Monday, 30 August 2010

Surprise! Banks help more homeowners than Obama

NEW YORK ( -- Remember how everyone complained that banks weren't doing enough to help troubled borrowers?
Well ...

Banks have realized that foreclosing on home after home after home may not be in anyone's best interest -- least of all their own. So they've ramped up the number of loan modifications they're handing out to their delinquent clients.

Banks are doing nearly twice as many modifications under their own foreclosure prevention initiatives than under the Obama administration's signature Home Affordable Modification Program, known as HAMP.

But before homeowners rejoice, they should take a close look at the terms of their bank modification offers, consumer advocates say. Many may not be as good as HAMP, which lowers monthly payments to 31% of pre-tax income.

"We don't know if they are sustainable based on the monthly payment," said John Snyder, manager of foreclosure prevention programs at NeighborWorks America, adding banks don't release a lot of information about their modifications. "We're not sure what to think."

Reducing interest and principal Banks have long come under fire not doing enough to help troubled homeowners, particularly when the mortgage crisis started spinning out of control in 2007. Many loan servicers initially addressed the problem by tacking on the missed payments, which only increased strapped homeowners' monthly burden.
Best recovery bets: 7 cities on the mend
More recently, however, banks have trumpeted their in-house efforts to stem the foreclosure tidal wave. They are calling more attention to their own programs at a time when the president's plan is being widely panned for its ineffectiveness.
Servicers completed nearly 644,000 so-called "proprietary permanent modifications" in the first half of this year, compared to 332,000 such adjustments made under the Obama program, according to Hope Now, a consortium of mortgage servicers, investors and housing counselors.

About half of borrowers who don't land a permanent HAMP modification are given an in-house adjustment, according to federal statistics.

"The vast majority of modifications getting done are happening outside of HAMP," Mike Heid, co-president of Wells Fargo Home Mortgage, told a House of Representatives panel in June.

At the hearing, bank executives credited the president's plan with setting an industry standard for loan modifications. But they told lawmakers that their own programs have helped far more people.

About 78% of banks' in-house modifications involved interest rate and principal reductions, Hope Now found.

Housing advocates are increasingly calling on banks to reduce principal because many homeowners owe so much more on thier mortgages than their home are worth. Banks have been loathe to cut loan balances, and virtually no government-subsidized modifications involve this step, in large part because Fannie Mae and Freddie Mac do not allow it. The two mortgage finance giants guarantee many of the loans eligible under HAMP.

Outside of the Obama plan, however, banks have started to warm to principal reductions.

Wells Fargo, for instance, said last week it has reduced more than $3.1 billion in principal on nearly 60,000 loan modifications in the past 18 months. It uses a combination of principal adjustments, interest rate reductions and term extensions to assist its borrowers, the bank said.

Not the same
Unlike the Obama program, however, bank modifications can vary widely and few details are available about them. Housing counselors say they have heard of some with unfavorable terms.

Calculator: How much is your house worth?
Ida Ward was none too pleased with the permanent modification offer she received last month.

The Atlanta middle school teacher had called her mortgage servicer in the spring of 2009 after seeing her income drop considerably. She was enrolled in a trial HAMP modification, which reduced her monthly payments to $1,424, down from $2,430.

After more than a year in the trial period, Ward received a final loan modification agreement. But she soon realized she had been shifted from the president's program to an in-house Chase modification with "horrible" terms. Her loan was being amortized over 40 years at a 5% interest rate with a $197,500 balloon payment due at the end. She must now pay a little more than $2,000 a month.

"These banks should be ashamed of the terms that they are giving to borrowers," said Ward, who said she had no choice but to accept the offer. "The loan modification process is flawed and deceptive to borrowers."

A Chase spokeswoman said that Ward did not meet the qualifications for a HAMP modification, but the bank was able to give her an adjustment that it believes will allow her to keep her home.

Source URL

Intel to buy Infineon's wireless unit for $1.4 billion

NEW YORK ( -- Intel is buying Infineon Technologies' wireless unit for $1.4 billion in cash, the second acquisition in two weeks for the U.S. chipmaker.

Infineon chips are used in devices including laptops and smartphones, notably the iPad and iPhone 4.

Paul Otellini, Intel's chief executive, noted in a press release Monday that "wireless connectivity continues to grow at an extraordinary rate." Intel will operate the wireless unit as a standalone business, and the deal is expected to close in the first quarter of 2011.

Infineon said its wireless unit earned about 917 million euros ($1.17 billion) in the last fiscal year. That accounted for 30% of the company's overall revenue.
Earlier this month, Intel said it will acquire security software maker McAfee (MFE) for $7.68 billion.

Intel's McAfee buy is a Buffett-like play
Under Otellini, Intel has moved to expand beyond PC chips as that market weakens. The company's attempt to build its own wireless chip business around its Atom core processors has met with lukewarm results.

Chip sales have dipped below expectations due to a sudden shift in demand for PCs. In July, Intel and AMD reported strong second quarters on the back of booming PC sales, with Intel reporting its "best quarter ever."

But that shifted late last month, as analysts said PC manufacturers have begun to scale back their orders from suppliers. Several analysts downgraded shares of Intel and AMD (AMD, Fortune 500) in early August, with analysts at JPMorgan saying PC order rates in Taiwan were "falling off a cliff."

On Friday, Intel warned investors that slump in PC demand would cause the company's third-quarter revenue to fall below its forecasts.

Intel now expects sales in the current quarter will be in a range of $10.8 billion to $11.2 billion. That falls short of the company's previous prediction of $11.2 to $12 billion.

Earlier this month, Intel settled antitrust charges with the Federal Trade Commission. The FTC's complaint, which was filed December 2009, levied heavy charges. It accused Intel of systematically shutting out rivals by refusing to sell chips to some computer manufacturers that also bought chips from AMD. It also alleged Intel paid other manufacturers rebates in exchange for promises not to use microchips made by Intel's competitors.

But Intel got off with a wrist slap. The chip making giant did not acknowledge any wrong doing or even admit that the facts alleged by the FTC were true, and it settled without paying a fine. The FTC does not have the authority to levy a financial penalty on a company abusing a monopoly position.
Intel (INTC, Fortune 500) shares ended Monday trading down 2%, at $17.96.

Source URL

Stocks drop as fear returns

NEW YORK ( -- Stocks fell sharply late Monday, ending a lackluster session more than 1% lower, as the tone on Wall Street turned bearish ahead of big economic reports due later this week.

The Dow Jones industrial average (INDU) slumped 141 points, or about 1.4%, to close The S&P 500 (SPX) slid 15 points, or 1.5%, and the Nasdaq (COMP) composite shed 33 points, or 1.5%.

Stocks opened lower as investors responded to a mixed report on American consumers, a pair of billion-dollar corporate deals and a move by the Bank of Japan to shore up its economy. But the selling gained momentum late in the session as the few traders who aren't on vacation this week turned cautious.
"There's nothing to take us higher so we're continuing to go lower," said Dan Greenhaus, chief economic strategist at Miller, Tabak and Co. With volume expected to be light this week, Greenhaus said he wouldn't be surprised to see some big swings.

"It's tough to read anything into the action on days like this when volume is so low," he said. "What we're hoping for now is for some stability in the data to put a floor under stocks."

The economy will continue to be a big driver this week, with reports on consumer spending, home sales and manufacturing activity on tap. But mostly, investors are gearing up for the government's monthly jobs report, due before the opening bell Friday.

Looking ahead, investors will take in a reading on consumer confidence before the market opens on Tuesday. Reports on home prices and regional manufacturing activity are also due in the morning. In the afternoon, the Federal Reserve will release minutes from its most recent policy meeting.

Meanwhile, Friday's sell-off was broad based, with all but one Dow stock falling. Among the biggest losers on the blue chip measure were 3M (MMM, Fortune 500), Caterpillar (CAT, Fortune 500) and American Express (AXP, Fortune 500).
Market breadth was negative. Declining shares outnumbered advancing shares by five to two on the New York Stock Exchange. Trading volume was anemic, with 818 million shares changing hands.

Stocks rallied at the end of last week, to gain nearly 2% on Friday. But all three major indexes ended the week lower and are on track to post monthly declines.
Economy: A government report showed that personal income rose 0.2% in July, in line with expectations.

The report said consumer spending outpaced income growth, rising 0.4% in July. Economists surveyed by were expecting spending to rise 0.3% during the month, after a 0.1% rise the month before.
But personal savings, as a portion of disposable income, came in lower than the previous month.

