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Tuesday, August 31, 2010

Insurance Deals Head for Biggest Year Since Peak of M&A Boom


Insurance takeovers are headed for the biggest year since the peak of the last merger boom as financial-services firms from Bank of America Corp. to Aegon NV of the Netherlands jettison assets.

Deals in the industry have jumped 60 percent to $44.8 billion so far this year, up from $28 billion in the same period of 2009, according to data compiled by Bloomberg. Bank of America, Aegon and Royal Bank of Scotland Group Plc have more than $10 billion in insurance assets currently on the block.

The financial crisis that crippled American International Group Inc. is providing a buying opportunity for competitors such as MetLife Inc. and Prudential Financial Inc., which were quicker to recover from the global recession and are seeking growth in new markets. AIG has sold more than 30 assets since its 2008 bailout, while RBS and Amsterdam-based ING Groep NV were told to sell insurance businesses as conditions of their government lifelines.

“There’s a lot of stuff on the market,” said Clark Troy, a senior analyst at researcher Aite Group LLC in Chapel Hill, North Carolina. “For deep-pocketed buyers with firm conviction, it’s a great time to be making acquisitions.”

While the year’s biggest insurance deal collapsed when Prudential Plc shareholders stymied the company’s planned $35.5 billion takeover of AIG’s biggest Asian unit in June, the total value of announced deals is still set to surpass 2008 and 2009, when there were $58 billion and $53 billion in takeovers, respectively, Bloomberg data show. That tally excludes a $40 billion U.S. government infusion into AIG in 2008.

Insurance transactions totaled $90 billion in 2007.

‘Hard Choices’

AIG, which is working to repay part of a $182.3 billion government bailout, has held talks with Newark, New Jersey-based Prudential Financial this year about selling two Japanese life insurance units, said two people with knowledge of the matter.

Prudential and AIG still have divergent views on the value of AIG’s Star Life and Edison Life units, said the people, who declined to be identified because the discussions are private. The divisions together had a book value of $4.8 billion as of June 30, AIG said in a regulatory filing.

Mark Herr, an AIG spokesman, and Robert DeFillippo, a spokesman for Prudential, declined to comment.

Insurers that were bailed out are being forced into “making hard decisions about where they want to play and where they don’t,” said Achim Bauer, an insurance partner at PricewaterhouseCoopers in London. “They are seeking to repay some of that money by selling businesses that are non-core.”


ING is required to divest its insurance business by the end of 2013 as part of a restructuring plan to win European Union approval for its government rescue. While the company is preparing the business for one or two initial public offerings, ING is getting “a great deal of interest” from potential buyers, Chief Executive Officer Jan Hommen said on Aug. 11.

RBS agreed in November to unload its insurance businesses, including the Direct Line auto insurer, after receiving 25.5 billion pounds ($40 billion) of state aid. In 2008, RBS had sought as much as 5 billion pounds for the businesses.

Some asset sales are being driven by regulatory changes in the wake of the financial crisis, including the recent U.S. financial overhaul and reforms being contemplated by the Basel Committee on Banking Supervision, said David Havens, an analyst at Nomura Holdings Inc. in New York.

Bank of America, the largest U.S. lender, is being pushed by regulators to raise a net $3 billion this year. The bank’s Balboa Insurance unit, obtained as part of the Countrywide Financial Corp. acquisition in 2008, is likely to fetch roughly the amount of its policyholder surplus, which was $1.92 billion as of March 31, according to Havens.

More Capital

“The financial regulations in general are requiring firms to hold more capital, and you can achieve that concept either by raising more capital or reducing risk,” Havens said. “By selling off non-core units you can actually achieve both.

Aegon’s Transamerica Reinsurance unit, which helps life insurers pool their risks, has gotten interest from both competitors and investors, said Aegon CEO Alexander Wynaendts on an Aug. 12 conference call. It has book value, or assets minus liabilities, of 1.6 billion euros ($2 billion). Reinsurance Group of America Inc., the largest U.S. company that focuses on life reinsurance, trades at about 73 percent of book value, implying a value for Transamerica of $1.5 billion.

Some potential buyers, meanwhile, are seeking to free up their capital reserves to fund growth in faster-growing markets like Asia. Paris-based Axa SA, Europe’s second-biggest insurer, agreed in June to sell part of its U.K. life insurance unit to Clive Cowdery’s Resolution Ltd. for 2.75 billion pounds.

MetLife, based in New York, made the biggest purchase of an insurer this year when it agreed to buy AIG’s American Life Insurance Co. for $15.5 billion.

Deals are happening because there is “a greater level of stability in the system compared to where we were six or 12 months ago,” said Bauer at PricewaterhouseCoopers. “That provides a greater willingness on the part of both buyers and sellers to consider transactions.”

Monday, August 30, 2010

Brokers' Roles may Shift under Health Care Reform

Richmond Times-Dispatch

Insurance broker Debbie Stocks spends much of her work day helping clients select health plans.

"People often shop online for health insurance. They don't necessarily buy insurance online, though," said Stocks, who is with Your Benefits Partner in Henrico County and also is president of the Central Virginia Association of Health Underwriters.

"Most find it very confusing when trying to compare the plans they see online," Stocks said.

Health-care reform will change the insurance landscape for consumers, but it also will change it for insurance brokers and agents who earn a living helping people choose plans.

The law requires states to set up health insurance exchanges that consumers can go to and shop for a health plan. It also requires that exchanges provide "navigators" that do outreach and help people understand options.

The role of these navigators and how brokers and agents will be paid have created uncertainty for agents.

"I would envision that exchanges should work the same way, in that people may shop or browse the available plans on the exchange but would still need an agent's help to find the right plan for themselves or their families," Stocks said.

California insurance brokers are taking their case to policymakers.

Last week, the National Association of Insurance Commissioners, a group advising federal officials on how exchanges should operate, adopted a resolution to "protect the ability of licensed insurance professionals to continue to service the public."

The National Association of Health Underwriters, which represents more than 100,000 insurance agents and brokers, praised the NAIC's action.

"Insurance is a complicated purchase, and you cannot boil it down to a simple one-page comparison," said Alan L. Jones of TPA Benefits in Henrico County.

Health plans in the state-run exchanges will offer plans that cover essential benefits at various levels of cost-sharing. Plans would be classified as bronze, silver, gold, platinum and catastrophic.

Jones said there is always the risk that people will choose a plan based on price of New York health insurance quotes and end up underprotected.

"People are attracted to the price but do not understand or forget the limitations of the policy," Jones said. "Then, when they need it and it does not cover what they thought it would cover, it is too late."

Stocks said about half her time is spent helping clients resolve plan issues.

Health Insurance Market Moves Ahead in California

The Wall Street Journal

California passed legislation creating a health-insurance marketplace, a move set to be echoed across the country as states take steps to implement federal law.

Millions of Americans around the U.S. are expected to eventually purchase their coverage through such exchanges, which will offer health plans to individuals and some small businesses.

The California legislature on Wednesday passed the second of two related bills to set up the exchange, putting the state at the forefront of efforts nationwide and creating a blueprint that will likely influence other states. Under the national health-care overhaul law passed in March, states are supposed to set up exchanges, or their residents will be offered a federal version.

California Gov. Arnold Schwarzenegger, who has said he supported implementing the federal law, is expected to sign the bills.

Many aspects of the exchange are mandated under the federal law, so many features of California's model will be included in those adopted by other states. The exchange is expected to offer insurance through a website that will provide standardized and detailed information about plans, so consumers can compare them. It will have a toll-free number, and will set up a program of live helpers, or navigators, to help explain plans to consumers.

The exchanges aren't required to be fully up and running until January 2014, when key provisions of the new federal health law kick in, although some exchange operations may start earlier. Following federal requirements, the California exchange will sell insurance in five categories, ranging from rich "platinum"-level benefits to a plan for young people offering catastrophic coverage.It will also link eligible Californians to federal subsidies that would help pay for their coverage, or to government programs such as Medicaid.

Rising insurance premiums in California and elsewhere helped generate the political momentum for a health overhaul. California's Department of Insurance said Wednesday it will allow premium rate hikes from WellPoint Inc.'s Anthem Blue Cross and nonprofit Blue Shield of California to go forward. Anthem will raise rates about 14% on average on its individual policy-holders. That's a sharp drop from an earlier proposed rate hike that made the company a lightning rod, and was withdrawn. Blue Shield's individual-market increase will average around 19%.

