China's insurance regulator to reject $9.4 billion HSBC deal - reports

HONG KONG (Reuters) - China's insurance regulator is expected to reject HSBC's sale of its $9.4 billion (5.8 billion pounds) stake in Ping An Insurance to Thai conglomerate CP Group, media reports said on Wednesday.
The failure of the deal would be a blow to HSBC and an embarrassment to the various parties involved in a corporate deal that was set to be Asia's second-largest last year.
The China Insurance Regulatory Commission (CIRC) is likely to veto the deal due to a lack of funding, the South China Morning Post and The Wall Street Journal both said on Wednesday.
Reuters on Tuesday said that the deal was in jeopardy after state-backed China Development Bank had expressed concerns over its financing. According to the story, CDB's reluctance emerged after media reports late in December that said CP Group's payment for the deal came from outside sources.
A $1.9 billion payment by CP subsidiaries was made on December 7 as a first instalment for the deal, with the shares then transferred to CP Group, according to HSBC. Payment for the remaining amount was due after regulatory approval, which had a deadline of February 1.
CDB originally agreed to back the remaining purchase, though HSBC did not disclose the size of the loan. CDB withdrawing from the process would be a major setback for the sale, but would not necessarily kill the agreement if another funding source could be found before that deadline.
A CIRC rejection, however, would stop the second instalment and effectively end the deal.
A CIRC official told Reuters on Wednesday that there is no final outcome yet on a decision.
A spokesman for Ping An said the sale was moving ahead with normal approval procedures, while HSBC declined to comment.
Doubts over the deal's closing surfaced after the respected Chinese magazine Caixin Century Weekly reported late last month that CP Group received funding for the first payment from outside sources, naming Chinese businessman Xiao Jianhua as being among the backers.
CP Group said in a statement in December after the Caixin report that the acquisition of the Ping An shares had been legally conducted by four wholly-owned subsidiaries using "legal capital from the Charoen Pokphand Group and its subsidiaries."
A representative at a law firm representing Xiao referred Reuters to a previous statement from him denying any involvement in the CP-HSBC deal.

Read More..

Short-sellers circle stocks as confidence wavers

LONDON (Reuters) - How durable is the Wall Street bounce following last week's U.S. budget deal? Not very, some speculators believe.
Hedge funds are betting that a rally in U.S. stocks after a retreat from the "fiscal cliff" will reverse as doubts grow that politicians are ready to sacrifice party interests to keep the world's economic engine running, early data shows.
On the cusp of a January 1 deadline, Republicans and Democrats agreed a moratorium on a package of tax hikes and budget cuts critics claimed would tip the United States back into recession.
The news triggered sharp gains in the S&P 500 index <.spx>, which rose 2.5 percent to 1,462 points on January 2. But the momentum is fading, leading some funds and analysts to predict a tough near-term outlook for U.S. equities.
"The recent rally is an opportunity to open promising short positions. Taxes are going up in some shape and form and spending will have to be reduced," said Athanasios Ladopoulos, chief investment officer of hedge fund firm Swiss Investment Managers. "Both feed into negative sentiment down the road."
Data measuring demand to borrow U.S. shares - a proxy for the level of short-selling, or bets on a share price fall - reflects expectations that markets will falter when the next bout of negotiations collides with talks to extend a $16.4 trillion national debt ceiling in February.
According to Sungard Astec Analytics, the aggregate value of U.S. shares on loan rose by 3 percent to $358 billion in the week to January 4, as skeptical funds bet on falls in consumer confidence and company earnings.
That compares with a peak of $404 billion, seen in June when the Federal Reserve rowed back on employment predictions and cut 2012 economic growth forecasts to 2.4 percent from 2.9 percent.
By contrast, the aggregated value of shares in the FTSE 100 <.ftse> on loan fell 4 percent to $1.4 billion in the week to January 4, while the equivalent for the STOXX Europe 600 <.stoxx> dropped 3 percent to $6.6 billion.
Because such bets are struck privately, it's tough to pinpoint exactly when shares are expected to fall. Some bets may be pegged to the impending corporate earnings season, while others will be timed to exploit February's looming fiscal cliff worries.
SHORT, SHARP SHOCK
But even top stock market performers are seen suffering share price volatility until a compromise on cuts and taxes is reached.
Short-sellers are speculators who borrow shares then sell them in the hope of being able to buy them back at a cheaper price, before returning the stock to the original owner.
"While we are positive on U.S. equities for the year, the possibility of a short, sharp contraction on news flow is material in our view," equity strategists at BNP Paribas warned in a note, arguing equity valuations looked over-optimistic.
"The trailing price-to-earnings ratio of 15 times is above long-term averages and earnings growth has slowed to a crawl at best, compared with a consensus forecast for 10 percent," the note said.
Stock lenders - typically long-term investors such as pension funds who can earn a fee by loaning out a stock at little risk to themselves - have also spotted an increased appetite to bet on falling stock prices and have raised the cost to borrow shares by 5 basis points (bps) to about 75 bps on aggregate over the first week of 2013, Astec data shows.
This brings borrowing rates closer to the 78 bps average earned on U.S. equity lending in 2012.
"There is much unfinished business ... not to mention the much bigger question about how the U.S. can meet its long term spending commitments in the face of an ageing population," Ian Kernohan, economist at Royal London Asset Management said.
"Given the polarized nature of U.S. politics at the moment, trying to sort all this out will be an uphill task."
The S&P 500, which rose 13.4 percent in 2012, closed 0.3 percent down at 1,457 on Tuesday. Some commentators say much of the recent growth in U.S. stocks is not due to an influx of optimistic buyers, but short-sellers closing out old bets from 2012 before embarking on a fresh set of short positions.
NOT MAINSTREAM
Heavily-shorted firms like $3.7 billion-valued U.S. Steel Corp and $1.9 billion Advanced Micro Devices saw volumes of stock on loan drop by 15.1 percent to 17.5 percent and 18.6 percent to 14.6 percent respectively in the past month.
This data from financial information firm Markit supports the argument that bears, not bulls, are perversely largely responsible for driving the recent upward move in U.S. stocks.
Certainly a negative view is not mainstream for the year as a whole.
The consensus forecast from respondents to a Reuters poll in December was for the S&P 500 to finish 2013 close to its lifetime high of 1,576.09 set in October 2007.
But signs of fresh short-selling coupled with Friday's underwhelming December jobs data is putting pressure on market optimists.
Speaking at an investment forum hosted by asset manager Notz Stucki on Tuesday, Anatole Kaletsky, a financial economist and Reuters columnist, said cyclical factors such as weak housing markets have been major headwinds but there was evidence these have been neutralised.
But it may take time for this view to be adopted by many consumers. A Reuters/IPSOS online poll of U.S. consumers on Monday found four-fifths of respondents were bracing for another economic downturn.
Additional data from Markit showed sharp increases in demand to short a range of U.S. stocks who stand to lose from a dip in consumer sentiment.
But the list of the 30 most heavily-shorted U.S. names in the week to January 4 spans most sectors including pharmaceuticals, machinery and aerospace & defence, indicating broader pessimism in the market as well as cyclical or stock-specific concerns.
The volume of bets on a fall in the share price of $7.75 billion Tiffany & Co for instance shot up 17 percent last week to 6.4 percent, more than double the 3 percent average short interest on individual S&P stocks.
Demand to short leisure dot-com TripAdvisor Inc was up 11.6 percent to 5.2 percent and Dr Pepper Snapple Group Inc saw stock volumes on loan jump 15.1 percent to 7.8 percent.
"I am of the opinion that when Q4 earnings season starts investors will come to realise that the prospects for 2013 are not that bright," Ladopoulos said. "When the market turns down, it will take with it many of those too optimistic investors."

