My finance view

The Dow Jones industrial average rose in early trading Friday after more strong earnings reports from major U.S. companies. Broader indexes were mixed.

Merck & Co., Chevron Corp. and Caterpillar Inc. beat earnings forecasts for the first quarter. All three are among the 30 companies that make up the Dow average.

Goodyear Tire & Rubber Co. rose 12 percent, the most of any company in the Standard & Poor’s 500 index, after it set a company sales record and reversed its loss from the first quarter of last year.

Caterpillar, the world’s largest maker of mining and construction equipment, rose 3 percent after its earnings rose more than five-fold. The company also raised its sales and profit outlook for the year.

“The industrial sector and the manufacturing sector of this country are much stronger than many investors have perceived,” said Rob Lutts, president and chief investment officer of Cabot Money Management cash advance now.

D.R. Horton Inc. also reported a surprisingly strong profit, sending the homebuilder’s stock up 2 percent. The company said its profit more than doubled mostly because of a large tax benefit.

The Dow rose 18, or 0.2 percent, to 12,782 in morning trading. The index is on track to have its best month since December.

The Standard & Poor’s 500 fell less than a point to 1,360. The Nasdaq composite index fell 8, or 0.3 percent, to 2,865.

Microsoft Corp. sank 4 percent. The software maker reported late Thursday that revenues from its Windows operating system fell 4 percent from the same time last year.

Bond prices were flat. The yield on the 10-year Treasury note was unchanged at 3.32 percent from late Thursday.

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Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed can’t take additional steps to try to ease high unemployment without escalating high inflation.

If inflation were to accelerate, the Fed would have to raise rates to slow borrowing and spending and blunt price increases. Hiring might then slow.

Speaking at a news conference with reporters, Bernanke sketched a picture of an economy growing steadily but still weighed down by a prolonged period of unemployment, now at 8.8 percent. He acknowledged the pain that is causing, noting that around 45 percent of the unemployed have been without a job for six months or longer.

“We know the consequences of that can be very distressing because people who are out of work for a long time, their skills tend to atrophy,” Bernanke said.

But he added:

“It’s not clear that we can get substantial improvements in payrolls without some additional inflation risks, and in my view we can’t achieve a sustainable recovery without keeping inflation under control.”

The news conference was the first time in the Fed’s 98-year history that a chairman has begun holding regular sessions with reporters.

Bernanke appeared relaxed with reporters, projecting a calming presence and saying nothing that might rattle investors.

The Fed chairman offered some clues about when and how the Fed would begin raising interest rates.

Bernanke said that as long as the Fed continues to say rates will remain at record lows for “an extended period,” rates won’t rise until the Fed has met at least twice more. The Fed, which ended a two-day meeting Wednesday, gathers about every six weeks.

Stocks rose after Bernanke said he expects the economy to continue growing through next year and 2013. The Dow Jones industrial average, which was up about 50 points when Bernanke began speaking, gained another 50 points half an hour before the market closed.

Bernanke acknowledged that higher gasoline prices are creating a financial hardship for many Americans. But he said the Fed doesn’t think gas prices will continue to rise at their recent pace.

The news conference offered Bernanke a chance to drive a debate about Fed policy. Critics have said the Fed’s efforts to boost growth raise the risk of high inflation. Investors are seeking clues about when the Fed will start raising interest rates to help slow price increases.

Bernanke said the first step in tightening interest-rate policy could occur when the Fed stops reinvesting the proceeds of its bond holdings. Bernanke would not be specific about when that might occur. He said it will depend on inflation and economic growth in coming months.

He said that step would be a relatively modest one. But it would constitute the Fed’s first tightening because it would allow interest rates to creep up.

The news conference, the first of three scheduled this year, is part of a long-standing Bernanke effort to make the Fed more transparent.

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Every time gas prices reach record highs the call goes out for more oil drilling. This year it’s no different.

"The Gulf is ready to get back to work to help create jobs and lower gasoline prices," Washington Republican Doc Hastings, head of the House Natural Resources Committee and a big proponent of more drilling, said last week.

The problem is this: While increased oil and gas drilling in the United States may create good-paying jobs, reduce reliance on foreign oil and lower the trade deficit, it will have hardly any impact on gas and oil prices.

That’s because the amount of extra oil that could be produced from more drilling in this country is tiny compared to what the world consumes.

Plus, any extra oil the country did produce would likely be quickly offset by a cut in OPEC production.

"This drill drill drill thing is tired," said Tom Kloza, chief oil analyst at the Oil Price Information Service, which calculates gas prices for the motorist organization AAA. "It’s a simplistic way of looking for a solution that doesn’t exist."

