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NEW YORK: No. John McEnroe didn’t write the headline for this column. And yes, Sirius XM Satellite Radio posted a profit in the second quarter. Sort of.The home of Howard Stern did its best to try and convince investors that it made money in the quarter, saying in the first sentence of its press release Thursday that it had adjusted income from operations of 132 million. Sirius XM also said in the first paragraph that it was raising its full-year guidance for adjusted income for operations.However, this figure excludes a host of costs, such as depreciation and amortization, restructuring charges and interest expense tied to debt payments. So if you dig deeper, you’d find that the company really lost 157.3 million in the quarter, nearly double the loss from a year ago.To be fair, many media companies, including mine (Time Warner) play the pro forma profit game because of various costs somewhat unique to your business. But Wall Street was not fooled by the pro forma profit game, i.e. we’re making money if you just ignore a bunch of stuff. Shares of Sirius XM (SIRI) fell 6% Thursday morning. Now losses are not new for the company. Even in good economic times, it’s been a challenge for Sirius XM to make money. Before Sirius and XM merged last year following a lengthy antitrust review, the two companies routinely posted big splotches of red ink. But it appears that the recession is taking a toll on subscriber growth, and that could be a problem. Although revenue was up 1% from a year ago thanks to existing subscribers paying higher monthly fees, the company said it ended the quarter with nearly 186,000 fewer subscribers than it had in the first quarter.Now all is not lost for Sirius. The company could benefit from the Cash for Clunkers-induced lift to auto sales that Ford (F, Fortune 500) and other big car companies reported earlier this week. Sirius XM has installation agreements with all the major automakers. Approximately 55% of the company’s total subscriber base comes from the automotive segment, with the remainder coming from consumers buying radios at big retailers such as Best Buy (BBY, Fortune 500) and Wal-Mart (WMT, Fortune 500).”We are well positioned for a rebound in auto sales,” said Sirius XM chief executive officer Mel Karmazin in a statement Thursday. 0:00
/2:40The future of radioDavid Bank, an analyst with RBC Capital Markets, agreed that the company’s fortunes should improve if the worst is over for the auto industry. In fact, Bank said the subscriber loss in the quarter was not a surprise given how poor the economy was, and added that Sirius actually lost fewer subscribers than he expected.It also seems that Sirius, much like the nation’s big banks, has taken a step back from the brink. Sure, the stock still trades for a paltry 50 cents a share. But that’s a substantial improvement from the all-time low of just a nickel a share it hit in early February. Concerns about the company’s debt load and a possible need to file for bankruptcy have ebbed since John Malone’s Liberty Media (LCAPA, Fortune 500) agreed to loan Sirius XM 530 million in exchange for a 40% stake in the company.With that in mind, some value investors are betting that the stock could rally further from its depressed levels as long as liquidity crunch fears continue to recede and the economy keeps improving. So it could be worth a gamble for investors with the stomach for risk.”It is still a highly risky speculative situation. But I’m willing to take a chance on Sirius XM since it’s a great concept and a good product,” said Don Hodges, co-manager of the Hodges Fund, which owns a small stake in the company and has also made contrarian bets on former Wall Street darlings such as Crocs (CROX) and Krispy Kreme (KKD). Hodges said he is hopeful that the company will continue to cut costs — Sirius XM said Thursday that cash operating expenses have decreased 28% since the merger. In particular, Hodges thinks the company should be able to avoid overpaying for programming in the future. Before Sirius and XM merged, the companies were caught in a tough battle for customers. That led to some pricey contracts for on-air personalities. And with the exception of Stern, Hodges said few of these deals led to enough new subscribers to justify the costs.”The companies went crazy spending on programming. Expenses for talent were out of control. That should be less of an issue now that Sirius and XM are not competing against each other,” Hodges said.So Sirius XM may have dodged a bullet now that the auto industry and overall economy seem to be stabilizing. But Bank cautions that investors shouldn’t really expect a return to the heady levels of subscriber and sales growth that the companies were able to report when they first launched a few years ago.That may not be a bad thing though. At this point, Sirius XM needs to focus less on growth for the sake of growth and more on how to turn adjusted income from operations into good old-fashioned real net income. Talkback: Do you think Sirius XM will still be around in five years?

