Financial thoughts

From David Nicklaus’ Mound City Money blog. STLtoday.com/moundcitymoney

Unanimity is rare in surveys of businesspeople, but the St. Louis Fed found it among area car dealers. The Fed’s latest Burgundy Book survey says all the dealers it talked to expect lower sales this year. Other retailers aren’t quite as pessimistic, but half expect sales to fall and only one-third expect sales to rise.

If Kansas City’s leaders want to learn about the economics of a 1,000-room convention hotel, they could drive 250 miles east and talk to the folks who recently foreclosed on the Renaissance Hotel in downtown St. Louis. Instead, they’re spending $500,000 for a feasibility study. According to the Kansas City Star’s Kevin Collison, our neighbors to the west are also establishing a 20-member steering committee to think about the idea.

We St. Louisans could save them plenty of time and money. Here are three pieces of free feasibility advice:
— It won’t work without a huge public subsidy.

— It won’t magically generate more convention business

— Even with a huge subsidy, it might not succeed.

The ESOP Association estimates that 10 million U.S. workers, about 10 percent of the private-sector work force, participate in employee stock ownership plans at 11,500 companies. Many people would look at those numbers and see upbeat, motivated employees, their incentives fully aligned with the employers’ goals compare carinsurance.

Sean Anderson, a visiting law professor at the University of Illinois, looks at ESOPs and sees a disaster waiting to happen. In an upcoming article, he says Congress should ban employer stock from all company-sponsored retirement plans. Here’s an Anderson quote, from a U of I News Bureau summary of the article that will appear in the Loyola University Chicago Law Journal. :

"ESOPs have a lot of intuitive appeal — the idea of having workers own a piece of the company they’re working for. But they’re Enron on steroids. At the end of the day, they put workers at terrible risk and more often than not work as a tool that benefits the company, not employees."

ESOPs prevent workers from diversifying their retirement savings, and workers don’t even control the price at which they invest.

My guess is that any proposal to abolish ESOPs would run into a firestorm of criticism from many of those 10 million employee-owners. I’ve talked with people who get a special sense of pride from working at an employee-owned company such as Graybar Electric or McBride & Son Homes. Any reformer would also have to contend with the ghost of Louis O. Kelso, the Cold-War-era thinker who conceived of ESOPs as a way to keep workers engaged with capitalism and opposed to communism.

Source

CHAMPAIGN, ILL. — Just two weeks after the federal government revived plans to build the FutureGen power plant in eastern Illinois, two of the experimental coal plant’s financial backers said Thursday they are withdrawing.

The exit of American Electric Power Co. and Southern Co. leaves the nine power and coal companies that are still part of what’s known as the FutureGen Alliance searching for new partners to help cover costs they expect to reach $2.4 billion.

The Department of Energy said June 12 that it would provide just more than a billion dollars in stimulus money as it agreed to restart the project, aimed at proving that the pollutant carbon dioxide can be removed from coal and safely stored paydayloans.

At one time, 13 companies were involved. Peabody Energy Corp., Consol Energy Inc. and the others decided in late 2007 to build the plant in Mattoon, Ill. The Department of Energy shelved the project weeks later over cost overruns that later proved to be inaccurate.

Source

Warren Buffett said Wednesday that the U.S. economy has "no bounce" and will take time to recover, but there is no risk of deflation to push it further into despair.

Speaking on CNBC television, the world’s second-richest person also praised efforts by the Obama administration and Federal Reserve to jump-start economic activity.

He lamented that the slowdown has hurt his insurance and investment company Berkshire Hathaway Inc., which runs close to 80 businesses and in the January-to-March period had its first quarterly loss since 2001.

"We have had no bounce" in the economy, Buffett said on CNBC television in New York. "There are a lot of excesses to be wrung out, and that process is still under way, and it looks to me it will be under way for quite a while."

Asked whether the economy was still in a "shambles," as he had said in February, Buffett said: "I’m afraid that’s true."

U.S. gross domestic product fell at a 5.7% annualized rate in the first quarter.

Government efforts to stimulate business activity remain a work in progress, and President Barack Obama Tuesday again said the nation’s jobless rate will rise above 10%.

"They’re doing things, but they take a while to have an effect," Buffett said. "You can’t produce a baby in one month by getting nine women pregnant."

Yet he added that "I don’t worry about deflation at all," and maintained his long faith in the stock market, saying it is "attractive over the next 10 years" relative to alternatives.

Asked whether Obama should reappoint Ben Bernanke to lead the Federal Reserve when the chairman’s term expires next January, Buffett said: "I don’t see how you could do better pay day loans."

