Money Game

French Bank Credit Agricole Reports Its First Net Loss

AP — Thu, 23 Feb 2012 05:25:17 -0500

PARIS (AP) — French bank Credit Agricole SA has reported a massive euro3.07 billion ($4.06 billion) net loss in the fourth quarter and says the Greek debt crisis shaved billions off its bottom line last year.

Credit Agricole — one of the most exposed French banks to Greek debt — says fourth-quarter net profit plunged nearly tenfold from a loss of euro328 million in the last quarter of 2010.

The bank says slowing European economies, European sovereign debt downgrades, tense financial markets and "a particularly difficult situation in Greece" hurt its macroeconomic backdrop in the second half of 2011.

Credit Agricole said Thursday the net loss group share from Greek affiliates was euro352 million in the fourth quarter. Its overall losses from Greece last year were euro2.38 billion.

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RBS Reports A Huge $3.1 Billion Loss For 2011

AP — Thu, 23 Feb 2012 05:19:00 -0500

LONDON (AP) — Royal Bank of Scotland, which is majority-owned by British taxpayers, saw its loss in 2011 swell by 78 percent as it booked large provisions for Greek debt and compensation for buyers of payment protection insurance.

The bank, in which the government holds an 82 percent stake, on Thursday reported a worse than expected net loss of 2 billion pounds ($3.1 billion) for 2011, compared with a loss of 1.13 billion pounds the previous year. Income was down 11 percent to 26.6 billion pounds largely on the back of a 25 percent fall in revenue at the global banking and markets division.

Chief Executive Stephen Hester nonetheless said the effort to turn the bank around was "well ahead of schedule," and described the larger loss as a byproduct of management's success in defusing "the largest balance sheet risk time bomb ever assembled in history."

"The irony is, the faster and more successful we go in defusing that balance sheet time bomb, the greater the losses," Hester said in a BBC radio interview.

"In three years since I took over, we have reduced the balance sheet of RBS by 700 billion pounds of assets, which to put in context is something like twice the size of the total debt of Greece," he added.

RBS shares were down 1.6 percent at 26.9 pence on the London Stock Exchange.

Gary Greenberg, analyst at Shore Capital, said the biggest disappointment was the decline in revenues, though he backed RBS' emphasis on rebuilding its balance sheet over profitability as "the correct strategy."

Impairments included 850 million pounds for compensating people who bought payment protection insurance they didn't need, and 1.1 billion pounds for Greek debt. That was offset by a 1.8 billion-pounds gain on the fair value of the bank's own debt.

RBS set aside 785 million pounds for staff bonuses, down 43 percent from 2010.

Chairman Philip Hampton said "there are no shortcuts" to rebuilding a company saved by a 45.5 billion pounds bailout, the world's most expensive bank rescue.

"We all understand that a company that is making losses at the bottom line tests the patience of those who depend on it," Hampton said.

"However, the restructuring task we have undertaken at RBS is unique in its scale and complexity, and needs to be phased in line with our ability to fund and execute it," he said.

In the fourth quarter, RBS reported a net loss of 1.8 billion pounds, compared with a profit of 1.2 billion pounds in the previous three months. Income was down 6 percent to 5.9 billion pounds.

RBS is the second big British bank to report annual results. Barclays earlier announced a 15 percent fall in net profit to 3 billion pounds, and part-nationalized Lloyds Banking Group publishes its results on Friday.

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The EU Now Expects A Recession For The Eurozone

AP — Thu, 23 Feb 2012 05:12:00 -0500

BRUSSELS (AP) — The European Union's executive branch expects the 17-nation eurozone economy to suffer a modest recession this year despite recent signs of stabilization, particularly in financial markets.

In its latest projections Thursday, the European Commission's forecast forecasts a 0.3 percent contraction in the eurozone economy, with Greece leading the way downwards with a massive 4.4 percent decline.

In its last forecast in November, the Commission was predicting a 0.5 percent expansion in the eurozone.

The difference this time is that the Commission now expects Belgium, Spain, Italy, Cyprus, the Netherlands and Slovenia to suffer economic contraction, alongside Greece and Portugal.

The wider 27-nation EU, which includes non-euro countries like Britain and Sweden, is expected to see economic performace remain unchanged this year.

