Stocks recovered from early losses Tuesday, closing at 13-month highs for the second day in a row, as strength in commodity-linked shares offset weakness in the retail sector.
The Dow Jones industrial average (INDU) rose about 30 points, or 0.3%, to close at 10,437.42. The S&P 500 (SPX) gained 1 point to close above the key 1,100 level. The Nasdaq composite (COMP) advanced 0.3% to end at 2,203.78.
All three indexes are at their highest levels since October 2008.
Stocks opened lower and struggled for most of the day as the dollar regained ground against rival currencies, reflecting a decreased appetite for risky assets.
The tone improved in the last few hours of trading as oil and gold prices reversed direction. Oil closed above $79 a barrel, while gold edged up to settle at a fresh all-time high.
The rebound in commodity prices boosted shares of energy and materials companies. But gains were limited by weakness in the retail sector after Home Depot and Target offered cautious earnings outlooks.
Tuesday’s economic news was mixed. Government data showed inflation at the wholesale level remains subdued, while industrial production was weaker than expected in October.
Ryan Larson, senior equity trader at Voyager Asset Management, said the stock market continues to look to the dollar for direction.
"The main story has been the dollar trade," he said. "When the dollar is weak, investors take on more risk. If it’s strong, they take the risk off."
The dollar has wallowed near a 15-month low against rival currencies in recent weeks as investors take advantage of U.S. interest rates near zero percent to fund bets in more risky stock and commodities markets.
However, after pushing the major indexes up some 30% from the lows of early March, investors have become wary of placing big bets as the economic outlook remains cloudy.
"The economy is growing, but shows a loss of momentum given the recent round of economic and corporate data," said Nick Kalivas, vice president of financial research at MF Global.
Investors will digest reports on consumer prices and initial construction of new homes Wednesday morning. Later in the week, the government will report on the number of Americans filing first-time claims for unemployment benefits.
Stocks rallied Monday as investors bet on the weak dollar and Federal Reserve Chairman Ben Bernanke said interest rates will remain low amid a slow recovery.
Economy: The government reported that the Producer Price Index, the key measure of inflation for manufacturers, edged up 0 cash till payday.3% in October. Core PPI, which excludes volatile food and energy prices, fell 0.6%.
The PPI was expected to have risen 0.5% for the month, according to a consensus of economist opinion from Briefing.com. The core was expected to have edged up 0.1% in October.
Before the start of market trading, the government also reported that industrial production rose 0.1% last month versus a forecasted 0.4% increase. In September, production rose 0.7%. Capacity utilization rose by 0.2 percentage point to 70.7%, a rate slightly below economists’ expectations for 70.8%.
Companies: Home Depot (HD, Fortune 500) reported a decline in third-quarter earnings to 41 cents per share from 45 cents in the year-ago quarter. While the results were better than 36 cent per share profit that analysts had expected, the company said it expects earnings for the full year to be down 13%.
Discount retailer Target (TGT, Fortune 500) reported an 18% increase in third-quarter profit, helped by gains in the company’s credit card portfolio. But Target, which had suffered declining profits for the last eight quarters, remained cautious about the outlook for holiday spending.
TJX (TJX, Fortune 500), which owns the T.J. Maxx and Marshalls chains, reported a larger-than-expected quarterly profit on increased consumer demand for discount products. The company said it expects profit from continuing operations of 65 cents to 71 cents per share in the fourth quarter. Analysts surveyed by Thomson Reuters are forecasting a profit of 71 cents per share in the fourth-quarter.
On the higher end, Saks (SKS) reported a quarterly profit, surprising analysts who were expecting the company to report a loss. However, the results were driven mostly by cost-cutting, and the company offered a cautious outlook.
International markets: The Nikkei and the Hang Seng each closed lower by a fraction of a percent. European markets ended with losses of less than 1%.
Other markets: Treasury prices rose, with the yield on the 10-year note falling to 3.33%.
