Financial life in a big town

Intel (INTC.O: Quote, Profile, Research, Stock Buzz) will continue to invest in products and technologies even though it sees that a U.S. financial meltdown is likely to affect the emerging markets that are crucial for its growth, its chairman said on Tuesday.

“I think you’d have to be prudent and assume that if the financial marketplace melts down there’s going to be some impact but nobody’s predicting that, nobody knows how big it’s going to be,” Chairman Craig Barrett told Reuters journalists.

“The only thing we can do is look at that part of our future destiny that we can control, and that’s our investment in the future, in the products we create and the technologies we create,” he said on a visit to Reuters.

“We’ve always had the attitude that you have to make that investment in good times and bad,” he said. “It’s R&D, capital, marketing-intensive, and we’re just like a blind greyhound, we just continue to race down the track.”

Of its $38.3 billion 2007 revenue, the world’s biggest chipmaker spent $5.8 billion on research and development and $5 billion on capital items such as property, plants and equipment overnight payday loans.

“You can’t save your way out of a recession, you have to invest your way out, and so we’ve always kept a rainy day plan to accommodate that,” Barrett said, adding that Intel had a financial cash cushion of about $10 billion for that purpose.

Barrett said Intel’s creditworthiness meant it should be able to make acquisitions if the chance arose, even given the current turmoil in financial markets.

Intel has an A+ credit rating from Standard and Poor’s. 

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Mining stocks took another beating today over concerns about falling demand combined with the financial woes on Wall Street, but the industry remained confident thoat a "long-term commodity bull market" will soon reassert itself.

"I think we can conclude that when everything goes up for sale, then nobody's immune to a market selloff, but the demand for commodities is still extremely robust," said Bradford Cooke, chairman and CEO of Vancouver-based Endeavour Silver Corp. (TSX: EDR).

"We're still firmly in a long-term commodity bull market, and the selloff of the commodities in general and the mining shares in particular is overdone," he added.

The diversified metals index on the Toronto Stock Exchange was down more than five per cent in trading today, after a retreat of more than seven per cent Monday.

Prices for commodities fell over investor concern that the financial crisis in the United States will spark a deep recession in that country and spill over to weaken European, Indian and Chinese economies.

India and China have been growing rapidly in recent years and have been at the heart of soaring demand for everything from oil, steel and coal to nickel, grain, chemicals and other commodities.

As well, traders worry that global market liquidation prompted by the ongoing financial crisis on Wall Street, is also prompting the selloff since many financial companies invested in soaring commodities contracts to cash in on rising prices.

Wall Street was rocked Monday by announcements that Lehman Brothers Holdings Inc., the fourth-largest investment bank in the U.S., had filed for bankruptcy protection.

Further jitters were caused by the US$50-billion takeover of struggling Merril Lynch by Bank of America and news that insurer American International Group Inc. could need billions of dollars to strengthen its balance sheet.

But investors tend to see commodities – particularly precious metals like gold and silver – as a safe bet in times of financial crisis, said Cooke.

"Gold and silver in particular having a historic role as hedges against financial crisis and monetary inflation, they lose that role only temporarily in a market selloff and they certainly should resume that role once the peak selloff is past," he said.

Haytham Hodaly, an analyst with Salman Partners Inc., added that the financial crisis will likely result in a weaker U.S free credit report.com. dollar, which will push investors to the "safe haven" of precious metals.

"I think what's going to happen is the issues that we're seeing in the United States will end up resulting in a weaker U.S. dollar, at least in the near term, which will shed some positive light on owning precious metals, particularly gold and silver as basically a safe haven in this time of economic turmoil," said Hodaly.

Monday's gold and silver prices seemed to confirm this. Gold for December delivery rose $22.50 to settle at $787 an ounce on the New York Mercantile Exchange, after earlier rising as high as $791.40, while December silver rose 34 cents to settle at $11.135 an ounce.

Commodity prices "took off" when the U.S. credit crisis began a year ago, but equities didn't follow, said Cooke.

"I've never seen commodity prices move so high so fast in my life … but the equities did not confirm that upward move," he said.

"So the equities, which never joined the commodity price party, have been nailed on the downside."

But Cooke said he's confident that "the bottom is near" and commodity stocks will respond favourably when it hits.

"I feel that if you look at both the fundamentals and the technical charts on these things, this selloff is way overdone. Gold and silver in particular do have a traditional role to play and they're going to resume it, soon," he said.

"It's not a time to panic, it's a time to reflect."