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FDA Overwhelmingly Endorses This Weight Loss Pill (VVUS)

AP — Thu, 23 Feb 2012 05:01:00 -0500

SILVER SPRING, Md. (AP) — A previously rejected weight loss pill won an overwhelming endorsement from public health advisers Wednesday, raising hopes that the drug from Vivus Inc. could become the first new anti-obesity medication to reach the U.S. market in more than a decade.

The Food and Drug Administration has rejected three weight loss pills in the last two years, including Vivus' pill Qnexa, due to safety concerns. Experts agree new weight loss drugs are needed to treat an estimated 75 million obese adults in the U.S., but the string of rejections has raised questions of whether any pharmaceutical treatment is safe enough to win approval.

At a public meeting Wednesday, an FDA panel of outside physicians voted 20-2 in favor of the weight loss drug from Vivus, setting the stage for a potential comeback for a drug that has been plagued by safety questions since it was first submitted to the agency in 2010.

Nearly all the panelists backed the drug due to its impressive weight loss results, with most patients losing nearly 10 percent of their overall weight after a year on the drug. But the group stressed that the drugmaker must be required to conduct a large, follow-up study of the pill's effects on the heart. Studies of Qnexa show it raises heart rate and causes heart palpitations, a longtime concern with diet pills over the years. The group of experts said it is still unclear if those side effects lead to heart attack and more serious cardiovascular problems.

"The potential benefits of this medication seem to trump the side effects, but in truth, only time will tell," said Dr. Kenneth Burman of the Washington Hospital Center.

The FDA is not required to follow the advice of its panels, though it often does. A final decision on the drug is expected by mid-April.

In a key question, the physicians said Vivus could conduct the cardiovascular safety study after FDA approval. A requirement to conduct the study ahead of market approval would cost the company millions of dollars and take at least three more years.

"There is an urgent need for better pharmacologic options for individual patients with obesity," said Dr. Elaine Morrato, of the University of Colorado. "I believe Qnexa demonstrated a meaningful efficacy benefit and that there are consequences to not treating obesity."

Vivus, based in Mountain View, Calif., is one of three small drugmakers racing to bring the first new prescription weight loss drug to market in more than a decade. In the past two years the Food and Drug Administration has rejected pills from all three: Arena Pharmaceuticals Inc., Orexigen Therapeutics Inc. and Vivus. All three companies are in the process of resubmitting their products.

The FDA rejected Qnexa in October 2010, citing numerous side effects including elevated heart rate, psychiatric problems and birth defects. Vivus has resubmitted the drug with additional follow-up information on safety, hoping for a more favorable ruling.

Vivus President Peter Tam said the overwhelming panel vote Wednesday indicates doctors recognize the urgent need for effective weight loss drugs.

"Right now there aren't any good treatments out there besides dieting and bariatric surgery — clearly there's a huge gap," Tam said.

With U.S. obesity rates nearing 35 percent among adults, doctors and public health officials say new weight-loss therapies are desperately needed. And even a modestly effective drug could have blockbuster potential. Analysts expect a new weight loss pill to garner at least 10 million users within a few years.

Qnexa is a combination of two older drugs: the amphetamine phentermine, which is approved for short-term weight loss, and topiramate, an anti-seizure and anti-migraine drug sold by Johnson & Johnson as Topamax. Phentermine helps suppress appetite, while topiramate is supposed to make patients feel more satiated.

Along with heart safety, panelists raised concerns about potential birth defects in women who become pregnant while taking Qnexa: topiramate is known to more than double the risk of birth defects.

There were 34 pregnancies among 3,386 women enrolled in Vivus' studies of Qnexa, despite precautions to make sure women used contraception. An FDA expert on birth defects estimated there would be five babies born with a cleft lip defect for every 1,000 women who became pregnant while taking Qnexa.

If approved, FDA scientists said they would require Vivus to train prescribers to educate patients on the pregnancy risks of Qnexa. The drug would only be available from 10 mail-order pharmacies.

Qnexa's other ingredient, phentermine, was one half of the dangerous fen-phen combination, a weight loss treatment pushed by doctors that was never approved by the FDA. The regimen was linked to heart-valve damage and lung problems in the late 1990s, and the FDA forced drugmaker Wyeth to withdraw two versions of its drug fenfluramine.

Fen-phen is just one example in the decadeslong history of failed weight loss drugs, which have continued to pile up in recent years.

