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Friday, March 29, 2013

Dell: What do Blackstone, Icahn actually see?

Story originally appeared on Market Watch.

SAN FRANCISCO (MarketWatch) — With Dell Inc. now waiting for official takeover offers from the Blackstone Group and Carl Icahn, most investors seem to be assuming that the higher bidder will simply win out, and that Michael Dell and Silver Lake will have to raise their original offer.

Since billionaire investor Icahn and the private equity firm Blackstone expressed interest in the struggling computer company, its shares have popped. Dell DELL -0.07%   is now trading more than 5% above the $13.65 per share offer that Dell and Silver Lake made in February to take the company private.

But investors need to think about what may happen to Dell, in the event one of these other bids succeeds, and what the motivations of the other suitors might be.

One element to consider is that both Icahn and Blackstone are offering deals that involve retaining some form of public stock commonly known as a “stub.” This flies in the face of Dell’s founder Michael Dell, who has determined that he needs to take the company fully private to truly make it over.

“Remember that Dell wanted to take the company private so he could do some things, and keep it out of the public eye,” said Roger Kay, president of Endpoint Technologies Associates Inc., a consulting firm. He believes that Dell wants to turn the company into a serious rival to IBM Corp. IBM +1.14%  , with more focus on technology services and software, but that it will still need its PC business, albeit a much smaller one.

“If it has half the revenue it had before, that would cause a lot of discomfort and likely hammer the stock price,” Kay added. “It’s the IBM template. Cycle out the low-margin businesses, cycle in high-margin ones. But the difference is that IBM sold the PC company to Lenovo before people started losing interest in PCs”

It doesn’t help that Dell has virtually no presence in mobile devices such as tablets or smartphones, which are growing rapidly at the expense of PCs. In recent years, the company has instead focused its acquisitions on storage, software and services.

There are not any likely buyers for the company’s PC business as a stand-alone entity, especially since rivals such as Lenovo and Hewlett-Packard Co. HPQ +1.10%   have not made any official overtures. Private equity firms such as Blackstone typically look for businesses to carve off or sell — fueling the belief among some that the aspiring buyers might want to break Dell apart.

So far, the only thing known about the Blackstone offer, as reported by the Journal, is that the company may want to sell Dell’s financing arm. Michael Dell reportedly does not support such a move.

“I doubt anyone else can execute on Dell’s plan,” said Robert Enderle, principal analyst with the Enderle Group. “He is going to massively restructure the company, and turn it into much more of a cloud services entity, to compete much more sharply against Amazon’s AWS.”

Both Kay and Enderle fear that if Blackstone prevails, and part of Dell is left public, the company won’t be able to do some of the housecleaning necessary to morph itself into a mini IBM.

One thing it probably wants to do behind closed doors is whittle down its PC business while keeping part of it. It’s not clear what Blackstone or Icahn would want to do, or who they would put in place to deal with this struggling business, which still is a cash generator. Icahn’s proposal, which some on the Street appear to be taking less seriously, would involve issuing about $5.2 billion in new debt.

Dell called Blackstone’s offer “management friendly,” even after reports surfaced that Blackstone had approached the former CEO of H-P Mark Hurd and Michael Capellas, who was once CEO of Compaq, among his other jobs, for the possible gig. On Tuesday, though, Hurd said at an Oracle event in Tokyo that he was not interested in the job.

On Wednesdaythat Blackstone is open to keeping Michael Dell as the company’s CEO, although it is not clear whether Dell himself is open to the idea. Blackstone also made the case that with Dell on board its proposal, it could be an ally against Icahn, who has warned that he will instigate a proxy fight.

So what exactly do the billionaires on Wall Street want out of a Dell deal? Icahn likely wants a quick return on his approximately $1 billion investment in the company. Blackstone, which is not really know for tech deals, clearly sees some benefit, whether that is immediate or down the road.

“We believe there is significant upside in the Dell business,” wrote Chinh Chu, president of the Boulder Acquisition Group, the Blackstone entity that wants to pay $14.25 a share, in a letter to Dell earlier this week.

While wanting to make money is understandable, it’s not clear yet that the investors with the latest bids have the right ideas on what to do with Dell. The battle for the company that Michael Dell started in his college dorm room is likely just beginning.

How to handle an audit

Story originally appeared on Market Watch.

Many taxpayers are fretting over the end of the tax-filing season. But the event that some people fear the most—the audit—can happen at any time of year.

The Internal Revenue Service audited 1% of individual tax returns filed in 2012, according to data released this week. And of the 1.5 million individual returns examined, about 75% were conducted by mail through what is called a correspondence audit, which the IRS typically uses to request more information, tax pros say.

Sometimes, the problem is that the IRS’s numbers don’t match the ones you submitted (the IRS has matching software to help it compare the income on a tax return with the 1099 and W-2 information it receives, experts say). Other times, the IRS may write to ask for documentation, such as copies of receipts, to support the credits and deductions you’re claiming. But getting a notice from the IRS doesn’t necessarily mean the agency is going to require you to pay more taxes, says Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants. Indeed, 54,000 audits actually resulted in additional refunds last year, the IRS reports.

While there is no way to completely avoid an audit, there are a few steps taxpayers hit with one can take to help the process go smoothly. For starters, tax pros say, you should respond to the notice in a timely fashion by sending  in exactly what the IRS is requesting—no more, no less. “You don’t need to give them everything under the sun, but you need to give them enough information,” says Paul Gevertzman, a tax partner in accounting firm Anchin, Block & Anchin in New York City. You don’t want to slow down the process by making an IRS agent wade through additional information, tax pros say.

Some taxpayers may want to file Form 2848 to give their tax preparers or accountants power of attorney, meaning they can speak with the IRS on their behalf, says Brent Lipschultz, a partner in the Personal Wealth Advisory Practice Group of accounting firm EisnerAmper. Chances are, your accountant already has the information the IRS is requesting, and he or she can help you understand any issues the IRS may have spotted with your return, says Labant.

That’s not to say, however, that there definitely will be an issue. Sometimes, for instance, when the IRS’s numbers don’t match up with yours, the error is on their end, says Gevertzman: “Don’t assume the IRS is correct.” That’s why it helps to keep documents supporting your income, credits and deductions for several years, he says. Often the discrepancy can be settled if you send them a copy of your document.