If it becomes law as expected, California's legislation would make it the first state to enact a full exchange since the national law passed. At least one state, Iowa, is crafting a new information-only marketplace, while Massachusetts and Utah had pre-existing exchanges.

The initiative will be "precedent-setting," said Jon Kingsdale, a consultant who headed the agency that runs the Massachusetts exchange.

California's exchange may be the largest one established by a single state. Researchers at the University of California, Berkeley projected that as many as 8.3 million people might be eligible for plans through the exchange, including individuals and 3.8 million through small employers.

The federal law says businesses with up to 100 employees can purchase coverage through the exchanges, and states can raise that cutoff in 2017. The availability through the exchange of subsidies for some people who are sole proprietors, and tax credits for certain small businesses, should be lures for those that qualify, said Scott Hauge, president of Small Business California, an advocacy group, and an insurance agent.

Still, said Marti Fisher, policy advocate for the California Chamber of Commerce, which opposed the exchange bills, the details of the exchange's plans, such as pricing, benefit design and access to care, will affect whether companies choose to purchase them. "We don't know how it will play out," she said.

At the national level, analysts have projected that under the overhaul some small businesses may ultimately drop their coverage if employees make little enough to qualify for government programs or subsidies.

The California exchange would be governed by a new board, which will be given robust authority, including the power to selectively contract with insurers giving California health insurance quotes to offer plans within the exchange. That provision drew opposition from some health insurers. "Health plans are concerned that an appointed board could decide to limit choice to the disadvantage of consumers," said Patrick Johnston, chief executive of the California Association of Health Plans.

Bill Monning, chairman of the California Assembly's health committee, said the selective contracting would enable the exchange to act as a "filter, or a fiduciary representative of all Californians," and ensure that health plans offered represent the best quality and value.

Nonprofit Blue Shield of California supported the bills, and a spokesman said it was "pleased" by the passage. A spokeswoman for WellPoint Inc., which had opposed the legislation, declined to comment.

More Penny-Pinching Americans are Ditching Life Insurance

The Wall Street Journal

Nearly a third of U.S. households have no life-insurance coverage, the highest percentage in more than four decades, according to research firm Limra.

About 35 million U.S. households neither own their own life-insurance policies nor are covered under employer-sponsored plans, up from the 24 million, or 22% of households, without coverage in 2004, according to the study this year by Limra, of Windsor, Conn.

Limra is an industry-funded research organization that has conducted periodic surveys of ownership trends since 1960.

The percentage without life insurance is a sign of the financial pressures on middle-income families as the economy struggles.

The rise reflects tight household budgets, loss of employer-provided coverage as a result of layoffs, and cutbacks by some employers in their benefits packages, Limra said.

Half of the respondents in the latest survey said they needed more life insurance, but many haven't bought it because their financial priorities include paying off debt.

Among households with children under 18, four in 10 respondents said they would immediately have trouble meeting living expenses if a primary wage earner died, and another three in 10 would have trouble keeping up with expenses after several months.

"Clearly, more American families are living on the edge, surviving paycheck to paycheck, and, as our new study suggests, too many are without the safety net that life insurance provides," said Robert Kerzner, president of Limra.

While the poor economy is a factor in the most recent decline in coverage, the life-insurance industry itself shares blame in the falloff in sales, according to other recent studies and consumer advocates.

Prices of New York term life insurance policies have dropped in recent years amid competition, but other types of insurance remain expensive to many middle-income consumers, and they often are put off by the hardball tactics of commission-paid sales agents.

The industry also is grappling with a decline in the number of agents who sell to middle-class families, often described as those with household incomes of between about $35,000 and $100,000 a year.

Since the 1970s, the number of company-affiliated life-insurance agents has dropped by nearly one-third, to 174,000 in recent years, according to data from Limra.

Many agents have focused on higher-income families, who can afford the bigger policies that pay the higher commissions. Many also have favored sales of investment and retirement-income products like variable annuities, which also pay commissions.

Life-insurance coverage provided through benefits packages at work has played a significant role in protecting families in recent decades, but it may be lost if the wage earner loses his job or reduces work hours.

Employers scaling back or eliminating coverage is another factor in the declining percentage of households with insurance, Limra noted.

The number of households relying solely on life insurance provided through an employer shrank to one in four, from about one in three in 2004, when the previous survey was conducted.

And over the same period, the percentage of all households that have life insurance protection outside of an employer-sponsored plan dropped to 44%, from 50%.

Many survey respondents said they didn't know where to get help buying life insurance. Almost eight in 10 don't have an insurance agent or broker. Sixty percent of baby-boomer households would prefer to buy life insurance face to face, while younger generations are interested in gathering information online, the survey found.

In 2009, insurers issued 9.4 million individual life policies in the U.S., about one million fewer than in 2004, according to Limra.

Analysts said the industry hasn't solved the puzzle of how best to reach middle-income households in a cost-efficient manner and in a way that enables consumers to feel comfortable making financial decisions regarding personal life insurance.

Friday, August 27, 2010

New Allure For Business Schools With Complex Additions


In an effort to be one of the world’s most recognized schools for business, Yale’s School of Management stuffs its students and faculty into century-old buildings resting upon a rat-warren of basements. That is a distant level of learning atmosphere standards from Harvard Business School’s 33- building campus, which also supports a chapel and health club.

To get up to par on today's high class collegiate living standards, Yale has plans to build a $180 million structure to help attract and retain students against rival schools. The new allure is designed by Lord Norman Foster, who built London’s “Gherkin” tower, and the building is scheduled to open in 2013.

“You can’t be in a dump if everyone else is in a spectacular building,” Oster said.

Top business schools have a common approach of designing and constructing larger, more complex business campuses to recruit the most elite students and faculty, said Yale finance professor Matthew Spiegel. New learning facilities mean additional space for faculty as well as more classrooms and lecture halls for high-margin education programs that provided essential global cash flow. Additionally, higher capacity schools can also accept more students, who invest up to $80,000 per year in tuition, room and board and other expenses.

Even schools with less capacity are developing new standards in learning atmosphere as well as educational opportunities. A mid-size Michigan university, Ferris State, has begun heavy promotion of its Michigan MBA degrees, along with revamping many facilities around campus.

Business schools are dropping a pretty penny on top architects to create elaborate glass-and-steel structures, targeting all aspects of the campus from study rooms to cafeterias and health clubs.

“The better the experience people have, the better they feel about the place, the more likely it will be that they would support it at some point,” said dean of the University of Michigan’s Ross School of Business, in Ann Arbor, Robert Dolan. As a part of the trend, in 2009 the U of M business school opened a $145 million, 270,000-square foot building to help support their Masters of Business Administration program.

Shortly after the University of Pennsylvania's Wharton School unveiled its $140 million Jon M. Huntsman Hall in 2002, competing business schools have scrambled to keep pace.

In 2004, the University of Chicago opened its $125 million Harper Center, while Michigan’s building debuted last year. Opening new facilities are Massachusetts Institute of Technology’s Sloan School of Business, in Cambridge, Massachusetts, and Stanford University's Graduate School of Business, near Palo Alto, California.

Also in the development stages are New York's Columbia Business School and Northwestern University’s Kellogg School of Management, in Evanston, Illinois. Ramping up their IT capacity for an influx of digital learning needs for their new online MBA courses is Ferris State, in Michigan.

Harvard’s buildings, which started construction in 1927, rest on a beautiful perch along the Charles River across from the rest of the university. Harvard has added more to their campus building investments, such as a glass-and-concrete chapel, housing designed to support 400 visiting executives and a health club.

The new business school building at the University of Chicago is structured around a six-story, glass-and-steel atrium that serves as the school’s “living room” for students. An assistant dean of the school adds that the new social space has helped change the perception that the school of business is a sole destination for book worms enrolled in MBA classes.

“We’re working hard to break that perception,” Kole said. “When you come to campus, you see more activity. It’s a much more positive place to be.”

In fact, applications spiked 30 percent after the first year the University of Chicago put the new building in its marketing, however improved collegiate rankings contributed to the rise as well, she noted.

While the physical condition of a business school is not the most important factor of consideration, “you do consider the facility, you do consider what school will allow you to access the latest technology,” said Ashil Ann, a 26 year old prospective college applicant at New York University’s Stern School of Business and McDonough School of Business at Georgetown University in Washington.

High tuition costs contribute to students’ rising expectations - as well as the increase in size and complexity of the new buildings, said Jonathan Levav, a faculty member at Columbia. Tuition, room and board, as well as other expenses for two years at Columbia Business School cost approximately $168,307. With such high costs of education, along with a growing demand for loan origination, the expectations students have are respectable considerations for colleges everywhere.

