How much do I need to save?

Question: I'm 36 and have saved only about $20,000 for retirement. How much per year should I try to save for the next 30 years to assure I'll have a reasonable retirement? --Beth, Grove City, Ohio
Answer: I'd love to be able to give you a quick and simple answer like some people do: Save 10% of your salary each year and you'll be fine!
But while that may be satisfying for you today, you may not be so pleased 30 years from now if you don't have enough savings to support you comfortably in retirement.
Not to worry, though. I'll tell you what you need to know so you can put away enough for a reasonable retirement, but without saving too much and end up living an unnecessarily meager lifestyle during your career.
Before I do that, though, I think it's worthwhile to take a minute to explain what goes into a savings target and why you've got to be careful about accepting glib answers to this question.
There are a number of reasons that the "how much to save" issue doesn't lend itself to easy solutions. One is that you're dealing with such a long time frame -- in your case, 30 years until you retire and then maybe another 30 in retirement -- that accurate forecasting is difficult to say the least.
Another is that the amount you need to save each year depends on so many factors: your income, how you invest your savings, what your investments earn, how much spending money you'll need in retirement and how much assurance you want that you won't outlive your savings, just to name a few. Changing just one of these can make a big difference in how much you need to put away.
Take annual income. Generally, the more you earn during your career, the larger the nest egg you'll need in retirement to maintain something close to your pre-retirement standard of living. So, all else equal, the more you earn, the more you must save.
To get an idea of how much your savings target can rise as your income climbs, I entered your age (36) and the amount you've already saved ($20,000) into our What You Need to Save calculator. Since this tool also asks for your annual pay (which you didn't divulge), I assumed a salary of $30,000. At that level, our calculator estimates that you would need to save 7.2% of your salary each year to be able to retire at age 65 with 80% of your pre-retirement income.
If I assume your annual salary is $60,000, however, the recommended savings rate rises to 14.1% of salary. And if I bump up current annual earnings to $120,000, the target savings rate climbs to 19.3%. (These percentages, by the way, would include any employer-matching funds you might be getting in a 401(k) or similar plan.)
Why, you may ask, should the percentage of salary you need to save increase as your income rises? It's obvious you'll have to set aside more dollars to create a nest egg large enough to maintain a higher living standard. But why should the savings requirement increase on a percentage basis as well?
Two reasons. The first is that our calculator naturally assumes that you'll be getting a portion of your retirement income from Social Security. But Social Security was designed to replace a smaller portion of your pre-retirement income as your salary rises. Which means that the more you earn during your career, the more you'll have to kick in from your own savings to maintain the lifestyle you had during your career.
The other reason relates to the amount you've already saved. The larger your pot of savings, the less new money you'll have to save on an ongoing basis to build the nest egg you'll eventually need. But while $20,000 is a relatively large amount if you're in your 30's and earning $30,000 (two thirds of a year's salary), it's not as impressive if you're earning $60,000 (one third of salary) or $120,000 (one sixth). In short, the more you have tucked away in savings relative to your annual earnings, the lower the percentage of salary you'll need to save going forward.
So given all this, how can you determine how much you should put away each year to give yourself a decent shot at a secure retirement?
You've got a few choices. One is to rev up a calculator that will crunch the numbers and give you an idea of how much you need to save. For a very quick ballpark figure, you can check out the What You Need To Save calculator I mentioned above.
But other tools allow you to plug in much more information -- details about your investments, retirement age, other potential sources of retirement income, etc. -- and thus get a more nuanced estimate of how much you should put away. Tools that I put into this category include our Retirement Planner, T. Rowe Price's Retirement Income Calculator and Fidelity's myPlan Retirement Quick Check. And, of course, you can always consult a financial planner if you don't want to run the numbers yourself.
However you decide to go, don't forget that you're getting an estimate, not an engraved-in-stone guarantee. To be on the safe side, I suggest you to try to save a little more than recommended rate in case your best-laid plans go awry.
Finally, remember that arriving at a savings rate isn't an exercise you do once and then forget about it for the next 30 years. Too many things can change. So check again every year or so to see if you need to make any adjustments.
After all, the last thing you need is to faithfully sock away 10% (or whatever) of your salary only to find in the twilight of your career that you've been saving way too little (or too much) all along.

Clunkers: Taxpayers paid $24,000 per car

A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.
The program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.
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The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
"It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."
In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program. Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.
Edmunds.com's estimate of the ultimate sales increase generally matches what industry experts had thought, said George Pipas, a sales analyst with Ford Motor Co (F, Fortune 500). But that misses the point, he said.
"The whole purpose of the program was to provide some kind of catalyst to kick-start the economy," he said, "and by all accounts the extra production that was added this year was a boost to the economy."
Ford was one of the biggest proponents of the Cash for Clunkers program and several Ford models were among the top sellers under the program.
While auto sales in September were hurt because auto dealership inventories were drained of products by the program, sales this month are already back on track or better, Pipas said. "I think the October sales results will show Clunkers is behind us and there's no more payback or inventories issues."
Emunds.com's projection indicates that, without Cash for Clunkers, October's sales increase would be even higher.

Unemployed tap their 401(k)s

Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.
Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.
The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.
Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.
"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.
While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.
"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.
Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.
The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.
Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."
Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.
Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.

$8,000 home credit still in play

Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like?
That's understandable, since the situation is still very fluid.
Here's where things stand.
Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers.
Some of the issues still in play: Just how far past Nov. 30, the size of credit and how many more buyers would qualify.
It's still not clear where President Obama stands on the issue. Last week, Housing Secretary Shaun Donovan said the administration wanted to review more data to better assess the cost of the credit before weighing in.
What's on the table now: There appears to be movement toward a compromise deal that falls between the most and least generous proposals that have been put forth so far.
"There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital's Research Group.
The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.)
To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly).
In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.
Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices.
If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again.
"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody's Economy.com. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."
What critics say: Though extending the credit has bipartisan support, it is not without its critics.
Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective.
They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break.
In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it.
By one economist's estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit.
In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory.
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"When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market."
Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate as early as this week.
However, there's a chance the housing credit will be dealt with separately. It could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.

Goldman Sachs rally markets

Markets reflect investors’ best estimate of long-term value. Markets also reflect the strength of investors’ own short-term cash-flow. Right now, the second may be more relevant than the first.Equity, credit and commodities markets had fallen so far that the latest uptick is really a "feel less bad" rather than a "feel good" rally. But it is still dramatic. The S&P 500 index is up 27 percent since March 6 and the iTraxx European index of investment grade credit spreads has narrowed by 24 basis points to 258bps. The oil price is up 47 percent.There has been some good news. Chinese exports rose 7.5 percent in March. Sales of existing houses in the US were up 4.4 percent month-on-month in February. And big bank executives have been exuding optimism about profits, validated partly by a strong first quarter at US investment bank Goldman Sachs.But this is not much to justify a sustainable market rally. The bull case goes like this: the economy is stabilising, banks are lending again and higher prices breed confidence. Markets are looking ahead.That argument relies on a few thin green shoots of recovery. But the alternative explanation, that the market rallies are driven by investor cash-flow, rests on much bigger numbers. The US Federal Reserve’s balance sheet has expanded from 7 percent to 29 percent of GDP. That equates to huge transfer of cash into the banking system. It’s supposed to support lending, but trading may be the first beneficiary.The US government deficit – the excess of cash put into the economy over cash taken out – was $957bn for the last six months, up from $313bn in the previous year. Add in the effective near-zero policy interest rate in most of the world and there is more than enough new cheap and free money to push up asset prices.Investors seem to be forgetting that mass produced money can lead to inflation. They also seem to be paying insufficient attention to unemployment and other signs of weak business conditions. The predominant trend in the real economy remains downward. In the real world, there are complicated imbalances that cash cannot necessarily heal.