If the IRS requests that you meet face-to-face with an agent, try to have that meeting at your accountant’s office, or on other neutral ground, says Gevertzman, instead of at your home or workplace. That will give you more control over what information is introduced to the IRS, he says, since for instance, the agent won’t be able to chat up your coworkers. Taxpayers don’t have to be present at the meeting if their adviser or accountant, who is speaking on their behalf, has power of attorney. And if you aren’t sure of an answer, “It’s OK to say, ‘I’ll get back to you,” he says. “You don’t want to feel pressured to answer quickly.”

Many audits will get resolved once a taxpayer submits the information being requested by the IRS and pays any additional taxes he or she owes. And if you don’t agree with the examiner’s decision, you can appeal. But in some cases (say, if a person is facing tax-evasion charges or if the tax bill being disputed is substantial), you may want to get legal help, tax pros say. Information shared between you and your tax preparer is not confidential for legal purposes, even if he or she is an attorney, says Gevertzman, so you need to hire a separate tax attorney to represent you in court if the case escalates.

Weekly Jobless Claims Rise More Than Expected

Story originally appeared on FOX.

The number of Americans filing new claims for unemployment benefits rose more than expected last week, but probably not enough to suggest the labor market recovery was taking a step back.

Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 357,000, the Labor Department said on Thursday. Still, they remained in the middle of their range for this year.

The prior week's claims figure was revised to show 5,000 more applications than previously reported. Economists polled by Reuters had expected first-time applications last week to rise to 340,000.

Last week's report contained annual benchmark revisions to the series and the model used by the government to iron out seasonal fluctuations.

Last week's increase pushed claims above the 350,000 level for the first time since mid-February.

The four-week moving average for new claims, a better measure of labor market trends, rose 2,250 to 343,000, but remained below the 350,000 level.

That could offer hope job growth this month retained some of the momentum from February. Nonfarm payrolls increased 236,000 last month, with the unemployment rate falling to a four-year low of 7.7 percent.

Claims over the next several weeks will be watched closely for signs of layoffs related to $85 billion in government budget cuts known as the "sequester." So far, there is little sign the across-the-board spending cuts are affecting the job market.

A Labor Department analyst said no states had been estimated and there were no special factors influencing the report.

Claims, however, could become volatile in the coming weeks because of the early timing of Easter and spring breaks, which could throw off the so-called seasonal factor.

The labor market is being closely watched by the Federal Reserve, which last week said it would maintain its monthly $85 billion purchases of mortgage and Treasury bonds to foster faster job growth.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 27,000 to 3.05 million in the week ended March 16. That was the lowest since June 2008.

The so-called continuing claims covered the period for the household survey from which the unemployment rate is derived.

Wednesday, March 27, 2013

Major banks hit with biggest cyberattacks in history

Story originally appeared on CNN.

There's a good chance your bank's website was attacked over the past week.

Since Sept. 19, the websites of Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), U.S. Bank (USB, Fortune 500) and PNC Bank have all suffered day-long slowdowns and been sporadically unreachable for many customers. The attackers, who took aim at Bank of America first, went after their targets in sequence. Thursday's victim, PNC's website, was inaccessible at the time this article was published.

Security experts say the outages stem from one of the biggest cyberattacks they've ever seen. These "denial of service" attacks -- huge amounts of traffic directed at a website to make it crash -- were the largest ever recorded by a wide margin, according to two researchers.

Banks get hit by cyberattackers all the time and typically have some of the best defenses against them. This time, they were outgunned.

"The volume of traffic sent to these sites is frankly unprecedented," said Dmitri Alperovitch, co-founder of CrowdStrike, a security firm that has been investigating the attacks. "It's 10 to 20 times the volume that we normally see, and twice the previous record for a denial of service attack."

To carry out the cyberattacks, the attackers got hold of thousands of high-powered application servers and pointed them all at the targeted banks. That overwhelmed Bank of America and Chase's Web servers on Sept. 19, Wells Fargo and U.S. Bank on Wednesday and PNC on Thursday. Fred Solomon, a spokesman for PNC, confirmed that a high volume of traffic on Thursday was affecting users' ability to access the website, but he declined to go into more detail.

Denial of service attacks are an effective but unsophisticated tool that doesn't involve any actual hacking. No data was stolen from the banks, and their transactional systems -- like their ATM networks -- remained unaffected. The aim of the attacks was simply to temporarily knock down the banks' public-facing websites.

To get hold of all the servers necessary to launch such huge attacks, the organizers needed to plan for months, Alperovitch said. The servers had to be compromised and linked together into a network called a "botnet."

That level of pre-planning is a deviation from the kinds of denial of service attacks launched at banks in the past by so-called "hacktivists." Typically, hacktivists use home PCs infected with malware to amass their botnets. Attacks on this scale would be impossible to carry out with home PCs -- users too frequently turn them off or disconnect them from the Internet.

The Islamist group Izz ad-Din al-Qassam Cyber Fighters publicly claimed responsibility for the attacks in what it called "Operation Ababil," but researchers are divided about how seriously to take their claims. The group has launched attacks in the past, but those have been far less coordinated than the recent batch.

Sen. Joe Lieberman, an Independent from Connecticut, said in a C-SPAN interview on Wednesday that he believed the attacks were launched by Iran.

"I don't believe these were just hackers who were skilled enough to cause disruption of the websites," he said. "I think this was done by Iran ... and I believe it was a response to the increasingly strong economic sanctions that the United States and our European allies have put on Iranian financial institutions."

A call requesting comment from the Department of Homeland Security's cybersecurity office was not immediately returned.

A cybersecurity firm following the attacks also expressed doubt about the connections between the Cyber Fighters and the bank attacks. On social networks and chat forums, the group urged its followers to use a mobile "low orbit ion cannon" -- a software tool typically used by Anonymous and other hacktivist groups to direct a massive flood of traffic at a targeted site.

That tool was not used in the attack, according to Ronen Kenig, director of security products at network security firm Radware.

"Supporters of this group didn't join in the attack at all, or they joined in but didn't use that tool," said Kenig. "The attack used a botnet instead." He doesn't think the Cyber Fighters would have access to a botnet as advanced as the one used by the attackers.

But CrowdStrike's Alperovitch said he is "quite confident" the perpetrator was the Izz ad-Din al-Qassam Cyber Fighters, since they announced each attack well before it was carried out, and the attack wasn't that sophisticated -- it just took significant planning. PNC was the last target on the lists the Cyber Fighters have circulated, but more attacks could still be coming.

