Stocks end higher after Obama speech

NEW YORK (CNNMoney.com) -- Stocks ended Wednesday higher as investors shifted their focus from worries about European banks to President Obama's $350 billion jobs recovery plan.

The Dow Jones industrial average (INDU) rose 46 points, or 0.45%, to 10,387 the S&P 500 (SPX) gained 7 points, or 0.6%, to 1,099 and the Nasdaq (COMP) Composite climbed 20 points, or 0.9%, to 2,229.

Stocks are coming off losses Tuesday, when all three major indexes fell more than 1% as investors worried that European banks are in worse shape than previously believed.

But those fears subsided a bit Wednesday morning after the Portuguese debt auction was met with healthy demand. Experts caution that concern about Europe's banks may have eased but the problems are far from disappearing.
As austerity measures take effect in several European countries and various data continue to point to slower economic growth globally, sovereign credit spreads have started widening again, nearing the levels they were at in the spring, said David Chalupnik, the head of equities at First American Funds.

Wider credit spreads are a sign that funding government debt could become more challenging for debt-laden European countries, he explained.

Bank stress socks the Continent

Economy: The Federal Reserve's Beige Book, a snapshot of economic conditions across the central bank's 12 districts, suggested the economy continued to grow between mid-July and the end of August, but with "widespread signs of a deceleration" compared with earlier periods.

A separate report from the Fed showed that consumer debt fell by $3.6 billion in July -- far less than the $5.25 billion decrease predicted by economists surveyed by Briefing.com.

Obama: President Obama officially unveiled three new proposals aimed at bolstering the shaky economic recovery in a speech in Cleveland.

They include an estimated $200 billion in tax breaks for businesses that invest in new plants and equipment; a $100 billion extension of the business tax credit for research and development; and $50 billion over the next decade to improve roads, rails and other infrastructure.

Congress is not expected to pass the proposals soon.
Companies: Shares of BP (BP) surged more than 3% at the opening bell after Fitch upgraded the company's rating three notches.


The ratings firm said the upgrade "primarily reflects an end to the threat of further leaks from the Macondo well in the Gulf of Mexico."

World markets: European shares gained. The CAC 40 in France rose 0.9%, the DAX in Germany added 0.8%, while Britain's FTSE 100 edged up 0.4%.

Asian markets ended sharply lower after the yen hit another 15-year high against the dollar. Japan's benchmark Nikkei index tumbled 2.2% and the Hang Seng in Hong Kong dropped 1.5%. The Shanghai Composite ended 0.1% lower.

Currencies and commodities: The dollar rose against the Japanese yen after sinking to a fresh 15-year low earlier, and the greenback fell against the euro and the British pound.

Oil futures for October delivery rose 41 cents to settle at $74.67 a barrel.
Gold for December delivery fell $1.80 to settle at $1,257.50 an ounce.

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The new young investor: Shunning stocks

NEW YORK (CNNMoney.com) -- When 18-year-old Robert White decided to jumpstart his retirement plan, he invested his life savings of $25,000 into an aggressive mutual fund.

Little did he know that just five years later, he would make a complete 180 and join the ranks of a new group of young investors who have become so risk averse by the wild market swings that they'd rather park their money in safety zones, like CDs or Treasurys.

Today, only 22% of investors under the age of 35 say they're willing to take on a substantial level of risk, according to the Investment Company Institute. Compare that with 2001, when that same group outpaced every other age bracket.
"We're coming off a series of financial crises that hit this young generation at points in their lives where external events shape strong opinions," said Christopher Geczy, adjunct associate professor of finance at University of Pennsylvania's Wharton School.

When White's fund began to slip with the broader market in 2008, he yanked his savings, now at $35,0000, and put the money into a short-term certificate of deposit with an annual return rate of 4%.

"It's almost embarrassing to talk to anyone about my portfolio because I know how stupid it is to normally keep my portfolio in cash," said White, now a 23-year-old graduate of Northern Arizona University.

While most investors have become more cautious during the decade, the biggest change has come from White's generation.

