On Sunday, five international news outlets published a selection of more than 250,000 U.S. diplomatic cables, provided by the website WikiLeaks. The disclosure of the cables, most of them from the past three years, offers a rare unfiltered view of the secretive world of high-level diplomacy. As such, it could complicate relations with a host of friendly and unfriendly nations.
But what did we actually learn? Here are 10 key revelations from the cables:
1. Many Middle Eastern nations are far more concerned about Iran's nuclear program than they've publicly admitted. According to one cable, King Abdullah of Saudi Arabia has repeatedly asked the U.S. to "cut off the head of the snake" -- meaning, it appears, to bomb Iran's nuclear program. Leaders of Qatar, Jordan, the United Arab Emirates and other Middle Eastern nations expressed similar views.
2. The U.S. ambassador to Seoul told Washington in February that the right business deals might get China to acquiesce to a reunified Korea, if the newly unified power were allied with the United States. American and South Korean officials have discussed such a reunification in the event that North Korea collapses under the weight of its economic and political problems.
[Related: WikiLeaks docs reveal U.S. diplomats insulting world leaders]
3. The Obama administration offered sweeteners to try to get other countries to take Guantanamo detainees, as part of its (as yet unsuccessful) effort to close the prison. Slovenia, for instance, was offered a meeting with President Obama, while the island nation of Kiribati was offered incentives worth millions.
4. Afghan Vice President Ahmed Zia Massoud took $52 million in cash when he visited the United Arab Emirates last year, according to one cable. The Afghan government has been plagued by allegations of corruption. Massoud has denied taking the money out of the country.
5. The United States has been working to remove highly enriched uranium from a Pakistani nuclear reactor, out of concern that it could be used to build an illicit nuclear device. The effort, which began in 2007, continues.
6. Secretary of State Hillary Rodham Clinton ordered diplomats to assemble information on their foreign counterparts. Documents in the WikiLeaks cache also indicate that Clinton may have asked diplomats to gather intelligence on U.N. Secretary General Ban Ki-moon's plans for Iran, and information on Sudan (including Darfur), Afghanistan, Pakistan, Somalia, Iran and North Korea.
7. The State Department labeled Qatar the worst country in the region for counterterrorism efforts. The country's security services were "hesitant to act against known terrorists out of concern for appearing to be aligned with the U.S. and provoking reprisals," according to one cable.
8. Russian Prime Minister Vladimir Putin and Italian Prime Minister Silvio Berlusconi are tighter than was previously known. Putin has given the high-living Berlusconi "lavish gifts" and lucrative energy contracts, and Berlusconi "appears increasingly to be the mouthpiece of Putin" in Europe, according to one cable.
[Related: The Guardian gave State Dept. cables to the NY Times]
9. Hezbollah continues to enjoy the weapons patronage of Syria. A week after Syrian president Bashar Assad promised the United States he wouldn't send "new" arms to the Lebanese militant group, the United States said it had information that Syria was continuing to provide the group with increasingly sophisticated weapons.
10. Some cables reveal decidedly less than diplomatic opinions of foreign leaders. Putin is said to be an "alpha-dog" and Afghan President Hamid Karzai to be "driven by paranoia." German Chancellor Angela Merkel "avoids risk and is rarely creative." Libyan leader Moammar Gadhafi travels with a "voluptuous blonde" Ukrainian nurse.
The cables were obtained, via WikiLeaks, by the New York Times, the Guardian of Britain, Der Spiegel of Germany, Le Monde of France and El Pais of Spain.
Monday 29 November 2010
Obama announces federal pay freeze
President Obama didn’t get a raise last year — nor did most of his senior staff.
That’s according to the White House’s latest salary list, which reports a nearly $39 million annual payroll. This year, the White House has made the report, which it files with Congress every year, available online for the first time. The list itemizes the salary and title of every employee of the White House, except for the vice president’s office, which is technically an arm of the Senate. The pay sheet also doesn’t include Obama, whose $400,000 annual salary is regulated by Congress. According to the latest study, the White House currently employs 469 people — down 17 positions from 2009.
There are few changes in the report from last year, in part because Obama capped the salaries of any employee making more than $100,000 a year. According to the White House, employee salaries range from $21,000 to nearly $180,000 a year.
Twenty-three top aides, including chief of staff Rahm Emanuel, press secretary Robert Gibbs, speechwriter Jon Favreau, White House counsel Bob Bauer and senior advisers David Axelrod and Valerie Jarrett, make the top full-time staff salary of $172,200. (Two health-care policy “detailees” — Michael Hash and Timothy Love — make $179,700.) By comparison, Vice President Joe Biden makes roughly $230,000 a year, according to Senate records.
White House social director Juliana Smoot makes $150,000. That’s $37,000 more than her predecessor, Desiree Rogers, who left the administration not long after a scandal involving party-crashers at a state dinner in December. Former Duke basketball star Reggie Love still makes just over $100,000 as President Obama’s body man. Not on the list: actor Kal Penn, who left his job in the White House’s Office of Public Engagement on June 1 to film the third sequel in the "Harold & Kumar" film series.
Most so-called rank-and-file members of the White House staff pull in an average income between $40,000 and $60,000 — including dozens of “staff assistants,” press aides, analysts and researchers. Three people are listed as working for free.
Sunday that although the paper's reporters had been digging through WikiLeaks trove of 250,000 State Department cables for "several weeks," the online whistleblower wasn't the source of the documents.
But if WikiLeaks—which allegedly obtained the cables from a 22-year-old army private—wasn't the Times source, than who was? Apparently, The Guardian—one of the five newspapers that had an advanced look at the cables—supplied a copy of the cables to The Times.
David Leigh, The Guardian's investigations executive editor, told The Cutline in an email that "we got the cables from WL"—meaning WikiLeaks—and "we gave a copy to the NYT."
It's not everyday that a newspaper gives valuable source material to a competitor. But Leigh explained in a second email that British law "might have stopped us through injunctions [gag orders] if we were on our own."
The Times, in an editor's note, said that the cables "were made available to The Times by a source who insisted on anonymity." A Times article on the cables said they were provided to the paper by an "intermediary." So presumably, the Guardian acted as intermediary and the Times agreed to the same embargo as the other publications involved.
On Sunday, Leigh wrote on The Guardian's site that his paper's staff spent months going through the cables. In an email, Leigh specified that The Guardian received the cables in August.
Leigh said that all the publications involved Sunday—including Spain's El Pais, France's Le Monde and Germany's Der Spiegel—"talked to each other in order to coordinate timing, and the papers talked to each other in an effort [not completely successful!] to avoid scooping each other."
Both The Times and the Guardian were among the newspapers that WikiLeaks provided the Iraq and Afghanistan war logs to prior to publishing online. But the WikiLeaks-Times relationship has been a bit rocky of late.
WikiLeaks founder and editor-in-chief Julian Assange harshly criticized The Times in October for a front-page profile of him that ran alongside the Iraq logs coverage.
Bill Keller, executive editor of the New York Times, would not confirm on Sunday night that the Guardian was the paper's source.
That's not surprising, since journalists are never quick to reveal sources. Even though Leigh confirmed it publicly, Keller still needed clearance from The Guardian. On Monday morning, Keller confirmed in a follow-up email that The Guardian provided the material to The Times.
The New Hot Money Destination
Americans have reacted to the financial crisis of 2008 in a number of ways -- curbing spending, cutting back on debt, and pulling money out of the stock market. Actively managed equity mutual funds have been one of the biggest casualties of investor wariness, with hundreds of billions of dollars leaving the coffers of these funds, presumably for the safe haven of bonds and bond funds. And while few would deny the general shift in investor preference toward bonds in recent years, there may be some more subtle forces at play here.
A fundamental shift
A recent Wall Street Journal article highlighted the fact that while retail shares of equity mutual funds have continued to bleed assets over the past two years, not all of that money is going straight to bonds. Apparently, investors are redirecting some of that cash into the institutional versions of the same funds whose retail shares they are fleeing. Since 2009, while investors pulled roughly $129 billion from retail A, B, and C shares that charge some kind of load to the investor, they actually added $72 billion to institutional share classes.
While they are typically cheaper than their retail counterparts, institutional share classes generally feature much higher investment minimums, putting them out of reach of most individual investors. However, these funds are frequently used in qualified retirement plans like 401(k)s and other tax-advantaged plans, where investors can take advantage of their lower fees without worrying about meeting the onerous minimum investments.
One take on this shift in investor behavior is that investors are moving away from using commission-based financial advisors who tend to recommend A, B, and C shares of funds to garner a commission from the fund company in the form of a front-end or deferred load. Institutional shares in brokerage accounts overseen by fee-based advisors are becoming more common, so this could indicate that more investors are embracing fee-based financial planning.
If that is true, I think that is a welcome and long-overdue change for the industry. I'm not a fan of financial advisors being paid by a fund company for directing investors into their funds. Even if the fund is in fact the most appropriate investment for the client, there is just an inherent conflict of interest in the commission-based model. As such, I would encourage any investor who is thinking about engaging the services of a financial advisor to give serious consideration to using a fee-based advisor.
Share and share alike
Beyond any potential shift in investors' preference for fee-based advisors over commission-based professionals, I think there may be some other important conclusions that we may be able to draw from this data. First of all, if investors are moving more toward institutional funds, that means they are likely doing so within the confines of their 401(k) or other defined-contribution retirement plan. Usually in such plans, the plan sponsor has chosen a menu of funds for participants to select from.
To me, this indicates more of a desire on investors' part for guidance and help in the fund selection process. When the market is going up, it's easy to think you can do it all on your own. But in challenging environments, a lot of folks want some advice. So don't be afraid to seek out a second, or third, opinion on your investments. Whether that be through the services of a fee-based advisor or even the expertise of the Fool's own Rule Your Retirement investment newsletter service, there are reliable options out there that can give you a leg up in finding the best investments for your portfolio.
Secondly, it could be that investors are becoming more savvy about the fees and expenses they are paying for their investments. Actively managed mutual funds got slammed in the recent downturn, leading many folks to wonder why they were paying extra for middling performance results. If investors can save some money by moving to institutional class shares, it creates less of a hurdle for portfolio managers to overcome. As an example, the A shares of the hugely popular PIMCO Total Return Fund (PTTAX) come with a 3.75% front-end load and a 0.90% expense ratio. However, if you've got $1 million, or have access to the fund within a qualified plan, the institutional share class of PIMCO Total Return (PTTRX) costs just 0.46% and has no loads. Over time, that means investors in the institutional share classes are paying half of what retail investors are. So if you can access an institutional share class in a solid fund in your retirement plan, it's probably a smart idea to do so.
Opting out
While I can understand the reasoning behind fund companies giving a price concession to larger clients or larger accounts, there is something about the practice that rubs me the wrong way. Fortunately for investors, there are some funds shops that don't try to charge different price points for retail and institutional clients. Dodge & Cox is one fund shop that has just one share class for all of its mutual funds. For example, Dodge & Cox Stock (DODGX) has been around for roughly 45 years and doesn't charge different prices for investors with a higher or lower amount of assets in the fund. For an incredibly low 0.52% a year, you can get access to a large-value fund that has outperformed 97% of its peers in the past decade and a half. Not a bad deal for an investor of any portfolio size.
Of course, if you're leery about the whole business of what you're being charged for actively managed funds, you can always avoid the whole debate and stick to a handful of low-cost exchange-traded funds. Some of my favorite ETFs include the SPDR S&P 500 (NYSE: SPY - News) for large-cap domestic stock coverage, the Vanguard Total Bond Market ETF (NYSE: BND - News) for a broad bond market allocation, and the Vanguard Emerging Markets Stock ETF (NYSE: VWO - News) for exposure to red-hot developing markets.
Not every investor will be able to access the institutional share class of their favorite fund (if in fact the fund shop even offers one), but if you can do so in your retirement plan, consider buying in. It could save you a ton of money in the long run.
Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletter services free for 30 days.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
A fundamental shift
A recent Wall Street Journal article highlighted the fact that while retail shares of equity mutual funds have continued to bleed assets over the past two years, not all of that money is going straight to bonds. Apparently, investors are redirecting some of that cash into the institutional versions of the same funds whose retail shares they are fleeing. Since 2009, while investors pulled roughly $129 billion from retail A, B, and C shares that charge some kind of load to the investor, they actually added $72 billion to institutional share classes.
While they are typically cheaper than their retail counterparts, institutional share classes generally feature much higher investment minimums, putting them out of reach of most individual investors. However, these funds are frequently used in qualified retirement plans like 401(k)s and other tax-advantaged plans, where investors can take advantage of their lower fees without worrying about meeting the onerous minimum investments.
One take on this shift in investor behavior is that investors are moving away from using commission-based financial advisors who tend to recommend A, B, and C shares of funds to garner a commission from the fund company in the form of a front-end or deferred load. Institutional shares in brokerage accounts overseen by fee-based advisors are becoming more common, so this could indicate that more investors are embracing fee-based financial planning.
If that is true, I think that is a welcome and long-overdue change for the industry. I'm not a fan of financial advisors being paid by a fund company for directing investors into their funds. Even if the fund is in fact the most appropriate investment for the client, there is just an inherent conflict of interest in the commission-based model. As such, I would encourage any investor who is thinking about engaging the services of a financial advisor to give serious consideration to using a fee-based advisor.
Share and share alike
Beyond any potential shift in investors' preference for fee-based advisors over commission-based professionals, I think there may be some other important conclusions that we may be able to draw from this data. First of all, if investors are moving more toward institutional funds, that means they are likely doing so within the confines of their 401(k) or other defined-contribution retirement plan. Usually in such plans, the plan sponsor has chosen a menu of funds for participants to select from.
To me, this indicates more of a desire on investors' part for guidance and help in the fund selection process. When the market is going up, it's easy to think you can do it all on your own. But in challenging environments, a lot of folks want some advice. So don't be afraid to seek out a second, or third, opinion on your investments. Whether that be through the services of a fee-based advisor or even the expertise of the Fool's own Rule Your Retirement investment newsletter service, there are reliable options out there that can give you a leg up in finding the best investments for your portfolio.
Secondly, it could be that investors are becoming more savvy about the fees and expenses they are paying for their investments. Actively managed mutual funds got slammed in the recent downturn, leading many folks to wonder why they were paying extra for middling performance results. If investors can save some money by moving to institutional class shares, it creates less of a hurdle for portfolio managers to overcome. As an example, the A shares of the hugely popular PIMCO Total Return Fund (PTTAX) come with a 3.75% front-end load and a 0.90% expense ratio. However, if you've got $1 million, or have access to the fund within a qualified plan, the institutional share class of PIMCO Total Return (PTTRX) costs just 0.46% and has no loads. Over time, that means investors in the institutional share classes are paying half of what retail investors are. So if you can access an institutional share class in a solid fund in your retirement plan, it's probably a smart idea to do so.
Opting out
While I can understand the reasoning behind fund companies giving a price concession to larger clients or larger accounts, there is something about the practice that rubs me the wrong way. Fortunately for investors, there are some funds shops that don't try to charge different price points for retail and institutional clients. Dodge & Cox is one fund shop that has just one share class for all of its mutual funds. For example, Dodge & Cox Stock (DODGX) has been around for roughly 45 years and doesn't charge different prices for investors with a higher or lower amount of assets in the fund. For an incredibly low 0.52% a year, you can get access to a large-value fund that has outperformed 97% of its peers in the past decade and a half. Not a bad deal for an investor of any portfolio size.
Of course, if you're leery about the whole business of what you're being charged for actively managed funds, you can always avoid the whole debate and stick to a handful of low-cost exchange-traded funds. Some of my favorite ETFs include the SPDR S&P 500 (NYSE: SPY - News) for large-cap domestic stock coverage, the Vanguard Total Bond Market ETF (NYSE: BND - News) for a broad bond market allocation, and the Vanguard Emerging Markets Stock ETF (NYSE: VWO - News) for exposure to red-hot developing markets.
Not every investor will be able to access the institutional share class of their favorite fund (if in fact the fund shop even offers one), but if you can do so in your retirement plan, consider buying in. It could save you a ton of money in the long run.
Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletter services free for 30 days.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
The Best Emerging Market Play You Never Thought Of
Investors agree that Western economies are going nowhere. Money is flowing into emerging markets at a record pace, as everyone from hedge fund managers to the man on the city bus look toward far-flung companies they've never heard of.
Not me, though.
I'm not writing off the U.K., Europe, or the U.S. I'm also well aware that GDP and favorable demographics aren't everything to an equity investor -- the price you pay for growth matters.
But I also believe some of the most attractive opportunities to play the very real emerging market story are right on our doorstep.
Over here, over there
When I visited London-based Diageo (NYSE: DEO - News) last week, for instance, I sensed frustration that the market underestimates the long-term value of Diageo's brands in opening up new territories.
Now another company I own for its overseas growth potential is addressing this issue. U.K. grocery titan Tesco (TSCDY.PK) just hosted an analyst event in South Korea and China that's clearly aimed at waking up investors to its extraordinary rollout across Asia.
Did you know 31% Tesco's sales are achieved outside of the U.K.? That 22% of its profits are? Or that those figures were merely 10% and 5% a decade ago?
Tesco's familiarity can blind us to the scale of its overseas operations:
* 65% of its selling space is outside the U.K.
* More than half of Tesco's profit growth this year has come from Asia and Europe.
* Tesco is either first or second-placed in nine international markets.
* It's market leader in Malaysia, Thailand, and catching the top dog in South Korea.
* Life-for-like sales at Tesco China are expanding at over 8% a year.
Profit potential
It's not going swimmingly in every foreign territory -- sales are remorselessly shrinking in Japan, and the woes of its U.S. Fresh'n'Easy business are well-known. But the potential in Asia dwarfs these hiccups.
Consider South Korea, for instance, where Tesco operates under the Homeplus brand. GDP has grown at 5.4% on a compound basis for four decades, and thanks to 118 hypermarkets and 245 express stores, Tesco already has 1 million square meters of South Korean floor space.
