Business life: My finance news blog

Stocks were mixed Monday morning as investors returned for the final few trading days of 2008.

The Dow Jones industrial average (INDU) and the broader Standard & Poor’s 500 (SPX) index were both up a few points shortly after the opening bell. The Nasdaq composite (COMP) was down a few points.

Stocks drifted higher Friday in a thinly traded session, but all three major indexes are down sharply for the year.

The Dow is down nearly 36% versus last year. The S&P 500 has tumbled 40.5% and the Nasdaq is off 42% year to date.

Monday’s session was expected to be quiet, with many market participants on the sidelines celebrating the year-end holidays. The markets will be closed Thursday for New Year’s Day.

In Europe, markets reopened after an extended Christmas break, with London up more than 2%, Frankfurt up nearly 2%, and Paris up nearly 1% in morning trading. Asian markets ended mostly higher, with Tokyo’s Nikkei index up 0.1%.

Oil rose amid concerns about the Middle East following Israel’s military action against Hamas in the Gaza Strip. Crude futures rose $1.31 to $39.02 a barrel.

The financial sector was in focus early Monday amid reports that a consortium of private equity and hedge fund firms is close to a deal to buy the assets of failed mortgage lender IndyMac payday cash advances. The company’s bank unit was seized by the government in July in one of the largest bank failures in U.S. history.

In corporate news, two of the nation’s top automakers, General Motors (GM, Fortune 500) and Chrysler, will take possession of the first part of the $13.4 billion in emergency loans from the government.

Kuwait decided Sunday to scrap a deal to form a $17.4 billion petrochemical joint venture with Dow Chemical (DOW, Fortune 500). The decision is a big blow to Dow, which had hoped to use some of the proceeds to repay some of the $13 billion in debt it’s assuming in the acquisition of Rohm & Haas, due to be completed in 2009.

Other markets: The dollar fell versus the euro and the yen.

COMEX gold for February delivery was up $5.4 to $876.60 an ounce.

Gasoline prices fell 0.8 cent to a national average of $1.619 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.

All news is bad news in real estate right now. Have you recently bought a house anyway? Send your story and photos to realstories@cnnmoney.com and you could be featured in an upcoming article. 

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NEW YORK — Gift cards, the convenient catchall of holiday giving, lost their luster this year.

Price-conscious shoppers became savvy bargain hunters, realizing they could give bigger and better gifts by taking advantage of unprecedented discounts rather than by spending a set amount on gift cards, which had been steadily gaining popularity over the last few years. Practically everything took a backseat to price.

Another big concern for shoppers — whether retailers from which they got cards would follow the many others that have filed for bankruptcy this year, jeopardizing the value of their gifts.

Shoppers like Julie Brown stretched their money further by finding holiday bargains. Brown, who was shopping at Macy’s flagship store on 34th Street last week during a visit to New York, said big sales lured her to buy more actual presents this year instead of gift cards.

"It seemed like there were after-Christmas prices beforehand," said Brown, who lives in Kansas City.

People focused on getting more "bang for their buck" rather than paying $75 or $100 for a gift card, said Kathy Grannis, a spokeswoman for the National Retail Federation trade group, calling it "the year of the bargain hunter."

Consumers figured out that for the $100 they would ordinarily spend, they could get far more merchandise than before. Or get something far more expensive that had been deeply discounted. And for those really watching their spending, they could give a $100 gift marked down to $25 and pocket the savings.

That behavior could be bad news for retailers well into the new year, because they don’t record gift cards as sales until they are actually redeemed. Fewer people redeeming the cards also could hurt future sales because people usually spend more than the gift card total.

Store gift cards are expected to generate $61 billion in sales in the fourth quarter, down from $70 billion in 2007, said Brian Riley, senior analyst at research firm Tower Group. Those from financial institutions, like Visa, are expected to edge up to $28 billion in sales from $27 billion in last year’s fourth quarter.

Consumers snapped up gift cards in prior years. Last December, market research firm NPD Group said about 61 percent of Americans bought at least one holiday gift card in 2007, up from 31 percent the year before and just 16 percent in 2005 no teletrak payday loan.