"Many of them have witnessed a decline in the wealth of their families and seen their parents delay retirement or even return to the workforce," said Geczy, who also serves as the academic director of Wharton's Wealth Management Initiative.
A recent Merrill Lynch survey of 1,000 affluent Americans, who boast more than $250,000 in investable assets, showed 56% of young investors consider themselves to be more conservative today than they were a year ago -- the highest percentage among all age groups.

"If you're in your 20s and are just starting to save for retirement, you've seen the market drop 55%, climb 88%, and drop again in a short span...If you're in your 30s and have been saving for the past decade, you've seen the stock market return essentially 0%," said Vanguard Chief Executive Bill McNabb, at a recent conference.

Members of Generation Y are also having a tougher time finding a job than their counterparts. The unemployment rate for workers under the age of 35 in August stood at more than 13%, compared to the nation's 9.6%.

Prolonging retirement

White has mustered up the courage to return to the market but he is only dabbling in stocks with about 10% of his $60,000. That's a far cry from the 70% advisors typically recommend for young investors. The rest of White's cash is tucked away in a savings account.

He's hopeful he'll gain the confidence to boost his stock allocation to 75% this fall when he returns to his home of Maui and starts a job at a financial planning office.

"I'm just waiting to get the next piece of advice or news that will make me more comfortable about my decisions," said White.
Experts say White and his peers may be doing themselves a disservice by shunning stocks.

"The biggest risk for this generation is that they'll live too long. With medical breakthroughs, the reality is that many of them will live beyond 100," said Barry Nalebuff, a strategy professor at Yale's School of Management and co-author of Lifecycle Investing. "The only way they have enough assets to last them is to invest in stocks. If they don't, a lot of people will have to keep working way past when they want to because they won't have enough money saved up."

How to save $1 million by 65

Nalebuff argues that young investors have decades of earnings to rake in, so they could plow 100% into a diverse portfolio of stocks and still offset the market's risks.

But that's little comfort to people like Neil Sowinski, 30, who remains unnerved by the market's swings. He pulled his money from stock market in January and dumped it into a Pimco bond fund, and advised his wife to do the same.
"We watched the tech bubble bust and then the housing bubble bust, and we lost money left and right but rode it all out," said Sowinski, an industrial mechanic in Racine, Wis. "After the market climbed back in 2009 and put us up about 15%, we pulled out because I felt that rally was just based on the government's stimulus and corporations cutting costs -- it wasn't sustainable."

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Bank stress socks Europe

"Europe's debt crisis is back from summer vacation with a vengeance"

Borrowing costs soared Tuesday for weaker European governments and their banks, after a series of unsettling reports about bank risks and the region's capacity to shoulder a massive debt burden.


Spreads on government bonds issued by Portugal and Ireland surged above the peaks they reached in May, during the last round of market unrest. Investors were demanding 3.76 percentage points more to lend to Ireland than to Germany, and 3.51 percentage points more to lend to Portugal than Germany. Greek spreads were approaching their record highs.

The moves came after investors got bad news from almost every angle over the long Labor Day weekend in the United States.

The Bank of International Settlements reported this weekend that European banks have been loading up on bonds issued by troubled governments in Greece, Ireland, Italy, Portugal and Spain.

They did this even as private investors backed away from that debt, on the grounds that the risk of a default in one of those countries is rising as the global economic recovery slows, in part because the European Central Bank has been lending freely on the weaker nations' bonds as collateral.

Then The Wall Street Journal reported there are renewed questions about the strength of the stress tests European Union regulators carried out in July, and discrepancies in the size of various banks' exposure to troubled governments.
And in Ireland, policymakers continue to grapple with the quickest and least costly way to wind down the government's support for debt-gorged banks, which already has cost Ireland a string of credit downgrades and stands to consume a huge sum of scarce taxpayer resources.

The cost of insuring against a default on bonds issued by stressed European governments rose 9% in Spain and 7% each in Ireland, Italy and Portugal, according to CMA data.

Shares of the major European banks trading in New York, from Spain's Santander (STD) and Banco Bilboa (BBVA) to Germany's Deutsche Bank (DB) and ING (ING) of the Netherlands, tumbled 3% in early action Tuesday.

