Actual finance blog

The Federal Reserve raised the rate it charges banks that borrow from the central bank when they run short of funds.

The Fed said late Thursday it is raising its discount rate by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions.

The move is largely symbolic, because banks do little borrowing at the discount window.

The unanimous decision to boost the discount rate also has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy.

But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two-plus years were consumed in a financial firefight.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," the Fed said in a statement.

The Fed also shortened the term of some discount window loans and raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks. Those facilities were among the many innovations Bernanke introduced since the onset of the credit crunch in mid-2007 to supply U.S. banks with funding.

As the recession deepened, the Fed moved to support the housing market by buying more than $1 trillion of mortgage-related securities. When buying those securities, the Fed credited the selling banks with reserves at the Fed. This huge sum of so-called excess reserves has led to worries that any upturn in the economy will be met with an inflationary lending spike from banks.

Bernanke has emphasized that the Fed will use multiple new tools to prevent the excess reserves from fueling inflation, including the payment of interest on reserves at the Fed and the sale of Fed assets.

But as eager as policymakers are to show that policy is on a track toward normalization — that is, a nonzero fed funds rate and a smaller Fed balance sheet — the process is clearly going to take time.

The Fed suggested as much Thursday, in explaining why it may be a while before the spread between the federal funds rate and the discount rate may return to its pre-crisis level of 1 percentage point. Following Thursday’s increase, the spread is now half a percentage point.

The central bank said Thursday’s increase should "encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds" and added that it will "assess over time whether further increases in the spread are appropriate." 

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Senior living community The Place at Gallatin has a new name and a new owner.

Seattle-based Emeritus Senior Living announced today that it has purchased The Place at Gallatin, which will now operate under the name Emeritus at Gallatin.

Publicly traded Emeritus currently operates 316 residential and assisted living communities in 36 states serving about 32,700 residents.

In a news release, Emeritus President Granger Cobb said the company plans to bring “additional improvements” to its newest facility.

Mary Ellen Mayfield, executive director for Emeritus at Gallatin, said the purchase allows the community to maintain its independence while benefiting from the support of a national senior living company.

“It will be great for this community to be a part of the Emeritus family, such a forward-thinking company that is committed to the highest standards of quality care for seniors,” Mayfield said.

Emeritus is on of the country’s largest operators of freestanding assisted living communities providing Alzheimer’s and related dementia care services to seniors.

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SWBC’s LendingXpress subsidiary has teamed up with Equity National to offer home valuation and analytic products to lenders to process real estate loans.

LendingXpress focuses on helping financial institutions order all of the products necessary to close a real estate loan, including property valuations and lien position. Equity National is a East Providence, R.I.-based company that provides lenders with a full range of valuation services to process mortgages.

“There are a lot of appraisal management companies fighting for business today, and after exhaustive due diligence, we chose Equity National to be our strategic partner based on their focus on the customer, (Home Valuation Code of Conduct) orientation, and their management team, which is unmatched in the industry,” says Ted Robinson, senior vice president and general manager of LendingXpress.

San Antonio-based SWBC is a financial services company that provides insurance, mortgage and investment services to financial institutions, businesses and individuals nationwide.

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ST. LOUIS — People attending the first day of the St. Louis Auto Show filed past a shimmering lime-green Ford Fiesta — a fuel-sipping car that will roam 40 miles for every gallon of gas.

Ford was among a handful of automakers inside America’s Center to give prominent display to their eco-friendly, fuel-efficient cars at the start of the four-day event Thursday. Ford launched its strategy three years ago — before $4-a-gallon gas — and it’s still a top priority, said Cory Miller, a Ford zone manager in Kansas City.

"The Nineties was a decade where people didn’t necessarily care so much about fuel consumption; they cared more about style of the vehicle they wanted," Miller said. "Since the spike in the gas prices — even though the prices have stayed relatively moderate — people are once-bitten, twice shy.

"People remember having to dip into their pockets quite deeply to fill up."

While gasoline prices have returned to Earth, many car owners are still jittery about future price swings, Miller said. But they also want cars that are fun to drive, safe and of good quality. The Fiesta — a top seller in Europe — will be available in U.S. showrooms this spring.

Despite a dismal two-year stretch that resulted in the

government bailout of General Motors and Chrysler, industry officials said Thursday that there is guarded optimism that the worst may be over for the beleaguered auto industry.

"Really, I think we’ve turned the page," said Brian Sullivan, executive producer of the St. Louis Auto Show.

Still, not all manufacturers have been able to shake bad news entering the show.