In 11 years, sales have risen from 100 million pounds to 4.5 billion pounds, and the territory now delivers 287 million pounds in profit. Yet with just 4.3% of the total retail market versus 4.8% for its leading rival, Tesco sees plenty more growth ahead.
If you see a Tesco superstore outside every U.K. town and wonder where growth will come from, you're looking in the wrong place.
Made in Britain
In countries like South Korea, Tesco has seemingly achieved the grand prize of understanding local requirements, and addressing them with the logistical know-how it's perfected in the U.K.
Having pioneered the Clubcard concept in the U.K., for example, Tesco has deployed it in nine other countries. And where the U.K. operation invested more than 100 million pounds in ordering systems during the past decade, it costs just 2 million pounds to deploy them in a new country.
Famously, "retail is detail," and leveraging Tesco's U.K. smarts doesn't stop with the supply chain. By remodeling its South Korean aisle format along U.K. lines, it improved like-for-like sales by 10%.
Tesco the property giant
Naturally, it's the Chinese opportunity that's mouth-watering. Tesco says it has spent six years learning all about this vast country, that it's placed its bets in the fastest-growing regions, and that it has identified crucial differences between, say, the older, more conservative northern regions, and the younger, migration-fed south.
Big retailers are engaged in a land grab in China, which should see the number of hyper- and superstores more than triple from 2005's 1,000 to nearly 4,000 by 2014. To help it secure the best spots, Tesco will actually build many dozen of malls over the next five years, each featuring a Tesco hypermarket as an anchor tenant.
Consider that the 90 key cities on Tesco's radar have a combined population of 120 million (twice the U.K.), and you get a sense of how China could reshape this company in the long term.
Risking it
Of course, expansion on this scale isn't cheap -- and some analysts are already unhappy at how Tesco handles its capital expenditure via sales to joint ventures, for instance.
We'll have to wait for big returns, too. According to Tesco's figures, new stores don't become fully profitable for four years, which means a lot of up-front costs for jam further down the line. Overseas expansion will complicate Tesco's accounts for years to come, compared to Sainsbury or Morrison.
I think that's a price worth paying. With Tesco's international boss Philip Clarke due to take over at the top from the revered Sir Terry Leahy in March, it is clear where Tesco is placing its bets.
And at a prospective P/E of 12 with a 3.6% dividend yield, we're hardly being overcharged to go along for the ride.
Not me, though.
I'm not writing off the U.K., Europe, or the U.S. I'm also well aware that GDP and favorable demographics aren't everything to an equity investor -- the price you pay for growth matters.
But I also believe some of the most attractive opportunities to play the very real emerging market story are right on our doorstep.
Over here, over there
When I visited London-based Diageo (NYSE: DEO - News) last week, for instance, I sensed frustration that the market underestimates the long-term value of Diageo's brands in opening up new territories.
Now another company I own for its overseas growth potential is addressing this issue. U.K. grocery titan Tesco (TSCDY.PK) just hosted an analyst event in South Korea and China that's clearly aimed at waking up investors to its extraordinary rollout across Asia.
Did you know 31% Tesco's sales are achieved outside of the U.K.? That 22% of its profits are? Or that those figures were merely 10% and 5% a decade ago?
Tesco's familiarity can blind us to the scale of its overseas operations:
* 65% of its selling space is outside the U.K.
* More than half of Tesco's profit growth this year has come from Asia and Europe.
* Tesco is either first or second-placed in nine international markets.
* It's market leader in Malaysia, Thailand, and catching the top dog in South Korea.
* Life-for-like sales at Tesco China are expanding at over 8% a year.
Profit potential
It's not going swimmingly in every foreign territory -- sales are remorselessly shrinking in Japan, and the woes of its U.S. Fresh'n'Easy business are well-known. But the potential in Asia dwarfs these hiccups.
Consider South Korea, for instance, where Tesco operates under the Homeplus brand. GDP has grown at 5.4% on a compound basis for four decades, and thanks to 118 hypermarkets and 245 express stores, Tesco already has 1 million square meters of South Korean floor space.
In 11 years, sales have risen from 100 million pounds to 4.5 billion pounds, and the territory now delivers 287 million pounds in profit. Yet with just 4.3% of the total retail market versus 4.8% for its leading rival, Tesco sees plenty more growth ahead.
If you see a Tesco superstore outside every U.K. town and wonder where growth will come from, you're looking in the wrong place.
Made in Britain
In countries like South Korea, Tesco has seemingly achieved the grand prize of understanding local requirements, and addressing them with the logistical know-how it's perfected in the U.K.
Having pioneered the Clubcard concept in the U.K., for example, Tesco has deployed it in nine other countries. And where the U.K. operation invested more than 100 million pounds in ordering systems during the past decade, it costs just 2 million pounds to deploy them in a new country.
Famously, "retail is detail," and leveraging Tesco's U.K. smarts doesn't stop with the supply chain. By remodeling its South Korean aisle format along U.K. lines, it improved like-for-like sales by 10%.
Tesco the property giant
Naturally, it's the Chinese opportunity that's mouth-watering. Tesco says it has spent six years learning all about this vast country, that it's placed its bets in the fastest-growing regions, and that it has identified crucial differences between, say, the older, more conservative northern regions, and the younger, migration-fed south.
Big retailers are engaged in a land grab in China, which should see the number of hyper- and superstores more than triple from 2005's 1,000 to nearly 4,000 by 2014. To help it secure the best spots, Tesco will actually build many dozen of malls over the next five years, each featuring a Tesco hypermarket as an anchor tenant.
Consider that the 90 key cities on Tesco's radar have a combined population of 120 million (twice the U.K.), and you get a sense of how China could reshape this company in the long term.
Risking it
Of course, expansion on this scale isn't cheap -- and some analysts are already unhappy at how Tesco handles its capital expenditure via sales to joint ventures, for instance.
We'll have to wait for big returns, too. According to Tesco's figures, new stores don't become fully profitable for four years, which means a lot of up-front costs for jam further down the line. Overseas expansion will complicate Tesco's accounts for years to come, compared to Sainsbury or Morrison.
I think that's a price worth paying. With Tesco's international boss Philip Clarke due to take over at the top from the revered Sir Terry Leahy in March, it is clear where Tesco is placing its bets.
And at a prospective P/E of 12 with a 3.6% dividend yield, we're hardly being overcharged to go along for the ride.
Make the Most of Mid-Life Financial Planning
In all likelihood, outside of this 10- to 20-year window you'll never take home as much pay again. Don't make the error of assuming that your current earnings will remain constant, and take the following steps to ensure you have a plan in place that should help keep your portfolio on track.
Organize your portfolio. Allocate your portfolio among the major asset classes of equities, fixed-income securities, and cash equivalents based on your goals, your tolerance for risk, and your time horizons.
Generally speaking, the larger the equity portion of your portfolio, the greater the potential for growth and the greater amount of risk. The more fixed-income securities you include, the greater the potential for income and preservation of principle. Fixed-income investments are guaranteed by the issuer as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Most importantly, you may need to periodically rebalance your portfolio in order to remain consistent with your original allocation, or modify it as you come closer to realizing your goals.
Don't overlook tax planning. If you are in your late 30s to late 50s, chances are good that your income-tax bracket is higher during this period than in your early years, or when you retire.
Consider maximizing pretax contributions to your employer-sponsored retirement plan or making deductible contributions to an IRA (if you're eligible) to help reduce current income while providing tax-deferred savings opportunities.
Also, keep in mind that short-term capital gains are taxed as income, while long-term capital gains and dividends are taxed at lower rates. And don't underestimate the potential benefit of including tax-exempt bonds in your portfolio.*
Protect what you've accomplished. As your wealth continues to increase, it's important to preserve what you've accumulated and safeguard your future. That's why estate planning and life insurance are two of the cornerstones of a sound financial plan.
A qualified legal professional can help you implement an estate plan that is best for your situation, or review an existing plan to ensure it is still consistent with your goals. Also, be sure you have enough life insurance in place to help cover any liabilities--such as your mortgage--and protect your family's financial future.
Ultimately, mid-life shouldn't be a time of crisis from a financial perspective. Instead, it's a time to take advantage of some of your most productive years. By acting on these simple pointers, you may be in a better position to enjoy the fruits of your labor for the long run.
*Some tax-exempt investments may be subject to the federal alternative minimum tax, as well as federal or state capital gains taxes.
Doug Lockwood, CFP is a Partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years. He was recently named one of America's Top 100 Financial Advisors by Registered Rep Magazine (August 2010) based on assets under management.
Organize your portfolio. Allocate your portfolio among the major asset classes of equities, fixed-income securities, and cash equivalents based on your goals, your tolerance for risk, and your time horizons.
Generally speaking, the larger the equity portion of your portfolio, the greater the potential for growth and the greater amount of risk. The more fixed-income securities you include, the greater the potential for income and preservation of principle. Fixed-income investments are guaranteed by the issuer as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Most importantly, you may need to periodically rebalance your portfolio in order to remain consistent with your original allocation, or modify it as you come closer to realizing your goals.
Don't overlook tax planning. If you are in your late 30s to late 50s, chances are good that your income-tax bracket is higher during this period than in your early years, or when you retire.
Consider maximizing pretax contributions to your employer-sponsored retirement plan or making deductible contributions to an IRA (if you're eligible) to help reduce current income while providing tax-deferred savings opportunities.
Also, keep in mind that short-term capital gains are taxed as income, while long-term capital gains and dividends are taxed at lower rates. And don't underestimate the potential benefit of including tax-exempt bonds in your portfolio.*
Protect what you've accomplished. As your wealth continues to increase, it's important to preserve what you've accumulated and safeguard your future. That's why estate planning and life insurance are two of the cornerstones of a sound financial plan.
A qualified legal professional can help you implement an estate plan that is best for your situation, or review an existing plan to ensure it is still consistent with your goals. Also, be sure you have enough life insurance in place to help cover any liabilities--such as your mortgage--and protect your family's financial future.
Ultimately, mid-life shouldn't be a time of crisis from a financial perspective. Instead, it's a time to take advantage of some of your most productive years. By acting on these simple pointers, you may be in a better position to enjoy the fruits of your labor for the long run.
*Some tax-exempt investments may be subject to the federal alternative minimum tax, as well as federal or state capital gains taxes.
Doug Lockwood, CFP is a Partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years. He was recently named one of America's Top 100 Financial Advisors by Registered Rep Magazine (August 2010) based on assets under management.
What Employers Want to Do When You're Not Looking
Many employers want to make a crucial decision for you. That might seem like an infringement on your liberty, a violation of your rights, or at the very least, incredibly annoying. But in this case, it's actually a good thing.
The fuss in question revolves around your retirement nest egg. As pensions grow increasingly endangered, more and more of us must shoulder the responsibility for our own financial futures. Our employers are helping us out via 401(k)s and similar retirement plans, but for most of us, that's far from enough.
The bad news
For one thing, 401(k) plans won't guarantee you enough to live off in retirement unless you save aggressively and invest effectively. It's not sufficient to plow a lot of money into your account if you're averaging a paltry return. If you save $10,000 per year for 20 years, but you stick it in a zero-interest checking account, all you'll have at the end is the same $200,000 you saved. However, it's also not enough to earn great rates of return on modest contributions. You need both.
Worse still, many workers are not participating in their plans at all. According to the 2010 Retirement Confidence Survey, 27% of American workers have saved less than $1,000 for retirement (excluding the value of their homes or pensions), while more than half have saved just $25,000 or less.
The good news
Fortunately, we don't have to face a bleak future. Save and invest well enough, and you can end up quite comfortable. But taking that action can be hard for many of us procrastinators to get around to doing.
Enter those power-happy, dictatorial employers. A survey of 50 large companies that offer defined contribution retirement plans such as 401(k)s found that 63% would like to see participation in the plans become mandatory. And 98% would include automatic plan enrollment in an ideal plan.
Already working
That's not a new idea. Many companies have been enrolling new workers in retirement plans by default, unless they opt out. This has generally been well-received and effective, but it often doesn't go far enough, since the starting contribution rates are often too small.
Still, even a little improvement is worthwhile. A Schwab study found that among companies that automatically enrolled employees, participation rates were 15 percentage points higher. And among those companies that automatically increased contribution rates over time, 83% of participants maintained the increased amounts.
Behold Chile
The nation of Chile offers an inspiring example of how much further we might go in this direction. The country requires employees to contribute 10% of their income or more toward their retirement. Workers have choices about how much risk they take on with their money, but the government keeps them from being way too risky (or not risky enough). Risk is reduced over time as employees approach retirement, and then funds are converted into guaranteed annuities. Go ahead and call that a nanny state, but it's likely to leave its citizens much better off than the average American worker.
Mandatory participation in retirement plans for American workers could be a powerful improvement over our status quo, but only if it's robust enough to help workers invest sufficiently and effectively. Rather than fighting this expansion of your employer's power, you and your nest egg might want to embrace it.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
The fuss in question revolves around your retirement nest egg. As pensions grow increasingly endangered, more and more of us must shoulder the responsibility for our own financial futures. Our employers are helping us out via 401(k)s and similar retirement plans, but for most of us, that's far from enough.
The bad news
For one thing, 401(k) plans won't guarantee you enough to live off in retirement unless you save aggressively and invest effectively. It's not sufficient to plow a lot of money into your account if you're averaging a paltry return. If you save $10,000 per year for 20 years, but you stick it in a zero-interest checking account, all you'll have at the end is the same $200,000 you saved. However, it's also not enough to earn great rates of return on modest contributions. You need both.
Worse still, many workers are not participating in their plans at all. According to the 2010 Retirement Confidence Survey, 27% of American workers have saved less than $1,000 for retirement (excluding the value of their homes or pensions), while more than half have saved just $25,000 or less.
The good news
Fortunately, we don't have to face a bleak future. Save and invest well enough, and you can end up quite comfortable. But taking that action can be hard for many of us procrastinators to get around to doing.
Enter those power-happy, dictatorial employers. A survey of 50 large companies that offer defined contribution retirement plans such as 401(k)s found that 63% would like to see participation in the plans become mandatory. And 98% would include automatic plan enrollment in an ideal plan.
Already working
That's not a new idea. Many companies have been enrolling new workers in retirement plans by default, unless they opt out. This has generally been well-received and effective, but it often doesn't go far enough, since the starting contribution rates are often too small.
Still, even a little improvement is worthwhile. A Schwab study found that among companies that automatically enrolled employees, participation rates were 15 percentage points higher. And among those companies that automatically increased contribution rates over time, 83% of participants maintained the increased amounts.
Behold Chile
The nation of Chile offers an inspiring example of how much further we might go in this direction. The country requires employees to contribute 10% of their income or more toward their retirement. Workers have choices about how much risk they take on with their money, but the government keeps them from being way too risky (or not risky enough). Risk is reduced over time as employees approach retirement, and then funds are converted into guaranteed annuities. Go ahead and call that a nanny state, but it's likely to leave its citizens much better off than the average American worker.
Mandatory participation in retirement plans for American workers could be a powerful improvement over our status quo, but only if it's robust enough to help workers invest sufficiently and effectively. Rather than fighting this expansion of your employer's power, you and your nest egg might want to embrace it.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Global crises overshadow Obama's economic message
WASHINGTON – Foreign policy challenges are intruding on President Barack Obama's promise to focus on the economy after the Democrats' election debacle and threatening to knock the White House off message altogether.
The escalation of tensions between North and South Korea this past week capped a postelection period that included two presidential trips abroad, discussions about America's future in Afghanistan and a debate in Washington over Senate ratification of a nuclear treaty with Russia.
The risk for Obama is that the capital and energy spent on a foreign crisis can undermine the perception that he's working on the public's top priority: finding jobs at home for Americans.
White House officials say the international focus hasn't diminished the amount of time Obama spends working on the economy. Aides acknowledge that events abroad can make it more difficult to spotlight Obama's economic message — one of an economy on a slow but steady march toward recovery, and a president aware that his political future rests on his ability to speed that recovery.
Take Obama's trip to Kokomo, Ind., last Tuesday, his first domestic trip since the Nov. 2 elections.
By the time Obama arrived at a Chrysler plant to promote the revival of the U.S. auto industry, attention had turned to how the White House would respond to North Korea's artillery attack against a South Korean island.
"You learn quickly as president that there are events that happen like North Korea that you have to address as they happen, not how you would plan for them to happen," White House spokesman Robert Gibbs said.
Obama aides say they see opportunities for the president's economic message to break through, starting with a bipartisan meeting with lawmakers this Tuesday. The top issue will be what to do about the Bush-era tax cuts set to expire at year's end. Obama also plans to take a few more domestic trips through the end of the year to discuss the economy.
White House communications director Dan Pfeiffer said he doesn't believe the public is looking for the president to take an all-or-nothing approach to the economy.
"The American people understand that we have both domestic and international issues that have to be dealt with," Pfeiffer said. "The public expects that's what he's doing."
The recent burst of activity on the foreign policy front comes after an election that saw international issues seldom discussed, and a year that saw Obama spend just three days abroad, having traveled to the Czech Republic and Afghanistan in April.
Ari Fleischer, who served as press secretary for President George W. Bush, said it's too soon to tell whether a November filled with foreign policy following an election focused on the economy will hurt the current administration. But he said the ease with which world events can trump an administration's agenda is "a vivid reminder of how much more complicated and multifaceted governing is than campaigning."
While incidents such as North Korea's attack on South Korea were out of the administration's control, some of the shift toward foreign policy has been of the White House's making, most notably Obama's 10-day, four-country trip to Asia. Officials hoped Obama could use his popularity abroad to improve his standing following his self-proclaimed "shellacking" in the vote this month.
Former presidents have used a similar playbook, in part because political opponents at home traditionally refrain from criticizing the commander in chief while he's representing the U.S. on foreign soil.
But Obama's trip to Asia produced mixed results at best. While he made progress toward the U.S. gaining a foothold in emerging economies such as India and Indonesia, he failed to secure a highly sought-after free trade agreement with South Korea and couldn't rally wide-ranging international support for action against China's currency manipulation.