13:31ET 16-09-08

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At first glance, the losses on Wall Street look to be a bottomless pit. As the financial crisis enters its second year, there appears no end in sight, with total losses on soured investments now estimated by the International Monetary Fund at $1 trillion (U.S.), about the same as the tab for U.S. military operations in Iraq and Afghanistan.

Some good will come of the maelstrom that hit Wall Street over the weekend like a Category 5 hurricane. But for now, the Street’s denizens are numbed by how their world has abruptly changed. A crippled Merrill Lynch & Co., which pioneered Main Street investing, has been rushed into the arms of Bank of America Corp.

The venerable Lehman Brothers Holdings Inc., America’s fourth-largest brokerage, has filed for Chapter 11 bankruptcy protection. New York-based American International Group, among the world’s biggest insurers, has secured a $20 billion lifeline. Washington Mutual Inc., America’s largest thrift, or savings and loan, is hanging by a thread.

The current disaster is without precedent in the modern history of the markets. Previous crises such as the 1980s insolvency of brokerage Drexel Burnham Lambert and the 1998 rescue of Long-Term Capital Management were isolated events. Today’s damage is so widespread that the stock market value of the U.S.’s largest banks and brokerages – even the ones that appear most sound – has plummeted as much as 80 per cent.

It isn’t so much fear that grips the denizens of Lower Manhattan today as self-doubt and mourning. The masters of the universe, as Tom Wolfe called them, believed themselves to be geniuses as they promoted and profited enormously from the record U.S. housing boom of the mid-decade. These financial engineers are now clueless about how many subprime, effectively junk mortgages, are on their balance sheets.

The bonus-fuelled exuberance of these stewards of the financial system has culminated in their exposure as incompetents – and they know it absolutely free credit report. If it keeps up like this much longer the grief counsellors will have to be called in. Wall Street firms already have shed some 85,000 employees, even before the weekend’s traumatic events. And with this hollowing out of the Street’s greatest institutions, New York is in danger of losing its status as the world’s financial capital to London, which already leads Gotham by several measures.

All this, of course, after Washington’s $200 billion bailout just last weekend of the gigantic mortgage lenders Fannie Mae and Freddie Mac and the Feds’ forced merger earlier this year of brokerage Bear Stearns Cos. into J.P. Morgan Chase Co. with a guarantee that Uncle Sam will backstop $29 billion worth of Bear’s irrevocably lost "assets."

But here’s the real, hopeful story.

There were no bank runs by retail or institutional clients. A consortium of global banks has pledged $70 billion to a bailout fund for banks in trouble.

And, most important, with Lehman the Feds drew a line in the sand by letting it fail, signalling that from here out the survivors who authored this crisis will have to find their own way out of it or, like Lehman and its wiped-out shareholders, pay the ultimate price for failure.

Flushing the system of dubious assets and failed managers and practices that have caused the biggest U.S. financial crisis since the Great Depression is a necessary curative. The end-game will see the emergence of fewer but stronger financial players, more scrupulously monitored by regulators. That’s why capitalism, as Americans conduct it, is called "creative destruction."

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ROME–Italy’s government held emergency talks with unions and investors yesterday over a plan to save Alitalia, as the bankrupt airline risks having to ground flights for lack of fuel.

The rescue plan would have investors buying profitable assets and investing euro1 billion ($1.4 billion).

But the plan also envisages wage cuts and layoffs opposed by the unions.

The government began mediating when direct talks broke down Friday after the investors failed to win the unions’ crucial support. The investors said, however, that their offer remained on the table.

The labour and transport ministers met yesterday with representatives of flight attendants and pilots, who have been the most critical of the rescue plan.

The talks with unions and investors had started Saturday but ended late at night with no resolution.

Among the sticking points in the talks are new contracts, salary cuts and layoffs that might run to 5,000, out of the airline’s 20,000-strong work force.

Each side has accused the other of being intransigent. But with time running out and the airline edging toward collapse, officials gave some signal of compromise. "There is a different atmosphere. Everybody is aware that there are no alternatives to an agreement," said Giuseppe Caronia of the transport chapter of the UIL national labour confederation cash advance. “There’s a sense of a moderate, cautious optimism.”

Labor Minister Maurizio Sacconi, who summoned all nine Alitalia unions to the meeting, expressed confidence that a deal would be reached.

Italian reports said the investors might offer an additional euro100 million ($140 million) in order to minimize the wage cuts and overcome the unions’ opposition.

