Finance Blog number 1

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Markets rose Monday on hopes that Europe’s leaders will agree on a plan to restore long-term confidence in the euro, saving it from collapse and averting global economic chaos.

A crucial week for the future of the euro kicks off later with a meeting of German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris. The two are expected to discuss how to achieve closer political and economic union of the 17 euro countries, including stricter budgetary oversight.

Merkel wants to change the basic EU treaty to reflect the tougher rules on euro countries and make them enforceable, while Sarkozy is resisting giving up more powers to Brussels, especially since he faces a tough re-election campaign in April. Sarkozy is thought to prefer an intergovernmental deal between the 17 euro countries.

The markets are hopeful that, given the gravity of the situation afflicting the eurozone, the two leaders will come up with a common proposal for tighter integration on budget matters. Analysts say that such a plan could lead to further emergency aid from the European Central Bank, possibly through the International Monetary Fund.

“Markets have gained ground ahead of a Franco-German summit which is supposed to resolve some long-standing issues between the two continental titans,” said Chris Beauchamp, market analyst at IG Index.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 5,582 while Germany’s DAX rose 0.9 percent to 6,133. The CAC-40 in France was 1.2 percent higher at 3,202.

The biggest gainer was Italy’s FTSE MIB, which was trading 2.2 percent higher, a day after the government led by Premier Mario Monti agreed big austerity and growth-boosting measures. They are to be presented to a skeptical Parliament later Monday.

Monti is to brief both Parliament chambers on the package, which includes euro30 billion ($27 billion) of spending cuts and tax hikes, euro10 billion of which will be reinvested to boost anemic growth instant payday loan.

His government agreed Sunday to slap taxes on property and luxury goods, increase the age at which retirees can draw pensions, trim the cost of Italy’s political class and give incentives to companies that hire women and young workers.

Significantly, the pressure on Italy eased in bond markets. The country’s ten-year bond yield was down 0.40 of a percentage point to 6.16 percent.

Italy is the eurozone’s third-largest economy and is considered too big to be bailed out. Its borrowing rates have in recent weeks hovered around the 7 percent mark, a level that eventually forced Greece, Ireland and Portugal to seek financial help. By comparison, bond yields in Germany, Europe’s largest and most stable economy, are roughly 2 percent.

Wall Street was poised for a stronger opening, too _ Dow futures were up 1 percent at 12,120 while the broader Standard & Poor’s 500 futures rose 1.1 percent to 1,257.

The upbeat tone in markets helped the euro advance 0.3 percent to $1.3448 and the main New York oil contract rise 83 cents a barrel to $101.79.

Earlier in Asia, Japan’s benchmark Nikkei 225 index added 0.6 percent to close at 8,695.98 while Hong Kong’s Hang Seng rose 0.7 percent to 19,179.69. South Korea’s Kospi ended 0.4 percent higher at 1,922.90.

Mainland Chinese shares lost ground on worries over the economic outlook. The benchmark Shanghai Composite Index lost 1.2 percent to 2,333.23.

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Pamela Sampson in Bangkok contributed to this report.

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The Treasury Department has raised $12.2 million from the sale of warrants of 17 banks that received government support during the financial crisis. The sales are part of the government’s efforts to recoup the costs of the $700 billion financial bailout.

The Treasury said Friday that the largest amount raised in gross proceeds was $2.79 million from the sale of warrants of Eagle Bancorp Inc. of Bethesda, Maryland, followed by $1.75 million from warrants of Horizon Bancorp of Michigan City, Ind.

The warrants give buyers the right to buy common stock at a fixed price. Treasury is using direct sales of the warrants to institutional investors because the holdings were judged too small to justify the cost of holding public auctions.

The 17 banks received approximately $1 billion in support from the Troubled Asset Relief Program in 2008 and 2009. All 17 have repaid the money and the warrants represent their last link to the TARP program.

