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Datum registracije: 09 Jul 2008
Poruke: 53463

PorukaPostavljena: Sub Maj 16, 2009 5:45 pm    Naslov poruke: Na vrh strane Na dno strane

Consumer price drop is biggest since '55

Government says 0.7% annual decline is the largest in nearly 54 years. Monthly prices unchanged.

A key index of prices paid by consumers fell at the sharpest rate since August 1955 due to historically low energy prices, the government said Friday.

The Labor Department said the Consumer Price Index declined 0.7% on an annual basis in April, only the second year-over-year decline in nearly 54 years following March's 0.4% drop.

On a monthly basis, consumer prices were unchanged, in line with the consensus estimate of economists surveyed by Briefing.com.

The overall index was affected by a sharp decline in energy prices, which fell 2.4% in April, and are down 25.2% on an annual basis.

Oil prices averaged about $50 a barrel in April, down 55% from an average of about $112 a barre in April of 2008.

"When oil prices go up to near $150 and then fall sharply, your going to have an impact on CPI," said Bob Brusca, an economist at FAO Economics in New York.

While oil prices have trended higher recently as investors respond to signs of economic stabilization, there's no reason to think inflation will rebound anytime soon given the near-term outlook, Brusca said.

"There's a lot of slack in the economy, and so there's not much reason to fear inflation," he said.

Meanwhile, prices excluding food and energy, the so-called core CPI, rose 0.3% in April, after a 0.2% rise the month before. Economists were expecting a 0.2% gain. Core consumer prices were up 1.9% on an annual basis.

The increase in core CPI was due to a 9.3% rise in prices for tobacco and smoking products, which jumped 11% in March. Retailers have boosted tobacco prices in response to a federal tax hike that went into effect April 1.

Excluding tobacco prices, core inflation rose 0.2% in April, according to Aaron Smith, senior economist at Moody's Economy.com.

"There has been some genuine acceleration in core prices and that should put to rest fears of near term tilt into deflation," Smith said.

Deflation, a widespread drop in prices, is a sign of economic weakness. Lowering prices is one way businesses can cope with falling demand. But if companies can't earn a profit selling their products at lower prices, they could be forced to cut production or lay off workers, which speeds up the pace of economic deterioration.

At the same time, Smith said the weak economy will keep "disinflationary force" on CPI for at least another year, "since slack does indeed matter."

By Ben Rooney, CNNMoney.com staff writer

Gas: 12% surge in 3 weeks

National average climbs overnight to $2.29 a gallon, up 24.2 cents in less than three weeks.

Gas prices rose overnight, with the national average up nearly 12% in less than three weeks, according to a daily survey.

The national average price for a gallon of regular gasoline rose 0.9 cent Friday to $2.290 a gallon, reported motorist group AAA. Friday's increase marks the 17th straight day of gains, during which time prices have surged 24.2 cents.

Gas prices have generally been on an upward trajectory since early December, when the national average hovered above $1.60 a gallon. But prices are still well below last year's all-time high of $4.114 a gallon.

The pain at the pump was felt across the country, with drivers in all 50 states and the District of Columbia paying regular unleaded gas prices of $2 a gallon or more.

Prices were highest in Alaska, where a gallon averages $2.646. Arizona had the lowest average, with drivers in the state paying about $2.046 a gallon.

Analysts say the recent increase is due primarily to a rebound in the price of crude oil, which is the main ingredient in gasoline. Additionally, gas prices typically rise at this time of year as refiners and retailers gear up for the summer driving season.

Despite the recent uptick, some 27 million people are planning to travel by car this Memorial Day, according to AAA. That's 2.6% higher than a year earlier, when gas prices were hovering around $3.90 a gallon.

A total of 32.4 million Americans will travel at least 50 miles from home to mark the holiday weekend, AAA said. That's an increase of 1.5% from last year, when soaring gas prices cut the number to 31.9 million.

By Ben Rooney, CNNMoney.com staff writer

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Datum registracije: 09 Jul 2008
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PorukaPostavljena: Ned Maj 17, 2009 3:47 pm    Naslov poruke: Na vrh strane Na dno strane

EU economy shrinks 2.5%

Recession deepens in Europe, but economists say the first three months of 2009 may be the low point.

Europe sank to what may be the recession's low point in the first quarter of the year as tumbling German exports and investment plus further sharp drops in output elsewhere sped up the pace of a year-old contraction.

Official estimates on Friday showed the first quarter was the worst on record at European level, although more up-to-date business surveys suggest that early 2009 may prove to be the low point of the first global recession since World War Two.

"Although we are nowhere near the peak in unemployment, we can safely assume that the first quarter was the worst in terms of the pace of decline," said Martin van Vliet, an economist at ING bank.

"The latest ugly GDP figures should, however, mark the trough of the current 'Great Recession'," said Alexander Koch, an economist at UniCredit bank.

GDP fell 2.5% versus the last quarter of 2008, both at the level of the 16-country euro currency zone and the broader 27-country European Union bloc, according to the EU statistics office.

German GDP fell more than any quarter since reunification of the country in 1990, with GDP falling far more than forecasters had even imagined, diving 3.8% from the last quarter of 2008, official statistics showed.

French GDP slid heavily too if less dramatically -- by 1.2% compared to the previous quarter, official figures showed, while Italian GDP fell 2.4%, the sharpest dip since 1980.

Economists had forecast a bad but less dramatic fall of 2% in euro zone GDP, after a drop of 1.6% in the previous quarter and the declines in several eastern European countries outside the euro zone were no less startling.

Czech and Hungarian GDP reports showed the biggest drops since their records began.

Like other regions, but worse

Europe's plight is shared by the industrialized world and even fast-developing China showed its weakest pace of growth on record in the first quarter.

U.S. GDP slid for the third straight quarter for the first time since the oil crisis recession of the mid-1970s, according to official data published on April 29.