However, pilots union representative Fabio Berti said after yesterday’s talks that he saw no substantial improvement. "Right now it is very difficult to be optimistic,” he added. Other union leaders voiced similar concerns.

In a sign of high tensions yesterday, Administrator Augusto Fantozzi was heckled and booed as he walked into the Labor Ministry for the meetings. Some in a crowd of 200 Alitalia workers that had gathered outside the ministry shouted: "Buffoon! Buffoon!" while others threw coins at him.

Workers have been holding protests and demonstrations for days, including at Rome’s Leonardo da Vinci airport, where on one occasion flights had to be cancelled.

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UK gas producer BG Group admitted defeat in its hostile bid for Australian coal-bed methane producer Origin Energy, but analysts said BG may shift its focus to another target or become a target itself.

BG said in a statement on Tuesday it would not increase or extend its A$15.50/share offer, which closes on September 26, and said it expected the offer to lapse, after Origin formed an $8 billion joint venture with U.S. oil major ConocoPhillips.

“The price implied by this newly announced joint venture is higher than BG Group is able to justify,” BG Chief Executive Frank Chapman said. “We wish Origin and ConocoPhillips every success with their joint venture.”

Origin said on Monday it had agreed to spin off its massive coal-seam gas assets in Queensland into a joint venture in which ConocoPhillips would inject up to $8 billion.

BG had hoped to use the reserves to expand a liquefied natural gas export terminal it plans to build with Queensland Gas Co.

Some analysts had predicted BG would abandon its bid after the Origin-Conoco tie-up, prompting BG’s shares to rally 6 percent on Monday.

The shares traded up 1.5 percent at pence at 4:02 a.m no fax payday loan. EDT, outperforming a 0.2 percent rise in the DJ Stoxx European oil and gas index.

Origin shares closed down 1.42 percent at A$17.40 before the announcement. 

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Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) shares fell as much as 5 percent on Monday ahead of a highly anticipated event on Tuesday when the maker of the Mac, iPod and iPhone is expected to roll out a new iPod Nano and may give an update on iPhone sales.

Stock in the high-flying company often sells off ahead of its major product announcements, said Shannon Cross, an analyst at Cross Research, adding that concerns about the strength of overall consumer spending also weighed on Apple shares.

The Cupertino, California-based company e-mailed reporters and analysts last week with an invitation to a San Francisco event entitled “Let’s Rock,” which bore an image of an iPod- wearing man jumping in the air, with the words “playing soon.”

Analysts said ahead of the event that they expected more incremental updates to the iPod line. Cross said some may have been expecting new versions of their laptop line, but those may not be announced on Tuesday.

“Right now Apple stock is kind of caught between concerns about strength in the consumer market and questions about how quickly they will be refreshing products and what they will announce tomorrow,” Cross said instant payday advance. “It is kind of a buy on the rumor sell on the news kind of stock. Apple often sells off ahead of their announcements.”

Analyst Shaw Wu of American Technology Research said in a note to clients: “While there is always room for surprise, it seems this event may be somewhat underwhelming vs previous expectations and events.”

He said his checks in the industry suggested the event will be focused mainly on the market-leading iPod, which in a sense was Apple’s coming out as a consumer electronics company, known for more than just its iconic Mac computers.

“This may be viewed as disappointing as some were hoping to see new Macs,” Shaw wrote. 

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United Airlines travelers across the Atlantic can leave their money in their pockets when the food cart comes down the aisle.

The nation’s second-largest carrier on Tuesday backed off from a plan to begin charging for coach-class meals on its flights to Europe after some customer backlash. The carrier’s letter to customers on Tuesday began "Thank you for your direct, candid feedback."

"We heard loud and clear from our corporate and our Elite frequent fliers that they value our hot meal service," United (UAUA, Fortune 500) spokeswoman Robin Urbanski said.

Although many carriers have stopped serving free food on coach domestic flights, customers on long-haul flights have been able to count on being fed.

The letter said that with fuel prices so volatile, United would "continue to be proactive in testing new ideas."

United said that it will still begin serving cold sandwiches or snack boxes instead of hot meals to business-class customers on about 16 domestic flights a day on Oct 1 fast cash online. United said it would "evaluate the results and determine next steps by the end of the year." 

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Oil prices ended lower Thursday, reversing an early spike, as traders sized up a potentially devastating blow to production from Tropical Storm Gustav and reacted to a decline in natural gas prices.

