Financial life in a big town

Medtronic, the world’s largest medical device maker, says its fourth-quarter net income dropped 19 percent on expenses related to its recent layoffs.

The Minneapolis-based company earned $776 million, or 72 cents per share, down from $954 million, or 86 cents per share, a year ago. Excluding $198 million in restructuring and other costs, the company earned 90 cents per share.

Sales rose 2 percent to $4.3 billion from $4.2 billion.

Analysts polled by FactSet expected earnings of 93 cents per share for the quarter on sales of $4.29 billion.

Medtronic has struggled to maintain earnings growth amid sluggish sales of its two leading products: heart defibrillators and spinal implants. In February the company announced 2,000 layoffs to bolster its financial position.

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News Corp., the media conglomerate controlled by Rupert Murdoch, says its net income for latest quarter fell by 24 percent as the afterglow of its blockbuster movie “Avatar” faded even though its Fox broadcasting group got a boost from the Super Bowl.

Net income for the fiscal third quarter, which ended in March, fell to $639 million, or 24 cents per share, from $839 million, or 32 cents per share, a year earlier.

Adjusted to exclude the cost of settling a lawsuit at its publishing division, earnings came to 26 cents per share, short of the 27 cents expected by analysts polled by FactSet no fax payday loans.

Revenue fell 6 percent to $8.26 billion, also short of the $8.45 billion expected by analysts.

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China raised retail fuel prices for the second time this year after oil’s advance to a 30-month high undermined government efforts to cap costs and cool inflation in the world’s second-largest economy.

Prices will rise by as much as 5.8 percent today, with gasoline increasing by 500 yuan ($76) a metric ton and diesel by 400 yuan, the National Development and Reform Commission said in a statement yesterday.

Crude fell on concern higher prices will reduce demand in the world’s second-largest oil consumer, while shares of China’s biggest refiner gained. The fuel-price increase came two days after the Chinese central bank raised interest rates for the fourth time since October to tame inflation that exceeded the government’s target.

“China has reluctantly raised domestic gasoline and diesel prices to record highs,” said Gordon Kwan, head of regional energy search at Mirae Asset Securities in Hong Kong. “The move is like pulling teeth with the government amid the anti- inflation campaign.”

China last raised fuel tariffs by as much as 4.6 percent on Feb. 20, based on a mechanism introduced in December 2008 that allows adjustments when crude costs change more than 4 percent over 22 working days. Consumer prices rose at an annual 4.9 percent pace in February, surpassing the government’s target of 4 percent for 2011.

China Petroleum & Chemical Corp. (600028), the country’s largest refiner, gained 0.9 percent to HK$8.09 in Hong Kong trading at 11:11 a.m. local time. PetroChina Co. fell 0.5 percent to HK$12.16. The Hang Seng Index (HSI) declined 0 100% free credit score.1 percent.

‘Into a Corner’

Crude climbed to $108.83 a barrel in New York yesterday, the highest settlement since Sept. 22, 2008, on concerns that conflict in Africa and the Middle East may curtail supplies.

“As much as the government wants to not raise prices, events in the Middle East have forced China into a corner,” Ben Simpfendorfer, publisher of China Insider and former chief economist at Royal Bank of Scotland Group Plc, said by mobile phone. “It’s a minor setback” in the fight against inflation.

The benchmark retail price of gasoline will increase by 0.37 yuan a liter and that of diesel by 0.34 yuan, the NDRC said.

After the adjustment, gasoline in China will retail at $1.05 a liter on average, according to Bloomberg calculations based on prices set by the NDRC for the country’s provinces and regions. That compares with $2.17 a liter in the U.K. and 97 cents a liter in the U.S.

China will continue subsidizing industries including farming, fishing and public transport, the NDRC said yesterday.

“Global crude oil prices may remain high,” the country’s top economic planner said. “Adjusting fuel prices will help curb excessive use of oil and contribute to energy saving.”

Crude has advanced 29 percent in New York since Feb. 15, when unrest in North Africa and the Middle East spread to Libya, formerly Africa’s third-biggest oil producer. Futures fell 0.4 percent to $108.44 a barrel in electronic trading at 11:03 a.m. Singapore time.