Read More..

FTSE 100 hits highest level since May 2008

LONDON, Jan 9 (Reuters) - Britain's blue-chip share index
hit its highest point since May 2008 on Wednesday, resuming its
January rally after a two-day pause, led up by the banking
sector.
At 1505 GMT, the FTSE 100 was up 58.38 points, or 1
percent, at 6,112.01, breaking through the 2011 high of
6,105.77. Lloyds Banking Group led banking sector
gainers after being upgraded by UBS.
A positive open on Wall Street had helped the FTSE extend
its early gains, while exporters also received a boost earlier
in the session after sterling fell to a one-month low against
the dollar.

Read More..

Wall Street edges off five-year high, awaits earnings

NEW YORK (Reuters) - Stocks lost ground on Monday, as investors drew back from recent gains that lifted the S&P 500 to a five-year high, in anticipation of sluggish growth in corporate profits.
Shares of financial companies dipped after a group of major U.S. banks agreed to pay a total of $8.5 billion to end a government inquiry into faulty mortgage foreclosures. The KBW bank index <.bkx>, a gauge of U.S. bank stocks, was down 0.3 percent.
Other sectors were hit as well, most notably energy and utilities. The S&P 500 energy sector index <.gspe> fell 0.8 percent and the utilities sector <.gspu> was off 1.1 percent.
The day's decline came a session after the S&P 500 finished at a five-year high, boosted by a budget deal and strong economic data. The S&P 500 rose 4.6 percent last week, the best weekly gain in more than a year.
"It's a little bit of taking some risk off the table ahead of profit season, you're not going to see anything all that great" on earnings, said Larry Peruzzi, senior equity trader at Cabrera Capital Markets Inc in Boston.
Earnings are expected to be only slightly better than the third-quarter's lackluster results, and analysts' current estimates are down sharply from where they were in October. Fourth-quarter earnings growth is expected to come in at 2.8 percent, according to Thomson Reuters data.
Aluminum company Alcoa Inc begins the reporting season by announcing its results after Tuesday's market close. Alcoa shares fell 1.7 percent at $9.10.
The Dow Jones industrial average <.dji> dropped 50.92 points, or 0.38 percent, to 13,384.29. The Standard & Poor's 500 Index <.spx> fell 4.58 points, or 0.31 percent, to 1,461.89. The Nasdaq Composite Index <.ixic> lost 2.84 points, or 0.09 percent, to 3,098.81.
Ten mortgage servicers - including Bank of America , Citigroup , JPMorgan , and Wells Fargo - agreed on Monday to pay $8.5 billion to end a case-by-case review of foreclosures required by U.S. regulators.
In a separate case, Bank of America also announced roughly $11.6 billion of settlements with mortgage finance company Fannie Mae and a $1.8 billion sale of collection rights on home loans.
The bank also entered into agreements with Nationstar Mortgage Holdings and Walter Investment Management to sell about $306 billion of residential mortgage servicing rights.
Bank of America shares lost 0.2 percent at $12.09 while Nationstar Mortgage Holdings jumped 16.8 percent to $38.83.
Citigroup shares were up 0.09 percent to $42.47, and Wells Fargo shares fell 0.5 percent to $34.77.
"The financials probably have the wind behind them now with a lot of the regulations coming out ... the market has to absorb a lot of the gains, and for that reason there's a pullback from this level," said Warren West, principal at Greentree Brokerage Services in Philadelphia.
Shares of U.S. jet maker Boeing Co dropped 2 percent after a Boeing 787 Dreamliner aircraft with no passengers on board caught fire at Boston's Logan International Airport on Monday morning.
Amazon.com shares hit their highest price ever at $269.22 after Morgan Stanley raised is rating on the stock. Shares were up 3.6 percent at $268.46.
Video-streaming service Netflix Inc shares gained 3.4 percent to $99.20 after it said it will carry previous seasons of some popular shows produced by Time Warner's Warner Bros Television.
Walt Disney Co stock fell 2.3 percent to $50.97. The company started an internal cost-cutting review several weeks ago that may include layoffs at its studio and other units, three people with knowledge of the effort told Reuters.
Volume was lower than average, as 4.78 billion shares were traded on the New York Stock Exchange, NYSE MKT and Nasdaq. This is well below the 2012 average of 6.42 billion per session.
Declining stocks outnumbered advancing ones on the NYSE by 1,629 to 1,363, while on the Nasdaq decliners beat advancers 1,438 to 1,066.

Read More..

Wall St edges off 5-year high, awaits earnings

 U.S. stocks lost ground on Monday, as investors drew back from recent gains that lifted the S&P 500 to a five-year high, in anticipation of sluggish growth in corporate profits.
Shares of financial companies dipped after a group of major U.S. banks agreed to pay a total of $8.5 billion to end a government inquiry into faulty mortgage foreclosures. The KBW bank index, a gauge of U.S. bank stocks, was down 0.3 percent.
Other sectors were hit as well, most notably energy and utilities. The S&P 500 energy sector index <.gspe> fell 0.8 percent and the utilities sector <.gspu> was off 1.1 percent.
The day's decline came a session after the S&P 500 finished at a five-year high, boosted by a budget deal and strong economic data. The S&P 500 rose 4.6 percent last week, the best weekly gain in more than a year.
"It's a little bit of taking some risk off the table ahead of profit season, you're not going to see anything all that great" on earnings, said Larry Peruzzi, senior equity trader at Cabrera Capital Markets Inc in Boston.
Earnings are expected to be only slightly better than the third-quarter's lackluster results, and analysts' current estimates are down sharply from where they were in October. Fourth-quarter earnings growth is expected to come in at 2.8 percent, according to Thomson Reuters data.
Aluminum company Alcoa Inc begins the reporting season by announcing its results after Tuesday's market close. Alcoa shares fell 1.7 percent at $9.10.
The Dow Jones industrial average dropped 50.92 points, or 0.38 percent, to 13,384.29. The Standard & Poor's 500 Index fell 4.58 points, or 0.31 percent, to 1,461.89. The Nasdaq Composite Index lost 2.84 points, or 0.09 percent, to 3,098.81.
Ten mortgage servicers - including Bank of America , Citigroup , JPMorgan , and Wells Fargo - agreed on Monday to pay $8.5 billion to end a case-by-case review of foreclosures required by U.S. regulators.
In a separate case, Bank of America also announced roughly $11.6 billion of settlements with mortgage finance company Fannie Mae and a $1.8 billion sale of collection rights on home loans.
The bank also entered into agreements with Nationstar Mortgage Holdings and Walter Investment Management to sell about $306 billion of residential mortgage servicing rights.
Bank of America shares lost 0.2 percent at $12.09 while Nationstar Mortgage Holdings jumped 16.8 percent to $38.83.
Citigroup shares were up 0.09 percent to $42.47, and Wells Fargo shares fell 0.5 percent to $34.77.
"The financials probably have the wind behind them now with a lot of the regulations coming out ... the market has to absorb a lot of the gains, and for that reason there's a pullback from this level," said Warren West, principal at Greentree Brokerage Services in Philadelphia.
Shares of U.S. jet maker Boeing Co dropped 2 percent after a Boeing 787 Dreamliner aircraft with no passengers on board caught fire at Boston's Logan International Airport on Monday morning.
Amazon.com shares hit their highest price ever at $269.22 after Morgan Stanley raised is rating on the stock. Shares were up 3.6 percent at $268.46.
Video-streaming service Netflix Inc shares gained 3.4 percent to $99.20 after it said it will carry previous seasons of some popular shows produced by Time Warner's Warner Bros Television.
Walt Disney Co stock fell 2.3 percent to $50.97. The company started an internal cost-cutting review several weeks ago that may include layoffs at its studio and other units, three people with knowledge of the effort told Reuters.
Volume was lower than average, as 4.78 billion shares were traded on the New York Stock Exchange, NYSE MKT and Nasdaq. This is well below the 2012 average of 6.42 billion per session.
Declining stocks outnumbered advancing ones on the NYSE by 1,629 to 1,363, while on the Nasdaq decliners beat advancers 1,438 to 1,066.

