Greenspan cites US budget deficit as part of recession risk
February 26, 2007
In a satellite presentation to a business conference in Hong Kong, former US Federal Reserve chairman Alan Greenspan said that while it is difficult to predict conditions that far out, he cannot rule out a recession in the US economy by the end of 2007. While he said he has not seen any ripples in other sectors from the contraction on the US housing market, the facts that the economy has been expanding since 2001 and profit margins are beginning to stabilize are signs that the economic cycle is ending.
Mr. Greenspan admitted that most analysts do not agree that a recession is in the cards, especially after the US economy grew at a rate of 3.5 percent in the fourth quarter of 2006. However, a survey issued Monday by the National Association for Business Economics says that analysts predict that the economy will grow by 2.7 percent in 2007. That would be slowest rise since 2002.
One concern cited by Mr. Greenspan was the US budget deficit. This continues to be a concern, he said, despite the fact that it was at its lowest level in four years in 2006. Mr. Greenspan made his remarks to the Very GC Global Business Insights 2007 Conference.
$1.5 billion in damages assessed against Microsoft
February 23, 2007
A federal jury ruled on Thursday that Microsoft (NASDAQ: MSFT) must pay $1.5 billion to Alcatel-Lucent SA (Euronext: ALU; NYSE: ALU; TYO: 6687) for violation of two patents that concern coverting audio into digital MP3 files on personal computers. Lucent Technologies, which was acquired by Alcatel last year, filed 15 patent claims against two other computer companies, Gateway Inc. (NYSE: GTW) and Dell Inc. (NASDAQ: DELL; SEHK: 4331) in 2003. In April of that year, Microsoft added itself to the list of defendants because it claimed the patents were closely related to its Windows operating system. Two of those claims were ultimately thrown out and six separate trials were set to try the remaining claims, which touch areas such as speech and video coding and the Windows user interface.
An attorney for Microsoft said that Thursday’s verdict was “completely unsupported by the law or the facts”. In the trial, Microsoft said that Alcatel-Lucent’s patents do not govern its MP3 encoding and decoding tools and that it licenses its MP3 technology from German company Fraunhofer-Gelleschaft. Further, it said that the damage award was “outrageous” considering the fact that its licensing fees to the German company was only $16 million. The damages were calculated, according to Microsoft, by multiplying the sales volumes of Windows by PC sales prices globally since May 2003.
US Supreme Court limits punitive damage awards in tobacco case
February 21, 2007
The United States Supreme Court has handed down a ruling that puts new constitutional limits on some damage awards. The 5 to 4 ruling set aside a punitive damages award in an Oregon case against tobacco company Philip Morris, a division of Altria (NYSE: MO) that awarded $79.5 million in punitive damages to the widow of a man who died of lung cancer after many years as a smoker.
The court ruled that the Oregon Supreme Court was wrong to let the jury in that case punish the tobacco company for harm to all smokers in Oregon. The decision said that jurors may only award punitive damages for harm to the person filing the lawsuit, but not for the harm to other victims not party to the suit.
Robin Conrad, senior vice president of the US Chamber of Commerce’s litigation unit in Washington, said that the ruling is a “big win” for business. However, the court did not extend its ruling to the issue of the size of punitive damage awards. According to one punitive damages expert, business would have liked more specific guidelines from the court as to acceptable amounts of punitive damages that may be awarded in similar cases. However, it is traditional for the Supreme Court to limit its rulings to the case at hand.
Still, the ruling will benefit the tobacco companies as well as pharmaceuticals companies such as Merck (NYSE: MRK), which is currently looking at over 27,000 suits involving its Vioxx painkiller, which was withdrawn from the market after being implicated in an increased risk of heart damage.
Ebay resists proposed reporting rules
February 20, 2007
Ebay (NASDAQ: EBAY) says that the administration of US President George W. Bush is trying to force it to inform on sellers who use its online auction site. The company said that they are willing to co-operate in individual Internal Revenue Service (IRS) investigations, but that it is not their place to report on seller’s income from the site. That, they say, is the individual seller’s responsibility. Ebay has more than 200 million registered users, and says that around 4.3 million of those users rely on the site for a significant part of their yearly income.
