Financial thoughts

Two of the largest U.S. apartment landlords said on Thursday they see something in their sector that’s been missing for the past few years — a little optimism about the future.

While not declaring an end to falling rents and declining net cash generated by their properties, the heads of industry leaders Equity Residential and AvalonBay Communities Inc said they are seeing increased demand for some of their apartments.

“While we expect operating performance to remain weak near term, there are signs that the weaknesses in both the economy and in some of our operating metrics are beginning to moderate,” Bryce Blair, AvalonBay chairman and chief executive, said during a conference call with analysts.

Both real estate investment trusts have buildings in key U.S. cities and held conference calls following the release of their third-quarter results.

The U.S. apartment sector has been in a nosedive for more than a year, as job growth, the key driver of apartment demand, has been replaced by hemorrhaging unemployment. Because of their short leases, the apartment sector is quick to feel market softness, yet also rebounds quickly.

To keep or attract tenants, landlords have been offering months of free rent and other concessions.

AvalonBay said its properties in Washington, D.C. seem to be improving, while those in the New York metropolitan area are about the same. The West Coast is still seeing deep declines.

Overall occupancy in its buildings improved throughout the third quarter to 96.2 percent in September from 95.9 percent in August and 95.8 percent in July. Early indications show October occupancy hovered in the 96 percent territory, it said payday advance online.

“The fourth quarter of last year and first quarter of this year, the world fell apart. Everything just fell off a cliff,” Sandler O’Neill analyst Alexander Goldfarb said. “We’re past that. We’re not seeing the bottom just fall out anymore. The base is sort of solidifying.”

During the third quarter, AvalonBay’s revenue was off 4.5 percent from a year earlier for properties it has owned for more than a year. Net operating income, or cash the properties generate before financing payments are made, fell 8.5 percent.

Despite the decline, AvalonBay noted some improvements in the third quarter. Occupancy and availability have returned to historically normal ranges.

Concessions fell by half compared with both a year ago and a quarter ago. The net rent for new move-in leases was 9 percent lower than a year earlier. But that was better than the 12 percent decline in the first half of 2009.

Still, AvalonBay said it expects rents to continue to fall into 2010. For the year, AvalonBay anticipates revenue down 3.5 to 3.75 percent while net operating income will be about 7 percent lower than last year.

“We’re beginning to see improvements in some leading indicators, yet we still have a way to go before returning to positive revenue growth,” Blair said.

Equity Residential results were better because the company was able to keep operating expenses down by more than it had expected, and it raised its full-year forecast. 

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The Nasdaq slumped and the Dow managed a slim gain Tuesday, as investors weighed a selloff in tech, a rally in energy and a surprise drop in consumer confidence.

A better-than-expected housing market report and a strong response to the government’s latest debt auction were also in the mix.

The Dow Jones industrial average (INDU) gained 14 points, or 0.1%. The S&P 500 (SPX) index rose 3 points, or 0.3%. But the Nasdaq composite (COMP) lost 26 points, or 1.2%.

Since peaking at rally highs a week ago, the Dow has lost 2.3%, the S&P 500 has lost 3.4% and the Nasdaq has lost 3.4% through Tuesday’s close.

"In the last few days, the market hasn’t been looking very friendly, but the overall picture hasn’t changed much," said Will Hepburn, president at Hepburn Capital Management. "The upward momentum is still significant."

Hepburn said that there’s still plenty of fuel to keep the advance going. He cited the improving economic and corporate news, the massive amounts of government stimulus and the trillions sitting in money-market funds in cash or low-yielding bonds.

He noted that although the S&P 500 is up 57% from the March bottom, when it hit a 12-year low, the broad average is still down 32% from its all-time high of October 2007.

Tuesday’s market: Weakness in banks, techs, retailers and transportation stocks dragged down the Nasdaq and limited the rest of the market from moving much. Cisco (CSCO, Fortune 500), Dell (DELL, Fortune 500), Amazon.com (AMZN, Fortune 500) and Yahoo (YHOO, Fortune 500) were among the Nasdaq’s biggest decliners.

A rally in heavily weighted Dow components Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), DuPont (DD, Fortune 500) and American Express (AXP, Fortune 500) kept the blue-chip measure afloat.

