Financial thoughts

Gold fell Thursday, after climbing to a record high overnight, as the dollar rose against rival currencies and stock prices fell.

December gold slipped $8.00 and settled at $1,106.60 an ounce after climbing to a record $1,123.40 overnight. Gold closed at an all-time high of $1,114.60 an ounce Wednesday.

The retreat came as the dollar recovered from earlier losses amid ongoing concerns about the U.S. economy and speculation that overseas central banks could move to prop-up the beleaguered greenback.

The dollar index, which gauges the currency’s value against a basket of rivals, was up 0.6% to 75.60. Despite the recovery, however, the index remains near a 15-month low.

Gold, which has gained about 6% this month, has been supported recently by concerns about the weak dollar.

A softer greenback makes gold, which is priced in dollars around the world, cheaper for buyers using stronger currencies. The weak dollar has also raised expectations that overseas central banks will move to increase their gold holdings as an alternative to the U payday loan.S. currency.

But the dollar’s strength on Thursday, along with a selloff in the stock market, weighed on the precious metal, said Adam Klopfenstein, senior market strategist at commodities brokerage firm Lind-Waldock.

"The market is failing to find a bullish theme for the day," he said. "I expect gold to maintain negative posture for the rest of the afternoon, but I don’t expect a major selloff given the magnitude of this week’s move."

Gold has been on a tear since prices rose firmly above $1,000.00 an ounce last month. Analysts say the metal’s recent strength has attracted many short-term market participants who trade largely based on momentum.

Given the bleak outlook for the U.S. dollar, however, many analysts say gold will continue to rise into next year.  

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Wall Street firms are in a quandary about getting involved with a planned public offering of Russian aluminum producer UC RUSAL because its founder has been barred from getting a U.S. visa on account of allegations that he is connected to organized crime, the Wall Street Journal reported on Saturday.

Citing sources familiar with the matter, the newspaper reported that Goldman Sachs Group Inc had looked likely to take one of the top two underwriting slots before stepping away from the deal in recent weeks.

Billionaire Oleg Deripaska has denied links to organized crime and has never been charged with a crime, according to the report.

The sources said that Goldman had been unable to get comfortable with risks linked to the deal in the accelerated time frame, according to the report.

On Wednesday, sources with direct knowledge of the deal told Reuters that RUSAL, the world’s largest aluminum producer, would seek Hong Kong listing committee approval soon, hoping to raise around $2 billion through a dual listing. The sources said RUSAL also planned to list in Euronext Paris.

They said the primary listing would occur in Hong Kong, the secondary listing in Paris.

RUSAL hopes to begin trading in December, though the IPO is contingent on progress with its debt restructuring, set to conclude by mid-November, the sources said.

The Wall Street Journal reported on Saturday that with the IPO looming, Deripaska had traveled to the U.S. twice in the past few months using entry permits arranged by the Federal Bureau of Investigation, with whom he met during his visits. The newspaper cited people familiar with the trips and said the FBI had declined to comment.

Deripaska also met with several Wall Street executives, including Lloyd Blankfein, chief executive of Goldman Sachs, and Morgan Stanley’s chief executive John Mack, the report said, citing people familiar with the meetings.

The report quoted one person as saying that Wall Street firms were “just not comfortable sponsoring Deripaska.”

Bank of America Corp’s Bank of America Merrill Lynch now plans to help underwrite the deal after an internal debate, the report said, citing sources familiar with the matter.

It said that Deripaska had confirmed, through a spokesman, the recent U.S. trips, but declined to comment on his visa status other than to say that he faces no limits on travel to any country. The newspaper cited a State Department official as saying that Deripaska does not hold a U.S. visa.

RUSAL is urgently trying to reach a deal with its foreign creditors on $7.3 billion of debt. Senior bankers told Reuters last month that RUSAL had to reach agreement with its foreign creditors by mid-November if the company’s IPO was to proceed.

The Wall Street Journal reported that the offering’s two lead managers are Credit Suisse Group and BNP Paribas SA, adding that BNP had stepped into the slot Goldman had been expected to fill.

(Reporting by Kyle Peterson; Editing by Toni Reinhold)

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Liz Claiborne’s plan to sell its namesake sportswear only at J.C. Penney Co Inc stores and on a television shopping network highlights a new turn in the ongoing rivalry between the mid-tier department store chain and its slightly more upscale rival Macy’s Inc.

