The dollar bounced higher in overnight trading, recovering across the board following yesterday’s sell-off. The greenback edged up to 2.0628 versus the sterling and 1.4730 against the euro. In the coming session, markets will look ahead to Q3 GDP, core PCE prices, weekly jobless claims and new home sales. The economy is seen expanding by 4.8% in the third quarter, up from 3.9% previously. New home sales are expected to slip to 750k units, down from 770k units in September.
The greenback recovered from the declines prompted by the heightened anticipation that the Fed will ease rates again in December following yesterday’s dovish comments from Fed Vice Chairman Kohn. We view the dollar’s strength as a short-term corrective move and look for the downtrend to remain in place against the major currencies.Cable Retreats
Bank of England Governor King spoke before Parliament’s Treasury Committee earlier today, saying the outlook for inflation and growth is less benign. King said the MPC remained focused on meeting the CPI target, but surveys are suggesting the economy is beginning to slow. King said financial market turmoil has tightened credit conditions, and sees the first signs of credit crunch effect likely in housing and property markets. He anticipates output growth to slow while CPI to increase in the short term. King reiterated the Bank remained ready to take further measures to ensure the overnight rate remained in line with the bank rate. Meanwhile, Bank of England board member Blanchflower said that the fear of recession in the US is greater than others think, placing a 50% likelihood for a recession in the US.
Consumer credit for October increased to 1.439 billion sterling, up from 1.322 billion sterling. Mortgage approvals dropped to its lowest level since February 2005, at 88k versus 100k from September. Final M4 money supply edged up by 0.2% m/m and 11.8% y/y in October – marking its lowest annual rate since May 2006.Cable retreated sharply from just shy of 2.0850 yesterday and pulling back to trendline support around 2.0630 in early Thursday trading. We look for the pair to stabilize around the 2.06-figure and expect bullish momentum to push the pair back toward the 2.0850-2.09 region in the coming sessions.
Kamis, 29 November 2007
Senin, 26 November 2007
Retailers Buoyed by Strong Holiday Start By Anne D'Innocenzio, AP Business Writer
NEW YORK (AP) -- The nation's shoppers set aside worries about higher gas prices and a slumping housing market and proved their resilience over the Thanksgiving weekend, giving what the nation's merchants wished for -- a strong start to the holiday shopping season.Stores and malls opened the season as early as midnight, drawing bigger-than-expected crowds Friday for discounted flat-panel TVs, digital cameras and toys such as all things related to Disney Channel's "Hannah Montana." Strong sales continued through Saturday, according to one research group that tracks total sales at retail outlets across the country.
Clearly, the biggest draw was electronics, benefiting consumer electronics chains like Best Buy Co. and discounters such as Wal-Mart Stores Inc. and Target Corp. Popular-priced department stores including J.C. Penney Co. and Kohl's Corp. drew in crowds with good deals. Toy stores like Toys "R" Us Inc. fared well too. Still, apparel sales appeared to be mixed at mall-based clothing stores, though a cold weather snap helped spur sales of outerwear and other winter-related items.
"This was a really good start. ... There seemed to be a lot of pent-up demand," said Bill Martin, co-foundeer of ShopperTrak RCT Corp., which tracks total sales at more than 50,000 retail outlets. ShopperTrak reported late Sunday that sales on Friday and Saturday combined rose 7.2 percent to $16.4 billion from the same two-day period a year ago.Total sales on Friday, the day after Thanksgiving, rose to $10.3 billion, up 8.3 percent from the same day a year ago. Martin had expected increases no greater than 5 percent.
Meanwhile, Internet research firm comScore Inc. reported a 22 percent gain in online sales on the day after Thanksgiving compared with the same day a year ago and estimated online sales would exceed $700 million online Monday, the official kickoff to the online shopping season.
The signs were encouraging, but stores are now wondering whether bargain hunters will keep up the pace as they face an escalating credit crunch, depreciating home values and rising daily living expenses.
Frederick Crawford, managing director at AlixPartners, a turnaround consulting company, said that amid economic challenges, people are buying fewer gifts.
"Clearly, it was mission-based shopping," Crawford said. "People had their list, and they were very specific in what they were looking for."
Consumers were out looking for bargains.
"The bargains are better this year, a lot better," said Theresa Calib, of Houston, Texas, who was at the local Greenspoint mall Saturday. "We always know what we want to get, and we get it." She noted she took advantage of Foot Locker Inc.'s two pairs for $89 sale.
I'm trying to get everything done, and I did it," said Pat Marcantonio, of Wakefield, R.I., who returned Saturday to the Warwick Mall after braving the crowds Friday morning.
Marcantonio also shopped for herself Saturday, loading up a Bath & Body Works bag full of frosted cranberry and sweet pea lotions. Bath & Body Works was offering select gift sets at 30 percent off.
Meanwhile, in downtown Philadelphia, Barbara McGlade, of Wyndmoor, Pa., had picked up deals on fleece clothing at Modell's, with prices marked down from $29.99 to about $15.
"If I see something now, I'll pick it up," McGlade said. "You don't know if you'll see it again."
The nation's stores worked hard to lure shoppers with expanded hours, including midnight openings, and a blitz of early morning specials Friday. J.C. Penney and Kohl's opened at 4 a.m., an hour earlier than a year ago.
Many stores were also more focused on discounting products that they knew shoppers wanted. Gail Lavielle, a spokeswoman at Sears Holding Corp., which operates Kmart and Sears stores, said it zeroed in on great deals on electronics, instead of offering deep discounts on a wide range of products. Still, analysts say frustrations were high across among shoppers who couldn't get their hands on limited deals at many different stores.
Lavielle noted that the turnout Friday was better than a year ago, and customer flow was steady throughout the weekend. Both Kmart and Sears sold out a significant inventory of its flat-panel TVs. Other hot items were Global Positioning System receivers, game consoles like the hard-to-find Nintendo Wii, and digital cameras.
Toys "R" Us chairman and CEO Jerry Storch said the toy seller drew a strong turnout Friday for its 101 early morning specials. He said that he was pleased with traffic on Saturday and Sunday as well.
"This was a robust start to the holiday season," Storch said. Popular items included anything related to Disney's hot franchises "Hannah Montana" and "High School Musical," video games, consoles, an interactive parrot from Hasbro Inc., and radio-controlled helicopters and planes.
In a statement Saturday, J.C. Penney reported "strong performance across all merchandise categories," including fine jewelry, outerwear, and young men's and children's assortments.
Wally Brewster, senior vice president of marketing and communications for General Growth Properties Inc., which operates more than 220 malls in 44 states, estimated that sales rose 2.5 percent for the weekend compared with a year ago, in line with projections. Electronic items were extremely popular, but he added that the cold weather helped spur sales of fleece outerwear and other winter items.
Karen MacDonald, spokeswoman at Taubman Centers, which operates 24 malls across 11 states, estimated that business was up anywhere from mid to high single digits Friday, while sales Saturday increased by as much as the mid-single digits.
Both Macerich Co. and Simon Property Group reported strong sales at malls across the country over the weekend.
Despite a decent showing, many shoppers interviewed said they planned to curb their spending.
Earl Lee, a mechanic from Live Oak, Fla., who was shopping in Tallahassee, said that he was planning on spending less this holiday season.
"Gas prices, everything's so high," he added.
John Muller, of Clifton, N.J., who was standing outside Macy's Herald Square in Manhattan on Sunday, said he plans to spend only about $500 this year, half as much as a year ago, because of higher expenses and worries about the economy.
This year, "we are mostly buying for the kids," said Muller, who has two children, ages 3 and 7.
AP Business Writer John Porretto in Houston and Associated Press writers Brent Kallestad in Tallahassee, Fla., and Kathy Matheson in Philadelphia contributed to this report.
Sabtu, 24 November 2007
GBP Pounded by BoE by Korman Tam
The greenback was mixed in the Wednesday session, advancing versus the British pound and the yen while struggling against the euro and Aussie. With the exception of the sterling, the higher yielding currencies rallied against the yen as speculators continued to jump back into the carry trades following the sharp unwinding of recent sessions.
Economic data from the US were largely softer than expectations. The October PPI increased by 0.1% on a monthly basis, down from a 1.1% increase previously while the annualized PPI jumped to 6.1% from 4.4% previously. Core PPI was flat on a monthly basis versus 0.1% previously, but the yearly core PPI jumped to 2.5%, from 2.0%. Meanwhile, retail sales for October were weaker with the headline report inline with estimates at 0.2%, but down from the previous month at 0.6%. The excluding-autos retail sales figure missed expectations, down to 0.2% versus 0.4% a month earlier.