It's good to be a bank

Imagine a deal where the buyer only has to put up 29 percent of the purchase price and the new company ends up with debt equal close to eight times earnings. Sounds like a throwback to the days when the world was awash in cheap money and Blackstone boss Stephen Schwarzman was booking Rod Stewart for his birthday parties.In fact, those are the terms accompanying Barclays' sale of its iShares business to British private equity firm CVC, which was announced Thursday. Cincinnati bank Fifth Third did something similar for buyout group Advent International just two weeks earlier with the sale of its credit processing business. Leveraged buyouts look to be back - but only when the lender is the seller.Take the iShares deal. Barclays is selling the US purveyor of exchange-traded funds for $4.37bn. But CVC is only putting up $1bn of that in cash. Barclays, which owns iShares through its money management arm, is lending CVC $3.1bn, including $1.7bn of senior debt and another $1.1bn in vendor financing.That means leverage will comprise 71 percent of iShares' enterprise value. Moreover, the debt load will represent around 7.5 times the $411m of earnings before interest, tax, depreciation and amortization that iShares reported for last year. These are the kinds of debt levels not seen since the credit crisis hit more than a year ago.So does this mark a return to the halcyon days of private equity? Don't bet on it. The sale of the iShares business bolsters Barclays' capital ratios across the board. Combined with some other measures the London-based bank has undertaken to avoid accepting UK government funds and the strings attached, Barclays says the iShares deal will increase its Tier 1 capital ratio to about 10.3 percent.Fifth Third's leveraged sale of its processing business boosted its capital ratio by nearly a full percentage point to a pro forma 11.5 percent. It's hard to believe that Barclays or any of its competitors would offer such terms to just any old private equity firm. As with Fifth Third's foray into leveraged lending, there's more at stake in these deals than mere banking fees.

Financial employment down

It’s already April, and business students would normally be weighing which investment bank's job offer to take. But this year’s crop of MBAs faces bleak prospects - for the same reason it’s hard to place new asset-backed debt. A shrinking and cautious finance industry means lots of already seasoned assets - including people - are available at cheap prices.The problem, of course, is that Wall Street has been savaged by layoffs. Financial employment shrank by 43,000 in March according to newly released government figures. That’s the 15th month of steady decline.That means that not only are many banks still cutting back, but if they are hiring there are plenty of recently-fired youngish bankers available with experience. As with financial investments in the current climate, there's no reason to go with the new thing when there are plenty of assets available with track records. And the students can’t count on a government programme to jump-start demand for their services.Sure, US investment banks and especially boutique firms are still doing the rounds of business schools, but they aren't hiring many people. Even top-tier Ivy League schools have seen Wall Street acceptances halved. Job offers to foreign students have even been rescinded because banks that have received government funds face extra hurdles securing visas.There is a bright side. The number of students wanting to work on Wall Street reached historic highs before the bubble burst. Just shy of half of Harvard’s MBA crop last year went into finance. The hotter areas now, according to the universities, are venture stage businesses, the energy sector and overseas firms. Even in these areas, acceptances are down perhaps by a quarter. Regardless, this is probably a better use of talent. Finance, after all, should be an accessory for, rather than the engine of, wealth creation.At least, that is, until the next time. MBA classes have a history of piling into expanding bubbles. The few that land banking jobs today will face less competition. When markets rebound, they will be well placed to profit handsomely. A new crop of young and ambitious students with short memories will notice - and a new race to Wall Street could be on.

Securing business opportunities in Libya

Libya is the fourth largest economy in Africa. It has a rich culture, varied landscapes, a strategic position and the continent's largest oil reserves. Once shunned by the international community for its involvement in the 1988 bombing of PanAm Flight 103 above the Scottish town of Lockerbie; its nuclear weapons programme; and its support for various militant groups, Libya began making amends with the world in 1999. The country is now out of political isolation and full of potential. Potential which the UK Government and European leaders should help the Libyans harness for a variety of economic, strategic and humanitarian reasons. For the past decade, international firms have been lining up for a greater share of the opportunities presented by Libya's reintegration into the global economy. Much of the interest has been in the oil and gas sector, which accounts for 95 percent of the country's export revenues and one quarter of GDP. But opportunities have also been identified in the tourism, construction, education and financial services sectors. In response to all this interest, the government has begun to overhaul the country's socialist economy to enable and encourage trade and investment. State-owned enterprises have been privatised; the banking system has been commercialised; and the Central Bank has been reinvented as a supervisory organisation, as opposed to a controlling one. With this, the widespread dismantling of barriers to trade and investment, and the country's broader programme of legal and administrative reform, Libya is making itself a much more attractive place to do business, and companies are responding accordingly. UK visible exports to Libya, which are principally industrial machinery for the oil and gas sector, have risen by 35 percent in the past ten years. Over that period, UK imports from Libya have increased sevenfold and both inwards and outwards investment have risen sharply.Libya has made great progress in the past decade. But there is clearly more that can be done to encourage further progressive reforms and greater returns for the business community in Libya, the UK and elsewhere. Firstly, the European Commission should accelerate negotiations to establish a Framework Agreement between the EU and Libya. Officials have been given a broad mandate to negotiate a pact that will enhance political, economic, cultural, social and security cooperation between the two partners. This is a positive step and discussions have progressed well to date. However, the substantive details of a draft agreement are yet to be agreed, or even discussed in some areas, and the devil, as everyone knows, is in the detail. It is in Europe's interests to negotiate a comprehensive and ambitious agreement, and to do it quickly. Not least because getting in early will provide European businesses with a first-mover advantage that one expects will pay dividends in a relatively short period of time. Negotiations stand to assist Europe to take forward a number of key policy objectives. Underpinning cooperation with Libya on energy issues should provide Europe with a reliable partner to meet long term energy requirements at a time when alternatives are in increasingly short supply. It is not just in terms of energy supply that Europe stands to gain. The Libyan government has expressed a strong desire to further cooperation on key components of the climate change agenda, working with Europe to improve Libya's energy efficiency and develop its capacity in renewables.An agreement should also boost cooperation with the EU towards preventing illegal immigration, a key stepping stone towards reducing of the misery associated with human trafficking between Africa and Europe via Tripoli. Libya's further integration into the global community will help to safeguard the security of the Mediterranean region and to strengthen our relationship with a country that plays a leading role in the Arab world and in the African continent, a position that was consolidated by its recent appointment as Chair of the African Union.Secondly, the UK and Europe should support Libya's bid to become a member of the WTO. The legislative, policy and institutional changes that Libya would be required to make in order to join the organisation would ensure that the country develops an operating system that is truly 'fit for purpose'. It would discipline the Government in its dealings with the private sector, and, since WTO commitments are binding, create a more predictable, secure and enticing business environment for internal and external investors alike. Membership would provide Libyan businesses and consumers with a broader range of competitively priced goods and services. They would also benefit from greater competition and the levels of investment required to stimulate innovation, diversification and the more efficient allocation of capital throughout the economy. Libya's WTO aspirations and its interest in negotiating a bilateral pact with the EU present real opportunities for business, consumers and taxpayers throughout the EU. We should hope that decision-makers in London and Brussels recognise this and engage accordingly.