According to a 2009 study from the government’s Energy Information Administration, opening up waters that are currently closed to drilling off the East Coast, West Coast and the west coast of Florida would yield an extra 500,000 barrels a day by 2030.

The world currently consumes 89 million barrels a day, and by then would likely be using over 100 million barrels.

After OPEC got done adjusting its production to reflect the increased American output, gas prices might drop a whopping 3 cents a gallon, the study said.

"More production from anywhere would tend to lower prices," said Adam Sieminski, chief energy economist at Deutsche Bank. "But the amount that we’re talking about domestically, it wouldn’t move gas prices from $4 a gallon to $3."

In fact, more domestic oil is just what we’ve been seeing and gasoline prices are still going up.

Including liquids from natural gas, biofuels and other products that are all used to make gasoline, the United States now produces 9.7 million barrels of oil a day, according to EIA. That’s the most oil this country has pumped in 20 years, and puts it just behind Saudi Arabia and Russia as the world’s top producer.

Since 2005 production has been steadily rising. The United States now produces about a million and a half more barrels today than it did six years ago. Over this same time period oil hit a record $147 a barrel.

Oddly, it’s largely because of high prices that this new production is possible. The deepwater drilling, shale rock extraction and other techniques used to increase production are pricey endeavors.

It’s been a bounty for those that work in the oil and gas industry. In the last ten years the industry has added 2 million jobs, said Rayola Dougher, senior economic advisor for the American Petroleum Institute. The industry now employs over 9 million Americans.

These are well-paying jobs. People can earn $15 to $20 an hour right out of high school. With a just a few years experience, $60,000 a year is possible. Petroleum engineers and others with advanced degrees easily clear six figures.

It’s also been good for oil companies. Thanks to lower taxes, companies generally make much more money on a barrel of oil produced in the United States than they do from North Sea or Middle East crude.

Dougher said that if all federal land was open to oil drilling — not just offshore but Alaska’s wildlife refuge and all federal land in the West that isn’t a national park — the country could produce an extra 2.8 million barrels of oil a day by 2025.

Being that she represents the oil industry, Dougher gave the idea a hard sell.

She said it would create another 500,000 jobs, add $150 billion each year to government coffers and shave a significant chunk off the country’s foreign trade deficit.

But one argument she didn’t make was lower prices.

"How would that play out in the market, what impact would that have on prices," she said, "we just don’t know."  

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The U.S. economy probably grew at a slower pace in the first quarter as a jump in gasoline prices caused consumers to cut back, economists said a report this week will show.

Gross domestic product rose at a 1.9 percent annual pace after increasing at a 3.1 percent rate in the previous three months, according to the median estimate of 66 economists surveyed by Bloomberg News before an April 28 Commerce Department report. Other data may show business investment remained a pillar of the economic rebound, while home prices fell.

Federal Reserve policy makers, when they meet this week, will likely say they’ll complete the second round of stimulus worth $600 billion, as scheduled, through the end of June to help sustain the recovery. While companies like General Electric Co. (GE) and Apple Inc. (AAPL) are among those benefiting from gains in spending on equipment and software, households are feeling the pinch of higher food and fuel prices.

Shares of machinery makers have outpaced the broader market since the beginning of the year. The Standard & Poor’s Supercomposite Machinery Index has climbed 9.8 percent compared with a 6.3 percent increase for the S&P 500 Index. (SPX)

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BOSTON

Online poker players will be able to withdraw money from accounts at two of the three Internet poker companies recently indicted for bank fraud and money laundering.

The U.S. government agreed Wednesday to allow PokerStars and Full Tilt Poker to resume use of domain names that had been shut down last week.

That will "facilitate the withdrawal of U.S. players’ funds held in account with the companies," according to the agreement.

Players in the United States are not allowed to deposit money into their accounts, and the government plans to set up an independent monitor to oversee the transactions.

The agreement also allows for players outside of the United States to resume playing for "real money" on the two Websites.

Prosecutors said the same agreement is open to Absolute Poker, the third company indicted last week.

Despite the agreement, it was unclear Wednesday when the domain names will be restored.

Currently, the domain names of the three companies remain blocked, with a notice stating that violating U.S. gambling laws could result in five years jail time and fines of up to $250,000.

On April 15, federal authorities unsealed a sweeping indictment and civil complaint against 11 people in the United States and abroad, including the founders of PokerStars, Full Tilt Poker and Absolute Poker.

