Economics for your life

Proposed Pension Changes - How Will You Be Affected?

2010-11-12T08:36:00.000-08:00

No doubt you are aware that more proposed changes to pensions has been announced by the Government.

The good news is that the Coalition has attempted to simplify matters, which is very welcome after Labour's legacy of the anti-forestalling legislation (how complicated does it need to be?).

Let's take a look at the main changes that will affect doctors and dentists:

- There's a new annual allowance (AA) of £50,000 a year (reduced from £255,000), including all individual and employer contributions. This will be frozen at £50,000 until 2016/17. Prior to the announcement it was expected the allowance would be limited to £30-40,000 so this higher amount is welcome.

- The anti-forestalling measures for higher earners will cease (cue round of applause...)

- Tax relief will still be available at an individual's marginal rate (for example, a 50% taxpayer will get a pension fund of £50,000 for a net cost of £25,000).

- Any unused annual allowance in one tax year can be carried forward to the following three tax years. This is an unexpected bonus and will help smooth any spikes in accrual charges. Carry forward will be offset against any annual allowance tax charge, starting with the tax years 2008/09, 2009/10 and 2010/11 based on the assumed annual allowance of £50,000.

- Where an individual's pension savings exceed the Annual Allowance and a tax charge is due (at their marginal rate) they will be responsible for notifying HMRC via their self assessment tax return.

- NHS Pension Scheme members will need to value the increase in their annual benefits by a factor of 16 (increased from the current 10). For example, if a 1995 GP/GDP scheme member has an average annual increase of £1,600 pa in pension benefits (which would be earned if the NHS pensionable income is £114,285 pa), this would amount to £13,200 pa Annual Allowance utilised. The member would have £36,800 allowance remaining. Note: this is an approximate estimate (the previous year's pension income is increased by the Consumer Prices Index to arrive at the £13,200 sum).

- It appears that the Annual Allowance of £50,000 has come at a cost with the reduction in the Lifetime Allowance from £1.8 million to £1.5 million from April 2012. The Government will be consulting on this change later this year with a view to offering some form of protection to those individuals that may lose out.

It is planned that this legislation for the above changes will be incorporated into the Finance Bill 2011. Of course, do remember that there may be amendments to the details of these changes.

Our View

The one change that stands out is the ability to use carry forward of unused relief for 3 years. This provides a great planning opportunity, assuming pensions are the most appropriate vehicle into which you should be investing.

So, whilst the Annual Allowance has suffered an 80% reduction, it may be possible to contribute up to £150,000 in a pension scheme, less the amount that is being invested in other pensions, including the NHS Pension.

The Financial Tips Bottom Line

Investing in pensions offers very attractive tax advantages, with up front tax relief at your marginal rate as well as tax efficient growth (for personal pension schemes).

It's a relief to see the new Government sweep away some of the complexity that is prevalent in the current legislation, as this can only encourage individuals to take advantage of the benefits that pensions can potentially deliver.

ACTION POINT

This is a great opportunity to ascertain whether you could/should be investing in pensions. If you've been reading our prose for any length of time, you'll know that we encourage all medics and dentists to take their overall position into consideration before making any important financial decisions.

Why not put this on your 'to do' list and aim to check uour personal situation before the end of the year?

Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com where you can request your free retirement planning guide.

Davos Annual Meeting 2010 - Global Economic Outlook

2010-05-26T07:54:00.000-07:00

Applying Economics to American History

2009-12-15T04:45:00.000-08:00

HTC You Campaign TV Commercial - You Are Different From You

2009-11-10T04:00:00.000-08:00

America's Cheapest Family Saving Money

2009-11-02T09:42:00.000-08:00

Peter Schiff on King World News | Part 3/3

2009-10-27T20:18:00.001-07:00

Peter Schiff on King World News | Part 2/3

2009-10-27T20:17:00.002-07:00

Peter Schiff on King World News | Part 1/3

2009-10-27T20:17:00.001-07:00

Flawed logic, dollar resumes decline, some personal talk :)

2009-09-30T14:02:00.001-07:00

2009 Economic Recovery update

2009-09-30T14:01:00.001-07:00

Is Bank of America Ready to Repay TARP?

2009-09-05T05:17:00.000-07:00

Will US Banking Collapse 2009?

2009-09-01T07:15:00.000-07:00

Ron Paul discusses Austrian vs. Keynesian economics on Morning Joe 05/15/2009

2009-08-13T02:10:00.001-07:00

The End Of The US Dollar - Weeks Away !!!

2009-07-06T22:37:00.001-07:00

Population Reduction after economic collapse 2009

2009-07-06T22:36:00.001-07:00

Fear Factor: Taking Shocks Out of Stocks

2009-05-19T06:23:00.001-07:00

Ten Principles of Economics 1

2009-05-13T06:01:00.001-07:00

Principles of economics, translated

2009-05-13T05:59:00.001-07:00

How To: Save More Money in 2009

2009-04-26T17:23:00.001-07:00

Solar Powered Car

2009-04-24T17:38:00.000-07:00

Insurance Agents : Training to Become an Insurance Agent

2009-04-23T04:43:00.000-07:00

Smaller Cars = Bigger Insurance Bills

2009-04-23T04:41:00.000-07:00

Analysis: Obama beats first national security test

2009-04-12T20:51:00.000-07:00

WASHINGTON – The U.S. economy is showing only glimmers of life and two costly wars remain in the balance, but President Barack Obama's "no drama" handling of the Indian Ocean hostage crisis proved a big win for his administration in its first critical national security test.

Obama's quiet backstage decision to authorize the Defense Department to take necessary action if Capt. Richard Phillips' life was in imminent danger gave a Navy commander the go-ahead to order snipers to fire on the pirates holding the cargo ship captain at gunpoint.

For Obama, the benefits were instantly clear: an American life saved and a major victory notched against an increasingly worrisome scourge of the seas off the Horn of Africa.

Obama's handling of the crisis showed a president who was comfortable in relying on the U.S. military, much as his predecessor, George W. Bush, did.

But it also showed a new commander in chief who was willing to use all the tools at his disposal, bringing in federal law enforcement officials to handle the judicial elements of the crisis.

The rescue appeared to vindicate Obama's muted but determined handling of the incident. What won't be known for some time is whether Obama will benefit politically.

When Obama campaigns for re-election, he may take Bush's approach of turning any such incident into evidence of his leadership acumen. On the other hand, Obama didn't go before the cameras Sunday to trumpet the success, instead releasing a written statement that saluted the bravery of the military and Phillips but claimed no credit for himself.

Also, this crisis, while topping the news now, may fade into distant memory by the time voters get a chance to take any new measure of Obama and his party.

Still, it goes some way toward dispelling the notion that a liberal Democrat with a known distaste for war — Obama campaigned on his consistent opposition to the Iraq invasion — doesn't have the chops to call on U.S. military power.

The sniper operation Sunday, with pirate guns aimed at Phillips, was a daring, high-stakes gambit, and it could have easily gone awry. If it had, the fallout would have probably landed hardest on Obama.

Indeed, the last Democratic president to unleash American military might against Somalis suffered miserably from the failure of that operation. Portrayed in the book and movie "Black Hawk Down," a U.S. peacekeeping mission ordered by President Bill Clinton ended with a humiliating withdrawal of troops after a deadly clash in the Somali capital of Mogadishu.

The outcome this time was vastly different.

Since the standoff began last Tuesday, Obama made no public, in-person remarks on the topic, even declining to answer when questions were shouted at him during a press availability.

He didn't call in his Cabinet for a high-profile command meeting. He let military and top administration officials do the talking, but even they kept saber-rattling out of the equation.

White House chief of staff Rahm Emanuel said Obama's silence should not be interpreted to mean that he wasn't deeply involved. The president's public posture was calculated to not raise the temperature on the situation or give the hostage-takers anything to exploit.

"Let's not confuse a public role with being on top of the situation," Emanuel said. "If you'd interjected yourself, you would make the discussions that were happening more difficult."

So what Obama did was receive regular briefings, sometimes as often as half a dozen times a day. He weighed in with two critical decisions allowing the military to take action to save Phillips' life. And he laid the groundwork for a federal criminal law enforcement response.

White House officials said the Justice Department is already reviewing evidence to determine whether to file criminal charges against the captured Somali pirate. The U.S. is treating the matter as a criminal case because officials have found no direct ties between East African pirates and terror groups.

Obama doesn't like labels for himself or catch phrases for policy. So it's notable that in an administration that has for all intents and purposes banned the phrase "war on terror," no one called the pirates "terrorists."

Chinese premier says economy improving

2009-04-12T20:50:00.001-07:00

BEIJING – Premier Wen Jiabao said China's economy was showing "positive changes" but called for more efforts to combat the impact of the global financial crisis, state media reported Sunday.

The economy showed "better than expected positive changes in the first quarter" due to Beijing's huge stimulus plan, Wen said on the sidelines of a planned Asian summit in Thailand, the Xinhua News Agency, state radio and other official media reported.

The East Asian Summit that Wen was supposed to attend with other regional leaders was canceled after anti-government protesters stormed the venue in Thailand.

At the summit, Wen had planned to announce a $10 billion fund for investment in Asian infrastructure-building and offer $15 billion in credit to Southeast Asian countries, Xinhua said, citing Foreign Minister Yang Jiechi.

Also Sunday, the People's Bank of China, the central bank, said in a statement it would ensure the financial system would have sufficient liquidity for economic development. The bank said it would boost financing for the agriculture sector and small and medium-size enterprises.

Citing improved investment, consumption and trade figures, Wen said some segments of the economy "are in a process of gradual recovery," Xinhua said. That data were reported earlier, and the premier gave no forecast of first-quarter economic growth, which China is due to report in the next few days.

Some analysts see a recovery taking shape in China as the 4 trillion yuan ($586 billion) stimulus boosts credit growth and demand for steel and other materials. But they caution that the indicators are tentative and show mostly the effect of government spending, while private consumption and investment are weaker.

China's economy is forecast to grow by at least 5 percent this year — the fastest rate of any major country, though down from last year's 9 percent and 13 percent in 2007. Chinese banks have avoided the turmoil that is battering Western financial systems.

Trade data reported Friday showed March exports falling 17 percent, but that was less severe than February's 25.7 percent plunge. A survey of companies released two weeks ago showed Chinese manufacturing expanded slightly in March after a painful monthslong contraction that wiped out at least 20 million jobs.

Wen, the country's No. 3 leader and top economic official, called for continued vigilance, China National Radio reported on its Web site.

"As the crisis has not touched its bottom, we can hardly say that the Chinese economy alone has got out of the crisis," he said. "What we should do is to exert our utmost efforts to minimize the effect of the crisis."

The Communist government worries about unrest if more jobs are lost.

Wen was asked whether Beijing would launch additional stimulus efforts and said it would step up efforts to carry out the current plan, state radio reported. Wen said last month the government was ready to enact additional plans if the impact of the crisis worsened.

"It is essential to closely follow up the changing economic situation at home and abroad, and hammer out new response plans whenever necessary," Wen said, according to China Radio International

'Economy is killing people'

2009-03-30T08:30:00.001-07:00

Stocks open higher, extend gains for 4th day

2009-03-13T07:49:00.000-07:00

NEW YORK – Stocks mostly rose Friday as investors tried to extend Wall Street's gains for a fourth straight day amid more encouraging comments from bank executives and better-than-expected trade data.

Reports that Citigroup Inc.'s chairman Richard Parsons said the bank doesn't need additional government support after receiving three rounds of emergency funding helped lift financial stocks.

The reports came a day after Bank of America Corp.'s chief executive Ken Lewis said his bank was profitable in January and February, extending a streak of optimism about financial shares that began on Tuesday when Citigroup said it was having its best quarter since 2007.

The three-day rally that ensued has lifted the Dow Jones industrials nearly 10 percent.

The market has been quick to embrace the encouraging signs about the financial system after weeks of unrelenting selling spurred on by concerns that the government's efforts to break a freeze in lending weren't working.

A government report Friday showing that the U.S. trade gap narrowed in January also helped buoy the market.

The Commerce Department said the trade imbalance dropped to $36 billion in the first month of the year, a 9.7 percent decline from December and the lowest level since October 2002. The improvement reflects a drop in demand for crude oil imports and other foreign goods.

Stocks have also been lifted this week by surprisingly positive reports from companies across a wide range of industries. General Motors Corp. said Thursday it wouldn't need the latest installment of government bailout money, and General Electric Co.'s credit rating cut on the same day wasn't as bad as some had feared.

Analysts caution, however, that the rally could be short-lived.

"We are going to remain cautious because the slightest bit of bad news could turn this thing around," said Joe Arnold, investment adviser at Dawson Wealth Management.

In the first hour of trading, the Dow Jones industrial average rose 28.11, or 0.4 percent, to 7,198.17. The Standard & Poor's 500 index gained 2.35, or 0.3 percent, to 753.09, while the Nasdaq composite index slipped 1.89, or 0.1 percent, to 1,424.21.