SHOPPING

 GALLERY: Shopping, the day after Christmas

 VIDEO: Shoppers talk about the economy

 SAVVY CONSUMER: Returning presents may be harder this year

Most gift cards are redeemed in January or February, Riley said, but around a third of them are used six months to a year after being purchased. In previous years, this has helped retailers by boosting sales throughout the year. Furthermore, Riley said, about 40 percent of gift card holders spend at least 35 percent more than the value of the cards.

In 2009, however, Riley said more consumers may redeem gift cards as soon as possible, fearing retailers may follow in the footsteps of Circuit City, KB Toys and Linens ‘n Things, which have already sought bankruptcy protection. Circuit City plans to keep operating, but KB Toys has started liquidating its stores and will shutter operations completely.

Still, gift cards haven’t fallen off a cliff completely, as demand has remained relatively strong at some discounters. Wal-Mart, one of the few bright spots in retailing, has recorded healthy card sales, Riley said.

Gift cards also remain popular with shoppers who do not want to give cash or risk the chance of buying an unwanted present.

Lisa Gillespie of Manhattan said she bought a gift card from Target for her 16-year-old nephew. "I didn’t want to get the wrong thing. It’s just easier to let him get what he wants."

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Consumer confidence rose slightly this month, coming off 28-year lows thanks to cheaper oil and deep discounts during the holiday-shopping season.

Reuters/University of Michigan released its monthly survey of consumer confidence Tuesday, and the December index increased to 60.1 from November’s 55.3 - better than the 58.8 expected by economists surveyed by Bloomberg.

The index was revised up from the 59.1 preliminary figure reported on Dec. 12, but the uptick is still substantially lower than the 75.7 reported in December 2007.

"It’s a very minor increase, and we’re still near all-time lows," said Adam York, economic analyst at Wachovia (WB, Fortune 500). "These surveys are fairly volatile in nature, and it’s clear the rapidly deteriorating economic situation is pretty dire for the American consumer."

Lower gas prices and deep discounts at retail stores provided temporary relief, according to the report, but absent the holiday price slashing, the index is expected to fall again next month.

"Even for those who haven’t been laid off or suffered salary cuts, it’s on their mind," York said. "It’s a real problem for retailers."

He added that the country is likely "only halfway through what we’ll see in job cuts."

"The most significant change recorded in the December survey was the record plunge in inflation expectations," Richard Curtin, director of Reuters/University of Michigan Surveys of Consumers, said in a statement payday loan.

In fact, one in four consumers expected deflation would occur, a higher percentage than any time since the 1950s, the report said.

"We don’t often take that number into strong consideration, but this shows a sharp concern," York said.

Still, the decline in gas prices and commodity prices "should start to help consumers soon," York added. "But even that wont completely offset income losses that come from a pretty bad labor market."

Total consumer spending is expected to decline by 1% in 2009, with an "unusually slow recovery in 2010," Curtain said.

"The personal finances situation of consumers remained bleak," the report said, adding that "the majority reported that their finances had recently worsened."

In the December survey 75% of consumers said they expect the recession to continue throughout 2009; 70% also forecasted a rise in unemployment.

"The fourth quarter will be the worst in economic growth," York said. "While the first quarter wont be pretty, it will be better." 

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A record number of hedge funds went bust during the third quarter, a report showed Thursday, as shaky markets and tight credit drove investors away from risky investments.

Hedge Fund Research, a Chicago-based information company, said the number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It’s also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.

The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That’s an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.

"The hedge fund industry is currently experiencing a structural consolidation that mirrors broader trends across the entire financial industry," HFR President Kenneth Heinz said in a statement. Stock market volatility and a lack of available credit "increased the challenges for both funds and investors," he added.

Indeed, in the third quarter, the number of hedge funds closing shop exceeded the number of funds launched for the first time since HFR started tracking this data in 1996 health insurance plans.

At this rate, hedge fund liquidations are on track to reach 920 for the full year, the report said. That would outpace the 563 liquidations last year, and could top the previous record of 848 in 2005.

This year has been brutal for many fund managers as the financial crisis has unfolded and investors have fled risky investments.

Hedge funds have been flooded with redemption requests in recent months as the crisis has exploded and investors have asked for their money back to cut losses or pay back debt.

