Finance Blog number 1

Facebook co-founder Eduardo Saverin has renounced his U.S. citizenship, a move expected to save him hundreds of millions of dollars in taxes stemming from the company’s impending initial public offering.

The Brazil-born 30-year-old became a U.S. citizen in 1998 but has lived in Singapore since 2009. Giving up his citizenship will allow him to avoid paying taxes on billions of dollars of capital gains when Facebook launches its IPO Friday. Singapore does not have a capital gains tax.

Saverin gave up his citizenship in the first quarter of this year, the U.S. Internal Revenue Service said.

“Eduardo recently found it to be more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Saverin’s New York-based spokesman Tom Goodman said Tuesday in a statement.

Goodman said that because Saverin plans to invest in Brazilian and global companies that have strong interests in entering Asian markets, “it made the most sense for him to use Singapore as a home base absolutely free credit score.”

Saverin has a 4 percent stake in Facebook, which has headquarters in Menlo Park, California. Analysts say the company could be worth $100 billion.

Saverin, who moved to the U.S. from Brazil in 1992, founded Facebook with Mark Zuckerberg in 2004 while the two were students at Harvard University. Saverin gained additional fame when his conflict with Zuckerberg and departure from the company was depicted in the 2010 movie “The Social Network.”

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They are sentries at the stock market’s wall of worry, warning investors to prepare for another epic crash for debt-laden economies.

But with U.S. equity markets on a tear since early October, hitting levels not touched in several years, most of Wall Street isn’t seeing much cause for alarm.

Instead, increasingly optimistic buyers have pushed the Dow Jones industrial average above 13,000; the Nasdaq composite index over 3,000, and the Standard & Poor’s 500 index past 1,400.

The gains extend beyond stocks. Gold may be off its September 2011 high of $1,907 an ounce, but is still in the respectable mid $1,600s, and oil remains above $100 a barrel. Meanwhile, yields on both the 10-year Treasury note and the 30-year bond are around a percentage point lower from a year ago, boosting bond values.

Also, the greenback is rising. The U.S. Dollar Index, a measure of the dollar against six other major currencies, is up sharply over the past 12 months.

It’s enough to make a confirmed pessimist downright gloomy.

After all, what’s a doomsayer to do when it seems everything — even Europe — is rallying? Do you stand your ground in cash, or join the crowd and closely eye the exit?

Of the five market skeptics interviewed for this article, four are reluctantly going along for the ride.

The consensus among this group is that the rally is not sustainable — just another big party before an even bigger hangover. They see stock prices as being artificially inflated by Federal Reserve policies of quantitative easing and low interest rates, and that to put out the fires in Europe, the European Central Bank has gotten in on the act.

But, these strategists say, while these monetary drugs are palliative to markets, they require bigger doses for progressively dwindling results and will eventually fail.

FIVE SHADES OF GRAY

1. Peter Schiff • Peter Schiff, chief executive of Euro Pacific Capital, said the worst investment now is bonds, because it’s the one asset that hasn’t been crushed. The second-worst is cash, because the Fed insists inflation isn’t a threat, he said.

Schiff said the Fed can be in denial about inflation for only so long and eventually will have to raise interest rates.

“They’ll keep (rates) low until the market forces them,” Schiff said guaranteed pay day loans. “It’s like trying to hide it when you’re pregnant, you can only do it for so long.”

2. Harry Dent Jr. • Harry Dent Jr., head of research and forecasting firm HS Dent, said the recovery is “artificial” in that it’s being fueled by quantitative easing measures in the U.S. and Europe.

Aging baby boomers are no longer fueling U.S. economic growth, he said, and younger generations can’t keep the momentum going. “The government and most economists are in denial when the largest generation is spending less and paying down their debt,” he said.

3. A. Gary Shilling • Economic consultant A. Gary Shilling said stocks are vulnerable because the consumer is worn out, and that puts businesses, and the broader economy, on weak footing.

Shilling has long predicted that Fed measures to stimulate the economy will fall short and believes the global economy is in a long period of deleveraging marked by anemic growth.

“If the consumer pulls back, there’s nothing else in the economy that can sustain growth, and if the consumer retrenches, we have a recession,” Shilling said.

4. Charles Biderman • Charles Biderman, who heads TrimTabs Investment Research, said he’s bullish on stocks given that the Fed’s cheap money is levitating prices. But, he added, at some point stocks are going to drop.