Banks, other financial firms and U.S. carmakers received $413.4 billion from the taxpayer-funded bailout. So far, the government has recovered $317.6 billion. Of that amount, $9.1 billion has come through the sale of warrants.

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Pressure mounted on Greece’s two main political parties on Wednesday to wrap up three days of critical power-sharing talks and name a new prime minister to take over at the helm of an interim government.

Over the past couple of days, attention has focused more on Rome than on Athens amid increasing concerns that Italy’s economy was heading the same way as Greece’s. The fear that Italy is running out of time to get a handle on its debts hit markets in Europe hard Wednesday even though Italy’s Premier Silvio Berlusconi pledged to stand down, echoing a similar decision from Greek Prime Minister George Papandreou.

Greek officials defended the time it was taking for the new unity government to be established. Greece’s big two political parties, the Socialist PASOK party and the conservative New Democracy, are renowned for their opposition to each other and have rarely worked together since the rejection of the monarchy in 1974.

Papandreou was due to hold with Greece’s president at 5:00 p.m. (1500 GMT), a possible indication that a conclusion may have been reached.

Papandreou’s office said the premier spoke by telephone with French President Nicolas Sarkozy Wednesday morning and discussed “the developments in Europe and the eurozone,” as well as the power-sharing negotiations in Athens.

Sarkozy’s office said Papandreou informed the French president “of the imminent (formation) of a new government in Greece supported by the majority and the opposition.”

Former European Central Bank vice president Lucas Papademos had been tipped to become the interim prime minister, but it was unclear whether he remained the favored candidate by Wednesday.

By early afternoon, the conservative opposition was issuing angry statements demanding a swift conclusion to the talks, and blaming the embarassing delay on the current government.

“The solution is in the hands of Mr. Papandreou,” said a statement from the New Democracy party. “No further delay is conceivable. We must finally finish this.”

Earlier, deputy government spokesman Angelos Tolkas had said the new government would be announced later in the day, but gave no indication who the new prime minister would be. Similar comments had been made on Tuesday, too.

“This process is new to the country,” Tolkas told television channel Skai in the morning cash advance companies. “So I think three days was a reasonable time for the consultations to be made and for each side to make the necessary concession.”

On Tuesday, Papandreou’s ministers offered their resignations as part of the process of creating the new government, which is only expected to last until February when early elections are to be held.

The new government will be tasked to secure the country’s new euro130 billion ($179 billion) European rescue package and then get it through parliament. That approval will allow the release of a euro8 billion ($11 billion) loan installment from its existing bailout. Without the funds, Greece will go bankrupt before Christmas, potentially wrecking Europe’s banking system and sending the global economy back into recession.

The political crisis erupted last week, when Papandreou said he would put the new European rescue package to a referendum. Other eurozone nations were horrified by the delay, markets around the world tanked and Greece’s international creditors froze the payment of the next bailout installment.

On Monday, eurozone finance ministers said the heads of the two main parties had to commit in writing to the terms of the country’s bailouts before Athens can receive the next loan installment.

Government officials in Greece say the written agreement requires the signatures of Papandreou, New Democracy leader Antonis Samaras, the Bank of Greece governor, the new coalition prime minister and the new finance minister _ a demand that has prompted an angry response from Greece’s conservatives.

Greece has survived since May 2010 on a euro110 billion ($150 billion) bailout package from its eurozone partners and the International Monetary Fund. The second rescue package involves private bondholders voluntarily agreeing to cancel 50 percent of their Greek debt.

In return for the rescue funds, Greece has endured 20 months of punishing austerity measures. The efforts by Papandreou’s government to keep the country solvent have prompted violent protests, crippling strikes and a sharp decline in living standards for most Greeks.

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Japan has made big strides toward stabilizing its tsunami-crippled nuclear plant but is now facing another crisis _ what to do with all the radioactive waste the disaster created.