While a number of U.S. based universities have made cuts to new construction due to decreasing endowments, business schools, especially those that offer MBA courses, are not as nearly affected from the reductions as other areas of study because of their ability to raise money.

“Graduates of business and law schools are often the wealthiest alumni,” said Ronald Ehrenberg, an economics professor at Cornell University, in Ithaca, New York. “It is easy to raise the funds to build buildings from donors to those schools” he adds.

For the school's new complex of buildings, Stanford’s school of business was granted $105 million, the largest gift in its history, from the Oregon alumnus who founded Nike Inc., Phil Knight. The Standford business campus, which will require an estimated $350 million, will be named the Knight Management Center in his honor.

Developing new buildings can also provide more room for additional education programs, like those pursuing MBA degrees or executive education, the highly profitable, non-degree programs for business-related employees paid for by their companies.

MIT Sloan’s new building has a learning center solely for executive education, offering a better ambiance than the rest of the school. Currently, many Sloan executive education classes are held off campus.

“It is on campus, it is clearly part of the Sloan school complex and it makes it easier to say ‘yes,” said the school's the associate dean for executive education Rochelle Weichman.

The innovative offerings are also in an effort to counter the growing popularity of online MBA classes, which have provided many students an extremely convenient alternative to post-secondary education opportunities.

MIT’s building holds offices for 107 faculty members who used to be distributed across five structures throughout the campus. To drive innovative ideas and creative brainstorming, the four new office floors are designed to encourage interaction between professors of different departments, said Lucinda Hill, director of capital projects at Sloan.

The Yale School of Management, founded in 1974, is the youngest business school among the Ivy League, a group of eight U.S. colleges in the Northeast. The school has areas of study in Masters of Information Systems Management as well as many more emerging Master's programs.

“We want to build a great business school,” Yale President Richard Levin said during an interview. Levin added that he wants the school of business to be on par with Yale’s law and medical schools and “be thought of among the best” in the world.

The faculty at Yale's business school is now working in almost 200 year old buildings and offices originally intended to be bedrooms. Many classrooms are buried in building constructed in 1961, which first housed Yale’s computer department.

“The current facility doesn’t look and feel like a business school,” Levin said. “I think it does hurt us in attracting students.”

Having more students will allow Yale to assure its programs are fully enrolled and to justify the size of its faculty, Oster said. More students also help with financial forecasting for future, long-term investments.

“You don’t want to be in a position where you have three students in each category because you’ll never get enough recruiters and you won’t get classroom excitement if the electives have too few people in them,” Oster commented. “We don’t have enough students to go around.” 

Millionaires' Kids Hunting M&A Targets at Standard Chartered Summer School‏


Standard Chartered Plc started a trainee program for the children of private-banking clients, joining bigger rivals including Citigroup Inc. and UBS AG in reaching out to Asia’s next generation of millionaires.

Eighteen people aged 18 to 26 enrolled in the six-week program in Singapore, which ended Aug. 13. They were assigned to projects ranging from identifying potential acquisition targets for London-based Standard Chartered to developing ideas for branch design, said Jungkiu Choi, the executive responsible for the course.

UBS and Citigroup, the biggest managers of money for the rich in the Asia-Pacific region, also run programs for children of their private-banking clients as banks target the scions of millionaires. Asia’s wealth may grow at double the global pace over the next four years, according to a Boston Consulting Group report published in June.

For “rich people, the next generation is their number one concern,” Choi said in an Aug. 23 interview in Singapore. “Transferring knowledge, discipline, business acumen, capability -- that’s more important to them than transferring their wealth.”

Private banks ignore the offspring of rich clients at their peril, said Justin Ong, PricewaterhouseCoopers LLP’s private banking leader for Asia-Pacific. A survey by PwC last year showed almost 40 percent of private banks in Asia don’t know how much money they’ll keep when a clients’ wealth gets transferred, he said.

Loss of Customers

“This is really a time of investment by the banks to develop relationships with the next generation of high net worth,” Singapore-based Ong said. “They have only just come to realize the deepening issue around potential customer loss if they don’t react to this and start building relationships now.”

Standard Chartered, the U.K. lender that gets more than three-quarters of its profit from Asia, restarted wealth management operations in 2006 after a decade-long hiatus. It caters to people with more than $1 million of assets. Half of the interns’ families have at least $10 million managed by the bank, said spokeswoman Ally Lim.

Standard Chartered’s private bank increased assets under management by 27 percent in Asia in the first half, more than twice the global pace.

The bank has no plans to extend the program to other parts of Asia, since most senior executives are based in Singapore, said Choi. This year’s participants came from Singapore, China, Dubai, South Korea, India, Indonesia and Malaysia and paid for transport and accommodation themselves.

UBS, Citigroup Courses

In Asia, Zurich-based UBS runs a two-week course once a year in Singapore and Hong Kong on topics including wealth management, leadership and personal development. Citigroup’s program, which alternates between the two cities, ran for five days this year and covered financial planning, investing and “soft skills” such as public speaking, said Aamir Rahim, the New York-based bank’s Asia-Pacific chief executive officer of wealth management.

Both banks said their courses had record numbers of participants in Asia this year. Credit Suisse Group AG this year started its first Chinese-language course for young investors in Taiwan.

“Our programs for the next generation of ultra-high net worth clients are designed to provide practical advice on how to manage the wealth they will eventually acquire,” said Daniel Harel, UBS’s head of private banking in South Asia for clients with at least 50 million Swiss francs ($48 million) of assets.

M&A Shortlist

Standard Chartered’s program is the only one in Asia that takes place in a real-life business setting, Choi said. At the end of the six-week course, participants can opt for a one-week class in financial planning, he said. They get paid an intern stipend of S$1,300 ($957) a month for their work at the bank.

“I tell them: ‘You are Spiderman. You have a special power and a special responsibility, but you need to learn how to deliver pizza first’,” said Choi.

One thing the trainees may deliver for Standard Chartered is an acquisition. As part of their on-the-job training, they were asked to help identify potential takeover targets for one of the bank’s units. The participants whittled down the list of candidates to less than 10 from “a few hundred,” and Standard Chartered may start talks with those companies, Choi said.

He declined to identify the potential targets.

Nike’s Tiger Woods Apparel Line Snubbed by Consumers


Tiger Woods fans have put up with the philandering, the text messages and the domestic spats. Now comes what may be the hardest thing of all to tolerate: Losing.

Woods has played through the year without a single tournament win, putting him at 83rd on the PGA Tour’s money list. As his performance slumps, so have sales of his apparel line through Nike Inc., according to retailers Golfsmith International Holdings Inc., Roger Dunn Golf Shops and Golf Discount Superstore.

Golf apparel sales overall are on the rise, signaling consumers are returning to the course, just not to Woods. Nike gets about 10 percent of its golf sales from the Woods brand, whose shirts, jackets and pants are among the most expensive clothing the sportswear maker sells.

“Apparel is hot right now,” said Laura Dowdy, the clothing buyer for Roger Dunn, which has more than 20 stores. “Everything -- Adidas, Puma, Nike, except the Tiger brand.”

Nike, based in Beaverton, Oregon, doesn’t disclose sales for the Tiger Woods Collection. Nike gets about $650 million in sales tied to the sport, according to Matt Powell, an analyst at Charlotte, North Carolina-based researcher SportsOneSource, who provided the estimate for sales of the Woods line.

“We support Tiger and never underestimate his abilities as a competitor,” Nike spokeswoman Beth Gast said in an e-mail. “He’s a phenomenal athlete with over 70 wins on the PGA Tour and 95 wins worldwide.” She declined to comment further. Woods’s representatives did not return calls or e-mails seeking comment.

Volume Slump

The line’s volume through the first half dropped 7.5 percent from a year earlier at Golfsmith’s 76 stores, Chief Executive Officer Martin Hanaka said in an interview. Total golf apparel sales climbed 11 percent over the same period at the Austin, Texas-based retailer.

Nike fell 90 cents, or 1.3 percent, to $70.05 at 4 p.m. in New York Stock Exchange composite trading. The shares have risen 6 percent this year.

“The Tiger effect has been negative this year,” Hanaka said. “Fortunately, other Nike products and other brands have been doing well, so we’ve been able to overcome it.”

Nike’s apparel sales climbed 13 percent in the quarter ended May 31, and its golf apparel sales also have climbed about that much this year, according to Powell. The retailer is now selling the fall 2010 men’s collection on its website. The cover boy? Not Tiger. It’s 2009 British Open Champion Stewart Cink. Woods appears in a list of “athletes” on a linked page.

