Actual finance blog

Bethesda-based Pebblebrook Hotel Trust, which priced a secondary offering of $17 per share on July 22, said the offering’s underwriters exercised an option to purchase an additional 2.55 million shares.

With the additional share purchases, the net proceeds will be about $318 million, after subtracting the underwriting discount and other costs associated with the offering.

The offering is set to close July 28.

Pebblebrook (NYSE: PEB) said the money it raises will be used to invest in hotel properties and for general corporate purposes Low fee payday loans.

The underwriters purchase of 2.55 million shares comes on top of the offering’s original 17 million shares, which were expected to bring net proceeds of about $277 million.

The joint book-running managers of the offering are Raymond James & Associates Inc. and Bank of America Merrill Lynch. The co-managers are Baird, Credit Agricole CIB, Janney Montgomery Scott and Piper Jaffray.

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Negotiations between the pilots of United and Continental Airlines and the airlines’ leadership have stalled as the pilots accuse management of being inflexible.

The pilots, who are represented by the Air Line Pilots Association International, say they have hit a wall in negotiating a transition agreement with the management of Chicago-based United and Houston-based Continental Airlines (NYSE: CAL).

The two carriers announced plans to merge on May 3. The deal is slated to close in the fourth quarter.

“It is unbelievable that contract talks have stalled so early in the process and for such a basic item as a transition agreement,” said Capt. Jay Pierce, chairman of the Continental pilots unit of ALPA. “We are stalled because of management’s unwillingness to compromise on matters that have little financial impact.”

“We have heard the recent statements by Jeff Smisek, proclaiming the virtues of the upcoming merger, touting the benefits coming to labor because of the expected synergies and promising to work with labor in good faith to complete our contracts,” Pierce continued, in a written statement. “However, if this is an indication of management’s approach, I have serious doubts about how long it will be before any of the touted synergies can be achieved.”

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Please remember that a payday loan is a rather expensive line of credit. Much like taking something to the pawn shop.

Is it better to buy or rent in Omaha, Neb.?

If you guessed buy, you’d be wrong. According to the new Trulia Rent vs. Buy index, it makes more fiscal sense to rent in this farm city due to the huge gap between rental and purchase prices.

Until recently, the perennial real estate question of whether to rent or buy was dead. During the boom years, the question was largely irrelevant as people rushed to pay ever increasing prices for already expensive real estate. But now that national home prices have slid substantially and potential buyers are being more cautious, the debate has been reinvigorated.

Many people hunting for a home these days are considering both alternatives, according to Tara-Nicholle Nelson, a spokeswoman for Trulia, the real estate website. "We did a survey of site visitors and found that 30% of them were thinking either of buying or renting," she said.

In response, on Thursday the company will launch a Rent vs. Buy index for 50 major cities.

To determine which option is better, Trulia compares the costs of buying a two-bedroom condo with the costs of renting one. Then, Nelson said, the results can be extrapolated to other classes of homes, such as larger single-family houses.

Another factor, of course, is price stability. Unlike home prices, rents tend to rise or fall just a few percentage points each year. Even 2009’s record decline in average rents was a paltry 2.9%, according to Reis Inc, which tracks the rental market.

On the other hand, the national median home price jumped 12.2% in 2005 and fell nearly 20% in 2008, according to housing, according to housing groups.

Minneapolis was the city on Trulia’s index where it makes the most sense to buy. The average listing price for a two-bedroom there was about $150,000, while the average annual rent for one came to about $20,400. Buying, therefore, costs less than eight times the annual cost of renting. Economists generally hold that anything below 15 times the annual rent is a buyer-friendly city.

Trulia also signed off on purchasing in Arlington, Tex., Miami, Fresno, Calif., and San Antonio, Tex..

In Manhattan, on the other hand, renting is a much better deal. The price-to-rent ratio of 33 was by far the least favorable for buyers, seven points higher than the runner-up city, Omaha, Neb.

That’s despite very high rents, an average of more than $42,000 for a two-bedroom apartment. Gotham selling prices are so astronomical — $1.38 million for a two-bedroom condo — that it still makes more sense to rent.

Seattle, Portland, Ore., and San Francisco were also much more expensive to buy.

