
Declining issues outnumbered advancers by about 8 to 1 on the New York Stock Exchange, where volume came to 1.76 billion shares compared with 1.46 billion shares traded Thursday.
The Russell 2000 index of smaller companies fell 19.54, or 2.8 percent, to 686.18.
Overseas, Japan's Nikkei stock average closed down 2.32 percent. Britain's FTSE 100 closed down 1.36 percent, Germany's DAX index fell 1.67 percent, and France's CAC-40 fell 1.67 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Oil Surpasses $103 for First Time
AP
Friday February 29, 12:58 am ET
By Gillian Wong, Associated Press Writer
Oil Briefly Tops $103 a Barrel for First Time As US Dollar Weakness Draws Investors
SINGAPORE (AP) -- Oil prices surpassed $103 a barrel for the first time Friday as persistent weakness in the U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market.
Prices were supported by comments Thursday from Federal Reserve Chairman Ben Bernanke, who said the American economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation.
Investors chose to see the comments as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy.
Lower U.S. interest rates tend to weaken the dollar, and crude futures offer a hedge against a falling dollar.
"Due to the weakening dollar and the rising fear of inflation, investors have put money into commodities, oil included," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
"Commodities, as tangible assets, do not face as much inflationary threat as opposed to holding a currency," Shum said. "Even though the value of money is changing, the asset continues to have an intrinsic value."
Light, sweet crude for April delivery jumped to a new trading record of $103.05 a barrel in Asian electronic trading on the New York Mercantile Exchange before slipping back to $102.92 a barrel, up 33 cents.
On Thursday, the contract jumped $2.95 to settle at a record $102.59 a barrel.
Shum warned that a price bubble was emerging in the crude futures market as investors ignored market fundamentals that have shown continuous increases in U.S. crude supply while several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy.
"We've seen seven straight weeks of builds in crude oil inventories. The oil market fundamentals are softening and yet we see record highs being set, day in and day out," Shum said.
Shum warned of the possibility of a sharp correction at some point, though unlikely in the near term.
"Right now, there's a lot of trading based on emotion -- emotions are high and that could keep crude oil at elevated levels, but the market faces the risk of a price collapse."
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to more than $104 today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
In other Nymex trading, heating oil dropped 0.82 cent to $2.8538 a gallon while natural gas futures added 0.2 cent to $9.445 per 1,000 cubic feet.
In London, Brent crude futures rose 1 cent to $100.91 a barrel on the ICE Futures exchange.
Friday February 29, 12:58 am ET
By Gillian Wong, Associated Press Writer
Oil Briefly Tops $103 a Barrel for First Time As US Dollar Weakness Draws Investors
SINGAPORE (AP) -- Oil prices surpassed $103 a barrel for the first time Friday as persistent weakness in the U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market.
Prices were supported by comments Thursday from Federal Reserve Chairman Ben Bernanke, who said the American economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation.
Investors chose to see the comments as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy.
Lower U.S. interest rates tend to weaken the dollar, and crude futures offer a hedge against a falling dollar.
"Due to the weakening dollar and the rising fear of inflation, investors have put money into commodities, oil included," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
"Commodities, as tangible assets, do not face as much inflationary threat as opposed to holding a currency," Shum said. "Even though the value of money is changing, the asset continues to have an intrinsic value."
Light, sweet crude for April delivery jumped to a new trading record of $103.05 a barrel in Asian electronic trading on the New York Mercantile Exchange before slipping back to $102.92 a barrel, up 33 cents.
On Thursday, the contract jumped $2.95 to settle at a record $102.59 a barrel.
Shum warned that a price bubble was emerging in the crude futures market as investors ignored market fundamentals that have shown continuous increases in U.S. crude supply while several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy.
"We've seen seven straight weeks of builds in crude oil inventories. The oil market fundamentals are softening and yet we see record highs being set, day in and day out," Shum said.
Shum warned of the possibility of a sharp correction at some point, though unlikely in the near term.
"Right now, there's a lot of trading based on emotion -- emotions are high and that could keep crude oil at elevated levels, but the market faces the risk of a price collapse."
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to more than $104 today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
In other Nymex trading, heating oil dropped 0.82 cent to $2.8538 a gallon while natural gas futures added 0.2 cent to $9.445 per 1,000 cubic feet.
In London, Brent crude futures rose 1 cent to $100.91 a barrel on the ICE Futures exchange.
Thursday, February 28, 2008
Google Gets Into Web Sites Building Biz
AP
Thursday February 28, 12:21 am ET
By Michael Liedtke, AP Business Writer
Google Branching Out With New Tools for Setting Up Web Sites
SAN FRANCISCO (AP) -- Google, already the world's most popular spot for finding Web sites, is aiming to become the go-to place for creating Web sites too.
The Mountain View-based company is taking its first step toward that goal Thursday with the debut of a free service designed for high-tech neophytes looking for a simple way to share information with other people working in the same company or attending the same class in school.
With only a few clicks, just about anyone will be able to quickly set up and update a Web site featuring a wide array of material, including pictures, calendars and video from Google Inc.'s YouTube subsidiary, said Dave Girouard, general manager of the division overseeing the new application.