The third-quarter was a particularly brutal, with the Dow Jones industrial average plummeting nearly 25% from October to November.

"Risk tolerance is at a historical low," Heinz said. "Investors are not even distinguishing between a fund that’s up 10% and one that’s down 10%. Both facing redemptions."  

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Software vendor Oracle blamed the currency impact of a strengthening U.S. dollar for a decline in its second-quarter earnings, reported Thursday. While sales rose against the year-ago quarter, they came up short of analysts’ expectations.

Oracle (ORCL, Fortune 500) reported net income of $1.3 billion or 25 cents per share, down 1% from one year ago. Adjusted for select expenses, the Redwood Shores, Calif. company reported earnings of 34 cents per share, which met analysts’ consensus expectation, according to Thomson Financial.

Oracle’s sales rose 6% from a year ago to $5.6 billion, below analysts’ expectations of $5.84 billion.

Oracle depends on international sales for about half of its revenue.

In a conference call following the earnings report, Chief Financial Officer Jeff Epstein said he expects both non-GAAP and GAAP total revenues to grow 8% to 11% in constant currency and 1% to 4% in today’s rates. He expects non-GAAP earnings per share to be 34 cents to 36 cents a share in constant currency and 31 cents to 33 cents a share assuming today’s rates.

"We signed our largest on-demand sales force automation contract this quarter," Oracle CEO Larry Ellison said in a statement bad credit pay day loans. "This was just one of several recent wins over Salesforce.com. We also sold our first database machine, launching an all-new and important business for Oracle."

Oracle has acquired 11 companies in 2008 in order to successfully compete with other large players in the software arena including Microsoft (MSFT, Fortune 500), IBM (IBM, Fortune 500) and SAP (SAP).

But the acquisitions haven’t given their clients reason to buy. "The selling environment is terrible," said JMP Securities analyst Patrick Walravens, in a client note released before the earnings report.

Walravens also pointed out that weak IT spending could slow sales cycles going forward. Epstein addressed that projection in the call, stating that renewal rates have continued to increased despite the sour economy because customers value the benefits they receive from updates and support. 

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Stocks ended lower Wednesday as investors tried to shrug off a bigger-than-expected loss from investment bank Morgan Stanley, but an afternoon rally failed to hold traction.

Wall Street took a hit Wednesday in the wake of the severe losses from the nation’s second-largest investment bank, but sentiment was still buoyed by the Federal Reserve’s rate-cutting announcement Tuesday. At this point in the recession, investors are not easily flustered by yet another loss booked by a financial giant.

The Dow Jones industrial average (INDU) lost 99.8 points, or 1.1%. The broader Standard & Poor’s 500 (SPX) index ended down 9 points, or nearly 1%, and the Nasdaq composite (COMP) shed almost 11 points, or 0.7%.

Stocks started the session sharply lower and battled back to positive territory briefly, but in the final hour of the session, stocks gave back all of their earlier gains.

One analyst said that Wednesday’s volatility was in line with the market’s recent turmoil. "One thing you have to keep in mind is the volatility that we have seen over the past couple months," said Ed Clissold, senior global analyst at Ned Davis Research.

Wall Street’s sharp drop at the open was anticipated, given the big gains on Tuesday, when the Dow jumped 360 points, or 4.2%. Even if investors had not been dealing with the news of the massive Morgan losses, stocks would have snapped lower in reaction to the sharp gains on Tuesday, a market observer said.

Harry Clark, chief executive and founder of the Clark Capital Management Group, said the market "is taking bad news in stride these days." While massive financial-sector losses weigh on investor sentiment, Clark said that the market is looking for a recovery.

Clissold echoed the sentiment that the market has been braced for negative news. "When a large financial company reports bad earnings, investors for the most part treat that as what would be expected," Clissold said.

Investors were also still digesting the decision from the Federal Reserve Tuesday to cut the key lending rate to record low levels as it pledged to consider further ways to spur economic activity.

Meanwhile, market breadth was positive. Advancers beat out decliners 3-to-2 on the New York Stock Exchange on volume of 1.34 billion shares. And advancers just beat decliners on the Nasdaq, with a volume of 2.16 billion shares.

