European Union leaders agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 as they struggled to bridge divisions over immediate steps to stabilize bond markets.
A day after the European Central Bank armed itself with more capital to resist the crisis, the EU started to discuss measures such as offering shorter-term credits or using the bloc’s main rescue fund to buy bonds of distressed countries.
“My vision is of a Europe that grows ever closer together - - at different speeds in some cases, to be sure,” German Chancellor Angela Merkel told reporters after an EU summit in Brussels today.
For now, Germany ruled out topping up the current 750 billion-euro ($1 trillion) emergency fund or rushing aid to Portugal or Spain, reinforcing skepticism in markets about Europe’s search for the right formula to quell the fiscal contagion that threatens the euro.
The future setup “is to some extent window-dressing as it does not solve the current crisis,” said Carsten Brzeski, an economist at ING Group NV in Brussels. “European leaders failed to address the issue of debt sustainability and possible insolvency problems prior to 2013.”
The euro gained 0.1 percent to $1.3254 at 2:45 p.m. in Brussels, while bonds of Portugal, Spain, Greece and Ireland slipped. Moody’s Investors Service followed up warnings that it may cut the credit ratings of Spain and Greece by announcing today that it downgraded Ireland by five notches to Baa1 from Aa2, with a negative outlook.
Talks Under Way
Luxembourg Prime Minister Jean-Claude Juncker said deliberations are under way over more flexible use of the main 440 billion-euro component of the fund instead of waiting until the last minute to arrange all-or-nothing lifelines like the 85 billion-euro package granted to Ireland on Nov. 28.
Asked whether shorter-term credits or bond purchasing are up for debate, Juncker said measures being considered are “exactly those that you mentioned.”
Such steps would ease strains on the ECB, which has bought 72 billion euros of weaker countries’ debt since May to stabilize markets. Yesterday, the ECB shored up its capital base to guard against losses from the purchases, voting to almost double its capital to 10.76 billion euros.
“Let’s be candid,” International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview on “Charlie Rose” on PBS. “The European Union needs a little more time, until maybe the beginning of next year, to be able to produce a comprehensive package.”
No ‘Speculation’
Driven by a German public outcry against propping up fiscally reckless countries, Merkel opposed putting more money on the table or further entwining Europe’s economies through joint bond sales. Merkel didn’t rule out more flexible use of the current fund, declining to enter into “speculation.”
In a departure from German insistence that each country determine its own fate, Merkel said today that maintaining national fiscal discipline won’t alone put the 16-nation euro region on a sounder footing online payday loan lenders.
Merkel and French President Nicolas Sarkozy indicated that closer coordination of business tax rates might come back onto the agenda as Europe tries to forge a more unified economy and fix flaws in the euro’s makeup.
In a jab at Ireland’s 12.5 percent corporate tax rate, Sarkozy said “I don’t think you can have the lowest corporate taxes in the euro zone and then transfer your debt.” Spanish Prime Minister Jose Luis Rodriguez Zapatero said the tax discussion is an “important novelty” that will play out over years.
‘Needs to Mature’
Italian Prime Minister Silvio Berlusconi put calls for joint euro-area borrowing in the same category, noting the German opposition “but that the proposal needs to mature. It will be studied more deeply.”
On the summit’s main business, Germany won an EU commitment for a treaty amendment to set up a crisis-resolution system in 2013 that would allow financial aid “if indispensable” to underpin the euro and might force bondholders to bear some of the costs of future rescues.
German insistence on cutting bond values when countries get into trouble in the future triggered the latest phase in the debt crisis, culminating in Ireland’s support package and triggering concern that Portugal and Spain will be next.
While costs for bondholders aren’t mentioned in the two- sentence amendment agreed on last night, the leaders endorsed a Nov. 28 decision by finance ministers that writedowns may take place on a “case by case” basis in accord with IMF practices.
‘Useful Clarification’
ECB President Jean-Claude Trichet called the pledge not to mandate bond writeoffs a “useful clarification.”
Merkel needed the amendment to prevent German high-court challenges to the future aid mechanism, which the EU wants to get up and running when the current rescue package lapses in mid-2013.
The compromise text reads: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
Merkel didn’t get everything she wanted. Germany originally pushed to allow financial aid only as a “last resort,” language that might have ruled out contingency credit lines or given the IMF the lead in sorting out Europe’s economic woes.
