Economic growth still the same as predicted
February 29, 2008
On the 28th of February when a revised evaluation on the GDP came out, it showed that the growth rate of the US economy which was predicted in the last quarter is going to remain the same. The growth rate which was announced earlier was of almost 0.6 percent.
Gross Domestic Product is the widest measure of a country’s economic activity. The Commerce Department on Thursday said that the Gross Domestic Product after getting adjusted for inflation is going to be at an annual rate of 0.6 percent in the last quarter. The results of the announcement that came out on the 28th were in line with the estimates that were released late in the month of January. Even though the rate has managed to stay at the same position without slipping further below, this rate is still way below the finishing reading in the third quarter. The final reading in the third quarter was 4.9 percent annual rate.
The various economists of the nation who were surveyed said that they had expected the revised reading to show that the economy had grown at an annual rate of 0.8 percent in the final quarter. However there are quite a lot of positive things that can be inferred from the revised report.
Some of the positive signs are that the alterations in the non-farm catalog sheared off almost 1.4 percentage points of the total predicted growth. This was more than the prediction in the previous report where it had said that the percentage point was going to be 1.2 percent.
Many of the surveyed economists were of the opinion that the economy was stronger than what most people were thinking. True that the numbers in the various economic reports that are coming out are not all that great, but the economy is managing to stay in a fixed position without slipping further. The economist say that the numbers in the revised inventory hints that the real Gross Domestic Product growth rate was up from the previously forecasted 1.8 percent to 2 percent.
Other economists said that the boost in the inventory insolvency indicates that the business sector will pick up on its production during the first quarter to refill those inventories. This would then provide for the first quarter to show some signs of positive growth. But most of the economists who were surveyed said that the country’s economy is going to grow at a very slow pace indeed. Although most of them were of the view that USA would be able to stay clear of any recession.
Another interesting thing that was there in the report was that it showed a mixed view for inflation in the previous quarter. The Federal Reserve has cut the interest rates several times after September. While many economists are of the view that the Fed must slash the rates further to improve the current economic condition, many others are of the view that further key interest rate cuts would result in the nation going into an inflation.
Stocks drop again as fears of recession mounts
February 29, 2008
The Stocks slumped again on the 28th of February as the worries of a coming recession mounted to higher levels. The stocks took a drop on Thursday after the remarks made by the Federal Reserve chairman Ben Bernanke on the banking division enhanced the fears of a recession. Another reason for the drop was the feeble reports that came in on Thursday about the nation’s economic growth and the employment market. His remarks together with the weak reports that came in was enough to scare away the Wall Streeters who were looking for some sign of financial recovery.
The Dow Jones industrial average fell by 0.9 percent. The Standard and Poor’s 500 index also took a fall of 0.9 percent at the end of the day. The day also saw the tech heavy NASDAQ Composite as well taking a fall of 0.9 percent. After the trading closed at the end of the day Dell announced a quarterly profit as a result of the numerous charges it had taken in the quarter. The profit that it has reported is however lesser than what it was in the previous year. This resulted in the shares falling in the extended hours of trading.
AIG, Dow Stock, announced that the group has taken an $11 billion write-down and also declared a huge $5.3 billion loss in the quarter. The reason the company gave for the heavy loss in the quarter is because of the fall-outs the company had to suffer in the investments the company had made in the home loans. The shares of AIG fell during the extended hours of trading after this announcement came in.
Once the trade closed the Gap company said that its quarterly incomes had met with the forecasts. They also said that the board of the company had approved a $1 billion shares buy back plan. This announcement resulted in the shares of the company taking a jump by almost 5 percent during the after-hours trading.
The last day of February is going to be very crucial as the reports on the personal spending and earning would come out on the 29th. The inflation factor of the report would also be very important. The fact that all this comes before the start of trade makes them all the more important. Another report that is scheduled to come in on 29th is one on the manufacturing sector in the Midwest. A report on the consumer sentiment is also due on the 29th. The last two reports are listed to come in shortly after the trade has commenced.
The treasury prices went for a roll on the 28th and resulted in the yields going down even lower. This prompted the investors to take up the safety of a government debt. During the day the oil prices went above a record trading high of $102 per barrel. The gold price was also at a very high level. To make things worse the dollar once again took a record low against the Euro. It also took a fall in front of the Yen.
A half-point cut by the Fed a sure bet
February 29, 2008
After the Federal Reserve chairman finished his testimony in Capitol Hill, one thing was quite clear and obvious from whatever he said. A cut in the interest rates by at least half a percent is an almost sure bet. Although Bernanke did not exactly mention what course the Fed would be following next, the Fed head left the place only after giving everyone the strong impression that the central bank most probably will make another cut in the interest rates. From the gist of things, the cut is going to be by around half a point.
The policy makers of the Federal Reserve are planned to meet once more on the 18th of March to discuss their future course of action. As of now the futures registered on the Chicago Board of Trade point towards the investors believing completely on a half-point cut. Ti also shows that there is 32 percent chance that the Federal Reserve would cut the interest rates by somewhere around three-quarters of a percentage point.
Some of the leading economists are of the opinion that a 50 point slash would be a reasonable compromise considering the present economic scenario. However if the cut is going to be by more than that, the Federal Reserve would be in the line of fire for triggering a nation wide inflation.