The drop of 6.1% in the U.S. method of counting equates to a fall of a bit more than 1.5% in European measures, suggesting the first quarter there, while bad, was not quite as bad as in Europe.

Britain, which is not in the euro zone but depends heavily on its euro neighbors for trade, reported the biggest quarterly GDP drop since 1979 in the first quarter, when GDP contracted 1.9% from the previous quarter. That estimate was issued on April 24.

In all, while the figures are provisional and U.S. data is often subject to heavy revision, the picture emerging from the first quarter is that GDP was dire across the board, but worse in mainland Europe.

The first quarter drop eased in the United States from the preceding quarter while it accelerated in the euro zone and Britain but the euro zone and broader EU drop was bigger than Britain's too.

More detailed information on GDP is expected on May 20 from Germany and many other mainland European countries as well as a first estimate from Japan, though polls of economists say Japanese GDP could have been the worst since World War Two in the opening quarter of 2009.

Global GDP is expected to contract 1.9% in 2009 as a whole, according to the International Monetary Fund, which sees U.S. GDP dropping 2.8%, euro zone GDP 4.2%, Japanese GDP 6.2% and British GDP 4.1%, alongside a slowing in China to 6.5% growth from 9% last year.

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Datum registracije: 09 Jul 2008
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PorukaPostavljena: Pon Maj 18, 2009 4:04 pm    Naslov poruke: Na vrh strane Na dno strane

The financial meltdown's unhappy anniversary

The crisis that began with the Bear Stearns debacle is about to enter year three. Yecch!

We're about to mark the second anniversary of the financial meltdown. But don't expect to see any clinking of champagne glasses, because except for a handful of prescient (or lucky) speculators, it's been a ghastly two years. The nightmare started June 12, 2007, when news broke that two Bear Stearns hedge funds speculating in mortgage-backed securities were melting down. That was the precursor to the panics and collapses that have led to a worldwide recession and the fall of mighty institutions like Bear, AIG (AIG, Fortune 500), Lehman Brothers, and Royal Bank of Scotland (RBS).

But even a clinkless anniversary has its uses -- it's an occasion to reflect on the past and contemplate the future. So let's look at what the meltdown is really about, the unappreciated impact of Lehman's collapse, and where we go from here.

Yes, the meltdown started with subprime mortgages - "subprime" is a Wall Street euphemism for "junk" - but it has spread far beyond that. Problem areas now include credit cards, construction loans, office buildings, shopping centers, leveraged buyouts, nonjunk mortgages, and the various and sundry securities based on all that stuff. So even if the U.S. housing market were miraculously restored to health tomorrow - not likely - we'd still have major grief.

What almost everyone (including me) missed two years ago is that the world's financial system was a disaster-in-waiting. It was clear that housing prices, leveraged buyouts, and such were being driven by vast amounts of money looking for something to buy, no matter how idiotic. What wasn't clear is the way the markets were interlinked and internationalized. Thus, piggish behavior in the U.S. - financial swine flu, as it were - sped around the world even faster than regular swine flu has.

Enter, or rather exit, Lehman, which failed in September 2008. Financial markets freaked, for reasons we'll get to. The markets' problems dragged down the economy, creating a slowdown that's been putting a second hurt on the markets. It's the first time we've seen this pattern since the Great Depression. Creepy stuff.

Letting Lehman croak seemed rational, after the uproar six months earlier when taxpayers bailed out Bear Stearns's creditors and allowed Bear shareholders to get $10 a share for stock that was essentially worthless. But unexpected consequences of Lehman's failure scared the pants off the world's financial-crisis managers. First, because of a little-noted 2005 change in U.S. bankruptcy laws, Lehman's counterparties - the institutions on the other side of huge bets that Lehman made - were able to seize and sell the collateral that Lehman had posted. Those sales drove down asset prices, inflicting huge losses on other institutions and fomenting fear as institutions grew ever more wary of dealing with one another. Second, Lehman's collapse led to Reserve Fund's becoming the first sizable money market fund to "break the buck" and inflict capital losses on investors. That scared millions of people.

Finally, some hedge funds that had Lehman as their prime broker - the institution that holds their securities and cash and does their transactions - couldn't get access to their assets after the bankruptcy. Other funds began moving their prime brokerage accounts out of Goldman Sachs and Morgan Stanley, which as investment banks couldn't use all the Federal Reserve's emergency-borrowing programs. That put the two in a bind and forced them to become bank companies.

These unexpected consequences of Lehman's collapse help explain why U.S. regulators have been so solicitous of the 19 big "stress test" institutions. Who wants to close, say, Citi (C, Fortune 500), and be responsible for a Lehman II?

Despite the huge stock market run-up the past three months, things are still far from good. The government's rescue strategy seems to be the traditional "play and pray" of past crises. You play for time, pray that all the money being thrown at the markets and the economy will turn things around, and hope banks make enough profit to heal themselves.

Will it work? Or will we turn into another Japan, where banks and the economy were stagnant for a decade? Ask me in a year. Meanwhile, an unhappy anniversary to all of us.

By Allan Sloan, CNNMoney.com
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Datum registracije: 09 Jul 2008
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PorukaPostavljena: Uto Maj 19, 2009 3:14 pm    Naslov poruke: Na vrh strane Na dno strane

Mortgage rescue: Still more hurdles

The administration's loan modification program has helped 55,000 troubled borrowers so far. But the housing crisis is complex and the fixes aren't so easy.

Loan servicers are overwhelmed by the flood of applications. Mortgage investors are angry about a congressional bill prohibiting them from suing servicers that modify loans. Foreclosures are rising as unemployment soars.

Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure.

So far, more than 55,000 borrowers have been put into trial modifications, which become permanent if they keep up with payments for three months. Hundreds of thousands more have applied.

However, the initiative must still get over several hurdles before its chances for success can be determined.