NEW YORK: Can the end of the recession be found in a scrapped clunker?It’s not that simple, of course. But many economists agree that the popular Cash for Clunkers program is likely to provide a significant lift to more than just the battered auto industry.”History shows that the success of stimulus packages depends on people responding to the incentives to spend money,” said Joseph Carson, chief economist at AllianceBernstein. “It’s having an intended, if not larger, impact than people expected.”Carson said the 1 billion in government money spent on Cash for Clunkers program has unlocked private spending. The maximum payment of up to 4,500 for turning in an old car only provided a fraction of the cost of a new one. So people either dipped into savings or arranged financing to buy cars.The Senate is widely expected to pass a 2 billion expansion of Cash for Clunkers Thursday. The House did so last week after reports that the original funding earmarked for the program was set to soon run out. And according to some estimates, the total of 3 billion spent on Cash for Clunkers could result in an 18 billion boost to the overall economy.”In terms of bang for the buck, this is up there pretty high up there,” said John Irons, research and policy director for the Economic Policy Institute, a liberal think tank.0:00
/3:43Cash for clunkers’ sugar rushDavid Wyss, chief economist for Standard & Poor’s, estimates that the program could add about a half of a percentage point to gross domestic product, the broadest measure of the nation’s economic activity, over the next two quarters. That’s in line with the estimates from economists at General Motors, an obvious supporter of the program.While that sounds small, Wyss said it’s a significant impact for a program of such relatively modest cost to taxpayers.Wyss said that Cash for Clunkers could lead to lower auto sales down the road because consumers are merely moving up purchases of cars to take advantage of the program. But he added that the short-term bump in sales and resulting increase in production from the program makes outweigh the costs of a future hit to sales.”When you fill a pothole, you have to get the dirt from someplace else. But that doesn’t mean it’s not worth filling the pothole,” he said. “The auto industry has been a pretty deep pothole on the U.S. economy.”Auto industry experts estimate that 750,000 clunkers will be scrapped as a result of the program — assuming the extension is passed by the Senate as expected. So that should lead to sales of 750,000 new cars. Executives at auto companies have conceded that about half of those vehicles probably would have been purchased even if the program were not on place. Still, Mike DiGiovanni, GM’s head of sales analysis, said that another 200,000 cars could be sold to buyers who aren’t even participating in the program. That’s because Cash for Clunkers has caused an increased boost in traffic to dealers.Boost to production will have a chain reactionInventories for most automakers are now at record lows because of the sharp cutbacks in production earlier this year. So if Cash for Clunkers leads to even more interest in new cars, the auto industry will need to increase production by about 600,000 vehicles for the rest of the year to restock inventories. That’s equal to about a three-month output of nine to ten auto assembly lines.”It’s going to stimulate production big time,” said DiGiovanni. “Most of us don’t have production to meet that demand in our current schedules. We’ll be increasing production schedules in the third and fourth quarters. I’m sure everyone else is looking at that too.”Not all the increased vehicle production will happen in the United States. Some hot sellers under the program, such as the Toyota (TM) Prius or Hyundai Elantra, are are being imported from Asia. Even some of the “domestic” hot sellers, such as the Ford (F, Fortune 500) Fusion, are built on Mexican assembly lines.But many of the import models getting a lift in sales, such as the Honda (HMC) Civic and Toyota Camry, are built on U.S. assembly lines. Increased production by the big automakers could have a sizeable ripple effect throughout the economy. The battered auto parts sector is getting a needed shot in the arm from the program. That’s true even for the cars assembled in Mexico and Canada. Dealerships, which have suffered widespread closures beyond those mandated by the bankruptcies of Chrysler and GM, are also getting a much-needed lift in sales and profits.Of course, there are some critics of the program as well. Some argue that consumers who spend money on new vehicles will have less money to spend on other items, and that it doesn’t do anything to add to economic activity and wealth.”You’re taking a very large sum, hundreds of dollars, out of a household’s monthly cash flow to dedicate it to a new car loan,” said Rich Yamarone, director of economic research at Argus Research. “You’re stealing from the amount that can be spent on food, clothing, shelter, the essentials, as well as vacations and refrigerators and other big-ticket items.”But others argue that the cost of maintaining clunkers is also a drain on household budgets. Consumers are also likely to save more than 1,000 a year, depending on gas prices going forward. due to the improved fuel economy standards mandated by the program. So that could mean that the impact of Cash for Clunkers could last even after the program eventually ends.Talkback: Do you think Cash for Clunkers has been a success? Share your comments below.

