Financial thoughts

Last week, the government tabled Bill C-11, the latest attempt to reform Canadian copyright law. The bill mirrors its previous copyright bill and is expected to sail through the House of Commons with committee hearings that will pick up where they left off in March.

When Bill C-32 was introduced in June 2010, many noted that there was a lot to like in the bill, but that the digital lock provisions, which give locks on DVDs, CDs, and electronic books enhanced legal protections, constituted a glaring problem that undermined much of the attempt to strike a balance.

The effect of the rules is that consumer rights found in the bill are lost when the copyright owner installs a digital lock that can restrict access.

Consumers purchasing DVDs from foreign countries may find they will not play on Canadian DVD players and students may be restricted from copying portions of their electronic books for class assignments.

In trying to understand the government

The headline on this section says it all: 61,000.

Of all the numbers generated by the economic downturn, this one puts the enormity of the employment crisis for St. Louisans in context.

Neither percentage, forecast nor trend, it’s a simple head count of the toll exacted on our friends, neighbors and loved ones.

And they should be counted one at a time.

In the nearly three years I’ve spent covering employment, I’ve been able get to only about 500 area residents displaced by a recession that allegedly ended 27 months ago.

One by one, they’ve shared their stories.

Sixty-one thousand people could overflow Busch Stadium by half, fill the Scottrade Center three times over and nearly fill the 70,000-seat Edward Jones Dome. One, by one, by one, each of them bears the scars of a job crisis the likes of which we last endured during the Great Depression.

When all this started, we never expected we’d have to count so high.

As the economy headed down, my editors assigned me to cover an emerging and important story the experts predicted would dominate the economic conversation for maybe the next year.

That was three years ago; the story shows no signs of fading any time soon.

The mere fact that I have a full-time job covering jobs - even as the newspaper business has shed thousands of its own workers - underscores the degree to which job security has become the central focus of our lives. I used to cover education, a beat that spawned hundreds of stories on the benefits of a college degree. Now even an education doesn’t guarantee you a job.

My only comparable reference point to what I’ve encountered on this beat are the years I spent as a young police reporter, interviewing shocked relatives reeling from the homicides and accidents that stole the lives of loved ones.

George Batten, a laid-off area executive out of work three years, put it in perspective last week: “A lot of carnage comes with losing a career,” he said. “It carries into your family. It attacks your life.”

That was never more clear than on the morning a year or so ago that I wandered into a salon for job-hunters at the moment the facilitator was conducting a word association exercise.

“First word that pops into your head when I say,

Mortgage rates have reached their lowest levels in six decades, making this the best time in most Americans’ lives to buy or refinance a home. For people who qualify, today’s rates could save thousands of dollars a year.

Yet most people can’t take advantage. Half of would-be buyers say they’ll never save enough for the 20 percent down payment now usually required. And shrunken home values have erased much of the equity people need to refinance.

“Low rates are great, but the real issue is that the pool of people who can get a loan or refinance is small,” said Greg McBride, Bankrate.com’s senior financial analyst.

This week, the average rate on a 30-year fixed mortgage fell to 4.12 percent. It’s the lowest for a 30-year fixed loan since mortgage buyer Freddie Mac began tracking rates in 1971. The last time rates were cheaper was in 1951, when most long-term home loans lasted just 20 or 25 years.

The average on the 15-year fixed loan, a popular refinancing option, dropped to 3.33 percent this week. That’s also an all-time low, according to most economists.

Record-low rates have done little to energize depressed home sales. The average rate on the 30-year fixed loan has been below 5 percent for all but two weeks this year. Yet sales of previously occupied homes are on pace for their weakest year since 1997.

Too many would-be buyers can’t come up with a down payment, don’t have a job, lack enough income or are burdened by large debt loads.

Mortgage rates are low largely because investors are worried about the U.S. economy. As a result, they’re moving their money out of stocks and into U.S. Treasurys. Mortgage rates tend to track the yield on the 10-year Treasury note, which touched an all-time low this week.

A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.

