Financial News

President Obama was stumping once again Tuesday for his plan to reimburse homeowners who invest in energy efficiency and create jobs.

But the president’s plan offered less money than had been previously hoped.

‘It’s going to be politically difficult to get this done," Obama said at a speech at Savannah Technical College in Georgia. "But it’s the right thing to do."

The plan, officially known as Home Star, would give rebates of 50% up to $3,000 for energy saving purchases like new appliances, furnaces, or insulation.

Consumers would get the rebate from a store, contractor, or utility.

It would also offer a larger rebate for homeowners who performed a more comprehensive energy audit of their home. Under that plan, homeowners could be reimbursed for up to half the cost of hiring contractors to do things like add insulation, swap out old appliances, and caulk leaky windows and doors.

Rebates depend on a home’s energy savings. Cut energy use by 20% and homeowners could get back half the money they shell out, up to $3,000. Homeowners who cut more than that might get up to $8,000, depending on how much they cut, according to people familiar with the plan.

A typical home energy audit and retrofit costs $5,000 to $8,000, and generally shaves 20%-40% off the monthly energy bills.

Unlike the Energy Department’s Weatherization program, which is targeted to low-income people and has been criticized for taking too long to get going, this plan would be available to everyone.

The $8,000 rebate is less than the $12,000 proponents originally wanted, and the $6 billion proposed for the program is less than the $10 billion originally hoped for creditreport.

Nonetheless, environmentalists praised the idea.

"Even the most basic upgrade puts money in our pockets, puts Americans back to work and puts energy waste on the run," Lane Burt, manager of Building Energy Policy at the Natural Resources Defense Council, said in a statement. "It’s a triple play on a more efficient future."

The program, dubbed "cash for caulkers" by some, has been touted by the president for months. It even won a mention in his State of the Union Address.

But whether it becomes reality is far from certain.

Congressional Democrats are also behind the idea and have said it is a part of their larger job creation strategy. But it was not included in a recent jobs bill, which focused more on extending current tax breaks rather than enacting new programs.

And it faces likely opposition from lawmakers concerned about rising government spending.

"Democratic leaders in Congress will still need to test the level of support for ‘cash for caulker’ programs relative to other jobs priorities," Whitney Stanco, an energy policy analyst at the brokerage firm Concept Capital, said in an e-mail.

The plan could appear in another jobs bill, or in separate energy legislation expected later this year.  

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Anyone having to take care of business with the state of Colorado before the end of 2009 should plan to do it Wednesday, as most state government offices will be closed Thursday.

The New Year’s Eve closings are one of eight unpaid furlough days that some 15,500 non-essential state personnel are being made to take in order to help close a budget shortfall this fiscal year. The furlough days are expected to save a combined total of $27.2 million.

Among the offices closed Thursday are state driver’s license offices, the attorney general’s office, state administrative offices, state history museums, Division of Wildlife service centers and the Department of Public Health and Environment’s vital records office.

Essential state services that will remain open Thursday include the state unemployment benefits office, the state judicial branch, the Treasurer’s Office, the Secretary of State’s Office, Colorado State Parks and the transportation department’s snow plows and maintenance crews.

State offices also will be closed Friday for New Year’s Day.

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In a reversal of earlier gains, more states lost jobs than added them in November, signaling that hiring is occurring only sporadically around the country.

Thirty-one states and the District of Columbia suffered a net loss of jobs, the Labor Department reported Friday quick guaranteed personal loans. Nineteen states added jobs in November, down from 28 in October.

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Cheryl Gray knew she had a problem on her hands when cleaning staff in one of the buildings she was responsible for started showing up to work with masks.

It was the summer of 2003 and severe acute respiratory syndrome, or SARS, had hit Canada’s largest city. By the end of the outbreak there were 443 probable cases, with 44 deaths. Tenants in her Toronto buildings were clamouring for information. Was it even safe to touch the elevator buttons?

