Financial life in a big town

The Food and Drug Administration is conducting an independent review of research on the public health impact of menthol cigarettes.

The federal agency on Monday gave an update on its review of an advisory panel report on the minty smokes, one of the few growth sectors of the shrinking cigarette business.

That report said that removing menthol cigarettes from the market would benefit public health because the flavoring has led to an increase in smokers and makes quitting harder free 3-in-1 credit report. It also said the FDA should consider other factors, including that a ban could increase counterfeit and smuggled cigarettes.

The report submitted in March was mandated under the 2009 law giving the agency authority to regulate tobacco. The FDA can’t ban nicotine or tobacco, but can limit what goes into products.

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The economy’s continuing struggles aren’t just confounding ordinary Americans. They’ve also stumped the head of the Federal Reserve.

Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.

“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said. He said the weak housing market and problems in the banking system might be “more persistent than we thought.”

It was the Fed chief’s most explicit warning yet that the economy will face serious challenges next year. For several months, he had said the factors working against economic growth appeared to be “transitory.”

The Fed cut its forecast for economic growth this year to a range of 2.7 percent to 2.9 percent from an April forecast of 3.1 percent to 3.3 percent. It also cut its forecast for next year to a range of 3.3 percent to 3.7 percent from an earlier 3.5 percent to 4.2 percent. The Fed also said unemployment would stay higher than it had expected earlier.

In a policy statement issued at the end of a two-day meeting, the Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.

But at a press conference afterward, the second of what the Fed says will be regular question-and-answer sessions with reporters, Bernanke conceded the economy’s troubles are more puzzling and potentially more long-lasting than a pair of temporary shocks.

The Fed announcement, at 12:30 p.m., had little effect on the stock and bond markets. Bernanke began speaking at 2:15, and stocks started falling at about 2:30, when he acknowledged that some of the economy’s problems could linger into next year. The Dow Jones industrial average closed down 80 points for the day.

The Fed’s statement Wednesday stood in contrast to the Fed’s more upbeat view when officials last met, eight weeks ago. At that time, the central bank said the job market was gradually improving.

Since then, the economic news has been gloomy. The government reported that the economy grew at an annual rate of only 1.8 percent in the first three months of the year. It isn’t expected to grow much faster in the current quarter. The economy added 54,000 jobs in May, far fewer than in the previous two months. Consumer spending has weakened, too.

The bad economic news is taking a political toll on President Barack Obama personal loans for people with bad credit. For the first time this year, an Associated Press-GfK poll found that fewer than 50 percent of respondents believe Obama deserves re-election. Obama’s overall approval rating fell to 52 percent in the new poll. It had risen as high as 60 percent after the U.S. raid last month in Pakistan that killed Osama bin Laden.

The new Fed statement acknowledged a slowdown over the past two months. “They see the weakness,” said Bruce McCain, chief investment strategist at Key Private Bank. “You can hear their concern about economic weakness despite their hope it is likely to be temporary.”

The Fed stuck to its plan to bring an end this month to a program to help the economy by buying $600 billion in government bonds. The Fed also intends to keep short-term interest rates near zero “for an extended period,” a phrase it has been using the past two years. Though the central bank noted that inflation has risen, it expects that to be temporary as well.

The Fed has kept rates at ultra-low levels since December 2008. Abandoning the promise to keep them there for an “extended period” would be viewed as a signal that the Fed is preparing to raise interest rates. Many private economists think it will be another full year before the economy has recovered enough for the Fed to do it.

Economists looking for clues to the Fed’s next move didn’t get much help Wednesday. “There’s no obvious hint of tightening here,” said Jim O’Sullivan, chief economist at MF Global. “There’s no hint of new easing.”

The bond-buying program has been controversial. Supporters say the bond purchases have kept interest rates low and encouraged spending. Low long-term rates make it easier to buy homes and cars and for companies to expand.

They also argue that those lower rates fueled a stock rally. Since Bernanke outlined plans for the program last August, the Standard & Poor’s 500 index is up 24 percent. Lower rates made stocks more attractive to investors than bonds, whose yields were falling.