Four years ago Sanofi-Aventis SA discontinued studies of its highly anticipated pill Acomplia due to psychiatric side effects, including depression and suicidal thoughts. In 2010, Abbott Laboratories withdrew its drug Meridia after a study showed it increased heart attack and stroke. The drug won approval in 1997 in the wake of the recall of fenfluramine but never achieved widespread use due to modest weight loss and safety concerns. Only 100,000 prescriptions were written in the U.S. during Meridia's last full-year on the market.

Currently there is just one prescription drug on the market for long-term weight loss: Roche's Xenical, which is sold over the counter as alli by GlaxoSmithKline. The drug is not widely used because of modest weight loss results and unpleasant side effects, including gas and diarrhea.

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Global Markets Are Rallying, While European Banks Report Big Losses

Sam Ro — Thu, 23 Feb 2012 04:45:00 -0500

Markets moved up notably during the European trading after the Ifo Institute's German business confidence reading increased to a 7-month high, beating economists' expectations.

Britain's FTSE 100 is up 0.5%.

Germany's Dax 30 is up 0.8%.

France's CAC 40 is up 0.4%.

Spain's IBEX 35 is down 0.3%.

Italy's FTSE MIB is up 0.3%.

A bunch of European banks announced quarterly earnings today, including the UK's RBS and France's Credit Agricole. Both banks announced losses that were worse than expected.

Germany's Commerzbank is also selling off after unexpectedly announcing new plans to raise capital.

U.S. equity futures are pointing to a higher open for the Thursday trading session.

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German Business Confidence Jumps To A 7-Month High

Sam Ro — Thu, 23 Feb 2012 04:23:00 -0500

The widely watched Ifo Institute German business confidence index jumped to 109.6. This compares to a reading of 108.3 in January.

Economists were expecting 108.8.

Confidence is at a seven month high.

European stocks and the euro jumped on the news.

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A Quick Breakdown Of America's 131.8 Million Homes

Joe Weisenthal — Wed, 22 Feb 2012 21:30:46 -0500

From Goldman Sachs, a very useful chart.

The diagram below breaks down the US housing market into several categories (all figures refer to 2010 and come from the American Community Survey and the NAR). Housing units can be either occupied or vacant, and occupied units are either currently listed for sale or unlisted/not for sale. Vacant units can be listed for sale, seasonal or recreational properties that are not for sale, or can fall into a number of other categories (e.g. for rent, sold but not yet occupied, or “held off market”).

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Quick! Someone Send This Auto Chart To Mitt Romney

Joe Weisenthal — Wed, 22 Feb 2012 20:44:00 -0500

In the GOP debate right now, everyone's talking about how bad a move the auto bailouts were.

In November 2008, Mitt Romney wrote an op-ed making this point, that if Detroit got bailed out, then the industry would be doomed.

This chart from Menzie Chinn puts that into perspective.

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There's A Huge Problem With The German Economy — And It Affects Everyone

Adam Taylor — Wed, 22 Feb 2012 20:22:00 -0500

Over at the New York Times, Jack Ewing has a look at the German economy's real weakness — overregulation.

“On one side, [Germany has] this very dynamic, innovative, competitive and refreshingly unsubsidized export sector,” Andreas Wörgötter, a senior economist at the Organization for Economic Cooperation and Development tells him. “On the other side, there is a much less glamorous services sector which depends on barriers to entry, subsidies and not developing and reaching out for new activities.”

Ewing finds that as much as Germany's amazing trade surplus is a result of the strength of its manufacturing sector, it's also a result of a "chronically anemic spending by consumers and businesses on imports" — and it's a problem that affects everyone:

If Germany built up its services sector, it might buy more products from hard-pressed trading partners like Greece or Spain, whose debt problems are closely tied to their longstanding trade deficits. Everybody would win, the argument goes.

The Consequences Of War On The US Economy

Joshua Brown — Wed, 22 Feb 2012 19:46:00 -0500

Psst...wanna learn something today?

The Institute for Economics and Peace is out with a monumental piece of research on how wars affect the US economy...

Using data from the Bureau of Economic Analysis, figure one shows the composition of U.S. GDP in consumption, investment, government spending and net exports and imports in per-capita terms. It can be seen the war years of 1941 to 1945 saw one of the most significant short term increases in economic growth in the history of the U.S. economy. The top line in blue is GDP, and the increase around World War II is very visible. This was driven by government spending denominated in purple.