Gray, a senior vice-president at Canadian property manager and developer Bentall Capital, knew she had to be prepared if there was a next time. "There was a lot of angst amongst tenants and we really didn’t have a clear game plan on what to do," Gray said.

What Gray did was create what some describe as the gold standard of pandemic planning for commercial buildings in North America.

Gray’s obscure manual is getting more attention today after long lines for H1N1 flu vaccination shots in Ontario created a heightened sense of urgency for Canadian businesses. About 2.5 million people have been vaccinated in three weeks, with 198 deaths across the country.

Apart from the health implications, the virus can have severe consequences on the economy if commercial and retail operations close.

Written in the wake of the SARS epidemic, the manual is considered the go-to document in pandemic preparedness, written on the front lines by property managers like Gray who were at the epicentre of the SARS outbreak.

"We were caught by surprise with SARS, and Cheryl took the initiative to reach out to the industry so we could collectively come up with a game plan," said Diana Osler-Zortea, president of the Building Owners and Managers Association of Canada, which represents commercial real estate landlords.

"We really needed to figure out how you continue to service everyone when all your workers are sick. How would your business continue in the event of an emergency?"

At the time, Gray was responsible for managing 20 million square feet of properties in eastern Canada, mostly in Toronto. After the SARS outbreak, she got in touch with other members of BOMA, a group whose members include major landlords such as Redcliffe Realty, Brookfield Properties and Oxford Properties, and formed a group that met monthly for 18 months to prepare the 95-page document now used by building managers worldwide.

The committee used input from not just real estate experts, but legal, insurance and medical experts as well. Toronto microbiologist Dr. Donald Low is also a consultant.

Ralph Dunham, managing director of risk consultancy Marsh Canada Ltd., said he uses the guide as a good starting point for clients.

"Not only is it a gold standard in the North American real estate industry, but it is valuable to other non-real estate organizations," he said.

"Each company is different, but the principles of preparedness are the same."

The guide looks at basic issues such as how to maintain contact with tenants and employees, preparing for the possibility of closure, travel policies, education and even rent defaults by tenants in the wake of a pandemic.

It discusses whether there is even a legal obligation for owners and building managers to have a pandemic plan. It argues employers have a duty to do this because legislation requires that they maintain a safe workplace.

"We tried to look at everything that could happen," said Gray. "If the cleaning company has a 40 per cent absenteeism rate, how are you going to cope with cleaning the premises effectively? Another example might be that some people may not want to take public transit during an outbreak, so they drive in. How do you respond to the need for extra parking spaces?"

Over the past year the guide has been fine-tuned with more input from stakeholders. Gray says it is necessarily a work in progress as building managers learn from the real world.

"When I finished working on the first manual, I was hoping it would have some value one day. I just didn’t think it would be this soon," said Gray.

"People thought, well, that’s interesting, but I guess it didn’t have the kind of relevance and immediacy it has now."

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BP Plc beat third-quarter earnings forecasts by a big margin in a sign Chief Executive Tony Hayward’s restructuring plans were delivering results, with cost cuts ahead of targets and oil and gas output up strongly.

BP said third-quarter replacement cost net profit, which strips out unrealized gains or losses related to changes in the value of fuel inventories, fell 50 percent to $4.98 billion, due to lower oil and gas prices.

However, the underlying result was almost 50 percent ahead of average analyst forecasts, lifting BP’s shares to their highest level since June 2008, before easing back to trade up 4.3 percent to 591 pence at 1100 GMT (7:00 a.m. EDT).

Shares in rivals such as Royal Dutch Shell Plc also rose, on hopes they could also mimic BP’s success at cost cutting and weathering the oil price drop. The DJ Stoxx European oil and gas sector index was up 2.3 percent.

Analysts said a lower-than-expected tax rate and positive foreign exchange impacts flattered the figures but could not take away from a strong result.

“It’s just blow-away numbers. It’s good to see them bouncing back,” said Jason Kenney, oil analyst at ING.

