Financial News

Federal Reserve Chairman Ben S. Bernanke sought to defuse congressional efforts to audit monetary policy by backing the release of more information on emergency aid to investment banks and corporations.

The Fed will support legislation to let government auditors probe six temporary programs created to combat the financial crisis such as the Primary Dealer Credit Facility, Bernanke said yesterday in House testimony. While he would support the delayed release of names of firms getting aid from those programs, he said banks borrowing through the longstanding discount window must be allowed to remain anonymous.

Bernanke’s move toward greater openness may not dissuade lawmakers who want the Fed to disclose more information about the Fed’s lending and policy decisions. Lawmakers are responding to public anger over the Fed’s role in the $182.3 billion bailout of American International Group Inc.

“You’ve certainly seen changes for more transparency in the past 18 months,” said Representative Scott Garrett, a New Jersey Republican. “But I still support the legislation and I think the majority of the House still does as well.”

Representative Ron Paul won House passage in December of broader audits than Bernanke advocates. House members “signed on to the bill because there has been a public outcry, and this has given them a chance to express themselves and identify with that position,” Paul said in an interview yesterday.

Bernanke yesterday offered “full transparency” on the emergency programs, including revealing the names of borrowers.

Lehman Collapse

Most of the programs were created in response to the Bear Stearns Cos. near-collapse and the bankruptcy of Lehman Brothers Holdings Inc. and were closed by the Fed as of Feb. 1 because of improvements in financial markets. They include facilities backing investment banks, companies issuing commercial paper and money-market mutual funds. Loans outstanding under the programs peaked at a combined $930.1 billion and stood at $50.1 billion as of last week.

The Term Asset-Backed Securities Loan Facility, designed to spur consumer and business lending, closes June 30.

“He is definitely trying to defuse the Ron Paul issue,” said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., which oversees $37.4 billion in assets. “The best he can do at the moment is to play more offense than defense.”

The openness can’t apply to the Fed’s discount window, used by banks facing temporary shortages of cash, Bernanke said.

Role in Panics

Borrowers would be reluctant to use the window if they knew their names would become known, and that would “intensify the crisis or panic, and therefore the whole purpose of the discount window to try to eliminate financial panics would be severely damaged,” Bernanke said during the hearing under questioning from Representative Michele Bachmann, a Minnesota Republican.

The proposed law to allow audits of interest-rate decisions could have “bad effects on markets” because it could create the perception that the central bank is subject to political pressure, Bernanke said make quick cash.

Telling the public more about the operations of the central bank was one of the goals Bernanke listed for his second term when he was sworn in on Feb. 3. He pledged to “ensure maximum transparency” without compromising the “ability to conduct policy in the public interest.”

The Senate confirmed Bernanke for a second four-year term by a 70-30 vote last month, the most opposition in history for a Fed chief. Today Bernanke, 56, appears before the Senate Banking Committee to deliver his monetary policy report.

Senate Opposition

Opposition in the Senate to Paul’s audit measure was likely to doom the populist cause after it passed in the House Dec. 11, Gregory R. Valliere, a chief strategist at Potomac Research Group in Washington, said earlier this month.

“I still think the large majority will stick with me,” Paul said yesterday.

Vermont Independent Bernard Sanders, the measure’s main backer in the Senate, has 32 co-sponsors for a version of Paul’s audit provision, short of the 60 votes it will probably need to overcome procedural hurdles.

Bernanke “indicated the need for more transparency than before and a willingness to work with Congress,” Alabama Representative Spencer Bachus, the senior Republican on the House panel, said in an interview. “I really want to sit down with him.”

Bernanke’s comments were part of testimony in which the Fed chief said the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires.

Low Inflation

Bernanke said slack labor markets and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy “at some point.”

The central bank hasn’t dropped its opposition to revealing data on borrowers through the Freedom of Information Act, which requires federal agencies to respond to public requests for government documents within 20 days. Fed spokeswoman Barbara Hagenbaugh declined to comment.

The Fed is appealing a U.S. district judge’s August 2009 order compelling it to release names of banks that took emergency loans during the 2007-2008 financial crisis. The suit was brought under the FOIA by New York-based Bloomberg LP, the parent company of Bloomberg News.

“Chairman Bernanke’s testimony is consistent with our position in the litigation,” said Paul Saltzman, general counsel for The Clearing House Association LLP, a trade group for the largest U.S. banks that joined the Fed in fighting Bloomberg’s lawsuit.

Banks have counted on confidentiality when borrowing from the Fed — and if those rules are to change, “we believe that Congress, working with the Fed, is best situated to address disclosure issues,” Saltzman said.