Company news: Before markets opened on Wednesday morning, Morgan Stanley (MS, Fortune 500) posted a staggering $2.3 billion loss for the fourth quarter, which was far greater than the $298 million loss that analysts were expecting, according to Thomson Reuters.

The loss was even worse than what analysts were bracing for and was yet another indication that every part of the financial sector has been battered by stock-market volatility and credit-market weakness.

The announcement from Morgan Stanley comes the day after rival Goldman Sachs (GS, Fortune 500) posted a $2.1 billion loss - the company’s first since it went public in 1999.

Fed rate cut: Wall Street’s pullback Wednesday came on the heels of a rally on Tuesday precipitated by the Federal Reserve cutting its key lending rate to the lowest level on record.

The U.S. central bank lowered its key interest rate to a range of between 0% and 0.25%. The rate cut was the 10th time the central bank has slashed rates in the past 15 months.

The central bank has attempted to juice the economy, which officially fell into recession at the end of 2007, with an aggressive rate-cutting campaign.

However, now that the key lending rate is near zero, the central bank may have to find other ways to spur the slumping economy. In fact, in the Fed’s rate-cut statement released on Tuesday, the agency indicated that it would consider purchasing its own long-term Treasurys guaranteed pay day loans.

"The Fed has really stepped up," Clark said.

He added that investors have taken comfort in the central bank’s moves, as evidenced by Tuesday’s rally on Wall Street and improvements in the credit markets.

Another analyst echoed the sentiment. "The Fed has clearly signaled it is going to do whatever is necessary to get the debt markets functioning properly again, which is going to be key for the equity markets," Clissold said. In the long run, Clissold said that a return to health in the credit markets is essential to a broader recovery.

Government debt, currencies: Long-term Treasury prices soared Wednesday, continuing Tuesday’s rally that happened in the wake of the Fed’s announcement that it would consider buying its own long-term debt.

The goal of the government in stepping in and buying its own debt would be to help the troubled housing market find some footing. Thirty-year mortgages typically move in lockstep with the yield on the benchmark 10-year Treasury note.

Lending rates continued to decline. The overnight Libor rate declined to 0.13% from 0.16% on Tuesday, while the 3-month Libor rate dropped to 1.58% from 1.85%, according to Bloomberg.com. Libor, or the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London.

The improvements in Libor rates are one indicator of credit-market pressures easing. "They have been coming down for the last two months and they are finally down where they should be," Clark said.

Auto bailout: U.S. automakers are still awaiting news from the Bush administration as to the status of their plea for a $14 billion bridge loan.

General Motors (GM, Fortune 500) and Chrysler LLC have warned that they are within weeks of running out of cash. After the Senate failed to approve a bailout package for the automakers, the Bush administration said it would consider tapping the $700 billion bailout fund Congress approved for the banks and Wall Street.

Meanwhile, the auto finance firm GMAC doubled the amount of capital it has raised, moving it closer to qualifying for much-needed federal funds. If GMAC can obtain enough funds to qualify as a bank, then it could obtain funds as a part of the $700 billion bailout bill.

Oil: Oil settled for the day down $3.54 to $40.06 a barrel, a 4 1/2-year low, after OPEC announced it will cut oil production by 2.2 million barrels a day as of Jan. 1 to boost oil prices. Crude oil prices have slid from record highs as the global economic recession has chipped away at demand for energy.

Oil prices have fallen nearly $100 a barrel since the record highs reached over the summer, and the cartel hopes that the production limit will stabilize oil prices.

The new production cut comes on top of a 2 million-barrels-a-day cut that was previously announced, bringing production levels down by 4.2 million barrels per day from September levels.

Other markets: In currency markets, the dollar fell to a 13-year low versus the yen and also weakened against the euro. The greenback rose slightly against the British pound.

COMEX gold for February was up $25.80 to $868.50 an ounce.

Gas prices rose Wednesday after breaking an 86-day streak of declines over the weekend, according to a daily survey of gas station credit-card swipes. The price of regular unleaded rose $0.6 cents to a national average of $1.667 a gallon from $1.661 on Tuesday, according to motorist group AAA. 