The bottom line in their findings is that:

• Public debt and levels of taxation increased during most conflicts;
• Consumption as a percent of GDP decreased during most conflicts;
• Investment as a percent of GDP decreased during most conflicts;
• Inflation increased during or as a direct consequence of these conflicts.

Click below for the whole PDF, they go war by war and offer some amazing stats.

Economic-Consequences-of-War

This post originally appeared at the Reformed Broker

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GARY SHILLING: Renters Will Dominate The Housing Market For Another 4 To 5 Years

Sam Ro — Wed, 22 Feb 2012 19:08:00 -0500

Why buy a house when you can rent?

This is the mentality of many Americans. Unfortunately, this isn't helping home prices, which continue look for a bottom.

Low mortgage rates and federal assistance are not getting Americans to buy homes in a material way either, writes economist Gary Shilling in a piece for Bloomberg.

And he doesn't think things will improve anytime soon. From his piece:

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

While the home price-to-rent ratio continues to come down, they are still above the long-run average, which also doesn't bode well for prices.

Despite the collapse in prices, homeownership is still expensive relative to rentals, even as apartment rental rates rise and vacancies decline. Moody’s Analytics Inc. calculates a ratio of home prices to yearly rents at 11.3, down from the bubble peak of 18.5, but still higher than the 1989-2003 average of 10. You’d expect house prices to be lower than average in relation to rents, not higher, now that prices are falling.

Earlier this year, Shilling said he expected home prices to fall another 20 percent before bottoming.

Here Are The Key Market Moving Events For Thursday, February 23, 2012

Eric Platt — Wed, 22 Feb 2012 19:01:00 -0500

Thursday continues a busy week, with more than two dozen major earnings announcements. At the same time, a series of economic releases will keep markets moving, including initial claims in the U.S.

Here's what you need to know.

Australia starts the day off early with worker wages at 7:30 p.m. EST on Wednesday evening. Economists predict average weekly wages will increase by 1.0 percent in the November quarter.
At 12:00 a.m. EST on Thursday morning, Singapore consumer prices are seen advancing 0.8 percent.
Taiwan industrial production will be announced at 3:00 a.m. EST, with expectations for the key metric to fall 15.3 percent year-on-year.
Fifteen minutes later, Swedish consumer confidence is set for release. Economists polled by Bloomberg forecast a reading of 0, which indicates neither pessimism or optimism.
At 3:30 a.m. EST, Hong Kong will announce January exports and imports. Exports are seen declining 7.0 percent year-on-year in January, while imports fall 4.5 percent.
Attention shifts back to Europe at 4:00 a.m. EST, when the Ifo Institute announces a reading on the German business climate. The index is seen expanding slightly to 108.8, with the expectation sub-index gaining 110 basis points to 102.
At the same time, Italian consumer confidence will be announced, with economists predicting a February reading of 92. That's up from the 91.6 reading in January.
Poland's unemployment rate also follows at 4:00 a.m. EST, with estimates for it to jump to 13.3 percent in January, from 12.5 percent in December.
At 6:00 a.m. EST, the Confederation of British Industry will announce trend orders, which measures expectations of manufacturers in the U.K. The forecast is for an improvement to -13 from -16 for February. A reading below zero indicates expectations for declining orders. Also at 6:00 a.m. EST, Ireland will release consumer prices.
At 8:30 a.m. EST, initial jobless claims will be announced in the U.S., with consensus for 355,000 new claims, up from 348,000 last week. Continuing claims are anticipated to come in at 3.455 million.
U.S. home prices will be released at 10:00 a.m. EST. Economists polled by Bloomberg forecast the index to advance 0.1 percent month-on-month in December.
The Kansas City Federal Reserve will announce activity in its region at 11:00 a.m. EST, with expectations for the index to improve to 9 in February, from 7 a month earlier.
Closing out the day at 4:00 p.m. EST is the release of Colombian industrial production. December production is seen increasing 5.6 percent year-on-year.

Below, a roundup of tomorrow's big announcers.

