President Barack Obama, offering an election-year prescription to spur the economy, said the wealthiest Americans should pay more taxes in the name of fairness, to bring down the deficit and ensure those trying to make ends meet don
The European Central Bank has cut interest rates by a quarter percentage point under new head Mario Draghi to boost weakening growth in a eurozone struggling with a crisis over too much government debt.
The move, which comes earlier than expected by many economists, takes the bank’s benchmark rate to 1.25 percent.
European growth is expected to slow to near or below zero in the last three months of the year.
Uncertainty from Europe’s debt crisis is a factor. Business and consumers are reluctant to spend and investors because they fear more financial turmoil if Greece defaults on its debts.
Now markets are waiting for Draghi’s first news conference to see if he indicates the bank is willing to intervene more forcefully in bond markets to keep Greece’s troubles from spreading to Spain and Italy.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
FRANKFURT, Germany (AP) _ Mario Draghi holds his first press conference as new head of the European Central Bank under pressure to signal it will continue buying government bonds to keep Europe’s debt crisis from worsening.
A surprise interest rate cut has also not been ruled out as Draghi takes over. He faces an array of problems: weakening growth, excessive inflation and uncertainty over whether a bailout for heavily indebted Greece will go through or be derailed by a proposed referendum.
Markets are waiting to see if Draghi will be more aggressive in supporting troubled governments than predecessor Jean-Claude Trichet, whose eight-year term expired.
The bank’s program to buy government bonds drives down the borrowing costs that Italy and Spain face in bond markets. High interest rates on borrowing drove Greece, Ireland and Portugal to take bailout loans from other eurozone governments.
Under Trichet’s leadership, both he and Draghi, a former World Bank director and top Italian official, stressed that the program was temporary and that the new eurozone bailout fund needs to be ready to step up and take the purchases over. The fund won’t finish arrangements to leverage its limited financial resources until next month at the earliest, however.
That has left the ECB as the last line of defense in the bond market _ a position it has been uncomfortable holding. Trichet limited his comments on the program, and markets want to see if Draghi will open the door to more aggressive purchase.
“Draghi’s attitude to the ECB’s program of buying distressed government debt will be of prime importance,” said Jane Foley at Rabobank. “Today’s press conference will be no doubt used as an opportunity to test his resolve on this issue.”
Those expecting a more aggressive stance on bond purchases and a signal for a rate cut may be disappointed as Draghi may choose to stress continuity at the bank, wrote Unicredit economist Marco Valli. “We think Draghi will be very much in agreement with Trichet” and will signal that the bond purchases are a temporary measure, he wrote.
The bank’s key rate stands at 1.5 percent after increases in April and July aimed at warding off inflation. Since then the economic outlook has worsened significantly for the 17 countries that use the euro, leading many analysts to think the bank will cut rates in December or early next year. A rate cut Thursday has not been ruled out.
Inflation at 3.0 percent _ well above the bank’s goal of just under 2 percent _ gives a reason to hold off. Rate cuts spur growth but can worsen inflation.
Draghi will also face questions about Greek Prime Minister George Papandreou’s proposal to hold a referendum on Greece’s bailout, part of a broader plan to halt the crisis agreed upon at a summit last week but already in danger of unraveling.
Greece is to get euro100 million ($138 million) in more bailout financing to avoid a disorderly default on its bonds that could damage Europe’s banks and choke credit to the wider economy. But it comes with painful conditions and Papandreou says he wants the people to decide despite being told that no more bailout money will be forthcoming from other eurozone governments until the result is clear.
Papandreou faces a confidence vote Friday and it’s not clear the referendum will take place.
Critics of bond purchases argue that they take pressure off politicians to get their budget deficits down.
The issue is pressing, with Italian bond yields at an elevated 6.3 percent. Earlier, the ECB purchase program had driven them under 5 percent. But fears of more turmoil in Greece, and a perception that Italy is not acting quickly to cut spending and improve growth have put more pressure on its bonds.
But some economists have argued that only the ECB can act quickly and forcefully enough to backstop troubled governments and contain the crisis. Europe’s bailout fund is considered too small, at euro440 billion, despite proposals agreed last week by eurozone leaders to increase its financial firepower to euro1 trillion by letting it insure part of the value of government bond issues.
