Financial life in a big town

Federal Reserve Chairman Ben Bernanke told a congressional panel Thursday that the economy still needs some help, but acknowledged the need to begin to tighten credit to prevent inflation at some point.

"The economy continues to require the support of accommodative monetary policies," Bernanke said Thursday. "However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus."

In prepared testimony, Bernanke explained to the House Financial Services Committee how the Fed intends to roll back emergency liquidity programs. He repeated some points made last month in remarks the Fed released after his scheduled appearance was postponed due to a snowstorm.

Bernanke re-affirmed Thursday that the Federal Open Markets Committee expects conditions are "likely to warrant exceptionally low levels of the federal funds rate for an extended period."

He added that the Fed has tools to counter inflation "at the appropriate time," he said, although he didn’t suggest when the appropriate time might be.

For the last 18 months, the Fed has bought mortgages, long-term Treasurys and the debt of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac. (FRE, Fortune 500)

Bernanke laid out a plan to sell some of those mortgages, Treasurys and debt, by offering what’s called reverse repurchasing agreements bad credit pay day loans. Under those agreements, the Fed sells its securities to a third party while agreeing to rebuy them at some point in the future.

The second way the Fed plans to soak up money is to sell banks and financial firms the equivalent of certificates of deposit. In this case, the Fed gets a chunk of the bank’s reserves in exchange for paying interest at a steady rate.

Concern about mortgage markets

These deposits would be auctioned off and banks couldn’t count their investment in the Fed as cash or reserves.

One such exit that the Fed has begun is unwinding certain credit programs, including the Fed’s purchase of mortgage-backed securities, one of several credit markets that froze up at the start of the crisis.

Expressing concerns that the market for mortgage-backed securities won’t return, several lawmakers asked Bernanke if ending such a program will lead to problems in the housing industry, including hikes in mortgage interest rates.

Bernanke acknowledged that "mortgage rates might pop back up," but that, so far, "there seems to be very little negative reaction."

"While that market has not completely returned to normal, we’ve seen considerable improvement," he said. 

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President Obama will sign an executive order Thursday to set up a bipartisan fiscal commission to weigh proposals to rein in the soaring federal debt, according to a White House official.

The official, who requested anonymity because the President has not made the announcement yet, said the co-chairs of the commission will be Democrat Erskine Bowles, former White House chief of staff for Bill Clinton, and Alan Simpson, former Republican Senator from Wyoming. It’ll be officially titled the National Commission on Fiscal Responsibility and Reform.

In his weekly radio and Internet address this past Saturday, Obama touted the commission as the best way to attain "long-term deficit reduction" at a time when Congress seems paralyzed to come together on the mix of spending cuts and tax increases that will likely be needed to balance the nation’s budget.

"Because in the end, solving our fiscal challenge — so many years in the making — will take both parties coming together, putting politics aside, and making some hard choices about what we need to spend, and what we don’t," Obama said Saturday. "It will not happen any other way."

Obama has complained bitterly about the fact that a stronger fiscal commission was killed in the Senate earlier this month after several Republicans dropped their previous support after the President declared he would back it, leading to Democratic charges that the GOP was simply trying to deny Obama a victory.

"Unfortunately this proposal — which received the support of a bipartisan majority in the Senate — was recently blocked," Obama said in Saturday’s address. "So, I will be creating this commission by executive order."

The stronger commission, which was proposed by Sens. Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.), would have had the full force of law instead of just being created by executive order. It would have mandated that the commission’s recommendations had to be voted on both chambers of Congress, forcing lawmakers in both parties to vote up or down on the panel’s expected recommendations on spending cuts and tax hikes.

Under this scenario, the commission will not have the power to force Congress to cast politically unpopular votes. So the report could wind up being another blue ribbon panel report that sits on a shelf somewhere, unless there is public pressure for Congress to act on the proposals.

The commission is expected to study the problem for the next several months and then release its report with recommendations shortly after the 2010 election so that it does not tied up in the politics of the midterms. The new Congress that takes office in 2011 would then have to decide whether or not it wants to consider the proposals. 

