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.
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.
Federal Reserve forecasts economic slowdown
February 21, 2008
On Wednesday, the 20th of February, the Federal Reserve published its predictions regarding the future of US economy. This was published along with the minutes of the two meetings of the Fed held in the month of January and it was declared that the growth rate of the economy is going to slow down further. Ben Bernanke, the chairman of the Federal Reserve said that they might cut the interest rates even further to stop further slowing down.
The Fed said that the growth rate they see for the future is in the range of 1.3 percent to 2 percent in 2008. This was down from their previous forecast in the month of October when they said that the growth was going to be in the range of 1.8 percent to 2.5 percent for the year 2008. In the report, they compiled the central bank also said that rate of unemployment in the year is going to be between 5.2 percent or 5.3 percent. This rate which they have predicted is more than what they had forecasted earlier. The previous forecast was only 4.8 percent or 4.9 percent. The unemployment rate in the month of January according to the reports of the Labor Department was 4.9 percent.
Even though the Federal Reserve has come out with the most downbeat forecast till date, the Fed officials still remain optimistic about the entire scenario. The leading economists in the country, who are of the view that USA is already in a recession, were totally baffled by the forecast of the Fed.
The Wall Street, however, was quite happy with the forecast report with which Fed came out. The fact that they are still considering cutting down on the rates resulted in the stocks rallying late on Wednesday. This is despite the fact that the Fed, in its report has also mentioned that expectations of an inflation are going to be very high this time. Oil prices hitting a record high of almost $101 a barrel was also not enough to discourage the investors on Wednesday.
Ben Bernanke in the previous week had also said that the forecast that they were going to produce was going to be rather gloomy. In an effort to keep the recession at bay, the Fed had cut the interest by more than 1 percent in the month of January in two different moves. During that time period, many members were so alarmed by the inflation rates that they proposed increasing the rates back to certain extent. But, now, most members feel that the cut in rates is justified by the current forecast which they let out.
Even though the term recession has not been mentioned in the forecast report, the Fed has mentioned an Economic downturn twice. This, many economists believe, is the closest that Fed will ever come to admitting that the economy is doing very badly indeed. For most part of the report, the Fed has also dismissed the risks concerning inflation.
HP announces robust profits
February 20, 2008
On February nineteenth, the world’s largest personal computer maker Hewlett-Packard announced robust profits in its first fiscal quarter. This latest report from the company led to the stock prices soaring sky high in the after-hours after trading. The profit they which they announced in the sales and earnings were much higher than the estimates and all the predicted gains. This again proves that the company is gaining a lot of market share when compared to many of its credible rivals and that its move to cut cost is paying off.
Hewlett-Packard also published its expected revenue and gain guidance for the second quarter as well as the complete fiscal year. After the announcement was made the shares of the company (HPQ, Fortune 500) went as high as 6 percent in the after hours trading session.
When the first quarter of the company came to an end in the month of January, the net returns leaped 13 percent to reach $28.5 billlion which was more than what the forecast had been. The expected revenue in the first quarter according to the valuation of Thomson One Analytics was only $27.6 billion. The PC giant was able to earn $2.1billion more, which is 80 cents per share, than the previous year. The growth that happened in this period was of the magnitude of 38 percent. HP also reported profits of 86 cents per share if various one-time items were excluded. This was also well ahead of the expected 81 cents per share.
On nineteenth HP also issued the expected sales for the second quarter. They said that it was going to be in the range of $27.7 billion to $27.9 billion. This again was higher than the predicted estimate of $27.4 billion. And as for the full year also HP said that company’s expected revenue is going to be more than the predicted returns of $111.7 billion. Company officials said that they are expecting a full year return of $113.5 billion to $114 billion.
According to the company almost 70 percent of its first quarter revenue came from places outside the United States of America. They said that revenue that came from newly emerged markets like Russia, India, China and Brazil had grown by 35 percent from last year. The large amount of international exposure the company got was a huge bonus for the company considering the present economic scenario in USA now. The company believes that being able to reach the global position it is in now was a huge advantage.
The branch in the company which saw maximum gains was the Personal Systems Group. This branch which deals with notebooks and desktops for both commercial as well personal uses saw an increase in sales of 24 percent. The HP’s service division also saw in increase in sales of 11 percent from last year. The latest report will help the company in getting a lead in the PC market. The profits the company made will be more than enough to make sure that the company remains immune to any troubles that might happen as a result of the economic turbulences.
