Financial life in a big town

Treasurys were mixed on Friday after the government posted a larger-than-expected jobs decline.

What prices are doing: The benchmark 10-year note was up less than 1/32 at 96-11/32, and the yield was 3.83%. Bond prices and yields move in opposite directions.

The 30-year bond fell 12/32 to 94-21/32 and its yield rose to 4.72%. The 2-year note increased 4/32 to 100-2/32 and yielded 0.98%.

What’s driving prices: The government’s employment report showed a drop of 85,000 jobs in December, missing analysts’ expectations, which called for no change. November’s jobs number was revised to a gain of 4,000 from an initially reported decline of 11,000.

What analysts are saying: "The disappointment in the employment number just feeds into the hands of the [Federal Reserve]," pushing yields lower and Treasurys higher as investors become less optimistic that the Fed will raise rates soon, said Peter Cardillo, a chief market strategist at Avalon Partners.

But in 2010, he predicts rising yields as the economy continues its recovery. He said he wouldn’t be surprised if the yield on the 10-year note reached 4% by January or February.

"I think yields are headed higher," he said. "The more convincing economic news we get, the higher the yields." 

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The largest stimulus program in the nation’s history is starting to move into a new phase: Out with the rescue, in with new spending to create jobs.

Top White House advisers said Wednesday that most of the economic stimulus spent so far has helped prop up the states, paying for food stamps, Medicaid and filling budget gaps that kept police officers, firefighters and teachers employed.

In 2010, most of the remaining recovery spending will be funneled into projects that build roads, lay high speed rail, install broadband in rural areas and fund research at health institutions.

White House economist Jared Bernstein acknowledged that most of the jobs created or saved so far have been public sector jobs. One of the largest areas of jobs saved so far included some 300,000 teachers that kept their jobs.

Private sector jobs are next

Bernstein said he is confident that new spending will create more jobs in the private sector.

"The private sector US economy will begin generating robust employment at some point in the near future," Bernstein said. "Precisely when that is no one can say. But what we can say is that point is a lot closer because of the Recovery Act."

In the past few weeks, the White House ramped up its message that it’s tackling the top economic worry on Americans’ minds: jobs.

U.S. unemployment dropped slightly to 10% in November from 10.2% the month before with 11,000 jobs lost.

The $787 billion stimulus package was passed in February, along party lines, in part to help stem job losses low interest personal loan. But it remains a political flash point on Capitol Hill, with Republicans criticizing its impact.

Slow road to growth

On Wednesday, top White House advisors briefed reporters on the progress and future of the stimulus package. They maintain that stimulus is working to curb job losses, although they acknowledge it still has a ways to go.

"Is it fully offsetting the job market impact of the deepest recession since the Great Depression? Bernstein asked. "Of course the answer is no. But the Recovery Act is helping to offset some of that pain."

As of Dec. 4, the federal government had either spent or was on the verge of spending $301.7 billion of the stimulus package, in addition to $93 billion paid in tax relief, said Edward DeSeve, a special White House adviser on the economic stimulus package. That leaves about $392 billion remaining.

When asked why President Obama was pushing for more infrastructure spending to create jobs, when the impact of the upcoming year of infrastructure spending has yet take place, Press Secretary Robert Gibbs said more spending would compliment those existing stimulus programs that have proved popular and have drawn too many applications.

He denied the call for more spending is a second stimulus proposal and called the new push for spending on infrastructure and programs to help homeowners make homes conserve less energy "targeted." 

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EDWARDSVILLE — Construction of a four-story office building in downtown Edwardsville is expected to begin early next month.

Scott Plocher, speaking for the developers, said construction would be completed in about a year. He said the entire building would be leased to a single tenant — a business already located in Edwardsville — and would help keep at least 50 or 60 well-paid jobs in the city.

He said that business would announce its plans in coming weeks.

Plocher is president of Highland-based Plocher Construction, a partner in the development group, North Main Street Plaza LLC, and will build and manage the $6 million, 30,800-square-foot structure.

