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Saturday, July 31, 2010

The Boom in For-Profit Colleges may be a Bust for Taxpayers and Students

LA Times

Many drop out or find the programs aren't accredited, a Senate panel reports. Fees, often twice as much as at public universities, are often paid with federal loans, with a high default rate.

For-profit colleges are booming as the unemployed turn to education, but some members of Congress and Obama administration officials say they are growing at the expense of taxpayers and that students are often exploited.

The average profit among such publicly traded higher education companies soared to $229 million in 2009, up from $150 million the year before, with the lion's share of their revenue coming from federal student aid.
For example, federal dollars accounted for 86% of revenue at the University of Phoenix, which has more than 458,000 students.

But according to a recent report issued by the Senate Committee on Health, Education, Labor and Pensions, the public's money is often not well spent on the schools. The colleges cater to low-income and minority students often working online with little supervision, yet they charge on average twice as much as public universities charge in-state students.

Investigators believe a high proportion of students drop out, and those who do graduate find their money wasted because their programs are not accredited. Students at for-profit colleges borrow more and are more likely to default on their loans, furthering taxpayer losses. According to the Chronicle of Higher Education, 30% of students who borrowed from the federal government to attend four-year for-profit institutions have defaulted since 1995. Roughly 15% of students at public four-year colleges and 13.6% at private nonprofit four-year colleges have defaulted since then, the Chronicle reported.

The Department of Education on Friday moved to rein in some for-profit firms with a proposal that would cut off federal student aid to individual programs within colleges that have a high proportion of students who cannot repay their loans after leaving.

"Some proprietary schools have profited and prospered, but their students haven't," Education Secretary Arne Duncan said. "These schools — and their investors — benefit from billions of dollars in subsidies from taxpayers, and in return taxpayers have a right to know that these programs are providing solid preparation for a job."

The proposed regulation, less stringent than originally expected, could put out of business 5% of for-profit programs, a number that critics of the colleges said was not high enough.

"At first glance, the regulation appears to set a low bar," Sen. Tom Harkin (D-Iowa), chairman of the Senate panel that issued the report, said in a statement Friday. "I will be looking closely at this rule to ensure that it goes far enough to protect the $23 billion in federal aid to for-profit schools each year."

Harkin and a chorus of Senate Democrats are leading the call for government to step up regulation of for-profit colleges, saying it must ensure that tax dollars are not wasted and students are not cheated.

But Harris Miller, president of the Career College Assn., which represents for-profit schools, said the schools have a special challenge.

"We have millions of students who are not even in the educational system who have been told, 'You're not college material,' " Miller said. "Somebody has to reach out to those people."

Corinthian Colleges spokesman Kent Jenkins said the disproportionate default rate was a consequence of the large number of low-income students in the programs. Reaching low-income students requires the schools to run high advertising budgets, he added. The Senate panel report noted that the schools devote about a third of their budgets to advertising.

The report acknowledges that President Obama's goal of doubling the number of U.S. college graduates by 2020 may hinge on for-profit colleges, which are able to expand faster than public colleges and universities. After a series of painful cuts to the University of California and California State University systems last summer, enrollment at for-profit colleges in California shot up 20%.

Stephen Burd, an education policy expert at the New America Foundation, said the scrutiny is long overdue, but lawmakers will have to contend with the industry's "Teflon lobby." Many concerns have been raised about for-profit colleges, but nothing has stuck, he said.

"For-profit college lobbyists are accustomed to flexing their muscles on Capitol Hill and getting their way — no matter how much controversy is swirling around their schools," he said.

Although for-profit colleges were once mom-and-pop operations, the 14 publicly traded institutions enroll 1.4 million students, up from fewer than 200,000 in 1998, according to the Senate committee report. Kathleen Tighe, inspector general for the Department of Education, testified at the panel's June 24 hearing that 70% of the department's investigations involve for-profit colleges, many of which have been found guilty of falsifying student information to obtain more federal funds.

Tighe also testified that she is concerned about the rapid expansion of online programs in recent years because students are eligible for the same amount of federal aid but it is more difficult to track their progress — a potential recipe for fraud.

Goldman Sachs Bans use of Colorful Language in E-Mails

The Wall Street Journal

George Carlin Never Would've Cut It at the New Goldman Sachs
Firm Bans Naughty Words in Emails; An 'Unlearnable Lesson' on Wall Street?


There will never be another s— deal at Goldman Sachs Group Inc.

The New York company is telling employees that they will no longer be able to get away with profanity in electronic messages. That means all 34,000 traders, investment bankers and other Goldman employees must restrain themselves from using a vast vocabulary of oft-used dirty words on Wall Street, including the six-letter expletive that came back to haunt the company at a Senate hearing in April.

"[B]oy, that timberwo[l]f was one s— deal," Thomas Montag, who helped run Goldman's securities business, wrote in a June 2007 email that was repeatedly referred to at the hearing.

Mr. Montag, who couldn't be reached for comment, wouldn't be allowed to send that email under Goldman's sanitized communications policy, which is being enforced by screening software. Even swear words spelled with asterisks are out.

A Goldman spokeswoman said: "Of course we have policies about the use of appropriate language and we are always looking for ways to ensure that they are enforced."

The new edict—delivered verbally, of course—has left some employees wondering if the rule also applies to shorthand for expletives such as "WTF" or legitimate terms that sound similar to curses.

In the spirit of the times, there is no written directive specifying which curses now are officially cursed. But screening tools being used by the firm would detect common swear words and acronyms.

Citigroup Inc. and J.P. Morgan Chase & Co. have policies against using swear words in company email, according to the companies. Morgan Stanley tells employees that their email should be "professional, appropriate and courteous at all times," but doesn't specifically forbid naughty words.

NYSE Euronext Inc. "unofficially discourages" the use of profanity on the floor of the New York Stock Exchange, according to a spokesman, and frequently issues memos reminding traders to exercise proper decorum. It began enforcing the policy more aggressively after TV networks started broadcasting live reports from the floor, traders say.

CME Group, which owns trading pits in Chicago and New York, says traders are expected to conduct themselves "with dignity and integrity." Its rulebook stipulates that the "use of profane, obscene or unbusinesslike language on the trading floor" could result in a fine. A first offense could be $1,000, while "an egregious violation" may result in a fine of up to $20,000.

The use of profanity on Wall Street came up at Morgan Stanley's annual meeting in May, where one shareholder asked Chairman John Mack about bad words attributed to bankers and policy makers in "Too Big to Fail," a book about the financial crisis. "The language was probably stronger than what was in the book," Mr. Mack responded, in a nod to the ingrained habit of swearing on Wall Street.

Goldman's employee emails have been a touchy subject ever since the Securities and Exchange Commission accused the firm in April of cheating clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market's collapse.

This month, Goldman agreed to pay $550 million to settle the civil charges, without admitting or denying the allegations.

In June, Citigroup told employees in a memo that "recent headlines involving inappropriate emails are an important reminder to 'think before writing, read before sending'."

The bank ordered employees to take within one month a 10-minute online course called "Improper Electronic Communications," which included a "briefing" on the "do's and don'ts of electronic communications."

Goldman's no-swearing dictate covers instant messages and texts from company-issued cellphones and emails. Verboten emails could get bounced to the compliance department. Others might be blocked completely, depending on the severity of the language.

There are no set disciplinary measures for offenders, but habitual profaners will be summoned by their managers to discuss cleaning up their language.

The late comedian George Carlin famously aired the issue of taboo lingo in his 1972 monologue, "Seven Words You Can Never Say on Television." One firm with a big presence on trading floors has an even bigger list.

New York-based media company Bloomberg LP says it has monitored emails for more than 10 years, using an application that scans messages for 70 words and phrases—in English and several other languages— considered profane.

When caught, an offending Bloomberg employee gets a pop-up message warning him or her not to send the message, which highlights the naughty word. Depending on the severity of the word, some emails will be blocked altogether from being sent. (The same technology also is available for clients of Bloomberg's terminals.)

"There is case after case of email disaster that is reported in newspapers or media, and you would think that the last thing any rational person would do would be to speak carelessly or use profanity in email," says Kendall Coffey, a former federal prosecutor and now a partner at law firm Coffey Burlington in Miami. "But it seems to be an unlearnable lesson."

Among famous emails is one in which former Merrill Lynch & Co. stock analyst Henry Blodget used the acronym "POS" (a.k.a. "piece of s—") to refer to a tech stock he was touting to the public on behalf of the bank. In 2003, Mr. Blodget agreed to a lifetime ban from the securities industry after touting stocks that he disparaged in private emails. He couldn't be reached for comment.