Stocks tumbled Monday, with the Dow dropping 100 points for the second day in the row. A spiking dollar dragged on commodity shares and other stocks that benefit from a weak U.S. currency.

The dollar and commodity prices remained in focus Tuesday. But investors also looked to the economic news ahead of Thursday’s highly anticipated gross domestic product report.

Energy: Energy was the strongest sector on the day, as investors reacted to a smattering of financial reports and the impact of the U.S. dollar.

European oil behemoth BP (BP) reported weaker quarterly earnings and revenue due to lower oil prices, but the results topped analysts’ estimates. BP’s U.S.-traded shares rose 4%.

Valero Energy (VLO, Fortune 500), the largest U.S. oil refiner, reported a bigger-than-expected quarterly loss Tuesday, with fuel demand suffering amid the sluggish economy. Shares fell 4.3%.

Nonetheless, a variety of energy stocks rallied, including Dow components Chevron and Exxon Mobil.

Raw commodity prices were higher as well, despite a mixed dollar payday advance lender. Typically a weak dollar boosts dollar-traded commodity prices and a strong dollar pressures prices.

Confidence: Consumer sentiment took a plunge in October, according to a Conference Board report released after the start of trading. The Consumer Confidence index fell to 47.7 in October from a revised 53.4 in September, reflecting the impact of rising joblessness and shrinking household wealth. Economists surveyed by Briefing.com thought the index would rise to 53.5.

The part of the index that measures how consumers rate the present economic situation fell to 20.7 in October from 23 in September. It was the lowest level since February 1983, when it stood at 17.5.

Housing: Home prices rose for the fourth month in a row in August, according to the S&P Case-Shiller Home Price index of the 20 largest metropolitan areas. Prices also showed the smallest year-over-year declines in nearly 2 years.

Prices rose 1.2% in August after climbing 1.6% in July. Versus a year ago, prices were down 11.3%, but that was shy of the 11.9% drop economists were expecting.

Financial results: With 230 companies, or 46%, of the S&P 500 having already reported results, profits are on track to have fallen 18.1% from a year ago, according to the latest from Thomson Reuters.

Results have largely topped forecasts, with 80% of companies beating earnings’ estimates, 6% meeting expectations and 13% missing forecasts.

Currency and commodities: The dollar gained versus the euro, after falling to a 14-month low last week. But the greenback fell versus the yen.

U.S. light crude oil for December delivery rose 87 cents to settle at $79.55 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $7.40 to settle at $1,035.40 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.

World markets: Global markets were mixed. In Europe, London’s FTSE 100 added 0.2%, France’s CAC 40 was barely changed and Germany’s DAX lost 0.1%. Asian markets ended lower.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.47% from 3.55% late Monday. Treasury prices and yields move in opposite directions.

Gains accelerated after the government saw strong demand for its sale of $44 billion in 2-year notes.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost two to one on volume of 1.39 billion shares. On the Nasdaq, decliners topped advancers by over two to one on volume of 2.42 billion shares. 

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There’s no need to fear a Wall Street brain drain — despite the crackdown on pay by Washington.

On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.

Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG (AIG, Fortune 500),Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) could lose their best people.

These firms would then perform even more abysmally, if that’s possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.

Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don’t exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.

Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses — including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general’s office.

"Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance," the report said.

Meanwhile, it’s hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.

Unemployment has doubled nationally since December 2007, when the recession started. Securities industry employment has fallen 10% nationwide and 14% in New York from a mid-2008 peak, according to Bureau of Labor Statistics data, costing some 90,000 jobs in the U.S.

And Goldman Sachs’ (GS, Fortune 500) charm offensive notwithstanding, it looks like the official response to runaway pay is just starting.

The Fed’s plan to weigh big banks’ compensation plans against their potential for undermining the economy could eventually put pressure on pay at all the big banks.

"This could be a game changer," said Simon Johnson, an economist at MIT. "There will be a lot of pressure on them in Congress to stick it to the big firms."

But maybe the best reason not to fret about talent flight is one familiar to cubicle dwellers everywhere: just because someone has a big, high-paying job doesn’t mean they’re good at it.

Take Bank of America, for instance. The bank’s longtime CEO, Ken Lewis, unexpectedly announced his retirement this month, while agreeing to give back his 2009 salary.