The weak dollar recovered a little Tuesday. The dollar index, which measures the U.S. currency against a basket of rivals, was up 0.7% to 75.38 from 74.92.
Oil prices rose 24 cents to settle at $79.14 barrel in New York.
The price of gold closed at an all-time high of $1,139.40 an ounce, up 20 cents from Monday’s record close of $1,139.80.
U.S. President Barack Obama said on Sunday the world economy was on a path to recovery but warned that failure to re-balance the global economic system would lead to further crises.
Obama was addressing Asia Pacific leaders in Singapore, where officials removed any reference to market-oriented exchange rates in a communique after disagreement between Washington and Beijing over the most sensitive topic between the two giants.
The statement from the Asia Pacific Economic Cooperation (APEC) forum endorsed stimulus measures to keep the global economy from sliding back into recession and urged a successful conclusion to the Doha Round of trade talks in 2010.
An earlier draft pledged APEC’s 21 members to maintain “market-oriented exchange rates that reflect underlying economic fundamentals.”
That statement had been agreed at a meeting of APEC finance ministers on Thursday, including China, although it made no reference to the Chinese yuan currency.
An APEC delegation official who declined to be identified said debate between China and the United States over exchange rates had held up the statement at the end of two days of talks.
That underscored strains likely to feature when Obama flies to China later on Sunday after Washington for the first time slapped duties on Chinese-made tires.
Beijing fears that could set a precedent for more duties on Chinese goods that are gaining market share in the United States.
Obama told APEC leaders the world could not return to the same cycles of boom and bust that sparked the global recession.
“We cannot follow the same policies that led to such imbalanced growth. If we do, we will continue to drift from crisis to crisis, a failed path that has already had devastating consequences for our citizens, our businesses, and our governments,” Obama said.
“We have reached one of those rare inflection points in history where we have the opportunity to take a different path — to pursue a new strategy for jobs and growth. Growth that is balanced. Growth that is sustainable.”
Obama’s strategy calls for America to save more, spend less, reform its financial system and cut its deficits and borrowing. Washington also wants key exporters such as China to boost domestic demand.
YUAN ON THE AGENDA Chinese President Hu Jintao has been under pressure to let the yuan appreciate, but in several speeches at APEC he ignored the issue and focused instead on what he called “unreasonable” trade restrictions on developing countries.
One of the key themes when Obama visits China for three days will be the yuan, which has effectively been pegged against the dollar since mid-2008 to cushion its economy from the downturn.
Washington says an undervalued yuan is contributing to imbalances between the United States and the world’s third-biggest economy. China is pushing for U.S. recognition as a market economy and concessions on trade cases that would make it harder for Washington to take action against Chinese products.
Efforts by US regulators to move privately traded derivatives to central clearing houses are unlikely to be a cure-all for the industry, and may increase systemic risk if exposures are dispersed among too many counterparties.
Regulators around the world are pushing for the majority of contracts in the $450 trillion over-the-counter derivatives markets to be cleared through central counterparties, as futures and options contracts have been for years, in order to reduce the systemic risk posed by the web of connections between large financial institutions.
If there are too many clearing houses though, regulators run the risk of increasing the systemic risk posed by OTC derivatives trading, said Darrell Duffie, professor of finance at Stanford University.
“A clearing house through its opportunity to net across many asset classes and dealers can lead to a very substantial reduction in risk and also a very big increase in efficiency,” Duffie said.
“However, that only works if you have very few clearing houses,” he said. “Many clearing houses could be very bad. You would have increased counterparty exposure and excessive use of collateral, with multiple points of failure. This could add systemic risk.”
Clearing the majority of derivatives through one counterparty is advantageous as market participants can offset all contracts in which they owe or are owed money against each other, a process known as netting.
The amount of collateral needed to back their exposures would also be radically reduced in this scenario.
Creating too many clearing houses, however, increases the amount of exposure a participant could have to a failed dealer, as it would be spread across several entities payday cash loans.