"We are literally adding an edit button to the Web," Girouard said.
All sites created on the service will run on one of Google's computers.
Google acquired many of the Web-site tools when it bought a Silicon Valley startup, JotSpot, last year.
The tools are the latest addition to a bundle of applications that Google offers to consumers and businesses as alternatives to similar products sold by Microsoft Corp., one of Google's fiercest rivals.
Google's latest service represents a challenge to Microsoft's SharePoint, which charges licensing fees. Google is unveiling its alternative just a few days before Redmond, Wash.-based Microsoft hosts a SharePoint conference in Seattle.
While Microsoft's programs typically are installed on individual computers, Google keeps its application on its own machines so users can access them from anywhere with an Internet connection.
By gradually introducing free versions of word processing, spreadsheet, and calendaring programs over the past two years, Google has been threatening to siphon revenue away from Microsoft, which makes most of its money from software sales.
Microsoft, in turn, hopes to take a bite of out Google's bread-and-butter in online search and advertising by buying Yahoo Inc. for more than $40 billion.
Google says more than 500,000 companies, government agencies and schools use at least some of its applications. The company won't say how many of those organizations subscribe to a premium version of its software suite, but the fees haven't made much of a dent at Google so far.
Last year, Google's software licensing and other products generated $181 million in revenue while $16.4 billion poured in from advertising.
On The Web:
http://sites.google.com
Thursday February 28, 12:21 am ET
By Michael Liedtke, AP Business Writer
Google Branching Out With New Tools for Setting Up Web Sites
SAN FRANCISCO (AP) -- Google, already the world's most popular spot for finding Web sites, is aiming to become the go-to place for creating Web sites too.
The Mountain View-based company is taking its first step toward that goal Thursday with the debut of a free service designed for high-tech neophytes looking for a simple way to share information with other people working in the same company or attending the same class in school.
With only a few clicks, just about anyone will be able to quickly set up and update a Web site featuring a wide array of material, including pictures, calendars and video from Google Inc.'s YouTube subsidiary, said Dave Girouard, general manager of the division overseeing the new application.
"We are literally adding an edit button to the Web," Girouard said.
All sites created on the service will run on one of Google's computers.
Google acquired many of the Web-site tools when it bought a Silicon Valley startup, JotSpot, last year.
The tools are the latest addition to a bundle of applications that Google offers to consumers and businesses as alternatives to similar products sold by Microsoft Corp., one of Google's fiercest rivals.
Google's latest service represents a challenge to Microsoft's SharePoint, which charges licensing fees. Google is unveiling its alternative just a few days before Redmond, Wash.-based Microsoft hosts a SharePoint conference in Seattle.
While Microsoft's programs typically are installed on individual computers, Google keeps its application on its own machines so users can access them from anywhere with an Internet connection.
By gradually introducing free versions of word processing, spreadsheet, and calendaring programs over the past two years, Google has been threatening to siphon revenue away from Microsoft, which makes most of its money from software sales.
Microsoft, in turn, hopes to take a bite of out Google's bread-and-butter in online search and advertising by buying Yahoo Inc. for more than $40 billion.
Google says more than 500,000 companies, government agencies and schools use at least some of its applications. The company won't say how many of those organizations subscribe to a premium version of its software suite, but the fees haven't made much of a dent at Google so far.
Last year, Google's software licensing and other products generated $181 million in revenue while $16.4 billion poured in from advertising.
On The Web:
http://sites.google.com
Wednesday, February 27, 2008
Stocks Finish Mixed in Choppy Session
AP
Wednesday February 27, 5:55 pm ET
By Joe Bel Bruno, AP Business Writer
Investors Pare Gains After Regulator Lifts Caps on Fannie, Freddie, Bernanke Comments Please
NEW YORK (AP) -- Wall Street finished mixed in another seesaw session Wednesday after regulators allowed Fannie Mae and Freddie Mac to buy more mortgages and Federal Reserve Chairman Ben Bernanke said the central bank will remain vigilant about the weakened economy.
Investors pared the market's gains after both developments had initially boosted confidence amid increasing signs of a slowing economy. Wall Street has in recent months grappled with concerns about rising prices, a weaker dollar and continued turmoil in the credit markets.
Bernanke indicated the Fed is more concerned about the sagging economy then the immediate risks of inflation. In testimony on Capitol Hill, he told lawmakers the Fed will "act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."
The remarks came as the dollar plunged to a record low against the 15-nation euro. That sent already inflated oil and gold prices further into record high territory, and raised the prospect of accelerating inflation.
Meanwhile, Fannie Mae and Freddie Mac -- the biggest sources of financing for U.S. home loans -- helped give the market some ballast after the government removed restrictions on the size of their portfolios. That offered a chance for an easing of the extremely tight mortgage market that has been battered by the subprime loan crisis.
"The government is trying to do their part," said Todd Leone, managing director of equity trading at Cowen & Co. "Together, this helps put a little more faith in the economy."
Major indexes initially moved higher before investors cashed in profits, following a pattern set in recent weeks. The Dow Jones industrial average -- now up four straight sessions -- rose 9.36, or 0.07 percent, to 12,694.28.