Both researchers agree that the controversial anti-Muslim YouTube video was not the initial impetus for the attacks, as the Cyber Fighters claimed in messages recruiting volunteers to join in. Before the video was even released, the group claimed responsibility for similar attacks.

"The video is simply an excuse," Alperovitch said. "It's a red herring."

Tuesday, March 26, 2013

Web health records firm expands to Boston

Story originally appeared on the Boston Globe.

Four years after its founding and three years after releasing an Internet-hosted software platform for sale to doctors, Miami start-up CareCloud Corp. already has become one of the fastest-growing and most disruptive players in the electronic health records EMR software business.

Now CareCloud is planting its flag in one of the nation’s health care capitals.

The company will formally open a Boston office Tuesday in a refurbished brick factory in the Innovation ­District, joining a Massachusetts health information technology cluster that includes established rivals such as athenahealth Inc. of Watertown and eClinicalWorks of Westborough.

Albert Santalo, founder and chief executive of CareCloud, said he was lured to Boston by the area’s health care and technology expertise and already has hired about 15 people here. They include senior engineering, sales, and marketing executives, some of whom were recruited from competitors like athenahealth and GE Healthcare. By the end of the year, CareCloud should have 35 to 40 people working out of South Boston, he said.

“I love the city,” said Santalo, who will attend a ribbon-cutting ceremony Tuesday with Mayor Thomas M. Menino of Boston. “I love the talent you can find here.”

Santalo, an engineer and ­serial entrepreneur, said he was drawn to the electronic health records space because he is ­convinced the US health care system has become overly ­complex and dysfunctional.

“It’s this big broken industry, and we feel a lot of the problems can be solved by better information technology,” he said, contending a company that comes up with solutions can ­become nearly as big as ­Amazon.com. “We see ­ourselves as having a $100 ­billion opportunity.”

Rival electronic medical records companies are watching CareCloud, which is backed by Intel Capital and Norwest Venture Partners and has signed up about 2,500 physicians — including 170 employed by Miami Children’s Hospital — in its first three years. Santolo said he expects to have 5,000 doctors enrolled by the end of 2013, and 10,000 a year later.

Jonathan Bush, chief executive of athenahealth, an Internet health records pioneer which last year agreed to buy the Arsenal on the Charles ­office campus that houses ­athenahealth’s headquarters, declined to talk about CareCloud, a spokeswoman said. But in a 2011 Twitter post, shortly after being introduced to Santolo, Bush tweeted, “I just met the man who will kill me. It won’t be for 10 years yet . . . but check-out carecloud.com. such a beautiful app!”

While many large hospital systems and multispecialty practices still opt for proprietary electronic medical systems that they can control in-house, Internet-based “cloud” systems are the fastest-growing segment of the market, analysts said. They are especially attractive to young physicians accustomed to doing work through websites and smartphones.

“I think they’re the future,” said Judy Hanover, research director for IDC Health ­Insights, a technology research firm in Framingham. “The cloud app is really resonating with health care providers. CareCloud is off to a good start. They’ve really gained a lot of traction, a lot of buzz.”

CareCloud is still too small to register on IDC’s ranking of the top sellers of electronic health records software (EHR), which includes eClinicalWorks, Epic Systems, GE Healthcare, athenahealth, and Greenway Medical. But at the rate it’s growing, that could change in coming years.

“They’re definitely an up-and-comer,” said Richard Close, research analyst at Nashville ­investment bank Avondale Partners, who said many ­doctors’ practices using federal stimulus funds to replace aging technology systems are ­choosing Internet platforms. “This is fresh technology ­compared to a lot of the older health IT software out there.”

Close said the number of doctors using the CareCloud platform has grown more than fourfold from a year ago. “That’s definitely fast growth, coming from nothing,” he said. “A lot of physicians didn’t adopt electronic health records EHR software in the past because the technology was old and cumbersome. But this is newer technology that can improve the work flow.”

Unlike older systems that are hosted locally, CareCloud can continuously update its software to accommodate changing health care delivery practices, payment models, and new technology. The company issues monthly updates, including lists of new features.

Santalo said CareCloud is working to differentiate itself from competitors in several ways. Doctors can use it through any browser or electronic platform. They can choose to buy only the software or a “concierge” service where they can outsource tasks such as billing to CareCloud. And they can share with patients an “elegant user interface” that is more akin to smartphones and consumer electronics than the clunky enterprise applications deployed in many workplaces.

“If doctors and their staffs are going to spend a third of their lives on our system, let’s make them feel smart, not stupid,” Santalo said. “Let’s let them have fun.”

Massachusetts Plan Starts Small for Big Upgrade to Rail System

Story originally appeared on the New York Times.