But using software to screen for obscenities doesn't always work. Satellite-services provider Intelsat SA, of Luxembourg, a few years ago began screening email for profanities. But it found the level of emails that were wrongly captured was too high, and so it dropped the screening. It now relies on a policy of reminding employees of "appropriate language for external use," a spokeswoman said.

And last year, J.P. Morgan had to briefly override its automated profanity detectors so it could write a press release that mentioned a charity called Feel Your Boobies Foundation. That is the name of a Pennsylvania breast-cancer prevention group, which got a grant from the bank.

Friday, July 30, 2010

Regulators allow 7-Eleven Purchase of Exxon

The Wall Street Journal

 
Australia's competition watchdog has approved 7-Eleven Pty. Ltd.'s proposed takeover of Exxon Mobil Corp's Australian filling stations, conditional on the divestment of a few individual stations.

Privately-owned 7-Eleven recently agreed to buy Exxon Mobil's 295 stations for an undisclosed sum after the regulator blocked an agreement to sell them to Caltex Australia Ltd. for around A$300 million.

7-Eleven, which has a license to operate and franchise stores in Australia from U.S.-based 7-Eleven Inc., doesn't have a presence in South Australia state and will on-sell Exxon Mobil's filling stations there to private company Peregrine Corp.

The Australian Competition and Consumer Commission said it has competition concerns at one site in New South Wales state, two in Queensland and one in South Australia.

The ACCC said it has received confirmation from 7-Eleven that it will divest three sites, and also from Peregrine that it will divest one site.

Seven more US Banks Collapse on day of Europe's Stress Tests

Guardian UK

Hypo Real Estate was one of seven European banks to fail a health check on the day that seven US institutions were taken into federal receivership. Photograph: Diether Endlicher/AP
 
 
More than 100 banks in the US have now collapsed so far this year after another seven were taken over by regulators late on Friday – the same day that seven European banks failed a financial health check.

With rising bad debts tied to commercial and residential mortgages, the number of US bank failures this year is expected to exceed last year's figure of 140. The largest of the seven US banks just seized by the Federal Deposit Insurance Corporation – which acts as a receiver and protects depositors – was Crescent Bank and Trust Company in Georgia, with more than $1bn in assets. In all, the seven failed banks had total assets of $2bn.

In Europe, investors will have a first real chance tomorrow to react to the results of banking stress tests designed to ease concerns about institutions' financial strength and exposure to debt-laden countries such as Greece.

Regulators assessed how banks would stand up to a double dip recession and a sovereign debt crisis. But several analysts questioned whether the tests were tough enough, since, for example, banks were only required to simulate losses on sovereign debt held for trading purposes and not on bonds they might hold to maturity.

Five of the seven institutions that failed the tests were Spanish cajas, or regional savings banks, with Greece's ATE and Germany's Hypo Real Estate being the other two.

Christophe Nijdam at research firm AlphaValue said the failure rate was just 8% compared with 53% for tests conducted in America last year, when 10 of 19 banks tested needed to raise about $75bn (£48bn) in new capital.

Research firm CreditSights said it expected a benign market reaction to the European tests, given the amount of information divulged by individual banks: "Controversy remains over the treatment of sovereign risks, but private sector loan losses look to have been adequately factored in. [There was] better disclosure than we had expected, which allows observers to make further adjustments to the scenarios if they want to."

Britain's four biggest banks, Barclays, HSBC and the bailed-out Royal Bank of Scotland and Lloyds Banking Group, comfortably passed the tests.

China Now the 2nd Largest Economy

Reuters

China has overtaken Japan to become the world's second-largest economy, the fruit of three decades of rapid growth that has lifted hundreds of millions of people out of poverty.

Depending on how fast its exchange rate rises, China is on course to overtake the United States and vault into the No.1 spot sometime around 2025, according to projections by the World Bank, Goldman Sachs and others.

China came close to surpassing Japan in 2009 and the disclosure by a senior official that it had now done so comes as no surprise. Indeed, Yi Gang, China's chief currency regulator, mentioned the milestone in passing in remarks published on Friday.

"China, in fact, is now already the world's second-largest economy," he said in an interview with China Reform magazine posted on the website (www.safe.gov.cn) of his agency, the State Administration of Foreign Exchange.

Cruising past Japan might give China bragging rights, but its per-capita income of about $3,800 a year is a fraction of Japan's or America's.

"China is still a developing country, and we should be wise enough to know ourselves," Yi said, when asked whether the time was ripe for the yuan to become an international currency.


CAN IT BE SUSTAINED?

China's economy expanded 11.1 percent in the first half of 2010, from a year earlier, and is likely to log growth of more than 9 percent for the whole year, according to Yi.

China has averaged more than 9.5 percent growth annually since it embarked on market reforms in 1978. But that pace was bound to slow over time as a matter of arithmetic, Yi said.

If China could chalk up growth this decade of 7-8 percent annually, that would still be a strong performance. The issue was whether the pace could be sustained, Yi said, not least because of the environmental constraints China faces.

In an assessment disputed by Beijing, the International Energy Agency said last week that China had surpassed the United States as the world's largest energy user.

If China can keep up a clip of 5-6 percent a year in the 2020s, it will have maintained rapid growth for 50 years, which Yi said would be unprecedented in human history.

The uninterrupted economic ascent, which saw China overtake Britain and France in 2005 and then Germany in 2007, is gradually translating into clout on the world stage.

China is a leading member of the Group of 20 rich and emerging nations, which since the 2008 financial crisis has become the world's premier economic policy-setting forum.

In one important respect, however, China is still a shrinking violet: anxious to shield itself from the rough-and-tumble of global markets, it does not permit its currency to be freely exchanged except for purposes of trade and foreign direct investment.

And Yi said Beijing had no timetable to make the yuan fully convertible.

"China is very big and its development is unbalanced, which makes this problem much more complicated. It's difficult to reach a consensus on it," he said.

In the same vein, China was in no rush to turn the yuan into a global currency.

"We must be modest and we still have to keep a low profile. If other people choose the yuan as a reserve currency, we won't stop that as it is the demand of the market. However, we will not push hard to promote it," he added.

NO BIG RISE IN YUAN

China has been encouraging the use of the yuan beyond its borders, allowing more trade to be settled in renminbi and taking a series of measures to establish Hong Kong as an offshore center where the currency can circulate freely.

But Yi said: "Don't think that since people are talking about it, the yuan is close to becoming a reserve currency. Actually, it's still far from that."

He said expectations of a stronger yuan, also known as the renminbi, had diminished. There was no basis for a sharp rise in the exchange rate, partly because the price level in China had risen steadily over the past decade.

"This suggests that the value of the renminbi has moved much closer to equilibrium compared with 10 years ago," he said.

Yi's comments are unlikely to go down well in Washington, where lawmakers have scheduled a hearing for September 16 to consider whether U.S. government action is needed to address China's exchange rate policy.

China scrapped the yuan's 23-month-old peg to the dollar on June 19 and resumed a managed float. The yuan has since risen only 0.8 percent against the dollar, and economists calculate that it has fallen in value against a basket of currencies.

China would stick to the principle of holding its $2.45 trillion of official reserves in a mix of currencies and assets.

The stockpile -- the world's largest - was so big that it was impossible to adjust its currency composition in a short space of time: "We won't be particularly bearish on the dollar at a given time or particularly bearish on the euro at another time."

Thursday, July 29, 2010

SEC is Agency Most Affected by Financial Reform

Washington Post


The financial regulation law signed by President Obama on Wednesday will arguably affect no federal agency more than it does the Securities and Exchange Commission.

The SEC is required to issue 95 new regulations governing a wide swath of the financial sector, dozens more than the Federal Reserve, the new Consumer Financial Protection Bureau or other federal agencies. The SEC is also slated to complete 17 one-time studies and five new ongoing reports, according to a tally by the law firm Davis Polk & Wardwell.

The SEC will serve on the new Financial Stability Oversight Council, a new interagency body meant to spot emerging risks to the overall financial system. It will have to write rules to supervise the multibillion-dollar market of derivatives linked to stocks and bonds. It will begin examining the activities of hedge funds and private equity firms and tighten oversight of credit-rating agencies. And it will do studies of short selling and whether brokerage and investment firms must meet higher standards.

Perhaps only the Office of Thrift Supervision can compete with the SEC in terms of the new law's impact. But in contrast to the SEC, which is gaining so many new responsibilities, OTS, which regulated home lenders, is being abolished.