The Russell 2000 index of smaller companies slipped 0.39, or 0.1 percent, to 389.73.

About five stocks rose for every three that fell on the New York Stock Exchange, where volume came to 200.2 million shares.

There was renewed hope Friday for fresh stimulus measures in China and Japan. Chinese Premier Wen Jiabao says the government is ready to roll out even more measures, while Japan's prime minister is calling for a new stimulus package.

The news, which sent overseas markets surging, comes ahead of the gathering of finance ministers and central bankers from the Group of 20 countries on Friday and Saturday. Europeans are calling for greater oversight of financial markets, while the U.S. is backing bigger stimulus spending.

Analysts said technical factors that have helped drive the market this week are likely to continue Friday, including short-covering, when traders buy stock to cover "short" bets, or bets that a stock will fall.

Also feeding optimism about banks this week was news that an accounting board may recommend an easing of financial reporting rules of tough-to-sell assets. Banks say a change in so-called "mark-to-market" accounting rules would help their bottom lines.

Meanwhile, the Securities and Exchange Commission has said it is considering reinstating the "Uptick Rule." The rule, eliminated in 2007, is aimed at curbing short-selling, which can exacerbate stock declines.

Citigroup shares added 16 cents, or 9.6 percent, to $1.83, while Bank of America shares rose 30 cents, or 5.1 percent, to $6.15.

Bonds were mixed early Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.91 percent from 2.86 percent late Thursday. The yield on the three-month T-bill fell to 0.19 percent from 0.22 percent late Thursday.

The dollar fell against other major currencies, while gold prices rose.

Light, sweet crude for April delivery rose 6 cents to $47.09 a barrel on the New York Mercantile Exchange.

Earlier, Japan's Nikkei stock average jumped 5.15 percent, while Hong Kong's Hang Seng index rallied 4.37 percent. In afternoon trading, Britain's FTSE 100 was up 1.85 percent, Germany's DAX index was up 1.38 percent, and France's CAC-40 was up 1.58 percent.

Extent of the Economic Crisis - Stephen Roach

2009-02-22T04:05:00.000-08:00

The Quicker the Payback, the More You Save

2009-02-11T04:24:00.001-08:00

If you take out a loan for a car, get the shortest payback time you can comfortably handle. While monthly payments can be reduced by stretching them out over more time, only a lower interest rate, a smaller loan, or a shorter term will lower the total expense.

A $15,000 loan at 8% for five years, for example, will cost $3,240 in interest. You would save $672 if you paid an extra $62 a month for the same size loan over four years. The total interest cost would drop to $2,568.

Borrow Against Investments

2009-02-11T04:22:00.000-08:00

Another option is to borrow at an attractive interest rate, with a flexible repayment plan, against a securities portfolio, passbook savings account, or a cash value life insurance policy.

Borrow From a Bank, Credit Union, or Finance Company

2009-02-11T04:20:00.000-08:00

Banks and credit unions usually offer set, nonnegotiable rates, often less expensive than dealer financing. (They are also less likely to push the unnecessary expense of credit life insurance, which ensures that the loan will be paid off if you die prematurely.) Membership credit unions that offer auto loans typically offer lower rates than banks and finance companies. But finance companies -- often the most expensive of all -- may accept borrowers who are greater credit risks.

In 1991, the IRS eliminated the income tax deduction for interest on most personal loans. The major exception is interest on a home equity loan, which is tax deductible on principal up to $100,000 no matter how you spend the money.

Some banks now offer "tax-smart" loans to give back the car-loan deduction to consumers. A tax-smart loan combines the ease of a regular auto loan with the tax deductibility of a home equity loan. With a tax-smart loan, you do not have to go through the closing procedures and expense required by a regular home equity loan. And you can usually borrow up to 100% of the equity in your home. Unlike a regular home equity loan, the primary collateral on a tax-smart loan is the automobile. To earn the tax benefit, a lien is placed on the home as well.

While tax-smart loans may be smart for the bank that offers them, they may not be such a great deal for the borrower. A tax-smart loan is safe for a bank to make: it has the security collateral of both your car and your house. The bank usually charges the same interest rate on a tax-smart loan as on a regular auto loan, which could be significantly more than the rate charged on a home equity loan.

Not only are you tying up the equity in your car and home for this loan, the savings you realize on the tax deduction may be less than the money you save with a lower-rate loan.

Borrow From a Dealer

2009-02-11T04:19:00.002-08:00

Convenience is the word here. With many car companies having their own lending affiliates like GMAC (General Motors Acceptance Corporation) you can choose a car and a loan in one application process. The process is usually quicker than applying for a bank loan, and dealers are more likely than banks to qualify buyers with less-than-perfect credit ratings. They also usually help customers with special needs, like first-time buyers and recent college graduates. Best of all, car companies sometimes offer low-rate promotional financing on certain models. (But don't expect discount financing on popular models.) The downside? Dealer financing can be more expensive, particularly for poorly informed buyers. (Dealers can sometimes make as much on the financing as on the sale itself!)

Negotiate the car's price before you talk about the terms of a loan, so the dealer can't hike the car's price to give you a lower-rate loan. Even if you get low dealer financing rates of 2% to 5%, there's a catch: these loans are usually short term. Since many must be repaid in 24 months, monthly payments can be steep.

Shop Around for Financing

2009-02-11T04:19:00.001-08:00

All lenders are not alike. You can save hundreds of dollars by shopping around to find the best financing deal. Before you sign anything, talk with several lending institutions so you'll know their current loan rates. Then see if a dealer can give you a better rate.

And even if you get a low loan rate, perhaps a promotional rate, watch out when the financing salesperson starts selling. You probably don't need the extra life insurance, extra accident or health insurance, or extra protection for their rustproofing and undercoating

Preapproval Can Be a Plus

2009-02-11T04:18:00.001-08:00

Just as you want to pay the best price for a car, you should also comparison shop for the best deal on a car loan. And the ideal time to shop for a car loan is before you shop for a car.

Getting your loan preapproved before you start looking for a car is like shopping with cash. You can drive the car right off the lot -- no more waiting for the loan to be approved and disbursed and taking the check back to the dealer. In most cases the loan can be approved by your lender in a couple of days

Financing a New Car

2009-02-11T04:17:00.000-08:00

Unless you're among the minority of people who pay cash, you need to quickly become an informed consumer on the subject of financing if you're considering buying a new car. For most new-car buyers, one of the biggest costs of purchasing a new car is interest on the loan that makes the purchase possible. But there are a variety of ways to finance a car, and knowing your options can help save you money.

Extent of the Economic Crisis - Stephen Roach

2009-02-05T06:24:00.000-08:00

Red Alert! British Economic Collapse

2009-01-30T01:48:00.002-08:00

Economic Alert For 2009

2009-01-30T01:48:00.001-08:00

Surviving the Economic Collapse 2009 Re: Manoftruth

2009-01-30T01:47:00.001-08:00

Congress takes up economic plans, Treasury nominee

2009-01-26T02:54:00.000-08:00

WASHINGTON – Congress is set to tackle the economy this week by considering President Barack Obama's choice to head the Treasury Department and by acting on legislation to spur economic growth.

The Senate could confirm Timothy Geithner as Treasury secretary as early as Monday, after delaying a vote because Geithner failed to pay some of his federal taxes earlier this decade. Geithner settled his delinquent taxes shortly before Obama nominated him, and senators from both parties have said they expect him to be confirmed. Geithner would oversee the financial industry bailout approved by Congress.

Senate committees are scheduled to take up the massive economic stimulus package Tuesday and the full House is expected to vote on its version of the $825 billion plan Wednesday. The packages dedicate about two-thirds to new government spending and the rest to tax cuts. The proposals would combine tax cuts for individuals and businesses, help for cash-strapped state governments, aid for the poor and unemployed, and direct spending by the federal government.

The goal is to infuse money directly into the economy in the hope of bringing the nation out of recession, while creating 3 million to 4 million jobs. It would be largest economic recovery package ever enacted.

"These problems weren't made in a day or a week or a month or even a year, and they're not going to get solved that fast," said Lawrence Summers, a top economic adviser to Obama.

Congress has given Obama permission to spend the second $350 billion of the Wall Street bailout package. House Speaker Nancy Pelosi, D-Calif., said she is open to additional government rescue money for banks and financial institutions. But she said taxpayers must get an ownership stake in return.

Vice President Joe Biden said Geithner will recommend whether more money is needed for the banks.

On Sunday, Democrats sought to lower expectations for a quick economic recovery, even with major government intervention to stimulate the economy and save financial institutions.

"We're off and running, but it's going to get worse before it gets better," Biden said of the economy.

Republicans want the recovery package tilted more toward tax cuts and have questioned whether government spending programs will revive the economy in the short-term.

"I just think there's a lot of slow-moving government spending in this program that won't work," House Republican leader John Boehner of Ohio said. "We can't borrow and spend our way back to prosperity."

The administration has pledged to spend three-quarters of the proposed money in the first 18 months after it is approved.

Obama met with Republican and Democratic congressional leaders at the White House last week to listen to Republican concerns about the package. Obama plans to meet with more Republican lawmakers this week, though Boehner said there is little support among House Republicans for the package in its current form.

House Democrats, if united, have a large enough majority to pass it without GOP backing. But Obama is seeking bipartisan support on this critical early test of his presidency. Senate Republicans could block the package but they would have to be united to do so.

Biden appeared on CBS' "Face the Nation," Pelosi was on ABC's "This Week," and Summers and Boehner spoke on NBC's "Meet the Press."

Ron Paul on Israel, Crisis, Obama

2009-01-20T07:01:00.000-08:00

Peter Schiff - Obamanomics Will Accelerate An American Economic Collapse Into A Great Depression

2009-01-15T06:59:00.000-08:00

Oil rises to near $39 on Bernanke comments

2009-01-14T03:03:00.000-08:00

SINGAPORE (AP) -- Oil prices rose to near $39 a barrel Wednesday in Asia after Federal Reserve Chairman Ben Bernanke said a stimulus package could help revitalize the ailing U.S. economy.

Light, sweet crude for February delivery was up $1.06 to $38.84 a barrel by midafternoon in Singapore in electronic trading on the New York Mercantile Exchange after trading as high as $39.36. The contract rose overnight 19 cents to settle at $37.78.

Bernanke said Tuesday that a $700 billion financial rescue program being discussed by Congress was needed to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s. The stimulus package "could provide a significant boost to economic activity," he said.

Traders said low volumes in Asian trading also helped spur volatility.

"You're seeing a reaction to Bernanke's comments and an illiquid market retrace toward $40," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "We've also come off about $12 without a bounce, so it's a combination of those three factors."

Prices have fallen from as high as $50.47 last week on increased investor concern that a slowing global economy will hurt crude demand.

Investors will be watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department's Energy Information Administration.

The report is expected to show that oil stocks rose 3 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos. The department said in last week's report that oil stocks jumped 6.7 million barrels the previous week.

The Platts survey also projects that gasoline inventories increased 1.8 million barrels and distillates gained 1.7 million barrels last week.

Investors are anticipating crude demand may recover, based on the prices of monthly contracts later this year. The May contract, for example, trades at $50.88 a barrel.

"You're seeing the full weight of the demand destruction pulling the front-month February contract lower while any stimulus would have more of an affect further out," Kornafel said.

In other Nymex trading, gasoline futures rose 0.31 cent $1.15 a gallon. Heating oil gained 0.87 cent to $1.52 a gallon while natural gas for February delivery increased jumped 4.1 cents to $5.23 per 1,000 cubic feet.

In London, February Brent crude rose 32 cents to $45.15 a barrel on the ICE Futures exchange.

Russia, Ukraine back off energy war, will send gas

2009-01-08T09:28:00.000-08:00

BRUSSELS, Belgium – Russia and Ukraine backed off from their energy war Thursday, promising to start resending Russian gas over Ukrainian pipelines to EU customers shivering through a widespread cold snap.

European Union governments have blasted both countries, saying it was unacceptable to see homes unheated and businesses closing due to gas shortages because neither Russia or Ukraine could stick to their supply contracts.

Russia's state-owned Gazprom and Ukraine's Naftogaz were in talks on Thursday for the first time since payment negotiations broke off on New Year's Eve.

The companies and officials from the two nations said they were willing to start pumping gas to Europe and would accept having monitors check on the gas flow — but they were less confident about solving the root causes of the dispute.

"We don't want war, (a) propaganda gas war," Ukrainian Deputy Prime Minister Hryhoriy Nemyrya told reporters, saying Naftogaz would need around 36 hours to restore supplies.

Gazprom and Naftogaz continued to blame each other during visits Thursday to Brussels.

Gazprom CEO Alexei Miller suggested that countries that believe they have suffered from the gas cutoff could sue Ukraine. And Naftogaz chief executive Oleh Dubina complained that Gazprom was charging Belarus far less for gas than Ukraine.

