Financial thoughts

Forecasters say Tropical Storm Ophelia has weakened further and its strongest winds are expected to remain offshore as it races toward the Avalon Peninsula of Newfoundland, Canada.

The National Hurricane Center in Miami said early Monday that Ophelia’s top sustained winds weakened to about 60 mph (95 kph). The storm was moving northeast at 35 mph (56 kph).

Ophelia was centered about 65 miles (100 kilometers) west-northwest of Cape Race, Newfoundland, and a tropical storm watch was in effect for Newfoundland’s Avalon Peninsula easy payday loans. The center says Ophelia is expected to continue to weaken, but still pack powerful winds.

Meanwhile, Tropical Storm Philippe was moving over the central Atlantic and is not expected to affect land.

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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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With NATO’s bombing of Libya now in its sixth month, a new sense of urgency is gripping the alliance before two critical deadlines next month.

After months of combat stalemate, the insurgents have made dramatic gains in recent weeks. An offensive from their beleaguered enclave in the Nafuz Mountains resulted in the capture of the strategic Mediterranean town of Zawiya and put them within striking distance of Moammar Gadhafi’s capital of Tripoli.

The rapid advance offers NATO the chance to bring to a conclusion a campaign that has drawn increasing international criticism and caused serious rifts within the alliance.

NATO officials deny there has been a fundamental shift in tactics in recent days to provide close air support to the advancing rebels, saying they continue to be focused on the protection of civilian populations as mandated by a U.N. Security Council resolution.

But they acknowledge that in a new development, alliance bombers are pummeling Gadhafi’s troops holding defensive positions around government-held towns and villages under attack from the advancing rebel forces.

“The persistent and cumulative action of NATO is creating an obvious effect,” NATO spokesman Col. Roland Lavoie said Sunday. “Pro-Gadhafi forces are gradually losing their capabilities to command, to conduct and to sustain” their actions.”

A NATO official said that early in the campaign NATO airstrikes focused on preventing Gadhafi’s troops from reoccupying rebel-held towns. These rebel attacks on regime forces destroyed hundreds of tanks, armored vehicles and guns.

But within a few weeks, Gadhafi’s soldiers switched tactics, abandoning their vulnerable heavy weaponry in favor of civilian trucks armed with machine guns or recoilless rifles, which proved difficult to identify and destroy from the air.

“Now the rebel offensive has put them on the defensive, and they are again bringing out their tanks and heavy artillery,” said the official who could not be named under standing rules.

“This is why we’ve been attacking them even when they are trying to beat back rebel advances,” he said. “We’re still protecting civilians because as soon as the rebels push pro-Gadhafi forces from a town, his troops will turn around and shell the place.”

But analysts note that NATO’s continued claims of simply protecting civilians strains credulity, saying the direct tactical air support to the ragtag rebel forces is enabling their battlefield victories.

“It was inevitable that the mission would spiral and the interpretation of U.N. resolutions would widen,” said Barak Seener, a Middle East expert at the Royal United Services Institute, a British military think tank. “Thus, NATO has bombed government targets, paving the way for rebels to reach Zawiya.”

“Protecting civilian populations now means getting rid of Gadhafi,” Seener said.

Alliance military planners are racing against a deadline next month, when member states must vote on a second three-month extension of the mission. This extension may prove problematic, since support for the bombing campaign has eroded among allies who say it detracts resources from NATO’s main mission, the 10-year war in Afghanistan.

Also in September, the U.N. General Assembly is due to take up the airstrikes, with many members blaming NATO for overstepping the original U.N. mandate in March which only authorized a no-fly zone and the protection of civilians caught up in the civil unrest.

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QUEBEC

So much for fears that U.S. companies might stall out in the economy’s soft patch.

Corporate profits are coming in better than expected so far in second-quarter earnings season despite concerns about the potential for trouble ahead.

Strong showings from blue-chip companies such as Apple, Coca-Cola and McDonald’s have put the quarter on track to set a new record for operating earnings.

“The corporate sector’s in great shape,” says Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “The economy is a little healthier than we thought it was.”

Aside from companies’ continuing stubbornness about hiring more workers, the early results are good news for investors and anyone worried that the debt-limit standoff in Washington or the financial crisis in Europe could inflict serious damage.

Consumers’ willingness to spend on fast food, electronic gadgets and other items has helped fuel better-than-expected quarterly results. Among the standouts:

_ Apple Inc. more than doubled its profit to $7.31 billion on an 82 percent jump in revenue, further testimony to the runaway popularity of the iPhone and iPad.

_ Coca-Cola Co. more than tripled net income to $5.77 billion as the world’s largest drink maker increased its strength in emerging markets, such as Latin America, India and China, while sales held stable in the U.S. and Europe.

_ Harley-Davidson Inc. more than doubled its profit to $191 million, posting an increase in U.S. motorcycle sales for the first time since 2006 and expanding its market share overseas.

