Actual finance blog

Strengthening demand for top quality diamonds has pushed prices to world-record highs, but investments in the gemstones could sour if economic turmoil forces speculators to flood the market.

Surging global economic growth and a rapid fall in the dollar have pushed commodity prices, including the rarest polished diamonds, to all-time peaks in recent months.

Diamond entrepreneur and analyst Martin Rapaport, who runs an electronic wholesale polished diamond trading network, has issued a stark warning on the dangers of speculative pricing by dealers, also known as diamantaires, trading with each other.

“Many diamantaires, having lost confidence in the dollar and expecting increasing large diamond prices due to a consistent imbalance between supply and demand, now prefer to keep their wealth in diamonds instead of dollars,” Rapaport said on his diamond news service cash advances.

“Higher prices brought about by internal diamond industry speculation are not sustainable and may result in significant financial loss,” he said.

“If a significant component of the price level is based upon internal diamond industry speculation that prices will continue to rise, then even a slight short-term decline could cause a collapse.”

WORLD-RECORD PRICES

Surging demand for the world’s most magnificent diamonds has driven prices to all-time highs. 

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Yahoo Inc. increased two top executives’ bonuses last year amid a deepening slump that set the stage for Microsoft Corp.’s unsolicited bid for the struggling Internet pioneer.

The Sunnyvale, Calif.-based company paid its president, Susan Decker, a $1.1 million bonus in 2007, according to documents filed Friday with the Securities and Exchange Commission. That represented a 29% increase from the $850,000 bonus she received in 2006, when she was still Yahoo’s chief financial officer.

Yahoo promoted Decker in June last year when co-founder Jerry Yang replaced Terry Semel as chief executive officer.

The company awarded its general counsel, Michael Callahan, with a $225,000 bonus for 2007. He received a $200,000 bonus in 2006.

The company didn’t explain what Decker and Callahan did to merit the larger bonuses.

The SEC requires Yahoo to spell out the reasons when the company files a proxy statement for its annual meeting later this year. The proxy statement also will contain other details about the total compensation, including salaries and stock options, paid to Decker and Yahoo’s top executives in 2007.

In Friday’s filing, Yahoo disclosed it set Decker’s 2008 salary at $815,000.

With rival Google Inc easy quick payday loans. (GOOG, Fortune 500) widening its lead in the lucrative search advertising market, Yahoo’s profits slipped by 12% in 2007.

It marked the second consecutive year of lower earnings, a funk that caused Yahoo’s stock price to plunge 50% between December 2005 and Feb. 1 this year — the day that Microsoft announced a buyout offer initially valued at $44.6 billion, or $31 per share.

Yahoo (YHOO, Fortune 500) has rejected Microsoft’s (MSFT, Fortune 500) bid and has been exploring other possible deals with News Corp.’s (NWS, Fortune 500) MySpace.com and Time Warner Inc.’s (TWC) AOL.

The effort to elude Microsoft is being steered by Yang, who received a $1 salary and didn’t get a bonus last year. Most of Yang’s estimated $2.3 billion fortune is held in Yahoo stock.

Yahoo also gave its chief financial officer, Blake Jorgensen, a $405,000 bonus for 2007. He didn’t join Yahoo until June last year. 

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The fat compensation packages of three U.S. CEOs whose companies are being hammered by the widening mortgage crisis came under harsh criticism on Friday at a congressional hearing on executive pay.

In the last two quarters of 2007 alone, the three executives’ firms lost more than $20 billion on investments in subprime and other risky mortgages, said the House of Representatives Oversight and Government Operations Committee.

Yet the three took home fortunes in 2007 — $120 million for Countrywide Financial Corp (CFC.N: Quote, Profile, Research) CEO Angelo Mozilo; a $161 million retirement package for ex-Merrill Lynch (MER.N: Quote, Profile, Research) CEO Stanley O’Neal; and $39.5 million in stock, options, bonus and perks for former Citigroup (C.N: Quote, Profile, Research) CEO Charles Prince.

“The mortgage crisis is having enormous repercussions. Families are losing their homes … Thousands are losing their jobs. It seems like everybody is hurting, except for the CEOs who had the most responsibility,” said California Democratic Rep creditscore. Henry Waxman, committee chairman.

In a hearing room packed with bank lobbyists and lawyers, Waxman said, “I have no problem with paying for success. But it looks like when you’re a CEO you get paid for failure.”

Mozilo, O’Neal and Prince told Waxman’s panel that they earned their compensation. They conceded misjudgments in the subprime debacle, while one Republican lawmaker blasted the hearing as “a sanctimonious search for scapegoats.”

Virginia Rep. Tom Davis said, “Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual — like an island tribe sacrificing a virgin to a grumbling volcano.

“But in the end, it won’t answer the questions … about corporate responsibility and economic stability.” 

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new york — Stocks fell Tuesday, led by financial and commodity shares, after Federal Reserve Chairman Ben Bernanke urged banks to forgive more late loans and oil, gold and copper prices dropped from records.