Broader indexes were narrowly mixed. The Standard & Poor's 500 index fell 1.27, or 0.09 percent, to 1,380.02, and the Nasdaq composite index rose 8.79, or 0.37 percent, to 2,353.78.
Stocks were somewhat under pressure after the euro climbed to a record high of $1.5057 as sentiment increased that the Fed would continue its rate cut campaign. The U.S. currency was mixed against other major currencies.
The dollar's continued slide drove more money into commodities -- especially into oil and gold.
Oil prices broke through a new intraday high of $102 a barrel in overnight trading, then fell $1.24 to settle at $99.64 a barrel on the New York Mercantile Exchange. Meanwhile, gold futures set a new high of $961.30 an ounce.
Bond prices rose slightly. The yield on the benchmark 10-year note, which moves opposite its price, fell to 3.85 percent from 3.86 percent late Tuesday. It then rose back up to 3.86 percent in after-hours trading.
The moves followed a government report showing business investment in durable goods weakened more than forecast at the start of the year, playing into the nervousness about economic slowing. The Commerce Department reported durable goods orders dropped 5.3 percent in January, exceeding forecasts.
There was more bad news about the housing slump. The Commerce Department reported new home sales fell in January for a third straight month, pushing activity down to the slowest pace in nearly 13 years.
Investors have been monitoring economic data to get a better idea about inflation, which could cause the Fed to stop lowering rates. The Fed, widely expected to make a half-point cut in interest rates, will meet again March 18.
Harry Clark, president of Clark Capital Management in Philadelphia, said a slowdown in the economy that avoids recession could create a moderate drop in demand and help ease pressure from rising prices.
"If the economy goes down the drain with rising prices, that's stagflation," he said. "Rising prices aren't a big deal if everyone is employed and the economy is growing."
The notion of some easing in the weakened mortgage sector pleased investors. Fannie Mae shares rose 30 cents to $27.27, while Freddie Mac shares fell 12 cents to $25.09.
The Russell 2000 index of smaller companies fell 0.88, or 0.12 percent, to 716.44.
Declining issues outpaced advancers by a 5 to 4 margin on the New York Stock Exchange, where consolidated volume fell to 3.81 billion shares from 3.95 million shares on Tuesday.
Overseas, Japan's Nikkei stock average closed 1.49 percent higher. Britain's FTSE 100 fell 0.18 percent, Germany's DAX index rose 0.17 percent, and France's CAC-40 fell 0.09 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Wednesday February 27, 5:55 pm ET
By Joe Bel Bruno, AP Business Writer
Investors Pare Gains After Regulator Lifts Caps on Fannie, Freddie, Bernanke Comments Please
NEW YORK (AP) -- Wall Street finished mixed in another seesaw session Wednesday after regulators allowed Fannie Mae and Freddie Mac to buy more mortgages and Federal Reserve Chairman Ben Bernanke said the central bank will remain vigilant about the weakened economy.
Investors pared the market's gains after both developments had initially boosted confidence amid increasing signs of a slowing economy. Wall Street has in recent months grappled with concerns about rising prices, a weaker dollar and continued turmoil in the credit markets.
Bernanke indicated the Fed is more concerned about the sagging economy then the immediate risks of inflation. In testimony on Capitol Hill, he told lawmakers the Fed will "act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."
The remarks came as the dollar plunged to a record low against the 15-nation euro. That sent already inflated oil and gold prices further into record high territory, and raised the prospect of accelerating inflation.
Meanwhile, Fannie Mae and Freddie Mac -- the biggest sources of financing for U.S. home loans -- helped give the market some ballast after the government removed restrictions on the size of their portfolios. That offered a chance for an easing of the extremely tight mortgage market that has been battered by the subprime loan crisis.
"The government is trying to do their part," said Todd Leone, managing director of equity trading at Cowen & Co. "Together, this helps put a little more faith in the economy."
Major indexes initially moved higher before investors cashed in profits, following a pattern set in recent weeks. The Dow Jones industrial average -- now up four straight sessions -- rose 9.36, or 0.07 percent, to 12,694.28.
Broader indexes were narrowly mixed. The Standard & Poor's 500 index fell 1.27, or 0.09 percent, to 1,380.02, and the Nasdaq composite index rose 8.79, or 0.37 percent, to 2,353.78.
Stocks were somewhat under pressure after the euro climbed to a record high of $1.5057 as sentiment increased that the Fed would continue its rate cut campaign. The U.S. currency was mixed against other major currencies.
The dollar's continued slide drove more money into commodities -- especially into oil and gold.
Oil prices broke through a new intraday high of $102 a barrel in overnight trading, then fell $1.24 to settle at $99.64 a barrel on the New York Mercantile Exchange. Meanwhile, gold futures set a new high of $961.30 an ounce.
Bond prices rose slightly. The yield on the benchmark 10-year note, which moves opposite its price, fell to 3.85 percent from 3.86 percent late Tuesday. It then rose back up to 3.86 percent in after-hours trading.
The moves followed a government report showing business investment in durable goods weakened more than forecast at the start of the year, playing into the nervousness about economic slowing. The Commerce Department reported durable goods orders dropped 5.3 percent in January, exceeding forecasts.