A day will come, Biderman said, when the Fed will pull the plug on cheap money. Then he sees the Dow tumbling to financial crisis lows in the 6,000 range. For clues, watch what companies are doing with their cash, he said. “If buybacks slow,” he said, “that would be the time to start getting out.”

5. Robert Prechter • Robert Prechter, head of market forecasting firm Elliott Wave International and the most bearish of the five, said investors should shun every asset class popular now, including stocks, commodities, metals and bonds.

“Hold cash, and keep it safe,” Prechter said. “There will be another buying opportunity, probably about four years from now.”

He added: “When investors are afraid again, and when stocks are cheap again, that will be the time to buy.”

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Hewlett-Packard is shaking up its business yet again, combining its printer and personal computer divisions. One of HP’s longest-tenured and most-admired executives is retiring as a result.

HP’s printing group was once its shining star, returning ridiculously high profit margins on ink cartridge sales. But that business stagnated over the past decade and particularly slumped in the last few years. HP’s printing profit fell 10% last year as sales remained flat.

The holiday season was particularly tough. Ink sales fell 6%, office printers fell 5% and consumer printer sales tumbled 15% in the company’s fiscal first quarter, which ended in January.

As it lumps printers and PCs together, HP (, Fortune 500) said that imaging and printing group chief Vyomesh "VJ" Joshi was stepping down. Joshi, the division’s leader for the past decade, served in various roles at HP throughout his 32-year career there. His tenure dates back to the golden years of "Bill and Dave," when Bill Hewlett and Dave Packard still had active roles at the company they founded.

"VJ embodies the spirit of HP and his impact on the company has been tremendous," HP CEO Meg Whitman said in a written statement. "We wish him the very best as he embarks on a new chapter in his life."

After Ann Livermore stepped down as HP’s enterprise chief last year, Joshi was the last remaining top HP executive to have ties to the Bill and Dave era. He is well-respected throughout the industry and had long been considered a superstar executive.

Joshi was forced off of Yahoo (, Fortune 500)’s board in that company’s shakeup last month. He had been a Yahoo director for seven years.

The merging of the printing and PC units means HP Personal Systems Group executive Todd Bradley will now oversee two struggling businesses. HP considered spinning off its PC unit last year. The board later decided that it would hang onto the business-critical but low-margin unit.

The overall PC industry is stuck in neutral, but HP, the world’s largest computer maker, is traveling at high speed in reverse. PC sales fell 3% last year and 15% during the holiday quarter, with consumer computer sales tumbling 25%.

Whitman said on recent conference calls with investors that she hopes to streamline HP’s businesses and ensure that individual business groups work together in the future. She also said that the company’s divisions have been too separate in the past, leading to too much competition within the ranks. 

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TaxMasters, the Houston-based firm that advertises it can help consumers facing problems with taxes, filed for bankruptcy protection Sunday.

The firm, which had a prominent ad campaign featuring CEO Patrick Cox on numerous cable networks, has already been facing complaints from the attorneys general of Texas and Minnesota, which accused it of deceptive practices.

The complaint from Texas Attorney General Greg Abbott, first filed nearly two years ago, brought a slew of consumer accusations against TaxMasters (). The civil trial in that case finally got underway Monday afternoon when TaxMasters’ request for a continuance was denied.

The Texas charges included unlawfully misleading customers about their service contract terms, failing to disclose its no-refunds policy, and falsely claiming that the firm’s employees would immediately begin work on a case. Sometimes the fact that TaxMasters did not actually start to work on a case until customers paid in full meant that taxpayers missed significant IRS deadlines.

Tax breaks for the unemployed

The complaint from Minnesota Attorney General Lori Swanson, filed in December 2010, alleges TaxMasters got customers to pay advance fees of $2,000 to $8,000 by misstating the help it would provide people with unpaid tax bills. In some cases, the company claimed it could reduce people’s tax bills by up to 90%, but then delivered little or no help, according to the complaint, pocketing the non-refundable deposits.

This complaint was settled in August of last year, with TaxMasters denying any wrongdoing but agreeing to reform its business practices in the state and pay $500,000.

In addition, the Better Business Bureau says it has received more than 1,000 complaints about TaxMasters over the course of the last three years.