Toyota was forced to suspend U.S. sales of top sellers because of problems with the gas pedals. Toyota representatives staffing the St. Louis display declined to talk about the halt to sales or a related recall, referring questions to company officials in California.

A federal judge on Thursday rejected the United Auto Workers’ request for a temporary restraining order that would have allowed the union to pass out leaflets in the lobby of the America’s Center. The UAW sought to draw attention to Toyota’s recent product problems and Toyota’s decision to close a plant in California.

Honda touted its entry-level Fit and its hybrid Insight alongside its Accord Crosstour, CR-V and Element, although Joe Duco of Meyer Honda in O’Fallon, Ill., said fuel efficiency isn’t the only thing driving today’s car buyer.

"There are still a lot of people inquiring about fuel efficiency," Duco said. "I think right now they’re kind of looking for that in-between vehicle."

Jeff Blair of Festus crawled behind the wheel of the Insight but concluded it would be too small for his family of four. While he’s not in the market for a new car right now, Blair said fuel efficiency is important when deciding to buy a car.

Blair is a copy machine technician in St. Louis who spends a lot of time on the road. His wife drives 45 miles each way to work at Barnes-Jewish Hospital.

"Gas mileage is definitely a big thing when you buy a car," said Blair, who owns a Honda Civic.

Not far away, Volkswagen’s display boasted that its TDI clean-diesel vehicles would make owners the toast of "tree-huggers and road-huggers alike."

While the blending of green technology and vehicle performance has been a theme at auto shows nationwide, so has one of relief among automakers who believe the worst is over, said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates.

To that end, Schuster said, there is a correlation between attendance at auto shows and the public appetite to buy cars.

"Fuel economy … raises itself in importance more when fuel prices are high," said General Motors spokesman Craig Eppling. "They’re moderate now. We would have thought maybe three or four years ago $2.50 or so was high. Now, we’re generally accustomed to it."

Eppling said General Motors tracks why people buy cars. Style now rates high — along with safety and price. GM expects vehicle sales to track with the U.S. economy, Eppling added, so 2010 should be a good market but not necessarily a great one.

"This past year, the motivation has been value," Eppling said. "With the economy and the mind-set of ‘Do I have a job?’ and so forth, people are looking for a value."

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Stocks rose Thursday, led by technology shares, as investors looked past the day’s ho-hum economic news and geared up for Intel’s quarterly report, released shortly after the bell.

The Dow Jones industrial average (INDU) added 30 points, or 0.3%. The S&P 500 index (SPX) added 3 points, or 0.2%. Both closed at the highest point since Oct. 1, 2008. The Nasdaq composite (COMP) rose 9 points, or 0.4%, ending at the highest point since Sept. 3, 2008.

After the close, Dow component Intel (INTC, Fortune 500) said it earned 40 cents per share in the fourth quarter on sales of $10.6 billion. Both earnings and sales trounced estimates and marked a sharp improvement from the previous year. The stock gained 2% in extended-hours trading.

Overall S&P 500 earnings are expected to have risen more than 200% from the previous year, the worst quarter in Thomson’s history. JPMorgan Chase (JPM, Fortune 500) is due to report results Friday morning.

The financial behemoth is expected to have earned 66 cents per share on revenue of $27 billion.

Stocks ended higher Wednesday, with the Dow closing at a 15-month high, as investors looked past Google’s potential shutdown of its China operations and mea culpas from the nation’s major bank executives. After a weak start Thursday, stocks turned higher, despite the day’s mixed economic news.

The major indexes posted sizable gains last year as investors dove back in after moving beyond the worst financial crisis in decades. But any gains this year are likely to be more subdued.

"The next few months is going to be about merging expectations and reality," said Jack Ablin, chief investment officer at Harris Private Bank.

"Expectations have been set pretty high for earnings and the economy, in terms of where stock valuations are set," he said. "Now we need to see if the results can deliver."

Economy: Retail sales fell 0.3% in December, the government reported Thursday. The report was a surprise to economists who were expecting sales to have risen 0.5%, according to a consensus of economists surveyed by Briefing.com. Sales rose a revised 1.8% in November.

Retail sales excluding autos fell 0.2% in December after rising 1.9% in the previous month. Economists thought they would rise 0.3%.

Helping to soften the blow, the National Retail Federation said holiday sales for the November-December period rose 1.1%, a better showing than the retail group’s forecast of a 1% decline low interest rate personal loans.

The number of Americans filing new claims for unemployment rose last week to 444,000 from 433,000 in the previous week. Economists thought claims would rise to 437,000.

Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to 4.596 million from 4.807 million in the previous week. Economists thought claims would fall to 4.750 million.