Merger Monday French drugmaker Sanofi-Aventis (SNY) agreed to buy biotech firm Genzyme (GENZ, Fortune 500) in an $18.5 billion cash deal. Genzyme has reportedly been snubbing Sanofi's advances for the past month, prompting the French firm to send a so-called 'bear hug' letter that is one stop short of a hostile takeover.

Shares of Sanofi fell about 1% and Genzyme's stock rallied 3.4%.
Giant chipmaker Intel (INTC, Fortune 500)'s stock fell 1.6% after the company inked a deal to acquire the wireless unit of German chipmaker Infineon Technologies in an all-cash deal valued at $1.4 billion. Intel recently purchased security technology firm McAfee Inc. (MFE) for $7.7 billion in cash on Aug. 19. On Friday, Intel warned its third-quarter sales would fall short of its previous forecast.

3M (MMM, Fortune 500) said it will acquire biometric security company Cogent Systems (COGT) for $10.50 per share in a deal valued at $943 million. Shares of 3M slipped 1.6%.

The bidding war for 3PAR (PAR) continues. HP (HPQ, Fortune 500) has currently topped Dell (DELL, Fortune 500), with their bid of $2 billion, or $30 per share, that was made on Friday.

"We've seen a lot of cash build up on balance sheets [but] revenue growth prospects are still limited" said Bruce McCain, chief market strategist at Key Private Bank, adding that companies will probably continue to focus on cost cutting to boost profits.

Japan: The Bank of Japan announced steps at an emergency meeting Monday to curb the yen's strength and lift the country's struggling economy.
The central bank announced a new ¥10 trillion, or $117.15 billion, six-month loan program for financial institutions, in addition to the ¥20 trillion it has been offering in three-month loans. The bank also held its key-interest rate at 0.1%.
But some analysts said the move was not aggressive enough to boost Japan's ailing economy.

"It's another reminder that growth is slow," said McCain, in reference to the BOJ plan. "That anxiety doesn't help when people are already concerned about the slow growth cycle and double-dip fears haven't been vanquished."

World markets: European shares ended the day mixed. The CAC 40 in France and the DAX in Germany both fell about 0.6%. Britain's FTSE 100 climbed 0.9%.
Asian markets ended higher, following the Bank of Japan's announcement to ease monetary pressure. Japan's benchmark Nikkei index jumped up 1.8%, and the Shanghai Composite rose 1.6%. The Hang Seng in Hong Kong added 0.7%.

Currencies and commodities: The dollar rose against the euro and the British pound, but fell versus the Japanese yen.
Oil futures for October delivery slipped 63 cents to $74.54 a barrel. Gold for December delivery gained $1.30 to $1,239.20 an ounce.

Bonds: The yield on the 10-year Treasury note fell to 2.54% from 2.64% late Friday.

Are you under the age of 35 and pulling your money out of the stock market? What's your investing strategy amid the current economic uncertainty? Are you still willing to take on more risk? E-mail your story to and you could be part of an upcoming feature. For the Comment Policy, click here.

Source URL

Sunday, 29 August 2010

Facebook is trying to trademark 'face'

NEW YORK ( -- Facebook, which has gone after sites with the word "book" in their names, is also trying to trademark the word "face," according to court documents.

But the social networking site has met with a familiar foe. As TechCrunch first reported, Aaron Greenspan has asked for an extension of time to file an opposition to Facebook's attempt. Greenspan is the president and CEO of Think Computer, the developer of a mobile payments app called FaceCash.

"I'd bet against 'face' being awarded to Facebook," said Henry Sneath, a patent and trademark lawyer based in Pittsburgh. "You cannot overtake the use of a generic word people use in everyday speech."

Greenspan, a former Harvard classmate of Facebook chief executive Mark Zuckerberg, claimed he had a hand in developing the social networking giant. The case was settled last year.

In an interview with, Greenspan said the two extensions he filed now give him until September 22 to oppose the "face" trademark attempt. The original deadline was June 23.

"If you search the patent database, there are thousands of marks that contain the word 'face,'" Greenspan said. "I understand where Facebook is coming from, but this move has big implications for my company and for others."

Greenspan said he hasn't yet decided whether he will file a formal opposition, but he wanted extra time because "tech is a very fast-paced industry. You never know what will develop during the additional time."

Court documents show Greenspan has a long history of taking action to protect his trademarks, so Facebook could have a tough battle ahead.
Facebook's separate fight over "book," on the other hand, has been more of a David vs. Goliath saga.

As CNNMoney reported Thursday, Facebook is suing start-up site -- which claims it is merely a teacher's community. The social networking giant also forced the travel site PlaceBook to change its name to TripTrace earlier this month.

In the case of Teachbook, Facebook would have to prove the site caused "a likelihood of confusion," said Sneath, the trademark lawyer. That's a steep burden, he said, but Facebook could succeed.

"Honestly, to most people [Facebook's claims] wouldn't make a big difference," Greenspan said. "Facebook is enforcing their rights, but maybe some they don't have."

Source URL

United and Continental deal cleared for take off

NEW YORK ( -- The U.S. Justice Department said Friday that it has closed an investigation into the proposed merger of United and Continental, paving the way for the airlines to unite later this year.

The $3.2 billion merger, which is pending a shareholder vote next month, is expected to close on October 1, 2010, the companies said in a press release. The airlines announced the all-stock deal in May.

The antitrust probe was closed after the airlines agreed to transfer takeoff and landing rights and other assets at Newark Liberty Airport to Southwest Airlines (LUV, Fortune 500), the Justice Department said in a statement.

"The completion of DOJ's review is an important step on our journey of creating the world's leading airline," said Jeff Smisek, Continental's chief executive. "The DOJ's decision permits us to clear one of the last regulatory hurdles to closing our merger."

The combined company, which will fly under the United (UAUA, Fortune 500) moniker and Continental (CAL, Fortune 500) logo, would be larger than Delta Air Lines (DAL, Fortune 500), which became the country's largest airline when it merged with Northwest Airlines in 2008. It is expected to serve more than 144 million passengers per year and fly to 370 destinations in 59 countries.

The European Commission on the airlines approved the proposed merger in July.

Source URL

3PAR bidding war: Are Dell and HP crazy?

NEW YORK ( -- Hewlett-Packard and Dell's intense bidding war for the little-known 3PAR is starting to look a little nuts.

HP's latest offer of $30 a share for the storage company represents a 211% premium over the value of 3PAR's stock before the bidding war between Dell and HP began. Saturday, 3PAR's board said it had determined that HP's unsolicited bid is the "superior" offer and planned to terminate its merger agreement with Dell.

3PAR (PAR), which has never turned an annual profit in its three years as a public company, would need to add over $40 million in free cash flow to make the deal profitable, according to Ken Hackel, president of But that's unlikely to happen for at least three years.

So why are Dell (DELL, Fortune 500) and HP (HPQ, Fortune 500) so adamant that they win this obscure, unprofitable company?

The answer can be found in a high-growth technology business called cloud computing.

Cloud computing enables companies to store and access their information in off-site data centers that are managed by another company. The process is cheaper and more efficient. Businesses are quickly catching on to the trend.
Corporate spending on cloud computing is expected to grow 27% each year for the next four years, reaching $55.5 billion in 2014, according to IDC. That's up from just $16.5 billion last year.

Obviously, Dell and HP want to be part of that rapid growth and offer that service to their clients. Though both companies offer storage solutions, neither makes the high-end products that are specialized for cloud computing.

Currently, HP outsources products from Hitachi Data Systems to customers who want cloud solutions. Dell doesn't offer high-end data storage systems at all.
So if Dell or HP wanted to quickly capitalize on the expected growth in this market, buying a company that is already making cloud storage products is probably a faster and cheaper option.

But the pickings are slim: The only companies that make that kind of hardware are IBM (IBM, Fortune 500), EMC (EMC, Fortune 500), Hitachi Data Systems and 3PAR (PAR).

Given the enormous size of IBM and EMC, and the fact that Hitachi Data Systems is owned by the Japanese conglomerate Hitachi (HIT), tiny 3PAR is really the only alternative.

"This is definitely something that both HP and Dell clearly want," said Aaron Rackers, analyst at Stifel Nicolaus & Co. "3PAR has scarcity value for what they want to bring to the table."

But at what point do HP and Dell have to wonder if they're getting into a very expensive game of 3PAR chicken?