Crude prices at record $100.01
February 20, 2008
On the nineteenth of February the crude oil prices reached a record $100.01 barrel and the price of gold and other commodities as well went higher. This resulted in the stocks sliding down which erased the small gains it had achieved in the session. The increase in oil and gold prices is raising many worries about what the impact of inflation would be on the already troubled US economy.
Another factor which prompted the stocks to slide towards the end of the day was the weakness of the telecom stocks and the problems the banking sector is going through currently.
INDU (the Dow Jones industrial average) and the SPX (Standard & Poor’s 500) index finished the session with small declines while COMP (the NSADAQ composite) lost 0.7 percent in the end of the day. As the trading came to an end the computer maker HP announced its fiscal first quarter sales which was higher than the forecasts.
The day’s trading had started well and was doing well till mid day when the prices of crude oil went up. The 3 main indexes in the country had posted significant gains but this got erased by afternoon as the increase in crude price gained momentum. The fact that the increase in prices happened during a period when there are widespread worries of OPEC cutting down on its oil production made the situation even worse.
Even while the increase in oil prices will help in boosting the value of energy stocks the very high price is definitely going to weigh deep down in the minds of investors. The fact that the price of gold also increased on the 19th also will make the investors hesitant in making their moves. The gold prices increased by almost $24 per ounce on the nineteenth. The increase in gold and other commodities is considered as a clear cut indication of inflation starting off.
As a result of the slide of stocks the treasury prices took a dip. The slump in treasury prices led to raising the yield on the benchmark ten year note to 3.89 percent from 3.78 percent on Friday. The US dollar dropped against the other currencies of the world.
The banking sector in the country continues to be trouble. The Lehman Brothers dropped by 2.5 percent on 19th after it was reported that they could face a write-off because of its contact to various bad mortgage bets. The Credit Suisse Group (CS) also went down by 5.2 percent after they said that they would have to slice its profit by $1 billion in the first quarter after the traders priced the value of its holdings in asset backed securities at a very high level of almost $3 billion. The European bank later reported that these traders have been suspended.
20th is going to be very important for the investors as many reports regarding the consumer prices, housing starts and building permits will be coming out on the day. The Minutes from the Federal Policy meeting will also be published by the evening of 20th.
Lukewarm growth predicted for US economy
February 20, 2008
On 20th February, the US Federal Reserve is predicted to release its latest economic forecast for the year 2008. It is expected that the report will predict a lukewarm growth of the US economy throughout the year. However the chances of finding a recession mentioned it is going to be very remote. The FED believe that the economy will stay out of a recession courtesy the huge rate cuts the Fed have implemented and the stimulus plan that has been approved by the President.
The fore cast that is being released is along with the minutes of the Fed’s policy meeting held in January. The new measure has been taken by the chairman of the Federal Reserve to make sure that economic updates are available in a more frequent basis. He also said that the forecast that is going to be released will be lower than the forecast that released late last year.
Bernanke, the chairman of the Federal Reserve, said that the $168 billion economic stimulus plan which has been passed recently would help in improving the growth of the economy towards the later half of the year. He said that currently the future lying near ahead looked sluggish. However he believes that the period after that is going to showcase a swifter growth rate when the monitory and other fiscal plans that have been passed come into effect. He also said that the forecast the Fed is going to come out with this week is definitely going to be somewhat consistent with what the private forecasters are predicting.
The opinion of many, however, is not the same as that of Bernanke. They feel that the forecast which comes out will not be accurate. They are of this view because even though many private analysts are predicting the recession the chances of the Fed forecasting a recession are very remote. They will also be hesitant in forecasting a negative gross domestic product even if they were willing to make downward revisions. Another thing they are concerned about is that the Fed forecast they had made in the previous year had failed to take into account the impacts of the stimulus plan. They therefore believe that this time also the Fed might overlook certain facts.
However the Fed officials are confident that the forecast with which they come will be almost accurate and without any major hitches. They believe that the stimulus plan which has been approved by the President last week would be enough to bring the US economy out of serious trouble. Once the plan starts talking effect the turbulences that exists in many sectors of the economy could be brought under control. They also say that the expected shape of the GDP in the next two years will be in the shape of a ‘W’. Both years would start off with fears of a recession, but later it is expected to get better.