Consider a homeowner who owes $250,000 and is paying 5.09 percent on a 30-year fixed mortgage. That was the average rate on a 30-year fixed loan being offered in January 2010. Refinancing the loan at 4.12 percent could save him or her roughly $2,000 a year.

But many homeowners with good jobs and stable finances have already refinanced in the past year. The average rate on the 30-year fixed loan fell to 4.17 percent last November, and to 4.15 percent last month. Both were previous lows.

Homeowners typically pay a few thousand dollars in closing costs when they refinance. To refinance again, most experts say rates would need to fall an additional 1 percentage point to make it worthwhile.

Still, plenty of people could benefit from the low rates. More than 75 percent of homeowners with a government-backed mortgage are paying rates above 5 percent.

But most can’t qualify. Mike Anderson, a mortgage broker in Baton Rouge, La., said he’s turning away roughly 40 percent of customers seeking home loans and refinancing.

“I’ve never had to turn down so many loans upfront,” Anderson said.

Banks are insisting that applicants have higher credit scores and make 20 percent down payments if they are a first-time buyer.

Roughly 40 percent of U.S. households have the necessary credit scores above 700 to get a prime mortgage rate, according to an Associated Press analysis of Fair Isaac Corp., or FICO, data.

But just half of potentially buyers say they can save enough for a down payment, particularly one as high as 20 percent, according to a survey by the National Foundation for Credit Counseling.

Another problem is that nearly a third of homeowners either have less than 5 percent equity in their home or are “underwater” _ that is, they owe more on their mortgage than their home is worth _ according to the real estate research firm CoreLogic.

As a result, they can’t afford a down payment on a bigger home and can’t refinance because of lender-imposed limits and the cost of extra fees. The low rates now being offered don’t include such fees, which many borrowers must pay to get the rates. Those fees, known as points, make a mortgage rate, in effect, higher than it’s advertised.

One point is equal to 1 percent of the loan amount. The average such fee for the 30-year loan held steady this week at 0.7 point. For the 15-year fixed loan and for five- and one-year adjustable-rate loans, the average fee was 0.6 point.

Lack of equity is what’s keeping Don Meadows from refinancing. He owes $247,000 on a house in Orlando, Fla., and is paying 7 percent on a 30-year fixed loan. His monthly payment is $1,840.

If Meadows, 40, a sales manager, could refinance at today’s rates, he could save more than $400 a month.

But he has no equity in his home. He bought it two years ago for $274,000. It’s now worth $170,000.

“I couldn’t (refinance) even if I wanted to,” Meadows said. “Now, we just have to ride it out.”

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The stock market went back into a lull Friday as investors waited for the next signals on the economy _ and whether it’s headed for another recession.

The major indexes were fluctuating in a narrow range after Thursday’s 419-point plunge in the Dow Jones industrial average. There was little news to help investors determine their next moves _ and market analysts said many were taking the day off.

Thursday’s plunge followed a stream of disappointing economic news that added to investor concerns that the economy is stalling. The most notable economic news Friday came from JPMorgan Chase & Co. The bank joined other financial firms and cut its forecast for economic growth during the fourth quarter. It’s now predicting growth of 1 percent, down from an earlier forecast of 2.5 percent.

The Dow fell 51 points, or 0.4 percent, to 10,939 in early afternoon trading. The Standard & Poor’s 500 index fell 2, or 0.2 percent, to 1,138. The Nasdaq composite index less than a point to 2,381.

The Dow’s drop was largely due to Hewlett-Packard Co., which plunged 21 percent. The company said Thursday that it will close its mobile business, sell or spin off its PC business and pay $10 billion for a business software company.

Investors weren’t, for the moment, seeking the safety of U.S. Treasurys. The yield on the benchmark 10-year Treasury note rose to 2.10 percent from late Thursday’s 2.06 percent. It fell below 2 percent Thursday for the first time as heavy demand sent its price sharply higher.

Earlier this week, the market took a pause after the wild swings of the previous week. Economic and corporate news then was more encouraging, including a batch of merger announcements on Monday. Friday’s pause seemed to be the result of exhaustion.