Stocks for the long run

In a separate interview, Buffett told Fox Business Network he expects the United States to maintain its "triple-A" credit rating for decades. Berkshire lost its equivalent rating this year.

Buffett also said he plans to keep his Goldman Sachs Group Inc. (GS, Fortune 500) warrants, which now show a paper profit.

Last September, Goldman agreed to sell Berkshire $5 billion of preferred stock carrying a 10% annual dividend, and warrants to buy $5 billion of common stock at $115 per share.

"We’ll make a lot of money off Goldman," Buffett said.

Goldman earlier this month repaid $10 billion of federal bailout money taken from the Troubled Asset Relief Program.

Buffett spoke just before a scheduled lunch with Zhao Danyang, a Hong Kong-based investor who in an auction last June agreed to pay $2.11 million to dine with the billionaire.

An auction for a similar lunch to benefit the Glide Foundation, a San Francisco nonprofit offering housing, job training, health and child care, and meals for the poor, is being conducted this week on eBay Inc’s (EBAY, Fortune 500) website.

As of 3:30 p.m. ET, the top bid was $135,678. The auction ends Friday.

Berkshire’s Class A (BRK.A) closed up $1,000 to $86,800 on the New York Stock Exchange. 

Source

Apple Inc chief executive Steve Jobs underwent a liver transplant at a Tennessee hospital and has “an excellent prognosis,” the hospital that performed the operation confirmed on Tuesday.

Jobs, 54, received the transplant because he was “the sickest patient on the waiting list at the time a donor organ became available,” the Methodist University Hospital Transplant Institute said in a statement on its Website.

“Mr. Jobs is now recovering well and has an excellent prognosis,” the statement said. James Eason, program director at the institute and the hospital’s chief of transplantation, added that the confirmation had come with Jobs’s permission.

The hospital did not release details of Job’s condition or when the operation was performed, but the Wall Street Journal reported over the weekend that the transplant took place about two months ago.

Hospital spokeswoman Ruth Ann Hale did not immediately respond to a request for comment on Jobs’ condition. A prognosis refers to a doctor’s prediction regarding the probable course of a disease, disorder or injury.

Apple shares have often fluctuated on speculation about Jobs’ health. The executive, considered by many investors to be the driving force behind Apple’s reputation for innovation, was treated in 2004 for a rare form of pancreatic cancer called an islet-cell, or neuroendocrine, tumor.

But he appeared gaunt at an Apple event in the summer of 2008, setting off a storm of speculation about his health that failed to abate in the ensuing months affordable health insurance in connecticut.

In January, after initially blaming his weight loss on a hormone imbalance, he announced his medical leave, saying his health issues were “more complex” than originally thought.

He has not been heard from since, though a Reuters witness spotted Jobs at Apple’s campus in Cupertino, California, on Monday and Jobs was quoted in a company press release.

The company would not say whether Jobs is off medical leave and back at work. Apple has said repeatedly that it looks forward to his return at the end of June.

A FULL LIFE

Jobs is viewed as the key visionary driving the company’s product development and the mastermind behind iconic products such as the iPod and the iPhone.

But analysts say Wall Street has become much more comfortable with other key executives in Jobs’s absence.

Apple shares have surged around 60 percent this year, despite falling 10 percent following Jobs announcement of medical leave.

Methodist’s confirmation comes as some newspaper and Internet reports speculated on whether Jobs waited his turn for a transplant. 

Read more

A $1 billion Washington program to give vouchers to consumers who replace junky cars with fuel-efficient models is likely to ramp up very soon.

Congress passed the "cash for clunkers" measure late Thursday night as part of the $106 billion war spending bill. President Barack Obama plans to sign the bill into law.

"We are gratified that the Congress delivered on this administration priority, and President Obama looks forward to signing it into law," according to an administration statement.

Vehicles purchased after July 1 will be eligible for the refund vouchers worth as much as $4,500 to turn in gas guzzlers and buy new cars that are more fuel efficient.

The agency in charge of administering the program, the National Highway Traffic Safety Administration, will work out all the details within 30 days of enactment, according to Rae Tyson, spokesman for NHTSA.

Meanwhile, car dealers may honor rebates starting July 1. The federal agency needs the 30-day window to implement regulations to safeguard the program from fraud and abuse, Tyson said.

Among the issues regulators might address: Does the consumer hold a valid legal title to the car he is seeking to trade in? Will the clunker be appropriately disposed of so that it can’t be cashed-in again?