The average rate on a 30-year mortgage has stayed below 5 percent for all but two weeks this year and was 4.5 percent last week. But low rates haven’t helped home sales much. They fell in May to the lowest level since November.

Critics, including some Fed officials, saw things differently. They warned that by pumping so much money into the economy, the Fed increased the risks of high inflation later.

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Shaw Communications, the dominant cable company in Western Canada, said its quarterly net profit rose 20 per cent as it cut costs while pausing to reassess its planned entry into the booming wireless telecoms market.

Shaw, which bought wireless spectrum in 2008 but has lagged others in entering the market, said earnings for the quarter ended Feb. 28 were $167.3 million, or 37 cents a share, on revenue of $1.2 billion.

Both were in line with analyst estimates.

Shaw said it cut 550 jobs in the quarter, including 150 managers, in a restructuring that cost between $25 million and $30 million but should save more than $50 million a year.

The Western Canada-focused company is fighting telecom rival Telus

Long and variable lags.

I doubt that inviolable tenet of how monetary policy works is etched into the cornerstone of the Federal Reserve Board in Washington. It is, however, an article of faith for anyone who has ever worked there.

And yet, Fed Chairman Ben Bernanke and his core group of doves at the Fed seem comfortable with the overnight rate at an emergency-like 0 percent to 0.25 percent when the economy is growing at a modest pace, private-sector job growth has topped 200,000 in the last two months and sensitive raw materials prices are skyrocketing.

Where’s the justification?

At 8.8 percent in March, the unemployment rate is still unacceptably high for the dual-mandated Fed, charged with monitoring both unemployment and inflation.

And with no acceleration in wages — average hourly earnings are stuck at a 1.7 percent annual increase — Bernanke is comfortable he can minister to the unemployed without any adverse effects on intermediate-term inflation and inflation expectations.

That would be a mistake. Empirically, prices lead wages. If it were the other way around, wages would be in some kind of leading inflation indicator, such as the one created by the Economic Cycle Research Institute.

While the ECRI refused to discuss the composition of its Future Inflation Gauge when I called Friday, wages aren’t in the index because “they aren’t a good leading indicator of inflation,” a then-less-secretive research director told me in 2000.

Your Father’s Economy

Causation can run in both directions, with prices and wages feeding off one other, according to Gad Levanon, associate director of macroeconomic research at the Conference Board in New York. “Overall inflation leads both core inflation and average hourly earnings based on a cross correlation test.”

The Fed operates on the premise that core inflation, which excludes food and energy, leads overall.

The focus on wages is a residual from the wage-price spirals of the 1970s: no wage increase, no inflation.

Before deregulation — when companies were shielded from outside competition — labor unions could negotiate a contract for their workers, and the employer would pass the higher costs along to consumers in the form of higher prices.

Union membership declined to a 70-year low of 11.9 percent last year, according to the Bureau of Labor Statistics. For the first time in history, more union workers were employed by the government than by the private sector. Only 7.2 percent of the private-sector workforce was unionized.

Symptom, Not Cause

In today’s world, any union demand for a wage increase is likely to be met with a shift in production: from Michigan to South Carolina for the auto industry; from North Carolina to China for textiles.

To the extent that labor has any negotiating power in a de- unionized, globally competitive world, wages are set “based on last year’s inflation,” said Joe Carson, director of global economic research at AllianceBernstein in New York.

Think of wages as a price: the price of labor. They happen to be the biggest share of compensation costs in services industries. That still doesn’t mean they cause inflation. Rather, they are a symptom of it.

Some Fed bank presidents understand the central bank can’t wait to see higher wages before starting to withdraw the stimulus. The Minneapolis Fed’s Narayana Kocherlakota and Richmond’s Jeffrey Lacker are making noises about raising interest rates by year-end. The Philadelphia Fed’s Charles Plosser has talked about calling a halt to the central bank’s second round of quantitative easing, in this case the planned purchase of $600 billion of Treasury securities set to conclude in June.

Dudley Do-Right

For Bill Dudley, that talk is premature. Speaking in Puerto Rico Friday, the New York Fed president said unemployment is much too high (agreed); the “coast is not completely clear” for the U.S. economy (it never is); and commodity prices are experiencing “a little bit of a bubble” (this from the ex- post-only bubble-identification gang) and have “virtually nothing to do with U.S. monetary policy.”