BP oil refinery should be fined more
February 19, 2008
On February 18th, the attorneys representing the people who were victims of the BP Texas City oil refinery explosion in the year 2005 argued that the oil company got away with a very small fine. They claim that the company must be actually giving billions instead of the meager $50 million it has proposed in a plea agreement. The estimate, the attorneys feel the company could be fined, for the hardships the victims of the explosion had to suffer is $3.2 billion.
They however said that the fine should never have been just $50 million but at least $400 million. The fines that were proposed were incorporated in the court documents that were filed by the victim’s lawyers in the week before. This was done on the request of a federal judge who is currently contemplating on whether or not to agree to a plea deal from the BP oil giant.
The current agreement has in it the provisions which propose that the BP oil refinery plead guilty for the violation of the Clean Air Act. It also says that the company will have to pay $50 million as a fine for the criminal manner of the explosion. The explosion had taken the lives of 15 people and had caused injury to more than 170 people. The agreement also says that the company would also be in probation for the next three years.
Earlier this month the plant manager of the oil refinery, Keith Casey, had formally registered the guilty plea as a representative of the entire company. The guilty plea that was made was in accordance with the agreement BP had come in the month of October last year where they had said that they will pay $373 million as a settlement fees. The fee was to settle the various civil and criminal charges that were piled up against them.
However the attorneys who are representing the victims has now asked the U.S. District Judge Lee Rosenthal to rebuff this deal saying that the compensation fee that was imposed on the oil giant was too low. They also claim that the deal which they had come to did not take care of the need for an autonomous monitor who would be able to report whether the company was taking enough measures to meet the safety obligations. The attorneys were also of the opinion that the prosecutors had not consulted the victims while the deal was being formulated.
The BP oil refinery and the prosecutors were, however, of the view that the deal was the harshest punishment they could get and hence were defending the deal. They feel that the procedure that was undertaken was the harshest there was in analyzing the criminal nature of the explosion. BP also said that the company has already paid in excess of $1.6 billion as compensation to more than 2000 victims after the unfortunate incident took place. They say that they have settled almost half of the 4000 lawsuits that were filed after the explosion.
Motorola sued by RIM
February 19, 2008
On February 18th, the Research in Motion let out the news that it was taking legal action against the Motorola Company for breaking and violating many Intellectual Property Rights. RIM, the smart phone maker based in Ontario, says that Motorola violated many patent licensing agreements. RIM said that they are suing the company mainly for the patents which were used for wireless devices like RIM’s Blackberry e-mail devices and Motorola’s Razr smart phones.
RIM officials said that the company, based in Waterloo in Ontario, is now asking a court in Dallas to pronounce that Motorola is indeed violating the commitments it had made earlier to license the necessary patents to its competitors on a reasonable and fair basis.
Research in Motion, in a court filing that was made on the 16th of February said that Motorola is breaching as many as nine RIM patents and that the company is not performing according to the agreement it had made in 2003. RIM is claiming that Motorola is now refusing to discuss fair terms for extending the agreement beyond the date of January 2008. The interesting thing about the court filing is that it came just one day after Motorola had filed a different suit against the Canadian company saying that it had violated some of Motorola’s patents.
Over the years both companies have competed against each other and collaborated together to bring out new technologies in the field of wireless communication. Both Research In Motion and Motorola have been accredited for coming up with many innovative ideas in the same field. But even while the competition was going on Motorola was the better of the two companies in terms of voice communication, while Research In Motion was focusing its energies to come out with better technologies in the area of Data Communication.
The money that will be involved in the lawsuit will be huge as both the companies are multi-billion dollar companies which have global standing. As a result of the success of Pearl and Blackberry smart phones Research In Motion has now become one of Canada’s leading and valuable wireless communication companies. The suit which was filed by RIM in a U.S. District Court in the district of Texas, says in it that the Motorola Company is seeking to undermine a long standing standards-setting practice in an effort to damage the public image of RIM, which over the years has proved to be a successful rival and competitor.
Responding to the suit that has been filed against them the Motorola spokesperson said on Monday that the company has not yet examined the complaint. But she said that the company strongly believes that all the claims that have been made do not hold any water and that Motorola will be going to defend itself vigorously. When asked about the 2003 agreement she said that since the agreement has expired this January and since both the companies were not able to reach on a mutually suitable agreement, Motorola was not able to extend the agreement.
