Actual finance blog

The credit rating on Greece’s government debt was downgraded deeper into junk bond territory on Thursday.

Fitch Ratings cited the increased risk that Greece, operating now with a caretaker government, could be forced to leave the eurozone following more elections next month.

An exit from the eurozone would be "probable" if the elections fail to produce a government willing to stand by earlier austerity agreements reached with eurozone leaders, Fitch said.

In turn, the country’s departure from the eurozone would "result in widespread default on private sector as well as sovereign euro-denominated obligations," the ratings agency said. (Moody’s downgrades Spanish regions)

And all 16 other countries in the eurozone could be dinged.

"Fitch would place all eurozone sovereign ratings on Rating Watch Negative following the Greek elections if Fitch assesses that the risk of a Greek exit from [the eurozone] is probable in the near term," the agency said.

Fitch said the other nations’ economies would be hurt if Greece dropped the common currency, and that a continuation of the euro is a basic tenet of its debt ratings on of all the countries using the euro.

The bailout and debt restructuring for Greece approved by the so-called troika — the European Union, European Central Bank and International Monetary Fund — required the Greek parliament to approve an austerity program of cuts in government spending and benefits.

But the austerity plan sparked backlash, and on May 6 Greek voters denied a majority in Parliament to the two-party ruling coalition that had agreed to the bailout deal.

Polls show that an anti-austerity party is poised to be the top vote getter in the next round of voting, although it is not as clear it will be able to form a ruling coalition of its own. A deadlock could leave Greece without a working parliament able to pass the additional cuts required by the troika.

European leaders said Wednesday they want Greece to remain in the eurozone, but that it must move ahead with its agreed upon austerity plan.

The increased risk that Greece might leave the euro has driven many Greeks to withdraw money from the banks this week. The weakened state of the nation’s banks prompted the ECB to halt some loans to some of the Greek banks, forcing the banks to turn to more expensive assistance from the National Bank of Greece. 

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South Korean companies

Federal Reserve plans for rules on credit risk may hamper monetary policy in Japan and have an

For the stock market, it was a triumphant first quarter. But for earnings growth, the past three months were just ho-hum.

Analysts are expecting earnings for companies in the Standard & Poor’s 500 index to decline 0.1 percent compared to a year ago, according to FactSet. It’s a tiny number but a significant turning point. Earnings growth was on a winning streak for the previous nine quarters. Year-over-year earnings growth has been at least 10 percent for all but the most recent period, when it was 6 percent.

The reasons for the expected slowdown range from global (a weak Europe hurts everybody) to mathematical (it’s hard to top double-digit quarters). Whatever the cause, the stagnation in earnings growth is a stark reminder that the economy’s problems are far from solved. Just three months ago, analysts were predicting 3 percent earnings growth for the first quarter.

We’ll soon see if the expectations are on target. Earnings season gets under way Tuesday when the aluminum producer Alcoa becomes the first major U.S. company to release its first-quarter results.

Should this batch of earnings contain a lot of bad surprises, it could upend a stock market rally that pushed the S&P 500 index up 12 percent in the first three months of the year.

Here’s what you need to know:

_Are earnings really that bad?

It depends on how you look at it. People are blaming the slowdown on several factors including higher oil prices and Europe’s debt crisis. Those are legitimate concerns. High prices for oil and gas make it more expensive for companies to ship their products and leave people with less money to spend on other things. Europe’s debt crisis means that the U.S. can’t sell as many products there. It also hurts fast-growing economies like China and India that export to Europe. That, in turn, affects U.S. companies that count on growth in emerging markets to boost their own sales.

Keep in mind that this deceleration follows an extended period of big gains. Earnings surged 19 percent in the first quarter of 2011, and that was on top of 53 percent growth the year before as companies bounced back from a dismal first quarter of 2009. Aggregate earnings of companies in the S&P 500 were $96 per share last year, a record, according to FactSet senior earnings analyst John Butters. Investors realize that companies can’t sustain warp speed indefinitely.

“It’s supposed to be a very weak quarter,” says Sam Stovall, chief equity strategist at S&P Capital IQ, “but Wall Street is not freaking out because they understand why.”

_Does the market care about earnings?

Sure, to an extent. More often than not, a company’s stock moves in the same direction as its earnings.

Investors tend to trade on what they expect to happen in the coming months. By the time a company actually announces its quarterly results, chances are they’ve already been baked into the stock price and won’t have much of an immediate effect unless there’s a big surprise. A company’s predictions about the future are what investors really listen to.

“A lot of what we’re going to get now,” Butters says, “is already in the rear-view mirror.”

Butters also notes the outsized impact of Apple’s earnings on the overall figure for the S&P 500. Strip out Apple, Butters says, and the prediction for the first quarter falls from minus 0.1 percent to minus 1.6 percent.

Besides, one quarter of earnings growth hardly means a company is solid. Earnings can be a deceptive measurement, and will rise even when revenue falls if a company slashes jobs and other expenses. Share buybacks and accounting charges can also inflate profits and mask a company’s struggles.