Last overhauled a year ago, the treaty is the EU’s equivalent of a constitution, binding on EU institutions in Brussels and on national governments’ handling of European affairs. All 27 countries, including the 11 outside the euro region, must ratify the amendment.
European finance ministers plan to work out details of the future system by March so it can take effect in the middle of 2013.
Australia’s four biggest banks face the prospect of mounting competition after Treasurer Wayne Swan urged customers to turn to credit unions and building societies as he prepares a reform package for the industry.
“Competition from smaller lenders in the banking sector has to be activated by empowering consumers to shop around,” Swan said yesterday in a statement. “I’d encourage every Australian family to check out the range of products on offer.”
Swan has said he’ll issue proposals this month to reduce the dominance of Westpac Banking Corp., Commonwealth Bank of Australia, National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. Calls from politicians to rein in the four lenders have mounted after they last month increased mortgage rates faster than the central bank raised borrowing costs.
According to Swan, many Australians don’t know they can buy financial services from 60 credit unions and building societies, which are institutions owned by their customers, at post offices. He will probably present his proposals, including ways to help them issue more loans, to the Cabinet today and an announcement is likely Dec. 9 or Dec. 10, according to the Melbourne-based Age newspaper.
Public debate on competition in financial-services is increasing as key figures in the industry contribute to a Senate inquiry. Central Bank Governor Glenn Stevens is due to appear before the committee on Dec. 13.
Offshore Funds
Westpac, Australia’s second-largest lender, last week published its submission, saying there are currently 179 entities competing to sell banking services.
Chief Executive Officer Gail Kelly called on the government to introduce measures that reduce major banks’ reliance on offshore funds, which has become more expensive since the global financial crisis. The biggest banks have blamed those costs for driving up mortgage prices guaranteed online payday loans. Kelly also said a “wide-ranging” inquiry should wait as long as four years, until the results of new worldwide rules on liquidity and capital rules become clearer.
In an interview published Dec. 4 in the Australian Financial Review, Kelly said the only way to reduce mortgage prices is to help banks obtain cheaper sources of funding.
Australia’s four largest banks used the global financial crisis to tighten their grip on the home-loan market as smaller bank struggled to access credit. The major banks, dubbed the four pillars after a law preventing takeovers among them, account for about 88 percent of the residential home lending market, according to data from the Australian Prudential Regulatory Authority.
Flat Fee
Credit unions and building societies argue that the country needs more competition and have asked the government to introduce policies to help them access funding.
In a Nov. 30 submission to the senate inquiry, the Association of Building Societies and Credit Unions asked for the introduction of a flat-fee guarantee of wholesale debt funding for smaller lenders.
The government has invested A$16 billion ($15.7 billion) in Triple-A rated residential mortgage-backed securities to support smaller lenders and lower the cost of funds, Swan said yesterday.
Australia’s largest lenders are already poised to face greater competition in other areas.
AMP Ltd., which is buying the Australian and New Zealand units of Axa Asia Pacific Holdings Ltd., plans to use the deal to compete with the wealth-management businesses of the largest banks, AMP Chief Executive Officer Craig Dunn told yesterday’s Inside Business program on the Australian Broadcasting Corp.
Silver Eagle Manufacturing Co. notified the state this week that it will lay off 55 workers by mid-December.
Portland-based Silver Eagle makes military trailers and other truck components out of a manufacturing operation at 5825 N.E. Skyport Way.
On Thursday, Silver Eagle notified the Oregon Dislocated Worker Unit of the layoffs in order to comply with the federal Worker Adjustment and Retraining Notification Act, which requires employers to alert state labor officials of mass layoffs.
In the letter, CEO Jay Wilson said the layoffs are the result of “unfavorable economic conditions.”
The layoffs will begin Dec. 17.
Wilson was not available for further comment Friday.
China’s manufacturing sector picked up pace in September, easing some fears that the world’s third largest economy might be in for a rapid slowdown.
The country’s Purchasing Managers Index, rose to 53.8 in September, from 51.7 in August, China’s Federation of Logistics and Purchasing said Friday morning.
Any figure above 50 indicates growth in the sector.
The global economy has become increasingly dependent on China’s rapid expansion as an engine for growth. Last month, the International Monetary Fund projected China is on track for staggering 10.5% growth in 2010.