Assessing the US Treasury's bail out plan

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It had to happen. In the face of catastrophic losses, massive unemployment and an economy that is still scratching its head as to how the whole crisis unfolded, the US government has stepped into the breach in an effort to bail out the country’s banks, protect consumers, and restore investor confidence so that the economy can pick up some momentum and leave the dark days of the sub-prime mortgage crash behind. In February Treasury Secretary Timothy Geithner unveiled his raft of measures aimed at restoring investor and consumer confidence in the country’s banking sector, while also curbing executive pay in those financial institutions which the government was forced to bail out. Mr Geithner’s Financial Stability Plan aims to assure taxpayers that every dollar used in the bank bail out is directed toward lending and economic revitalisation, and that there will be a new era of accountability, transparency and conditions on the financial institutions receiving funds. He said: “The American people will be able to see where their tax dollars are going and the return on their government’s investment, they will be able to see whether the conditions placed on banks and institutions are being met and enforced, they will be able to see whether boards of directors are being responsible with taxpayer dollars and how they’re compensating their executives, and they will be able to see how these actions are impacting the overall flow of lending and the cost of borrowing.”“We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks… and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.”A key aspect of the plan is an effort to strengthen financial institutions so that they have the ability to support recovery. This will be achieved through a number of measures. Firstly, the plan will create a comprehensive stress test, which is a forward-looking assessment of what banks need to keep lending even through a severe economic downturn. Mr Geithner believes that the test will succeed for a number of reasons. Firstly, increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the SEC and accounting standard setters in their efforts to improve public disclosure by banks. Secondly, all relevant financial regulators – the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) – will work together in a co-ordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions. And thirdly, all banking institutions with assets in excess of $100bn will be required to participate in the coordinated supervisory review process and comprehensive stress test.Testing stressAs well as a bank stress test, the US financial stability plan will create a capital assistance programme. Once a financial institution has undergone a comprehensive “stress test” it will have access to a Treasury-provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. Added to that, any capital investments made by the Treasury under the capital assistance programme will be placed in a separate entity – the Financial Stability Trust – set up to manage the government’s investments in US financial institutions.The US government says that the plan will also herald a new era of transparency, accountability, monitoring and conditions as firms will be required to show how assistance from the financial stability plan will expand lending. The new rules state that all recipients of assistance must submit a plan for how they intend to use that capital to preserve and strengthen their lending capacity. This plan will be submitted during the application process, and the Treasury Department will make these reports public upon completion of the capital investment in the firm.It also states that firms must detail, in monthly reports submitted to the Treasury Department, their lending broken out by category, showing how many new loans they provided to businesses and consumers and how many asset and mortgage-backed securities they purchased, accompanied by a description of the lending environment in the communities and markets they serve. This report will also include a comparison to their most rigorous estimate of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K reports. Furthermore, all information disclosed or reported to Treasury by recipients of capital assistance will be posted on www.financialstability.gov – the government’s dedicated website on the issue – because taxpayers have the right to know whether these programmes are succeeding in creating and preserving lending and financial stability.The plan also aims to put strict limits on the “bonus culture” that is seen by many as being at the root of the crisis. The government says that limiting common dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of the capital invested by the government under the Financial Stability Trust will go to improving banks’ capital bases and promoting lending. All banks that receive new capital assistance will be restricted from paying quarterly common dividend payments in excess of $0.01 until the government investment is repaid. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives.Shackled assets Banks will also be restricted from repurchasing any privately-held shares, subject to approval by the Treasury Department and their primary regulator, until the government’s investment is repaid. They will also be restricted from pursuing cash acquisitions of healthy firms until the government investment is repaid. Exceptions will be made for explicit supervisor-approved restructuring plans. Firms will also be required to comply with the senior executive compensation restrictions announced on February 4, including those pertaining to a $500,000 total annual compensation cap plus restricted stock payable when the government is getting paid back.Mr Geithner has stated that transparency and greater accountability are at the heart of the newly launched plan, which has prompted the Treasury Department to announce measures to ensure that lobbyists do not influence applications for, or disbursements of, Financial Stability Plan funds, and will certify that each investment decision is based only on investment criteria and the facts of the case.Added to that, the Treasury Department will post all contracts under the plan on its website within five to ten business days of their completion. Whenever the Treasury makes a capital investment under these new initiatives, it will make public the value of the investment, the quantity and strike price of warrants received, the schedule of required payments to the government and when government is being paid back. The terms of pricing of these investments will be compared to terms and pricing of recent market transactions during the period the investment was made, if available.However laudable Mr Geithner’s efforts, his plans have received a very mixed response. The main problem with the financial stability plan is that it does not come clean to the American public about how the losses from the financial meltdown will be divvied up, say critics. The plan is deliberately short on detail, they say, especially on the much anticipated public-private partnership. While the Obama Administration hopes to get private investors to start buying up the toxic mortgage-backed securities that are clogging up banks’ balance sheets, it is not clear what would make those private investors suddenly want to buy assets that until now they have treated as radioactive. “I don’t see how you’re going to get confidence in the markets with a plan that’s so difficult to penetrate,” says Harvard University economist and occasional World Finance contributor Kenneth Rogoff.Although Mr Geithner repeatedly promised that the new plan would be transparent, it was precisely the lack of detail of how the plan would work and be financed that contributed to the stock market’s negative reaction. US stock averages fell as Mr Geithner was speaking, and were down four to five percent in late trading. “It was scary watching him,” says R Christopher Whalen, Managing Director of Institutional Risk Analytics, a consulting firm. “The markets are tough. As long as they sense that there’s bull – and indecision – they’re going to reject it.” Investors on both sides of the Atlantic immediately expressed disappointment following the announcement, sending markets into freefall. The FTSE 100 index closed down 2.2 percent or 94.53 points at 4,213.08 and the FTSE 250 index fell back 2.5 percent or 164.02 points at 6,495.66. “They were going to have to say something pretty special to kickstart trading today,” said a London-based trader. Even the plan’s supporters are sceptical about how well it may work in practice – precisely because the Treasury has been so scant on details. Moody’s, the credit rating agency, supports the plan, but thinks that it may be of more benefit to larger banks than to smaller ones in the US. “Despite the lack of specifics… Moody’s views the Financial Stability Plan (FSP) positively for major banks’ depositors and debt holders, as it reflects the US government’s commitment to providing bridge capital and liquidity support to these institutions until the economy and capital markets recover,” it said in a statement.Chairman and CEO of UMB Financial Corporation, a multi-bank holding company headquartered in Kansas City, Mariner Kemper, says that the plan remains too vague and lacks essential details on how the $2trn will be put to good use. As seen from the first round of the Troubled Asset Relief Program (TARP) devised by former President George W Bush and former Treasury Secretary Henry Paulson, actions taken to promote loan growth have essentially been ineffective as lending remains stagnant, he says.“As is, the premise for the plan calls for pumping more capital into the system. However, this is somewhat flawed logic as financial institutions primarily loan against deposits, not capital,” says Mr Kemper. “More capital dollars won’t necessarily increase loan demand because the root of the problem is the fragile state of the economy that has people pulling back on consumption. By injecting capital, the plan does more to promote unsound lending practices than addressing the systemic problem.”“To truly be productive in solving the economic crisis, it must be realised that the core issue is that we, the government, businesses and consumers, have overextended for several years. It’s counterintuitive to solve a leverage problem with more leverage. The principles that guide the free market must be allowed to unfold by letting the ‘problems’ within the system fail and the ‘successes’ thrive.”As a result, Mr Kemper suggests that the Treasury should seek counsel for solutions in moving forward from those who operated soundly rather than from those who broke the system, and offer incentives rather than penalties for those not taking “oversized risks for oversized rewards”. He also believes that government intervention should become more of a last resort than an immediate backstop.Many economists argue that some of the biggest US banks are in such bad shape that the only reasonable alternative is to nationalise them, which would mean getting rid of their top executives, wiping out their shareholders, and forcing creditors (other than government-insured depositors) to take a big hit. Once in full control of the banks, the government could strip out their bad assets for sale later, give them a huge injection of public funds, and then spin them back out to the public. However, unlike the UK, this is not an option that the US wants to explore. But private investors remain well aware of the possibility; and as a result, they are unwilling to put more capital into banks if they fear they could lose it in future government takeovers. This means that the US plan may stall, or at least not create the desired economic stimulus, say some. Charles Calomiris, a Columbia University economic historian who has studied banking crises, says that the key mistake of the Obama Administration is trying to come up with a plan that emphasises political palatability over economic reality. To buy support, Mr Calomiris says, the plan emphasises “very careful investments over a period of time with a lot of upside potential for taxpayers, and with all sorts of limits on what bankers can do.” The problem with that approach, Mr Calomiris says, is that it does not do enough to really make the banks truly healthy, and just prolongs the crisis. He favours taking strong action to improve banks’ health dramatically and quickly by guaranteeing them a floor price on their real estate assets, even though such action would be criticised as a giveaway. Says Mr Calomiris: “What makes sense economically doesn’t make sense politically, so I’m not very optimistic.”