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Ever thought of the possibility that you could live to be 100?

Maybe you don’t want to hit the century mark, but more of us will, which means that we have to start today to ensure that we have enough money to sustain us in that long retirement.

Unfortunately, most people have no idea how much money it really takes to live a decent retirement.

"If a person retires at age 60, living to 100 means that they could very well be retired longer than they ever worked," said Bryan Clintsman, a certified financial planner at Clintsman Financial Planning in Southlake, Texas.

That scenario is closer than you think.

U.S. life expectancy reached nearly 78 years in 2007, the latest year for which information is available, and has been increasing each year, according to the Centers for Disease Control and Prevention.

"More than half of babies born in rich nations today will live to 100 years if current life expectancy trends continue," experts at the Danish Aging Research Center at the University of Southern Denmark wrote in October in The Lancet medical journal. "And we are not only living longer than before, but those extra years are spent with less disability and fewer limitations on daily life."

That means we’ll need more money to enjoy those years. The challenge is getting people to understand the importance of planning for longevity, say experts.

"Life expectancy now is close to 80, yet less than 20 percent of the American population in their 50s has even tried to design a retirement plan," said Olivia Mitchell, professor of insurance and risk management at the University of Pennsylvania’s Wharton School.

Some people think they’re more prepared for retirement than they actually are, she said. "Far too often people think, ‘I’m rich, I have $50,000 or $100,000 in my 401(k),’ not realizing that if they were really to spread it out in such a way that they wouldn’t run out of money, then they’d have to be very, very cautious," she said.

One of the biggest land mines in retirement is health care, particularly long-term care, Clintsman said.

"With the cost of long-term care approaching $100,000 per year, few retirees’ portfolios can withstand the hit of several years in such a care facility," he said.

"One of the saddest things I see is a married couple who enters retirement at age 65, then one of them comes down with something really cruel like Alzheimer’s, spends the next five years in a facility draining their retirement assets, then dies, leaving the surviving spouse to live on almost nothing for the rest of their retirement."

For that reason, Clintsman recommends long-term care insurance.

Thomas Murphy, a certified financial planner at TEMAA Financial in Dallas, said you should "plan under the assumption that you’re going to need additional custodial care at a certain age, figure out what the cost is going to be, put aside that amount of money for that purpose or buy an insurance policy."

The way to keep from panicking is to start now in figuring out what your financial needs will be. "The first step is to get a current assessment of what your retirement expenses will be and what resources you have to cover them," said Jimmy Perryman, certified financial planner at Perryman Financial Advisory Inc. in Dallas.

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Manufacturing in the Philadelphia region expanded in February for a sixth straight month as orders surged to the highest level in more than five years, another sign that factories are leading the economic recovery.

The Federal Reserve Bank of Philadelphia’s general economic index rose to 17.6 from 15.2. Readings greater than zero signal growth. Measures of employment and shipments accelerated, and inventories expanded for the first time since September 2007.

Surging exports, inventory replenishment and corporate spending on new equipment are fueling a factory-led recovery from the worst recession in seven decades. The manufacturing expansion may spur the labor market recovery needed to boost consumer spending and keep the economy expanding.

“The inventory cycle will continue to add to production levels well into 2010,” said Robert Stein, a senior economist at First Trust Portfolios LP in Wheaton, Illinois. “Manufacturing is doing well pretty much across the board.”

A separate report from the Conference Board today showed the index of U.S. leading indicators rose in January for a 10th straight month, pointing to an economy that will keep expanding through the first half of this year.

The Standard & Poor’s 500 Index increased 0.2 percent to 1,101.53 at 11:11 a.m. in New York. The 10-year Treasury note fell, pushing up the yield five basis points to 3.78 percent.

Other reports from the government showed jobless claims rose by 31,000 to 473,000 last week, while wholesale prices increased 1.4 percent in January after a 0.4 percent gain in December.

Economists’ Forecasts

Economists forecast the Philadelphia Fed’s factory gauge would rise to 17, according to the median of 58 projections in a Bloomberg News survey. Estimates ranged from zero to 23.

The Philadelphia Fed’s employment index rose to 7.4, the highest level since October 2007, from 6.1 the prior month.

The new orders measure rose to 22.7 from 3.2, and shipments climbed to 19.7 from 11.

The index of prices paid fell to 32.4 from 33.2 in January. Prices received increased to 3.7 from 2.7.

The gauge of expectations for the next six months decreased to 35.8 from 43.3 while remaining positive for a 14th straight month.

The overall index number isn’t composed of the individual measures, so some economists consider it a gauge of sentiment among manufacturers.