There are currently at least five clearing houses in the U.S. and Europe that clear or plan to clear credit default swaps, contracts that are used to insure against a borrower defaulting on their debt.
Other clearing houses clear, or plan to clear, other derivatives, including contracts in the $414 trillion OTC interest rate derivatives market.
REDUCING RISKS
Debate has increased recently over whether central clearing will successfully reduce risk posed by OTC derivatives, as some participants fret that difficulties in determining appropriate capital requirements for certain contracts could make concentrating exposures in clearing houses risky.
To some, CDS contracts are too risky in or outside of central counterparties.
David Einhorn, president of Greenlight Capital, said at a recent investment conference that CDSs cannot be made safer and should be banned, citing the “anti-social” incentives to let companies fail that may motivate protection holders who also own corporate debt.
“The reform proposal to create a CDS clearing house does nothing more than maintain private profits and socialized risks by moving the counterparty risk from the private sector to a newly created too-big-to-fail entity,” he said.
The Securities and Exchange Commission is in settlement talks with several large financial institutions to resolve investigations into the awarding of municipal investment contracts, the Wall Street Journal reported on Saturday.
UBS and Bank of America Corp are among a few firms negotiating settlements with the SEC, the Journal said, citing people familiar with the matter.
The report comes after the three-year investigation led to indictments on Thursday against CDR Financial Products Inc and some of its current and former executives, for bid-rigging and fraud related to municipal bond contracts.
The charges were the first to be filed in the U.S. Justice Department’s ongoing investigation into bid-rigging in the municipal bond industry fast payday loan no faxing.
The SEC had no immediate comment on Saturday. Officials at the Justice Department, Bank of America and UBS could not immediately be reached for comment.
Bank of America entered into a leniency agreement with the Justice Department in connection with a probe into bidding practices, the bank said in February 2007. In a leniency agreement, the Justice Department promises not to bring criminal charges in exchange for the company’s information about wrongdoing.
(Reporting by Tiffany Wu and Rachelle Younglai; Editing by Eric Beech)
Bruce Wasserstein, chief executive of asset management firm Lazard, died Wednesday. He was 61 years old.
He was hospitalized with an irregular heartbeat on Monday, according to reports, but the cause of death was not immediately known.
The Lazard board of directors named vice chairman Steven J. Golub interim chief executive officer effective immediately.
The board said Wasserstein "has put into place a long term-strategy as well as a broad and deep leadership team, in whom we have confident and who will sustain his vision."
Wasserstein headed Lazard (LAZ) since 2002, taking the firm public in May 2005. The investment banker was known for his ruthless, high-stakes dealmaking. He initiated many hostile takeovers and redefined how mergers and acquisitions could be accomplished.
Wasserstein’s most high-profile deal was Kohlberg Kravis Roberts’ 1988 leveraged buyout of RJR Nabisco, on which he advised. The takeover was the subject of the book "Barbarians at the Gate."
During his career, Wasserstein famously advised activist investor Carl Icahn in his attempted takeover of CNNMoney.com parent company Time Warner (TWX, Fortune 500) in 2006.
"Wasserstein taught a generation how to do deals, and was a big brother of sorts to so many investors nationwide," said Michael Williams, dean of Touro College’s Graduate School of Business in New York. "He established the model for mergers and acquisitions. He was just remarkable."
Prior to his tenure at Lazard, Wasserstein was the co-head of investment banking at The First Boston Corp., and he served as an attorney at Cravath, Swaine & Moore. Wasserstein graduated from Harvard Business School and earned a law degree from Harvard Law School.
Wasserstein also was chairman of Wasserstein & Co., a private merchant bank, and he owned a group of media publications, including New York Magazine and TheDeal Magazine.
The Federal Trade Commission is going after bloggers, celebrities and tall tales in the first revision of its rules for endorsements and product reviews in nearly 30 years.