Key details of how the bailout fund would do that have not been filled in, and the initial burst of market relief over the idea has faded. Eurozone officials also worked out plans to cut Greece’s debt burden by 50 percent and to push banks to increase the size of their financial cushions against any losses or further market plunges that might result from that.
The ECB has potentially unlimited firepower, backed by its ability to create new money _ an ability the U.S. Federal Reserve and Bank of England have used. The ECB has been unwilling to do that. When it buys government bonds to stabilize their market price, it withdraws an equivalent amount of money from circulation to avoid creating inflation.
Forecasters say Ophelia has weakened from a hurricane to a tropical storm as it races toward the Avalon Peninsula of Newfoundland, Canada.
The National Hurricane Center in Miami said early Monday that Ophelia was lowered from a Category 1 storm, as its top sustained winds weakened to about 70 mph (110 kph). The storm was moving northeast at 43 mph (69 kph).
Ophelia was centered about 55 miles (85 kilometers) west-southwest of Cape Race, Newfoundland, and a tropical storm watch was in effect for Newfoundland’s Avalon Peninsula. 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.
As Japan welcomes the first Boeing 787, the soon-to-be world’s largest carrier is patiently and anxiously waiting for its order.
Jeff Smisek, head of the parent company for United and Continental airlines, on Thursday said he was last told by Boeing that the first of the 50 aircraft ordered by the company will be delivered to have in service in the second half of 2012.
“We ordered that aircraft in December 2004. So I’ve been a very patient person,” said Smisek, the president and CEO of United Continental Holdings Inc.
The first Boeing 787 Dreamliner took off from Everett, Wash., on Tuesday morning and landed Wednesday in Tokyo, where All Nippon Airways is preparing the long-delayed aircraft for its inaugural commercial flight.
Chicago-based Boeing missed the initial May 2008 delivery target and had repeatedly delayed its introduction because of problems in development.
Despite the delays, Smisek called the wide-body jetliner “a spectacular and game-changing aircraft.”
The new jet is the first commercial airliner built using carbon fiber _ a strong, lightweight, high-tech plastic _ rather than the typical aluminum skin. It is quieter and uses about 20 percent less fuel than a comparably sized aluminum aircraft.
“That’s staggering,” Smisek said about the fuel savings. “If you substitute them for an existing aircraft, your profits will improve like that. It will also permit us to fly routes we couldn’t otherwise profitably fly. So it’s really a homerun.”
The 787s have an extended range and its cabin have bigger windows and larger overhead compartments. For improved passenger comfort, the humidity can be controlled and the air pressure during flights will be equivalent to an altitude of 6,000 feet instead of the conventional 8,000 feet.
“Customers will love flying in them,” he said. “So it’s good for us and great for the customer.”
United Continental will be the first North American carrier to receive the 787s. The only route the company has announced for the 787 is non-stop service between Houston and Auckland, New Zealand _ a route that the carrier had hoped to begin in November.
Smisek said 787s will mostly replace existing aircraft instead of adding capacity because, “I don’t see us growing our mainline fleet in any significant way under these current conditions.”
Airlines have ordered more than 800 of the planes that will compete with the Airbus A350. United Continental has ordered 25 of the Airbus aircraft.
Smisek is in Honolulu this week meeting with company employees. He spoke with reporters after delivering a keynote speech at the 2011 Hawaii Business Magazine Top 250 luncheon, recognizing the state’s leading companies.
The company, which brings in about 4 million visitors to Hawaii every year, continues to merge United and Continental airlines into what will be the world’s largest carrier. He said the company has reduced its net debt by $1.4 billion.
“I think we’re at the cusp of having an airline business in the United States that actually makes money (and) makes it consistently, sustainably, sufficiently.”
The departing chief economist of the European Central Bank is saying that heavy levels of government debt are threatening the existence of the euro currency.
Juergen Stark’s statements in a paper with three other economists on the ECB’s website are unusual because they come from a high-ranking central banker.
The paper also dismisses new measures to strengthen EU controls over national government spending as insufficient.