November business inventories rose 0.4% after rising 0.4% in the previous month. Economists thought claims the increase would be 0.3%.

Banks: A congressionally appointed panel investigating the lead-up to the financial crisis was holding a second day of hearings, with government officials including Attorney General Eric Holder testifying.

On Wednesday, CEOs of the largest financial institutions testified that while the banks took on too much risk and made mistakes, they were not aware at the time that a financial crisis of such a magnitude could develop.

In other news, President Obama proposed a plan Thursday to tax companies that took bailout funds, legislation he says is necessary to make sure the banks return the money they accepted in full.

Results: Intel shares gained ahead of its results. Merck (MRK, Fortune 500), Microsoft (MSFT, Fortune 500), IBM (IBM, Fortune 500) and Hewlett-Packard (HPQ, Fortune 500) were the Dow’s other big gainers.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by four to three on volume of 890 million shares. On the Nasdaq, advancers topped decliners five to four on volume of 2.3 billion shares.

World markets: Asian and European markets mostly ended higher.

Commodities and the dollar: The dollar fell against the euro and gained versus the yen.

COMEX gold for February delivery rose $6.20 to settle at $1,143 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery fell 26 cents to settle at $79.39 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.73% from 3.79% late Wednesday. Treasury prices and yields move in opposite directions.  

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For car buyers, four words mean the difference between going home in a new sedan or their old clunker: Your loan is approved.

They are being uttered more often these days, spurred by a government program that provides guarantees when those loans are sold to investors. That is helping banks, credit unions and auto finance companies make auto loans at a quickening pace. And consumers are paying less to borrow. Interest rates have been at record lows since December 2008.

It’s bit of good news for the auto industry in the U.S., where 2009 sales are expected to hit a 30-year low of around 10 million when figures are announced today. Partly because of loosening credit, analysts expect more than 1 million cars and light trucks to be sold in December, the best monthly performance since Cash for Clunkers in August.

Financial firms wrote 5.5 percent more car loans in the third quarter compared with the prior three months, Experian Automotive says. Fourth-quarter figures aren’t yet available, but Jesse Toprak, vice president of auto pricing tracker TrueCar Inc., says December saw an uptick in auto loan approvals for consumers with average or above-average credit as auto finance companies tried to clear out inventory.

Paul Taylor, chief economist for the National Auto Dealers Association, said used-car prices also have stabilized due to limited supply, making used-car loans more attractive to banks.

Still, Toprak said it could take another year or even longer for financial firms to trust consumers enough to return to normal levels for auto lending cheap business cards. It’s also far from the freewheeling days of the credit boom. Third-quarter auto lending was down 30 percent from the same period in 2006, a year when U.S. car and light truck sales reached 16.5 million.

In the meantime, only those with good credit need apply.

A top-tier borrower — someone with a credit score between 720 and 850 — can get a 36-month auto loan with an average monthly rate of 5.74 percent, down from 6.65 percent a year ago, according to Informa Research Services, a financial research firm in Calabasas, Calif. On a $20,000 car loan, that’s a savings of nearly $300 over three years.

But the cost of borrowing has risen for people in the bottom tier. A person with a score of 500 to 589 has seen the average rate climb to 18.56 percent from 16.47 percent a year ago. That translates to an extra $751.68 over three years. Banks are still nervous about lending money to risky borrowers given high rates of unemployment, foreclosures and late payments since the financial crisis began.

"We used to have a subprime auto lending industry," says Dan Alpert, managing partner at Westwood Capital, an investment bank involved in the securitization business.

"We don’t have that anymore."

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MONTREAL–Bombardier Inc. has received an order from Spain's national rail operator to maintain a fleet of high-speed trains for 14 years, the transportation equipment maker announced Thursday.

RENFE will pay US$917 million to Bombardier and Spanish railway vehicle maker Talgo to maintain the new trains. Bombardier's share of the contract comes to US$405 million.

The maintenance activities will take place at RENFE's depots in Spain with work expected to begin in 2010.

Bombardier will be responsible for the preventive and corrective maintenance of the train power-heads, power supply, signalling and propulsion system and auxiliaries.

The trains that will be maintained are currently being manufactured by Bombardier in association with Talgo.

Bombardier is no stranger to Spain's railway industry, and employs more than 600 people at various sites in the country. The AVE 102 and AVE 103 high speed trains and the Madrid Barajas airport people mover are among its key projects in the region.

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India’s policy makers can’t ignore the link between higher food costs and inflation, central bank Deputy Governor Subir Gokarn said, signaling the monetary authority may quicken measures to curb the increase in prices.