U.S. crude for October delivery rose as much as $2.35 a barrel to touch $120.50 in early trade before retreating to settle at $115.59 a barrel, or $2.56 lower.

The Department of Energy said it is monitoring the situation in the Gulf and stands ready to dip into the Strategic Petroleum Reserve, an emergency repository of 700 million barrels of oil that the government controls.

"The Strategic Petroleum Reserve is a key safeguard to provide an added layer of protection for the American people during the event of a severe disruption of oil supply," the agency said in a statement.

Oil platforms in and around the Gulf of Mexico account for more than a quarter of U.S. oil production.

If production rigs are damaged by the storm, crude oil supply would be pinched. Andrew Lebow, an energy analyst at MF Global, said he believes the government would step in to mitigate any short-term supply loses. "The government will be a lot quicker to release crude oil out of the strategic petroleum reserve, should we lose any production."

Such a move from the government would bring comfort to the markets, said Lebow.

Natural gas: Tumbling natural gas prices also weighed on crude prices. Natural gas prices were down more than 8% after the Energy Information Administration reported natural gas supplies in storage jumped by 102 billion cubic feet in the week ended Aug. 22, putting supplies of natural gas 2.6% above the five year average of supplies in storage. Natural gas settled down more than 6%.

The report "sent natural gas down and crude is following," said Amanda Kurzendoerfer, commodities analyst at Summit Energy. "We have seen sometimes they do move together."

The natural gas report "is highlighting that we are going to have ample natural gas for this winter," said Lebow. In some cases, natural gas can be used in exchange for petroleum-based products, said Lebow.

Jim Rouiller, senior energy meteorologist at Planalytics, a firm that predicts how weather will impact businesses, said crude prices were ready to fall because they had already been pushed higher Wednesday in anticipation of the storm.

Another factor in Thursday’s price decline was a stronger dollar.

Watching Gustav: Oil prices zig-zagged as the market watched the path of Gustav, according to Neal Dingmann, senior energy analyst at Dahlman Rose & Co.

The majority of crucial rigs are located between the Houston Shipping Channel and New Orleans, and so the price of oil moved quickly as traders anticipated where Gustav would hit land, he said.

"As the projected path inwards changes," said Dingmann, "you have people’s bets change." The last week in August is a popular vacation week, and so light trading volume also pushes the price of oil around more dramatically, said Dingmann.

Meteorological forecasters said it was too soon to know the storm’s exact path. But the National Hurricane Center’s projection models show Gustav heading toward Louisiana through the oil-rich region of the Gulf of Mexico by Sunday afternoon.

Gustav, once a Category 1 hurricane, weakened after it passed over Haiti and the Dominican Republic. The storm now threatens to intensify and become a hurricane again.

It doesn’t necessarily take destructive hurricanes to cause major disruptions to oil drilling in the Gulf, however.

"The makeup of a storm can have all the difference," said Alaron Trading senior market analyst Phil Flynn easy payday loan. "Slow moving storms have a tendency to churn up underground pipelines, so you don’t need a Category 5 to do a lot of damage."

Evacuations: Already on Wednesday, Royal Dutch Shell PLC (RDS) evacuated 400 staff from its off-shore oil rigs, according to Robin Lebovitz, a spokesperson for the company. It plans on bringing 270 more personnel ashore Thursday and it said it would complete a full evacuation by Saturday.

Shell said it expects that production at its east and west Gulf of Mexico platforms will be hampered as early as Thursday.

On Thursday, Shell asked consumers to conserve fuel because "during a hurricane, temporary and sporadic supply interruptions may be unavoidable." In a statement, the company assured customers that it is prepared for the inclement conditions, but Shell asked consumers to "maximize fuel supply."

In addition, a recorded message on an information hotline at British Petroleum (BP) said the company was evacuating non-essential personnel from their offshore oil rigs.

ConocoPhillips (COP, Fortune 500) will remove 20 non-essential personnel from a platform in the central Gulf of Mexico, according to a statement. The company plans to remove another 58 personnel from the platform by Saturday, as Gustav approaches.

Timeline: The average hurricane halts oil drilling production for more than a week, according to the American Petroleum Institute. Rig workers are forced to evacuate two to three days before the storm hits, and as soon as it’s safe to return, they have to check for damage before they can restart production.

The U.S. Department of the Interior estimates that 3,050 of the Gulf of Mexico’s 4,000 platforms and 22,000 of the 33,000 miles of Gulf pipelines were in the direct path of Hurricanes Katrina and Rita in 2005. The cyclones, both of which reached Category 5 strength, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines.