The government alleges that the companies, based offshore, used a network of payment processors to set up fraudulent U.S. bank accounts to launder money from online poker players in the United States. The defendants are also accused of using prepaid cards to disguise gambling profits as legitimate purchases.

While gambling is legal in some U.S. states, a 2006 law prohibits companies from knowingly accepting money from U.S. citizens for gambling over the Internet.

The government had filed "restraining orders" against several bank accounts and the domain names used by the poker companies. However, prosecutors contend that the companies were never required to freeze player accounts.

Preet Bharara, the U.S. Attorney for the Southern District of New York, said no player accounts were ever frozen or restrained, and each poker company has been free to reimburse any player’s deposited funds.

"In fact, this office expects the companies to return the money that U.S. players entrusted to them, and we will work with the poker companies to facilitate the return of funds to players," Bharara said in a statement.

The case has roiled the online poker playing community and has broad implications for a cottage industry estimated to be in the billions of dollars.

John Pappas, executive director of the Poker Players Alliance, welcomed the agreement announced Wednesday, but said more needs to be done.

"Even with today’s announcement, millions of Americans are being denied their hobby, avocation and in many cases their livelihood because they remain unable to play poker on the Internet," he said.

Pappas said members of his alliance have sent over 65,000 e-mail messages and letters to federal officials demanding access to their money and criticizing the government’s "declaration of war on poker."

"Online poker is not illegal and it’s time the government stops treating American poker players like criminals and protect the rights of their constituents," he said.

Prosecutors, meanwhile, maintain that gambling over the Internet is against the law, and that the companies allegedly took in some $3 billion as a result of their illegal activities

Bharara said the companies had been given "repeated warnings and clear notice that their conduct was illegal in the United States."

Despite these warnings, he said the companies "allegedly engaged not merely in the operation of illegal gambling businesses, but in massive wire fraud, bank fraud and money laundering."  

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Canada’s inflation rate accelerated in March to the fastest in 2 1/2 years, exceeding all economist forecasts, adding pressure on the Bank of Canada to increase its policy interest rate in the next three months.

Consumer prices rose 3.3 percent from a year earlier after a 2.2 percent gain in February, Statistics Canada said today in Ottawa. Prices were up 1.1 percent on a monthly basis, the fastest since January 1991 when a new federal sales tax was introduced. The gains exceeded all forecasts in Bloomberg surveys of 25 economists, which had median estimates of 2.8 percent for annual inflation and 0.6 percent on a monthly basis.

The annual report also exceeded the Bank of Canada’s April 13 forecast that inflation would reach 3 percent by June, driven by temporary factors such as energy costs and higher provincial sales taxes. The two-year government bond yield jumped the most since December after the report and the Canadian dollar rose the most in seven weeks.

“It definitely puts the pressure back on the Bank of Canada to raise interest rates,” said Sheryl King, head of Canada economics at Bank of America Merrill Lynch in Toronto. “It’s not going to be the end” for inflation pressures, she said, adding the economy may already be operating at full capacity, while the central bank predicted last week the economy wouldn’t be running flat out until the middle of next year.

Dollar Jumps

The Canadian dollar advanced 0.9 percent to 95.56 cents per U.S. dollar at 10:36 a.m. in Toronto, from 96.42 yesterday. One Canadian dollar buys $1.0465. Yields on the two-year Government of Canada bond jumped 9 basis points to 1.78 percent, the biggest one-day gain since Sept. 8.

The odds of an increase at the next decision May 31 increased to 14.6 percent, according to a Credit Suisse calculation, from 11 percent yesterday and 9 percent on Apr. 15.

“May is still a bit of a stretch” for a move, said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit. “They will need to use that communique to shade the market’s perspective towards a hike in July.”

The core inflation rate, which excludes eight volatile items such as gasoline, accelerated to 1.7 percent from a year earlier, from February’s record low 0.9 percent. Monthly core prices accelerated to 0.7 percent from 0.2 percent in February. Economists forecast a core inflation rate of 1.2 percent annually and 0.2 percent on a monthly basis.

Core Inflation

Bank of Canada Governor Mark Carney said that “underlying inflation is subdued” at an April 13 press conference, and that core inflation would remain below 2 percent until mid-2012 because of slack in the economy and “modest” wage gains low fee payday advance. He also said risks to the inflation outlook were “roughly balanced.”

Energy prices rose 13 percent in March from a year earlier, and the cost of fuel oil and other fuels jumped 31 percent, Statistics Canada said today.

“In the immediate short term, our top priority is the rising commodity landscape,” Jerry Fowden, chief executive officer of beverage maker Cott Corp. (BCB) said on a March 24 earnings call. “This scale of commodity run up, at the same time as a broadly weak economy, is almost unprecedented.”