Beijing allows overseas investment after 17-month break

China has resumed approvals for institutions to buy overseas securities under its tightly managed offshore investment regime after a 17-month hiatus, suggesting Beijing believes the worst of the financial crisis is over.
The State Administration of Foreign Exchange granted new quotas to E Fund Management and China Merchants Fund Management to invest up to $1bn and $500m respectively in offshore securities, according to industry analysts.
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China flat-screen boom fuels production race - Oct-23
The previous quota handed out under the qualified domestic institutional investor (QDII) scheme was granted in May 2008, before the worst of the financial crisis.
The resumption in approvals for outward investment also signals a return to Beijing’s earlier strategy of encouraging outflows to relieve pressure on the Chinese currency to appreciate.
As China’s largest trade partners in the west start to look past the immediate aftermath of the crisis, attention has turned again to the renminbi, which remains undervalued by most estimates and is still virtually pegged to the sliding dollar.
China’s huge trade surplus and large investment inflows create pressure on the renminbi to rise, but Beijing is unwilling to subject its battered export sector to any more pain, in spite of calls from trading partners for appreciation.
“In order to keep the nominal exchange rate stable the government has to allow more capital to flow out,” said Wang Tao, chief China economist at UBS Securities. “But they want to encourage outflows in a controlled way and as long as they have some kind of upper quota they will not be able to fully offset the appreciation pressure from inflows.”
Beijing has also been encouraging more direct investment by Chinese corporations in offshore industries and is considering allowing foreign institutions to raise capital through equity and bond sales in China; both actions encourage capital to flow out of the country.
Following a brief dip at the start of the year, China’s foreign exchange reserves have resumed their rapid growth, rising from $1,913bn at the end of January to $2,273bn by the end of September.
Z-Ben Advisors, a Shanghai-based consultancy covering China’s investment management industry, said at least four other fund managers – Changsheng, Bosera, UBS SDIC and China Universal – would receive quotas of at least $4bn in total by year-end, and they expect at least another 16 to be handed out by the end of next year.
“Friday’s events signal strongly to us that the QDII business is about to accelerate very quickly,” according to Michael McCormack, executive director at Z-Ben Advisors.
Beijing had previously approved 56 QDII institutions to invest a total of $55.95bn but of that total just $28.71bn had been remitted abroad by the end of August, according to Safe data.
The lacklustre utilisation of the scheme prompted Safe to warn this month that it would reduce quotas of QDII investors who did not make full use of them.
E Fund is expected to use its new quota to set up a fund that invests in securities in Asia minus Japan, while China Merchants is believed to be planning a global resources fund.

Japanese earnings on course for recovery

Japan’s short but intense first-half results season will this week confirm that a broad recovery in corporate profits remains intact.
But analysts are anxious for guidance on whether the strong yen will hurt exporters in the run-up to Christmas.
EDITOR’S CHOICE
JAL poised to receive $6bn long-term aid - Oct-22
Japan’s tech trade tumbles - Oct-21
Onward to a hybrid future at Toyota - Oct-21
“Guidance for the second half will be important in determining whether the market can resume a sustainable uptrend,” Kathy Matsui and Hiromi Suzuki, Goldman Sachs strategists, wrote to clients.
The earnings season, with more than 400 companies reporting on Friday alone, is expected to show the breadth of the recovery in the technology sector after strong results from US technology blue chips such as Apple and Microsoft.
Strategists have reason for confidence on improved earnings.
Japanese industrial production “has risen 7 per cent quarter-on-quarter, leading us to expect manufacturing operating leverage to again be the dominant driver of the results season”, according to strategists at Macquarie Securities in Tokyo.
Manufacturers make up a large part of the Japanese stock market. Because of the high fixed cost of factories and equipment, their profits are sensitive to even small changes in production and sales.
There is evidence that stimulus moves such as car scrappage programmes and Japan’s eco-points scheme for consumer durables have helped sales.
Shipments of flat-panel televisions in Japan were up 32.4 per cent in September on the previous year, according to the Japan Electronics and Information Technology Industries Association.
There have also been relatively few revisions to formal earnings forecasts.
Aggressive cost-cutting by Japanese companies is expected to have helped profit, if not a sustained recovery.
However, other sectors are continuing to suffer.
The motor industry, one of the worst hit by the plunge in global demand, is expected to see further losses.
Honda Motor, which has focused on small, fuel-efficient vehicles, has weathered the crisis better than most. Among the country’s top three producers, it alone is believed to have earned a small net profit.
Investors are likely to focus on carmakers’ full-year forecasts, which most analysts expect to be revised upward across the sector from the dismal figures projected at the start of the financial year.
In August, Toyota, the world’s biggest car manufacturer, cut its forecast net loss for the year to the end of March 2010 from Y550bn ($6bn) to Y450bn.
But analysts believe its loss will be smaller.
The strength of the yen remains a concern across all sectors.
The yen traded at an average Y93.7 to the dollar during the quarter, stronger than the level assumed by many Japanese companies for their profit forecasts.
With the currency trading at Y92, investors want to know what the effect will be on full-year profits.