"The bidding for 3PAR is reminiscent of two drunks at a horse auction, whereby the winner is the loser," said Hackel. "3PAR is a value-destroying acquisition because the expected cash return on HP or Dell's invested capital would be below the cost of capital."

Both Dell and HP have billions of dollars of cash on hand -- Dell with $12.4 billion and HP with $14.7 billion -- so both certainly have the financial wherewithal to buy 3PAR at a price that's even higher than its current market value of about $2 billion.

But Hackel noted that both companies are actively buying back their own shares as well, leaving less for future acquisitions.

"They're getting into crazy levels here, and on paper, 3PAR isn't worth what they're bidding," added Michael Holt, an analyst at Morningstar. "There's a point at which the winner's curse will do them in -- even perfect execution will never make that up to their shareholders."

What would Mark Hurd do?
On a conference call with HP executives after HP first announced its bid, Sanford Bernstein analyst Toni Sacconaghi questioned whether ousted HP CEO Mark Hurd would have made the deal at all, given his penchant for efficiency.

Several analysts said they believed HP's determination to win the bidding war is an attempt to show investors that the company has a unified board, and HP is not a rudderless ship in the absence of a CEO.

Still, Holt believes the bidding war is a good and ultimately necessary strategy for both companies. As a new entrant to the market, 3PAR has struggled. But with either Dell or HP's significantly larger base of clients, he said the storage company's value could be significantly boosted.

"When you have a small entity like this with a great, unique technology asset, paired with a marketing machine like Dell or HP, this could become an enormous growth story," Holt said.

Most analysts said HP should ultimately win the battle. But even if it doesn't, Dell will be left with a very expensive acquisition that could hurt it financially, at least in the near term.

"Either way, I think HP wins," said Eric Johnson, director of the Center for Digital Strategies at Dartmouth University's Tuck School of Business. "Dell is on the ropes -- it needs to stay relevant but is slowly drowning. HP should win this one, but if they don't they will make sure that Dell overpays."

Source URL

Friday, 27 August 2010

Tribune files no new bankruptcy plan

NEW YORK (Reuters) – Tribune Co, struggling to win broad creditor support for its plan to emerge from bankruptcy, said on Friday it would not tweak the proposal any further at the moment.

The owner of the Los Angeles Times, Chicago Tribune and more than 20 television stations, Tribune had said it would put out a new plan on August 27. But the company decided against doing so, it told employees, citing the "ongoing nature" of talks with creditors.

A Tribune spokesman declined to comment further.
Tribune filed for bankruptcy in December of 2008, less than a year after real estate developer Sam Zell led a more than $8 billion leveraged buyout of the media company. Last month, a court examiner said in his report investigating the buyout that he thought it was likely a court would find fraud in the transaction.
That report caused a delay in the company's ability to emerge from bankruptcy, which had been set for the end of this month. It is now expected in October at the earliest.

Typically, a company's bankruptcy restructuring plan is built through a negotiating process that includes both the company and its senior creditors.
Earlier this week the Los Angeles Times reported that former Walt Disney Co CEO Michael Eisner had been in discussions with creditors to succeed Zell as Tribune chairman.

(Reporting by Caroline Humer and Dan Levine; Editing by Andre Grenon and Richard Chang)

Source URL

Intel warns sales will fall short of forecasts

NEW YORK ( -- Intel Corp. on Friday warned investors that its third-quarter revenue will fall below its forecasts as consumer demand for personal computers slipped.

The world's largest chipmaker said that it now expects sales in the current quarter will be in a range of $10.8 billion to $11.2 billion. That falls short of the company's previous revenue guidance of $11.2 to $12 billion.

Analysts polled by Thomson Reuters had expected sales of $11.5, with the most bearish analyst forecasting revenue of $11 billion.

Shares of Intel (INTC, Fortune 500), which were halted for 15 minutes on Friday following the warning, gained more than 1% once they resumed trading. Rival AMD (AMD, Fortune 500) also rose slightly.

The likely reason that Intel and AMD's shares didn't fall Friday is because investors may have already priced in a less optimistic outlook for sales. Intel's shares had already fallen 17%, and AMD's had dropped 29% since the last week of July.

Chip sales have dipped below expectations due to a sudden shift in demand for personal computers. In July, Intel and AMD reported strong second quarters on the back of booming PC sales, with Intel reporting its "best quarter ever."

That tide shifted late last month, and analysts noted that PC manufacturers have begun to scale back their orders from suppliers. Several analysts downgraded shares of Intel and AMD two weeks ago, with analysts at JPMorgan saying that PC order rates in Taiwan were "falling off a cliff."

That shift was rather quick and unexpected, given bullish forecasts from Intel and tech consulting firms like Gartner, which predicted PC shipments would rise more than 20% this year. Analysts said the fact that the economic recovery seems to have tapered off a bit caused manufacturers to grow a bit more cautious.

"The tone in the first half of the year was that the economy looked like it was getting better and the PC business would continue on with strength. But then more uncertain data came in and changed that tone,"said Cody Acree, analyst at Williams Financial Group.

Graphics chipmaker Nvidia (NVDA) also revised its sales forecast down late last month, citing a shift toward lower-priced processors.

The good news for Intel is that corporate PC customers continue to replace their old hardware, as predicted. Chips for servers and computers sold to businesses tend to have higher selling prices than those for consumer PCs.

Still, that was more than offset by the lower than expected consumer PC demand. That led Intel to lower its gross margin expectations from previous forecasts. Intel said its current-quarter gross margin will be in a range of 65% to 67%, compared to a previous range of 65% to 69%.

Intel will report its third-quarter earnings on Oct. 12.

Source URL

Microsoft co-founder sues Apple, Google over patents

NEW YORK ( -- Microsoft's co-founder Paul Allen is suing Apple and Google, plus nine other companies, for patent infringement.

Allen claims the 11 companies are using technology for which he owns patents, according to court documents filed in a Seattle district court Friday. The papers were filed by Allen's company, Interval Licensing.

The 11 accused companies are: AOL, Apple, eBay, Facebook, Google, Netflix, Office Depot, OfficeMax, Staples, Yahoo and Google-owned YouTube.
None of the defendants were immediately available for comment.

Allen said he owns the patents to four technologies those companies are allegedly using. An Interval press release calls them "key patents [that] are fundamental to ... leading e-commerce and search companies."

Allen did not invent the technologies; he alleges they were developed at a lab called Interval Research in the 1990s. Allen co-founded and helped finance the influential software lab.

"This lawsuit is necessary to protect our investment in innovation," Allen's spokesman said in the press release. "These are patents developed by and for Interval."

Allen's suit did not specify how much money he is seeking in damages.
Last month, patent holding company NTP Inc. also launched a slew of patent infringement lawsuits against tech giants. NTP, which does not make products, lodged complaints against Apple, Google, HTC, LG Electronics, Microsoft and Motorola for alleged infringements of eight patents related to wireless e-mail delivery.

Source URL

5 billion-dollar tech gambles

The recession prompted many businesses cut back on risky bets -- but sometimes hitting home runs requires swinging for the fences. Here are 5 pricey gambles.

It's incredibly expensive to maintain and support a nationwide wireless network: Verizon spent $17 billion improving its network in 2009, and AT&T spent $19 billion over the past two years on upgrades. Thanks to costs like those, consolidation has been the industry's theme of the past decade, with several blockbuster mergers like Sprint/Nextel and Verizon/Alltel bulking up the space's Goliaths and wiping out its upstarts.

So when LightSquared announced in July that it would launch a new, built-from-scratch 4G-LTE (Long-Term Evolution) wireless network next year, it turned heads. Private-equity firm Harbinger Capital Partners, the venture's primary backer, seeded LightSquared with existing infrastructure valued at $2.9 billion. It also secured a commitment for additional financing of up to $1.75 billion.

LightSquared's business model is novel: The company says it doesn't plan to sell directly to consumers. Instead, it will wholesale its network to retailers and service providers -- think "Wal-Mart wireless" or MetroPCS 4G. By 2015, LightSquared intends to have its network covering 92% of the U.S. population.

But the market LightSquared is entering is an extremely expensive one to compete in. LightSquared has already inked a whopping $7 billion, eight-year contract with Nokia Siemens, which will design, build and maintain the new network. The final price tag could easily be higher: Clearwire, which is launching a nationwide 4G-WiMAX network for Sprint, is struggling to meet its budgeted buildout costs and timelines.