There was more bad news about the housing slump. The Commerce Department reported new home sales fell in January for a third straight month, pushing activity down to the slowest pace in nearly 13 years.
Investors have been monitoring economic data to get a better idea about inflation, which could cause the Fed to stop lowering rates. The Fed, widely expected to make a half-point cut in interest rates, will meet again March 18.
Harry Clark, president of Clark Capital Management in Philadelphia, said a slowdown in the economy that avoids recession could create a moderate drop in demand and help ease pressure from rising prices.
"If the economy goes down the drain with rising prices, that's stagflation," he said. "Rising prices aren't a big deal if everyone is employed and the economy is growing."
The notion of some easing in the weakened mortgage sector pleased investors. Fannie Mae shares rose 30 cents to $27.27, while Freddie Mac shares fell 12 cents to $25.09.
The Russell 2000 index of smaller companies fell 0.88, or 0.12 percent, to 716.44.
Declining issues outpaced advancers by a 5 to 4 margin on the New York Stock Exchange, where consolidated volume fell to 3.81 billion shares from 3.95 million shares on Tuesday.
Overseas, Japan's Nikkei stock average closed 1.49 percent higher. Britain's FTSE 100 fell 0.18 percent, Germany's DAX index rose 0.17 percent, and France's CAC-40 fell 0.09 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Tuesday, February 26, 2008
Wall Street Lifts on IBM Stock Buyback
AP
Tuesday February 26, 4:18 pm ET
By Madlen Read, AP Business Writer
Stocks Lift After IBM OKs Buyback, Offsetting Disappointment Over Economic Data
NEW YORK (AP) -- Wall Street reversed earlier losses and rallied Tuesday after IBM approved a $15 billion stock buyback, suggesting to investors that there are still some companies out there with financial muscle. The Dow Jones industrial average rose more than 110 points.
IBM Corp., one of the 30 companies that make up the Dow, said the buyback will boost its earnings for 2008 past Wall Street's prior forecasts. Shares of Big Blue vaulted $4.30, or 3.9 percent, to $114.38.
The buyback news followed two dismal economic reports showing core wholesale prices shot up more than expected last month and that consumer confidence is waning. The data reinforced worries that the United States is suffering from stagflation, a state when the economy weakens amid rising costs.
"The market is kind of overcoming negative news, which is potentially a next step toward higher prices," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "At least in the short-term, it's a nice change here."
Tuesday's advance extended a rally that began Monday when Standard & Poor's affirmed the AAA ratings for troubled bond insurers Ambac Financial Group Inc. and MBIA Inc. MBIA, which on Tuesday said it would eliminate its quarterly dividend, was also affirmed by Moody's Investors Service.
According to preliminary calculations, the Dow rose 114.70, or 0.91 percent, to 12,684.92, after declining in earlier trading.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 9.49, or 0.69 percent, to 1,381.29, and the Nasdaq composite index rose 17.51, or 0.75 percent, to 2,344.99.
Government bonds rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.86 percent from 3.91 percent late Monday. The dollar was mixed against most other major currencies, while gold prices edged higher.
Tuesday's pair of economic reports was decidedly downbeat.
The Conference Board's index of consumer confidence plunged in February to 75.0 from a revised 87.3 in January. The reading was the lowest since the index registered 64.8 in February 2003, and came in far below analysts' average estimate. Though the report is not a perfect predictor of consumer spending, it suggests Americans are watching their budgets.
Meanwhile, the latest wholesale inflation report showed the headline producer price index rising by a full 1 percent in January, driven up by higher energy prices and soaring food costs.
The result was a bit below the 1.1 percent advance projected by Thomson/IFR, but core PPI -- which excludes food and energy prices -- rose 0.4 percent, steeper than the predicted 0.3 percent gain. The data was disconcerting because the Federal Reserve is known to closely monitor core-level inflation in setting monetary policy.
"The market is holding up extraordinarily well given all this negative stuff," said Scott Fullman, director of investment strategy for I. A. Englander & Co. He said the prospect of more corporate buybacks was a "positive for the market," but also, "the market is tired of going down."
Cementing the belief that costs won't be easing anytime soon was oil's surge back above $100 a barrel. Light, sweet crude rose $1.65 to $100.88 a barrel on the New York Mercantile Exchange.
Positive news from some retailers helped keep stocks afloat.
Target Corp., the discount store chain, said fourth-quarter profits fell due to poor holiday sales and a quirk in the earnings calendar, but results came in above the average forecast. Target rose $1.64, or 3.1 percent, to $54.89.
Rite Aid Corp. also jumped, after an analyst upgraded the pharmacy chain and said a recent stock drop makes its risk and reward profile more favorable. Rite Aid rose 17 cents, or 6.5 percent, to $2.78.
RadioShack Corp. rose after the electronics retailer posted a rise in fourth-quarter profit and higher sales than analysts predicted. RadioShack rose $3.30, or 21.5 percent, to $19.13.
In other corporate news, Tenet Healthcare Corp., the hospital operator, said its fourth-quarter losses narrowed sharply thanks to new contracts, higher admissions and cost-cutting. Tenet rose 62 cents, or 14.4 percent, to $4.90.