–Winnie Zhu, Irene Shen, Wang Ying, John Duce, Chua Baizhen. With reporting by Margot Habiby in Dallas. Editors: Ryan Woo, Jane Lee.

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Service industries in the U.S. grew less than forecast in March, showing higher fuel costs are raising concern sales will cool.

The Institute for Supply Management’s index of non- manufacturing companies fell to 57.3 from 59.7 in February, lower than the 59.5 median forecast of economists surveyed by Bloomberg News. Readings greater than 50 signal growth.

Unrest in the Arab world has caused gasoline prices to climb to the highest level in more than two years, representing a headwind for consumer spending, while the aftermath of the disaster in Japan may disrupt supplies to American factories. Minutes of the Federal Reserve’s meeting last month, which took place before the latest run-up in prices, showed policy makers were divided over when to begin removing record stimulus.

“Global events of elevated uncertainty have taken something of a toll,” said Richard DeKaser, an economist at Parthenon Group in Boston. “It looks like April is continuing to struggle under some of these clouds. We’re seeing a little bit of a slowdown” in the economy, he said.

Estimates in the Bloomberg survey of 69 economists ranged from 57.7 to 61. The Tempe, Arizona-based group’s index of the industry, which accounts for about 90 percent of the economy, averaged 56.1 in the five years to December 2007, when the last recession began.

Last month’s drop in the services index was led by a 7- point slump in the business activity component, that measure’s biggest decrease since November 2008. The gauge is a reflection of sentiment among purchasers, according to economists.

Gasoline Prices

The average price of a gallon of regular gasoline at the pump advanced to $3.69 yesterday, the highest since September 2008, according to data from AAA, the nation’s biggest motoring group.

While the Fed’s decision to continue their $600 billion bond-purchase program was unanimous, minutes of the March 15 meeting showed a few of the 10 voting members of the central bank’s policy-making committee thought evidence of a stronger recovery, higher inflation and rising inflation expectations “could make it appropriate to reduce the pace or overall size” of the plan. “Several others” said they “did not anticipate making adjustments,” the report showed.

Stocks trimmed earlier gains after the minutes. The Standard & Poor’s 500 Index rose 0.2 percent to 1,335.57 at 2:19 p.m. in New York. Treasury securities fell, pushing the yield on the 10-year note up to 3.48 percent from 3.42 percent late yesterday.

Breakdown of Index

The ISM’s measure of new orders at service providers decreased to 64.1 from 64.4 in February. The group’s employment gauge dropped to 53.7 from 55.6 a month earlier. The index of prices paid declined to 72.1 from 73.3.

The ISM services survey covers industries that range from utilities and retailing to health care, finance and transportation. Today’s report follows the group’s April 1 figures that showed manufacturing grew in March at close to the fastest pace in almost seven years quick payday loan.

The services gauge has averaged 53.1 since the recovery started in June 2009 through March, trailing the 56.2 reading on the group’s factory measure during the same period.

The factory rebound is generating more demand for services, which account for almost 90 percent of the economy, benefiting companies such as FedEx Corp. (FDX), which operates the world’s biggest cargo airline.

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President Barack Obama says shifting the U.S. away from imported oil and toward cleaner forms of energy will add momentum to a trend that has led to 1.8 million new jobs in the past 13 months.

Obama used his weekly radio and Internet address Saturday to promote his ideas for bringing down gasoline prices by decreasing U.S. dependence on foreign oil. A blueprint he outlined in a speech this past week calls for increasing domestic oil exploration and production, making cars and trucks more energy efficient and building vehicles that run on alternative fuels or electricity.

Noting that the U.S. doesn’t have enough oil reserves to meet its needs, he set a goal of reducing imports by one-third by 2025.

“By doing so, we’re going to make our economy less vulnerable to wild swings in oil prices,” Obama said. “We’re going to use cleaner sources of energy that don’t imperil our climate. And we’re going to spark new products and businesses all over the country by tapping America’s greatest renewable resource: our ingenuity.”

The address was Obama’s third in recent days on the issue. On Wednesday, the president plans a trip Wednesday to Philadelphia, where an arm of the Spanish company Gamesa makes giant turbines that generate electricity from wind. Obama will hold a town-hall discussion with workers about building a clean energy economy.