The new guidelines, which go into effect Dec. 1, are designed to adapt to a new world in which blogs and social media Web sites such as Facebook and Twitter have quickly become go-to destinations for consumers to get an opinion about a product. The last FTC rules revision was in 1980.
An existing FTC rule that states product reviewers must reveal any connection they have with advertisers was extended to bloggers. Companies will often distribute free products to bloggers for their review, and sometimes advertisers offer payment for endorsements. The FTC said that endorsements on blogs appear to be "word of mouth," but that is not always the case – sometimes companies create their own blogs that can give the aura of objectivity.
The new rules also clarify that celebrity endorsers of products must reveal their relationships with advertisers when making endorsements if they are pushing a product on a blog, social network or television talk show.
"The test here is, if the relationship were known between the blogger and the advertiser, would that affect the credibility of the endorsement?" FTC assistant director of advertising practices Richard Cleland told CNN. "That question has to be determined on a case by case basis. What we have produced is a general guidance that says in certain cases receiving a free product is not any different than being paid directly for an endorsement."
The FTC also targeted testimonials in ads that convey atypical results for a product online pay day loans. For instance, many weight loss supplement ads will show people who have used the product and have lost large amounts of weight, with a disclaimer at the bottom that reads "results not typical." Under the new rules, the company must disclose the results that consumers should usually expect.
The existing rules carry a fine as high as $11,000 if product endorsers and reviewers don’t comply.
"This is great for consumers," said Zeus Kerravala, an analyst with Yankee Group. "There’s some doubt about blogs now, because you don’t really know whether they’re unbiased or not."
Kerravala said this could be the beginning of a larger attempt for the government to regulate the Internet. Though he doesn’t believe it will be as tightly regulated as the off-line world, some tougher rules may be coming down the pike.
"We’ve gotten to a point where blog rumors could move stocks," said Kerravala. "There have to be some stricter regulations of the Internet. It’s long overdue."
But enforcement could prove difficult. Cleland said the FTC won’t be hiring new personnel to monitor blogs, creating a "game of whack-a-mole" for regulators, given the numbers involved. As a result, the FTC said it is more likely to go after advertisers rather than bloggers to ensure ad companies are giving product reviewers proper instructions about disclosure compliance.
– CNN’s Eric Kuhn contributed to this report
The number of first-time filers for unemployment insurance jumped last week, according to a government report issued Thursday, with the increase exceeding economists’ forecasts.
There were 551,000 initial jobless claims filed in the week ended Sept. 26, up 17,000 from an upwardly revised 534,000 the previous week, the Labor Department said in a weekly report.
A consensus estimate of economists surveyed by Briefing.com expected 535,000 new claims.
"We’ve been holding in a similar pattern the past few weeks, and this could dash some hopes of a quicker recovery," said Adam York, analyst at Wells Fargo.
Ian Shepherdson of High Frequency Economics wrote in a research note that "a correction was overdue" after three consecutive declines in initial claims.
"Progress is slow," Shepherdson said. "There is still no sign of a near-term stabilization in employment."
The 4-week moving average of initial claims was 548,000, down 6,250 from the previous week’s revised average of 554,250.
Continuing claims: The government said 6,090,000 people filed continuing claims in the week ended Sept. 19, the most recent data available. That was down 70,000 from the preceding week’s ongoing claims.
The 4-week moving average for ongoing claims fell by 39,250 to 6,154,500 from the prior week’s revised average of 6,193,750.
The initial claims number identifies those filing for their first week of unemployment benefits. Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks.
The figures do not include those who have moved to state or federal extensions, nor people whose benefits have expired.
State-by-state data: Two states reported a decline in initial claims of more than 1,000 for the week ended Sept payday loans. 19, the most recent data available. Claims in Kansas fell by 1,545, while Wisconsin’s fell by 1,258.
A total of 12 states said that claims increased by more than 1,000. California reported the most new claims at 5,112.