These stats cover the costs of buying vs. renting; they don’t take into account future price appreciation or depreciation. If, for example, prices rapidly decline in Minneapolis, the total cost of ownership could exceed rental cost, especially when the transactional costs, such as real estate broker commissions, taxes and mortgage origination costs are factored in.

On the other hand, soaring home prices have made New York a good place to buy in the past, and it’s possible, although unlikely, that it could again.

More likely though, is that prices in many cities will remain sluggish for a number of years; home price appreciation should not be a strong consideration when deciding whether to rent or buy.

These analyses are also just a general guideline; individual circumstances matter, too. People in higher tax brackets, for example, may get more bang for their purchase buck because they’re able to deduct more interest costs and property taxes.

And, once people purchase, their home-buying costs tend to be fairly stable. Fixed-rate loans don’t go up ( although taxes and maintenance costs can.) Rents usually do.

There are also many intangible benefits for both buyers and renters, according to Trulia’s Nelson. Buyers often feel more invested in their communities, more likely to put down roots, make friends and join local organizations. Home ownership often brings them pride and joy.

Renters, on the other hand, may not want the responsibilities of home ownership or being tied down. If another place comes along that suits them better, they can easily move. They’re also freer to pursue employment opportunities in other cities without worrying about selling their old homes and buying new ones.

The new index addresses none of those intangibles, but Nelson said it’s still a useful tool for consumers: "You have to make the decision on whether you want to buy based on your lifestyle choices more than anything else." 

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if people had listened then, the idea would have saved taxpayers untold billions today — the government’s bailout of the two mortgage agencies is unlimited, with the Congressional Budget Office estimating it could cost $373 billion by 2020.

The "trigger" for conversion from debt to equity would be a decline in the company’s regulatory capital ratios, as disclosed in its quarterly earnings reports. If these ratios dropped below "well-capitalized" levels (typically defined as equity equal to about 8% of assets), then each dollar of the contingent capital debt would be changed into common stock, based on a fixed conversion ratio.

Everyone loses — except taxpayers

The debt holders would lose, but at least they wouldn’t have to wait for bankruptcy to determine their recoveries. Shareholders would lose too — but without the conversion, they would need to raise emergency capital at a depressed share price, leading to much worse dilution, assuming the company could raise any capital at all. (Remember when Citigroup traded for $1 per share?).

Not only would conversion be speedy, but it would protect the taxpayer. Government-guaranteed deposits (and other debt that might need to be guaranteed) would be protected from losses by the new equity.

Given the severity of the recent crisis, systemically important financial firms ought to hold contingent capital equal to their normal equity requirement, effectively doubling taxpayers’ protection.

In normal times, issuing this special kind of debt should not be expensive. Firms that look systemically dangerous might face higher costs. To avoid these costs, risky firms could shrink their balance sheets or rethink their business models. In this way, the contingent capital requirement would brake the growth of large, risky financial firms, another goal of regulatory reform. And if we’re not truly preventing systemic failures with our reform plans, it’s worth asking whether they’re worth pursuing at all.

Kenneth A. Posner is the author of Stalking the Black Swan: Research & Decision-making in a World of Extreme Volatility 

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A mid-year financial checkup is important in a year in which the world doesn’t want us to get too comfortable.

The first half of 2010 is yesterday’s news. But whether news is good or bad the remainder of the year, you can’t deal with it intelligently unless you fully understand your current condition. In some cases, corrective action should be prescribed.

"Everyone is breathing easier because the world did not end," observed Marilyn Capelli Dimitroff, certified financial planner and president of Capelli Financial Services in Bloomfield Hills, Mich. "But you really need to look at finances in relation to your own needs, goals and long-term financial health."

Get started by writing down all your sources of income in the first half of the year. Use your checkbook and credit card statements to list all expenses for that period. Subtract that from your income. If cash flow is positive, that’s a good sign. If negative, it indicates how much you must decrease expenses to improve your situation.

Use this to project income, expenses and savings for the second half of 2010. If some of what you budgeted in the first half of the year turned out to be unrealistic, adjust accordingly. Diagnosing your spending habits helps prescribe a workable budget that includes regular savings and investment.