Dan Hays, a partner at consultancy PRTM who tracks the telecom field, says he expects LightSquared to be able to build its network for the stated amount -- but that's just the start of its expenses. As LightSpeed gains subscribers, it will need to scale by adding additional towers and capacity in heavily-utilized areas. Those upgrade costs can be several times higher than the initial cost of the network.
"Nextel, which built out a nationwide 2G wireless network, continued to invest several billion dollars per year to enhance and grow its network for more than a decade after its nationwide deployment," he says.

Source URL

Obama's $250,000 mistake

NEW YORK ( -- President Obama's tax reform task force will deliver its long-overdue report on Friday offering a list of ways to improve the federal tax code.

Obama had asked the group to examine ways to simplify the code, reduce tax evasion, and close corporate loopholes -- and to do so with an eye to raising more revenue.

The president, however, also tied the group's hands by not allowing it to consider any options that would raise taxes on the vast majority of Americans.
That directive, of course, was in keeping with Obama's campaign promise not to increase taxes on any married couple making less than $250,000 or any single individual making less than $200,000.

In other words, the panel wasn't allowed to consider anything that would tap 98% of the country.

By constraining the task force, he essentially closed off any hope that the panel would consider ways to fully reform the tax code.

That's because in order to both simplify the code and raise more revenue, lawmakers would need to jettison or scale back many of today's credits, deductions and exemptions. But Obama's pledge would make that very difficult.
"Tax breaks are not limited to people making over $250,000," said Rutgers economics professor Rosanne Altshuler, who served as the senior economist for President Bush's bipartisan tax reform commission in 2005.

Case in point: work-based health insurance. Any money an employer pays toward the premiums and other medical costs for employees is treated as tax-free income to workers. That tax break and the mortgage interest deduction are the two most expensive -- and popular -- tax breaks on the books.

Taken as a group, tax breaks reduce federal revenue by more than $1 trillion every year.

All those tax breaks are a key reason why nearly half of all tax filers end up owing no federal income tax. Congress has chosen to administer social policy through credits and deductions designed to encourage people to do things like buy houses and save for retirement, according to Roberton Williams, a senior fellow at the Tax Policy Center.

Once a tax break is passed into law, it's hard to eliminate. And there's very little follow-up by lawmakers to assess whether it's working or not, disproportionately rewarding one group of taxpayers over another.

The upside to streamlining tax breaks and simplifying the code is that it can lower overall tax rates while bringing in even more revenue than before.
Report likely to be overshadowed Tax experts aren't exactly waiting with bated breath for the task force's report because all eyes are on Obama's bipartisan fiscal commission, which he created to recommend ways to effectively curb the growth rate in U.S. debt. The president said he wanted the debt panel to consider "everything on the table."
The expectation is that the commission will address head-on the fact that the fiscal outlook can't be cured on the backs of taxpayers making more than $250,000 alone.

"[A]ny plausible plan to set this country on a sustainable budget path will require higher tax revenues, borne by the majority of Americans," tax expert Edward Kleinbard wrote in a recent article titled "Sacred Tax Cows: It's them or us."
Obama has said he will take the fiscal commission's report into consideration when he puts out his 2012 budget proposal in February. He has promised that he will "start presenting some very difficult choices to the country."

Source URL

Thursday, 26 August 2010

Ford to expand presence in Asia

NEW YORK ( -- Ford Motor Co. announced on Thursday that it will ramp up its presence in the fast-growing Asian and African markets.

The company says that Asia and Africa will account for 70% of Ford's global growth over the next decade.

Ford plans to launch eight new vehicles in India by mid-decade to meet burgeoning demand overseas. Ford said the purpose of the launch is to "rapidly expand its presence in the fast growing market" of India.

Ford's (F, Fortune 500) stock rose more than 1% in morning trading.
This follows the Indian launch of the Ford Figo subcompact in the first quarter, which sold more than 30,000 vehicles in 25 weeks, said the automaker.
The Figo is manufactured in India and has been successful enough to export, said Ford.

"The transaction prices might be lower in India, but the vehicle itself is probably equipped in such a way that they can deliver it at a profit," said Kirk Ludtke, analyst for CRT Capital Group.

The Figo was designed specifically for overseas markets that prefer small vehicles. Exports to South Africa began in May. The automaker plans to export the subcompact to 50 new markets starting in 2011, including Mexico, North Africa and the Middle East.

"It's very important for carmakers to be in emerging markets, because that's where the growth is," said Ludtke. "Over time, as the economy develops and as average incomes increase, the consumers in those areas can afford increasingly expensive vehicles, so carmakers can benefit from a favorable shift and mix."

Source URL

Novartis' $50 billion deal for Alcon: The big squeeze

FORTUNE -- On Monday, Alcon, the world's largest eyecare company, held a emergency board meeting in a cramped conference room at a non-descript business center in Zug, Switzerland. Only four or five reporters attended, and ten of the fifteen chairs reserved for shareholders sat vacant. The conclave lasted just 45 minutes.

Yet the event, which looked bland, sounded routine, and was mainly overlooked by the press, marks still another chapter in one of the most bitter, precedent-defying -- not to mention one of the most mammoth -- cross-border merger battles in history, Swiss drugmaker Novartis' $50 billion takeover campaign for the eye-care giant Alcon.

In the view of Alcon shareholders -- and they make a strong case -- it's also an historic rip-off.

The Novartis-Alcon merger is a total departure from traditional merger activity because Novartis is offering Alcon's (ACL) minority shareholders far less than it's paying the majority owner, Nestle. And not a little less either. The gap is an astounding $40 per share. Novartis is paying a rich $182 per share to Nestle versus a lowball offer of around $142 to Alcon's public shareholders. If it succeeds in squeezing out the minority at a gaping discount, Novartis will get an almost $3 billion break on its purchase.

To save all that cash,Novartis (NVS) is brazenly and unapologetically exploiting a transatlantic loophole in merger law that's got investors from AXA of France to U.S. hedge funds, and corporate governance advisors such as Glass Lewis, in an uproar. At the Monday meeting, Novartis moved closer to its goal by electing its own slate of five board members, whose votes, it says, will seal the deal, and the fate of the minority. "I've never witnessed anything like this in 20 years as an investor," says Shane Finemore, chief of Manikay Partners, a $550 million New York investment management firm with a large holding of Alcon shares. "Novartis is being incredibly hostile to Alcon shareholders."

Finemore's shock is understandable, and widespread. According to the M&A experts Fortune consulted, no purchaser in decades, in any major deal, has managed, or even seriously attempted, to buy out minority investors for less than it's paying the primary shareholder.

The No Man's Land for shareholder rights
In America and most of Europe, the rights of the minority are scrupulously protected by merger laws. The regulations govern cases where a big company or a family owns over 50% of a company's stock, and wants to buy the rest -- which is publicly traded, and hence held by "minority shareholders." Nations on both sides of the Atlantic invariably protect those mutual funds and small investors from abuse by granting them special safeguards. The two vehicles for buying those investors' shares are a "tender offer" or a "merger agreement." In either case, the laws in both the U.S. and Europe effectively require that the buyer pays either precisely what it's offered the main owner, or if the minority negotiates an especially good deal, even more. If the minority doesn't get the deal it wants, it can keep its shares.

Those rules apply to mergers both within the U.S. and Europe, and cross-Atlantic transactions as well. Consider two relatively recent examples: In 2007, Merck (MRK, Fortune 500) bought out the minority holders of Serono, a Geneva-based biotech manufacturer, for the same price it offered its principal owner, the Bertarelli family. The public shareholders of Genentech fared even better. Last year, Roche of Switzerland paid them $47 billion for the 44% of Genentech it didn't already own. That was a premium of 16% or $6.5 billion over the Genentech's price when Roche announced its plan to buy 100%.

Novartis is doing the exact opposite of Roche, and claims the clear legal right to defy tradition, and as its critics would claim, all fairness. Here's the loophole: Alcon, though based in Texas, is incorporated in Switzerland. As I've stated, protections for minority shareholders are practically universal. But they come from different places. In Switzerland, minority holders get little protection under the official merger laws, but strong safeguards from the rules of the Swiss stock exchange. Those protections don't apply to Alcon -- because it's traded on the New York Stock Exchange. By contrast, the NYSE provides minimal protection for minority owners. In the U.S., they're shielded by merger laws, which apply only to U.S.-incorporated companies.

Hence, Alcon falls into an almost surrealistic zone. It lacks either of the two essential protections -- the Swiss stock exchange laws and the SEC merger regulations.