“People decided to throw their hands up and go to the beach,” said Kim Caughey Forrest, senior equity analyst with Fort Pitt Capital Group in Pittsburgh.

Overseas stock markets had larger drops than in the U.S. European banking stocks fell near two-and-a-half-year lows, dragged down by rumors about banks’ potential losses on bonds issued by heavily-indebted governments. The selling in the U.S. has come in part because of fears that U.S. banks would be hurt if European countries default on their debt. Another concern: weakening European economies will hurt growth in the U installment payday loans.S.

Earlier Friday, Asian shares fell sharply, with major indexes in China and Japan losing more than 2.5 percent. However, some of those losses reflected selling in response to the drop in the U.S. Thursday.

As the selling continued overseas, gold rose as high as $1,881 an ounce. Oil prices fell as traders feared a global slowdown that would cut demand for crude.

A possible recession remains the focus of the markets. A recession is traditionally thought of as two consecutive quarters of negative economic growth, measured by a country’s gross domestic product. But with expectations of growth in the U.S. already low, investors worry that the economy can’t withstand another unexpected event like the earthquake in Japan or the string of bad weather that ravaged the South earlier this year.

JPMorgan analyst Michael Feroli said Friday that business sentiment, household wealth and global growth all look worse than just a few weeks earlier. That will keep economic growth nearly flat in the first quarter of 2012, he said.

On Thursday, economists with Morgan Stanley said that the U.S. and Europe are “dangerously close to recession,” adding, “it won’t take much in the form of additional shocks to tip the balance.”

Stocks also fell Thursday on news of another drop in home sales, weaker manufacturing in the mid-Atlantic states and a jump in inflation at the consumer level to its highest level since March. There also was bad news on the job market: an increase in the number of people who applied for unemployment benefits.

Thursday’s numbers joined a series of reports pointing to a slowing economy. The government reported on July 29 that growth in the first half was much weaker than expected _ and that the economy barely grew in the first quarter. Since then, the combination of disappointing numbers in the U.S. and worries about Europe’s debt problems have set off waves of selling.

The Dow is down 13.6 percent since stocks began falling on July 21. That has drained billions from American’s retirement savings and other investment accounts. And the stock market’s drop can itself help move the country toward recession.

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MONTREAL

Stocks tumbled across the Middle East on Sunday as most regional markets opened for their first day of business following a historic downgrade of the United States’ credit rating.

Mideast markets mostly operate Sunday to Thursday. That makes them the first to react to credit rating agency Standard & Poor’s decision late Friday to cut the U.S. level one notch to AA+ from its top AAA rating. The only exception is OPEC powerhouse Saudi Arabia, which plunged 5.5 percent when it opened Saturday.

The Dubai Financial Market’s benchmark index suffered some of the steepest declines, plunging more than 5 percent in early trading before trimming its losses. The index was down 3.8 percent to 1,482 points by early afternoon.

While the S&P downgrade weighed on the market, it was also dragged lower by a lower than expected quarterly profit from Arabtec Holding, the Emirati construction giant that helped build the world’s tallest tower in Dubai. Arabtec shares fell 4.9 percent to trade at 1.4 dirhams (38 cents).

Egypt’s benchmark EGX30 index fell over 4 percent by midday local time, bringing its year-to-date losses to more than 32 percent.

S&P’s cut could shake investor confidence in the world’s largest economy and send tremors coursing through global markets. Traders worldwide are eagerly watching to see how far larger and more liquid markets in Asia and Europe react to the downgrade when they begin opening Monday.

Financial ministers from the Group of Seven leading economies were preparing to hold a teleconference likely before Asian exchanges open to discuss efforts to stabilize world markets guaranteed cash advance.

Other Gulf markets also opened sharply lower. The Abu Dhabi index slumped 2.5 percent, while Qatar’s market shed 3 percent.

Farouk Miah, an analyst at NCB Capital in the Saudi capital Riyadh, said Mideast traders are concerned that debt problems in the U.S. and Europe could drag on oil-dependent economies in the region.

“A lot of people were expecting a downgrade. I think the bigger concern is the oil price falling” because of slumping demand in the West, he said.

