Finance Blog number 1

Federal Reserve officials, after taking the historic step of cutting the benchmark interest rate to as low as zero, are calling for greater government spending to help revive the U.S. economy.

San Francisco Fed President Janet Yellen said yesterday at an economics conference in San Francisco that “it’s worth pulling out all the stops” with an economic recovery package. Charles Evans, president of the Chicago Fed, told the same gathering he believes a “big stimulus is appropriate.”

The remarks underscore the view of many economists that unprecedented fiscal measures are needed to combat the yearlong recession, and come ahead of meetings this week between President-elect Barack Obama and congressional leaders. They also reflect the failure of Fed efforts so far, including record rate cuts, emergency lending programs and backstops for debt markets, to halt the crisis.

Yellen, Evans and other officials at the conference didn’t specify their recommendations for the size of the stimulus. Obama is asking that tax cuts make up 40 percent of a package that may be worth as much as $775 billion, a Democratic aide said yesterday. Yellen said she favors a “diversified package of policies” that includes government spending.

“Fiscal stimulus has got to be an important part of the package” implemented by the federal government, Frederic Mishkin, a former Fed governor, said yesterday at the conference in San Francisco. The "$500 billion-plus question” is, “can they get it right?” he said.

Worst Shock

The “financial shock” that caused the current crisis is “worse than the one that happened during the Great Depression,” he said. Mishkin left the central bank in August and returned to his post as a professor of economics at Columbia University.

The stimulus that emerges from talks between Obama’s aides and Congress will be much larger than the $150 billion proposal from lawmakers in October, when Chairman Ben S. Bernanke endorsed the concept of such a program. He noted then that the impact of the $168 billion stimulus a year ago had waned.

Obama, who has picked New York Fed President Timothy Geithner as his Treasury secretary, is honing a combination of tax cuts and spending on roads, bridges and other infrastructure to create or save 3 million jobs. Economists and a group of Democratic governors led by New Jersey’s Jon Corzine have called for a $1 trillion program. Obama takes office Jan. 20.

Time ‘Is Now’

“The current downturn is likely to be far longer and deeper than the ‘garden-variety’ recession,” Yellen, who became chief of the San Francisco Fed in 2004, said in a speech. “If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now.”

Yellen was an adviser to the last Democratic president, Bill Clinton, serving as chairman of his Council of Economic Advisers from 1997 to 1999 after a stint as a Fed governor in Washington.

Last month, Fed policy makers reduced their target for the federal funds rate, or the rate banks charge one another for overnight loans, to as low as zero for the first time in an attempt to end the longest economic slump in a quarter-century no fax cash loans.

The central bank is also shifting its focus to the amount and type of debt it buys, with announcements of new lending programs or asset purchases serving as the principal signals of policy.

Economy Deteriorates

Economic data released last week show U.S. consumer confidence sinking to the lowest level in at least 41 years and home prices in 20 major cities declining at the fastest rate on record. Another report showed that the decline in U.S. manufacturing deepened in December.

“The current downturn is likely to last much longer than previous ones,” said Harvard University economics professor Martin Feldstein, former president of the National Bureau of Economic Research. “So, fiscal policy is likely to be useful.”

Still, such stimulus would increase the long-term burden on taxpayers, Evans said in his Jan. 3 speech.

“Federal debt held by the public is 38 percent of GDP, states have large unfunded liabilities and growing numbers of retiring baby-boomers will further pressure the unfunded liabilities for Social Security and Medicare,” Evans said.

University of Chicago professor Raghuram Rajan, former chief economist at the International Monetary Fund, said in an interview at the conference that he’s “in the crowd that is a little more skeptical” about a federal effort to rejuvenate the economy, especially a proposal to provide federal funds to states.

‘Clear Plan’

“The U.S. is of course central to the world economy, and so getting the U.S. back on track I think is very important,” Rajan said. “The real issue is cleaning up the financial sector,” he said, adding he wants to see from the Obama administration a “clear plan” of how to handle “weak” companies.