Protections for naught
It's not that the Alcon directors failed to protect the minority holders, or at least try to. Alcon represents one of the great corporate investments of the past half-century. In 1977, Nestle bought 100% of Alcon for just $280 million. In 2002, it sold 25% of the now giant manufacturer of contact lenses and solutions, ophthalmic surgery products, and eye-care pharmaceuticals in a public offering. At the time of the IPO, the board enacted protections for its new class of shareholders, requiring that an independent committee approve any offers to purchase their holdings.

Then, in April of 2008, Nestle agreed to sell Novartis 25% of Alcon for $143 a share, and granted Novartis an option to purchase its remaining 52% for just over $180. The $180-plus deal for the second, biggest tranche was extremely expensive. It represented a 22% premium to Alcon's share price, which had already risen sharply with takeover speculation. With that $50 billion deal, Nestle is reaping 180 times its original investment in Alcon.

Faced with a powerful new owner, Alcon strengthened the protections for minority shareholders. In December of 2008, it issued updated regulations requiring that a committee of three independent directors approve a merger proposal before the board could vote on it. On January 4th, 2010, Novartis announced that it would exercise its option to purchase the remainder of Nestle's shares at around $182. Since their price stood at $164, the transaction looked extremely attractive for Nestle. The Nestle deal was also risk free, since it involved all cash.

Then came the corker. The same day, Novartis offered the minority shareholders a paltry $153 a share, a 7% discount to the market price. It was also paying entirely in stock, making the deal's value vulnerable to a drop in its shares. The drop happened. Today, the Novartis offer is worth just $142, 22% below the price Nestle is receiving. At Nestle's price, Novartis would be paying the minority $12.6 billion. Instead it's offering $9.8 billion.

The offer turned even usually passive institutions into outraged activists. Laurence E. Cranch, the general counsel of AllianceBernstein, the investment outfit owned by AXA, wrote the Alcon board that "We were stunned by the gross inadequacy of the of Novartis' proposal." The independent directors are heeding AllianceBernstein and the other angry investors. They're demanding that Novartis respect the safeguards the board put in place, which would give the minority holders the right to either negotiate a better offer, or refuse to sell and simply keep their publicly-traded tranche of shares.

"Novartis is behaving like a schoolyard bully who takes your money," Thomas Plaskett, a Texas investor who heads the independent directors committee, told Fortune. Plaskett points out that in late 2008 Novartis chairman Daniel Vasella voted for the same safeguards he now apparently wants to ignore.

Defining fairness
Plaskett and the independent directors claim that Swiss law indeed offers an important protection. They say that the takeover regulations require that only independent directors vote on buyouts of minority shareholders. That would leave the vote to the three independents, who've pledged to reject the deal. Novartis counters that the law simply requires that 50% of the directors and two-thirds of the shares approve the transaction.

With the vote last Monday, Novartis effectively controls six of the 11 board seats. In response to the view that only independent directors be allowed to vote, Novartis responds, none too convincingly, that its nominees are independent. That's a stretch, since three of the five are former Novartis executives and a fourth heads a Novartis research foundation.

What's Vasella's justification for breaking so sharply with corporate practice? He says that the price is "fair" for Alcon's shareholders and for Novartis investors, based on Alcon's fundamental value. But most of all, Novartis' main justification for for acting so tough is simply because it can. "Well, (the independent directors) have something to say as long as they are in the current situation," Vasella stated in a conference call in January. "But once they basically hand over to us and we close the deal then it's a different game."

Right now, it's impossible to predict whether Novartis will win a complete victory. But a partial win is indeed possible. Here's why: Novartis is paying an extremely rich price for Alcon -- around 25 times its $2 billion in 2010 earnings. It clearly feared that the minority shareholders might demand even more than $182 a share that Nestle received, making the deal even more expensive and further alarming Novartis shareholders. Alcon's minority investors held considerable leverage, since Novartis needs to own 100% to generate the cost savings it needs to make the deal work.

Novartis has already succeeded in driving down the expectations of the minority, as well as holding Alcon's share price in check.

So Novartis may indeed pay more in the end to avoid years of litigation, not to mention damage to its reputation for fairness. A bully may win by grabbing all your money and keeping it. But the bully also wins if he returns some if it, so you leave the playground to avoid more fighting, thankful you got anything back at all.
Source URL

FAA hits American Airlines with biggest fine ever

EW YORK ( -- Federal aviation regulators slapped American Airlines on Thursday with the largest fine in history, charging that the carrier made thousands of unsafe flights.

The Federal Aviation Administration said it has "proposed" a $24.2 million civil penalty for American Airlines' failure to properly inspect wire bundles in the wheel wells of its MD-80 aircraft. The incident snarled thousands of flights in 2008.

The airline, owned by AMR Corp., (AMR, Fortune 500) did not follow the guidelines in the so-called 2006 Airworthiness Directive, which was intended to prevent wires from shorting, which could cause a loss of power and possibly a fire, the FAA said.

The airline's stock price is down 1.7%.
The FAA inspections resulted in the grounding of about 1,000 American Airlines flights in early April, 2008, after the FAA found that the airline did not properly inspect two of its airplanes.

As part of that inspection, the FAA determined that the airline operated 286 of its MD-80s on a total of 14,278 flights "while the aircraft were not in compliance with federal regulations."

FAA spokesman Lynn Lunsford said the fine is considered a proposal as a legal formality, because the airline has 30 days to respond and has the option of negotiating a smaller fine.

"There was never a flight safety issue," American Airlines spokesman Tim Smith told in an email.

"These events happened more than two years ago and we believe this action is unwarranted," he said. "We will challenge any proposed civil penalty. We are confident we have a strong case and the facts will bear this out."

Lunsford said that Southwest Airlines (LUV, Fortune 500) had previously been the recipient of the biggest FAA fine -- of $10.2 million -- which it was able to negotiate down to $7.5 million.

Source URL

Wednesday, 25 August 2010

Yen soars to 15-year high against dollar

NEW YORK ( -- The Japanese yen surged to a fresh 15-year high against the U.S. dollar Tuesday, after the Japanese government failed to say it would take steps to curb the currency's strength amid growing concerns about the pace of the recovery.

What prices are doing: The greenback fell more than 1% against the Japanese yen to ¥84.16 early Tuesday, before paring back some of those losses to trade around ¥84.30.

It was the dollar's lowest level against the yen since 1995. The euro, meanwhile, fell to its lowest level against the yen since 2001.
The dollar managed gains against other currencies, including the euro and the British pound.

What's moving the market: The yen gained against major currencies across the board, as jittery investors flocked to the Japanese currency, which is typically seen as a low-risk investment during times of economic uncertainty.
Japanese finance minister Yoshihiko Noda failed to signal whether authorities would intervene to limit the yen's rise.

Noda told reporters at a press conference in Tokyo that "disorderly" moves in the yen could harm economic stability.

A stronger yen can hurt profits at Japan's export businesses, sending the Nikkei stock index down 1.3%.

What analysts are saying: "Gloom and doom have taken hold of the markets, so the usual suspects are benefiting," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, referring to the safe-haven yen and dollar. "While economic prospects in the major countries appear to be on the slide, the yen continues to benefit."

Chandler said that the Japanese authorities' lack of indications that they will intervene in the currency markets is also boosting the yen.
"More official jawboning was heard today by Japan officials, but given the boilerplate nature of those comments, they did little to dissuade markets from taking the yen higher," he said.

Source URL

Toll Brothers: First profit in 3 years

NEW YORK ( -- Homebuilder Toll Brothers made a profit last quarter -- its first in three years. And it largely has Uncle Sam's tax credits to thank for it.

The company said Wednesday that it earned net income of $27.3 million, or 16 cents per diluted share, for the quarter ending July 31. Last year it lost $472.3 million in the same period in 2009.

Chief Executive Douglas Yearley Jr. said that "much of this quarter's profitability was due to tax benefits."

Toll Brothers (TOL) reduced the pre-tax value of $12.5 million in assets, including already-built subdivisions as well as land cleared for future communities.
Analysts had been expecting the company to suffer another loss.
Revenue fell to $454.2 million in quarter, from $461.4 million the prior year.

The company's stock edged up in pre-market trading.
Toll is the first builder to post quarterly results since the April 30 expiration of the $8,000 tax credit, which boosted homebuilders and the housing market.
The company's quarterly announcement follows a dismal home sales report on Tuesday that aroused fears of a double dip in the housing prices and triggered a slump in the stock market.