Lewis didn’t say why he was leaving, but it seems that criticism over his empire building, mishandling of the Merrill acquisition and outsize pay got to him. The Charlotte Observer reported he had grown tired of the "mud being thrown on him day by day."

Another helping or two of that mud could be just what Wall Street needs. 

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Blue chips led a bigger stock market rally Thursday, as better-than-expected results from four components pushed the Dow industrials above 10,000 again and reassured investors about the ongoing corporate reporting period.

Investors took in stride announcements from the Federal Reserve and the Obama administration’s pay czar regarding curbing executive pay.

The Dow Jones industrial average (INDU) gained 132 points, or 1.3%, closing at 10,081.31. The S&P 500 (SPX) index rose 11 points, or 1%. The Nasdaq composite (COMP) gained 14 points, or 0.7%.

Stocks dipped in the early going, before managing a blue-chip led charge starting in late morning. Gains were broad based, with 26 of 30 Dow stocks rising, including 3M, McDonald’s, AT&T and Travelers, all of which reported better-than-expected results.

Travelers jumped almost 8% and was one of many financial stocks that gained on the day. The KBW Bank (BKX) index rose 3.4%.

Stocks have been seesawing over the last week, with the Dow topping and giving up the 10,000 level and the S&P struggling around 1,100. Both major indexes, as well as the Nasdaq, are at nearly one-year highs.

Stocks tumbled Wednesday after influential analyst Richard Bove of Rochdale Securities cut his rating on Wells Fargo, sparking a steep selloff in the banking sector.

But the selloff proved to be short term, with investors again using any selling as an opportunity to buy on the dips, as has been the trend for months.

Stocks have been on a tear since bottoming in March at the low point of the financial market crisis. Since hitting a more than 12-year low on March 9, the S&P 500 has risen just short of 60% as of Wednesday’s close.

Despite persistent calls for a selloff of anywhere from 10% to 15%, any declines in the period have been moderate, in the 3% to 5% range.

Additionally, the declines have been met with a rash of buyers eager to return. For now, those trends are still in place, said Kenny Landgraf, principal and founder at Kenjol Capital Management.

"There are still a lot of people who missed the move who are now looking to increase their risk exposure," he said. "That impact, combined with improving fundamentals, is going to keep the positive trends intact."

Pay crackdown: Obama administration "pay czar" Kenneth Feinberg called for the seven biggest federal bailout recipients to cut in half total compensation for their top executives.

Additionally, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. The review is part of its effort to temper some of the triggers to the risk taking that exacerbated the credit crisis.

The two announcements had almost no impact on the market, perhaps because an overhaul had been in discussion for months.

Corporate results: Dow component Travelers (TRV, Fortune 500) said its quarterly profit more than tripled, easily topping analysts’ estimates. The insurer also lifted its full-year forecast to a profit of between $5.30 and $5.50 per share. Shares jumped 7.7%.

Fellow Dow component AT&T (T, Fortune 500) reported a better-than-expected third quarter profit thanks to the impact of Apple’s iPhone, for which it has been the exclusive carrier. Wireless revenue jumped 10% in the quarter. Shares gained 0.6%.

Dow component McDonald’s (MCD, Fortune 500) reported higher third-quarter earnings that topped estimates on weaker third-quarter revenue that missed estimates. Shares rose 2%.

3M (MMM, Fortune 500), also a Dow component, said third-quarter earnings and revenue fell from a year ago, but both were above analysts’ estimates. Shares gained 3.2%.

Other big stocks boosting the Dow included Boeing (BA, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Exxon Mobil (XOM, Fortune 500), Procter & Gamble (PG, Fortune 500) and IBM (IBM, Fortune 500).

Merck (MRK, Fortune 500), the fifth Dow component to report Thursday morning, said its earnings and revenue rose from a year ago and topped estimates. Shares of the drugmaker were barely higher.

So far, 167 companies, or 33% of the S&P 500, have reported results. Profits are currently on track to have fallen 19.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago.

Other company news: Microsoft (MSFT, Fortune 500) launched the newest version of its operating system, Windows 7. The tech behemoth, a Dow component, is hoping that users who have been running XP for years will switch to the new system — and forgive it for the disappointing performance of Windows Vista in 2007.