The decision Claiborne announced on Thursday to sell its Liz Claiborne and Claiborne brands exclusively at Penney ends a decades-long relationship between the brand, founded in 1976, and Macy’s. But Macy’s said it supported the decision, given the brand’s poor performance in recent years.

The move is good news for all involved, according to analysts and consultants. They said it guarantees revenue and profits for Liz Claiborne, gives Penney more exclusive product, and frees up Macy’s to better differentiate itself as its customer base increasingly overlaps with Penney’s.

“The Liz Claiborne brand has sold poorly in recent years and has continued to decline. As a result we could not justify expanding it at Macy’s,” said Macy’s spokesman Jim Sluzewski.

He said customers have been confused between the various brands carrying the Liz name, such as the Liz Claiborne line at Macy’s, the Liz Claiborne New York line at Bon-Ton Stores Inc and the Liz&Co brand at Penney.

“When customers see the same brand name available in different stores at different quality levels, they tend to be confused,” he said.

An industry executive, who declined to be identified by name, said the confusion would not be so damaging if consumers really saw Macy’s as more upscale no faxing payday loan.

“Their point is that it was damaging to their business to have Penney have it at a lower price. But then again, their argument is, ‘Our shopper doesn’t shop at Penney,’” the executive said. “If that’s the case, how does this get in the way?

“It shows that, in fact, Macy’s and Penney have more retailer-to-retailer interaction with consumers than Macy’s is normally willing to admit,” the executive added.

COMPETITION HEATS UP

Sluzewski said there was nothing new about consumers who shop at Macy’s also shopping at other stores. He stressed that what differentiates Macy’s is better product.

“Of course, consumers today shop in a wide range of stores,” Sluzewski said. “The merchandise in Macy’s is more fashion-oriented and of better quality than lower channels of distribution.”

He cited well-known brands available at Macy’s, including Ralph Lauren, Tommy Hilfiger, Calvin Klein and Kenneth Cole.

While Macy’s has traditionally been positioned as a little higher end than Penney, Kimberly Picciola, senior retail analyst at Morningstar, said the 2005 merger of Macy’s owner Federated Department Stores with May Department Stores broadened the company’s customer base by giving it stores in new markets.

“In those markets where they bought the May stores,” Picciola said, “they probably are competing a little more directly with J.C. Penney.” 

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Stocks rallied Tuesday, finding momentum after a choppy morning, with the Dow, S&P 500 and Nasdaq all hitting one-year highs.

The Dow Jones industrial average (INDU) rose 0.5% to end at 9,829.87 — its highest point since Oct. 6, 2008.

The S&P 500 (SPX) index added 0.7%, ending at 1,071.66 — its highest point since Oct. 3, 2008.

The Nasdaq composite (COMP) gained 0.4% to end at 2,146.30 — its highest point since Sept. 26, 2008.

Stocks have carved out one-year highs repeatedly over the past two weeks, with the Nasdaq ending Monday’s session at its highest level since shortly after the collapse of Lehman Brothers a year ago.

The slow, steady move up is creating anxiety in investors that they are missing out, which in turn is drawing more money into the market, said Larry Glazer, managing director at Mayflower Advisors.

"As the equity market keeps going up, its giving investors a reason to put their money to work," he said. "The bulk of (mutual) fund flows have been fixed income driven, but they are now starting to move incrementally into equities."

In the short term, investors are also attuned to the Federal Reserve meeting that concludes Wednesday and the Dow’s climb toward 10,000. Although 10,000 is not a key technical level, it is a significant psychological level.

Despite ongoing calls for a September slide, investors continue to use any declines as an opportunity to get back in.

"The sign on a money manager’s door is not ‘Larry the cash hoarder,’ it’s ‘Larry the money manager,’" said Jamie Cox, managing partner at Harris Financial Group. "And if he’s sitting on a lot of cash, he’s behind."

Dollar impact: Stocks have also benefited from the weakness of the dollar versus other major currencies.

Dollar-traded commodities and corresponding commodity stocks tend to rise when the greenback weakens. In addition, the weaker dollar impacts the stocks of companies that have a strong presence overseas.

Harris said that over the last six months it’s been the most volatile names, leading the charge. He said that the leadership is now shifting to so-called higher quality names, as evidenced by the recent spikes in companies such as GE (GE, Fortune 500), AT&T (T, Fortune 500) and Verizon Communications (VZ, Fortune 500).

Since bottoming at a 12-year low March 9, the S&P 500 has gained 57.4% and the Dow has gained 49%, as of Monday’s close. After hitting a six-year low, the Nasdaq has gained 68.5%.