BP was helped by production rising in lower-tax areas such as the Gulf of Mexico, where the Thunder Horse platform, one of the largest offshore rigs in the world, ramped up in the first half of this year.

“It shows you the kind of margin coming in from Thunder Horse. Light sweet crude on the doorstep of the U.S., and it’s caught me and a lot others by surprise,” Kenney added.

Brent crude prices averaged $68/barrel in the quarter, 40 percent lower than in the same period of 2008, while gas prices in the U.S. and UK fell around 65 percent.

DIVIDEND SAFE, HIGHER COST CUTS

A slight drop in BP’s debt-to-equity, or gearing, ratio reassured investors that BP’s fat dividends were safe.

Lower earnings meant BP and its rivals had to borrow in the first half of this year to pay dividends, or in some cases, were forced to cut their payouts.

Europe’s second-largest oil company by market value said it had reduced costs in the oil and gas production and refining units by over 15 percent.

This progress has allowed BP lift its cost-cutting target for this year to $4 billion from $3 billion.

“BP is harvesting the fruits of its turnaround program,” Richard Griffith, analyst at Evolution Securities, said. 

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The key informant in the U.S. tax evasion case against Swiss bank UBS AG faces prison next year, but his harsher-than-expected treatment by the U.S. Justice Department will undermine efforts to expose secretive offshore tax havens, lawyers and whistle-blower advocates say.

Bradley Birkenfeld, a 44-year-old U.S. citizen, has been hailed by his attorneys and prosecutors alike as pivotal to the tax case against UBS, his former employer.

The case centered on UBS’s private banking business and on wealthy Americans who used their Swiss accounts to hide money overseas to evade taxes. In August, UBS agreed to turn over 4,450 names of American clients with undisclosed offshore accounts to settle a civil suit by the U.S. government.

By coming forward in the summer of 2007 and volunteering insider information to the Justice Department, Birkenfeld exposed a “massive fraud scheme” that probably never would have been discovered otherwise, said Kevin Downing, a senior Justice Department trial lawyer who spoke at his sentencing in Fort Lauderdale on August 21.

Despite that praise, Birkenfeld, who pleaded guilty to a single fraud conspiracy count in June 2008 for helping a billionaire hide assets from the Internal Revenue Service, was sentenced to 40 months in prison and ordered to start serving his time no later than January 8.

Justice Department officials, in a claim disputed by Birkenfeld’s supporters, said the punishment was meted out because Birkenfeld had initially sought to conceal his personal involvement in tax fraud.

Lawyers and whistle-blower advocates have expressed outrage over the sentence. They said they had expected Birkenfeld to get off with just a fine and probation, given that his voluntary disclosure of UBS practices led the company to settle criminal charges by paying $780 million and promising to name thousands of suspected American tax cheats and exit the U on line pay day loans.S. tax-shelter business.

“By prosecuting Brad, it is going to greatly harm IRS efforts to encourage future whistle-blowers,” said Birkenfeld lawyer Dean Zerbe, former tax counsel for the Senate Finance Committee.

“The only people that are benefiting from sending Brad to jail are the Swiss bankers and their clients,” he added.

‘TERRIBLE MESSAGE’ TO WHISTLE-BLOWERS

Zerbe is pressing for Birkenfeld’s formal recognition under an IRS whistle-blower program and says his client could still collect millions of dollars for his cooperation from the government.

“There is no question that Brad is the most important tax whistle-blower ever,” said Zerbe, who helped write a 2006 law that boosted rewards for those giving key information in tax cases involving evasion of $2 million or more.

Birkenfeld’s sentencing was originally set for August 15, 2008, but was delayed three times as the Justice Department, citing his cooperation in the UBS investigation, called for more time to advance its ongoing probe.

Zerbe, however, said the Justice Department stopped seeking any information more than a year ago and had left Birkenfeld hanging in legal limbo ever since.

“June 10, 2008 is the last time that DOJ asked Birkenfeld any questions regarding UBS, Swiss private banking or his former U.S. clients with UBS,” said Zerbe. 