"My clients are seeing and hearing more of the negative than the positive things," said Evelyn Zohlen, president of Inspired Financial in Huntington Beach, Calif. "Part of my responsibility as their adviser is to bring some balance and objectivity to what’s going on in the market."

Review your half-year gains and losses in stocks, mutual funds and fixed-rate investments to see whether your portfolio needs rebalancing. Then seek out current bargains.

"The first thing to do at mid-year is ask yourself whether you need to rebalance your portfolio," said Ray Ferrara, president of ProVise Management Group LLC in Clearwater, Fla. "You should have an asset allocation model, and when holdings go outside its parameters you should look to sell the winners and buy the losers."

The most difficult part of an investment plan is staying disciplined with your allocation even though temporary events may draw your long-term logic into question, he said.

With an asset allocation plan, some portion will include bonds. Many experts believe long-term interest rates will drift back to their historical norms or higher. Existing bonds with lower rates would decline in value versus new higher-rate offerings, so you may want to reduce your exposure to bonds greater than five years duration and shorten maturities, Ferrara advised.

Zohlen sees merit in shorter-term bonds over some other choices.

"I don’t do a lot of tactical moving of money, but one thing I am doing is staying away from TIPS (Treasury Inflation Protected Securities) and instead buying regular short- and medium-term bonds," said Zohlen payday loan lenders. "Because inflation right now is so low and interest rates so low, I have no love for TIPS."

Your debt can land your finances in trouble. Go over all you owe and pay off highest-rate debt first. Develop a plan to pay down credit card bills, loans and car payments as quickly as possible so that in the long run you’ll have more to invest.

"Credit card debt carries the highest interest rate, so if a client has $6,000 in credit card debt and $10,000 in the bank, that client needs to examine a few things," said Ferrara. "When you consider you’ll either pay $840 in interest on the credit card or earn $30 in interest on the money in the bank, deciding what to do is not a tough decision."

Set realistic goals. Choose short- and long-term targets, write everything down and reassess every six months. Invest the maximum in employer-sponsored retirement plans and inquire about the strength and solvency of your firm’s pension plan.

Be insured. Review all your insurance coverage, taking into account those dependent on you. Examine life, homeowners, auto and disability coverage you carry to see if it meets current needs. Make or update a will and estate plan. Give someone durable power of attorney in case you become incapacitated.

We’re not out of the woods yet, with potential economic and market problems ahead. Build an emergency fund of three to six months of living expenses in a liquid money-market or short-term bond fund.

Here’s what financial planners are concerned about in the second half of the year:

"The most worrisome thing to me would be interest rates being held artificially low for too long because it will mean that money will be just too easy to get," said Zohlen. "Companies love this because they get cheap money to fund capital projects, but the stock market reacts by going up very quickly and then painfully correcting."

"I would not be surprised to see an interest rate increase in the last quarter of this year," said Capelli Dimitroff. "The government is committed to low rates for an extended period of time — but that usually means until the Fed changes things."

"What worries me the most is if companies don’t start hiring more people and what that would do to consumer confidence and the recovery," said Ferrara. "That continued high unemployment could really stall the recovery."

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After five weeks of increasing gasoline prices, Texas drivers may have noticed that prices are beginning to stabilize.

In Texas, the average price for a gallon of regular gas is currently $2.67, down from $2.69 last week, according to the AAA Texas Weekend Gas Watch Report. In San Antonio, drivers are paying $2.61 on average for gas. This is down one cent from last week. Nationwide, drivers are paying $2.79 on average, a reduction of three cents from last week.

“Gas prices are significantly higher than this time one year ago, 74 cents nationally and 69 cents higher statewide,” says AAA Texas spokeman Dan Ronan. “In Texas consumers paid $27.72 in 2009 (to fill up a 14-gallon tank) and today it’s $37.38, an increase of almost ten dollars.”

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Mesa officials insist a Cactus League ticket tax to help pay for a new Chicago Cubs ballpark is still alive at the Arizona Legislature.