Who cares if Wall Street 'talent' leaves?

There's no need to fear a Wall Street brain drain -- despite the crackdown on pay by Washington.
On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.
Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG (AIG, Fortune 500),Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) could lose their best people.
These firms would then perform even more abysmally, if that's possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.
Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don't exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.
Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses -- including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general's office.
"Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks' financial performance," the report said.
Meanwhile, it's hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.
Unemployment has doubled nationally since December 2007, when the recession started. Securities industry employment has fallen 10% nationwide and 14% in New York from a mid-2008 peak, according to Bureau of Labor Statistics data, costing some 90,000 jobs in the U.S.
0:00 /04:04John Mack: We were wrong on pay
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And Goldman Sachs' (GS, Fortune 500) charm offensive notwithstanding, it looks like the official response to runaway pay is just starting.
The Fed's plan to weigh big banks' compensation plans against their potential for undermining the economy could eventually put pressure on pay at all the big banks.
"This could be a game changer," said Simon Johnson, an economist at MIT. "There will be a lot of pressure on them in Congress to stick it to the big firms."
But maybe the best reason not to fret about talent flight is one familiar to cubicle dwellers everywhere: just because someone has a big, high-paying job doesn't mean they're good at it.
Take Bank of America, for instance. The bank's longtime CEO, Ken Lewis, unexpectedly announced his retirement this month, while agreeing to give back his 2009 salary.
Lewis didn't say why he was leaving, but it seems that criticism over his empire building, mishandling of the Merrill acquisition and outsize pay got to him. The Charlotte Observer reported he had grown tired of the "mud being thrown on him day by day."
Another helping or two of that mud could be just what Wall Street needs.

Stocks tumble after rally

Stocks slumped Friday, in a broad-based selloff that was especially hard on the leaders of the most recent leg of the rally -- banks, energy shares and transportation companies.
The Dow Jones industrial average (INDU) lost 109 points, or 1.1%. The S&P 500 (SPX) index lost 13 points or 1.2%. The Nasdaq composite (COMP) lost 11 points or 0.5%.
Stocks had risen in the morning after upbeat results from Microsoft and Amazon.com, and an encouraging reading on existing home sales. But the tone turned negative in the afternoon.
The three major indexes all ended lower for the week, after two weeks of gains amid a bigger multi-month advance.
"After seven months of mostly rallying, the buyers weren't really here this week and the bears took that as an opportunity," said Paul Brigandi, vice president of trading at Direxion Funds.
Investors getting tired?: Since bottoming at a 12-year low on March 9, the S&P 500 has surged over 62% through its rally high earlier this week.
Although repeated predictions for a big 10% to 15% selloff haven't materialized, smaller selloffs of 1% to 3% have popped up periodically during the past 7 months. Friday appeared to be an extension of that trend.
While the S&P 500 lost 1.1% Friday, for individual sectors, the declines were bigger.
The Dow Jones Transportation (DJT) average, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week. On Friday it lost 3.5%.
Some market pros have said the rise in the transports is a good indicator of the economic recovery. But downbeat comments Friday from railroads Union Pacific and Burlington Northern put that optimism into question. It also gave investors an opportunity to cash out after the massive rise in the sector.
The KBW Bank (BKX) index, which tracks 20 financial firms, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), has rallied over 140% between March and its peak this week. The bank sector slumped as well Friday, losing 1.6%.
A strong U.S. dollar -- bouncing back from one-year lows against a slew of other currencies -- added to the downturn Friday. A strong dollar pressures dollar-traded commodities including oil, which in turn drags on energy shares. Big multinationals that benefit from a weak dollar also slipped.
Stocks had rallied Thursday following upbeat earnings from 3M (MMM, Fortune 500), AT&T (T, Fortune 500) and other blue chips. The advance propelled the Dow back above 10,000 and the S&P 500 closer to 1,100. But that advance proved unsustainable Friday, even though corporate news was upbeat.
"Investors know that the earnings for the third quarter are going to be better than expected," Brigandi said. "That's no longer going to be a catalyst. They are going to want to see something else."
Results: Microsoft (MSFT, Fortune 500) reported weaker quarterly sales and income Friday morning that easily surpassed analysts' estimates. Cost cutting and strong sales of its Windows operating system fueled the advance.
On Thursday, Microsoft rolled out its new Windows 7 operating system, expected to boost PC sales in the coming months.
Shares of Microsoft, a Dow component, rose over 9% Friday morning, touching a one-year high, before giving up nearly half of that advance.
Late Thursday, Dow component American Express (AXP, Fortune 500) reported weaker quarterly sales and earnings that beat analysts' forecasts. Shares fell 5% Friday.
Also late Thursday, Amazon.com (AMZN, Fortune 500) reported a big surge in earnings and revenue, thanks in part to strong sales of its e-reader, Kindle. Shares jumped 27% Friday, hitting a ten-year high.
So far, 199 companies, or 40% of the S&P 500, have reported results. Profits are currently on track to have fallen 18.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago.
Bernanke: The Federal Reserve chairman, speaking Friday, said that the financial turmoil is abating, but that lawmakers have to reform the system to help prevent a crisis of this magnitude happening again.
On Thursday, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. Also Thursday, White House "pay czar" Kenneth Feinberg called for the seven biggest recipients of federal bailout money to cut in half what they pay their top executives.
Economy: Existing home sales jumped to a 5.57 million unit annual rate in September, according to a National Association of Realtors report released Friday morning. Sales were expected to have risen to a 5.35 million unit annual rate from 5.1 million unit annual rate in August.
World markets: Global markets were mixed. In Europe, London's FTSE 100 gained 0.7%, France's CAC 40 lost 0.3% and Germany's DAX gave up 0.4%. Asian markets ended higher.
Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.48% from 3.42% late Thursday. Treasury prices and yields move in opposite directions.
0:00 /06:09Why Ballmer loves Windows 7
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Currency and commodities: The dollar gained versus the euro, after falling to a 14-month low earlier in the week. The dollar gained versus the yen.
U.S. light crude oil for December delivery fell 69 cents to settle at $80.50 a barrel on the New York Mercantile Exchange, edging off a one-year high.
COMEX gold for December delivery fell $2.20 to settle at $1,056.40 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.

