Archive for July 8th, 2009

SAN FRANCISCO (Reuters) — California Assembly Speaker Karen Bass said Wednesday she sees stalled negotiations with Gov. Arnold Schwarzenegger over closing the state’s 26.3 billion budget gap resuming by Friday. California has been burning through its cash without a budget agreement and is issuing IOUs for tax refunds. The legislature is being urged to consider taxing marijuana to help raise revenues. Bass, a Democrat, and Schwarzenegger, a Republican, have been at odds in recent days over his demands for overhauling some state operations with new rules, including some to root out and prevent fraud in the state’s welfare system, as part of a broader agreement for balancing the state’s budget.0:00
/2:26States face budget disasters”The problems are with the reforms, and I hate to call them reforms because they are really just policy concerns the governor has had for the past few years, that they are just too massive,” Bass told Reuters in a telephone interview. But Bass said she is hopeful budget talks would resume by Friday. “There’s some wiggle room,” she said. “I do see us back at the negotiation table in the next day or two.” State Senate Republican Leader Dennis Hollingsworth said lawmakers from both parties would welcome budget talks resuming as soon as possible. “There’s not a lot of movement,” Hollingsworth said of the day’s business in the state capital of Sacramento. Burning through cash. Without a budget agreement, California is going through its cash while suffering its worst slump in personal income tax revenues since the Great Depression because of the recession, rising unemployment and the housing downturn. The state’s cash crunch has grown so severe the state controller is issuing “IOUs” promising payment for tax refunds and vendors in order to have money available to pay priority bills such as payments to debt holders. One option open to the government of the most populous U.S. state for raising revenue is to tax marijuana, said retiree Nadene Herndon, a 58-year-old retire in Fair Oaks, California. Herdon promotes a tax on pot in a television commercial, paid for by the Marijuana Policy Project Foundation, that began airing on Wednesday in some California broadcast markets. “I’m a medical marijuana user, but I bake with it. I had several strokes several years ago and have left-sided weakness when I get fatigued … It helps late at night when I can’t get to sleep,” she told Reuters by telephone. Pointing to cigarette smokers, who light up regardless of California’s stiff tax on tobacco, Herndon said marijuana could prove a steady source of revenue for the state. “It should be taxed like any other commodity,” she said.

Source:CNN

NEW YORK: Aluminum producer Alcoa Inc. reported its third quarterly loss in a row Wednesday, as the global recession has crippled demand for the lightweight metal.The stock surged in after-hours trade, adding as much as 9%. In regular session trade, shares of Alcoa added 5 cents to close at 9.46.In the three months ended June 30, Alcoa (AA, Fortune 500) lost 454 million, or 47 cents per share, compared with a profit of 546 million, or 66 cents per share, in the same period a year ago.Excluding one-time restructuring charges and losses from discontinued operations, the company posted a loss of 26 cents per share, which was better than the forecast for a loss of 38 cents a share from analysts polled by Thomson Reuters. Analysts typically exclude one-time charges from their estimates.Sales fell 41% to 4.24 billion from 7.62 billion last year, beating analyst expectations of 3.93 billion.The company blamed the loss and drop in sales on a slowdown in the industries for which it provides raw materials — including automotive, commercial transportation, building, construction and aerospace — as well as a 49% drop in metal costs. The company boasted that its cost-cutting initiatives — such as previously announced headcount announcements and production cut-backs — were boosting its balance sheet. “Our cash generation initiatives, productivity improvements, and portfolio changes are working,” said Klaus Kleinfeld, Alcoa President and Chief Executive Officer, in a written statement. “Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry.” Alcoa is the first Dow component to release its second-quarter numbers. Investors look to the aluminum producer as a barometer of how corporations are faring during the recession.