Darrell West, vice president and director of governance studies at the Brookings Institution, said Obama could have better kept the focus on the U.S. economy when he was overseas if he had delivered on some of those objectives.
"It's OK to send the president abroad if he brings back agreements that are good for the U.S.," he said. "The president's problem was that he wasn't able to bring back the good news he had hoped."
The White House was more pleased with the results of the recent NATO summit in Portugal, where Obama was seen as playing a pivotal role in the alliance securing agreements on the Afghanistan war and missile defense. Obama also received overwhelming international support for Senate ratification of a new arms control treaty with Russia.
Yet that treaty has proved to be another example of foreign policy threatening to trump Obama's message on the economy. Despite the White House's insistence that the lame-duck session of Congress would focus on initiatives to help the recovery, much of the conversation in Washington now is about whether lawmakers will hand Obama a victory on an issue he says is vital to the future of the U.S. relationship with Russia.
The escalation of tensions between North and South Korea this past week capped a postelection period that included two presidential trips abroad, discussions about America's future in Afghanistan and a debate in Washington over Senate ratification of a nuclear treaty with Russia.
The risk for Obama is that the capital and energy spent on a foreign crisis can undermine the perception that he's working on the public's top priority: finding jobs at home for Americans.
White House officials say the international focus hasn't diminished the amount of time Obama spends working on the economy. Aides acknowledge that events abroad can make it more difficult to spotlight Obama's economic message — one of an economy on a slow but steady march toward recovery, and a president aware that his political future rests on his ability to speed that recovery.
Take Obama's trip to Kokomo, Ind., last Tuesday, his first domestic trip since the Nov. 2 elections.
By the time Obama arrived at a Chrysler plant to promote the revival of the U.S. auto industry, attention had turned to how the White House would respond to North Korea's artillery attack against a South Korean island.
"You learn quickly as president that there are events that happen like North Korea that you have to address as they happen, not how you would plan for them to happen," White House spokesman Robert Gibbs said.
Obama aides say they see opportunities for the president's economic message to break through, starting with a bipartisan meeting with lawmakers this Tuesday. The top issue will be what to do about the Bush-era tax cuts set to expire at year's end. Obama also plans to take a few more domestic trips through the end of the year to discuss the economy.
White House communications director Dan Pfeiffer said he doesn't believe the public is looking for the president to take an all-or-nothing approach to the economy.
"The American people understand that we have both domestic and international issues that have to be dealt with," Pfeiffer said. "The public expects that's what he's doing."
The recent burst of activity on the foreign policy front comes after an election that saw international issues seldom discussed, and a year that saw Obama spend just three days abroad, having traveled to the Czech Republic and Afghanistan in April.
Ari Fleischer, who served as press secretary for President George W. Bush, said it's too soon to tell whether a November filled with foreign policy following an election focused on the economy will hurt the current administration. But he said the ease with which world events can trump an administration's agenda is "a vivid reminder of how much more complicated and multifaceted governing is than campaigning."
While incidents such as North Korea's attack on South Korea were out of the administration's control, some of the shift toward foreign policy has been of the White House's making, most notably Obama's 10-day, four-country trip to Asia. Officials hoped Obama could use his popularity abroad to improve his standing following his self-proclaimed "shellacking" in the vote this month.
Former presidents have used a similar playbook, in part because political opponents at home traditionally refrain from criticizing the commander in chief while he's representing the U.S. on foreign soil.
But Obama's trip to Asia produced mixed results at best. While he made progress toward the U.S. gaining a foothold in emerging economies such as India and Indonesia, he failed to secure a highly sought-after free trade agreement with South Korea and couldn't rally wide-ranging international support for action against China's currency manipulation.
Darrell West, vice president and director of governance studies at the Brookings Institution, said Obama could have better kept the focus on the U.S. economy when he was overseas if he had delivered on some of those objectives.
"It's OK to send the president abroad if he brings back agreements that are good for the U.S.," he said. "The president's problem was that he wasn't able to bring back the good news he had hoped."
The White House was more pleased with the results of the recent NATO summit in Portugal, where Obama was seen as playing a pivotal role in the alliance securing agreements on the Afghanistan war and missile defense. Obama also received overwhelming international support for Senate ratification of a new arms control treaty with Russia.
Yet that treaty has proved to be another example of foreign policy threatening to trump Obama's message on the economy. Despite the White House's insistence that the lame-duck session of Congress would focus on initiatives to help the recovery, much of the conversation in Washington now is about whether lawmakers will hand Obama a victory on an issue he says is vital to the future of the U.S. relationship with Russia.
Wal-Mart's Black Friday starts busy, but peaceful
Black Friday was decidedly less dangerous at the Wal-Mart store on New York's Long Island where a worker was fatally trampled two years ago.
This year, there was no Pamplona-style running of the shoppers at midnight, as there was on Black Friday 2008, when the doors were opened to a frenzied crush of shoppers who overpowered employees in their scramble for discounted laptops and flatscreen TVs.
This Thanksgiving, the doors were open all day at the Valley Stream store, even though the most popular deals didn't start until midnight. Also, rows of metal barricades were set up outside to corral shoppers into organized lines, instead of a zombie-like mob.
Not everybody was happy about it, though.
"Yo, this is just like Rikers," said a young man to his girlfriend, referring to New York City's island jail, as they filed through the metal gates. "I'm gonna puke."
They were among hundreds of shoppers who poured into Wal-Mart before midnight, when Black Friday officially began. That's when certain discounted items became available, such as the 32-inch Emerson flatscreen TV and the eMachines laptop that each sold for $198. Shoppers queued up for those products hours in advance, holding tickets that guaranteed their purchase of the coveted electronics.
Toys R Us draws Black Friday newbies
Hundreds of customers formed lines that snaked through the aisles, clogging sections of the store as they leaned on shopping carts overflowing with Nerf guns, Tonka trucks, Dora the Explorers, sleeping children, vacuum cleaners, Hotwheels Jeeps, Ripper three-wheeled scooters, stacks of towels, more vacuum cleaners and the Justin Bieber backstage pass board game.
"There's no more Emerson TVs!" announced an employee, exactly one minute after midnight.
"This is crazy!" exclaimed one of the shoppers. "How can they be sold out?"
But there was no hysteria and no stampede. Security personnel were everywhere, and in some parts of the store the employees almost matched the customers one for one. But even aside from security, the shoppers seemed oddly calm.
"So far, so good," said Wal-Mart (WMT, Fortune 500) spokesman Greg Rossiter, about half an hour into Black Friday. He said the store had been consulting "crowd management experts" over the last couple of years, to better manage the flow of shoppers.
"It was crowded but decent," said Bernadine Evans of Brooklyn, who stood outside the store with a shopping cart full of cookware. "I think it's improved. The workers have more courtesy. They help you find what you're looking for. The lines are long but they're moving very fast."
Even the sea of humanity at the 26 cash registers was behaving itself, with hardly a shout or hint of anger.
Though there was one hyperactive teenager in the video game department who attracted the staff scrutiny with his histrionics.
"Oh! Penalty! Penalty! You got a free kick, bro!" yelled the teen, who was watching a younger kid play soccer on an Xbox 360. "Yo, kick him in the face, man!"
When a staffer walked over to see what the commotion was about, the teen explained: "He's mad good, yo!
This year, there was no Pamplona-style running of the shoppers at midnight, as there was on Black Friday 2008, when the doors were opened to a frenzied crush of shoppers who overpowered employees in their scramble for discounted laptops and flatscreen TVs.
This Thanksgiving, the doors were open all day at the Valley Stream store, even though the most popular deals didn't start until midnight. Also, rows of metal barricades were set up outside to corral shoppers into organized lines, instead of a zombie-like mob.
Not everybody was happy about it, though.
"Yo, this is just like Rikers," said a young man to his girlfriend, referring to New York City's island jail, as they filed through the metal gates. "I'm gonna puke."
They were among hundreds of shoppers who poured into Wal-Mart before midnight, when Black Friday officially began. That's when certain discounted items became available, such as the 32-inch Emerson flatscreen TV and the eMachines laptop that each sold for $198. Shoppers queued up for those products hours in advance, holding tickets that guaranteed their purchase of the coveted electronics.
Toys R Us draws Black Friday newbies
Hundreds of customers formed lines that snaked through the aisles, clogging sections of the store as they leaned on shopping carts overflowing with Nerf guns, Tonka trucks, Dora the Explorers, sleeping children, vacuum cleaners, Hotwheels Jeeps, Ripper three-wheeled scooters, stacks of towels, more vacuum cleaners and the Justin Bieber backstage pass board game.
"There's no more Emerson TVs!" announced an employee, exactly one minute after midnight.
"This is crazy!" exclaimed one of the shoppers. "How can they be sold out?"
But there was no hysteria and no stampede. Security personnel were everywhere, and in some parts of the store the employees almost matched the customers one for one. But even aside from security, the shoppers seemed oddly calm.
"So far, so good," said Wal-Mart (WMT, Fortune 500) spokesman Greg Rossiter, about half an hour into Black Friday. He said the store had been consulting "crowd management experts" over the last couple of years, to better manage the flow of shoppers.
"It was crowded but decent," said Bernadine Evans of Brooklyn, who stood outside the store with a shopping cart full of cookware. "I think it's improved. The workers have more courtesy. They help you find what you're looking for. The lines are long but they're moving very fast."
Even the sea of humanity at the 26 cash registers was behaving itself, with hardly a shout or hint of anger.
Though there was one hyperactive teenager in the video game department who attracted the staff scrutiny with his histrionics.
"Oh! Penalty! Penalty! You got a free kick, bro!" yelled the teen, who was watching a younger kid play soccer on an Xbox 360. "Yo, kick him in the face, man!"
When a staffer walked over to see what the commotion was about, the teen explained: "He's mad good, yo!
Buy Here, Pay Here: Bottom-feeding for used car buyers in a recession
FORTUNE -- There is a tiny slice of the car business that targets the least credit-worthy customers and tries to get them into cars they can afford and pay for: "Buy Here, Pay Here" used car dealers. Recently they unexpectedly made the news when it was disclosed that Todd Combs, the man whom Warren Buffett hired to help manage his portfolio, is an investor in one of the industry's biggest players.
The timing is appropriate because if ever a demand existed for Buy Here, Pay Here, or BHPH, it is now. With unemployment high and millions of homes being foreclosed, many people who need transportation find they can't buy any because they have neither cash nor credit. BHPH serves buyers who have few alternatives and are willing to endure steep interest charges -- along with onerous collection tactics if they fall behind.
BHPH has more to do with lending and collecting money than it does with the traditional car business. The vehicle is merely a commodity, the asset used to secure the loan. One writer described a BHPH outlet as "a bank masquerading as a used car lot."
In the usual sales process, the discussion about how the car will be paid for comes after it has been selected. At a BHPH dealership, the process is reversed. The dealer first determines a buyer's credit history and figures how much he can come up with for the down payment and subsequent monthly payments; only then does he locate an appropriate vehicle.
The cost for this kind of credit is steep -- as much as 20% annually -- and the consequences of missing payments can be abrupt. Some services recommend that dealers install tracking devices so that they can locate vehicles whose owners haven't kept up and stop them from moving until payments resume.
Woe be to those who can't keep up. Although some BHPH dealerships will accept payment by phone or online, many require that the buyer physically bring a check or cash to their locations either monthly or bi-weekly. Some dealers are known to repossess vehicles if the payment is more than a day late.
"Collections is the focus of our business -- selling cars is not," America's Car-Mart CEO Tilman J. Falgout III said in a 2002 interview. That kind of single-minded focus has helped make his company popular with investors, among them Buffett's Combs.
The company would not comment for this story and referred us to its filings with the Securities and Exchange Commission for further information.
America's Car-Mart (CRMT), which is not to be confused with its Bentonville, Ark.-neighbor Wal-Mart (WMT, Fortune 500), operates dealerships in eight states, and calls itself the largest publicly held car retailer focused exclusively on BHPH.
Car-Mart got started in 1981, when the company's first used-car dealership opened in Rogers, Ark. Its strategy from the beginning was to sell to customers with limited or poor credit. It was an immediate success.
The company targeted communities in rural areas with populations between 20,000 and 50,000. It figured that the absence of mass transit made car ownership more critical in those communities, and the small population made those who missed payments easier to track down.
To make things easier on buyers, Car-Mart advertises that it will trade cars for anything of value -- from electronics to household appliances and farm animals -- but mostly it deals with cash.
A snapshot of Car-Mart's 2009 fiscal year gives a glimpse of a highly-profitable business. Before this year's run-up in used car prices, Car-Mart was paying between $3,000 and $6,000 for its cars. The most popular models were between three and 10 years old and with 90,000 to 130,000 miles on the odometer. They carried names from Detroit's graveyard of discontinued models: Pontiacs and Oldsmobiles, Ford Escorts, and Chevrolet Cavaliers.
Customers seemed to like the selection. Car-Mart says the average retail price of the 29,000 cars it sold in fiscal 2009 was a little over $9,000. That year the company posted $18 million in net income on revenue of $299 million. It did even better in fiscal 2010, netting $28 million on revenues of $339 million.
But the cars were only a small part of the business model. "Collecting customer accounts is perhaps the single most important aspect of operating a buy here/pay here used car business and is a focal point for store level and corporate office personnel on a daily basis," the company says. "Substantially all incentive compensation is tied directly or indirectly to collection results."
Car-Mart keeps customers on a rigid schedule. If a payment is one day late, the customer receives a letter. After three days without payment, the customer receives a telephone call from Car-Mart. Vehicles are repossessed after 40 days without payment.
It is not a process geared to people who have a tough time with deadlines. According to the company, credit losses as a percentage of sales has averaged 22%, and a company history posted on http://www.fundinguniverse.com/ puts the estimated repossession rate at approximately 18%. It is a tough business but a thriving one.
Today, CAR-MART has 101 locations in Arkansas, Alabama, Oklahoma, Missouri, Kentucky, Indiana, Tennessee, and Texas with more than 45,000 customers.
One disclosure you won't find in its financial statements is how many of those customers paid for their vehicles with livestock -- and whether the animals can be used for monthly payments as well. Chances are if that turns out to be a viable business in a depressed economy, some canny operator will find a way to take advantage of that too
The timing is appropriate because if ever a demand existed for Buy Here, Pay Here, or BHPH, it is now. With unemployment high and millions of homes being foreclosed, many people who need transportation find they can't buy any because they have neither cash nor credit. BHPH serves buyers who have few alternatives and are willing to endure steep interest charges -- along with onerous collection tactics if they fall behind.
BHPH has more to do with lending and collecting money than it does with the traditional car business. The vehicle is merely a commodity, the asset used to secure the loan. One writer described a BHPH outlet as "a bank masquerading as a used car lot."
In the usual sales process, the discussion about how the car will be paid for comes after it has been selected. At a BHPH dealership, the process is reversed. The dealer first determines a buyer's credit history and figures how much he can come up with for the down payment and subsequent monthly payments; only then does he locate an appropriate vehicle.
The cost for this kind of credit is steep -- as much as 20% annually -- and the consequences of missing payments can be abrupt. Some services recommend that dealers install tracking devices so that they can locate vehicles whose owners haven't kept up and stop them from moving until payments resume.
Woe be to those who can't keep up. Although some BHPH dealerships will accept payment by phone or online, many require that the buyer physically bring a check or cash to their locations either monthly or bi-weekly. Some dealers are known to repossess vehicles if the payment is more than a day late.
"Collections is the focus of our business -- selling cars is not," America's Car-Mart CEO Tilman J. Falgout III said in a 2002 interview. That kind of single-minded focus has helped make his company popular with investors, among them Buffett's Combs.
The company would not comment for this story and referred us to its filings with the Securities and Exchange Commission for further information.
America's Car-Mart (CRMT), which is not to be confused with its Bentonville, Ark.-neighbor Wal-Mart (WMT, Fortune 500), operates dealerships in eight states, and calls itself the largest publicly held car retailer focused exclusively on BHPH.
Car-Mart got started in 1981, when the company's first used-car dealership opened in Rogers, Ark. Its strategy from the beginning was to sell to customers with limited or poor credit. It was an immediate success.
The company targeted communities in rural areas with populations between 20,000 and 50,000. It figured that the absence of mass transit made car ownership more critical in those communities, and the small population made those who missed payments easier to track down.
To make things easier on buyers, Car-Mart advertises that it will trade cars for anything of value -- from electronics to household appliances and farm animals -- but mostly it deals with cash.
A snapshot of Car-Mart's 2009 fiscal year gives a glimpse of a highly-profitable business. Before this year's run-up in used car prices, Car-Mart was paying between $3,000 and $6,000 for its cars. The most popular models were between three and 10 years old and with 90,000 to 130,000 miles on the odometer. They carried names from Detroit's graveyard of discontinued models: Pontiacs and Oldsmobiles, Ford Escorts, and Chevrolet Cavaliers.
Customers seemed to like the selection. Car-Mart says the average retail price of the 29,000 cars it sold in fiscal 2009 was a little over $9,000. That year the company posted $18 million in net income on revenue of $299 million. It did even better in fiscal 2010, netting $28 million on revenues of $339 million.
But the cars were only a small part of the business model. "Collecting customer accounts is perhaps the single most important aspect of operating a buy here/pay here used car business and is a focal point for store level and corporate office personnel on a daily basis," the company says. "Substantially all incentive compensation is tied directly or indirectly to collection results."
Car-Mart keeps customers on a rigid schedule. If a payment is one day late, the customer receives a letter. After three days without payment, the customer receives a telephone call from Car-Mart. Vehicles are repossessed after 40 days without payment.
It is not a process geared to people who have a tough time with deadlines. According to the company, credit losses as a percentage of sales has averaged 22%, and a company history posted on http://www.fundinguniverse.com/ puts the estimated repossession rate at approximately 18%. It is a tough business but a thriving one.
Today, CAR-MART has 101 locations in Arkansas, Alabama, Oklahoma, Missouri, Kentucky, Indiana, Tennessee, and Texas with more than 45,000 customers.