Other Ukrainian officials alleged Russia was trying to destroy Naftogaz and the Ukrainian economy during the global financial meltdown.

One key issue is still far from resolved: Russian allegations that Ukraine siphoned off Russian gas to Europe for its own needs without paying for it. Dubina said that Naftogaz needed to use this 'technical gas' to maintain pressure in the pipeline to get gas west to Europe.

Europeans were reluctant to get drawn in.

"The EU is not going to take sides," said European Commission diplomat Gunnar Wiegand. "EU supplies must be treated separately" to bilateral problems between Russia and Ukraine.

Gazprom's Miller said monitors would come from the Russian and Ukrainian energy ministries, European customer companies and the European Commission.

Europe depends on Russia for one-quarter of its natural gas, and about 80 percent of that is shipped through pipelines crossing Ukraine. Other smaller pipelines run through Belarus and Turkey.

At least 15 nations — Austria, Bulgaria, Bosnia, Croatia, the Czech Republic, France, Greece, Hungary, Italy, Macedonia, Romania, Serbia, Slovakia, Slovenia and Turkey — all reported a halt in Russian gas shipments by Wednesday. Germany and Poland also reported substantial drops in supplies.

The first gas resupplies would be piped to Bulgaria, where shortages have shuttered major factories and left cities shivering.

At least 11 people have frozen to death this week in Europe, including 10 people in Poland, where temperatures sunk to minus 13 degrees Fahrenheit (minus 25 Celsius ).

Angry Bulgarians protested in front of the Ukrainian embassy in Sofia on Thursday, holding signs reading "We are not hostages" and accusing Russia and Ukraine of being "gas terrorists."

Orthodox priests fired up wood-burning stoves in Bulgaria to keep their churches warm, while residents of the capital blew on their hands as they rode unheated trams.

In Bosnia, which does not have any gas reserves, woodcutters braved below-freezing temperatures as people turned to their fireplaces or stoves for heat.

Manufacturers in Bulgaria, Hungary, and Slovakia were slammed by government-decreed gas rationing or outright shortages.

Bulgarian Economy Minister Petar Dimitrov said that 152 companies have reported losses totaling to euro4.3 million ($5.9 million) per day.

Slovakia, which declared a state of emergency, ordered 1,000 companies across the country to reduce gas consumption so that homes, hospitals and schools could get heat.

In Hungary, power plants were asked to switch from gas to other fuels, mainly oil or even coal, and rationing was blamed for scores of factory closings, including carmaker Magyar Suzuki, Canadian train carriage manufacturer Bombardier and even Pick, makers of Hungary's most famous salami.

Hungary also said it would sell natural gas Thursday to neighboring Serbia, where the heating situation was even worse.

Even Kiev, the Ukrainian capital, had heating problems Thursday, with residents forced to bundle in winter clothes and turn on electric heaters to keep warm.

Russia is demanding that Ukraine pay significantly more for its gas. Last year, Russia charged Ukraine $179.50 per 1,000 cubic meters, about half what it charged its European customers, and President Dmitry Medvedev says he wants Ukraine to pay full price.

Naftogaz deputy chief Volodymyr Trikolich said his company continues to insist on a price of $201 per 1,000 cubic meters and wants to raise the transit fee Russia pays to use Ukraine's pipelines from $1.70 to $2 per 100 kilometers.

Medvedev also demanded full payment of Ukraine's $600 million alleged debt to Gazprom, which Ukraine has said it will not pay until the issue is settled in arbitration courts.

Recession-Proof Cars

2009-01-06T04:48:00.000-08:00

While we're all griping about yet another handout to the least-deserving, worst-performing businesses in this country, there's something especially galling about this one to many of us who cover the auto biz. See, while we often get accused of rooting against the domestics, that's a downright lie. The problem isn't that American carmakers can't build great cars. They can. That's just the point. They can and they do: the Ford F-150, Chevy Silverado, and Dodge Ram are all superior to their Japanese competition. But then look at what cars are actually selling in this economy, and you see examples like the Honda Fit. Why do we have to rely on Honda to give us a successful small car like the Fit or the Civic, although Ford can sell the Focus, the Ka, and the Fiesta in Europe—models that are so much better than the domestic versions? We'll get fuel-efficient economy cars, if Ford lives long enough to bring them to market. Those European Fords are fine examples of management understanding how to make great cars—but not seeing how to get them to market faster than their competition.

But there are some good deals out there in this recession; cars that are worth the price and will hold their value. And in spite of our exasperation, we don't advise buyers to to ignore the American brands. Our outlook is more nuanced than that, although unfortunately for the Wee Three's sake, it's still not the story they want to read. Here's the breakdown, and the logic behind it.

Prime Minister Gordon Brown arrives at Downing Street

2009-01-03T17:22:00.000-08:00

10 Predictions for 2009

2008-12-29T03:43:00.000-08:00

ByDavid Sterman, RealMoney Contributor

Here's a list of trends that may play out, both expected and unexpected.

1.New jobless claims peak in the second quarter; net job creation takes two to three more quarters. The largest U.S. employers make their biggest restructuring moves by the end of March. A surge in bankruptcies among large and small firms pushes the peak of new unemployment claims out into the second quarter. The Obama stimulus plan helps to create positive employment numbers in the second half of 2009, but private sector employment doesn't start to build up steam until 2010 or 2011.

2.Fueled by another large deal, airline stocks deliver the strongest gains. Although demand for air travel remains fairly weak, the sharp drop in oil prices, coupled with recent large headcount reductions, enable the sector to generate an impressive earnings snapback. Investors come to view the sector as poised for record profits when the economy rebounds. Noting the impressive synergies ultimately derived from the merger of Delta and Northwest, Continental , UAL and/or Southwest seek out deals.

3.Steve Jobs gets kicked upstairs. Realizing that investors are overlooking Apple's management bench strength, Steve Jobs relinquishes the CEO title and remains as Chairman, as Microsoft's Bill Gates did a few years back. Shares of Apple drift lower in the first half of the year as rivals roll out increasingly competitive new products. Shares of Apple post a solid second-half rebound as the company introduces its next breakthrough device. Apple's 2008 decision to open up application development to third parties spawns a range of hot-selling new uses for the iPhone in 2009.

4.Brazil becomes an investor magnet. Global investors begin to differentiate Brazil from China and India, highlighting Brazil's strong finances, impressive agricultural and oil output and anchor status in South America. The Bovespa posts the strongest record of any major index, augmented for U.S. investors by a strengthening in the real against the dollar.

5.Venture capitalists start to get anxious. With pensions and endowments looking to pull some money out of venture capital funds, the venture capitalist firms seek ways to monetize their holdings. As the IPO market remains largely closed, they seek out large public tech companies to buy out their stakes at large discounts to recent financing rounds.

6.The British and Japanese economies are among the weakest in 2009. Britain's consumer hangover proves to be as deep as the U.S.'s, but a relative lack of stimulus leads to an even deeper economic contraction in the U.K. The British pound weakens anew to multi-decade lows, enabling tourism to be one of the country's few bright spots. Japan's strengthening currency creates even more pressure on the nation's exporters, while rapidly aging Japanese consumers grow even more cautious. The current government, which has few viable options, comes under fire, leading to early elections.

7.The housing crisis is prolonged as investors look past the "new home formation" myth. While economists currently anticipate a spike in housing demand as the inventory of unsold homes should meaningfully shrink, they will eventually trim their rosy expectations as the weak economy leads many twentysomethings to stay with their parents. As a result, the percentage of people owning their homes falls more than 400 basis points from the recent peak, to below 64%. Offsetting this, very low mortgage rates stimulate rising demand from creditworthy buyers, which frees up savings by refinancing at lower rates.

8.Community college enrollment soars. Many cash-strapped parents conclude that they should save money by asking their kids to start at a local two-year school before transferring to universities after the first or second year. Enrollment at many major universities falls, leading to cash flow pressures and service cutbacks.

9.The biotech industry reaches a crisis point. Many promising biotech drug trials are trimmed or halted as the companies move to conserve remaining cash. M&A and joint venture funding provides a lifeline to the most promising later-stage drugs, but earlier-stage speculative drug development grinds to a crawl. A large drug company, such as Merck or Pfizer , chooses to change its business model and deploy its strong balance sheet to aggressively build biotech pipelines.

10.Exogenous shock leads to capitulation. An unforeseen jolt to the market, such as a terrorist event or a natural disaster, leads to a sharp selloff, allowing many to finally and correctly call a market bottom. The next bull market begins. By the end of 2009, investors flock to small caps, as they have done near the end of previous downturns.

Nouriel Roubini: 'There Is a Global Deflationary Risk'

2008-12-24T07:32:00.001-08:00

U.S. Economy : The Philosopher's Stone

2008-12-21T21:25:00.000-08:00

Someone predicted this economic collapse A year ago, who?

2008-12-15T07:20:00.001-08:00

Money and Responsibility: Teach Your Children to Give and to Save

2008-12-09T03:44:00.000-08:00

(ARA) - Teaching your children the value of fiscal and social responsibility may seem like a challenge in any economy. There is good news. By financially educating your children early you will empower them and yourself. With the holidays approaching, and your children now in school, this is the perfect time to teach them these important life skills.

"There's no better way to lead than by example," says Bob Damante, CFO with SBLI USA Mutual Life Insurance Company, Inc. "While you're helping your children assess their finances, look at your own. Where is your money going? Are you saving enough for retirement? How much life insurance coverage do you have? As your children go through school and off to college, it's important they have a strong financial foundation to fall back on should something happen to you." The SBLI USA Web site, located at www.sbliusa.com, features a collection of informative articles and brochures with financial advice on a broad range of subjects.

Here are some tips on teaching your children to earn money, save money, and use it to help themselves and others.

1. Lead By Example -- De-Clutter!

* De-cluttering your life is the first step to positive change. Start with your own closet and explain to your children that removing outgrown or unused clothing and toys makes room for new items they may acquire.

* Donate your gently-used items to a local shelter or charity.

2. Allowance -- A first paycheck.

* Set a weekly allowance: You can also pay your children for special jobs they do around the house to lend a sense of accomplishment and responsibility; encourage them to seek out money-making ideas on their own!

* Break the allowance into bills and coins that will be easy to separate for budgeting.

3. Teach your children to budget -- A great first step to responsibility.

* Use three piggy banks, or envelopes: one for savings, another for a charity of their choice, and the third to hold money they plan to spend.

* For young children, money is a hard concept to grasp. Use visuals such as chocolate chips or raisins to represent income; taking them away to represent expenses.

* Start a journal and keep it simple; allowance on one side and expenses on the other. This will help your children develop a better understanding and appreciation for money earned, money spent, and overall costs.

* This will get you more organized to boot. Go to the financial planning articles at www.sbliusa.com for more tips on creating a budget.

4. Open a savings account with your child.

* As soon as your children are old enough to understand the value of saving, typically around the age of 5 or 6, take them to the bank and open a savings account.

* Teach them how to deposit money into their accounts or an ATM; also, plan regular visits to your bank's online banking center.

* Explain that money put into the bank will earn interest and continue to grow.

5. Technology -- Use it to your advantage.

* Technology is drawing children into the world of money faster than ever before. Remember, this can be an extremely beneficial teaching tool.

* To explore fun, kid-friendly financial concepts and budgeting online with your children, visit www.pbskids.org/itsmylife/money.

* Before buying something new, ask your children if there is something they can sell online first. They'll make money toward their purchase and become more aware of the value of what they're selling and purchasing.

* Remember to lead by example; teach your children about online banking and bill payment by letting them watch you.

6. Teach your child the value of making sacrifices now to benefit later.

* Your children should experience from an early age the rewards of setting aside money either to save or to help others.

* Teach your children to save by sacrificing a night out to enjoy a movie and snack at home.

* Teach your children to manage their cell phone usage online. This is a great way to teach them responsibility. If they go over, or have an unusually high bill, explain that they will need to pay for a portion of it. They will quickly learn the value of staying on top of their expenses!

* Most importantly, teach your children the value and reward of giving to others. Have them research a charity, or volunteer on their own. For volunteer ideas go to www.usafreedomcorpskids.gov.

A New Twist on Home Economics

2008-12-09T03:42:00.001-08:00

(ARA) - Generations of American girls learned how to run a household in high school home economics classes. In the 21st century, girls are learning how to build the house -- and shopping malls, office buildings and virtually every other kind of structure on the American landscape.

The construction industry is poised to grow, and women's role in that growth is expanding as well. In 2007, women accounted for 9 percent of the nearly 12 million jobs in the construction industry, and their numbers are steadily growing, according Bureau of Labor Statistics figures. The architecture and engineering fields, specifically, have seen significant growth of women workers, with women accounting for 14 percent of that segment's work force.

Women are actively involved like never before in all facets of construction, including architecture, engineering, trucking/hauling, excavation, building, design and even business ownership.