Ben Bernanke had spent 2 whole days on the Capitol Hill testifying in the House as well as the Senate as a part of his semi annual hearing on the central bank’s monetary policies. During his testimony he had portrayed the three main problems the Fed is facing at the moment: the nation’s economy which is almost at the verge of a recession, completely unpredictable and unstable markets and the ever rising fears of inflation.
But throughout his testimony the main focus of his speech was on the health of the U.S. economy. Bernanke throughout the 2 day testimony was focusing on the downside risks to the economy that exists in the nation currently. Some of the main reason for the economy doing badly, according to him, is because of a housing sector that is doing very badly at the moment and because of the reduced consumer confidence in the country.
The remarks he made along with the various other economic reports that came out on the 27thand 28th of February indicates strongly towards the possibilities of Fed decreasing the rates. Even before Bernanke had finished with his testimony the leading investors in the country were talking about a half-point cut with almost utmost certainty. After the testimony was over the chances of Fed implementing a half-point cut is said to be at almost 94 percent.
If the Fed actually does implement the rate slash, it would mean the Fed fund rates would come to almost 2.5 percent. The Fed fund rates affect the prices on a number of consumer loans together with credit cards as well as mortgages.
Google shares recuperates slightly
February 28, 2008
On the 27th of February the Google shares were able to recover a bit after almost three days of massive selling. The company was able to do so as a result of the support of some analysts in the internet field. Some days back a report had come out saying that the ‘Pay-per-click’ advertising sector of the company is slowing down a bit. However the analysts of the field came to the rescue of the company to suggest that nothing of that sort is happening.
Throughout the year the Google shares has been on quite a slide. After starting the current year at a stock value near the $700 mark it has been falling steadily. By now it has lost almost one by third of that value. The slide was a bit too much in the last few days as it came down by almost 8 percent in the last couple of days. The main reason for this sudden drop was the report that comScore let out, which said that the growth of paid clicks that was happening in the Google supported site was declining. The growth rate is calculated by the number of times a Web user will click on an advertisement supported link.
Since most of the websites make a heavy chunk of revenue in this fashion, the news came out as a blow to the company. Just like any other Google also got a large amount of its revenue from these ‘paid clicks’. As the report came out saying that these clicks were reducing it led to worries amongst the investors that the company would be a victim of the economic slowdown if the consumers decided to put a check on their spending.
Many analysts came in defense of the internet giant as the report came out. Many of them admitted that the escalation of the company’s paid search had to slow down over a period of time. But they made it very clear that the company will not be affected by the present macroeconomic conditions that exist in the society now. Many believe that such things will in the least way affect the paid clicks of the company.
As an explanation to the report the company executives said that this was only a short term phenomenon that was happening and as a result of improved technology Google has implemented to make sure that accidental clicks by the users were kept to a minimum. This they believe would result in reduced revenues for a short period of time. This was the explanation the company used to justify the drop in the number of paid clicks as it came out with its fourth quarter earning report.
The shares of the Google based in Mountain View, California rose by $8.67 which is almost 1.9 percent to finish on the 27th at $472.86. This was the first time in three days that the shares increased. The stocks however are still at a very low level as compared to where it was one year back.
Stocks neither gain nor lose
February 28, 2008
On a day when the stocks decided to play funny the trade ended with markets closing on a mixed territory. On the 27th of February the investors were in a mixed state of mind on whether or not to carry forth with their investment plans. While the comments made by Ben Bernanke, the chairman of the Federal Reserve in front of the House Financial Service Committee was encouraging for investing, the ongoing worries about inflation was heavily playing on the back of the investors.
The NASDAQ index was able to increase slightly but other indexes remained in a neutral position. The Dow Jones industrial average went up by a few points while the Standard & Poor’s 500 went down by a few points. The tech heavy NASDAQ as earlier mentioned was able to gain slightly. At the end of the day NASDAQ had gone up by 0.4 percent
The investors, it seems, are waiting for the modified reading on the fourth quarter Gross Domestic Production and the final day of the Fed head’s congressional testimony.
On the 27th the trading started off on a low note as the investors were pulled back from investing as a result of the very weak reports that were coming in about the housing and manufactured goods. The almost record high oil prices and a record low of the dollar when compared to the Euro were some of the other factors which played on the investors minds. But the early losses were wiped out as a result of a couple of mid-morning incidents that took place. These two incidents not only helped in erasing the early morning loses but also in helping the stocks go higher. It seemed as if the day might end on a good note until late in the day when sluggishness set in and wiped out most of the gains.
Freddie Mac and Fannie Mae shares are some of the shares which went higher on the news that the mortgage lenders are to find restrictions in the size of their portfolios removed as on the first of March. This would mean billions of dollars would be free for investing in the housing market.
The investors were also glad to hear about Bernanke’s testimony before the House Financial Service Committee where he reaffirmed the statements that Fed has come up with in the past few weeks. It was quite obvious from his statements that the Fed was prepared to go forward with its interest rate cuts to get the economy to a state of stability. He however admitted that turbulences that are there in the housing and credit market is going to be a big hurdle that Fed will have to overcome to go forward with its current economic outlook. Bernanke also acknowledged the fact that chances of inflation are very high at the moment.
The Federal Reserve is expected to decrease the Fed funds rate when it meets on the 18th of March. They are expected to cut this important short term interest rate by almost half percentage point.