Source:CNN

NEW YORK: The U.S. Senate is expected to vote Thursday on a 2 billion extension of the popular Cash for Clunkers program, as lawmakers rush to finish business before their August recess. The House voted to extend the program, which blew through its 1 billion in initial funding, before it adjourned for the summer last Friday. Now the Senate must agree to make the additional money available so that President Obama can sign the extension into law. Debate on the bill is expected to begin after the Senate’s confirmation vote on the U.S. Supreme Court nomination of Judge Sonia Sotomayor. Senate Majority Leader Harry Reid of Nevada indicated that an agreement had been reached with Senate Republicans and that a vote is expected Thursday. “We’ll pass Cash for Clunkers … before we leave here” for the August break, Reid told journalists Tuesday. 0:00
/5:09Against Cash for ClunkersSen. John Thune of South Dakota, the third-ranking Republican, said he expects all Senate Democrats and several Republicans to vote for additional funding. “In the end, we know where the numbers are,” said Thune, who opposes the program. Senate Minority Leader Mitch McConnell of Kentucky said the Senate would vote on the measure before going on holiday, but wouldn’t guess about the outcome. Under the plan as enacted, vehicles purchased after July 1 are eligible for refund vouchers worth 3,500 to 4,500 on traded-in gas guzzlers. The trade-in vehicle has to get a combined city and highway fuel economy rating of 18 miles per gallon or less.The program’s rules had required dealers to render traded-in vehicles permanently inoperable before applying for their rebates, but the Department of Transportation has amended that rule so that dealers now have the option of waiting until they receive the rebate before disabling the vehicle.–CNN Congressional correspondents contributed to this report.

Source:CNN

NEW YORK: Cash for Clunkers, the federal program that allows you to trade in your gas guzzler, smacked into a roadblock this week after it became clear the program is already close to burning through its 1 billion budget. The White House made clear today that the program will extend at least through the weekend if not longer. The House just passed a 2 billion extension to the program but the Senate is not expected to vote on the measure until Monday.Let’s take a look at the math. According to the latest figures from the National Highway Traffic Safety Administration, about 146 million has approved to be given out already. And according to the National Automobile Dealership Association, about 1.2 billion is projected to be given out. Keep in mind that the program was allocated 1 billion from the beginning. Demand is simply overwhelming — 23,000 dealerships have signed onto the program. Experts say that dealerships had started declining people for the program earlier this week. The program was supposed to officially end on November 1st. The speed at which this program was put on hold was pretty surprising to experts who estimated the program would run out of money by mid to late August.If you want to trade in your clunker, make sure you don’t sign a waiver that forces YOU to pay the voucher if your deal doesn’t go through. And, have the dealership wait to destroy your old car until they are absolutely sure that you are getting the voucher money. Of course you shouldn’t forget to negotiate the deal — yes you are getting help from the federal government to buy the car but that doesn’t mean you shouldn’t get the best possible price. Check out Web sites like edmunds.com and consumerreports.org for strategies on negotiating. Remember, act quickly — one expert we talked to at Consumer Reports says that it’s entirely possible that Congress may tighten the requirements on mileage in the future to get better results out of the program. In the meantime, any purchase this weekend will honored according to the White House — so if you are in the market to get rid of your clunker you will probably want to act quickly — and it is likely that Congress will extend that program beyond this weekend. Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN’s Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions.

Source:CNN

NEW YORK: The federal government may suspend its 1 billion Cash for Clunkers program after less than a week over concerns that the plan may have already burned through its funds, according to congressional sources.A White House official said the Obama administration is assessing the situation, but added that “auto dealers and consumers should have confidence that all valid … transactions that have taken place to-date will be honored.”The Department of Transportation, which runs the program, reportedly wants to sort out how much of the plan’s funds it has already committed.Cash for Clunkers officially launched less than a week ago.It is set to end on Nov. 1, or whenever its 1 billion budget has been depleted. Under the plan, vehicles purchased after July 1 will be eligible for refund vouchers worth 3,500 to 4,500 on traded-in gas guzzlers. The trade-in vehicle has to get combined city and highway fuel economy ratings of 18 miles per gallon or less.The program, created by Congress to spur sales and help the struggling auto industry, is intended to take low-mileage cars off the road and spur new car sales for U.S. automakers.”With this program, we are giving the auto industry a shot in the arm and struggling consumers can get rid of their gas-guzzlers and buy a more reliable, fuel-efficient vehicle,” Transportation Secretary Ray LaHood said in a statement Monday.As of Wednesday, nearly 30,000 Clunker transactions had been been submitted to the National Highway Traffic Safety Administration, the agency said, requesting a total of almost 96 million in disbursements.