NEW YORK: Financial regulators on Wednesday tapped nine financial firms, including some of the biggest names on Wall Street, to help run a government program aimed at cleaning up the books of the nation’s banks. Among those selected to serve as asset managers of the so-called Public-Private Investment Program were BlackRock (BLK, Fortune 500), AllianceBernstein (AB), Oaktree Capital Management, Invesco (IVZ), Angelo, Gordon & Co., Marathon Asset Management, RLJ Western Asset Management, The TCW Group and Wellington Management Company.Each firm, selected from a pool of more than 100 applicants, will have 12 weeks to raise 500 million of capital from private investors willing to invest in toxic securities held on banks’ books.Under the program, the government will run auctions between the banks selling assets and investors buying them, hoping to effectively create a market. The goal is to help cleanse the balance sheets of many of the nation’s largest banks and help get credit flowing again. The program will start with a government investment of 30 billion with the fund managers for the purpose of buying legacy securities, regulators said Wednesday.The announcement of the program managers, which has become a source of much speculation on Wall Street in recent weeks, marks the first step forward for a program beset by revisions and setbacks.There has also been speculation that investors may be reluctant to participate in PPIP in light of the fact that Congress has retroactively altered the terms of many of the government rescue programs so far.Regulators said in March they hoped to buy up at least 500 billion of existing assets with the potential to expand to 1 trillion.

Source:CNN

NEW YORK: Consumer debt fell in May, for the fourth straight month, as the still-suffering economy and mounting job losses curbed spending, a government report said Wednesday.Total consumer borrowing fell by a seasonally adjusted 3.22 billion, or a 1.5% annual rate, to 2.52 trillion in May, according to the Federal Reserve. The report measures how much debt consumers have outstanding.But economists had expected a decline in total borrowing of 8.8 billion in May, according to a consensus survey from Briefing.com. April saw a revised drop of 16.5 billion in total consumer borrowing — a larger decline than originally reported, and the biggest dip in dollar terms since record-keeping began in 1943.Revolving credit, which includes credit card debt, fell by 2.9 billion to 928 billion. That’s a 3.7% decrease from the previous year. Nonrevolving credit – which includes auto and student loans — decreased by 400 million, or 0.3%, to 1.59 trillion. Last August, consumer credit contracted for the first time since January 1998. It rebounded in September before contracting again, falling for three consecutive months to close out 2008. A separate report released Tuesday showed delinquencies on credit card debt and other consumer debt hit record highs in the first quarter of 2009. Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
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Source:CNN