_ McDonald’s Corp. increased net income 15 percent to $1.4 billion on a 16 percent jump in revenue, attracting more customers for its broadening menu and array of coffee drinks even as it raised prices.

Companies in several other industries also blew past Wall Street’s expectations this week, including credit card issuer American Express Co., toy maker Hasbro Inc., oil services company Halliburton Co., computer company IBM Corp., chipmaker Intel Corp. and health insurer UnitedHealth Group Inc.

All told, 148 companies in the Standard & Poor’s 500 index have reported earnings and 73 percent have beaten the expectations of Wall Street. That’s somewhat ahead of the typical pace of two-thirds that surpass estimates.

Companies that had reported as of Friday had $24.52 per share in operating earnings _ profits before subtracting interest and tax expenses _ according to S&P senior index analyst Howard Silverblatt. The record of $24.06 per share was set in the second quarter of 2007.

Wall Street analysts forecast the next two quarters to be even better at $25.30 per share in the third quarter and $26.47 per share in the fourth. That’s assuming the economy isn’t dragged down by the deficit-reduction impasse or another problem.

Coming out of the recession, corporations first reported explosive earnings growth early last year. The pace has slowed, but it’s still going. At the current rate, second-quarter earnings would be 17 percent better than a year ago.

It hasn’t all been smooth going, as Caterpillar Inc.’s big earnings shortfall Friday underscored. The world’s largest maker of construction and mining equipment took a hit because of the earthquake and tsunami disaster in Japan.

Other stumbles this week came from drugmaker Johnson & Johnson, appliance maker Whirlpool Corp. and big airline companies weighed down by higher fuel costs: AMR Corp. and US Airways Group Inc.

CEOs and chief financial executives also have been notably cautious in their comments about coming quarters, according to Quincy Krosby, financial market strategist with Prudential Financial.

“A little bit of uncertainty has crept into companies’ guidance,” Krosby says. “”You’re hearing a lot of `It’s challenging,’ `It’s difficult,’ `We think we’re going to do well but we’re not sure.’” That hedging language, she says, has to do with the possibility for further trouble to develop from the ongoing economic and political dramas in Europe and Washington.

Yet the stock market itself hasn’t shown much sign of concern. The S&P 500 rose 2.2 percent this week after having been down 2 percent during the previous two weeks.

That shows that investors aren’t viewing companies’ positive showings skeptically, says Rob Stein, founder and senior portfolio manager for Chicago-based Astor Asset Management.

“Earnings season has been at the higher end of expectations,” he says. “More importantly, it’s been well-received by the Street.”

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President Barack Obama is pressing congressional leaders to accept a $4 trillion debt reduction deal that Republicans have rejected for its tax increases and Democrats dislike for its cuts to programs for seniors and the poor, administration officials said hours before talks resumed Sunday.

Yet they left room for negotiations on a more modest approach.

“He’s not someone to walk away from a tough fight,” White House chief of staff William Daley said. “Everyone agrees that a number around $4 trillion is the number that will … make a serious dent in our deficit.” But embedded among the tough words was rhetoric that acknowledged the “big deal’s” prospects had become uncertain at best.

“We’re going to try to get the biggest deal possible,” said Treasury Secretary Timothy Geithner.

It was an abrupt change from 24 hours earlier. Republicans late Saturday rejected the $4 trillion proposal, the largest of three under consideration, because its tax increases would doom it in the GOP-led House, Speaker John Boehner said.

The Ohio Republican informed Obama that a package of about $2 trillion, which bipartisan negotiators had identified but not agreed to, was more realistic.

Senate GOP leader Mitch McConnell of Kentucky left little doubt that the $4 trillion deal was dead.

“I think it is,” McConnell said. Raising taxes amid 9.2 percent unemployment, he added, “is a terrible idea. It’s a job killer.”

The statements threw into question the extent to which the Sunday meeting, called for 6 p.m. EDT, would move the talks toward a resolution as an Aug. 2 deadline loomed. That’s when the nation would begin to default on its debts, administration officials say, if no deal is reached to raise the borrowing limit from $14.3 trillion.

The International Monetary Fund’s new chief, Christine Lagarde, said she foresees “real nasty consequences” for the U.S. and global economies if the U.S. fails to act.

Republicans have demanded that any plan to raise the debt limit be coupled with massive spending cuts to lighten the burden of government on the struggling economy. Higher taxes, Republicans have said from the start, are deal-killers if not offset elsewhere.

But Obama has a long way to go to satisfy lawmakers in his own party, too. Many Democrats are unnerved by the president’s $4 trillion proposal because of its changes to Medicare and Medicaid.

Political pain is part of the deal and should be worth bearing, Daley said. Obama, he added, was calling on lawmakers to “step up and be leaders.”

He cast Obama as uninterested, for now, in two more modest proposals to raise the debt limit for a shorter time, in exchange for smaller spending cuts.