The plan reportedly would force Ebay and other online auctioneers to report American sellers who complete more than 100 transactions worth at least $5,000 each year to the IRS. The new rules are planned to be implemented from 1 January 2008. Besides putting it in the position of go-between for the government, Ebay says that the plan is unfair because it does not target online classified advertisement sites like Craiglist.
The online auctioneer is actively lobbying in Washington and will not only challenge the Treasury Department’s authority to require reporting of some of its users activity but will also challenge the legality of the proposed rules, saying that while they offer “auction-like” transactions, they are not in reality auctions because they have a fixed ending time. At least one member of the US House of Representatives has said he would work with Ebay to oppose the proposed rules.
New home construction in US declines in January
February 16, 2007
According to a new report from the US Commerce Department, the number of new homes built in the United States dropped much more than had been expected in January, with 14.3 percent fewer houses built. New home starts were at 1.4 million units on an annualized basis. The new data comes on the heels of a report showing that the number of new applications for new homes dropped 2.8 percent to an annual rate of 1.56 million in the month. In addition, the National Association of Realtors has said that sales of existing homes was down in 40 of the 50 US states in the last quarter of 2006.
The new data, which indicates collectively that the slowdown in the US housing market is likely to continue for awhile longer rather than stabilizing, worries analysts. The new housing numbers received more attention than Labor Department figures showing that wholesale inflation was 0.6 percent lower in January. The numbers show, analysts said, that the slowdown in the housing sector will likely affect the gross domestic product for a longer period of time than had originally been expected.
Declining smoking rates mean less tax money for states
February 16, 2007
Those who believe that smoking is just a health problem are probably not politicians who have to worry about things like budgets.
More and more US states are putting restrictions on where and when people can smoke. Beginning with banning smoking in the workplace, some states have followed up with the elimination of smoking in bars and restaurants. Many of these states have also raised taxes on cigarettes and other tobacco products as a way of encouraging people to stop smoking. In a few states the tax has approached or exceeded $2 per pack.
But in states where people are actually smoking less, tax revenues on tobacco products have dropped. While the effect on state budgets might not be immediate or severe, officials of those states are thinking about the decline in tax dollars coming into state coffers. With tobacco taxes being one of the few kinds of taxes that many people feel that it is acceptable to raise, that money has often been seen as a way to quickly solve budget problems that crop up.
In 2005, the latest year for which data is available, about one-fifth of adults in the US were smokers. That is down 25 percent from ten years ago. As a consequence, states were able to tax 2.8 billion fewer packs of cigarettes in 2005 than they had in 2000. While the states took in $13 billion in tobacco taxes in 2005, 15 states collected less taxes on cigarettes than they had in 2004. Federal taxes collected on cigarettes was also down, from $8.1 million in 2002 to $7.7 percent in 2005.
While the states could realize some savings in reduced costs for treating medical conditions related to smoking, it isn’t clear whether these savings will offset the losses from lower cigarette tax revenues. And so the politicians, who don’t want to encourage smoking, still worry about how their legislation limiting smoking will affect their states’ bottom line.
Bernanke says US economy will grow moderately
February 14, 2007
US Federal Reserve chairman Ben Bernanke said in testimony before Congress on Wedensday that the nation’s economy should continue to grow moderately even though the housing market could still falter more than currently expected, hurting growth overall. He said that he expects inflation to continue to moderate but that there is still some risk and would not rule out further interest rate increases.
Mr. Bernanke specifically said that it would be “some time” before the Fed will be confident that inflation is moderating as expected, and that if it does not that the Fed is prepared to deal with it by raising interest rates further. Still, he said that the current rate, at 5.25 percent, is “likely” to both sustain economic growth and allow core inflation to decline.
Addressing the fears of some Democrats that the gap between rich and poor in the United States, which has widened recently, Mr. Bernanke said that the key to reversing this trend lies in providing education and job skills training. He also addressed the record US trade deficit, saying that protectionism is not the solution. He also said that China must do more to make its currency more flexible.
Following Mr. Bernanke’s comments, the US dollar weakened on global currency markets but the price of treasury bonds and the New York equities markets both saw advances.
2006 US trade deficit a new record
February 13, 2007
The United States’ trade deficit was up 6.5 percent in 2006 to $763.6 billion, according to a new report from the US Commerce Department. December’s trade deficit was $61.2 billion, 5.3 percent higher than November’s gap and more than had been anticipated. The December rise, $1.7 billion higher than expected, was due to higher oil prices and record imports of cars, auto parts, and consumer goods. While imports of oil cost the US $302 billion in 2006, the cost of buying foreign oil was not the whole story of the year’s trade deficit. Non-oil goods imports also set a record at $547.2 billion.
