Actual finance blog

Americans increased their spending in March as they paid more for gasoline and groceries, suggesting income gains may need to pick up to prevent a bigger squeeze on household finances.

Purchases rose 0.6 percent after a revised 0.9 percent gain the prior month that was higher than previously estimated, the Commerce Department said today in Washington. After adjusting for changes in prices, the spending that accounts for 70 percent of the economy rose 0.2 percent in March.

Workers are finding limited success asking for pay raises, a reason Federal Reserve policy makers will maintain record monetary stimulus after ending large-scale bond purchases in June. Another report showed business activity grew in April at a pace that’s consistent with steady expansion in manufacturing.

“A larger share of consumers’ money must be allocated toward gasoline and food,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “Manufacturing is continuing to expand and looks healthier than other parts of the economy.”

Stocks gained as results at Caterpillar Inc. (CAT) and Goodyear Tire & Rubber Co. beat estimates. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,363.61 at the 4 p.m. close in New York.

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German drug and chemical maker Merck KGaA is reporting a surge in first-quarter net earnings as revenues were boosted by its acquisition of Millipore Corp. and demand for liquid crystals used in flat-screen televisions.

Merck said Thursday that it earned euro344.2 million ($505 million) in the January-March quarter. That was a 78 percent increase over its net profit of euro191.4 million a year earlier.

Revenues rose 22 percent to euro2.56 billion from euro2.1 billion.

Merck, based in Darmstadt, said its acquisition last year of U payday loan lenders.S. biotechnology equipment supplier Millipore made a major contribution. It said its liquid crystals business posted “robust growth.”

Merck maintained its full-year forecast, made in February, for growth of between 35 and 45 percent in its operating earnings.

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Aerotropolis at a glance

The $480 million package of tax breaks for a St cashadvance. Louis cargo hub comes in several pieces. They are:

A federal jury ruled against Mattel Thursday, awarding damages to MGA Entertainment in the latest twist in a dispute over the ownership of Bratz, the most popular dolls since Barbie.

The jurors in a Santa Ana, Calif. court found Mattel does not own rights to the popular Bratz franchise, and that rival MGA did not steal the idea.

The two toymakers have been engaged in a running battle over who owns the lucrative doll line for the better part of a decade. Mattel argued that since the idea was developed by designer Carter Bryant while he was a Mattel employee, it owns the rights.

MGA argued that the language of Bryant’s contract only covered work created within the scope of the job, and not work done during his own time or outside of his duties at the company.

Both sides have scored big wins in the past, but on Thursday MGA prevailed.

The jury found that Mattel’s (MAT, Fortune 500) copyright claim on the franchise was invalid, and that MGA had not stolen trade secrets from Mattel.

Instead, the jurors awarded MGA $88.5 million in damages, finding that Mattel was the party that had stolen trade secrets. MGA had accused Mattel of stealing 114 of them. The jury awarded damages in 26 instances.

"We are grateful for a hard-working and smart jury," MGA CEO Isaac Larian said in an email to CNNMoney.

"This is a victory for all the hard-working entrepreneurs and small companies who get bullied unfairly by large multinational corporations with deep pockets," he said.

Mattel said it would challenge the decision.

"MGA’s claims against us were simply not supported by the evidence at trial. We will ask the court to set aside the verdict. Once the judge rules on our motions, we will evaluate our next steps," Mattel general counsel Robert Normile said in a statement.

The jury did find MGA at fault on one count, saying the company did in fact intentionally interfere with Bryan’s contract with Mattel.

Last year, the 9th U.S. Circuit Court of Appeals in San Francisco dismissed a December 2008 ruling that gave Mattel ownership rights. 

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Rescuers have blasted through 163 feet of solid rock in an effort to find an Idaho silver miner who has been missing since a cave-in last week, Hecla Mining Co. said Friday.

But the company says the most difficult work is still to come, as they advance into possibly more treacherous conditions.

Workers still have about 57 feet to go before they reach a void inside a collapsed tunnel where they hope Larry Marek, 53, will be found more than a mile deep in the Lucky Friday Mine.

“Crews have been progressing safely and quickly,” Hecla said in a press release just before 6 p.m. on Friday. “However, as the crew advances closer (to where Marek may be), the work involved will become much more difficult, time consuming with new materials, equipment and supplies in order to advance the tunnel into potentially unstable ground.”

Hecla has decided not to start digging on a second rescue tunnel, to prevent interference with stability monitoring on the current excavation effort.

The collapse happened last Friday. Rescuers have had no contact with Marek since.

Hecla Mining said workers also continue to pump fresh air and water into separate bore holes that reach into the clear area behind the cave-in. Small cameras sent into that so-called “void” have yet to show any images of Marek.

“We have secured additional cameras from external sources which will help us see inside the open areas,” the company said, adding it’s also testing air quality in the area of the collapse.