Stocks have risen during those 6-1/2 months on signs that the economy is starting to recover — and due to extraordinary amounts of fiscal and monetary stimulus.

On the move: Dow gainers were fairly broad based, with 20 of 30 issues rising, including Chevron (CVX, Fortune 500), Caterpillar (CAT, Fortune 500), Alcoa (AA, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and United Technologies (UTX, Fortune 500).

A number of financial stocks gained too, including Dow components Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).

Among other gainers, Citigroup (C, Fortune 500) rose 5% after Singapore sovereign wealth fund GIC said it sold half of its stake in the company. GIC had bought a 9% stake in Citigroup at its lows and opted to cash in on the recent market rally to earn $1.6 billion.

The KBW Bank (BKX) sector index gained 2.3%.

Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 1.26 billion shares. On the Nasdaq, advancers topped decliners five to four on volume of 2.51 billion shares.

Fed: The Federal Reserve concludes its two-day policy meeting Wednesday, with an announcement expected at around 2:15 p.m. ET. The central bank is expected to hold short-term interest rates unchanged at levels near zero.

Investors will also look to the central bank’s statement for clarity on how they see the economic outlook. Fed chief Ben Bernanke said last week that the recession is likely over, but the labor market still has a long way to go.

Investors will also be looking to see if they say anything about how they plan to wind down programs that pumped trillions into the economy to cushion the blow of the recession.

Also Wednesday, Treasury Secretary Timothy Geithner is set to testify before the House Financial Services committee on regulatory reform, starting at around 9:30 a.m. ET.

Economy: July home prices rose 0.3%, according to a report from the Federal Housing Finance Agency (FHFA) released shortly after the start of trading. That was short of forecasts for a rise of 0.5%, according to Briefing.com survey of economists. Home prices rose a revised 0.1% in June.

World markets: Global markets rallied. In Europe, London’s FTSE 100, France’s CAC 40 and Germany’s DAX all advanced. Asian markets ended higher.

Commodities: The weaker dollar helped boost oil and gold prices.

U.S. light crude oil for October delivery rose $1.84 to settle at $71.55 a barrel on the New York Mercantile Exchange. COMEX gold for December delivery rose $10.60 to settle at $1,015.50 an ounce. Gold closed at a record high of $1,020.20 last week.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.46% from 3.48% late Monday. Treasury prices and yields move in opposite directions. 

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Japan’s Prime Minister-elect Yukio Hatoyama said on Saturday he had picked Naoto Kan, a former health minister, to head a powerful new agency that will oversee the budget process and set policy priorities.

Hatoyama, who will take office on September 16, said that in addition to heading the National Strategy Bureau, Kan, 62, will also be deputy prime minister, and that Katsuya Okada, 56, had been chosen to be foreign minister.

Both Kan and Okada are former leaders of the Democrats and had been tipped as potential finance ministers. Hatoyama said that he will formally nominate them at a party meeting on September 7.

The Democrats come to power with ambitious spending plans to put more money in the hands of consumers, raising concerns they will inflate a public debt already about 170 percent of GDP, the highest among advanced countries.

The new National Strategy Bureau, to include both public and private sector officials, will be tasked with reforming what the Democrats have said is a cumbersome policy-making system.

Kan’s experience in tangling with bureaucrats when he exposed a scandal over tainted blood products at the health ministry could stand him in good stead.

The new strategy bureau will seek to implement a Democrats’ promise to bring elite bureaucrats to heel and put politicians back at the center of policymaking auto loans for bad credit.

Although Japanese media have reported Hirohisa Fujii, a former finance minister, is likely to be picked for that post, they quoted Hatoyama as saying on Saturday that he was not yet ready to name his choice for finance minister.

Fujii, 77, is the head of the Democratic Party’s tax panel, and he has called for funding Japan’s social welfare costs with consumption tax revenue and discussing over the next four years the issue of raising the sales tax.

He said Tokyo should not step into currency markets unless exchange rates move abnormally, adding that a strong yen is good for Japan.

Nikkei also said Masayuki Naoshima, the DPJ’s policy chief, was likely to hold one of the economic cabinet posts.

The Mainichi daily newspaper said Hatoyama picked Okada for his connections in the United States.

Hatoyama’s choice for the top diplomatic portfolio is being closely watched after concerns emerged that his party’s policy of adopting a more independent stance from the United States could damage ties with Tokyo’s biggest security ally.