The outgoing Bush administration has thrown a lifeline to the troubled automobile industry, granting loans worth $13.4 billion to keep General Motors Corp. and Chrysler LLC from bankruptcy for now. The U.S. Treasury also threw the door open to taxpayer financing for a widening array of companies and industries last week, drafting broad guidelines on aid to the auto industry.

Treasury guidelines would let officials provide funds to any company they deem important to making or financing cars. That left room for the government to provide money from the $700 billion Troubled Asset Relief Program beyond loans already committed to GM, Chrysler and GMAC LLC.

Mishkin said working as a Fed policy maker during the credit crisis is similar to serving in a wartime Pentagon.

The central bank is “fighting a war,” he said. Instead of deploying “tanks and guns,” it’s “monetary policy, credit policy and liquidity policy.”

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Manufacturing shrank around the world as the financial crisis enters its 17th month, providing fresh evidence that the global economy is in recession and intensifying pressure on policy makers to respond.

Purchasing managers’ indexes in Europe, Russia, China and South Africa today showed record contractions in production as the persistent lack of credit hammers demand from companies and consumers.

Signs the worldwide slump is worsening pushed stocks in Europe and Asia lower and yields on U.S. Treasuries to record lows as investors sought the safest assets. U.S. factories probably recorded their worst performance in a quarter-century last month, economists said ahead of a report to be released later.

“The pace of manufacturing decline has been vicious,” said Kevin Gaynor, head of economic and interest-rate strategy at Royal Bank of Scotland Group Plc in London. “If we thought the last quarter was bad for the global economy, the current quarter is shaping up to be a lot worse.”

The MSCI World index of stocks in 23 developed markets today fell 1.1 percent to 883.58 at 12:26 p.m. in London as the deterioration in manufacturing unnerved investors. The yield on two-year U.S. notes dropped as low as 0.95 percent and the rate on 30-year bonds fell to a record 3.387 percent.

The Institute for Supply Management’s U.S. factory index dropped to 37 last month, the lowest level since 1982, from 38.9 in October, according to the median estimate in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction. The Tempe, Arizona-based ISM’s factory report is due at 10 a.m. New York time.

European Contraction

Manufacturing in the 15 nations sharing the euro contracted by the most on record in November. A purchasing managers’ index dropped to 35.6 from 41.1 in October, remaining below the expansion threshold for a sixth month. That’s the lowest since Markit Economics began the poll in 1998, and below an initial estimate of 36.2 published on Nov. 21.

With the euro-region economy already in its first recession in 15 years, the malaise leaves the European Central Bank facing calls to accelerate the pace of interest rate cuts this week. Having reduced its benchmark rate twice by 50-basis points since early October, investors are betting the Frankfurt-based bank may lower it as much as three-quarters of a percentage point when its governing council convenes on Dec. 4.

Rautaruukki Oyj, Finland’s biggest producer of carbon steel, said today it will cut output and as much as 6.7 percent of its workforce, reducing annual costs by 60 million euros ($75.9 million), on weaker demand.

‘Compelling Case’

“There is a compelling case for the ECB to slash interest rates by 100 basis points” for the first time, said Howard Archer, an economist at IHS Global Insight in London payday loans.

Investors are already predicting the Bank of England will cut its key rate by at least a percentage point the same day, having slashed by 1.5 points last month, the biggest reduction in 16 years. Chancellor of the Exchequer Alistair Darling said yesterday he may need to take additional steps to combat the slump.

“Interest rates have got to fall significantly further,” said Nick Kounis, an economist at Fortis in Amsterdam and a former U.K. Treasury official.

The slump in industrial economies is now infecting emerging markets, depriving the world of power it was relying on to cushion the slowdown. Manufacturing in China, the fastest-growing major economy, fell by the most on record in November, the China Federation of Logistics and Purchasing reported today. Its purchasing managers’ index fell to a seasonally adjusted 38.8 from 44.6 in October.