Bank of Canada Deputy Governor Jenkins expressed concern over the rapid appreciation in the Canadian dollar, saying the recent rise is stronger than historical experience have suggested. He said that Canada has been bearing a disproportionate share of adjustment in global imbalances. He warned that if the Loonie remains at current levels, there will be increased risks of significantly lower inflation and output.GBP Pounded By BoE
The sterling plunged 1.4% from its session highs against the dollar and 1.6% versus the yen after a report from the Bank of England not only tempered expectations for future rate hikes but raised the scope for a shift in stance toward potential rate cuts in the coming months. The BoE sees inflation reaching its 2% target in two years using market rates, which, were based on the Bank’s assumption for two 25-basis point rate cuts.
Economic data released from the UK saw the September ILO unemployment rate remain unchanged at 5.4%. The claimant count for October was -9.9k versus a prior reading of -12.8k while 3-month average earnings in September crept higher to 4.1% from 3.7%.
Cable fell by nearly three-big figures on the session relinquishing all of its previous day’s gains to 2.0550. Support is seen at 2.0520, followed by 2.05 and 2.0465. Additional floors will emerge at 2.0420, backed by 2.04 and 2.0360. On the upside, resistance is eyed at 2.06, followed by 2.0640 and 2.0685. Subsequent ceilings are seen at 2.07, backed by 2.0730 and 2.0770.
Economic data from the US were largely softer than expectations. The October PPI increased by 0.1% on a monthly basis, down from a 1.1% increase previously while the annualized PPI jumped to 6.1% from 4.4% previously. Core PPI was flat on a monthly basis versus 0.1% previously, but the yearly core PPI jumped to 2.5%, from 2.0%. Meanwhile, retail sales for October were weaker with the headline report inline with estimates at 0.2%, but down from the previous month at 0.6%. The excluding-autos retail sales figure missed expectations, down to 0.2% versus 0.4% a month earlier.
Bank of Canada Deputy Governor Jenkins expressed concern over the rapid appreciation in the Canadian dollar, saying the recent rise is stronger than historical experience have suggested. He said that Canada has been bearing a disproportionate share of adjustment in global imbalances. He warned that if the Loonie remains at current levels, there will be increased risks of significantly lower inflation and output.GBP Pounded By BoE
The sterling plunged 1.4% from its session highs against the dollar and 1.6% versus the yen after a report from the Bank of England not only tempered expectations for future rate hikes but raised the scope for a shift in stance toward potential rate cuts in the coming months. The BoE sees inflation reaching its 2% target in two years using market rates, which, were based on the Bank’s assumption for two 25-basis point rate cuts.
Economic data released from the UK saw the September ILO unemployment rate remain unchanged at 5.4%. The claimant count for October was -9.9k versus a prior reading of -12.8k while 3-month average earnings in September crept higher to 4.1% from 3.7%.
Cable fell by nearly three-big figures on the session relinquishing all of its previous day’s gains to 2.0550. Support is seen at 2.0520, followed by 2.05 and 2.0465. Additional floors will emerge at 2.0420, backed by 2.04 and 2.0360. On the upside, resistance is eyed at 2.06, followed by 2.0640 and 2.0685. Subsequent ceilings are seen at 2.07, backed by 2.0730 and 2.0770.
Data Caps USD Gains by Korman Tam
The greenback posted its largest weekly gain on a trade-weighted basis in a month despite relinquishing its grip in Friday trading. Nevertheless, lingering fears over credit conditions and the credibility of banks’ balance sheets continue to plague the currency. Accordingly, the currency market will continue to be closely correlated with equity market moves – particularly the trajectory of the carry trade pairs, amid times of heightened volatility.Economic data released earlier in the session derailed the dollar’s rebound against the majors, pushing it toward session lows versus the euro and sterling. Industrial production for October fell by 0.5%, missing expectations for a 0.1% increase and reversing the previous month’s 0.2% increase. The decline in industrial production also marked its largest drop in over two-years, reinforcing fears that the housing slowdown continues to weigh on manufacturing. Capacity utilization was largely inline with expectations at 82.0%, down marginally from the previous month at 82.1%. The September TICs report revealed a net outflow of $14.7 billion versus a downward revised outflow of $150.7 billion in the prior month.
Fed Board Member Kroszner downplayed the prospects for another FOMC rate cut over the coming year, saying “the current stance of monetary policy should help the economy weather the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate”. Fed members have been tempering market expectations for another 25-basis point rate cut at the December FOMC meeting particularly after market sentiment in October fully discounted an ease despite the actual decision being much closer than expectations suggested. Kroszner reiterated the FOMC’s statement from October, saying downside risks to economic growth appear to be roughly balanced by the upside risks to inflation – maintaining the Fed’s neutral stance.
Traders will turn their attention to comments from the upcoming G20 Finance Ministers meeting this weekend in South Africa. Given the growing unease among government officials over the dollar’s rapid decline, we look for discussion on global imbalances as well as currency valuation. The more likely focus will be on China’s rigid exchange-rate regime, rather than the dollar’s accelerated declines over the past few months. US Treasury Secretary Hank Paulson reiterated that he expects currency issues to be deliberated this weekend, while BoE Governor King stressed the need for greater currency flexibility to alleviate “great currency tensions”.
Fed Board Member Kroszner downplayed the prospects for another FOMC rate cut over the coming year, saying “the current stance of monetary policy should help the economy weather the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate”. Fed members have been tempering market expectations for another 25-basis point rate cut at the December FOMC meeting particularly after market sentiment in October fully discounted an ease despite the actual decision being much closer than expectations suggested. Kroszner reiterated the FOMC’s statement from October, saying downside risks to economic growth appear to be roughly balanced by the upside risks to inflation – maintaining the Fed’s neutral stance.
Traders will turn their attention to comments from the upcoming G20 Finance Ministers meeting this weekend in South Africa. Given the growing unease among government officials over the dollar’s rapid decline, we look for discussion on global imbalances as well as currency valuation. The more likely focus will be on China’s rigid exchange-rate regime, rather than the dollar’s accelerated declines over the past few months. US Treasury Secretary Hank Paulson reiterated that he expects currency issues to be deliberated this weekend, while BoE Governor King stressed the need for greater currency flexibility to alleviate “great currency tensions”.
Yen Gained On Risk Aversion by Yan Xu
The yen rose across the board as investors reduced exposure to risk on concern tightening credit conditions and rising energy prices may impede economic growth. Besides, many in the market unloaded positions in risky assets before Thanksgiving. The currency gained as carry trades were unwound.
The dollar fell below 109 against the yen for the first time since June 2005. The sterling dipped to as low as 222.48 from 227.50 versus the yen, while the euro fell to 160.10 against the yen.The dollar continued its weakness after the Fed minutes release yesterday. Also, the currency fell further as oil surged toward 100 dollars per barrel. The dollar reached an all-time low at 1.4855 versus the euro.
The minutes showed the rate cut decision in October was “a close call”. The Fed said that lower economic growth forecast for next year was due to weak housing, credit tightness, and costlier oil. The minutes added to the bearish market sentiment over the greenback.
US leading indicators dropped 0.5% in October, below the estimate of a 0.3% decline and a 0.3% gain in the previous month. University of Michigan consumer sentiment fell from 80.9 to 76.1 in November.
The Bank of England November policy meeting minutes showed a 7-2 vote in favor of holding interest rates at 5.25%. The sterling fell to as low as 2.0529 versus the dollar after the release of the minutes.
Thursday trading will be thin due to US Thanksgiving holiday.
EURUSD will face interim resistance at 1.4870, followed by 1.49 and 1.4930. Additional ceilings will emerge at 1.4950, backed by 1.50. Support starts at 1.4830, backed by 1.48, 1.4780 and 1.4750. Subsequent floors are eyed at 1.47.
GBPUSD encounters interim resistance at 2.0680, backed by 2.07 and 2.0750. Subsequent ceilings will emerge at 2.08, followed by 2.0830 and 2.0850. On the downside, support begins at 2.0630, followed by 2.06 and 2.0580. Additional floors are eyed at 2.0530, backed by 2.05 and 2.0450.
USDJPY encounters interim resistance at 109, backed by 109.20 and 109.50. Subsequent ceilings will emerge at 109.80, followed by 110 and 110.50. On the downside, support begins at 108.50 and 108.20, followed by 108. Additional floors are eyed at 107.80, backed by 107.50 and 107.
The dollar fell below 109 against the yen for the first time since June 2005. The sterling dipped to as low as 222.48 from 227.50 versus the yen, while the euro fell to 160.10 against the yen.The dollar continued its weakness after the Fed minutes release yesterday. Also, the currency fell further as oil surged toward 100 dollars per barrel. The dollar reached an all-time low at 1.4855 versus the euro.
The minutes showed the rate cut decision in October was “a close call”. The Fed said that lower economic growth forecast for next year was due to weak housing, credit tightness, and costlier oil. The minutes added to the bearish market sentiment over the greenback.
US leading indicators dropped 0.5% in October, below the estimate of a 0.3% decline and a 0.3% gain in the previous month. University of Michigan consumer sentiment fell from 80.9 to 76.1 in November.