“You can always juggle earnings,” says Stovall. “It’s a lot harder to fudge sales.”

_What’s the big picture?

Despite all the hubbub about The End of Earnings Growth, analysts are expecting only a short-term decline. Earnings growth is expected to return to 7 percent in the second quarter and 5 percent in the third quarter, according to FactSet. Bigger jumps of 16 percent, 14 percent and 13 percent are predicted for the three quarters after that, through the middle of 2013. Analysts also expect per-share earnings in the S&P to rise to more than $105 in 2012, another record, according to Butters.

That reflects investors’ belief that Europe will stabilize by the end of the year. Even if it doesn’t, the thinking goes, companies will have adjusted to turmoil in Europe as a new normal that they can function under, rather than something that sets off constant fears of another cataclysm.

Machinery company Caterpillar said in its last earnings call that the company expects its sales in Europe to continue to rise despite the problems there.

“It’s been going on a long time and hasn’t tanked the place yet,” said chief financial officer Edward Rapp. “We don’t think it will.”

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Did you ever wonder how people in Japan connect to websites hosted in San Francisco? Or how a New Yorker can Skype with a friend in Sydney?

It sounds crazy, but Earth’s continents are physically linked to one another through a vast network of subsea, fiber-optic cables that circumnavigate the globe. Cords no thicker than your home’s broadband connection stretch along the bottom of the Pacific, Atlantic, and Indian Oceans; through the Suez canal; across the Mediterranean Sea and around the coasts of Africa and South America.

Indian telecom giant Tata, one of the world’s largest subsea cable providers, manages 130,500 miles of fiber sitting at the bottom of the ocean floor. That’s enough to circle the planet five times. It takes a ship six weeks just to load the cable for a cross-ocean voyage.

Why is all that underwater cable necessary? It’s a matter of speed, and laying in enough safeguards to ensure that the Internet won’t suddenly go down.

Subsea fiber-optic cables can tie two giant centers of commerce together, reducing data traffic delays. Three companies are in the process of building cable networks that link London directly to Tokyo — through the polar ice cap — with cables capable of 10 gigabit-per-second speeds. (That’s 2,000 times faster than your home Internet connection).

Those cables could reduce the Internet’s latency by about 60 milliseconds between those two points.

That’s an imperceptible lag for the average Internet user, but it’s an eternity for high-speed stock traders. They can make or lose millions of dollars in that span of time.

It’s not just financial institutions, which make up a very small portion of total Internet usage, that are interested in faster speeds. Internet service providers like Comcast (, Fortune 500) and Time Warner Cable (, Fortune 500) like to go zoom as well, because it gives them capacity to meet the growing demands on their networks.

Subsea cables have the added benefit of being shielded from wind, trees, storms and other destructive forces. They don’t require massive towers to carry them, like over-the-land cables do.

They’re literally just laid on the bottom of the sea, and once placed there, they can more or less be left untouched for a quarter century.

But sometimes cables get cut, particularly in shallow water. They get accidentally clipped by ship anchors about twice a year.

It happened most recently a month ago, when a ship dropped anchor off the coast of Kenya and cut Internet service for much of the country. Google noticed a steep drop in availability of its services in Kenya on Feb. 25.

That’s why cables are outfitted with GPS, so ships can find and patch them when they break. There are outsourced companies on the clock 24/7 to do repairs at a moment’s notice.

Having multiple cables connecting continents from many different locations means the Internet is less likely to be massively disrupted when a cable is snapped.

That’s why Tata says it was critical to build the final leg in the world’s first round-the-planet network, which it completed last week. The final cable connects Mumbai to Marseille, France. Tata’s other links tie the United Kingdom to New Jersey, Spain to Africa and Japan to Australia.

Together, those pipes handle 25% of the world’s Internet traffic. Tata wouldn’t put a price tag on the project, but an under-construction arctic cable linking Asia, North America and Europe has an estimated cost of $1.5 billion.

The upshot of all that investment is that if one cable snaps, you’ll still be able to play "Words with Friends" with a partner 10,000 miles away.  

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China

Arch Coal Inc.’s fourth-quarter profit rose 48 percent on higher coal prices and increased output following purchase of rival International Coal Group Inc.

But the nation’s second-largest coal producer is painting a dimmer picture of domestic coal markets for 2012.

Like many other U.S. mining companies, Creve Coeur-based Arch will curtail output this year as inexpensive natural gas and mild weather reduce coal demand.

“Near-term market conditions have softened and we are reducing our planned production volumes to better align with weak generation and coal demand trends,” Steven F. Leer, Arch’s chief executive, said in a statement.

Specifically, Arch will reduce output at a Utah mine and it’s laying off workers in eastern Kentucky as part of a plan to reduce production by 5 million tons in 2012 creditreport. The company didn’t say how many jobs would be eliminated.

Overall, Arch said U.S. coal consumption for electricity generation could decline by more than 50 million tons this year.

Arch’s $3.5 billion purchase of ICG helped boost fourth-quarter net income to $70.9 million, or 33 cents a share, from $47.8 million, or 29 cents, in the same period a year earlier. Revenue rose 47 percent to $1.23 billion.