(Additional reporting by Taiga Uranaka and Edwina Gibbs; Editing by Alex Richardson)

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The yen and dollar both rose Tuesday as fears of further U.S. bank failures overshadowed unexpectedly strong manufacturing data, boosting the two currencies’ safe-haven appeal.

On Wall Street, U.S. stock indexes were all down around 2% at the close as investors fretted that chatter from hedge funds on a bank failure could prove accurate.

The decline came despite upbeat economic news from the United States and euro zone as well as a stabilization in Chinese shares after a rout on Monday.

The hedge fund talk "is a huge driver" of currency markets, said Dan Cook, senior market analyst at IG Markets Inc. in Chicago. "When you have data like we had but the Dow drops, people are running for that safe haven."

In late afternoon trading in New York the dollar index, which tracks a basket of six major currencies, was up 0.7% at 78.747, rebounding from a session low of 77.944, according to Reuters data.

The dollar was down 0.1% against the yen at ¥92.89, above Monday’s seven-week low of ¥92.53, according to Reuters data.

But the yen was up 1% against the Canadian dollar, 0.7% against the Swiss franc, 0.9% against the euro and 0.8% against the pound.

The euro was down 0.8 percent against the dollar at $1.4212, well below a session high of $1.4377.

What recession?

The U.S. manufacturing sector expanded in August for the first time in more than a year and a half. The Institute for Supply Management’s index of national factory activity rose to 52.9 from 48.9 in July.

Separate data showed pending sales of previously owned U.S. homes raced to a two-year high in July, further evidence the housing market was on a steady recovery path.

"Clearly, the U.S. data is surprising to the upside," said Jack Iles, senior portfolio manager who helps manage $2.5 billion assets at MFC Global Investment Management in Boston.

But despite a batch of upbeat U.S. economic numbers, major currencies remained in ranges as investors continued to debate about the outlook for the global economy, analysts said.

"At the end of the day, the market is still in wait-and-see mode," said Firas Askari, head of currency trading at BMO Capital Markets in Toronto. "We’re getting jostled around by every piece of data that comes out and I don’t think there’s a consensus that this economy has legs."

Data released earlier also showed euro zone purchasing managers’ index (PMI) rose to 48.2 in August against forecasts for a 47.9 reading while German unemployment unexpectedly fell in August.

The data comes before a European Central Bank policy meeting on Thursday widely expected to keep benchmark rates steady at a historic low of 1%, with the focus on policymakers’ outlook on the economy.

Sterling erased early gains against the dollar and the euro after an unexpected dip in U.K. manufacturing in August, stoking concerns about the pace of recovery in the British economy.

Sterling was down 0.7% at $1.6155, after touching a six-week low, and was little changed against the euro at 87.96 pence.

In other trading, the Australian dollar fell 2.2% to US$0.8254, in its biggest one-day drop in more than two months. The Reserve Bank of Australia, holding its cash rate at 3.0% as expected, said the current low level of rates was appropriate, countering speculation it would adopt an explicit tightening bias. 

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Wal-Mart is recalling about 1.5 million Durabrand DVD players because of a potential for the device to burst into flames, the U.S. Consumer Product Safety Commission said Thursday.

Wal-Mart (WMT, Fortune 500) received 12 complaints of the DVD players overheating; in five of the cases, the overheating caused a fire that damaged property, according to a statement from the CPSC. No injuries have been reported.

The DVD player, imported from China, was sold at Wal-Mart stores from January 2006 through July 2009 for $29.

The DVD player came with a remote control and is silver with a U-shaped opening at the top to insert the DVD free credit report without a credit card.

Consumers should stop using the DVD player immediately and return it to Wal-Mart for a full refund.

For additional information, contact Wal-Mart at (800) 925-6278 between 7 a.m. and 9 p.m. CT Monday through Friday, or visit the Web site at http://walmartstores.com/.  

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California will have enough cash to stop issuing IOUs on Sept. 4, almost one month earlier than expected, the state controller said Thursday. That’s also the date when people and companies can redeem their IOUs with the state treasurer.

The controller’s office has issued 327,000 IOUs worth a total of $1.95 billion so far.

The Golden State was forced to start handing out IOUs on July 2 after Gov. Arnold Schwarzenegger and lawmakers failed to close a $24 billion budget deficit. Controller John Chiang had to start issuing the vouchers so the state would have enough money to cover debt payments and fund education. It was the first time the state issued IOUs since 1992, though it did delay payments in February during another cash crunch.