Source:CNN

WASHINGTON (CNN) — More work is needed on proposed health care reform legislation to ensure that whatever bill eventually gets passed by Congress is budget neutral, Health and Human Services Secretary Kathleen Sebelius said Sunday.Appearing on the NBC program “Meet the Press,” Sebelius said an additional tax on wealthy Americans is “a legitimate way to go forward.”She noted the tax surcharge provision in a House proposal was one of several options under discussion to help pay for overhauling the nation’s ailing health system.A final bill “will be paid for — it will not add to the deficit,” Sebelius said of health care reform, which is currently President Barack Obama’s top domestic priority.Obama seeks an overhaul to ensure that health insurance is available to the 46 million Americans currently uninsured while preventing costs to both the government and individuals from continuing to climb.The House and Senate are working on Democratic proposals that would create a government-funded public health insurance option intended to drive down costs of private coverage.However, the non-partisan Congressional Budget Office reported last week that the measures currently under consideration in both chambers would fail to pay for themselves, increasing the budget deficit.Republican opponents seized on the CBO report as ammunition against Obama’s push to have a bill from each chamber approved by the time Congress begins recess on Aug. 7.Senate Minority Leader Mitch McConnell of Kentucky, also appearing on “Meet the Press,” said the government is over-reaching by seeking to reform the whole system.He called for expanding the tax deduction on health care costs for employers to include individual taxpayers — what the Republicans call equalized tax treatment — and limiting medical malpractice lawsuits that he said drive up the cost of medical care.”I’m not in favor of doing nothing,” McConnell said. “It’s important to reduce the number of uninsured. The question is how to do that.”However, White House Budget Director Peter Orszag said the real purpose of Republican criticism is to slow momentum in hopes of eventually killing health care reform.”The typical Washington bureaucratic game of ‘if you don’t have a better alternative, just delay in the hope that that kills something’ is partly what is playing out here,” Orszag said on the CNN program “State of the Union.”Democrats pushing the health care bills argue the CBO analysis does not take into account the financial impact of cost-cutting measures under discussion, nor how stronger preventive care programs will reduce demand and costs.Sebelius noted that all proposals include various provisions to decrease fraud and improve efficiency of the current system.”In all the plans, more than half the money to pay for the proposal is already in the system,” Sebelius said, referring to what she called “misdirected” money for ineffective programs and other instances of waste and inefficiency.0:00
/2:36Questioning Canadian health careOrszag also called for creating an independent commission of doctors that would set reimbursement levels and other health care policy issues under congressional oversight, calling it “the single most important thing that’s missing from the legislation at this point.”However, Sen. Orrin Hatch, R-Utah, told the CBS program “Face the Nation” that such a panel would end up limiting care available to people, like in the government-run system of England. He said he would propose a plan next week modeled on the 1997 Children’s Health Insurance Program he sponsored with Democratic Sen. Ten Kennedy of Massachusetts to provide states with money to set up programs based on need.Both the House and Senate proposals so far include mechanisms to raise revenue through increased or new taxes.The Senate Finance Committee wants to create a new tax on medical benefits provided by employers, a plan that Obama opposes.Sebelius said the new tax could cause employers who provide coverage for 180 million Americans to change or drop their programs, which could “dismantle the private market.”"He’s reluctant to move in that direction,” she said of the president.Obama continues to favor reducing the limit on income tax exemptions for high-income Americans, Sebelius said.Both Sebelius and Orszag emphasized that the progress was occurring in Congress, and that Obama’s goal of legislation coming from both chambers by Aug. 7 remained possible.”This hasn’t happened in 50 years for a reason — it’s complicated,” Orszag said. “(The) legislative process is working. I think people are sort of reaching judgment about who’s going to win the marathon based on who’s ahead at, like, mile 19.”