The trade gap with China was up by 15.4 percent to $232.5 billion for the year as a whole, even though the US exported goods and services worth a record $55.2 billion to China during 2006. Imports from China totaled $287.8 billion. The 2006 figures will likely only add fuel to the fire of US calls for a more flexible Chinese currency, which US legislators and manufacturers claim is being held artificially low by the Chinese government in order to gain an advantage in global markets.
In addition to the record trade deficit with China, the US also notched record in its trade deficits with Mexico and Japan in 2006. Still, even though the 2006 US trade deficit set a new record, growth of the deficit was slower last year than it was in 2005, when it grew by 17.3 percent.
Higher consumer confidence in February doesn’t help US president
February 9, 2007
Consumer confidence in the US is higher than it has been in 2 ½ years, according to the RBC Cash Index. The index, which is based on the results of polling by Ipsos, rose to 103 in February, up from 95.3 in January. There was some concern among poll respondents about how the US economy will fare in the next half-year, worries that were attributed by analysts to problems in the housing and automobile sectors. That component of the index dropped to 69.2 for February, down substantially from its reading of 83.3 in January.
Respondents are happy with current economic conditions, however. That component of the index was at 114 in February, the highest its has been in five months. The results of the February poll also showed that consumer are upbeat about the job market, with that component of the poll at 131.9 for February, the highest it has ever been. While the unemployment rate was up to 4.6 in January, according to a government report, joblessness is still lower than it has often been. Feelings about saving and spending money were also better in February, with that index at 102.4 after having been at 83.2 in January.
Better consumer confidence has not translated into better approval ratings for US President George W. Bush. Mr. Bush’s job approval rating fell to 32 percent, equaling its lowest level ever. Forty-two percent of respondents approved of his work on the economy, while 55 percent disapproved of the way he is handing the nation’s financial issues.
Cash for a quick house sale
February 8, 2007
The recent trend in property development has seen the private sector - including a number of motivated individuals - turn to buying up run down property, or other homes in need of repair, and develop them to a high quality standard for sale.
However, these house buyers depend on being able to buy a home quickly, and then sell house quick after.
Usually these property development companies and individuals will pay cash for house and homes, so can make for a very good property buyer if you are in need of quick sale.
So if you need to “sell my house” because of a poor state of repair, then property developers can prove to be a valuable buyer in the property market.
SEC in insider trading investigation with a twist
February 6, 2007
The US Securities and Exchange Commission is looking into whether big banks have leaked trade information to favorite clients in a bid for favor with those clients. The investigation is said to have as its object discovering just how common insider trading is in the New York markets.
Brokerages that act ahead of client orders for their own benefit has long been an issue on Wall Street, but the current investigation is more focused on whether banks are tipping off their best customers, including hedge funds, with inside information that allows them to make trades with other banks with the purpose of hiding the source of the information that allowed them to make advantageous trades.
The SEC sent out letters last month to major banks asking for a wide variety of information, including all stock and option trading data for the banks and their customers for the final two weeks in September, the end of the third quarter. Recipients of the letters included Deutsche Bank, Merrill Lynch, Morgan Stanley, and UBS.
The SEC will use the information to determine whether it looks like banks are tipping off customers in ways that allow the customers to make trades that they would not have made without the information. If any evidence of such inside trading is turned up, a formal investigation that could lead to civil charges against the institutions and/or individuals involved.
The SEC has confirmed that the investigation is being conducted but would not offer any details, while none of the banks included would comment.
SEC in insider trading investigation with a twist
February 6, 2007
The US Securities and Exchange Commission is looking into whether big banks have leaked trade information to favorite clients in a bid for favor with those clients. The investigation is said to have as its object discovering just how common insider trading is in the New York markets.
Brokerages that act ahead of client orders for their own benefit has long been an issue on Wall Street, but the current investigation is more focused on whether banks are tipping off their best customers, including hedge funds, with inside information that allows them to make trades with other banks with the purpose of hiding the source of the information that allowed them to make advantageous trades.