Stressed servicers: The program's guidelines were issued on March 4, but it took many servicers weeks to reprogram their systems and train their staffs. Many did not even start accepting applications until early- to mid-April, frustrating troubled borrowers forced to wait to find out if they qualify for lower rates.

Even now, housing counselors and borrowers report that servicers are still getting up to speed on the program, causing delays and confusion.

Take the case of Roberta Smith of Foster City, Calif. The 65-year-old has a mortgage where her minimum payments don't cover all the interest that's due. To stop her principal from ballooning, she has drained her retirement accounts. But she fears she soon may not be able to afford even the minimum payment.

Smith applied in late March for the modification program, but JPMorgan Chase (JPM, Fortune 500) told her nearly three weeks later that her package was not complete. She faxed the required documents and was assured by a telephone representative that the bank had everything it needed.

But this week she received a letter saying her request was being canceled because the application was incomplete.

Chase spokesman Tom Kelly said the letter was sent as a mistake and Smith's application is still under review. He acknowledged that the bank, which began processing applications in early April, is still ramping up its modification efforts. Meanwhile, the bank is holding off on foreclosing on applicants.

"It's an enormous task," Kelly said. "We're moving quickly, although not as quickly as an individual might wish."

Angry investors: One complicating factor in the mortgage meltdown is the fact that the loans are bundled into securities and then sold off in pieces to investors. Some servicers have blamed the slow pace of mortgage modifications on the fact that their contracts with investors limit their ability to adjust the loans' terms.

To address this concern, Congress is currently finalizing a bill that would give servicers a "safe harbor" in modifying mortgages.

"The goal of 'safe harbor' is to allow servicers to use these program to their fullest capacity," said Stephen O'Connor, senior vice president of governmental affairs at the Mortgage Bankers Association, which represents servicers.

Some investors, however, are lobbying hard against the bill, saying that the contracts already give servicers the flexibility to make changes. One group of investors has hired the prominent Washington law firm Patton Boggs, while another is waiting to review the final legislation before considering legal action.

"Investors don't have to grant consent," said Bill Frey, head of Greenwich Financial Services who last year filed a lawsuit against Countrywide Financial over its $8.4 billion settlement in which it agreed to lower mortgage payments for many borrowers. The contracts "lay out which loans can be modified and which ones can't."

Other industry experts agree, saying servicers are using investors as a scapegoat.

"If that law passed tomorrow, you won't see any more modifications than you do today," said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter.

Many investors were also steaming that the administration's original program did not require second-lien holders, which are often banks, to take a hit during an adjustment.

Although the administration has since expanded the modification requirement to cover second liens, some investors still aren't satisfied. They want the administration to treat second liens in the modification program the same way it does in the Hope for Homeowners program, which requires these liens to be extinguished, said Micah Green, a partner at Patton Boggs.

Escalating unemployment: The rising unemployment rate is threatening to reverse any gains being made in stabilizing the housing market. When homeowners lose their jobs, they often can't afford to stay in their homes. Modifications often can't help, experts say.

"Unemployment is becoming a bigger factor than almost anything," said John Taylor, head of the National Community Reinvestment Coalition, which assists troubled homeowners.

The administration Thursday expanded its loan modification initiative to make it easier for people to get out from under a crushing mortgage.

If troubled borrowers don't qualify for a modification, their servicers must first evaluate whether the homeowners are eligible for a short-sale or deed-in-lieu agreement before filing for foreclosure. These alternatives allow borrowers to either sell the home for less than the debt owed or give it back to the bank.

By Tami Luhby, CNNMoney.com senior writer
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Datum registracije: 09 Jul 2008
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PorukaPostavljena: Sre Maj 20, 2009 3:11 pm    Naslov poruke: Na vrh strane Na dno strane

Seven lucky consumer businesses

Hair salons, contractors, trade schools and dentists are among those still posting sales increases in the recession.

With shopping no longer their favorite pastime, Americans appear to be spending their money in other ways, such as acquiring new skills, getting help with their finances and visiting the dentist.

This change in spending behavior is helping trade schools, accounting firms and even your neighborhood dentist survive the economic downturn better than other businesses, according to an industry report.

"Our data show that companies selling non-discretionary products and services, things that people really need, are doing pretty well," said Brian Hamilton, CEO of Sageworks Inc., a Raleigh, N.C.-based company that analyzes weekly financial data such as sales, balance sheets and income statements for privately held companies across 1,600 industries.

Hamilton said seven industries are clearly benefiting from a pickup in sales over the past 12 months.

Auto repairs, home repairs: April's retail sales numbers showed consumers are still shunning big-ticket purchases. So instead of buying new cars or upgrading to bigger homes, they are spending money on maintaining what they already own.

Auto repair shop sales grew 2.4% over the last 12 months while car dealership sales declined by 9.7%, according to Sageworks.

As more people remodel and fix their homes instead of moving, revenue for electricians, plumbing and heating contractors has grown 4.6% in the last 12 months while home builders' sales declined by more than 5%.

Supermarkets: Many consumers are looking to save money by eating at home more than eating out. This trend has favored grocery stores, resulting in a 6.7% sales increase for supermarkets in the last 12 months.

By comparison, Sageworks' data showed family-style restaurants logged a slower 3.9% sales increase.

Trade schools: With an average of 600,000 Americans losing their jobs every month, many are going back to school to learn new skills and improve their chances of rejoining the workforce when the economy rebounds.

Revenue at trade and technical schools has grown by 9.1% in the last 12 months, a faster pace than the 5.9% growth in 2007.

Dentists' delight: Hamilton said health care has been one of the most recession-resistant sectors, since people regard it as a necessity.

Sageworks' data showed the average dentists' office logged sales growth of 6.9% in the last 12 months, up from 4.9% in 2007.