BOSTON — Later this spring, Bostonians eager to flee to Cape Cod for the weekend will have an option other than sitting in bumper-to-bumper traffic for 70 miles and fuming along with everyone else.
Starting May 24, they can hop a train to Hyannis, where regional buses, ferries and rental cars will await to whisk them out to the beaches, islands and wind-swept dunes.
The train, the first passenger service to the cape since 1995, is one small piece of a major $13 billion transportation overhaul envisioned by Gov. Deval Patrick. That overhaul is aimed chiefly at repairing and upgrading worn-out bridges, roads and commuter lines in Massachusetts, but about 20 percent of it would go toward reviving train service to the cape and elsewhere in the state.
Mr. Patrick said that upgrading these in-state routes would spur economic development. It would also provide important links for Amtrak’s long-range plans to establish high-speed train service throughout New England.
The package is the most sweeping and future-oriented of Mr. Patrick’s tenure. But it faces some high hurdles. It would require a major tax increase. And it faces a skeptical public still recovering from what people here call the Big Dig hangover — the multibillion-dollar debt from the nation’s most expensive highway project.
Mr. Patrick, a Democrat, had nothing to do with the Big Dig but the project deferred investments that he says should have been made in aging infrastructure and increased repair costs that are necessary now.
“The plan is ambitious,” said Stephanie Pollack, a transportation specialist at the Dukakis Center for Urban and Regional Policy at Northeastern University. “And it’s depressing that this is considered ambitious when most of the money is going to fixing what we have now.”
But, she said, “this is probably the first time in decades that Massachusetts has stepped back and said, ‘Here’s what we need to do for the next quarter century.’ ”
In addition to service to the cape, Mr. Patrick has proposed reviving service from Boston to Fall River and New Bedford as well as from the Berkshires to the Connecticut border to enable future service to New York City. He has proposed extending service to Medford. He has also called for an $850 million expansion of the number of tracks at Boston’s South Station to accommodate more commuter lines and longer-distance Amtrak trains. The station now is a major bottleneck that causes serious delays.
Amtrak’s plans for high-speed rail include service from Portland, Me., to New York City along an inland route through Springfield, Mass., and one between Boston and New York that would cut travel time to 90 minutes from the current three hours and 40 minutes.
To pay for his transportation package, as well as some new education programs, Mr. Patrick has proposed $1.9 billion in new taxes, one of the biggest levies Massachusetts has seen in a generation. He would raise the state income tax to 6.25 percent from 5.25 percent and lower the state sales tax to 4.5 percent from 6.25 percent. Residents who make more than $102,000 a year would shoulder most of the burden.
Mr. Patrick, who is not seeking re-election in 2014, is spending much of his political capital trying to convince both citizens and legislators that “high-impact” transportation projects can pay for themselves.
For example, the governor’s administration says, the South Coast rail line to Fall River and New Bedford would cost $1.8 billion, but it would create 3,800 jobs and generate $500 million a year in economic growth.
“The public will pay more if they see their sacrifice is actually going to net them a specific good,” said Richard A. Davey, the state’s transportation secretary, who is conducting an aggressive campaign to help sell the governor’s package. It includes a Web site that allows residents to see exactly what the spending would mean in their localities.
But the tax proposal has drawn ridicule from Republicans and a cool reception from the legislature, which is overwhelmingly Democratic. The speaker of the House, Robert A. DeLeo, wants to downsize the governor’s wish list, which is leading to intense negotiations over which parts of the package might be cut. At the same time, Mayor Will Flanagan of Fall River, for example, says he will hold the governor to his promise to veto the entire package if South Coast rail is dropped.
The proposal comes as passenger trains, particularly on routes under 400 miles, are rebounding across much of the country and proving a boon to economic development.
“American passenger rail is in the midst of a renaissance,” said a new report from the Brookings Institution, which attributed the increase in part to partnerships between Amtrak and the federal and state governments.

Monday, March 25, 2013

Wealthy, business-savvy Mexican immigrants transform Texas city

SAN ANTONIO — The Mexican businessmen in Rolexes and Burberry ties meet on the north side of town, at Cielito Lindo Restaurant, or at new neighboring country clubs. Their wives frequent Neiman Marcus, Tiffany's and Brooks Brothers at the nearby mall. Their children park Porsches with Mexican license plates in the student lots at Reagan High School.
They are part of a wave of legal Mexican immigrants who have been overlooked in the national debate over how to deal with their largely impoverished illegal compatriots. Propelled north by drug cartel violence, they paid thousands of dollars to hire attorneys and obtain investors' visas for themselves and their families (including maids). They have regrouped in gated developments in several Texas cities, where their growing influence has been compared to the impact of well-heeled Cuban refugees who arrived in Miami decades ago.
Nowhere is the evidence more striking than in San Antonio, Texas' second-largest city and a short private-jet hop from Monterrey, Mexico, where many of the new immigrants built their wealth. They have poured into developments with names like the Dominion, Stone Oak and Sonterra that were cut into the rocky hills and oak groves north of the Loop 1604 highway that rings the city.
More than 50,000 Mexican nationals now live permanently in San Antonio, city officials say, turning an upscale enclave known as "Sonterrey" or "Little Monterrey" into the city's second-fastest growing ZIP code.
Real estate agent Ana Sarabia caters to the new arrivals — finding them immigration lawyers, new schools, banks and office space — and sees them reshaping her hometown.
"I can see it transitioning," said Sarabia, 45, who lived for a time in Mexico City. "This has always been a bicultural city. Parts of it have now become a new Mexico."
There's Lorena Canales, 40, who moved from Monterrey with her two youngest children two and a half years ago to start a bilingual day care after witnessing a gun battle outside her local Wal-Mart.
Uriel Arnaiz, 40, relocated with his wife and 3-year-old son from Mexico City four years ago to open a high-end tequila import business after some of his son's friends were kidnapped.
José Ramos, 55, moved two years ago from Monterrey to open a restaurant, Vida Mia, after a relative was kidnapped and killed.
It's not clear whether new immigration policies being contemplated in Washington would affect this group of wealthy immigrants, who skip long immigration lines by hiring attorneys in Mexico to apply for business-related visas at U.S. consulates.
Most had to prove they were either employed by a multinational company or had a valid business plan and enough money to start their own. Some had to show American investments worth hundreds of thousands of dollars. Many moved in a matter of weeks, though some said the process had become more difficult in recent years, with tougher screening by U.S. consulates.
Costs vary depending on the type of visa. In many cases, it is cheaper than what a smuggler would charge for an illegal crossing. Attorney fees can range from $1,500 to $6,500, compared with coyote payments of $6,000 or more.
Arnaiz's initial visa allowed him to stay in the U.S. for up to a year. He was able to renew the visa, which is required every two years for up to seven years if he wants to stay. His wife and son were eligible for visas for the same time period (children under age 21 are eligible). While staying in the U.S. on those visas, they were allowed to pursue permanent residency, or green cards, which they got in recent months.
"There's a lot of requirements," Arnaiz said. "You need to have a real, sustainable project."
The visa for professions listed in the North American Free Trade Agreement is relatively quick and cheap to obtain, some said, with attorney fees ranging from $1,500 to $3,000.
During the last decade, the number of such visas issued to Mexicans annually skyrocketed from 686 to 7,601, according to the State Department.
The newcomers — nicknamed "migrantes fresas," or rich migrants — are conspicuous even in this largely Latino city. Sociologists compare the "Mexodus" of professionals to the wave of exiles who fled to Texas after the Mexican Revolution in 1910, or wealthy Cubans who decamped to South Florida after the revolution in 1959.
Former San Antonio Mayor and Secretary of Housing and Urban Development Henry Cisneros, whose grandfather was exiled to San Antonio during the Mexican Revolution, calls them a "new diaspora with the potential to rival the impact Cubans had on Miami."
Harriett Romo, a sociology professor and director of the Mexico Center at the University of Texas at San Antonio, has been studying a dozen Mexican families who immigrated through investor visas.
"What we're seeing is that they move into kind of a new Mexican enclave — it's not a barrio like you would see on the east side of L.A. or west side of San Antonio. It's an upscale Mexican neighborhood with parties at the country club," she said.
Romo found that the new residents don't mix much with lower-income Mexican immigrants or with Mexican Americans, the Tejanos who helped build San Antonio. They are focused instead on "changing the image of the immigrant," she said. "They see themselves as having a very different experience because they come with official visas and more resources."
Writer Sandra Cisneros, a Chicago native who has lived in San Antonio for almost 30 years, says the flow of wealthy immigrants "constantly refreshing the ties" to Mexico has changed the character of the city, which long had the feel of a small town and now has a population of about 1.4 million.
San Antonio Mayor Julian Castro, a Mexican American and a rising star in the Democratic Party who has traveled south of the border to recruit businesses, says he hopes the newcomers stay.
"My hope is that they are planting firm roots and will become American citizens and fully participate in the community," he said.
The number of international passengers traveling to San Antonio International Airport increased 132% last year from the year before, and the airport added two new carriers to Mexico.
Flight schools are struggling to meet the demand for pilots to fly Mexicans whose private jets fill the runways of southern Texas.
Pepe Hurtado says many of the clients at his San Antonio luxury car business store their cars in hangars at the airport when they jet back to Mexico.
Cars with plates from the Mexican states of Nuevo Leon and Coahuila also fill the parking lots of the north side's Life Time Fitness, Holy Trinity Catholic Church and HEB grocery.
"You can definitely see it and feel it. There are times I go to HEB and I only hear Spanish," said Sylvia Orduna, 33, who works at a high-end cosmetics company that has seen steady business from new Mexican residents.
Pamela Gardner, 61, has lived at the Sonterra housing development for a decade and has noticed many new Mexican neighbors in the last few years.
"It does put a strain on the schools," Gardner said, noting that some schools have been "capped," turning away new students. She said her daughter, a vice principal at a local school, had to add classes in English as a second language because so many students speak only Spanish.
"You feel bad for the husbands because they're down there during the week and they come on the weekends and have to go back. It's sad," she said of those who commute to work in Mexico.
Newcomers settle in Sonterrey because they hear from friends that the local public schools are highly rated, they have business connections in the area and see billboards in Mexico advertising the gated communities. Some have difficulty adjusting, particularly wives and children accustomed to cooks and chauffeurs.
"We are used to being served and surrounded by help," said Arnaiz, whose wife traded two live-in maids for a Mexican American housekeeper who comes twice a week.
"That's why you see a lot of Mexican nationals here with their maids," he said. "Being here without domestic help, the inside dynamic of the family is different."
Canales, the mother from Monterrey, says her children had to adjust to life without a maid and their father during the week. But she says the trade-off is they can bicycle and hear other kids playing outside — a joyful noise they had not heard for years in Monterrey, where they lived behind high walls and barred windows.
"We had neighbors whose children were kidnapped and never came back," she said.
But in Sonterrey, as in Mexico, gates don't guarantee protection from the cartels.
Last year, one of Arnaiz's neighbors, fellow newcomer Fernando Alejandro Cano Martinez, was charged with laundering money for the Gulf cartel. Two brothers from Guadalajara were charged with using north side homes and businesses as a front for cartel money, which financed their Learjet, an Italian restaurant and other investments.
"We're seeing 'Miami Vice'-type money laundering — shipments of currency and wire transfers from international organizations," said Michael Lemoine, a special agent with the Internal Revenue Service in San Antonio.
It's not clear how permanent the new enclave and its problems are. Many residents are watching to see if the newly elected Mexican president can curb cartel violence enough for them to feel safe moving back to Mexico.
Ramos, the restaurant owner, is among those who have debated returning to Mexico. His daughter Mayela at first struggled with the transition. But when he decided to stay, she agreed.
"All my friends ask me, 'When are you coming back?'" Mayela Ramos, 26, said during the lunchtime rush at the restaurant, as Mexican ladies with designer handbags nibbled fideo, a Mexican pasta, and chatted in Spanish. "But our life is here now."