"We believe it is a good project at the right time," he said.

The building will be in the 100 block of North Main Street, near the Madison County Courthouse and Administration buildings. It will replace existing buildings at 130 North Main Street, between Erato on Main, a wine bar-restaurant, and Big Daddy’s Patio Bar & Grill.

The project will include a public walkway from Main Street to parking lots at the rear of the building. New construction will also make it possible for Erato to add an outdoor dining area. Chris Byron, part owner of Erato, is among a group of lawyers who are investors in North Main Street Plaza.

In August, about 30 people demonstrated against demolition of the existing structures — parts of which are a century old — but Plocher said it would be "virtually impossible" to renovate them under today’s codes. He said the developers do not consider them historic, though they are in the city’s Downtown Historic District. The Historic Preservation Commission later approved demolition.

Plocher said the commission wanted a design that complemented the look of older downtown buildings, and that the exterior design will resemble the century-old Wildey Theatre down the street. The city owns the long-closed theater and recently decided to undertake its renovation.

Other opposition to the North Main Street Plaza project focused on the developers’ request for $125,000 in assistance for asbestos abatement and demolition from the city’s existing downtown TIF fund no fax payday loans. Plocher said the request was reasonable because of the need for asbestos abatement, the difficulty of demolition due to the buildings’ age and proximity to other buildings, and the additional expense of building a structure in keeping with the historic look of the business district.

Plocher said the redevelopment is expected to boost property taxes to about $133,000 from about $8,000. A development agreement provides that 60 percent of the projected $125,000 annual tax increment would go to the developer and 40 percent to the city. The TIF district will expire in 2020.

The City Council voted 4-2 last week to approve the agreement, which included the money for abatement and demolition.

Alderman Rich Walker, one of the dissenters, said he thought the project would be good for the city but objected to providing money to developers before increased tax revenues started coming in. He said it would be inconsistent with what the city had done in two previous TIF projects.

City Administrator Ben Dickmann said Mayor Gary Niebur and his administration were pleased by the outcome.

Dickmann said the developers did what they were asked and "put forward a design that was a better fit for downtown than a lot of new construction. We believe it will help us retain professional offices downtown. It will add office space so we will be positioned to take advantage when this recession ends."

Dickmann said Edwardsville is lucky for a city of its size to have two major downtown development projects planned or under way.

Work continues on Plaza on the Park, a combined retail and residential development on two corners of the intersection of Vandalia and Buchanan streets. Dickmann said total investment in that project will be about $14 million. Its developer is Joseph E. Meyer & Associates of Edwardsville.

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Liz Claiborne Inc said on Thursday that its namesake apparel line would be sold exclusively at J.C. Penney Co Inc department stores, and it expects a profit from its Liz Claiborne wholesale brands in 2010, sending its shares up more than 12 percent.

The company also said television shopping network operator QVC would have exclusive rights to sell the Liz Claiborne New York line by celebrity designer Isaac Mizrahi. The shift, which begins with the fall 2010 line, means department stores will no longer sell that brand’s apparel, merchandise and home products.

The moves come as Liz Claiborne tries to turn around its business, which has suffered in the recession as retailers place fewer orders for its clothes or sell them at steep discounts.

In September, the clothing and accessories maker hired turnaround firm Alvarez & Marsal on a “short-term basis” to help it improve operations and cash flow.

Under the deal with J no fax pay day loan.C. Penney, the Claiborne and Liz Claiborne brands will be sold only through J.C. Penney, also beginning with the fall 2010 line.

The agreement can run up to 10 years. After five years and again after 10 years, Penney can acquire the trademarks and other Liz Claiborne brands for use in the United States and Puerto Rico.

Under the QVC deal, Liz Claiborne will receive royalty payments on net sales of the Mizrahi-designed line, which will be more high-end.