Read More..

Stocks sink, pulling S&P 500 down from 5-year high

 Investors started the week on a cautious note, pulling the Standard & Poor's 500 index down from the five-year high it reached Friday.
The move lower on Monday is likely the result of traders taking some winnings off the table after the stock market's surge last week, said Sam Stovall, chief equity strategist at S&P Capital IQ.
Investors are also preparing for corporate America's seasonal parade of earnings reports, which starts Tuesday.
"You can summarize it as profit-taking and preparation," Stovall said. "Investors are digesting some of those gains from last week and positioning themselves so they're not too far extended if fourth-quarter earnings slip a bit."
The S&P 500 fell 4.58 points to close at 1,461.89.
The Dow Jones industrial average lost 50.92 points to 13,384.29, while the Nasdaq composite dropped 2.84 points to 3,098.81.
The S&P 500 soared 4.6 percent last week, ending Friday at a five-year high. The government reported that hiring held up in December during the tense budget negotiations in Washington, with employers adding 155,000 jobs during the month.
Investors celebrated to start the year as lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that came to be known as the "fiscal cliff." The law passed late Tuesday night avoided the full force of the budget cuts, which could have dragged the economy into a recession.
Investors are now shifting their focus to corporate profits. Aluminum producer Alcoa launches the reporting season for the fourth quarter of 2012 after the market closes on Tuesday.
Analysts forecast that companies in the S&P 500 will report that quarterly earnings increased 3.3 percent compared with the same period the year before, according to S&P Capital IQ. But all the events that took place in the last three months of 2012 -- Superstorm Sandy, the presidential election, and worries about the narrowly avoided "fiscal cliff" -- could make for some surprises.
JPMorgan Chase, Bank of America and others banks agreed to pay $8.5 billion to settle federal complaints that they foreclosed on people who should have been allowed to stay in their homes. Bank stocks ended the day little changed.
In a separate agreement, Bank of America settled with the government-owned mortgage finance company Fannie Mae over mortgage investments that lost value during the real-estate crash. BofA's stock fell 2 cents to $12.09.
In other trading, the yield on the 10-year Treasury note was 1.90 percent. The yield on the note hit an eight-month high of 1.97 percent in intraday trading Friday, according to prices from Tradeweb, an operator of fixed-income markets.
Among other stocks making big moves:
— Archer Daniels Midland dropped 4 percent. Analysts at JP Morgan Chase said the ongoing drought in the Midwest will likely squeeze the crop-processing company's profit margins. The analysts also started coverage on ADM's stock with a price target of $28, below where it opened for trading Monday. ADM fell $1.21 to $28.01.
— Lowe's Cos. fell 82 cents to $34.76 after analysts at the money-management firm Canaccord cut their rating on the company to "sell" from "hold," saying that the home improvement company's efforts to improve stores and sales won't be successful.
— Walgreen Co. gained 85 cents to $38.03 after Jefferies analyst Scott A. Mushkin raised his rating on the drugstore chain to "buy" from "hold," saying the company's profits may get a boost from the flu season, Medicare drug plans and President Obama's health-care overhaul.

Read More..

Wall St Week Ahead - 'Cliff' concerns give way to earnings focus

NEW YORK (Reuters) - Investors' "fiscal cliff" worries are likely to give way to more fundamental concerns, like earnings, as fourth-quarter reports get under way next week.
Financial results, which begin after the market closes on Tuesday with aluminum company Alcoa , are expected to be only slightly better than the third-quarter's lackluster results. As a warning sign, analyst current estimates are down sharply from what they were in October.
That could set stocks up for more volatility following a week of sharp gains that put the Standard & Poor's 500 index on Friday at the highest close since December 31, 2007. The index also registered its biggest weekly percentage gain in more than a year.
Based on a Reuters analysis, Europe ranks among the chief concerns cited by companies that warned on fourth-quarter results. Uncertainty about the region and its weak economic outlook were cited by more than half of the 25 largest S&P 500 companies that issued warnings.
In the most recent earnings conference calls, macroeconomic worries were cited by 10 companies while the U.S. "fiscal cliff" was cited by at least nine as reasons for their earnings warnings.
"The number of things that could go wrong isn't so high, but the magnitude of how wrong they could go is what's worrisome," said Kurt Winters, senior portfolio manager for Whitebox Mutual Funds in Minneapolis.
Negative-to-positive guidance by S&P 500 companies for the fourth quarter was 3.6 to 1, the second worst since the third quarter of 2001, according to Thomson Reuters data.
U.S. lawmakers narrowly averted the "fiscal cliff" by coming to a last-minute agreement on a bill to avoid steep tax hikes this weeks -- driving the rally in stocks -- but the battle over further spending cuts is expected to resume in two months.
Investors also have seen a revival of worries about Europe's sovereign debt problems, with Moody's in November downgrading France's credit rating and debt crises looming for Spain and other countries.
"You have a recession in Europe as a base case. Europe is still the biggest trading partner with a lot of U.S. companies, and it's still a big chunk of global capital spending," said Adam Parker, chief U.S. equity strategist at Morgan Stanley in New York.
Among companies citing worries about Europe was eBay , whose chief financial officer, Bob Swan, spoke of "macro pressures from Europe" in the company's October earnings conference call.
REVENUE WORRIES
One of the biggest worries voiced about earnings has been whether companies will be able to continue to boost profit growth despite relatively weak revenue growth.
S&P 500 revenue fell 0.8 percent in the third quarter for the first decline since the third quarter of 2009, Thomson Reuters data showed. Earnings growth for the quarter was a paltry 0.1 percent after briefly dipping into negative territory.
On top of that, just 40 percent of S&P 500 companies beat revenue expectations in the third quarter, while 64.2 percent beat earnings estimates, the Thomson Reuters data showed.
For the fourth quarter, estimates are slightly better but are well off estimates for the quarter from just a few months earlier. S&P 500 earnings are expected to have risen 2.8 percent while revenue is expected to have gone up 1.9 percent.
Back in October, earnings growth for the fourth quarter was forecast up 9.9 percent.
In spite of the cautious outlooks, some analysts still see a good chance for earnings beats this reporting period.
"The thinking is you need top line growth for earnings to continue to expand, and we've seen the market defy that," said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs.
Based on his analysis, energy, industrials and consumer discretionary are the S&P sectors most likely to beat earnings expectations in the upcoming season, while consumer staples, materials and utilities are the least likely to beat, Jackson said.
Sounding a positive note on Friday, drugmaker Eli Lilly and Co said it expects profit in 2013 to increase by more than Wall Street had been forecasting, primarily due to cost controls and improved productivity.