Microsoft reports quarterly results Friday.

Economy: Around 531,000 Americans filed new claims for unemployment last week, down from 520,000 the previous week. Economists surveyed by Briefing.com were expecting a bigger drop, to 515,000.

Continuing claims, a measure of those who have been receiving benefits for a week or more, fell to 5.92 million from 6.02 million in the previous week. Economists were expecting claims to fall to 5.97 million.

The index of leading economic indicators (LEI) rose 1% in September after rising a revised 0.4% in the previous month. Economists thought it would rise 0.8%.

The U.S. Federal Housing Finance Agency’s housing price index fell 0.3% in September after rising 0.3% in August. Economists thought it would rise 0.3%.

World markets: Global markets were mixed. In Europe, London’s FTSE 100 fell 1%, France’s CAC 40 lost 1.4% and Germany’s DAX gave up 1.2%. Asian markets ended lower with the Japanese Nikkei down 0.6%.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.42% from 3.38% late Wednesday. Treasury prices and yields move in opposite directions.

Currency and commodities: The dollar fell against the euro, weakening again after it fell to a 14-month low Wednesday. The dollar gained versus the yen.

The dollar had risen in the morning, pressuring dollar-traded commodity prices. Prices remained lower in the afternoon, even as the dollar turned mixed.

U.S. light crude oil for December delivery fell 18 cents to settle at $81.19 a barrel on the New York Mercantile Exchange, edging off a one-year high.

COMEX gold for December delivery fell $5.90 to settle at $1,058.60 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.  

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Is anybody out there hiring? Seriously. I’m not looking for a job but I’d like to know if any major corporations are actually looking to boost their headcount anytime soon. Do I hear crickets?

Investors are continuing to celebrate healthy third-quarter earnings reports in what’s turning out to be a far less scary October than usual for stocks. But a lot of the better-than-expected profits are coming thanks to job cuts.

And there still doesn’t appear to be much evidence of an improvement in the labor markets coming anytime soon.

Sun Microsystems (JAVA, Fortune 500) announced Tuesday evening that it was planning to cut 3,000 jobs — about 10% of its total workforce — while it waits for regulators to approve its sale to software giant Oracle (ORCL, Fortune 500).

The New York Times (NYT) said Monday it was going to get rid of 100 jobs in its newsroom. That works out to an 8% reduction in the editorial staff at the Gray Lady.

Earlier this month, struggling PC maker Dell (DELL, Fortune 500) said it was closing a plant in North Carolina, resulting in the loss of more than 900 jobs. And medical equipment manufacturer St. Jude Medical (STJ) said a few weeks ago that it was cutting more jobs than it had originally planned back in the second quarter.

These are just a few examples of the continued bloodletting in Corporate America.

I hate to beat a dead horse here. Heck, I think this horse has already made a trip to the glue factory. But how can Wall Street remain in such a celebratory mood this earnings season when all signs point to more job losses and rising unemployment as far as the eye can see?

Yes, there are several things to be encouraged about these days. Banks appear to have taken a step back from the brink. The housing market looks as if it is stabilizing.

And even though rising energy costs could be a bit painful to consumers, the recent surge in the price of oil (not to mention other commodities) also seems to be a confirmation of what investors in stocks are saying: the global recession may really be over.

Finally, I’d be remiss if I didn’t point out that many of the companies still announcing big job cuts are, to put it mildly, troubled firms.

For example, Sun Microsystems has continued to lose money and would be in more serious financial dire straits if not for the lifeline Oracle has thrown it. It’s no secret that the newspaper business is mired in a horrific slump.

So it may be the case that future job cuts are only going to be coming from weak companies and that healthier firms could actually start hiring again as their profits improve.

"If we don’t have job growth, we can’t have a strong, or even sustained economic recovery," said Stuart Hoffman, chief economist with PNC Financial Services. "But it’s not unusual for profits to head up before employment does, particularly when you have strong productivity growth."

That’s all well and good. But as long as people are still losing their jobs, worried about losing their jobs or having difficulty finding a new job, it’s hard to fathom how the recovery can be anything more than tepid.

"At this point, we’re still losing jobs. For those who say the economy has already turned, I’m dubious about that," said Dan Seiver, a finance professor at San Diego State University. "We’re in the process of bottoming but we can’t call it a recovery until we’re creating net new jobs."