NEW YORK: For years, Microsoft has been trying to devise a “Google killer” (Can you say Live? Bing?). On Wednesday, the search engine giant lashed back with its own operating system. Could it be a “Microsoft killer?”"Just like Henry Ford drove down car prices and ripped the heart out of the automobile industry, Google is trying to force Microsoft to cut its prices and eat the heart out of Microsoft’s revenues,” said Tom Austin, Google analyst with Gartner. The battleground Google (GOOG, Fortune 500) has chosen: tiny, cheap laptop-like computers known as netbooks, which are quickly gobbling up market share. Netbooks made up nearly 20% of all notebook sales in the first quarter of 2009, according to DisplaySearch data. Currently, Microsoft (MSFT, Fortune 500) dominates the netbook OS market, controlling a 90% share, according to Gartner. Netbooks are getting faster, but they’re still not so great for software – Microsoft’s main domain. But they can easily handle the Web just about as well as your average desktop. And as Web-based applications overtake software bit-by-bit, many believe netbooks will dominate consumer and small business PC sales in years to come.Google is certainly taking that bet. It’s plan: offer a scaled-back, inexpensive operating system that is designed around the Internet rather than software.The right stuff. Some analysts say Google’s strategy makes perfect sense.”It’s not personal, it’s just about getting everybody using the Internet for everything, which means more revenue for Google,” said Austin. “It’s all part of Google’s grand commoditization plan.”In other words, if it seems like Google is trying to take over your PC, it is. If Google successfully creates an operating system that seamlessly integrates its Chrome Internet browser, Google Apps and Google search, that means cash in the bank for Google — and lost business for Microsoft.So far, users have been willing to pay more for Windows-based machines over Linux-based netbooks, but Austin said the Google name will help the company penetrate the netbook market. 0:00
/01:23Google CEO dings Bing”Previous Linux versions offered on netbooks failed dramatically, but Microsoft can’t assume this one will fail as well,” he said.Furthermore, many analysts doubt Microsoft’s ability to run its soon-to-be-released Windows 7 OS on netbooks. Netbooks mostly run Microsoft’s Windows XP, because its current operating system, Vista, is too big. Though Windows 7 is slightly leaner, it isn’t dramatically smaller than Vista.”Microsoft’s decision to run Windows 7 on netbooks is curious,” said Zeus Kerravala, analyst at Yankee Group. “It’s hard to take the stuff out of a big OS, but much easier to add to one that’s lighter.” Still, Kerravala and other analysts are skeptical that Google will be able to drive revenue from Chrome OS.”Google has really been unable to monetize anything other than its search engine,” said Kerravala. “Google gets a lot of accolades — and deservingly so — but as far as monetization is concerned, it’s still a one-trick pony.”Microsoft’s tight grip. Even experts who believe the plan will ultimately succeed say it will be a long time before Google can really convince customers that online software, or “cloud computing” is the answer. “The revolution is happening … but it’s going to take another 15 to 20 years,” said Austin. “Google is today with cloud where Microsoft was with the PC in 1990: Businesses didn’t start to embrace PCs en masse until Windows 95.”We may, one day, look back fondly on the days that we used OS-based software like we look back now on the days we spent hours manually entering data into mainframes. But for the time being, most computer users are still hesitant to give up Microsoft Word and Outlook for Google Docs, Google Calendar and Gmail.”Users may go for a Google netbook, but it depends on what they expect when they get it home,” said Mike Silver, Gartner’s vice president. “If they want to use their existing software, they may not be so thrilled.”As a result, analysts believe netbooks will likely remain a niche product for at least 3 to 5 years. Meanwhile, some think Google won’t make much of a dent in Microsoft’s dominance.”The Chrome OS isn’t the final bullet in the war between Google and Microsoft, rather it’s merely a shot across the bow,” said Joshua Martin, senior analyst at Yankee Group. “Google’s targeting of netbooks will reduce Windows’ market share of this high-growth category, but the effect will only be slightly greater than the introduction of Linux-based netbooks.”But that may not be the point. Similar to how Google head-faked on its bid for the rights to analog TV signals last year, driving up Verizon’s (VZ, Fortune 500) bid, some think that a point taken away from Microsoft is a point for Google.”I don’t see this as a major revenue enhancement strategy as much as it’s an attempt to drain money out of Microsoft,” said Austin. “Google just wants to force Microsoft to cut the cost of its netbook OS by 60% to 70%.”

Source:CNN

NEW YORK: The Manhattan district attorney indicted 13 suspects and a mortgage company on Wednesday for running a 100 million mortgage fraud, in which they allegedly fooled banks into financing sham sales.District Attorney Robert Morgenthau said that 25 people were involved in the scheme including 12 who have already pleaded guilty. The 13 newly-indicted individuals and the mortgage company, AFG Financial Group, were charged with enterprise corruption, grand larceny, scheme to defraud and conspiracy for participating in 19 fraudulent real estate transactions, according to the D.A.’s office. The most serious felony, enterprise corruption, carries a sentence of up to 25 years.0:00
/2:47Mortgage rates tick back upThe suspects included Aaron Hand, Eugene Culbreath and Eric Shields, all founders of AFG, which is based in Garden City, Long Island. The D.A.’s office said that Hand, the company president, “ultimately controlled the criminal enterprise.”Lawyers for Hand and Culbreath were not immediately available.The D.A.’s office said the following banks were ripped off over a four-year period, ending in April: Countrywide, New Century Bank, Saxon Bank, Greenpoint Bank, ABC Bank, Bank of America, Wells Fargo and SunTrust. Some of the defendants were bank employees, according to the D.A.”The conspirators caused the banks to front millions of dollars to finance purchases of the properties,” read a statement from the D.A.’s office. “They then walked away with most of the cash, leaving behind over-valued properties and worthless mortgage papers.”The D.A.’s office described a “particularly brazen sham transaction” where one of the suspects, Stephen Martini, allegedly wrote up a bogus appraisal of 500,000 for a two-family home, but “in reality, the location was a vacant lot.”