Joe Weider dies at 93; bodybuilding pioneer and publisher

Joe Weider, a Los Angeles-based bodybuilding pioneer who created a multimillion-dollar fitness publishing empire and mentored a young Arnold Schwarzenegger from the time the future actor and California governor was a struggling unknown, died Saturday, a family spokeswoman said. He was 93.
Weider, who discovered a teenage Schwarzenegger at a bodybuilding contest in Europe and sponsored the young Austrian's move to the U.S., died of heart failure at a Los Angeles hospital, said Charlotte Parker, his longtime publicist.
A masterful marketer, entrepreneur and promoter with a rags-to-riches — and scrawny-to-brawny — story of his own, Weider had a faith in the power of bodybuilding that he compared to a religious fervor. He popularized the sport worldwide, riding the health and fitness wave with such publications as Muscle & Fitness, Flex, Men's Fitness and Shape, which was for women.
"When you push yourself to the limit in the gym, you begin to get feelings of vigor and power and self-esteem," he told a visitor in 1989, as quoted in the New York Times. "Body builders don't walk on their powerful legs — they float. They actually feel a little sorry for the average person, struggling to feel worthwhile, wasting his vitality, watching his body deteriorate."
On Saturday, Schwarzenegger mourned the loss of a man he called a father figure.
Weider "was the godfather of fitness who told all of us to 'Be Somebody with a Body," the former governor said in a statement. "He taught us that through hard work and training we could all be champions."
Joseph Weider was born Nov. 29, 1919, in a tough section of Montreal, where his parents struggled to make a living. His father worked as a pants presser in a factory, and at age 12, Weider left school to work, first as a grocery delivery boy and later as a short-order cook.
To keep from being threatened by neighborhood toughs, Weider made his first barbells out of scrap metal and began lifting weights. He became obsessed with muscle-building and at 17, over the objections of his mother, started his first magazine, a newsletter he printed on a mimeograph machine.
He soon convinced a major magazine distributor to put the publication, Your Physique, on newsstands and sales took off. In 1946, he and his younger brother Ben hosted the first Mr. Canada contest and formed the International Federation of Bodybuilders the same night.
In 1965, Weider created one of bodybuilding's premiere events, the Mr. Olympia competition, later adding other contests that drew weightlifters from around the world.
In 1972, recognizing that the sport needed a charismatic star, he paid for Schwarzenegger's move to California, setting him up in a Santa Monica apartment, paying him a weekly $100 stipend and splashing his victories across the covers of his magazines.
Weider, who taught Schwarzenegger about business, also helped him land his first movie role in the 1969 film "Hercules in New York," by telling producers the Austrian weightlifter was a German Shakespearean actor — "even though I barely spoke English," the former governor said in his statement.
Other young bodybuilders Weider mentored and promoted included Lou Ferrigno, then an unknown from New York, who went on to stardom as television's "The Incredible Hulk." In 1976, Ferrigno moved west at Weider's request to train for the Mr. Olympia contest, but said Weider encouraged him to audition for the television show.
"I knew … that sooner or later people would recognize that the human body is the highest form of art," Weider told The Times in 1989. "We were building champions, we were beginning to run shows all over. Arnold came on the scene; Lou Ferrigno came on the scene. These guys were bigger than life.... Bit by bit, it began to catch on."
While he had staunch supporters, he also had critics, who complained about his outsized ego and bruising business style. Weider at times called himself the Jesus Christ, the Gandhi and the Karl Marx of his field.
At its height, Weider's muscle magazine included 16 publications, with a combined circulation of 4 million copies a month. In 2003, he sold the magazines to American Media Inc. for $357 million.
He is survived by his wife, Betty Weider, who for many years wrote a fitness column for one of his publications.