"The key to the growth is education," says Dede Hughes executive vice president of the National Association of Women in Construction (NAWIC), which has been supporting women in construction for more than 50 years. "Construction is not an industry that is typically promoted to young women as a career option. It is one, however, that with any level of education, you can earn a living."

As more educational programs impact youth, the diversity in the construction workforce will undoubtedly continue to increase. In the last five years, NAWIC and other organizations have established a variety of programs geared toward educating girls and young women about construction career opportunities. These programs include competitions, week-long summer camps for elementary to high school girls, and presentations at schools.

Block-Kids

First through sixth grade students build structures using interlocking blocks, small rock, string, foil and poster board in the Block-Kids Building Program. NAWIC chapters and other organizations sponsor the national building program competition through NAWIC the Education Foundation (NEF). Many students return yearly to participate in this competition.

Rosie's Girls Camp

Rosie's Girls Camp is a three-week summer day camp for girls entering sixth through eighth grade. Activities include using basic tools such as hammers and saws for carpentry and other hands-on projects. Girls design and produce their own tool box and work on community-based projects, which promotes confidence and a can-do attitude. They learn about creative arts activities like poetry and stand-up comedy, as well as physical activity challenges that encourage them to go beyond the "I'm just a girl" attitude to one that proclaims "I'm a girl who can do anything."

MAGIC Summer Camp

Local chapters of NAWIC and MAGIC (Mentoring a Girl in Construction) Summer Camp Inc., sponsor MAGIC Summer Camp programs throughout the nation. Founder Renee Conner, a member of the Sugarloaf, Ga. NAWIC Chapter has seen the program grow from its first camp in Georgia to rapidly expand throughout the states. MAGIC Summer Camp is a one-week day camp designed to introduce high school girls to exciting careers in construction. Girls learn about various employment opportunities in construction, and participate in hands-on activities to promote construction skills.

Build Your Future

Build Your Future is a program of the National Center for Construction Education and Research (NCCER) designed to promote the construction industry to future employees. One activity is Careers in Construction Week, which unites the community, schools and various companies in the construction industry. NCCER also provides promotional material and a career Web site to further encourage students to pursue a career in construction. NCCER and NAWIC work in conjunction to promote Build Your Future activities.

More and more women today are not satisfied with making a home comfortable; they want to make a comfortable home designed and built by their own two hands. Where once home economic courses alluded to "making a home nice," now women are creating communities that include the malls, parks, new housing and office complexes too.

Visit www.nawic.org for more information about any of these opportunities.

Courtesy of ARAcontent

Stocks rise after big drop a day earlier

2008-12-02T07:53:00.000-08:00

NEW YORK – Wall Street advanced cautiously Tuesday, as investors waded back into the market in search of bargains after Monday's big selloff, ever mindful of the health of the financial, retail and auto sectors.

Some buying was to be expected after the stock market suffered one of its worst days since the start of the financial crisis on Monday, as a litany of bad economic news sent investors to the sidelines.

But investors remain wary of the health of the financial sector, following a report that Goldman Sachs Group Inc. could face losses totaling $2 billion when it reports its fiscal fourth-quarter results because of continued market turmoil. The report underscored concerns that banks will be saddled with more losses in the coming quarters due to the ongoing troubles in the credit and housing markets.

Signs that retailers are still struggling amid a sharp pullback in consumer spending has also kept the market on edge. Wall Street has been worried that a decline in consumer spending will make it even more difficult for an economic recovery.

Sears Holdings Corp., battered by hefty charges and weak results at its U.S. department stores and Kmart locations, reported that it swung to a loss in the quarter. The company has previously said it will close eight more underperforming stores this year.

Office supply chain Staples Inc., meanwhile, said its third-quarter profit dropped 43 percent because of hefty charges from restructuring and an acquisition. Excluding the charges, results topped Wall Street estimates. Revenue rose 35 percent, even though North American retail sales suffered.

Investors have been worried that the crucial holiday shopping season will be one of the weakest in decades, a troubling sign for stores and the overall economy.

The nation's top three automakers are once again in focus, as Wall Street anxiously awaits some sort of resolution for General Motors Corp., Ford Motor Co. and Chrysler LLC, which are seeking $25 billion in government support. The companies are scheduled to submit to Congress Tuesday their plans for remaking themselves with government money.

Major carmakers are also expected to report U.S. sales figures for the month of November Tuesday, with analysts expecting grim results as the recession curtails demand.

In the first half-hour of trading, the Dow Jones industrial average rose 38.47, or 0.47 percent, to 8,187.56. Standard & Poor's 500 index rose 6.16, or 0.75 percent, to 822.37, while the Nasdaq composite index gained 8.30, or 0.59 percent, to 1,406.37.

Porsche sees sales falling around 15%

2008-11-26T04:30:00.000-08:00

LONDON (MarketWatch) -- German sports car maker Porsche Automobil Holding said Wednesday that sales are likely to fall close to 15% in the first four months of its fiscal year as demand for high-end cars slumps.

The statement came as Porsche's (DE:PAH003: news, chart, profile) CEO Wendelin Wiedeking reportedly told a meeting in Frankfurt that the company is increasingly unlikely to raise its stake in Volkswagen (DE:766400: news, chart, profile) above 50%before the end of the year.

The group said sales in the first four months of the fiscal year will be slightly above 2 billion euros, compared to 2.36 billion euros a year earlier. Vehicle sales will be around 25,200, down from 30,700 units year-on-year.
"The signs of a severe decrease in demand in the automotive industry are unmistakable the world over, and it is virtually impossible to calculate further developments particularly in the U.S., Porsche's largest single market," the group said in a statement.

Porsche earlier this month reported a 51% jump in net profit for the fiscal year ended July 31, mainly due to gains from options it held on Volkswagen shares, though it also said at the time that sales in the current fiscal year would likely fall back as economic conditions worsened

The group intends to build its stake in Volkswagen to around 75%. But Wiedeking said the financial crisis means it's unlikely the stake will reach 50% before the end of 2008, according to a Dow Jones Newswires report.

Porsche executives added the initial goal is still to take the stake to more than 50%as soon as possible, but it won't acquire shares at an unrealistic price, the report said.

Shares in Porsche rose 4% in midmorning Frankfurt trading and Volkswagen shares were up 6.3% amid gains across the automotive sector.
Porsche's announcement in October that it would increase its stake to 75% caused Volkswagen shares to surge -- briefly making it the world's biggest company -- as short-sellers scrambled for the exits

Read more...

How to Balance a Checkbook : How to Save Money for Emergencies

2008-11-21T19:37:00.000-08:00

More Employees Stay in Their Jobs

2008-11-19T09:43:00.000-08:00

A growing number of professionals are saying "no, thanks" to prospective employers asking them to change jobs.

Spooked by the shaky economy, 46% of U.S. middle managers polled in mid-September said switching employers in the current environment is risky, according to a survey by Accenture Ltd. Just 13% of respondents said they were actively looking for a new job, down from 30% the last time Accenture conducted a similar survey in 2005.

The findings are echoed by search-firm recruiters, who say they are having to work harder just to get professionals to hear out job opportunities they have to offer. And dire tales of people losing their jobs shortly after being hired, although rare, are helping to spread caution among workers.

Many employees are hesitant to join new companies because "there's a level of uncertainty," says David Smith, managing director of talent and organization performance at Accenture, a global consulting company. It's unclear whether a different employer will be able to provide sufficient job security, training, advancement opportunities and other benefits. By contrast, they know what's available to them where they work now, he says.

The Accenture survey, to be released Thursday, polled via the Internet 322 middle managers, including account supervisors, associate vice presidents and sales managers. In its 2005 survey, which polled 225 professionals about their job outlooks, Accenture didn't ask about perceptions of risk because the economy was strong at the time, a spokesman says.

Professionals who are considering switching jobs should carefully vet the financial health of a prospective employer, job recruiters say. To protect themselves, job candidates also should try to request that a severance package be included in any employment contract.

Though the hedge fund followed through on a promise to pay the candidate a $32,000 sign-on bonus, he was left initially without a job, says Mr. Weiss, who adds that this is the first time he has seen a job fall through at such a late stage of the process. The IT professional recently was hired by a foreign bank, the recruiter says.

Search firms say they are finding it harder to lure prospective candidates. "We have to really create for them something that is a sure thing," says Robin Bland, a senior recruiter at QuestPro, a search firm in Dallas that specializes in the insurance industry. "We have to bombard them with information about a potential employer so they feel secure about it."

Candidates also are taking longer to make up their minds about a job offer, says Aaron Brooks, managing director at Chicago-based search firm Mergis Group. "Companies need to realize that candidates are more in the driver's seat than they might think," he says.

Professionals should consider that when an employer needs to lay off workers, "sometimes it's last in, first out," says Dale Winston, chairman and chief executive officer of Battalia Winston International, an executive-search firm based in New York. In other instances, an entire division may be cut.

Kevin Burke was laid off earlier this month as a vice president of finance at a large chemical manufacturer after just seven months at the job. He had relocated his family for the position from Ohio to Missouri, where he bought a home. He says the company was having financial troubles and eliminated the department he worked in. "I certainly was surprised," he says.

Mr. Burke, 41 years old, had left behind a similar job at an automotive manufacturer. Despite the upheaval, he says, he doesn't blame his latest employer for what happened. "Market conditions dictated this result," he says. "Nobody expected the economy to burst as it has."

Workers may have good reason to be cautious about making a career move at such an economically volatile time. Consider what happened to an information-technology professional who resigned from his job at a New York investment bank. In late September, the employee accepted a written offer for a management job paying $120,000 a year. Days before he was to start, the new employer, a New York-based hedge fund, decided not to fill the position, citing upheaval in the financial markets as the reason, says Ron Weiss, a partner at search firm BMW Group Inc., who had introduced the parties to each other.

Job candidates may be able to protect themselves to some degree by asking prospective employers some direct questions, says Paula Marks, an executive coach and managing partner at Gilbert Tweed Associates, an executive-search firm in New York. For example: What's the financial status of the company? What is the employee turnover like? Do you expect the company to be sold anytime soon? When was the last time you had layoffs? What criteria did you use for those layoffs?

Meanwhile, do some research on your own, adds Ms. Marks. Search the Web for news articles for insight into a potential new employer's financial status and layoff history. If it's a public company, review its 10-K filings with the Securities and Exchange Commission -- documents that summarize a public company's performance. Networking is also critical, says Ms. Marks. Seek out referrals to past and present employees at the company you're considering joining to get their opinions and more information about the organization.

Candidates also should try to secure a severance package as part of their employment contract and have an attorney review it before accepting a job offer, says Ms. Marks. Propose the same size package your current employer has promised you if you were to be dismissed, she advises. Should you want another amount, offer what you're most comfortable with. If your request is rejected, consider turning the offer down. "You have to protect yourself," she says.

It's wise to weigh the pros and cons of a job change with a professional career coach or mentor, says Ms. Marks. "Don't discuss it with friends and family. They bring their own baggage, their own fears."

news by Sarah E. Needleman

Lehman Boss Fuld To Put $20 Million Of Art Collection On The Block At Christie's Tonight

2008-11-13T04:52:00.000-08:00

The bankrupt investment bank Lehman Brothers wants to sell at least $8m (�5.2m) worth of the art collection that once decorated its offices. The news comes as $20m of postwar art, put up for sale by the former Lehman boss Richard Fuld and his wife Kathy, goes on the block tonight at Christie's in New York.

The sale of drawings from the Fulds' collection, including three Willem de Koonings, was announced a few days after Lehman declared bankruptcy in September. The Fulds still own a sizable art collection and five homes, including a $21m Manhattan apartment. Kathy Fuld is a well-known modern art collector and a trustee of New York's Museum of Modern Art.

The Fulds' sale also includes five Barnett Newmans, four Arshile Gorkys and four Agnes Martins. De Kooning's kinetic orange-haired 1951 Woman in graphite, charcoal, pastel and oil on paper is expected to fetch as much as $4m. His drawing Two Women could raise up to $3m. The pieces will be auctioned in Christie's evening sale at the Rockefeller Plaza Read more

Home values drop for 7th straight quarter

2008-11-12T07:27:00.000-08:00

NEW YORK (Reuters) – Home values in the United States posted their seventh consecutive quarterly decline, with nearly one-third of Americans who sold in the past year losing money, real estate website Zillow.com said on Wednesday.

Home values fell 9.7 percent year-over-year in the third quarter to a Zillow Home Value Index of $202,966, according to the third quarter Zillow Real Estate Market Reports, which encompass 163 metropolitan areas.

Home values have dropped a total 12.8 percent since the market peaked in 2006. Year-over-year declines in the second quarter were 8.8 percent, indicating that price drops continued to accelerate in the third quarter, the reports showed.

The continued declines in value are causing more homeowners to sell their homes for less than the original purchase price.