Read More..

Wall Street economists see Fed's Treasury buying ending in 2013: Reuters poll

NEW YORK (Reuters) - Most economists at Wall Street's top financial institutions expect the Federal Reserve in 2013 to end the program with which it bought Treasury debt in an effort to stimulate the economy, according to a Reuters poll on Friday.
Economists at nine of 16 primary dealers -- the large financial institutions that do business directly with the Fed -- said they expect the current Fed program of buying $45 billion per month of Treasuries to end in 2013.
Of the nine, eight said the central bank would quit the program in the fourth quarter or the end of the year. One forecast the end of the program in June.
Six of 15 economists at primary dealers said the Treasury purchase program would close in 2014, while one said it would continue through to the first half of 2016.
Minutes from the Fed's December policy meeting, released on Thursday, showed "several" top officials expected to slow or stop the so-called quantitative easing program "well before" the end of the year. That news surprised some on Wall Street and prompted a drop in stocks and bonds, and a rise in the dollar.
"It is hard to be as confident of the purchases continuing at the same pace, because we had originally thought they were going to last through the fourth quarter of 2014, but now it is not as clear that is going to be the case," said Tom Simons, money market economist with Jefferies & Co. in New York.
St. Louis Fed President James Bullard, a voting member of the Fed's monetary policy panel this year, said on Friday the Fed could be in a position to halt its asset purchases this year if the U.S. economy improves.
The Fed this week began buying longer-dated Treasuries in an open-ended stimulus program that replaced its "Operation Twist" stimulus, under which it was selling shorter-dated Treasuries and using the proceeds to buy longer-dated U.S. government debt. Twist expired at the end of December, with analysts noting the central bank had few shorter-dated Treasuries left to sell.
The central bank is already buying about $40 billion per month of mortgage-backed securities in an effort to prop up the economy.
The median of forecasts from 13 primary dealers was for the Fed to buy a total of $540 billion of Treasuries under the current stimulus program. Estimates ranged from $270 billion to $1 trillion.
Nine of 16 primary dealers said the U.S. unemployment rate would fall to 6.5 percent in 2015, while six said it would dip to that level in 2014 and one said it would happen in 2016.
The Fed at the conclusion of its December policy meeting said it expects to hold interest rates at the current level of zero to 0.25 percent at least as long as the unemployment rate remains above 6.5 percent and inflation between one and two years ahead is projected to be no more than 2.5 percent.
Previously, the Fed had said it expects to hold rates near zero at least through mid-2015.
The Reuters poll was conducted on Friday after the government reported the pace of hiring by U.S. employers eased slightly in December, while the unemployment rate held steady from November at 7.8 percent.
"In the context of the Fed's now explicit unemployment rate target, (Friday's payrolls data) at the margin theoretically extends the timing of the first tightening," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
"That said, at the current six month pace in monthly payroll gains and labor force growth, the unemployment rate would still hit 6.5 percent by June 2014 - much sooner than the Fed's prior mid-2015 launch point," he said.
There are 21 U.S. primary dealers. Not all of the dealers responded to the Reuters poll.

Read More..

Fed's policy "thresholds" plan surprised dealers: poll

NEW YORK (Reuters) - Very few Wall Street economists expected the U.S. Federal Reserve to adopt policy thresholds at its last meeting, results from a New York Fed poll of primary dealers showed on Friday, highlighting how surprising was the decision.
The 20 dealers, who have access to the central bank's discount window, were polled before the Fed's December 11-12 policy meeting. At the meeting the Fed ultimately decided to tie low interest rates to specific unemployment and inflation levels, or "thresholds."
Dealers gave only a 10 percent chance that the Fed would adopt such thresholds at the December meeting, and respective 20 percent and 30 percent chances at the following two policy meetings, according to the median poll response.
Under the thresholds plan, the Fed will keep its federal funds rate near zero until the unemployment rate drops to 6.5 percent, from 7.8 percent now - unless the inflation outlook edges up to 2.5 percent.
Asked how much in bonds they expected the Fed to purchase, the dealers polled were generally correct in predicting $45 billion in Treasuries and $40 billion in mortgage-backed securities.
One year out, the dealers said they expected Fed purchases of $35 billion in Treasuries and still $40 billion in MBS, based on the median of poll responses.
That prediction may have recently changed.
Minutes from the December meeting, released on Thursday, showed "several" Fed policymakers expected to slow or stop the so-called quantitative easing program, dubbed QE3, "well before" the end of the year - news that prompted a drop in stocks and bonds, and a rise in the dollar.
The Federal Reserve Bank of New York unveiled the poll results on Friday.

Read More..

Are We Regulating Ourselves Back Into Recession?

Let us put an end to self-inflicted wounds," President Gerald Ford told Congress in 1975. "And let us remember that our national unity is a most priceless asset." While Ford was talking about the scars from the Vietnam War, his words seem relevant today. Our nation grapples with not one divisive issue, but a basket of them, each pulling and undermining our already battered confidence, while testing our resolve and straining the limits of logic.
What are we doing to ourselves, America?
In just two short weeks, instead of closing the books after a bruising election, we've not only kept the rancor alive but have doubled down on it. In this morning's papers alone, I easily counted a dozen different areas of discourse before growing tired of it all. As my colleague Mike Santoli and I discuss in the attached video, with so much going on — and with so much wrong — is it any wonder stocks are moving in reverse at a fast clip since the second quarter correction.
"It feels like a particularly heavy round of one of these anti-business — or at least calling business to task — moments," Santoli says in the face of my long and growing list of negatives, which include higher taxes, the fiscal cliff, the Benghazi aftermath, turnover at the CIA, federal probes of FedEx and UPS over mail-order medicine, BP's record fine, further investigation into banks for money laundering, as well as another round of mandatory stress testing.
Before you go off and call me some kind of zero-regulation advocate or pessimist, all I am saying is that it strikes me as slightly counterproductive to be building up and and tearing down the banks at the same time. And Santoli seems to agree, saying that it is alarming to see how much banks have to spend on compliance, legal and regulatory issues, calling it a "massive weight."
As much as we had recently been gaining some degree of comfort over the economy, housing and jobs, it suddenly seems as if we're doing everything wrong.
''Is it ever going to be a good time to cinch up tax rates?" Santoli questions. Obviously the answer is no, and yet the markets cling to the belief that our elected officials will break ranks and reach some sort of last-minute grand bargain solution.
Maybe I am just being cynical, but I am of the mind that no major changes will emerge without first going through a period of calamity. Santoli is a smidge more optimistic, however, clinging to a ''residual hope'' that the President has a ''Nixon-to-China moment" and that his second term is not about fighting individual, ideological fight. "That is the distant hope you have to hold," he says.
How about you? Have you given up hope in the face of so much negativity?

Read More..