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A government bailout for automakers was being assembled as quickly and carefully as possible, Treasury Secretary Henry Paulson said on Tuesday as a new ratings report showed that bankruptcy was the most likely restructuring scenario for the industry.

The Bush administration came under renewed pressure from fellow Republicans who urged the government extract stiffer concessions from labor and other groups than Democrats and the White House previously agreed were needed to qualify for aid.

“The automakers will get the money as quickly as we can prudently do it,” Paulson said in interview on CNBC television. “We need to do this but we need to do it right.

President George W. Bush said earlier in a CNN interview the United States was in “a huge recession” and that he did not want to worsen the economy with an automaker collapse.

“On the other hand, I’m mindful of not putting good money after bad,” Bush said. “So we’re working through options.”

The Bush administration has said it may use part of the $700 billion fund established in October to stabilize the financial services sector to help automakers.

General Motors Corp and Chrysler LLC say they need billions of dollars in immediate bridge loans to avert near-term collapse. Ford Motor Co is seeking a line of credit but cannot afford to see its rivals fail due to the threatened disruption of supplier and other networks if GM or Chrysler collapsed.

GM shares continued to rise on bailout expectations, closing 4.2 percent up at $4 wired payday loan.25 on the New York Stock Exchange on Tuesday. Ford shares closed down 1.6 percent at $3.13. Chrysler is privately held by Cerberus Capital Management.

Senior Democratic lawmakers said on Monday they expected action from the Bush administration as early as Wednesday on financing that would likely take the stricken companies through early 2009. Larger restructuring issues would then be addressed by the next Congress and the Obama administration.

The Senate failed last week to approve a $14 billion bailout package for Detroit, leaving the Bush administration as the only option for immediate help.

CONDITIONS FOR FINANCING

The administration said a decision was not imminent.

Democrats expect the administration to preserve conditions for financing that were negotiated last week and included in legislation approved by the House of Representatives. A majority of Senators also supported that approach in a procedural vote, but the backing was not sufficient to push the measure through Congress.

The House-approved text included requirements such as the appointment of a trustee, or “car czar” to oversee disbursement of funds and compliance with loan terms.

The companies would be required to file restructuring plans by March 31 to qualify for further help and demonstrate their commercial prospects. The “car czar” could recommend bankruptcy if the plans were unsatisfactory. 

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What is Washington, D.C. cooking up in response to the retirement savings crisis? With a new administration in town, there’s a good chance some reforms may take place. Here’s a look at four of the most discussed proposals:

President-elect Barack Obama has proposed temporarily dropping the 10% penalty for hardship withdrawals from an IRA or a 401(k) for amounts up to 15% of your plan or $10,000.

For those age 70

In a scathing report released Tuesday, congressional investigators outlined a pattern of mismanagement, dysfunction and abuse of power at the Federal Communications Commission under the agency’s Republican chairman, Kevin Martin.

The report - the result of a nearly yearlong, bipartisan investigation by the House Energy and Commerce Committee - accuses Martin of manipulating data and suppressing information to influence telecommunications policy debates at the agency and on Capitol Hill.

The report also charges that the commission has become politicized, failed to carry out some important responsibilities under Martin’s leadership, and blames him for undermining an open and transparent regulatory process.

Martin also is accused of micromanaging commission affairs, demoting agency staffers who did not agree with him and withholding information from his fellow commissioners.

"Chairman Martin’s heavy-handed, opaque, and non-collegial management style has created distrust, suspicion and turmoil among the five current commissioners," the report says.

Martin’s legacy at the FCC will be "a blueprint of what not to do," said Bart Stupak, D-Mich., who chairs the House Commerce Committee’s Subcommittee on Oversight and Investigations.

"The findings suggest that, in recent years, the FCC has operated in a dysfunctional manner and commission business has suffered as a result," said Commerce Committee Chairman John Dingell, D-Mich., who will be relinquishing the reins of the panel to California Democrat Henry Waxman next year.

Robert Kenny, a spokesman for Martin, said the committee "did not find or conclude that there were any violations of rules, laws or procedures affordable car insurance." Martin is widely expected to leave the commission after the White House changes hands.