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Greece said it has no plans for a debt restructuring even as German officials openly discuss the possibility and investors charge a record amount to insure the country’s obligations.

“Restructuring is not an issue we’re discussing,” Greek Finance Minister George Papaconstantinou said in an April 16 interview in Washington. “The pain and the cost” of doing so would be greater than repaying lenders, he told reporters the same day.

Greece found support from International Monetary Fund Managing Director Dominique Strauss-Kahn and French Finance Minister Christine Lagarde after German Finance Minister Wolfgang Schaeuble was quoted as saying “further measures may have to be taken” if Greece fails a June audit. German Deputy Foreign Minister Werner Hoyer told Bloomberg News last week that restructuring “would not be a disaster.”

Traders are betting on a default. The cost of insuring Greek government debt rose to a record 1,155 basis points on April 15, according to CMA prices for credit-default swaps. The contracts indicate investors see about a 63 percent chance the nation will default within five years.

‘Rightly Nervous’

Restructuring would “create realized losses across the global banking system — but mainly in Europe,” David Zervos, head of global fixed-income strategy at Jefferies & Co. in New York, said in a note to clients on April 15. “Markets are rightly nervous.”

Greece’s aid program was designed on the assumption that the country would repay debt rather than restructure, and “nothing has changed,” Strauss-Kahn said as he hosted the IMF’s semi-annual meetings in the U.S. capital. Lagarde said April 14 at the same talks that “there is no discussion about debt restructuring, none whatsoever.”

The yield on 10-year Greek debt rose 55 basis points to 13.83 percent on April 15, widening the spread over German bunds to a record 1,045 basis points. The euro dropped from a 15-month high versus the dollar on concern of the first default by a euro-area country. A basis point is 0.01 percentage point.

“The issue of Greece is not whether there will be debt restructuring, but when it will be done, and whether it will be an orderly market-oriented debt exchange or disorderly like in Argentina,” Nouriel Roubini, the economist who predicted the global financial crisis, said at a conference in Kazakhstan on April 15.

Euro Partners

Greece has asked euro-area partners to consider rescheduling all of its debt, the Wall Street Journal reported citing people familiar with the matter who weren’t identified. A finance ministry press officer in Athens, who declined to be identified citing government policy, denied the report.

Lucas Papademos, an adviser to Greek Prime Minister George Papandreou and a former vice president of the European Central Bank, suggested April 9 that extending maturities of debt would be one option to consider after implementing measures attached to a 110 billion-euro loan package from the European Union and IMF.

Asked April 16 about the possibility, Papaconstantinou declined to comment directly. Rescheduling all debt and pushing back maturity of European loans is “not the same thing,” he said in Washington. “The official sector can choose to do so.”

‘No Need’

European Central Bank governing council member Ewald Nowotny said he sees “no need” for a restructuring by Greece. Such a step “would be very harmful and not efficient,” he said in an April 16 interview with Bloomberg News in Washington.

Questions over Greek finances are mounting while the country steps up efforts to reduce its budget deficit. Greece last week outlined 26 billion euros in cuts and 50 billion euros in asset sales.

The Wall Street Journal reported that IMF officials believe Greece’s debt burden is unsustainable and should be restructured. William Murray, an IMF spokesman, said yesterday that “there is absolutely no truth” to the story. Martin Kotthaus, a spokesman for Schaeuble, said there is “no basis” for a Financial Times report that German officials are considering a plan to let holders of Greek bonds swap them for safer securities guaranteed by euro-member countries.

Greece isn’t the only euro-area country relying on support from neighboring governments and the IMF. Officials are preparing a plan to support Portugal, and Ireland has also received a bailout.

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The economic boom in China and India will help more than two-thirds of developing countries meet a 2015 goal of reducing poverty and hunger, the World Bank and International Monetary Fund said in a report.

The number of people in extreme poverty, defined as living on less than $1.25 a day, is forecast to drop to 883 million in four years from 1.4 billion in 2005 and 1.8 billion in 1990, the Washington-based lenders said in their Global Monitoring Report released today.

Much of this progress stems from economic growth in China and India, while Africa, the world’s poorest continent, has seen fewer improvements, the report said. In China, 4.8 percent of people are projected to live on less than $1 payday advance.25 a day in 2015, compared with 36 percent, or 345 million, in sub-Saharan Africa, the report said.

“The fight against poverty is progressing well,” the report said. “Based on current economic projections, the world remains on track to reduce by half the number of people living in extreme poverty.”