Bernanke concedes that the economic growth is going to be very slow indeed
February 28, 2008
On the 27th of February when the Federal Reserve chairman Ben Bernanke appeared before the House Financial Service Committee on Capitol Hill for the first day of testimony, he admitted that the growth rate of the nation in the current year is going to be very slow indeed. He also raised his concern about the overwhelming chances of the nation going into inflation.
The entire pool of investors and financial experts had their eyes on the Fed head on Wednesday as he embarked upon the mission of trying to summarize the huge amount of challenges the Federal Reserve was facing at the moment. Some of the main problems it is facing at the moment, according to him are that, the economy is currently at a very high risk of falling into a recession; the financial markets are totally unstable and volatile and the ever rising possibilities of inflation.
Bernanke as he faced the House Financial Service Committee admitted that the economy is facing a ‘difficult situation’. His remarks were made on the first day of the semi-annual trial regarding the Federal Reserve’s monetary policies till now. He told the House Financial Service Committee that the main challenge the Fed was facing was to make sure that a balance was attained between the risks involved and the activities that Fed was undertaking. He also said that determining at a particular point of time which risk is more serious is also very important for the journey ahead.
The testimony he made to the lawmakers however made one thing very clear: the economy was the still the prime concern of the central bank. His prepared testimony gave enough evidence to imply that the downside risk to growth that was there earlier is still there at large. All the comments and remarks Bernanke made was in sequence with the Federal Reserve’s recent stance. It was also a follow-up of the comments he had made almost two weeks earlier along with the Treasury Secretary Henry Paulson in front of a Senate panel. At that time both of them had said that the U.S. economy was not going to do to well this year but that it would be able to avoid the recession that has been forecasted as a result of a $170 billion plan that had been approved by President Bush on the 13th of February. The interest rate cuts the Fed have been implementing is also another factor according to him that will help the country in avoiding a recession.
As his testimony was released, the markets at the outset turned higher. This is because the investors found enough from his words that the Federal Reserve was prepared go forward with its interest rate cuts to boost the economy even further.
Speaking about Bernanke’s testimony on the 27th many of the e
Bernanke to focus on the monetary policies
February 27, 2008
When the Federal Reserve chairman Ben Bernanke faces the House Financial Services and Senate Banking committees it is believed that he is going to focus remarking about the monetary policies. Only last week had Bernanke along with Treasury Secretary Henry Paulson testified before the lawmakers about the various actions of the Fed. Now he returns to the Capitol Hill on the 27th to appear before the committees.
It is believed that his remarks are going to revolve around the current state of the central bank’s economic policy. Ben Bernanke, it is believed, will have to face a lot of questions about the wobbly state of the U.S. economy. The position of the credit markets and the possibilities of the inflation are the other areas on which he will have to give answers. It has only been two weeks since Bernanke had to face questions from the Senate Banking committee.
In the meanwhile however the 2 policy makers said that the economic growth in the year is going to be rather slow. But they expressed their belief that the economy would stay well clear of the recession. This they believe so because of the $168 billion economic plan President Bush had signed on the 13th of February. The recent interest rate cuts that Fed brought about in the last week is another factor which strengthens this belief.
Bernanke is expected to elaborate on these believes but he is not expected to steer away from his current script of thoughts. This is because it would not be good for the image of Fed if its chairman was found to be deviating from his ideas.
Lately Fed has taken a sterner stand on issues regarding the economy of the country. Only last week did they announce that the forecasted growth rate for the current year was going to be lesser than what they had predicted earlier. They also said that the unemployment rate was going to climb more than 5 percent in the current year. The various economic data that has come out in the recent past are also suggesting that this is true.
A survey about the residential real estate on Thursday revealed that the turn-down in the home prices gather pace as the previous year came to an end. The New York based Conference Board reported that the consumer confidence fell to the lowest level in the last five years. The main reason for this fall in confidence is because of the fears that exist about the job market and the slowing business activity.
Another item that will remain as a main concern for the Federal Reserve and Bernanke will focus a lot on is the fragility of the credit markets. This is because the credit markets continue to face major liquidity issues. The commercial paper market is another area which continues to remain under a whole lot of pressure. This market is one of the important sources of short term funding.
Stocks gain inspite of discouraging economic news
February 27, 2008
On the 26th of February the stocks closed for the day on a positive note. The stocks had gained for the third session in a row on a Tuesday to end the day higher. The main reason behind the rally was the upbeat news that came from IBM and the bond insurer MBIA. The good news that came from these companies was enough to counter the relatively discouraging economic reports that were released earlier in the session.
At the end of the day the Dow Jones industrial average had gone up by 0.9 percent and the Standard & Poor’s 500 was able to gain by 0.7 percent. The tech heavy NASDAQ composite also was able to gain more than 0.75 percent.
This is despite the fact that the bond prices in the country went up in the day. The crude oil price leaped by $1.65 a barrel to reach a record high. The U.S. dollar also came down to a record low with respect to the Euro.
The shares had gone down a bit in the morning when various economic reports started coming in. Most of the reports that were coming in were indicating the rising possibilities of a wholesale inflation, frail consumer confidence and further disturbances in the housing market. The investors however had the confidence to go forth with their investments after IBM announced that the company would purchase back $15 billion in shares. This news seemed to be enough to steer the stock throughout the early session. Stock maintained its climb in the later part of the session as well. Moody’s investor service said that they will uphold the bond insurer MBIA’s credit rating and this also helped the stocks in its gaining spree. As the day came to a close the stocks sliced the gains it had received.