Gokarn is the second official in as many days to flag concerns over accelerating inflation after Prime Minister Manmohan Singh’s economic adviser on Dec. 3 said rising food prices may “require monetary policy action.” The wholesale food-price index climbed to an 11-month high in November, a government report showed this week.

“Persistently rising food prices may spill over into inflation expectation” and “do have an expectation impact,” Gokarn told reporters in New Delhi today. “We can’t ignore that linkage.”

India’s gross domestic product expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the fastest pace in six quarters, as a $130 billion cash injection through monetary stimulus shielded the $1.2 trillion economy from a global recession. China grew at a faster pace of 8.9 percent last quarter, while U.S. GDP rose 2.8 percent, Europe contracted 4.1 percent and South Korea increased 0.9 percent.

“With strong GDP growth and rising inflation, we think the pressure is rising on the Reserve Bank of India to partially pull back the monetary stimulus,” said Rahul Bajoria, an economist at Barclays Capital in Singapore no faxing 1 hour payday loans. Accelerating inflation will likely “trigger action in the form of hikes in the cash-reserve ratio.”

Bonds Drop

Benchmark 10-year Indian government bonds posted their worst week since June as Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council said higher food prices may push up wages and manufacturing costs. The Reserve Bank may start raising interest rates as early as January, increasing borrowing costs by 3 percentage points in 2010, Goldman Sachs Group Inc. said in a research report dated Dec. 3.

The index of wholesale primary articles, comprising mainly of food items such as pulses, fruits, vegetables and cereals, rose 12.53 percent in the week to Nov. 21, the highest since November 2008, a government report showed Dec. 3. The central bank forecasts wholesale-price inflation at 6.5 percent by March 31 from 1.34 percent in October and 0.5 percent in September.

India needs to ensure that the economic recovery isn’t hurt while keeping inflationary pressures under control, Gokarn said today.

“There’s nothing off the table but all options have to be considered with the information that is available to us,” Gokarn said when asked if the central bank may consider raising the cash-reserve ratio.

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European consumer prices increased for the first time in seven months in November led by energy costs as the economy recovered from the worst slump since World War II.

Prices in the 16-nation euro region rose 0.6 percent from a year earlier after falling 0.1 percent in October, the European Union statistics office in Luxembourg said today. Economists had projected a gain of 0.4 percent, the median of 30 forecasts in a Bloomberg News survey showed.

Oil prices have risen 9 percent in the past three months as the economy has gathered strength. While the euro-area economy returned to growth in the third quarter, companies continue to cut costs and eliminate jobs to bolster earnings. The European Central Bank has signaled it sees “moderate” inflation and is in no rush to withdraw stimulus measures.

“The medium-term outlook for euro-zone inflation remains very subdued,” said Martin van Vliet, a senior economist at ING Bank in Amsterdam. ING anticipates the ECB will “adopt a very gradual approach to withdrawing its emergency liquidity measures, and to keep interest rates on hold for an extended period,” he said.

The euro was higher against the dollar after the inflation report, trading at $1.5050 at 10:52 a.m. in London, up 0.4 percent on the day. The yield on the German 10-year benchmark bond dropped 0.1 basis point to 3.15 percent.

Latest Forecasts

The ECB said on Nov. 12 that professional forecasters project European inflation will average 0.3 percent this year and 1.2 percent in 2010. The Frankfurt-based central bank, which aims to keep annual gains in consumer prices just below 2 percent, will release its latest forecasts for economic developments and inflation on Dec. 3.

For now, a recovery may remain too fragile for companies to start adding workers. European unemployment probably rose to 9.8 percent in October from 9.7 percent in the previous month, according to the median estimate in a Bloomberg survey of economists. The statistics office will release the unemployment report tomorrow at 11 a.m.

Remy Cointreau SA, France’s second-largest liquor company, on Nov. 25 forecast “modest” third-quarter sales after profit dropped 18 percent in the year’s first six months. Hugo Boss AG, Germany’s largest clothing maker, said earlier this month that it projects sales will remain “challenging” in the first half of 2010.

Coming Months

European households anticipate prices will decline further in coming months. A gauge of consumers’ price expectations over the next 12 months rose to minus 11 in November from minus 14 in the previous month, the European Commission said on Nov. 27.

“Economic activity is unlikely to be strong enough to generate significant inflationary pressures for some considerable time to come,” said Howard Archer, chief European economist at IHS Global Insight in London. “There remains a compelling case for the ECB to only very gradually withdraw its emergency liquidity measures.”