Liz Claiborne Inc will receive design service fees and royalties as a percentage of sales, plus gross profit-sharing with guaranteed minimums.

Liz Claiborne shares were up 12.5 percent at $5.85 in early New York Stock Exchange trading.

(Reporting by Brad Dorfman, editing by Gerald E. McCormick and Lisa Von Ahn)

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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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Network equipment maker Cisco Systems Inc struck a deal to buy Norwegian videoconferencing company Tandberg for $3 billion in a bid to dominate the high-growing market of corporate video communications.

Analysts said the move ratchets up competition, and possibly more deals among video conferencing providers like Hewlett-Packard Inc and Polycom, and underscores Cisco’s focus on video conferencing which enables workers everywhere to interact with colleagues and customers online.

The acquisition of Tandberg, a market leader in video conferencing, helps Cisco fill the gap between its high-end TelePresence video meeting service for executives and its WebEx online meeting software used by millions of office workers.

Tandberg offers a variety of desktop and other mid-range products. Its units sell for around $7,500 each, while Cisco’s TelePresence units cost about $250,000.

Jefferies analyst Bill Choi said the combined company would have close to 50 percent market share, and the deal would help Cisco speed up growth of its video business.

“We always expected Cisco to move downstream and this acquisition accelerates its time-to-market by at least 18 to 24 months,” Choi said.

Cisco sees video conferencing driving sales of routers and switches, which help direct Internet traffic and are its traditional bread and butter. Online, high-resolution video requires ample bandwidth as well as advanced network equipment to ensure smooth connections.

“They realize that if they don’t find new purposes for the network they’re going to get commoditized,” said Gartner analyst Ken Dulaney.

Tandberg said its board has recommended the Cisco offer to its shareholders and Chief Executive Fredrik Halvorsen said major shareholders had voiced support for the cash offer of 153.50 Norwegian crowns ($26.49) a share. Halvorsen will continue to lead the unit if the acquisition goes through.

GROWING MARKET

Shares of Tandberg, which had almost doubled in value this year on takeover speculation, closed 11 percent higher at the offer price of 153.5 crowns on Thursday. Cisco’s shares fell 45 cents, or 1.91 percent, to close at $23.09 on Nasdaq.

Video conferencing has taken time to gain traction, but faster Internet speeds and pressure to cut corporate travel have helped boost adoption in recent years. Cisco last quarter said revenue from TelePresence nearly doubled from a year earlier, even as router revenue fell 27 percent.

Cisco estimates the total value of collaboration tools, including everything from videoconferencing to conference calls to Google Apps, to be worth about $34 billion.

Most analysts said a rival bid was not expected, although they did not rule it out. Potential suitors include HP, which is also active in Web collaboration. The market has also linked telecoms gear maker Ericsson with Tandberg.

DnB NOR Markets in a report on Thursday cited Juniper, International Business Machines Corp, Sony Corp and Siemens. 

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Parents have gotten a lot smarter in 2009.

Well, at least they’ve gotten smarter when it comes to telling their children about money, saving and investing. In the past, they rarely told them much of anything constructive about those topics.

Financial experts say the financial crisis has provided a unique teaching opportunity that many parents have seized upon. Adults want their kids better prepared to avoid the mistakes they’ve made.

"For a long time, the answer to a youngster’s question, ‘Can I get this?’ was, ‘No, we don’t have enough money’ or ‘Yes, we have enough money’," said Evelyn Zohlen, president of Inspired Financial LLC, Huntington Beach, Calif. "Now parents, as a result of the recession and economy of the past 12 months, are using this as an opportunity to expand their answers."
For example, parents are explaining that they don’t want to charge more on a credit card because they consider it important to pay off their credit card bill every month, Zohlen said. She considers this a "subtle refining" of the prior common response, providing a lesson on how the overall financial process works.

"It is ironic to me that adults have been forced to relearn financial lessons themselves," she said. "They’re sharing those lessons with their children now."