Saudi Arabia’s stock market was the only one in the region to open Saturday. The Tadawul’s main index edged slightly higher Sunday, creeping up a tenth of a point following the previous day’s rout.

Miah attributed the uptick to day traders looking to make a quick profit, not a sign of renewed confidence. He expects Mideast markets to slump further if other global markets tumble on the U.S. debt downgrade.

In Israel, the Tel Aviv Stock Exchange delayed the start of the week’s first session after pre-market trade showed the benchmark index dropping more than 6 percent because of concerns over the U.S. debt rating cut.

Exchange spokeswoman Idit Yaaron said the start was pushed back by 45 minutes “so market players will have time to react logically and not under pressure.” It tumbled 5.7 percent amid heavy trading to trade at 1089 points by late morning.

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The merger of Express Scripts with Medco would create a behemoth with a finger in 30 percent of the nation’s prescriptions

Max & Erma’s, the casual dining chain known for its burgers and fresh cookies, is staging a comeback. After filing for bankruptcy and being taken over by a new owner last year, it’s now planning to expand starting here in the St. Louis region.

It will open its first new restaurant since the reorganization in Fairview Heights.

The franchised restaurant is scheduled to open its doors late next month in the space formerly occupied by Hanley’s Grille & Tap (and before that a J. Buck’s) near St. Clair Square. Another location is slated to open in late October in Des Peres, also in the former Hanley’s Grille and J. Bucks, at West County Mall.

In total, the Columbus-based company will open three new franchised restaurants this year, including the two in this region.

“Once Max & Erma’s restructured, it became a good time to open up some new restaurants,” said Ed Goergen, the local franchisee. His business partner is Steve Welkener. “We really like where the concept is moving forward.”

The changes already put into place under the new ownership such as the new easier-to-read menus and new happy hour specials and appetizers such as chicken wings have already helped drive better sales at his two other Max & Erma’s restaurants in this area, he said.

And he’s looking forward to the new burgers being rolled out next month that are fresher and hand smashed in the restaurant instead of arriving as a pre-made patty.

The two other Max & Erma’s locations in this region are at Mid Rivers Mall in St. Peters and at the Meadows in Lake Saint Louis.

Goergen and Welkener had another Max & Erma’s downtown in the Drury Plaza, but they closed it last year after its lease came up. The hotel had its own promotion of serving free food and drinks in the evening, Goergan noted.

Last year, Max & Erma’s was acquired by Denver-based American Blue Ribbon Holdings. The restaurant chain had been in the midst of bankruptcy proceedings at the time and was facing double-digit sales declines.

“The company never lost its soul,” said Hazem Ouf, the chief executive of American Blue Ribbon, who is also serving as head of Max & Erma’s. “It just needed to be refocused.”

In less than a year, the company has reversed the sales declines and now has positive single-digit sales, he said.

One of the problems before was that Max & Erma’s over extended itself by moving into new markets it did not have brand recognition in and did not give those restaurants enough support, Ouf said.

So now, he is focusing first on existing markets where the company already has restaurants such as St. Louis, Columbus, and Detroit.

The company has reinvested in the brand with everything from beefed up marketing to new flat screen TVs in the lounge and new employee uniforms.

They have also allowed operators to add more local brews to their on-tap selection in the bar.

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Canada’s hot housing market appears to be at its near-term peak, with current high prices concealing early signs of moderating market, according to a new survey released Thursday by Royal LePage.

In its House Price Survey and Market Survey Forecast, Royal LePage says Canada’s residential real estate market saw sizable year-over-year price increases in the second quarter.

And, it says the price increases were evident across all housing types surveyed, with the national average price of a detached bungalow has rising the most — 7.5 per cent year-over-year to $356,625.

Meanwhile, the price of a standard two-storey home rose 6.1 per cent to $390,163 and the price of a standard condominium 3.5 per cent to $238,064.

While prices continue their recent climb, Royal LePage said signs of moderation, although they vary from region to region, are beginning to become apparent and the average price of a home is expected to end they year 7.7 per cent higher than at the end of 2010.