Indeed, the SEC is coming out of the financial regulatory overhaul far stronger than many observers of the agency might have anticipated. The SEC was the object of much criticism -- on Capitol Hill, Wall Street and elsewhere -- for multiple regulatory failures, from oversight of investment banks to the Ponzi scheme orchestrated by Bernard Madoff.

"There was a point in time when things were not looking good for the SEC. People were asking whether it should be merged with another agency," said Marc S. Gerber, a securities lawyer at Skadden Arps. "But with the leadership led by Mary Schapiro, they were able to right the ship and get the SEC on course and improve their standing in Congress, so they were able to get these new responsibilities."

More tasks for agency


Before the financial reform law, the SEC already had a full plate. It is working to implement or finalize nearly 20 new regulations covering areas ranging from money market funds to high-speed electronic trading. It is also conducting numerous investigations growing out of the financial crisis and is in the early stages of implementing many internal reforms in its enforcement and examination divisions.

The agency's new tasks are just as onerous. Schapiro said at a congressional hearing Tuesday that the SEC will have to hire 800 new employees.

"The act requires the SEC to promulgate a large number of new rules, create five new offices, and conduct multiple studies, many within one year," Schapiro told Congress in prepared testimony. "The importance and complexity of the rules coupled both with their timing and high volume and the rule writing agenda currently pending will make the upcoming rule writing process both logistically challenging and extremely labor intensive."

SEC officials say they will look to write rules and conduct studies as fast as they can with the schedule largely dictated by the new law.

Some of the new rules the SEC will implement on its own. Others will require coordination with other agencies. For example, the SEC must work with the Commodity Futures Trading Commission to write rules for derivatives. The agency must work with the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to write rules requiring that banks that issue securities to the secondary market hold 5 percent of the investment on their own balance sheets -- a "risk retention" measure.

While the new law imposes many new responsibilities on the SEC, it also makes the agency's job easier in several ways. One is offering more explicit support for some of the more controversial rulemaking efforts the SEC had already launched.

For example, the SEC has proposed rules that would make it easier for shareholders to join together to nominate directors to sit on the boards of public companies. But business interests generally oppose "proxy access" and have threatened to sue if the SEC implements the rules.

The legislation, which makes clear that the agency has the power to write rules granting this power to shareholders, makes the threat of lawsuit less ominous. "For a number of years people have questioned whether the SEC has the authority to adopt proxy access," Gerber said. "That question has been answered."

New enforcement powers

The law also gives the agency's enforcement division new powers to conduct investigations and bring lawsuits against companies and people accused of committing financial wrongdoing. It will be easier for the SEC to serve lawsuits and subpoenas and to bring cases in a more favorable and less expensive regulatory court. The agency will also have a new ability to reward whistleblowers who provide information that's essential to a case.

The law gives the agency plenty of new financial support -- but not as much as the agency wanted. It doubles the agency's budget over five years and also creates a reserve fund the agency can use to plan long-term expenditures such as technology. But the agency wasn't given the power to fund itself through industry fees, as it had wanted.

IMF Cancels $268 Million in Haiti’s Debt, Approves New Loan

Bloomberg / Business Week


The International Monetary Fund agreed to cancel Haiti’s $268 million outstanding debt to the institution and approved a loan to boost central bank reserves as the country rebuilds its economy after a January earthquake.

The decisions came four months after donors pledged $5.26 billion to Haiti’s reconstruction. The $60 million, three-year loan, which bears no interest until the end of 2011, will help the central bank manage potential currency volatility as donor funds flow in, the Washington-based IMF said in an e-mailed release.

“Donors must start delivering on their promises to Haiti quickly so reconstruction can be accelerated, living standards quickly improved, and social tensions soothed,” IMF Managing Director Dominique Strauss-Kahn said in the statement.

The IMF said it will also provide technical assistance to the poorest country in the Western Hemisphere to strengthen government institutions, including the tax system and the budget.

The authorities for instance agreed to give regular updates on the finance ministry’s website on what the aid money is used for under the IMF program, IMF mission chief Corinne Delechat said on a conference call today.

The interest rate on the loan will be zero through 2011 and as much as 0.5 percent after that, according to the IMF. Haiti’s economic growth will be 9 percent in fiscal 2011-2012, mostly due to the flow of international aid, the fund said.

The temblor killed about 300,000 people, according to a United Nations report this month.

The debt relief was financed by a trust fund established by the IMF last month to help very poor countries hit by catastrophic disasters.

“While it is welcome that the fund is providing Haiti with debt relief, it is deeply concerning that at the same time the fund is risking a build-up of Haiti’s future debt problems with a loan,” Oxfam International Policy Adviser Pamela Gomez said in a statement. “This assistance should be a grant, not another loan,” she said.

Continental Tests 'Self-Boarding' at Houston Airport

USA Today

Boarding a plane without an agent to inspect or take your pass has arrived in the USA.

Continental Airlines has confirmed it's testing the procedure at a gate at its hub in Houston Intercontinental. It's the first experiment at what's called "self-boarding" in the U.S.

In self-boarding, passengers — much like customers of the New York City subway— swipe their boarding passes at a kiosk reader at the gate. That opens a turnstile or door to the jet-bridge. Although an agent isn't there to take the pass, one is typically present to handle problems and other customer service tasks.

Continental declined to provide further details on its experiment. The Transportation Security Administration, which is in charge of air security, "determined it does not impact the security of the traveling public," says Greg Soule, a TSA spokesman, adding all passengers are screened at airport checkpoints prior to arriving at boarding gates.

Self-boarding is the latest in a series of new technology that airlines are using to automate getting on a flight. Among others: check-in kiosks that print out boarding passes and boarding pass barcodes e-mailed to smartphones.

The practice has been common at many foreign airports for several years. And if the rate of adoption abroad is any indication, self-boarding could soon proliferate here.

Last year, 14 airlines worldwide were using self-boarding gates, including Air France, Korean Air, Japan Airlines and Air New Zealand, according to the International Air Transport Association. The association, an airline trade group, has been pushing members to embrace the practice and develop standard technology. The German airline Lufthansa started using its "quick boarding gates" in 2003. All its gates at Frankfurt and Munich are now automated.

To do this, airlines need to use boarding passes with so-called "two-dimensional" barcodes, which contain more traveler information than magnetic strips or traditional barcodes, says IATA spokesman Steve Lott. Airlines have agreed to phase out magnetic strips by the end of the year.

Lufthansa spokesman Martin Riecken says while loading customers at self-boarding gates is "a little faster" than traditional gates, the airline's primary goal was to free agents from the mundane task of scanning boarding passes. It frees them to handle other customer issues that require individual attention, such as upgrading seats, he says. The number of agents assigned to automated gates isn't different from other gates: one or two agents for short-haul flights, three or four for longer ones, he says.

Lufthansa passengers who don't like self-boarding can still approach agents to have their pass scanned in "the manual line," he says.

"It's a great idea," says aviation analyst Michael Boyd. "Any reduction in human contact between employee and customer is good these days."

Despite technological advancements, agents have more to do now than 30 years ago to get the plane out of the gate, Boyd says. "It takes more manpower. They let technology drive manpower rather than the other way around."

"As long as you have someone to tell grandma where to stick the paper," he says, "you're fine."

Wednesday, July 28, 2010

Weld Done: Equipment Maker Arcs up its Profits

News OK

 
In 1895, after John Lincoln was laid off from his manufacturing job, he decided to start his own company. The sting of a layoff hit home.

The company Lincoln founded doesn't do layoffs, no matter how bad things get. Lincoln Electric sometimes cuts hours or salaries or suspends its yearly bonus — which in 2008 was more than $28,000 per employee. But for the past 60 years, the Cleveland, Ohio, company hasn't laid off a worker. The company has existed through many changes in the welding industry, and has seen such innovations as welding gas regulators.

A maker of welding equipment, Lincoln was featured this week in an episode of "Religion & Ethics Newsweekly” on PBS. Lincoln is the worst nightmare of organized labor: It's a non-union manufacturer that doesn't offer paid sick leave, among other atypical practices.

Lincoln is the antithesis of behemoth manufacturers such as General Motors, which have so succumbed to union pressure that they have trouble competing. When GM's Oklahoma City assembly plant was closed, its dislodged workers were basically paid to do nothing for 18 months. Such a notorious "jobs bank” doesn't exist in most of America. It certainly doesn't exist at Lincoln Electric. But then Lincoln doesn't lay off workers, either.

In 1934, in the midst of a depression, Lincoln began a profit-sharing program. The company has been profitable ever since. Last year, Lincoln had to temporarily reduce its work week to 32 hours and cut wages across the board. Ten percent of the work force took an early retirement buyout. But those who stayed helped Lincoln earn yet another annual profit — and employees got yearend bonuses averaging $17,000 each.