The investors are now focusing their attention on Ben Bernanke, the chairman of the Federal Reserve, who will appear before the House Financial Services and Senate Bank committees on the 27th of February to discuss monitory policy. He will also talk about the current state of the nation’s economy.
On the 27th however the trading is bound to be affected by the various economic reports that will be released on the latest home sales and the durable goods orders let out. Another important economic data which is considered to affect the trading is the Government’s weekly energy inventory report that will come out on the 27th.
On the market doing well despite all the discouraging news that came out on the 26th the market analysts are saying that the market nowadays has gotten quite resilient. It seems as if the market is quite used to the gyrations now and that it is now trying to move forward.
It was IBM’s positive outlook together with the optimistic news about the bond insurer MBIA that gave the investors the courage to go forth and create an upbeat sentiment on Wall Street.
White house to go against the foreclose bill
February 27, 2008
The White House on the 26th of February said that it is going to veto a foreclosure bill that will reach there. The bill seeks to follow the recent economic stimulus package with many other proposals to get the struggling housing market to stand up on its own. The bill also seeks to reduce the number of foreclosures that are happening in the country.
The democrats in the senate had wanted to begin the debate on the issue as soon as possible but all action on the topic has been postponed to a later date in the week as the republicans are keen on keeping the subject of Iraq in the prime position.
The housing bill with which the Democrats came up with would change the bankruptcy laws that are there in the land and would provide the judges to decrease the interest rates and cut down on the money the borrowers owe the mortgage providers. It would also provide $4 billion to communities to buy and recuperate the already foreclosed houses. It also tries to make the sub prime mortgage loans more transparent to make sure that the borrowers would not be surprised by some big payment increases.
The White House however said that the amount of $4 billion is too high for the purpose of buying foreclosed homes. It also said that if the bill was passed it would serve as a bailout for the loan providers and the lenders were doing nothing to help the homeowners who are struggling to cling on to their homes. The White House also said that both the provisions that are mentioned in the bill would actually result in delaying of the recovery of the housing market.
Some of the other features that are there in the democratic bill are the provisions taken from the Senate’s version of the stimulus bill to encourage the mortgage revenue bonds. It will also add a decent amount of flexibility to help the homeowners get a refinance done on their sub prime loans. The measures would also allow the homebuilders as well as many other money losing businesses to reclaim those taxes which were paid previously.
This bankruptcy measure which the Democrats are trying to get approved is being vociferously opposed by many lenders and mortgage providers not to mention the long list of Republicans. They say that if such a bill got approved it would hurt the borrowers as it would then mean higher interest rates and increased down payments to reduce the risk of the homeowners trying to file for bankruptcy and get a court intervention.
The Democrats as a response to this claim of the Republicans and the money lenders said that they would tighten the bankruptcy provision that is mentioned in the bill so that only those borrowers of a sub prime loan would be able to get the benefits of the provisions. They also said that in order get the benefits the borrowers of the sub prime loans they will have to prove that they are not in a position to afford their current mortgage.
Chairman of American Express gets huge pay increase
February 26, 2008
The chief executive and chairman of the American Express Co. received a very huge boost in pay for the year 2007. On the 25th of February it was announced that Kenneth l. Chenault is getting a compensation which is approximated at a value of $53.2 million in the year 2007. This amount is almost twice the amount he got in the previous year. The news was let out in a regulatory filing on the 25th of February.
The main reason for him getting this big increase is because of a very high rise in the stock and options grant the American Express gave him. Chenault who is only 56 got an enormous amount of $42.8 million as stock awards for his performance in the year 2007. Apart from this he also got a special incentive stock option grant. This is way more than what he had got in the previous year in the form of stock awards. He had got only $16.9 million in 2006 as stock awards.
American Express also increased the base salary of Chenault in the year 2007 by an incredible figure of 13 percent to bring it to $1.24 million. Last year his base salary was only $1.10 million. Apart from the huge increase in base salary the company also gave him $6.5 million as bonus. He had received the same amount in the previous year as well.
He also got compensation in the range of $1.04 million for the year 2007. This amount however covers perquisites like a home security system worth $126,992, $323,884 for the personal use of the company plane as well as $102,601 for the personal use of company owned cars. For the time being the chairman was able to pull in $1.55 million above-market returns in the form of deferred compensation in 2007.
The total amount Chenault had received in the year 2006 was almost $27.3 million as per the statistics that was let out by the Associated Press. According to the calculations Associated Press has made the total pay which includes salary, incentives, bonuses, perquisites, and the approximate value of stock options and awards granted in a year. The calculations which are made do not include the changes in current value of pension benefits.
Chenault however might not be able to realize the 2007 grant–date value of his stock award unless American Express is successful in bouncing back from the tough consumer credit surrounding. In the year 2007 the American Express shares had fallen by more than 14 percent. The fall in 2008 till date has been 13 percent. The company however was able to gain 15 percent on the 25th of February to close at a price of $45.21.
The company however is doing rather well. They announced that the net income in the year 2007 rose from $3.71 billion to $4.01 billion. The revenue in the year 2007 also went up to $24.14 billion from $22.16 billion in the previous year.
The write downs continue
February 26, 2008
On the 25th of February the Wall Street took another hit of write downs. After the analysts predicted that the struggling financial firms are going to go through another round of multi billion dollar losses the shares of Fannie Mae, Citi, and Freddie Mac went down heavily.