One disclosure you won't find in its financial statements is how many of those customers paid for their vehicles with livestock -- and whether the animals can be used for monthly payments as well. Chances are if that turns out to be a viable business in a depressed economy, some canny operator will find a way to take advantage of that too
Black Friday: Toys R Us starts the frenzyWho knew that all it took was a 2-hour time change to bring out a mob of newcomers to the Black Friday craziness? Toys R Us, the nation's largest toys-only retailer, got a head start on the holiday shopping craze, when it opened at 10 p.m. on Thanksgiving Day for the first time.
The line outside the flagship toy store in Times Square started forming at 7:30 p.m. It was dominated by passers-by and tourists who had heard the store would be opening its doors at 10, offering 150 doorbuster deals on everything from iPods to Barbie dolls.
New Yorker Adam Erickson had never braved a Black Friday before, saying it wasn't his "thing." But this year, he was walking by when he saw the line start forming.
An avid collector of Transformers action figures and GI Joes, Erickson set up on the cold pavement, bundled up in his winter coat and watched a Batman cartoon on his laptop.
"I just walked by and thought 'why not.' It was a very last minute decision, and they have some pretty good deals," he said.
He was one of the first in the store, and one of the first out, leaving with about seven new additions to his toy collection.
In the past, Toys R Us has opened its stores at midnight or 5 a.m. This year, it tried something new with a 10 p.m. start, hoping to draw even more customers.
Based on the queues, the strategy appeared to work. An hour ahead of the opening, hundreds of eager shoppers lined up outside the Times Square store, winding around the corner and to the next block.
"We're off to a great start," said Toys R Us CEO Gerald Storch. "I've been getting reports from all over the country and the lines have anywhere from between 500 to 1,000 people at every Toys R Us store nationwide."
Holiday 2010 shopping guide - CNN
The 10 p.m. opening in New York also drew shoppers from as far away as South America and Europe.
Ana Carolina Bonhilha and Ana Paula Cruz came all way from Brazil to experience their first Black Friday in the States. After shopping in the store earlier in the day, they were able to secure the much-coveted first spot in line.
Armed with two suitcases and about $1,100, they were looking for deals on Nintendo Wii games, Guitar Hero, and a Baby Alive doll -- and whatever else could be stuffed into their luggage.
0:00 /2:28Toys R Us: Holiday shopping fun
"We think all will be on sale," Bonhilha said. "A lot of these things are so expensive in Brazil. We're traveling and actually saving money."
Danielle and John Van der Moeuer from the Netherlands also braved the lines to fill their suitcases with "Toy Story 3" figurines, gearing up for both St. Nicholas Day and Christmas.
"Everything is a deal here because the dollar is so much lower than the euro," John said.
Lines snaked throughout all three floors of the store and around its iconic Ferris wheel.
The hottest deals drew the longest queues to the electronics section, where the store gave out $50 gift cards with the purchase of an iPod Touch or an XBox 360. Video game sales were perhaps the biggest highlight among teenage boys, and You and Me baby dolls were popular for little girls.
"We're going to work the baby doll section, grab an Icee-maker and a Crayola set," said Daneesha Commander of New York, while waiting in line. She and her family left about an hour later with three giant bags of toys and a nearly 20-inch receipt totaling $108.
"The after-party is at Old Navy which opens at midnight," she said. "Then we'll take a nap and head out again tomorrow from 1 to 5."
Not everything was drawing a crowd though. While Toys R Us was pushing its exclusive Santa-Sing-A-Ma-Jig toy hard this year
New Yorker Adam Erickson had never braved a Black Friday before, saying it wasn't his "thing." But this year, he was walking by when he saw the line start forming.
An avid collector of Transformers action figures and GI Joes, Erickson set up on the cold pavement, bundled up in his winter coat and watched a Batman cartoon on his laptop.
"I just walked by and thought 'why not.' It was a very last minute decision, and they have some pretty good deals," he said.
He was one of the first in the store, and one of the first out, leaving with about seven new additions to his toy collection.
In the past, Toys R Us has opened its stores at midnight or 5 a.m. This year, it tried something new with a 10 p.m. start, hoping to draw even more customers.
Based on the queues, the strategy appeared to work. An hour ahead of the opening, hundreds of eager shoppers lined up outside the Times Square store, winding around the corner and to the next block.
"We're off to a great start," said Toys R Us CEO Gerald Storch. "I've been getting reports from all over the country and the lines have anywhere from between 500 to 1,000 people at every Toys R Us store nationwide."
Holiday 2010 shopping guide - CNN
The 10 p.m. opening in New York also drew shoppers from as far away as South America and Europe.
Ana Carolina Bonhilha and Ana Paula Cruz came all way from Brazil to experience their first Black Friday in the States. After shopping in the store earlier in the day, they were able to secure the much-coveted first spot in line.
Armed with two suitcases and about $1,100, they were looking for deals on Nintendo Wii games, Guitar Hero, and a Baby Alive doll -- and whatever else could be stuffed into their luggage.
0:00 /2:28Toys R Us: Holiday shopping fun
"We think all will be on sale," Bonhilha said. "A lot of these things are so expensive in Brazil. We're traveling and actually saving money."
Danielle and John Van der Moeuer from the Netherlands also braved the lines to fill their suitcases with "Toy Story 3" figurines, gearing up for both St. Nicholas Day and Christmas.
"Everything is a deal here because the dollar is so much lower than the euro," John said.
Lines snaked throughout all three floors of the store and around its iconic Ferris wheel.
The hottest deals drew the longest queues to the electronics section, where the store gave out $50 gift cards with the purchase of an iPod Touch or an XBox 360. Video game sales were perhaps the biggest highlight among teenage boys, and You and Me baby dolls were popular for little girls.
"We're going to work the baby doll section, grab an Icee-maker and a Crayola set," said Daneesha Commander of New York, while waiting in line. She and her family left about an hour later with three giant bags of toys and a nearly 20-inch receipt totaling $108.
"The after-party is at Old Navy which opens at midnight," she said. "Then we'll take a nap and head out again tomorrow from 1 to 5."
Not everything was drawing a crowd though. While Toys R Us was pushing its exclusive Santa-Sing-A-Ma-Jig toy hard this year
Starbucks-Kraft battle gets bitter Kraft Foods Inc. said Monday it is seeking arbitration in its battle with Starbucks Corp. as the coffee chain tries to end a deal under which Kraft distributes packaged Starbucks coffee to grocery stores. In a statement, Kraft (KFT, Fortune 500) argued that its contract with Starbucks (SBUX, Fortune 500), which dates back to 1998, remains in effect "indefinitely" and requires "sufficient time for Kraft to execute an orderly transition." * 10 * * * Email * Print * Comment Kraft also said that the contract calls for Starbucks to compensate Kraft for the fair market value of the business, plus a premium of up to 35% of that value. The packaged foods company claimed its resources and expertise helped build Starbucks' retail grocery coffee business from generating less than $50 million in annual revenue to about $500 million in sales each year. "Starbucks unilaterally and unjustifiably declared in public statements the agreement's termination," said Marc Firestone, Kraft general counsel, in a statement. "In effect, Starbucks is trying to walk away from a 12-year strategic partnership, from which it has greatly benefited, without abiding by contractual conditions." In response, Starbucks said it "strongly disagrees with Kraft's recent characterizations." It said that Kraft did not hold up its end of the bargain under certain aspects of the agreement, including working closely with Starbucks involving the company with significant marketing decisions and customer contacts. Starbucks claimed it raised the issues with Kraft but never saw any improvement. "Kraft's failure to meets its responsibilities resulted in the erosion of brand equity and the experiences at grocery that Starbucks customers have come to expect through their experience in Starbucks stores," the Seattle-based company said in a statement. "In light of Kraft's failure to cure its breaches of the agreement, Starbucks has exercised its right to end the relationship." 0:00 /26:58Starbucks on the record The dispute between the companies first came to light earlier this month, when Starbucks announced that it had notified Kraft of its decision to terminate the partnership in October. Kraft fired back, saying the agreement between the companies is "perpetual" and would require Starbucks to pay fair market value for the business plus a premium.
President Obama meets with Wal-Mart CEO
President Obama was meeting Monday with Mike Duke, the chief executive of Wal-Mart, a White House official said.
The meeting was closed to the press, but the official called it part of Obama's "ongoing outreach" to the U.S. business community.
The goal is to "continue discussing ways to strengthen our economic recovery, spur growth, create jobs, and encourage companies to invest in the United States," the official said in a statement emailed to CNNMoney.com.
Dan Fogleman, a spokesman for Wal-Mart (WMT, Fortune 500), said the world's largest retailer is not planning to make a public comment on the meeting.
Obama has been criticized by some corporate leaders for what they see as an anti-business bias. But the president acknowledged in a speech earlier this month that he needs to improve his relations with business after the midterm Congressional elections resulted in major losses for Democrats.
"As I reflect on what's happened over the last two years, it's one of the things that I think has not been managed by me as well as it needed to be," the president said press conference one day after the Nov.r 2 elections.
Businesses and other outside groups such as the U.S. Chamber of Commerce spent over $400 million to influence the election, according to the Sunlight Foundation, non-profit watchdog group.
Obama is considering attending a jobs summit hosted by the Chamber, which is expected to take place in early January, sources told CNN.
In his post-election remarks, Obama said he wants to mend bridges more publicly with the business community while seeking policy initiatives that help create jobs. He said he's been doing that "behind the scenes" in meetings between White House officials and corporate executives, but he acknowledged the need to work on the more public relationship.
The apparent charm campaign comes after corporate leaders from a variety of industries have criticized Obama for policies and statements they see as anti-business.
Obama chastised "fat cat" bankers who took large bonuses during the financial crisis, and lashed out at BP during the recent oil spill in the Gulf of Mexico.
But other executives have expressed frustration with Obama's efforts to eliminate tax breaks, an area where he has recently relented. Businesses have also pushed back against Obama's signature legislative achievements, including health care reform and a sweeping overhaul of the nation's financial system
The meeting was closed to the press, but the official called it part of Obama's "ongoing outreach" to the U.S. business community.
The goal is to "continue discussing ways to strengthen our economic recovery, spur growth, create jobs, and encourage companies to invest in the United States," the official said in a statement emailed to CNNMoney.com.
Dan Fogleman, a spokesman for Wal-Mart (WMT, Fortune 500), said the world's largest retailer is not planning to make a public comment on the meeting.
Obama has been criticized by some corporate leaders for what they see as an anti-business bias. But the president acknowledged in a speech earlier this month that he needs to improve his relations with business after the midterm Congressional elections resulted in major losses for Democrats.
"As I reflect on what's happened over the last two years, it's one of the things that I think has not been managed by me as well as it needed to be," the president said press conference one day after the Nov.r 2 elections.
Businesses and other outside groups such as the U.S. Chamber of Commerce spent over $400 million to influence the election, according to the Sunlight Foundation, non-profit watchdog group.
Obama is considering attending a jobs summit hosted by the Chamber, which is expected to take place in early January, sources told CNN.
In his post-election remarks, Obama said he wants to mend bridges more publicly with the business community while seeking policy initiatives that help create jobs. He said he's been doing that "behind the scenes" in meetings between White House officials and corporate executives, but he acknowledged the need to work on the more public relationship.
The apparent charm campaign comes after corporate leaders from a variety of industries have criticized Obama for policies and statements they see as anti-business.
Obama chastised "fat cat" bankers who took large bonuses during the financial crisis, and lashed out at BP during the recent oil spill in the Gulf of Mexico.
But other executives have expressed frustration with Obama's efforts to eliminate tax breaks, an area where he has recently relented. Businesses have also pushed back against Obama's signature legislative achievements, including health care reform and a sweeping overhaul of the nation's financial system
Wednesday 24 November 2010
Germany economy grew 0.7 pct in 3rd quarter
BERLIN – Economic growth in Germany cooled in the third quarter, slipping back to a still-healthy and broader-based 0.7 percent following a spectacular boom in the spring, official figures showed Friday.
The quarterly figure for Europe's biggest economy compared with a huge 2.3 percent advance in the April-June period — that was revised upward Friday from the initial reading of 2.2 percent. The first-quarter figure was also revised up to 0.6 percent from 0.5 percent.
The third-quarter growth was in line with forecasts for growth of 0.7 or 0.8 percent.
Germany's economy has made an impressive comeback after contracting sharply last year — led by exports and now helped by signs of healthier domestic demand.
The Federal Statistical Office said that "both domestic and foreign demand made a positive contribution to growth" in the third quarter, with the expansion "based equally" on household and government consumption, company investment and foreign trade.
Analysts said the figures encouraged hopes that the German economic recovery is becoming more sustainable.
UniCredit analyst Andreas Rees said there is "no — repeat no — reason for being disappointed" by the third-quarter figure.
He noted that "the upswing has been getting broader in recent months" with both consumer spending and investment in machinery and equipment contributing to growth.
The massive second-quarter growth was fueled in part by a catch-up in construction work after a hard winter, while exports and investment also contributed.
"The signs of a profound change in the 'quality' of growth have become unmistakable," he said.
And Carsten Brzeski, an economist at ING in Brussels, said the third-quarter demonstrate that the German recovery "is much more than a simple statistical quirk: the German economy is a good way toward a self-sustained recovery."
Friday's data suggest that the German economy is outperforming the government's predictions.
Gross domestic product was up 3.9 percent in the third quarter compared with the same period last year.
The government expects full-year growth of 3.4 percent in 2010, cooling to 1.8 percent in 2011.
Economy Minister Rainer Bruederle said the German economy continued its "dynamic upswing" in the third quarter and the government's full-year forecast was "impressively confirmed" by the new figures.
This week, the government's independent panel of economic advisers issued an even more optimistic forecast of 3.7 percent this year and 2.2 percent in 2011.
The economy contracted by 4.7 percent last year, by far the worst performance since World War II, as global economic woes weighed on German exports.
Third-quarter growth figures for the 16-nation eurozone are due later Friday.
The quarterly figure for Europe's biggest economy compared with a huge 2.3 percent advance in the April-June period — that was revised upward Friday from the initial reading of 2.2 percent. The first-quarter figure was also revised up to 0.6 percent from 0.5 percent.
The third-quarter growth was in line with forecasts for growth of 0.7 or 0.8 percent.
Germany's economy has made an impressive comeback after contracting sharply last year — led by exports and now helped by signs of healthier domestic demand.
The Federal Statistical Office said that "both domestic and foreign demand made a positive contribution to growth" in the third quarter, with the expansion "based equally" on household and government consumption, company investment and foreign trade.
Analysts said the figures encouraged hopes that the German economic recovery is becoming more sustainable.
UniCredit analyst Andreas Rees said there is "no — repeat no — reason for being disappointed" by the third-quarter figure.
He noted that "the upswing has been getting broader in recent months" with both consumer spending and investment in machinery and equipment contributing to growth.
The massive second-quarter growth was fueled in part by a catch-up in construction work after a hard winter, while exports and investment also contributed.
"The signs of a profound change in the 'quality' of growth have become unmistakable," he said.
And Carsten Brzeski, an economist at ING in Brussels, said the third-quarter demonstrate that the German recovery "is much more than a simple statistical quirk: the German economy is a good way toward a self-sustained recovery."
Friday's data suggest that the German economy is outperforming the government's predictions.
Gross domestic product was up 3.9 percent in the third quarter compared with the same period last year.
The government expects full-year growth of 3.4 percent in 2010, cooling to 1.8 percent in 2011.
Economy Minister Rainer Bruederle said the German economy continued its "dynamic upswing" in the third quarter and the government's full-year forecast was "impressively confirmed" by the new figures.
This week, the government's independent panel of economic advisers issued an even more optimistic forecast of 3.7 percent this year and 2.2 percent in 2011.
The economy contracted by 4.7 percent last year, by far the worst performance since World War II, as global economic woes weighed on German exports.
Third-quarter growth figures for the 16-nation eurozone are due later Friday.
G20 sees small window to seal WTO Doha deal in 2011
GENEVA (Reuters) – Leaders of the G20 rich and emerging economies called on Friday for intensified efforts to complete the long-running Doha round of global trade talks, saying next year offers a narrow window of opportunity.
The endorsement by the G20 summit of 2011 as a target date, even if not an explicit one, marks an optimistic return to the practice of summits setting deadlines for the Doha talks, launched nine years ago this Sunday.
Each one has been missed, starting with the original target of January 1, 2005. But this time may be different.
There is a growing sense of optimism at the World Trade Organization in Geneva -- after several months of brainstorming among small groups of ambassadors -- that the negotiations could be ready for a final push.
What the negotiators had been waiting for was a political signal from the leaders in Seoul.
In a statement released after a two-day summit, the G20 leaders welcomed what they called the "broader and more substantive" engagement of the past four months among negotiators in Geneva.
NARROW WINDOW
"Bearing in mind that 2011 is a critical window of opportunity, albeit narrow, this engagement must intensify and expand. We now need to complete the end game," the G20 said.
World leaders have been issuing such exhortations for several years.
But this time U.S. President Barack Obama and other leaders were forthright in their support for a deal, a senior trade source said.
Obama told other leaders at a lunchtime discussion on trade that he would take a deal to Congress and fight for it, once the right deal was on the table, the source said.
"What I get from this summit is political energy and a sense that next year is the year when we have to try and wrap it up," said the source, who took part in summit meetings in Seoul.
The talks were launched in late 2001 to free up global commerce and help poor countries prosper through trade.
The likely deal would see rich countries cut their trade distorting agricultural subsidies and open their protected farm markets, while emerging economies would open up their fledgling industries to more international competition. The poorest countries would not have to make any concessions.
But the talks have been stuck for two years on a U.S. demand that emerging economies -- where most future growth is likely -- should create more opportunities for foreign businesses. The emerging countries say they have already done enough in what is supposed to be a negotiation to help developing countries.
Obama's reassurance that he will fight for the right deal is important because over the past two years many countries have argued that a virtual deadlock in the talks was due to a lack of interest on the part of the United States.