InterDigital (IDCC): $0.46
Omnicare (OCR): $0.57
Target (TGT): $1.39
Plains Exploration & Production (PXP): $0.37
Kohl's (KSS): $1.80
American Tower (AMT): $0.72
Gap (GPS): $0.40
Crocs (CROX): $0.04
Salesforce.com (CRM): $0.40
Monster Beverage (MNST): $0.37
American International Group (AIG): $0.56
Molycorp (MCP): $0.40
Omnivision Technologies (OVTI): $0.13
TiVo (TIVO): -$0.13
Autodesk (ADSK): $0.45
Denbury Resources (DNR): $0.33
Liberty Media Corp - Liberty Capital (LMCA): $0.33
DISH Network (DISH): $0.61
Sears Holdings (SHLD): 0.69
MetroPCS Communications (PCS): $0.16
Liberty Interactive (LINTA): $0.37
Deckers Outdoor (DECK): $3.13
KBR (KBR): $0.64
Safeway (SWY): $0.64

Consensus estimates provided by Bloomberg.

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SURVEY: More Small Businesses Are Planning To Boost Spending This Year

Patricia Orsini — Wed, 22 Feb 2012 18:45:27 -0500

Small business owners are looking to spend in 2012.

That’s according to the just-released Wells Fargo/Gallup Small Business Index, which surveyed 600 small business owners in January 2012. It found that that 28 percent of U.S. small business owners plan to increase their company’s capital spending in the next 12 months.

That's in line with our own — smaller — survey conducted earlier this month with members of CNBC.com's Small Business Council. When asked if they were planning on spending in 2012, we heard a resounding yes.

Among the planned spending, most of it already in the works: a restaurant renovation; the purchase of a new building for a retail outlet, a delivery van; and, for several of the respondents, new manufacturing equipment that will each company between $100,000 to $250,000.

The Wells Fargo/Gallup survey brings more positive news: The 28 percent who say they will spend is the highest percentage the Index has recorded since January 2008.

One reason business owners may be considering spending: They believe it will be easier to get a loan in 2012. According to the Wells Fargo/Gallup index, 25 percent say credit was somewhat or very easy to get over the past 12 months, the highest percentage since April 2009. Looking ahead, 27 percent say it will be somewhat or very easy to get credit over the next 12 months; again, the highest since April 2009, and up from 22 percent in October 2011.

While a hefty 38 percent expect it will remain difficult to obtain credit, that number is down from 43 percent in October.

The report notes that despite the positive trends, economic realities still hover over most business owners' spreadsheets. Rising gas prices and fragile consumer confidence levels could drag down the economy, it notes.

And if consumers aren't spending, neither is the most optimistic business owner.

This post originally appeared at CNBC.

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Victoria's Secret Parent Company Gives Skimpy Profit Outlook (LTD)

AP — Wed, 22 Feb 2012 18:45:00 -0500

COLUMBUS, Ohio (AP) — Limited Brands Inc., the parent of Victoria's Secret, said Wednesday its fourth-quarter profit fell 21 percent as it took a hefty restructuring charge for an asset write-down and some store closures.

The company's earnings adjusted for special items topped Wall Street expectations for the recently concluded quarter. But its outlook for earnings in the current quarter was below expectations and Limited Brands' shares fell in extended trading.

Net income for the three months ended Jan. 28 was $359.4 million, or $1.17 per share, down from $452.3 million, or $1.36 per share, a year earlier.

The results for the latest quarter included a pre-tax charge of $256.1 million, or 74 cents per share, related to intangible asset impairment and restructuring charges, including store closures, at its smaller La Senza lingerie chain. They also included a pre-tax gain of $110.8 million, or 32 cents per share, related to the sale of the company's third-party apparel-sourcing business.

Excluding one-time items, the company said adjusted earnings were $1.50 per share in the latest quarter, up 19 percent from a year earlier.

Revenue was $3.52 billion, up from $3.46 billion at the company that also runs Bath & Body Works and Henri Bendel stores.

Analysts surveyed by FactSet had estimated earnings of $1.46 per share on revenue of $3.52 billion.

Revenue at stores open at least a year was 7 percent higher in the fourth quarter than in the same period a year earlier.

For the full year, Limited Brands said it had net income of $850.1 million, or $2.70 per share, up from $804.8 million, or $2.42 per share, in fiscal 2010. Revenue was $10.4 billion, up 8 percent from $9.6 billion.

The company said it expects earnings per share between 35 cents and 40 cents a share in the first quarter. Analysts had been expecting 44 cents a share.

Shares in the company fell $1.53, or 3.4 percent, to $43.95 in after-hours trading. During the regular session, they decline 19 cents to $45.48.