Sales volume nationally is forecast to decrease marginally by 2.0 per cent over the same period.

The survey, described by Royal LePage as the largest, most comprehensive study of its kind in Canada, contains information on seven types of housing in over 250 neighbourhoods from coast to coast.

“In many of Canada’s regional markets, we saw house prices appreciate at a significantly faster rate than wages and salaries, and this trend cannot continue indefinitely,” said Phil Soper, president and chief executive, Royal LePage Real Estate Services.

“We expect price gains to moderate considerably in the latter half of 2011, which should reduce the stress associated with purchasing a new home.”

However, Soper noted that Vancouver and specifically certain neighbourhoods in the lower mainland of British Columbia, “remains an anomaly, as investment from outside of the country continues to support higher price levels.”

Year-over-year prices should appreciate modestly in 2011’s third quarter as most Canadian housing markets cooled during the same period in 2010. Similarly, this year’s final quarter should display a flat year-over-year price performance when compared to an unusually strong fourth quarter of 2010.

“While the global economy struggles to find its footing, here in Canada we are seeing indicators of a return to long-term norms,” noted Soper.

“There is an expectation of continuing improvement in employment levels across the country and accompanying strength in wages and salaries, which should provide support for the housing market payday loans with no fax. Looking ahead to 2012, signs are pointing to stability for Canadian home owners and new buyers. We believe we are past the period of peak house price appreciation.”

In the Atlantic provinces, Royal LePage says markets that had recently enjoyed unusually high price appreciation such as Halifax and St. John’s are still seeing gains, although smaller than those in recent quarters. At the end of 2011, average house prices in Halifax are forecast to be 3.3 per cent higher than 2010.

In Montreal, detached bungalows and two-storey houses posted strong year-over-year gains above seven per cent in the second quarter, while standard condominiums rose modestly by 1.9 per cent. At the end of 2011, average house prices in Montreal are forecast to be seven per cent higher than 2010.

Toronto’s seller’s market witnessed strong year-over-year price appreciation in the quarter, with price gains ranging from 4.7 per cent to 6.1 per cent as the average price of a detached bungalow hit $511,100 and a standard two-storey homes $617,774.

The average year-over-year house price in Toronto is expected to see an overall increase of 6.4 per cent in 2011, while unit sales are expected to decrease 1.8 per cent largely due to lack of inventory.

Regina saw the largest year-over-year gain in the quarter, with the price of a standard two-storey home jumping 15.6 per cent and detached bungalows posting an 11 per cent gain as the city’s limited inventory was unable to keep up with the demand created by the booming local job market. At the end of 2011, average house prices in Regina are forecast to be 12.4 per cent higher than 2010.

Calgary witnessed moderate year-over-year price declines as it continued to adjust from the boom experienced in the middle of the previous decade, but is expected to finish the year with an average price gain of 3.8 per cent.

Vancouver experienced some of Canada’s largest year-over-year price increases with detached bungalows rising 14.1 per cent and standard two-storey homes rising 12.0 per cent. Average prices for standard condominiums stabilized rising 2.5 per cent.

At the end of 2011, average house prices in Vancouver are forecast to be 15.4 per cent higher than 2010.

Elsewhere, Ottawa is expected to see average prices finish 2011 up five per cent compared with 2010 and Winnipeg up six per cent, while prices in Edmonton are expected to be down 1.2 per cent.

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After decades of getting the cold shoulder from automakers in the South, the United Auto Workers union is courting the region’s newcomer, Volkswagen.

UAW southern region director Gary Casteel says the Wolfsburg, Germany-based automaker has traditionally had an organized work force globally and that makes executives and employees at the new Chattanooga assembly plant more willing to talk to unions about representation.

Volkswagen has started sending 2012 Passats to dealers for test drives and displays until the cars built by some 1,900 employees at the $1 billion plant go on sale in late September short term personal loan.

Casteel said the UAW has had some VW workers in Chattanooga reach out to them and there have been discussions with VW executives.

A Volkswagen statement says any decision on representation belongs to the employees alone.

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