The SEC sent out letters last month to major banks asking for a wide variety of information, including all stock and option trading data for the banks and their customers for the final two weeks in September, the end of the third quarter. Recipients of the letters included Deutsche Bank, Merrill Lynch, Morgan Stanley, and UBS.
The SEC will use the information to determine whether it looks like banks are tipping off customers in ways that allow the customers to make trades that they would not have made without the information. If any evidence of such inside trading is turned up, a formal investigation that could lead to civil charges against the institutions and/or individuals involved.
The SEC has confirmed that the investigation is being conducted but would not offer any details, while none of the banks included would comment.
Bush submits 2008 budget to Congress
February 5, 2007
The new budget submitted by US President George W. Bush to Congress on Monday, calling for $2.9 trillion in total spending, includes nearly $700 billion in military spending. Most of that $700 billion will go to military operations in Iraq and Afghanistan. The budget, for the fiscal year beginning 1 October 2008, will result in a budget surplus by the year 2012, according to the Bush administration.
The new budget calls for extension of the tax cuts first introduced in Mr. Bush’s first term, which will reduce revenues by an estimated $1.6 trillion over 10 years. It also either cuts or eliminates 141 programs, according to a report from CNN. Some of those cuts will come in the form of $78 billion of savings in Medicare and Medicaid. Medicare provides insurance to retirees and the disabled, while Medicaid is a health program for children and the disadvantaged. $168 million will be spent to increase strategic oil inventories.
This is the first budget that Mr. Bush has had to submit to a Democratic-controlled Congress, and there is little chance that the budget will stand as submitted. Both Democrats and Republicans were quoted as saying that it will be difficult for the budget to gain support in its present form. The chairman of the Senate Budget committee, Kent Conrad, a Democrat, said that the budget was “disconnected from reality”. Conrad did say that this budget does better at accounting for near-term costs of the war in Iraq, although he criticized its accounting of the full costs of the war and that while it assumes cuts in domestic programs past 2008 it does not say where the cuts will come from after that year.
New US minimum wage one step closer to passage
February 2, 2007
US workers are one step closer to a higher federal minimum wage after the Senate voted, 94 - 3, to raise the minimum wage in the US to $7.25 an hour, $2.10 more than the current $5.15 per hour. The federal minimum wage has not been increased in ten years, and passing a higher wage is one of the major priorities of the new Democratic-controlled Congress.
The passage of the Senate bill came with provisions for tax cuts for small businesses and limits on corporate pay . The tax cuts, which would last five years and would be given to businesses that hire the disadvantaged, would be paid for by capping deferred compensation to corporate executives, closing loopholes relating to offshore tax shelters, and making punitive damages payments and fines non-deductible. Another amendment to the bill forbids companies that hire illegal immigrants from being granted federal contracts.
Because the minimum wage bill passed by the House of Representatives earlier in the month included no tax provisions, the two bills must be reconciled before it can be passed in final form and sent to President George W. Bush for his signature. It is not clear at present whether such a reconciliation will be achieved. If the bill does pass in final form, it will raise the federal minimum wage in three steps. The first step, a raise to $5.85 per hour, would go into effect 60 days after the bill is signed by the president. Then, one year later it would go up to $6.55 per hour; one year after that, it would to up to $7.25 per hour.
Around half the states and the District of Columbia currently have minimum wages that are higher than the current federal level, including six states that passed new minimums in the November 2006 election. Still, an increase in the federal minimum would affect 5.6 million people who currently make less than the proposed new federal minimum, according to the Economic Policy Institute.
US Manufacturing slips in January
February 1, 2007
The Institute for Supply Management said on Thursday that manufacturing in the United States contracted in January as factories received fewer orders in January than they have had in almost three years. The ISM released new data that showed its manufacturing index was at 49.3 in January. Any reading under 50 indicates that manufacturing activity is contracting rather than growing.
The new figures emphasized a feeling among many analysts that the manufacturing sector could be close to recession. Despite industry predictions that 2007 will bring recovery after sector weakness last year, the new data indicates that recent declines might not be over yet. Some analysts have characterized the sector as “on the brink” of a recession.
In separate and more optimistic news, new figures showed that personal income in the US was up 0.5 percent in January, giving consumers more disposable income. This circumstance is widely seen as the main reason that the US economy grew by 3.5 percent in the last quarter of 2006. It also helped that inflation remained moderate, with core prices up just 0.1 percent in December after no change in November.