The tried-and-true approach of giving an allowance for chores done around the house remains valid, said Zohlen. It’s an easy learning opportunity to tell the child how much he’ll receive each week. The next step is planning what to do with money earned, such as how much will be saved or whether the child would want to donate a portion to an animal shelter or some other cause, she said.

Savings goes into a cash equivalent such as a money-market fund or bank account, she said, but when the child gets a bit older you must begin the conversation about investing.

Ask the youngster to name his favorite companies, with Walt Disney Co., McDonald’s Corp. or Coca-Cola Co. the typical types of responses you’ll hear, she said. Next, find some mutual funds for the child that own those shares, she said.

"Parents don’t have to teach their kids about modern portfolio theory, but they can begin to talk about what a mutual fund is and explain that it owns lots of different companies," Zohlen said.

Just don’t drop the weight of the entire global meltdown on your child’s small shoulders.

"It’s a terrific time to be talking to kids about saving and investing, given what’s gone on in the market," said Christine Benz, director of personal finance for Morningstar Inc. in Chicago. "But it’s a fine line, because if you’re nervous or worried, you want to be careful about communicating those feelings, since you really don’t want to scare your child payday loans online."

A common mistake is not stressing to children the importance of starting to save and invest early in life so that it becomes a lifelong habit, Benz said. Studies show the dramatic difference a few years’ head start can make as far as the amount accumulated later in life.

"The bottom line is that you want to get kids interested in investing early because it can absolutely change their lives," asserted Charles Carlson, editor of the DRIP Investor newsletter.

An all-too-common parental error Carlson has observed is applying the parents’ time horizon and risk parameters to their kids, saying "stocks are bad" or some other investment directive that doesn’t take into account the child’s far longer time horizon.

"You can start with a company-specific approach, telling the child that it is possible to buy shares in the company that makes the jeans bought for him that day," suggested Carlson. "Or if he likes a video game, you can explain it is possible to buy shares of GameStop Corp., the store where the game was purchased."

Educate the child about savings but also get him interested in the process of investing, said Carlson. Both are easier if the child has some sort of connection with the company being discussed.

For youngsters Carlson prefers dividend reinvestment plans offered by companies, most with minimum initial investments of $250 or less, that make it easy for the parent or grandparent to make an initial investment. Then the youngster can kick in small amounts of money to build the investment gradually.

"To me, a mutual fund is a harder sell for kids," believes Carlson. "But if they like baseball you can talk to them about stock in Nike Inc., or if they’re into computers, you can talk about Microsoft Corp."

Weigh the possibilities, but whatever type of investment is chosen, it is important to get started.

"If you have a child who’s showing some interest in investing and the stock market, there’s probably nothing like investing in individual stocks to teach the child how to navigate that environment," said Benz. "But if the goal is to teach savings and the importance of investing, a mutual fund is the way to go."

Benz recommends these funds with $1,000 minimum initial investments as excellent launching pads for young people: Oakmark Equity and Income Fund; Ariel Fund; Artisan International Fund; and Vanguard STAR Fund.

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DEARBORN, Mich.–Ford Motor Co. said yesterday its board of directors has adopted a plan designed to deter shareholders who hold more than a 5 per cent stake from increasing their ownership, to protect its tax assets.

Were shareholders allowed to hold a bigger stake, the automaker would lose access to certain tax shelters and face increased federal income-tax liability. At the end of 2008, Ford had tax credits, net operating and capital losses offsetting $19 billion in future taxable income.

Ford said the U.S. tax code would limit its use of such tax attributes as credits and capital losses if shareholders with a 5 per cent or greater stake in the company were to collectively increase their holdings by more than 50 per cent over a rolling three-year period.

The tax preservation plan would be triggered by a shareholder acquiring a stake in the company of more than 4.9 per cent. It would also be triggered if an existing holder acquired more than one half of 1 per cent of common shares.