Oil prices have climbed because of growing demand in China and the instability in some oil-producing countries in the Middle East. That, in turn, has pushed U.S. gasoline prices to new highs. The national average for a gallon of gas hit $3.619 on Friday, the highest price ever for this time of year, according to AAA and other sources. Prices have climbed 23.2 cents in the past month and more than 81 cents in the past year.

Obama said sparking new products and businesses during a transition from imported oil will help create jobs. The government reported Friday that 230,000 private sector jobs were created in March, bringing the number of jobs created in the past 13 months to 1.8 million. The national unemployment rate also dipped to a two-year low of 8.8 percent last month.

“That’s a good sign,” Obama said in the address. He recorded it during a visit Friday to a UPS shipping facility in suburban Maryland, where he examined all-electric and hybrid vehicles used by AT&T, Verizon, PepsiCo and other companies.

“But we have to keep up the momentum, and transitioning to a clean energy economy will help us do that,” he said.

House Speaker John Boehner, R-Ohio, focused his party’s weekly message on steps he said the government must take to encourage small businesses to create jobs. Among those steps are continuing to cut spending, blocking tax increases, reducing the bureaucracy and eliminating regulations. Boehner once owned a small plastics and packaging business in Ohio.

Boehner said Congress also needs to pass a bill funding the government through Sept. 30, when the budget year ends, and avoid a shutdown. The government’s authority to spend money is set to expire next Friday.

“Washington’s inability to get spending under control is creating uncertainty for our job creators,” Boehner said. “It’s discouraging investment in small businesses and eroding confidence in our economy. To put it simply, the spending binge in Washington is holding our country back and keeping our economy from creating jobs.”

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Portugal reported a budget deficit of 8.6 percent of gross domestic product last year, missing a government target of 7.3 percent and causing a jump in borrowing costs that increases the risk of a bailout.

The revisions won’t affect the government’s goal for a 4.6 percent shortfall in 2011, the national statistics agency said today in an e-mailed statement. The agency also revised the 2009 budget gap to 10 percent from 9.3 percent, after European Union accounting changes prompted Portugal to add more than 2 billion euros ($2.8 billion) to the 2010 deficit. The yields on the country’s two, five and 10-year bonds rose to euro-era records.

Portugal has been raising taxes and implementing the deepest spending cuts in more than three decades, aiming to convince investors it can narrow its budget gap, curb its debt and avoid following Greece and Ireland in seeking a bailout. The nation was downgraded twice in the past week by Standard & Poor’s, which said new European bailout rules may mean it will eventually renege on its debt obligations.

“We always thought the debt sustainability of Portugal was at risk,” said Giada Giani, an economist at Citigroup in London, “It does add more pressure on Portugal, which is probably unable to access markets in the next few weeks and will probably need a bailout.”

Bonds Slump

Portugal’s two-year government bond yield today climbed 27 basis points to 8.30 percent, topping the rate on the nation’s 10-year debt for the first time since 2006. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds rose to a euro-era record 490 basis points. The 10-year yield gained 8 basis points to a record 8.18 percent.

S&P followed its cut in Portugal’s creditworthiness today by lowering its ratings on Banco Espirito Santo SA and three other lenders, leaving their outlook negative due to a possible further downgrade of the country’s credit rating. Another cut would strip Portugal of an investment grade. Portugal’s lenders have become increasingly dependent on financing from the European Central Bank as investor concern about a bailout has left them virtually shut out of interbank markets.

S&P said on March 29 the country may need an international bailout and debt restructuring. A rescue may total as much as 70 billion euros, said two European officials with direct knowledge of the matter free business cards.

No Aid Request

“The government is not in conditions and does not have the powers to request any type of external aid,” Portuguese Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon today. “The government will guarantee that there is the necessary financing for the country to face its responsibilities and honor its commitments.”

Prime Minister Jose Socrates offered to resign March 23 after the opposition rejected further measures to curb the deficit. President Anibal Cavaco Silva is holding crisis talks today in Lisbon aimed at setting a date for early elections. Under Portuguese law, the vote is likely to fall between two bond redemptions Portugal faces on April 15 and June 15 that total 9 billion euros).