Reporters let him get away with that? Last month, Dudley had his head handed to him by an audience in Queens, New York. When he tried to tell a group of ordinary folks inflation was under control because technology prices continue to fall, members of the crowd asked him when he last went grocery shopping.

What’s more, Dudley’s view that commodity price increases aren’t the Fed’s doing runs counter to the Fed’s stated intentions for QE2. In a Nov. 4 op-ed in the Washington Post, Bernanke outlined the channels through which the Fed’s bond purchases would operate. One was through higher stock prices, which would increase consumer wealth and trigger spending.

Measure of Success

Success! The Dow Jones Industrial Average is nearing a three-year high, up almost 25 percent since Bernanke first hinted at QE2 in late August.

Surely Dudley understands that commodity speculators aren’t immune to the same incentives — zero-percent interest rates — that encourage investors to move out the risk curve.

The Fed should be careful what it wishes for.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

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Shoppers came back in force for the holidays, right to the end. After two dreary years, Christmas 2010 will go down as the holiday Americans rediscovered how much they like to shop.

People spent more than expected on family and friends and splurged on themselves, too, an ingredient missing for two years. Clothing such as fur vests and beaded sweaters replaced practical items like pots and pans. Even the family dog is getting a little something extra.

“You saw joy back in the holiday season,” said Sherif Mityas, partner in the retail practice at A.T. Kearney.

A strong Christmas Eve augmented a great season for retailers. The National Retail Federation predicts spending this holiday season will reach $451.5 billion, up 3.3 percent over last year.

That would be the biggest increase since 2006, and the largest total since a record $452.8 billion in 2007. The holiday season runs from Nov. 1 through Dec. 31, so a strong week after Christmas could still make this the biggest of all time. Spending numbers through Dec. 24 won’t be available until next week and final numbers, through Dec. 31, arrive next month.

The economy hasn’t improved significantly from last year. Unemployment is 9.8 percent, credit remains tight and the housing market is moribund. But recent economic reports suggest employers are laying off fewer workers and businesses are spending more. Consumer confidence is rising.

“I was unemployed last year, so I’m feeling better,” said Hope Jackson, who was at Maryland’s Mall in Columbia on Friday morning. Jackson bought laptops and PlayStation 2 games for her three daughters earlier in the season but was at the mall on Christmas Eve to grab $50 shirts marked down to $12 at Aeropostale.

Some spending growth online has been driven by free shipping offers and convenience. From Oct. 31 through Thursday, about $36 billion has been spent online, a 15 percent increase over last year, according to MasterCard Advisors’ SpendingPulse.

Taubman Centers and Mall of America have reported strong clothing sales, which was a hard sell last year. Jewelry sales sparkled throughout the season.

Stores expect solid profits because they didn’t have to slash prices as Christmas neared, analysts say.

Some habits adopted during the recession lingered. Shoppers used cash more and credit cards less.

The final six days of the holiday shopping season are Sunday through next Friday. They’re only 10 percent of the 61 holiday shopping days but can account for more than 15 percent of spending.

For the economy, the key question is whether strong spending this holiday season will continue into the new year.

Still, stores were encouraged by what they saw in the final stretch of the holiday season.

Even pets made it back onto gift lists this year. Three Dog Bakery, a pet-supply chain in Clinton Township, Mich., whose specialties include $15.99 jars of banana-nut dog cookies, opened three years ago at the start of the recession.

“We opened at the worst possible time in the world. Everyone was pulling back,” owner Chad Konzen said.

Wednesday, the store had its best day ever. “Gourmet, all-natural dog treats are not a necessity,” Konzen said. “But now people are feeling more comfortable. You can only be thrifty for so long.”

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The federal government has opened criminal investigations into approximately 50 executives and directors of U.S. banks that have collapsed during the financial crisis.

Deputy Inspector General Fred Gibson says the inspector general’s office at the Federal Deposit Insurance Corp. has been probing the role of the executives in bank failures around the country.