Source:CNN

NEW YORK (Fortune) — It’s highly unlikely that the operating system Google announced yesterday — dubbed Google Chrome OS — will rocket to the heights of its chief competitor, Microsoft, right away. But it doesn’t really matter. In a world obsessed with all things Google, the new OS will certainly get its fair share of attention, and the frontal assault on Microsoft that it represents will serve at least as a great distraction to the tech behemoth.We only know a few details about Google’s plans for the operating system, which won’t actually launch until the fall of 2010. It will target netbooks initially and then expand to the larger PC market. It will combine the Google Chrome browser with a Linux kernel. Though there’s some overlap with Android, the company’s operating system for mobile devices, this system is intended for computers. And it will be fast, accessible, efficient, and — though Google (GOOG, Fortune 500) hasn’t said as much — it’s likely the operating system will be free.Google’s announcement is riddled with subtle jabs at its Seattle rival, even going so far as calling the Chrome OS necessary because “the operating systems that browsers run on were designed in an era where there was no web.”But there’s a lot to suggest Google won’t be able to pull this off. The company’s only breakthrough success has come with the AdWords and AdSense products related to its core business — search. While Google’s launched plenty of products over the years, it’s sometimes hard to tell immediately whether they’re designed to dominate a field or entertain technologists.And many of those products have not risen to prominence. Google Apps just came out of beta this week, but it’s hardly affected Microsoft Office’s dominance in productivity. Google product search — you may remember it as Froogle — was a flop. Google Checkout hasn’t overtaken PayPal, and Knol was far from a Wikipedia-killer. Does anyone even remember Orkut, an early contender for the market Facebook has captured? And the list goes on.0:00
/4:19Andreessen launches fundStill, Google’s announcement should worry Microsoft (MSFT, Fortune 500). It’s the biggest threat yet to the tech giant’s crown jewels, and it’s more evidence of the growing agitation in the tech industry: Google joins a number of other large tech companies that have quietly begun work on their own operating systems. (Intel (INTC, Fortune 500), for example, recently announced Moblin, a Linux-based operating system for netbooks.)Microsoft has yet to publicly react to Google’s announcement of the Chrome OS, which will debut at the same time as the much-anticipated new version of Microsoft’s own operating system, Microsoft Windows 7, this fall. Early reviews of Windows 7 have been promising, but Microsoft faces a significant hurdle with the poor reception of its last offering, Vista. Now, it will also have to launch in the shadow of a new competitor that — while it doesn’t even exist yet — has already begun to steal the show.

Source:CNN

NEW YORK: Fiscally-stressed states are using their stimulus dollars to satisfy immediate needs rather than undertake longer-term reforms, according to a government report released Wednesday.For example, states are spending education funds to prevent layoffs and maintain programs, a Government Accountability Office report found. Trying to survive one of the worst economic downturns since the Great Depression, state and school district officials say they don’t have the money to undertake projects such as building new schools and expanding early-childhood education.Similarly, states are using nearly half their infrastructure funds for pavement improvements, which can be implemented quickly and don’t require environmental clearances and in-depth design work.The 787 billion recovery act walks a fine line between trying to get funds out quickly to stimulate the economy and spurring longer-term initiatives.The GAO is charged with tracking stimulus spending in 16 states and the District of Columbia that combined will receive two-thirds of the funds. Wednesday’s report is the second it has released.The agency also found that the federal government is pushing out stimulus funds slightly faster than expected. As of June 19, 29 billion was given to states and localities — 90% of which has gone toward Medicaid and education.The money is helping states deal with their budget crunches, Acting Comptroller General Gene Dodaro told a congressional committee Wednesday. But states are also cutting back on staffing, leading to concerns about how well they will be able to report their use of stimulus dollars.Lawmakers, however, were more interested in grilling Robert Nabors, deputy director of the White House budget office, about the number of jobs the stimulus funds have created or saved.0:00
/5:20Is stimulus helping jobs?The administration has said stimulus funds have already created or saved 150,000 jobs, and should create another 600,000 by summer’s end. The figures are based on estimates that each 92,000 in stimulus money spent creates one job.Nabors said that while America is still losing jobs, it is doing so at a slower pace because of stimulus money. The number of positions that disappeared in June, 467,000, was fewer than the monthly job-loss pace of 691,000 in the first quarter.”We are making progress, but we have a long way to go,” Nabors said.Republican lawmakers lashed into Nabors, questioning his figures and saying that the recovery act hasn’t lived up to President Obama’s promises.”How can you justify that?” said Rep. Jason Chaffetz, R-Utah, of the estimate.