Over the past 12 months, 30.2 percent of homes sold were sold for a loss, up from 23.7 percent at the end of the second quarter. In 17 markets -- 14 of them in California -- more than half of homes sold in the past year were sold for a loss, the reports showed.

The percentage of homeowners with negative equity remained fairly steady from the second to the third quarter, however, as more foreclosures were completed and as median down payments rose in 61 markets. One in seven, or 14.3 percent, of all homeowners across the country has negative equity, and of homeowners who bought in the last five years, almost one-third, or 29.5 percent, are 'under water', the reports showed.

"The fact that one-quarter of markets in Zillow's third quarter reports show negative or relatively flat annualized change over five years is an indication of the enormous amount of value that has been taken out of the real estate market through home value depreciation in the past few years," Stan Humphries, Zillow vice president of data and analytics, said in a statement.

"It's clear we are at a unique point in history; we've had seven consecutive quarters of decline, and we expect that to continue until at least the middle of next year. Most markets are still seeing five-year annualized returns, but we will see more markets slip into flat or negative long-term change as the economy continues to suffer, factors like job losses begin to further affect foreclosure rates and home values continue to decline," he said.

Foreclosures made up almost one in five, or 18.6 percent, of all transactions in the past 12 months and areas with the highest foreclosure rates are the markets with some of the greatest home value declines. In California's Central Valley, 57.6 percent of transactions in Merced were foreclosures, and in Stockton, foreclosures made up 56.4 percent of transactions. The New York metro area continued to have the lowest rate of foreclosures, with only 3.5 percent of all transactions being foreclosures, the reports showed

Stocks open lower on economic concerns

2008-11-12T07:13:00.000-08:00

NEW YORK – Disheartening news from some of the nation's biggest retailers sent stocks falling for a third straight session Wednesday, as investors feared that Americans would be unable to help the economy avoid a protracted slump.

Macy's Inc. said it lost $44 million in the third quarter as sales at the department store retailer fell more than 7 percent. Consumer electronics retailer Best Buy Co., meanwhile, slashed its fiscal 2009 guidance on fears that consumer spending will erode even further.

Investors are worried that a severe pullback in consumer spending — which drives more than two-thirds of the U.S. economy — will prolong a global economic downturn.

Wall Street also anxiously awaited an update from Treasury Secretary Henry Paulson on the government's $700 billion financial rescue package at 10:30 a.m. EST. There are no major economic reports due to be released during the session.

The future of the country's top automakers remained a major concern on the Street. House Speaker Nancy Pelosi wants Congress to support a financial bailout for the troubled U.S. auto industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy.

President-elect Obama, when he met with President Bush at the White House on Monday, urged Bush to support aid for the auto industry, and Democrats in Congress have begun drafting legislation that would give General Motors, Ford and Chrysler access to $25 billion of the rescue funds.

In the first hour of trading, the Dow shed 127.52, or 1.47 percent, to 8,566.44.

The broader Standard & Poor's 500 index dropped 14.31, or 1.59 percent, to 884.64, and the Nasdaq composite index stumbled 22.10, or 1.40 percent, to 1,558.80.

On Tuesday, the Dow fell nearly 180 points as it became clearer to investors that it's going to be hard to rely on the average consumer to pull the economy out of its downturn. The market also closed lower amid similar concerns on Monday.

Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.19 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.70 percent from 3.76 percent late Monday.

Lower yields indicate stronger demand.

Crude dropped below $59 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude fell $1.55 to $57.78 a barrel on the New York Mercantile Exchange.

In corporate news, American Express Co. is said to be seeking about $3.5 billion from the government to help boost its balance sheet, according to a report in The Wall Street Journal citing people familiar with the situation. AmEx, the No. 4 U.S. credit card issuer, won approval Monday from the Federal Reserve to become a bank holding company, which gives it the ability to grow a large deposit base and access financing from the Fed.

Prudential Financial Inc. said late Tuesday its 2008 annual dividend will be roughly half of what it paid out to shareholders last year. The insurer said it will pay a dividend of 58 cents per share on Dec. 19 to shareholders of record at the close of business on Nov. 24. Last year, the company paid a dividend of $1.15 per share.

The dollar was mixed against other major currencies, while gold prices dipped.

Overseas, Japan's Nikkei closed down 1.29 percent and Hong Kong Hang Seng fell 0.73 percent. In European trading, London's FTSE 100 fell 0.77 percent, Germany's DAX fell 1.88 percent, and France's CAC-40 dropped 1.03 percent.

President-Elect Obama Visits the White House

2008-11-11T06:31:00.001-08:00

Principles of economics, translated

2008-11-05T14:14:00.000-08:00

KEATING ECONOMICS: John McCain & The Making of a Financial Crisis

2008-11-01T07:59:00.000-07:00

Asian markets slide on pessimism over corporate earnings; Nikkei slides nearly 7 percent

2008-10-22T03:09:00.000-07:00

TOKYO (AP) -- Asian markets veered sharply lower Wednesday, with Tokyo's Nikkei index tumbling nearly 7 percent, amid spreading pessimism over corporate earnings outlooks in the U.S. and at home. European markets also opened lower.

As credit markets show signs of improving, investors are turning their attention to dismal forecasts from major U.S. companies and Japanese media reports of disappointing sales and profit results -- stoking fears of a global recession.

Asian markets opened lower after an overnight decline on Wall Street but extended losses as the day progressed.

Japan's Nikkei 225 stock average fell for the first time in three days, dropping 631.56 points, or 6.79 percent, to 8,674.69. Hong Kong's Hang Seng sank 5.2 percent, while South Korea's main index shed 5.1 percent.

"The credit crunch seems to be behind us, and we are shifting focus to corporate earnings and economic conditions, and clearly both are deteriorating," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong.

In Europe, Britain's FTSE 100 was down 1.5 percent in morning trading, while Germany's DAX declined 2.6 percent.

Particularly hard hit were Japan's megabanks, which slumped after The Nikkei financial daily reported that Mitsubishi UFJ would miss its net profit projection for the April-September period by about two-thirds due to higher bad loan costs and the falling value of its shareholdings. Mitsubishi UFJ Financial Group Inc. shed 8.8 percent and Sumitomo Mitsui Financial Group Inc. dived 8 percent.

A stronger yen added to the misery in Japan, dragging down exporters such as automakers and consumer electronics firms. A stronger yen reduces the value of overseas profits when repatriated to Japan. The dollar fell to 99.29 yen in Asia Wednesday afternoon, down from 100.23 yen late Tuesday.

Sony Corp. plunged 9.3 percent, Canon Inc. was off 6.1 percent and Panasonic Corp. stumbled 8.4 percent. Canon is due to report earnings on Monday and Honda Motor Co. on Tuesday.

Japan's Toyota Motor Corp. lost 6.9 percent amid media reports that global annual sales will decline this year.

South Korea's currency, meanwhile, continued to slide against the dollar amid heavy selling of Korean stocks by foreign investors that has helped push share prices down 40 percent this year after years of strong gains. The won fell 3.1 percent against the U.S. dollar to 1,363, bringing its decline for this year to 31.3 percent.

"Foreign investors just keep selling in huge volumes in the Korean stock market," said Kim Joong-hyun, a strategist at Goodmorning Shinhan Securities in Seoul.

Shares of Samsung Electronics Co., which said it has withdrawn a $26 a share bid to acquire U.S.-based SanDisk Corp., fell 2.1 percent.

In Hong Kong, conglomerate Citic Pacific Ltd. plunged another 25 percent as local securities regulators announced a formal investigation into the company.

Shares in the the firm, the Hong Kong arm of the Chinese government's main investment company, crashed more than 55 percent in the prior session after it revealed nearly $2 billion in possible losses due to unauthorized currency bets made by a top executive.

In China, the benchmark Shanghai Composite Index fell 3.2 percent to 1,895.82.

"Most market heavyweights led the losses today because investors are disappointed with the third quarter earning reports," said Peng Yunliang, an analyst for Shanghai Securities. "It seems things may get worse in the fourth quarter."

Huaneng Power International Inc. fell 9.9 percent after the company reported a 2.2 billion yuan ($316 million) loss for the third quarter, while integrated coal miner and power generator China Shenhua Energy slipped 3.1 percent.

Fears that the U.S. is headed into a severe recession were stoked as bellwether corporations such as chemical manufacturer DuPont Co., Sun Microsystems and Caterpillar Inc. downplayed their prospects for the coming months.

On Tuesday, the Dow Jones industrial average fell 2.5 percent to 9,033.66, while the technology-heavy Nasdaq composite index shed 4.1 percent to 1,696.68.

U.S. stock index futures were about 1 percent lower, suggesting Wall Street would decline when it opened.

Those dismal U.S. earnings outlooks also sent oil prices below $70 a barrel as investors shrugged off a looming OPEC production cut. Light, sweet crude for December delivery dropped $2.42 to $69.76 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

Oil prices are now less than half of their peak near $150 a barrel in mid-July.

Staggering high lending rates at the heart of the credit crisis continued to fall, with the Hong Kong interbank offered rate, also known as Hibor, for three-month loans dropping to 3.14 percent from 3.35 percent.

AP business writers Jeremiah Marquez in Hong Kong and Kelly Olsen in Seoul contributed to this report.

Wells Fargo CEO says views government investment in his bank as tonic for ailing economy

2008-10-22T03:07:00.000-07:00

SAN FRANCISCO (AP) -- Wells Fargo & Co. Chairman Richard Kovacevich may not have initially wanted the U.S. government's $25 billion investment in his bank, but he dropped his resistance after realizing the infusion will provide the ailing economy with a vital shot in the arm.

"I have always believed that the system is more important than any individual company," Kovacevich said Tuesday night during a question-and-answer session at the Commonwealth Club. "If that means a company has to sacrifice along the way, so be it."

Wells Fargo is among first batch of banks being required to sell stakes to the U.S. government, which will invest up to $250 billion in the banking industry in hopes of ending the worst financial crisis since the stock market crash of 1929.

When U.S. Treasury Secretary Henry Paulson laid out his plan to invest in Wells Fargo at a meeting last week, Kovacevich protested because he didn't think his San Francisco-based bank should be forced to sell stock that might dilute other shareholders, according to published reports in The New York Times and The Wall Street Journal.

Wells Fargo so far has been able to avoid the staggering losses that have hit other major banks stemming from risky home loans made to borrowers with shoddy credit records or inadequate income to repay the debts after real estate prices began to plunge last year.

Wells Fargo's ability to keep churning out profits while other banks have been posting big losses has helped boost its stock by 8 percent so far this year. The company's shares closed Tuesday at $32.64, up 41 cents.

Kovacevich said elements of the media accounts about the meeting with Paulson were inaccurate, but didn't deny he originally opposed taking the government's money. He emphasized, though, that he is confident the extraordinary measures taken by the United States and other countries will restore confidence in the financial markets and stabilize the economy by the middle of next year.

"There may be doubts how long (the recovery) will take, but it will get done and sooner than most people think," he predicted.

Wells Fargo may emerge as one of the biggest winners in the turmoil because it was able to buy another major banking company, Wachovia Corp., at the sharply discounted price of about $14 billion.

Although Wells Fargo already plans to write off $74 billion in losses on loans inherited from Wachovia, the deal will catapult the bank into Atlantic and Southeastern states for the first time. Wells Fargo also will become the largest U.S. bank in terms of deposits, with $787 billion, and branches, with 10,500.

Kovacevich, 65, has already agreed to delay his plans to retire in December to oversee the combination of the two banks.

Wells Fargo's bid trumped an earlier agreement that banking regulators had brokered to sell Wachovia's banking operations to Citigroup Inc. for $2.1 billion in a deal that would have required the U.S. government to absorb some of Wachovia's loan losses.

Citigroup tried to reach a compromise that would have split up Wachovia, but those efforts unraveled last week. Citigroup has filed a lawsuit against Wachovia and Wells Fargo seeking $60 billion in damages.

Oil falls below $70 a barrel in Asia as bleak US company forecasts fuel recession concerns

2008-10-22T03:05:00.000-07:00

SINGAPORE (AP) -- Oil prices fell below $70 a barrel Wednesday in Asia as investors shrugged off a looming OPEC production cut after company forecasts suggested the U.S. may be headed for a severe economic slowdown that crimps crude demand.

Light, sweet crude for December delivery dropped $2.59 to $69.59 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

The November contract expired Tuesday and fell $3.36 to settle at $70.89. Last Thursday, that contract had declined as low as $68.57 a barrel, the lowest since June 2007.

Crude investors have followed equity markets this week, looking for signs on how the U.S. economy will weather the current global financial turmoil. On Tuesday, DuPont, Sun Microsystems and Texas Instruments reported disappointing earnings and bleak forecasts, sending the Dow Jones industrials average down 2.5 percent.

"Oil is now highly correlated with the stock market," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "People are looking to the Dow for sentiment on the economy."

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, has signaled it plans to announce an output quota reduction at an emergency meeting Friday in Vienna.