Deal to Sell Dell May Be About to Face Competition

Is Michael Dell's attempt to gain more control over his company about to turn into a financial tug-of-war?
The answer could come Friday. That's the end of a 45-day period that Dell Inc.'s board of directors set to allow for offers that might top a February 5 deal to sell the personal computer maker to CEO Michael Dell and a group of investors for $24.4 billion.
With the deadline looming, buyout specialist Blackstone Group is emerging as the most likely candidate to trump the current bid of $13.65 per share.
Blackstone is so intrigued with the prospect of owning Dell that the firm has been courting former Hewlett-Packard Co. CEO Mark Hurd to run Dell if it decides to mount a hostile takeover attempt, according to a person familiar with the situation. The person asked not to be identified because the discussions between Blackstone and Hurd are considered confidential.
Several other buyout scenarios tying Blackstone to Dell have been leaked to the media this week, another indication that the New York firm is mulling a bid that could scuttle the debt-laden deal that the company reached with Michael Dell and Silver Lake Partners.
Dell Inc. says Friday's deadline for competing offers could be extended if its board believes other suitors would benefit from more time to examine Dell's books and hash out other details. The company, which is based in Round Rock, Texas, has promised to provide extensive details about the sales process in regulatory documents that are supposed to be filed next week.
Many investors are convinced a higher bid is in the works. That's why Dell's stock price has remained above $14 for the past two weeks. The shares fell 19 cents Thursday to close at $14.14. Some analysts have even predicted Dell ultimately will be sold for $15 to $16 per share.
Southeastern Asset Management, Dell's second largest shareholder after Michael Dell, has asserted the company is worth closer to $24 per share.
For its part, the four-member board committee that negotiated the current deal maintains it's selling Dell at a fair price, one that reflects the dimming prospects for the PC industry as more technology spending shifts to smartphones and tablet computers.
The upheaval is siphoning revenue away from both Dell, the world's third largest PC maker, and HP, the top PC maker. Both companies are trying to adapt by making more tablets and diversifying into more profitable areas of technology, such as business software, data analytics and storage.
The rivalry between Dell and HP makes Blackstone's flirtation with Hurd a tantalizing twist.
HP widened its lead over Dell during Hurd's five-year reign, but the company parted with its former CEO under acrimonious terms in August 2010. Hurd resigned after facing allegations of sexual harassment against an HP contractor. HP found no evidence of harassment, but concluded that Hurd had filed inaccurate expense reports. Since Hurd's departure, HP has struggled and its stock price has been cut in half in a slide that has erased about $45 billion in shareholder wealth.
Hurd, 56, began working as president of business software maker Oracle Corp. shortly after leaving HP. He is given every indication that he is happy with his current job, which could lead to a promotion to succeed his close friend, Larry Ellison, as Oracle's CEO. Ellison, 68, hasn't set a timetable for stepping down. Analysts nevertheless see Hurd and Safra Catz, Oracle's chief financial officer, as the leading candidates to replace Ellison.
Oracle declined to comment Thursday. Blackstone didn't return phone calls.
Blackstone is only interested in bringing Hurd to Dell if it can't negotiate a deal on friendly terms, should it decide to pursue a bid, said the person familiar with the situation. The easier path would require Blackstone to win the cooperation and financial participation of Michael Dell, who is contributing about $4.5 billion in cash and stock to the deal that he worked out with Silver Lake. Under that agreement, Michael Dell would remain CEO of a company that would become privately held for the first time in 25 years.
Blackstone also has discussed the possibility of Southeastern Asset contributing its 8.4 percent stake in Dell to a competing bid, according to The Wall Street Journal, which cited anonymous people familiar with the matter.
Other Blackstone maneuvers under consideration would focus on buying just a part of Dell. Blackstone might try to buy Dells' financial services division in a partnership with TPG, another buyout firm, or General Electric Co.'s lending arm, according to the people who talked to the Journal. Dell's financial services division lends money to customers who buy its products.
Another Dell shareholder, billionaire investor Carl Icahn, is pressing the board to forget about selling the company and pay a one-time dividend instead. In a letter to Dell's board earlier this month, Icahn proposed a dividend of $9 per share that would require Dell to take on billions of dollars in additional debt. Shareholders would profit further if Dell is able to engineer a turnaround that drives up the stock price.
Michael Dell believes he will be in a better position to overhaul the company if he no longer has to worry about Wall Street's focus on profit fluctuations from one quarter to the next.

Thursday, March 21, 2013

Future bright for Metro Detroit's convention business

Story originally appeared on the Detroit News.

With renovations well under way at Cobo Center and new hotels under construction and others being rehabbed, the future of Metro Detroit's convention business is looking up after years of few options and unimpressive facilities.
While the number of conventions in the metro area remains flat from 2012 to 2013, industry officials and others expect significant gains as exhibit space upgrades and hotel and other improvements come to fruition.

"Even with some of the challenges we face, the interest in Detroit is growing," said Bill Bohde, senior vice president of sales and marketing at the Metro Detroit Convention & Visitors Bureau. "Our message is getting out that we are America's next comeback city."

New, large groups are booking meetings and conventions for 2014 and 2015, and some old customers, such as the Society of Manufacturing Engineers and American Gear Association, are returning after avoiding Detroit.