Marek and his brother, Mike, had just finished watering down blasted-out rock and ore in an area called Stope 15, which has been mined for 14 years, Hecla said. The ceiling collapsed about 75 feet from the rock face of the 6,150-foot deep tunnel, the company said. Mike Marek, who was working at the opposite end of the collapse from his brother, escaped unharmed.

Marek has been trapped with little food and water, likely in the dark, in temperatures well over a 100 degrees.

Rescue workers are drilling and blasting their way through rock in an effort to reach Marek’s last known location.

No cause has been established for the cave-in. The mine has shut down production to concentrate on the rescue effort.

The Marek family has not spoken with reporters since the cave-in.

Hecla is the largest silver producer in the nation, from the Lucky Friday and the Greens Creek mine in Alaska.

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Canadians are concerned about rising gas prices but are still shelling out for big ticket items, according to the latest consumer confidence data.

April

Investors drove up U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But first-time homebuyers, who are crucial to a housing recovery, stayed away.

Sales of previously occupied homes rose last month to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors said Wednesday. That’s up 3.7 percent from 4.92 million in February. The pace is far below the 6 million homes a year that economists say represents a healthy market.

Foreclosures or short sales, when the lender agrees to accept less than is owed on the mortgage, rose to 40 percent of all sales. Deals paid for entirely in cash accounted for 35 percent of all sales _ the highest level in nearly two years.

Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures: Phoenix, Las Vegas and Tampa.

The evidence of their activity: sales of homes priced under $100,000 have risen 10 percent from a year ago. In that same period, sales of mid-priced homes, between $100,000 and $500,000, have fallen by more than 14 percent.

A big reason for that is fewer first-time homebuyers, the types of people who set down roots and raise families, are entering the market. Sales among that group fell to 33 percent in March. A more healthy percentage of first-time buyers is 40 percent, according to the trade group.

The median sales price rose in March to $159,600, but is still down 5.9 percent from a year ago.

Many would-be buyers are holding off, worried that home prices haven’t hit their bottom. Other potential buyers are having trouble getting mortgages because banks have tightened lending requirements.

One major obstacle to a housing recovery is the glut of unsold homes on the market. There were 3.55 million unsold homes in March. It would take 8.4 months to clear them off the market at today’s sales pace. Analysts say a six-month supply represents a healthy supply of homes.

Economists say the situation is much worse when the “shadow inventory” of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.

Foreclosures are playing a big role in weakening the housing industry. A record 1 million homes were lost to foreclosure last year and foreclosure tracker RealtyTrac Inc. said it expects 1.2 million more will be lost to foreclosures this year.

For March, sales rose 8.2 percent in the South, 3.9 percent in the Northeast and 1 percent in the Midwest. Sales fell 0.8 percent in the West.

Sales of single-family homes rose 4 percent to an annual rate of 4.45 million units. Sales of condominiums rose 1.6 percent to a rate of 650,000 units.

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The push to replace the U.S. dollar as the world’s reserve currency has been gaining steam, with one expert arguing that America "must give up on the dollar."

In a Financial Times op-ed, Michael Pettis, a finance professor at Peking University, said U.S. policymakers should lead the charge to create a more diverse reserve system, "in which the dollar is simply first among equals."

The dollar has been the dominant reserve currency for decades, with central banks and other institutions around the world amassing vast reserves.

Pettis argues that this has resulted in dangerous trade imbalances that threaten to destabilize the global economy. He contends that countries such as China have been able to "game the system" by stockpiling dollars, which has allowed them to grab a larger share of global demand for goods and services.

At the same time, the U.S. economy has suffered as money rushes out of the country and into red-hot emerging markets. Pettis said this leaves the United States with a stark choice between further pain in the job market, as demand continues to shift overseas, or adding to already massive deficits to finance domestic growth.

"Americans, in other words, must choose between higher unemployment and higher debt," Pettis wrote.

As such, the United States may eventually need to force the rest of the world to gradually "disengage" from the dollar as a reserve currency if it continues to decline.

The dollar index, which measures the greenback against a basket of currencies, has fallen 5% so far this year to around 74.80. That’s down from a high near 87 in June of 2009, as jittery investors flocked to the dollar for safety.

However, there is not an obvious alternative to the dollar.

Pettis suggested that the euro could emerge over the next decade, since no other world currency has "the necessary characteristics to allow it plausibly to serve the needs of the global economy."

But he suggested that European officials would resist taking on the responsibility, since it would saddle the European Union with the same burdens currently facing the United States.

Meanwhile, the International Monetary Fund has proposed a larger role for its special drawing rights, or SDRs, in the global reserve system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends funds to countries denominated in SDRs.