Fallen Champion

Other than his rookie season, when he finished 24th, Woods has been in the top four on the money list every year on tour. This month, he recorded the worst 72-hole score -- 18 over par - - of his professional career.

“When Tiger’s doing well, people watch and buy his brand,” said David Martin, a branding expert with almost three decades of experience who runs Interbrand’s New York office and global golf practice. “When he’s not, people decide not to watch and they buy something else.”

Online retailer Golf Discount Superstore said it’s seen a “definite decline” for the brand. Roger Dunn, a division of Santa Ana, California-based Worldwide Golf Enterprises Inc., says almost all other apparel products are growing save for Tiger’s line.

Personal Problems

“Before, he was a champion,” said Patrick Rishe, a sports business professor at Webster University in St. Louis, Missouri, and director of Sportsimpacts, which analyzes the economic impact of sports events. “He conveyed discipline and consistency. Now he’s lost that aura of perfection, on and off the course, and there’s no way Nike can create that aura again.”

Woods’s personal problems haven’t helped. Yesterday his lawyer announced that his divorce from model Elin Nordegren was completed, nine months after reports of his extramarital affairs surfaced.

Woods, 34, crashed his Cadillac sport-utility vehicle into a fire hydrant outside his Florida home last Thanksgiving, leading to his admission that he had relationships with several women during his marriage. One of those women, Joslyn James, created a website showcasing alleged text messages from the golfer that described various sex acts.

Nike first signed Tiger Woods to a five-year endorsement contract in 1996. The retailer has described the Tiger Woods Collection, launched in 1999, as “Nike Golf’s top-of-the-line apparel,” with sweaters and pants that cost more than $100 on the company’s Web site.

Nike hasn’t discounted its Woods Collection apparel and probably won’t, according to Powell, who says the company is counting on Woods returning to form and being “an important part of its portfolio.” Golfsmith also has no plans to lower prices for the brand, according to its chief marketing officer.

Nike Challenge

“The challenge to Nike is that we’ve never seen Tiger Woods weak before, and it’s completely antithetical to what his brand is,” Interbrand’s Martin said. “Some athletes can ski off into our memory as stars, but for Tiger, unless he gets it together this winter and starts winning, his career trajectory is a double-black diamond,” or exceptionally steep slope.

Not everyone has abandoned Woods. Clint Utz, 28, said he owns about 15 Tiger Woods Collection shirts and has bought several this year.

“All of a sudden, so many people were against him, but he’s still the same person that worked hard and achieved things no one else has ever achieved,” said Utz, a marketing director for Landscapes Unlimited, based in Lincoln, Nebraska. “Everyone loves a winner. They’ll come back.”

Economy in U.S. Probably Expanded Last Quarter at Slowest Pace in a Year‏


The U.S. economy probably slowed in the second quarter even more than initially estimated as companies reined in inventories and the trade deficit widened, economists said before a report today.

Growth cooled to a 1.4 percent pace from April through June, the smallest gain in the year-old recovery, rather than the 2.4 percent projected last month, according to the median forecast of 81 economists surveyed by Bloomberg News. The world’s largest economy expanded at a 3.7 percent rate in the first three months of 2010.

“It’s a much weaker recovery,” Julia Coronado, senior U.S. economist at BNP Paribas in New York. “The whole pickup is a lot less perky than we thought and that is very worrisome.”

Federal Reserve Chairman Ben S. Bernanke, who addresses central bankers from around the world today in Jackson Hole, Wyoming, may shed more light on policy makers’ outlook in the wake of reports that signaled a growing risk of a renewed U.S. economic slump. Slowdowns in housing, business investment and consumer spending are prompting economists to cut second-half growth forecasts.

The Commerce Department’s revised second-quarter figures will be released at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey range from 0.5 percent to 2.2 percent. The estimate is the second for the quarter, with the final figures set for release on Sept. 30.

Today’s report may show consumer spending, which accounts for about 70 percent of the economy, rose at an unrevised 1.6 percent pace last quarter. Purchases increased at a 1.9 percent rate from January through March.

Homes, Spending

A lack of job growth, declines in household wealth following slumps in stocks and housing, and the drive to reduce debt and boost savings are reasons consumer spending may struggle to strengthen.

J. Crew Group Inc., the New York-based retailer of sportswear, casual and career clothing, yesterday lowered its full-year earnings forecast.

“The continued economic uncertainty we’re seeing is leading us to take a more conservative outlook for the second half of the year,” Chief Executive Officer Mickey Drexler said on a conference call.

Figures this week showing a further slide in home sales and a drop in business spending on equipment prompted economists such as Joseph LaVorgna of Deutsche Bank Securities Inc. in New York to reduce third-quarter growth estimates.

Recession Odds

Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, this week said the likelihood of the economy slipping back into a recession is now 33 percent, up from 20 percent three months ago. New York University economist and forecaster Nouriel Roubini, who predicted the financial crisis, said this week the odds of another recession are 40 percent.

“Fading fiscal stimulus and the end of the inventory swing in manufacturing strongly argue for a slowing in growth,” Zandi told reporters in Washington.

The economy is a top issue for voters in the November congressional elections and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for the president’s handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all-time low and down from 50 percent last July.

House Republican leader John Boehner this week called on President Barack Obama to fire Treasury Secretary Timothy Geithner and the other remaining members of the president’s economic team, saying the administration’s stimulus policies are failing to create jobs.

Stocks Lower

The growth slowdown has hurt stocks. The Standard & Poor’s 500 Index has declined 6.1 percent this year through yesterday.

The trade gap adjusted for inflation, the figures used in calculating GDP, averaged $48.1 billion a month in the second quarter, up from $42.5 billion in the previous three months. A surge in imports swamped gains in exports, indicating producers overseas benefited more from growing U.S. demand.

Business investment, one of the economy’s few bright spots, powered ahead in the second quarter. Spending on equipment and software rose at a 22 percent pace, the Commerce Department’s initial GDP estimate showed, following a 20 percent gain in the first quarter.

Another report today may show consumer confidence improved this month. The Reuters/University of Michigan final sentiment index for August probably rose to 69.6 from 67.8 at the end of July, according to the survey median. The report is scheduled for 9:55 a.m.

Key Wooing Billionaires to New Zealand Minus English ‘Attitude’


When he was Merrill Lynch & Co.’s global head of foreign exchange in London in 1998, the ever- cheerful John Key was nicknamed “the smiling assassin” after he fired some 50 members of his team.

Today, as prime minister of his native New Zealand, population 4.4 million, he’s using his trademark grin to woo billionaire immigrants, foreign investors and high-end tourists to one of the planet’s most remote developed countries, Bloomberg Markets magazine reports in its October issue.

Key, 49, even took time out from a session of the United Nations General Assembly last year to appear on the Late Show with David Letterman to talk up his island nation in the southwest Pacific.

He encouraged visitors to take a “convenient” 20-hour, one- or two-stop flight from New York to the former British colony.

“It’s like England without the attitude,” he wisecracked, adding: “Visit in the next 30 days and I will pick you up at the airport.”

Key was joking with Letterman, yet his underlying message was serious. Since he took office in November 2008, the prime minister has cut income and corporate taxes, offered scholarships for business executives and taken personal control of the country’s tourism ministry to boost a stuttering $125 billion economy.

‘Lord of the Rings’

New Zealand, whose snowcapped peaks and verdant valleys formed the backdrop to the Academy Award-winning “Lord of the Rings” trilogy, is struggling to rebound from its worst recession in 30 years.

Living standards as measured by per capita gross domestic product are about 15 percent lower than the average for other Organization for Economic Cooperation and Development countries, according to 2009 estimates based on purchasing-power parity.

One million New Zealanders, including one-fourth of university graduates, have moved to work overseas -- 260,000 in the past 10 years. Unemployment rose in the second quarter to 6.8 percent from 6 percent in the first.

Key says New Zealand needs to lift per capita income by 35 percent to match that of Australia, a three-hour flight across the Tasman Sea. In the meantime, he’s trying to replace departing compatriots with wealthy foreigners.

“Attracting high-net-worth individuals is critical in terms of the investments they make and the opportunities they provide for others,” Key says in Wellington, the pocket-sized capital of 180,000, where he works in an office atop a conical building called the Beehive.

‘Live Off Your Wits’

As for his currency background, it comes in most handy in political debates.

“Parliamentary question time is very much like being on a trading floor,” he says. “You live off your wits, and you feed off the environment.”