The Bank of England November policy meeting minutes showed a 7-2 vote in favor of holding interest rates at 5.25%. The sterling fell to as low as 2.0529 versus the dollar after the release of the minutes.
Thursday trading will be thin due to US Thanksgiving holiday.
EURUSD will face interim resistance at 1.4870, followed by 1.49 and 1.4930. Additional ceilings will emerge at 1.4950, backed by 1.50. Support starts at 1.4830, backed by 1.48, 1.4780 and 1.4750. Subsequent floors are eyed at 1.47.
GBPUSD encounters interim resistance at 2.0680, backed by 2.07 and 2.0750. Subsequent ceilings will emerge at 2.08, followed by 2.0830 and 2.0850. On the downside, support begins at 2.0630, followed by 2.06 and 2.0580. Additional floors are eyed at 2.0530, backed by 2.05 and 2.0450.
USDJPY encounters interim resistance at 109, backed by 109.20 and 109.50. Subsequent ceilings will emerge at 109.80, followed by 110 and 110.50. On the downside, support begins at 108.50 and 108.20, followed by 108. Additional floors are eyed at 107.80, backed by 107.50 and 107.
Senin, 19 November 2007
OPEC Interested in Non-Dollar Currency By Sebastian Abbot, Associated Press Writer
RIYADH, Saudi Arabia (AP) -- Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."His comments at the end of a rare summit of OPEC heads of state exposed fissures within the 13-member cartel -- especially after U.S. ally Saudi Arabia was reluctant to mention concerns about the falling dollar in the summit's final declaration.
The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.
"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.
Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned oil producers because it has contributed to rising crude prices and has eroded the value of their dollar reserves.
"All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency," Ahmadinejad said. "Some said producing countries should designate a single hard currency aside from the U.S. dollar ... to form the basis of our oil trade."
Venezuelan President Hugo Chavez echoed this sentiment Sunday on the sidelines of the summit, saying "the empire of the dollar has to end."
"Don't you see how the dollar has been in free-fall without a parachute?" Chavez said, calling the euro a better option.
Saudi Arabia's King Abdullah had tried to direct the focus of the summit toward studying the effect of the oil industry on the environment, but he continuously faced challenges from Ahmadinejad and Chavez.
Iran and Venezuela have proposed trading oil in a basket of currencies to replace the historic link to the dollar, but they had not been able to generate support from enough fellow OPEC members -- many of whom, including Saudi Arabia, are staunch U.S. allies.
Both Iran and Venezuela have antagonistic relationships with the U.S., suggesting their proposals may have a political motivation as well. While Tehran has been in a standoff with Washington over its nuclear program, left-wing Chavez is a bitter antagonist of Bush. U.S. sanctions on Iran also have made it increasingly difficult for the country to do business in dollars.
During Chavez's opening address to the summit on Saturday, the Venezuelan leader said OPEC should "assert itself as an active political agent." But Abdullah appeared to distance himself from Chavez's comments, saying OPEC always acted moderately and wisely.
A day earlier, Saudi Arabia opposed a move by Iran on Friday to have OPEC include concerns over the falling dollar included in the summit's closing statement after the weekend meeting. Saudi Arabia's foreign minister even warned that even talking publicly about the currency's decline could further hurt its value.
But by Sunday, it appeared that Saudi Arabia had compromised. Though the final declaration delivered Sunday did not specifically mention concern over the weak dollar, the organization directed its finance ministers to study the issue.
OPEC will "study ways and means of enhancing financial cooperation among OPEC ... including proposals by some of the heads of state and governments in their statements to the summit," OPEC Secretary General Abdalla Salem el-Badri said, reading the statement.
Iran's oil minister went a step further and said OPEC will form a committee to study the dollar's affect on oil prices and investigate the possibility of a currency basket.
"We have agreed to set up a committee consisting of oil and finance ministers from OPEC countries to study the impact of the dollar on oil prices," Gholam Hussein Nozari told Dow Jones Newswires.
Iraqi Oil Minister Hussein al-Shahristani said the committee would "submit to OPEC its recommendation on a basket of currencies that OPEC members will deal with." He did not give a timeline for the recommendation.
The meeting in Riyadh, with heads of states and delegates from 13 of the world's biggest oil-producing nations, was the third full OPEC summit since the organization was created in 1960.
Abdullah tried to take the focus off the dollar debate, announcing the donation of $300 million to set up a program to study the effect of the oil industry on the environment. Kuwait, Qatar and the United Arab Emirates also agreed to donate $150 million each to the fund, Prince Saud Al-Faisal, Saudi Arabia's foreign minister, said Sunday.
The run-up to the meeting was dominated by speculation over whether OPEC would raise production following recent oil price increases that have approached $100. But cartel officials have resisted pressure to increase oil production and said they will hold off any decision until the group meets next month in Abu Dhabi, United Arab Emirates.
They have also cast doubt on the effect any output hike would have on oil prices, saying the recent rise has been driven by the falling dollar and financial speculation by investment funds rather than any supply shortage.
During his final remarks, el-Badri stressed he was committed to supply -- but did not mention changing oil outputs.
"We affirm our commitment ... to continue providing adequate, timely, efficient, economic and reliable petroleum supplies to the world market," he said.
Kamis, 15 November 2007
Barclays Taking $2.7 Billion Writedown By Jane Wardell, AP Business Writer
LONDON (AP) -- Barclays Group PLC took a $2.7 billion writedown for losses on securities linked to the U.S. subprime mortgage market collapse -- less than the market had expected -- in a surprise trading update on Thursday.Barclays, which was not due to provide an update until later this month, revealed the loss in its Barclays Capital investment unit following investor criticism over its silence and after market rumors over the past week of a much larger writedown weighed heavily on its share price.
Shares in the bank jumped more than 6 percent after the update showing a 500 million pound ($1.03 billion) writedown in the July-to-September quarter and a 800 million pound ($1.66 billion) writedown in October.
However, the gains were lost later in the session -- the stock slipped 1.2 percent to 526.5 pence ($10.78 in afternoon trading -- as analysts factored in expectations of restricted growth at Barclays Capital next year and ongoing uncertainty in debt markets. Its U.S.-traded shares fell 82 cents to $43.06, down 1.9 percent.
Barclays Capital chief Bob Diamond acknowledged that the market would need much more time to get over recent subprime issues.
"Subprime will be in work-out for a couple of years, there's no doubt about it," he said.
Diamond said there was no risk of further writedowns of Barclays' residential mortgage-backed securities collateralized debt obligations, or CDOs.
Barclays declined to say if it would make additional writedowns from exposure in other parts of its business.
The Barclays statement came a day after HSBC Holdings PLC, Europe's biggest bank, reported that it took a $3.4 billion impairment charge at its U.S. consumer finance division, HSBC Finance Corp.
HSBC also warned that its bad debts could increase if the U.S. housing market weakens further -- but like Barclays, reassured investors that third-quarter profits for its global business were ahead of last year.
Barclays said that net income and profit before tax for the 10 months to Oct. 31 beat last year's record results as good performances in Europe, Asia and the U.K. helped offset problems related to the U.S. crisis in mortgages to borrowers with poor credit histories.
"In announcing as we are very strong performance, indeed record performance, for the first 10 months of the year, I think we're able to give strong reassurance to our shareholders that they have nothing to worry about," said Chief Executive John Varley.
The scale of the losses were "certainly not in line with the worst-case scenario which some had been factoring in and, indeed, Barclays Capital as a whole improved on its 2006 performance -- quite an achievement given the wider global trading concerns," said Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers.
Collins Stewart analyst Alex Potter noted that Barclays' writeoff level was 7 percent, based on a total of 18.4 billion pounds ($37.7 billion) of exposure to U.S. subprime and leveraged finance. That put it well ahead of its investment banking peers in the range of 3 percent to 5 percent, he said.
"We cannot categorically state that this is the end of the writedowns but this gives us confidence," said Potter, who rated Barclays shares as a long-term buy.
Striking a skeptical note, however, Bear Stearns analyst Robert Sage commented: "We still remain unconvinced on the outlook for Barclays given its revenue growth outlook, although we expect this statement to result in a positive bounce for the shares."
Barclays said it would provide a full third-quarter update as originally scheduled on Nov. 27.
Selasa, 13 November 2007
Blackstone Posts 3Q Loss on IPO Charges By Joe Bel Bruno, AP Business Writer
NEW YORK (AP) -- Blackstone Group LP President and Chief Operating Officer Hamilton James said Monday the slumping private-equity market might not fully rebound until major Wall Street banks get a better handle on the credit crisis."The mortgage black hole is worsening...it is deeper, darker, scarier than what the banks originally thought," he told analysts during a conference call. "My sense is they don't have a clear picture of how this will play out, and their confidence is low."
James said the banks -- pressured by massive writedowns from losses linked to subprime mortgages -- will keep lending standards tight for the time being. He believes the market for leveraged loans, which buyout funds use to finance deals, appears to be picking up after a crippling summer.