Excluding non-recurring costs, Arch earned 29 cents cents a share in the most recent quarter. Analysts, on average, expected the company to earn 32 cents a share.

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The St. Louis region is set to have its newest public company debut.

Post Holdings Inc., the branded cereal business unit of Ralcorp Holdings, will be spun off as a separate publicly traded company after markets close Friday. The spinoff was announced last July.

After the close of trading Friday, Post will replace Comstock Resources Inc. in the S&P MidCap 400 index.

Post’s brands include Honey Bunches of Oats, Grape Nuts, Raisin Bran and Pebbles cereals. Post Holdings is based at 2503 South Hanley Road in Brentwood.

Once the separation is completed, Post will trade Monday on the New York Stock Exchange under the “POST” ticker symbol. Bill Stiritz, chairman of Ralcorp, has been named Post’s new chairman and CEO. J. Patrick Mulcahy, Ralcorp’s vice chairman, will serve as chairman of the board at Ralcorp after the spinoff finalizes business card.

In filings with the U.S. Securities and Exchange Commission, Post signaled it will make changes to its marketing and pricing to grow sales and regain market share. Post’s market share in ready-to-eat cereals dropped from 14 percent in 2008 to 12 percent last year, according to a research note issued this week by Alexia Howard, an analyst at Sanford C. Bernstein & Co.

St. Louis-based Ralcorp Ralcorp Holdings acquired the Post cereals business from Kraft Foods in 2008 for $2.6 billion. Ralcorp is spinning off Post to concentrate on its private-label cereals, pasta and other baked goods. After the spinoff, Ralcorp will retain up to a 20 percent ownership stake in Post.

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Asian stock markets rose Wednesday as expectations that China will loosen its monetary policy to boost growth overcame nervousness sparked by mixed earnings reports from big U.S. banks.

Benchmark oil rose above $101 per barrel while the dollar fell against the euro and the yen.

Japan’s Nikkei 225 index rose 1.4 percent to 8,579.80. Hong Kong’s Hang Seng added 0.3 percent to 19,685.87. South Korea’s Kospi was down 0.2 percent at 1,888.88 while Australia’s S&P/ASX 200 was up 0.2 percent at 4,223.60.

Benchmarks in Singapore, Indonesia and Malaysia rose while mainland China and Taiwan fell.

Investors cheered news out of China on Tuesday when the government said its economy slowed less dramatically in the fourth quarter than feared _ but still enough of a slowdown to persuade investors that Beijing will pursue a pro-growth monetary policy, analysts said.

“People have been buying stocks in anticipation of a relaxation in monetary policy by the Chinese government,” said Derek Cheung, chief investment officer at Neutron INV Partners Ltd. in Hong Kong. “The market expects this around Chinese New Year. If China doesn’t loosen around the new year, the market may come under pressure.” The holiday begins Jan. 23.

China is one of the biggest importers and slower growth could have global repercussions if it cuts demand for iron ore, industrial components and other goods from Australia, Brazil, Southeast Asia and elsewhere.

It would also mean less demand for U.S. and European capital goods for Chinese factories and construction sites, and smaller profits for U.S. and European companies that do business here. The luxury goods industry would also feel a significant pinch, since China is just about the only growth market for those.

Commodities shares jumped on the growth data out of China. Australian miners Fortescue Metals Group jumped 5 percent and Rio Tinto Ltd Low fee payday loans. added 1.5 percent after both companies reported target-beating production figures Tuesday.

But some financial shares came under pressure on weak quarterly earnings from some U.S. banks, including Citigroup Inc., which said its fourth-quarter income fell 11 percent due in part to lower investment banking income and an accounting charge.

Australia & New Zealand Banking Group fell 1.1 percent and Hong Kong-listed Agricultural Bank of China also lost 1.1 percent.

South Korean high-tech shares also slumped. Samsung Electronics Co., the top global manufacturer of flat screen televisions, memory chips and liquid crystal displays, fell 0.9 percent. LG Electronics shed 1.8 percent, and Hynix Semiconductor was 1.2 percent lower.

European shares ended mostly higher Tuesday on the heels of short-term debt auctions by Spain, Greece and Europe’s bailout fund that drew strong investor demand, despite recent credit rating downgrades by Standard & Poor’s.

Many had feared the downgrades would prevent them from obtaining funds and worsen a sovereign debt crisis in Europe.

On Tuesday, the Dow Jones industrial average rose 0.5 percent to close at 12,482.07. The Standard & Poor’s 500 index gained 0.4 percent to 1,293.67. The Nasdaq composite index added 0.6 percent to 2,728.08.

Benchmark crude for February delivery was up 66 cents to $101.37 per barrel in electronic trading on the New York Mercantile Exchange. The contract finished at $100.71 per barrel in New York on Tuesday.

In currency trading, the euro rose to $1.2779 from $1.2722 late Tuesday in New York. The dollar fell to 76.65 yen from 76.82 yen.

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Prime Minister Mario Monti is prescribing more