Home sales rebound to highest level in 2 years

Sales of existing homes rebounded sharply in September to their highest level in two years, getting a strong boost from first-time homebuyers, according to a report released Friday.
Sales of previously-owned homes jumped 9.4% in September after falling for the first time in four months in August, said the National Association of Realtors. Year over year, sales of existing homes were up 9.2% in September.
"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, NAR chief economist.
Early information from a NAR report to be released next month suggests first-time homebuyers accounted for more than 45% of home sales in the past year.
September home sales hit an annualized rate of 5.57 million properties, up from 5.10 million units in August. A consensus estimate compiled by Briefing.com had forecast sales of 5.35 million units.
Prices still falling. Yun said the market is still underperforming as home values continue to decline.
The median price of homes sold in September was $174,900, falling 8.5% from a year earlier. The drop in prices has been led by an influx of distressed properties, which accounted for 29% of sales in September and include foreclosures and short sales.
"We're getting early indication of price stabilization but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy," Yun said.
With more than 75 million home-owning families having more wealth tied to their homes than the rising stock market, Yun said economic growth without a recovery in their homes' value "will be one of the weakest in U.S. history."
The $8,000 tax credit that has helped first-time home buyers take advantage of the most affordable conditions since 1970, but the looming expiration date of the incentive could hold buyers back from entering the market, said NAR president and real estate broker Charles McMillan.
"Our read is that housing overshot on the downside because homes are selling for less than replacement construction costs in much of the country, and the home price-to-income ratio has fallen below the historical average," McMillan said.
In order for prices to return to normal, Yun says that total housing inventory would need to drop at the 7.5% pace seen in September, which represents a 7.8-month supply, the lowest in almost three years.
To help boost home prices and sales, lawmakers are considering extending the tax credit and expanding it to all but the wealthiest homebuyers.
While keeping the credit would help lift housing prices, senior economist at PNC Robert Dye says it would only be a temporary effect until the program stopped, as was seen with Cash for Clunkers.
"First-time homebuyers don't represent the bulk of the market and there is strength well beyond them," said Dye. "If economic indicators such as consumer confidence show improving trends, then experienced homebuyers will stay in the market and take advantage of [the low] prices" even without the credit.
Where the homes are selling. Regionally, the strongest market was the West, where sales climbed 13% to an annualized rate of 1.3 million. That was 5.7% higher than last year's rate. The median price of homes sold during the month was $219,000, down 15% from last year.
In the Midwest, sales were up by 9.6% to a pace of 1.25 million, which was 7.8% higher year-over year. Prices there have dipped 1% since 2008 to a median of $147,600.
Sales in the South were up 9% from August and 10.8% from last September to a rate of 2.6 million. Prices have dropped 7.6% to $153,500 in the past 12 months.
The Northeast reported a modest rise, with existing sales up 4.4% from August to a rate of 950,000. That was 11.8% from a year ago. The median price there was $234,700, down 7.6% from last year.

Amazon shares close at record high

Shares of Amazon.com surged to an all-time high Friday as investors bet that the online retailer would dominate e-commerce as shell-shocked consumers gradually begin spending again.
The rally came one day after Amazon reported a 69% surge in third-quarter profit, led by strong sales of the Kindle e-reader and other electronics and general merchandise.
The Seattle-based company's stock closed up 27%, to 118.49, shattering the previous high of $106.68 from December 1999.
"[Amazon] held up better than overall e-commerce and retail during the downturn and it appears to be one of the first to be spring-boarding out of it," said Frederick Moran, an analyst who follows the company for The Benchmark Company.
Moran said Amazon drew price-wary consumers away from online competitors and traditional retailers as the recession forced many households to cut back on expenses. Now that consumer spending appears to be gradually recovering, "the rate of growth at Amazon looks truly stunning," he said.
Amazon (AMZN, Fortune 500) said Thursday that sales climbed 28% to $5.45 billion in the third quarter, beating analysts' expectations for an 18% rise to $5.03 billion.
Sales of electronics and other general merchandise, which represent 43% of Amazon's revenue mix, grew 51% in North America and 48% internationally.
Looking ahead, Amazon said it expects fourth-quarter sales to range between $8.12 billion and $9.12 billion, or to grow between 21% and 36% compared with fourth quarter 2008.
Amazon could sustain a 25% growth rate through next year, according to Moran. "Amazon has very uniquely stood out above the retail crowd," he said.

The one market you can't ignore is ...

There have been so many market milestones making headlines lately that it's getting hard to keep track of them all.
The Dow has leapt past 10,000. The S&P 500 is nearing 1,100. Oil's above $80. Gold has surged over $1,000. The euro cracked $1.50 against the dollar.
But there's another asset that just crossed a significant level as well. And even though the number isn't very high, it might be the best news for all the bulls out there that think the economy is on the mend.
Copper prices closed above $3 a pound on Wednesday for the first time since September 2008. That is very important. Here's why.
The price of copper, more so than the prices of oil and gold, appears to be heading higher primarily because of increased demand for the metal. And that is important because copper is a key component for major manufacturing and industrial companies -- the metal is used in wiring for telecommunications networks, pipes for plumbing and appliances, automobiles and computers, for example.
That makes it arguably one of the most important commodities to watch if you are interested in determining whether businesses around the world are actually looking to ramp up production of goods. Some economists and traders even jokingly refer to the metal by the nickname of "Dr. Copper" because of its ability to predict macroeconomic trends.
Now some skeptics have been dismissing the skyrocketing prices of copper and other commodities as the byproduct of mere speculation. Momentum traders may be simply following the trend and bidding up the prices of commodities regardless of whether demand justifies these prices.
In addition, there's the weak dollar play going on as well.
One reason the dollar is sinking is because of concerns about the massive amount of money the federal government is spending on stimulus and bailouts. That's led to inflation fears that have helped pushed gold, which is often viewed as an inflation hedge, higher.
Finally, oil is priced in dollars, so it benefits as the greenback continues to lose ground against the euro and other currencies.
These factors, of course, influence the price of copper as well.
"Copper has doubled in about six months. It's hard to say things have really improved in the economy that much. In the past few weeks, copper has moved in line with the dollar," said Edward Meir, senior commodity analyst at MF Global, a commodity brokerage firm based in New York
A supply disruption caused by mechanical problems at BHP Billiton's (BHP) Olympic Dam in Australia earlier this month have also lifted prices. (Olympic Dam is the fourth-largest copper deposit in the world.)
0:00 /2:32Cashing in on gold
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But copper has also been helped by signs of real demand starting to pick up.
"In the past week, copper and other commodities such as wheat and corn has been given a lift by the weak dollar. But you also have real things driving copper upward," said Patricia Mohr, a vice president of economics and commodity markets specialist Scotia Capital in Toronto.
Freeport-McMoran Copper & Gold (FCX, Fortune 500), one of the world's largest copper miners, reported much better than expected sales and profits for the third quarter Wednesday.
But more importantly, Freeport-McMoran CEO Richard Adkerson told investors during a conference call that the company was taking steps to restart copper production at an idled mine in Arizona and that it was looking to invest in some projects next year that had been deferred due to the recession.
This is encouraging. As I've expressed repeatedly in this column over the past few months, the strength of an economic recovery is going to be largely based on how quickly companies are able to ramp up production and start hiring again.
If jobs come back, that could go a long way towards jump starting consumer spending and ending the foreclosure crisis that is still weighing on the housing market.
To be sure, Freeport's Adkerson went out of his way during the conference call to say that the company was not seeing a big pickup in demand just yet -- especially from the U.S. or Europe. But there are other big markets where demand may be on the upswing.
China, unsurprisingly, is one such market. China imports a lot of copper, primarily for building infrastructure. So the fact that China reported Thursday that its gross domestic product rose 8.9% in the third quarter has to be considered a bullish sign for copper.
"In the first eight months of this year, copper imports into China were at all-time record highs. It's a bigger consumer now than the U.S.," Mohr said. "China's economy has rebounded so nicely that they've had to restock copper supplies to underpin their growth."
Still, MF Global's Meir pointed out that there will need to be more demand for copper in the U.S. to justify further price increases. He said there is little evidence of that at this point.
But even though demand for copper in the U.S. remain sluggish for now, Mohr said there are some signs that car manufacturers may need more copper as they push to make more fuel-efficient vehicles that became increasingly popular in light of the government's Cash for Clunkers program.
"The pickup in automotive production has been quite pronounced and probably will be sustained until the early part of 2010," Mohr said. "A couple of years from now, I expect copper to move over $4. The global economy has largely pulled out of recession."
That may all add up to a much healthier prognosis for the global economy from Dr. Copper than anyone would have thought just a few months ago.