BP's Dudley Faces Daunting To-Do List

The Wall Street Journal

 
As BP PLC's board approved Robert Dudley as the troubled oil giant's new chief executive, his to-do list includes overhauling a U.S. operation badly tainted by the Gulf of Mexico oil spill; mending fences with perturbed U.S. government officials; and possibly making further executive changes at the top of his own company.

BP's board met Monday and approved a plan for Mr. Dudley to succeed current Chief Executive Tony Hayward, according to a person familiar with the matter. The embattled BP chief has been lambasted for his handling of the crisis that unfolded following an April 20 explosion and fire on the Deepwater Horizon drilling rig that killed 11 people and unleashed the worst offshore oil spill in U.S. history.

BP worked Monday to reconnect a drilling ship to a relief well that is supposed to end the leaks permanently, a process U.S. officials said should begin next month. Another effort to kill the broken well, by pumping drilling mud through the top, could start by Aug. 2.

Mr. Hayward will not completely sever his ties with the company. He will be nominated for as a non-executive director of TNK-BP Ltd., BP's Russian joint venture, which he was instrumental in creating, according to a person familiar with the matter.

Investors, meanwhile, hoped Mr. Dudley's appointment would reduce the political heat on BP and help it on the path to restoring its

"An American CEO will clearly be better able to improve BP's political relationship with the U.S. government," said Will Riley, a fund manager at Guinness Atkinson Asset Management.

BP is expected to report second-quarter earnings Tuesday. Excluding spill-related costs, an average of analysts' estimates forecasts a $4.9 billion profit for the second quarter—up 60% from year-earlier levels. But analysts have issued a wide range of projections for spill-related costs, so the company's actual profit for the quarter remains hard to pin down.

Mr. Dudley had previously garnered attention as chief executive of TNK-BP, which he ran for five years from its creation in 2003 and which quickly became one of BP's most lucrative businesses.

Now, in addition to mending political fences and his company's bruised image, many are calling for a root-and-branch overhaul of BP's U.S. business, another duty that would likely fall to Mr. Dudley.

The U.S. operations account for 40% of the company's asset base but has also suffered three calamities in the space of five years—a fatal blast at a Texas refinery in 2005, an oil spill in Alaska in 2006 and now the Deepwater Horizon incident.

There is also an expectation that some executives in the company's exploration and production, or E&P, division, could see a change in status, according to a person familiar with the matter. They could include Andy Inglis, the current head of E&P, who was once widely viewed as a likely successor to Mr. Hayward, and Doug Suttles, chief operating officer of E&P and one of the public faces of BP's cleanup effort.

Both men are closely associated with BP's Gulf of Mexico strategy, and have been hurt by allegations that, in its drilling operations, the company might have cut corners on safety, something the company has denied.

In addition, the two have frequently fought with the Obama administration. Mr. Inglis, who heads the campaign to contain the spill and cap the leaking well, has had heated arguments with Energy Secretary Steven Chu in BP's Houston crisis center.

The White House stopped holding joint news conferences with BP after disagreeing with some of Mr. Suttles's comments, according to a White House official.

BP declined to comment on Messrs. Inglis or Suttles or to make them available for an interview.

"This is the battle for the survival of BP [and] Dudley has to be a little bit ruthless," said Fadel Gheit, an oil analyst at Oppenheimer & Co. "Regardless of the people who have to be fired, he must prevent any such accident from happening in the future."

Mr. Dudley is expected to call White House chief of staff Rahm Emanuel, White House energy and climate adviser Carol Browner and cabinet secretaries to assure them that he is "not abandoning the Gulf," said one person familiar with the matter.

"He will reinforce [the point] that the Gulf is more front and center" for BP now that he is taking over as CEO, the person said.

Mr. Dudley will be succeeded as head of the standalone unit BP created to deal with the long-term consequences of the spill and restore the Gulf by Lamar McKay, according to a person familiar with the situation. Mr. McKay is the chairman of BP America Inc. and has often represented BP in Congressional hearings into the Deepwater Horizon.

As well as a formal announcement on Mr. Dudley's new role, investors are also hoping BP will provide more concrete numbers for the costs of the Gulf oil spill. Together with its second-quarter results, BP is expected to give guidance Tuesday on total cleanup costs and provisions for future liabilities and fines. Analysts' estimates have ranged from $15 billion to $60 billion-plus, but so far the company itself hasn't presented a final bill.

"The range is enormous, and if they can do anything to narrow it, that would be extremely useful," said Stephen Thornber, global equity fund manager at Threadneedle Investments in London. "We need to get some figures that we can work with."

Ten Stock-Market Myths that wont Go Away

The Wall Street Journal

 
The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.

The Dow plummeted nearly 800 points a few weeks ago -- and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.

These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.
 
1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"
 
2 "Stocks on average make you about 10% a year."

Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.
 
3 "Our economists are forecasting..."

Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.
 
4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.
 
5 "If you want to earn higher returns, you have to take more risk."

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.
 
6 "The market's really cheap right now. The P/E is only about 13."

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.
 
7 "You can't time the market."

This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.

If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.

If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.
 
8 "We recommend a diversified portfolio of mutual funds."

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
 
9 "This is a stock picker's market."

What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
 
10 "Stocks outperform over the long term."

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

Oracle's Larry Ellison is the Decade's Pay King

The Wall Street Journal

 
Larry Ellison, founder and chief executive of software maker Oracle Corp., topped the list of best-paid executives of public companies during the past decade, receiving $1.84 billion in compensation, according to a Wall Street Journal analysis of CEO pay.

Coming in No. 2 on the compensation list was Barry Diller, who received roughly $1.14 billion from IAC/InterActive and Expedia.com, the online travel site IAC spun off in 2005, where he remains chairman.

Following Mr. Diller were Occidental Petroleum Corp. CEO Ray Irani at $857 million, Apple Inc.'s Steve Jobs with $749 million and, in fifth place, Capital One Financial Corp. CEO Richard Fairbank at $569 million.

Four of the top 25 CEOs worked at financial companies, two on Wall Street: former Lehman Brothers CEO Richard S. Fuld, at No. 11 with $457 million, and former Citigroup Inc. CEO Sandy Weill, who ranked 19th at $361 million. The others were Mr. Fairbank and former Countrywide Financial Corp. CEO Angelo Mozilo.

The Journal analysis includes salaries, bonuses, perks and realized gains on both restricted stock and stock options; it excludes new grants of restricted stock and stock options. The analysis didn't track whether executives sold shares they acquired after they exercised stock options or after previously restricted stock vested.

The survey shows that only some of the best-paid executives in the decade oversaw great stock gains for shareholders.

The size of executive pay packages, and the ways companies try to align executive pay to shareholder returns, became a heated political topic at several points in the last 10 years, especially in the wake of accounting scandals early in the decade and the Wall Street collapse of 2008. Critics say stock options sometimes work too well—pushing executives to make risky moves that lift the stock price in the short run, but ultimately hurt the company.

Oracle shareholders saw the value of their stock triple, while shareholders of Apple saw their stock soar nearly 12 times over. But shareholders of another tech giant, Dell Inc., lost 66% of the value of their stock during the decade, while CEO Michael Dell, who launched the computer maker in his dorm room in the 1980s, brought home $454 million.

Four of the 10 highest-earning executives ran companies whose shareholders lost money over the decade: IAC/InterActive, Countrywide, Capital One and Cendant Corp.

The disparity between those CEOs' fortunes and those of their shareholders is "pretty depressing," and "suggests there's a fair amount of pay without performance," said Jesse Fried, a law professor at Harvard University and co-author of a 2004 book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation." But Steven Kaplan, a professor at the University of Chicago's Booth School of Business, said that in general, "the guys who got the big payoffs deliver."

Consider Mr. Ellison, a 65-year-old sailing enthusiast who founded Oracle in 1977. In the 10 years ended May 31, 2009, the most recent fiscal year for which Oracle has disclosed pay data, its market capitalization nearly tripled, to $98 billion, from $36 billion.

It has since risen further. Mr. Ellison's 23% stake in Oracle is valued at roughly $28.8 billion. Realized gains on options accounted for 97% of Mr. Ellison's total compensation.

An Oracle spokeswoman declined to comment.

Mr. Diller of IAC and a spokeswoman for Capital One's Mr. Fairbank say their compensation reflects solid returns for shareholders over earlier periods.