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REVEALED: 7 Members Of The Italian Government Living A Lavish Lifestyle While The Country Copes With Austerity

Sanya Khetani — Wed, 22 Feb 2012 18:26:33 -0500

In keeping with his attempts to ensure transparency, austerity, and better fiscal practices, Italian Prime Minister Mario Monti has asked that his government makes ministers' previous tax records available on the government website in a move dubbed 'Operation Transparency'.

And it seems like not everyone has been affected by the long-running fiscal crisis and austerity measures in Europe, especially in Italy.

Italians were shocked to learn how many of their ministers owned villas, town houses, and expensive cars and yachts, to say nothing of the amount of money they used to make before being sworn into the cabinet (all ministers now get 200,000 euros, or $265,000 on an average every year). So much so, that the site temporarily crashed because of increased traffic, The Telegraph reports.

However, the ministers themselves were unfazed by the attention. "The most important thing is explaining that those who earn and pay their taxes must be judged positively, while those who generate off-the-books income must be judged negatively," Justice Minister Severino told reporters, according to Italymag.

Paola Severino di Benedetto

Position: Justice Minister

Former profession: Lawyer and professor

Income in 2010: 7 million euros ($9.3 million)

Other assets: Properties in Rome and Cortina d'Ampezzo, and a leased 55 feet-long 'Acqua 54' yacht

(Source)

Corrado Passera

Position: Minister for Economic Development, Infrastructure, and Transportation

Former profession: Head of Italian bank Intesa San Paolo

Income in 2010: 3.5 million euros ($4.6 million)

Other assets: Properties in Casale Marittimo and Parigi

(Source)

Mario Monti

Position: Prime Minister, Minister for Economy and Finance

Former profession: President of Bocconi University

Income in 2010: 1 million euros ($1.3 million)

Other assets: Sixteen properties, including apartments in Milan and Varese, and a 50 percent share in a flat in Brussels

(Source)

See the rest of the story at Business Insider

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STOCKS SLIP ON GLOBAL GROWTH CONCERNS: Here's What You Need To Know (DIA, SPY, QQQ, TOL, KBH, DELL)

Sam Ro — Wed, 22 Feb 2012 16:00:00 -0500

It's too early to be freaking out. But some PMI data could've been better.

First, the scoreboard:

Dow: 12,938.6, -27.0, -0.2%
S&P 500: 1,357.6, -4.5, -0.3%
NASDAQ: 2,933.1, -15.4, -0.5%

And now, the top stories:

For once, we're not talking about Greece. But some new global economic data appears to have the markets rattled. During the Asian trading session, we learned that China's HSBC Flash manufacturing PMI number climbed to 49.7, up from 48.8 in January. However, this was also the fourth straight reading below 50, and a reading below 50 signals contraction.
The eurozone manufacturing PMI number inched up to just 49.5 from 48.8 a month ago. This fell short of economists' expectation for 49.5. Particularly worrisome was Germany, the largest and arguably most financially stable country in the eurozone, which reported a PMI reading of 50.1 versus expectations of 51.5.
Actually, there was some news related to Greece. Fitch lowered Greece's credit rating to C from CCC, putting it deeper into junk territory. "[D]efault is highly likely in the near term," wrote the credit ratings agency. However, this surprised no one and seemed to be brushed off as a non-event.
Existing home sales jumped 4.3 percent to 4.57 million in January. The increase outpaced economists' expectations for 1.1 percent growth. However, due to sharp downward revisions to the December data, the annualized pace of home sales fell short of the expectation for 4.66 million. Here Are The Best And Worst Economists Of 2011 >
In other housing news, luxury homebuilder Toll Brothers unexpectedly reported a net loss of 2 cents per share. Competitor KB Home also fell.
Today's modest sell-off also benefited Treasuries and the dollar. The 10-year yield declined to 2.01 percent. The ascent of the dollar was mirrored by the descent of the euro
Last night, Dell disappointed its shareholders when it announced its Q4 financial results. Non-GAAP EPS came in at $0.51, missing analysts' estimates by a penny. Management blamed supply disruptions tied to the tragic floods in Thailand. They also expect Q1 revenue to fall 7 percent.
Hewlett-Packard announces quarterly earnings after the closing bell today. Follow the release live on Business Insider.
Don't Miss: Citi Presents 20 Great Stocks That The Rest Of Wall Street Hates >

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Cutting Corporate Taxes Is A Good Idea, But It Won't Stimulate The Economy

Mark Thoma — Wed, 22 Feb 2012 15:18:28 -0500

This post originally appeared at CBS Moneywatch.