Shares pared declines in the last hour of trading after CNBC said a deal to bail out bond insurer Ambac Financial Group Inc. is progressing. Citigroup Inc. tumbled to a nine-year low and helped drag financial shares down for a fourth day after analysts slashed earnings estimates. ConocoPhillips and Freeport-McMoRan Copper & Gold Inc. led a retreat in energy and mining shares, the best-performing industries of the last year.

The Standard & Poor’s 500 index slid 4.59 to 1,326.75. The Dow Jones industrial average lost 45.1 to 12,213.8. The Nasdaq composite index added 1.68 to 2,260.28.

Citigroup fell 99 cents to $22.10. Merrill Lynch & Co.’s Guy Moszkowski said he expects $18 billion of credit writedowns related to the company’s holdings of subprime mortgages, collateralized debt, leveraged loans, consumer debt, real estate loans and other investments. Goldman Sachs Group Inc. cut its first-quarter estimate for Citigroup to a loss of $1 a share from a projection of a 15-cent profit due to a "miscalculation in our model."
Goldman slipped $1.48 to $163.60. Bear Stearns Cos. lost 15 cents to $77.17. Lehman Brothers Holdings Inc. retreated 26 cents to $48.35. Morgan Stanley declined 23 cents to $41.35.

Bank of America Corp. dropped 40 cents to $38.78. Wachovia Corp. declined 93 cents to $29.48 free credit report.com. Merrill cut profit estimates for the banks.

Ambac jumped 78 cents to $10.72.

ConocoPhillips dropped $1.94 to $81.50. Lehman Brothers analyst Paul Cheng lowered his recommendation to "equal weight" from "overweight." Exxon Mobil Corp. dropped $1.06 to $86.69. Schlumberger Ltd., the world’s largest oilfield-services provider, lost $2.43 to $84.55.

Freeport-McMoRan, the largest publicly traded copper company, tumbled $4.52 to $98.93. Newmont Mining Corp., the world’s second-largest gold producer, dropped $2.18 to $50.20 after gold prices fell.

Monsanto Co. dropped $6.91 to $111.72. Corn tumbled the most in almost six weeks on speculation that overseas demand and U.S. animal-feed consumption will slow after grain prices reached a record Monday.

Staples Inc. dropped 27 cents to $22.22.

Intel Corp. lost 1 cent to $20 after earlier falling as much as 57 cents. The company said gross margin will be 54 percent, down from the 56 percent it predicted in January. Cisco slipped 11 cents to $24.29 after earlier falling as much as 2.7 percent.

Barr Pharmaceuticals Inc. rallied $3.80 to $49.47 for the top gain in the S&P 500. A U.S. judge invalidated a patent on Bayer AG’s Yasmin contraceptive, so Barr may be able to sell a generic version before Bayer’s patent expires in 2020.

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Apple Inc (AAPL.O: Quote, Profile, Research) has no plans to declare a dividend or buy back stock, Chief Executive Steve Jobs told the annual meeting of shareholders on Tuesday, adding that iPhone sales were on track.

Jobs said he was confident that Apple would hit its 2008 sales target of 10 million iPhones, a figure which some analysts have questioned in the face of a weaker U.S. economy, and executives said the communications device would reach Asian markets this year.

But Chief Operating Officer Tim Cook was elusive on timing for selling into the key market of China.

“We will enter Asia with the iPhone in 2008 … We will one day enter China, we’re not saying when, and we will one day enter India,” Cook said.

Jobs was asked if the company planned to start paying a dividend or initiate a stock buyback program cash advance. “At this time, we have no plans to do either,” he told shareholders.

The company’s stockpile of cash and short-term investments topped $18 billion at the end of last year, leading to speculation about how the maker of iPods, iPhones and Macintosh computers might spend some of its cash reserves.

Shares of Apple were up 57 cents at $122.30 in afternoon trade on Nasdaq.

Investors at the meeting took the opportunity to tell management that they wanted more of a say in how the company was run, passing a resolution in favor of an annual advisory vote by shareholders on executive compensation. 

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Continued deterioration in the credit markets in January will likely lead to further writedowns at bond insurer MBIA Inc., the company said in a regulatory filing Friday.

Not only will writedowns hinder first-quarter earnings at MBIA, but the company is booking less business as well, it said in the filing with the Securities and Exchange Commission.

"The demand for our product is the lowest it has been and we are writing very little new business," MBIA said.

Ratings downgrades on subprime mortgage-backed securities and collateralized debt obligations by Standard & Poor’s and Fitch Ratings helped to further depress an already stagnant market, MBIA said.

Subprime mortgages are loans given to customers with poor credit history, while CDOs are complex financial instruments that combine various slices of debt and often include bonds backed by mortgages.

MBIA (MBI) said it was still unsure how large January writedowns would be based on deterioration in the markets during the month.