Judge asks Hostess to mediate with union

WHITE PLAINS, N.Y. (AP) -- Twinkies won't die that easily after all.
Hostess Brands Inc. and its second largest union will go into mediation to try and resolve their differences, meaning the company won't go out of business just yet. The news came Monday after Hostess moved to liquidate and sell off its assets in bankruptcy court citing a crippling strike last week.
The bankruptcy judge hearing the case said Monday that the parties haven't gone through the critical step of mediation and asked the lawyer for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which has been on strike since Nov. 9, to ask his client, who wasn't present, if the union would agree to participate. The judge noted that the bakery union, which represents about 30 percent of Hostess workers, went on strike after rejecting the company's latest contract offer, even though it never filed an objection to it.
"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. "Not to have gone through that step leaves a huge question mark in this case."
Hostess and the union agreed to mediation talks, which are expected to begin the process on Tuesday.
In an interview after the hearing on Monday, CEO Gregory Rayburn said that the two parties will have to agree to contract terms within 24 hours of the Tuesday since it is costing $1 million a day in overhead costs to wind down operations. But even if a contract agreement is reached, it is not clear if all 33 Hostess plants will go back to being operational.
"We didn't think we had a runway, but the judge just created a 24-hour runway," for the two parties to come to an agreement, Rayburn said.
Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell assets and go out of business.
It's not the sequence of events that the maker of Twinkies, Ding Dongs and Ho Ho's envisioned when it filed for bankruptcy in January, its second Chapter 11 filing in less than a decade. The company, who said that it was saddled with costs related to its unionized workforce, had hoped to emerge with stronger financials. It brought on Rayburn as a restructuring expert and was working to renegotiate its contract with labor unions.
But Rayburn wasn't able to reach a deal with the bakery union. The company, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. But the bakery union decided to strike.
By that time, the company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakery union to hold a secret ballot on whether to continue striking. Although many bakery workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.
Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The company's announcement on Friday that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours and the spongy yellow cakes turned up for sale online for hundreds of dollars.
Even if Hostess goes out of business, its popular brands will likely find a second life after being snapped up by buyers. The company says several potential buyers have expressed interest in the brands. Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies along brought in $68 million so far this year.

Read More..

Just Explain It: What is the Strategic Petroleum Reserve?

Eliminating America's dependency on foreign oil has been a policy goal for at least the last two U.S. Presidents.  According to the International Energy Agency, by 2020,  the U.S. will overtake Saudi Arabia as the world's number one oil producer.
However, there's still some work to do.  The United States Energy Information Administration reported that 45% of the petroleum consumed by the U.S. in 2011 was from foreign countries.   Even though the country is well on its way to becoming self reliant, there's always a chance we could hit a major bump in the road.  The good thing is we have protection.  It's called the Strategic Petroleum Reserve or S.P.R.
So here's how the S.P.R. works:
The reserve was created after the 1973 energy crisis when an Arab oil embargo halted exports to the United States.  As a result, fuel shortages caused disruptions in the U.S. economy.
The reserves are located underground in four man-made salt domes in Texas and Louisiana.  All four locations combined hold a total of 727 million barrels of oil.  The inventory is currently at 695 million barrels.  That's around 80 days of import protection.  It's the largest emergency oil supply in the world -- it's worth about $63 billion.
Only the President has the ability to tap the reserves in case of severe energy supply interruption.  It's happened three times.  Twice within the last decade.  In 2005, President Bush ordered the emergency sale of 11 million barrels when Hurricane Katrina shutdown 25 percent of domestic production.  In 2011, President Obama ordered the release of 30 million barrels to help offset disruptions caused by political upheaval in the Middle East.
Following the release order, the reserve issues a notice of sale to solicit competitive offers.  In the most recent sale involving the Obama administration, the offers resulted in contracts with 15 companies for delivery of 30.6 million barrels of oil.  To put that in context, last year the U.S. consumed almost seven billion barrels of oil — that's 19 million per day -- or about 22% of the world's consumption.
Related Link: Using the Strategic Petroleum Reserve Like a Spigot
The release in 2011 had little effect on the price of gas at the pump.  Consumers paid about 2% less for a week before the prices began to climb again.
Related link: Just Explain It: Why Social Security is Running Out of Money
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on Twitter using #justexplainit.

Read More..

Apple to produce line of Macs in the US next year

NEW YORK (AP) -- Apple CEO Tim Cook says the company will move production of one of its existing lines of Mac computers from China to the United States next year.
Industry watchers said the announcement is both a cunning public-relations move and a harbinger of more manufacturing jobs moving back to the U.S. as wages rise in China.
Cook made the comments in part of an interview taped for NBC's "Rock Center," but aired Thursday morning on "Today" and posted on the network's website.
In a separate interview with Bloomberg Businessweek, he said that the company will spend $100 million in 2013 to move production of the line to the U.S. from China.
"This doesn't mean that Apple will do it ourselves, but we'll be working with people and we'll be investing our money," Cook told Bloomberg.
That suggests the company could be helping one of its Taiwanese manufacturing partners, which run factories in China, to set up production lines in the U.S. devoted to Apple products. Research firm IHS iSuppli noted that both Foxconn Technology Group, which assembles iPhones, and Quanta Computer Inc., which does the same for MacBooks, already have small operations in the U.S.
Apple representatives had no comment Thursday beyond Cook's remarks.
Like most consumer electronics companies, Apple forges agreements with contract manufacturers to assemble its products overseas. However, the assembly accounts for a fraction of the cost of making a PC or smartphone. Most of the cost lies in buying chips, and many of those are made in the U.S., Cook noted in his interview with NBC.
The company and Foxconn have faced significant criticism this year over working conditions at the Chinese facilities where Apple products are assembled. The attention prompted Foxconn to raise salaries.
Cook didn't say which line of computers would be produced in the U.S. or where in the country they would be made. But he told Bloomberg that the production would include more than just final assembly. That suggests that machining of cases and printing of circuit boards could take place in the U.S.
The simplest Macs to assemble are the Mac Pro and Mac Mini desktop computers. Since they lack the built-in screens of the MacBooks and iMacs, they would likely be easier to separate from the Asian display supply chain.
Analyst Jeffrey Wu at IHS iSuppli said it's not uncommon for PC makers to build their bulkier products close to their customers to cut down on delivery times and shipping costs.
Regardless, the U.S. manufacturing line is expected to represent just a tiny piece of Apple's overall production, with sales of iPhones and iPads now dwarfing those of its computers.
Apple is latching on to a trend that could see many jobs move back to the U.S., said Hal Sirkin, a partner with The Boston Consulting Group. He noted that Lenovo Group, the Chinese company that's neck-and-neck with Hewlett-Packard Co. for the title of world's largest PC maker, announced in October that it will start making PCs and tablets in the U.S.
Chinese wages are raising 15 to 20 percent per year, Sirkin said. U.S. wages are rising much more slowly, and the country is a cheap place to hire compared to other developed countries like Germany, France and Japan, he said.
"Across a lot of industries, companies are rethinking their strategy of where the manufacturing takes place," Sirkin said.
Carl Howe, an analyst with Yankee Group, likened Apple's move to Henry Ford's famous 1914 decision to double his workers' pay, helping to build a middle class that could afford to buy cars. But Cook's goal is probably more limited: to buy goodwill from U.S. consumers, Howe said.
"Say it's State of the Union 2014. President Obama wants to talk about manufacturing. Who is he going to point to in the audience? Tim Cook, the guy who brought manufacturing back from China. And that scene is going replay over and over," Howe said. "And yeah, it may be only (public relations), but it's a lot of high-value PR."
Cook said in his interview with NBC that companies like Apple chose to produce their products in places like China, not because of the lower costs associated with it, but because the manufacturing skills required just aren't present in the U.S. anymore.
He added that the consumer electronics world has never really had a big production presence in the U.S. As a result, it's really more about starting production in the U.S. than bringing it back, he said.
But for nearly three decades Apple made its computers in the U.S. It started outsourcing production in the mid-90s, first by selling some plants to contract manufacturers, then by hiring manufacturers overseas. It assembled iMacs in Elk Grove, Calif., until 2004.
Some Macs already say they're "Assembled in USA." That's because Apple has for years performed final assembly of some units in the U.S. Those machines are usually the product of special orders placed at its online store. The last step of production may consist of mounting hard drives, memory chips and graphics cards into computer cases that are manufactured elsewhere. With Cook's announcement Thursday, the company is set to go much further in the amount of work done in the U.S.
The news comes a day after Apple posted its worst stock drop in four years, erasing $35 billion in market capitalization. Apple's stock rose $8.45, or 1.6 percent, to close at $547.24 Thursday.