The bankruptcy filing said TaxMasters owes creditors between $1 million and $10 million, and that its assets total only $50,000 or less. It did not list its creditors but it said it owes money to between 1,000 and 5,000 people and businesses payday loan.

Robert McKenzie, a tax attorney and partner with Chicago firm Arnstein & Lehr, said this is the third such tax settlement service to go bankrupt recently, following the demise of Roni Deutch and another firm, JK Harris. All three had been actively advertising their services.

"There are certainly reputable people doing this work," said McKenzie. "The problem with the ones that are failing is they’ve budgeted large amounts for advertising, and the intake interviews are done not by tax professionals but by sales people working on commission, and thus making unrealistic promises."

The company’s most recent financial reports show it spent nearly $16 million on advertising in 2010, eating up about 37% of its revenue. Among the networks TaxMasters advertised on was CNN, one of the parents of CNNMoney.

TaxMasters recently restated results to show a $4.7 million loss in 2010, and essentially break-even results in the first quarter of 2011, the most recent quarter for which it has reported results.

McKenzie said that the Internal Revenue Service is willing to settle cases for less than the taxes owed, but that in almost all the cases they end up taking the taxpayer’s home and other assets, in addition to payments out of future earnings. He said almost three-quarters of taxpayers who apply to pay less than they owe have those applications rejected by the IRS.

Beware of tax scams

Calls to Taxmasters and its attorney for comments about the bankruptcy filing and complaints were not immediately returned.

The company’s Web site made no mention of the bankruptcy filing Monday, even though it had signaled a bankruptcy filing was planned in a filing with the Securities and Exchange Commission on Friday.

The bankruptcy filing was made in Houston. 

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Inflation picked up slightly last month, as rising gas prices took a bigger bite out of consumers’ wallets.

The government’s key measure of inflation, the Consumer Price Index, showed prices rose 0.2% from December to January, slightly weaker than the 0.3% increase economists had predicted.

Rising prices at the gas pump were a key factor, increasing 0.9% during the month, the Labor Department said. Improving U.S. economic data, including stronger job growth, and tension with Iran have been driving the price of oil and gasoline higher.

Gas prices ended last month at a national average of $3.443 a gallon, according to the AAA Fuel Gauge Report.

Tom Kloza, chief analyst at the Oil Price Information Service, recently forecast gas prices will hit a $4 national average by Memorial Day. They could even near $5 a gallon in certain regions.

Check gas prices in your state

Could this mark a repeat of early 2011?

Amid revolutions in North Africa and the Middle East, gas prices spiked 3.5% In January 2011 alone, and kept rising, nearing $4 a gallon in May. Those higher prices trickled through to other goods and dragged on consumer spending. Economic growth slowed and job growth eventually slumped.

So far, the 2012 price hikes at the gas pump aren’t as severe, but that’s not to say employers aren’t concerned.

About 68% of executives surveyed by the Corporate Executive Board expect cost pressures to increase in 2012 — and not just on energy. On Thursday, the Labor Department’s Producer Price Index showed a modest 0.2% increase in the cost of raw materials in January, after commodity prices fell the month before.

But higher costs won’t necessarily lead to higher prices for consumers.

Businesses don’t expect to see a major increase in consumer confidence this year, according to Michael Griffin, executive director at CEB. It’s that slack in the economy, amid high unemployment and slow wage growth, that is likely to keep companies from trying to pass higher costs on to consumers.

"Demand is still fairly weak out there so it’s difficult for firms to raise prices," said Gus Faucher, senior economist at PNC Financial Services Group. "Consumers are shopping around and still watching their costs."

Year over year, the inflation report showed consumer prices were up 2.9% in January, barely changed from a 3% annual inflation rate in December.

The CPI report also showed food prices rose 0.2% in January, mainly driven by higher prices at restaurants. Prices at grocery stores barely changed. Overall, food prices up 4.4% over a year ago.

Core CPI, which strips out volatile food and energy, showed consumer prices rose 0.2% in January, and 2.3% year-over-year.

Core inflation is at its highest level since September 2008, when the rate was 2.5%. 

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European Central Bank Governing Council member Ewald Nowotny said Standard & Poor

(Corrects number of electoral votes in next to last paragraph. For more campaign news, see ELECT)

President Barack Obama called yesterday

North Korea said solving food and power shortages are urgent goals in 2012, and called on its people to defend Kim Jong Un, who inherited control of a country struggling to feed itself after 60 years of totalitarian rule.