During the fourth quarter, MBIA reduced the value of its credit portfolios by $3.5 billion.

Bond insurers have struggled mightily in recent months payday advance low fees. Ratings agencies and investors fear a spike in mortgage defaults will cause an increase in defaults on bonds backed by the troubled loans and insured by companies like MBIA.

Ratings agencies have worried that so many bonds will default that the insurers will not have enough cash to pay claims. That led them to cut the ratings of some insurers from their critical "AAA" level. "AAA" ratings are essentially needed to book new business.

MBIA has been able to raise more than $2 billion in recent months to hold in reserve to protect itself from a possible spike in claims. That has enabled it to maintain its "AAA."

The one benefit to booking less business is that MBIA’s total insured portfolio value is declining as old premiums are paid off and not replaced by new ones. That in turn frees up capital reserves. 

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After working for a few years, you’re leaving your job and your registered pension plan.

What happens to your savings? Can you get your hands on a lump-sum amount that will ease your transition to a new job or career?

Not so fast. Your pension benefits are usually "locked in."

This means the money is to be used only for the purpose of providing you with a lifetime retirement income. It can’t be taken out as a one-time cash payment.

"There are two significant benefits to having your benefits locked in," says the Financial Services Commission of Ontario in a brochure called Your Pension Rights.

"First, you will have regular income at retirement. Second, creditors may not seize locked-in retirement benefits."

If you think that’s a tad paternalistic – this is your money, after all – you should fight for changes to pension laws.

CARP, an advocacy group for the 50-plus, wants those holding locked-in funds to be able to cash in half of their money at age 55 and the balance at age 65.

"Locked-in funds are the best kept pension secret in Canada – and the most misunderstood," says Bill Gleberzon, a director of government relations for CARP.

Ontario did change the rules recently, but didn’t go far enough.

Starting last January, if you receive a lump-sum transfer from a pension plan, you can get one-time access to 25 per cent of your savings in a single year.

Ontario also has a new rule allowing you to break the lock on your retirement money if you leave the country.

Saskatchewan has gone further than Ontario. It allows the full transfer of pension funds to RRSPs or RRIFs (registered retirement income funds).

Alberta and Manitoba allow pensioned workers to get access to 50 per cent of their retirement funds.

CARP’s campaign for pension unlocking has received support from experts such as actuary Malcolm Hamilton and tax expert Jack Mintz.

Hamilton thinks it’s well-intentioned but misguided to assume people would spend all their pension money prematurely if allowed access to it first cash advance.

RRSPs can be cashed in at any time. But most people hold off because the withdrawals are fully taxed, preferring to build up their tax-sheltered funds.

Mintz thinks it’s unfair to put pensioned employees at a disadvantage to RRSP holders who change jobs.

"It’s time to unlock the chains put on pension savings of employees who change jobs or retire," he said in an article published last year.

"Doing so will help contribute to labour mobility, better retirement plans and ultimately a stronger economy."

Until last week, workers in federally-regulated industries – such as banking, telecommunications and transportation – were the worst off.

But they finally got some access to locked-in funds in the federal budget handed down last week.

There’s a proposal to allow people at least 55 years old to move 50 per cent of their locked-in holdings to an RRSP or registered retirement income fund – where there are no annual limits on withdrawals.

I wouldn’t be surprised to see a charter case arguing that the law discriminates against one set of workers – those with workplace pensions – in favour of those with group RRSPs.

Mintz predicts the locked-in rules for pension transfers will hasten the decline of registered pensions that is already taking place.

Down with paternalism. It’s time to bring in the same freedom for everyone, no matter what kind of retirement savings plan they have at work.

Ellen Roseman’s column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at eroseman@thestar.ca by email.

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The alarm bells of U.S. recession rang louder on Friday as reports showed business activity in the U.S. Midwest plummeted in February and consumer sentiment slumped to a 16-year low.

More grim news poured in from the inflation front, with government data indicating consumers were struggling in January to keep ahead of robust price growth, which remained uncomfortably high by standards normally associated with the Federal Reserve.

The National Association of Purchasing Managers-Chicago said its index of regional business conditions tumbled to 44.5, its lowest since December 2001, from 51.5 in January. The result was well below the level of 50 that separates growth from contraction.

“It looks like there’s been a reversal of fortune for the manufacturing sector from last month and the economy appears to have fallen off a cliff,” said Chris Rupkey, senior financial economist, Bank of Tokyo/Mitsubishi, New York, referring to the Chicago PMI report.

“This is just the latest piece of evidence that the U.S faxless payday loans. economy is teetering on the edge of recession.”

Economic concerns pushed stocks .DJI down sharply while the dollar was stuck near three-year lows against the yen.

Government bond prices, which usually benefit from signs of economic weakness, rallied.

The Reuters/University of Michigan Surveys of Consumers said its main index of consumer sentiment fell to 70.8 in February from 78.4 in January and was the lowest since February 1992. 

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