Existing home sales sank 27.2% in July to a seasonally adjusted annual rate of 3.83 million units, their lowest level in 15 years, according to the National Association of Realtors. Much of the drop was attributed to the end of the homebuyer tax credit.

More bad news for the housing market came out on Wednesday, when the U.S. Commerce Department reported that new home sales plunged in July to their lowest level on record.

New home sales plummeted 12.4% last month to a seasonally adjusted annual rate of 276,000. This was much worse than expected, as economists had forecasted a gain to 334,000

Source URL

Wal-Mart asks Supreme Court to halt discrimination suit

NEW YORK ( -- Wal-Mart has asked the Supreme Court to stop a massive gender discrimination suit that has dragged on for years, the company said Wednesday. The suit is the largest class-action employment discrimination case in U.S. history.

The suit accuses Wal-Mart of discouraging the promotion of female store employees to managerial positions. It also alleges women were paid less than men across all job positions. The suit seeks changes in the company's internal procedures and more than $1 billion in back pay, as well as punitive damages.

The case, known as Dukes v. Wal-Mart, includes the 1.5 million women who have worked at any of the company's 4,000 retail stores nationwide since Dec. 26, 1998.

The suit was originally filed in 2001, and Wal-Mart (WMT, Fortune 500) has voiced complaints since then over the merit of the case. Several courts have ruled the case should go to trial, most recently April's ruling from the Ninth Circuit U.S. Court of Appeals in San Francisco.

Wednesday's announcement said Wal-Mart had filed a petition to the Supreme Court, asking it to review the Ninth Circuit's ruling.
"This case involves important issues about class action procedure and Title VII," Wal-Mart's statement said. The retailer claims the Ninth Circuit's ruling "contradicts numerous decisions of other appellate courts and even the Supreme Court itself."

"It is important to remember that the Ninth Circuit's opinion dealt only with class certification, not with the merits of the lawsuit," the statement added.
The plaintiffs' co-lead counsel, Joseph Sellers of Cohen Milstein Sellers & Toll, released a statement later in the day saying the ruling followed standards that courts have adhered to for decades.

"Only the size of the case is unusual, and that is a product of the size of Wal-Mart and the breadth of the discrimination we detected and documented," Sellers said.
If Dukes reaches the Supreme Court, the case could set a precedent for employment discrimination class actions.

Source URL

Co-chair of Obama debt panel under fire for remarks

NEW YORK ( -- An advocacy group is calling for the ouster of former Sen. Alan Simpson, the co-chairman of President Obama's bipartisan debt commission, who described Social Security as a "milk cow with 310 million tits!" in an email.

Ashley Carson, executive director of the Older Women's League, wrote in a blog post in April that Simpson is targeting Social Security to fix the deficit even though it "doesn't contribute" to the country's debt problem. She also accused Simpson of "disgusting ageism and sexism" in characterizing those who oppose cuts to benefits as "Gray Panthers" and "Pink Panthers."

In his email to Carson, which was sent Monday night, Simpson said he is defending Social Security, not trying to undermine it, and referred her to information showing the program's long-range shortfalls.

He went on: "I've made some plenty smart cracks about people on Social Security who milk it to the last degree. You know 'em too. It's the same with any system in America. We've reached a point now where it's like a milk cow with 310 million tits! Call when you get honest work!"

On Wednesday afternoon, Simpson released a letter to Carson apologizing. "I can see that my remarks have caused you anguish, and that was not my intention," he wrote.

Simpson, a former Republican senator from Wyoming, is well known for his salty language and down-home analogies when debating policy. His remarks have made him a target for critics of Social Security reform, who have called for his resignation before.

Reforming Social Security has always been a political lightning rod, and none more so than this mid-term election year. Simpson's remarks could further inflame an already divisive debate and complicate the task of the bipartisan commission, which is attempting to broker solutions that both sides of the aisle can support.

A coalition of groups including, Social Security Works and others have pledged to "fight any effort" by the commission to cut benefits or raise the retirement age.

Such groups say that Social Security hasn't contributed to the country's fiscal woes since $2.5 trillion of surplus revenue was paid into the system over the years and borrowed by Uncle Sam.

Carson of OWL wrote that cutting defense spending should be the commission's first line of attack, and the Bush tax cuts second, when finding solutions to U.S. debt problems.

Nonpartisan deficit experts say the debt trajectory for the country is so worrisome that nothing in the federal budget can be off the table. That includes Social Security, which will only be able to pay out roughly three-quarters of promised benefits to future retirees by 2037.

OWL sent a letter to the White House on Tuesday calling for Simpson to be removed from the commission.

"We have given the former senator several chances at redemption, but his email today ... illustrates his clear disrespect for Social Security, women and the American people, highlighted by his degrading, sexist, ageist and profane language," OWL wrote.

In his apology on Wednesday, Simpson said that he "did not intend to diminish" Carson's work. "I know you care deeply about strengthening Social Security, and so do I, just as deeply."

He also extended an invitation to Carson to meet in person to discuss her concerns the next time he was in Washington.

In response, Carson said in a statement that she appreciated Simpson's apology. But she noted that OWL's position remains unchanged in calling for Simpson to step down.

"Mr. Simpson has demonstrated a consistent, decades-long, pattern of making statements that are offensive to seniors, to women and that are just plain unacceptable in 2010."

Source URL

Tuesday, 24 August 2010

10-year yield at 19-month low

NEW YORK ( -- Treasury yields continued to fall Tuesday, with the yield on the benchmark 10-year note holding near a 19-month low, as a spate of dour economic news has driven investors into safer assets, like government-backed debt.

The yield on the benchmark 10-year note was 2.49% at 4:30 p.m. in New York. That's down from 2.6% late Monday and is the lowest level since the 10-year yield closed at 2.4% on January 20, 2009, according to data from the Federal Reserve.

The yield on the 2-year note dropped to 0.48%, holding near an all time-low, while the 5-year yield slid to 1.33%. The yield on the 30-year bond was 3.56%, down from 3.66%.

The flight to safety boosted demand for the $37 billion worth of 2-year notes that the government sold Tuesday, with investors submitting bids totaling $115 billion for the notes.

The bid-to-cover ratio, a measure of demand, was a relatively strong 3.12. But the ratio was higher at the last 2-year sale in July, and has averaged 3.17 so far this year.

It was the first of three auctions this week totaling $102 billion in U.S. debt. On Wednesday, the U.S. will offer $36-billion in 5-year notes and will offer $29 billion in 7-year notes on Thursday.

Economy driver: The National Association of Realtors reported that existing home sales dropped 27% in July. That marked the lowest rate since 1995 and was significantly worse than expected.

Analysts said the drop was due largely to the absence of a key government tax credit for homebuyers. But the report added to ongoing concerns that the recovery is faltering and could give way to another economic downturn.
"The Treasury market is trading higher this morning as the investment community reinitiates the 'flight-to-quality trade' in response to more weak news on the economic front," Kevin Giddis, managing director of fixed-income at Morgan Keegan, wrote in a research note.

Flight to safety: Treasurys are widely considered one of the most secure assets available. As a result, prices often rise when investors are nervous about the economic outlook. Stocks, however, fell sharply after the housing report came out.

In addition to Treasurys, investors sought refuge in the Japanese yen, which is also seen as a secure asset in times of economic decline. The yen soared to a 15-year high versus the U.S. dollar.

Source URL

Sounds like a Prius down the street

NEW YORK ( -- Toyota said Tuesday it will begin selling a noise-making device for its popular Prius hybrids in Japan that is designed to alert pedestrians when the quiet, gasoline-electric vehicle is approaching.

The device, which emits a humming sound similar to an electric motor, will be available on the third-generation Prius in Japan beginning next week. The aim is to "alert but not annoy," according to a Toyota press release.

Toyota spokesman David Lee said the company plans to begin offering the device in other markets, including the United States, at some point in the future. But he could not say when.

The device is designed to meet new safety requirements in Japan for gasoline-electric and other hybrid vehicles that are much quieter than traditional gas powered cars.

The ¥12,600 ($149) device automatically kicks in when the Prius is running on its electric motor at speeds up to about 15 miles per hour. The sound is similar to the hum of an electric motor, but louder. It rises and falls in pitch relative to the vehicle's speed to help pedestrians locate the car.

Source URL

Hey bloggers! Philly wants you to buy a license

NEW YORK ( -- Philadelphia bloggers were abuzz this week about a citywide move to crack down on citizens running a business without a license -- which includes any local bloggers running ads on their sites.