An official familiar with the Cubs stadium financing plan said Major League Baseball and Commissioner Bud Selig are trying to trying to put the brakes on the bill at the Legislature. The official, who asked not to be identified, said MLB wants Mesa, the Cubs and other teams to look at funding options beyond a tax on all Arizona spring training games. Other Cactus League teams, including the Arizona Diamondbacks, object to a ticket tax being used for the Cubs stadium.

MLB has been talking to Arizona lawmakers and others about setting up special tax districts to help finance stadiums. MLB officials did not respond to requests for comment. But the unnamed official said the league was asking the Cubs and Mesa to extend their timetables for a new stadium, and for various sides to take the summer and fall to find a new plan for the 2011 session.

The Cubs want a new a stadium by 2013 and have threatened to move to Florida without one. MLB also is telling the Cubs to back down from that threat, according to the official.

The bill with the Cubs ticket tax has been stripped down and passed by the Arizona House of Representatives without a $1 car rental fee in Maricopa County. And, while the ticket charge is part of the approved measure, it did not include a specific amount for the charge. Previous plans included an 8 percent charge on all Cactus League tickets to help pay for an $84 million new stadium for the Cubs.

Mesa government relations director Scott Butler said the ticket plan and the bill are not dead, and the city is trying to work out a plan that can pass this legislative session.

"The version of (House Bill) 2736 that passed out of the House yesterday was intentionally stripped down as a show of good faith to all of the stakeholders. By and large, most members of the Legislature want to see the Cubs remain in Mesa and provide an ongoing revenue source for other Cactus League facilities. The only question has been what is the appropriate mixture of revenue sources to make this happen," Butler said.

"I’m still 110% confident that we could push a surcharge-only bill through the Senate and to the governor, but we don’t want to fight the 14 other teams and MLB at each step of the process no teletrack payday loans. The Senate will give all parties the opportunity to renew discussions and find a revenue mixture that most can support. The alternative is that the Cubs leave Arizona and the $130-plus-million annual economic impact is relocated to Naples (Fla.)," Butler said.

House Speaker Kirk Adams, R-Mesa, and Majority Leader John McComish, R-Ahwatukee, are the main proponents of the ticket tax, along with Mesa Mayor Scott Smith. They argue that the ticket tax revenue will go to other projects besides the Cubs stadium and that before the House vote, the bill included language to use some of the money to help Pima County with stadium debt.

Thus far, the trio has opposed other funding ideas including some proposed by lobbyist John Kaites, who represents the Chicago White Sox. Kaites has talked about taxes on restaurants, satellite television communications as well as special tax districts. Butler and Mesa lobbyist John MacDonald contend those ideas either won’t raise enough revenue or lack political support.

MLB has talked about special property tax districts around the proposed stadium to capture revenue for various teams, not just the Cubs.

Phoenix Mayor Phil Gordon supports similar sales tax districts that could be used in downtown Phoenix. Arizona Rep. Jerry Weiers, R-Glendale, proposed a special tax district bill that could have been used to help the Phoenix Coyotes at Jobing.com Arena, as well as US Airways Center in downtown Phoenix, but that bill has gone nowhere.

The D-backs back a countywide public vote on a sales tax increase to pay for the Cubs ballpark. Mesa officials point out a similar vote was not held to get a sales tax increase to pay for Chase Field in Phoenix.

McComish previously said he was open to other ideas, but he has not supported other options. The lawmaker did not respond to a request for comment.

The Cubs’ financing battle comes in the wake of funding shortfalls for the Arizona Sports and Tourism Authority, which previously funded Cactus League stadiums via hotel and car rental taxes. But the recession has hurt tourism and resulted in a $10 million shortfall for AZSTA, forcing alternative plans for the Cubs.

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Canada’s finance ministers have agreed to consult the public on how to boost retirement savings in advance of aging baby boomers straining public health and long-term care services.

Meeting in Whitehorse Friday, they agreed with Ontario’s Dwight Duncan that government officials should study, consult and report back by May on a short list of proposals put forward by industry, labour and advocacy groups.

The list includes everything from a continued reliance on voluntary savings plans to forcing higher contributions to the Canada and Quebec Pension Plans in order to eventually pay for richer benefits.

Duncan said in a telephone interview there was an exciting degree of consensus among ministers of all political stripe about the challenges and options that need to be explored "in a prudent and timely fashion."