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Finance Minister Dwight Duncan’s plan to avoid controversy with the first part of his pension reform legislation has not been a total success.

Some say his proposals to protect all workers laid off by companies go too far. After all, many pension plans are poorly funded and many companies are struggling. But others say he did not go far enough.

Duncan’s proposal in legislation tabled Wednesday would require enhanced payments starting in 2012 to anyone whose age and years of service total 55, but who has yet to qualify for early-retirement benefits. Until then, only those laid off in significant numbers would continue to enjoy such protection.

One former oil company executive argued in an email that the expansion of protection is out of step with the rest of the world and a danger to benefits of those already fired.

He noted Duncan is to meet other finance ministers in Whitehorse next Thursday to talk about expanding and standardizing pension coverage, not hastening the elimination of generous, traditional pension plans enjoyed by less than a fifth of private-sector workers.

But benefit consultants and actuaries support Duncan’s proposal, because he partly offset the cost of widening protection for laid-off workers by removing a costly, controversial and ill-defined requirement to partially wind up pension plans and divide surplus funds at the time of a significant layoff.

They think it is fair that Ontario (along with Nova Scotia) requires special treatment for long-service and older workers laid off from companies that promised qualifying employees a pension from an earlier age than 65.

"It is a very perverse thing when you fire someone at 54 to deny them what they were going to get at 55," says actuary Malcolm Hamilton of Mercer, the international benefits consulting firm. "You hold out a big promise, then you snatch it away from them."

Companies would still be able to deny workers the substantial value of an early-retirement benefit if they quit voluntarily or were fired for cause.

Multi-employer plans, and jointly sponsored plans in the public sector, could opt out of enhancing payments to those whose age and service total 55 easy payday loans.

Some benefits consultants argue limiting enhanced payments to laid-off workers is unfair to those laid off at an earlier age, and those who voluntarily leave.

James Pierrot, a lawyer with Towers Perrin, says "what we recommended to the Ministry of Finance is, if you are going to broaden entitlement to early retirement benefits, what is magical about having 55 points?

"Why not have employees earn early-retirement subsidies in proportion to their years of service? That would be much more fair than having a cut-off. Why should a person with 54.9 points not get it? It’s silly."

That said, Pierrot says it’s also odd to entrench rights under pension legislation that would more properly be included with minimum severance requirements in employment standards legislation.

Ian Edelist, an actuary with Eckler Ltd. and member of a task force on pensions formed by actuaries, said the cost of requiring that laid-off workers with 55 points be allowed to qualify for early retirement benefits would vary from plan to plan.

The cost would not be as large in plans where a high percentage of members has already retired as those with few retirees.

But he agreed with Hamilton and Pierrot that Ontario’s special requirements for laid off workers are not a primary reason for employers halting or phasing out traditional defined-benefit plans. Nor, say the consultants, will Ontario’s reforms be a big impediment to harmonization of pension legislation on more important issues.

The big issue for existing pension plans – on which Ottawa recently took the lead with proposed legislative changes – is giving employers an incentive to build a rainy-day buffer without facing demands to share surplus funds with plan members.

A much bigger issue for Ottawa and the provinces will be agreeing on how to ensure more workers get included in a low-cost, professionally managed pension plans.

jdaw@thestar.ca

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SEATTLE — The date for the 787 Dreamliner’s first flight has inched closer, and Boeing hopes to fly not one but two 787s by year’s end.

According to a person close to the jet program, Boeing has set a new target date of Friday, Dec. 18, for the initial flight — four days earlier than its previous plan.

And a second Dreamliner is set to take to the air just 10 days after the first one, the person said.

After more than two years of delays, excitement is growing among those working on the new airplane, who now anticipate a pre-Christmas flight and look forward to a New Year test-flight program that could erase the memory of 2009’s embarrassing glitches payday loans for self employed.

The schedule’s acceleration follows the successful retesting of the wing last week, which validated the fix for a structural flaw that caused a test failure last May and the consequent suspension of the planned June first flight.