‘Grim Month’

“Another grim month for China manufacturing,” said Eric Fishwick, head of economic research at CLSA Asia-Pacific Markets in Hong Kong, whose own index for China showed a record drop. “Export orders will weaken further and we expect further cuts in production and employment.”

The yuan fell the most since a fixed exchange rate ended in 2005, sliding 0.7 percent to close at 6.8848 per dollar. Economists at Citigroup Inc. said “more immediate policy help” was now needed on top of last month’s $586 billion stimulus package and biggest interest-rate cut in 11 years.

In Russia, VTB Bank Europe said its measure of purchasing managers fell for a fourth month in November to 39.8, below the level recorded in 1998 when the government devalued the ruble and defaulted on $40 billion of debt.

OAO Severstal, Russia’s largest steelmaker, shut down a blast furnace that supplied 13 percent of the pig iron produced at its main Russian factory because of its age and as global steel demand weakens, the company said on Nov. 28.

“The sense of doom and gloom was only deepening” in November, Tatiana Orlova an economist in Moscow at ING Group NV said. “The mood isn’t getting any better.”

Indexes for Poland, Hungary, Sweden and the Czech Republic also showed some of the steepest-ever declines as recession struck their main export markets. South African manufacturing shrank at the fastest pace in at least nine years, pushing Investec Asset Management’s Purchasing Managers Index to 39.5 last month from 46.2 in October.

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U.S. stock markets appeared headed higher Tuesday as polls opened for the presidential election.

Futures tied to the Standard & Poor's 500 Index gained 20 points to 999 at 7:15 a.m. Dow Jones Industrial Average futures gained 181 points to 9513. Nasdaq 100 futures added 30 point to 1371.50.

European stock markets built on gains in Asia overnight. At 8:01 a.m. the FTSE 100 Index was up 89 points, or 2 percent, to 4532 on the London Stock Exchange loan until payday. The Dax Index added 91points, or 1.8 percent, to 5118 on the Frankfort Stock Exchange.

The Nikkei 225 gained 537 points, or 6.27 percent, to 9114 on the Tokyo Stock Exchange Tuesday.

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The Bank of Korea slashed interest rates by a record at an emergency board meeting in an attempt to bolster markets as the nation faces its biggest crisis since requiring an International Monetary Fund bailout 10 years ago.

Governor Lee Seong Tae cut the seven-day repurchase rate 75 basis points to 4.25 percent, the central bank said in a statement in Seoul today. The bank also broadened the type of bonds it will accept as collateral in money-market operations, giving lenders access to more funds.

The Kospi stock index slumped on concern the rate cut won't prevent the economy from slowing and could add more pressure on the weakening won. President Lee Myung Bak, who met Finance Minister Kang Man Soo and the central bank's Lee yesterday, said today the country is far from experiencing a repeat of the 1997 financial crisis when it needed a $57 billion loan from the IMF.

“The Korean authorities felt compelled to take dramatic action in the face of global turmoil,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “The rate cut might provide a brief boost to the financial market but the general panic environment prevails.''

The central bank also cut rates on special loans for small- and medium-sized companies to 2.5 percent from 3.25 percent.

South Korea's Kospi stock index fell 1.4 percent to 925.41 at 1:35 p.m. in Seoul, after earlier rising as much as 3 percent. The index plummeted 20 percent last week in its worst week since 1997. The won sank to 1,440 against the dollar from 1,424, extending this year's drop to 36 percent.

Japan's Measures

“What we urgently need is stabilization of the currency and a drop in risk premiums paid to investors when local companies raise funds overseas,'' said Song Seong Yeob, a fund manager at KB Asset Management Co. in Seoul. “The interest rate cut doesn't directly cover such issues. Rather, it will trigger a further decline of the won's value against the dollar.''