The Russell 2000 index of smaller companies rose 6.86, or 0.97 percent, to 717.32.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 1.53 billion shares.
Overseas, Japan's Nikkei stock average fell 0.65 percent. Britain's FTSE 100 rose 1.47 percent, Germany's DAX index rose 1.50 percent, and France's CAC-40 rose 1.09 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Tuesday February 26, 4:18 pm ET
By Madlen Read, AP Business Writer
Stocks Lift After IBM OKs Buyback, Offsetting Disappointment Over Economic Data
NEW YORK (AP) -- Wall Street reversed earlier losses and rallied Tuesday after IBM approved a $15 billion stock buyback, suggesting to investors that there are still some companies out there with financial muscle. The Dow Jones industrial average rose more than 110 points.
IBM Corp., one of the 30 companies that make up the Dow, said the buyback will boost its earnings for 2008 past Wall Street's prior forecasts. Shares of Big Blue vaulted $4.30, or 3.9 percent, to $114.38.
The buyback news followed two dismal economic reports showing core wholesale prices shot up more than expected last month and that consumer confidence is waning. The data reinforced worries that the United States is suffering from stagflation, a state when the economy weakens amid rising costs.
"The market is kind of overcoming negative news, which is potentially a next step toward higher prices," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "At least in the short-term, it's a nice change here."
Tuesday's advance extended a rally that began Monday when Standard & Poor's affirmed the AAA ratings for troubled bond insurers Ambac Financial Group Inc. and MBIA Inc. MBIA, which on Tuesday said it would eliminate its quarterly dividend, was also affirmed by Moody's Investors Service.
According to preliminary calculations, the Dow rose 114.70, or 0.91 percent, to 12,684.92, after declining in earlier trading.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 9.49, or 0.69 percent, to 1,381.29, and the Nasdaq composite index rose 17.51, or 0.75 percent, to 2,344.99.
Government bonds rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.86 percent from 3.91 percent late Monday. The dollar was mixed against most other major currencies, while gold prices edged higher.
Tuesday's pair of economic reports was decidedly downbeat.
The Conference Board's index of consumer confidence plunged in February to 75.0 from a revised 87.3 in January. The reading was the lowest since the index registered 64.8 in February 2003, and came in far below analysts' average estimate. Though the report is not a perfect predictor of consumer spending, it suggests Americans are watching their budgets.
Meanwhile, the latest wholesale inflation report showed the headline producer price index rising by a full 1 percent in January, driven up by higher energy prices and soaring food costs.
The result was a bit below the 1.1 percent advance projected by Thomson/IFR, but core PPI -- which excludes food and energy prices -- rose 0.4 percent, steeper than the predicted 0.3 percent gain. The data was disconcerting because the Federal Reserve is known to closely monitor core-level inflation in setting monetary policy.
"The market is holding up extraordinarily well given all this negative stuff," said Scott Fullman, director of investment strategy for I. A. Englander & Co. He said the prospect of more corporate buybacks was a "positive for the market," but also, "the market is tired of going down."
Cementing the belief that costs won't be easing anytime soon was oil's surge back above $100 a barrel. Light, sweet crude rose $1.65 to $100.88 a barrel on the New York Mercantile Exchange.
Positive news from some retailers helped keep stocks afloat.
Target Corp., the discount store chain, said fourth-quarter profits fell due to poor holiday sales and a quirk in the earnings calendar, but results came in above the average forecast. Target rose $1.64, or 3.1 percent, to $54.89.
Rite Aid Corp. also jumped, after an analyst upgraded the pharmacy chain and said a recent stock drop makes its risk and reward profile more favorable. Rite Aid rose 17 cents, or 6.5 percent, to $2.78.
RadioShack Corp. rose after the electronics retailer posted a rise in fourth-quarter profit and higher sales than analysts predicted. RadioShack rose $3.30, or 21.5 percent, to $19.13.
In other corporate news, Tenet Healthcare Corp., the hospital operator, said its fourth-quarter losses narrowed sharply thanks to new contracts, higher admissions and cost-cutting. Tenet rose 62 cents, or 14.4 percent, to $4.90.
The Russell 2000 index of smaller companies rose 6.86, or 0.97 percent, to 717.32.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 1.53 billion shares.
Overseas, Japan's Nikkei stock average fell 0.65 percent. Britain's FTSE 100 rose 1.47 percent, Germany's DAX index rose 1.50 percent, and France's CAC-40 rose 1.09 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Monday, February 25, 2008
Stocks Higher on Hope for Housing Bottom
AP
Monday February 25, 11:16 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Moves Higher As Investors Hope Housing Slump Might Be Nearing Bottom
NEW YORK (AP) -- Wall Street turned higher Monday on hopes that the worst housing slump in a quarter century might be nearing a bottom, a trend that could be the catalyst needed to revive the badly beaten financial sector.
Investors, while still wary of recession, grew hopeful after the National Association of Realtors reported existing homes fell less than forecast. Some experts interpreted this as a housing market on the verge of bottoming out with a rebound expected to start toward the end of this year.