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Did Cyber Monday outshine Black Friday this year?

Early reports suggest that Americans shopped more enthusiastically online for holiday bargains than they did in stores on Black Friday.

Cyber Monday sales rose 14% this year compared to 2008 and consumers also bought nearly 30% more items per order versus last year, according to research firm Coremetrics.

Also, the firm said shoppers bought 10% more items per order online than they did in stores on Black Friday.

"We are seeing good online buying momentum because people are looking for the very best deals, and are going online for the most convenient way to shop," John Squire, chief strategy officer, Coremetrics, said in a report Tuesday.

Clothing and jewelry e-tailers were the most popular shopping destinations on Cyber Monday. Although department stores saw a 33% increase in traffic to their Web sites, the average order volume actually fell 10% versus last year, the report said.

Kindle top seller at Amazon.com

Cyber Monday, which is the e-tailers version of Black Friday, is the day that e-tailers furiously push big discounts, free gift cards, free shipping and any other gimmick they can think of to entice consumers to spend even more of their holiday shopping dollars online.

Amazon.com (AMZN, Fortune 500) spokesman Craig Berman said its wireless Kindle e-reader was the "best-selling item across all of Amazon’s product categories on Monday."

"This November has become the biggest month for Kindle sales since we launched the product two years ago," Berman said. But he declined to disclose how many Kindle units have been sold over that period.

Also, Berman said the e-tailer sold out of its Cyber Monday deal of the day, which was an 8GB iPod Touch for $158.

Other hot sellers Monday included the hugely popular Zhu Zhu pet hamsters, which are sold on Amazon through third party vendors.

Although the retail price of each hamster is $9.99, Berman said some of the hamsters, such as Mr. Squiggles, were selling for as much as $63 each.

4.3 million shoppers a minute

An average of 4.3 million consumers per minute visited shopping Web sites throughout the day Monday in North America, according to Internet monitoring firm Akamai, which tracks traffic trends to more than 270 e-tailers.

The firm, which monitors North American visitors to sites such as American Eagle Outfitters, Overstock.com, QVC.com and eBags.com, said traffic peaked at about 9:30 p.m. ET, reaching 5.1 million visitors per minute.

Pedro Santos, chief strategist for e-commerce with Akamai, said he expects heavy online traffic to continue on subsequent Mondays leading up to the last shipping day before Christmas.

Here’s a sampling of what other sellers were serving up to customers.

Walmart.com is offering nearly 150 specials on such items as flat panel TVs, gaming systems and toys as well as 97-cent shipping on laptops, digital cameras and MP3 players.

Wal-Mart (WMT, Fortune 500) said in a statement the deals are being offered through Friday, but only while supplies last.

For book lovers, Barnesandnoble.com is chopping prices by 50% on all New York Times bestsellers and offering a $10 gift certificate for every $100 purchase.

Still, don’t expect any special deal on Barnes & Noble’s "Nook" eBook reader, which industry experts peg as one of the hottest products this holiday season.

A quick check on the book seller’s Web site showed that if you order the Nook Monday, it won’t be shipped until Jan. 4. And the "extra" incentive to Nook buyers is free shipping and a free gift certificate.

About 96.5 million Americans planned to shop online Monday, up from 85 million in 2008, according to the National Retail Federation.

Despite these expected traffic numbers and heavy discounts, Cyber Monday is still seen as more of a ceremonial start to online holiday shopping.

The busiest online shopping day tends to be later in December, and is the last day that gifts can be shipped to guarantee delivery by Christmas Day.  

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As companies hire extra workers for the holidays, some of these seasonal employees are already wondering: How do I turn this temporary position into something permanent? And, in this economy, can I?

Retailers who are typically big seasonal employers are suffering through a prolonged slump in consumer spending that’s forced many to cut back staffing. Other employers such as the Postal Service have implemented hiring freezes. So, while these companies are employing temporary help, they don’t expect to make many permanent offers.