These write downs are coming at a time when the falling economy and crashing house prices are weighing heavily on the shoulders of the Americans. The write downs are actually reflecting the increasing loan defaults as well as the steep declines in the indexes which track the safety related to the securities.
Shares of Citi went down by 2 percent on the 25th of February after an Oppenheimer analyst cut the full year earning prediction from the previous prediction of $2.70 to almost 75 cents per share. The person also went on to say that the bank’s profits are going to be thrashed by the group’s need to decrease the values of bonds and loans in its balance-sheet. Citi however is not the only group that is facing trouble at the moment. There are many other companies as well that are taking major hits to their earnings. It is expected that Fannie is going to announce a $4.2 billion and Freddie a write-down worth $2.6 billion later this week when the organizations which are sponsored by the government report their earnings in the fourth quarter. The experts are saying that it would be better for people to get rid of Freddie Mac shares before Thursday’s expected earnings report.
The experts are also reducing the predicted earnings for quite a lot of Wall Street companies as well. These giants include Bear Stearns, Morgan Stanley, Merrill Lynch and Lehman Brothers. But the fact is that most of the investors who have been there long enough are finding the huge write downs as a part of the game. The best example for that is that in the last 2 months Citi took a write down worth $8.1 billion of its securities holdings on mortgage. UBS is another group which took write-downs of almost $13.7 billion. These write-downs are mostly mortgage related. The massive list in red ink is now no big surprise for the people as the banks and other brokerage firms now realize that they are hauling loans and securities related to mortgages which are worth billions. These loans are actually those whose worth has declined sharply along with the sudden slow down in the arrears markets.
Some people, however, are of the opinion that these write downs in most cases exaggerate the degree of troubles in financial firms. Most of the write downs that happen are as a result of need to ‘mark-to-market’. Because most of the securities never trade the managers start looking at the various market indexes to get help on the enormity of the writes down which would be appropriate.
Since most of the brokers and banks need to make use of such indexes as well as other such market information to ‘mark-to-market’ their existing loan commitments, the banks have no other option but to replicate these market turn downs.
Oil price goes up again
February 26, 2008
The oil prices on the 25th of February went up higher to reach almost $100 for a barrel. The increase in oil price led to a hike in the gas price as well. The gas price went up by almost 2 cents in the last 2 weeks. The gas price on Friday went up to such an extent to become the highest in the last seven months.
The ongoing increase in oil price has already resulted in the gasoline price going up by 2.2 cents for a gallon. The analysts of the economy are expecting gas prices to be somewhere around $3.75 and $4 by the time spring arrives. The current national average of $3.137 is the highest since the month of June 2007. The rise in gas price that is going to happen in spring is going to be a record growth. The Energy Department is predicting the gas prices to reach its highest level of $3.40 per gallon in the coming spring.
However some other experts in the field are of the view that this steep hike in price of gas is solely because of record growth of oil price which even touched $101 a barrel in the previous week. They also feel that the inventory levels at a decade high will not be able to sustain this kind of a price. They say that even though the prices are at a record high at the moment the inventories are not tight enough. They believe that the gasoline market in the country is right now facing bear market conditions.
They say that the gas inventories have been accumulating on a continual basis throughout the last 15 weeks. This is mainly because the demand is usually weak in the winter season. But the fact is that the demand this year has been weaker than the previous year which contributed to the speed at which these inventories are getting accumulated.
The price of crude oil for the month of April went up by 24 cents to $99.05 a barrel in the New York Mercantile Exchange. Earlier the price had gone as high as $99.70 per barrel as a result of supply concerns. These supply concerns were heightened by the rumors of a Turkish incursion into the northern parts of Iraq and warnings by Iran against more international sanctions.
Another factor which creates volatility in the market is that many investors have invested in crude oil. These heavy investments have been made in the belief that the price of crude oil will continue to rise. The price of crude oil went up in Europe as well. The price was up by 52 cents to become $97.53 per barrel.
In other areas of trade, the price of heating oil went up by 1.8 cents to become $2.7810 for a gallon. Natural gas on the other hand lost 3.1 cents to become $9.115 per 1,000 cubic feet. It is believed that this was just a temporary drop and that it will be up in the next 2 days.
Microsoft done making HD DVD Players
February 25, 2008
On the 24th of February, the computer giant Microsoft announced that it is going to stop making HD DVD players which were used for its Xbox 360 video game system. The news comes after Toshiba Corp. abandoned the high profile video format war that was going on between them and Sony Corp.’s Blu-ray.
However, the company on Sunday also said that it will continue to provide customary warranty support for its HD DVD players. According to the estimate of the Toshiba president Atsutoshi Nishida almost 300,000 people all around world awn the Microsoft video player. This video player was usually sold as a $130 add-on for the Xbox 360.
In a written statement given last week Blair Westlake, a corporate vice president of the computer company, said that Microsoft would continue to provide its customers the same old choice to enjoy digital distribution of high definition movies and other television shows directly into their living rooms. This is along wit the playback of the DVD movies that they already own. He also said that HD DVD players were just one of the ways by which the company was trying to offer a high definition experience to all its customers. He said that by stopping the production of these players the company was not going to put its old customers in any form of hardship.