Goshi Hosono, the country’s nuclear crisis minister, said Friday that Japan has yet to come up with a comprehensive plan for how to dispose of the irradiated waste that has been accumulating since the March 11 earthquake and tsunami.

Hosono gave the assessment after the government announced an $11.5 billion (900 billion yen) allocation to help the cash-strapped plant operator cover the massive cost of recovery without collapsing. Officials have rejected criticism that the allocation is a bail-out _ stressing that the money comes from a joint fund of plant operators, with a government contribution in zero-interest bonds that must be paid back.

The disaster, which killed nearly 20,000 people along Japan’s northeastern coastline, touched off the world’s worst nuclear accident since Chernobyl, generating meltdowns, fires and radiation leaks at the Fukushima Dai-ichi nuclear power station northeast of Tokyo.

Officials say that _ almost eight months later _ the plant has been restored to a relatively stable condition and is leaking far less radiation than it did in the early days of crisis. They hope to achieve a “cold shutdown” _ with each reactor’s temperature below 212 Fahrenheit (100 C) _ by the end of the year.

But Hosono, in a response to a question from The AP, acknowledged Friday that the crisis has spawned a huge amount of irradiated waste that will require new technology and creative methods to dispose of safely.

“We still don’t have a full picture of how to deal with the waste,” he said. “It would require research and development that may take years. For instance, we still need to develop technology to compress the volume of the huge amounts of waste that we cannot move around.”

Japan could be stuck with up to 45 million cubic meters of radioactive waste in Fukushima and several nearby prefectures (states), according to the environment ministry.

Hosono said Japan is not considering shipping out the waste for overseas processing.

The total amount of radiation released from the plant is still unknown, and the impact of chronic low-dose radiation exposures in and around Fukushima is a matter of scientific debate. More than 80,000 people evacuated from their homes, and a 12-mile (20-kilometer) no-go zone is still enforced around the plant.

Cleaning up the area and compensating residents is expected to cost trillions of yen (tens of billions of dollars). Hot spots of highly localized radiation have been reported hundreds of kilometers away, and Hosono said a task force has been set up to investigate them.

The fund payout of $11.5 billion (900 billion yen) announced Friday for Tokyo Electric Power Co. came after the plant operator agreed to a restructuring plan to cut more than 2.5 trillion yen ($32 billion) in costs over the next 10 years and reduce more than 7,000 employees.

TEPCO has been bitterly criticized for its lack of transparency and slow response to the crisis. The application process for residents and business owners to seek compensation has also been called extremely cumbersome.

The controversial fund is designed to help the operator meet its responsibilities without going bankrupt.

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Europe’s financial fire brigade is hiring.

Successful candidates should have the “ability to develop innovative legal solutions,” an “eye for detail,” and the “ability to argue convincingly and achieve a consensus among colleagues and third parties,” proclaims the website of the European Financial Stability Facility.

And those skills could come in handy pretty quickly.

After this Sunday’s summit of EU leaders, the EFSF will wield massive financial power to contain the eurozone’s debt troubles and keep them from plunging the global economy into another recession and putting thousands of people out of a job.

And yet the bailout fund, backed by euro780 billion ($1.1 trillion) in financial guarantees from the 17 euro states, has a tiny staff _ 18, counting two secretaries. That is expected to increase slightly in coming months, taking the core team behind Europe’s main anti-crisis weapon to 25.

After already funding large parts of the bailouts for Ireland and Portugal, the EFSF will soon take over the emergency loans to Greece _ some euro27 billion ($37 billion) left over from the first rescue package with several tens of billions expected to come through a second loan program.

More importantly, the fund is now the number one institution charged with stopping the debt crisis from engulfing large economies like Italy and Spain, helping to stabilize wobbling banks across the continent and protect the future of the euro.

That role could turn it into a bond insurer or see it manipulate government bond prices like a central bank.