The criminal investigations are separate from civil lawsuits against some 80 bank executives, employees and directors. The lawsuits are seeking to recover about $2 billion and were authorized by the FDIC’s board.

The FDIC has shut down or seized 311 banks since January 2008 at a cost of around $77 billion. The criminal probes were reported earlier by The Wall Street Journal.

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Ireland was prodded by European Central Bank council member Miguel Angel Fernandez Ordonez to make a “final decision” on its fiscal crisis to calm markets as finance ministers prepare to discuss an aid plan.

“The situation in the markets in recent weeks has been very negative due in some way to the lack of a final decision by Ireland,” Ordonez told reporters today in Madrid. “It’s not me who should take a decision about Ireland, it’s Ireland that should take the right decision at the right moment.”

The comments by Spain’s central bank governor underscore pressure on Ireland to accept a bailout and help reverse a bond sell-off among the euro-region’s deficit-laden nations. Germany has pressed for Ireland to take aid before tomorrow’s ministers’ meeting in Brussels, according to a German government official.

Allaying investor concerns about Irish finances would help advance Chancellor Angela Merkel’s plan to require investors to help pay for future rescues, a German government official said. European leaders remain divided on Merkel’s proposal, the timing of a bailout for Ireland and whether the ECB should keep buying bonds of debt-laden countries.

“As long as European governments go back and forth, the markets won’t settle down,” said Marco Annunziata, chief economist at UniCredit Group in London. “We’re likely to see markets getting more nervous and worried about what is going on in Europe.”

The yield on Ireland’s 10-year notes fell 10 basis points to 8.263 percent at 10:30 a.m. in London. It has jumped more than 200 points in the past month. The euro weakened 0.4 percent to $1.3637.

Irish Banks

While Ireland says it doesn’t need to raise money until mid-2011, its banks, weakened by a property-market collapse, have grown increasingly reliant on the ECB as the country’s borrowing costs rise. Borrowing from the ECB by lenders in Ireland rose 7.3 percent to 130 billion euros as of Oct. 29, about 80 percent of gross domestic product.

A request for aid may total about 80 billion euros ($110 billion) between 2011 and 2013, according to Barclays Capital. French Finance Minister Christine Lagarde said today on France Info radio no aid request has been made.

Ireland’s Finance Minister Brian Lenihan may ask European counterparts in Brussels to consider allowing the nation’s banks tap the EU’s emergency fund, the Irish Independent said today , without citing anyone. The government is also considering bringing forward the announcement of next year’s budget, scheduled to be unveiled Dec. 7, by a week, the Dublin-based newspaper said.

Deposit Outflows

Allied Irish Banks Plc, the second-largest bank, is due to release a trading statement this week, where it may give details on its funding situation. Dublin-based Bank of Ireland Plc said last week its loan-to-deposit ratio rose to about 160 percent from 145 percent on June 30 after outflows from its capital- markets unit.

The premium that investors demand to hold Irish 10-year bonds over the benchmark German bonds was 556 basis points, compared to 563 points on Nov. 12 and a record 646 Nov. 11.

Irish officials had said as recently as yesterday lunchtime that a bailout wasn’t being considered. Seeking aid hasn’t been discussed by Irish Prime Minister Brian Cowen’s Cabinet, Enterprise Minister Batt O’Keeffe told broadcaster RTE, denying that there is a “crisis.”

Ireland is not going to give up its “hard-won” sovereignty, O’Keeffe said on RTE. The ruling Fianna Fail party grew out of the armed movement that opposed the treaty with Britain dividing Ireland in the 1920s.

Bond Slump

Bonds in Ireland, Portugal and Greece have plummeted since EU leaders agreed on Oct. 29 to draft a permanent crisis mechanism to replace the euro-rescue fund set up in May once its mandate expires in 2013 cash advance no fax. That prompted European finance chiefs to issue a statement at a Group of 20 summit in Seoul last week saying the plan being debated to have investors cover future bailout costs would have “no impact” on existing debt.

Ordonez said in the speech that “it should be hoped that an appropriate reaction on the part of the Irish authorities,” along with the statement from the G-20, will “help to calm the markets.”