Microsoft was one of the biggest supporters of this HD DVD player. They along with Intel and the Japanese electronic maker NEC Corp. had played a big role in making the product popular among the Xbox consumers. The support of Microsoft for the format followed by the DVD Player was seen as a big credit for Toshiba’s design.
Anyhow, this popularity had gone down by a reasonable amount in the last few years as most of the important movie studios had chosen Blu-ray pictures for the distribution of high definition DVDs. Some of the major companies that chose Blu-ray ahead of the HD DVD are the Sony Pictures, Walt Disney Co., News Corp.’s Twentieth Century Fox and Warner Bros. Entertainment. This was a major blow to the HD DVD players as the movie makers were one of the biggest source of income for the player. The final and most deadly blow to the player came when the Wal-Mart Stores Inc. recently announced that they would not be selling any more HD DVD players and that it will only sell Blu-ray players and discs.
Microsoft let it be known that it is now considering how it can use the technology it created for the HD players for other platforms too. They say that the technologies like HDi and VC-1 will be helpful in adding interactive features to other platforms. The company however said that the choice to put a halt to the selling of HD DVD players is not going to create a he impact on the video game business. The outcome of the move is that Blu-ray is going to find its way ahead very easy indeed.
EA pursuing its effort to take over Take-Two
February 25, 2008
On Sunday, the 24th of February Electronic Arts said that it was going to continue to push ahead with its effort to take over the rival company Take-Two. This is despite being rebuffed by the smaller company many times before. EA said that it is determined to bring Take-Two Interactive Software Inc. under its realm.
$2 billion was the latest take over bid that was offered by the Gaming giant to take over Take-Two. This is almost $26 per share and that too an all cash bid to get the New York based computer gaming company which is best known for the game known as “Grand Theft Auto” franchise.
Electronic Arts is the world’s largest single video game maker. They on Sunday said that, now that the Take-Two’ board has turned down its offer, it is going to try and get the attention of the shareholders in the company by releasing the details that were the in the take over proposal. This was the second time in two weeks the board of the smaller company had turned down an offer from EA.
The offer that was made by EA has given 64 percent premium over the smaller company’s closing stock price, which was only $15.83 on the 15th of February which was the last day of trading before EA made its offer. On the 23rd of February the shares of the Take-Two company had gone up to $17.36 as a result of the ongoing negotiations. On the amount that is being offered as premium the EA Chief Executive said that the Take-Two company is being stubborn as there is no guarantee that any other company might offer them a higher premium in the future. He said that it is not necessary that even EA might consider lowering the very high premium they are offering now after some time. This is what was there in the letter he had sent to Take-Two, which got published on Sunday.
He also added that if Take-Twp would accept the deal quickly his company would be able to use all its Marketing Skills to make the much awaited release of the Grand Theft Auto IV a huge success. In response to this comment by the EA official the Take-Two officials said that the offer that was made by the Electronic Arts was nothing but opportunistic trying to make use of the upcoming release of the hit game series. EA said that the offer of $26 dollars per share, which was made after Take-Two rejected the first offer of $25 per share, was more too huge an offer considering the shaky year Take-Two had gone through.
The gaming giant has made the offer at a ripe time as the smaller company had gone through a rough year in 2007 as many shareholders got rid off most of the company’s prime leadership in last spring. This was as a result of all the troubles and controversies that had sprung up due to the heavy violence and explicit sexual content that most of the company’s game withheld during the gameplay.
Gas price increase again
February 25, 2008
A survey that was conducted last week came out with the news that he price of gas had gone up by 16 cents. This increase of 16 cents had happened in the very short time frame of just two weeks. The national average according to the survey was $3.10 on the 24th of February.
The Lundberg Survey which conducted the survey found out that the price of gas had risen by $15.88 cents from February 8th. The national average which was recorded on the 24th of February was almost 75 cents more than what the national average was at the same time last year. This shows how much the gas price has swelled up in the last one year.
The interesting thing about the rise of gas price is that it was almost at the same at rate at which the price of crude oil had gone up in the same period of time. The main benchmark in the United States of America for the price of gas, Nymex light grade, had closed on Friday at $98.81 per barrel. The fact that one barrel is 42 gallons makes on gallon cost 16.62 cents which is a penny more than the increase the pump price.
The price of crude oil also has been increasing like anything in the past few days. The reasons for the steep increase in oil are many. The price of dollar falling against many other currencies is one of the main reasons behind this shoot up. The increased demand in the Asian market and the crisis that is being created by the hostile behavior of many leaders of the oil producing nations like Venezuela are some other factors which contributed to the increase in prices.
The Lundberg survey however said that the news about the prospect of Venezuela or any OPEC countries cutting the oil production was nothing serious and not going to happen. There have been many rumors in the air recently that Hugo Chavez of Venezuela is planning to cut off the oil shipments to the country as a result of a fall out between the Venezuelan government and Exxon Mobil Corp. There is also news of the organization of Petroleum Exporting Countries planning on cutting the oil supply. Be the survey said that nothing of that sort is going to happen anytime soon. But it said that the OPEC nations and other oil producing nations just love the current oil prices.
It is said in the survey report that the chance of further increase in the price of gas is very high. This is because the price is bound to go up as the seasonal demand in the nation increases in the month of April. The people who are being worst affected of this very high price of gas are the Honolulu drivers. They had to pay $3.37 per gallon of gas. In the mainland, the maximum price was in the city of San Francisco where the drivers had to pay $3.35 per gallon of gas.