Banks like Citigroup Inc. and JPMorgan Chase & Co. are doing a good job in selling an estimated $300 billion of backlogged debt committed to leveraged buyouts, he said. But, James doesn't see most of the subprime mess -- and a full rebound in the debt markets -- until sometime next year.
Blackstone's third-quarter loss was pinned on charges related to its initial public offering and lower real-estate fees. The buyout shop posted losses of $113.2 million, or 44 cents per share, which included the impact of $802.6 million of non-cash charges for compensation and other items linked to its IPO.
Stripping out those charges, the New York-based buyout fund reported a profit of $234 million, or 21 cents per share. Analysts polled by Thomson Financial expected a profit of 30 cents per share and Blackstone shares fell more than 6 percent Monday.
Revenues rose to $526.7 million from $461.5 million a year earlier. Deals signed during the quarter included Blackstone's $20 billion acquisition of Hilton Hotels.
It was Blackstone's first full quarter operating as a public company after its debut on the New York Stock Exchange in June. The company was founded in 1985 by Stephen Schwarzman and Peter G. Peterson, and its IPO was one of the most heavily watched amid a boom in big private equity deals during the past few years.
Yet the stock is down some 38.9 percent since Blackstone went public, and fell $2.02, or 8.3 percent, to $22.26 Monday.
Schwarzman said the tightening global credit conditions created a "dampening effect" for new corporate buyouts, though he believes many sellers will lower their price expectations going forward.
"While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable," said Schwarzman, the company's chairman and chief executive, in a statement.
Revenue from Blackstone's largest business, corporate private equity, rose 42 percent to $227.3 million. The business also posted transaction fees of $11.9 million.
Meanwhile, the company's hedge fund business rose 88 percent to $124.9 million during the quarter. Blackstone took advantage of market volatility during the quarter, securing big gains from its hedge and proprietary trading funds.
The same volatility sliced into Blackstone's real estate group, which dropped 44 percent to $109.1 million. The drop was blamed on weakness in commercial real estate stemming from declines in subprime residential lending.
The real estate business operates companies like Equity Office Properties Trust, which it acquired earlier this year. It also controls hotels and resorts through the Hilton acquisition.
Blackstone owns broad swath of businesses -- from London Eye and Legoland operator Merlin Entertainment Group to Pinnacle Foods Corp. -- but hopes that those interests would sustain profits during a rough quarter failed to materialize.
Oil Prices Drop in Asian Trading By Gillian Wong, Associated Press Writer
SINGAPORE (AP) -- Oil prices dropped Tuesday after a key OPEC member left open the possibility the oil cartel will increase output to curb rising prices, and following the strengthening of the U.S. dollar overnight.Saudi Arabian Oil Minister Ali al-Naimi said production will be discussed when the Organization of Petroleum Exporting Countries meets next month in Abu Dhabi in the United Arab Emirates.
Light, sweet crude for December delivery fell 6 cents to US$94.56 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell US$1.70 to settle at US$94.62 a barrel Monday.
The long-term impact of another increase in oil production by OPEC isn't clear. A previous 500,000 barrel a day increase in production, which went into effect Nov. 1, was widely viewed as too little too late to stop crude's run-up to near $100 a barrel. Crude prices rose 42 percent between late August and last week, when they reached a record of US$98.62 a barrel.
A rebound in the U.S. dollar Monday also pressured crude prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the U.S. currency is falling. Many analysts blame speculative investing driven by the falling dollar for the rally in crude prices over the past two-and-a-half months.
Oil prices were dampened as well by worries over the U.S. economy as Wall Street fell its fourth straight session on expectations of further fallout from the ongoing credit crisis. The Dow Jones industrials ended below 13,000 for the first time since August.
Oil prices could be volatile this week due the expiration of crude options on Tuesday and the expiration of the December crude contract Friday.
Investors will have plenty of additional supply and demand data to chew on. On Tuesday, the International Energy Agency will issue its monthly report on crude supplies and demand. On Thursday, the Energy Department's Energy Information Administration will issue its weekly inventory report.
The EIA report is expected to show U.S. crude oil inventories fell 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones Newswires. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9 percent of capacity.
In London, December Brent crude fell 58 cents to US$91.40 a barrel on the ICE Futures exchange.
Heating oil futures fell 0.05 cent to US$2.5816 a gallon (3.8 liters) while gasoline prices fell 0.7 cent to US$2.4095 a gallon.
Natural gas futures rose 0.3 cent to US$7.964 per 1,000 cubic feet.
Senin, 12 November 2007
Chinese Banks Branch Out By RICK CAREW
The first approval in more than a decade for a Chinese bank to open a U.S. branch could open the way for others and raises hopes that Beijing, in turn, will open its financial markets wider to American firms.
China Merchants Bank Co., the country's sixth-largest bank by assets and widely viewed as one of its best-managed, won approval from the U.S. Federal Reserve last week to set up a branch in New York. An application by China's biggest bank, Industrial & Commercial Bank of China Ltd., is pending with regulators, and the Chinese lender hopes to get a green light soon.
For Chinese banks, a New York branch offers an outpost at the heart of the world's financial system. That allows them to better serve their traditional Chinese clients, who are building U.S. links and managing growing amounts of foreign exchange. Chinese companies also need global financing for the rising number of overseas acquisitions they are making.
"We've now met the world's most stringent regulatory standard," China Merchants Bank President Ma Weihua told reporters Friday. "We can now provide better financial support for Chinese companies as they go abroad."
The approval will give U.S. Treasury Secretary Henry Paulson more clout when he visits Beijing in December for the next round of the U.S.-China Strategic Economic Dialogue. Chinese regulators and bankers have repeatedly complained that they have allowed foreign banks like Citigroup Inc. to build dozens of outlets in China while the U.S. has withheld branch approvals for Chinese banks.
China Construction Bank Corp. Chairman Guo Shuqing, a former central banker and a top candidate to take up another regulatory post in the future, took U.S. authorities to task last month for not opening up more to Chinese banks.
"This is unequal, because we are fairly open to U.S. banks in China," he told reporters during a Communist Party meeting. "In the past, our banks had poor capital adequacy and bad operations, but now the situation has changed radically."
Starting in 2002, China's government embarked on a round of banking overhauls that included pouring tens of billions of dollars into state banks, peeling off mounds of nonperforming loans and listing bank shares in massive initial public offerings. Those overhauls, combined with a rebound in profits in the Chinese corporate sector, have put China's banks on a stronger financial footing.
China Construction Bank is 8.2%-owned by Bank of America Corp.
David Loevinger, U.S. Treasury attache in Beijing, said that ahead of December's dialogue, the U.S. will encourage China to further open up to foreign competition in the financial sector.
Among the main goals for the U.S. are getting China to grant broader access to foreign-invested companies in securities trading and to raise foreign-ownership caps on investments in Chinese banks. Mr. Paulson argues that more foreign participation will strengthen China's financial system and let Beijing adopt a more flexible currency regime faster without threatening stability. The U.S. has been urging China to let the yuan appreciate faster, as an undervalued yuan helps swell the big trade deficit the U.S. runs with the country.
China currently caps total foreign ownership in a domestic bank at 25% and limits a single foreign shareholder to 20%. Lou Wenlong, a midlevel official at China's banking regulator, speaking to reporters Friday after the Fed's decision, said he thought existing foreign-ownership caps are "suitable" for now. A task force of Chinese banking regulators is studying the impact of foreign participation on the banking sector and could recommend lifting the caps or keeping them at the current levels early next year when it delivers its report.
At present, only two Chinese banks operate U.S. branches: Bank of China Ltd. and Bank of Communications Co. Both of those banks were approved to set up New York branches before the U.S. tightened foreign-bank-supervision laws in 1991, in the wake of an international money-laundering and fraud scheme involving Pakistan-based Bank of Credit & Commerce International, or BCCI.
In weighing China Merchants Bank's branch application, the Federal Reserve put emphasis on judging its home regulator's supervision capabilities and China's efforts to prevent money laundering. After the May meeting of the bilateral economic dialogue in Washington, the U.S. agreed to support China's membership in the Financial Action Task Force on Money Laundering, and Beijing joined the body in late June. That imprimatur will likely encourage more Chinese banks to apply for branches in coming months.
The Fed said the China Merchants Bank branch will be allowed to engage in wholesale deposit-taking, lending, trade finance and other banking services.
Another midsize lender, China Minsheng Banking Corp., agreed in October to buy a 9.9% stake in San Francisco-based UCBH Holdings Inc. for as much as $317 million, marking the first strategic investment in a U.S. bank by a Chinese lender. UCBH specializes in providing retail banking and small business services to Chinese communities in the U.S.
Midsize Chinese banks such as China Merchants are expanding at home as well. The bank said Friday it plans to buy a 10% stake in Taizhou City Commercial Bank Corp.