Under the terms of the plan, Ford’s board of directors declared Wednesday a dividend right to purchase one share of common stock for every outstanding share at a discount, should an ownership change occur. Exercising the right would dilute the 5 per cent shareholder and protect Ford’s tax attributes.

Ford said the move was not a "poison pill" to protect the company from a takeover.

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Switzerland-based medical device maker Synthes Inc has won a key ruling in an ongoing U.S. patent case against U.S. competitor Medtronic, the Swiss company said on Monday.

The case, which began in 2007, concerned a patent covering Synthes’ ProDisc-L artificial disc replacement device.

The U.S. District Court in Memphis acknowledged Medtronic had infringed the patent, and awarded the Swiss maker of nails, screws and plates to fix broken bones $21 million in damages, interest and costs, Synthes said in a statement.

“We are pleased that the court has upheld the jury’s verdict,” said Michel Orsinger, president and chief executive of Synthes.

“Synthes has made substantial investments toward the ProDisc artificial disc replacement devices, and the rulings by the Court confirm our intellectual property rights in that technology,” he added.

Synthes is the global market leader in trauma treatment and ProDisc is seen by many analysts as a future growth driver.

Synthes had filed suit against Medtronic in 2007 as it believed the U.S. group’s Maverick products infringed its artificial disc patent.

A jury ruled in November 2008 that Medtronic had violated Synthes’ patent and a U.S. court denied on August 19 Medtronic’s motion for a new trial.

Medtronic is appealing these rulings to the U.S. Court of appeals, Synthes said in the statement. (Writing by Lisa Jucca; editing by Simon Jessop)

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U.S. pressure to toughen up how banks set aside capital suggests reform of Basel II rules on capital adequacy could be drawn out for years, leaving banks in the lurch.

American banks have yet to fully implement the rules and some officials see the crisis as a chance for radical reform but resistance is likely from Europe, which has firmly nailed its mast to an accord that was a painful decade in the making.

U.S. Treasury Secretary, Timothy Geithner, said on Wednesday he will set out principles at this weekend’s meeting of G20 finance ministers in London for a new global accord to constrain bank leverage and eventually supplant Basel II.

Policymakers say Basel II amplifies crises by forcing banks to top up capital in downturns, a criticism members of the Basel Committee on Banking Supervision that drafted the rules reject.

G20 leaders said in April the rules needed reforming and the Basel Committee is speeding up work on changes, some of which were in the pipeline before the crisis.

It published a batch of draft amendments in July, with further draft reforms to come later this year.

“Geithner is suggesting that more needs to be done because otherwise he could say he was in full support of the Basel Committee proposal,” said Harald Benink, professor of banking and finance at Tilburg University in the Netherlands.

“Now it’s like Basel II with refinements when we need to go much more to a Basel III. We need to tackle the more fundamental question of what is the appropriate level of capital in the banking system,” Benink said free business cards.

The British Bankers Association said calls for a new capital accord are completely unjustified and would bump up costs for banks, making it harder to serve customers and economies.

“Let us be under no illusion that the conditions giving rise to the recent financial turmoil were stoked up in a Basel 1 environment in the U.S.,” said Simon Hills, a BBA executive director.

“America has still to implement Basel II, which is far more risk sensitive, and although they were operating a leverage ratio for many years this doesn’t seem to have prevented more than 400 U.S. banks being on the Federal Deposit Insurance Corporation’s problem list right now,” Hills said.

The United States and other countries want to ensure that in the next crisis taxpayers won’t have to fork out trillions of dollars to shore up undercapitalized banks again.

Basel II defines what can be counted as capital and sets minimum acceptable ratios for regulatory capital to risk weighted assets.

Geithner said the principles would be developed by the Financial Stability Board of central bankers, regulators and finance ministry officials from the G20 countries, rather than the Basel Committee, which had no comment on Thursday.

The U.S. Federal Reserve has supported Basel II, with one of its then members, William McDonough of the New York Fed, chairing the Basel Committee when it drew up the rules. 

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