The president of scandal-battered Olympus on Thursday called business partnerships an option for shoring up the gaping hole that the huge investment losses it hid for years have left in its balance sheet.

Olympus Corp. met its deadline to avoid being removed from the Tokyo Stock Exchange by filing correct earnings for the April-September first half and for the past five fiscal years on Wednesday.

The deception at Olympus, dating back to the 1990s, to hide 117.7 billion yen ($1.5 billion) in investment losses came to light when former President and Chief Executive Michael Woodford blew the whistle, questioning expensive acquisitions and exorbitant fees for financial advice.

Woodford, a 51-year-old Briton and a rare foreigner to lead a major Japanese company, was fired in October after confronting Olympus directors. Woodford, in town this week to meet with investors and other stakeholders to attempt a comeback, is demanding that the entire board, including President Shuichi Takayama, resign.

The battle over who will lead the camera and medical equipment maker _ embroiled in one of Japan’s worst corporate scandals _ could come to a head at the next shareholders’ meeting. Takayama said that might be held in March or April.

“Capital adequacy ratio is a big problem, and we are considering how we can overcome it,” he told reporters at a Tokyo hotel. “We are considering various options, including a capital tie-up and operational or sales tie-ups.”

Olympus appointed three outsiders to a new reform committee to beef up governance and present a plan to shareholders. The committee is in addition to an earlier panel announced by Takayama, which is investigating the scandal.

The company’s loss of 32.3 billion yen ($414 million) for the first half of the fiscal year, through September, a reversal from a 3.8 billion yen profit the same period a year earlier, was mainly from the economic downturn and losses from Thai flooding, Takayama said.

Woodford said he was opposed to tie-ups and had better ways to get capital for Olympus to shore up its hobbled balance sheet. He promised not to break it up or seek a partner, which may reduce its independence.

“I am very fearful of the current management working with parties to look for strategic alliances, which would mean in the end the loss of our independence,” he told The Associated Press on Thursday.

“Because of the strong cash flows and profitability of the medical business, we could raise funding from additional sources without losing our sovereignty,” he said at a Tokyo hotel.

Olympus should focus on core businesses _ medicine, microscopes, industrial products and cameras and other consumer products _ and stop acquiring unrelated companies, as it had in recent years, he said.

Woodford said he was talking with investors and many “influential people in the Japanese establishment” to line up support for his return at the top. He declined to give specifics, saying the discussions were “delicate.”

It is still unclear if Woodford will manage a comeback. Some people, such as former board member Koji Miyata, see him as a hero and have begun an online campaign to bring back Woodford.

The scandal has prompted soul-searching in Japan Inc. on living up to global standards in governance.

Some experts say laws need to be updated, corporate boards need more outside members and transparency needs to be strengthened. Ruling and opposition legislators met with Woodford earlier this week to hear his ideas about better corporate practices.

No one has been charged in the scandal. But Olympus management has said several top company men were involved in the scheme and has promised to investigate 70 officials, including former and current executives and auditors, to pursue possible criminal charges.

A third-party panel set up by Olympus, including a former Japanese Supreme Court judge, released the findings of an investigation earlier this month, which said top executives who were “rotten to the core” had orchestrated the accounting cover-up spanning three decades.

The fees for financial advice and overvalued acquisitions were part of an elaborate deception utilizing overseas banks and several funds to keep the massive losses off the company’s books, according to Olympus.

Japanese magazine Facta was first to report the dubious money.

Tsuyoshi Kikukawa, who was behind Woodford’s appointment as chief executive and later his firing, has since resigned as chairman. He is among several executives suspected of knowing about the scheme.

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Britain’s prime minister is threatening that he may not allow a group of 23 European Union states that plan to set up their own treaty to use EU institutions.

David Cameron says “The institutions of the European Union belong to the European Union, belong to the 27″ member states.

The 17 euro states and six other EU states early Friday agreed to create a new treaty that will allow them to introduce stricter fiscal rules in the hope of containing a worsening debt crisis payday loans.

They plan to rely on the European Commission and the European Court of Justice to enforce those rules.

Cameron said it was not in the U.K.’s interest to join the new treaty because he could not get special safeguards for the country’s financial center.

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