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro finance ministers, said Nov. 12 there was “no immediate reason” to think Ireland will seek cash and that officials wouldn’t meet before the monthly talks in Brussels.

Jumping Yields

Yields on bonds of Spain and Portugal also jumped amid concern that fallout from Ireland would spread. The extra yield that investors demand to hold Portuguese 10-year bonds instead of German bunds climbed to a record 484 basis points on Nov. 11. Foreign Minister Luis Amado told Expresso magazine day earlier that the country’s membership of the euro could be at stake if the country fails to grapple with its deficit.

Greece’s spread was little changed at 887 basis points today. Revised figures from the EU’s statistics office today showed that Greece had the euro region’s largest budget deficit last year. It was changed to 15.4 percent of GDP from 13.6 percent. That surpassed Ireland’s 14.4 percent shortfall.

An Irish decision to seek financial help “is a purely political decision on the back of an assessment of the broader risk of the spread levels to economic and financial stability,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London.

Bailout Cost

Bailing out Ireland’s financial system could cost as much as 50 billion euros under a “stress case” scenario compiled by the Finance Ministry and central bank. The country’s gross funding need for 2011 will be 23.5 billion euros, falling to 18.6 billion euros in 2014, the nation’s debt agency says.

“While the sovereign is fully funded through the first half of next year, consideration also has to be given to the banking situation,” Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, said in an interview.

The International Monetary Fund stands ready to help Ireland if needed, Managing Director Dominique Strauss-Kahn said Nov. 13 in Yokohama, Japan.

“So far I haven’t received any kind of request,” he said. “If at one point in time, tomorrow, in two months or two years, the Irish want support from the IMF, we will be ready.”

In a Nov. 12 conference call of ECB officials, Ireland was pressed to seek outside help within days, a person briefed on the discussions said on condition of anonymity. Bundesbank President Axel Weber has called for ending the ECB’s emergency bond-buying program, which has benefited deficit-laden countries such as Ireland, Portugal and Greece.

Balance Sheet Damage

The risk for the ECB is that buying those bonds could eventually hurt the central bank’s balance sheet, damaging its independence.

Irish officials have indicated they hope the 2011 budget will placate markets as they try to cut a budget deficit which will be about 12 percent of gross domestic product this year, or 32 percent when the costs of the banking rescue are included. Lenihan’s plan includes 6 billion euros of spending cuts and tax increases next year.

“The ecofin meeting is crucial to resolving this,” O’Leary said. “There is every reason to be a standoff. It’s a big decision for Ireland to seek aid, with big consequences. On the other hand, Europe wants to nip the situation in the bud.”

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Viacom Inc. said Thursday it plans to sell the company that developed the “Rock Band” video game franchise, a move that cut the media conglomerate’s third-quarter earnings by 59 percent.

The division, called Harmonix, has dragged on the company’s results for the past several quarters as shoppers continue to avoid big discretionary buys. Music games such as “Rock Band” have struggled in particular because of the pricey accessories required to play them.

But Viacom’s results otherwise beat Wall Street expectations and its publicly traded shares climbed $1.24, or 3.2 percent, to $39.34 in pre-market trading.

Viacom, controlled by billionaire Sumner Redstone, said its cable properties, which include BET, MTV, Comedy Central and Nickelodeon, continued to take in more advertising revenue as ratings improved. Revenue from its Paramount Pictures division also edged up, though profits in the division slipped instant credit report.

Overall, the New York-based company said its net income fell to $189 million, or 31 cents per share, from $463 million, or 76 cents per share, a year ago.

Excluding results from Harmonix and other unusual items, Viacom’s adjusted earnings rose to 75 cents from 71 cents per share. That’s 5 cents better than analysts expected, according to a survey by Thomson Reuters.

Revenue climbed 5 percent to $3.3 billion from $3.17 billion, matching the average Wall Street forecast.

Cable revenue rose 8 percent to $2.1 billion, with the unit’s operating profit up 9 percent to $873 million.

Film revenue rose 1 percent to $1.2 billion, while operating profit dropped 29 percent to $52 million.

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Toyota is recalling 740,000 vehicles sold in the United States because of potentially unsafe brakes, adding to the automaker’s 2010 recall woes.