 
For example, Mr. Diller in 2005 exercised more than 22 million IAC and Expedia stock options that had been granted in 1995, recording a paper gain of $463 million; he still holds the shares. Over that period, IAC stock rose more than four-fold.

"I did exactly as well as shareholders during the exact same counting period," Mr. Diller said in an interview. "If you're thinking of alignment with shareholders, I can't imagine a more aligned system."

Mr. Fairbank also recognized big gains from options granted in 1995 and exercised in 2005; he took in $249 million that year, nearly half his total for the decade. Over the period of 1995 to 2005, Capital One shares rose eightfold. Mr. Fairbank hasn't been paid a salary or bonus since 1997, a spokeswoman said.

The stocks of Countrywide and Lehman Brothers, meanwhile, soared for years before the housing slowdown and financial crisis. That allowed Mr. Mozilo, the former CEO of Countrywide, and Mr. Fuld, the former Lehman CEO, to reap big gains on options before their companies faltered.

Mr. Mozilo's attorney, David Siegel, didn't respond to requests for comment. Former Cendant CEO Henry Silverman didn't return calls. Mr. Fuld's attorney, Patricia Hynes, said in an email that the Journal should exclude Mr. Fuld's gains on stock and stock-option grants prior to 2000; she didn't respond to requests for further comment.

Even at some companies that have done well, some shareholders say the CEO is paid too much. Occidental shares rose more than sevenfold in the past decade. But shareholders in May opposed the oil company's executive-pay plan in a nonbinding vote.

Investors who campaigned against Occidental's pay plan say the CEO, Mr. Irani, was paid roughly three times as much as other oil-company executives. They contend the board sets his pay too high and his performance targets too low.

An Occidental spokesman said company directors believe in "excellent pay for excellent performance." Most of Mr. Irani's pay is tied to Occidental's operating results and share price, the spokesman noted, and all of his stock and option awards are now linked either to operating results or share price.

A Dell spokesman said most of Mr. Dell's compensation reflected gains on options granted in the 1990s, when Dell's stock price soared. He noted that Mr. Dell hasn't received a bonus for four years and hasn't been granted stock or stock options for six years.

Changes in executive-pay systems beginning in the 1980s were aimed at better aligning the fortunes of CEOs and their shareholders.

Salaries were restricted and executives were given more of their pay in stock options, which have value only if the company's share price rises.

Stock options give holders the right to buy shares at a specified price, known as the strike price. Options are generally granted for a seven-to-10-year period at a strike price equal to the share price on the grant date. Options accounted for 78% of pay for the top 25 earners in The Wall Street Journal analysis.

Looking at pay over a decade is intended to smooth out year-to-year fluctuations. But there remain mismatches between when pay was awarded and when it was received.

With so much pay linked to stock prices, executives' total compensation in the analysis varied depending on when they realized gains on options or restricted shares. Many of the top-earning executives exercised stock options in years when stock prices were relatively high, such as 2000, 2005 and 2007. Many of those options were granted in the 1990s.

By contrast, compensation for the group fell last year, when few executives exercised options at relatively depressed share prices. Mr. Ellison, for example, gained about $700 million from exercising options in January 2001, when Oracle's stock was near the dot-com era highs. But the following year his pay was almost nil.

The financial-reform bill signed last week by President Barack Obama gives shareholders of all companies a periodic, nonbinding vote on their corporation's executive-pay plan and requires companies to disclose the disparity between the CEO's pay and that of other employees.

Several of the nation's wealthiest executives weren't among the top earners. Warren Buffett of Berkshire Hathaway Inc. receives only nominal compensation. Microsoft Chairman Bill Gates stepped down as CEO in January 2000, and retired as a Microsoft employee in 2008.

Apple's Mr. Jobs also took a $1 annual salary throughout the decade. But he ranked fourth primarily because of a $647 million gain on restricted stock that was granted in 2003 and vested in 2006. He still holds the shares.

Apple directors gave Mr. Jobs the restricted stock in exchange for stock options that were then worthless, but which ultimately would have been worth more than the restricted stock had Mr. Jobs held them. Apple later acknowledged that some of the options exchanged for the restricted shares had been backdated, boosting their value, and restated its financial results. An Apple spokesman declined to comment.

Sixteen of the top 25 executives on the list were at their companies for the full decade, though not always as CEO. The top five headed their companies the entire period.

It was conducted by University of Southern California business professor Kevin Murphy, based on company filings with the Securities and Exchange Commission. Gains on restricted stock are included only for 2006 though 2009; companies didn't have to report them for earlier years.

Tuesday, July 27, 2010

American Airlines Parent AMR Posts a Smaller Loss, Orders Planes

Dallas News

 
AMR Corp ., parent of American Airlines Inc., said Wednesday that it lost $10.7 million in the second quarter – the 10th time in 11 quarters that it has posted a loss.

The Fort Worth-based company also announced that chief financial officer Tom Horton, 49, will step up to become president of AMR and American today, assuming those jobs from chairman and chief executive Gerard Arpey.

AMR also announced that it has ordered 35 Boeing 737-800s to replace its aging and less fuel-efficient McDonnell Douglas MD-80s.

While AMR's $11 million loss is a sharp turnaround from its $390 million loss in second quarter 2009, the results probably will make AMR the only major U.S. carrier to lose money for the three months that ended on June 30.

American's two largest U.S. rivals have posted huge profits for the quarter, the highest in at least 10 years for both. Delta Air Lines Inc. earned $467 million; United Airlines Inc.'s parent earned $273 million.

Smaller AirTran Holdings Inc . and US Airways Group also were profitable.

Despite the loss, Arpey and Horton tried to spread a message of hope as they talked Wednesday to analysts. Horton noted that AMR's operating income of $196 million was its first operating profit in three years, despite the net loss.

On a net basis, AMR lost $10.7 million, or 3 cents a share, only a fraction of the $390 million, or $1.39 a share, it lost a year earlier.

Its revenue rose 16 percent to $5.67 billion from $4.89 billion in the 2009 quarter.

AMR shares fell 23 cents Wednesday to $6.62 in regular trading and lost a penny more in after-hours trading.

"Of course, we are far from satisfied with these results. Losing money is not acceptable," Horton told analysts.

"But we believe the improvement we're seeing indicates that we're headed in the right direction, and we're determined to build on our progress and return to solid profitability."

They pointed to American's strategy of focusing on five major airports and its network to improve its fortunes, helped tremendously by antitrust immunity with its partners across the Atlantic, just approved by regulators; its planned business venture with Japan Airlines, undergoing review now; and its new partnership with JetBlue in Boston and New York.

With Horton's promotion as Arpey's heir apparent, AMR and American have only one remaining executive vice president, Bob Reding, EVP of operations.

Dan Garton, who had been EVP of marketing, moved last month to be president and CEO of AMR's regional operations, American Eagle. Horton said Garton's former duties will be spread among a variety of executives, including a number who received promotions Wednesday.

Horton's replacement as CFO will be Bella Goren, who will keep her title as senior vice president.

When the 35 new 737-800s are delivered in 2011 and 2012, American will fly 195 Boeing 737-800s. And 11 already ordered are scheduled to arrive between 2013 and 2016.

American also said that it won't receive its first Boeing 787-9s until 2014, two years after the original schedule. The delay had been expected after Boeing has had to postpone the new aircraft a number of times.

Starbucks 3Q Profit Rises 37 Percent

Associated Press


Starbucks Corp.'s effort to rebuild itself is taking hold: The world's largest coffee chain said Wednesday that its third-quarter profit rose 37 percent as more customers visited its stores and spent more when they did.

The company sharply increased its dividend but offered a 2011 profit forecast in line with forecasts. And investors, hoping for a rosier outlook, sent shares down in electronic trading after hours.

But Wednesday's results were solid, including a 9 percent increase in the key performance measure of revenue in locations open at least a year.

For the three months that ended in late June, Starbucks earned $207.9 million, or 27 cents per share. That's compared with $151.5 million, or 20 cents per share, a year earlier, when it was stumbling under the weight of over-expansion.

Excluding one-time items, Starbucks earned 29 cents per share, meeting the average forecast of analysts surveyed by Thomson Reuters. Its revenue climbed nearly 9 percent to $2.61 billion, topping analysts' estimate of $2.55 billion.

CFO Troy Alstead said the company was both gaining new customers and getting more frequent visits from coffee lovers during the day as customers bought more of Starbucks' newly customizable Frappuccinos and its instant coffee, called Via.

"A lot of what we've done is bringing in new (customers) and people buying when they weren't before," he said. "It's really driving people back through the doors."

