Finance Blog number 1

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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The bailouts of Bear Stearns and AIG were "distasteful" but still necessary, Federal Reserve Chairman Ben Bernanke told students at George Washington University on Tuesday.

Meanwhile, the Fed was "helpless" when it came to saving Lehman Brothers, he said.

"Lehman Brothers was in itself probably too big to fail, in the sense that its failure had enormous negative impacts on the global financial system," Bernanke said. "But there we were helpless, because it was essentially an insolvent firm."

In a lecture about the Fed’s emergency efforts during the financial crisis, Bernanke explained that the central bank was willing to bail out AIG (, Fortune 500) and Bear Stearns because it expected both firms would eventually be able to pay back their loans. Bear Stearns was ultimately acquired by JPMorgan Chase (, Fortune 500).

Lehman Brothers, on the other hand, had no collateral to put up in exchange for the Fed’s assistance.

"It was very difficult and in many ways distasteful intervention that we had to do on the grounds that we needed to do that to prevent the system from collapsing," Bernanke said. " But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.’"

Bernanke also told students that without the Fed’s emergency efforts, the U.S. economy could have tanked even deeper.

"I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could have had a much worse outcome in the economy," he said.

The lecture was the third section of a four-part series at George Washington University, to be continued on Thursday. The Federal Reserve posts Bernanke’s slides and full videos online. 

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Japan and Canada agreed Sunday to formally start talks aimed at forging a free trade agreement between the two countries.

If established, the pact would be Japan’s first with a country from the Group of Eight major economies.

Japanese Prime Minister Yoshihiko Noda and his Canadian counterpart, Stephen Harper, said they would also seek to boost economic, energy and security relations between the two countries.

“This is a truly historic step that will help create jobs and growth in both countries,” Harper told a joint news conference. “The negotiations we are announcing today complement Canada’s ambitious trade agenda.”

Japan is Canada’s fourth-largest export market, and a free trade deal could potentially increase that “by as much as two-thirds,” Harper said.

Japan’s main exports to Canada are cars, machinery and other industrial products. Its chief imports from Canada are natural resources and agricultural products including soybeans and pork. Both countries are seeking to join the U.S.-led trans-Pacific multilateral trade pact known as TPP. Japan’s highly protected farm sector is seen as a main obstacle.

Noda stressed the importance of accelerating private-sector cooperation on the trade of natural gas and other energy resources.

Japan is struggling to secure a stable supply of energy resources due to concerns about a serious power crunch stemming from the nuclear crisis set off by last year’s massive earthquake and tsunami paydayloans.

The March 11, 2011, disasters destroyed power and cooling functions at the Fukushima Dai-ichi nuclear power plant, sending three reactors into meltdown and forcing 100,000 people to relocate.

The crisis also raised public concerns and opposition to restart reactors idled for regular safety checks. Only two of Japan’s 54 reactors are currently running, with all of them expected to go offline by the end of April if none are resumed by then.

During the talks Sunday, Japan and Canada also agreed to strengthen cooperation in defense and security in the Asia-Pacific region, Noda said. The two leaders are heading to Seoul to attend this week’s Nuclear Security Summit.

“We reaffirmed the importance to tackle outstanding global issues, particularly the issues surrounding North Korea and others in the Asia-Pacific region, as we cooperate as partners,” Noda said.

North Korea says it will launch an observation satellite on a long-range rocket next month. Japan shares fear by the U.S. and South Korea that Pyongyang wants to test long-range missiles that could eventually deliver nuclear warheads.

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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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International Monetary Fund official Zhu Min said China will avoid an economic hard-landing even as government data showed property prices falling in most of the nation

Panera Bread Co. founder Ron Shaich will share the title of CEO of the chain of bakery cafes with Bill Moreton, the company announced today.

Moreton was promoted to president and CEO of the Sunset Hills-based company in May 2010, and Shaich took on the role of executive chairman of the board of directors.

The chain has more than 1,500 locations and operates locally as St. Louis Bread Co.  

Shaich’s new titles are co-CEO and chairman, and Moreton is co-CEO and president payday loans. 

In announcing the changes, Panera said in a statement that the switch to co-CEOs “formalizes a relationship that has evolved over the last year and is a reflection of the way in which Shaich and Moreton have been operating as partners.”

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PepsiCo Inc. revamped its management structure Monday in a move intended to strengthen its lineup of potential successors to CEO Indra Nooyi and leverage its scale as a global company.