The agency on Friday was scrambling to launch a Web site, www.cars.gov, to provide consumers with information about the program.

The bill’s passage comes as welcome news to automakers, which are struggling from a dramatic plunge in sales.

"We really appreciate Congress’ efforts to move this quickly across the legislative finish line," said Mike Moran, spokesman for Ford Motor Co (F, Fortune 500).

Boosting the economy: Cash for clunkers proponents in Congress said the subsidies will spur sales.

"The simple fact is that we need to get Americans into car showrooms and this is the bill that will do it," said Rep. Candice Miller, R-Mich., in a statement.

Sen. Debbie Stabenow, D-Mich., said the program will boost jobs in auto states.

Michigan’s unemployment rate, the highest in the nation, hit 14.1% in May, the government reported Friday instant cash advance.

"This program will provide an economic stimulus at a time when hardworking families need it most," Stabenow said in a statement.

Still, cash for clunkers drew opposition from lawmakers who were opposed to spending more money on the auto industry.

The move deepens the federal government’s involvement in the auto industry. The Obama administration has said it will provide General Motors (GMGMQ) with another $30 billion in addition to $19.4 billion previously provided.

How program will work: Clunkers eligible for the program must get 18 miles per gallon, or less, in combined city and highway driving.

The subsidy ends up benefiting more owners of light trucks, SUVs and mini-vans more than it would owners of regular old passenger cars, auto experts say.

A $3,500 subsidy can be used to purchase cars and vans that are more fuel efficient than the older clunkers by four miles per gallon. A $4,500 subsidy can be used toward purchasing cars and vans that are more fuel efficient than older cars by 10 miles per gallon.

However, cars that have not been insured for the past year, or those that are older than 25 years, are not eligible to be traded in for vouchers.

The supplemental bill approved Thursday sets aside $1 billion through fall. The program could make available as much as $4 billion in subsidies.

The House passed a cash for clunkers plan Tuesday by a vote of 298-119. Congress could appropriate more funds for the program in the fall.

Environmental lobbying groups had been pushing for a tougher bill sponsored by Sen. Dianne Feinstein, D-Calif., geared more toward cutting carbon emissions.

-CNNMoney.com’s Jennifer Liberto and CNN’s Lisa Desjardins contributed to this report.

Do you have a credit card horror story? Was your interest rate raised or your credit limit cut unexpectedly? Have you had difficulty redeeming reward points? If you’d like to tell your story to Money magazine, please email a brief note, with your contact information, to ismat_mangla@moneymail.com. 

Source

Xstrata wants talks with mining rival Anglo American about a proposed merger of equals worth about $68 billion, seeking increased scale and cost synergies, Xstrata said on Sunday.

Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP Billiton, Vale and Rio Tinto, a source close to the situation said.

Xstrata, which has a market value of $33 billion, said in a statement it recently sent a proposal to Anglo, worth $35 billion.

The approach by Xstrata, which has regarded Anglo an attractive partner for several years, comes after sector No. 1 BHP agreed on June 5 to combine its Australian iron ore operations with those of Rio in a joint venture.

BHP has a market value of $144 billion, Vale is worth $93 billion and Rio $74 billion.

“Xstrata is seeking to engage with the board of Anglo American regarding a merger of equals that would realize significant value for both companies’ shareholders,” Xstrata said in a statement.

“The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth businesscards.com.”

Anglo said in a statement the situation was at a very preliminary stage, but declined to give further details.

A source familiar with the situation said Anglo only received the approach a few days ago.

The source, who declined to be named, said Anglo’s board would examine the value for shareholders in a combination with Xstrata compared to the value by remaining independent.

DILUTE PORTFOLIO?

One main issue was the fact that Anglo’s assets are higher quality and have longer lives than those of Xstratra, he said.

“Why would you want to dilute that portfolio with lower value assets?” the source said.

Anglo shareholders also might not be keen to share cost savings with Xstrata from a program underway to slash $1 billion through procurement savings and another $1 billion through “asset optimization,” he added.

Xstrata would probably be reluctant to make a hostile bid since it would run the risk of opposition from the South African government, a major Anglo shareholder, industry sources and analysts told Reuters last week. 

Read more

A better-than-expected rebound in construction last month is the latest sign that the prolonged housing slump may be coming to an end.

Construction of new houses and apartments jumped 17.2 percent in May to a seasonally adjusted annual rate of 532,000 units, the Commerce Department reported Tuesday. The increase exceeded projections of many economists.

In another encouraging sign, applications for building permits, seen as an indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

The current recession was triggered by a collapse in the housing market that led to soaring loan losses and a banking system crisis. A healthy home market is needed to support a broad economic recovery.