But investors are skeptical about how much of the cut will be implemented, given the history of OPEC members exceeding their production quotas.

"There should be a short-term boost to prices when they announce a cut on Friday," Chu said. "But OPEC production has always been above their quotas, so there's a credibility problem."

Crude oil is down 53 percent from its peak of $147.27 reached in mid-July.

A stronger dollar this week has also pushed oil prices lower. Investors often buy commodities like crude oil as an inflation hedge when the dollar weakens and sell those investments when the greenback rises.

The euro fell Wednesday to $1.2878 from $1.3005 on Tuesday while the dollar fell slightly to 99.48 yen.

Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 2.9 million barrels last week, according to the average of analysts' estimates in a survey by energy information provider Platts.

The Platts survey also showed that analysts projected gasoline inventories rose 3.0 million barrels and distillates went up 600,000 barrels last week.

In other Nymex trading, heating oil futures fell 6.03 cents to $2.12 a gallon, while gasoline prices dropped 5.39 cents to $1.64 a gallon. Natural gas for November delivery jumped 1.0 cents to $6.85 per 1,000 cubic feet.

In London, November Brent crude was down $2.49 to $67.23 a barrel on the ICE Futures exchange.

Stocks Market News:Wall Street gains as oil slips

2008-08-12T01:46:00.000-07:00

By Kristina Cooke
Mon Aug 11, 8:12 PM ET

NEW YORK (Reuters) - Stocks rose on Monday as oil prices closed lower for a sixth day, improving prospects for consumer and business spending.

The gains built on the market's best week since April. The fall in the price of oil boosted retailers' stocks before a batch of earnings from Wal-Mart Stores Inc and others, as well as energy-sensitive airline shares.

Apple helped the Nasdaq outperform the Dow and the S&P 500 after Chief Executive Steve Jobs told the Wall Street Journal about heavy demand for iPhone software downloads.

Amazon.com jumped over 9 percent after Citigroup said the online retailer's Kindle book reader was on track to become one of the top electronics gifts of the 2008 holiday season.

U.S. crude oil futures fell as concerns about slowing global demand combined with a stronger dollar to knock down crude prices, despite the conflict between Russia and Georgia.

But oil prices ended off their lows for the session, which helped take the steam out of the stock market's rally in the last hour of trading.

"Every time oil falls, stocks rise at the moment. But oil is not going to keep going down every day with all that is going on geopolitically," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The Dow Jones industrial average rose 48.03 points, or 0.41 percent, to 11,782.35, while the Standard & Poor's 500 Index gained 9.00 points, or 0.69 percent, to 1,305.32. The Nasdaq Composite Index jumped 25.85 points, or 1.07 percent, to 2,439.95.

Trading volume was low on the New York Stock Exchange, with about 1.26 billion shares changing hands, sharply below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.31 billion shares traded, above last year's daily average of 2.17 billion.

Bank shares also rose but cut gains in the last hour of trading after a Federal Reserve survey showed banks in the United States further tightened their lending standards and terms in all major loan categories, especially for consumer loans, in the past three months amid a weakening economic outlook.

Apple Inc's shares rose 2.4 percent to $173.56 on the Nasdaq after the company's CEO told The Wall Street Journal that iPhone users had downloaded more than 60 million programs for the device in the month since Apple opened an online software marketplace.

AT&T Inc, the iPhone's exclusive carrier in the United States, rose 2.8 percent to $31.84 on the NYSE. The stock was among those giving the biggest boost to the S&P 500. It also helped lift the Dow.

Amazon.com Inc soared 9.4 percent to $88.09 on Nasdaq after Citigroup's note.

Shares of Wal-Mart Stores Inc climbed 1.2 percent to $58.56 on the NYSE after Goldman Sachs wrote in a note to clients that the world's largest retailer may increase its profit forecast.

Shares of Ciena Corp advanced 6.8 percent to $18.17 on Nasdaq after Morgan Keegan raised its rating on the telecommunications equipment makers' shares.

Advancing stocks outnumbered declining ones by about 5 to 3 on the NYSE and more than 2 to 1 on the Nasdaq.

(Editing by Jan Paschal)

Stocks Market News:Futures point to Wall Street dip

2008-08-12T01:44:00.000-07:00

LONDON (Reuters) - September Dow Jones and Standard & Poor's were both down about 0.3 percent on Tuesday, while Nasdaq 100 futures were off 0.2 percent, indicating a slight dip at the start of trade. The indicative Dow Jones index (.DJII) was down 1 percent.

* Oil futures continued to slide, relieving some concern about inflation, while the dollar lingered around six-month highs against a basket of major currencies (.DXY).

* North American stocks on the move in Europe include General Motors (GM.N), which is down 4.2 percent (GM.F), Citigroup (C.N), down 3.1 percent (TRV.F) and Barrick Gold (ABX.TO), which is up 0.3 percent (ABX.F).

* Wachovia Corp (WB.N) increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates.

Wachovia shares were indicated down nearly 3 percent in Frankfurt (FTU.F).

* Data from the Securities and Exchange Commission on Monday on short interest in major financial shares between July 15-31 showed the largest short positions are in Citigroup Inc (C.N), Fannie Mae (FNM.N), Bank of America Corp (BAC.N) and Freddie Mac

(FRE.N).

The biggest short positions in the U.S.-listed shares of European financials are in Barclays (BARC.L) (BCS.N), Credit Suisse Group (CSGN.VX) (CS.N) and Deutsche Bank (DBKGn.DE) (DB.N).

* Morgan Stanley (MS.N) became the latest Wall Street investment bank to offer to reimburse buyers of auction-rate securities, as New York's attorney general sought settlement talks with it and two other banks.

Morgan Stanley shares were down 2.8 percent in Europe

(MWD.F).

* Tuesday's diary includes fiscal third-quarter results from Applied Materials (AMAT.O) and second-quarter earnings from NVIDIA (NVDA.O). The economic diary includes weekly chain-store sales and the international trade balance for June at 1230 GMT.

(Reporting by Amanda Cooper; Editing by David Cowell)

Economics News:Productivity growth slowed in spring

2008-08-12T01:32:00.001-07:00

By JEANNINE AVERSA, AP Economics Writer
Fri Aug 8, 11:02 AM ET

WASHINGTON - The efficiency of America's workers grew at a slightly slower pace in the spring as companies sought to produce more with leaner work forces. Workers' compensation growth slowed, too.

The Labor Department reported Friday that productivity — the amount an employee produces for every hour on the job — grew at an annual rate of 2.2 percent during the April-to-June quarter. That was down from a 2.6 percent growth rate logged in the first three months of this year.

Economists were forecasting productivity to pick up slightly to a 2.7 percent pace.

"The economy is limping along and businesses are doing whatever they can to remain competitive," said Joel Naroff, president of Naroff Economics Advisors in Holland, Pa. "So, we had fewer people working shorter hours and producing more."

Meanwhile, growth in compensation — wages and benefits — also slowed as companies were less generous amid troubles in the economy and uncertainty about their own prospects.

Unit labor costs slipped to a 1.3 percent pace in the second quarter, from a 2.5 percent growth rate in the first quarter. Unit labor costs is a measure of how much companies pay workers for every unit of output they produce. Economists look to this barometer for clues about inflation.

The showing on compensation matched economists' expectations.

While slower compensation growth isn't welcomed by workers, economists said the moderation eases some inflation concerns. Back in the 1970s, the country battled "stagflation," a toxic mix of stagnant growth and stubborn inflation. Workers demanded — and received — higher wages to keep up with ever-rising prices.

On Wall Street, stocks gained ground as investors took comfort in dropping oil prices. The Dow Jones industrials were up nearly 200 points in morning trading.

The economy grew at a 1.9 percent pace in the second quarter, up from a 0.9 percent growth rate in the first three months of this year. The economy's growth rate reflects the value of all goods produced in the United States. During the second quarter — as has happened all year_ employers cut jobs.

Nearly a half million jobs have disappeared during the first seven months of the year. Among the companies announcing job cuts recently were: General Motors Corp., Weyerhaeuser Co., and Starbucks Corp. Bennigan's restaurants owned by privately held Metromedia Restaurant Group, are closing, driving more people to unemployment lines.

Companies have been trimming their payrolls and trying to satisfy customer demand with fewer workers as they cope with fallout from the housing and credit debacles, along with high prices for fuel and other raw materials.

In another cost-cutting move, workers' hours were reduced the spring. Hours worked dropped at a rate of 0.5 percent in the second quarter, the fourth straight quarterly cutback.

Inflation continues to eat into workers' paychecks. Compensation, adjusted for inflation, for each hour worked fell at a 1.4 percent pace in the second quarter. That compared with a 0.8 percent growth rate in the first quarter.

Confronted by problems at every turn — shaky growth, rising unemployment and gyrating food and energy prices, the Federal Reserve earlier this week decided to hold a key interest rate steady. The central bank can't afford to lower the rate anymore because it could worsen inflation. On the other hand, boosting rates too soon would hinder the economy and the already crippled housing market. Many economists predict the Fed will leave rates where they are for the rest of this year.

Growth in productivity is good for the economy's long-term vitality and can help blunt inflation pressures. Efficiency gains can let companies pay for any boosts to workers' compensation through revenue from increased production, rather than having to rely on jacking up prices of their goods and services.

Even with the slower productivity growth seen in the spring, "this was a very good showing in the middle of an economic slowdown," said Peter Morici, an economist and business professor at the University of Maryland.

Economics News:Federal Reserve finds deepening credit crisis

2008-08-12T01:28:00.001-07:00

By MARTIN CRUTSINGER, AP Economics Writer
Mon Aug 11, 5:13 PM ET

WASHINGTON - More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy

The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.

The new survey, conducted in early July, found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent of banks who said they were tightening lending standards for prime mortgages in the previous survey.

The Fed's July survey covered 50 banks which hold about 80 percent of the residential mortgages on the books of all commercial banks.

Out of this group of 50 banks, 32 said they were still originating so-called nontraditional home mortgages. Among these 32 banks, about 85 percent said they had tightened their lending standards, up from 75 percent who said they were tightening lending standards for nontraditional mortgages in the April survey.

The Fed defines nontraditional mortgages as adjustable-rate mortgages with multiple payment options, interest-only loans and "Alt-A" mortgages that require limited verification of income.

The Fed survey found that only seven of the 50 banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged for subprime loans.

The survey found that most banks were reporting tighter lending standards across a broad swath of consumer and business loans over the past three months.

For home equity lines of credit, 80 percent of the banks surveyed said they had tightened their lending standards in this area.

For credit cards, the percentage of domestic banks reporting tighter lending standards was about 65 percent, more than double the 30 percent who reported they were tightening lending standards for credit cards three months ago.

Analysts said that the big jump in higher standards for credit card debt could represent a serious threat to the already weak economy, given that consumer spending accounts for two-thirds of total economic activity.

Harm Bandholz, an economist with UniCredit Markets, said that the tightening in bank standards for credit cards and other types of consumer loans would be "another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices."

David Wyss, chief economist for Standard & Poor's in New York, said the tighter lending standards reflect the huge loan losses that banks have already suffered. Those losses have depleted the capital they need as reserves against future losses and made it more difficult for the banks to sell their mortgages and other loans as asset-backed securities, a process that provides them with money to make new loans.

Wyss said he did not believe bank lending will start to pick up until next spring when he is forecasting that the economy will begin to rebound.

"The country is probably going through the most severe credit crunch since 1991-92," Wyss said, referring to a time when banks and savings and loans came under severe pressure while the economy was in a recession. "I think bank credit is going to remain tight for a while."

The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.

The country's major financial institutions have reported billions of dollars in losses and financial markets remain unsettled with investors concerned about potential losses disclosed.

Economics News:China's July inflation eases to 6.3 percent

2008-08-12T01:25:00.000-07:00

Mon Aug 11, 10:58 PM ET

BEIJING - China's politically volatile consumer inflation rate eased in July, but prices rose by a still-high 6.3 percent over the same month last year, a government news agency reported Tuesday.

The figure was a decline from June's 7.1 percent but well above the government's target of 4.8 percent for the year.

The government has imposed price controls on basic food items and taken other steps to stave off rapid price rises that communist leaders worry could fuel public frustration and possible protests.

The rise in overall consumer inflation has been largely driven by double-digit increases in the price of food.

Beijing's efforts to cool price rises have been hampered by sharp increases in global prices for oil and grain, as well as winter storms in southern China that wrecked crops.

Get to know What Gasohol is

2008-06-09T12:02:00.000-07:00

Gasohol is a blending of gasoline and ethanol, which is a pure alcohol produced from domestic crops, such as cane, cassava and other grains for ex: sorghum, rice, corn, etc.

The government through an Energy Ministry has promoted an increasing use of gasohol at 1.50 baht lower than gasoline price. Gasohol types are presently available in Gasohol 95 for Gasoline 95 substitution, and in Gasohol 91 for replacing of Gasoline 91.