The management restructuring puts John Compton, who heads the company’s Americas foods division, in charge of all the company’s global groups in the newly created role of president.

PepsiCo said Compton will also work with its regional groups for Europe, Asia, the Middle East and Africa to build brands, develop new products and cut costs. Compton, who is 52, started his career with PepsiCo when he was 22 and has been there ever since.

Brian Cornell, who was president and CEO of Wal-Mart Stores Inc.’s Sam’s Club division, will take over for Compton as CEO of PepsiCo Americas Foods. The unit includes the Purchase, N.Y.-based company’s Frito-Lay and Quaker foods and snacks businesses.

Cornell, who is 50, previously held management positions at Pepsi, including president of its Tropicana brand and its Europe and Africa beverage businesses, before leaving the company in 2004.

PepsiCo said the appointments are effective immediately.

John Sicher, editor of Beverage Digest, said the appointments were in line with PepsiCo’s focus on transforming into a more international company like its rival The Coca-Cola Co.

“They want to extract all the benefits they can from being as big and global a company as they are,” Sicher said.

The focus on international markets has become increasingly critical for beverage and snack food companies, given the flat growth at home in recent years.

PepsiCo in the past few years even created three new groups _ global beverages, global snacks and global nutrition. The company said the heads of each of those groups will now report to Compton.

The new management structure comes as PepsiCo, the nation’s No. 2 cola company, has lost ground in recent years to Coca-Cola and faced speculation that Nooyi would step down amid investor dissatisfaction.

In a note to investors, Stifel, Nicolaus & Co. analyst Mark Swartzberg said he considered the appointments positive for the company’s long-term fundamentals. Although he said he no inside knowledge of the situation, he said it was a “reasonable outcome” that Nooyi would soon leave her post as CEO, paving the way for Compton or another senior PepsiCo executive.

At its annual investor meeting last month, PepsiCo said it plans to focus on regaining market share in North America by rolling out new products and significantly boosting its ad spending. The company also said it would cut 8,700 jobs, or about 3 percent of its work force.

While PepsiCo is clearly focused on identifying its business fundamentals and identifying ways to strengthen its advantages, Citi analyst Wendy Nicholson also noted last month that it would be “a mistake to underestimate the chaos factor” at PepsiCo.

She cited the high level of turnover during the past year, including the company’s announcement that Massimo d’Amore, the president of its global beverages group, would retire early next year.

“While we believe change is good, especially for an organization that has underperformed, we also wonder how much more shifting of responsibilities is yet to come,” she wrote.

Shares of PepsiCo gained 32 cents to $63.47 in morning trading.

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Days after the Conservative government introduced its copyright reform bill in June 2010, Canadian Heritage Minister James Moore spoke out in support of the legislative package by notoriously labeling critics as

The chairman and chief executive of American Express Co. received a compensation package valued at $22.5 million for 2011, a 38 percent increase from a year earlier, according to an Associated Press analysis of a regulatory filing.

The company credited Kenneth Chenault and his management team for delivering revenue and profit growth, and gaining market share over the past two years.

The executive, who has been chairman and CEO since 2001, received $16.3 million in compensation in 2010.

Chenault, 60, received a base salary of $2 million, up 3 percent from the previous year, according to documents filed Friday with the Securities and Exchange Commission.

The executive also received a cash bonus of $2 million, unchanged from 2010.

But the bulk of Chenault’s compensation hike came in the form of stock awards, which were worth about $15.3 million at the time they were granted _ a sevenfold increase from $2.1 million worth of stock awards the year before.

Chenault also received option awards valued at about $2.2 million on the day they were granted, down 76 percent from $9.2 million a year earlier.

His other compensation declined 7 percent to about $1.02 million, and included $570,000 in company contributions to Chenault’s defined contribution plans; $395,439 for perks and other personal benefits; $53,458 in dividends and equivalents; and, $3,939 in life insurance.

Even with high unemployment and continued doubts about the strength of the economy, credit card use has been on the rise.

New York-based American Express, which caters to a more affluent customer than its peers, saw its 2011 profit climb to $4.94 billion, an increase of 22 percent from the year before. Full-year revenue rose 9 percent to $29.96 billion.

Shareholders saw the company’s stock price rise about 10 percent last year. The stock closed Friday at $52.99.

The Associated Press formula calculates an executive’s total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive’s stock and option awards for 2011 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company’s stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.

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