"There is a certain impatience," Duncan said, alluding to earlier declarations by British Columbia and Alberta finance ministers that they were prepared to start province-wide savings plans to expand pension coverage.

But, Duncan said after the ministers met, "I think there is a very real willingness to work together" and agreement should be a "pan-Canadian solution."

Research papers commissioned by Ottawa, Ontario and British Columbia documented the success Canada has had with tax-supported programs that have reduced poverty among the elderly.

But Ontario’s study also raised questions about why many middle-income and upper-income Canadians are nearing retirement without enough savings or assets to avoid a decline in their standard of living.

Meanwhile, said Duncan, high debt levels threaten to delay the increase in savings that support living standards in old age and allow the nearly 10 million baby boomers to help fund through their taxes the cost of health care and long-term care as they age.

Ted Menzies, parliamentary secretary to federal finance minister Jim Flaherty, said in a telephone interview "we really didn’t rule out any options."

But he said Flaherty urged ministers from the provinces and territories to adopt the first principle of medicine when considering changes to Canada’s retirement income system: "Do no harm high risk personal loans."

The provinces said unanimously that no province gets out ahead of the rest," Menzies told the Canadian Press. “They all agreed that a pan-Canadian solution would ultimately be the best solution."

Ontario’s outline of the options that should be considered acknowledges that "changes to any one pillar or the retirement income system will directly or indirectly affect other pillars (of the private and public retirement income system)."

For example, an expansion of Canada Pension Plan coverage could result in changes to private company pension plans, whose benefits are generally integrated to supplement CPP benefits.

Other options include a supplementary pension plan, either voluntary or with automatic enrolment and the right to opt out, regulatory changes to allow expansion of private-sector savings options and tax reform to increase the incentive and opportunities to save more.

Experts, labour groups and some provinces have been sounding the alarm on the fraying of Canada’s pension system. They say the recent financial crisis exposed weaknesses in the system and the aging of the population will only exacerbate the pitfalls.

More and more people are left uncovered by corporate pension plans, they say. Those who are covered have plans that are less and less generous. And those with no plan often fail to save on their own.

Reports prepared for the Whitehorse meeting by University of Calgary economist Jack Mintz and pension expert Bob Baldwin for the Ontario government concluded that Canada’s retirement system has been working well.

But Baldwin emphasized the future is dim. He said keeping the status quo would seriously hurt the standard of living of some significant groups of people: immigrants and single people depending on the federal government’s Guaranteed Income Supplement, and seniors with dependants.

The Canadian Life and Health Insurance Association said it was pleased the ministers want to study proposals for bringing more workers into pension plans offered by insurers.

jdaw@thestar.ca

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Stocks gained Monday, with the three leading indexes closing at 14-month highs, after Citigroup said it will pay back government bailout funds and Dubai received $10 billion to cover its debt, easing worries the emirate might default on billions it owes.

The weak dollar also helped, lifting commodity shares and the stocks of companies that do a lot of business overseas.

The Dow Jones industrial average (INDU) rose 30 points, or 0.3%, closing at the highest point since Oct. 1, 2008.

The S&P 500 index (SPX) gained 8 points, or 0.7%, closing at the highest point since Oct. 2, 2008. The Nasdaq composite (COMP) rose 22 points, or 1%, closing at the highest point since Sept. 19, 2008.

After propelling the market off of 12-year lows hit in March, the S&P 500 has risen 64% as of Friday’s close.

"The market has shown some extraordinary strength here, but I think we’re moving into a period of greater volatility," said Don DeWaay, CEO at DeWaay Capital Management.

"This market is running a lot more on emotion now, rather than fundamentals," he said.

The Dow closed at a 14-month high Friday after better-than-expected reports on retail sales and consumer sentiment, but broader gains were limited by tech weakness and a strong dollar.

Citigroup: Citigroup said Monday that it will return $20 billion in bailout money to the government through a combination of stock and debt offerings.

Citigroup (C, Fortune 500) said the bulk of the payment will be funded through a $17 billion common stock offering. The company also said Treasury will sell up to $5 billion of the $25 billion in Citigroup common stock it holds shortly, and sell the rest of it over the next year.