Investors Brace for More Bad Bank News
NEW YORK (AP) -- The stock market this week is hoping for signs that the economy is surviving the problems in the financial sector -- and that the Federal Reserve will come to the rescue if it's not.
Investors are slowly getting a clearer picture of how much in risky and deteriorating debt securities the world's major financial institutions are holding, and they don't like what they see.Wall Street already expects banks' portfolios to lose at least $20 billion in the fourth quarter, after announcements of anticipated writedowns of mortgage-backed securities and other debt instruments by such financial institutions as Citigroup Inc., Morgan Stanley and Wachovia Corp.
Investors have been bracing for fourth-quarter writedowns for a while, but the amount was larger than many were prepared to hear. As a result, volatility has returned to virtually all corners of Wall Street.
After huge swings in either direction, the Dow Jones industrial average finished last week down 4.06 percent, and the Standard & Poor's ended down 3.71 percent.
The Nasdaq composite index was hit the hardest last week, as investors' optimism vanished about the technology sector being isolated from the slowing economy and problems in the financial markets. The Nasdaq ended the week down 6.49 percent.
Meanwhile, gold lifted further above $800 an ounce to its highest levels since 1980, and crude-oil briefly breached $98 a barrel, as the dollar plunged.
The combination of shaky financial markets and inflationary triggers has worried investors that the Fed's hands are tied. An interest rate cut could send the dollar down even further, but keeping rates where they are might translate to even wider losses for the world's major financial institutions.
On Oct. 31, the Fed lowered key interest rates by a quarter point, as expected, after reducing rates by a half-point in September. But the central bank suggested that it may stop cutting rates when it meets Dec. 11.
Mild readings on producer prices and consumer prices -- which will be reported on Wednesday and Thursday, respectively -- could help calm the market. As of last Friday, economists surveyed by Thomson/IFR predicted, on average, that both the core Producer Price Index and the core Consumer Price Index will have risen by 0.2 percent.
Wall Street will also want to see strong October retail sales detailed in the Commerce Department's Wednesday report, and solid readings on October industrial production and capacity utilization on Friday.
And there are still a few major earnings reports left for investors to read to gauge U.S. business growth and the health of the consumer. Tyson Foods will post its quarterly results on Monday; Home Depot Inc. and Wal-Mart Stores Inc. release their third-quarter results Tuesday; Macy's Inc. reports Wednesday; and Starbucks Corp. reports Thursday.The bond market is closed Monday for Veterans Day, but the stock market is open.
Sabtu, 03 November 2007
Fed adds $6.25 bln in temporary reserves via 3-day repo
NEW YORK, Nov 2 (Reuters) - The U.S. Federal Reserve said on Friday it added $6.25 billion of temporary reserves to the banking system through a 3-day repurchase agreement.
Federal funds were trading steady at 4.56 percent in the market after the operation amount was announced, above the 4.50 percent target rate the Fed sets.
The Fed said collateral accepted in the operation was $4.569 billion in agency debt, $481 million in mortgage-backed securities and $1.2 billion in Treasuries.
A total of $62.85 billion in bids were submitted for the operation.
Bank of New York CFO Exercises Options
WASHINGTON (AP) - The vice chairman and chief financial officer of Bank of New York Mellon Corp. exercised options for 87,652 shares of common stock, according to a Securities and Exchange Commission filing.
In a Form 4 filed Thursday with the SEC, Bruce Van Saun reported he exercised the options Tuesday for $24.52 and $37.70 apiece and then sold 85,000 shares on the same day for $47.80 to $47.97 apiece.
He also surrendered 2,084 shares the same day back to the company for $47.98 apiece. Insiders can surrender shares as a way to cover either taxes or the cost of exercising options.
Insiders file Form 4s with the SEC to report transactions in their companies' shares. Open market purchases and sales must be reported within two business days of the transaction.
© 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.3 ways to follow the Fed's rate cut by Brigitte Yuille bankrate.com
The Federal Reserve's decision to cut a key interest rate may have given you the break you need to avoid financial pitfalls and improve your financial situation.
The Federal Open Market Committee lowered the federal funds rate a quarter of a point, to 4.5 percent, in an effort to stimulate the economy and forestall effects from the housing market slump.The interest rate cut lowers the cost of borrowing money and provides consumers the opportunity to take advantage of the reduced cost, explains Michelle Jones, vice president of counseling at the Consumer Credit Counseling Service of Greater Atlanta.
The counseling agency suggests that you may benefit from the following moves:
Consolidate your debt
This is a good opportunity for you to make your debt more affordable and payments more predictable. Gather all your high-interest balances and put them into one low, fixed monthly payment.
Get a better loan
Call up your bank and find out if it has cut rates on various loans. If you have any high-interest-rate loans or loans with adjustable rates, you can speak with a loan officer to see if you can get a fixed-rate loan at a lower interest rate instead.
Struggling homeowners have a good opportunity here, says Jones.
"Lenders may be willing to refinance to a fixed-rate mortgage even if you are one or two payments behind on a recently adjusted ARM," says Jones.
She says this is possible because the lender wants to see if your current delinquency resulted from an increase of your mortgage payment.
Also, check to see if the current rate on your home equity loan or line of credit will drop as well as your monthly payment. If it doesn't, find out if competing banks have lower rates.
Jones warns that using a home equity loan to pay off credit cards is not the right answer for everyone, no matter how low the interest rates. She says for a home equity loan to work, you have to be able to afford your living expenses without relying on the cards.
If you've reduced credit card debt and have been making timely payments, you may qualify for a lower interest rate. Take this time to shop around and find a lender.
Save money
Now that you've made some adjustments, the money that would have gone toward those high-interest payments can be used for other opportunities, such as starting a retirement savings plan or repaying debt more quickly.
Chevron 3Q Profit Falls by More Than $1B By Michael Liedtke, AP Business Writer
SAN RAMON, Calif. (AP) -- Chevron Corp.'s third-quarter profit plunged even further than analysts feared, driven by the second largest U.S. oil company's inability to recover its higher refining costs at the gasoline pump.The San Ramon-based company said Friday that it earned $3.72 billion, or $1.75 per share, for the three months ended in September. That represented a 26 percent decline from net income of $5.02 billion, or $2.29 per share, at the same time last year.
Analysts were bracing for a lower profit, but the erosion was worse than their average earnings estimate of $2.07 per share, based on a poll by Thomson Financial.
Revenue growth also was lackluster during the quarter, edged up just 2 percent to $55.2 billion.
Investors expressed their disappointment as Chevron shares fell $1.27 to $87.77 in morning trading Friday.
Chevron Chairman David O'Reilly blamed the earnings letdown mostly on gas prices that lagged the company's higher costs for crude oil -- the main ingredient in petroleum.n a change from recent years, the United States had an ample supply of gasoline during the third quarter. While that was good news for motorists as summertime gasoline prices remained relatively stable, it stung Chevron and its industry peers as their oil costs climbed.
The conditions saddled Chevron with a $110 million loss in its U.S. division that refines and sells gasoline. That was a dramatic reversal of fortune from last year when the same division earned $831 million.
Chevron also was negatively affected by reduced refining capacity. Besides shutting down part of its El Segundo, Calif. refinery for planned maintenance, Chevron lost some production after a mid-August fire at its Mississippi refinery. Chevron doesn't expect to fully repair the Mississippi refinery until next year.
As usual, Chevron made most of its money from oil production, but not as much as it did last year. The company's worldwide profit in its so-called "upstream" operations slipped 2 percent to $3.43 billion, a downturn that management attributed the downturn to lower production and higher operating expenses during the quarter.
Chevron produced an average of 2.6 million barrels of oil per day, down by about 100,000 barrels per day from last year.
Third-quarter profits at most of the world's other major publicly traded oil companies also fell during the quarter, ranging from a 5 percent decline at ConocoPhillips to a 29 percent drop at BP PLC.
Royal Dutch Shell PLC broke the trend with a 16 percent increase in its third-quarter profit, but the company said refining margins were weaker than the results made it appear.
European Shares Slip After Dow's Plunge By Toby Anderson, AP Business Writer
LONDON (AP) -- Global stock markets dropped Friday, tracking losses on Wall Street as investors worried about residual effects of the credit crisis and the strength of the U.S. economy, despite better-than-expected U.S. unemployment figures.The data from the U.S. labor department showed that employers boosted their payrolls by a surprisingly strong 166,000 in October, the most in five months, in a positive sign for the nation's employment climate amid the strains of a housing collapse and credit crunch.
In Europe, the FTSE-100 index in London dropped 1.4 percent to 6,496.00, while Germany's DAX index fell 0.8 percent to 7,820.54 and France's CAC-40 index declined 0.9 percent to 5,678.78.
The Dow Jones industrial average fell 0.5 percent to 13,502.02, pulling back after rising in the opening minutes. Broader stock indicators also fell.