German Chancellor Angela Merkel and British Prime Minister David Cameron spoke up at the lunch for a Doha deal to bolster the world economy, and in other sessions outgoing Brazilian President Luiz Inacio Lula da Silva and Chinese President Hu Jintao also called for progress, the senior trade source said.
EU trade chief Karel De Gucht is thinking of convening a meeting of key trade ministers in the coming months to move the talks forward, other sources said.
But Seoul also saw calls for the launch of several new bilateral or regional trade agreements and a promise by the United States and South Korea to try and conclude their trade pact that they had hoped to agree by the summit.
That suggests many countries are hedging their bets over Doha.
"My worry would be that bilateral agreements suck so much energy out of the negotiating teams that there's no energy left for the multilateral talks," the trade source said.
The endorsement by the G20 summit of 2011 as a target date, even if not an explicit one, marks an optimistic return to the practice of summits setting deadlines for the Doha talks, launched nine years ago this Sunday.
Each one has been missed, starting with the original target of January 1, 2005. But this time may be different.
There is a growing sense of optimism at the World Trade Organization in Geneva -- after several months of brainstorming among small groups of ambassadors -- that the negotiations could be ready for a final push.
What the negotiators had been waiting for was a political signal from the leaders in Seoul.
In a statement released after a two-day summit, the G20 leaders welcomed what they called the "broader and more substantive" engagement of the past four months among negotiators in Geneva.
NARROW WINDOW
"Bearing in mind that 2011 is a critical window of opportunity, albeit narrow, this engagement must intensify and expand. We now need to complete the end game," the G20 said.
World leaders have been issuing such exhortations for several years.
But this time U.S. President Barack Obama and other leaders were forthright in their support for a deal, a senior trade source said.
Obama told other leaders at a lunchtime discussion on trade that he would take a deal to Congress and fight for it, once the right deal was on the table, the source said.
"What I get from this summit is political energy and a sense that next year is the year when we have to try and wrap it up," said the source, who took part in summit meetings in Seoul.
The talks were launched in late 2001 to free up global commerce and help poor countries prosper through trade.
The likely deal would see rich countries cut their trade distorting agricultural subsidies and open their protected farm markets, while emerging economies would open up their fledgling industries to more international competition. The poorest countries would not have to make any concessions.
But the talks have been stuck for two years on a U.S. demand that emerging economies -- where most future growth is likely -- should create more opportunities for foreign businesses. The emerging countries say they have already done enough in what is supposed to be a negotiation to help developing countries.
Obama's reassurance that he will fight for the right deal is important because over the past two years many countries have argued that a virtual deadlock in the talks was due to a lack of interest on the part of the United States.
German Chancellor Angela Merkel and British Prime Minister David Cameron spoke up at the lunch for a Doha deal to bolster the world economy, and in other sessions outgoing Brazilian President Luiz Inacio Lula da Silva and Chinese President Hu Jintao also called for progress, the senior trade source said.
EU trade chief Karel De Gucht is thinking of convening a meeting of key trade ministers in the coming months to move the talks forward, other sources said.
But Seoul also saw calls for the launch of several new bilateral or regional trade agreements and a promise by the United States and South Korea to try and conclude their trade pact that they had hoped to agree by the summit.
That suggests many countries are hedging their bets over Doha.
"My worry would be that bilateral agreements suck so much energy out of the negotiating teams that there's no energy left for the multilateral talks," the trade source said.
Eurozone Q3 economic growth slows to 0.4 percent LONDON
LONDON – Economic growth in the 16 countries that use the euro fell by more than half in the third quarter of the year, official figures showed Friday, as the pace of recovery in Germany, Europe's biggest economy, slowed and the Netherlands saw output unexpectedly drop.
Eurostat, the EU's statistics office, said that economic growth in the eurozone moderated to 0.4 percent in the July to September quarter from the 1 percent growth recorded in the previous three month period.
It's also slightly lower than market expectations for a more modest slowdown to 0.5 percent.
The figures also mean that the eurozone economy grew at a slower pace than the U.S. in the third quarter after a stronger performance in the previous three month period.
The U.S. economy grew at an annualized rate of 2 percent in the third quarter, which according to Eurostat corresponds to a quarterly rate of 0.5 percent.
The figures once again highlight the big disparities within the eurozone — while the core countries, such as Germany and France, continue to grow solidly, albeit at a slower pace, debt-laden Greece remains mired in recession.
Earlier, Germany's Federal Statistical Office reported that economic growth in the country slipped back to a still-healthy and broader-based 0.7 percent following a spectacular 2.3 percent boom in the previous three month period. Meanwhile, French growth eased to 0.4 percent from 0.7 percent.
In contrast, Greece shrank a further 1.1 percent in the third quarter as the government continues to enact austerity measures in an attempt to get a handle on the country's massive debts.
Other countries just staggered — Italy saw its growth rate half to 0.2 percent while the Netherlands unexpectedly saw output dip by 0.1 percent.
Jennifer McKeown, senior European economist at Capital Economics, said the contraction in export-reliant Netherlands was a "worrying sign" that the slowdown in the global economic recovery wanes and the euro's recent strength are starting to take their toll on some of the core economies.
"This is probably a sign of things to come for Germany, where the industrial surveys point to a sharp slowdown," said McKeown. "With the periphery looking worse and worse, we still see the eurozone's recovery grinding to a halt next year."
The split within the eurozone, which could well be compounded further in the coming months by the austerity programs being pursued in a number of countries on the so-called periphery, such as Portugal and Ireland, is likely to make policy-making more difficult, particularly for the European Central Bank, which sets interest rates for the single currency bloc.
The worry is that what may be necessary in some economies will be wrong for others.
The ECB is expected to get rid of more of its emergency crisis measures at its policy meeting next month, even though several economies face a number of headwinds over the coming months and many of the banks remain highly dependent on emergency funding from the central bank.
Overriding everything is the reemergence of the debt crisis that nearly bankrupted Greece earlier this year, with Ireland now under market pressure. Even though concerns that Ireland will soon need to get bailed out by its partners in the eurozone have moderated somewhat Friday, the country still faces sky-high borrowing costs in the markets.
Carsten Brzeski, a senior economist at ING, said that the debt crisis doesn't necessarily have to leader to lower growth — after all, the eurozone has grown, as a whole, far stronger than anticipated this year, even though most of the first half of the year was dominated by Greece's debt crisis and whether it would spread.
"Judging from the Greek case in May, the re-emergence of sovereign debt worries should rather be a new challenge for economic governance in the eurozone than a burden on growth prospects," said Brzeski.
Eurostat also said that the wider 27-country EU, which includes non-euro members such as Britain and Sweden, saw growth moderate to 0.4 percent in the third quarter from 1 percent in the previous three month period.
On a year-on-year basis, eurozone economic growth was up an unchanged 1.9 percent higher, while the EU rate increased modestly to 2.1 percent from 2 percent.
These are only preliminary figures as a number of countries, including highly indebted Ireland and Poland have yet to report their third quarter figures.
Separately, Eurostat reported industrial production in the eurozone unexpectedly fell by 0.9 percent in September from the previous month. The expectation in the markets was that industrial output would rise by 0.2 percent.
As a result, the year-on-year increase declined to 5.2 percent from 8.4 percent.
Eurostat, the EU's statistics office, said that economic growth in the eurozone moderated to 0.4 percent in the July to September quarter from the 1 percent growth recorded in the previous three month period.
It's also slightly lower than market expectations for a more modest slowdown to 0.5 percent.
The figures also mean that the eurozone economy grew at a slower pace than the U.S. in the third quarter after a stronger performance in the previous three month period.
The U.S. economy grew at an annualized rate of 2 percent in the third quarter, which according to Eurostat corresponds to a quarterly rate of 0.5 percent.
The figures once again highlight the big disparities within the eurozone — while the core countries, such as Germany and France, continue to grow solidly, albeit at a slower pace, debt-laden Greece remains mired in recession.
Earlier, Germany's Federal Statistical Office reported that economic growth in the country slipped back to a still-healthy and broader-based 0.7 percent following a spectacular 2.3 percent boom in the previous three month period. Meanwhile, French growth eased to 0.4 percent from 0.7 percent.
In contrast, Greece shrank a further 1.1 percent in the third quarter as the government continues to enact austerity measures in an attempt to get a handle on the country's massive debts.
Other countries just staggered — Italy saw its growth rate half to 0.2 percent while the Netherlands unexpectedly saw output dip by 0.1 percent.
Jennifer McKeown, senior European economist at Capital Economics, said the contraction in export-reliant Netherlands was a "worrying sign" that the slowdown in the global economic recovery wanes and the euro's recent strength are starting to take their toll on some of the core economies.
"This is probably a sign of things to come for Germany, where the industrial surveys point to a sharp slowdown," said McKeown. "With the periphery looking worse and worse, we still see the eurozone's recovery grinding to a halt next year."
The split within the eurozone, which could well be compounded further in the coming months by the austerity programs being pursued in a number of countries on the so-called periphery, such as Portugal and Ireland, is likely to make policy-making more difficult, particularly for the European Central Bank, which sets interest rates for the single currency bloc.
The worry is that what may be necessary in some economies will be wrong for others.
The ECB is expected to get rid of more of its emergency crisis measures at its policy meeting next month, even though several economies face a number of headwinds over the coming months and many of the banks remain highly dependent on emergency funding from the central bank.
Overriding everything is the reemergence of the debt crisis that nearly bankrupted Greece earlier this year, with Ireland now under market pressure. Even though concerns that Ireland will soon need to get bailed out by its partners in the eurozone have moderated somewhat Friday, the country still faces sky-high borrowing costs in the markets.
Carsten Brzeski, a senior economist at ING, said that the debt crisis doesn't necessarily have to leader to lower growth — after all, the eurozone has grown, as a whole, far stronger than anticipated this year, even though most of the first half of the year was dominated by Greece's debt crisis and whether it would spread.
"Judging from the Greek case in May, the re-emergence of sovereign debt worries should rather be a new challenge for economic governance in the eurozone than a burden on growth prospects," said Brzeski.
Eurostat also said that the wider 27-country EU, which includes non-euro members such as Britain and Sweden, saw growth moderate to 0.4 percent in the third quarter from 1 percent in the previous three month period.
On a year-on-year basis, eurozone economic growth was up an unchanged 1.9 percent higher, while the EU rate increased modestly to 2.1 percent from 2 percent.
These are only preliminary figures as a number of countries, including highly indebted Ireland and Poland have yet to report their third quarter figures.
Separately, Eurostat reported industrial production in the eurozone unexpectedly fell by 0.9 percent in September from the previous month. The expectation in the markets was that industrial output would rise by 0.2 percent.
As a result, the year-on-year increase declined to 5.2 percent from 8.4 percent.
Fed will issue dividends guidance soon: Tarullo
WASHINGTON (Reuters) – The Federal Reserve will soon issue guidance allowing some banks to increase dividend payments, Fed Governor Daniel Tarullo said on Friday, but he warned they would have to meet strict standards.
Banks would have to submit plans "that demonstrate their ability to absorb losses over the next two years under an adverse economic scenario that we will specify, and still remain amply capitalized," Tarullo said in a speech at the George Washington University law school.
Tarullo also used his speech to advocate that banks pursue mortgage modifications rather than foreclosures, arguing in most cases it would be a better outcome for all involved.
On dividends, he said banks also will have to show they can meet the new capital requirements laid out in the recent Basel III international agreement and they can "accommodate any business model changes" required by the new financial reform law.
"We also expect that firms will have a sound estimate of any significant risks that may not be captured by the stress testing, such as potential mortgage putback exposures, and the capacity to absorb any consequent losses," he said.
Tarullo said the dividends guidance would go into effect the first quarter of next year.
Banks have been pushing to boost dividends. But regulators have balked at giving them the green light, citing uncertainty about the economic outlook and new capital rules.
With global capital rules and the U.S. financial regulatory system retooling, Tarullo said it is now easier for the Fed to measure whether strong banks should be allowed to increase dividends.
Tarullo waded into the controversy over mortgage foreclosure practices and said overall banks have not done enough to pursue loan modifications for borrowers having trouble making payments.
"It just cannot be the case that foreclosure is preferable to modification -- including reductions of principal -- for a significant proportion of mortgages where the deadweight costs of foreclosure, including a distressed sale discount, are so high," he said.
State and federal officials, including the Fed, are investigating allegations that for years banks have not reviewed foreclosure documents properly or have submitted false statements to evict delinquent borrowers.
Tarullo did not provide any details about what the review has uncovered but said he hoped it would help spur loan modifications.
He bemoaned the current situation where banks are not pursuing modifications and borrowers stop making payments and stay in their home, sometimes, for more than a year.
"This simply is not a good outcome from any broad perspective -- not for the revival of housing markets, not for the banks and investors that hold the delinquent mortgages, and in the longer run, not even for the homeowners themselves, who will ultimately have to move out," he said.
CAPITAL STANDARDS
Tarullo also emphasized the importance of the Basel III agreement and said most U.S. banks should be able to easily meet its requirements before the deadlines.
The Basel rules, which have to be implemented by each country, will force banks to hold top-quality capital equal to 7 percent of risk-bearing assets, more than triple current standards, to better withstand economic downturns and financial shocks.
Banks will have until 2015 to meet the minimum core Tier 1 capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets. An additional 2.5 percent "capital conservation buffer" will have to be in place by 2019.
Basel negotiators also have said large banks that are important to the smooth functioning of global financial markets should have to meet additional capital requirements. So far, however, no specific agreement has been struck on how to put this idea into practice.
"We think it serves U.S. interests to develop our plans for implementing our domestic statutory obligation in tandem with our participation in this international process," Tarullo said. "Work on this issue in the Basel Committee and the Financial Stability Board will continue well into next year."
(Reporting by Dave Clarke, Editing by Neil Stempleman)
Banks would have to submit plans "that demonstrate their ability to absorb losses over the next two years under an adverse economic scenario that we will specify, and still remain amply capitalized," Tarullo said in a speech at the George Washington University law school.
Tarullo also used his speech to advocate that banks pursue mortgage modifications rather than foreclosures, arguing in most cases it would be a better outcome for all involved.
On dividends, he said banks also will have to show they can meet the new capital requirements laid out in the recent Basel III international agreement and they can "accommodate any business model changes" required by the new financial reform law.
"We also expect that firms will have a sound estimate of any significant risks that may not be captured by the stress testing, such as potential mortgage putback exposures, and the capacity to absorb any consequent losses," he said.
Tarullo said the dividends guidance would go into effect the first quarter of next year.
Banks have been pushing to boost dividends. But regulators have balked at giving them the green light, citing uncertainty about the economic outlook and new capital rules.
With global capital rules and the U.S. financial regulatory system retooling, Tarullo said it is now easier for the Fed to measure whether strong banks should be allowed to increase dividends.
Tarullo waded into the controversy over mortgage foreclosure practices and said overall banks have not done enough to pursue loan modifications for borrowers having trouble making payments.
"It just cannot be the case that foreclosure is preferable to modification -- including reductions of principal -- for a significant proportion of mortgages where the deadweight costs of foreclosure, including a distressed sale discount, are so high," he said.
State and federal officials, including the Fed, are investigating allegations that for years banks have not reviewed foreclosure documents properly or have submitted false statements to evict delinquent borrowers.
Tarullo did not provide any details about what the review has uncovered but said he hoped it would help spur loan modifications.
He bemoaned the current situation where banks are not pursuing modifications and borrowers stop making payments and stay in their home, sometimes, for more than a year.
"This simply is not a good outcome from any broad perspective -- not for the revival of housing markets, not for the banks and investors that hold the delinquent mortgages, and in the longer run, not even for the homeowners themselves, who will ultimately have to move out," he said.
CAPITAL STANDARDS
Tarullo also emphasized the importance of the Basel III agreement and said most U.S. banks should be able to easily meet its requirements before the deadlines.
The Basel rules, which have to be implemented by each country, will force banks to hold top-quality capital equal to 7 percent of risk-bearing assets, more than triple current standards, to better withstand economic downturns and financial shocks.
Banks will have until 2015 to meet the minimum core Tier 1 capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets. An additional 2.5 percent "capital conservation buffer" will have to be in place by 2019.
Basel negotiators also have said large banks that are important to the smooth functioning of global financial markets should have to meet additional capital requirements. So far, however, no specific agreement has been struck on how to put this idea into practice.
"We think it serves U.S. interests to develop our plans for implementing our domestic statutory obligation in tandem with our participation in this international process," Tarullo said. "Work on this issue in the Basel Committee and the Financial Stability Board will continue well into next year."
(Reporting by Dave Clarke, Editing by Neil Stempleman)
How the Federal Reserve Has Helped Sarah Palin
The conservative gadfly and former vice-presidential candidate unloaded recently on the Federal Reserve's "quantitative easing" plan, saying in a speech that the Fed should "cease and desist." Then, on her Facebook page, Palin called the Fed's plan to buy $600 billion worth of government securities a "dangerous experiment" that amounts to "printing money out of thin air." "Running the printing presses in order to avoid paying off your debts," Palin wrote, "is no way for a great nation to behave."
[See 20 industries where jobs are coming back.]
Palin's logic isn't exactly airtight, but she's certainly not the only critic of the Fed. Many people--including some Fed insiders--worry that the central bank's efforts to pump money into the economy and artificially boost the markets are short-circuiting the normal functioning of supply and demand. Even Bernanke, the Fed Chairman, admits that efforts to boost the economy today could produce unwelcome side effects in the future, like excessive inflation or new asset bubbles. The irony, however, is that many people who criticize the Fed's actions are directly benefiting from them--Sarah Palin more than most.