Key, who leads the center-right National Party, is pushing pro-business policies. He has trimmed the top income tax rate to 33 percent from 38 percent compared with 45 percent for Australia. Next year, the corporate tax rate will fall to 28 percent, two percentage points below Australia’s, from 30 percent. He’s trying to win free-trade agreements with India and Russia. He has cut bureaucracy so that New Zealand’s biggest city, Auckland, will be run by one local authority instead of eight. And on Aug. 9, he announced a scholarship under which New Zealand executives can get grants of as much as NZ$110,000 ($80,000) to study at top international business schools and come back to work in the country.

‘Quite Remarkable’

“Look at what he’s done; it’s quite remarkable,” says Jonathan Ling, chief executive officer of Fletcher Building Ltd., the country’s biggest publicly traded company, who often recruits executives from the New Zealand diaspora. Since Key took office on Nov. 19, 2008, Fletcher shares have gained 30 percent to NZ$7.40 on Aug. 23.

Key isn’t starting from scratch in luring affluent visitors. New Zealand has long been a first or second home to such investors as billionaire hedge-fund manager Julian Robertson and former Levi Strauss & Co. President Tom Tusher.

Robertson developed two of the nation’s most spectacular golf resorts, Kauri Cliffs and The Farm at Cape Kidnappers. In 2002, he bought two wineries, including Dry River, which produces what Bloomberg Markets wine and spirits columnist Elin McCoy describes as one of the New World’s great pinot noirs.

Tusher, 69, owns Blanket Bay, a NZ$750--NZ$2,500-a-night hideaway near Queenstown, and the nearby Amisfield winery. Neither man will disclose the total value of his investments.

Prime Minister’s Fan

“New Zealand is the most beautiful place on Earth,” says Robertson, 78, who oversees about $23 billion at New York-based Tiger Management LLC and spends three months a year in the country.

“I am a fan of the prime minister,” says Robertson, who is due to open his third New Zealand resort, Matakauri Lodge, this Friday. “Now they have a progressive conservative premier. I think it will be much better for them.” Key ousted the Labour Party’s Helen Clark, who’d led the country for nine years.

The prime minister’s job has been complicated -- even for a veteran currency trader -- by a New Zealand dollar that has yo- yoed between 39 U.S. cents and 82 U.S. cents in the past decade.

Hostage to the so-called carry trade, the currency -- nicknamed the kiwi after the national emblem, a chicken-sized flightless bird -- rises when foreign investors pour in money to take advantage of higher-interest-bearing assets. It falls when they pull money out.

Global Dairy Exporter

Exports and inbound tourism, which make up almost 40 percent of New Zealand’s GDP, become more expensive with a strong kiwi. That hurts a country that’s the biggest global exporter of dairy products and lamb and whose visitors account for 20 percent of foreign-exchange earnings. New Zealand suffers, although less so, when the kiwi hits lows, because imports cost more.

Key says there’s not much he can do to prevent the kiwi’s wild swings, even with his 20 years of foreign-exchange experience. What he can do is try to negotiate more free-trade agreements to compensate for barriers and subsidies that restrict access for meat and dairy products in New Zealand’s biggest markets.

OECD figures in July showed that in New Zealand, a free- trading nation, one percent of farmers’ incomes comes from subsidies, compared with 61 percent in Norway, 23 percent in the European Union and 9 percent in the U.S.

‘Most Vulnerable Nation’

“We would be the most vulnerable nation in the world to the vagaries of global markets,” says Andrew Ferrier, chief executive officer of Fonterra Cooperative Group Ltd., the world’s biggest dairy-exporting company.

A rebounding global economy is already helping Key’s prospects. Sales of milk, butter and lamb are increasing as the world emerges from its financial crisis. New Zealand’s economy is poised to grow 3 percent this year, according to the International Monetary Fund, compared with a 1.6 percent contraction in 2009.

On Aug. 23, Fonterra reported that its dairy exports rose to a record 2.1 million metric tons in the year ended July 31, buoyed by demand from China and other parts of Asia.

The prime minister is getting the benefit of the doubt from some rivals because of his personality and inspirational life story, says Mike Moore, a former Labour Party prime minister and one-time director-general of the World Trade Organization.

‘Hard Man to Hate’

“We in the Labour Party have a serious problem with John Key,” says Moore, who this month became New Zealand’s ambassador to the U.S. “He’s a very hard man to hate.”

Key grew up with adversity. His late mother, Ruth Lazar, an Austrian Jew, fled to the U.K. in 1938 to escape Adolf Hitler’s advance. In 1948, she married George Key, an Englishman. The couple emigrated to New Zealand in the 1950s.

“If mum hadn’t got to England, she would have almost certainly gone to the gas chambers like so many of her family,” John Key says.

His father died when the boy was 6 and he, two siblings and Ruth entered public housing in Christchurch, where the Keys made their way among other struggling families. He never lacked confidence.

“From very early on, I wanted two things,” Key says. “I wanted to go into business and become financially independent. Secondly, I wanted to go into politics. When I was very young, I wanted to be prime minister.”

Currency Trading

Key’s path to riches and political power began in 1985 -- the year when New Zealand floated the kiwi, which had been pegged to a basket of currencies. He decided he could make his fortune trading the suddenly fluctuating New Zealand dollar.

He joined Bankers Trust in Auckland in 1988, so eager to succeed that he and his wife, Bronagh, slept in the green glow of a financial terminal beside their bed.

In 1995, Merrill Lynch hired him as a managing director of Asian foreign exchange in Singapore. Three months into the job, then-boss Steve Bellotti asked what Key thought of Merrill’s foreign-exchange business. “I think it sucks,” Key said.

Key told Bellotti that Merrill could be a bigger player in currencies. Bellotti, who confirms the story, shared that view.

“They had the clients and the cross-border flow in equities, fixed interest and commodities, but they were not capturing the foreign-exchange part,” Bellotti says.

Bellotti offered Key the job of global head of foreign exchange in London with the proviso that if he didn’t perform he’d be fired in a year.

“If I don’t make it in 11 months, I’ll quit,” Key replied.

‘Difficult Environment’

Instead, it was Key who ended up sacking other people. Bellotti says Key expanded the business as they’d planned. Then came the 1997 Asian financial crisis and 1998 Russian debt default. Key was ordered to cut his 300-strong team by 50 or 60, Bellotti recalls.

“It was a very difficult environment,” Key says. “But for the survival of the business, we did what was necessary.”

Bellotti, now managing director for global markets at Australia & New Zealand Banking Group Ltd. in Sydney, says Key succeeded as a currency trader without taking big risks.

“He was not the king of volatility,” Bellotti says. “He was not the superstar outstanding athlete. He was consistent sometimes to the point of being boring. He was also a great team builder.”

Key also became wealthy. New Zealand newspapers have reported that he earned about $2 million a year in London and his fortune is now $40 million.

He’ll say only: “It was a substantial amount of money -- enough to have choices.”

Stonyridge Larose

By then a father of two, Key chose to quit Merrill and take a shot at becoming prime minister. He sought to improve his chances of successfully entering politics with a classy gift -- and humor -- to win over a local party official who’d invited him to a beach barbecue.

Turning up with a NZ$200 bottle of Stonyridge Larose, one of the country’s best red wines, he recommended that his host not serve it with the sausages.

“It was good wine,” Key says, beaming broadly. “I hope he still has it in his cellars.”

Key’s political debut wasn’t easy even with such schmoozing. He was selected as a National Party candidate only after a bruising intraparty contest. He faced New Zealand voters for the first time during the 2002 general election. National suffered its worst defeat ever, winning 27 seats in the 120- member Parliament. Key, who’d been chosen for one of the safest seats, escaped the rout.

‘Money Shuffler’

“If I hadn’t challenged in such a strong seat, I would never have made it,” he says.

With so few National members in Parliament, he was promoted to finance spokesman in 2004. National lost the 2005 election and his colleagues chose him to be opposition leader in 2006.

Key has suffered reverses during his two years in office - -and digs at his background.

“It is all very well being an international money shuffler, but I thought they were part of the problem, not the solution,” Labour Party opposition leader Phil Goff says.

Key’s attempts to raise living standards closer to Australia’s are having the opposite effect, he says, noting that Australia’s economy has been growing faster than New Zealand’s and its jobless rate -- 5.3 percent in July -- is lower.

“You have to deliver, not just be a smiling face,” Goff says.

Key backed down in July on a plan to open conservation areas to mining after protesters said the move would jeopardize tourists’ and food shoppers’ image of a green New Zealand.