Two days ago, figures from the New York Fed showed business activity in that region expanded in February at the fastest pace in four months.

Industrial Production

Another Fed report yesterday showed industrial production nationwide rose in January for a seventh straight month. The plant-use rate increased to 72.6 percent, the highest level in more than a year.

The U.S. economy is forecast to grow 3 percent this year, according to the median estimate of economists surveyed by Bloomberg in the first week of February. That follows a 2.4 percent contraction last year as the economy sank into its worst recession in seven decades.

Manufacturers, particularly of exported goods, are seeing a pickup in demand, fueled in part by a 10.7 percent rate of economic growth in China in the fourth quarter.

Latrobe, Pennsylvania-based Kennametal Inc., a maker and distributor of mining, metal-working and energy tools, last month reported an 8 percent increase in fiscal second quarter sales from the prior quarter as the world economy recovers.

“We are continuing to see signs of a slow, but steady global economic recovery,” Chief Executive Officer Carlos Cardoso said on a conference call Jan. 28. “Industrial production activity is higher in most geographical regions, with emerging markets leading the way and mature markets beginning to recover.”

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Pfizer Inc., fresh from buying fellow drugmaker Wyeth and already deep into integrating its operations, posted on Wednesday a 34 percent jump in revenue, but about $3.2 billion in acquisition charges and higher costs across the board weighed down profits.

The maker of Viagra and cholesterol fighter Lipitor, which paid $68 billion to get Wyeth’s vaccines, biologic drugs and consumer health staples such as Centrum vitamins and pain relievers Advil and Anacin, already has slashed about 4,200 jobs and cut other costs.

New York-based Pfizer said its revenue in the fourth quarter totaled $16.54 billion, half a billion above what analysts were expecting as the recession continues to reduce sales of even prescription medicines. Wyeth products contributed $3.3 billion of those sales. Excluding that boost, revenue was up about 7 percent from the $12.35 billion Pfizer reported in the fourth quarter of 2008, but Pfizer noted that favorable exchange rates boosted total revenue by 4 percent.

Net income amounted to $767 million, nearly triple the $266 million the world’s biggest drugmaker earned a year ago, when results were hurt by a whopping $2.3 billion charge to settle federal charges that Pfizer improperly marketed some of its drugs. That profit is equal to earnings per share of 10 cents, or 49 cents after excluding the acquisition charges and other one-time items.

Analysts were expecting 50 cents a share. The per-share results were reduced somewhat because Pfizer issued new shares to help fund the Wyeth purchase, increasing outstanding shares by about 16 percent.

Pfizer did not provide directly comparable figures on revenue, profit and costs for the 2009 and 2008 periods. The company forecast 2010 revenue of $67 billion to $69 billion.

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Stock markets will ring out one of their most volatile periods in history Thursday with an incredible rally that replenished half the losses caused by the financial crisis.

While the Dow Jones industrial average zigzagged through the last 10 years to finish near its start, 2009 proved to be the best year after the comeback in 2003, which followed another epic crisis, the dot-com bust.

The Dow Jones industrial average will probably end the year up more than 20 percent, and the broader Standard & Poor’s 500-stock index nearly 25 percent. Shares of troubled banks such as Bank of America, which tumbled more than 90 percent when markets were packed with fear, are resurgent after repaying billions the government lent them to make it through the crisis.

But whether investors continue to see these gains will depend on more than an economic recovery.

As the recession ebbs, interest rates are expected to rise in 2010, weakening the fragile rebound that is emerging in corners of the housing market. Unemployment may be peaking, but many Americans are still struggling to pay bills, or even avoid foreclosure. And the government is starting to pull back on the cheap financing it used to stimulate the economy and nurse the financial industry back to health.

If recent signs of growth fizzle out, markets could once again lose their ebullience, as they have several times in the last two years. A solid recovery would push stocks higher, though few analysts expect the market to repeat its stunning 2009 performance.

"There are long, long periods of time when the market and the economy go two different ways," said Barry Ritholtz, a professional investor and author of "Bailout Nation," a book about the causes of the financial crisis. "A rallying market doesn’t necessarily mean the economy is healing."

For much of the decade, the stock market has been a great disappointment. As of Wednesday, the S&P index closed 23 percent below and the Dow closed 8.25 percent below where they ended 10 years ago, in 1999. The Nasdaq, the average hit hardest by the bursting of the dot-com bubble, is down 44 percent.

How markets will look in the coming decade will be determined in part by policymakers. A too-rapid withdrawal by the government of financial or monetary support could throw markets into fresh tumult. But if policymakers take too long to let go, they could help to re-inflate bubbles in stock, housing and other markets.