I don't know anything about Sarah Palin's personal finances, or how she invests her money. But she claims to be just like millions of other regular folks, with one obvious exception: She's quite wealthy, thanks to millions she earns from book royalties, speeches, and a contract with Fox News. So it seems safe to lump Palin with America's investor class, folks who have a high net worth that's tied more to the financial markets than to Main Street storefronts. Assuming that's true, here's how the Fed's actions have helped enrich Palin:
They've boosted her investment income. It's no accident that the Fed's two rounds of quantitative easing have overlapped almost exactly with huge rallies in the stock market. The Fed announced its first round of easing in March 2009 and ended it about a year later. That coincided with one of the strongest rallies ever, as stocks rose more than 75 percent--which is exactly what the Fed wanted to happen. By buying more than $1 trillion of government and mortgage-backed securities, the Fed forced investors who would have bought those same securities to buy something else instead. That led to a surge in demand for stocks, commodities, and other types of investments. By inflating the stock market, the Fed helped millions of Americans with investment and retirement portfolios regain some of the losses they suffered when the markets crashed in 2008 and early 2009.
[See how the middle class is shrinking.]
Once the Fed ended QE1, as the first easing program is now known, stocks sank. The summer of 2010 was miserable for investors. Then, at the end of August, Bernanke gave a speech indicating that the Fed was likely to pursue QE2, which it did in early November. Bernanke's speech marked the end of the stock market slide, and since then, the market has risen by another 15 percent or so. It's not clear if the Fed has triggered the entire stock-market run-up from its low point in 2009, but it certainly stoked much of it. So unless Palin has all of her savings stuffed under the mattress, she's probably earned some nice returns thanks to those dangerous experiments the Fed is conducting.
They've made it cheaper for her to borrow. Another main goal of quantitative easing is to force down interest rates, which the Fed has accomplished. Since the first easing program began, for instance, 30-year mortgage rates have fallen by about 0.75 percentage points, to levels that once seemed impossibly low. Palin owns a lakeside home in Wasilla, Alaska, where she's presumably been spending more time since resigning as Alaska's chief executive in 2009 and moving out of the governor's mansion. If she still has a mortgage and she's not underwater on her home, she would have been smart to refinance and save a few bucks. For many homeowners, refinancing has been a windfall, effectively putting found money in their pockets. And if Palin plans to buy a new home in Orange County or Rand Paul's Kentucky, or, say, Iowa, she'll enjoy some of the lowest mortgage rates in decades, courtesy of the Fed.
[See 3 ways to spot small-government phonies.]
They've made it easier for Americans to buy stuff. Like Palin's books. Quantitative easing and other actions by the Fed have had a decisive impact on the economy, helping prevent a full-blown financial panic and ending the recession a lot sooner than it would have wound down on its own. If you believe, as Palin does, that the bank bailouts and $800 billion stimulus plan were a pointless waste of money, then the Fed's moves represent the only government intervention that accomplished anything.
They were hardly a cure-all, and the economy still faces a lot of serious problems. Still, jobs are starting to return, most middle-class families are able to earn a living, and people have a little bit of money to spend on extras after covering food and shelter. That's helped Palin sell close to 3 million copies of Going Rogue, which in turn helped her net another multimillion-dollar advance for her latest book, America By Heart. It will be a long time before we know if Palin turns out to be right, and the Fed ends up doing more harm than good. But here's something we do know: Sarah Palin is the least of the Fed's victims.
[See 20 industries where jobs are coming back.]
Palin's logic isn't exactly airtight, but she's certainly not the only critic of the Fed. Many people--including some Fed insiders--worry that the central bank's efforts to pump money into the economy and artificially boost the markets are short-circuiting the normal functioning of supply and demand. Even Bernanke, the Fed Chairman, admits that efforts to boost the economy today could produce unwelcome side effects in the future, like excessive inflation or new asset bubbles. The irony, however, is that many people who criticize the Fed's actions are directly benefiting from them--Sarah Palin more than most.
I don't know anything about Sarah Palin's personal finances, or how she invests her money. But she claims to be just like millions of other regular folks, with one obvious exception: She's quite wealthy, thanks to millions she earns from book royalties, speeches, and a contract with Fox News. So it seems safe to lump Palin with America's investor class, folks who have a high net worth that's tied more to the financial markets than to Main Street storefronts. Assuming that's true, here's how the Fed's actions have helped enrich Palin:
They've boosted her investment income. It's no accident that the Fed's two rounds of quantitative easing have overlapped almost exactly with huge rallies in the stock market. The Fed announced its first round of easing in March 2009 and ended it about a year later. That coincided with one of the strongest rallies ever, as stocks rose more than 75 percent--which is exactly what the Fed wanted to happen. By buying more than $1 trillion of government and mortgage-backed securities, the Fed forced investors who would have bought those same securities to buy something else instead. That led to a surge in demand for stocks, commodities, and other types of investments. By inflating the stock market, the Fed helped millions of Americans with investment and retirement portfolios regain some of the losses they suffered when the markets crashed in 2008 and early 2009.
[See how the middle class is shrinking.]
Once the Fed ended QE1, as the first easing program is now known, stocks sank. The summer of 2010 was miserable for investors. Then, at the end of August, Bernanke gave a speech indicating that the Fed was likely to pursue QE2, which it did in early November. Bernanke's speech marked the end of the stock market slide, and since then, the market has risen by another 15 percent or so. It's not clear if the Fed has triggered the entire stock-market run-up from its low point in 2009, but it certainly stoked much of it. So unless Palin has all of her savings stuffed under the mattress, she's probably earned some nice returns thanks to those dangerous experiments the Fed is conducting.
They've made it cheaper for her to borrow. Another main goal of quantitative easing is to force down interest rates, which the Fed has accomplished. Since the first easing program began, for instance, 30-year mortgage rates have fallen by about 0.75 percentage points, to levels that once seemed impossibly low. Palin owns a lakeside home in Wasilla, Alaska, where she's presumably been spending more time since resigning as Alaska's chief executive in 2009 and moving out of the governor's mansion. If she still has a mortgage and she's not underwater on her home, she would have been smart to refinance and save a few bucks. For many homeowners, refinancing has been a windfall, effectively putting found money in their pockets. And if Palin plans to buy a new home in Orange County or Rand Paul's Kentucky, or, say, Iowa, she'll enjoy some of the lowest mortgage rates in decades, courtesy of the Fed.
[See 3 ways to spot small-government phonies.]
They've made it easier for Americans to buy stuff. Like Palin's books. Quantitative easing and other actions by the Fed have had a decisive impact on the economy, helping prevent a full-blown financial panic and ending the recession a lot sooner than it would have wound down on its own. If you believe, as Palin does, that the bank bailouts and $800 billion stimulus plan were a pointless waste of money, then the Fed's moves represent the only government intervention that accomplished anything.
They were hardly a cure-all, and the economy still faces a lot of serious problems. Still, jobs are starting to return, most middle-class families are able to earn a living, and people have a little bit of money to spend on extras after covering food and shelter. That's helped Palin sell close to 3 million copies of Going Rogue, which in turn helped her net another multimillion-dollar advance for her latest book, America By Heart. It will be a long time before we know if Palin turns out to be right, and the Fed ends up doing more harm than good. But here's something we do know: Sarah Palin is the least of the Fed's victims.
Obama, Republicans set for "lame-duck" tax test
WASHINGTON (Reuters) – A wrangle over extending tax cuts for millions of Americans will be the first major test of whether President Barack Obama and resurgent Republicans can work together to fix the U.S. economy.
In the wake of the November 2 election in which Republicans won control in the House of Representatives, Obama and the Republicans must thrash out a deal or tax rates for everyone will rise in January.
The debate over taxes is likely to dominate the "lame-duck" session in Congress starting on Monday, so called because the shift in power brought by last week's elections is not reflected until the new members take up their seats in January.
Obama's Democrats, who will continue to control both the House and Senate during the weeks-long session, might also end the "Don't Ask, Don't Tell," policy on gays in the military and ratify a new arms reductions treaty with Russia.
Some senators are pushing for a vote to castigate China during this time for keeping its yuan currency artificially low, but the bill looks set to languish because trade has lower priority than domestic economic matters.
Debate over taxes is the most pressing issue.
Republicans want a full extension of all tax cuts enacted during the administration of then-President George W. Bush which were timed to expire at the end of 2010. They say that failure to renew them would hurt the already ailing economy.
Obama and most of his Democrats favor extending tax cuts only for the first $200,000 of income of individuals, $250,000 for families.
But they argue that renewing expiring tax cuts for any income above those levels would swell the record U.S. deficit and have little, if any, impact on cutting the high unemployment rate, a key issue in the elections.
"This will be their first major battle, which is why Obama, in the end, wants to cut a deal," said Ethan Siegal, an analyst with The Washington Exchange.
"Obama wants to say to the American people, 'I have moved to the center because I recognize elections have consequences, I recognize the incoming power of House Republicans," Siegal said.
REPUBLICANS STRONGER
Just days after the election, Obama said a possible two-year extension of all tax cuts could at least be the "basis for conversation" that leads to compromise.
"My number one priority coming into this is making sure that middle-class families don't see their tax rates go up on January 1st," Obama told CBS's "60 Minutes."
The president will meet congressional leaders at the White House on Thursday to discuss policy, including tax cuts.
With the Republicans in a stronger position next year when Congress reconvenes with new members, the party might let the cuts run out and then wait until January to renew them across the board.
But a Republican aide said some in his party are wary of that scenario as it risks voter backlash if Republicans fail to quickly reach a deal to prevent the tax cuts from expiring at year's end, raising taxes briefly in 2011.
Voters could conclude, "Republicans just took power and the first thing that happens is that our taxes go up," the aide said.
Republicans took over the House of Representatives and won seats in the Senate at last week's elections, helped by voter concern over unemployment and slow economic growth.
It is uncertain if finding common ground on taxes will have much, if any impact, when lawmakers face even tougher issues down the road, like Republican demands to shrink government, slash spending and repeal Obama's healthcare overhaul.
"Each issue will be different," said Dan Ripp of Bradley Woods & Co, a private firm that tracks Washington for investors.
One of the main challenges next year is whether the parties can agree on how to reduce the budget deficit, which at $1.3 trillion is 8.9 percent of gross domestic product.
Proposals by the chairmen of a bipartisan commission on the deficit were met with skepticism from both sides of the aisle this week.
Analyst Siegal said he sees eventual agreement on taxes but predicted, "Republicans will keep moving back the goal posts" on a number of other fronts.
"Republicans are in power next year to stop the Obama agenda. They aren't here to cut deals," Siegal said.
(Additional reporting by Steve Holland and Richard Cowan; Editing by Eric Walsh)
In the wake of the November 2 election in which Republicans won control in the House of Representatives, Obama and the Republicans must thrash out a deal or tax rates for everyone will rise in January.
The debate over taxes is likely to dominate the "lame-duck" session in Congress starting on Monday, so called because the shift in power brought by last week's elections is not reflected until the new members take up their seats in January.
Obama's Democrats, who will continue to control both the House and Senate during the weeks-long session, might also end the "Don't Ask, Don't Tell," policy on gays in the military and ratify a new arms reductions treaty with Russia.
Some senators are pushing for a vote to castigate China during this time for keeping its yuan currency artificially low, but the bill looks set to languish because trade has lower priority than domestic economic matters.
Debate over taxes is the most pressing issue.
Republicans want a full extension of all tax cuts enacted during the administration of then-President George W. Bush which were timed to expire at the end of 2010. They say that failure to renew them would hurt the already ailing economy.
Obama and most of his Democrats favor extending tax cuts only for the first $200,000 of income of individuals, $250,000 for families.
But they argue that renewing expiring tax cuts for any income above those levels would swell the record U.S. deficit and have little, if any, impact on cutting the high unemployment rate, a key issue in the elections.
"This will be their first major battle, which is why Obama, in the end, wants to cut a deal," said Ethan Siegal, an analyst with The Washington Exchange.
"Obama wants to say to the American people, 'I have moved to the center because I recognize elections have consequences, I recognize the incoming power of House Republicans," Siegal said.
REPUBLICANS STRONGER
Just days after the election, Obama said a possible two-year extension of all tax cuts could at least be the "basis for conversation" that leads to compromise.
"My number one priority coming into this is making sure that middle-class families don't see their tax rates go up on January 1st," Obama told CBS's "60 Minutes."
The president will meet congressional leaders at the White House on Thursday to discuss policy, including tax cuts.
With the Republicans in a stronger position next year when Congress reconvenes with new members, the party might let the cuts run out and then wait until January to renew them across the board.
But a Republican aide said some in his party are wary of that scenario as it risks voter backlash if Republicans fail to quickly reach a deal to prevent the tax cuts from expiring at year's end, raising taxes briefly in 2011.
Voters could conclude, "Republicans just took power and the first thing that happens is that our taxes go up," the aide said.
Republicans took over the House of Representatives and won seats in the Senate at last week's elections, helped by voter concern over unemployment and slow economic growth.
It is uncertain if finding common ground on taxes will have much, if any impact, when lawmakers face even tougher issues down the road, like Republican demands to shrink government, slash spending and repeal Obama's healthcare overhaul.
"Each issue will be different," said Dan Ripp of Bradley Woods & Co, a private firm that tracks Washington for investors.
One of the main challenges next year is whether the parties can agree on how to reduce the budget deficit, which at $1.3 trillion is 8.9 percent of gross domestic product.
Proposals by the chairmen of a bipartisan commission on the deficit were met with skepticism from both sides of the aisle this week.
Analyst Siegal said he sees eventual agreement on taxes but predicted, "Republicans will keep moving back the goal posts" on a number of other fronts.
"Republicans are in power next year to stop the Obama agenda. They aren't here to cut deals," Siegal said.
(Additional reporting by Steve Holland and Richard Cowan; Editing by Eric Walsh)
Obama, Republicans set for "lame-duck" tax test
WASHINGTON (Reuters) – A wrangle over extending tax cuts for millions of Americans will be the first major test of whether President Barack Obama and resurgent Republicans can work together to fix the U.S. economy.
In the wake of the November 2 election in which Republicans won control in the House of Representatives, Obama and the Republicans must thrash out a deal or tax rates for everyone will rise in January.
The debate over taxes is likely to dominate the "lame-duck" session in Congress starting on Monday, so called because the shift in power brought by last week's elections is not reflected until the new members take up their seats in January.
Obama's Democrats, who will continue to control both the House and Senate during the weeks-long session, might also end the "Don't Ask, Don't Tell," policy on gays in the military and ratify a new arms reductions treaty with Russia.
Some senators are pushing for a vote to castigate China during this time for keeping its yuan currency artificially low, but the bill looks set to languish because trade has lower priority than domestic economic matters.
Debate over taxes is the most pressing issue.
Republicans want a full extension of all tax cuts enacted during the administration of then-President George W. Bush which were timed to expire at the end of 2010. They say that failure to renew them would hurt the already ailing economy.
Obama and most of his Democrats favor extending tax cuts only for the first $200,000 of income of individuals, $250,000 for families.
But they argue that renewing expiring tax cuts for any income above those levels would swell the record U.S. deficit and have little, if any, impact on cutting the high unemployment rate, a key issue in the elections.
"This will be their first major battle, which is why Obama, in the end, wants to cut a deal," said Ethan Siegal, an analyst with The Washington Exchange.
"Obama wants to say to the American people, 'I have moved to the center because I recognize elections have consequences, I recognize the incoming power of House Republicans," Siegal said.
REPUBLICANS STRONGER
Just days after the election, Obama said a possible two-year extension of all tax cuts could at least be the "basis for conversation" that leads to compromise.
"My number one priority coming into this is making sure that middle-class families don't see their tax rates go up on January 1st," Obama told CBS's "60 Minutes."
The president will meet congressional leaders at the White House on Thursday to discuss policy, including tax cuts.
With the Republicans in a stronger position next year when Congress reconvenes with new members, the party might let the cuts run out and then wait until January to renew them across the board.
But a Republican aide said some in his party are wary of that scenario as it risks voter backlash if Republicans fail to quickly reach a deal to prevent the tax cuts from expiring at year's end, raising taxes briefly in 2011.
Voters could conclude, "Republicans just took power and the first thing that happens is that our taxes go up," the aide said.
Republicans took over the House of Representatives and won seats in the Senate at last week's elections, helped by voter concern over unemployment and slow economic growth.
It is uncertain if finding common ground on taxes will have much, if any impact, when lawmakers face even tougher issues down the road, like Republican demands to shrink government, slash spending and repeal Obama's healthcare overhaul.
"Each issue will be different," said Dan Ripp of Bradley Woods & Co, a private firm that tracks Washington for investors.
One of the main challenges next year is whether the parties can agree on how to reduce the budget deficit, which at $1.3 trillion is 8.9 percent of gross domestic product.
Proposals by the chairmen of a bipartisan commission on the deficit were met with skepticism from both sides of the aisle this week.
Analyst Siegal said he sees eventual agreement on taxes but predicted, "Republicans will keep moving back the goal posts" on a number of other fronts.
"Republicans are in power next year to stop the Obama agenda. They aren't here to cut deals," Siegal said.
(Additional reporting by Steve Holland and Richard Cowan; Editing by Eric Walsh)
In the wake of the November 2 election in which Republicans won control in the House of Representatives, Obama and the Republicans must thrash out a deal or tax rates for everyone will rise in January.
The debate over taxes is likely to dominate the "lame-duck" session in Congress starting on Monday, so called because the shift in power brought by last week's elections is not reflected until the new members take up their seats in January.
Obama's Democrats, who will continue to control both the House and Senate during the weeks-long session, might also end the "Don't Ask, Don't Tell," policy on gays in the military and ratify a new arms reductions treaty with Russia.
Some senators are pushing for a vote to castigate China during this time for keeping its yuan currency artificially low, but the bill looks set to languish because trade has lower priority than domestic economic matters.
Debate over taxes is the most pressing issue.
Republicans want a full extension of all tax cuts enacted during the administration of then-President George W. Bush which were timed to expire at the end of 2010. They say that failure to renew them would hurt the already ailing economy.
Obama and most of his Democrats favor extending tax cuts only for the first $200,000 of income of individuals, $250,000 for families.
But they argue that renewing expiring tax cuts for any income above those levels would swell the record U.S. deficit and have little, if any, impact on cutting the high unemployment rate, a key issue in the elections.