Still, personnel consultants and company executives say there are plenty of opportunities for hard-working seasonal employees to stay on even after the new year. Shipping giant UPS Inc., for one, says it could eventually hire thousands of workers who make it through the frenetic holiday season.

The first step in nabbing a job: make it clear you’re interested, and looking for a permanent role. Most seasonal workers never get a chance at other jobs because they simply never ask, said Jeff Joerres, the CEO of Manpower.

But be tactful, and don’t pester management. "Make yourself available for additional opportunities," he said. "But don’t overextend yourself."

More tips:

REMEMBER THE BASICS

Even when a job is short term, employees need to behave as they would in a full-time, permanent position. So, arrive on time, follow your schedule and don’t request time off work unless it’s absolutely necessary.

Seasonal workers do to tend to get the less desirable shifts. But to make a good impression, just smile and keep working hard.

"In a temporary employee, that’s the No. 1 thing: reliability and dependability," said Craig Rowley, vice president of the global retail sector for the Hay Group, a consulting firm.

Along with that, show that you’re willing to be flexible. If managers ask you to work longer, do it. Likewise, if they need someone to pick up an extra shift, be the first to volunteer.

Small gestures can go a long way, Joerres said.

"There’s an amazing amount of people who show up for work and want to collect a paycheck and don’t show that they want anything more than that," he said. "And I think that disappoints employers."

AUDITIONING FOR A JOB

A seasonal job, like an internship or temporary gig, is truly a multiweek job interview.

Supervisors watch to see how well employees fit with the company, and they quickly judge how easily workers pick up on new tasks.

That’s because many companies treat seasonal positions as "auditions to find some of their best people," said John Challenger, chief executive of consulting firm Challenger, Gray & Christmas.

To stand out, look for ways to "wow" customers and demonstrate a mastery of the business.

At the high-end kitchen retailer Sur La Table, CEO Jack Schwefel says the best seasonal workers are ones who interact with customers on a personal basis while also explaining the key differences between products, such as a copper-bottomed pot versus a steel one.

Sur La Table will hire about 2,000 seasonal workers this year to work in its stores and distribution warehouses, essentially doubling the size of the company’s work force. Schwefel said up to 20 percent of those could eventually be offered either permanent part-time or full-time jobs.

OPPORTUNITIES EXIST

Companies across a variety of industries say they’re still interested in hiring temporary workers, even amid the recession.

UPS plans to hire about 50,000 seasonal workers this year. Some of those employees will work in the company’s hubs, loading and unloading trucks, while others will be on the road with drivers going door-to-door to deliver packages.

The jobs can be exhausting, given that the holidays represent the company’s busiest time of the year.

But spokeswoman Karen Cole said employees who make it through peak season could be in a prime position to land a permanent job. The company hopes to hire about 20 percent to 30 percent of its temporary work force this year.

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Continental European stock markets which have recently lagged are set to outperform the United States and the UK, with consumer stocks, financials and exporters leading the way.

Fund managers and analysts said the most growth will come from the German and French markets, with Credit Suisse expecting Germany to be the best play on global recovery.

The analysts said consumer stocks will gain from a rise in domestic spending, financials will be boosted in a virtuous circle of rising liquidity levels, and exports will do well as demand from emerging markets overshadows a stronger currency.

“The German DAX .GDAXI and French CAC .FCHI should outperform the UK and the U.S. equity market in the medium term,” said David Hussey, head of pan-European Equities at MFC Global Investment Management.

“Valuations on a range of metrics are more attractive and growth prospects are better, with greater demand for exports from emerging markets than for comparable U.S. companies. The consumer in continental Europe is generally less leveraged than in the UK and U.S. and housing is more affordable.”

On valuation grounds, continental Europe offers investors better value. On a forward P/E basis, it trades at a 8 percent discount to global markets.

So far, the French CAC and the German Dax have only risen 1.3 percent and 1.9 percent respectively this quarter, while the FTSE .FTSE, the S&P 500 .SPX and the Dow Jones industrial average .DJI have risen 4.1 to 7.1 percent.