Geithner cautioned that a package about half the size of the one Obama prefers would be equally tough to negotiate because it, too, could require hundreds of billions in new tax revenue - anathema to Republicans. Lawmakers said that previous bipartisan talks, led by Vice President Joe Biden, identified a fraction of cuts that would be needed even for the more modest packages.

Even so, Boehner insisted the smaller proposals had more realistic chances of passing. One, identified by not signed off-on by the Biden group, would call for about $2 trillion in deficit reductions, most accomplished through spending cuts.

“I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase,” Boehner said.

It was a stark reversal. Boehner, Obama and their aides emerged from a secret meeting a week earlier saying they believed an even bigger figure was attainable if both parties made politically painful, but potentially historic, choices.

A Republican official familiar with the discussions said taxes and the major health and retirement entitlement programs continued to be sticking points.

Obama wanted Republicans to accept closing some corporate tax loopholes and subsidies to corporations, ending a tax friendly inventory accounting system for businesses, as well as reducing the value of tax deductions for wealthy taxpayers.

A senior administration official said the discussion on taxes broke down over the administration’s desire to have the wealthy pick up a bigger share of the tax revenue load than Republicans were willing to accept.

The official, speaking on the condition of anonymity because of the sensitivity of the negotiations, said the $2 trillion to $2.4 trillion in deficit reduction identified by the Biden-led negotiations remains under negotiation and will also require some new tax revenue of up to $400 billion.

Daley was on ABC’s “This Week,” as was Lagarde. McConnell appeared on “Fox News Sunday” and Geithner was interviewed on NBC’s “Meet the Press” and CBS’ “Face the Nation.”

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US stock futures are nearly flat as traders await the government’s key report on hiring and unemployment in June.

The data will show whether the economy has rebounded after slowing down this summer because of high gas prices and crises in Japan.

Major U.S. stock indices have recovered to near their highs for the year, reached on April 29. Two weeks ago, bad economic data had them near their yearly lows.

A strong jobs report Friday could jolt Wall Street, pushing stocks past those benchmarks.

Before the opening bell, Dow Jones industrial average futures are up 9 points, or 0.1 percent, at 12,690. Standard & Poor’s 500 futures are down a fraction at 1,351. Nasdaq 100 futures are up 2, or 0.1 percent at 2,418.

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The U.S. government is investigating whether companies that distribute airline flight and fare information are stifling competition and violating federal antitrust laws.

The Justice Department confirmed the investigation Friday after several airlines and two ticket information-distribution companies said they received letters from officials.

This is the latest twist in an escalating fight between airlines and so-called global distribution systems over how air travel is sold, especially to lucrative corporate accounts.

Many consumers buy tickets online directly from the airlines, but corporations often use travel agencies that get information about flights and fares from the three big distribution companies.

American Airlines has led the challenge to the current setup. It wants to deal directly with travel agents to reduce fees it pays to the distribution systems and to use its own information about customers to sell them extra services.

American claims distribution companies have struck back by making information about its flights harder to find.

American said Friday that it had received a civil demand for information from the Justice Department. The airline declined to release the document, but spokesman Andrew Backover said, “American is not the subject of the investigation.”

Delta Air Lines and US Airways acknowledged getting similar requests, as did two large distribution systems, or GDS companies, Travelport Ltd. and Sabre Holdings.

Travelport spokeswoman Jill Brenner said the company “welcomes the GDS industry investigation” and “is confident that it is in complete compliance with the antitrust laws.”

Sabre spokeswoman Nancy St. Pierre said that the Justice Department made no allegations when it contacted the company.

Justice Department spokeswoman Gina Talamona said the agency’s antitrust division “is investigating the possibility of anticompetitive practices in the global distribution systems industry.” She declined to comment further.

The airlines say their complaint is with the distribution systems, not travel agents.

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Pump prices may hit $4 a gallon by early May as U.S. supplies tightened after a series refinery outages reduced gasoline output this week.

The national average rose 2 cents on Friday to about $3.91 for a gallon of regular, according to AAA, Wright Express and Oil Price Information Service. That’s 6 cents more than it was a week ago and more than $1 higher than a year ago.

While gas may hit $4 a gallon across the country within a week or two, many analysts believe it will begin to fall, perhaps by Memorial Day, as more gas becomes available.

Benchmark crude rose 7 cents to $112.93 a barrel in early trading on the New York Mercantile Exchange.

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By the thinnest of margins, Southwest Airlines Co. says it made money in the first quarter despite higher fuel prices.

The airline said Thursday it earned $5 million, or a penny per share. Not counting one-time costs, Southwest met Wall Street’s expectations.

Spending on fuel jumped 26 percent from a year ago, to more than $1 billion, surpassing labor as the airline’s biggest cost.

Revenue rose 18 percent, to $3.10 billion.

Southwest is doing a better job than competitors at handling high fuel prices. Analysts predict that Southwest will be the only one out of the five biggest U.S. airlines to report a first-quarter profit.

Traffic on the discount airline has been growing faster than at bigger rivals, and it has also raised fares several times since December.

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