The weekly Philadelphia City Paper kicked off the kerfuffle with an article spotlighting several small-scale bloggers who were startled to receive letters from the city demanding that they shell out up to $300 for a license allowing them to operate a local business. One of the recipients had raked in a whopping profit of $11 over two years from his blog.

"Personally, I don't think Circle of Fits is a business," music blogger Sean Barry told the newspaper, commenting on his minimally lucrative venture. "I don't think blogs should be taxed unless they are making an immense profit."
But in Philly, anyone "conducting commercial activity" is required to buy a business privilege license that costs $300 for a lifetime, or $50 per year. Businesses must also pay taxes on any profit they make.

That's how the Philly bloggers landed on the city's radar: Those who followed the law and reported their blog's revenue to the IRS triggered tripwires set up to find local businesses operating without licenses.

"The IRS is the fastest way to find them, though we have other avenues that we don't advertise," a Philadelphia Department of Revenue representative told

City officials say they did not target blogs specifically, and only sites serving ads -- and therefore making money -- are subject to the business license requirements.
"Some of those blogger folks didn't realize when their passions became a business," the city rep said. "We haven't singled anybody out. We love the self-employed. Philly is a city with a creative economy."

Philadelphia isn't alone in demanding that local business operators cough up registration paperwork and fees. Boston, Los Angeles and Washington, D.C., among other major cities, also require business licenses.

An employee at the city clerk's office in Boston, where licenses cost $50 and run for four years, didn't have much familiarity with the blog licensing issue but said she "supposed" bloggers were included in the requirement.

A clerk at Washington's regulatory affairs office said bloggers should have a "general business license" that costs $324.50 for two years. But a Los Angeles official said Internet-based businesses in its jurisdiction do not require licenses.
Business licenses may be nothing new, but that didn't stop commentators from whipping a firestorm around the notion that for-profit bloggers should be required to sign up for one.

NBC's Philadelphia website accused the city of "taking a step closer to an eerie Orwellian state where creativity is crushed in the name of 'the greater good.'" Right-wing blogger Michelle Malkin blasted the city for "requiring a license for Internet activists and hobbyists to exercise their free speech."

On the other hand, the Washington Post pointed out the city was merely following the letter of the law and treating businesses equally: "Bloggers running ads next to their copy shouldn't be exempt if the requirement also applies to people selling old junk on eBay."

Source URL

Monday, 23 August 2010

Why the U.S. may not be the next Japan

NEW YORK ( -- The fashionable thing for economists to worry about these days is deflation.

It's hard to go a day without someone proselytizing that the United States is the next Japan and that a Lost Decade looms on the horizon -- or might already have even begun.

The threat of deflation can't be cavalierly dismissed since there are plenty of troubling signs.

The job market is not recovering at a quick enough pace to spur consumers to spend. The housing market is still stagnant. And the Federal Reserve seems hell-bent on keeping both short-term and long-term rates low for the foreseeable future.

But some economists think there is a very important difference between Japan and the United States that can't be overlooked. And it could keep the U.S. from plunging into a long-term deflationary spiral. Demographics.

Simply put, the United States is not faced with as big of a percentage of people getting older and retiring as was the case in Japan during its Lost Decade.
According to research from Brockhouse Cooper, a brokerage firm based in Montreal, the percentage of people aged 65 or older nearly doubled in Japan between 1990 and 2008. Meanwhile, that percentage has stayed roughly the same in the U.S.

So even though there are a lot more people in the U.S. that are retiring as the Baby Boomer generation gets older, total population growth is rising due to high fertility rates and increased immigration. That's key since younger consumers tend to spend more.

"Demographics are the main difference between Japan and the United States. Aging in Japan was a huge issue that led to stagnation," said Alex Bellefleur, a financial economist with Brockhouse Cooper. "Senior citizens tend to have consumption patterns that are a lot different than their younger counterparts. They're not buying as many homes, cars and other durable goods."

There's also the issue of what governments have to do in order to support their aging populations. With a greater percentage of older retirees, that puts a bigger strain on fiscal budgets, which could contribute to deflationary pressure and economic sluggishness.

Along those lines, Japan currently has only 2.9 workers supporting retirees, said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm. By way of comparison, there are 5 workers for each retired person in the United States.

For that reason, Higgins said it is an "overly simplistic generalization" to suggest that the United States is destined for its own Lost Decade just because the U.S. and Japan both experienced a nasty downturn following an asset bubble.
Simply put, the strain on the U.S. government by an aging population shouldn't be as severe as it was in Japan.

Others point out that differences between the United States and Japan go beyond demographics. The most notable one is the fact that big U.S. banks appear to have edged back from the brink of disaster.

Most major banks are now profitable and nearly all of them have already paid back the funds they received from the controversial government TARP bailout.
Bonds: Nobody wants to fight the Fed
Of course, this doesn't necessarily mean these banks are completely healthy again, but they are at least not the walking dead they were thought to be a year and a half ago.

"The Fed has acted aggressively and earlier than Japan did in the 1990s. Banks aren't zombies here the way they were in Japan. So even though deflation is a bit of a concern, it's not one that should be getting this much attention," said Andrew Busch, global currency and public policy strategist with BMO Capital Markets in Chicago.

Still, the deflation warning signs haven't completely gone away. And they are unlikely to do so for a long time. Let's be honest. The outlook for the economy, at best, over the next year or so is probably for a sluggish recovery.
John Norris, managing director with Oakworth Capital Bank in Birmingham, Ala., said that it doesn't matter if the U.S. has a smaller percentage of older people and that the Fed is keeping rates low.

He said the only way for the economy to improve is for consumers and banks to start acting more normally. After all, one reason banks are profitable again is because they are not taking any risks. It's all about money supply.
"I'm not losing sleep about a protracted bout of deflation. But if banks aren't lending and people aren't borrowing, you're going to see deflationary pressure. As long as the banking system is in dicey shape, you will have trouble," Norris said.

And fade out again. It's the August doldrums. So what better time for a pop culture quiz! Noticing that hot stock Netflix was finally taking a breather, I decided to ask my followers at Twitter to identify this appropriate song lyric. "But gravity always wins."

The winner is my colleague Julianne Pepitone. She joins my boss Chris Peacock and autos guru Peter Valdes-Dapena as co-workers who've won the coveted Buzz shout-out. She was the first to correctly point out the line was from "Fake Plastic Trees" by Radiohead. Congrats to Julianne for your quick-draw response and great taste in music!

Anyway, The Buzz is taking a one day hiatus tomorrow. Be back on Friday.
- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of, La Monica does not own positions in any individual stocks.

Source URL

New push back to mining giant's hostile bid

NEW YORK ( -- The board of directors of Canadian fertilizer manufacturer PotashCorp. told its shareholders Monday to reject a $38.6 billion hostile takeover bid from Australian mining company BHP Billiton, saying it's in talks with other parties about "superior offers."

Potash's board said in a circular to shareholders that BHP's (BHP) unsolicited offer of $130 per share is too cheap and was timed to take advantage of a worldwide slump in demand for fertilizer stemming from the recession.

The board said it unanimously opposed the offer because it "substantially undervalues PotashCorp. (POT) and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects."

In the circular, the board said "superior offers or other alternatives are expected to emerge."

The company said it has been in talks with third parties about possible alternatives to the BHP offer, but it did not name any of the parties involved.

Source URL

Oil falls on downbeat economic data, stronger dollar

NEW YORK ( -- Oil once again trailed below $80 a barrel Wednesday, as investors mulled over dismal economic news from China, a bearish forecast from the Federal Reserve and a stronger dollar.

What prices are doing: After a brief upswing above $80 last week, oil once again traded in the high $70s -- where it has stayed the last three months -- as investors look to negative economic data as signs of a slowdown that could curb demand for fuel.

Crude for September delivery fell $2.23, or 2.8%, settling at $78.02 Wednesday.
Signs of weakness hit oil: On Wednesday, China reported its lowest industrial output numbers and its highest level of inflation in nearly a year. The country also reported a monthly decline in retail sales.

The data supports fears of a global economic slowdown and comes just one day after a separate gloomy report from China. On Tuesday, the country said its trade surplus ballooned to an 18-month high of $28.7 billion in July as slowing economic growth pressured imports.