Wall Street also found encouragement after Visa said it still planned to go ahead with a $19 billion initial public offering this year that could go down as the biggest in U.S. history. Further, investors were still hoping that troubled bond insurer Ambac Financial Group Inc. would receive a capital injection to help preserve its coveted "AAA" rating.
"The home sales, even though they were weak, showed some signs of stabilization -- and even the smallest bit of positive news and the market takes off," said Chris Johnson, president of Johnson Research Group. "People will get very excited if they sense a bottom in the financials because they've been the Achilles' heel of this market."
However, he warned that the rise in major indexes could "turn on its nose" as investors remain skittish. The market this year has been prone to quick swings as investors buy on dips and then quickly cash out.
The Dow rose 104.37, or 0.84 percent, to 12,485.39.
Broader stock indexes were also higher. The Standard & Poor's 500 index added 8.86, or 0.65 percent, to 1,361.97; and the Nasdaq composite index rose 15.74, or 0.68 percent, to 2,319.09.
Despite continuing volatility, the stock market has traded in a range this month as investors hedge their bets as to whether troubled credit markets and the overall economy have stabilized.
Last week, the Dow inched up 0.27 percent, the S&P 500 index rose a modest 0.23 percent and the Nasdaq composite index dipped 0.79 percent. But the three indexes are all down sharply since the start of 2008.
Bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.80 percent late Friday. The dollar was higher against most major currencies, while gold prices fell.
Oil prices hovered near $100 a barrel with supply concerns heightened by a Turkish military incursion into northern Iraq and warnings by Iran against further international sanctions. A barrel of light, sweet crude rose 19 cents to $99 on the New York Mercantile Exchange.
In corporate news, Ambac rose 26 cents, or 2.4 percent, to $10.97 on optimism about a possible rescue plan. Dresdner Bank said Monday it intends to support such a package that would shore up the bond insurer's balance sheet.
"Everyone is waiting to see how the Ambac matter comes out," said Peter Cardillo, chief market economist at Avalon Partners. "The fact that this is not a done deal is keeping the market a little on the defensive side."
The credit industry, already slammed by the summer's mortgage crisis, could face further erosion if bond insurers were to falter. Municipalities and companies used these insurers to back bonds, allowing them to get higher rating and cheaper financing.
Visa said in a Securities and Exchange Commission filing it will offer 406 million shares at $37 to $42 per share. The IPO was seen as a positive sign that a major financial company feels confident to go public despite the ongoing market turbulence.
TakeTwo Interactive Software Inc. surged $8.49, or 48.9 percent, to $25.85 after rival Electronic Arts Inc. renewed its bid to buy the company.
There was good news for cancer drug manufacturer Genentech Inc. The Food and Drug Administration granted an accelerated approval for its Avastin treatment, which is administered with a chemotherapy treatment to breast cancer patients. Shares rose $6.70, or 9.4 percent, to $78.30.
Lowe's Cos. reported a drop in fourth quarter earnings and cited the weak housing market. However, shares of the home improvement retailer rose 92 cents to $24.51 amid hopes that the housing slump might soon hit a bottom.
The Russell 2000 index of smaller companies rose 7.57, or 1.09 percent, to 703.00.
Advancing issues outpaced decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 368.1 million shares exchanging hands.
Overseas, the Tokyo closed 3.07 percent higher. In London, the FTSE 100 rose 1.31 percent, Paris' CAC 40 advanced 0.73 percent, and Frankfurt's DAX gained 1.45 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Monday February 25, 11:16 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Moves Higher As Investors Hope Housing Slump Might Be Nearing Bottom
NEW YORK (AP) -- Wall Street turned higher Monday on hopes that the worst housing slump in a quarter century might be nearing a bottom, a trend that could be the catalyst needed to revive the badly beaten financial sector.
Investors, while still wary of recession, grew hopeful after the National Association of Realtors reported existing homes fell less than forecast. Some experts interpreted this as a housing market on the verge of bottoming out with a rebound expected to start toward the end of this year.
Wall Street also found encouragement after Visa said it still planned to go ahead with a $19 billion initial public offering this year that could go down as the biggest in U.S. history. Further, investors were still hoping that troubled bond insurer Ambac Financial Group Inc. would receive a capital injection to help preserve its coveted "AAA" rating.
"The home sales, even though they were weak, showed some signs of stabilization -- and even the smallest bit of positive news and the market takes off," said Chris Johnson, president of Johnson Research Group. "People will get very excited if they sense a bottom in the financials because they've been the Achilles' heel of this market."
However, he warned that the rise in major indexes could "turn on its nose" as investors remain skittish. The market this year has been prone to quick swings as investors buy on dips and then quickly cash out.
The Dow rose 104.37, or 0.84 percent, to 12,485.39.
Broader stock indexes were also higher. The Standard & Poor's 500 index added 8.86, or 0.65 percent, to 1,361.97; and the Nasdaq composite index rose 15.74, or 0.68 percent, to 2,319.09.
Despite continuing volatility, the stock market has traded in a range this month as investors hedge their bets as to whether troubled credit markets and the overall economy have stabilized.