Venezuela to keep exporting oil to USA
February 19, 2008
On February seventeen, the Venezuelan President Hugo Chavez reassured the people of America that he will not be cutting off the oil supply to the great nation. This comes as a great relief to the nation as only last week he had threatened to cut off the oil supply to the United States to show his displeasure when Exxon Mobil Corp. successfully convinced the courts in the United States of America and Europe to freeze the Venezuelan assets. He however on this Sunday said that Venezuela was not planning to halt the shipments of oil. His earlier statements had led to widespread havoc in the oil markets in the previous week.
Chavez made the remark while on a visit to the heavy oil projects in the Orinoco river basin in Venezuela which is very rich in petroleum. He said that Venezuela at present has no plans to stop the shipment of oil to the United States of America. He however made it clear that if the United States was to attack or try and harm Venezuela in any way they would not hesitate in halting the oil supply. This is the umpteenth time he is saying this because he has always warned against the chances of an upcoming US invasion of Venezuela so that USA would have control over immense oil reserves of Venezuela. The fact that USA is dependant on Venezuela for getting almost 10 percent of the oil it requires adds substance to this belief of the socialist leader. However the United States officials have said that no such scheme exists.
The Venezuelan government led by Hugo Chavez is currently engaged in a legal encounter with a Texas based company, Irving, over the issue of compensation for the nationalization of a heavy oil project in the Orinoco river basin. Exxon Mobil is currently trying to freeze billions of dollars of Venezuelan assets which are there in United States and Europe. This they were trying to do to make sure that a payoff would follow and if in case they win they manage to win a decision by an international arbitration panel.
Only one month earlier had a British court ordered an injunction which provided for the freezing of almost $12 billion in assets of a government run unit known as Petroleos de Venezuela SA or PDVSA. Last week, on the 14th, the oil minister for Venezuela let it be known that the demand that Exxon Mobil Corp. was making was far beyond the scope of rational thinking. He said that the demand Exxon Mobil Corp. was making was at least more than 10 times the compensation it might deserve from the country for nationalizing one of its own oil venture.
Chavez was therefore very specific last week when he said that his country was going to cut off the oil shipments to make it very clear to USA and Europe that they would not appreciate it if the assets from Venezuela were frozen.
Consumer confidence at a 16 year low
February 18, 2008
As tensions of a looming economic recession and massive job cuts is very much in the air the confidence of the US citizens are plummeting to record lows. According to the University of Michigan the consumer sentiment index which was at 78.4 in January fell to 69.6 as we crossed mid February. This current standing is the lowest the index has seen in the last 16 years. The report which was formulated after a close survey has found out that the index was this low only during previous recessions. The findings of the report become all the more depressing as it is coming only days after the Federal Reserve chairman Ben Bernanke said that the viewpoint of the US economy is deteriorating very fast indeed. The two cuts in the interest rate which happened in the month of January was a stab at enhancing consumer spending to widen the economy of the country. Both, the consumer sentiment as well as the economy was seriously affected by the collapse of the US housing sector.
Many economists in the country feel that the present scenario is just horrible. Says Ian Shepherdson, the chief US economist at High Frequency Economics, the latest report about the consumer sentiment in the country was just too horrible and too difficult to believe. The reason according to him, which are responsible for making the citizens of the country so miserable are the prolonged instability that is existing in the various markets, the increased rates of food and energy sources and the ongoing upheaval in the housing market.
Many others feel that the current reading is further evidence of a growing recession. These people are the believers of the theory that consumer sentiments will go this low only during the time of a recession. Most of them like Keith Hembre, the chief economist at FAF advisers feel that this is another recession type reading.
Keith Hembre also went on to say that the current industrial figures are nothing but ugly. According to separate data that came out late last week from the Fed the US industrial production has risen by just 0.1 percent in the month of January. This was happening for the second month in a row. Various other economic data which came out in the recent past was also equally depressing.
The service sector in the country has contracted for the first time in the last five years and the employment level across the country also took a fall for the first time since August in 2003. Various other data which were let out lately were also not good signs for the economy. The report of the manufacturing activity in New York was also in a bad state.