The White House is proposing to cut corporate income taxes from 35 percent to 28 percent. President Obama also recommends that manufacturers get a further cut, to 25 percent, and he wants to impose a minimum rate on foreign earnings to discourage the use of tax shelters. There would be other less substantive changes as well under his plan.

The cut in the statutory tax rate, however, may not have as large an effect on the corporate sector as many anticipate. The reason is that this is intended as a revenue neutral change in taxes. To accomplish revenue neutrality, the cut in the tax rate will be accompanied by closing loopholes, i.e. a broadening of the base. Thus, every company receiving a tax break will be matched somewhere else by companies experiencing a tax increase. Thus, while some firms will benefit, others will get hit harder by these taxes and the net effect overall should be roughly a wash.

Another way you think about this, as noted by Jared Bernstein, is to consider the difference between the statutory tax rate -- the rate on the books -- and the effective tax rate, the rate after all deductions, loopholes, etc. have been exploited.

Read the rest of the story at CBS Moneywatch >

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The Yen Falls To A 7-Month Low

Eric Platt — Wed, 22 Feb 2012 14:47:00 -0500

The Japanese yen continued its recent tumble today, as the dollar edged to a seven-month high of ¥80.3175 this afternoon.

The currency had not crossed above the ¥80 mark against the dollar since July 11, data provided by Bloomberg shows.

Traders may be tying the depreciation to concerns that the Japanese government could lose its ability to fund debt locally, causing a surge in yields, and the recently reported trade deficit in the nation.

"So far, Japan has funded 95% of its public sector debt issuance domestically, which has allowed JGB yields to stay low," Morgan Stanley's Hans Redeker and Ronald Leven wrote in a report this week. "Japan’s financial sector has used 24% of its balance sheet on government bonds, and should bond yields rise without a simultaneous economic rebound, the banking sector could face its ‘Italian moment’."

Japan's trade deficit has also emerged as a key fear.

"There is a widespread perception that this external deficit is another way in which Japan is becoming dependent on foreign investors to provide savings," the two say. "But, as with the internal funding situation, we think the situation is less serious than generally perceived."

Other currencies also traded lower against the dollar today, with Great Britain's pound and Canada's dollar falling to $1.5679 and $1.0006, respectively.

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ROBERT SHILLER: Let's Offer Shares Of America

Sam Ro — Wed, 22 Feb 2012 14:32:00 -0500

Robert Shiller has a novel idea for America.

He writes in the Harvard Business Review:

Here’s an audacious alternative: Countries should replace much of their existing national debt with shares of the “earnings” of their economies. This would allow them to better manage their financial obligations and could help prevent future financial crises. It might even lower countries’ borrowing costs in the long run.

Basically, Shiller thinks that America could be better managed if it were run more like a public corporation.

These shares could trade on stock exchanges and they would pay quarterly dividends of one-trillionth of the country's quarterly GDP. According to a model developed by Shiller and Mark Kamstra of York University, these shares would've paid $13.22 in 2010.

Shiller's plan is rather elaborate.

But the motivation behind all of this is largely driven by one concept Shiller has always believed in: markets. Shiller has believes that well-functioning markets can tell a lot about an asset's perceived value.

Markets for national shares would fundamentally change the economic atmosphere. An immediate market response would accompany every new government plan affecting the future of the economy, generating a discussion of each country’s development plan, as well as a flow of international resources toward governments with plans that passed the market test.

Sure, this model might seem like a "dangerous extension of financial capitalism," notes Shiller. But it would ultimately be the best way to determine a country's real worth.

But in fact the enthusiastic implementation of financial capitalism has been the story of every successful nation on the planet. We should not shrink from having real markets for countries, which would track countries’ successes much more accurately than stock markets do. Stock markets represent only claims on corporate earnings after corporate taxes—an unreliable measure of a country’s success. We can do better.

(via The Reformed Broker)

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Merkel Is Leading Germany Into The Austerity Abyss

Ashvin Pandurangi — Wed, 22 Feb 2012 14:22:31 -0500

Despite weakening economic growth and industrial production in recent months, Germany continues to look much better than the rest of Europe on the surface.