Among the findings of the 110-page report:

- Martin manipulated the findings of an FCC inquiry into the potential consumer benefits of requiring cable companies to sell channels on an individual - or "a la carte" - basis. The House investigation concludes that Martin undermined the integrity of the FCC staff and may have improperly influenced the Congressional debate on the matter by ordering agency employees to rewrite a report concluding that a la carte mandates would not benefit consumers.

- Martin tried to manipulate the findings of an annual FCC report on the state of competition in the market for cable and other video services to show that the industry had a big enough market share to permit additional government regulation. When the full commission voted to reject that conclusion, Martin suppressed the report by withholding its release.

- Under Martin’s leadership, the FCC’s oversight of the Telecommunications Relay Service Fund, which pays for special telecommunications services for people with hearing or speech disabilities, was overly lax. This resulted in overcompensation of the companies that provide these services by as much as $100 million a year - costs that were ultimately passed along to phone company customers.

Kenny said Martin makes no apologies for his "commitment to serving deaf and disabled Americans and for fighting to lower exorbitantly high cable rates that consumers are forced to pay." 

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President-elect Barack Obama issued a warning Sunday to officials around the country lining up for federal dollars to help projects take off in the struggling economy: No more business as usual.

In an interview on NBC’s Meet the Press, Obama said, "What we need to do is examine: What are the projects where we’re going to get the most bang for the buck? How are we going to make sure taxpayers are protected?

"You know, the days of just pork coming out of Congress as a strategy, those days are over."

Later, at a news conference in Chicago, Obama said that in his recent meetings with the National Conference of Governors, there was a "strong bipartisan" consensus that "we’ve got to get people working on some key projects that have been sitting there for a long time."

Infrastructure, energy programs, and school construction projects will get people working and ultimately help build a stronger economy, he said.

But, he added, "We are not going to simply write a bunch of checks and let them be spent without some very clear criteria as to how this money is going to benefit the overall economy and put people back to work. We’re not going to be making decisions on projects simply based on politics and - and lobbying."

The president-elect faced questions about a possible bailout of the auto industry, which he supports with caveats.

"It makes no sense for us to shovel more money into the problem if you have not seen an auto industry that is committed to restructuring - restructuring that, frankly, should have been done 10 years ago, 20 years ago, 30 years ago," he told reporters.

He added, "Congress is doing the exact right thing by asking for a conditions-based assistance package that holds the auto industry’s feet to the fire, gives them some short-term assistance, but also insists that that assistance leads to some very difficult choices involving all the stakeholders… including management, labor, shareholders, creditors, and so on."

Asked whether he supports Sen. Christopher Dodd’s call Sunday for General Motors CEO Rick Wagoner to step down, Obama did not respond directly. But he said generally that "if this management team that’s currently in place doesn’t understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go instant pay day loans."

In the NBC interview, recorded Saturday, Obama slammed executive compensation packages in the industry as "out of line" compared to Japanese auto companies.

"Now, it’s not unique to the auto industry. We have seen that across the board. Certainly we saw it on Wall Street," he said. "And part of what I’m hoping to introduce as the next president is a new ethic of responsibility."

Facing a financial crisis that is "going to get worse," Obama said his top priority is building a recovery plan "equal to the task." He gave no specifics, saying his economic team is "crunching the numbers."

Despite the nation’s massive debt, Obama said he won’t be focusing on building a balanced budget at the start of his administration.

"We understand that we’ve got to provide a blood infusion to the patient right now to make sure that the patient is stabilized. And that means that we can’t worry short term about the deficit. We’ve got to make sure that the economic stimulus plan is large enough to get the economy moving," he said.

Part of that movement means taking big steps to fix the mortgage crisis, he said, adding that he is "disappointed that we haven’t seen quicker movement" by the Bush administration on that front.

Asked whether he has "personally conveyed" that disappointment to the administration, Obama said only, "We have specifically said that, moving forward, we have to have a housing component to any actions that we take."

Throughout his campaign, Obama vowed to raise taxes on couples earning more than $250,000 and individuals making more than $200,000 while lowering taxes for all others. Asked whether that is still his plan, Obama responded, "We don’t yet know what the best approach is going to be. But the overall thrust is going to be that 95% of working families are going to get a tax cut and the wealthiest Americans… are going to give up a little bit more."

He did not say when that may happen. 

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