Consumers are not going to spend as much if unemployment continues to rise. The jobless rate was 9.8% nationwide in September.

And according to figures released by the Labor Department Wednesday, 15 states had an unemployment rate above 10% last month. What’s more, the unemployment rate was higher in 23 states in September than in August.

The moribund state of the job market is one reason why Allen Sinai, chief global economist and strategist with Decision Economics, wrote in a report earlier this month that we may be on the verge of "the mother of all jobless recoveries."

"Never before has business shed so many workers so fast, so many people failed to find work who are looking for work, and so many dropped out of the labor force as in the current circumstance," Sinai wrote. "The number of job seekers is way, way up and the number of job openings is way, way down."

This all sounds incredibly depressing. But here’s some good news.

Seiver said that because people who are not actively looking for jobs are not counted by the government as technically being unemployed, it’s possible for the jobless rate to keep climbing even though the job market may really be improving.

"As the economy starts to turn, more people may start looking for jobs and for every job that gets filled, there may be more people looking for work again. That’s part of the problem with the unemployment number," he said.

Hoffman added that he thinks the nascent rebound in profits will eventually allow businesses to become confident enough to start hiring again. He said that there should be modest job growth beginning in the first quarter of next year and that the pace should pick up heading into 2011.

Of course, that’s a long way off for people looking for work now. And Hoffman said that people shouldn’t expect too much of a rebound in the job market at first.

"Job growth won’t be rapid. Employment gains won’t be up as fast as the losses were on the way down," he said.

That’s why Hoffman thinks it is best for consumers and investors to temper their expectations and prepare for a gradual climb out of the recession, not an explosive rebound. He’s referring to 2010 and 2011 as a "half-speed recovery."

Talkback: Are you worried about losing your job or finding a new one if you are currently unemployed? Is Wall Street underestimating how serious the problems in the labor market are? Share your comments below. 

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Airline passenger revenue plummeted 19% in September year-to-year, an industry trade group said Tuesday — but it’s not for lack of business.

Passenger volume slipped just 2% in September year-to-year, according to the Air Transport Association. The group blamed the sales plunge on a decline in air fares, noting that the average price to fly one mile fell 18% in September, compared with a year ago.

"The demand for air travel remains weak," said ATA Chief Executive James May, in a statement. "While other sectors may be seeing signs that the economy is getting back on track, the airline industry has faced challenges in its effort to generate revenue."

September was the 11th consecutive month of declining passenger revenue versus a year ago, and the 10th consecutive month of ticket price declines, the ATA said.

ATA spokeswoman Elizabeth Merida said her group’s figures do not include revenue from the fees that airlines started imposing last year on services that once came for free, such as checked baggage, pet travel, non-alcoholic drinks and food. Nor would the ATA provide an estimate on how much those fees totaled.

According to the U.S. Department of Transportation, the extra fees added up to $1.15 billion last year.

Most recently, five of the major carriers including U.S. Airways (LCC, Fortune 500), AMR Corp.’s (AMR, Fortune 500) American Airlines, UAL Corp no fax payday loan.’s (UAUA, Fortune 500) United Airlines, Continental Airlines (CAL, Fortune 500) and Delta Air Lines (DAL, Fortune 500) added a $10 surcharge to holiday flights instead of raising fares.

ATA spokesman David Castelveter said the extra fees are "the airline industry’s attempt to generate the revenue that it needs to return to profitability."

But he said he expects more pressure on airline revenue going forward, given the recent rally in fuel prices. He said that every $1 increase in the price of crude oil means an extra $430 million in costs for the airline industry.

"That means that are costs are going to continue to go up at a time when the economy is continuing to be weak," said Castelveter.

Raymond Neidl, an airline consultant, said the fees "partly offset" the decline in revenue, but they’re not nearly enough to fix the problem. He said that airlines will continue to struggle until a recovery can stem the decline in business travel.

"Business travel is way off and that’s where the airlines get half their revenue," he said. "That’s the crux of the problem." 

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It’s probably cold comfort, but Goldman Sachs couldn’t have done it without your help.

The New York-based investment firm turned another eye-popping profit Thursday, earning $3.2 billion in the third quarter, as revenue from trading rose fourfold from a year ago.