Repeating a pattern seen several times this year, a sharp sell-off in U.S. stocks Thursday prompted investors to dump shares. The Dow Jones industrial average tumbled more than 360 points Thursday as investors reacted nervously to surging oil prices and a smaller-than-expected gain in U.S. consumer spending for September.
A warning about inflation Wednesday from the U.S. Federal Reserve when it cut rates also triggered concern that the U.S. central bank might hold off on further rate cuts or even consider raising them if inflation accelerates. That is renewing worries about a slowdown in the U.S. economy -- a vital market for exporters.
"I'm not expecting a serious sell-off, but I think Asian markets are responding to a genuine change in the overall outlook -- that the Fed is not going to be as aggressive in cutting rates," said Tim Rocks, Asia Strategist at Macquarie Bank in Hong Kong.
"But you'll certainly see a slower pace in gains," Rocks said. "The Fed's attitude is going to put a lid on markets."
Jitters over the fallout from the subprime mortgage crisis -- which roiled markets in August -- will linger for a while, traders said.
Japan's benchmark Nikkei 225 index tumbled 352.92 points, or 2.1 percent, to finish at 16,517.48, dragged down by financial shares. Mitsubishi UFJ Financial Group dropped 6 percent following a recent revision of its profit outlook on weak domestic lending, while Mizuho Financial Group fell 5.7 percent.
Banking shares in London followed the trend, with Barclays dropping 6.5 percent and Royal Bank of Scotland off 4.7 percent. HSBC fell 2.3 percent.
In Hong Kong, the blue chip Hang Seng Index sank 3.25 percent to close at 30,468.34. The index is still up 52.6 percent this year.
The stunning ascent this year in many Asian markets has been punctuated by occasional drops, usually sparked by plunges on Wall Street, which seem to be taken as cues by investors to unload shares that may have risen too high, too quickly. So far this year, each time Asian markets have dropped sharply, nearly all have quickly bounced back and climbed higher.
The benchmark Shanghai Composite Index fell 2.3 percent, while Singapore's Straits Times index fell 2.3 percent to 3,715 and the Korea Composite Stock Price Index, or Kospi, fell 2.1 percent to close at 2,019.34.
In Asia, markets plummeted as investors worried about a possible end to U.S. interest rate cuts and a slowing American economy. Hong Kong's benchmark index plunged over 3 percent and markets in Japan, China, South Korea and Singapore fell more than 2 percent.
Wall Street Waffles After Jobs Report By Tim Paradis, AP Business Writer
NEW YORK (AP) -- Wall Street waffled Friday after a surprisingly strong October jobs report failed to alleviate escalating worries about the beleaguered financial sector.
The Labor Department said employers added 166,000 jobs to their payrolls in October, the most since May. The figure was nearly double what economists had expected, according to a Thomson/IFR survey. The unemployment rate held steady at 4.7 percent, in line with September and analysts' consensus forecast.But Wall Street was clearly still shaky after Thursday's sharp pullback, which took the Dow down more than 360 points -- the fourth biggest drop of the year. The market has been mercurial lately, with economic data coming in mixed and the possibility of interest rate cuts ending, and Friday's trading saw the major indexes alternating between gains and losses.The biggest losers in the stock market Friday, as they have been in the past few months, were financial institutions -- including Merrill Lynch & Co., Washington Mutual Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. Multiple analysts have issued research notes in recent days expressing concern about banks' and brokerages' exposure to the tight credit markets and the likelihood of subprime mortgage problems spilling into other types of consumer debt.t's likely that as strong as the jobs number was, investors will need to see more evidence of a stronger economy and more stability in the credit markets before they can make any major commitments to stocks.
"I think there is a lot of uncertainty in the markets about the financial institutions in particular," said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto. "This market will remain volatile until these issues are resolved or until it's had a full 10 percent correction," he said, referring to unease about the extent of write-downs of soured debt.
In midday trading, the Dow fell 19.02, or 0.14 percent, to 13,548.85, after falling more than 100 points earlier in the session.
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 2.58, or 0.17 percent, to 1,505.86, while the Nasdaq composite index rose 8.17, or 0.29 percent, to 2,803.00.
Bond prices rose as investors pulled more money out of stocks. The yield on the 10-year Treasury note, which moves opposite the price, fell to 4.32 percent from 4.35 percent late Thursday.
This week has brought a jumble of contradictory economic news.
The market on Thursday was unnerved by news that consumers cut back their spending in September and that the manufacturing sector expanded in October at the slowest pace since March. But earlier in the week, an initial estimate of third-quarter economic growth came in stronger than economists had expected, at 3.9 percent.
Oil prices rebounded on the New York Mercantile Exchange, after dropping sharply Thursday. Prices have been exceptionally volatile in recent days as the market treads through record territory. A barrel of oil jumped $1.65 to $95.14.
The dollar traded mostly lower against other major currencies. The euro bought a record $1.4525 on Friday.
The concerns about the financial sector continued to dominate. Citigroup, fresh off its biggest decline in four years on Thursday, fell anew Friday amid concerns about the bank's capital position. An analyst downgrade on the biggest U.S. bank hastened the stock's fall Wednesday.
Citi fell $1.43, or 3.7 percent, to $37.10.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 764.5 million shares.
The Russell 2000 index, which tracks the performance of small-company stocks, fell 0.45, or 0.06 percent, to 794.73.
European stock markets followed Wall Street lower. Britain's FTSE 100 fell 1.07 percent, Germany's DAX index shed 0.44 percent, and France's CAC-40 declined 0.28 percent.
Asian markets tumbled in the wake of Wall Street's losses on Thursday. Japan's Nikkei stock average closed down 2.09 percent, while Hong Kong's Hang Seng index fell 3.25 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Jumat, 02 November 2007
Buying Life Insurance: What Kind and How Much?
Finding the middle ground between being "insurance poor" and unprotected requires assessing real needs and choosing products that are affordable. This article introduces different types of insurance products and the role that they can play in a personal financial plan.
1.Buying Life Insurance
2.Types of Insurance
1.Buying Life Insurance
Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient.
Who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations.2.Types of Insurance
Term insurance is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically 1 to 10 years, and may be renewable at the end of each term. Also, the premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods of up to 30 years.
Declining Balance Term insurance, a variation on this theme, is often used as mortgage insurance since it can be written to match the amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is paid off, the insurance is no longer needed and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense, it is "pure" insurance without any investment options. Benefits are paid only if you die during the policy's term. After the term ends, your coverage expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and convertible to permanent insurance without a medical exam.
Whole Life combines permanent protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. As the policy gains value, you may be able to borrow up to 90% of your policy's cash value tax-free.
Universal Life is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually at least 4%. You'll receive an annual statement that details cash value, total protection, earnings, and fees.
Drawbacks to this type of insurance include higher fees and interest rate sensitivity. Universal policies include up-front fees as well as ongoing administrative fees totaling as high as 5% to 7% of your premiums. You may also find your premiums increasing when interest rates decline.
Variable Life generally offers fixed premiums and control over your policy's cash value. Your cash value is invested in your choice of stock, bond, or money market funding options. Cash values and death benefits can rise and fall based on the performance of your investment choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long as the funds remain invested in the insurance contract.
Universal Variable Life insurance is the most aggressive type of policy. Like variable life, you control your investment in mutual funds. However, there are no guarantees on universal variable policies beyond the original face value death benefit. These policies are probably best suited to affluent buyers who can afford the risks involved.
Key Terms and Definitions
- Face Value -- The original death benefit amount.
- Convertibility -- Option to convert from one type of policy (term) to another (whole life), usually without a physical examination.
- Cash Value -- The savings portion of a policy that can be borrowed against or cashed in.
- Premiums -- Monthly, quarterly, or yearly payments required to maintain coverage.
- Beneficiary -- The individual(s) or entity (e.g., trust) that is designated as benefit recipient.
- Paid Up -- A policy requiring no further premium payments due to prepayment or earnings.
- 3.How Much Insurance Do I Need?
A popular approach to buying insurance is based on income replacement. In this approach, a formula of between five and ten times your annual salary is often used to calculate how much coverage you need. Another approach is to purchase insurance based on your individual needs and preferences. The first step is to determine your unique income replacement needs.
Currently, a large portion of your income goes to taxes (insurance benefits are generally income tax free) and to support your own lifestyle. Start off by determining your net earnings after taxes. Then add up all your personal expenses such as food, clothing, magazine subscriptions, club memberships, transportation expenses, etc. The remainder represents annual income that your insurance will need to replace. You'll want a death benefit amount which, when invested, will provide income annually to cover this amount. Then, you should add to that the amounts needed to fund one-time expenses such as college tuition for your children or paying down mortgage or debt.
Income replacement for nonworking spouses is an important and often overlooked insurance need. Coverage should provide for your costs for day care, housekeeping, or nursing care. Add to this any net earnings from part-time employment.