Source:CNN

NEW YORK: The small business credit market is about to take another major hit. Six weeks after Advanta abruptly froze all of its 1 million credit-card accounts, lending giant CIT Group hangs in limbo and is reportedly eying bankruptcy.But over the past nine months, the one-time financial services powerhouse has all but ceased making new loans, leaving small business advocates and owners with mixed feelings about whether CIT should be left to fail.CIT was historically the biggest issuer of Small Business Administration-backed loans, topping the agency’s lender list year after year. Last year, it made 1,195 loans through the SBA’s 7(a) program, totaling 766.6 million. But in the wake of the credit crisis that followed Lehman Brothers’ September collapse, CIT’s lending came to a standstill. Since October, CIT (CIT, Fortune 500) has funded fewer than 100 SBA loans, totaling 65.7 million.”In order to service its debt and meet obligations, [CIT] has been cutting back on new originations,” explains David Chiaverini, research analyst at BMO Capital Markets.CIT CEO Jeffrey Peek said in November that his company was “the bridge between Wall Street and Main Street,” and “one of the few significant sources of liquidity for small and mid-sized businesses who are struggling to survive.” But by then, CIT was already burning down its bridge, turning away many of the small businesses that had come to rely on the company.Craig Moore is president of CiCi Enterprises, a pizza franchisor based in Coppell, Texas. CIT Group was CiCi’s go-to lender for financing new franchises.”We had used them quite a bit in the past years because they made the process easy to get through. But at the end of last year, they tightened so quick they almost stopped lending to us overnight,” Moore says.Moore had 300 franchise candidates in the pipeline. Very suddenly, half of them couldn’t get loans and became non-viable. Moore says some are still hanging on, hoping the credit markets loosen up, while other potential owners are tapping family and friends for startup money.”We had a goal of building 80 stores this year and we may end up with 40. That drop is due to the financing issues,” says Moore. “On a bigger scale, that’s 40 stores which each could have hired 35 employees.”Diverse financial servicesCIT wasn’t just known for its startup loans. It also provided loans and lines of credit to existing small businesses. If the company falls into bankruptcy, those credit lines will vanish.J.P. Morgan’s analysts estimate that CIT had 1.5 billion in unfunded commitments in March, primarily comprising untapped credit lines and other guarantees that customers could draw down if they chose. That’s a big deal for affected business, but it’s a comparatively small amount in the overall lending landscape. When Advanta froze its small business credit cards, it had about 5 billion in outstanding balances.CIT is also a major playing in factor financing. Factoring companies buy invoices from manufactures and retailers, immediately paying them a portion of the invoices’ face value and assuming the task — and the risk — of collecting payments from customers. For businesses that can’t afford to wait, factoring offers fast access to operating cash.CIT Trade Finance processed a factoring volume of 8.3 billion in the first quarter of 2009, but there too, signs of the company’s cutbacks are showing. CIT’s factoring volume dropped 21% from the same quarter a year earlier, which the company attributed to the weakened retail environment.If CIT falls into bankruptcy, its factoring clients will need to find a new lender. Some may also be left chasing CIT for unpaid balances. As of March 31, CIT held 2.7 billion in credit balances for its factoring client, according to an SEC filing.Robert Saquet, president of Eggers Furniture, a retail store in Middleboro, Mass., is wondering how his shop will be affected if CIT disappears from the factoring market.”Many manufacturers would not be able to stay in business without a factor creating immediate cash flow,” Saquet says. Three of his largest suppliers use CIT as a factor. “Without a source of cash, they would have to demand pre-payment from retail stores. Retail stores are struggling and are not able to get the credit to raise more cash, so they would have to stop buying from factories that are not able to extend terms.”Soaring defaultsSmall companies have been hit hard by the recession, and CIT is suffering in tandem with those it serves. Defaults and delinquencies are rising as cash-strapped business owners fall behind on their bills. Meanwhile, the value of the collateral pledged against CIT’s loans is deteriorating, as home and commercial real-estate prices plunge.”The weak economic environment had a much greater impact on certain segments of our corporate loans portfolio than we have anticipated previously,” CIT CEO Peek told analysts in a conference call to discuss the company’s most recent quarterly results.CIT received 2.3 billion in TARP money in December and converted itself into a bank-holding company. But other help from the federal government has been elusive. CIT applied in January for access to a debt-guarantee program run by the FDIC, but its application has been left languishing. Analysts say there’s little chance at this point that it will be approved.BMO Capital Markets’ Chiaverini sees bankruptcy as CIT’s most likely next step.”The best case for CIT is to get its liquidity issues resolved — bankruptcy could actually get things back to normal on the lending front,” he says. “If it does go into bankruptcy, I think what will happen is unsecured debt holders will convert their debt into equity and it will emerge stronger without the overhang of debt coming due. Then, it can start lending again.”Some small business advocates are crossing their fingers for a bailout. In a letter to Treasury Secretary Timothy Geithner, the International Franchise Association said that “we are very concerned that allowing CIT to enter bankruptcy will send the wrong signal to small businesses on Main Street.”CIT’s financing volume is way down this year, but in past years it has been “one of, if not the, top lenders to the franchise industry,” says IFA spokeswoman Alisa Harrison.Lloyd Chapman, president of the American Small Business League, also issued a statement urging government assistance. “CIT’s unique ability to work with new entrepreneurs and small business owners trying to expand their businesses will be impossible to duplicate,” he said. “If our hard-earned tax dollars are going to be used to save financial institutions, we should use those funds to save firms like CIT that have a 100-year track record of helping those small businesses where most Americans work.”CIT’s role in small business financing will be hard to fill, but for many companies, the damage is already happening. Saving CIT will only help Main Street businesses if the company becomes healthy enough to resume making loans.CiCi’s President Moore doesn’t want to see the bank propped up by the government. Still, he realizes that his company’s fortunes are tied to those of CIT and its Wall Street brethren.”A business will last only if it learns to live within rules,” he says. “But I hope they come back alive, because then there’s a better chance we will flourish.”
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Source:CNN