"This will be their first major battle, which is why Obama, in the end, wants to cut a deal," said Ethan Siegal, an analyst with The Washington Exchange.
"Obama wants to say to the American people, 'I have moved to the center because I recognize elections have consequences, I recognize the incoming power of House Republicans," Siegal said.
REPUBLICANS STRONGER
Just days after the election, Obama said a possible two-year extension of all tax cuts could at least be the "basis for conversation" that leads to compromise.
"My number one priority coming into this is making sure that middle-class families don't see their tax rates go up on January 1st," Obama told CBS's "60 Minutes."
The president will meet congressional leaders at the White House on Thursday to discuss policy, including tax cuts.
With the Republicans in a stronger position next year when Congress reconvenes with new members, the party might let the cuts run out and then wait until January to renew them across the board.
But a Republican aide said some in his party are wary of that scenario as it risks voter backlash if Republicans fail to quickly reach a deal to prevent the tax cuts from expiring at year's end, raising taxes briefly in 2011.
Voters could conclude, "Republicans just took power and the first thing that happens is that our taxes go up," the aide said.
Republicans took over the House of Representatives and won seats in the Senate at last week's elections, helped by voter concern over unemployment and slow economic growth.
It is uncertain if finding common ground on taxes will have much, if any impact, when lawmakers face even tougher issues down the road, like Republican demands to shrink government, slash spending and repeal Obama's healthcare overhaul.
"Each issue will be different," said Dan Ripp of Bradley Woods & Co, a private firm that tracks Washington for investors.
One of the main challenges next year is whether the parties can agree on how to reduce the budget deficit, which at $1.3 trillion is 8.9 percent of gross domestic product.
Proposals by the chairmen of a bipartisan commission on the deficit were met with skepticism from both sides of the aisle this week.
Analyst Siegal said he sees eventual agreement on taxes but predicted, "Republicans will keep moving back the goal posts" on a number of other fronts.
"Republicans are in power next year to stop the Obama agenda. They aren't here to cut deals," Siegal said.
(Additional reporting by Steve Holland and Richard Cowan; Editing by Eric Walsh)
Fed official sounds buyout bubble alarm
CHICAGO (Reuters) – The new round of cash the Federal Reserve is pumping into the U.S. economy to spur job growth could create bubbles that do the very opposite, some Fed officials are warning.
Dallas Fed President Richard Fisher suggested this week that a bubble is already forming in private equity, with cheap debt fueling high-priced deals in an echo of the torrid days of leveraged buyouts before the subprime credit crisis cut off financing in 2007.
Fisher, who argued against the U.S. central bank's decision earlier this month to buy $600 billion in Treasuries to boost the recovery, told a San Antonio audience on Monday he is concerned about signs of "speculative activity" in buyouts, along with stocks, bonds and commodities.
He singled out private equity giant Carlyle Group's (CYL.UL) recent agreement to buy telecoms firm Syniverse Technologies (SVR.N), saying the price paid rivaled the lofty price tags common in the "pre-crash craze."
"As you know, buyout people do not typically acquire companies with a plan to expand the workforce, but instead with an eye to tighten operations, drive productivity, rejigger balance sheets and provide an attractive payback, usually in shorter time than under normal corporate horizons," Fisher said.
Carlyle agreed to pay a premium of 30 percent for Syniverse. Sources told Reuters that another party had also been vying for Syniverse, but lost out to Carlyle, which perhaps partly explains the premium.
A Carlyle spokesman declined to comment, but Fisher's remarks on private equity's job-destroying potential drew a feisty response from an industry group.
"The truth is that private equity firms often save jobs and grow employment over time; increase spending on R&D, plants and equipment; foster innovation; and deliver superior investment returns and social value," said Robert Stewart, a vice president at Washington-based Private Equity Growth Capital Council, which represents many of the largest U.S. buyout firms.
Private equity firms raise funds from investors such as pension and endowment funds, and pledge to invest that capital over a certain number of years. They typically aim to buy underperforming companies using a large amount of debt, fixing them up and selling them at profit.
Such leveraged buyout deals practically vanished after the credit crisis wiped away access to cheap financing, but have been returning as debt markets and the economy have improved.
Deals today are much less debt-heavy than they were before the crisis, with firms so far this year paying an average of 42 percent of the deal price in cash, compared with 29 percent in 2007, industry figures show.
But some buyout firms, which raised billions when times were better only to find they could not put the money to work, are under pressure to spend the dollars before their investment periods come to an end. There is also greater incentive to buy and sell assets this year, ahead of an anticipated tax hike.
BUBBLE TROUBLE
Kansas City Fed President Thomas Hoenig, who dissented at every Fed meeting this year and called on the U.S. central bank to raise, not lower, borrowing costs, has also warned that further Fed easing may fuel bubbles. But Fisher's comments took the issue further by focusing on a single industry that soared high before stumbling badly in the financial crisis.
Now cheap debt is back, with junk bond yields at their lowest since October 2007, Fisher noted.
Easy borrowing terms have resurfaced as well.
Chicago-based Madison Dearborn funded a payout to its partners just five months after its $915 million leveraged buyout of plastic and steel maker BWAY Holdings with a $150 million bond that had a feature common in the pre-crisis buyout boom -- it allows a cash-strapped borrower to make interest payments by simply taking out more debt.
Kohlberg Kravis Roberts & Co (KKR.N) partner Scott Nuttall, who leads the private equity firm's quarterly earnings calls, said earlier in November that credit markets are now strong, allowing for the amount of debt in new deals to rise.
In another sign of possible overheating, prices have also jumped. Average purchase prices in 2007 were 9.7 times pre-tax earnings; Carlyle's Syniverse deal was about 9.5 times. And executives at some buyout firms have begun to highlight rising valuations as a disincentive to doing deals.
"It's much harder to find things of attractive value," Blackstone Group (BX.N) COO Tony James said on a recent conference call. "There are some good companies being sold, but we just can't get to the prices that are required."
Money is instead being invested in "very high proprietary content," James said, referring to deals that are created by Blackstone rather than bidding in auctions.
(Reporting by Ann Saphir; additional reporting by Megan Davies in New York; Editing by Andrew Hay)
Dallas Fed President Richard Fisher suggested this week that a bubble is already forming in private equity, with cheap debt fueling high-priced deals in an echo of the torrid days of leveraged buyouts before the subprime credit crisis cut off financing in 2007.
Fisher, who argued against the U.S. central bank's decision earlier this month to buy $600 billion in Treasuries to boost the recovery, told a San Antonio audience on Monday he is concerned about signs of "speculative activity" in buyouts, along with stocks, bonds and commodities.
He singled out private equity giant Carlyle Group's (CYL.UL) recent agreement to buy telecoms firm Syniverse Technologies (SVR.N), saying the price paid rivaled the lofty price tags common in the "pre-crash craze."
"As you know, buyout people do not typically acquire companies with a plan to expand the workforce, but instead with an eye to tighten operations, drive productivity, rejigger balance sheets and provide an attractive payback, usually in shorter time than under normal corporate horizons," Fisher said.
Carlyle agreed to pay a premium of 30 percent for Syniverse. Sources told Reuters that another party had also been vying for Syniverse, but lost out to Carlyle, which perhaps partly explains the premium.
A Carlyle spokesman declined to comment, but Fisher's remarks on private equity's job-destroying potential drew a feisty response from an industry group.
"The truth is that private equity firms often save jobs and grow employment over time; increase spending on R&D, plants and equipment; foster innovation; and deliver superior investment returns and social value," said Robert Stewart, a vice president at Washington-based Private Equity Growth Capital Council, which represents many of the largest U.S. buyout firms.
Private equity firms raise funds from investors such as pension and endowment funds, and pledge to invest that capital over a certain number of years. They typically aim to buy underperforming companies using a large amount of debt, fixing them up and selling them at profit.
Such leveraged buyout deals practically vanished after the credit crisis wiped away access to cheap financing, but have been returning as debt markets and the economy have improved.
Deals today are much less debt-heavy than they were before the crisis, with firms so far this year paying an average of 42 percent of the deal price in cash, compared with 29 percent in 2007, industry figures show.
But some buyout firms, which raised billions when times were better only to find they could not put the money to work, are under pressure to spend the dollars before their investment periods come to an end. There is also greater incentive to buy and sell assets this year, ahead of an anticipated tax hike.
BUBBLE TROUBLE
Kansas City Fed President Thomas Hoenig, who dissented at every Fed meeting this year and called on the U.S. central bank to raise, not lower, borrowing costs, has also warned that further Fed easing may fuel bubbles. But Fisher's comments took the issue further by focusing on a single industry that soared high before stumbling badly in the financial crisis.
Now cheap debt is back, with junk bond yields at their lowest since October 2007, Fisher noted.
Easy borrowing terms have resurfaced as well.
Chicago-based Madison Dearborn funded a payout to its partners just five months after its $915 million leveraged buyout of plastic and steel maker BWAY Holdings with a $150 million bond that had a feature common in the pre-crisis buyout boom -- it allows a cash-strapped borrower to make interest payments by simply taking out more debt.
Kohlberg Kravis Roberts & Co (KKR.N) partner Scott Nuttall, who leads the private equity firm's quarterly earnings calls, said earlier in November that credit markets are now strong, allowing for the amount of debt in new deals to rise.
In another sign of possible overheating, prices have also jumped. Average purchase prices in 2007 were 9.7 times pre-tax earnings; Carlyle's Syniverse deal was about 9.5 times. And executives at some buyout firms have begun to highlight rising valuations as a disincentive to doing deals.
"It's much harder to find things of attractive value," Blackstone Group (BX.N) COO Tony James said on a recent conference call. "There are some good companies being sold, but we just can't get to the prices that are required."
Money is instead being invested in "very high proprietary content," James said, referring to deals that are created by Blackstone rather than bidding in auctions.
(Reporting by Ann Saphir; additional reporting by Megan Davies in New York; Editing by Andrew Hay)
G20 closes ranks but skims over toughest tasks
SEOUL (Reuters) – G20 leaders closed ranks on Friday and agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof the world was any safer from economic catastrophe.
After an acrimonious start, developed and emerging nations agreed at a summit in Seoul to set vague "indicative guidelines" for measuring imbalances between their multi-speed economies. But they called a timeout to let tempers cool and left the details to be discussed in the first half of 2011.
European leaders broke away for their own mini gathering in the middle of the summit to discuss a deepening credit crisis in Ireland. Euro zone sources said Ireland is in talks to receive emergency funding from the European Union, in an apparent deja-vu of Greece six months ago.
In a communique signed off at the end of the gathering --the group's fifth since the financial crisis exploded in 2008-- there was a little something for everyone.
Leaders vowed to move toward market-determined exchange rates, a reference to China's tightly managed yuan that the United States has long complained is undervalued.
They pledged to shun competitive devaluations, a line addressing other countries' concern that the U.S. Federal Reserve's easy-money policy was aimed at weakening the dollar.
In a nod to emerging markets struggling to contain huge capital inflows, the G20 gave the okay to impose "carefully designed" control measures.
They also agreed that there was a critical, but narrow, window of opportunity to conclude the long-elusive Doha round of trade liberalization talks launched in 2001.
But there was no mention of Ireland, and financial markets were unmoved by the bland promises to deal with imbalances.
"There is no good reason to think that any country will actually do anything different as a result of the commitments made at the summit," Julian Jessop, chief economist with Capital Economics, said in a research note.
U.S. President Barack Obama said some progress was made.
"The work that we do here is not always going to seem dramatic," he told a news conference after the summit.
"It's not always going to be immediately world-changing. But step by step what we're doing is building stronger international mechanisms and institutions that will help stabilize the economy, ensure economic growth and reduce some tensions."
BURYING THE HATCHET
After weeks of verbal jousting, the United States and China sought to bury the hatchet over rows about China's "undervalued" currency and the global risks created by the U.S. printing money to reflate its struggling economy.
"Exchange rates must reflect economic realities ... Emerging economies need to allow for currencies that are market driven," Obama said. "This is something that I raised with President Hu (Jintao) of China and we will closely watch the appreciation of China's currency."
The G20's accord sought to recapture unity forged during the global financial crisis two years ago. But deep divides meant leaders could not venture much beyond what was already agreed by their finance ministers last month.
Negotiators had labored until the early hours of the morning to thrash out an agreement their leaders could all endorse, despite sharp disagreements that were on public display in the days before the meeting.
"This hasn't been a love-fest," an official who participated in the negotiations said.
In particular, the leaders were unable to reach a consensus on how to identify when global imbalances pose a threat to economic stability. They merely committed to a discussion of a range of indicators in the first half of next year.
Tim Condon, head of research at ING Financial Markets in Singapore said it was "hard to disagree" with the vows of the leaders but they had fallen short of the progress hoped for going into the summit.
"They decided just to put down a lot of laudable objectives as the conclusion of the meeting and hope that they can do better, that more can be accomplished in future meetings," he said.
The G20 has fragmented since a synchronized global recession gave way to a multi-speed recovery. Slow-growing advanced economies have kept interest rates at record lows to try to kick-start growth, while big emerging markets have come roaring back so fast that many are worried about overheating.
(Additional reporting by Patricia Zengerle, Keith Weir, Gernot Heller, David Lawder and Alister Bull; Writing by Emily Kaiser and Walter Brandimarte; Editing by Andrew Hay)
After an acrimonious start, developed and emerging nations agreed at a summit in Seoul to set vague "indicative guidelines" for measuring imbalances between their multi-speed economies. But they called a timeout to let tempers cool and left the details to be discussed in the first half of 2011.
European leaders broke away for their own mini gathering in the middle of the summit to discuss a deepening credit crisis in Ireland. Euro zone sources said Ireland is in talks to receive emergency funding from the European Union, in an apparent deja-vu of Greece six months ago.
In a communique signed off at the end of the gathering --the group's fifth since the financial crisis exploded in 2008-- there was a little something for everyone.
Leaders vowed to move toward market-determined exchange rates, a reference to China's tightly managed yuan that the United States has long complained is undervalued.
They pledged to shun competitive devaluations, a line addressing other countries' concern that the U.S. Federal Reserve's easy-money policy was aimed at weakening the dollar.
In a nod to emerging markets struggling to contain huge capital inflows, the G20 gave the okay to impose "carefully designed" control measures.
They also agreed that there was a critical, but narrow, window of opportunity to conclude the long-elusive Doha round of trade liberalization talks launched in 2001.
But there was no mention of Ireland, and financial markets were unmoved by the bland promises to deal with imbalances.
"There is no good reason to think that any country will actually do anything different as a result of the commitments made at the summit," Julian Jessop, chief economist with Capital Economics, said in a research note.
U.S. President Barack Obama said some progress was made.
"The work that we do here is not always going to seem dramatic," he told a news conference after the summit.
"It's not always going to be immediately world-changing. But step by step what we're doing is building stronger international mechanisms and institutions that will help stabilize the economy, ensure economic growth and reduce some tensions."
BURYING THE HATCHET
After weeks of verbal jousting, the United States and China sought to bury the hatchet over rows about China's "undervalued" currency and the global risks created by the U.S. printing money to reflate its struggling economy.
"Exchange rates must reflect economic realities ... Emerging economies need to allow for currencies that are market driven," Obama said. "This is something that I raised with President Hu (Jintao) of China and we will closely watch the appreciation of China's currency."
The G20's accord sought to recapture unity forged during the global financial crisis two years ago. But deep divides meant leaders could not venture much beyond what was already agreed by their finance ministers last month.
Negotiators had labored until the early hours of the morning to thrash out an agreement their leaders could all endorse, despite sharp disagreements that were on public display in the days before the meeting.
"This hasn't been a love-fest," an official who participated in the negotiations said.
In particular, the leaders were unable to reach a consensus on how to identify when global imbalances pose a threat to economic stability. They merely committed to a discussion of a range of indicators in the first half of next year.
Tim Condon, head of research at ING Financial Markets in Singapore said it was "hard to disagree" with the vows of the leaders but they had fallen short of the progress hoped for going into the summit.
"They decided just to put down a lot of laudable objectives as the conclusion of the meeting and hope that they can do better, that more can be accomplished in future meetings," he said.
The G20 has fragmented since a synchronized global recession gave way to a multi-speed recovery. Slow-growing advanced economies have kept interest rates at record lows to try to kick-start growth, while big emerging markets have come roaring back so fast that many are worried about overheating.
(Additional reporting by Patricia Zengerle, Keith Weir, Gernot Heller, David Lawder and Alister Bull; Writing by Emily Kaiser and Walter Brandimarte; Editing by Andrew Hay)
Consumer sentiment rises to highest since June
NEW YORK (Reuters) – U.S. consumer sentiment rose more than expected in early November and hit its best level since June, helped by a slightly better economic outlook and early holiday sales, a survey showed on Friday.
The Thomson Reuters/University of Michigan's preliminary November reading on consumer sentiment came in at 69.3, up from 67.7 in October and slightly higher than the median Reuters forecast of 69.0.
The reading on the overall index was just above the 68.2 average of the last four months but below the post-recession high of 76.0 from June, according to the report.
"The slight improvement in sentiment suggests that spending will continue at close to its current rate through Christmas, which is better than expected even a few months ago. But it's not going to be enough to make a material dent in the unemployment rate," said Christopher Low, chief economist at FTN Financial in New York.
Unemployment, at 9.6 percent, is seen as one of the biggest drags on the U.S. economy, even though recent data has suggested small signs of economic improvement. Weekly jobless benefit claims, reported on Wednesday, hit a four-month low.
The sentiment survey's one-year inflation expectations measure also gained, edging up to 3.0 percent from 2.7 percent last month, and hit its highest level since May.
Speculation about higher inflation has risen with the Federal Reserve's announcement last week that it would buy more debt in an effort to boost the economy.
"Even a marginally but noticeably higher inflation rate, especially for food and fuel, is likely to increase malaise and be associated with greater savings rather than spending," the sentiment survey's director, Richard Curtin, said in a statement.
Early holiday retail sales, however, helped consumer sentiment in recent weeks. Consumer spending typically accounts for about two-thirds of U.S. economic activity.