The fund’s headquarters, in a nondescript office block on the outskirts of Luxembourg city, look a lot less spectacular than one may expect. Apart from the blue and yellow EFSF labels on the mail boxes, there is nothing to suggest that actions taken within the building could determine the fortunes of the 330 million citizens of the eurozone.

The fund was hastily set up in the summer of 2010, when the currency union’s leaders realized that their initial euro110 billion ($152 billion) bailout of Greece was not enough to stem market panic over high debt in several euro countries.

Because creating an international institution would have taken too much time, the EFSF was registered as a private company under Luxembourg law, taking over an empty suite of offices from the European Investment Bank.

More than a year later, the premises haven’t changed much _ dark blue carpet, gray hallways and papers piled high in offices. In expectation of the new staff and responsibilities, the EFSF recently took over another corner of the EIB’s office space that still stands empty.

Presiding over the whole thing is Chief Executive Klaus Regling, a gray-haired EU veteran who helped set up the single currency in the 1990s and then unsuccessfully fought to protect the union’s rules on government spending a decade later.

It was the limitations of those rules that allowed countries like Greece to run up massive debts and failed to counteract Ireland’s property bubble and Portugal’s pervasively low growth _ the very problems Regling is now trying to solve.

“It was totally unpredictable how this would evolve,” says Regling, as he thinks back to June 8, 2010, when he interviewed for, was offered and accepted the job at the helm of a yet-to-be-created institution within less than 24 hours quick payday loans. “I was actually worried that it may become too boring.”

No such luck.

Instead, the fund has seen its role evolve from acting as a financial backstop so big that its mere presence would prevent it from ever having to be used _ that hope was disappointed when Ireland asked for a bailout last November _ to essentially turning into a European Monetary Fund, the eurozone’s lender of last resort for cash-strapped governments.

“Of course it’s exciting to be in the middle of the storm,” says Juha Kilponen, one of the EFSF’s finance experts who came on board just as Ireland asked for help. “But of course the problems are very big.”

At their summit this Sunday, eurozone leaders are expected to set up a complicated scheme that could increase the EFSF’s firing power so it is fit for the next hot phase in the fight against the crisis.

It’s in moments like these that the staff’s legal and financial expertise will come into play. The EFSF has to operate through a complicated web of European rules and treaties where 17 governments, central banks and bureaucracies in Brussels each have a say _ and often widely divergent opinions.

The fund’s euro780 billion in guarantees translate into euro440 billion ($608 billion) it can actually give out in loans, since it needs extra guarantees to obtain the AAA-rating that allows it to raise money at low interest rates.

Of those euro440 billion, euro43.7 billion have already been promised to Ireland and Portugal. Some euro100 billion will likely go to Greece, leaving the EFSF with just under euro300 billion to contain the crisis.

That’s way too little to recapitalize ailing banks across Europe, get them ready for a potential default of Greece, and buy up Spanish and Italian bonds to keep the countries’ funding rates down.

Instead, the EFSF could start acting as an insurer for bond issues from those countries, using its guarantees as protection for banks and other investors against a first round of potential losses. That could theoretically multiply the fund’s financial impact up to around euro1 trillion, analysts say.

Such a sum was unimaginable when Kalin Anev was asked in May 2010 to help set up the EFSF. Originally an employee at the EIB, Anev was the one who registered the bailout fund with the Luxembourg chamber of commerce, organized phone lines and computers and helped hire the rest of the staff.

“It shows how fast Europe also can act, if they want to do something,” Anev, now the EFSF’s secretary general and institutional memory, says not without pride. “In a month’s time we were able to set up this very complex organization.”

And that organization is proving to be an attractive place to work. For each job ad, the EFSF receives 200 to 400 applicants.

By now, the fund has employees from Germany, Finland, France and the Netherlands, but also from Portugal, Italy and Spain.

And although resistance to the bailouts has been growing both in rich and poor countries, Kilponen and Anev insist that the reaction they get to their job is mostly positive.

“A lot of people have trust and hope that we do the right job,” says Anev. “So most people, they wish you the best and good luck.”