"Detroit was on the downside; it was not viewed as very good just because it hadn't been kept up to the rest of the market," said Eric Blanc, director of sales and marketing for the Tampa Convention Center in Florida. "It's good to hear the city is putting some additional efforts to become more competitive. If Detroit's more competitive, we're all better off at the end."

Despite that optimism, concerns linger among convention organizers about the city's financial problems, but local officials say such fears are eased after planners visit the Motor City.

Alcoholics Anonymous officials recently toured Detroit for the first time in four years after committing to host their 2020 convention here. A.A. leaders were worried about the state's Emergency Manager decision and wanted to determine firsthand whether to pull the event.

But after the trip, members of the A.A. group were so "wowed" by the city's improvements that they chose to keep the convention — and 60,000 estimated attendees — in Detroit, Bohde said.

"(A.A. officials) were pleased with what they saw and heard; A.A. looks forward to being in Detroit," the New York-based organization said in a statement.

About 25 conventions of 1,000 attendees or more have been scheduled throughout Metro Detroit for 2013, according to the Metro Detroit Convention & Visitors Bureau. That doesn't include the dozens of smaller conventions and trade shows that take place at the same facilities, including Detroit's three casinos.

Cobo has more major conventions (nine) booked than any other hotel or meeting space in the tri-county area. The 1,298-room Marriott at the Renaissance Center in Detroit follows with six, and the 772-room Adoba in Dearborn — formally the Hyatt Regency — ranks third with five.

The Adoba, with 500 fewer rooms than the Marriott and far less meeting space then either the Marriott or Cobo, is happy to just tread water and lure back organizations that left when the Hyatt closed.

"We're a really good fit for a lot of groups," said Adrienne Pumphrey, part owner of the Adoba brand. "We're back in the game, and we're interested in playing a bigger part."

A number of hotels are likely to play a bigger role in the future.

The Marriott is set to undergo renovations, expected to be finished by 2014. The former Pontchartrain Hotel, next door to Cobo Center, will reopen later this year after renovations as a Crowne Plaza, and the city's fire department building could become a boutique hotel soon. A 136-room Aloft boutique hotel is coming to the old David Whitney building on Woodward, too.

And in Novi, the 126-room Hyatt Place Hotel will open in July, making the Suburban Collection Showplace more appealing.

Bohde cited the M-1 light rail project and new Detroit Red Wings arena and entertainment district as additional draws for would-be event bookers.

"It's just going to add to that density downtown," Bohde said. "Detroit is really on a genuine comeback."
Cobo Center — whose ownership transferred from the city to the Detroit Regional Convention Facility Authority in 2009 — remains the biggest player in Metro Detroit's convention business. And its $279 million renovations, set to be complete in 2015, will add to its marketing appeal, said Thom Connors, Cobo Center general manager.

Connors said convention bookings were up 18 percent from 2011-2012. This year, they've been able to add new business and re-sign former accounts.

The Dearborn-based Society of Manufacturing Engineers — the largest event-producing manufacturing organization in the country — used to host events at Cobo regularly, but hasn't been downtown in 10 years because the facilities weren't good enough, said Debbie Holton, director of events. But after hearing about Cobo's renovations, the society decided to give it another shot.

The society will host a manufacturing event that's expected to draw about 7,000 members to Cobo in June 2014.
"We got an opportunity to see (the planned renovations) and it blew us away," Holton said. "We're very positive and optimistic about the facility changes and changes to the management."

Friday, March 15, 2013

Morrisons and Ocado: a match made in purgatory

Story originally appeared on The Guardian

The alliance between the supermarket and the online operation will be painful for both even if it is right in the long term

"The proposed deal with Morrisons … is the first public acknowledgement by a competitor that Ocado's knowhow has value and that years of investment and trial by error has perhaps not been in vain." So says Fidelity, which, as the owner of a 5%-plus stake in Ocado, will be pleased by the 24% rise in the online grocer's share price.
Hold on a minute, though: why does selling your proprietary software to a direct competitor count as a triumph? If the knowhow is as good as it's cracked up to be, shouldn't Ocado be aspiring to eat Morrisons' lunch? Proposing instead to share a table with a late convert to online food retailing is strange thinking.
This turn of events says a lot about Ocado's rollercoaster ride as a public company. Profits did not arrive on schedule (and still haven't, at the pre-tax level) and the shares have been all over the place; even after trebling from the low point, they still sit slightly below the flotation price of 180p in July 2010. The good news is that a licensing arrangement with Morrisons could offer greater stability. In the current retail climate, Ocado is probably right to grab any deal that makes sense for it.
The problem doesn't lie with Ocado's centralized and automated task management tool for business model, which may or may not be superior to the "dark stores" model pursued by Tesco and others (that debate can be left to rage). The issue instead is the almighty sums of capital piling into the online grocery market and undermining returns for all. Tesco, Sainsbury's and Asda can see the shift in shoppers' habits and, it seems, are willing to tolerate the financial damage they do to themselves via the cannibalisation of sales and low delivery charges.
So, yes, a partnership with Morrisons could make life less sweaty for little ol' Ocado, which has just opened its second vast distribution centre, capable of handling £1bn worth of orders a year. If Morrisons pays to shove orders through the Dordon depot, the capacity can be put to productive use sooner. Alternatively, showing Morrisons how to run "dark stores" could bring in useful fees.
As for Morrisons, it's hard to know whether to applaud or laugh at its delayed online entry. On one hand, it has shown admirable discipline in refusing to play a game where it couldn't see how to make profit. On the other, its reward has been weak sales (like-for-likes down 2.1%) and a 4% fall in underlying profits to £901m. It's a classic case of "damned if they do, damned if they don't," as Investec's Dave McCarthy has long described supermarkets' online options.
Morrisons' chief executive, Dalton Philips, decided two years ago that an online offer had to happen but the planning has been tortuous. Kiddicare was bought to gain knowledge, followed by a stake in a New York online grocer. Now, it turns out, the answer may lie down the M1 at Ocado. There could be a "last mover advantage", suggests Philips.
Well, maybe: let's see the business plan first.

Monday, March 4, 2013

Amtrak thriving with shorter routes

Story first appeared on USA Today -

Amtrak, the beleaguered national rail system, has actually had a 55% increase in passengers over the past 15 years, with the overwhelming majority of that growth coming from short-distance routes between major cities, according to a new study.

Amtrak carries more than 31 million riders a year, which was an all-time high in 2012, and is growing at a faster rate than travel by car, mass transit or airlines, says the report from the Brookings Institution, a liberal-leaning think tank.