Fewer layoffs: A separate report from outplacement firm Challenger, Gray & Christmas said its data showed stabilization in the job market.
Monthly layoff announcements fell in September to 66,404 job cuts, down 13% from August. That’s the lowest level since March 2008, and the September figure was 30% lower than the same month a year ago, when employers announced 95,094 job cuts.
It was the fourth consecutive month in which job cuts declined from the year-ago level.
Outlook: Thursday’s government report "shows we still have job losses to come this year," said Wells Fargo’s York.
The rest of 2009’s job losses won’t come near the levels seen during mass layoffs in January and February, York said, and initial claims could fall below the 500,000 mark by year’s end.
High Frequency Economics’ Shepherdson wrote that better economic data in the third quarter should boost the job market.
"It would be very surprising not to see claims falling now," he said.
We want to hear about the most outrageous consumer rip offs and price gouging that you’ve come across. E-mail your story to julianne.pepitone@turner.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
Despite a drop in inflation, the annual cost of employer-sponsored family health insurance coverage has risen 5% this year to $13,375, according to a new survey released Tuesday.
Employers picked up the lion’s share of that tab. Companies paid an average of $9,860, while their workers picked up the other $3,515, according to the 2009 survey of employers from the Kaiser Family Foundation and Health Research & Educational Trust. Kaiser is a nonprofit, nonpartisan health policy research foundation.
For individual coverage, annual premiums rose more modestly, up an average of 2.6% to $4,824. But those increases came as prices fell roughly 1% this year because of the recession.
Over the past decade, the annual cost of family coverage has risen 131% and the annual cost for single coverage is up 120%, according to Kaiser. In each of the past 10 years, insurance increases have outpaced inflation — sometimes by as much as 11 percentage points.
"When health care costs continue to rise so much faster than overall inflation in a bad recession, workers and employers really feel the pain," said Kaiser president and CEO Drew Altman in a statement.
Even though companies pay far more of health insurance premiums than their employees, many economists note that increases to the employer portion of health costs reduce workers’ wages over time. This year, workers’ wages have risen 3.1%, according to the Kaiser survey.
In response to the economic downturn, 22% of large employers and 21% of small employers offering health insurance to workers said they reduced the cost of health benefits or increased how much their workers had to pay through deductibles and co-payments.
The same percentage of large employers and 15% of small companies said they increased their workers’ share of the premiums.
And 42% of all firms said they are likely or somewhat likely to increase what workers pay in premiums next year, while more than 35% said they would increase deductibles or worker copayments and share of drug costs free credit report and score.
According to the survey, more than 20% of workers with employer-sponsored insurance plans must pay $1,000 in deductibles for individual coverage before their insurance policy kicks in. That’s up from 10% in 2006.
The survey comes during one of the most pivotal weeks in the health reform debate, as Senate Finance Committee Chairman Max Baucus, D-Mont., prepares to release a much-awaited reform bill worked on — although not always supported — by a bipartisan group of senators. Whether that bill can generate bipartisan support among the broader committee and others in the Senate is still an open question.
But one idea that has generated support among many in both parties is that any reform should be built around the employer-sponsored insurance system, which currently insures the majority of Americans. Efforts to curb costs within that system remains one of lawmakers’ — and employers’ — biggest challenges.
If health care costs continue to grow at an average annual rate of 8.7% — which they did over the past 10 years — Kaiser estimates the annual premium cost for employer-based family coverage will top $30,000 by 2019.
"There’s no reason to believe we’ve done anything meaningful to address the fundamental drivers of health care costs," Altman said in a conference call with reporters.
Should health reform take place and should it succeed in reducing costs the long-term trend could be altered, he said, but cost containment won’t be immediate.
With Democrats and Republicans fighting a death match over health care reform, some small business owners fear that their priorities will get lost in the fray.