‘Gold and Sparkling Things’

“He did not understand the depth of feeling people have for their land,” says Helen Kelly, president of the New Zealand Council of Trade Unions. “He thought they would be attracted by the gold and sparkling things that mining would bring, but this isn’t really “The Lord of the Rings.’”

So far, most voters aren’t holding mistakes against Key. If an election had been held in early August, his National Party would have been re-elected with 54.5 percent of the vote, a poll conducted for television station TV3 found.

The poll that really counts will come when Key’s three-year term ends in November 2011 and he seeks re-election. If the world keeps buying New Zealand farm products and if former colleagues on forex desks don’t make the country’s currency too volatile, Key should be smiling for another three years.

Thursday, August 26, 2010

Europe Loan Growth Accelerates as Economy Recovers

Bloomberg / Business Week

Loans to households and companies in Europe grew at the fastest pace in 13 months in July after the economic recovery gathered steam.

Loans to the private sector rose 0.9 percent from a year earlier after growing an annual 0.5 percent in June, the European Central Bank in Frankfurt said today. That’s the strongest increase since June 2009. M3 money supply, which the ECB uses as a gauge of future inflation, increased an annual 0.2 percent in July, the same rate recorded in the previous month.

Strengthening global demand helped Europe’s economy expand 1 percent in the second quarter, the fastest pace in four years. Economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Orders for durable goods in the U.S. increased less than forecast in July, a sign one of the few remaining bright spots in the economy is cooling, while China’s industrial output rose the least in 11 months.

“It is encouraging that the annual growth rate of bank lending to the private sector is moving in the right direction,” said Martin van Vliet, an economist at ING Group in Amsterdam. “But overall demand for bank credit remains subdued. This highlights the fragility of domestic demand in the euro zone, and is a reminder not to get too carried away by the recent resilience of the euro-zone dataflow.”


European confidence in the economic outlook rose to the highest in more than two years in July and business sentiment in Germany, Europe’s largest economy, unexpectedly increased to a three-year high in August, suggesting the recovery may not lose as much momentum as some economists forecast.

ECB council member Axel Weber said last week the bank is likely to raise its euro-region growth forecasts next month after the German economy expanded in the second quarter at the fastest pace since records for a reunified country began in 1991. The ECB in June predicted euro-area growth of 1 percent this year and 1.2 percent in 2011.

Still, a report today showed Italian consumer confidence fell in August to the lowest in more than a year as government austerity measures made households more pessimistic about the their ability to save.

According to the ECB’s latest Bank Lending Survey published on July 28, euro-area banks “anticipate credit standards on loans to enterprises to tighten somewhat in the third quarter.”

In the three months through June, M3 rose 0.1 percent from the same period a year earlier, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. The annual rate of M1 money-supply growth eased to 8.1 percent from 9.2 percent.

Wednesday, August 25, 2010

Credit Card Debt Drops to Lowest Level in 8 Years

Associated Press

The amount consumers owed on their credit cards in this year's second quarter dropped to the lowest level in more than eight years as cardholders continued to pay off balances in the uncertain economy.

The average combined debt for bank-issued credit cards - like those with a MasterCard or Visa logo - fell to $4,951 in the three months ended June 30, down more than 13 percent from $5,719 in the same period a year ago, according to TransUnion.

The credit reporting agency said it was the first three-month period during which card debt fell below $5,000 since the first quarter of 2002.

Credit card debt remained the highest in Alaska, but slid 7 percent there to $7,148. A total of 22 states recorded debt higher than the national average.

Residents of Alabama paid off the most debt, dropping their average balance by 27 percent to $4,753.

More borrowers also made payments on time. The rate of cardholders past due by 90 days or more fell to 0.92 percent in the second quarter, from 1.17 percent last year.

That's the first time the delinquency rate has been below 1 percent since the second quarter of 2007, before the recession, said Ezra Becker, director of consulting and strategy in TransUnion's financial services unit. The rate fluctuates during the year, he said, but the improvement is more evidence that consumers are working to make sure their credit cards remain in good standing.

That concern reflects several economic factors, from the fear of unemployment to the fact that the collapsed housing market means it's harder to cash in on home equity when money gets tight. "You can't buy groceries with your house anymore," Becker said.

Reflecting the weak economies in the states hardest hit by the housing crisis, the delinquency rate was highest in Nevada, at 1.5 percent of cardholders, followed by Florida, 1.24 percent, Arizona, 1.11 percent and California, 1.08 percent. In all, 16 states fared worse than the national average for delinquencies.

The lowest delinquency rates remained in North Dakota, at 0.54 percent, and South Dakota, at 0.55 percent.

In a twist, Becker said the foreclosure crisis could be helping to improve the timeliness of credit card payments and lower balances. When people don't make mortgage payments, he suggested, they have a short-term cash boost.

"That can provide extra money to pay down credit cards," he said.

Besides paying down debt, consumers are getting fewer new cards. Nationwide, the number of new accounts opened dropped almost 6.5 percent from last year.

TransUnion predicts that the national delinquency rate will remain below 1 percent for the rest of the year. However, on the high end, the Nevada rate is forecast to edge up to 1.6 percent.

Drug War sends Bullets Whizzing Across Border

Associated Press

The first bullets struck El Paso's city hall at the end of a work day. The next ones hit a university building and closed a major highway.

Shootouts in the drug war along the U.S.-Mexico border are sending bullets whizzing across the Rio Grande into one of the nation's safest cities, where authorities worry it's only a matter of time before someone gets hurt or killed.

At least eight bullets have been fired into El Paso in the last few weeks from the rising violence in Ciudad Juarez, Mexico, one of the world's most dangerous places. And all American police can do is shrug because they cannot legally intervene in a war in another country. The best they can do is warn people to stay inside.

"There's really not a lot you can do right now," El Paso County Sheriff Richard Wiles said. "Those gun battles are breaking out everywhere, and some are breaking out right along the border."

Police say the rounds were not intentionally fired into the U.S. But wildly aimed gunfire has become common in Juarez, a sprawling city of shanty neighborhoods that once boomed with manufacturing plants. It's ground zero in Mexico's relentless drug war.

More than 6,000 people have been killed there since 2008, when the Sinaloa and Juarez cartels started battling each other and Mexican authorities for control of the city and smuggling routes into the U.S. Nationwide, more than 28,000 people have been killed since President Felipe Calderon launched his offensive against the cartels shortly after taking office in December 2006.

Until now, communities on the U.S. side of the border have been largely shielded from the violence raging just across the river. But the recent incidents are the first time that live ammunition has landed in American territory.

On Saturday, as gunmen and Mexican authorities exchanged gunfire in Juarez, police in El Paso shut down several miles of border highway. Border Patrol spokesman Doug Mosier said his agency asked for the closure - a first since the drug war erupted - "in the interest of public safety."

No one was injured on the U.S. side, but one bullet came across the Rio Grande, crashed through a window and lodged in an office door frame at the University of Texas at El Paso. Police are also investigating reports that another errant round shattered a window in a passing car. Witnesses at a nearby charity said at least one bullet hit their building, too.

El Paso police spokesman Darrel Petry said authorities have only confirmed the single bullet found at the university, but it is possible that several other shots flew across the border.

"As a local municipality, we are doing everything we can," Petry said. "Looking where we're at, the community we live in, that's all we've got. It's the reality of life here in El Paso for right now."

Officers say the types of bullets used in the drug war can travel more than a mile before falling to the ground.

In Saturday's shooting, the bullet that hit the campus building may have flown just under a mile before lodging in a door jam. Back in June, at least seven shots fired from Juarez flew more than half a mile before hitting City Hall.

In some places, El Paso is separated from Juarez by little more than a few yards of riverbed.

Andrew Kunert was napping Saturday when police started banging on his door at his Texas apartment building just feet from the border. He said officers with high-powered rifles slung across their chests warned him to stay inside and away from windows until the shooting stopped.

The rat-a-tat-tat of gunfire to the south is nothing new, but bullets coming north is a worrisome new development, Kunert said.

"About once a week, you can hear gunfire," he said. He worries about the children who live at the Old Fort Bliss apartment building and routinely play outside when gunmen are trading shots across the river.

At the Rescue Mission of El Paso, kitchen manager Bill Cox said several bullets hit a pair of old silos on the charity's property, which is down a hillside from the university campus. Volunteers and homeless people coming to the mission for food or other help could easily be in the line of fire, he said.