Read More..

US economy adds 146K jobs, rate falls to 7.7 pct.

WASHINGTON (AP) -- The pace of U.S. hiring remained steady in November despite disruptions from Superstorm Sandy and employers' concerns about impending tax increases from the year-end "fiscal cliff."
Companies added 146,000 jobs, and the unemployment rate fell to 7.7 percent — the lowest in nearly four years — from 7.9 percent in October. The rate declined mainly because more people stopped looking for work and weren't counted as unemployed.
The government said Superstorm Sandy had only a minimal effect on the figures.
The Labor Department's report Friday was a mixed one. But on balance, it suggested that the job market is gradually improving.
November's job gains were roughly the same as the average monthly increase this year of about 150,000. Most economists are encouraged by the job growth because it's occurred even as companies have reduced investment in heavy machinery and other equipment.
"The good news is not that the labor market is improving rapidly — it isn't — but that employment growth is holding up despite all the fears over the fiscal cliff," said Nigel Gault, an economist at IHS Global Insight.
Still, Friday's report included some discouraging signs. Employers added 49,000 fewer jobs in October and September combined than the government had initially estimated.
And economists noted that the unemployment rate would have risen if the number of people working or looking for work hadn't dropped by 350,000.
The government asks about 60,000 households each month whether the adults have jobs and whether those who don't are looking for one. Those without a job who are looking for one are counted as unemployed. Those who aren't looking aren't counted as unemployed.
A separate monthly survey seeks information from 140,000 companies and government agencies that together employ about one in three nonfarm workers in the United States.
Many analysts thought Sandy would hold back job growth significantly in November because the storm forced restaurants, retailers and other businesses to close in late October and early November.
It didn't. The government noted that as long as employees worked at least one day during a pay period — two weeks for most people — its survey would have counted them as employed.
Yet there were signs that the storm disrupted economic activity in November. Construction employment dropped 20,000. And weather prevented 369,000 people from getting to work — the most for any month in nearly two years. These workers were still counted as employed.
All told, 12 million people were unemployed in November, about 230,000 fewer than the previous month. That's still many more than the 7.6 million who were out of work when the recession officially began in December 2007.
Investors appeared pleased with the report, though the market gave up some early gains. The Dow Jones industrial average was up 53 points in mid-day trading.
The number of Americans who were working part time in November but wanted full-time work declined. And a measure of discouraged workers — those who wanted a job but hadn't searched for one in the past month — rose slightly.
Those two groups, plus the 12 million unemployed, make up a broader measure that the government calls "underemployment." The underemployment rate fell to 14.4 percent in November from 14.6 percent in October. It's the lowest such rate since January 2009.
Since July, the economy has added an average of 158,000 jobs a month. That's a modest pickup from an average of 146,000 in the first six months of the year.
In November, retailers added 53,000 positions. Temporary-help companies added 18,000. Education and health care also gained 18,000.
Auto manufacturers added nearly 10,000 jobs. Still, overall manufacturing jobs fell 7,000. That was pushed down by a loss of 12,000 jobs in food manufacturing that likely reflects the layoff of workers at Hostess.
Paul Ashworth, an economist at Capital Economics, noted that hiring by private companies was actually better in October than the government first thought. The overall job figures were revised down for October because governments themselves cut about 38,000 more jobs than was first estimated.
The U.S. economy grew at a solid 2.7 percent annual rate in the July-September quarter. But many economists say growth is slowing to a 1.5 percent rate in the October-December quarter, largely because of the storm and threat of the fiscal cliff.
The storm held back consumer spending and income, which drive economic growth. Consumer spending declined in October, the government said. And work interruptions caused by Sandy reduced wages and salaries that month by about $18 billion at an annual rate.
Still, many say economic growth could accelerate next year if the fiscal cliff is avoided. The economy is also expected to get a boost from efforts to rebuild in the Northeast after the storm.

Read More..

Judge asks Hostess to mediate with union

 Twinkies won't die that easily after all.
Hostess Brands Inc. and its second largest union will go into mediation to try and resolve their differences, meaning the company won't go out of business just yet. The news came Monday after Hostess moved to liquidate and sell off its assets in bankruptcy court citing a crippling strike last week.
The bankruptcy judge hearing the case said Monday that the parties haven't gone through the critical step of mediation and asked the lawyer for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which has been on strike since Nov. 9, to ask his client, who wasn't present, if the union would agree to participate. The judge noted that the bakery union, which represents about 30 percent of Hostess workers, went on strike after rejecting the company's latest contract offer, even though it never filed an objection to it.
"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. "Not to have gone through that step leaves a huge question mark in this case."
Hostess and the union agreed to mediation talks, which are expected to begin the process on Tuesday.
In an interview after the hearing on Monday, CEO Gregory Rayburn said that the two parties will have to agree to contract terms within 24 hours of the Tuesday since it is costing $1 million a day in overhead costs to wind down operations. But even if a contract agreement is reached, it is not clear if all 33 Hostess plants will go back to being operational.
"We didn't think we had a runway, but the judge just created a 24-hour runway," for the two parties to come to an agreement, Rayburn said.
Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell assets and go out of business.
It's not the sequence of events that the maker of Twinkies, Ding Dongs and Ho Ho's envisioned when it filed for bankruptcy in January, its second Chapter 11 filing in less than a decade. The company, who said that it was saddled with costs related to its unionized workforce, had hoped to emerge with stronger financials. It brought on Rayburn as a restructuring expert and was working to renegotiate its contract with labor unions.
But Rayburn wasn't able to reach a deal with the bakery union. The company, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. But the bakery union decided to strike.
By that time, the company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakery union to hold a secret ballot on whether to continue striking. Although many bakery workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.
Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The company's announcement on Friday that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours and the spongy yellow cakes turned up for sale online for hundreds of dollars.
Even if Hostess goes out of business, its popular brands will likely find a second life after being snapped up by buyers. The company says several potential buyers have expressed interest in the brands. Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies along brought in $68 million so far this year.

Read More..

Just Explain It: What is the Strategic Petroleum Reserve?