The global monetary system and the dollar will be discussed this weekend as finance officials from the Group of 20 economies gather in Washington for the spring meetings of the International Monetary Fund and the World Bank.

The dollar found some support Friday as investors turned cautious ahead of possible policy changes stemming from this weekend’s summit.

"Today’s risk will come from sideline comments from the G20 and IMF meetings as well as the deluge of U.S. data," said Camilla Sutton, chief currency strategist at Scotia Capital.

Investors are also focused on the outlook for global interest rates, as central banks adjust to rising inflation.

China reported Friday that overall consumer prices rose 5% in March, as energy and food prices have surged. China’s central bank has been gradually raising interest rates this year to help cool inflation.

In Europe, consumer prices rose 2.7% in March versus last year, according to data released Friday from EuroStat. The European Central Bank hiked interest rates last week for the first time since the 2008 financial crisis.

U.S. inflation also picked up in March, driven mainly by rising gas prices. Excluding food and energy prices though, inflation remains relatively tame.

While many investors and economists expect the Federal Reserve to maintain its low interest rate policy for some time, some central bank officials have been calling for a tighter stance to ward off inflation.

"The biggest risk to a change in the downward US dollar trend is a shift in stance at the Fed," said Sutton. "At some point the Fed will move away from emergency level interest rates and the US dollar will likely rally temporarily." 

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Mutual fund companies looking to attract investors are betting on the words “absolute return.”

Twelve absolute-return funds have begun since the start of 2010, according to Morningstar Inc., bringing to 32 the number of funds with “absolute” in their titles. The funds have little in common beyond their names, which makes evaluating them difficult.

Absolute return is primarily a marketing concept that has gained popularity since the recession and stock market decline, said Nadia Papagiannis, alternative investment strategist at Morningstar. Funds labeled absolute return follow a number of strategies and imply investors won’t lose money and will always make money, she said. “It preys upon people’s fears that another 2008 is going to happen.”

The funds use bonds, derivatives, commodities, currencies and stocks in strategies designed to produce consistent returns unaffected by broader market moves.

“Absolute return describes the goal rather than the investing strategy,” said Joseph Jennings, an investment director for PNC Wealth Management, who uses some of the funds for his clients. The aim is to “generate positive returns in any market environment and do so with fairly low volatility,” he said.

Financial advisers such as Keith Amburgey at Rutherford Asset Planning said they’re investing in the funds amid concern interest rates will rise and decrease the value of bonds, which generally have been used to provide consistent, steady returns payday advance.

“If you’re worried about interest rates, you end up turning to these to fill out your portfolio,” said Amburgey, chief investment officer at Rutherford.

Absolute-return funds try to reduce market risks such as interest rate changes or falling stock prices. The $3.4 billion Absolute Strategies Fund from Absolute Investment Advisers LLC uses 13 different strategies to accomplish this. The Eaton Vance Global Macro Absolute Return fund, the largest with $7.6 billion in assets, invests in global debt, currencies and derivatives.

It’s difficult to compare funds against each other, so investors “need to look under the covers and understand what the fund strategies are,” said Robyn Tice, a spokeswoman for Eaton Vance Corp. Eaton Vance’s absolute-return fund became so popular that the firm closed it to new investors last October, she said.

Investors should read descriptions of fund strategies carefully and try to gauge the skill of fund managers.

While the funds are designed to be less volatile than the markets, “they’re still risky,” said Robert Dowling, a financial adviser at Modera Wealth Management.

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Portugal says it has paid out euro4.2 billion ($6.1 billion) in a bond redemption, avoiding default but further depleting its cash reserves ahead of a promised international bailout.

An official from the Finance Ministry said on condition of anonymity, in line with government policy, that Portugal repaid the maturing loan Friday, as expected.

Portuguese authorities have admitted they don’t have enough money to settle a euro7 billion debt falling due in June and have asked for financial help.

Portugal’s European partners and the International Monetary Fund have agreed to provide aid which could reach euro80 billion. But negotiations on the loan’s terms, especially how much interest Portugal will pay, are likely to take weeks.

The country is facing unsustainable borrowing costs, with its 10-year bond yield reaching 8.9 percent Friday.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

LISBON, Portugal (AP) _ Portugal is having to find euro4.2 billion ($6.1 billion) for a bond redemption, stoking financial pressure on the cash-strapped country which has requested a bailout.

Authorities say Portugal has enough money in reserve to cover the loan repayment Friday. However, they admit the country won’t be able to settle other debts in June.

Portugal’s European partners and the International Monetary Fund have agreed to provide a financial rescue package which could reach euro80 billion.

But negotiations on the terms of that loan, especially how much interest Portugal should pay on it, are likely to take weeks.

The bailout pledge hasn’t defused market tension, with the country’s 10-year bond yield reaching an unsustainable 8.9 percent Friday.

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