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The U.S. job market strengthened in September for the first time since January of last year, suggesting a slow and rough road to recovery, a research group said on Monday.

The Conference Board, a private research group, said its Employment Trends Index edged up to 88.5 in September from an upwardly revised 88.2 in August, originally reported at 88.1.

The index is now down 15.6 percent from one year ago, the group said.

“While the employment numbers reported by the government last Friday were certainly disappointing, The Conference Board Employment Trends Index suggests that the trend of declining job losses will continue,” said Gad Levanon, senior economist at The Conference Board.

“But the road to recovery is definitely going to be bumpy and may last unusually long, given the depth of the recession we have experienced.”

Government data on Friday showed that U.S. employers shed a larger-than-expected 263,000 jobs in September, sending the unemployment rate to its highest level since 1983.

(Reporting by Camille Drummond; editing by James Dalgleish)

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In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.

Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.

Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.

So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.

Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.

But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.

Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.

So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.

This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 fast pay day loans.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.

Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.

"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.

Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.

Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."

As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."

Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.

"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.

Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.

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Federal Reserve Chairman Ben S. Bernanke, who yesterday said the recession has likely ended, may have to accept a slow recovery and high unemployment as the price for defending his inflation-fighting credentials.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said in response to questions after a speech at the Brookings Institution in Washington. “That’s a challenge for us and all policy makers going forward.”

Policy makers predicted in June that the unemployment rate will remain above 9 percent through the end of next year, while inflation will stay below their preferred range. That hasn’t stopped them from starting to unwind their extraordinary monetary stimulus as investors express concern that the expansion of the Fed’s balance sheet to $2.1 trillion will ignite inflation when the economy recovers.

“The Fed is in an odd situation here,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Both aspects of their dual mandate for growth and inflation will have suboptimal outcomes, but they can’t do anything to speed things up because of concerns about inflation credibility.”

The Federal Open Market Committee may extend the end-date of its $1.45 trillion program to buy housing agency and mortgage-backed securities at its next meeting Sept. 22-23. There is little chance that it will expand the program after deciding in August to end purchases of $300 billion in Treasury debt next month.

Rate Pledge

Central bankers have pledged to keep the benchmark lending rate in a range of zero to 0.25 percent “for an extended period.” If unemployment lingers at high levels, officials could face questions on whether they have done enough to push the economy to a faster rate of growth, economists say.

“At the end of 2010, the story may not be whether they exited correctly, but how did they allow this outcome to occur,” said Laurence Meyer, a former Fed governor and vice chairman of Macroeconomic Advisers LLC. in Washington. “The definitive marker of the end of easing was the decision at the August FOMC meeting to allow Treasury purchases to expire.”

The FOMC’s June forecasts show unemployment above 8 percent in the final three months of 2011. A majority of FOMC members also forecast inflation will be below their long-run preferred range of 1.7 to 2 percent next year, Fed minutes show.

‘Moderate Growth’

“If we do in fact see moderate growth, but not growth much more than the underlying potential growth rate, then unfortunately unemployment will be slow to come down,” Bernanke said yesterday, noting that the economy faces “headwinds” such as tight credit. “It will come down, but it will take some time.”

At the same time, the Fed could startle markets if it decided to buy up more government debt, expanding the balance sheet even further. Gold futures reached an 18-month high of $1,013.70 an ounce on Sept. 11, as the U.S. Dollar Index, which values the greenback against six other currencies, dropped to its lowest level in almost a year.

“Those buying gold believe the Fed is going to be accepting inflation if not even promoting it,” said Axel Merk, whose $370 million Hard Currency Fund is up 11.3 percent year to date on investments in precious metals and foreign currencies.

Yields on the 10-year Treasury note rose for a second day yesterday after a report from the Commerce Department showed that retail sales surged in August by the most in three years, adding to evidence the economy is recovering. The yield on the 10-year note rose to 3.46 percent at 5:32 p.m. in New York from 3.42 percent the day before.