Finally, estimate your own "final expenses" such as estate taxes, uninsured medical costs, and funeral costs.- 4 Other Types of Life Insurance
Survivorship life insurance (also referred to as last-to-die or second-to-die) is a unique type of contract that insures the lives of two people. It pays a death benefit upon the death of the second insured. Therefore, it is typically less expensive than two individual policies. Survivorship life is often used for estate planning, where it may be possible to potentially leverage today's dollars -- via insurance premiums -- into a potentially significant death benefit that can be used to fund estate taxes, create wealth for future generations, or benefit a charity. These policies may be available if one insured is medically "uninsurable."
First-to-die life insurance insures the life of at least two people and pays a benefit upon the death of the first insured. This policy is useful for covering a mortgage or other large debt obligation where there is more than one debtor. In addition, it can be an ideal tool for funding a buy-sell agreement within a closely held business.- 5.Conclusion
- Life insurance is an important component of a sound financial plan. Buying insurance involves asking a variety of personal lifestyle and financial questions. If you are not already working with an insurance professional, you may want to consider the advice of a fee-for-service financial planner who can offer you an objective review of your insurance options. When you decide on what you want, there are many solid insurance companies to choose from. Consult your library or an independent insurance professional for companies with the highest ratings from the four ratings agencies: AM Best, Duff Phelps, Standard & Poor's, and Moody's.
For Golden Years, Invest Abroad by John Christy
How are you planning to spend your retirement? Sailing in the Greek isles? Learning to cook while living in a Tuscan villa? Perfecting your golf game in Scotland? Skiing in the Swiss Alps? Or maybe just lying on the beach in Bali?
If your dreams include these or any other exotic adventures, you can't afford to wait until retirement to start exploring the world. It's time to pack your bags now--at least as far as your portfolio is concerned.
When your grandparents started saving for retirement, international investing wasn't much of an option. Their choices--if any--were limited to a handful of international mutual funds and big global companies with shares trading in New York. And back then, brokers and other financial advisers didn't have decades of academic research to draw upon or fancy Powerpoint presentations to illustrate the case for going global.
International investing has come a long way in recent years. In 1985, there were fewer than 50 global mutual funds to choose from, with combined assets of about $8 billion, according to the Investment Company Institute. Now there are more than 800 funds, representing closer to $1 trillion.
Your grandfather's plain-vanilla global mutual fund has been replaced by a dizzying array of exchange-traded funds, American depositary receipts, closed-end funds and specialized regional or single-country mutual funds. Getting exposure to global markets from Stockholm to Shanghai is as easy as buying shares of IBM (nyse: IBM), and as time goes by even more offerings are sure to be on the way. Discount brokers such as E-Trade, for example, are already experimenting with ways to trade stocks listed on foreign exchanges directly from your laptop.
Trouble is, even though the current generation of investors is spoiled for choice when it comes to international markets, most folks still keep the vast majority of their money at home, just like Grandma and Grandpa did.
Sure, lots of Americans have dabbled in foreign stocks or funds, but how many have actually built truly global portfolios? It's hard to say, but based on some data that I've seen and tons of anecdotal evidence, my guess is very few. And during a market panic like the one we've seen this summer, I wouldn't be surprised to see more investors cutting back on international exposure, especially when it comes to "serious money" like 401(k) plans and other retirement accounts.
There are a few problems with this view. For starters, most Americans are already way too dependent on the U.S. economy. We own homes here and we work for companies that are based here. Before we invest a single dime of our savings, we are 100% exposed to the U.S. market. So if you only had 10% or 15% of your stock portfolio invested overseas before the subprime mess started to unfold and you start cutting back now, chances are you'll end up with almost negligible international exposure in a holistic sense.
So how much is enough? The answer will vary depending on your circumstances, but I think you need at least 20% in international stocks to even begin making a difference.
Consider the following example. Say your net worth is $1 million, half of which is a home (no mortgage) and the other half is an investment portfolio. And let's say the portfolio has 60% in stocks and 40% in bonds, cash and other investments.
That leaves you with $300,000 to put to work in stocks. If you're only investing 10% of that amount internationally, you're down to $30,000 to play with overseas. So you've really only diversified a mere 3% of your net worth outside the U.S.
Jeremy Siegel, a professor of finance at the Wharton School, argues that at least 40% of your stock portfolio should be allocated overseas. I think you can go as high as 50% if you're not planning to retire for another 20 years or more.
Sound too risky?
It's not as far-fetched as it may seem. The U.S. represents about half of the world's market capitalization, so by that measure, a 50% allocation overseas would be just about right. And it's hardly a new concept. European investors in Switzerland, the Netherlands and other smaller markets have long taken a global approach to investing. Try asking someone from Sweden or Belgium if they think global investing is "risky." Warning: They might look at you like you're from outer space.
Part of the problem is that somewhere along the line we learned to associate "foreign" with "risky." Sure, Nigerian small-cap stocks might not be the best place to park your 401(k). But you can also lose your shirt investing in shares of a penny stock that's located in your hometown. The real risk is keeping too much of your money at home.
Don't get me wrong. I'm not one of those gloom and doom conspiracy theorists who think America is about to go the way of the Roman Empire. But when I look overseas, I see too many opportunities to ignore.
International stocks have performed well in recent years, but they still offer one of the best combinations of value and growth that you can find in any asset class. U.S. stocks are trading at 16 times 2007 estimated earnings, with expected earnings growth in the 7% neighborhood. Compare this with emerging markets, where stocks trade for about 14 times earnings and offer 15% growth. Even stodgy old Europe is on course to deliver better earnings growth than the U.S.--and it's cheaper too, at 14 times earnings.
Planning for retirement involves making a lot of assumptions about the future. It's tough enough predicting what the economy and markets will do next quarter, let alone several decades from now.
But there's one thing I can almost guarantee. The forces of globalization will continue to boost the importance of international markets, particularly emerging economic powers like China and India. Now is the time to make sure your retirement portfolio has a meaningful stake in these markets of the future.
Copyrighted, Forbes.com. All rights reserved.
Market Update
12:55 pm : The major indices continue to trade in negative territory, with the Dow slightly trailing the broader market.
Only five of the 30 components in the Dow Jones Industrial Average are currently showing gains, with Microsoft (MSFT 37.29, +0.48) providing leadership. Financial stocks are the largest drags on the Dow. Citigroup (C 38.70, -2.66), AIG (AIG 60.39, -2.73) and JPMorgan (JPM 45.06, -1.94) are the main laggards.DJ30 -206.55 NASDAQ -35.50 SP500 -22.12 NASDAQ Dec/Adv/Vol 1.27 bln/2298/625 NYSE Dec/Adv/Vol 2596/547/786 mln
12:30 pm : Since the last update, the stock markets recovered some losses, but the gains are modest compared to this session's range. The energy sector (+0.02%) has had a notable turnaround as it follows crude oil's recovery.
Crude has pared a good portion of its intraday losses, and is now down 0.4% to $94.12. On Sept. 11th, OPEC decided to increase production by 500,000 barrels a day, which officially took effect today. DJ30 -183.39 NASDAQ -31.55 SP500 -19.66 NASDAQ Dec/Adv/Vol 2280/615/1.15 bln NYSE Dec/Adv/Vol 2619/498/703 mln
12:00 pm : Following yesterday's Fed induced rally, the stock market opened with substantial losses, and has remained in the red throughout the session. The main catalysts for the profit taking have been Dow components Citigroup (C 38.60, -2.76) and Exxon Mobil (XOM 89.90, -2.09).
CIBC downgraded Citigroup to Sector Perform from Sector Outperform this morning. The downgrade, though, isn't the focal point for investors so much as the thesis behind the ratings change.
CIBC analyst Meredith Whitney believes that Citigroup will need to raise more than $30 billion in capital over the near-term through either asset sales, a dividend cut, a capital raise, or a combination thereof. Whitney adds that Citigroup's tangible capital ratio stands at just 2.8 percent versus an average of 5.0 percent for its peers.
Meanwhile, Exxon Mobil , the largest company in the world by market cap, reported its biggest drop in quarterly profits in more than three years. The company reported net income of $9.41 billion or $1.70 per share - four cents below estimates.
Economic data were slightly negative this morning. The core PCE deflator for September and the weekly initial jobless claims were in-line with expectations. The ISM Index , however, came up short of economists' forecasts.
All ten economic sectors are in the red. Some of the most influential sectors are underperforming which is acting as a major drag on the broader market. The financial (-3.7%), energy (-1.7%) and consumer discretionary (-1.8%), which combined make up roughly 41 percent of the S&P 500, are laggards.
The tech, healthcare and utilities sectors are outperforming on a relative basis, but are still posting losses around 0.7%
Crude oil hit an all-time high of $96.24 in electronic trading, but has since retreated and is now down 1.3% to $93.33. DJ30 -220.00 NASDAQ -36.65 SP500 -24.73 NASDAQ Dec/Adv/Vol 2282/568/999 mln NYSE Dec/Adv/Vol 2600/500/607 mln
11:30 am : The stock market has headed mostly sideways in the past half hour.