"If things are booming, policymakers will feel empowered to remove stimulus quickly," said Marc Stern, chief investment officer at Bessemer Trust, an investment firm in New York. "If you are an investor, what you actually want is the Goldilocks phenomenon — not too hot, not too cold."

For now, many investors are starting to believe that the painful 10 years just concluded has laid the foundation for a new bull market, just as the misery of the 1930s was followed by a postwar boom. These optimists say the worst of the financial crisis is over now that the big banks are making money once again.

Although the economy remains weak, their argument goes, it is growing again. Inflation remains tame, and interest rates are low. Fewer jobless claims are being filed, and some companies are starting to hire again. Industrial activity is showing sparks of life, while a weak dollar has helped American companies sell more overseas, especially to emerging markets such as China and India.

"It’s very fair to say we are going to have a less robust recovery than normal," said Tobias Levkovich, chief U.S. equity strategist at Citigroup.

But "that’s very different than saying we will have a very difficult recovery or no recovery."

Yet more bearish investors, and there are still many, see little reason for optimism. They say the economy will struggle for some time because of problems such as rising defaults on commercial mortgages and the large number of Americans who are unable to find full-time work, which reduces consumer spending.

At the same time, investors could also grow fearful of the huge bill America is accumulating to spend its way to recovery. The White House estimates government debt accounted for 90 percent of the economy’s total output in 2009, up from 70 percent a year earlier. Although the cost of borrowing for the government and others remains historically low today, it could surge higher in the coming years.

Meanwhile, banks and other financial institutions will face new waves of problems as more borrowers default on commercial mortgages and other loans in the coming year. At the end of September, delinquencies on commercial real estate loans held by banks climbed to 8.7 percent, their highest levels since 1993, according to the Federal Reserve.

Given all these challenges, skeptics worry that the breathtaking rally — the S&P 500 index has surged 66 percent since March — has made stocks too expensive. The 10-year price-to-earnings ratio of the S&P 500, a measure of how expensive stocks are relative to profits, was more than 20.3 in late December, up from 13.3 in March.

The average for the last 130 years is 16.4, according to calculations by Robert J. Shiller, the Yale economist.

Ritholtz said that just as investors were overly pessimistic in March, when stocks fell to their lowest level in more than a decade, they have become irrationally optimistic about the recovery.

"History tells us that this will end with a substantial correction," he said.

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Apple Inc. is in talks to acquire online music service Lala, according to two people familiar with the matter.

The terms of the deal weren’t known. The people declined to be identified because talks are still in progress.

The Lala service lets users listen to any song on its site once for free. Customers can then opt to buy the track for 10 cents and listen to it on the Web paperless payday loans.

The service differs from iTunes because the music is stored on servers via so-called cloud computing, instead of being downloaded to the user’s computer.

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Swiss food giant Nestle may consider a bid for Britain’s Cadbury to challenge a hostile 9.9 billion pound ($16.3 dollars) bid by Kraft Foods Inc and a potential move by Hershey, Bloomberg reported on Sunday.

Nestle is still weighing its options and may decide against a bid, Bloomberg said, citing two unnamed people with knowledge of the matter.

Nestle declined to comment.

Italian chocolate maker Ferrero and U instant payday loan.S.-based Hershey have teamed up and said on Wednesday they were reviewing a possible offer for Cadbury.

Analysts view Nestle as a potential suitor for Cadbury.

(Writing by Lisa Jucca; Editing by Jon Loades-Carter)

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Indonesia shouldn’t be looking at increasing government spending, the Organization for Economic Cooperation and Development said a day after Morgan Stanley urged a boost in outlays to bolster growth.

“Given that the recovery appears to have begun in earnest, additional fiscal easing would not be advisable,” the Paris- based OECD said in a report yesterday. “Growth picked up significantly in the second and third quarters.”

The OECD’s call for fiscal restraint contrasts with the views of Morgan Stanley economist Deyi Tan, who said on Nov. 18 that Indonesia’s government “has room” to raise spending by about 3 percent of gross domestic product. President Susilo Bambang Yudhoyono, re-elected in July to a second five-year term, expects the budget deficit to narrow to 1.6 percent of GDP in 2010 from around 2.5 percent this year.

Both the OECD and Morgan Stanley acknowledge that some of the pro-growth policies adopted by Yudhoyono’s government are being hampered by infrastructure constraints.

“Implementation bottlenecks continue to delay execution of investment projects,” the OECD said. “The 2009 budget deficit target of 2.5 percent of GDP may therefore be undershot.”