It says Europe needs far tougher measures, such as appointing administrators to oversee finances in countries that need bailouts, as Greece, Ireland and Portugal have.
Stark is resigning almost three years before the end of his term amid talk that he is unhappy with the bank’s crisis measure of propping up weak governments by buying their bonds.
JACKSON HOLE, Wyo paperless payday loans.
Moody’s downgraded Japan’s credit rating, citing the country’s weak growth prospects, massive government debt and constant political uncertainty.
The cut in Japan’s government bond rating Wednesday to Aa3 from Aa2 puts the country three notches below Moody’s top Aaa rating. Moody’s Investors Service said the outlook for the rating is stable.
The rating cut comes ahead of another leadership shuffle in Japan. With his popularity sinking, Prime Minister Naoto Kan and his Cabinet are preparing to resign next week. That would set the stage for a leadership election within the ruling party and a new prime minister _ Japan’s sixth in four years.
Frequent administration changes have prevented Japan’s government from adopting effective long-term economic and fiscal policies, Moody’s said.
Kan has been criticized for lacking leadership after the March 11 earthquake and tsunami and subsequent nuclear crisis, and survivors of the disasters complain of slow relief and recovery efforts. Polls show his approval rating is below 20 percent.
The country’s economic problems are compounded by the natural disaster and the ongoing nuclear crisis. Japan’s ballooning debt is now twice the size of the country’s gross domestic product.
“These developments further hamper the economy’s ability to achieve a growth rate strong enough to steadily reduce the budget deficit,” Moody’s said.
The downgrade puts Moody’s Japan rating in line with other major agencies. Both Standard & Poor’s and Fitch rate Japan AA-, three notches below their top AAA ratings.
In May, Moody’s warned it could downgrade Japan after the world’s No. 3 economy slipped back into recession in the first quarter due to tumbling output and exports following the March 11 earthquake and tsunami paperless payday loans.
Moody’s has maintained its AAA rating on the United States while Standard & Poor’s earlier this month took the unprecedented step of downgrading the U.S., blaming large deficits and political gridlock.
The decision compounded worries about the fiscal health of the world’s biggest economies and unnerved already volatile financial markets.
Reaction to Japan’s rating cut Wednesday was more muted. Analysts described the move as hardly a surprise, and bond markets remained calm.
Noriatsu Tanji, a fixed income strategist at Barclays Capital in Tokyo, said that unlike the U.S., a rating cut is not new territory for Japan. At one point in 2002, Moody’s had dropped its assessment on Japan to as low as A2 before gradually upgrading it starting 2007.
“The latest downgrade puts Japan’s rating at a level it has already seen before,” he said in a research note.
Japanese government bonds have historically weathered rating cuts without sharp drops. Unlike the U.S., the vast majority of the Japan’s public debt is owned domestically.
Even as it downgraded its view on Japan, Moody’s highlighted the country’s large economy and dependable domestic funding base that enables the government to fund itself “at a lower nominal cost than any other advanced economy.”
“Furthermore, throughout the global financial crisis, in the months after the March earthquake, and in recent days with renewed turmoil in global markets, (Japanese government bonds) continue to demonstrate exceptionally strong safe-haven features,” it said.
State-owned China Construction Bank Ltd., the country’s third-biggest commercial lender, says its first half profit rose 31 percent, buoyed by higher income from fees and interest.
The Beijing-based bank reported late Sunday that profit for January-June was 92.8 billion yuan ($14.5 billion), or 0.37 yuan (6 U.S. cents) a share. Profit for the same period a year earlier was 70.8 billion yuan.
Like other Chinese lenders, the bank has benefited from rising interest rates and higher fees and commissions as it diversifies its revenue sources.
Interest income in the first half of the year rose 24 percent, while income from fees and commissions jumped 42 percent to 47.7 billion yuan ($7.5 billion).
The bank said it was strictly controlling lending to industries designated by the government as having excess capacity, such as iron and steel, coal and plate glass. Meanwhile, it boosted lending to small and medium-size companies.
Smaller businesses have usually struggled to get bank financing. Such lending increased 9.5 percent by the end of June over December of last year, compared with a 6.8 percent increase in total corporate lending.