To reinvigorate its business, Starbucks closed hundreds of stores, cut scores of jobs and brought back founder Howard Schultz as CEO in its effort to rebound.

Now, it plans more measured growth and is working to relax its corporatized image by returning to its image as a place where people want to linger for hours sipping coffee. It plans to offer free, unlimited Wi-Fi in all company-run stores; it's letting customers tailor drinks even more, and it's opening stores with more community flavor. It's also focusing on expanding overseas and boosting sales of Starbucks-branded food that is sold in grocery stores.

During the third quarter, U.S. revenue climbed 7 percent, but operating income rose 55 percent to $290.8 million. Overseas revenue rose 15 percent while operation income for that business unit soared 65 percent to $56.8 million.

R.W. Baird analyst David Tarantino called the report "healthy" but said it might disappoint investors who hoped Starbucks would beat Wall Street forecasts.

The coffee maker boosted its forecast for fiscal 2010, saying it expects to earn $1.22 to $1.23 per share, excluding one-time items. It previously forecast adjusted net income of $1.19 to $1.22 per share. Analysts expect adjusted profit of $1.23 per share.

Morningstar analyst R.J. Hottovy said investors were likely hoping for a more robust forecast for fiscal 2011, when Starbucks estimates its adjusted profit will be $1.36 to $1.41 per share. Analysts expect $1.40 per share.

"A lot of people were fixated on fiscal year 2011, and that came in a little lighter than a lot of people were looking for," he said.

The Street Underestimated eBay

Forbes
The online marketplace beats views and wins back after-hours what it lost during the day.

 
 
EBay reported earnings per share of 40 cents, beating the consensus view of 38 cents per share. Revenue of $2.2 billion was up 6% and came in ahead of Street forecasts for $2.16 billion, according to Thomson Reuters.

In after hours trading, the stock was up 2.9% on the better than expected results. The company's stock lost 2.98% Wednesday going into the report.

Despite a positive second quarter, the company says a stronger dollar will have a negative year-over-year impact on the third quarter of $0.02 in earnings per share, says Chief Financial Officer Bob Swan in the company's earnings call. He said that he anticipates that European currencies will remain weak compared to the dollar and that the U.S. e-commerce market will be slow in the third quarter. "We are confident but cautious going into the second half of this year," says Swan.

EBay's full-year revenue estimate for 2010 is now between $8.8 billion to $9.0 billion, which would be a 9% to 11% increase compared to 2009.

Monday, July 26, 2010

Thousands of Undocumented Workers Flee Arizona

Reuters

 
PHOENIX (Reuters) - Nicaraguan mother Lorena Aguilar hawks a television set and a few clothes on the baking sidewalk outside her west Phoenix apartment block.

A few paces up the street, her undocumented Mexican neighbour Wendi Villasenor touts a kitchen table, some chairs and a few dishes as her family scrambles to get out of Arizona ahead of a looming crackdown on illegal immigrants.

"Everyone is selling up the little they have and leaving," said Villasenor, 31, who is headed for Pennsylvania. "We have no alternative. They have us cornered."

The two women are among scores of illegal immigrant families across Phoenix hauling the contents of their homes into the yard this weekend as they rush to sell up and get out before the state law takes effect on Thursday.

The law, the toughest imposed by any U.S. state to curb illegal immigration, seeks to drive more than 400,000 undocumented day labourers, landscapers, house cleaners, chambermaids and other workers out of Arizona, which borders Mexico.

It makes being an illegal immigrant a state crime and requires state and local police, during lawful contact, to investigate the status of anyone they reasonably suspect of being an illegal immigrant.

The U.S. government estimates 100,000 unauthorized migrants left Arizona after the state passed an employer sanctions law three years ago requiring companies to verify workers' status using a federal computer system. There are no figures for the number who have left since the new law passed in April.

Some are heading back to Mexico or to neighbouring states. Others are staying put and taking their chances.

In a sign of a gathering exodus, Mexican businesses from grocers and butcher shops to diners and beauty salons have shut their doors in recent weeks as their owners and clients leave.

On Saturday and Sunday, Reuters counted dozens of impromptu yard sales in Latino neighbourhoods in central and west Phoenix/

"They wanted to drive Hispanics out of Arizona and they have succeeded even before the law even comes into effect," said Aguilar, 28, a mother of three young children who was also offering a few cherished pictures and a stereo at one of five sales on the same block.

She said she had taken in just $20 as "everyone is selling and nobody wants to buy."

LEGAL RESIDENTS FLEE

Arizona straddles the principal highway for human and drug smugglers heading into the United States from Mexico.

The state's Republican governor, Jan Brewer, signed the law in April in a bid to curb violence and cut crime stemming from illegal immigration.

Polls show the measure is backed by a solid majority of Americans and by 65 percent of Arizona voters in this election year for some state governors, all of the U.S. House of Representatives and about a third of the 100-seat Senate.

Opponents say the law is unconstitutional and a recipe for racial profiling. It is being challenged in seven lawsuits, including one filed by President Barack Obama's administration, which wants a preliminary injunction to block the law.

A federal judge heard arguments from the lawyers for the Justice Department and Arizona on Thursday and could rule at any time.

The fight over the Arizona law has complicated the White House's effort to break the deadlock with Republicans in Congress to pass a comprehensive immigration law, an already difficult task before November's elections.

While the law targets undocumented migrants, legal residents and their U.S.-born children are getting caught up in the rush to leave Arizona.

Mexican housewife Gabriela Jaquez, 37, said she is selling up and leaving for New Mexico with her husband, who is a legal resident, and two children born in Phoenix.

"Under the law, if you transport an illegal immigrant, you are committing a crime," she said as she sold children's clothes at a yard sale with three other families. "They could arrest him for driving me to the shops."

Lunaly Bustillos, a legal resident from Mexico, hoped to sell some clothes, dumbbells and an ornamental statue on Sunday before her family heads for Albuquerque, New Mexico, on Monday.

"It makes me sad and angry too because I feel I have the right to be here," said Bustillos, 17, who recently graduated from high school in Phoenix.

BP Preparing to Replace Hayward

Bloomberg News

Dudley 

BP Plc plans to appoint Robert Dudley to succeed Tony Hayward as chief executive officer as the board looks to recover the company’s position in the U.S., two people with knowledge of the matter said.

Dudley, the director of BP’s oil spill response unit, is ready to be announced as the company’s first American chief on July 27 and to take the helm Oct. 1, one of the people said, asking not to be identified because a final decision hasn’t yet been made. The decision was reached in discussions with board members about how best to take BP forward and rebuild its U.S. position, the person said. The BP board meets tomorrow to “rubber stamp” the plan, the second person said.

“The fact he is American should help to keep things a little more straightforward in his dealings with the U.S. administration,” Ted Harper, who helps manage $6.8 billion at Frost Investment Advisors in Houston, said today. He doesn’t hold BP stock. “Dudley’s most important task will continue to be making sure that the well is capped.”

Hayward has faced public anger in the U.S. and criticism from lawmakers over his handling of the spill that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. Dudley, 54, was born in New York and grew up in Mississippi, part of the Gulf Coast region suffering environmental and economic damage from the spill. BP on June 23 appointed him to manage its response to the leak.

BP is preparing an announcement for tomorrow that will note press speculation, confirming a board meeting will be held and announcements to be made as needed.

Lost Value

The company, which announces second-quarter earnings on July 27, has seen its market value fall by about 50 billion pounds ($77 billion) as it battled to stop the spill. The well has now been sealed, and BP plans to permanently plug it with cement next month.

Hayward “has the support of the board,” BP spokesman Mark Salt said by mobile phone today in London.

Dudley spent about 30 years in the oil industry, including a stint as CEO of BP’s Russian joint venture, TNK-BP, starting in 2003. That job ended after disputes with Russian partners led to Dudley fleeing Russia in 2008, citing “sustained harassment” amid court battles and labor and tax inspections.

While seeking to contain public outrage over the environmental damage, Hayward made several gaffes, including saying he wanted his “life back” and calling the spill “relatively tiny” in a “very big ocean.” The well spewed 35,000 to 60,000 barrels of oil a day from a mile deep in the water, according to a U.S. government-led panel of scientists.

‘Most Hated’

The New York Daily News said he was “the most hated -- and clueless -- man in America.” U.S. President Barack Obama said he would have fired Hayward, while White House Chief of Staff Rahm Emanuel said on ABC in June that “Tony Hayward isn’t going to have a second career in PR consulting,” while criticizing the CEO for taking a yachting trip.

“Hayward turned the heat up on himself, and some of his misstatements served to boost the move for him to be replaced,” Harper said.