Looking good: Personal care extends to looking good through the recession. While Americans may be making concessions on high-end services, they are still getting regular haircuts and manicures.

Hair salons, barber shops, nail salons and spas logged sales growth of 4.5% in the last 12 months, according to Sageworks.

Help with finances: Many consumers aren't shying away from paying for financial advice to help them make it through the recession.

Sageworks' data showed that the accounting industry ranked among the top 10 industries in terms of revenue growth, with a 10.2% gain in the past 12 months.

"These patterns show that the recession has been lopsided," said Hamilton. "Although the economy has slumped, we're not getting a decline across all industries. Very specific industries like real estate are creating a big drag on the broader economy."

By Parija B. Kavilanz, CNNMoney.com senior writer

Emergency small business loans coming in June

To kick off National Small Business Week, the government announced its timetable for a hotly awaited assistance program.

An emergency loan program designed to shore up struggling-but-viable small businesses will open for applications in mid-June, the Small Business Administration announced Monday.

The news came during a speech by SBA head Karen Mills kicking off the SBA's annual National Small Business Week program of publicity and networking activities. Known as America's Recovery Capital (ARC), the emergency loans were authorized in February's stimulus bill. The SBA has been working since then to pull together guidance for the new program, which will back short-term loans of up to $35,000 that business owners can use to temporarily cover their payments on existing debt. No repayment on the ARC loans will be due for 12 months, and owners will have up to five years to repay them.

The SBA plans to release guidance to banks by June 8 and will be ready to accept lender loan packages by June 15. Business owners will need to apply directly to banks for the loans, but the SBA will offer those banks a 100% guarantee on the ARC loans they make. If the business owner defaults, the SBA will pay off the loan.

SBA Administrator Mills called the ARC loans "risky" and very different than the loans her agency typically backs. Aimed at businesses with "immediate financial hardship" but a past track record of financial success, the loans are intended to aid companies that "are in a situation where they just need a little extra help to bridge the troubled waters," she said.

Right now, many small businesses find themselves struggling against the economic tides. Mills acknowledged that her constituents are in trouble and looking to the government for help.

"I have started to think of the SBA not just as a backbone for small business, but as an entire bone structure," she said before a crowded audience at the Mandarin Oriental hotel in Washington.

Talk back: Could you use an ARC loan?

Sworn in last month as the SBA's leader, Mills' talk on Monday marked one of her first public speeches in her new role. In her remarks, she said that the top three priorities for her agency are more progress on fulfilling the small business provisions of the American Recovery Act, revitalizing the agency, and "making the SBA the strongest possible voice for small businesses in the U.S."

The Recovery Act, better known as the stimulus bill, allocated $730 million for initiatives aimed at shoring up the country's small business. So far, "the results are good," Mills said. Since one stimulus provision took effect in mid-March, offering banks higher guarantees and waived fees on SBA-backed loans, the average weekly loan volume is up more than 25%, she said.

But that increase comes against a dismal backdrop for small business lending. In the quarter ended March 31, the number of loans made through agency's popular 7(a) loan program dropped 57% compared to the prior year, and several major lenders have sharply reduced their activity.

Senator Mary Landrieu, D-La., the chair of the Senate's small business committee, joined Mills in a small press conference after the public speech. Landrieu told reporters that it's a top priority for the committee and the agency to determine why 50% of the nation's banks aren't partnering with the SBA. The SBA itself does not directly loan money, but works with partner banks to offer government-backed loans.

"I would love to see any small business owner just walk around the corner to their local bank and say they're looking to expand their business," she said. "That bank should ask the SBA - would you be a partner with me?"

Landrieu also said that finding a better health care solution for small businesses is a top priority for her.

As for the agency, which employs 2,000 full-time workers, Mills said she plans to invest in "training, planning and better communication across the SBA ... and for repeated calls to break down silos, to give up sacred turf."

Internal reform was also a priority for Mills' predecessor, Steven Preston, who served as SBA chief from July 2006 to April 2008. After a 2005 government survey found that the SBA had the lowest employee morale of any major government agency, Preston devoted much of his energy to streamlining the agency and improving morale.

By Sharon McLoone, CNNMoney.com contributing writer
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PorukaPostavljena: Čet Maj 21, 2009 4:03 pm    Naslov poruke: Na vrh strane Na dno strane

Fed's economic forecast worsens

Central bank now expects unemployment to rise to a range of 9.2% to 9.6% this year. Fed also predicts a sharper decline in GDP than it had forecast in January.

The Federal Reserve's latest forecasts for the U.S. economy are gloomier than the ones released three months earlier, with an expectation for higher unemployment and a steeper drop in economic activity.

The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%.

The Fed also now expects the gross domestic product, the broadest measure of the nation's economic activity, to post a drop of between 1.3% and 2% this year. It had previously expected only a 0.5% to 1.3% decline.

At the April meeting, the Fed decided to once again leave its key federal funds rate near 0%, a level it has been at since last December. The central bank also announced that it did not plan on increasing purchasing more long-term Treasury notes anytime soon.

The Fed disclosed plans to begin buying $300 billion's worth of such Treasurys in March in order to try and keep long-term rates down and boost economic activity.

But according to the minutes, some members of the central bank's policy committee indicated they were open to increasing its purchases of Treasury notes and mortgage securities as a way of spurring more lending.

Treasury prices rallied after the minutes were released, pushing their yield, which moves in the opposite direction, down to 3.18%.

Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, fell Wednesday afternoon.

According to the minutes, Fed members did indicate they expected GDP to increase slightly in the second half of this year. However, it would not be enough to overcome the anticipated declines in the first half. GDP shrunk more than 6% in the first quarter.

Policymakers acknowledged that there were some better economic readings in the period leading up to the April meeting, but added that they were not convinced the economy was out of the woods yet.