The surprise rise in the retail sales in the month of January were some of the only positive things that happened in the month which rose by 0.3 percent. This alone however would not be enough to enhance the consumer sentiments.
Stocks remained largely unchanged as a result of disappointing economic data
February 18, 2008
The prices of stocks remained in a mixed state as a result of the rather depressing economic data that came out in the last week. The disheartening data about the manufacturing, import prices and the consumer confidence proved to be enough to remind the investors that the economy is not doing all that well currently. As a result of all this lackluster economic data that came out, the week that had begun with a rally came to a rather subdued end.
A Federal Reserve survey conducted in New York on the regional manufacturing showed that conditions have worsened further in this month. Another survey on the consumer sentiments of the country which was conducted by the University of Michigan showed that the consumer sentiments have fallen by a great deal as compared to last month’s standing. Another piece of data which paved path for more worries was the report that the Labor Department came up with. It showed that the import prices have jumped the roof just when the oil prices in the world were soaring.
The decline the market suffered on last Friday came just one day after the investors across the country let it be known that they were not too hopeful about the economy and sent the prices of the stocks down by more than one percent. This was a major hit for the economy as only earlier that week the market had gained strongly. The pull back by the investors were followed by some depressing remarks from the chairman of the Federal Reserve about the nation’s economy.
The investors all across the country appeared to be uninterested in making any sizable move even as the stocks closed on Monday because of the Presidents Day Holiday and other fresh economic concerns.
The fear factor is still very high in the minds of the investors. The Dow Jones industrial average fell by 0.23 percent and the Blue-chip index on the other hand finished the week with a small profit of 1.36 percent. The tech heavy NASDAQ took a fall of 0.46 percent to close the week. The value of government bonds also rose as the week came to an end. The US dollar yet again was in a mixed state as compared to the other major currencies in the world. The gold prices in the country however took a fall. The price of crude oil went up by four cents to come to a hault at $95.50 a barrel on the New York Mercantile Exchange.
Even though some of the data that came out on Friday was discouraging the investors largely remained uninterested. The central bank in the nation reported that the industrial output increased ever so slightly last month. This was something most experts were predicting because of the strength that was coming from the utilities.
The reason the investors are hesitant to go forth with investments is because they feel that the consumers are still uneasy about spending money. This they find to be a mortifying prospect as the consumer spending usually accounts for more than two-thirds of the total economic activity.
The uneasiness increases further
February 18, 2008
Many American citizens are of the opinion that the living conditions in the country is getting more uneasy by the day. This opinion is coming even while most of the economists in the country are of the opinion that the economy of the country is healthy enough to get out of the minor troubles it is in at the moment.
In the last few years when jobs were available in plenty and it was relatively simple and cheap to borrow many people did not feel that everything was right. High prices of homes and the availability of plenty of credit cards allowed the people of the country to go out and splurge on commodities. But even during those golden days many people felt things were not right. Now that the golden period has come to an end finally the undertow that was present ever since then has gotten stronger. Now if the easy credit is taken away most of the consumers in the country find that the pay cheques they get have not kept the same pace with their needs and their affinity to spend cash.
The hard truth that they have to pay $3 for gas and $4 for milk has finally hit the people of the country who earlier were not too concerned about the fact. The health care expenses most people of the country incur in a year are almost four times the amount they get as pay. Even the certainty of getting the retirement security that they have been promised is solely dependant on the state of the stock market.
The confidence of the American consumers are decreasing by the day and the main reasons that can be attributed to this are the collapse of the housing market in the country, unavailability of credit and the heavy debts most people in the country have. All this when combined with the anxiety that was there all along broadcasts the situation out of control. The fact that the economy is currently in a recession or on the verge of going into one is definitely playing on the people’s minds. The increasing levels of anxiety and fear that is present in the people’s mind right now is not going to go away any time soon even after the economy shows some signs of improvement.
Much of the anxiety that is present right now is because of the uncomfortable feelings that one gets from the economic roller coaster ride. The consumers become less confident about clinging on to their jobs or about getting new ones. The growing fear of meeting the household expenses and other future prospects make the life of the people even more uneasy.
The truth that the people of the nation have been facing for quite some time is visible from the fact analysis which was taken months before the economic crisis broke out. The report showed that nearly 2 out of 3 Americans felt that the economy was not as secure as it used to be nearly a decade ago. Another half said that the economy was going to get even worse in the future.