Shares of shoemaker Crocs (CROX 53.50. -21.40) are getting clipped. The company reported earnings that beat expectations by $0.03 per share, but missed on the top line and gave just in-line FY07 guidance. Investors are disappointed that Crocs did not beat by more, as it has in the past.DJ30 -182.09 NASDAQ -29.24 SP500 -20.65 NYSE Adv 449
11:00 am : The major indices are off their lows after making modest gains. Losses are still substantial, though.
At the NYSE, the overwhelming majority of stocks are currently in the red. The advancers to decliners ratio is a mere 0.13. Meanwhile, volume is heavier than it has been the past few days.
The small-cap Russell 2000 Index is underperforming the broader market.DJ30 -189.89 NASDAQ -30.0 R2K -2.2% SP500 -21.37 NASDAQ Dec/Adv/Vol 2224/528/683 mln NYSE Dec/Adv/Vol 2637/378/409 mln
10:30 am : Buyers are not showing much interest as the stock market extends its losses following a disappointing economic report.
Released at the bottom of the hour, the October ISM Index, a survey of national manufacturing activity, dropped to 50.9, from a prior reading of 52.0. The number was also lower than consensus estimate of 51.5. A number above 50 is intended to indicate growth.
Conversely, the bond market has had a pickup in buying interest as stocks slide.DJ30 -217.37 NASDAQ -35.22 SP500 -25.43 NASDAQ Dec/Adv/Vol 2249/429/464 mln NYSE Dec/Adv/Vol 2537/356/185 mln
10:00 am : The Dow and S&P have given up all of yesterday's gains and then some as the stock market has had a substantial decline in the early-going. All of the major indices are in the red due to broad-based selling pressure. The financial sector (-3.3%) is the main drag as Citigroup's (C 38.43, -2.95) stock plummets.
Although third quarter GDP was strong, economic growth will slow in the fourth quarter. The earnings outlook is mediocre. So, it is understandable that the market will sell-off some today after yesterday's big rally. Of course, that is not to say a recovery is not possible today.
Meanwhile, crude oil is now down 2.0% to $92.73 after hitting an all-time high of $96.24 in electronic trading.DJ30 -191.43 NASDAQ -31.15 SP500 -21.75 NASDAQ Dec/Adv/Vol 2077/410/199 mln NYSE Dec/Adv/Vol 1722/270/58 mln
09:40 am : The stock market opened decidedly lower. Yesterday, the stock market rallied following the FOMC decision to cut policy rates by 25 basis points.
There are a few profit taking catalysts this morning. A CIBC analyst downgraded Citigroup (C) and asserted that the company may be forced to cut its dividend or sell off assets to meet a $30 billion capital shortfall.
A report from RealtyTrac that U.S. foreclosure activity increased 30 percent in the third quarter from the previous quarter and nearly doubled from the year-ago period.
Earnings reports were mixed today. Dow component Exxon Mobil (XOM), which has the largest market cap in the world, is a drag on the market after the company reported worse than expected third quarter earnings.
Core PCE Inflation and weekly initial jobless claims were in-line with expectations. DJ30 -181.92 NASDAQ -36.74 SP500 -22.61
09:16 am : S&P futures vs fair value: -16.3. Nasdaq futures vs fair value: -17.3.
09:00 am : S&P futures vs fair value: -18.8. Nasdaq futures vs fair value: -20.3. Additional profit taking has pushed the futures market lower. Oil is now flat at $94.58 a barrel.
08:33 am : S&P futures vs fair value: -10.0. Nasdaq futures vs fair value: -9.5. Futures dipped following a worse than expected earnings report from Dow component Exxon Mobil (XOM). At 8:30 ET, futures then made a slight recovery immediately following the Core PCE Inflation reading of 0.2% and the weekly initial jobless claims reading of 327k. Economists were expected the Core PCE Inflation to be 0.2% and the weekly initial jobless claims to be 330K.
08:01 am : S&P futures vs fair value: -8.3. Nasdaq futures vs fair value: -6.5. Futures are pointing to a lower open, but losses are modest compared to yesterday’s rally following the 25 basis point rate cuts. Profit taking catalysts include rising oil prices, a CIBC assertion that the Citigroup (C) has a $30 billion capital shortfall, and a report from RealtyTrac that U.S. foreclosures increased in the third quarter by 30%. The majority of today’s earnings reports have beat estimates.
06:21 am : S&P futures vs fair value: -6.7. Nasdaq futures vs fair value: -5.5.
06:20 am : FTSE...6681.00...-40.60...-0.6%. DAX...7995.98...-23.14...-0.3%.
06:20 am : Nikkei...16870.40...+132.77...+0.8%. Hang Seng...31492.88...+140.30...+0.5%.
Stock Investors Fear End to Rate Cuts
NEW YORK (AP) -- Wall Street plunged Thursday as investors found themselves confronted by two uncomfortable prospects: an end to interest rate cuts and a slowing economy. The Dow Jones industrials skidded more than 180 points.Mindful of a warning from the Federal Reserve Wednesday about inflation, the market nervously watched the price of oil, which passed $96 a barrel overnight for the first time before dipping on profit-taking. The Fed, which cut interest rates a quarter point, said in a statement that inflation remained a concern, and oil's ascent to another record raised the possibility not only that the Fed might stop cutting rates, but that it might even consider raising them if inflation accelerates.
Meanwhile, Wall Street had to contend with concerns about a slowing economy. A report from the Commerce Department indicated consumers scaled back their spending in September as worries mounted about a worsening housing market and further credit market turmoil. And a trade group reported that manufacturing in the U.S. grew in October at the weakest pace since March.
The confluence of factors led investors to pull back sharply from Wednesday's rally, in which the Dow climbed 137 points after the Fed said the economy had weathered the summer's credit crisis.
"Wall Street is in love with the idea of a rate cut, and realized that the Fed said inflation is still a concern -- that lowered the chances of a cut in December," said Ryan Detrick, a senior technical strategist with Schaeffer's Investment Research. "We're now feeling the pain now that investors have slept on it, and figured out what they said."
Christopher Cordaro, chief investment officer at RegentAtlantic Capital, said Wall Street remains anxious about the possibility of receission. He also believes the market is devoid of enough positive news "to have any type of sustained rally."
Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system, one of its largest cash infusions since the credit crisis began in the summer. This increases the amount of money banks have to lend, and helps improve liquidity. In the past, such an action helped soothe the market, but that was not the case Thursday.
With the market growing pessimistic about the economy, the Labor Department's report on October jobs creation, scheduled to be released Friday morning, will be taking on even more importance than it usually has on Wall Street.
The Dow fell 180.87, or 1.30 percent, to 13,749.14 after being down more than 200 points earlier.
The Standard & Poor's 500 index was off 18.83, or 1.22 percent, at 1,520.55, while the Nasdaq composite index dropped 30.57, or 1.07 percent, to 2,828.55.
Investors pulling money out of stocks turned to the safe haven of the Treasury market. The yield on the 10-year Treasury note fell to 4.38 percent from 4.47 percent late Wednesday.
Crude prices pulled back after surpassing $96 per barrel in overnight trading. A barrel of light sweet crude fell $1.04 to $93.48 on the New York Mercantile Exchange.
The Commerce Department's report that consumer spending rose by 0.3 percent in September, slightly lower than the 0.4 percent increase that analysts expected, raised concerns about a slowing economy.
In addition, the performance of the manufacturing sector in October suggested that ongoing troubles in the housing and credit markets have seeped into the industrial sector. The Institute for Supply Management, a Tempe, Ariz.-based trade group, reported its manufacturing index registered 50.9, down from 52.0 in September and below expectations for 51.8. A reading above 50 indicates growth; below that spells contraction.
Also Thursday, the Labor Department said the number of people filing for unemployment benefits declined by a larger-than-expected 6,000 last week to total 327,000.
Wall Street was also troubled by the day's corporate news. Exxon Mobil Corp.'s third-quarter profits fell 10 percent because of lower refining and chemical margins. Shares of the Dow component dropped $2.01, or 2.2 percent to $89.98.
Citigroup Inc. and Bank of America Corp., the two biggest U.S. banks, were downgraded by CIBC World Markets on worries about the credit markets. Bank of America, the nation's second-largest bank, dropped $1.78, or 3.7 percent, to $46.50. Citi, the nation's largest financial institution, dropped $2.68, or 6.4 percent to $38.68 -- its lowest level in four years.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 602.5 million shares.
The Russell 2000 index of smaller companies was down 20.68, or 2.50 percent, at 807.34.
The plunge in U.S. stocks caused European bourses to tumble. In afternoon trading, Britain's FTSE 100 was down 2.17 percent, Germany's DAX index fell 1.77 percent, and France's CAC-40 dropped 2.09 percent. Japan's Nikkei stock average, which closed before U.S. markets opened, rose 0.79 percent.
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