It boasts a very low unemployment rate (although über-low-wage work has grown tremendously) and relatively small public deficits.

However, none of that is stopping Merkel and her administration from betting their re-election on the fact that they can implement significant austerity in the next 2 years, while also containing the Euro crisis, and "lead by example".

Sven Böll, Peter Müller and Christian Reiermann report for Der Spiegel:

Just how healthy German finances are was revealed at the beginning of last week, in the form of an early-warning report by the European Commission. Germany was the only large country to be given an almost perfect grade.

And yet, if Merkel and Schäuble have their way, the country many in Europe already see as a model of sound budget management will become even more exemplary. "We cannot expect Greece and the other crisis-stricken countries to accept more and more austerity measures, while nothing changes in Germany," says a close associate of the chancellor.

As such, Merkel and Schäuble want to significantly ratchet up consolidation efforts. The 2013 budget, currently being prepared at the Finance Ministry, will include many billions in savings. In addition, the last stage of the so-called debt brake -- Germany's constitutionally anchored law regulating state borrowing -- will be brought forward by two years instead of going into effect as planned in 2016. Measures under discussion include cuts in social benefits and a reduction in government services. Merkel and Schäuble believe that Germany can only remain credible in the euro crisis by demonstrating that it is not simply reaping the benefits of past efforts. Germany wants to lead by example.

In other words, the German populace is about to find out just how destructive austerity can be to an economy when the world is in the midst of an ongoing Depression, in a system that values credit creation above all else. Of course, the most immediate threat to the Germany economy is financial contagion when (again, not if) Greece exits the Eurozone, which will certainly be within 0-2 years. Merkel is also betting that this will now be contained, primarily due to the ECB's LTRO programs (the second one to occur in a week). If you ask me, that's a lot of losing bets she's placing on the table. Back to the austerity:

It's an ambitious goal. To achieve it, the coalition will have to adhere to strict austerity rules in the current year's budget, but especially when assembling the budget for 2013. According to CDU deputy floor leader Michael Meister, new borrowing will remain at €26.1 billion this year, even though the first installments of at least €8.6 billion for the new euro bailout fund, the European Stability Mechanism (ESM), will come due in the summer. Meister intends to achieve this goal primarily through "smart budget management." In other words, each of the 5,500 items in the budget will be closely examined and will be granted only as much as absolutely necessary.

In addition, tax revenues last autumn were significantly higher than forecast. And Germany has also saved billions on sovereign bond interest rates, with returns at record lows due to the ongoing euro crisis.

The challenges will be greater next year. In 2013, the finance minister hopes to reduce new borrowing to €15 billion. But because the planned financial transaction tax cannot be implemented throughout Europe, and a number of additional expenses will be incurred, Schäuble will have to find some €10 billion in order to hit his target.

That is the primary motivation for assembling a new austerity package. Finance Ministry officials already have a clear idea of what it should look like. In particular, they have set their sights on the social benefits coffers, which, thanks to a strong economy, are currently well funded. Federal healthcare subsidies are to be reduced by up to €2 billion and the government's contribution to the pension insurance system is to be trimmed by a similar amount. Both cuts are to be lasting.

Schäuble also intends to cut the budget of the Federal Employment Agency by several hundred million euros and to cap outlays for the parental leave allowance program, expenditures for which have risen substantially in recent years.

As explained in Employment = Poverty and Inequality, the German populace is not in a great position to absorb these cuts to social spending that amount to almost a 40% reduction in new borrowing by next year, and 100% in the next two. Many of them are performing part-time, low-wage work that has greatly exacerbated wealth inequality within the population. As the German export industry is squeezed from the revenue side of the equation due to extremely low demand in Europe and the world, it will be forced to lay off workers and cut wages further, placing even more people into relative poverty.

POPULATION BELOW POVERTY LINE (%)

Assuming that everything is contained within the Euro crisis, and Greece either stays in without further German money or exits peacefully (fat chance!), these "exemplary" and ambitious austerity plans will simply place more downward pressure on German aggregate domestic demand, economic growth and tax revenues, making its deficit situation worse over time. That is especially true if Merkel sticks with the Euro experiment and is forced to pony up ever-growing sums of bailout money and Germany's sovereign borrowing costs correspondingly rise. So Merkel may be leading Germany and Europe by example, but she's leading them straight into the depths of economic depression and sociopolitical chaos.

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