In the minutes, Fed members indicated that there are a number of factors that "would be likely to restrain the pace of economic recovery over the medium term" and added that the credit crunch would "recede only gradually" and that "households would likely remain cautious" in their spending.

Fed members expressed concerns about rising problems in the commercial real estate market as well, indicating that this could cause further problems for financial institutions still struggling with the effects of the collapse of home prices and rising mortgage defaults.

The Fed also reduced its GDP targets for 2010 and 2011, but the central banks still expects the economy to grow in both years.

Rich Yamarone, director of economic research at Argus Research, said that the Fed's new forecasts were "more of a reality check than a revision," given the deterioration in the labor market and overall economy since January.

But he and other economists said it also appeared from the minutes that the Fed is pleased with how the economy has started to respond to the steps it has taken, including the purchases of mortgages and Treasurys.

"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out,'" said Gus Faucher - director of macroeconomics at Moody's Economy.com. He added that it did not seem like the Fed felt a "sense of urgency" to increase the scope of its Treasury purchase program.

And Yamarone said it's important to remember that the forecasts and minutes are three weeks old, and that economic readings since the meeting, including home sales and the rate of job losses, have generally showed signs of improvement.

"These minutes look like they have a bleaker assessment, but things were darker then," he said. "I can't say it's an accurate interpretation of their outlook today. I think that would be a little more favorable."

By Chris Isidore, CNNMoney.com senior writer
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PorukaPostavljena: Pet Maj 22, 2009 3:35 pm    Naslov poruke: Na vrh strane Na dno strane

Economy to resume growth this year

Negative effects from recession will be felt for years to come, one of nation's chief economists tells Congress.

The economy will start growing in the second half of 2009, but it will be several years before the positive effects of a turnaround will be felt, the Congressional Budget Office said Thursday.

"Even if the economy returns to positive growth this year, the loss in output, income and employment during the recession and the next few years will be huge," said Douglas Elmendorf, director of the CBO, in testimony before the House Budget Committee.

The CBO is updating its economic forecasts and will release new estimates in August. Elmendorf expects the new numbers will be less optimistic than the estimates the agency released in March.

"CBO's forecast in August is likely to show even larger shortfalls in output over the next few years," he said.

The agency is expecting that the unemployment rate will continue to rise into the second half of next year and will peak at 10.5%. In March, CBO forecast unemployment would peak in the first half of next year at 9.5%.

The $787 billion economic stimulus package enacted in February is helping to boost GDP this year and, to a lesser extent, will do so in 2010 as well. Thereafter, economic growth will be hindered if private demand does not pick up, he told lawmakers.

And even if private demand picks up, "it still takes a long time to catch up with the weak growth last year and this year," Elmendorf said.

Elmendorf was asked to lay out what he saw as potential risks going forward. "The number of sandpits we see ahead would scare a good golfer," he said.

Among them is the exposure of small- and medium-sized banks to the fortunes of commercial real estate.

"The fundamentals in the market are very weak," Elmendorf said. He said current price declines of between 35% and 45% exceed those of the early 1990s, when commercial property collapsed. Meanwhile, delinquency rates are up.

With estimates of commercial real estate losses totaling more than $200 billion, that could exceed the revenue small and mid-size banks take in, thereby reducing their capital.

As goes Britain?

This week, Standard & Poor's lowered its ratings outlook to negative for the United Kingdom, in great part due to its growing debt levels.

House Budget Committee Ranking Member Paul Ryan, R-Wisc., asked Elmendorf to assess whether the United States is likely to suffer the same fate.

The U.S. government and others around the world flood the debt markets with government issues. That, in turn, can cause interest rates to rise as investors start to demand greater reward for the risk they're taking.

"Certainly in the next several years, there's likely to be significant upward pressure on interest rates," Elmendorf said. But any increase "is likely to be delayed until the economy comes out of its [downturn]."

CBO projects that, under the current congressional budget resolution for fiscal year 2010, the debt held by the public could rise to more than 60% of GDP over the next 5 years. Under the president's budget proposals, it could rise more than 80% over the next 10 years.

"This is a grim outlook for the federal budget," Elmendorf said. "At some point investors may decide the United States is not the safest haven. [But there's great] uncertainty when sentiment will turn." If it does, it could turn more quickly than expected, he noted.

By Jeanne Sahadi, CNNMoney.com senior writer
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PorukaPostavljena: Sub Maj 23, 2009 4:17 pm    Naslov poruke: Na vrh strane Na dno strane

$60 - oil's sweet spot

You've probably noticed it at the gas pump.

$1.88, $2.01, $2.21. Price data from the government over the last few weeks clearly show gas is on the rise. On Thursday it averaged $2.36 a gallon, according to the motorist organization AAA.

Gasoline prices rise with oil prices, which have also been on the march lately. On Wednesday they settled above $60 a barrel for the first time in six months.

There's been talk that these rising oil and gas prices may derail any budding economic recovery, as consumers put more money in their tank and less into their local economy.

But most experts say $60 oil isn't too much of a burden, and this mid-range price could ultimately prevent future spikes.

"This is a price level the U.S. economy can shoulder," said John Lonski, chief economist at Moody's Analytics. "It will not figure into the timing of the recovery."

The economy

Talk of a budding economic recovery isn't just talk, there are concrete numbers backing it up.

While unemployment remains high, fewer people have been filing new claims. Leading indicators ticked higher in April. And the Treasury yield curve is widening. Oil prices, which have been tracking the stock markets lately, rose mostly on news like this.

It's not unreasonable to think rising oil prices could snuff out these signs of hope. Unlike previous recessions, oil prices are much more closely aligned with stock prices, as commodities have became a popular investment vehicle.

"People think the price of crude is reflective of fundamentals, but more and more it's reflective of the economic expectations of the financial community," said Tom Kloza, chief oil analyst for the Oil Price Information Service, which gathers data for AAA.