Fill Gasohol in our cars is to help the country in oil import reduction, raise the prices of crops or agro-products and decrease air pollution that also effects to solve an environmental problem …>>>

How to produce Ethanol

Ethanol is a kind of alcohol produced from a crop fermentation to convert starch into sugar and then converts sugar into alcohol. By distillation of alcohol to attain a pure alcohol of 95 percent which is called as Ethanol. Ethanol for blending with oil to fill in the car engine is a pure alcohol of 99.5 % by Vol which is capable of using as fuel ...>>>

Gasohol Use Background in Thailand

Gasohol production in Thailand had originated by the Royal Project of King Bhumibol in 1985, in the Study Project on Gasohol Production for an Alternative Energy by producing ethanol from cane. Later on, awakening of promising ethanol occurred towards the public and private sectors to participate in development and tests with engines.

In 2000, PTT carried out the tests of using gasohol in cars and found that it helps reducing of pollution, saves an energy and no effect to the car performance. Alcohol production from fresh cassava bulb has been conducted by Science and Technology Research Institute of Thailand, which then would delivery to Bangchak Oil Refinery for gasohol production. An experiment for distribution in 2001 was for 5 BangChag gas stations in Bangkok Gasohol price was slightly lower than of the unleaded gasoline 95, thus getting satisfied achievement from the people acceptances.

2008-06-09T08:24:00.001-07:00

Technorati Profile

Systemic Financial Risk

2008-06-05T12:46:00.001-07:00

James Dimon · Wes Edens · Robert M. Kimmitt · Jean-Claude Trichet
Chaired by · James J. Schiro
Thursday 24 January

The collapse of the US sub-prime mortgage sector has once again raised the spectre of systemic risk – the possibility that volatility in one area of the capital markets could spread to others, creating a crisis that central banks might find impossible to control. While the current turmoil has not reached such extremes, it clearly has called into question the adequacy of existing risks controls. However, several participants noted, it also creates a risk that proposed cures – such as tighter regulation – will be worse than the disease.

Session chairman James J. Schiro, Group Chief Executive Officer and Chairman of the Group Management Board, Zurich Financial Services, Switzerland, posed four broad questions to panellists: What caused the current crisis? How does it differ from past systemic episodes? What issues need to be addressed to prevent future turmoil? How can policy-makers and the financial service industry work together to achieve that goal?

The fault does not lie with the explosive growth of derivative instruments such as credit default swaps, nor with the repackaging of loans and other assets into securities with differing risk characteristics – even though both products were centrally involved in the sub-prime meltdown, argued Wes Edens, Chairman and Chief Executive Officer, Fortress Investment, USA. Citing the argument of opponents to gun control that "guns don’t kill people; people kill people," Edens traced the origins of the crisis to the fact that instruments developed to help investors hedge risk were increasingly used for speculative purposes, often by investors who did not fully understand the products they were buying. In the ensuing panic, many investors were dismayed to find that mortgage securities rated AAA (the highest investment grade rating) were suffering losses of 80% or more. This, he said, had a crushing effect on investor confidence.

One of the lessons of the crisis is that even seemingly safe assets can become illiquid very quickly – making it easy for financial institutions to underestimate the level of risk on their balance sheets, noted James Dimon, Chairman and Chief Executive Officer, JPMorgan Chase & Co., USA, and a Co-Chair of the World Economic Forum Annual Meeting 2008. This problem was aggravated by the constant pressure on financial managers to grow earnings. "If you are in a risk business, one of the easiest ways to grow is to leverage up," Dimon observed. Withstanding this pressure, he added, takes "a lot of fortitude". Corporate managers also have to combat the tendency to book profits from trading positions in the year they are made, even though those gains may not actually be realized for several years. "It creates the wrong incentives," Dimon observed.

Jean-Claude Trichet, President, European Central Bank, Frankfurt, suggested that regulatory reforms may be necessary to prevent future crises. He said full implementation of the Basel II bank capital standards might have partially prevented the recent crisis, by forcing banks to provide capital backing for off-balance sheet funds used to invest in sub-prime mortgages and other risky assets. However, the financial industry should first be given the opportunity to discipline itself by developing voluntary standards and best practices in the area of risk management. In terms of monetary policy, Trichet added, central banks can best contribute to stability by "anchoring" inflation expectations, while ensuring adequate liquidity for the short-term money markets. He rejected criticisms that liquidity injections amount to a bail out for private investment losses, noting that the ECB actually made money on its recent emergency interventions.

Robert M. Kimmitt, US Deputy Secretary of the Treasury, noted that efforts are already in progress, both within the US government and in cooperation with the G7 and G20 countries, to examine such issues as the complexity of structured financial products, the role of the credit rating agencies, the accounting procedures used to value potentially illiquid assets and the rise in the use of off-balance sheet financing. While it is too early to say whether new legislation or other regulatory measures are needed, the Bush administration is willing to consider them. "If we see a result that requires action, we will do it," Kimmitt said.

Dimon, however, argued for a cautious approach, saying it could be counterproductive to stifle financial innovation. "There is good regulation and there is bad regulation," he warned. "Bad regulation can have the opposite effect of what people want."

The Chinese Market: Myths and Realities

2008-06-05T12:44:00.001-07:00

Daniel J. Brutto • Francisco Diaz • Juan Quirós • Daniel Servitje • Wang Jinzhen • Yang Kaisheng
Moderated by • Luis E. Frisoni
Tuesday 15 April

Luis E. Frisoni, Senior Partner, South America, PricewaterhouseCoopers, Brazil, presented the panellists with four questions: What are milestones in China’s new emphasis on a consumer economy? What is the role of Latin American governments in enhancing trade with China? What infrastructure and human investments are needed to ensure that Latin America does not fall behind in coming decade? What local changes are needed to improve trade with China?

China is placing emphasis on market reforms and modernizing the infrastructure for domestic consumption. It increasingly offers better conditions to facilitate the participation of Latin American businesses, including banks, in this process. Latin America must move quickly to take advantage of these opportunities and both governments and businesses must be proactive in exploring a range of investments and new products.

Yang Kaisheng, Vice-Chairman, Industrial and Commercial Bank of China, People's Republic of China, said that modernizing the economic structures to encourage investment includes expanding consumer spending in order to ensure long-term growth, currently at 11.9%. China’s FDI in Latin America stands at US$ 20 billion, potentially increasing to US$ 110 billion in ten years. He said that China is increasingly concerned with human development, the environment and new corporate responsibility in guiding these foreign investments. He invited Latin American banks to establish branches in China.

Juan Quirós, Vice-President, Fiesp, Brazil, noted that inflationary food prices created serious social discontent in China in 1989. The new emphasis on the domestic consumer creates opportunities for Latin American businesses in the areas of foodstuffs, clean energy and manufacturing and a variety of finished products. The governments have a role to promote entry into the Chinese domestic economy.

Wang Jinzhen, Vice-Chairman, China Council for the Promotion of International Trade (CCPIT), People's Republic of China, said that 30 years after opening to the world, China is the fourth largest economy, driven largely by exports. Trade with Latin America is balanced at around US$ 100 billion annually as compared to US$ 10 billion ten years ago. There are many opportunities in the area of financial services and joint ventures as China tries to increase its branding of local products. Latin America should also target China’s burgeoning tourism market. He predicted there would be 1.8 billion Chinese tourists moving around the world in 2015. He also noted that by 2014, China will be the largest consumer of luxury goods in the world.

Daniel J. Brutto, President, UPS International, UPS, USA, highlighted Latin America’s obsolete import/export infrastructure, pointing out that UPS can get products through customs in Hong Kong in 15 minutes compared to 12 hours to three days in Latin America. These barriers to free trade must be reduced, possibly following the European Union’s example. A participant pointed out that Mexico currently opens 100% of packages going through customs for inspection.

Francisco Diaz, Chief Executive Officer, Organización Corona, Colombia, recommended a mind shift in Latin America with a focus on labour productivity through education and training and bringing the inefficient informal sector, 50-70% of the economies in some countries, into the formal economy. It is necessary to see China as an ally rather than a competitor, and to use the Chambers of Commerce to explore the many and diverse segments of the Chinese economy in the search for niches.

Daniel Servitje, Chief Executive Officer, Grupo Bimbo, Mexico, said that the challenge for Latin America is to enter the “fast lane”, as Chile and Colombia have done, and governments should raise awareness of opportunities in China. “We are used to looking at the national league, not the World Cup. We must overcome our complacency.” The opportunity should not be lost.

Who Is Managing Your Supply of Water?

2008-06-05T12:34:00.000-07:00

Huguette Labelle • Jim Leape • Moon Kook-Hyun • N. K. Singh • Achim Steiner
Moderated by • Margaret Catley-Carlson
Friday 25 January

Each of us controls the water flow every time we turn on a tap. But who is in charge of storing, protecting and channelling the water into our pipes? Who deals with waste water after it goes down the drain? Who follows the water as it flows out to sea? And what about trade in the fresh water embedded in our food, our energy production and furniture manufacture?

In the past, said panellists, most people had no idea of the size of their individual or corporate “water footprint”. Water issues were left to technical experts. Even today the experts regard the question of water management as far too complex for a simple answer or a single authority. But climate change, pollution, poverty, scarcity, ecological threats and conflict are now making such questions urgent and universal.

Issues over the “supply chain” and “ownership” of water are troubling some of the most powerful private and public institutions on earth. But early, broad collaboration leads to a better understanding of how to approach the burgeoning crisis as an opportunity rather than an emergency. Some ways identified as producing new ideas include:

Use peer pressure on leaders to raise the level of cooperation. In isolation, companies feel less incentive to participate than when they are in a sectoral group. Once a benchmark for integrity and visibility is established, more and more firms and executives start to engage in water issues and do their share.

Recognize that governments and companies do not supply or manage water; nature does. This does not encourage a fatalistic attitude. On the contrary, it requires more collaboration to understand the long-term science and subtle dynamics of the water cycle. Then, it is possible to grasp how to work within it.

Think across political boundaries. When it comes to water, no house, city or even country is an island unto itself. Water is the ultimate shared resource. This reality means management must go beyond traditional jurisdictions and must collaborate to preserve an integrated watershed or basin.

Extend accountability for a “water footprint”. Supply chains extend beyond a watershed, and so should responsibility. Most people know that a soft drink manufacturer insists on fresh, clean water. Less well known is that a one-litre bottle requires dozens of litres to clean, manufacture and process. To grow the sugar for the soft drink, several hundred litres of water are needed. By incorporating these “externalities” in the equation, the market will reward efficiency. Trade in water rights can also even out the pressures.

Rethinking the Food Chain

2008-06-05T12:33:00.001-07:00

Hilary Benn • M. Carl Johnson III • Michael Pollan • Alice Waters
Moderated by • Orville H. Schell
Friday 25 January

Rising energy prices, growing demand for biofuels, higher rates of obesity and commodities shortages are trends that suggest the precariousness of a globalized food chain. Panellists discussed the implications of these trends for governments, businesses and culture, and the effect they have on traditional family meals.

Some insights from the session include:

Mass production of food and demand for cheap, consistent products have resulted in unsustainable practices in growing food. For example, one variety of potato displays the ideal characteristic of fast food French fries. Overproduction of this plant threatens genetic diversity and requires inefficient use of energy.

Consumption of food that arises from this kind of production could lead to an “overfed and undernourished” population.

Climate change is a major issue for rethinking the food supply. Addressing issues such as water shortages and excessive greenhouse gas emissions will require better technologies for agricultural production.

Corporations that rely on unsustainable production models are squeezed between pleasing shareholders and needing to adopt more responsible environmental practices, which can have higher short-term costs.

Consumers are increasingly expressing preferences for environmentally-friendly, sustainable agricultural practices. One participant noted that the limiting factor on the organic produce market in many parts of the United Kingdom is not demand from customers but availability of products. “Vote with your fork,” noted another participant.

Expanding these practices beyond niche markets to feed a larger percentage of the population remains the biggest challenge for “fixing” the food supply.

Food production will have to change due to rising energy costs and more responsible environmental planning, and the short-term result is likely to be higher costs. As one participant predicted, “the price of doing things [that are] bad for the planet is going to rise” due to new policies like carbon emissions restrictions

Update 2008: Economic Outlook

2008-06-05T12:31:00.000-07:00

He Wenping • Chris J. Kirubi • Achankeng Leke • Phuti Malabie • Trevor Manuel • Austine O. Ometoruwa
Moderated by • Foluso Phillips

Differences of opinion on African’s growth prospects emerged during this discussion on the continent’s expected economic performance over the next few years.

The optimists were led by Trevor Manuel, Minister of Finance of South Africa, despite his opening comment that “the global economy is a lousy place right now”. Within that environment, he said, 25 countries in Sub-Saharan Africa had had growth above 5% last year, and this year that number will rise to 31.