NEW YORK: Last I checked, the economy’s still in recession, unemployment is rising, and consumers are having trouble paying their bills. But you wouldn’t know this from looking at what’s going on in the credit card world lately.The First National Bank of the U.S., aka Citigroup (C, Fortune 500), recently jacked up the rates on 13 million to 15 million credit cards it offers through co-branding relationships with retailers. The move comes only a few months before new government rules are set to kick in that will make it more difficult for card issuers to raise interest rates and tack on more fees for borrowers.Citi, which will soon be 34% owned by taxpayers, is not alone. Other big banks, including Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), have been boosting rates on cardholders ahead of the looming crackdown. Most banks have argued that the higher rates are justified because the only way they can continue to offer credit to consumers is if they are able to make a profit from doing so.”This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit,” said Citi spokesman Samuel Wang in a statement to CNN Wednesday about its recent rate hike. Still, you can argue that higher interest rates for already struggling borrowers could lead to even more defaults — which will just compound the problem for card issuers. So Citi could wind up shooting itself in the foot by raising rates.In fact, rating agency Fitch said in a report Wednesday morning that U.S. credit card chargeoffs rose 62% in June from a year ago to a new high of 10.44%. “U.S. consumers continue to fall behind and default on their credit cards at record rates,” Fitch said in its report. The company added that even though the pace of chargeoff increases may soon slow, “actual improvements are not foreseen at this time.” That makes sense since the unemployment rate is expected to increase for some time. A general rule of thumb in the card industry is that chargeoffs tend to rise in tandem with the unemployment rate. Economists are predicting that it hit 9.6% in June — those figures will be released by the government Thursday. Talkback: Should the government be even tougher on credit card companies? Have you been hit with higher rates or new fees lately?Leave your comments at the bottom of this story. Despite all this, shares of several companies with big exposure to the credit card business have surged during the past few months on hopes the worst is over for the economy. American Express (AXP, Fortune 500) has gained back all the ground it lost in the market’s January and February swoon and is now up 25% so far in 2009, making it the best performer in the Dow Jones industrial average in the just-ended first half of the year. Shares of Discover Financial Services (DFS, Fortune 500), Visa (V, Fortune 500) and Mastercard (MA, Fortune 500) are also in the black year-to-date.The rally doesn’t appear to make sense. Aren’t consumers saving more and cutting back on their spending? And won’t the new rate and fee restrictions take a bite out of profits?Probably. But despite those challenges, some analysts believe that things are still looking up for credit card companies. In a report Monday Keefe, Bruyette & Woods analysts Sanjay Sakhrani and Steven Kwok argued that credit cards “will continue to provide one of the most lucrative returns of the asset classes within banks’ portfolios.”0:00
/2:11′Credit reforms were necessary’The KBW analysts conceded in their report that card companies are “under siege on many different fronts” and that “the industry is likely to be somewhat smaller and less profitable after new laws are put in place.” But they added that the card companies should be able to adapt to the new regulations.Sakhrani and Kwok also wrote that the new rules on fees will least affect credit card networks Visa and Mastercard and probably won’t have as big of an impact on AmEx and Discover as some fear. Instead, they suggested that Capital One Financial (COF, Fortune 500), which has a higher dependence on fees, faces the most risk from the new card law. Not surprisingly then, Capital One’s stock is still down sharply this year — even though it too has surged from its lows in March.Still, it may be unwise to dismiss the prospect of unemployment topping 10%, more scrutiny from the government and consumer’s newfound sense of thrift — especially after the sizable bounce the credit card stocks have enjoyed as of late.”The second half of the year could be a lot more difficult for the card companies, particularly with the new legislation coming in. Plus, the economic recovery is still far from strong,” said Frank Barkocy, director of research with Mendon Capital Advisors, an investment firm that focuses mainly on financial stocks.Barkocy said his firm has short positions in some of the credit card companies, which means that the firm is betting the stock prices will go down. He declined to name specific card companies it is betting against, however. But he said that the run-up may not be justified given that delinquencies and defaults should keep rising.”We should have further periods of economic weakness so losses are likely to be higher than anticipated. That might take some of the excitement out of the card stocks,” Barkocy said. Talkback: Should the government be even tougher on credit card companies? Have you been hit with higher rates or new fees lately?