Even harder hit was Barclays (BCS) of the U.K., which dropped 5% after a surprise management change and the whiffs of a question about its own sovereign debt exposure. The bank was among those whose exposure to weaker governments was understated by the stress tests, The Wall Street Journal reported.

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Stocks fall on European bank woes

NEW YORK (CNNMoney.com) -- U.S. stocks fell Tuesday as renewed worries about European banks weighed on financial stocks and investors flocked to such safe-haven assets such as the dollar, Treasurys and gold.

All three indexes fell about 1%. The Dow Jones industrial average (INDU) fell 107 points to 10,341, the S&P 500 (SPX) slipped 13 points to close at 1,092 and the Nasdaq (COMP) lost 25 points to 2,209, according to early tallies.

During last week's stock rally, the Dow turned positive for the year. But Tuesday's losses quickly turned the index back into the red.

On Friday, the major indexes gained more than 1%, after a government report showed fewer jobs were lost in July than economists had expected. U.S. markets were closed Monday for Labor Day.

"We're in September, which is traditionally a softer month for stocks, and so far we've escaped that," said Peter Cardillo, chief market economist for Avalon Partners. "But lingering worries won't diminish until we get more indicators that show the decline in economic activity is leveling off and beginning to turn around again."

Bank stress socks Europe

Economy: Fears that European banks may be in worse shape than indicated by recent financial stress tests spooked investors, said Anthony Conroy, head trader at BNY ConvergEx Group.

"Investors are questioning the shape of the banks, because reports are saying that their sovereign debt holdings are weaker than previously thought," he said. "People see this news coming out and begin to worry more about a possible double-dip [recession], because you can't have a healthy economy without healthy financials."

The renewed worries came after an analysis in Tuesday's Wall Street Journal that said Europe's stress tests -- aimed at measuring the health of the continent's financial sector -- understated major banks' holdings of government debt.

Financial stocks sank after the report, with American Express (AXP, Fortune 500) leading the way with nearly 4% losses and Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) both falling more than 2%. Shares of Bank of America (BAC, Fortune 500) also fell 2%.

President Obama will introduce a new $200 billion tax cut on Wednesday that will allow businesses to write off all new investments in equipment made between now and the end of 2011.
A reading on hiring from employment firm Manpower showed that employers are likely to remain reluctant to boost hiring in the fourth quarter.

Is Mark Hurd really worth $6 billion to Oracle?

Companies: Shares of Oracle (ORCL, Fortune 500) gained 6% after the business software maker said it has hired former Hewlett-Packard (HPQ, Fortune 500) CEO Mark Hurd as its president. Later in the day, HP filed suit to block Hurd from the taking the job.
Meanwhile, Barclays (BCS) shares sank 5.4% after the British bank announced its CEO John Varley will retire March 31. Bob Diamond, the bank's U.S.-born president and investment banking chief, will replace Varley.

World markets: European shares dipped. The CAC 40 in France tumbled 1.1%, the DAX in Germany fell 0.6%, and Britain's FTSE 100 lost 0.6%.
Asian markets ended mixed. Japan's benchmark Nikkei index dropped 0.8%, while the Shanghai Composite edged up 0.1% and the Hang Seng in Hong Kong gained 0.2%.
Currencies and commodities: Gold for December delivery rose $8.20 to settle at $1,259.30 an ounce, after surging to a two-month high of $1,261.60 earlier in the day. Oil futures for October delivery dropped 51 cents to settle at $74.09 a barrel.
Bonds: The reignited eurozone fears also spurred investors to buy U.S. Treasurys, sending prices higher and yields lower. The yield on the 10-year Treasury note fell to 2.61% from 2.71% late Friday.

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Johnson & Johnson CEO Bill Weldon's painful year

FORTUNE -- What started last year as a series of small drug recalls at Johnson & Johnson exploded this summer into a full-blown crisis in quality control. But for months there was nary a peep from CEO Bill Weldon.

It wasn't until late August, after McNeil Consumer Healthcare, the division of J&J (JNJ, Fortune 500) that makes over-the-counter drugs, had instituted eight recalls, that Weldon emerged, granting multiple interviews in which he promised to rectify McNeil's quality problems. He told Fortune that he had created a new position: an operations chief who will oversee quality across J&J and report directly to him. Weldon also said the company had been busy inspecting facilities at all of its 250 operating companies, adding, "This is not a systemic problem at J&J." [For a diagnosis of what went wrong, read "Why J&J's headache won't go away."]