"Someone can be walking down the street out here and be hit," Cox said. What is needed is more Texas and Florida drug rehab.

In a letter to President Barack Obama after the City Hall shooting, Texas Attorney General Greg Abbott said it was "good fortune" that no one was injured and insisted the shooting was evidence of the need for more border security.

"Luck and good fortune are not effective border enforcement policies," Abbott wrote. "The shocking reality of cross-border gunfire proves the cold reality: American lives are at risk."

And Monday, Texas Gov. Rick Perry issued a statement demanding more security.

"It's time for Washington to stop the rhetoric and immediately deploy a significant force of personnel and resources to the border to protect our homeland," Perry said.

Katherine Cesinger, a Perry spokeswoman, said the governor believes that more security - in the form of federal agents and even troops - could all but shut down the border to smuggling and help put Mexico's warring cartels out of business.

The only way cartels "are being successful is by being able to operate on both sides of the border," Cesinger said. "If you shut down that border, they are out of business. They are not able to continue."

Obama has ordered about 1,200 National Guard troops to the border in California, Arizona, New Mexico and Texas to help the Border Patrol and officials from Customs and Border Protection and a drug treatment center.

But the federal government has insisted that the troops will only help federal agents with intelligence, surveillance and other duties that do not involve actually arresting anyone.

Sheriff Wiles says more security in El Paso won't solve the problem because the war is in another country.

"Juarez is experiencing a major wave of violence, and we are feeling some of that," Wiles said. "I don't know of any way around that. Until that issue is resolved in Juarez, we are going to be dealing with these kinds of things."

Tuesday, August 24, 2010

New Credit Card Rules can Help, But don't get Complacent

USA Today

In the past, making a late credit card payment was like forgetting your mother's birthday. Repairing the damage could take months. Sometimes, years.

Now, though, the repercussions of a tardy credit card payment may not be as long-lasting or severe. Federal rules that took effect Aug. 22 limit the amount of late fees banks can charge. The rules also make it more difficult for banks to permanently raise your interest rate if you make a late payment.

The rules, adopted by the Federal Reserve Board in June, implement provisions of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was signed into law last year. What's new:

•Ceiling on late fees.
Most late-payment fees are now capped at $25. Lenders are also barred from charging a fee that exceeds the amount of the violation. For example, if you're late making a $20 payment, the penalty can't exceed $20.

Previously, banks charged a median penalty fee of $39 for late payments or transactions that exceeded the card's limit, according to the Pew Health Group's Safe Credit Cards Project. The median penalty fee for credit unions was $25.

The law gives issuers the right to charge a higher penalty fee if they can justify the need for a higher amount. However, most issuers will probably play it safe and stick with the $25 limit, says Nick Bourke, manager of the Safe Credit Cards Project.

•Cooling off period for penalty interest rates.
Banks can still hike your interest rate if you make a late payment, but they must wait at least 45 days before raising your rate, says Curtis Arnold, founder of CardRatings.com.

This gives customers time to resolve any billing issues that could have caused the missed payment, he says. Even if you were at fault, the 45-day window gives you time to pay off the balance or transfer it to a lower-rate card before the new rate kicks in.

•Time limits on penalty rates. Once a lender imposes a penalty rate, it's required to review the rate after six months. If you haven't missed any payments during that period, the bank will have to roll back the rate, unless it can give the Federal Reserve a good reason for keeping it.

•No penalties for inactivity. Do you keep an extra credit card in the back of your wallet for emergencies? Now, it won't cost you anything to do that. Lenders are prohibited from charging you a fee if you don't use your credit card to make new purchases. Your issuer could, however, close your account.

•No piling on.
Card issuers are prohibited from charging you multiple fees based on a single late payment or other single transaction.

Now, the bad news

Don't let these changes lull you into thinking it's OK to get sloppy about your bills. The ceiling on penalty fees is limited to one misstep. If you make more than one late payment in a six-month period, your issuer can charge you up to $35.

Even worse is what could happen to your interest rate. Since February, card issuers have been prohibited from raising rates on your existing balance unless your account is 60 days past due. However, once you're 60 days late on a payment, your interest rate could skyrocket.

While the law says penalty fees must be "reasonable and proportional," it places no limit on penalty interest rates, Bourke says. "If you're experiencing some financial difficulty and become 60 days past due on your credit card account, the credit card issuer still has the right to impose any size of (interest rate) penalty on you it wants," he says.

And escaping that high rate won't be easy. Issuers must lower your rate to the pre-penalty level if you make on-time payments for the first six months the penalty rate is in effect. But a big increase in your interest rate could make it harder for you make minimum payments, Bourke says. And if you make a late payment during the six-month period, he says, "The penalty rate can last forever."

At least 94% of bank cards and 46% of credit union cards include the right to impose an interest rate penalty in their card holder agreements, according to Pew's analysis. Among those that disclosed their rates, the median rate in March was 29.99%, up from 28.99% in July 2009.

To avoid costly oversights, take advantage of free e-mail reminders provided by many credit card issuers, says Bill Hardekopf, chief executive officer of LowCards.com.

"My advice is, do everything you can to make your monthly payment on time."

Monday, August 23, 2010

Intel to Promote Atom with Chip Unit from Texas Instruments

Bloomberg / Business Week

Intel will expand the use of its Atom microprocessors in consumer electronic devices with the purchase of Texas Instruments' cable modem chip division, it said Monday.

The deal highlights Intel's struggle to compete against Arm Holdings as the processor company of choice in consumer electronics devices. Intel has worked hard to get its Atom microprocessors into smaller devices where energy efficiency and cost are more important than raw computing power, but it lags behind Arm. Intel sells processors that are far more powerful than Arm's, but its focus on computing power over the years has been at the expense of energy efficiency. Intel has sought to catch up to Arm through its Atom line.

TI's Puma 5 family of chips for cable modems currently use Arm processing cores.

"Intel will continue to sell the existing Puma products that are used in data and voice cable modems and continue to develop these products to address cable gateway applications. In the future, we plan to power the Puma product with the Intel Atom processor as well as to incorporate the product technology into future Intel SoC (system-on-chip) and platform designs," said Intel in a statement not included with the news release.

The new unit will become part of Intel's Digital Home Group and develop chips aimed at the cable industry, such as advanced set top boxes, residential gateways and modem products.

Intel said all employees of the TI cable modem business will join Intel at sites in their home countries, primarily Israel. The company believes the chip developers will add to its effort to expand its consumer electronics offerings, including complex SoC chips for digital TVs, Blu-ray Disc players, companion boxes and related devices, it said in the news release.

"Adding the talents of the Texas Instrument's cable team to Intel's efforts to bring its advanced technology to consumer electronics makes for a compelling combination," Intel said.

Intel declined to say how much it paid for the chip unit.

The deal is expected to close in the fourth quarter of this year after regulatory review and customary closing conditions have been met.

S&P 500's Refusal to Decline Reflected in Most-Expensive Commodity Stocks‏


For all the signs of a U.S. slowdown, American stocks are up 4 percent in the third quarter, led by commodity producers that have been trading at the most expensive levels since 2004.

The 32 mining companies, seed-makers and chemical suppliers in the Standard & Poor’s 500 Index gained 10 percent since the end of June, pushing the average price to 17.4 times annual profits, the highest level of any industry, data compiled by Bloomberg show. Premium valuations for companies from Dow Chemical Co. to Allegheny Technologies Inc. preceded rallies in the past as demand for raw materials signaled economic growth.

Optimism in commodity stocks runs counter to reports last week showing U.S. jobless claims rose to the highest level since November and housing starts trailed economists’ estimates. David Rosenberg, the chief economist for Gluskin Sheff & Associates Inc., says the probability of the second recession in three years is greater than 50 percent.

“If the market really believed the double-dip story, which I don’t think the stock market believes, materials stocks would not be doing this well, that’s for certain,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $30 billion. “The interesting thing is that materials would do as well as they did. I would have expected some softening of commodity prices.”

Weekly Loss

Basic-resources stocks were the biggest gainers today in European trading, led by BHP Billiton Ltd., amid speculation that a proposed mining tax in Australia will be scrapped or diluted after the ruling Labor party failed to win a majority at the weekend election.

The S&P 500 rose 0.7 percent as of 9:42 a.m. in New York.

The S&P 500 slipped 0.7 percent to 1,071.69 last week, falling to the lowest level in a month and bringing its 2010 loss to 4 percent. Commodity suppliers gained 0.6 percent after Melbourne-based BHP Billiton Ltd. bid $40 billion for Potash Corp. of Saskatchewan Inc. More than $165 billion in takeovers of raw-materials producers has been announced this year, the most since 2007, according to data compiled by Bloomberg.