Eliminating America's dependency on foreign oil has been a policy goal for at least the last two U.S. Presidents.  According to the International Energy Agency, by 2020,  the U.S. will overtake Saudi Arabia as the world's number one oil producer.
However, there's still some work to do.  The United States Energy Information Administration reported that 45% of the petroleum consumed by the U.S. in 2011 was from foreign countries.   Even though the country is well on its way to becoming self reliant, there's always a chance we could hit a major bump in the road.  The good thing is we have protection.  It's called the Strategic Petroleum Reserve or S.P.R.
So here's how the S.P.R. works:
The reserve was created after the 1973 energy crisis when an Arab oil embargo halted exports to the United States.  As a result, fuel shortages caused disruptions in the U.S. economy.
The reserves are located underground in four man-made salt domes in Texas and Louisiana.  All four locations combined hold a total of 727 million barrels of oil.  The inventory is currently at 695 million barrels.  That's around 80 days of import protection.  It's the largest emergency oil supply in the world -- it's worth about $63 billion.
Only the President has the ability to tap the reserves in case of severe energy supply interruption.  It's happened three times.  Twice within the last decade.  In 2005, President Bush ordered the emergency sale of 11 million barrels when Hurricane Katrina shutdown 25 percent of domestic production.  In 2011, President Obama ordered the release of 30 million barrels to help offset disruptions caused by political upheaval in the Middle East.
Following the release order, the reserve issues a notice of sale to solicit competitive offers.  In the most recent sale involving the Obama administration, the offers resulted in contracts with 15 companies for delivery of 30.6 million barrels of oil.  To put that in context, last year the U.S. consumed almost seven billion barrels of oil — that's 19 million per day -- or about 22% of the world's consumption.
Related Link: Using the Strategic Petroleum Reserve Like a Spigot
The release in 2011 had little effect on the price of gas at the pump.  Consumers paid about 2% less for a week before the prices began to climb again.
Related link: Just Explain It: Why Social Security is Running Out of Money
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on Twitter using #justexplainit.

Read More..

Apple to produce line of Macs in the US next year

Apple CEO Tim Cook says the company will move production of one of its existing lines of Mac computers from China to the United States next year.
Industry watchers said the announcement is both a cunning public-relations move and a harbinger of more manufacturing jobs moving back to the U.S. as wages rise in China.
Cook made the comments in part of an interview taped for NBC's "Rock Center," but aired Thursday morning on "Today" and posted on the network's website.
In a separate interview with Bloomberg Businessweek, he said that the company will spend $100 million in 2013 to move production of the line to the U.S. from China.
"This doesn't mean that Apple will do it ourselves, but we'll be working with people and we'll be investing our money," Cook told Bloomberg.
That suggests the company could be helping one of its Taiwanese manufacturing partners, which run factories in China, to set up production lines in the U.S. devoted to Apple products. Research firm IHS iSuppli noted that both Foxconn Technology Group, which assembles iPhones, and Quanta Computer Inc., which does the same for MacBooks, already have small operations in the U.S.
Apple representatives had no comment Thursday beyond Cook's remarks.
Like most consumer electronics companies, Apple forges agreements with contract manufacturers to assemble its products overseas. However, the assembly accounts for a fraction of the cost of making a PC or smartphone. Most of the cost lies in buying chips, and many of those are made in the U.S., Cook noted in his interview with NBC.
The company and Foxconn have faced significant criticism this year over working conditions at the Chinese facilities where Apple products are assembled. The attention prompted Foxconn to raise salaries.
Cook didn't say which line of computers would be produced in the U.S. or where in the country they would be made. But he told Bloomberg that the production would include more than just final assembly. That suggests that machining of cases and printing of circuit boards could take place in the U.S.
The simplest Macs to assemble are the Mac Pro and Mac Mini desktop computers. Since they lack the built-in screens of the MacBooks and iMacs, they would likely be easier to separate from the Asian display supply chain.
Analyst Jeffrey Wu at IHS iSuppli said it's not uncommon for PC makers to build their bulkier products close to their customers to cut down on delivery times and shipping costs.
Regardless, the U.S. manufacturing line is expected to represent just a tiny piece of Apple's overall production, with sales of iPhones and iPads now dwarfing those of its computers.
Apple is latching on to a trend that could see many jobs move back to the U.S., said Hal Sirkin, a partner with The Boston Consulting Group. He noted that Lenovo Group, the Chinese company that's neck-and-neck with Hewlett-Packard Co. for the title of world's largest PC maker, announced in October that it will start making PCs and tablets in the U.S.
Chinese wages are raising 15 to 20 percent per year, Sirkin said. U.S. wages are rising much more slowly, and the country is a cheap place to hire compared to other developed countries like Germany, France and Japan, he said.
"Across a lot of industries, companies are rethinking their strategy of where the manufacturing takes place," Sirkin said.
Carl Howe, an analyst with Yankee Group, likened Apple's move to Henry Ford's famous 1914 decision to double his workers' pay, helping to build a middle class that could afford to buy cars. But Cook's goal is probably more limited: to buy goodwill from U.S. consumers, Howe said.
"Say it's State of the Union 2014. President Obama wants to talk about manufacturing. Who is he going to point to in the audience? Tim Cook, the guy who brought manufacturing back from China. And that scene is going replay over and over," Howe said. "And yeah, it may be only (public relations), but it's a lot of high-value PR."
Cook said in his interview with NBC that companies like Apple chose to produce their products in places like China, not because of the lower costs associated with it, but because the manufacturing skills required just aren't present in the U.S. anymore.
He added that the consumer electronics world has never really had a big production presence in the U.S. As a result, it's really more about starting production in the U.S. than bringing it back, he said.
But for nearly three decades Apple made its computers in the U.S. It started outsourcing production in the mid-90s, first by selling some plants to contract manufacturers, then by hiring manufacturers overseas. It assembled iMacs in Elk Grove, Calif., until 2004.
Some Macs already say they're "Assembled in USA." That's because Apple has for years performed final assembly of some units in the U.S. Those machines are usually the product of special orders placed at its online store. The last step of production may consist of mounting hard drives, memory chips and graphics cards into computer cases that are manufactured elsewhere. With Cook's announcement Thursday, the company is set to go much further in the amount of work done in the U.S.
The news comes a day after Apple posted its worst stock drop in four years, erasing $35 billion in market capitalization. Apple's stock rose $8.45, or 1.6 percent, to close at $547.24 Thursday.

Read More..

US economy adds 146K jobs, rate falls to 7.7 pct.