Hand sanitizer in short supply as swine flu hits

Demand for hand sanitizer has gone through the roof since the first cases of swine flu broke out earlier this year, and some makers of the germ-fighting gels are scrambling to keep up.
Market research firm Panjiva recently estimated that 3 million kilograms of hand sanitizer were shipped in the third quarter, compared with 1 million kilograms in the same quarter last year.
Josh Green, chief executive of Panjiva, said concern about the H1N1 virus, also known as the swine flu, is the "most likely explanation" for the surge in volume.
And demand is only expected to rise given the outlook for an exceptionally bad flu season.
In response, the companies that make and distribute Purell, the most popular name-brand hand sanitizer, are ramping up production and urging customers to not hoard the product.
Heavy demand
Johnson & Johnson (JNJ, Fortune 500), which makes Purell and distributes it to retailers, does not provide figures on sales or shipments of items such as hand sanitizer. But the company said demand for Purell has been "heavy" since the first cases of swine flu broke.
"Due to the influenza A (H1N1) virus outbreak this past spring and resurgence this fall, Johnson & Johnson Consumer Companies Inc. has experienced heavy demand on supplies of Purell," said J&J spokesman Marc Boston in a statement.
The company is working to increase production for the remainder of the year and the beginning of 2010, but Boston acknowledged that supplies may be limited in some areas.
"Because of this increase in demand, consumers may currently find limited supplies of Purell Instant Hand Sanitizer at certain retailers," he said.
Don't stockpile
GOJO Industries, the company that invented Purell and distributes it in professional markets, described the increase in demand as "unprecedented."
The Akron, Ohio-based company said it has been running its plants "24/7" and has hired additional workers to help increase output.
"Even with increased manufacturing capacity, there is a limit to how much we can produce in a short period of time," Mark Lerner, GOJO's chief operating officer, said in a prepared statement

Microsoft sales fall; cost cuts please investors

Microsoft said Friday its revenue kept falling and its net income dropped 18 percent in the last quarter, partly due to the hesitation of businesses, which are more profitable for the company than consumers are.

AP - Packages of Microsoft's newly-released operating system, Windows 7, are lined up for purchase inside the company's first retail ...
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Big cost cuts at Microsoft made a difference, though, helping it deliver earnings well above analysts' expectations. Its stock surged $1.29, nearly 5 percent, to $27.88 in afternoon trading. Earlier in the day, the stock reached a 52-week high of $29.35.
But while the quarterly results looked good to Wall Street, they also showed how much Microsoft is still wrestling with a PC industry that remains much weaker than a year ago. In the past year the software maker resorted to its first wide-scale layoffs, and in July it said its annual revenue had fallen for the first time since the company went public in 1986.
After skidding for six months, computer shipments rose in the July-September period. But shoppers tended to buy inexpensive laptops and even smaller, cheaper netbooks, which have older and less profitable versions of Windows installed. Many consumers also passed on buying Microsoft's Office, the package that includes Word, Excel and Outlook, which contributed to a 14 percent total decline in revenue in the quarter.
Businesses watched their spending even more closely. That dragged down Windows results because business-level versions of the operating system are more expensive. And companies that have cut workers are ordering fewer copies of Office and other Microsoft software commonly used at work. Revenue and profit in the group that makes Office sank even as businesses spent more on newer software such as Sharepoint.
Chris Liddell, Microsoft's chief financial officer, said in a conference call that businesses could start replacing aging PCs and servers starting in 2010, "although it could be gradual and occur over a couple of years."
Other companies, especially Intel Corp., have indicated they expect things to improve faster, in the current quarter.
Microsoft's earnings in the last quarter dropped to $3.6 billion, or 40 cents per share, though that was much higher than the analysts' estimate of 32 cents per share in a Thomson Reuters survey. In the same period last year Microsoft earned $4.4 billion, or 48 cents per share.
Microsoft's bottom line was hurt by a summer program in which the company let people buy a PC with the Windows Vista operating system and later install Windows 7 on the machine for free. That meant Microsoft counted only half of its Windows sales in the period and will report the rest as customers upgrade to Windows 7, which was released this week, through January, when the offer expires.
If it had counted its deferred Windows revenue, Microsoft's earnings would have increased 8 percent from last year.
Revenue sank to $12.9 billion, though if Microsoft had counted all the Windows sales, it would have posted a smaller 4 percent drop in revenue, to $14.4 billion.
A big reason that Microsoft's earnings would have increased, if not for the Windows deferrals, despite lower revenue is that layoffs and other expense cuts are paying off. Microsoft employs 4 percent fewer people than a year ago and has spent less on marketing and outside contractors, pushing operating expenses down more than $600 million compared with a year ago.
Microsoft said expenses in the current fiscal year, which ends in June, could be as much as $400 million lower than previously expected.
The company also lifted its earnings per share by resuming purchases of its own stock after a six-month pause, spending $1.45 billion in the quarter.
Even with the buybacks, Microsoft managed to sock away plenty of cash. The company said its cash and short-term investments that could be quickly converted to cash totaled $36.7 billion at the end of the quarter, up from $31.4 billion at the start.

ALL BUSINESS: Innovation needed even in recessions

A theme is emerging from the flood of recent corporate earnings reports: Cost cuts are boosting profits.