Mining and chemical companies in the S&P 500 are about 22 percent more expensive than the index based on price-earnings ratios using profits over the last 12 months, data compiled by Bloomberg show. The industry has been the most expensive relative to income since June, data compiled by Bloomberg show.

Economy Proxy

Before 2009, when the S&P 500 gained 24 percent for its biggest rally in six years, the last time metals and mining shares traded so far above the index was in 2004, data compiled by Bloomberg show. That was just after the start of a five-year rally in which the S&P 500 doubled. They commanded a bigger premium in 1994, before the S&P 500 tripled over six years, the data show.

“It’s an important leading indicator,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “The strength we see in some of those is good reassurance there is more underlying economic strength than had been feared.”

Money managers at JPMorgan Chase & Co. and Russell Investments are confident about mining stocks even as the U.S. slows because they expect China to spur demand. The American economy’s growth rate in the second quarter is forecast to be revised down to 1.4 percent on Aug. 27 from the last estimate of 2.4 percent on July 30, according to a survey of economists.

‘Growth Story’

While Chinese GDP slowed between March and June, the rate of expansion remained above 10 percent for a third quarter, data from the National Bureau of Statistics showed. It’s projected to increase by 10 percent in 2010 and 8.9 percent next year, according to the median estimate of economists surveyed by Bloomberg.

“We are trying to take advantage of a very real global growth story” with investments in materials companies, said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages $140 billion. “It’s not a brisk one, but it’s a real one. A double-dip recession is a low- probability scenario.”

The Reuters/Jefferies CRB Index of 19 raw materials has gained 3.3 percent since the end of June, led by wheat, which climbed 41 percent as droughts in exporting countries including Russia threatened to reduce supplies. Sugar advanced 24 percent as delays worsened at ports in Brazil, the world’s biggest exporter. Copper increased 11 percent and cotton rallied 9 percent, according to data compiled by Bloomberg.

‘Growth Dynamics’

Rising materials prices and high valuations for producers say little about prospects for growth in the U.S. and Europe, Rosenberg said in a telephone interview from Toronto. The economist was among the first to predict the 2008 recession that sent the S&P 500 down 38 percent, propelling him to the No. 2 ranking by Institutional Investor magazine that year.

“The basic materials complex is no longer just a cyclical play, it’s also a play on secular growth dynamics as it pertains to the most dynamic part of the global economy right now, which is emerging Asia,” Rosenberg said. “It’s commanding a premium relative to how it’s traded in the past.”

A 1.4 percent U.S. growth rate in the second quarter would be the slowest since the economy contracted in last year’s third quarter. Forecasts for the second half and next year are deteriorating. The median estimate of 55 economists surveyed by Bloomberg is for U.S. GDP to increase by 3 percent in 2010 and 2.8 percent in 2011, down from 3.2 percent and 3.1 percent in May.

TIPS Spread

Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14, exceeding all estimates of economists surveyed by Bloomberg, the Labor Department said Aug. 19. Work began on 546,000 houses at an annual rate last month, fewer than the 560,000 median forecast of economists surveyed by Bloomberg, Commerce Department figures showed on Aug. 17.

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed last week to 1.56 percentage points, the smallest gap since September 2009, from a high of 2.49 percentage points in January, data compiled by Bloomberg show. Yields on two-year Treasury notes last week declined to the lowest level on record, data compiled by Bloomberg show.

Concern about deflation is higher than at any time since November 2002, equity derivatives strategists at Citigroup Inc. wrote in an Aug. 16 report. U.S. stocks had their biggest one- day drop in three weeks on Aug. 11 after Federal Reserve policy makers led by Chairman Ben S. Bernanke said the pace of economic recovery “slowed in recent months.”

July Rally

“Most companies borrow for their businesses,” said Olivier Sarfati, head of equity trading strategies at Citigroup Inc. in New York. “With deflation, the price of whatever you’re selling decreases, but your debt doesn’t. It makes debt difficult to repay, and just repaying debt takes all your profits.”

Stocks surged in July as companies in the benchmark measure of U.S. shares topped the average analyst profit projection by 10 percent. S&P 500 earnings increased 49 percent during the second quarter from the year-earlier period, based on reports by the 484 companies through Aug. 20, and the index jumped 6.9 percent.

The third straight increase in profits followed a record nine-quarter slump, data compiled by Bloomberg show. The recovery is forecast to produce earnings gains of 36 percent this year and 16 percent next year, according to forecasts compiled by Bloomberg. Raw-materials producers are projected to help lead the increase, with net income gaining 67 percent in 2010 and 26 percent in 2011, the data show.

Market Multiple

Dow Chemical, the largest U.S. chemical maker, trades at about 17.6 times earnings over the past 12 months, compared with a 14.2 multiple for the S&P 500. It’s among the materials stocks Morgan Stanley recommends, said David Darst, the New York-based chief investment strategist for the firm’s brokerage clients. In March 2003, the valuation was almost five times the market’s.

Allegheny Technologies, a producer of titanium, nickel and steel held in Russell Investments’ U.S. Core Equity Fund, trades at 46 times trailing earnings. Its premium peaked in March 2003 at nearly 8 times the index’s multiple.

“We’re still in this period where the redeployment of capital at the business level is very strong, which means we’re going to increase utilization of materials very heavily at a time where people are very bought into the notion of not necessarily a double-dip recession, but slower economic growth,” said Kenneth Fisher, the chief executive officer of Fisher Investments Inc., which oversees $35 billion from Woodside, California. “That’s a big argument for overweighting materials across the board.”

Friday, August 20, 2010

Employment Numbers Vary Widely State to State


U.S. government data released on Friday showed employment conditions varied widely from state to state in July, indicating that the economic recovery may not be consistent across the country.

The jobless rate fell in 18 states and the District of Columbia in July from June, while it rose in 14 states and was unchanged in 18 states, the Labor Department said.

Compared to a year earlier, the jobless rate fell in 27 states and rose in 20.

North Dakota, buoyed by a strong natural resources sector, again had the lowest rate in the country, at 3.6 percent. Nevada remained the state with the highest unemployment rate, at a record 14.3 percent.

Michigan followed with 13.1 percent, but the state also had the largest increase in employment from June, adding 27,800 jobs.

For many months Michigan, home to major U.S. automakers, suffered the highest jobless rate in the country, but since the start of the year the rate has slowly dropped.

Most of the jobs gains in July were in manufacturing. But the state labor department said that even without new factory jobs the July payrolls number was the highest of the year.

"Michigan's manufacturing job market has stabilized thus far in 2010," said Rick Waclawek, director of the state's labor bureau. "Automakers and suppliers minimized July retooling layoffs reflecting streamlined production schedules, strong vehicle sales, and lean inventories."

Altogether, the number of jobs increased in 37 states and in Washington, DC.

North Carolina lost the most jobs in July, at 29,800, followed by New Jersey.

Over the year, payrolls grew in 30 states and Washington, DC, and dropped in 19 states.

In Georgia, the unemployment rate declined to 9.9 percent. But it was still the 34th straight month in which the state's jobless rate exceeded the national one, currently 9.5 percent.

"Georgia's job market continued to deteriorate," said State Labor Commissioner Michael Thurmond in a statement.

"Although the unemployment rate remained virtually unchanged, a growing number of discouraged workers dropped out of the workforce," he said.

Nationally, the employment picture remains a confusing jumble. On Thursday, the U.S. Labor Department reported new jobless claims hit a nine-month high last week.

Also on Thursday the head of the U.S. Congressional Budget Office, Douglas Elmendorf, said the U.S. jobless rate will not drop below 5 percent until 2014. The rate has been gradually declining after hitting 10.1 percent in October, a high not seen since 1983.

Florida highlighted the uneven labor market. In July the state, which was hurt especially hard by the housing market downturn, saw its unemployment rate rise to 11.5 percent while the number of jobs increased by 5,700.

Pennsylvania added 3,400 jobs in July, bringing the number of private positions created in the state since the beginning of the year to 52,400. But the state's unemployment rate also rose to 9.3 percent.

More than 8,400 Pennsylvanians were working on nearly 200 highway and bridge repair projects funded by the federal economic stimulus plan in July, Governor Ed Rendell said.

"Hiring is occurring, but we need to accelerate the pace and do more to put Pennsylvanians back to work by making targeted investments in our transportation infrastructure that will create tens of thousands of jobs," he said.