This isn't necessarily a bad thing, but it does mean oil prices now rise along side stocks, which generally rise on the expectations of a recovery, not when the recovery actually kicks in.

Back to basics

But this aside, oil and gas prices are still well below where they were last year, and probably have substantial room to go higher before they start to hit consumer spending or sentiment.

Lonski said it would take gas around $3 a gallon, and oil prices near $100 a barrel before it had a wider impact on the economy.

Fortunately for drivers, and maybe the wider economy as a whole, most analysts don't think we're going there anytime soon.

For one thing, even though expectations of a recovery are higher, the fundamentals for crude remain terrible. There's much more supply than demand.

For another, oil and gas prices always rise this time of year in expectation for the summer driving season, so this recent gain isn't unexpected.

The rise this year has been the largest in history on a percentage basis, with retail gas prices up almost 50% since late last year and gasoline futures prices up a whopping $138%, said Kloza.

Because of this huge runup, and with summer driving season almost here, he thinks the price rally may be done.

"The numbers we saw yesterday might be the spring peak," said Kloza.

If he's right and oil doesn't runup too much higher or fall too much lower, it could be a blessing for everyone.

Oil at $60 a barrel, as opposed to the high $30s we saw earlier this year, is good if you're hoping for an economic rebound.

"It testifies that the world economy isn't falling into an abyss," said Lonski.

Moreover, $60 is generally the lowest number oil can sell for that will keep oil companies and countries working to bring new sources to market, said Adam Sieminski, chief energy economist at Deutsche Bank.

"You need $60 to get new investment," he said. "The longer you stay below $60, or even $80, the greater the potential for oil prices to spike and create problems for everyone two years from now."

So $60 seems to be a sweet spot for crude. But as Sieminski was quick to note, oil rarely stays at one price for long.

By Steve Hargreaves, CNNMoney.com
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PorukaPostavljena: Ned Maj 24, 2009 5:10 pm    Naslov poruke: Na vrh strane Na dno strane

GM's tough road to avoid bankruptcy

With the government's June 1 restructuring deadline approaching, GM still has a lot of ground to cover to avoid filing for bankruptcy.

It's coming down to the wire for General Motors.

With GM rapidly burning through its cash reserves due to hefty losses amid an historic slump in auto sales, President Obama said the Treasury Department would give the automaker the cash it needs to continue operations on the condition that GM restructure its debt or file for bankruptcy by June 1.

The automaker set a May 26 deadline for its bondholders to reach a restructuring agreement. As Tuesday steadily approaches, GM chief executive officer Fritz Henderson has repeatedly said that the difficulty in inking a deal makes a bankruptcy filing for the automaker "probable."

A spokeswoman for GM said Friday the company continues to plan for a bankruptcy, which is the likely next step if no agreement is reached.

A deal with bondholders is one of the last major hurdles for GM (GM, Fortune 500) to clear in order to avoid bankruptcy. GM has reached agreements with the United Auto Workers and Canadian Auto Workers unions that will allow the company to reduce some of its labor and retiree healthcare costs.

Rival Chrysler, which has also received billions of dollars from the federal government, filed for bankruptcy last month despite reaching a deal with the UAW, after several bondholders held out of the restructuring agreement.

So if GM cannot work out a deal with bondholders, it could file for bankruptcy as early as some time next week.

Bondholders key to avoiding Chapter 11

Still, bankruptcy is not a done deal.

"In very hostile negotiations, most of the progress is made at the 11th hour," said Edward Neiger, founder of Neiger LLP, a creditors' rights and bankruptcy law firm. "It's very hard to predict what the outcome will be until the 11th hour, when the parties often realize the alternative is worse for both of them."

To avoid bankruptcy, GM would need to convince the bondholders to accept a much reduced stake in the company.

GM's proposal would give bondholders a 10% stake in the automaker, even though they currently own about 40% of the company's debt. The Treasury would get about a 50% stake in GM.

Bondholders have issued a counteroffer that would give them a 58% stake in the company. The Treasury, however, would not receive any stake in GM, and the automaker would remain liable to pay back the that the government has lent it.

Late Friday GM said it borrowed an additional $4 billion from the US Government making a total of $19.4 billion borrowed from the Treasury Department.

Under both plans, the UAW would receive about a 40% stake in the company.

Henderson has suggested that it will be up to the government, not GM, to determine whether bondholders should get a better deal, but the government has not given any sign it will adjust its offer.

The Treasury has indicated it wants to protect the interest of the taxpayers who have given billions to the automaker. A spokeswoman for the Treasury said Friday the government continues to work with all stakeholders to reach an agreement.

But Rep. Jeb Hensarling, R-Texas, wrote in a letter to Treasury Secretary Tim Geithner Friday that more negotiations "must take place soon and at an expedited pace."

"Bondholders must have a seat at the table during negotiations in how the company would be restructured. The company, the government, the union and the bondholders should negotiate details of a reasonable debt-to-equity swap before stepping into court," Hensarling wrote.

Bankruptcy would be bad for investors, suppliers and dealers

Should GM file for bankruptcy, the court will determine just what debts will be paid to various creditors. Bondholders could end up with a better deal than GM's offer, and many appear willing to take that gamble.

GM's stockholders, however, would likely be cleaned out. Although many GM shareholders have essentially been wiped out already. The stock currently trades for about $1.40 a share, more than 90% lower than year-ago levels.

Auto parts suppliers could also take a hit. GM pays its parts makers an average of $2 billion a month. The company would be able to pay some of the money it owes suppliers, but only those whom the court determines to be "critical vendors."

The fate of many GM dealers could also be decided by a bankruptcy court. GM notified 1,100 of the 6,000 dealerships in its network that it would be terminating their contracts next year. Some of those dealers would likely close this year.

Some dealers are hopeful that state franchise laws could protect them from having to be shut down, but many legal experts have said that the dealers will face an uphill battle if GM actually does wind up filing for bankruptcy.