AP - Customers use new 21.5-Inch and 27-inch iMacs at the Apple Store in San Francisco, Friday, Oct. 23, 2009. ...
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Investors are cheering, but they shouldn't. Even in these tough times, more CEOs should be talking about how they are seeking out investments, developing new technologies and making acquisitions.
That's what will set their companies up for a stronger future.
Intel Corp.'s former CEO Gordon Moore had it right when he said years ago that "you can't save your way out of a recession." He meant that even in the toughest times, companies have to spend money on new ideas.
Recessions always end, Moore often said, and when they do, companies that embraced innovation during the downturn won't be stuck with obsolete products and services. Instead, they'll have new things to offer once demand picks up again.
"Customers don't come out of recessions spending the way they did before," said Chunka Mui, who has studied how companies can capitalize on opportunities during crises at his Chicago-based consulting firm, The Devil's Advocate Group. "They demand something different."
Surprisingly few companies are following Moore's advice of innovating during recessions.
Companies in the Standard & Poor's 500 index cut 25 percent on average from their capital expenditures expenses and 5 percent from research and development costs between the end of the third quarter last year and the second quarter this year, according to S&P.
Many have been crippled by the pullback in consumer and business spending as well as tight credit conditions, which is making it harder for companies to get loans to fund their operations. That's driven some to hoard cash and make drastic cost cuts. They're slashing jobs and wages and closing stores and factories.
The aggressive cuts have allowed companies to exceed Wall Street's expectations for their earnings. In fact, the "good" news has sent the Dow Jones industrial average above 10,000 for the first time in a year.
The problem is that too many companies are making widespread, not focused cuts. They're telling every division to cut 10 percent of their work force or slashing marketing dollars by the same amount companywide.
That is a quick way to rid a company of costs. But it doesn't help it get in a better position going forward, says Cesare Mainardi, managing director at the consulting firm Booz & Co. and co-author of the new book "Cut Costs, Grow Stronger."
"A downturn like this should force people's hand," he said.
At Intel, Moore's philosophy has been used consistently since he led the chipmaker starting in the late 1970s. Over the years, the Santa Clara, Calif., company's top executives continue to openly discuss the company's strategy of investing heavily in downturns.
During the 2001 recession, which hit tech companies particularly hard, Intel cut thousands of jobs and shut down unprofitable ventures. But it also ramped up spending on research and development on its core business of making computer microprocessors, even as its profits faltered. That helped the company diversify its product mix.
Apple Inc. had been struggling in the late 1990s as competition in the computer business intensified. But that didn't stop the Cupertino, Calif.-based company from boosting its spending by 30 percent on research and development from 1999 to 2002, even as revenues fell.
As a result, the iPod was launched during a downturn in October 2001. Apple also made headway on its iTunes music store at that time, enabling it to launch in 2003.
Southwest Airlines has also expanded during past recessions. The carrier, which is based in Dallas, was founded during a period of weak economic growth and soaring energy costs during the early 1970s. It boosted its fleet of aircraft and expanded its routes during the early 1990s and 2001 recessions, allowing it to steal market share from competitors.
To be sure, some companies are in fact heeding Moore's advice.
Intel announced plans to spend $7 billion over this year and next to build new manufacturing facilities so it can produce faster chips.
Walt Disney Co. is planning to give a high-tech makeover to its stores that will make them into mini-theme parks. Proctor & Gamble is overhauling its Gillette shaving operations in Boston.
Toys R Us Inc. has been buying up competitors, including high-end specialty chain FAO Schwarz. Cisco Systems Inc. has made five acquisitions this year, including two in the last month with a combined price tag of nearly $6 billion.
Google Inc. said it is ready to step up its hiring and plunge money into up and coming businesses, in areas like mobile technology.
"We now have the business confidence to invest heavily in the next phase of innovation, helping to invent the future as we see it," Google CEO Eric Schmidt told investors earlier this month.
It's a leap of faith -- and the right time to do it.

Home sales rise 9.4 pct. in Sept., beat forecast

Racing to complete their purchases before a tax credit for first-time owners expires, homebuyers pushed sales up last month by the largest amount in more than 26 years.

AP - In this Wednesday, Oct. 21, 2009 photo shown is a sign for a home for sale in Philadelphia. ...
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After jumping 9.4 percent in September, home resales are up nearly 24 percent from the bottom in January, the National Association of Realtors said Friday. But the housing market's momentum could easily peter out if Congress doesn't extend the credit of up to $8,000 for first-time buyers beyond its current Nov. 30 deadline.
John Kindschi, a 33-year-old aircraft mechanic who lives north of Seattle, didn't want to miss out. After a yearlong search, he and his family bought a three-bedroom house for $206,000, completing the purchase last week.
"It was getting down to crunch time," he said. "We had no idea if the credit was going to be extended."
Nationwide sales rose to a seasonally adjusted annual rate of 5.57 million last month, from a downwardly revised pace of 5.1 million in August. It was the strongest month in two years and beat economists' forecast of 5.35 million, according to Thomson Reuters. Sales, however, are still down 23 percent from their peak four years ago.
In another positive sign, the inventory of unsold homes on the market fell almost 8 percent to 3.6 million. That's less than an eight-month supply at the current sales pace, and the lowest level since March 2007.
The competition for low-priced foreclosures has become fierce in places like Las Vegas and Southern California. Aldo Martin, 28 of Covina, Calif., had to put offers on 16 houses before having one accepted this week.
"We'd go look at eight houses and if we liked five of them, make offers," said Martin, a sales supervisor. "Your odds are better. We got aggressive."
Marty Rodriguez, owner of a Century 21 real estate brokerage east of Los Angeles, said half of her transactions last month were low-priced foreclosures and short sales, where the sales price is lower than the mortgage balance.
"You have so many buyers in that lower price range," she said. "Sometimes my agents are writing five offers for one buyer on different properties just trying to get one property -- and not getting accepted. It's a little crazy."
Still, economists caution that the pain from the worst housing bust since the Great Depression probably isn't over yet.
While home sales and housing construction have risen steadily after hitting bottom earlier this year, most economists believe that prices, which recently stabilized, will resume their descent. The median sales price last month was $174,900, down almost 9 percent from $191,200 a year earlier, and slightly lower than August's median of $177,300.
The main reasons prices are weak: Unemployment and foreclosures are still rising. With the current 9.8 percent jobless rate expected to rise as high as 10.5 percent next year, foreclosures will continue to set records.
Nationwide, more than 3 million households are either three months behind on their payments or in foreclosure, according to First American CoreLogic, a research firm.
Many delinquent borrowers are still being evaluated for help under the Obama administration's mortgage assistance plan. If they don't qualify, the odds are high they will lose their homes.
Fears about job losses are stifling some sales, said David Hudson, an agent with Exit Realty Platinum outside Atlanta.
"Buyers are still nervous," he said. "They're worried about buying a house, and then all of a sudden, I might not have a job."
A steady job as an operating room nurse is one reason Hope Carson, 41, is able to buy a home. She's planning to make an offer next week on a foreclosed property outside Atlanta and is hoping the deal will close in time for her to qualify for the tax credit.
After searching for about a month in a price range of about $140,000, she has narrowed her choices to two homes, both in foreclosure.
"Is there a little bit of guilt behind that? Absolutely," she said. "You know that somebody was forced to move out."
To entice more buyers like Carson, Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend the tax credit through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.
Realtors and homebuilders are loudly in favor, arguing that the tax credit is crucial to get the housing market back on its feet.
"We are not there in terms of removing the consumer fear factor," said Lawrence Yun, the Realtors' chief economist.
However, some analysts say the tax credit may not be as critical to the housing market as real estate agents suggest. The Realtors association has "an incentive to talk up the effects of the credit as it is urging Congress to extend it, and it therefore may be exaggerating the credit's effects," wrote Nomura Securities economist Zach Pandl.
One potential roadblock to an extension also emerged this week.
There are concerns that some of the 1.5 million applications for the tax credit are fraudulent. The Treasury Department's inspector general for taxes questioned the legitimacy of some 100,000 claims for the credit, potentially including some illegal immigrants and 580 people under 18.