Bond Maturities

Portugal’s ability to raise funds to finance those maturities may determine whether it will have to seek EU aid. The country can meet “debt redemption commitments scheduled or 2011, especially the redemptions of long-term debt that will take place in April and June,” Secretary of State for Treasury and Finance Carlos Costa Pina said earlier this week.

Socrates said on Jan. 28 the 2010 deficit would be 7 percent of GDP or less, narrower than the 7.3 percent the government had initially forecast. In 2009, the shortfall was 9.3 percent, the fourth-biggest in the region after Ireland, Greece and Spain.

Teixeira dos Santos acknowledged in parliament on March 23 that the EU accounting changes would have an impact on public finances. “It’s like changing the score after the match is over,” he said. Without the additional charges, the deficit would have been 6.8 percent of GDP, he said today.

Impairment costs stemming from the 2008 seizure of Banco Portugues de Negocios SA added 1 percentage point of GDP to the budget deficit last year and charges linked to the public-transportation system accounted for 0.5 percentage point of the deficit, the statistics agency said.

The accounting changes ordered by Eurostat, the EU’s statistics agency, inflated 2010 deficits in other countries. Austria today revised its shortfall for last year to 4.6 percent after reclassifying debt of government-owned companies worth about 1 percentage point of GDP.

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The nuclear plant disaster in Japan has focused the spotlight on Ontario’s nuclear program in recent days, as it should.

It’s easy for nuclear regulators and operators in this country to grow complacent and start believing their own arrogant assurances that it could never happen here

Home prices took a big hit at the end of 2010, even as the rest of the economy gained steam.

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.

"Despite improvements in the overall economy, housing continues to drift lower and weaker," said David Blitzer, spokesman for S&P.

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report’s release.

"There’s a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

Shiller cited a few reasons for his bearish stance. The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.

There’s also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.

At the web conference, Shiller’s index partner Karl Case wasn’t much more optimistic.

"I see [the market] bouncing along the bottom with a slight negative trend," said Case, an economics professor emeritus at Wellesley College.

A widespread drop

On a seasonally adjusted basis, the national index surpassed the low it hit in the first quarter of 2009.

The decline was widespread, with 18 of the 20 large cities covered by a separate S&P/Case-Shiller index recording losses for the year. The only gains were posted by Washington, which was up 4.1%, and San Diego, which saw prices climb 1.7%.

The biggest loser for the year was Detroit, where prices dropped 9.1%.

"We’re really close to being at the bottom again," said S&P’s Maureen Maitland. "Last year’s gains came courtesy of the tax incentives and the market is not holding up on its own."

The impact of homebuyer tax credits ended back last spring, and the two quarters of data since then reflect that. Prices fell steeply during the third quarter, down 3.3%. When the credit was in effect, prices rose consistently, up four out of five quarters starting in the second quarter of 2009.

S&P reported that both the company’s 10- and 20-city indexes also fell month over month. In three cities, Detroit, Cleveland and Las Vegas, home prices have dropped below their January 2000 levels — yes, you’d have to go back to the past millennium to find lower prices there.

Eleven markets, including New York and Chicago, have reached their lowest levels since home prices peaked in 2006 and 2007.

The losses were not unexpected, according to Brad Hunter, chief economist for Metrostudy, a housing market research firm.

"It’s clear now that, going back to last fall, the apparent strength was a false strength," he said. "Now that the tax credits are gone, we’re back to where the training wheels are off, to normal consumer demand."

He expects home prices to decline gradually throughout 2011, with markets picking up only when hiring increases substantially. 

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The outgoing head of Germany’s Bundesbank decided against seeking the presidency of the European Central Bank because he believed his open opposition to its bond-buying program would have posed a credibility problem, according to an interview published Saturday.

Axel Weber was long a favorite to succeed Jean-Claude Trichet at the ECB when the Frenchman’s term expires in October. But that status evaporated over days of confusion that culminated in Friday’s announcement that Weber will leave the Bundesbank on April 30, a year early, for personal reasons.

Weber had voiced unease over the ECB’s program, launched last year, to buy bonds of troubled eurozone countries and called for the program to be stopped.