The Bank of Korea said the “large cut was called for in order to guard securely against the possibility of a sharp contraction of real economic activity,''

Governor Lee hinted at further rate cuts, saying the bank will “maintain a stance to pay more attention'' to the risk of slower economic growth internet payday loans. Inflation is likely to ease on weak domestic demand and falling oil prices, he said.

“The Bank of Korea will likely cut rates again at their monthly rate-setting meeting next week,'' Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. “The Bank of Korea seems determined to stop the market panic from the U.S. financial crisis spreading.''

Currency Rules

The bank said today it would also ease rules to make it easier for exporters to borrow dollars. Also, small businesses that borrowed mostly in Japanese yen can extend their foreign- currency loans for another year, it said. The won has fallen 47 percent against the yen this year.

The bank last week raised the limit on so-called total loans to 9 trillion won ($6.2 billion) from 6.5 trillion won. Total loans are offered to commercial banks at a rate lower than the benchmark rate, with the funds earmarked for small and medium- sized businesses.

President Lee held the emergency meeting on returning from a Beijing gathering of Asian and European leaders at which they called for an overhaul of World War II-era banking rules. It was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted amid bank failures and plunging stock prices that began in September.

South Korea last week pledged $130 billion to support lenders struggling to obtain foreign funds and said it will spend as much as 8 trillion won to rescue builders struggling with unsold homes. The central bank said Oct. 24 it will inject 2 trillion won into the financial system through repurchase- agreement operations.

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A new government report says personal spending stagnated in August as Americans continued to be weighed down by the economy

The U.S. Commerce Department reported this week that personal spending was virtually unchanged in August. Spending has not been this weak since February, when it was also flat. Economists had forecast a 0.2 percent increase in personal spending.

Personal income, meanwhile, increased by 0.5 percent in August after a revised 0 (best payday loan).6 percent decline in July. Economists surveyed by Briefing.com were expecting income to grow 0.2 percent last month.

After adjusting for taxes and certain price changes, however, real disposable income contracted 0.9 percent, according to the report.

For more: http://www.commerce.gov.

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Hotel operator Marriott International Inc (MAR.N: Quote, Profile, Research, Stock Buzz) said on Thursday third-quarter profit fell 28 percent as its time-share business slowed, and the company warned that 2009 would be tough, sending its shares down more than 10 percent.

The hotel operator also said it may delay or cancel some projects in the current quarter, which may lead to write-offs.

“Our timeshare business has certainly been far more impacted by the current financial environment than our core lodging business,” said Marriott Chairman and Chief Executive J.W. Marriott in a statement.

“Tight credit, soft consumer spending and a difficult securitization market have lowered our expectations for the fourth quarter and 2009,” Marriott added.

Marriott, which typically manages hotels instead of owning them, reported third-quarter net income of $94 million compared with $131 million in the year-ago quarter, and earnings per share of 26 cents compared with 33 cents a year ago.

Third-quarter revenue rose 1 percent to $3 billion.

Marriott said it expects to earn between 44 cents and 50 cents a share in the fourth quarter online payday advance. That is below analysts’ average forecast of 62 cents, according to Reuters Estimates.

The company expects worldwide revenue per available room (RevPAR), a key industry measure, to decline 1 percent to 3 percent in the fourth quarter. 

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Bank of Japan Governor Masaaki Shirakawa said there's no end in sight to the financial-market turmoil that sent Lehman Brothers Holdings Inc. into bankruptcy and wiped $19 trillion from world stocks since October.

“When these developments will calm down is not in sight,'' Shirakawa told a parliament committee today in Tokyo. “We are closely watching how things will develop.''

The world's biggest central banks agreed yesterday to pump $180 billion into the global financial system to restore confidence after banks hoarded money on concern more will follow Lehman into bankruptcy. The Bank of Japan said it will offer up to $60 billion to local and foreign financial institutions to help them borrow dollars.