In the St. Louis region, local experts say they are beginning to see more activity. Numbers for May were not available Tuesday.

Joe Zanola, who heads the Rock Hill-based market research group Zanola Co., said building permits have climbed each of the last four months.

He also has seen a noticeable interest from first-time buyers, spurred in part by the $8,000 tax credit. That’s helping builders sell off their inventory and reduce supply.

Still, through April, permits for 2009 were well below prior years — half of last year’s level and down more than two-thirds from 2007. Zanola said he doesn’t expect to see year-over-year growth until next year.

House construction in May was led by a 28.6 percent surge in the West. Construction rose 6 guaranteed approval payday loans no teletrack.8 percent in the South and 11.1 percent in the Midwest. The Northeast had the smallest gain: 2 percent.

Many economists say construction likely will stop falling in the current quarter, but a sustained rebound isn’t expected to take hold until next spring. That’s partly due to the glut of unsold houses and a record wave of mortgage foreclosures dumping more houses on the market.

With foreclosures and other distressed properties for sale at deep discounts, builders often can’t compete. Rather than launching new developments, they are waiting for signs of a broader recovery.

Patrick Sullivan, executive vice president of the Home Builders Association of Eastern Missouri, said he’s starting to hear of a bit more interest from potential buyers, but just a bit.

"It’s not a faucet turned wide open by any means," he said. "But it’s a trickle, and stronger than anything we’ve seen in this early spring or winter."

Sullivan said it will take a while to know if that trickle will be sustained. There is still a glut of housing on the market, and a lot of uncertainty in the economy.

"What’s telling is looking at maybe a six-month span," he said. "That’s when you start to see a trend."

Tim Logan of the Post-Dispatch contributed to this report.

Source

A better-than-expected rebound in construction last month is the latest sign that the prolonged housing slump may be coming to an end.

Construction of new houses and apartments jumped 17.2 percent in May to a seasonally adjusted annual rate of 532,000 units, the Commerce Department reported Tuesday. The increase exceeded projections of many economists.

In another encouraging sign, applications for building permits, seen as an indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

The current recession was triggered by a collapse in the housing market that led to soaring loan losses and a banking system crisis. A healthy home market is needed to support a broad economic recovery.

In the St. Louis region, local experts say they are beginning to see more activity. Numbers for May were not available Tuesday.

Joe Zanola, who heads the Rock Hill-based market research group Zanola Co., said building permits have climbed each of the last four months.

He also has seen a noticeable interest from first-time buyers, spurred in part by the $8,000 tax credit. That’s helping builders sell off their inventory and reduce supply.

Still, through April, permits for 2009 were well below prior years — half of last year’s level and down more than two-thirds from 2007. Zanola said he doesn’t expect to see year-over-year growth until next year.

House construction in May was led by a 28.6 percent surge in the West. Construction rose 6 no fax cash loans.8 percent in the South and 11.1 percent in the Midwest. The Northeast had the smallest gain: 2 percent.

Many economists say construction likely will stop falling in the current quarter, but a sustained rebound isn’t expected to take hold until next spring. That’s partly due to the glut of unsold houses and a record wave of mortgage foreclosures dumping more houses on the market.

With foreclosures and other distressed properties for sale at deep discounts, builders often can’t compete. Rather than launching new developments, they are waiting for signs of a broader recovery.

Patrick Sullivan, executive vice president of the Home Builders Association of Eastern Missouri, said he’s starting to hear of a bit more interest from potential buyers, but just a bit.

"It’s not a faucet turned wide open by any means," he said. "But it’s a trickle, and stronger than anything we’ve seen in this early spring or winter."

Sullivan said it will take a while to know if that trickle will be sustained. There is still a glut of housing on the market, and a lot of uncertainty in the economy.

"What’s telling is looking at maybe a six-month span," he said. "That’s when you start to see a trend."

Tim Logan of the Post-Dispatch contributed to this report.

Source

Don’t drive with a full tank, says Jim Davidson in his book, 75 Ways to Save Gas.

Gasoline weighs a lot and taxes the engine, meaning it has to work harder – and burn more fuel – to keep you moving.

And don’t refuel when the tank is one-quarter full. Wait until the tank is empty and the dashboard light comes on.

Some people call this gas surfing. Just don’t try it while on a trip, or late at night when everything is closed.

The average price of gas in Toronto was $1.02 yesterday, up from 94 cents a month ago.

As summer driving season approaches, why not do what you can to cut your fuel bill?