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(Money Magazine) — When the easy money was flowing, you could get a great deal on a mortgage from just about anyone. But in today’s credit-challenged world, all the avenues for finding a mortgage come with their own set of problems. Many banks have tightened lending standards and scaled back offerings. Some banks are no longer working with mortgage brokers, who are under fire for pushing bad loans during the boom. And while online lending sites hold the promise of one-stop shopping, some have developed a reputation for playing bait-and-switch on rates and not fully disclosing fees. All this adds up to a major shopping hassle. If you want to get the best rate, you’ll need to tap at least two of the sources below. Scour the WebShopping for a mortgage online has come a long way from the days of one-size-fits-all rate listings. At some sites, including Bankrate.com, MortgageMarvel.com, and Zillow.com, you can now shop anonymously and get accurate rates. Keep in mind that all these sites act as referral services, so eventually you’ll have to close the deal with a bank or mortgage broker. Best for: If you know what kind of loan you’re looking for, the Web should be your starting point; getting a handle on the current rates and fees will help you know whether you’re getting a good rate when you sit down with a broker or bank officer later on. If you’re not sure what kind of mortgage you need, however, you’ll want to seek counsel from a real person right away. What to watch out for: Sites that ask for your Social Security number and address upfront. They might pull your credit report, which could hurt your score if you don’t end up getting a mortgage. Also make sure that all the fees are clearly disclosed on a site’s rate quote. Otherwise you may get a sorry surprise when you receive the paperwork from a lender. How to get the best deal: When inputting data into the online mortgage tool, don’t guesstimate your income, your credit score, or other key stats. If you submit incorrect information, you probably won’t get the rate that you’ve been quoted. Go directly to a bankAt the height of the credit crisis, there seemed to be little point in asking a bank for a mortgage. But banks are lending these days, albeit with some caution. Best for: Borrowers who are looking for a conforming loan (less than 417,000 in most areas), since some lenders have stopped underwriting jumbos. Also, if you’re refinancing, call your current lender first: To keep you as a customer, it may be willing to undercut the competition. What to watch out for: Novice loan officers. “In the heyday, underwriting was a matter of pushing a button,” says Steve Curnutte, a former mortgage broker. “Now you have to know what you’re doing.” To prevent your financing plan from fizzling out midway, ask to work with a loan officer who has been in the business for five-plus years, or since before the credit boom took off. How to get the best deal: Shop locally. A loan officer who’s familiar with the housing stock and the players in your area may have greater latitude to offer you a lower rate than one based elsewhere. Try the local branches of big-name banks as well as community banks and credit unions, which may be using the crisis as an opportunity to snag business from their larger brethren. Call on a brokerMortgage brokers doled out plenty of bad loans during the boom. But a good broker can give you more hand-holding than you’ll get online and will scour the market more thoroughly than you’re likely to do on your own. When it makes sense: If you’re in the market for a jumbo mortgage or financing for investment property, or you just don’t fit the conforming mold, a broker will identify lenders who underwrite unconventional loans. “The more exotic your needs, the harder it is to find a loan right now,” says Keith Gumbinger, vice president of mortgage information site HSH. “Finding that little niche is what a broker does best.” What to watch out for: Fees. Most brokers make money on the difference between the rate you could get and the rate you actually pay, and they aren’t required to disclose their cut. One way around it: Work with a fee-only broker (you can find one in your area at upfrontmortgagebrokers.org). How to get the best deal: Obtain rate and fee info from banks and Web sites before you talk to a broker. After all, a good broker can more than make up for his cost if he finds you a better rate than you’d get on your own. But if he can’t, there are plenty of others who would love to have your business.