Construction Bank, which is relatively heavily exposed to the property sector, also said it was limiting lending to local government investment entities, whose debts have ballooned in the wake of a binge of recession-fighting construction investments.
Lending to the real estate sector climbed a modest 4.1 percent in January-June, the bank said.
So your 401(k) has shrunk into a 301(k) - again - and your kid’s college fund wouldn’t cover a year in kindergarten anymore.
You’re thinking of cashing in what’s left of your investment, turning it into Krugerrands (gold is at record highs!) and burying it in the back yard.
So, how does a person avoid hair-pulling, teeth-gnashing, garment-rending gloom as a panicky stock market once again sends savings up in smoke?
Financial planners are fairly unanimous in their answer: Get an investment plan with an asset allocation - a fixed percentage pledged to stocks, to bonds, to cash.
Then marry the plan. Promise it your undying faithfulness, swearing to stick with it for better or worse.
When things get worse - as they have over the past three weeks - screw up your courage and do what the plan says. Right now, falling prices might have pulled your stock investments below their allocation. The plan would have you buy stocks, and sell bonds, in the midst of turmoil.
The genius of an investment plan is that it forces you to sell high and buy low - the key to investment success. Faith in your plan brings serenity. Or, that’s the idea anyway.
“The plan is simple, but it’s not easy,” says Larry Swedroe, research director at Buckingham Asset Management in Clayton. Lots of investors have trouble buying during a meltdown, and selling when things are going swimmingly.
“You have to caution them away from making decisions based on fear or greed,” says Peter Schick, chairman of the Moneta Group in Clayton. Fear is the stronger emotion, and the urge is strong to sell during a market panic.
Swedroe tells of one client who decided to sell out in November 2008, when the market hit a short-term bottom during the financial meltdown. Swedroe urged him to hold firm, but the client wanted out.
By January, stocks had climbed, and the client bought back in, only to watch stocks fall again. He sold again at the market bottom in March 2009. He’d doubled his losses by selling low and buying high.
A good plan starts by assessing your goals - college for the kids, retirement for you, becoming debt free. We’ll skip that part for now and get to the nitty gritty: asset allocation.
Investment success doesn’t depend on keen stock picking. The biggest determinant is how you divide your money, mainly between stocks, bonds and cash check cash advance.
You invest in stocks hoping for a fat return over the long run, knowing the market will give you heart failure regularly. Bonds provide a smoother ride, but historically a lower return. Cash is for bills coming soon. Some people sprinkle the pot with real estate and commodity funds.
Given the record of the past decade, you might wonder why you’d put a penny in stocks at all.
The stock market Friday was still 4 percent below its level at the height of tech bubble in 2000.
Professional financial planners have longer memories. The S&P 500 index of major-company stocks has returned an average of 11.5 percent over the last 30 years, dividends included. Bonds can’t beat that.
But twice in the last dozen years stocks dropped half their value. Ask yourself if you could stand a 25 percent investment loss without selling everything. If the answer is no, don’t put more than half your money in stocks, Swedroe says.
Bonds might lose a little money in a bad year, but they don’t crash like stocks. Over the past 10 years, while stocks were in a snit, a broad mix of bonds averaged 5 to 6 percent a year.
So, your allocation to stocks depends on the acid level in your stomach. Stocks are spice. Bonds are Tums.
Once you set your asset allocation, stick with it religiously. When the stocks rise above your plan’s limit, sell stocks and buy bonds. When stocks fall below, do the reverse.
That’s why the plan works. If you’d bought stocks when the financial crisis was at its scariest in March 2009, you’d be 72 percent ahead.
With an asset allocation plan, the market makes your decisions for you. You just follow the script.
Here are some examples, provided by Schick, on how allocation affects return. He picked a tough starting date, January 2000, the height of the tech stock bubble.
If you invested $100,000 then, with a portfolio of 70 percent stocks and 30 percent bonds, and rebalanced once a year, you’d have $141,000 today.
Had an investor put $100,000 just in the S&P 500 stock index, it would be worth $98,600 today. A mix of half bonds and half stocks would be worth $159,900 today. A 70 percent bond, 30 percent stock mix would be worth $176,500 today.