Source:CNN

WASHINGTON (CNN) — Vice President Joe Biden announced Wednesday that a deal has been reached with hospitals to help fund health care reform.Biden said the hospital industry has pledged to contribute 155 billion in Medicare and Medicaid savings in the next decade.”We’re here today to make our health care system healthy again,” the vice president said in announcing the agreement.”Hospitals have acknowledged that significant health care savings can be achieved by improving efficiencies, realigning incentives to emphasize quality care instead of quantity of procedures,” Biden said.”In the last several weeks, they’ve been working with (Senate Finance Committee) Chairman (Max) Baucus and are coming forward with a proposal that produces real savings in federal health care spending,” he said. “Savings that will be applied toward the president’s firm goal … of enacting health care reform that is deficit neutral.”As the health care system becomes more efficient through technology and innovation, increases in Medicare and Medicaid payments to hospital will slow, and as more people are insured, hospitals will bear less of the financial burden in caring for those without adequate coverage, Biden said.”Today’s announcement, I believe, represents the essential role hospitals play in making reform a reality, and the reality will be — we must enact this reform this year. We must, and we will, enact reform by the end of August, and we can’t wait,” Biden said.Biden was joined by Health and Human Services Secretary Kathleen Sebelius and representatives of the hospital industry.The hospital deal follows Obama’s announcement last month of an agreement reached with the nation’s pharmaceutical industry to cut drug costs for elderly Americans, calling it an example of the kind of compromise required for successful national health care reform.That agreement discounts medications for Medicare beneficiaries facing high out-of-pocket expenses when their benefits reach a gap in coverage.Following Biden’s announcement, House Minority Leader John Boehner accused the administration and Democrats of “bullying health care groups into cutting backroom deals to fund a government takeover of health care.”"Democrats, Republicans, and health care stakeholders must work together on real reform to give Americans better access to affordable health care, but that’s not happening in Washington,” Boehner, R-Ohio, said in a statement.”It’s time for Washington Democrats to abandon their ‘go it alone’ approach and work with Republicans on true reform that expands Americans’ access to affordable health care,” he said.
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Source:CNN