Source:CNN

NEW YORK: If you think the new “Cash for Clunkers” law is going to help you buy a new car, you’re probably wrong. As it’s written, the law will benefit few car shoppers and those who might actually benefit from it probably shouldn’t be buying a new car to begin with.Here’s why it won’t do most people much good: The government refund vouchers for 3,500 or 4,500 are in replacement of — not in addition to — the ordinary trade-in value of the vehicle, which in many instances will be worth more than the voucher.”It’s not a rebate,” pointed out Jeremy Anwyl, chief executive of the auto Web site Edmunds.com. “It’s a minimum trade-in allowance.”If your trade-in is worth more than the voucher amount, you’d be better off just trading your car in as you ordinarily would and not even bothering with the “Cash for Clunkers” program. Even if your vehicle is worth a little less than that amount — say, 3,000 instead of 3,500 — you will be 500 better off under “Cash for Clunkers.” But it you weren’t ready to buy a car before, is 500 going to make the difference?All of this raises a bigger question, too. If you’re currently driving an old fuel hog that’s worth less than 4,500, there’s probably a reason. “Most likely, you have the old car because you’re either frugal by choice or because of your situation,” said Jeff Bartlett who writes about auto buying for Consumer Reports.All of that means you probably shouldn’t be looking at new cars.0:00
/5:26GM CEO: Give us a 2nd chanceFor someone who’s been driving an old, inefficient car on which they’ve made no payments in years, if ever, buying a new car would be a huge budget adjustment.”How in the world are they going to step up and buy a new car with payments of 300 or 400 a month?” he said.Why not simply sell or trade your car or truck for whatever it’s worth and buy a more efficient used vehicle that’s in good shape? That would save thousands over the cost of buying a new car, not the few hundred that a “Cash for Clunkers” voucher would save. Unfortunately, “Cash for Clunkers” vouchers cannot be claimed for used car purchases.Besides all that, many of the cars and trucks people will want to trade in simply won’t have fuel economy bad enough to qualify for the benefit.If you’re still thinking “Cash for Clunkers” might help you, here are some tips to make sure you don’t get taken advantage of when you go shopping.Know your mileage: To qualify under the program, your car or SUV must get 18 miles per gallon or less in combined city and highway driving as measured using today’s EPA standards.To find out if your car qualifies, go to the EPA’s fueleconomy.gov Web site and look up your vehicle. If you have a car, as opposed to an SUV or truck, you’ll probably find that it doesn’t qualify. For the most part, only the biggest cars with the biggest engines get mileage that bad.Know the value: Go to a Web site like AOL Autos, Edmunds.com or Kelley Blue Book’s KBB.com and check the trade-in value of your vehicle. Also check how much it would be worth if you sold it yourself, which will be much more.If your vehicle is worth more than 4,500, forget about Cash for Clunkers. If it’s worth less than that, but more than 3,500, “Cash for Clunkers” is only worth it if you’re buying a vehicle that will get you a big fuel economy jump that will net that 4,500 voucher. If you’re vehicle is worth a lot less than 3,500, “Cash for Clunkers” may make sense. Still, you should seriously consider buying a good used vehicle first.Know the rules: The original idea behind “Cash for Clunkers” was to help the environment, not just car sales. The law is supposed to get old polluting vehicles off the road. To make sure that happens, the rules require car buyers to trade in cars that are actually being driven, not ones that have been up on blocks for years. Some legislators were afraid that scammers would simply pick up junked cars to trade in. To avoid this, the car must be in drivable condition, have been insured for at least a year — an indication that you’ve actually been driving it — and it can’t be more than 25 years old.There are other rules, too. Check the National Highway Traffic Administration’s CARS.gov Web site for more information.Know the other savings: “Cash for Clunkers” is a replacement for trading in or selling your car. It’s not a replacement for manufacturer rebates or dealer discounts. “Cash for Clunkers” or not, you can still get those. Be sure to understand all the rebates and incentives and negotiate the purchase price just as you always would. Don’t think you’re getting a deal just because you’re getting government help.”Whenever there’s a big discount, people put the blinders on,” Bartlett said.

Source:CNN