U.S. retail sales data for October is due on Monday. Some retailers have been cautiously optimistic about holiday spending so far, with J.C. Penney Co Inc (JCP.N) on Friday being the latest to forecast a rise in same-store sales during the holiday quarter.
The survey's barometer of current economic conditions rose to 79.7 from October's reading of 76.6, also above a forecast of 77.0. Like the sentiment reading, it was the best level since June.
A gauge of consumer expectations rose to 62.7 from 61.9 in October. But it was below a forecast for 63.5.
U.S. markets showed little reaction to the sentiment data.
But the benchmark Standard & Poor's 500 index (.SPX) fell 1.4 percent following a slide in natural resource stocks. Data on Thursday showed Chinese inflation sped to a 25-month high in October, signaling more policy tightening may be ahead.
However, U.S. stocks have rallied since late August, and the S&P is up 15 percent since the August 31 close, thanks in part to the economic stimulus from the Fed and Republican gains in last week's mid-term elections.
Unemployment and higher taxes were among chief concerns in the election, and Republicans are pushing for a full extension of tax cuts enacted during former President George W. Bush's administration.
(Additional reporting by Emily Flitter; Editing by Dan Grebler)
The Thomson Reuters/University of Michigan's preliminary November reading on consumer sentiment came in at 69.3, up from 67.7 in October and slightly higher than the median Reuters forecast of 69.0.
The reading on the overall index was just above the 68.2 average of the last four months but below the post-recession high of 76.0 from June, according to the report.
"The slight improvement in sentiment suggests that spending will continue at close to its current rate through Christmas, which is better than expected even a few months ago. But it's not going to be enough to make a material dent in the unemployment rate," said Christopher Low, chief economist at FTN Financial in New York.
Unemployment, at 9.6 percent, is seen as one of the biggest drags on the U.S. economy, even though recent data has suggested small signs of economic improvement. Weekly jobless benefit claims, reported on Wednesday, hit a four-month low.
The sentiment survey's one-year inflation expectations measure also gained, edging up to 3.0 percent from 2.7 percent last month, and hit its highest level since May.
Speculation about higher inflation has risen with the Federal Reserve's announcement last week that it would buy more debt in an effort to boost the economy.
"Even a marginally but noticeably higher inflation rate, especially for food and fuel, is likely to increase malaise and be associated with greater savings rather than spending," the sentiment survey's director, Richard Curtin, said in a statement.
Early holiday retail sales, however, helped consumer sentiment in recent weeks. Consumer spending typically accounts for about two-thirds of U.S. economic activity.
U.S. retail sales data for October is due on Monday. Some retailers have been cautiously optimistic about holiday spending so far, with J.C. Penney Co Inc (JCP.N) on Friday being the latest to forecast a rise in same-store sales during the holiday quarter.
The survey's barometer of current economic conditions rose to 79.7 from October's reading of 76.6, also above a forecast of 77.0. Like the sentiment reading, it was the best level since June.
A gauge of consumer expectations rose to 62.7 from 61.9 in October. But it was below a forecast for 63.5.
U.S. markets showed little reaction to the sentiment data.
But the benchmark Standard & Poor's 500 index (.SPX) fell 1.4 percent following a slide in natural resource stocks. Data on Thursday showed Chinese inflation sped to a 25-month high in October, signaling more policy tightening may be ahead.
However, U.S. stocks have rallied since late August, and the S&P is up 15 percent since the August 31 close, thanks in part to the economic stimulus from the Fed and Republican gains in last week's mid-term elections.
Unemployment and higher taxes were among chief concerns in the election, and Republicans are pushing for a full extension of tax cuts enacted during former President George W. Bush's administration.
(Additional reporting by Emily Flitter; Editing by Dan Grebler)
Summary Box: China worries send commodities lower
CHINA CONCERN: Investors were spooked Friday amid talk that China might raise interest rates to combat inflation. That could also curtail strong growth in the country and dampen demand for basic materials including soybeans and copper.
COPPER DROP: Copper prices were hurt because China is the world's largest importer of the metal. Its price fell back below $4 a pound.
SOYBEANS SLIP: China has been a huge importer of U.S. soybeans this year, so concerns hit the crop especially hard. The price of a bushel of soybeans fell 5.2 percent.
COPPER DROP: Copper prices were hurt because China is the world's largest importer of the metal. Its price fell back below $4 a pound.
SOYBEANS SLIP: China has been a huge importer of U.S. soybeans this year, so concerns hit the crop especially hard. The price of a bushel of soybeans fell 5.2 percent.
Oil drops below $85 a barrel, cooling 2-week rally
NEW YORK – A two-week rally in oil prices stalled Friday on concerns that China would take steps to cool its economic growth.
Benchmark oil for December delivery dropped $2.93, or 3.3 percent, to settle at $84.88 a barrel on the New York Mercantile Exchange. The drop erased nearly half of this month's increase in the price of oil. Other commodities experienced a sell off, as did stocks.
China, the largest energy consumer in the world, is expected to increase oil consumption by 400,000 barrels per day in 2011 and drive world oil demand for years to come. But analysts say that appetite for crude could be reduced if Beijing moves to control economic growth after inflation hit a 25-month high in October.
Gold fell 2.6 percent and was back below $1,400 an ounce. Copper dropped 2.8 percent, while Silver slid 5 percent. Stocks of major oil companies like Exxon, Chevron and Royal Dutch Shell all fell more than 1 percent.
While calling the sell-off "a much needed correction" in commodities, Mike Zarembski, an analyst with OptionsXpress,
pointed out that previous attempts by China to control inflation did little to temper the country's oil consumption.
The news out of China might have spooked traders this week, "but I don't think this oil rally is over just yet," he said. Before Friday's drop, oil had risen 7.7 percent this month and hit a two-year high in the process.
Oil trader and analyst Stephen Schork said oil will continue to be heavily influenced by the U.S. dollar. Oil is priced in dollars, and it tends to move opposite the dollar in commodities markets. When the dollar falls, for example, investors look to park their money in safer investments like energy commodities, and this pushes the price of oil higher.
That's been the case since late August, when the Federal Reserve indicated it would take more steps to stimulate the U.S. economy. Since then, oil prices jumped more than $14 per barrel, nearly 20 percent, as the dollar declined 7 percent against the euro. Last week, the Fed said it will pump $600 billion into a bond-buying program, effectively reducing already low interest rates.
As oil prices increased, they pushed retail gasoline prices higher as well. Motorists in many East Coast cities are now paying more than $3 per gallon at the pump.
The national average for regular unleaded gas increased more than a penny overnight to $2.876 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 5.6 cents more expensive than it was last month and 22.6 cents higher than it was last year.
Gasoline is now at or above $3 a gallon in Alaska, Hawaii, California, Connecticut, Illinois, Michigan, New York and Washington.
In other Nymex trading in December contracts, heating oil fell 6.34 cents to settle at $2.3632 a gallon and gasoline futures fell 2.58 cents to settle at $2.2099 a gallon. Natural gas dropped 12.8 cents to settle at $3.799 per 1,000 cubic feet.
In London, Brent crude slid $2.47 to settle at $86.34 a barrel on the ICE Futures exchange.
Benchmark oil for December delivery dropped $2.93, or 3.3 percent, to settle at $84.88 a barrel on the New York Mercantile Exchange. The drop erased nearly half of this month's increase in the price of oil. Other commodities experienced a sell off, as did stocks.
China, the largest energy consumer in the world, is expected to increase oil consumption by 400,000 barrels per day in 2011 and drive world oil demand for years to come. But analysts say that appetite for crude could be reduced if Beijing moves to control economic growth after inflation hit a 25-month high in October.
Gold fell 2.6 percent and was back below $1,400 an ounce. Copper dropped 2.8 percent, while Silver slid 5 percent. Stocks of major oil companies like Exxon, Chevron and Royal Dutch Shell all fell more than 1 percent.
While calling the sell-off "a much needed correction" in commodities, Mike Zarembski, an analyst with OptionsXpress,
pointed out that previous attempts by China to control inflation did little to temper the country's oil consumption.
The news out of China might have spooked traders this week, "but I don't think this oil rally is over just yet," he said. Before Friday's drop, oil had risen 7.7 percent this month and hit a two-year high in the process.
Oil trader and analyst Stephen Schork said oil will continue to be heavily influenced by the U.S. dollar. Oil is priced in dollars, and it tends to move opposite the dollar in commodities markets. When the dollar falls, for example, investors look to park their money in safer investments like energy commodities, and this pushes the price of oil higher.
That's been the case since late August, when the Federal Reserve indicated it would take more steps to stimulate the U.S. economy. Since then, oil prices jumped more than $14 per barrel, nearly 20 percent, as the dollar declined 7 percent against the euro. Last week, the Fed said it will pump $600 billion into a bond-buying program, effectively reducing already low interest rates.
As oil prices increased, they pushed retail gasoline prices higher as well. Motorists in many East Coast cities are now paying more than $3 per gallon at the pump.
The national average for regular unleaded gas increased more than a penny overnight to $2.876 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 5.6 cents more expensive than it was last month and 22.6 cents higher than it was last year.
Gasoline is now at or above $3 a gallon in Alaska, Hawaii, California, Connecticut, Illinois, Michigan, New York and Washington.
In other Nymex trading in December contracts, heating oil fell 6.34 cents to settle at $2.3632 a gallon and gasoline futures fell 2.58 cents to settle at $2.2099 a gallon. Natural gas dropped 12.8 cents to settle at $3.799 per 1,000 cubic feet.
In London, Brent crude slid $2.47 to settle at $86.34 a barrel on the ICE Futures exchange.
G-20 fallout: Trade barriers, tensions could rise
WASHINGTON – The world's most important economies are going home to look after themselves. They left their summit without any meaningful agreement, finding it ever harder to cooperate and more likely to erect trade barriers to protect their own interests.
The Group of 20 meeting of leading rich and developing nations ended Friday in South Korea with no solutions to longstanding tensions over trade and currency, and with the cooperation of the 2008 financial crisis now a distant memory.
The U.S. couldn't persuade other countries to pressure China to stop manipulating its currency or limit their own trade surpluses and deficits. The Americans faced charges of doing some currency manipulation of their own by pumping $600 billion into their economy.
The stalemate in Seoul means that trade disputes could intensify, warns Eswar Prasad, professor of trade policy at Cornell University. He's worried that there "may be more open conflicts on currency matters. This has the potential to feed into more explicit forms of protectionism, which could set back the global recovery."
The summit was a diplomatic setback for the United States.
China was supposed to be the villain of the G-20 meeting. The U.S. and other countries have accused Beijing of keeping its currency, the yuan, artificially low to give its exporters an unfair advantage. The currency manipulation helps Chinese exporters by making their goods less expensive around the world, leading to charges that cheap Chinese products cost America jobs at a time when U.S. unemployment is stuck at 9.6 percent.
The U.S. wanted to rally other G-20 delegates to strong-arm China over the yuan. A stronger yuan would reduce the U.S. trade deficit with China, which is on track to match the 2008 record of $268 billion. But the U.S. argument was undercut by accusations that the Federal Reserve was rigging the currency market itself.
Last week, the Fed said it would essentially print $600 billion to jolt the U.S. economy back to life. The Fed says its plan to buy Treasury bonds was designed to lower long-term interest rates, spur economic growth and create jobs. Since the Fed hinted at the policy in late August, the Dow Jones industrials have risen 13 percent , and interest rates on 30-year fixed-rate mortgages have hit a record low of 4.17 percent.
But foreigners saw a more sinister intent: to flood world markets with dollars, driving down the value of the U.S. currency and giving U.S. exporters a price edge.
"Basically, what happened was a diplomatic coup for China," says William Cline, senior fellow with the Peterson Institute for International Economics. A few months ago, countries from Brazil to Germany were criticizing Chinese trade policies. "Fast-forward, and now China and Germany and Brazil are blaming the United States for causing currency problems."
Emerging economies also complained that the Fed's bond purchases would push Treasury yields so low that investors seeking higher returns will overwhelm their fragile markets. The fear: Investors would sink money into emerging market assets — currencies, stocks and other investments. That would push up their currencies, hurt their exporters, trigger inflation, create bubbles in stocks and other assets and leave them vulnerable to a crash when investors withdraw their money.
The final G-20 statement Friday endorsed the idea that emerging markets can protect themselves from the threat of such "hot money" by imposing controls on the flow of capital — a measure that used to be considered "a big no-no" and a violation of free-trade principles, says Homi Kharas, a senior fellow at the Brookings Institution. The trend is already starting. China and Taiwan this week announced new capital controls.
The fear is that countries will take even stronger steps to give themselves an advantage, creating the risk of a currency or trade war. The U.S. House has already passed legislation that would let the U.S. government impose punitive tariffs on Chinese imports in retaliation for the weak yuan, though the Senate has not followed.
Cornell's Prasad expects to see China and other countries impose tariffs and duties, subsidize their exporters with cheap bank financing or tax credits, bring cases against each in the World Trade Organization and use bogus health concerns to block some imports.
In a sign of the United States' diminished clout at the summit, the U.S. could not even close a long-awaited free-trade agreement with close ally and summit host South Korea. The trade pact would slash tariffs and other trade barriers between the two countries.
As the G-20 meeting closed, President Barack Obama and many other leaders flew to Japan for the Asia-Pacific Economic Cooperation summit in Yokohama, Japan, on Saturday and Sunday.
At the height of the financial crisis in 2008 and 2009, the G-20 nations tried to present a united front, agreeing to take steps to boost their economies, to reform their financial systems and to reject protectionist policies. But now that the world economy is growing again — and China and other emerging markets are booming — "that unity has begun to dissolve," Prasad says. "The group is now splintering with competitive policies taking the place of coordinated policy actions." The result: "a situation ripe for conflict."
The G-20 itself acknowledged the problem in its final statement: "Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions." But the go-it-alone approach, the statement concluded, "will only lead to worse outcomes for all."
The Group of 20 meeting of leading rich and developing nations ended Friday in South Korea with no solutions to longstanding tensions over trade and currency, and with the cooperation of the 2008 financial crisis now a distant memory.
The U.S. couldn't persuade other countries to pressure China to stop manipulating its currency or limit their own trade surpluses and deficits. The Americans faced charges of doing some currency manipulation of their own by pumping $600 billion into their economy.
The stalemate in Seoul means that trade disputes could intensify, warns Eswar Prasad, professor of trade policy at Cornell University. He's worried that there "may be more open conflicts on currency matters. This has the potential to feed into more explicit forms of protectionism, which could set back the global recovery."
The summit was a diplomatic setback for the United States.
China was supposed to be the villain of the G-20 meeting. The U.S. and other countries have accused Beijing of keeping its currency, the yuan, artificially low to give its exporters an unfair advantage. The currency manipulation helps Chinese exporters by making their goods less expensive around the world, leading to charges that cheap Chinese products cost America jobs at a time when U.S. unemployment is stuck at 9.6 percent.
The U.S. wanted to rally other G-20 delegates to strong-arm China over the yuan. A stronger yuan would reduce the U.S. trade deficit with China, which is on track to match the 2008 record of $268 billion. But the U.S. argument was undercut by accusations that the Federal Reserve was rigging the currency market itself.
Last week, the Fed said it would essentially print $600 billion to jolt the U.S. economy back to life. The Fed says its plan to buy Treasury bonds was designed to lower long-term interest rates, spur economic growth and create jobs. Since the Fed hinted at the policy in late August, the Dow Jones industrials have risen 13 percent , and interest rates on 30-year fixed-rate mortgages have hit a record low of 4.17 percent.
But foreigners saw a more sinister intent: to flood world markets with dollars, driving down the value of the U.S. currency and giving U.S. exporters a price edge.
"Basically, what happened was a diplomatic coup for China," says William Cline, senior fellow with the Peterson Institute for International Economics. A few months ago, countries from Brazil to Germany were criticizing Chinese trade policies. "Fast-forward, and now China and Germany and Brazil are blaming the United States for causing currency problems."
Emerging economies also complained that the Fed's bond purchases would push Treasury yields so low that investors seeking higher returns will overwhelm their fragile markets. The fear: Investors would sink money into emerging market assets — currencies, stocks and other investments. That would push up their currencies, hurt their exporters, trigger inflation, create bubbles in stocks and other assets and leave them vulnerable to a crash when investors withdraw their money.
The final G-20 statement Friday endorsed the idea that emerging markets can protect themselves from the threat of such "hot money" by imposing controls on the flow of capital — a measure that used to be considered "a big no-no" and a violation of free-trade principles, says Homi Kharas, a senior fellow at the Brookings Institution. The trend is already starting. China and Taiwan this week announced new capital controls.
The fear is that countries will take even stronger steps to give themselves an advantage, creating the risk of a currency or trade war. The U.S. House has already passed legislation that would let the U.S. government impose punitive tariffs on Chinese imports in retaliation for the weak yuan, though the Senate has not followed.
Cornell's Prasad expects to see China and other countries impose tariffs and duties, subsidize their exporters with cheap bank financing or tax credits, bring cases against each in the World Trade Organization and use bogus health concerns to block some imports.
In a sign of the United States' diminished clout at the summit, the U.S. could not even close a long-awaited free-trade agreement with close ally and summit host South Korea. The trade pact would slash tariffs and other trade barriers between the two countries.
As the G-20 meeting closed, President Barack Obama and many other leaders flew to Japan for the Asia-Pacific Economic Cooperation summit in Yokohama, Japan, on Saturday and Sunday.
At the height of the financial crisis in 2008 and 2009, the G-20 nations tried to present a united front, agreeing to take steps to boost their economies, to reform their financial systems and to reject protectionist policies. But now that the world economy is growing again — and China and other emerging markets are booming — "that unity has begun to dissolve," Prasad says. "The group is now splintering with competitive policies taking the place of coordinated policy actions." The result: "a situation ripe for conflict."
The G-20 itself acknowledged the problem in its final statement: "Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions." But the go-it-alone approach, the statement concluded, "will only lead to worse outcomes for all."
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