The ECB has cut borrowing costs to a record low, purchased covered bonds and injected billions of euros into markets to encourage lending. Policy makers meeting in Frankfurt on Dec. 3 may keep the key rate at 1 percent, a Bloomberg survey shows.

“We still don’t know to what extent the incipient global recovery has enough support on its own to allow for exceptional stimulus to be withdrawn without the danger of a relapse in activity,” ECB council member Miguel Angel Fernandez Ordonez said on Nov. 23. Inflation “although positive, will remain at moderate levels in the near future.”

The statistics office will release a breakdown of November inflation data on Dec. 16.

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Consumer spending probably rebounded in October, showing that mounting unemployment is restraining, not derailing, the biggest part of the U.S. economy, analysts said before reports this week.

Purchases increased 0.5 percent after dropping by the same amount in September, according to the median estimate of 61 economists surveyed by Bloomberg News before a Commerce Department report due Nov. 25. Other figures may show orders for durable goods and home sales climbed.

Consumers added to their wardrobes, frequented restaurants and bought more automobiles last month even after the government’s trade-in incentive expired. A jobless rate that is projected to remain above 10 percent through the first half of next year means households will still be hard-pressed to boost spending further, limiting their contribution to growth.

“A business recovery has taken root, notably in output and sales, although not yet in employment,” said Neal Soss, chief economist at Credit Suisse in New York. “The recovery will likely be mediocre relative to previous recoveries following severe recessions.”

The labor market and reduced bank lending are some of the “headwinds” facing the economy, Federal Reserve Chairman Ben S. Bernanke said last week. To help ensure the economy doesn’t falter, Bernanke and his fellow U.S. central bankers will probably keep monetary policy unchanged well into 2010.

Vehicle Sales Rise

Auto industry data show sales of cars and light trucks rose to a 10.5 million unit annual pace in October, up 14 percent from the previous month. Purchases were still short of the 14.1 million rate reached in August when the government’s cash-for- clunkers plan, which expired near the end of that month, revived demand.

U.S. retailers last month increased sales 1.4 percent after a decline of 2.3 percent in September, according to Commerce Department figures released Nov. 16. Sales rose at department stores, restaurants and Internet-based businesses such as Amazon.com.

Most retailers have boosted profits by trimming costs and inventories. Saks Inc., the New York-based U.S. luxury retail chain, last week reported an unexpected profit, its first in more than a year, for the period ended Oct. 31.

“The current economic and retail environment remain uncertain,” Saks Chairman and Chief Executive Officer Stephen Sadove said on a Nov. 17 conference call with investors and analysts. “It’s a fragile period for everyone in this industry.”

Incomes Rise

The Commerce Department spending report on Nov. 25 may also show incomes grew 0 payday loan.2 percent in October, the biggest gain in five months, after no change the previous month.

Even with that gain, a weak labor market continues to weigh on consumers’ ability to boost purchases. Payrolls fell by 190,000 last month, bringing total job losses to 7.3 million since the recession began in December 2007, the most of any contraction since the Great Depression.

President Barack Obama, seeking to halve job losses since the recession began, announced on Nov. 12 that he plans to hold a White House jobs summit. He said he’ll convene business executives and experts to seek solutions to spur job creation.

The job cuts are causing measures of consumers’ outlooks to weaken this month. The Conference Board’s confidence index, due Nov. 24, is forecast to fall, and the Reuters/University of Michigan gauge the next day is projected to drop from the previous month.

The S&P 500 rose as much as 64 percent from a 12-year low in March, closing at a 13-month high on Nov. 17.

Durable Goods

The increase in demand for automobiles likely contributed to a gain in bookings at factories. Orders for durable goods, those meant to last at least three years, probably rose 0.5 percent in October after a 1.4 percent surge, the first back-to- back increase since May, according to the median estimate ahead of a Nov. 25 report from the Commerce Department.

Excluding demand for transportation equipment, which tends to be volatile, orders probably increased 0.6 percent, the survey median showed.

The government’s revised figures for third-quarter gross domestic product, due on Nov. 24, may show the economy expanded at a 2.9 percent annual rate, compared with the 3.5 percent estimated last month, according to the survey median. The revision will reflect a bigger trade gap and weaker retail sales in September, economists said.

The worst housing slump in more than 70 years is showing signs of improvement, with government support in the form of a tax credit for homebuyers.

Existing Home Sales

The National Association of Realtors is expected to report tomorrow that purchases of existing homes rose 2.3 percent in October to an annual pace of 5.7 million, the highest level since July 2007, according to the survey median.

The Commerce Department on Nov. 25 may report that purchases of new houses rose 0.8 percent last month to a 405,000 annual pace, according to the Bloomberg survey median.

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