Yudhoyono’s efforts to jump-start development spending during his first term were impeded by a number of “structural impediments,” according to Morgan Stanley.

Tan said none of the 91 projects worth $22.5 billion which Yudhoyono put out to tender at Indonesia’s 2005 Infrastructure Summit have materialized.

‘Lack of Consistency’

“Land acquisition issues, the lack of consistency in regulation at the central and regional government levels, the lack of separation in functions such as policy making, regulating, contracting and operating” are some of the impediments, she said cash advance today.

Yudhoyono told a business summit in Singapore last week that the government will streamline investment procedures, aiming to boost annual economic growth to between 6.3 percent and 6.8 percent over the next five years.

Indonesia’s central bank may start raising interest rates in the first six months of next year as inflation accelerates, the OECD said.

Bank Indonesia maintained its key rate at 6.5 percent for the third consecutive month on Nov. 4, after cutting the measure nine times from December 2008 to August this year to boost economic growth.

“Monetary policy may need to begin to be tightened in the first half of 2010 to ensure attainment of the end-year inflation target,” yesterday’s report said.

Faster Inflation

Inflation may accelerate to between 4 percent and 6 percent next year compared with an estimate of 3.5 percent to 5.5 percent in 2009, central bank Senior Deputy Governor Darmin Nasution said on Oct. 14.

Indonesia’s economy, Southeast Asia’s largest, is forecast by the OECD to expand 5.3 percent next year from an estimated 4.5 percent in 2009.

The $514 billion economy grew 4.2 percent in the third quarter from a year earlier after gaining 4 percent in the previous three months. Indonesia has fared better than its Asian neighbors during the worst global recession since the 1930s as it relies less on exports.

“Activity is picking up in earnest,” the OECD said. Economic growth “is projected to gather some further impetus, buoyed by rising investment and easing credit conditions.”

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Major U.S. mortgage finance source Fannie Mae announced on Thursday a program aimed at turning struggling homeowners into renters in their own homes.

The last-ditch program, to be known as Deed for Lease, is designed for borrowers who are facing foreclosure and have been unable to get a modification or refinance on their existing loan.

Borrowers would transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period and helps to stabilize neighborhoods and communities,” said Jay Ryan, vice president at Fannie Mae payday loans for bad credit.

Prospective renters would also have to show that the rent would be at most 31 percent of their monthly gross income.

Dean Baker, co-director of the Center of Economic and Policy Research, a Washington think tank, said the program would be especially useful in areas where the cost of owning is significantly higher than the cost to rent.

“The Deed for Lease Program will keep the homes occupied rather than being an eyesore and a potential safety hazard,” Baker said.

(Reporting by Corbett B. Daly; Editing by James Dalgleish)

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White House economic adviser Lawrence Summers will lead a high-level meeting on Monday to discuss the state of the economy, job creation and ways to achieve sustainable growth.

A White House announcement said the meeting would take place at 2 p.m. EST and would include Cabinet officials from Treasury Secretary Timothy Geithner to Health and Human Services Secretary Kathleen Sebelius, Agriculture Secretary Tom Vilsack and Energy Secretary Steven Chu.

National Security Adviser James Jones, White House climate czar Carol Browner, U.S. Trade Representative Ron Kirk and senior White House adviser Valerie Jarrett are also among those scheduled to attend.

A spokesman for Summers, who is director of the White House National Economic Council, described the meeting as one of the regular gatherings of the council

“This is a principals’ meeting for the department and agency heads who participate in the NEC process to gather and discuss the state of the economy,” said NEC spokesman Matthew Vogel.

The Summers meeting will be separate from a gathering that President Barack Obama will hold with his panel of outside economic experts headed by former Federal Reserve Chairman Paul Volcker.

The Obama administration has been weighing options to address ways to try to restart job growth with the unemployment rate now at 9.8 percent.

Signaling the end to the deepest recession since the 1930s Great Depression, the government last week said U.S. gross domestic product grew at a robust 3.5 percent pace in the third quarter.

Obama trumpeted the GDP numbers in his weekly radio address on Saturday but said, “we have a long way to go before we return to prosperity.”

The White House has credited the $787 billion economic stimulus package passed earlier this year with helping to bring about the rebound.

Republicans have characterized the stimulus package as wasteful and say the continued job losses are an indication it has not worked.

New unemployment numbers due out on Friday are expected to show U.S. employers cut another 175,000 jobs in October, according to economists polled by Reuters. The unemployment rate is forecast to rise to 9.9 percent for October.

(Reporting by Caren Bohan; editing by Chris Wilson)

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