Act to prevent foreclosures
February 22, 2008
The two bills before the congress which would provide for the judges to reduce mortgage debts are facing attacks from the money lenders. The two bills that are in the congress, if passed, would give the bankruptcy court judges the power to decrease the mortgage debt. These bills if approved would play a significant role in saving a whole lot of borrowers from foreclosure.
The lenders however are very much against the implementation of these bills. They do not like the prospect judges getting the authority to have control over their mortgage portfolios. The community as well as the consumer advocates on the other hand is very much for the implementation of the Act. This is because they feel that such a move would make a lot of meaning during this time of mortgage crisis.
The purpose of both Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008 are the same: providing some sort of help to the borrowers. They are legislations which are aimed at providing relief to those homeowners who are facing the risk of bankruptcy. The people who would be eligible to get the relief are only those people who live in their homes and hold sub prime or non-traditional mortgages such as interest-only loans.
The function of this policy is that it will decrease the mortgage balances and monthly payments depending on how much depreciation the home’s value has gone through. The policy in the industry is known as cram-down and would help almost 600,000 people, if not more, to avoid foreclosure in this as well as the coming year.
This is one amongst many efforts made by the government to make sure that the number of borrowers who go broke is kept to a minimum. By this, the government is trying to persuade the lenders and the mortgage providers to restructure the loans with more reasonable terms for those borrowers who are at risk of default.
As of now, the number of foreclosures happening is still seven times more than the number of loans that are being restructured. In the case of sub prime ARMs foreclosures, this is 13 times more.
The people opposed to the idea however say that cram down would facilitate the increase in mortgage borrowing costs for every one in the country. They also feel that cram-down would be protecting even those people who took risky loans. The borrowers of different mortgages can force the loan providers to perform a loan restructure. This will undoubtedly prove extremely helpful to the bearers and people will opt to take loan. If the loan provider does not comply, the borrower would then file for bankruptcy, and with cram-down the judges would then force the mortgage provider or the lender to restructure their loan. The borrowers have been given a major advantage here.
The fact, however, is that if cram-down is permitted, the borrowers would get more leverage when they are dealing with the mortgage lenders.
Stocks drop again
February 22, 2008
The stocks, on Thursday the 21st of February, dropped again. This time the cause for the slide was the mounting fear of a recession. The investors were not too keen to go forward with their investments after a manufacturing report aggravated the already existing worry that the US economy is going to be in a recession soon, or probably is in one now.
The broader index of Standard & Poor’s 500 (SPX) took a slide of 1.3 percent while the Dow Jones industrial average (INDU) went down by 1.2 percent. The tech heavy NASDAQ composite (COMP) also took a fall of 1.2 percent. However what surprised most economists was that the Philadelphia Fed index which is a local reading on manufacturing toppled over to -24.0 in this month from -20.9 in the previous month. The economists were surprised because they were expecting a small improvement in the manufacturing sector in the month of February. The negative reading in the manufacturing implies a contraction in the segment.
The Philadelphia manufacturing reading that came out was enough to wipe out all the gains the stock had made in the morning. In the early trading period the stocks were able to gain a bit due to the virtue of the Tech market. The Tech market was doing well at the time as a result of an up gradation of Cisco Company and a positive profit prediction from the makers of the BlackBerry mobile phone, Research in Motion. Research in Motion (RIMM) went further up by 9 percent after the group reconfirmed its fourth quarter profit guidance and took off its net subscription outlook. The Cisco group (CSCO, Fortune500) was able to gain a bit as a result of Citigroup’s offer to buy them rather than hold them. . The Citigroup said that this was because they thought that Cisco offers a good value for long term investors.
Following this Philly report was another similar reading on the manufacturing sector in the New York area. This reading was also a rather drab reading. The New York reading prompted the addition of bets regarding the broader slowdown in the sector.
The massive sell off in stock that followed the report shows that more and more investors are convinced that these weak economic reports, that have come out lately, are hinting towards the possibility of a recession. Some economists however believe that this apprehension is already being combated with by the signs which are actually virtual bargains to be found in sections of the market that have taken a good deal of loss in the recent past.
The main reasons that are adding to the increasing volatility on a day to day basis are the issues concerning the impact of the recession, if it happens, and how deep it would run in the event of its happening. The other important factor which is contributing to the volatility is the massive amounts of stocks that have been sold off in a hard way. This then leads to the value of such stocks attaining decent values.
Average monthly jobless claim to be high
February 22, 2008
Even though the jobless claims took a fall in the relatively short week, the four week monthly average edged to a higher level than in the previous months. The drop in jobless claims which came as a surprise to many economists is believed to be only a short term phenomenon and that things would return to normal in some time. The four week average in the month of February however was the highest average in the past 28 months. This indicates how high the number of jobless people is in the country at the moment.
The labor department on the 21st of February announced that the number of jobless claims had gone down by 9000 in the previous week to become a total of 349,000. Almost all the economists in the country unanimously said that this drop in jobless claims was way bigger than what had been expected. However they said that, in the State of California, the offices were closed for one day because of a state holiday. This would mean the jobless people would have one day less than the usual to file their claims for unemployment.
The four week average, which gives a better picture of the current scenario however, is very bad indeed. This average gives a clear indication of the current labor market trend. It is alarming to note that this has risen to 360,500. This was the highest level the unemployment claims have come to since the month of October in 2005 when the jobless claims had risen very high as a result of the havoc created by the Hurricane Katrina.