Tough decisions over a sustained period had created this growth platform. Exceedingly strong forces for growth include the supply of commodities and food to a hungry world, infrastructure development and high rates of investment in a number of countries.

However, to increase agricultural yields, governments need to ensure people can farm by reducing obstacles to entry and negotiate fairer deals for agricultural outputs. Manuel said the level of agricultural support in the northern hemisphere is not sustainable, and the biofuel issue requires a change in the way the world approaches food and fuel in the future.

The pessimist on the panel was Austine O. Ometoruwa, President and Chief Executive Officer, Africa Finance Corporation, Nigeria. He said the fundamentals for growth in Africa are currently the weakest they have been for a long time. This is affected by factors such as electricity and transport infrastructure constraints that should have been addressed years ago.

The lack of skills is another constraint, he said. Africa has opportunities such as power projects but does not have skills sets in project design and project conclusion. Africa needs more economic leadership by business people with the skills to kick-start projects.

Ometoruwa concluded on a more positive note, saying that the project pipeline achieved by the African Finance Corporation in six months shows growth capacity.

Achankeng Leke, Partner, McKinsey & Company, Cameroon, said Africa’s economic growth is due to much more than rises in resource prices. Although perceptions are that the figure is far higher, resource prices had contributed only 15% to Africa’s growth rate of between 5-6% over the past six or seven years. Answering a question from the floor on why Africa should outperform a slowing world economy where it had previously underperformed, Leke said growth this time is not confined to a few countries or sectors and is much more sustainable.

Phuti Malabie, Managing Director, Shanduka Energy, South Africa, and a Young Global Leader, said Africa’s challenges include responding to the need to develop agriculture and energy, and how it responds to the inflationary effects of food and energy supplies.

Chris J. Kirubi, Chairman, Haco Industries, Kenya, said Africa must sell its good points and see challenges such as power and transport constraints as opportunities to invest in power supply and road networks. Africa is on the road to huge success, and those who have not invested in Africa may be too late.

He Wenping, Research Fellow and Director, African Studies, Chinese Academy of Social Sciences (CASS), People's Republic of China, said China is playing a major role in Africa’s economic performance. China-Africa trade has accounted for 20% of Africa’s economic growth.

Moderator Foluso Phillips, Chairman and Chief Executive Officer, Phillips Consulting, Nigeria, concluded by saying that economic growth depends on three things – democracy in the full sense of the word, deregulation and digitization.

Africa Economic Brainstorming - Drivers of Change

2008-06-05T12:30:00.001-07:00

E. Neville Isdell • Wendy Luhabe • Sadako Ogata
Moderated by • Tumi Makgabo

In an interactive brainstorming session, participants were tasked with identifying the major issues and appropriate responses that will drive change through Africa over the next 12 months. The issues were prioritized and simultaneously compared against results from an online public survey carried out by the World Economic Forum prior to the meeting, in which respondents were asked identical questions on drivers of change. Participants were reminded of the importance during Forum deliberations to address real on-the-ground issues that are deemed relevant to government, business and civil society.

Fast-tracking education and skills development was overwhelmingly perceived as the issue of greatest importance facing Africa in its short-term future, and was viewed as critical in empowering all sectors of society. Discussion followed on whether this contrasts with the public survey that indicated women and youth empowerment as being of highest priority. In weighing up the merits of both viewpoints, the session was told that the two issues are not necessarily mutually exclusive. “Empowerment comes through education and knowledge,” a Co-Chair of the World Economic Forum on Africa told the session.

Visionary and selfless leadership ranked second as a driver for change by the session, and was reinforced by the viewpoint that strong leadership is a necessary prerequisite to good governance in all sectors of society. Participants argued that the current political crisis in Zimbabwe is illustrative of the impact that issues of leadership will have in Africa over the next 12 months. Others felt that the issue isn’t solely about political leadership and that the delivery of social services to Africa’s most vulnerable societies will be a better indicator of good leadership and governance.

Issues of food security and affordability followed in priority. Failure to adequately address hunger and escalating food prices will lead to “mass violence” and other social unrest, participants said. These issues were categorized under a broader environmental theme that, in the public survey, also raised issues of peak water (demand for freshwater exceeding available resources) and the food versus fuel debate. Inappropriate policy that promotes biofuels as a replacement crop for basic food commodities would make Africa susceptible to global food prices and create unnecessary levels of dependency on issues outside of its control.

Other areas of imminent impact include the need to:
• retain Africa’s skilled youth within Africa
• direct the African mindset towards one of responsibility and ownership
• prepare for increased energy costs, especially oil
• ensure “security of person” at an individual, communal and business level
• capture maximum benefit from Chinese intervention into the continent

Solutions or specific responses to the drivers were not forthcoming. Many participants, however, indicated a frustration with the timeframe of consideration. Twelve months is too short a time period to accurately predict issues of impact and a longer-term approach is more appropriate.

The identification of the issues and their prioritization will form the basis for discussion at this and future meetings, participants were told in conclusion.

A Watertight Future?

2008-06-05T12:28:00.000-07:00

Mohammed Sanusi Daggash • Obiageli Katryn Ezekwesili • E. Neville Isdell • Kenneth Konga
Moderated by • Richard Samans

“Water is the new oil,” said E. Neville Isdell, Chairman and Chief Executive Officer, The Coca-Cola Company, USA, and Co-Chair of the World Economic Forum on Africa, in emphasizing the importance of the issue of water to the world’s development and progress.

Isdell said that the fact that water provision is at the top of the agenda at the World Economic Forum on Africa is both encouraging and an indictment. It is a confirmation that it has taken too long to become a priority despite its crucial importance in various areas. It is an issue with “extreme political dimensions”, he added, illustrated by the fact that the Darfur conflict has its roots in a water dispute.

Indeed, cross-border aspects to water management and problems with regional cooperation were raised repeatedly throughout the discussion.

Isdell explained how Coca-Cola is striving to become water-neutral globally by eliminating excess and leaks, by recycling waste water and by replenishing resources. It is also drawing other business into the process, initially through the value-chain.

Moderator Richard Samans, Managing Director, World Economic Forum, said Africa is the second driest continent in the world, and only 4% of available water is used in irrigation – as compared to the 70-80% in developed regions. Half a billion people lack access to sanitation and millions more live in water-stressed countries – and the situation is not forecast to improve. “We need to elevate the understanding of water-related issues in Africa, particularly in terms of the effects on economic growth,” Samans said.

Obiageli Katryn Ezekwesili, Vice-President, Africa Region, World Bank, Washington DC, said that as Africa has 11% of the world’s people and 9% of its water resources, the continent should not have a problem with water provision. “It is something that can be managed to find solutions,” she said. Levels of both irrigation and hydropower generation can be raised through improved governance and institutional capacity.

Kenneth Konga, Minister of Energy and Water Development of Zambia, said that despite the adage “Water is Life”, it is routinely accorded low priority. In Africa, the challenge is to change this position in order to help alleviate poverty. So it is encouraging that the African Union has made water and sanitation the theme of its next summit.

While Nigeria is an oil producer, it is essentially a poor country with the water management problems associated with that status, said Mohammed Sanusi Daggash, Minister, National Planning Commission, Nigeria. Mismanagement over the past 35 years has been acknowledged and the country is in the process of transforming its water systems. He pointed out that water delivery comes at a cost and international resources need to be found to facilitate it. Such intervention will help countries like Nigeria meet Millennium Development Goals and tackle many water-shortage related health issues.

In the 1980s, the World Bank sponsored several water treatment plants in urban areas, with water meters on users’ premises to facilitate payments and ensure the system was sustainable. However, vandalism of the meters meant the quality of supply declined.

Samans commented that while water is obviously a public good, delivery often requires private investment. However, the issue of public-private partnership in water has been troubled over the past decade. Disagreements are frequent on pricing and return on investment.

Ezekwesili said innovative models are being implemented and the capacity of users to pay for them can be established and innovative solutions found. She mentioned a recent pilot project in Burundi, where less than 25% of the population had access to potable water. She added that innovation is also required in the financing of projects. While water might be a public good, educating communities is needed to instil a sense of the value of water provision. Governance also needs transparency – due to much corruption in water utilities.

Prices and quantities

2008-06-05T11:02:00.000-07:00

In supply-and-demand analysis, price, the going rate of exchange for a good, coordinates production and consumption quantities. Price and quantity have been described as the most directly observable characteristics of a good produced for the market. Supply, demand, and market equilibrium are theoretical constructs linking price and quantity. But tracing the effects of factors predicted to change supply and demand -- and through them, price and quantity -- is a standard exercise in applied microeconomics and macroeconomics. Economic theory can specify under what circumstances price serves as an efficient communication device to regulate quantity.A real-world application might attempt to measure how much variables that increase supply or demand change price and quantity.

Elementary demand-and-supply theory predicts equilibrium but not the speed of adjustment for changes of equilibrium due to a shift in demand or supply. In many areas, some form of "price stickiness" is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side. This includes standard analysis of the business cycle in macroeconomics. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets deviating from perfect competition.

Another area of economics considers whether markets adequately take account of all social costs and benefits. An externality is said to occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality (less crime, etc.). Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities

Supply and demand

2008-06-05T10:59:00.000-07:00

The theory of demand and supply is an organizing principle to explain prices and quantities of goods sold and changes thereof in a market economy. In microeconomic theory, it refers to price and output determination in a perfectly competitive market. This has served as a building block for modeling other market structures and for other theoretical approaches.

For a given market of a commodity, demand shows the quantity that all prospective buyers would be prepared to purchase at each unit price of the good. Demand is often represented using a table or a graph relating price and quantity demanded (see boxed figure). Demand theory describes individual consumers as "rationally" choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is 'constrained utility maximization' (with income as the "constraint" on demand). Here, 'utility' refers to the (hypothesized) preference relation for individual consumers. Utility and income are then used to model hypothesized properties about the effect of a price change on the quantity demanded. The law of demand states that, in general, price and quantity demanded in a given market are inversely related. In other words, the higher the price of a product, the less of it people would be able and willing to buy of it (other things unchanged). As the price of a commodity rises, overall purchasing power decreases (the income effect) and consumers move toward relatively less expensive goods (the substitution effect). Other factors can also affect demand; for example an increase in income will shift the demand curve outward relative to the origin, as in the figure.

Supply is the relation between the price of a good and the quantity available for sale from suppliers (such as producers) at that price. Supply is often represented using a table or graph relating price and quantity supplied. Producers are hypothesized to be profit-maximizers, meaning that they attempt to produce the amount of goods that will bring them the highest profit. Supply is typically represented as a directly proportional relation between price and quantity supplied (other things unchanged). In other words, the higher the price at which the good can be sold, the more of it producers will supply. The higher price makes it profitable to increase production. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This pulls the price up. At a price above equilibrium, there is a surplus of quantity supplied compared to quantity demanded. This pushes the price down. The model of supply and demand predicts that for a given supply and demand curve, price and quantity will stabilize at the price that makes quantity supplied equal to quantity demanded. This is at the intersection of the two curves in the graph above, market equilibrium.

For a given quantity of a good, the price point on the demand curve indicates the value, or marginal utility[27] to consumers for that unit of output. It measures what the consumer would be prepared to pay for the corresponding unit of the good. The price point on the supply curve measures marginal cost, the increase in total cost to the supplier for the corresponding unit of the good. The price in equilibrium is determined by supply and demand. In a perfectly competitive market, supply and demand equate cost and value at equilibrium.

Demand and supply can also be used to model the distribution of income to the factors of production, including labour and capital, through factor markets. In a labour market for example, the quantity of labour employed and the price of labour (the wage rate) are modeled as set by the demand for labour (from business firms etc. for production) and supply of labour (from workers).

Demand and supply are used to explain the behavior of perfectly competitive markets, but their usefulness as a standard of performance extends to any type of market. Demand and supply can also be generalized to explain variables applying to the whole economy, for example, quantity of total output and the general price level, studied in macroeconomics.

Economics

2008-06-05T10:37:00.000-07:00

Economics is the branch of social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Greek for oikos (house) and nomos (custom or law), hence "rules of the house(hold)."

A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choices as they are affected by incentives and resources.

Areas of economics may be divided or classified into various types, including:

microeconomics and macroeconomics
positive economics ("what is") and normative economics ("what ought to be")
mainstream economics and heterodox economics
fields and broader categories within economics.
One of the uses of economics is to explain how economies, as economic systems, work and what the relations are between economic players (agents) in the larger society. Methods of economic analysis have been increasingly applied to fields that involve people (officials included) making choices in a social context, such as crime, education, the family, health, law, politics, religion, social institutions, and war.

Although discussions about production and distribution have a long history, economics in its modern sense as a separate discipline is conventionally dated from the publication of Adam Smith's The Wealth of Nations in 1776. There Smith describes the subject in these practical and exacting terms:

Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to supply a plentiful revenue or product for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.

Smith referred to the subject as 'political economy', but that term was gradually replaced in general usage by 'economics' after 1870.