“Tensions in global financial markets have risen over the past week and demand for funds in money markets has grown,'' Shirakawa said. “If we took no action, tensions in financial markets might have grown further and affected economic growth.''

The cost of borrowing in dollars for three months jumped the most since 1999 this week, with the crisis spreading abroad as U.K. mortgage lender HBOS Plc slumped and Russia poured money into its banks. Interbank lending rates have since fallen, and world stocks rallied today after the U.S. government started planning new laws to halt the credit-market meltdown.

Shirakawa said the hoarding of cash by banks overseas may put pressure on Japan's money market faxless payday loans. When financial institutions have difficulty raising dollars, they tend to borrow in yen and then convert the cash to U.S. currency, pushing up interest rates in yen money markets, he said.

`Wheel Stops Turning'

“The markets are open around the clock and they've become globalized to such an extent that if a wheel stops turning in one place it causes trouble for the entire system,'' Teizo Taya, an adviser to Daiwa Institute of Research and a former Bank of Japan board member, said on Bloomberg Television.

Central banks will continue to discuss measures they can jointly take to ease global market turmoil, Shirakawa said.

When asked whether the Bank of Japan would consider cutting interest rates, the governor said his board doesn't predetermine policy and “every option'' is possible. At 0.5 percent, Japan's key rate is the lowest in the industrialized world.

Shirakawa also said the central bank holds some securities issued by Fannie Mae and Freddie Mac, the U.S. finance-mortgage companies bailed out by the U.S. government this month. He declined to disclose the amount.

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Health insurer Humana Inc. has agreed to pay a $750,000 fine to the state of Wisconsin as part of a regulatory settlement with the Office of the Commissioner of Insurance.

The state’s insurance commissioner alleged that Humana’s marketing of Medicare Advantage and Part D products violated Wisconsin regulations.

The commissioner also alleged that some insurance agents selling Medicare products in Wisconsin on behalf of Humana were not licensed in the state, a violation of Wisconsin statutes.

Louisville-based Humana (NYSE: HUM) denies the allegations, the insurance commissioner’s office said in a news release.

“Humana is quickly and thoroughly addressing the exam issues,” Humana’s Louisville-based corporate spokesman Jim Turner said in an e-mail. “Humana’s primary concern is always our members, and after review of our records and the cases in question, it appears that there was no significant impact to members online payday advance. Humana either has successfully addressed or is in the process of addressing issues identified in the Wisconsin OCI exam report for 2005-2007 that led to the forfeiture.”

According to the findings of the investigation, which was initiated in 2007, Humana did not comply with recommendations made by the insurance commissioner following a 2002 investigation.

“With this settlement, we protect our senior citizens by addressing issues with marketing of Medicare Advantage and Medicare Part D products,” Wisconsin insurance commissioner Sean Dilweg said in a news release. “The settlement also resolves long-standing issues with company claim adjudication, customer service and underwriting practices.”

Click here to read the full report issued by the Wisconsin Office of the Commissioner of Insurance.

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Williamsville’s Casey Middle School is always in the hunt, but has never captured the title of Western New York’s best middle school. Until now.

Casey is making its first appearance at the top of Business First’s rankings, following a six-year span in which it finished third (three times), fourth (twice) and fifth (once).

Mathematical ability is a key factor in Casey’s emergence. Thirty-seven percent of the school’s eighth graders reached the superior level on the statewide math test a year ago, four times better than the Western New York average of 9 percent.

The school’s language skills are impressive, too. Casey’s eighth graders achieved a superior rate of 16 percent on last year’s statewide English exam, compared to the regional average of 5 percent.

“I could give you the standard explanations, and there’s a lot of truth to all of them,” says Fran McGreevy, Casey’s principal. “We get strong support from our district office. Our faculty and staff are outstanding. And our families have high expectations, and they’re very supportive in helping us meet them.”