That’s compared with 4.5% growth for the global economy in 2010.
Fearing that growth could become unsustainable, Chinese officials have recently implemented policy measures to slam on the brakes in some sectors of the economy, including the real estate market.
Now, some economists are concerned those measures could result in a so-called hard landing. Amid those fears, Friday’s stronger manufacturing was a welcome piece of news.
"PMI growth is signalizing we won’t see more slowing in the next few months. I think the economy will probably grow a little bit faster," said Yingying Xu, an economist with the Manufacturers Alliance payday loan lenders.
While robust manufacturing in China is good for the global economy, some have blamed the country’s undervalued currency for hurting U.S. manufacturers by undercutting their export prices. The United States has been increasingly pressuring Beijing to allow the yuan to rise against the dollar.
Earlier this week, tensions between China and the U.S. heightened, when the House of Representatives passed a bill aimed at helping U.S. companies compete against Chinese exporters.
The legislation would authorize the Commerce Department to impose duties on imports from countries with undervalued currencies.
Some economists doubt the bill will pass the Senate, which has similar legislation pending.
Regardless of legislation, heightened trade tensions between the U.S. and China may be just be a "new normal," said Damien Ma, a China analyst at the Eurasia Group.
The number of first-time filers for unemployment insurance fell more than expected last week, according to a weekly government report released Thursday.
There were 473,000 initial jobless claims filed in the week ended Aug. 21, down 31,000 from an upwardly revised 504,000 the previous week, according to the Labor Department’s weekly report.
Economists surveyed by Briefing.com were expecting new claims to fall to 485,000.
Claims had been stuck in the mid- to upper-400,000 range for about nine months, but spiked above 500,000 for the first time since November in last week’s report.
"The latest numbers provide a sigh of relief to stressed financial markets and at least uphold the possibility that the economy can avoid a double-dip recession," said economist John Lonski, of Moody’s Economy.com. "But we still need to establish a declining trend for jobless claims so we can feel more confident in the economic recovery."
The 4-week moving average of initial claims — a number that tries to smooth out week-to-week volatility — was 486,750, up 3,250 from the previous week.
Lonski said that figure needs to break below 450,000 and set new lows in order to improve the outlook for the job market, which he is optimistic about.
"Given that business sales rebounded in July after two months of decreases, companies may hold on to more employees, if not hire more," he said business card templates. "So it’s conceivable that that latest decline in jobless claims will be the first in a series of such declines."
Continuing claims: The government said 4.46 million people continued to file unemployment claims for their second week or more, during the week ended Aug. 14, the most recent data available. That’s down 62,000 from an upwardly revised 4.52 million the week before.
Continuing claims reflect people who file each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, or people who have exhausted their benefits but are still out of a job.
The 4-week moving average for ongoing claims fell by 28,000 to 4.51 million.
State-by-state: Jobless claims in eight states declined by more than 1,000 in the week ended Aug. 15, which is the most recent state data available. Claims in California dropped the most, by 5,275. The state attributed the drop to fewer layoffs in the service and manufacturing industries.
Claims jumped by more than 1,000 in Wisconsin and Puerto Rico.
Attorney General Andrew Cuomo remains the overwhelming favorite to become New York’s next governor yet voters want to hear more from him on the state’s budget woes.
That message is from a Quinnipiac University poll released Tuesday.
Overall, 64 percent of New York voters, against 21 percent, want the Democratic candidate to weigh in on the protracted fiscal situation. Broken down by party, Republicans say (68-20) percent Cuomo isn’t explaining enough, an opinion shared by Democrats (58-26) percent and independent voters (71-15) percent.
“Imagine that: Voters want to hear more from a politician. Attorney General Andrew Cuomo has been too quiet on how we would solve Albany’s budget mess, which he’ll inherit — if he’s elected,” said Maurice Carroll, director of the Quinnipiac University Polling Institute.
Despite his silence, Cuomo maintains a 72-16 percent approval rating and holds a commanding lead on two Republican challengers. Quinnipiac has Cuomo in front of former Congressman Rick Lazio, 58-26 percent, up from 55-26 percent April 13. When put against Buffalo businessman Carl Paladino, Cuomo’s advantage is 59-23 percent, compared to 60-24 percent in a previous poll.
Lazio, the endorsed GOP candidate, tops Paladino in a Republican primary 46-17 percent, with 28 percent undecided.