Since then, the industry began making changes to the structures. The Interior Department in April 2008 imposed more stringent design and assessment criteria for both new and existing structures located within particular Gulf of Mexico areas.

For example, drilling rigs moored to sea floor in the Gulf had been attached with eight lines, and are now required to be moored with 12 to 16 lines. New rigs are built higher out of the water than ones that were built previously, and old rigs were strengthened, according to Andy Radford, a policy advisor at API.

"We have learned from Katrina and Rita," said Lebow. "The infrastructure is a little bit stronger."

Refineries: While the oil rigs have been strengthened, however, refineries are vulnerable. The last new U.S. refinery was built in 1980, according to Lebow.

Oil refineries clean and process crude into usable products, like gasoline and heating oil. With 41% of the nation’s refinery capacity in the Gulf Coast region, according to Lebow, a storm has real potential to disrupt distribution of gas and send prices at the pump higher.

Damage to refineries could create more long-term problems. "Refineries are a lot more complex," said Lebow. "It can take many days, sometimes weeks to get a refinery working again" after significant damage. "Some refineries took years to get back online after Katrina." 

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McDonald’s Corp (MCD.N: Quote, Profile, Research, Stock Buzz) posted July sales that beat many analysts’ forecasts as its key U.S. market posted its largest gain in five months with offers like $1 beverages appealing to cash-strapped consumers.

Shares of the world’s largest restaurant chain rose to an all-time high on Friday after it reported an overall 8 percent increase in sales at stores open at least 13 months.

The United States, where McDonald’s derives about 45 percent of its sales, has been under pressure as consumers cut back on spending due to rising food and fuel costs.

But $1 beverage offers and marketing focused on the company’s Big Mac hamburger sandwich helped lift same-store sales in the United States to a 6.7 percent increase, the largest since an 8.3 percent rise in February when sales were helped by an additional day for the leap year, the company said.

Analysts had been expecting a July same-store sales increase of 4.5 percent to 6.4 percent globally and 4 percent to 4.5 percent in the United States, according to three analysts’ research notes.

The company has also benefited as U.S easy payday loans. consumers trade down from casual dining chains when they do eat outside the home. Casual dining has been particularly hard hit by the U.S. slowdown, as evidenced by the bankruptcy of Bennigan’s and other chains.

“There probably is some continuing trading down,” John Owens, restaurant analyst at Morningstar, said. “I think that they are also gaining share in the fast-food space as well.”

Owens noted that McDonald’s also appeals to consumers because of the ubiquity of the chain. 

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Personal income rose slightly in June after surging the previous month on the first wave of economic stimulus checks, the government reported Monday.

The Commerce Department said individual income increased by 0.1% in June after a revised 1.8% jump in May. Economists polled by Briefing.com were expecting a 0.1% decrease in June.

Personal spending in June increased by 0.6%, which was more than the 0.5% increase that economists polled expected.

However, the spending jump was driven by inflation. Individual spending, when adjusted for inflation, actually fell by 0.2% following a 0.3% increase in May, according to the report.

"Inflation is taking a pretty big bite out of the actual dollars," said Adam York, economic analyst at Wachovia. "It means that we are spending more dollars on gas, food, and things that are increasing in cost."

Another measure in the report that tracks prices that consumers pay on goods and services, excluding food and energy, rose by 0.3% over the previous month.

In addition, the core personal consumption expenditures index - a year-over-year inflation gauge that excludes food and energy - rose to 2.3% from 2.0% a year earlier. Core PCE was 2.2% in March, April and May. The Federal Reserve is widely believed to prefer that core PCE stay in a range of 1% to 2%.

While personal income rose in June, disposable income fell by 1.9%, after spiking up by 5.7% in May low fee cash advance. And in inflation adjusted dollars disposable income decreased by 2.6% after jumping 5.2% in May.

Disposable income is what consumers have left over after they pay taxes.

The drop-off in disposable income tracks a monthly decline in the amount of economic aid distributed by the federal government.

The Treasury Department sent out $48.1 billion in economic stimulus payments in May and $27.9 billion in June.

"The pattern of changes in income reflect the pattern of payments associated with the Economic Stimulus Act of 2008," according to the report.

Excluding stimulus rebate payments, disposable personal income actually increased by 0.3% in June after increasing by 0.4% in May.

"There is no way that the underlying trend increase could make up for the decline in the tax rebate payments," said York. 

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