Davidson runs his own business, Car$mart, helping people buy new cars. He owns a Toyota Prius hybrid.

The $6.99 book, published by Penguin, arose from a sense of helplessness at seeing gas prices spiking. He wanted to give power back to people.

Here are 10 tips I found surprising and yes, empowering.

1) Choose synthetic (factory-made) oil. The engine parts will move much more freely than with natural oil, increasing mileage by nearly 10 per cent. Synthetic oil costs a little more, but doesn’t have to be changed as often.

2) Add nitrogen to your tires. Nitrogen is a dry, inert gas that has larger molecules than air. This means almost no leakage through the valve, rim and sides. Your tires stay pumped up longer, giving better fuel economy and less wear.

3) Install a fuel-use gauge. This computerized gadget gives you an instant reading of how much fuel your car is using. It keeps you honest, since you can see how much gas you waste by revving the engine or speeding.

4) Don’t overfill the gas tank freecreditreport. When the pump clicks, stop. It’s a costly mistake to top up. Any gas pumped after the click will just evaporate or spill down the side of the car.

5) Tighten the gas cap. Make sure it goes on smoothly after you refuel. If the cap is crooked or loose, you’ll lose gas when it overflows out the neck of the tank as you drive.

6) Keep the car’s body clean and smooth. Dirt or dents cause aerodynamic drag, overworking your car’s engine and raising the fuel bill. A washed and waxed car can use up to 5 per cent less fuel than a dirty one. Check the underbody and wheel wells for caked-on dirt and mud.

7) Chill in the shade. Park in an indoor lot or in the shade of a tree or building. A car can get up to 15C degrees hotter sitting out in the sun. The extra heat will make you more inclined to use the air conditioning to cool off.

Park with the hood pointing out. Backing out of a parking spot when the engine is cold takes a lot of effort (and gas). All the jockeying to park with your hood pointing out is done when the engine is warm, so it’s easy on fuel.

9) Don’t do the drive-throughs. Park your car and walk into the fast-food restaurant instead. The typical drive-through wait is five minutes, making you waste fuel by idling the engine.

10) Start a fuel economy group. Plan to meet over coffee, start a blog together or link up in a group email. Make it a game to see who can get the best mileage each month and give gas cards as rewards. Check EcoModder.com or CleanMPG.com for fuel economy tips.

eroseman@thestar.ca

Source

California became the first state to see gas prices top $3 a gallon since October, according to a daily survey of gas prices.

The national average price for a gallon of gas rose 0.6 cent Monday to $2.669, according to motorist group AAA. Prices have been steadily climbing higher since April 29 and are up 63% from the start of the year.

On Jan. 1, the national average for a gallon of gas stood at a mere $1.618. Still, prices remain well below the levels of last July, when the national average hit an all-time high of $4.114.

California now tops the list for having the highest gas prices, with the average price for a gallon of regular gas reaching $3.006, according to AAA. The last time gas prices topped $3 was Oct. 17, when the national average was $3.040 a gallon. On that same date, California prices averaged $3.3912 a gallon.

A cloud over the Golden State. The pain at the pump is particularly troubling for the nation’s most populous state.

California has already been battered by the downturn in the housing market. And unemployment surged to 11% in April - the fifth highest of any state.

At the same time, Sacramento is now facing a $24 billion budget shortfall that could force more cuts in state services like education and health care.

Furthermore, gas prices are higher in California because the state has one of the highest gas tax rates in the nation, said AAA’s Green.

And the state’s stringent clean air laws require retailers to offer several different fuel blends, many of which push up the average price per gallon, he added.

Consumer budget crunch 1 hour payday loans. The surge in gas prices comes at a time when household budgets are already strained by rising unemployment and a depressed housing market.

Many analysts worry that a major spike in gas prices could forestall an economic recovery as consumers cut back on spending in other areas to make up for higher prices at the pump.

Gas prices have been driven higher by a run-up in oil prices as investors bet the world’s appetite for energy is poised to rebound. The price of oil, which is the main ingredient in gasoline, has more than doubled since late December.

California often sets the tone for the rest of the nation when it comes to certain economic trends. However, the old adage "as goes California, so goes the nation" may not ring true in this case.

Looking ahead, AAA spokesman Troy Green said gas prices could top $3 a gallon in "a few other states," such as Hawaii and Alaska, where prices are already nearing $3 a gallon. However he said such pricey petrol "won’t be widespread."

Has the rebound in gas prices caused you financial hardship? Are you spending less on other items to help with the cost of driving? Have you postponed summer driving plans? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.  

Source