(Fortune Magazine) — As the U.S. stock market tosses and turns, sustainable growth — both in corporate profits and economic output — seems far off. In China, on the other hand, recovery already seems to be a reality: Real estate, auto, and industrial sales have all bounced back this year, driving stocks on the Shanghai exchange up 50% since February. The velocity of the Chinese rebound surprised the World Bank, which recently increased its estimate for the country’s GDP growth this year from 6.5% to 7.2%. Jing Ulrich, J.P. Morgan’s Chinese equities strategist, thinks that figure is still too low. “China can still achieve 8% growth,” she says. “Everything is happening very fast there.” Achieving even the World Bank target would be impressive indeed, considering that most other big economies are shrinking. But China isn’t immune from the rest of the world’s woes, because it still depends heavily on exports. The main reason growth is down from the double-digit levels of recent years is that China’s manufacturers and shipping companies have been suffering from the global slowdown. Other industries have found a surprising new source of demand: the Chinese consumer. “The rebound has been driven by the domestic economy,” Ulrich says. “The consumer proved resilient — and the government acted as a catalyst.” By lowering taxes and issuing subsidies as part of a 4-trillion-yuan (585 billion) stimulus, the state stepped up its efforts to turn a nation of savers into spenders. As a result, says Ulrich, growth is still spreading across the country despite the decline in exports. For example, in Sichuan province, the region in central China that was hit by a massive earthquake last year, the economy grew by nearly 11% last quarter. Nationwide, retail sales grew 15% in May, to 1 trillion yuan, with rural consumption outpacing demand in cities. 0:00
/0:54Ericsson scores in ChinaBecause shares of many Chinese companies are not readily available to foreign individuals, the most convenient way to invest in the rebound is through mutual funds and exchange-traded funds (ETFs). The biggest ETF, with 9.5 billion in assets, is iShares FTSE/Xinhua China 25 Index (FXI), which tracks the 25 largest Chinese companies traded in Hong Kong. Shares have climbed 31% this year (through June 25), but are still down 25% from June of last year. If you want a fund manager picking stocks for you, Morningstar’s Bill Rocco recommends Matthews China (MCHFX). Matthews China is up 39% this year, and has returned 20% annually over the past three years, vs. 4% for the average China fund. (Rocco adds the caveat that you should commit only a small portion of your portfolio to any single-country fund.) The fund carries an expense ration of 1.23%, below average for funds with large China holdings. If you’re hunting for individual stocks, there are now 72 Chinese companies trading on major U.S. exchanges, according to Bank of New York Mellon. Here’s a look at three reasonably priced companies in different industries, all of which are benefiting from China’s domestic boom. All are available as American depositary receipts — ADRs — on the New York Stock Exchange. Despite its name, American Dairy (ADY) is a Chinese company, based in Beijing, that makes infant formula and other milk products. Hao Hong, an analyst at Brean Murray Carret, a New York City investment bank, says the market for formula is growing in China, where fewer mothers are breast-feeding their children. American Dairy was not among the several Chinese companies implicated in 2008 in selling melamine-tainted milk and infant formula. “Since then they’ve been taking market share from their competitors,” says Hong. “Their products are flying off of the shelf.” The stock has nearly tripled this year, but it still trades at just eight times estimated earnings for the next four quarters, compared with an industry average of 22, and analysts think profits will soar at an astounding 115% annual rate for the next five years. Richard Gao, who manages the Matthews China Fund, says China’s insurance industry will profit from the ascent of the middle class, as well as the aging of the population. “China is undergoing a structural change,” he says. “It used to be socialist, with insurance coming from the government, but it’s becoming more of a market-driven economy.” Gao owns shares of China Life (LFC), which is the country’s biggest insurer. China Life’s profits fell 45% last year because of the Sichuan earthquake and investment losses, but the company’s conservative portfolio of mostly bonds shielded it from the devastation its Western counterparts suffered in the global stock market meltdown. While China’s insurance industry is still in its early stages, China Life already has a vast sales force of 716,000, which enabled it to boost premium income 17% in 2008 and increase market share to 40%. Despite the company’s leading position, the stock trades at a slight discount to its main competitors’. China Mobile (CHL), the world’s biggest telecom, commands a 72% share of China’s fast-growing market. That position gives it negotiating clout with phonemakers. (It already has a deal with BlackBerry-maker Research in Motion (RIMM) and is launching a phone equipped with Google’s Android browser.) Yet its stock is slightly down from a year ago, in part because the government has reorganized the telecom industry to spur competition, merging a number of smaller firms to create two large rivals to China Mobile. Rusty Johnson, manager of the Harding Loevner Emerging Markets fund, says that the giant company can still expand both its margins and its customer base. It is adding 5 million customers a month and, he says, “it can sell value-added products, like mobile broadband, to existing customers.”

Source:CNN