“The new leaders of BP will have an uphill climb to correct the legacy left by Hayward,” U.S. Representative Edward Markey of Massachusetts said in a statement today. Markey, a Democrat, is chairman of the Select Committee on Energy Independence and Global Warming.

The company’s success capping the runaway well after three months will keep its final liability for the spill to $33 billion, according to analysts.

Well Cap

The 40-foot stack of valves halted the flow a week before Tropical Storm Bonnie blew through and forced a temporary halt to drilling of a relief well that will seal the leak for good. Worst-case forecasts for the crisis had pegged the bill as high as $100 billion.

“The doomsday scenarios are looking very remote,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who expects BP’s final bill to reach $28 billion. “The biggest estimates were based on massive criminal negligence and the worst-case of the well not being stopped at all.”

BP will probably say net income before extraordinary items rose to $5 billion from $4.4 billion a year earlier because of higher oil prices and better refinery earnings, according to the median of 12 estimates in a Bloomberg News survey. The $4 billion the company has spent on the spill so far won’t be included in that figure. The increase in underlying profit will help BP in its campaign to bolster its financial position.

Second-Quarter Results

“In terms of second-quarter performance, they’ll be quite strong aside from the spill,” said Alastair Syme, an analyst at Nomura Holdings Inc. in London who predicts the bill will rise to about $17 billion. “The market will try to press them on future costs.”

The median estimate of the total costs is $33 billion, a Bloomberg News survey of 11 analysts shows, with predictions ranging from $17 billion to $60 billion. Louisiana Treasurer John Kennedy has said the total cost of the spill may reach $100 billion.

Tropical storm Bonnie stopped BP’s drilling operation near the Macondo well, setting back a permanent solution by about two weeks. Without the week-old cap holding back the flow, the spill would have worsened.

Exxon Mobil Corp., the biggest publicly traded oil company, and Royal Dutch Shell Group Plc, Europe’s largest, will report earnings July 29.

Stock Plunges

The spill has wiped about 40 percent of BP’s market value since the Deepwater Horizon blowout. That’s more than double the median estimate among analysts for the cost of the spill, suggesting investors are taking a dimmer view of BP’s future. The stock dropped 2.1 percent last week.

Before the spill, Hayward led BP to become the biggest non- state producer of oil and gas last year and aimed to increase output by as much as 2 percent a year through 2015. The company now plans to sell assets, reduce investments and suspend the $10 billion annual dividend for three quarters to pay for the spill.

BP Chairman Carl-Henric Svanberg agreed with president Obama last month to set aside $20 billion for spill victims and cleanup. The payments into the fund will take place over several quarters, starting with $3 billion in the third quarter and $2 billion in the fourth.

BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It has also said it plans to sell holdings in Pakistan and Vietnam. BP may revive the sale of fields in Alaska after they failed to make it into the Apache deal, two people with knowledge of the matter said last week.

Refining Margins

The 61 percent increase in oil prices since the beginning of 2009 may bolster BP’s revenue across the world. In the first quarter, BP profit more than doubled from a year earlier. In March, BP agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.

Refining margins are also picking up after averaging $5.49 a barrel in the second quarter from $3.08 in the first three months of the year, according to BP.

BP’s own survey of analysts showed a mean estimate of $5 billion for so-called replacement cost profit, with a range of $4.83 billion to $5.29 billion. Chief Financial Officer Byron Grote told investors on June 4 that the company will treat spill costs as a non-operating, identified item and that it will create a separate area on the income statement for it.

None of the analysts in the Bloomberg Survey had changed their cost estimates since BP stopped the flow of oil from the Macondo well this month. Politics will determine BP’s eventual bill, and the U.S. will ultimately want to keep BP alive, said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo.

“There has to be some limitation on the costs,” said Isfeldt. “If BP can go bankrupt, who will want to drill in the U.S. anymore?”

Sunday, July 25, 2010

As Flying Gets More Stressful, Some Passengers turn Rude

USA Today

 
When Mike Nugent flies, nothing annoys him more than settling into his seat, the plane taking off, and the passenger in front reclining into his lap. So he's come up with a solution.

"I put my knee right in the middle of the back of the seat," Nugent, 66, says. "They think it's broken. They try (to recline) two or three times, then they give it up."

Nugent, a hospital laundry consultant who's on the road most days of the year, has another way to sidestep the irritation that can accompany flying. "I've started to drive as often as I can," he says.

Long gone are the days when air travel was an elegant experience. Many road warriors say that courtesy, at the airport or on the plane, is becoming about as rare as a free, hot in-flight meal. They grouse that inconsiderate, or downright rude, behavior is more common and that it's spurred by an increasing discomfort with all aspects of flying, from security rules to bare-bones service, that put travelers on edge.

And behavior is unlikely to get better, some involved in the travel industry say, because irritants such as extra airline fees and more crowded planes aren't going away soon.

"The flying experience is terrible," says Anne Banas, executive editor of SmarterTravel.com. "You're getting less legroom. People fight over things like capacity in overhead bins. Airlines are charging bag fees. ... Airlines are doing things that are making it more difficult and uncomfortable for the passenger, and the customer service isn't getting that much better. You compound those factors, and you have a lot of frustration in the air."

Frustration can lead to bad manners.

"So much of etiquette is based on knowing what to expect from someone else," says Lizzie Post, spokeswoman for the Emily Post Institute, which was founded by manners maven Emily Post and is dedicated to the promotion of etiquette.

Passengers, she says, "don't know how long that security line is going to be. They don't know if they have anything in their bag that will meet regulations in this airport but not that airport. The nerves get up, and that's when we lose our awareness of the other people around us."

Frustrations add up

Complaints abound. Road warriors fret about parents who won't quiet screeching toddlers, the guy who had garlic for lunch and won't stop talking, and supersized seatmates who intrude on their space. They speak of dirty planes, testy flight attendants and loud passengers who won't turn off their cellphones.

There's the lady trying to stuff a steamer trunk into an overhead bin in the front of the cabin when her seat is in the back, and the passengers who give you whiplash dragging your seat down to pull themselves up.

And there can be a healthy dose of aggravation before you even board the plane, frequent fliers say, such as security screening rules that vary depending on the airport and flights canceled at the last minute with little explanation.

"I don't care whether it's a Big Mac or a Subway sandwich, the food smells gross in a confined place," Margaret Bowles, a lawyer in Tampa, complained in an e-mail. "If you are going to eat a sandwich, get one that isn't cooked and doesn't have onions or peppers."

"There needs to be a flying etiquette pamphlet handed out to anyone who takes less than three trips per year," writes frequent flier Faith Varwig.

Sometimes, behavior goes from merely discourteous to disruptive, and flights are diverted.

On July 10, a Southwest flight heading to Islip, N.Y., from Orlando was diverted to Raleigh, N.C., when a passenger began using foul language and became verbally abusive to the flight crew, says Paul Flaningan, a Southwest spokesman. In another incident this month, a Southwest flight from Chicago to Salt Lake City was diverted to Denver when a passenger began to act erratically and refused to sit down.

Travelers aren't just finding fault with the behavior of fellow passengers. A national Consumer Reports survey released in May found airline passengers were most annoyed by ubiquitous fees airlines charge to check a bag. On a scale of 1 to 10, with 10 being the most vexing, bag charges scored an 8.4. Other fees, for such items as blankets, scored 8.1, while unhelpful airline workers got a 7.7.

More stressful flying

A decline in manners can be tied in part to a flying experience that's more stressful as security has intensified after the terror attacks of Sept. 11. And many airlines have cut service and added fees to make ends meet, some industry observers say.

Flying may get more stressful as people who'd put travel on hold during the economic downturn return to the air and find smaller planes and fewer available flights.

"Planes are flying more passengers," says Corey Caldwell, spokeswoman for the Association of Flight Attendants. "There's less available seats ... in a stressful environment and a very close environment. A lot of times there are disruptions that do occur."

Unruly behavior on the part of passengers "has heightened since 9/11, and we often see spikes when there's a new implementation of a rule or policy or procedure," Caldwell says. "(It's) really because these passengers are being exposed to more and more stressors."

Attendants are under more pressure, she says.

"Flight attendants are having to be vigilant on a lot more fronts than they have before, and so after a 14- or 16-hour day, I think anyone is a little more stressed," she says.

Paul DeStefano, who travels two or three times a week, has a couple of peeves. One is flatulence.

"It is something that just infuriates me," says DeStefano, 43, of Bridgewater, N.J. "We're all human, but you're stuck in a tube with somebody for four hours and they have the audacity to think it's OK to let it loose."