Even after the governor signed a budget agreement in late July, the controller’s office had to determine when there’d be enough money in the state coffers to end the IOU issuance. Since the budget was signed, Chiang has issued 100,000 IOUs totaling more than $800 million.

"Along with short-term loans that are routinely obtained in the fall, this spending plan should provide sufficient cash to meet all of California’s payment obligations through the fiscal year," Chiang said payday loan.

The IOUs were sent to the state’s vendors, county social service agencies and residents expecting tax refunds. The state’s biggest banks accepted them until July 10, but then most cut them off, hoping to bring lawmakers and the governors to the negotiating table.

They were told they could redeem the paper on Oct. 2 or when the state had enough money in the bank, whichever came first. They will be paid an annual interest rate of 3.75%.

California still isn’t out of its hole: The state will need to borrow $10.5 billion to meet California’s cash needs for the fiscal year, Chiang said. Ending the IOUs on Sept. 4 is contingent on the state obtaining a $1.5 billion loan by Aug. 28, which the state treasurer assured the controller will happen.  

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For some banks, the grim reality is that another dose of TARP may be their best shot at salvation.

Overwhelmed by loan losses, some hard-hit lenders are hitting up the Treasury Department for even more money from the Troubled Asset Relief Program.

Last week, Midwest Banc Holdings (MBHI), a community bank based just outside of Chicago, outlined an extensive capital raising initiative after suffering its second consecutive quarterly loss. The bank said it had applied for as much as $138 million under Treasury’s Capital Assistance Program, or CAP, an extension of the original TARP. The bank received $84.7 million in TARP funds last December.

Citizens Republic Bancorp (CRBC), a Flint, Mich.-based bank that has suffered along with the local automotive industry, revealed in late June that it too was considering tapping up to $290 million from CAP, part of which would be used to redeem a portion of the Treasury’s original $300 million investment made last December.

Experts say it seems certain that more small banks will follow the lead of Midwest and Citizens Republic.

"I think we have only started to hear about the applications for CAP," said Eileen Rooney, an analyst with Keefe, Bruyette & Woods.

Feeling the pressure

A combination of factors are driving banks to seek even more government assistance. Banks are facing intense pressure from regulators to raise new capital, particularly in the form of stock, which boosts a firm’s closely-watched tangible common equity levels, a key gauge of their capital health.

Complicating matters further is the fact that many community and regional lenders are having a difficult time attracting fresh funds from the private markets. Investor demand for new stock and debt from smaller banks has tapered off significantly over the past two years.

As a group, banks and thrifts have raised just $306 million in subordinated debt so far this year, according to research firm SNL Financial. That’s a fraction of the $12.7 billion during the same period in 2007.

"You have got a lot of banks and boards of banks who are really between a rock and a hard place," said Lawrence Kaplan, a former attorney for the Office of Thrift Supervision who now focuses on bank regulatory issues for the law firm Paul Hastings my credit score.

Widespread credit problems aren’t helping small banks either, particularly the rapidly deteriorating commercial real estate market. Roughly one third of all loans held by regional banks, on average, are tied to commercial real estate in some way, according to Moody’s.

Making the cut

So far, Treasury has invested $204 billion in more than 500 different financial institutions through TARP as of the end of July. Treasury has not revealed how many lenders have submitted applications for funds under CAP. Banks have until November 9 to apply to the program.

This time around however, experts anticipate the government will be a little more selective about who they approve for more funding.

With the U.S. financial system and broader economy no longer on the brink of collapse, regulators arguably have a better sense of how the different corners of the nation’s banking industry are faring than they did during the panic-stricken days of last fall.

In addition, lawmakers and the Obama administration alike have become increasingly wary about committing ongoing aid to troubled financial institutions at the expense of American taxpayers.

Last month, the White House rebuffed requests for aid from CIT (CIT, Fortune 500), prompting the commercial lending giant to seek help from its bondholders.

But if Treasury specifically uses CAP to target wobbly community and regional lenders, the government may be able to provide aid without fear of a public backlash, said Douglas Elliott, a fellow at the Brookings Institution.

Unlike large Wall Street firms such as Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500) and Bank of America (BAC, Fortune 500) that continue to play the role of public pariah, small banks boast a much friendlier relationship with local borrowers. At the same time, they avoided the hot-button issue of big bonuses that has incensed taxpayers.

"The political landscape is a lot more favorable for [community banks]," Elliott said.

Talkback: Should the government concentrate more on helping smaller, community banks instead of giants like Citigroup and Bank of America? Share your comments below. 

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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.

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