By David Goldman, CNNMoney.com

-- CNNMoney.com senior writer Chris Isidore and CNN Congressional producer Deirdre Walsh contributed to this story.
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PorukaPostavljena: Pon Maj 25, 2009 4:17 pm    Naslov poruke: Na vrh strane Na dno strane

FDIC shifts failure cost burden to big banks

Agency to collect added fee based on an institution's assets to help replenish insurance fund.

Big U.S. banks will have to shoulder a larger portion of a one-time industry fee to replenish the fund used to resolve bank failures, according to a rule approved Friday by the Federal Deposit Insurance Corp.

The FDIC will charge U.S. insured depository banks a 5 basis point assessment based on each institution's assets, minus its Tier 1 capital. It would be collected in the third quarter.

The proposal modifies a prior decision to charge banks a special one-time fee of 20 basis points based on domestic deposits.

The agency also got the power to collect additional special assessments in the fourth quarter of 2009 and the first quarter of 2010 if the deposit insurance fund fell to a level that threatened public confidence.

Comptroller of the Currency John Dugan voted against the measure, calling the shift of the assessment burden "perverse" because the deposit insurance fund has been largely drained by the failure of smaller banks. (Florida bank collapses - firms swoop in)

FDIC Chairman Sheila Bair said the revised assessment appropriately shifts the costs, and noted the revised fee will be lower than the original proposal for all banks.

"A lot of large banks haven't failed because of massive government assistance," Bair said. "If it weren't for those, some big banks would have failed and there would have been costs."

The FDIC also upwardly revised the expected loss for the insurance fund to $70 billion over the next five years. The prior estimate was $65 billion.

The special fee will collect about $5.6 billion for the FDIC, compared with an estimate of $15 billion for the original proposal.

The agency said it will likely have to charge additional special assessments later this year.

Credit card reform leaves small biz out

Washington's credit card crackdown applies only to personal cards, leaving some small businesses unprotected.

When the Senate passed its credit-card reform bill on Tuesday, Senator Christopher Dodd called it "a great day for consumers." But what will it mean for small business owners who've been struggling with inflated rates and unexpected fees on their credit cards?

That depends on how your small business is incorporated, and what kind of card you have.

The Credit Card Accountability Responsibility and Disclosure Act that Obama will sign Friday outlaws several card policies that have provoked public outrage in recent months, including retroactive rate increases on existing balances for cardholders in good standing; hiking rates for new charges without at least 45 days' notice; "double-cycle billing," which allows fees to be charged for balances that were already paid off; and "universal default," which applies rate hikes if a customer is late with payments on unrelated bills.

While some of these provisions were already put in place by the Federal Reserve last December, they weren't scheduled to kick in until July 2010. Instead, the 45-day notice will now go into effect in mid-August of this year, with the rest of the changes being implemented next February.

For small businesses, however, there's a catch. Because the new law amends the Truth in Lending Act, which only governs consumer loans, it doesn't apply to corporate cards.

What this means is if you use your personal card to make business purchases, you'll be covered by the new protections. Likewise, business cards based on your personal credit - as is often the case for sole proprietors - should be covered as well.

But for limited liability corporations and other companies that use traditional corporate cards, the same old rules will continue to apply. An amendment proposed by Senators Mary Landrieu, D-La., and Olympia Snowe, R-Maine, to extend protections to any businesses with 50 or fewer employees was defeated in the Senate last week; instead, the final bill directs the Federal Reserve to conduct a study of credit-card use by small businesses.

As a result, no one is sure exactly how many small business owners will be affected by the new legislation. According to Chris Walters, manager of legislative affairs at the National Federation of Independent Businesses, 74% of small employers have business credit cards, but many of those "business" cards are based on the owner's personal credit - in which case, they're covered. Even some of those with business cards may still put some expenses on their personal plastic: 39% of those the NFIB surveyed said they use a personal credit card for business purposes.

Talk back: What do you think of the credit-card reform act?

The new law could result in "a couple of unintended effects," says Nolan Newman, a partner in a Seattle accounting firm that specializes in owner-operated businesses. While he doesn't expect business owners to start shifting to sole proprietorships just to avoid corporate cards, he does wonder if individuals may end up increasingly using personal cards to incur business expenses and having their incorporated companies reimburse them.

Regardless of the limitations, passage of the new law was applauded by many aggrieved cardholders.

"Carolyn Maloney is my new hero," says Frank Duran, a dentist in El Cajon, Calif., of the New York Representative who has fought for years for credit-card reform. Duran saw his rate hiked by Advanta from 7.99% to 30% despite having never missed a payment. Like most Advanta cardholders, Duran has an account based on his personal credit, and would be covered by the new restrictions.

Under current law, he notes, "they only have to give a 15-day notice that they're changing your terms, and they admit that it takes 10 days to get to you. So if you don't open your letter right away, read it, decide that you want to opt out and mail it right away, it's not going to make it in time."

Less sanguine is Reed Smith, who runs a deck-cleaning service in St. Peter's, Mo. Smith's Advanta card rate leapt from 10.9% to 39% just last month, while his Discover went from 8.9% to 18.9%. He noted that nothing in the new law will restrict the rates or fees charged by card companies. The credit card industry successfully lobbied to kill proposals to set rate caps on credit cards and other loans.

"I don't think it's going to stop the credit card companies from arbitrarily raising an interest rate," says Smith. "What Congress really needs to do is pick an interest rate, lock all these credit cards in on that one interest rate, and if you qualify, you get the interest rate same as your neighbor across the street."

By Neil deMause, CNNMoney.com contributing writer
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PorukaPostavljena: Uto Maj 26, 2009 4:19 pm    Naslov poruke: Na vrh strane Na dno strane

G8 energy leaders urge stable oil prices

Volatile prices could risk derailing a fragile global economic recovery, energy ministers say.