DeStefano, who runs the sales force of a consumer products business, says he's also bothered by the sight of men who won't help elderly women or mothers who are struggling with their bags.

"You should fly as though your mother's with you," he says. "Would she expect you to pass gas? No. Would she expect you to get the bag? Yes."

Larry Stocker, a frequent flier, has a list of retorts at the ready.

For the fellow passenger who hasn't bathed, "I'll just say. 'Do you use a deodorant?' " For the guy yelling into a cellphone, "I say, 'This is a really interesting conversation. Could you tone it down because I'm trying to take a nap.' "

Stocker, 58, who is president of his own company, says he wasn't always so forward. But boorish behavior by fellow passengers is "so much more prevalent today ... you can almost feel like you're forced to take some action on your own behalf."

New nuisances

Some irritants, such as the kid constantly kicking the back of your seat, have long been traveling pitfalls. But the digital age has ushered in new nuisances.

Peter Juhren, 52, who travels 175,000 miles a year for his job, says he's had to ask passengers to more gently tap the console on the back of his seat. "Sometimes you get somebody behind you, especially when they're playing a game ... and they're just pounding away," says Juhren, a corporate service manager for a construction equipment business, who lives in Salem, Ore.

Pauline Weaver says she once had to admonish a fellow flier who kept texting long after passengers were told to stop.

"I tapped her on the shoulder, and I said, 'You've got to turn it off or I'm going to tell the flight attendant,' " says Weaver, 61, a lawyer based in Hayward, Calif. "I don't know from a hill of beans whether (the portable device) would have impacted the plane, but I don't really care. You're just not supposed to do it. ... If you want to fly, you have to follow the rules. If you don't want to, take a train."

Industry observers and etiquette experts say there are some behaviors that you just have to make your peace with when you're sharing a cramped, public space.

But there are ways to deal.

"People ask us all the time how do you combat the rudeness," Lizzie Post says. "I go out there, and I'm one less rude person. You consider things. I'm not going to bring my really smelly fish leftovers on the plane. I'm going to bring a turkey sandwich."

Travel experts say that you can ask the person behind you if it's OK to recline your seat, recline only halfway or for part of the flight.

Bring along headphones to block out noise, and it's fine to politely inform a seatmate that you're not in the mood to chat.

Airlines, on the other hand, should look at courtesy and customer service as a matter of dollars and cents, says Stuart Greif, vice president and general manager for global travel and hospitality for J.D. Power and Associates.

A J.D. Power survey released last month found that passenger satisfaction with North American airlines was up but still below the levels that existed before the widespread implementation of fees. And Greif says satisfaction continues to lag behind other industries, such as autos or insurance.

"Ultimately, those that make their customers happy and feel valued ... are the ones that are going to earn more revenue and be here in the long term," Greif says of airlines.

Despite all the frustrations that can crop up, frequent flier DeStefano says he still manages to see the bright side.

"I still get a little kick in the pants every time the airplane gets off the runway," he says. "You're taking a plane full of ... people at 500-plus miles an hour, going a time zone away.

"The fact that it works as well as it does is amazing."

Friday, July 23, 2010

Wal-Mart Radio Tags to Track Clothing

The Wall Street Journal

 
Wal-Mart Stores Inc. plans to roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear, the first step in a system that advocates say better controls inventory but some critics say raises privacy concerns.

Starting next month, the retailer will place removable "smart tags" on individual garments that can be read by a hand-held scanner. Wal-Mart workers will be able to quickly learn, for instance, which size of Wrangler jeans is missing, with the aim of ensuring shelves are optimally stocked and inventory tightly watched. If successful, the radio-frequency ID tags will be rolled out on other products at Wal-Mart's more than 3,750 U.S. stores.

"This ability to wave the wand and have a sense of all the products that are on the floor or in the back room in seconds is something that we feel can really transform our business," said Raul Vazquez, the executive in charge of Wal-Mart stores in the western U.S.

Before now, retailers including Wal-Mart have primarily used RFID tags, which store unique numerical identification codes that can be scanned from a distance, to track pallets of merchandise traveling through their supply chains.

Wal-Mart's broad adoption would be the largest in the world, and proponents predict it would lead other retailers to start using the electronic product codes, which remain costly. Wal-Mart has climbed to the top of the retailing world by continuously squeezing costs out of its operations and then passing on the savings to shoppers at the checkout counter. Its methods are widely adopted by its suppliers and in turn become standard practice at other retail chains.

But the company's latest attempt to use its influence—executives call it the start of a "next-generation Wal-Mart"—has privacy advocates raising questions.

While the tags can be removed from clothing and packages, they can't be turned off, and they are trackable. Some privacy advocates hypothesize that unscrupulous marketers or criminals will be able to drive by consumers' homes and scan their garbage to discover what they have recently bought.

They also worry that retailers will be able to scan customers who carry new types of personal ID cards as they walk through a store, without their knowledge. Several states, including Washington and New York, have begun issuing enhanced driver's licenses that contain radio- frequency tags with unique ID numbers, to make border crossings easier for frequent travelers. Some privacy advocates contend that retailers could theoretically scan people with such licenses as they make purchases, combine the info with their credit card data, and then know the person's identity the next time they stepped into the store.

"There are two things you really don't want to tag, clothing and identity documents, and ironically that's where we are seeing adoption," said Katherine Albrecht, founder of a group called Consumers Against Supermarket Privacy Invasion and Numbering and author of a book called "Spychips" that argues against RFID technology. "The inventory guys may be in the dark about this, but there are a lot of corporate marketers who are interested in tracking people as they walk sales floors."

Smart-tag experts dismiss Big Brother concerns as breathless conjecture, but activists have pressured companies. Ms. Albrecht and others launched a boycott of Benetton Group SpA last decade after an RFID maker announced it was planning to supply the company with 15 million RFID chips.

Benetton later clarified that it was just evaluating the technology and never embedded a single sensor in clothing.

Wal-Mart is demanding that suppliers add the tags to removable labels or packaging instead of embedding them in clothes, to minimize fears that they could be used to track people's movements. It also is posting signs informing customers about the tags.

"Concerns about privacy are valid, but in this instance, the benefits far outweigh any concerns," says Sanjay Sarma, a professor at the Massachusetts Institute of Technology. "The tags don't have any personal information. They are essentially barcodes with serial numbers attached. And you can easily remove them."

In Europe some retailers put the smart labels on hang tags, which are then removed at checkout. That still provides the inventory-control benefit of RFID, but it takes away other important potential uses that retailers and suppliers like, such as being able to track the item all the way back to the point of manufacture in case of a recall, or making sure it isn't counterfeit.

Wal-Mart won't say how much it expects to benefit from the endeavor. But a similar pilot program at American Apparel Inc. in 2007 found that stores with the technology saw sales rise 14.3% compared to stores without the technology, according to Avery Dennison Corp., a maker of RFID equipment.

And while the tags wouldn't replace bulkier shoplifting sensors, Wal-Mart expects they'll cut down on employee theft because it will be easier to see if something's gone missing from the back room.

Several other U.S. retailers, including J.C. Penney and Bloomingdale's, have begun experimenting with smart ID tags on clothing to better ensure shelves remain stocked with sizes and colors customers want, and numerous European retailers, notably Germany's Metro AG, have already embraced the technology.

Robert Carpenter, chief executive of GS1 U.S., a nonprofit group that helped develop universal product-code standards four decades ago and is now doing the same for electronic product codes, said the sensors have dropped to as little as seven to 10 cents from 50 cents just a few years ago. He predicts that Wal-Mart's "tipping point" will drive prices lower.

"There are definitely costs. Some labels had to be modified," said Mark Gatehouse, director of replenishment for Wrangler jeans maker VF Corp., adding that while Wal-Mart is subsidizing the costs of the actual sensors, suppliers have had to invest in new equipment. "But we view this as an investment in where things are going. Everyone is watching closely because no one wants to be at a competitive disadvantage, and this could really lift sales."

Wal-Mart won't disclose what it's spending on the effort, but it confirms that it is subsidizing some of the costs for suppliers.

Proponents, meanwhile, have high hopes for expanded use in the future. Beyond more-efficient recalls and loss prevention, RFID tags could get rid of checkout lines.

"We are going to see contactless checkouts with mobile phones or kiosks, and we will see new ways to interact, such as being able to find out whether other sizes and colors are available while trying something on in a dressing room," said Bill Hardgrave, head of the RFID Research Center at the University of Arkansas, which is funded in part by Wal-Mart. "That is where the magic is going to happen. But that's all years away."