Last week, the Dow inched up 0.27 percent, the S&P 500 index rose a modest 0.23 percent and the Nasdaq composite index dipped 0.79 percent. But the three indexes are all down sharply since the start of 2008.
Bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.80 percent late Friday. The dollar was higher against most major currencies, while gold prices fell.
Oil prices hovered near $100 a barrel with supply concerns heightened by a Turkish military incursion into northern Iraq and warnings by Iran against further international sanctions. A barrel of light, sweet crude rose 19 cents to $99 on the New York Mercantile Exchange.
In corporate news, Ambac rose 26 cents, or 2.4 percent, to $10.97 on optimism about a possible rescue plan. Dresdner Bank said Monday it intends to support such a package that would shore up the bond insurer's balance sheet.
"Everyone is waiting to see how the Ambac matter comes out," said Peter Cardillo, chief market economist at Avalon Partners. "The fact that this is not a done deal is keeping the market a little on the defensive side."
The credit industry, already slammed by the summer's mortgage crisis, could face further erosion if bond insurers were to falter. Municipalities and companies used these insurers to back bonds, allowing them to get higher rating and cheaper financing.
Visa said in a Securities and Exchange Commission filing it will offer 406 million shares at $37 to $42 per share. The IPO was seen as a positive sign that a major financial company feels confident to go public despite the ongoing market turbulence.
TakeTwo Interactive Software Inc. surged $8.49, or 48.9 percent, to $25.85 after rival Electronic Arts Inc. renewed its bid to buy the company.
There was good news for cancer drug manufacturer Genentech Inc. The Food and Drug Administration granted an accelerated approval for its Avastin treatment, which is administered with a chemotherapy treatment to breast cancer patients. Shares rose $6.70, or 9.4 percent, to $78.30.
Lowe's Cos. reported a drop in fourth quarter earnings and cited the weak housing market. However, shares of the home improvement retailer rose 92 cents to $24.51 amid hopes that the housing slump might soon hit a bottom.
The Russell 2000 index of smaller companies rose 7.57, or 1.09 percent, to 703.00.
Advancing issues outpaced decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 368.1 million shares exchanging hands.
Overseas, the Tokyo closed 3.07 percent higher. In London, the FTSE 100 rose 1.31 percent, Paris' CAC 40 advanced 0.73 percent, and Frankfurt's DAX gained 1.45 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Sunday, February 24, 2008
Congress to Examine Housing Proposals
AP
Sunday February 24, 1:56 pm ET
By Marcy Gordon, AP Business Writer
Congress to Consider Bankruptcy Relief, Foreclosure Assistance Proposals to Help Homeowners
WASHINGTON (AP) -- Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.
Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.
Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.
The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.
Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.
A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.
"This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again," said Sen. Richard Durbin of Illinois, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
Consumer advocates, meanwhile, are pushing senators to approve the change.
Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.
In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.
The focus on new housing proposals isn't limited to the legislative branch.
The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.
The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis. The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.
Sunday February 24, 1:56 pm ET
By Marcy Gordon, AP Business Writer
Congress to Consider Bankruptcy Relief, Foreclosure Assistance Proposals to Help Homeowners
WASHINGTON (AP) -- Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.
Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.
Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.
The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.
Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.
A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.
"This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again," said Sen. Richard Durbin of Illinois, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
Consumer advocates, meanwhile, are pushing senators to approve the change.
Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.
In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.
The focus on new housing proposals isn't limited to the legislative branch.
The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.
The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis. The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.
Saturday, February 23, 2008
Governors: Include Coal in Energy Debate
AP
Saturday February 23, 5:58 pm ET
By Andrew Welsh-Huggins, Associated Press Writer
Governors: Black Coal Must Be Part of Green Energy Debate
WASHINGTON (AP) -- Governors pushing alternative energy development are not shying from coal, a major culprit in global warming but also a homegrown energy source and an economic lifeline for many states.
Leaders of coal-rich states say clean-coal technology is a must. Governors from states without coal want more evidence the technology works.
"There's no doubt there's a tension and there's no doubt there is very rapidly growing public opposition to coal," said Gov. Jim Doyle, D-Wis. His state relies heavily on coal for power although Wisconsin is not a coal producer.
Energy tops the agenda at the governors' annual winter meeting. The group's new clean energy initiative seeks to promote renewable fuels such as ethanol and biodiesel and reducing greenhouse gas emissions.
"Next-generation coal is going to need to continue to be part of our energy future for this country," said GOP Gov. Tim Pawlenty of Minnesota, chairman of the National Governors Association.
"It is abundant, it is available, it is Americanized in the sense that we control the supply," he said Saturday. "We would be incomplete and doing a disservice to the debate and the ultimate policy direction that we're going to take if we don't envision coal being part of that."
Next-generation coal typically refers to capturing and somehow sequestering or storing the carbon that coal produces. It also envisions reducing or eliminating emissions as coal is burned.
Pawlenty has embraced renewable fuels such as corn-based ethanol and conservation, but he also promotes clean-coal technology.
Such technology is a rallying cry for many coal-producing states. They say it is possible to continue relying on the fossil fuel while minimizing its impact on the environment.