That assertion was quickly undercut. About a week after Weldon proclaimed McNeil an anomaly, the company issued two more recalls -- both in divisions completely separate from McNeil. One was for contact lenses made by Vision Care, and the other involved hip implants made by DePuy.

Meanwhile, Weldon's plan to install a new quality czar has rankled some staffers, who say he is resurrecting a concept that was dismantled under his watch. According to four former employees, J&J had a corporate compliance group that oversaw all of the different companies, but it was drastically cut down in 2007.

The group, helmed by Corporate Compliance Officer Brenda Davis, conducted tough biannual audits of J&J's operating companies and helped set up "management action plans" for improving quality control. Davis, who left the company in 2007, did not respond to requests for comment. A J&J spokesperson declined to comment for this article.

"The whole idea was creating a Hawthorne effect: If people know they're being watched, they'll do better," says one former J&J executive. After the group was cut, he says, some divisions lost their focus on quality. "The heads of the operating companies let their hair down."

Weldon told Fortune that the company had made "significant investments" in refitting McNeil's factories -- one of which will be shuttered until next year -- increasing automation and hiring third party experts to assess the company's manufacturing processes. He also said J&J had begun implementing a company-wide quality plan a year and a half ago, which resulted in the creation of the new corporate compliance team. "My expectation of this group is that, as good as we do manufacturing at J&J, we'll take it to a completely new level," he says.

But corporate image experts say Weldon needs to make a grander gesture to restore faith in the brand. "At this point, it's no longer about the specific incidents, but the underlying process," says Daniel Diermeier, a professor at Northwestern's Kellogg School of Management. "That requires a pretty heavy push driven beyond just appointing another person."

J&J announced in July that the McNeil recalls will cost the company some $600 million. That's a small dent in J&J's $62 billion in annual sales, but analysts fear that the highly profitable McNeil business could suffer from permanent reputational damage. "The steady drip is at a modest pace eroding investor confidence," says Les Funtleyder, an analyst at Miller Tabak.

Weldon, who has kept a low profile for the majority of his eight-year tenure, must now fight to salvage not just McNeil's reputation -- but his own. Surveys of business executives conducted by CoreBrand show that favorability ratings of J&J's management have dropped from 88.3% in 2006 to 80.9% last quarter. That's a significant decline, according to Jim Gregory, the branding firm's CEO. "There's something not right here that needs attention," Gregory says. "[Weldon] needs to change it -- or there needs to be a change of management."

The Weldon Era: A Solid B

J&J employees often speak of Weldon's predecessors -- James Burke and Ralph Larsen -- in hushed tones, rehashing stories of how those vaunted leaders managed through crises. Weldon has not engendered that sort of veneration. But his supporters point out that the CEO has faced a very different sort of challenge: A decade of slowing growth for the entire healthcare industry.

The Brooklyn-born son of Broadway stage workers, Weldon is known internally as a tough competitor who hates to lose. He joined the J&J's sales force straight out of college -- the CEO told Fortune in 2002 [see: "Can J & J keep the magic going?"] that he wanted to be a doctor, but couldn't afford to go to medical school -- and was named head of J&J's device-maker Ethicon Endo-Surgery in 1992. At the time, Ethicon was a small player in the surgical device industry, which was dominated by rival U.S. Surgical. Weldon took U.S. Surgical head on by aggressively investing in Ethicon's business, and over the next few years the company's market share grew from 9% to over 50%.

When Weldon became CEO of J&J in 2002, the company was living large off high-margin drugs like Topamax, which treats migraines and epilepsy, and antipsychotic medication Risperdal. Those blockbuster drugs have lost their patent protection in recent years and J&J's lucrative drug-coated stent has ceded much of its market share. The company has battled pricing pressure and weakened demand during the recession.