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Apple Inc. said Monday it sold 4 million iPhone 4S units in the three days since it went on sale Oct. 14.

Sales in stores began on Friday in Japan, Australia, France, the U.K., Germany, Canada and the United States.

The company took more than 1 million online orders in the first 24 hours after the release of the iPhone 4S, exceeding the 600,000 for the iPhone 4, though it was sold in fewer countries.

Unveiled just a day before Apple Chairman Steve Jobs died, it was initially dubbed a disappointment, partly because it looked identical to its predecessor low interest rate personal loans. But anticipation of its “Siri” voice software helped it set an online record in orders on Oct. 7.

Along with the new iPhone, more than 25 million customers are using the iOS 5 mobile operating system, in the first five days of its release, and more than 20 million customers have signed up for its free cloud services, Apple said.

The latest iPhone will be available in 22 more countries on Oct. 28 and more than 70 countries by the end of the year.

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Like all greedy vultures, I’m looking to prey on the fear and misfortune of others. With stocks riding a yo-yo, jobs scarce and worries about a new recession, there’s a lot of fear and misfortune around.

So, I asked some fellow carrion-pickers to suggest a few investment morsels to chew on in these scary times. Their answers ranged from high-dividend stocks to master limited partnerships to certain technology stocks and, surprisingly, beaten-down banks.

This just might be the moment to swoop in on the St. Louis housing market. Some sellers are anxious, others are desperate, and mortgage rates are skimpy. More important, a local economist who specializes in housing thinks prices are about at bottom around here. More on that at the bottom of this column.

First, you have to decide if you have the stomach to do anything with your money but sit on it.

We’re in the midst of ocean-spanning angst. At home, we worry over a possible new recession. Manufacturing, a main driver of the recovery so far, has apparently stopped growing, and confidence is in a deep funk.

Then again, consumers are spending moderately after a disturbing pause in May. Slipping food and gasoline prices are giving people a little lift. Employers are still hiring, although modestly.

In all, most economists see mopey, disappointing growth for the rest of the year, but no recession.

We can still wring our hands over Europe, where the sovereign debt mess simmers on. The danger is that it could boil over into a full-blown financial panic.

Because of all that, stocks are on a roller coaster.

“It seems silly when one day a company goes up 10 percent and the next day it goes down 10 percent,” says Ken Crawford, portfolio manager at Argent Capital in Clayton. That silliness prompts Argent to sit on the sidelines until reason returns.

Others argue that the stock market has already priced in a recession. Stocks are off 13 percent from their high of July. That makes them look cheap.

“Stocks are very attractively priced these days at 12 times operating earnings. That’s something we have not seen in 20 years,” says Joe Williams, chief investment strategist at Commerce Bank.

Stocks would still be cheap even if earnings estimates for next year are lowered, as they probably will be. They’re now at only 10 times next year’s expected profits. The historical average for trailing earnings is about 16.

Williams and Joe Terril sing the same tune: a love song for dividends.

“Over the next couple of years, you’ll see more and more investors looking around for income. The time to buy is now,” says Terril, who manages $430 million at Terril & Co. in Sunset Hills.

The Fed says it expects to keep short-term interest rates stable into 2013, which eases part of the risk for investors.

Williams likes giant companies with high dividends and a tendency to raise them, such as oil company Conoco, drugmaker Pfizer and goods company Procter & Gamble. All yield 3 or 4 percent, along with AT&T, which yields nearly 6 percent.

Terril likes master limited partnerships, which own pipelines and other energy infrastructure. He likes Kinder Morgan, yielding 6.8 percent, and Sunoco Logistics yielding 5.8 percent.

Terril is buying Bank of America and Citigroup preferred stock, yielding over 7.5 percent. Terril was buying Bank of America before Warren Buffett agreed to pump $5 billion of his company’s cash into the bank on Thursday. Other investors had spent the week running away from the nation’s biggest bank, worried over its mortgage woes and the chance it will have to scrounge up more capital.