World leaders at the United Nations pledged in 2000 to meet targets to reduce extreme poverty and hunger, provide universal primary schooling, improve gender parity in education, lower child mortality rates and combat HIV and AIDS.

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Thanks to lower unemployment and fewer bankruptcies, the nation’s economic stress edged down in February as all but five states strengthened from January, according to The Associated Press’ monthly analysis.

Three states that were hit hardest by the recession and have suffered since _ Florida, Arizona and Georgia _ enjoyed the sharpest gains in February.

Unemployment declined or remained the same in more than three-quarters of the nation’s 3,141 counties and in 43 states, the AP’s Economic Stress Index showed. Bankruptcies declined in more than half the counties and in 41 states. Still, foreclosures rose in more than half the counties and in 27 states.

The AP’s index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signals more economic stress.

The average county’s stress score in February was 11, down from 11.2 in January. A year ago, the average score was 11.8. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11.

Economists expect further improvements this year as employers step up hiring. The unemployment rate fell to 8.8 percent in March, the lowest level in two years. The rate has fallen a full percentage point in just four months.

“The job market is much better now than it has been,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi predicts economic growth this year of around 3.2 percent, up from 2.9 percent last year. But his forecast has dimmed from the 3.9 percent growth he had predicted for 2011 at the start of the year, before energy prices jumped.

The AP’s index found that the only states not to strengthen in February over January were Maine, Nebraska, New Jersey, New Mexico and Wisconsin. All had higher or unchanged unemployment rates and, except for New Mexico, higher foreclosure rates in February.

The counties with the lowest economic stress in February had large proportions of workers in farming, mining, wholesale trade, information technology, finance and professional jobs, according to the AP’s analysis. By contrast, counties with the highest stress had many workers in retail, real estate and support jobs.

Though squeezed by strained state budgets, the counties that are home to state capitals had an average stress score of 10.1 in February, well below the national average. In particular, the counties that are home to the capitals of North Dakota and Nebraska benefit from economies that are among the top 15 healthiest for counties with at least 25,000 residents.

Hughes County, home to South Dakota’s capital, also was among the nation’s healthiest, though its population is only about 17,000.

The healthier economies weren’t limited to counties occupied by state governments. The four counties that surround Washington, D.C., and include tens of thousands of federal workers, had stress scores significantly lower than the national average.

Alexandria and Arlington counties in Virginia and Montgomery and Prince George’s counties in Maryland had an average combined stress score of 6.6.

State capital counties, and those surrounding the nation’s capital, are faring better than the rest of the nation despite spending cuts. In part, that’s because government still generates many private-sector jobs for law firms, lobbyists and trade associations, said Jim Philipps, a spokesman for the National Association of Counties in Washington.

In addition, “restaurants, hotels and other private businesses that cater to white collar government policy-making centers are more likely to do well, or at least hang on, even in tough times,” Philipps said.

As in previous months, the economically healthiest states were in the Plains and New England: North Dakota (5.21), Nebraska (5.93), South Dakota (6.16), Vermont (6.54) and New Hampshire (7.47).

Stress levels fell in February even in the five states with the highest stress scores. Nevada remained the most stressed state with a score of 21.16. It was followed by California (16.24), Florida (15.2), Arizona (14.57) and Michigan (14.35).

Two of those states, Arizona and Florida, saw the biggest drops in stress among all states in February.

Arizona added jobs in mining, transportation, finance, education and health services.

Florida’s unemployment rate of 11.5 percent was much higher than the nation’s 8.8 percent in February. But among all states, it added the third-most number of jobs _ around 23,000 positions. The bulk of those job gains were in tourism and health care.

“What you’re seeing in Florida is a labor market that is now just starting to get back on its feet,” said Sean Snaith, an economist at the University of Central Florida.

“The metaphor I’ve been using for Florida’s economy is a jumbo jet that is just at the start of its runway, and 2011 is that runway … But the reality is we don’t really take off until we get to the end of that runway in 2012, 2013.”

Georgia added nearly 15,000 jobs in February in professional and business services, health, education, construction, transportation, tourism and manufacturing.

The most stressed counties with at least 25,000 residents were Imperial County, Calif. (30.77); Lyon County, Nev. (27.35); Merced County, Calif. (26.16); Sutter County, Calif. (25.99); and Nye County, Nev. (25.68).

The least stressed were Ellis County, Kan. (4.14); Buffalo County, Neb. (4.46); Arlington County, Va. (4.55); Ward County, N.D. (4.61); and Ford County, Kan. (4.68).

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