As J&J's sales growth slowed, turning negative last year for the first time in decades, Weldon fought back with layoffs -- the biggest cuts in J&J's history and acquisitions. His dealmaking record is mixed. Before he became CEO, he spearheaded the successful $12 billion purchase of Alza, which made Concerta, an attention deficit disorder treatment that is still a breadwinner for J&J. His purchase of Scios, a biotech, was less fruitful, as the company's heart-failure drug was later linked to medical problems.

Analysts say J&J lucked out when it lost a bidding war for device-maker Guidant, which was bought by Boston Scientific (BSX, Fortune 500) for $27 billion, a deal that Fortune derided as a bomb. [See: "The (second) worst deal ever."] Shortly after that, Weldon purchased Pfizer's consumer health unit for $16.6 billion.

Critics balked at the high premium, but the buy is now viewed as a prescient move by the CEO, who expanded the company's roster of stable consumer brands before the recession hit. "That looks smart for J&J, and dumb for Pfizer," says Miller Tabak's Funtleyder, who gives the company "a solid B" for its performance over the last decade.

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Leading Economist: U.S. & Europe could sink into ‘Japanese-style’ discomfort

Quest Means Business: Monday – Friday on CNN @ 2000 CET

Nobel Prize winning economist Joseph Stiglitz joined us on Quest Means Business today. He told guest host Max Foster the U.S. needed more stimulus and that the country could “clearly” afford it. Stiglitz also said, both the U.S. and Europe need to focus on the “direction of spending” and believes there could be dire consequences if they don’t.

“I think it's more likely that the United States and Europe may sink into what might be called a Japanese-style malaise. Growth might be a little higher than in Japan, because in Japan, population/labor force growth was zero,” Stiglitz said.
In contrast, “We have, in the United States, a population - a labor force growth of around 1 percent. Growth in the last quarter was a little over that, 1.6 percent. But this growth is so slow that it won't be able to get the unemployment rate down. So that is where I think we're more likely to go - slow growth, not enough to get us back into a really healthy situation.”

Stiglitz said spending on wars was a lack of the direction of spending in the U.S. and Europe. “Obviously, if you're spending money on wars that don't really enhance your security, you're wasting money and debt is […] going up. If you redirected that money from those unproductive spending to more productive spending, the balance sheet can actually be improved.”

Foster asked Stiglitz if he still stood by the claim he once made that the true price of the Iraq war would exceed $3 trillion USD. Stiglitz stood by his findings saying the data that have come in suggest the cost could be even higher than he first believed. “The number that the politicians focus on is the actual expenditures that goes on the books. And what we did in our study is looked at the costs that go beyond that. For instance, almost 50 percent of those who fought in Iraq are coming back disabled. We're going to be paying for health care and disability payments for the rest of their lives.”

Stiglitz called his original estimates conservative. “The numbers coming back with these disabilities are significantly higher than we estimated. And the cost for each is higher than we estimated. So the numbers that have come in look like that $3 trillion was a conservative number.”

So what do you think? Did the spending on the war in Iraq help bring the U.S. and Europe into a recession? And could both regions be headed for a "Japanese-style malaise" as Stiglitz put it? QMB wants to know what you think. Leave us your thoughts in the comments section, join us on Facebook or Tweet Richard your thoughts to @RichardQuest. Be clever and we just might use your response in the show!


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World markets rally, Nikkei gains 2%

NEW YORK (CNNMoney.com) -- World markets rallied Monday, with Asian stocks logging their fourth straight session of gains.

U.S. markets were closed in observance of the Labor Day holiday but last week, the bulls returned to Wall Street to start September off with a bang.

European and Asian markets took their cues from the better-than-expected U.S. economic data, including Friday's all-important jobs report, which showed fewer jobs were lost in August than economists had forecast.

The Nikkei, which hit a 16-month low on Aug. 31, launched into September with four straight sessions of gains, closing 2% higher Monday. But the Japanese stock index is still down nearly 12% from the start of the year as worries persist over the strong yen, which hit a 15-year high two weeks ago.

Still, the overall renewed optimism about the U.S. economy spilled over to other markets. The Hang Seng in China closed up 1.8% and European stocks followed the Asian indexes higher.

The CAC 40 in France ended 0.3% higher, the DAX in Germany rose 0.3%, and Britain's FTSE 100 also gained 0.2%.

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