But the bank is dubbed “too big to fail,” meaning that the government can’t let it go broke for fear of sparking a panic. “I don’t think it will fail at all,” says Terril.

Terril is also picking up a couple of tech stocks: Agilent, the testing equipment firm, and Coherent, which makes laser-based components.

Consumer confidence is in the pits - the lowest in 31 years, according to the University of Michigan’s survey. That might actually be positive for stocks. Stocks have gained an average of 26 percent in the year after confidence hits bottom, according to J.P. Morgan.

At J.P. Morgan in Clayton, managing director Hans Fredrikson thinks junk bonds are a buy again. They’ve been beaten down for weeks. Intermediate-term junk will yield 6 to 8 percent.

Now on to that new feeding ground for vultures, housing. The rate on 30-year mortgages averaged 4.15 percent last week, the lowest rate since at least 1971, according to Freddie Mac.

But housing prices in St. Louis have been falling since 2008.

In June, single-family homes sold for 8.6 percent cheaper than a year earlier, according to the tracking service CoreLogic.

Now there are signs that the slump may be over, says Bill Rogers, economist at the University of Missouri-St. Louis. Rogers says his own index of St. Louis County home prices has shown a leveling off in recent months. “We’re about at the bottom,” he says, while acknowledging that he might be mistaken.

If this is the bottom, it’s a really good time to buy a house.

Remember the biggest lesson learned over the past four years: A house is a place to live, not an investment. Don’t expect rising home values anytime in the future, says Rogers. St. Louis won’t have the population growth needed to drive up prices swiftly.

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A private research group forecast that the economy will grow slowly in the second half of the year because of the support it’s gotten from the Federal Reserve.

The Conference Board said its index of leading economic indicators rose 0.5 percent in July. The index had risen 0.3 percent in June.

This summer’s readings suggest that the economy won’t pick up enough this year for the jobless rate to drop much. The small moves higher however indicate that the country likely won’t fall back into recession, as some economists fear.

“The economy is slow, with little momentum, and shows no indication of acceleration,” said Conference Board economist Ken Goldstein. He added that despite “growing risks,” the economy would likely grow at a “modest pace” this fall and winter.

Prominent economists have been cutting their growth forecasts for the second half. Moody’s Analytics on Monday said it expects real gross domestic product to grow at an annualized rate near 2 percent in the second half of this year. It had earlier predicted growth of 3.5 percent.

In the first half of 2011, the economy grew at the slowest pace since the recession officially ended in June 2009 _ 0.4 percent in the first three months and 1 instant payday loans.3 percent in the April-June quarter. The slump sparked fears that the U.S. could “double-dip” back into a downturn.

The slow upward march in the leading indicators’ index has so far suggested that won’t happen. But jobs are likely to remain scarce. Mark Zandi, Moody’s chief economist, said the economy must grow 2.5 percent to 3 percent a year to add jobs fast enough to keep the unemployment rate stable. It currently stands at 9.1 percent.

Six of the 10 measures in the Conference Board’s index show improvement _ primarily its measures of the financial sector. They have been helped by the Fed’s record-low interest rate policy. Three of the Board’s measures dropped, one held steady.

The Conference Board is a private research group based in New York. Most of the data it uses in calculating the leading indicator index _ about real estate, manufacturing, employment, consumer confidence and financial markets _ has previously been released. The Conference Board also includes its own estimates about manufacturers’ new orders and the country’s money supply.

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Are you shopping for a house? Saving up for one? I’d like to talk with you.

I’m working on a story about down payments, and new federal rules that may require 20 percent down to qualify for low-interest-rate mortgages. I’m trying to talk with people about how much they expect to put down on a house, and if those expectations have changed since the housing market crash.

If you’d like to talk about your thoughts and experience, please e-mail me at tlogan@post-dispatch.com, or call 314-340-8291.

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