Gov. Ed Rendell, D-Pa., envisions an economic turnaround if clean-coal technology takes off.
"Coal states would be back in business big time and the economies would flourish," said Rendell, the association's vice chairman.
Presidents of two of the country's biggest power companies urged governors not to dismiss coal, calling it the country's most abundant energy resource.
"We cannot ignore coal, we cannot demonize coal," said Thomas Farrell, chairman of Richmond, Va.-based Dominion Resources Inc.
Michael Morris, chairman of Columbus, Ohio-based American Electric Power Co., said "the whole notion of delegitimizing coal is something we should all be frightened of."
Gov. John Baldacci, D-Maine, needs to hear more before he would include clean-coal technology among the promising energy ideas for the country. His state promotes renewable energy produced through wind, solar and even tides.
"You have to deal with the coal states, but I don't think you want them doing more of what they're doing until they change what they're doing and make it truly the next generation," he said in an interview.
"Not just say clean-coal technology, but really do clean-coal technology."
Proponents say all energy sources have their problems. The key, says Gov. Brian Schweitzer, D-Mont., is a national energy policy with many options and sources.
That is important because electricity demand will increase in the future. For instance, Schweitzer predicted that 10 years from now a significant number of cars will be plug-in hybrid vehicles, which will require more power plants, not fewer.
Coal "has a CO2 problem, wind has a reliability problem, solar has a price problem, nukes have a price and radiation problem," Schweitzer said. "So all of those technologies have opportunities. but they all have problems -- coal's no different."
He added, "What I can say about coal, is we have it. We have it in a greater supply than anyplace else on the planet."
Doyle, the Wisconsin governor, said the emerging consensus is a mix of approaches. He said the state's reliance on coal for electricity will decline but definitely not disappear.
National Governors Association: http://www.nga.org
Saturday February 23, 5:58 pm ET
By Andrew Welsh-Huggins, Associated Press Writer
Governors: Black Coal Must Be Part of Green Energy Debate
WASHINGTON (AP) -- Governors pushing alternative energy development are not shying from coal, a major culprit in global warming but also a homegrown energy source and an economic lifeline for many states.
Leaders of coal-rich states say clean-coal technology is a must. Governors from states without coal want more evidence the technology works.
"There's no doubt there's a tension and there's no doubt there is very rapidly growing public opposition to coal," said Gov. Jim Doyle, D-Wis. His state relies heavily on coal for power although Wisconsin is not a coal producer.
Energy tops the agenda at the governors' annual winter meeting. The group's new clean energy initiative seeks to promote renewable fuels such as ethanol and biodiesel and reducing greenhouse gas emissions.
"Next-generation coal is going to need to continue to be part of our energy future for this country," said GOP Gov. Tim Pawlenty of Minnesota, chairman of the National Governors Association.
"It is abundant, it is available, it is Americanized in the sense that we control the supply," he said Saturday. "We would be incomplete and doing a disservice to the debate and the ultimate policy direction that we're going to take if we don't envision coal being part of that."
Next-generation coal typically refers to capturing and somehow sequestering or storing the carbon that coal produces. It also envisions reducing or eliminating emissions as coal is burned.
Pawlenty has embraced renewable fuels such as corn-based ethanol and conservation, but he also promotes clean-coal technology.
Such technology is a rallying cry for many coal-producing states. They say it is possible to continue relying on the fossil fuel while minimizing its impact on the environment.
Gov. Ed Rendell, D-Pa., envisions an economic turnaround if clean-coal technology takes off.
"Coal states would be back in business big time and the economies would flourish," said Rendell, the association's vice chairman.
Presidents of two of the country's biggest power companies urged governors not to dismiss coal, calling it the country's most abundant energy resource.
"We cannot ignore coal, we cannot demonize coal," said Thomas Farrell, chairman of Richmond, Va.-based Dominion Resources Inc.
Michael Morris, chairman of Columbus, Ohio-based American Electric Power Co., said "the whole notion of delegitimizing coal is something we should all be frightened of."
Gov. John Baldacci, D-Maine, needs to hear more before he would include clean-coal technology among the promising energy ideas for the country. His state promotes renewable energy produced through wind, solar and even tides.
"You have to deal with the coal states, but I don't think you want them doing more of what they're doing until they change what they're doing and make it truly the next generation," he said in an interview.
"Not just say clean-coal technology, but really do clean-coal technology."
Proponents say all energy sources have their problems. The key, says Gov. Brian Schweitzer, D-Mont., is a national energy policy with many options and sources.
That is important because electricity demand will increase in the future. For instance, Schweitzer predicted that 10 years from now a significant number of cars will be plug-in hybrid vehicles, which will require more power plants, not fewer.
Coal "has a CO2 problem, wind has a reliability problem, solar has a price problem, nukes have a price and radiation problem," Schweitzer said. "So all of those technologies have opportunities. but they all have problems -- coal's no different."
He added, "What I can say about coal, is we have it. We have it in a greater supply than anyplace else on the planet."
Doyle, the Wisconsin governor, said the emerging consensus is a mix of approaches. He said the state's reliance on coal for electricity will decline but definitely not disappear.
National Governors Association: http://www.nga.org
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