As Wall Street firms typically do, Goldman set almost half that sum aside to compensate its workers. Through the first nine months of 2009, the firm socked away $16.7 billion, enough to pay the average Goldmanite $526,814.

The bonus pool is on pace to hit $21 billion for 2009, which would match the record bonus payout of 2007.

Goldman said it won’t decide the size of the bonus pool till year-end. In any case, the payments will be substantial — and will come just one year after huge sums of taxpayer dollars were funneled to financial institutions.

Critics charge that the lion’s share of Goldman’s profits comes from making big bets using cheap dollars printed by the Federal Reserve. Plus, given the crisis that followed the failure of Lehman Brothers, there’s a sense that government officials won’t let big firms go bust. That in effect gives too-big-to-fail firms a license to bet the house.

"This is almost an ‘in your face’ kind of setup here," said Michael Panzner, a Wall Street veteran who blogs at financialarmageddon.com and who wrote a 2007 book predicting economic disaster. "They’re rolling the dice, and so far they’re winning," said Panzner.

Goldman denies that it is taking on too much risk and leaning on the government for support. "We don’t operate the company that way," said financial chief David Viniar in response to a question on Thursday morning’s Goldman media call. "We stand on our two feet as a financial institution. None of our bondholders has ever talked to us about" an implicit government backstop.

And, of course, Goldman (GS, Fortune 500) looks like a paragon of virtue compared to many of its peers in the financial sector. Unlike Citi (C, Fortune 500) and Merrill Lynch, for instance, Goldman never paid out billions of dollars in bonuses while losing huge sums of money. Even last year, when the firm took big writedowns and posted its first quarterly loss as a public company, Goldman managed to stay profitable.

Goldman repaid its $10 billion Troubled Asset Relief Program (TARP) debt with interest this past spring. And in contrast to the likes of Lehman Brothers, which dithered while it could have saved itself, Goldman raised $11 billion in capital over the past year, including a preferred stock sale on Warren Buffett’s tough terms.

Still, there’s no denying Goldman has had a lot of help.

It was one of the nine big banks that received loans from Treasury last fall. It received $13 billion in the costly, widely questioned September 2008 rescue of insurer AIG (AIG, Fortune 500). It has sold $22 billion in federally guaranteed debt under a plan the feds started to restore capital markets activity. And it has been a major beneficiary of the low interest rates the government has adopted in hopes of restarting the economy.

Of course, Goldman wasn’t the only beneficiary of those moves, but it has certainly been among the most nimble in cleaning up. That has attracted the attention of investors.

"There’s a perfect storm of arguments against paying that much," said Tim Smith, a senior vice president at Walden Asset Management, a $4 billion Boston-based asset manager focusing on socially responsible investments.

He notes that Walden, which owns a small amount of Goldman stock, sponsored a resolution last year calling for Goldman to allow investors to advise the firm on compensation practices. The measure failed, but it did score a 46% vote, Smith said. He is hopeful that a similar resolution this year will pass.

"There are many faces to this discussion," Smith said, "but the outrage over the bonuses is going to be focused on the larger context, with foreclosures and job losses."

While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record.

More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute. A September survey of state finances by the Center on Budget and Policy Priorities think tank found that state governments faced a collective $168 billion budget shortfall for fiscal 2010.

Goldman, by contrast, is sitting on $167 billion in cash, in the name of making sure it can withstand another market meltdown if that day comes.

Goldman was guarded in its assessment of the future — Viniar said he has seen signs markets have stabilized without necessarily improving. But Panzner believes many Americans have been caught up in the massive stock market rally. On the next downturn, he said, they could be left nursing huge losses again.

Meanwhile, Washington has made little progress in recasting a financial system that only a year ago was on the verge of collapse. "We need to be mindful about the dangers of complacency," said Doug Hamilton, deputy director of the Pew Economic Policy Group. "We can’t go back to the old way of doing business." 

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Most Federal Reserve policymakers believe that an economic recovery has started, although they view the turnaround as weak enough that some want the central bank to take additional steps to stimulate the economy, according to minutes of a meeting last month that were released Wednesday.