"Congress hasn’t approached health care reform from a small business owner’s standpoint," says Todd McCracken, president of the National Small Business Association. No one knows how the legislative battle will pan out, but here are three crucial health care issues to keep on your radar this fall.
The Penalty Box. What if hiring one more employee saddled your company with tens of thousands of dollars in federal fines? According to legislation before the House, businesses with payrolls as low as $250,000 would pay a 2% tax if they didn’t provide health insurance (that would rise to 8% as payroll grew to $400,000). And in early Senate legislation, firms that employ 25 or more workers would have to insure them all or pay a per-employee penalty. Those tipping points could discourage business growth.
The Senate Committee on Health, Education, Labor and Pensions addressed this problem in July, amending its version of the bill to exclude a firm’s first 25 employees — not just firms with 25 or fewer — from an annual fee of $750 per worker. So putting a 26th employee on the payroll would trigger only one $750 fee — not 26 of them.
More taxes, please. When did you last request more taxes? Never? Well, there’s a first time for everything.
Some entrepreneurs would like to see the federal government put a cap on the value of tax-deductible insurance. Under the current, uncapped system, big businesses can offer deluxe insurance tax-free, which helps them recruit and retain employees.
A tax on premium insurance would generate necessary funding for healthcare reform, limit plans that cover unnecessary procedures and level the playing field for small businesses. Also, Congress could grant self-employed taxpayers the same healthcare deductions as businesses.
Pool power. Small businesses and the self-employed don’t have the bargaining power of corporate behemoths. That could change if Congress gives entrepreneurs the right to form insurance purchasing pools. In 2008 and 2009 a bipartisan group of lawmakers introduced Small Business Health Options Program (SHOP) bills to allow such pools.
The last time the Federal Reserve was raising interest rates, it did so at a snail’s pace. But it may not take that gradual approach to tightening policy the next time around.
Fed officials are stressing there will be no exit from the U.S. central bank’s extraordinarily accommodative interest-rate stance for an “extended period” and analysts do not expect the first rate hike until 2010 or 2011.
The U.S. central bank slashed its benchmark overnight borrowing costs close to zero last December as part of an emergency rescue of the U.S. economy that included a raft of extraordinary lending and purchase programs, such as buying mortgage-related debt.
Fed watchers say it would be able to keep its low-rate pledge more easily if it were perceived as ready to move up quickly when it finally does begin to tighten.
In its last rate-raising cycle from mid-2004 to mid-2006, the Fed increased the overnight federal funds rate by a slim quarter point at each of 17 consecutive meetings.
This deliberate policy, known as “gradualism,” aimed to be predictable so as not to disrupt markets. In a 2004 speech, then-Fed Governor Ben Bernanke, now the central bank’s chairman, discussed reasons for gradualism, as well as an alternative, which he called the “cold turkey” approach.
Many economists believe the decision to raise rates at a “measured” pace after a long period in which they were unusually low kept monetary policy too easy for too long, fueling the housing bubble that led to the current crisis cheap credit report.
Chicago Federal Reserve Bank President Charles Evans said last week that the pace of tightening was “perhaps a little too measured.”
The Fed would want be more aggressive next time, he said.
“We are probably in a period where gradualism is less important than getting to the right stance in policy,” Evans said.
To be sure, the first hike won’t mean policy has suddenly become restrictive. With rates currently near zero, it would simply start taking them to a more normal base.
Indeed, the Fed may not turn aggressive until it is clear the economy needs more restraint.
“Once they decide it’s time to go for broke, it’s unlikely you’ll see the baby steps you saw in 2004 to 2006,” said Mark Gertler, a professor at New York University and a visiting scholar at the New York Federal Reserve Bank.
Interest rate futures markets, however, are pricing in a relatively gradual approach to rate hikes. While the first increase fully priced in is a relatively large half-point move in June 2010, the market sees rates up to only about 1.25 percent by the end of the year.
Of course, any decision to raise rates will depend greatly on how the economic recovery plays out.
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