Consumer nations on Sunday urged producers to keep oil prices stable or risk derailing a fragile global economic recovery, as top exporter Saudi Arabia forecast prices eventually moving towards $75 a barrel.

Group of Eight energy ministers were meeting in Rome against the backdrop of a price rally that has sent oil prices to a six-month high of more than $60 a barrel.

"If oil prices do spike up considerably, that would be a factor in delaying economic recovery," U.S. Energy Secretary Steven Chu told a news conference.

Italian Energy Minister Claudio Scajola said: "A low oil price helps in times of economic crisis but discourages investment and does not guarantee a future of stability. It is necessary to have an equitable and not volatile price that can guarantee global economic growth and also the possibility of investment."

Oil prices have almost doubled from last December's low and risen well above the $50 level that Saudi Arabia has said it could live with to help nurse the world economy back to growth.

Algeria's oil minister said an output cut was unlikely when OPEC meets in Vienna on Thursday. Saudi Arabia, the biggest and most influential player in the 12-member producer group, also said OPEC would "probably stay the course."

Saudi Oil Minister Ali al-Naimi offered the prospect of prices and demand eventually rising but declined to speculate on when prices would hit the $75 level producers say is needed to encourage investment.

"Demand will pick up eventually when the economy recovers," Naimi told reporters. "Eventually could be tomorrow or it could be 10 years from now, but eventually it's going to happen, but when I don't (know)."

Algeria's Energy Minister Chakib Khelil predicted oil prices could touch $70 per barrel by end-2010 if the economy recovered, but warned recent price rises were being driven by speculation and a weak dollar rather than fundamentals.

Energy leaders at the summit agreed the financial crisis had dealt a sharp blow to investment in production for the long term. The International Energy Agency warned investment in oil and gas production would fall 21 percent in 2009.

Italian oil company Eni's president, Roberto Poli, said the "magic range" for prices high enough to spur investment without hurting the economy was $60-$70 per barrel, while Edison CEO Umberto Quadrino put that at $60-$80 per barrel.

"The experience of the last price cycle demonstrated that to ensure steady economic growth, prices should not rise higher than $75 per barrel," Poli said. "Oil price instability and unpredictability are the worst enemies of any well- thought-out plan to build a different energy future."

OPEC ministers are expected to make no change to oil supply at their Vienna meeting as higher prices ease their concerns about overflowing fuel inventories and the deepest fall in demand for years.

A senior Gulf source has said the group will stick to its current targets, but stress the need for full compliance.

But Iran's OPEC governor said higher oil prices were lulling some OPEC members into a false sense of security. Venezuela said oil markets were over-supplied but it was too early to tell whether an output cut was needed.

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Recession to end in 2009

A recovery in the second half of this year will be 'moderate,' according to a report from the National Association for Business Economics.

The end of the recession is in sight, according to a new survey of leading economists.

While the economy is showing signs of stabilizing, the recovery will be more moderate than is typical following a severe downturn, said the National Association for Business Economics Outlook in a report released Wednesday.

The panel of 45 economists said it expects economic growth will rebound in the second half of 2009. However, the group still expects to see a decline in second-quarter economic activity.

"The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010," said NABE president Chris Varvares in a written statement.

Almost three out of four survey respondents expect the recession will end by the third quarter of 2009, the report said.

But 19% predicted that a turnaround won't come until the fourth quarter, and 7% said it may not come until early 2010. None of the panelists expected the recession to continue past the first quarter of next year.

GDP: The report predicted a 1.8% decline in real GDP in the second quarter of 2009, bringing the total year-to-date decrease to 3.7%. That's the biggest drop since 1957-1958, the report said.

Still, "a modest second-half rebound in real GDP is expected," the report said, with economic growth turning positive in the third quarter. Real GDP growth over the second half of 2009 is expected to average 1.2%, which is well below average, the report said.

"Growth in 2010 is slated for a return to near its historical trend," the report said, predicting a 2.7% year-over-year increase. The NABE's February outlook had predicted a 3.1% uptick.

Jobs: The panel forecast a total of 4.5 million jobs lost in 2009, pushing the unemployment rate to 9.8%. Modest gains in 2010 will reduce the rate to 9.3% by year's end, the report predicted.

Separate reports this month showed the unemployment rate is currently down in 21 states and stands at 8.9% nationally.

Deficit: Government spending "will provide vital support to the economy," and will be the only expenditure sector to grow in 2009, the report said.

But that spending will help push the federal deficit to a record-high $1.7 trillion in the 2009 fiscal year, before falling slightly to $1.4 trillion in fiscal 2010.

Housing: New and existing home sales are close to their lows, with 72% of NABE panelists expecting sales to hit bottom by the middle of 2009. More than 60% of those surveyed said housing starts would also bottom out at the same time.

The panelists were split on the issue of when home prices will hit their lows: 30% said it would happen by the third quarter of 2009; 30% said the fourth quarter; and 40% said declines will continue into 2010 or later. The median prediction is that home prices will rise 1% in 2010, the report said.

Spending: Widespread job losses and weak income growth have reduced consumer spending and boosted the personal savings rate, the report said. The savings rate has seen two consecutive quarters of sharp increases, holding above 4% through March. More than 70% of the panelists expect "more thrifty behavior is here to stay, at least for the next five years," the report said.

Credit: Obtaining long-term and short-term financing is still difficult, which poses a risk to the economy, but 90% of respondents said actions from the Federal Reserve have helped to ease the credit crunch.

Five-year outlook: More than half of the NABE economists said they expected potential growth of the U.S. economy over the next five years to be between 2% and 2.5%; 37% of respondents forecast growth between 2.5% and 3%, while 7% of the panelists said growth will be higher than 3%.

By Julianne Pepitone, CNNMoney.com contributing writer
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