Business First analyzed the academic records of 211 middle schools throughout the eight-county region. Ratings were based on test scores compiled by the New York State Education Department during the past four years.

Full details will be available in Business First’s 2008-09 Guide to Western New York Schools, which hits newsstands on Friday. The top-to-bottom rankings of middle schools can be found at the end of this story.

This year’s runner-up is Christ the King School, a private school serving children from kindergarten through eighth grade. It’s located in the Amherst district.

Christ the King has made its mark in Business First’s elementary school rankings, where it earned the best score of any private school each year from 2004 to 2007. But it’s also moving up the middle school standings, hitting fifth place in 2007 and second this year.

Principal JoAnn Mikulec credits a tougher homework policy — “if students miss homework, they have to see the principal, which helps them to concentrate” — as well as a new weekly class designed to improve study habits.

“Instead of a library period where some of the students would be fooling around, we decided to use that time to emphasize study skills,” she says paydayloans.com. “A teacher shows them how to take notes, how to take tests, how to be organized. It really helps them here — and when they get to high school.”

Three middle schools in the Northtowns round out the top five: No. 3 Transit Middle School of Williamsville, No. 4 St. Leo’s School in the Sweet Home district, and No. 5 Amherst Middle School.

Erie County dominates the upper echelon in this year’s standings. The top-rated middle school beyond Erie’s borders is St. John Lutheran School, located in Niagara County’s Niagara-Wheatfield district. It ranks 11th this year, up from 17th place a year ago.

St. John has only 92 students from kindergarten through eighth grade. Principal Herbert Meissner says the school strives to maintain a strong academic program and a mix of extracurricular activities, despite its small size.

“We have a choir and sports programs, and we compete in the county instrumental music competitions,” he says. “Many of our students participate in all of those activities, so they’re getting a well-rounded education.”

Thirteen middle schools have climbed at least 30 notches this year, led by Holy Ghost Lutheran School in Niagara-Wheatfield, which soared 62 places from 125th a year ago to 63rd now.

Also registering an impressive gain is Chautauqua Lake Middle School in Chautauqua County. It’s up from 72nd in 2007 to 33rd this year. Principal John Panebianco says Chautauqua Lake uses year-by-year test results to closely track student performance, both for individuals and whole classes.

“That allows us to give assistance where it’s needed,” he says. “If we see that a student is having trouble with decimals, we’re able to address that with after-school tutoring. Or if we see that an entire grade level is struggling with math, we’re able to address that in class.”

Thirty-two middle schools have qualified for this year’s subject awards, which means they fit in the top 10 percent regionally in English or math, based on four years of test results.

Twelve schools, headed by overall leader Casey Middle School, have earned a pair of subject awards. Ten schools hold single awards in English, as do 10 in math.

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Apparel chain Steve and Barry’s is closing one of its three Dayton-area stores.

The bargain retailer is closing its 80,000-square-foot location at the Miami Valley Centre Mall in Piqua.

“We’re disappointed to see them leave,” said Peggy Henthorn, regional manager of the mall. “But it’s out of our control.”

Henthorn said she has not received official notice of the store’s closure, but signs were posted in the store last Friday.

No date has been set for the store’s closing. Henthorn said it may stay open until after Christmas.

Port Washington, N.Y.-based Steve and Barry’s was purchased by BHY S&B Holdings, a partnership between New York investment firms Bay Harbour Management and York Capital Management, whose investors include Steve & Barry’s co-founders Steve Shore and Barry Prevor freecreditreport. The company’s new owners have plans to reduce its 276 stores to about 175.

When Steve and Barry’s filed bankruptcy, Henthorn said the mall began marketing the space.

“We’d hate for it to sit empty,” she said.

Henthorn said the Piqua Steve and Barry’s was on the first list of stores to be cut, with more to be announced. The other Dayton-area locations are at Washington Park Plaza in Centerville and Upper Valley Mall in Springfield.

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