Separately, the U.S. division of Honda said it is planning to announce the recall of an undisclosed number of vehicles for the same problem.

Toyota Motor Sales, the U.S. division of Toyota Motor Corp. (TM) in Japan, said the recall applies to Avalon models built from 2005 through 2006, non-hybrid Highlanders from 2004 through 2006, the Lexus RX330, and 2006 models of the Lexus GS300, IS250 and IS350.

Toyota said it’s recalling the vehicles because a small amount of brake fluid could leak from the brake master cylinder, causing the brake warning lamp to go on.

If the problem is left untreated, Toyota said driver will first notice a spongy or soft brake pedal feel, and that the brakes’ ability to slow the vehicle will gradually deteriorate.

Toyota said the problem stems from the use of non-Toyota brake fluid. Toyota-brand brake fluid contains lubricating polymers that prevent the problem, the company said.

The company said that Toyota and Lexus dealers will replace the brake master cylinder cup at no charge to vehicle owners.

Worldwide, Toyota is recalling 1.5 million vehicles because of the problem.

Meanwhile, Honda (HMC) spokeswoman Christina Ra confirmed that the automaker is preparing to alert U.S. safety regulators Thursday of an impending recall.

The recall will cover Acura RL and Honda Odyssey models from 2005, 2006 and 2007. Ra did not say how many vehicles will be recalled, but she did say the recall stems from problems similar to those behind the Toyota recall.

The new brake problem is the latest to affect Toyota, which has recalled millions of vehicles due to a variety of safety issues.

Since the second half of last year, Toyota has announced recalls of more than 8 million vehicles. The latest major recall was in August, affecting about 1.33 million Corolla and Matrix vehicles built from 2005 to 2008 and sold in the U.S. and Canada. The company said there was a risk of cracks forming at solder points or on electronic components used to protect circuits from excessive voltage.  

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Can’t afford that three-carat diamond right away? Consider layaway.

Layaway is no longer just for washing machines or winter coats. There are also plenty of luxury goods available with a few easy installments — you just won’t find them advertised in the Sunday circular.

"We don’t specifically promote it," said Dean Abell, the vice president of Sarah Leonard Fine Jewelers in Los Angeles. But he often suggests a layaway plan for his clients, especially for purchases of engagement rings and wedding bands, which can cost up to $35,000.

"Even if people have the money, sometimes they will take advantage of that option to break up the payments without incurring credit card charges," Abell explained.

Plus, there are no interest charges or fees for the service, and the number of payments can be customized. Six months is standard, but with wedding bands, for example, the term is usually the length of the engagement.

"In the last couple of years it has emerged as a popular spending trend for consumers," said Kathy Grannis, a spokeswoman from the National Retail Federation. "With the change in the economy it is a very viable option for families that want to spread out their spending over the holiday season. Avoiding debt has been a big concern for consumers."

In fact, last year the number of consumers who planned to purchase holiday gifts with their credit card fell 10%, according to NRF’s holiday consumer intentions and actions survey.

Although high-end department stores — such as Saks, Bloomingdales and Neiman Marcus — still shun the idea, big-box retailers — such as Sears, K-Mart, Marshall’s and Burlington Coat Factory — are not shy about promoting layaway options to bring buyers back no fax payday loans.

Now many small galleries, stores and boutiques also offer such payment plans.

At the Kittrell/Riffkind Art Glass Gallery in Dallas, customers can buy art on layaway if they request the deal. "We’ve been talking about it more when people are on the fence about a particular object," said gallery manager Sandra Outland. "It makes them reconsider the purchase; it makes it seem more obtainable."

Pieces valued at as much as $7,900 have been purchased on layaway at the gallery, and there is no fee for the service.

Many other galleries offer a similar service for their clientele when it comes to high-priced art. "We just wouldn’t call it that" explains one New York City gallery director.

Realtor Eric Jolliff says he prefers using layaway for big ticket items, rather than a credit card. "I actually don’t even own a credit card anymore," he said.

Jolliff is currently eyeing a $1,500 bicycle at a shop in St Louis, Mo. "This fall I will put it on layaway and get it out in the spring, just in time to ride." 

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