Weber, 53, was quoted as telling the weekly Der Spiegel that he had taken “clear positions that I still stand by.”

“These positions may not always have been conducive to my acceptance by some governments,” he said. “I was aware since last May that a potential (ECB) candidacy would be impaired by this.”

Weber was never formally proposed for the job, and said he had decided over recent months not to seek it. He said he indicated to Chancellor Angela Merkel in January that he was “not available for package solutions” combining his candidacy with policy issues, and the two agreed then to talk again in March.

“The ECB is the bulwark for stability in Europe,” Weber was quoted as saying. “The president has a special position _ but if he represents a minority opinion on important questions, then the credibility of this office suffers low rates payday advance.”

Weber is a member of the ECB’s governing council in his capacity as president of Germany’s central bank. In the Bundesbank’s tradition, he has been an advocate of tough steps to prevent inflation.

In Saturday’s interview he underlined his concerns about the ECB buying government bonds, although he conceded that “the current volumes are controllable.”

“That doesn’t change anything about my fundamental concerns,” he said. “A central bank must always be aware of what risk it is taking as soon as it acts in the border zone between monetary and fiscal policy.”

Weber’s departure from the ECB race leaves Trichet’s succession wide open. Bank of Italy governor Mario Draghi is widely viewed as another front-runner, while analysts point to the possibility of a candidate from a smaller, northern country such as the Finnish or Luxembourg central bank governors.

“In the end, which nation provides the president is not so important,” Weber said. The ECB needs “people who are credible, embody the culture of stability and can communicate this to Europe’s population,” he added.

Weber said he hasn’t yet decided what he will do next, but he won’t start a new job before next year.

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As the deficit debate in Washington grows increasingly noisy, a research group said Monday that a tax on financial "speculation" could help resolve some of the nation’s thorniest fiscal problems.

The Center for Economic and Policy Research, a left leaning group, said that a tax on trades of stocks, options, futures and other financial instruments could generate $150 billion this year, or over 1% of U.S. gross domestic product.

While the idea of taxing financial transactions is not new, it has gained some traction overseas in the wake of the global financial crisis.

French President Nicolas Sarkozy, in comments Monday, said a financial transaction tax is one of his top priorities as leader of the Group of 20 nations this year, according to press reports.

The CEPR study looks at a 0.25% tax on stock trades in the United Kingdom and estimates that an equivalent tax in the United States could raise $40 billion a year for the Treasury.

"This is not hypothetical," said Dean Baker, co-director at CEPR and author of the report, in a statement. "The UK has used an FST to collect large amounts of revenue," he said, adding that the International Monetary fund "is currently advocating the tax in recognition of the enormous amount of waste and rents in the financial sector."

Baker argues that taxing speculation will put more of the burden on more sophisticated investors such as hedge funds, and will not hurt individual investors, who will simply make fewer trades.

He says the money generated from the tax could be used to cover the cost of extending benefits for the unemployed, the projected Social Security shortfall and provide much needed aid for cash-strapped U.S. states.

The CEPR also argues that big institutional investors, which use trading algorithms to gain an advantage in the market, do not contribute any "obvious benefit to the economy."

The financial services industry, of course, disagrees.

Scott Talbott, spokesman for the Financial Services Roundtable, said taxing stock trades would hurt individual investors by driving up fees on their 401(k), college fund or pension plans.

"The fund managers would simply pass the tax down to the average Americans who are trying to save," he said.

Kent Smetters, a professor at the University of Pennsylvania’s Wharton School of Business, said he understands why some are calling for the tax.

Some think big investment funds that use sophisticated trading software are middlemen gaming a flawed system. But others argue that a tax would be unfair because traders provide a benefit in the form of efficient pricing and liquidity in the market.

Smetters added that a "small tax" would probably not hurt individual investors, though he said 0.25% "seems steep."

The proposal is one of many being discussed in Washington as the nation’s swelling deficit and growing demand for social services from a rapidly aging population loom large.

Republicans in Congress have been calling for drastic spending cuts across a range of government programs. President Obama is widely expected to emphasize "investments" in key areas when he delivers the State of the Union address Tuesday. 

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