CONSUMER TO SPEND

Although some economists expect U.S. GDP growth to outperform next year over Europe, Credit Suisse said leading indicators show U guaranteed approval cash advance loans.S. and European growth will be broadly at the same level.

However, lower household debt levels in core Europe than in the United States and UK will put the European consumer in a better position. European Cental Bank figures show 2008 gross debt outstanding is 94.1 percent of gross disposable income in the euro zone compared to 129.8 percent in the U.S.

“The European consumer is going to be stronger than the U.S. as the savings rates are historically higher, the debt levels are lower so they are starting at a better place,” said Hussey.

French shoppers defied expectations in September by spending more than they did the previous month on everything from cars to toasters and televisions.

“Consumer stocks can really do well really driven by domestic demand and financials as a geared play for the overall economy,” said Andrew Goodwin, fund manager of the SVG European Focus Fund at SVG Investment Managers.

Fund managers like financials because if there is to be a recovery, a recovery in the banking sector is set to drive it through the increased provision of liquidity to corporates and consumers.

Although analysts do not expect a complete consumption boom in Germany, they see much less downside risk than in other economies. They said it does not have the high debt levels and overheated real estate problems of other countries, so there is more potential for upside. 

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News and financial data provider Thomson Reuters Corp has agreed to buy privately held Breakingviews, accelerating its push into business news commentary.

The Breakingviews board has recommended that shareholders accept the offer, Thomson Reuters said on Wednesday, adding that the transaction should close within eight weeks.

The price was not disclosed. Media blog PaidContent.org put it at $18 million, mostly in cash.

The decision to buy Breakingviews pushes Reuters News further into the world of commenting on business and financial news.

That arena includes players such as Lex, the commentary service run by Pearson Plc’s Financial Times newspaper, and Heard on the Street, part of News Corp’s Wall Street Journal.

Breakingviews Chairman Hugo Dixon will run the commentary service, which will operate separately from Reuters’ news reporting.

Thomson Reuters said it was talking to Jonathan Ford, who was hired last year to start the Reuters commentary service, about taking on other roles at Thomson Reuters. Dixon and Ford founded Breakingviews in 1999. Ford left in 2007.

Reuters decided to buy Breakingviews even after starting its own service because of the attractive price and the opportunity to accelerate the company’s push into commentary, Reuters Editor-in-Chief David Schlesinger said.

Reuters employs about 20 people in its commentary service, and Breakingviews has about 17, Schlesinger said.

Asked whether there would be layoffs as a result of the deal, Schlesinger said no decision had been made.

“There may be a few people who end up leaving,” he said. “But the point of the deal is not to have a small team.”

Breakingviews distributes its columns to about 400 clients such as financial institutions, and reaches about 15,000 users, said Rob Cox, its U.S. editor.

It also distributes its articles in newspapers such as The New York Times, and Thomson Reuters said it expected to develop syndication relationships with other papers.

Thomson Reuters premium clients will have access to all the columns.

Breakingviews’ 40 shareholders include Dow Jones, which previously ran Breakingviews columns in The Wall Street Journal, and Roland Rudd, senior partner at public relations firm Finsbury, according to the Breakingviews website. 

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In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.

Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.

Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.

So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.

Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.

But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.

Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.

So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.

This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 payday loan.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.

Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.

"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.

Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.

Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."

As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."

Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.

"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.

Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.

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American Airlines is cutting 921 flight attendant jobs as it deals with an ongoing downturn in traffic and lower revenue. The cuts take effect Oct. 1.

American, the nation’s second-largest airline, said 228 employees will be furloughed — laid off but with rehiring rights — and the company will put 244 more on leave for two months. Another 449 will take voluntary options such as leave.

The airline said it planned to cut 1,200 flight attendant jobs but was able to reduce the number by adjusting staffing requirements for the winter.

The airline said in June that it would cut jobs as it reduced flights to meet lower travel demand.

American said that of the 228 furloughs, 105 would be at LaGuardia, 67 at Chicago’s O’Hare Airport, 25 in Boston, 17 in St. Louis and 14 at Reagan National near Washington.

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