Analysts of the labor market said that the big rise in the four week average was indicating a labor sector which is being heavily strained by an ever slowing economy. The Federal Reserve on the 20th had come out with forecast of the growth of the economy that would happen in the year. In this report, however, they were of the view that the country still has the resources to avoid its economy going into a recession.
On the other hand many other private economists in the country are of the opinion that the country is already in a recession. They say that the economy has already entered a downturn which started from this quarter. They believe that this downturn is going to last throughout the spring. These economists are also predicting that the growth rate of the country is going to turn negative in the first two quarters of this year. The growth rate of USA in the last three months last year was only 0.6 percent. So what the private economists predict also holds true. Theoretically an economy is said to be in a recession when it goes through 2 consecutive quarters of negative growth.
Even though many attempts like the stimulus plan have been implemented by the State to avoid a recession and to keep the economy in a strong position most of them would start functioning only after or in the middle of the third quarter. So the first two quarters are definitely going to be a period of very slow growth.
Oil prices keep soaring
February 21, 2008
The oil price kept on increasing on the 20th of February as well to reach record high price by the end of the day. There was a time when the oil price increase was strongly influenced by the US economy and required the strong backing of the US economy. The oil price on Wednesday was again at a record high, and the prospect of a looming recession makes the scenario all the more worse for US.
Keeping in mind that the oil prices increasing to such high levels require the backing of a strong economy, and the present-day bad shape of the US economy, the easy inference is that some other economy is driving the oil prices for now and it is not the economy of USA. Some private economists are of the opinion that this economy, which is on the driving seat at present, is on the other side of the world.
The closing rate of oil on the previous day was $100 per barrel and steep climb that happened in the space of just one day has created turmoil in the stock exchange. The ongoing fight between the Venezuelan government and Exxon Mobil, tensions of the Fed cutting down on the interest rates yet again, and some talks of the OPEC cutting down on production, have all contributed to the dollar going down by the day against most currencies in the world. This ultimately leads to the United States losing control over the price of crude oil. This, however, was not a satisfying explanation for many experts in the field. They believe that the reason why the US economy is doing bad at the moment is because the Fed is trying too hard to keep the inflation under control. This ultimately leads to instability in the stock market and hence creates turbulences in the economy.
The growth rate that has been predicted for the USA in the year 2008 is only around 1.5 percent. The case in Europe is also not all that good. On the other hand, the developing economies like India and China are predicting a growth rate of almost 8 percent in the year. These developing nations are consuming more fuel by the day in their quest to attain excellence. The statistics show that the world is going to use at least 1.4 million barrels a day, more than it did in the year 2007. Out of this, almost 1 million barrels of oil are used by the developing countries. The reason why the demand for oil is so high is because of the subsidies that are there present in most of these countries.
The fact is that these economies around the world, with the exception of USA, and Europe to some extent, are doing very well at the moment. This, along with the fore mentioned subsidies are the main cause for the steep rise in oil price. If this situation is going to continue, the oil price is going to break all records as per the statistical data that is available.
Stock on a rally
February 21, 2008
On Wednesday, the 20th of February, the stocks went on a rally, as the investors welcomed the Fed’s forecast report of the nation’s economy, which said that the country can avoid the recession. In the report, it is mentioned that the country’s economy will be able to keep the recession at bay. It also says that this is despite the ever rising unemployment, continuous slowing down of the economy, and many more other pricing pressures. The investors also seemed to be least worried about the price of oil, which created records yesterday. The oil price was at $110 a barrel.
As a result of the rally, Dow Jones industrial average gained 0.7 percent and the Broad and the wider Standard & Poor’ 500 index was able to gain 0.8 percent. The tech heavy NASDAQ was also able to go up by 0.9 percent. The gains helped the investors heave a sigh of relief after long days of losses.
The stocks had initially lost in the morning sessions. This was as a result of increasing consumer prices heavily indicating an inflation. Another reason for the early losses were the worries and speculations that were existing about the Federal Reserve’s ability to go on slashing the interest rates, and that too in the midst of increasing oil prices. But, just as soon as the report came out in the afternoon, it seemed as if all worries had been set aside by the investors. The investors were willing to rake up certain stocks which were the worst affected in the recent sell offs. These shares include both retail as well as financial shares. The tech shares also went up as Hewlett Packard, the computer giant, reported their earnings for the first fiscal quarter, which was far more exceeding than all expectations.
The report that was let out by the central bank showed that the economy of the country had weakened considerably over the recent past. It also said that the pricing pressures and conditions in the labor market were worsening by the day. Along with the forecast report, the Fed’s latest economic outlook for the period of 2008 to 2010 was also published on Wednesday. In this forecast, the central bank believes that the slowdown was going to be worse than what they had predicted in the earlier report that was published in last October. However, the Fed expects the Gross Domestic Product and economic growth to attain more pace, as the present year comes to an end and the next year starts. This, they say, would happen as a result of all the interest rate cut plans and the stimulus plan that have been approved lately.
Thursday, however, is going to bring out more economic data on the jobless claims, weekly oil inventories and other leading economic indicators. The effect of this data is also going to create some amount of impact on the stocks tomorrow. The investors’ response and reaction to this new collection of data has to be awaited and seen.