The pace of U.S. hiring remained steady in November despite disruptions from Superstorm Sandy and employers' concerns about impending tax increases from the year-end "fiscal cliff."
Companies added 146,000 jobs, and the unemployment rate fell to 7.7 percent — the lowest in nearly four years — from 7.9 percent in October. The rate declined mainly because more people stopped looking for work and weren't counted as unemployed.
The government said Superstorm Sandy had only a minimal effect on the figures.
The Labor Department's report Friday was a mixed one. But on balance, it suggested that the job market is gradually improving.
November's job gains were roughly the same as the average monthly increase this year of about 150,000. Most economists are encouraged by the job growth because it's occurred even as companies have reduced investment in heavy machinery and other equipment.
"The good news is not that the labor market is improving rapidly — it isn't — but that employment growth is holding up despite all the fears over the fiscal cliff," said Nigel Gault, an economist at IHS Global Insight.
Still, Friday's report included some discouraging signs. Employers added 49,000 fewer jobs in October and September combined than the government had initially estimated.
And economists noted that the unemployment rate would have risen if the number of people working or looking for work hadn't dropped by 350,000.
The government asks about 60,000 households each month whether the adults have jobs and whether those who don't are looking for one. Those without a job who are looking for one are counted as unemployed. Those who aren't looking aren't counted as unemployed.
A separate monthly survey seeks information from 140,000 companies and government agencies that together employ about one in three nonfarm workers in the United States.
Many analysts thought Sandy would hold back job growth significantly in November because the storm forced restaurants, retailers and other businesses to close in late October and early November.
It didn't. The government noted that as long as employees worked at least one day during a pay period — two weeks for most people — its survey would have counted them as employed.
Yet there were signs that the storm disrupted economic activity in November. Construction employment dropped 20,000. And weather prevented 369,000 people from getting to work — the most for any month in nearly two years. These workers were still counted as employed.
All told, 12 million people were unemployed in November, about 230,000 fewer than the previous month. That's still many more than the 7.6 million who were out of work when the recession officially began in December 2007.
Investors appeared pleased with the report, though the market gave up some early gains. The Dow Jones industrial average was up 53 points in mid-day trading.
The number of Americans who were working part time in November but wanted full-time work declined. And a measure of discouraged workers — those who wanted a job but hadn't searched for one in the past month — rose slightly.
Those two groups, plus the 12 million unemployed, make up a broader measure that the government calls "underemployment." The underemployment rate fell to 14.4 percent in November from 14.6 percent in October. It's the lowest such rate since January 2009.
Since July, the economy has added an average of 158,000 jobs a month. That's a modest pickup from an average of 146,000 in the first six months of the year.
In November, retailers added 53,000 positions. Temporary-help companies added 18,000. Education and health care also gained 18,000.
Auto manufacturers added nearly 10,000 jobs. Still, overall manufacturing jobs fell 7,000. That was pushed down by a loss of 12,000 jobs in food manufacturing that likely reflects the layoff of workers at Hostess.
Paul Ashworth, an economist at Capital Economics, noted that hiring by private companies was actually better in October than the government first thought. The overall job figures were revised down for October because governments themselves cut about 38,000 more jobs than was first estimated.
The U.S. economy grew at a solid 2.7 percent annual rate in the July-September quarter. But many economists say growth is slowing to a 1.5 percent rate in the October-December quarter, largely because of the storm and threat of the fiscal cliff.
The storm held back consumer spending and income, which drive economic growth. Consumer spending declined in October, the government said. And work interruptions caused by Sandy reduced wages and salaries that month by about $18 billion at an annual rate.
Still, many say economic growth could accelerate next year if the fiscal cliff is avoided. The economy is also expected to get a boost from efforts to rebuild in the Northeast after the storm.

Read More..

Just Explain It: Why the Fiscal Cliff May Trigger a Recession

Lawmakers in Washington appear to be making little to no progress in avoiding the impending so-called fiscal cliff.  House Speaker John Boehner, R-Ohio, said Friday the negotiations are "almost nowhere." On Thursday Boehner rejected a proposal from the Obama administration saying that the Democrats need to "get serious about real spending cuts."
President Obama's offer continues to call for higher taxes on the wealthy and an extension of the payroll tax cut.   But Republicans say they will not agree to a plan that raises taxes.
As the country continues to head toward the fiscal cliff, this Just Explain It helps to make sense of what it is.
On December 31st, most of us would like to be thinking about a prosperous new year ahead…drinking bubbly and singing Auld Lang Syne with friends.  But there's a chance we could be singing a different tune if President Obama and Congress don't agree on measures to avoid the fiscal cliff.
First, let me explain what the fiscal cliff is.
The fiscal cliff refers to the potentially disastrous situation the U-S faces at the end of this year.  At midnight on December 31st, a number of laws are set to expire.  If the President and the Republicans don't reach an agreement before then, Americans could face broad government spending cuts and tax increases on January 1st.   The combined amount would total over 500 billion dollars. Those 500 billion dollars equal about three to four percent of the nation's entire gross domestic product.  This is what's referred to as the fiscal cliff.
If there isn't a resolution, here are the specifics of what will happen.
Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past.  So would President Obama's payroll tax cut which added about a thousand dollars a year to the average worker's income.
Government spending would be slashed.  That means less money for most military, domestic and federal programs.  $26 billion in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11 billion. Federal programs would take the biggest hit.  They stand to lose a total of $65 billion.
If the fiscal cliff isn't avoided, some investors will be hit hard.  Those who receive qualified dividends could see the tax rate on those dividends go from 15% to almost 40% in 2013.
Many business owners believe going over the fiscal cliff will cripple the economy, triggering a deep recession.  They fear demand for their products or services will decrease because consumers will have less money to spend.  It also means that they won't be able to afford new hires or expand their businesses.   Since most Americans would be paying more in taxes, they'd be less inclined to make big purchases, like a home or a new car.
None of this is set in stone, but that's part of the problem.  Markets, businesses and people in general hate uncertainty. The fear of the unknown facing us at the beginning of next year is exactly why so many people are so worked up over the fiscal cliff.
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on twitter using #justexplainit.

Read More..

Judge asks Hostess to mediate with union

 Twinkies won't die that easily after all.
Hostess Brands Inc. and its second largest union will go into mediation to try and resolve their differences, meaning the company won't go out of business just yet. The news came Monday after Hostess moved to liquidate and sell off its assets in bankruptcy court citing a crippling strike last week.
The bankruptcy judge hearing the case said Monday that the parties haven't gone through the critical step of mediation and asked the lawyer for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which has been on strike since Nov. 9, to ask his client, who wasn't present, if the union would agree to participate. The judge noted that the bakery union, which represents about 30 percent of Hostess workers, went on strike after rejecting the company's latest contract offer, even though it never filed an objection to it.
"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. "Not to have gone through that step leaves a huge question mark in this case."
Hostess and the union agreed to mediation talks, which are expected to begin the process on Tuesday.
In an interview after the hearing on Monday, CEO Gregory Rayburn said that the two parties will have to agree to contract terms within 24 hours of the Tuesday since it is costing $1 million a day in overhead costs to wind down operations. But even if a contract agreement is reached, it is not clear if all 33 Hostess plants will go back to being operational.
"We didn't think we had a runway, but the judge just created a 24-hour runway," for the two parties to come to an agreement, Rayburn said.
Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell assets and go out of business.
It's not the sequence of events that the maker of Twinkies, Ding Dongs and Ho Ho's envisioned when it filed for bankruptcy in January, its second Chapter 11 filing in less than a decade. The company, who said that it was saddled with costs related to its unionized workforce, had hoped to emerge with stronger financials. It brought on Rayburn as a restructuring expert and was working to renegotiate its contract with labor unions.
But Rayburn wasn't able to reach a deal with the bakery union. The company, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. But the bakery union decided to strike.
By that time, the company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakery union to hold a secret ballot on whether to continue striking. Although many bakery workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.
Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The company's announcement on Friday that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours and the spongy yellow cakes turned up for sale online for hundreds of dollars.
Even if Hostess goes out of business, its popular brands will likely find a second life after being snapped up by buyers. The company says several potential buyers have expressed interest in the brands. Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies along brought in $68 million so far this year.

Read More..