Outlook for Prices

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 1.84 percentage points from 1.66 percentage points two weeks ago. It has averaged 2.19 percentage points over the past five years.

A government report today may show consumer prices fell 1.7 percent in August from the previous year, according to a Bloomberg New survey of economists. Prices probably rose 0.3 percent in August from a month before, following no change in July.

Regional Fed bank presidents Jeffrey Lacker of Richmond and James Bullard of St. Louis have said the central bank may not even need to complete its purchases of $1.45 trillion in mortgage-backed and housing agency securities.

Bank Reserves

“With the economy leveling out and beginning to grow again later this year, and with bank reserve demand ebbing as financial conditions improve, I will be evaluating carefully whether we need or want the additional stimulus,” Lacker said Aug. 28 in a speech in Danville, Virginia.

His concern is that the Fed will so over-supply demand for bank reserves that it will suppress money-market rates even when the central bank is trying to raise them.

That increase could come as soon as “the first part of next year” if inflation picks up, Stanford University economist John Taylor told Bloomberg Television last week.

The risk is that credit conditions remain tight, consumers keep a lid on spending, and the expansion never gets to a rate that will cause employers to hire, say economists including Richard Berner, co-head of global economics at Morgan Stanley in New York.

“While markets have improved and the cost of credit has declined dramatically, the capacity and willingness to lend are still somewhat impaired,” said Berner, a former researcher at the Fed. “That restraint is the key reason why we expect a moderate, rather than a V-shaped recovery.”

David Simon, chairman and chief executive of Simon Property Group Inc., the largest U.S. shopping mall owner, said “It’s too early for us to declare the recession over.”

“Ultimately, what’s important to retail and real estate is the health of the consumer, the job outlook and so on,” Simon said in an interview, when asked to respond to Bernanke’s comments on the recession. “I still think the consumer’s under pressure.”

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A big chunk of downtown real estate disappeared Monday from Pyramid Construction Co.’s portfolio, when a bank took back the vacant Jefferson Arms building that was once slated for a $75 million overhaul.

Overwhelming debt crushed Pyramid last year. Many of its uncompleted projects — including the Dillard’s, Arcade and St. Louis Centre renovations — went back to lenders or to other owners.

Citicorp foreclosed Monday on the Jefferson Arms after Pyramid failed to keep up on a $16 million loan to buy the 496-unit apartment building in 2006.

Thomas Vandiver, the Sonnenshein Nath & Rosenthal lawyer who handled the foreclosure for Citicorp, said accumulated interest had pushed the amount owed to $19 million. A Citicorp affiliate got the Jefferson Arms with the auction’s only bid: $5.5 million.

Vandiver said Citicorp hopes to find a buyer, noting that roof repairs at Jefferson Arms are nearly complete.

"There were some problems of water damage in the last year, year and a half," he said. "Unfortunately, Pyramid emptied the building and boarded it up."

The building, originally the Jefferson Hotel, has been vacant since shortly after Pyramid bought the structure and required the residents, most of them people over age 55, to move payday loans.

Built in the early 20th century and named for President Thomas Jefferson, the hotel was designed, Beaux Arts style, by the Barnett, Haynes & Barnett firm, with 500 rooms. The hotel was expanded in 1928. Later alterations reconfigured the building with studio, one-bedroom and two-bedroom apartments.

Pyramid had planned to convert the building to condos, retail space and a banquet facility.

Vandiver said Citicorp is in talks with developers to buy the apartment building. Among them is Sherman Associates, based in Minneapolis, which took part in the renovation of the Syndicate Trust building downtown as apartments and condos.

Rocko Bratic, owner of the Shell Building, at 1221 Locust Street, just west of the Jefferson Arms, said he had sought to buy the empty apartment building’s parking garage. Bratic said he already leases the 260-car garage for tenants of his building and loft dwellers in the neighborhood.

Vandiver said Citicorp had no interest in selling the Jefferson Arms property piecemeal.

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