However, 90% of Amtrak's ridership growth between 1997 and 2012 was on routes under 400 miles. Contrary to Amtrak's image as a bloated, federally-subsidized program, many short-haul routes are actually supported by the states they serve, said Robert Puentes, a Brookings senior fellow and co-author of the report. Between 2007 and 2011, 15 states paid portions of Amtrak operating expenses totaling almost $850 million, the report says.

"The places we see Amtrak being competitive, running effective and efficient service, are in those places where the state already has some skin in the game," Puentes said. "These are places where Amtrak is treated not as a big federal bureaucracy that's coming in but is actually part and parcel of the transportation plan."

Randal O'Toole, a senior fellow with the libertarian Cato Institute, said, "A subsidy is a subsidy whether it's coming from federal, state or local taxpayers." His Cato study in November found that Amtrak accounts for just 0.1% of the nation's passenger travel but gets more taxpayer dollars than other popular modes of transportation such as buses and airlines. Over the past five years, Amtrak has received an annual taxpayer subsidy of more than $1.4 billion.

"There are a lot of short-distance (Amtrak) routes that lose a lot of money," O'Toole said.

In essence, Amtrak functions as two rail systems, Puentes says.

The short-haul routes generated a positive operating balance of $47 million in 2011, as revenue from the two most popular Northeast Corridor routes between Boston and Washington, D.C., — the Acela and the Regional — were enough to offset the net operating costs of the other 24 short-distance routes.

By contrast, Amtrak's 18 longer distance routes, which carried less than 20% of the system's riders in 2011, posted a $614 million deficit, the report says.

Brookings said its report is the first analysis of passenger rail data that focused on metropolitan areas rather than specific stations or cities. The researchers found that 10 metropolitan areas, concentrated mostly on the coasts along with Chicago, accounted for nearly two-thirds of Amtrak's ridership.

Companies dropping health coverage for spouses

Story first appeared on Market Watch -

Companies have a new solution to rising health-insurance costs: Break up their employees’ marriages.

By denying coverage to spouses, employers not only save the annual premiums, but also the new fees that went into effect as part of the Affordable Care Act. This year, companies have to pay $1 or $2 “per life” covered on their plans, a sum that jumps to $65 in 2014. And health law guidelines proposed recently mandate coverage of employees’ dependent children (up to age 26), but husbands and wives are optional. “The question about whether it’s obligatory to cover the family of the employee is being thought through more than ever before,” says Helen Darling, president of the National Business Group on Health.

While surcharges for spousal coverage are more common, last year, 6% of large employers excluded spouses, up from 5% in 2010, as did 4% of huge companies with at least 20,000 employees, twice as many as in 2010, according to human resources firm Mercer. These “spousal carve-outs,” or “working spouse provisions,” generally prohibit only people who could get coverage through their own job from enrolling in their spouse’s plan.

Such exclusions barely existed three years ago, but experts expect an increasing number of employers to adopt them: “That’s the next step,” Darling says. HMS, a company that audits plans for employers, estimates that nearly a third of companies might have such policies now. Holdouts say they feel under pressure to follow suit. “We’re the last domino,” says Duke Bennett, mayor of Terre Haute, Ind., which is instituting a spousal carve-out for the city’s health plan, effective July 2013, after nearly all major employers in the area dropped spouses.

But when employers drop spouses, they often lose more than just the one individual, when couples choose instead to seek coverage together under the other partner’s employer. Terre Haute, which pays $6 million annually to insure nearly 1,200 people including employees and their family members, received more than 20 new plan members when a local university, bank and county government stopped insuring spouses, according to Bennett. “We have a great plan, so they want to be on ours. All we’re trying to do is level the playing field here,” he says.

While couples generally prefer to be on the same health plan, companies often find that spouses are more expensive to insure than their own employees. That’s because, say benefits experts, covered spouses tend to be women, who as a group not only spend more on health care, but also have more free time to go to the doctor if they don’t work. Indeed, JetBlue’s covered spouses cost 50% more than crew members themselves, according to the airline’s online Q&A about its health plan, which this year extended wellness incentives to spouses for the first time.

Consumer Spending Up - Despite Worst Income Drop in 20 Years

Story first appeared on The Wall Street Journal -

Consumers keep at it despite tax increase at start of year

Consumers increased spending in January for the third straight month, suggesting that a big drop in income and a tax hike at the start of the year only exerted a mild drag.

Consumer spending advanced a seasonally adjusted 0.2% last month, the Commerce Department said Friday. That matched the estimate of economists polled by MarketWatch.

Americans continued their spending ways despite an increase in their taxes and the biggest plunge in income in 20 years.

A two-year law that reduced payroll taxes by 2% expired in January and the government also raised rates on the very rich. For people earning $1,000 a week, the payroll tax hike takes an extra $20 out of their paychecks.

Incomes, meanwhile, sank 3.6% in January after spiking 2.6% in December. Companies accelerated the payment of rewards for workers and investors in December to avoid higher tax rates in January, accounting for the big swing.

Consumer spending represents as much as 70% of the economy. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. Less spending results in slower economic growth.

In Friday trades, U.S. stocks zig-zagged from losses to gains amid a raft of economic data.

A survey of consumer confidence rose slightly and a U.S. manufacturing gauge climbed to nearly a two-year high.

Danger signs?
Although spending largely held up in the first month of the tax increase, many analysts think it will exert some downward pressure on the economy in the next few months. Consumers don’t always change their behavior immediately after a tax increase.

In one potentially troubling sign, spending on durable goods such as appliances, furniture, or consumer electronics fell 0.8% in January to mark the first drop in three months. Consumers tend to cut back on big-ticket items if they feel more economic stress.

What’s more, higher gasoline prices and sharp cuts in federal spending could also apply the brakes to the economy in the coming months.

On Friday, the government is supposed to begin the process of slashing federal outlays by as much as $85 billion over the next six months under the rules of a so-called sequester. Top Democrats and Republicans were scheduled to meet at the White House to discuss the matter, but no breakthrough was expected.

Economists say the spending reductions could hamper the ability of the U.S. to grow any faster than the 2.2% rate by which it expanded in 2012. The economy needs to grow much faster to quickly reduce the nation’s 7.9% unemployment rate.

“One thing is perfectly clear — most American will remain cautious in their spending habits,” said Chris Christopher, director of consumer economics at IHS Global Insight.