Mortgage rates almost unchanged
February 15, 2008
As the week comes to an end the mortgage rates were mixed throughout the country but remained largely unchanged. The mortgage rates did not go through any amount of significant change even as the labor productivity went higher than the predictions this week and the pending sales of the innumerable homes weakened as per the report of Freddie Mac on Thursday this week. This left the people who are trying to get a refinance done in a tricky position.
The loan purchaser who is sponsored by the Government said that the thirty year fixed rate loans were averaged at 5.72 percent as the week came to an end. This was actually higher than the previous week’s standing, which was at 5.67 percent. But Freddie Mac said that last year at the same time the rate was averaged at a figure of 6.3 percent. The rates for a fixed rate loan for 15 years averaged at 5.25 percent which was higher than last week’s rate of 5.15 percent. The rate for a fifteen year fixed rate loan at the same time last year was however averaged at 6.03 percent. When the rates for a five year adjustable rate loan were averaged at 6.01 percent in the previous year, this week it was averaged at 5.19 percent after it came down from last week’s average of 5.21 percent.
The average rates of one-year Adjustable Rate Mortgages (ARMs) which are indexed by the treasury were at 5.03 percent at the end of the week and this was the same average in the previous week too. The average rate of this one year ago at the same time was however 5.52 percent.
Since the amount of economic data that was let out was relatively small the present state of the economy remained in a situation of haze and doubt. According to Freddie Mac vice president and chief economist Frank Nothaft, this was one of the main reasons as to why the mortgage rates remained almost unchanged. Freddie Mac however believes that once more data regarding the present scenario of the current economic situation is let out the confusions that are present now about the credibility of the economy would clear. This would ultimately lead to the mortgage rates changing by a significant amount. Now that the stimulus plan has been authorized by the President the home owners are going to find getting a refinance for their home relatively more easy.
He however said that one of the good things that happened in the week is that the labor productivity went higher than what was expected in the last quarter of the year 2007. Another thing that happened in the labor sector is that the profits in the labor expenses slowed. But he also said that the existing sale of homes which were pending went down in the month of December. This was reason enough to indicate that the home sales were going to be very weak in January and February as well.
Small businesses benefits from SEC’s change in rule
February 15, 2008
The change that has been made to rule 144 by the Securities and Exchange Commission is going to help the small companies in negotiating their private investment deals in a better way. It is predicted that the change will facilitate for a huge amount of small-cap stock being liquidized in the week. The change that has been made is that the holding-time for investors has been shortened as well as restricting the securities from one year to six months. The change will come into effect from the 15th of February. The change however might provide for a massive small-cap sell-off as well, if the investors decide to get rid of their stocks.
The change which has been brought about in rule 144 of the SEC, is to make sure that the undersized publicly owned companies in the competition are able to raise enough capital by making the lockdown period shorter during which time the investors from outside have no option but to hold on to their individual shares. Usually these small companies raise the required capital through the policy often known as “private investment in public equity” (PIPE) deals. Such deals usually involve the selling of huge chunks of stock to the outside investors at a discounted rate. These outside investors are then required to hold on to these shares during the time known as the holding-period. There are various holding-period rules they have to abide by before they are able to sell off their shares. Now that the holding period has been shortened, as per the new change in the rule of the SEC, the companies will be able to negotiate more private investment deals. The rule 144 being retroactive will make all those restricted securities which were issued between the periods of February 15 to August 15th of year 2007 be eligible for trade immediately.
The market experts are expecting the changes in rule to encourage the investors to follow private investment agreements more vehemently. They believe that the revision in rules could not have come at a better time because of the ongoing credit crunch situation due to which many small businesses are suffering. They believe that if the securities are liquidized in six months instead of one year it would attract more people to invest in such stocks. The change would also help these small companies to negotiate better terms as well during the sale of stocks. The outside investors who would have earlier required a discount of ten percent for a PIPE deal may now agree on a five percent discount because of the reduced holding period. This is because there will be a change in perspective of the investors when they find that the holding period is only half of what it used to be earlier. The investors would now even consider investing larger amounts into these small businesses.
However these revisions might also ignite a massive sell-off by the current private stock holders. This is because once the change comes into effect billions of dollars become saleable and the investors might try to make full use of this. However this volatility is expected to be a short lived one and that it will level off in some time.