The minutes of the two-day meeting, concluded Sept. 23, were the most explicit statement yet that the Federal Open Market Committee now believes the recession that started in December 2007 is over. The committee comprises the group of Fed governors and district bank presidents who set interest rates and take other steps to spur or slow economic growth.

"Most thought an economic recovery was under way," the minutes stated. "Many participants noted that since August, they had revised up their projections for the second half of 2009 and for subsequent years."

Up to now, the Fed’s statements have been more circumspect. Its statement , released at the end of the meeting, said simply that economic readings suggest "that economic activity has picked up following its severe downturn."

This is the first time that Fed minutes explicitly said that most members believe the recession is over. However, in response to a question in an appearance at the Brookings Institution last month, Fed Chairman Ben Bernanke did say that the recession is "very likely over."

The decision on when a recession begins and ends is not up to the Federal Reserve, but instead the National Bureau of Economic Research. That group doesn’t make any sort of declaration until months after the fact, in order to take into account final readings of various economic measures such as employment, income and industrial production.

For example, the NBER didn’t declare that the recent recession had begun in December 2007 until a full year after the fact.

There is a growing consensus among outside economists that the recession is over. A survey of top forecasters by the National Association for Business Economics earlier this month found 81% believe the economy is in recovery.

Still, there was debate at the Fed’s September meeting about what to do next. There was broad agreement that the fed funds rate, the key rate used to pump money into the economy, should be kept near 0%, and that the statement should say "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

But some members wanted to increase the amount of mortgages the Fed will buy from the $1.25 trillion level that had been previously announced. The Fed is buying up those mortgages in an effort to keep mortgage rates low.

At least one member wanted to instead cut the amount of mortgages purchased before reaching that level.

The members agreed that the job market is likely to stay weak for the foreseeable future — and that is likely to keep wages from rising.

But there was a "a range of views" among members about how soon inflation would reappear as a result of trillions that the Fed has pumped into the economy in the last year.

Bernard Baumohl, executive director of the Economic Outlook Group, said he thinks there is a "vigorous debate" going on right now within the Fed as to when it should take steps to pull out the money it has pumped into the economy.

"If we’re getting signs that the recession is over and recovery is gathering steam, the Fed is going to have to move very quickly to begin to withdrawal the stimulus, or else it will sow the seeds for inflation," he said.

Even with the debate about purchases of mortgages and the threat of inflation, there appears to be general agreement that the recovery is likely to be modest.

"Despite…positive factors, many participants noted that the economic recovery was likely to be quite restrained," according to the minutes. 

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Should private equity get a new name? Carlyle’s David Rubenstein reckons the leveraged buyout business should rename itself "change capital" or "value-added equity."

He has a point. Some private equity firms and funds are public themselves, and U.S. regulators may step up the public disclosures required from buyout firms. So "private equity" isn’t the best description of the industry any more. But other possible names may be closer to reality than Rubenstein’s suggestions.

"Underwater equity," for instance. The historical record of the private equity business is pretty good. The better firms have delivered high returns for pension funds, college endowments and other investors.

But with private equity’s secret sauce, high leverage, now out of the picture, the valuations of the holdings in their funds have fallen. Some companies are worth less than what is owed to creditors — several mega-buyouts may be in this position, including Harrah’s and Clear Channel. That means equity investments in these companies are underwater too — and may remain so for quite some time.

Or how about "fee-squared capital?" Private equity firms may make money investors, but not before raking off plenty themselves. Rubenstein, for instance, was recently ranked at number 123 on the Forbes 400 list of the richest Americans.

Most money in private equity is made by charging annual management fees of 1.5% or so and then taking 20% of any profits. But private equity firms collect additional fees when they buy companies, while they own companies, and again when they sell companies — whether or not investors make money.

Or just maybe "Pupa equity." It sounds like something leading to a transformation. But it stands for "private until public again." Buyout firms like to tout the value of taking a company off the public market.

Sometimes it can be easier to make messy decisions — like firing staff or changing top management — when a company isn’t in the public eye. But to make any money, private equity firms need to sell their holdings for a profit. Sometimes that involves suddenly deciding the public market would be best again for the company concerned.

Blackstone (BX), for instance, has told investors it plans to float a clutch of companies now that stock markets have improved, including Team Health and Merlin Entertainments. But the buyout barons don’t always leave much on the table for new public shareholders — and sometimes the companies concerned carry more debt than heir peers, making them less resilient to downturns.