Obama: President Obama met Monday with top executives of some of the nation’s biggest banks, including JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500).

He said his main message to bankers was that banks received extraordinary assistance during the crisis, and now that the industry is back on its feet, it needs to reciprocate. He is expected to urge bankers to provide greater lending, cut back on bonuses and support financial reform efforts.

Exxon-XTO deal: Dow component Exxon Mobil (XOM, Fortune 500) said it will buy XTO Energy (XTO, Fortune 500) in a $41 billion stock and debt deal that values XTO shares at a 25% premium to its Friday closing price cash till payday. The deal also includes the assumption of $10 billion in debt.

Exxon shares fell 4% and limited any gains on the Dow. XTO shares rallied 17%.

Dubai: Worries that Dubai might default on billions of dollars in debt rattled world markets at the end of last month. But some of those fears have eased over the last few weeks on signs that any fallout will be limited.

Fears were further soothed Monday after the city-state received $10 billion in financing from Abu Dhabi, another of the United Arab Emirates.

World markets: Overseas markets gained. In Europe, London’s FTSE 100 rose 1%, the German DAX rose 0.8% and France’s CAC 40 rose 0.7%. Asian markets rose, with the exception of Japan’s Nikkei, which was little changed.

Dollar: The dollar slipped versus the euro and the yen, turning lower after the recent rally.

A weak dollar has added to the more than nine-month-old stock rally over the past nine months, giving a boost to dollar-traded commodities, as well as commodity shares and the stocks of companies that do business overseas. But so far in December, the dollar has been mixed or stronger, putting some pressure on stocks.

Commodities: The weak dollar gave a lift to dollar-traded commodities. COMEX gold for February delivery rose $3.90 to settle at $1,123.80 an ounce. Gold closed at an all-time high of $1,218.30 an ounce earlier this month.

U.S. light crude oil for January delivery fell 36 cents to settle at $69.51 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices were little changed, with the yield on the 10-year note standing at 3.55%, unchanged from late Friday. Treasury prices and yields move in opposite directions.

Market breadth was positive. On the New York Stock Exchange, winners topped losers roughly three to one on volume of 1.08 billion shares. On the Nasdaq, advancers beat decliners two to one on volume of 1.86 billion shares. 

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Major League Baseball still faces an uncertain U.S. economy that led to lower attendance and financial losses at some clubs this year, the commissioner of the U.S. sports league said on Thursday.

“I’ve said this all year and I’ll say it again, we’re living in the most difficult economic environment since the Great Depression,” Bud Selig said to reporters at a meeting of owners in a hotel here.

“We don’t live in a bubble,” he said, acknowledging that some clubs he would not identify lost money this season.

The league’s regular-season attendance fell 6.6 percent to 73.4 million in its recently completed season as consumers dialed back spending in the weak economy. The teams with the biggest declines were in markets that suffered from high unemployment, including Detroit, Cincinnati, San Diego, Oakland and the Florida Marlins in Miami.

Over the past year, most sports have been hurt as corporate backers also cut spending on tickets and sponsorships.

Selig did not say where league revenue would finish compared with last year’s $6.5 billion, saying some areas of the business were down and others were flat. Helping baseball was the January launch of its TV channel, MLB Network.

However, a source familiar with league finances, who asked not to be identified, said revenue would likely finish about flat cash advance flexible payments.

Selig said it was too early to say what demand was like for next year’s tickets, but said his concerns about the economy have not eased.

“I haven’t talked to an economist yet … who would tell me why I shouldn’t be as concerned,” he said when asked to compare his feelings with last year at this time.

When asked about the sales process of the Texas Rangers, Selig said he is awaiting bids, which are due on Friday. He declined to discuss whether baseball would support owner Tom Hicks reconstituting his ownership group to maintain control of the team.

Three groups are interested in buying the team and analysts expect bids in the range of $500 million to $550 million.

Billionaire sports tycoon Hicks is working to satisfy creditors who in April declared his sports group, which also owns the Dallas Stars National Hockey League team, in default on $525 million in loans. Hicks separately owns half of the English Premier League’s Liverpool soccer club.

(Reporting by Ben Klayman, editing by Matthew Lewis)

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