The poll results on the governor’s race and other issues, including the U.S. Senate seat held by Kirsten Gillibrand and President Barack Obama’s job performance can be found here.
Microchip Technology Inc. has completed its purchase of Silicon Storage Technology Inc., closing the nearly $300 million deal.
Chandler-based Microchip (Nasdaq:MCHP) finalized is acquisition of SST (Nasdaq:SSTI) after shareholders approved the deal in a special meeting on Thursday.
We are pleased to have completed this transaction,” said Steve Sanghi, Microchip president and CEO, in a prepared statement. “Through this acquisition, we gain access to SST’s SuperFlash technology and extensive patent portfolio, which are critical building blocks for advanced microcontrollers. We expect that SST will also enhance our ability to customize technology variants, thereby adding an advantage over competing technologies.”
Microchip sought SST’s technology as a way to build its presence in the memory market and add to its own patent portfolio. Microchip twice upped its bid for the Sunnyvale, Calif.-based manufacturer after rival bids were submitted to its board.
“We are confident that SST will flourish as a part of Microchip,” said Bing Yeh, co-founder and CEO of SST. “As part of a larger, more diversified company, we believe that SST will be better positioned to deliver the superior service and innovative NOR flash and embedded flash solutions that our customers expect.”
Today will mark the last day that SST’s stock trades. Owners of the stock will receive $3.05 in cash as part of the sale.
The Arizona Cardinals well get some high-profile home games next season — including contests against the Dallas Cowboys, Denver Broncos and Oakland Raiders.
The Cardinals’ 2010 regular season schedule lineup is set in terms of teams but dates and times and what kind of national games the Cards will be play will be determined later this year. The Cardinals will also host the New Orleans Saints, Tampa Bay Buccaneers and games against NFC West foes (San Francisco 49ers, St. Louis Rams and Seattle Seahawks).
High-profile teams such as the Cowboys, Broncos and Raiders all have strong followings in the Phoenix sports market, which should insure quick sellouts for those games and push up ticket prices next year free business cards.
The Cardinals have sold out all their home games since moving from Tempe to Glendale’s University of Phoenix Stadium in 2006.
The Cards' road games include visits to San Diego, Minnesota, Atlanta, Kansas City, Carolina and the NFC West rivals.
The NFL playoffs start this weekend and include a 2:30 p.m. Sunday game between the Cardinals and Green Bay Packers that will be televised by Fox.
Question: How do REITs work? And is it prudent to have them in a diversified retirement portfolio? –M. C., Indianapolis, Indiana
Answer: After going from rock stars of the investing world during the real estate boom to candidates for a VH1"Where Are They Now" episode the last two years, REITs are generating some interest again.
Gee. Could it have anything to do with the fact that, after slumping badly in 2007 (-17.8%) and 2008 (-37.3%), REITs have been on a bit of a roll again with a year-to-date return of more than 25% through mid-December?
Well, whatever has spurred your interest, the answer to your first question is that REITs, or real estate investment trusts, are essentially companies that own and operate income-producing properties that could range from office buildings to hotels to malls to apartment buildings or a combination of these or other facilities.
Since you can buy many REITs just like stocks, investing in them allows you to gain exposure to the real estate market without the hassle of having to buy, manage and sell actual bricks and mortar. And because for tax reasons REITs must distribute 90% or more of their taxable income to shareholders annually as dividends, many investors looking for steady income from their investments also gravitate toward REITs.
As for whether it’s prudent to include REITs in a diversified retirement portfolio, I’d say the answer depends on why you’re buying them.
If you’re considering REITs now because you think their recent gains might be a prelude to another real estate feeding frenzy, I would urge extreme caution. Much of the REIT rebound this year is what you might call a "relief" rally. Things were looking so bad both in terms of property values and availability of financing in the commercial real estate market earlier this year that many REITs were knocked down to Armageddon prices. As investors came to believe that maybe conditions weren’t quite so horrendous and that the correction in REIT values had perhaps been overdone, REITs enjoyed a nice little pop.
But the residential and commercial real estate markets still face daunting challenges. That’s not to say that REITs don’t have the potential to deliver decent returns from here. Indeed, some have been able to raise capital that may allow them to pick up properties at bargain-basement prices. I think it would be foolish, though, to buy into REITs expecting them to retrace their recent trajectory.