Meanwhile, investors are still mulling over the Federal Reserve's announcement on Tuesday that it will buy additional long-term Treasurys as a way of stimulating the sputtering U.S. recovery. The central bank's statement that the recovery will be "more modest" than previously expected marked its most bearish stance in about a year.

The dollar strengthened against the euro and pound on the news because of its safe-haven appeal. That sent oil lower, because oil is priced in dollars like other commodities, so a stronger greenback lowers its price.

Supply and demand: On the other side of the equation -- the latest demand forecasts would actually seem to support a price increase for oil -- but that data has taken a backseat to concerns about the economy.
Both the International Energy Agency, which advises 28 i
ndustrialized countries, and the U.S. Energy Information Administration recently upwardly revised their forecasts for world crude demand. But at the same time, IEA also warned that a weaker economic recovery could cut global demand.

Meanwhile, U.S. supply trends last week were mixed.
Crude supplies fell by 3 million barrels in the week ending August 6, the government said Wednesday. That's a greater dip than the 2.4 million fall analysts surveyed by research firm Platts had expected.

But gasoline inventories increased by 400,000 barrels, whereas analysts had expected a drop of 1.5 million barrels. Distillates, a category that includes heating oil and diesel, increased by 3.5 million barrels -- far more than the 1.1 million barrel increase analysts forecasted for the week.

Hurricanes: August marks the middle of hurricane season, and oil traders are watching for any brewing tropical storms that could cut U.S. oil production and drive prices up.

The Atlantic Basin remains on track for an active hurricane season -- which runs June 1 to November 3 -- the National Oceanic and Atmospheric Administration said on Thursday.

But so far, "more people seemed depressed about the economy than caring about hurricanes," Phil Flynn, a senior market analyst with PFG Best, said in a note to investors Wednesday.

Source URL

Sunday, 22 August 2010

Investors defensive with data in focus

NEW YORK (Reuters) – With Wall Street limping along through the summer doldrums, investors say they will remain on guard for more deterioration in what's expected to be a light-volume week.

The S&P 500 suffered losses last week and is in danger of falling further due to worries about economic data.
"The market is moving into a defensive posture coming into next week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"There may be some trepidation on the data that is coming out based on the data we saw (last) week that seems to indicate the economy could be deteriorating."
Even a pick-up in mergers and acquisitions was not enough to entice investors to get back into the market because of the dismal signs.

Potash Corp (POT.TO)(POT.N) searched for a white knight on Friday as BHP Billiton (BHP.AX) formally launched its $39 billion hostile offer for the world's largest fertilizer company.

The offer came on the heels of Thursday's deal by Intel Corp (INTC.O) to acquire software maker McAfee Inc (MFE.N) for $7.7 billion, fueling speculation more acquisition activity was on the horizon, which market participants noted may not improve the economic climate.

"The main goal of a merger is to cut costs which means they are going to be cutting jobs even more -- so is that necessarily a good thing?" said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Anemic volumes on Wall Street recently -- including the lowest volume tally of the year on last Monday -- will also present another obstacle as they show apprehension by investors and are unlikely to improve without a significant catalyst.

According to Thomson Reuters data, 97 percent of S&P 500 companies have reported quarterly earnings, putting the attention squarely on economic data, including reports on the housing market, durable goods and the preliminary reading of gross domestic product.

The government's estimate of GDP is expected to show a 1.4 percent increase in the second quarter, down from the 2.4 percent rise estimated a month ago.
Disappointing initial jobless claims data and a dismal reading on manufacturing activity in the mid-Atlantic region on last Thursday have turned investors pessimistic, as the chorus warning of a double-dip recession grows louder.

On Friday, the S&P managed to close above the 1,070 level, viewed as a key technical support level as it represents both the August 16 low and the 50 percent Fibonacci retracement from the rally between July 1 and August 9.
"There is a critical point here -- if we were to close under that I would probably increase my hedges a little bit just to add some protection coming into the weekend here," said Mendelsohn.

Last week, the Dow fell 0.9 percent, the S&P 500 slipped 0.7 percent but the Nasdaq added 0.3 percent.

Data from Credit Suisse showed institutional investors had adopted a more defensive stance in the second quarter, increasing holdings in areas such as telecommunications and utilities along with food, beverage and tobacco -- a trend which could continue due to weak data, according to analyst Pankaj Patel.

"Usually there is some momentum so you would see a similar thing this quarter, depending on how this quarter turns out, they will slowly change it. It doesn't change quickly most of the time," said Patel, analyst at Credit Suisse in New York.

As August options expired on Friday, options investors are bracing for a quiet market this week. But M&A activities that have been gaining ground recently will continue to be in the spotlight.

"The big speculation for (this) week is who is next on the M&A front. That's going to be the big story and information everyone wants to know," Jud Pyle, chief investment strategist at PEAK 6 Investments in Chicago.

Options activity on U.S.-listed shares of Canadian fertilizer firm Potash Corp was one of the most active this week after it rejected a take over bid from BHP Billiton.
The CBOE Volatility index (.VIX), Wall Street's so-called fear gauge, was expected to stay below 25, suggesting a relatively calm market. Currently the index was trading up 1 percent at 26.71.

(Reporting by Chuck Mikolajczak; additional reporting by Angela Moon; Editing by Kenneth Barry)

Source URL

New credit card restrictions take effect

By the CNN Wire Staff -- New rules designed to protect credit card users from "unreasonable late payment and other penalty fees" come into force Sunday as a result of the Wall Street reform bill.

The rules block credit card companies from charging more than $25 for late payments except in extreme circumstances, prevent them from charging customers for not using their cards, and requires them to reconsider rate increases imposed since January 1, 2009, according to the Federal Reserve, which approved the regulations.

They are the final provisions of federal legislation that placed new restrictions on credit card interest rates and fees, completing the most comprehensive overhaul of the credit card industry in history.
The banking industry has already made changes in response to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, a spokesman said Sunday.

"The industry has moved swiftly to implement all of these changes and the final piece of the puzzle is now in place," said Kenneth Clayton of the American Bankers Association.

"It will still take some time before we can really see how the landscape has changed, but it is clear that consumer choice and control will ultimately drive further changes in the marketplace," he said in a statement.
The Fed's rules could result in lower interest rates for consumers.

Banks will have to reduce rates if the reasons for increases imposed in the last 20 months no longer exist, and regulators will review and enforce such cuts.
Consumers will most immediately notice the new penalty fee limit of $25. Reducing penalty fees was a central provision of the credit card law, but Congress left it to the Fed to determine how to do it.

The Fed leaves room for larger penalty fees to be charged if a consumer has shown a pattern of "repeated" violations or if a card issuer can show that a higher fee reasonably offsets its own costs in dealing with the violation that spurred the penalty.

Among other new rules, penalty fees can't exceed the dollar amount incurred by the consumer's violation that spurred the fee.

For example, if a customer is late making a $20 minimum payment, the fee can't exceed $20. A consumer who exceeds her credit limit by $5 cannot be charged an over-the-limit fee of more than $5.

Consumers will no longer face multiple penalty fees if the violation was based on a single late payment.

The provisions, which were announced in June, complement previous rules of the 2009 credit card law that are already in effect.

Starting in February, issuers were prohibited from hiking interest rates on existing balances as long as customers paid their bills on time. They also have to notify customers at least 45 days in advance of interest rate increases and most fee changes.

The Fed was tasked with figuring out a way to set penalty fees in a way that's "reasonable and proportional" to the violation that caused the fee.
Consumers scored a win, since these fee caps go beyond what the Fed had suggested earlier this year in a draft.

The $25 limit will mean significant savings for consumers who face median penalty fees of $39, according to data collected by the Pew Safe Credit Cards Project.

However, if a cardholder is late or over his credit limit two times within six months, issuers could hike the second penalty fee to $35, or possibly more if the issuer can justify the fee to regulators, according to the Fed rules.
Although the Fed is cracking down on penalty fees, it hasn't addressed the interest rate hikes that are also imposed on consumers who violate the terms of their credit card agreements.

So a consumer who spends more than his credit card limit by $15 may only face a $15 fee. But that consumer could still face a permanent penalty hike on his interest rate, which would apply to any future purchases.

Still, some banking groups have concerns. Financial Services Roundtable's senior lobbyist Scott Talbott warned that the Fed's cap on penalty fees will limit the industry's ability to offset the risk that credit cardholders don't pay their bills.
"The restrictions in the rules the Fed issued will decrease the ability of the credit card industry to price for risk and the net effect will be a decrease in [credit] availability," Talbott said.

Source URL