Rubenstein thinks the private equity industry is due a transformation. But maybe it needs to go back to its roots and haul itself up by the bootstraps. 

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Is the largest one-time economic recovery effort in U.S. history creating jobs?

According to new reports from governors across the country, it is. Republicans in Congress say it’s not, and the debate is getting louder.

States and other recipients of stimulus funding have handed in their first assessments of the $787 billion recovery act in recent days. While the Obama administration plans to make these reports public by month’s end, some governors have released their initial evaluations.

In California, stimulus funds have created or saved more than 100,000 jobs through the end of September, according to Gov. Arnold Schwarzenegger. The nation’s most populous state — the world’s eighth largest economy — has been awarded $12.7 billion in recovery money and has spent $5.3 billion so far.

"The funding will not only save and create jobs, but it will also help stimulate our overall economy, improve our transportation infrastructure and help us reach our environmental goals," said Schwarzenegger, adding that the state submitted 5,747 reports from agencies and others who received funds from the state.

Minnesota said that 11,800 jobs — including 5,900 in education, 1,200 in public safety and 900 in transportation — were created or saved. The state has spent more than $1.6 billion in stimulus funds so far.

In Tennessee, which has spent $215 million, the tally is more than 7,700 jobs.

And in Oregon, more than 8,000 jobs have been saved or created. The recovery act provided the state "a much needed parachute for what was a free falling economy," said Gov. Ted Kulongoski, adding that the state has spent $1 billion of its stimulus funds.

Overall, the federal government has so far made available $256.3 billion, while $110.7 billion has been spent.

Exact job creation numbers elusive

Exactly how many jobs are being created or saved with stimulus funds is a difficult figure to pin down, however.

The White House last month said the recovery act is responsible for more than 1 million jobs. This estimate includes jobs funded directly with stimulus money, as well as those that exist indirectly, such as the deli workers who supply lunch to contractors on stimulus construction jobs.

The states’ reports, however, include only direct jobs, so the figures are likely to be even smaller.

On top of that, governors are required to report jobs by hours of employment rather than by the number of people working. So someone hired for a short-term gig might only be counted as a fraction of a job.

Pennsylvania officials, meanwhile, say that more than 7,000 people are working on transportation and water infrastructure projects funded by stimulus dollars. But under the federal rules, the state will report that 1,000 jobs were created, said Gov. Edward Rendell.

Also, the impact of tax incentives, increased unemployment benefits and funding for programs such as Medicaid are not included in the assessments.

Still, the recently filed reports — which also include data from companies, organizations, cities and counties — will offer the first hard figures of jobs created. They will likely be scrutinized by both sides of the political aisle.

‘Where are the jobs?’

House Republican leaders last week stepped up their attacks on the administration, claiming its stimulus initiative has been a failure. Instead of creating jobs, they contend, the nation has lost nearly 3 million private-sector positions and the unemployment rate is nearing 10%.

"It is now evident that the massive ’stimulus’ spending bill enacted months ago has been unsuccessful," GOP leaders wrote to the White House. "The American people are right to ask: Where are the jobs?"

The rising unemployment rate has prompted calls for the Obama administration to do more to encourage businesses to step up their hiring. The Republicans want to stimulate small business job creation with a variety of measures, including allowing firms to take a tax deduction equal to 20% of their income.

Republicans are not alone in their call to do more to promote job creation. The Economic Policy Institute, a labor-oriented research group, last week called on the administration to institute a refundable tax credit for employers of up to 15% of wages for each new hire over the next two years. The organization also called for pumping more money into states to create jobs.

The White House, however, maintains that the stimulus package has stopped the hemorrhaging of jobs and has turned around the economy’s direction.

Last month, the president’s top economic advisers said the recovery act helped turn around the economy. They pointed to the fact that the number of jobs lost in the third quarter averaged 256,000 per month, two-thirds less than the country sustained at the beginning of the year.

"Thanks largely to the Recovery Act … we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery," Larry Summers, director of the National Economic Council, wrote Monday in response to the Republican leaders’ letter. "Most importantly, we have seen a substantial change in the trend of job loss." 

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