But if you want to invest a portion of your retirement savings in REITs as part of a long-term strategy to improve your portfolio’s performance by enhancing its diversification, then I’d say yes, it could be prudent to find a place for them quick guaranteed personal loans. That’s because research shows that adding a small helping of REITs to an already diversified portfolio may be able to slightly boost returns without increasing volatility.
Be aware, however, that this approach assumes you’ll invest a modest portion of your assets in REITs and that you’ll hold them during good and bad periods. And to get the full benefit of the additional diversification they offer, you must be willing to rebalance periodically so REITs continue to account for the same percentage of your portfolio that you set originally.
That means you’ll probably be selling off part of your REIT stake after years in which they’ve soared (like 2003 and 2004), and adding to it after lousy years (like 2007 and 2008). If you don’t have the discipline, or the stomach, to do this, then adding REITs probably isn’t such a hot idea.
Keep in mind too that while REITs’ dividends can be a plus for investors looking to draw income from their retirement portfolio, those dividends can be cut in hard times. Some REITs did exactly that during the financial crisis. What’s more, a December 2008 "revenue procedure" from the IRS gave REITs the option of paying out up to 90% of their dividends in stock rather than cash this year. I think it’s fair to say most income investors would prefer hard currency to more shares of stock. It’s unclear whether, one way or another, REITs will have access to that option again in the coming year.
You should also know that, unlike payouts from most companies, REIT dividends do not generally qualify for the 15% maximum tax rate for qualified dividends. So if you do opt for REITs, you may want to hold them in a tax-advantaged retirement account such as an IRA or 401(k).
All things considered, though, I think REITs can still play a role in a well-rounded retirement portfolio. But unless you know how to analyze the prospects for individual REITs, I’d recommend investing in them through a mutual fund or ETF that owns a diversified portfolio of REITs. You can find both on our Money 70 list of recommended funds.
Bottom line: If you want to make REITs part of your long-term investing strategy for your retirement savings, go ahead. Just be sure to take a prudent approach, as I’ve outlined.
Private equity shop Cerberus plans to float gun-maker Freedom Group soon. It had better hurry. President Barack Obama’s victory sent weapon sales — and the valuations of firearms producers — shooting upward. Falling backlogs hint sales could plunge. The U.S. gun bubble may backfire.
Two sparks set off this speculative burst in the gun business. First, fears of economic calamity inspired sales of weapons — Sturm, Ruger’s 30 shot autoload SR-556 rifle is useful according to the company for shooting varmints and for "personal defense", presumably pesky biped varmints.
Second, gun collectors feared a Democratic president would restrict gun ownership. After all, you can’t buy the SR-556 in blue-state strongholds California and Massachusetts.
There’s plenty of anecdotal evidence of mania in the sector. Retailers reported ammunition shortages. Gun show attendance overflowed. Firearms factories are running flat out.
Meanwhile, insiders are preparing for a slowdown. Smith & Wesson diversified into security systems. Cerberus’ decision to sell may be indicative of a top — the durability of recent demand is indeed listed as a risk factor in Freedom Group’s prospectus.
The figures are more damning. Total U.S. firearm sales should be around $3 billion this year. That’s twice to three times as much as is typically spent according to estimates derived from Treasury excise taxes. Background checks over the past 12 months, which are a leading indicator of gun sales, were 50% higher than the levels reported during the middle years of the decade.
Naturally, rising sales lit a fire to stocks of gun makers and sellers. Armaments manufacturers Smith & Wesson (SWHC) and Sturm, Ruger (RGR) saw their stocks rise 115% and 85% respectively since the election last November. Hunting superstore Cabelas (CAB) has risen 70%.
This bubble may already be deflating. Smith & Wesson’s backlog hit $268 million earlier this year and shrank to $177 million last quarter due to cancellations and fewer orders. Considering it only stood at $50 million in April 2008, the backlog could have much further to fall. Sturm, Ruger reported roughly similar figures.
This could prove painful for all involved. If sales fell to more typical levels of recent years, up to two-thirds of U.S. gun sales could disappear. And they could fall further. There are somewhere between 200 million and 300 million fireable guns (estimates vary widely) already in the U.S. Firearms have a very long lifespan if properly treated.
Gun buyers may well decide their now-stuffed racks don’t need more company for a few years.
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