European Central Bank Governing Council member Athanasios Orphanides said the bank will continue to support the economy even as it unwinds its emergency lending measures, suggesting interest rates may remain at a record low for some time.
“The phasing out of some unconventional measures should not be misinterpreted as a desire to remove policy accommodation from the economy,” Orphanides, who heads the central bank of Cyprus, said in an interview in Nicosia on Feb. 12. “Policy accommodation continues to be needed in light of the very subdued inflation outlook and the unevenness and weakness of the economy.”
The Frankfurt-based ECB has started to withdraw the measures it used to fight the financial crisis and economists last month predicted it would raise the benchmark rate from 1 percent in the fourth quarter. Still, the euro-area economy barely expanded in the final quarter of last year and the fiscal crisis gripping the region may weigh on growth and inflation as governments cut spending to reduce budget deficits.
Orphanides’ comments “confirm our call that the ECB will not raise rates this year,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “He sounds very concerned about the outlook for both growth and inflation.”
The euro eased to $1.3613 after the interview was published from $1.3622.
‘Subdued’ Inflation
Orphanides, a former U.S. Federal Reserve economist, said the “evolution of the economy and the associated risks to price stability are the key” to the rate outlook.
“If events over the next several months are consistent with inflation remaining subdued and considerably below our price-stability objective, that would indicate that the accommodative policy should remain in place,” he said.
The ECB in December predicted growth of 0.8 percent this year and 1.2 percent in 2011. Inflation was projected to average 1.3 percent this year and 1.4 percent next year. The ECB aims to keep the rate just below 2 percent.
Orphanides said preventing inflation from dropping too far below the ECB’s goal is as important as keeping a lid on price increases.
‘Symmetrical’ Policy
“The most important element is to be symmetrical in the pursuit of our price-stability objective,” he said. “I am concerned that if HICP inflation stays significantly below our definition of price stability for an extended period, this deviation could become embedded in longer term inflation expectations business cards. This would be an unwelcome development.”
In its latest quarterly survey of professional forecasters published on Feb. 11, the ECB said five-year inflation expectations stayed at 1.9 percent. However, forecasters lowered their 2011 inflation prediction to 1.5 percent from 1.6 percent.
Orphanides said he would be “more comfortable” if 2011 expectations “moved closer to our definition of price stability rather than a little bit away from it.” The current inflation rate of 1 percent also “confirms the appropriateness of continuing with an accommodative monetary-policy stance,” he said.
The 16-nation economy grew just 0.1 percent in the fourth quarter from the third, the European Union’s statistics office said Feb. 12. Economists had forecast 0.3 percent growth.
Weaker Growth
Growth “was a little bit weaker than the baseline scenario,” said Orphanides. “We are monitoring the improvements in the economy overall, but at the same time we also note the weakness in the money figures as well as the weakness in credit growth. Those are in my view consistent with the recovery not being very strong at the moment.”
The ECB’s 22-member Governing Council will decide at its next policy meeting on March 4 whether to further scale back its emergency lending measures. It has already announced the end of its 12 and 6-month loans to banks and indicated it may return to an auction procedure in some of its refinancing operations as a next step.
“The longer our interventions remain in effect, the more dangerous the side effects become,” ECB Executive Board member Juergen Stark told Germany’s Spiegel magazine in an interview published today.
Orphanides indicated he favors leaving full allotment in the main weekly refinancing operation in place for the time being.
“In the circumstances we are in at present, with very low short-term nominal interest rates, it’s very hard to assess precisely what the demand for liquidity in the banking sector is,” he said. “For that reason it is entirely sensible to have a procedure that can flexibly meet variations in the demand for liquidity, and that is what our fixed-rate, full-allotment policy is doing.”
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Aircraft makers such as EADS’s Airbus and Boeing Co. are counting on Asia to pull the industry out of a slump and spur growth for years to come, executives said Wednesday.
Fueled by a growing middle class eager to travel, the region will need about 8,000 planes costing $1.2 trillion by 2028, France’s Airbus estimates. Passenger traffic in Asia is likely to grow an annual average of 5.9 percent in the next 20 years, overtaking the United States and Europe to become the largest air transport market, said Airbus, the world’s biggest airplane maker.
"We’re very optimistic this region will play a leading role in global economic growth and particularly aviation," Airbus Chief Executive Tom Enders said at the Singapore Airshow.
Global passenger traffic dropped about 2 percent last year amid a recession in most developed countries. Most Asian countries, meanwhile, continued to expand in 2009, and growing populations and vibrant economies are making the region the center of the aviation business.
Domestic air travel in China rose 21 percent last year, and Boeing estimates the Chinese market will need about 3,800 airplanes costing $400 billion over the next 20 years.
Aircraft makers are targeting local carriers such as Garuda Indonesia, which will receive 23 planes from Boeing and one from Airbus this year, part of a plan to boost its fleet by three quarters to 116 planes by 2014.
Niche players also are eyeing Asia. EADS unit Eurocopter, which says it has about half of Asia’s helicopter market, expects demand to grow at least 10 percent a year for the next decade.
If regulations that limit helicopter use in China and India are lifted, demand will explode further, said Eurocopter CEO Lutz Bertling.
"The Asian market is for sure the fastest growing," Bertling said. "It’s going to be bigger than the U.S. by 2020."
President Obama walked a financial tightrope in his State of the Union address on Wednesday.
Faced with an unexpectedly high unemployment rate, he talked at length about the need to spur job growth and help ease the financial strains on the middle class through tax credits, targeted spending and other measures.
But he made one thing very clear: He also wants to address the unsustainable growth rate in U.S. debt.
"[I]f we do not take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery - all of which could have an even worse effect on our job growth and family incomes," the president said.
Indeed, the Congressional Budget Office reminded policymakers this week that the U.S. government’s fiscal outlook is "daunting."
Here’s why: The interest on the debt and unfunded promises to future retirees in Medicare and Social Security are on track to consume an ever-increasing share of the federal budget. And that depletes resources for many of the basic functions Americans expect their government to provide.
To begin to tackle the problem, the president said he would create a bipartisan fiscal commission by executive order.
The commission would make recommendations to Congress for how to address the looming fiscal shortfalls. Deficit hawks have said such a commission should be allowed to put all spending and tax breaks on the table for consideration.
"This can’t be one of those Washington gimmicks that lets us pretend we solved a problem," the president said. "The commission will have to provide a specific set of solutions by a certain deadline."
Nevertheless, Obama’s panel is a weaker version of a commission that was voted down by the Senate on Tuesday because Congress won’t be required by law to consider the presidential commission’s recommendations or to vote on them.
And beyond the fiscal commission, many of the president’s deficit-reduction proposals were baby budget steps.
It’s not that they’ll be easy to accomplish given how deeply partisan lawmakers have become. But the actual savings achieved from the proposals relative to the accrued debt is very small.
Spending freeze: The president proposed a three-year freeze on non-defense discretionary spending, which accounts for $447 billion, or roughly 13%, of the 2010 federal budget. The freeze would start next year, he said, when the economy is stronger.
The estimated total savings from the freeze: $250 billion over 10 years. But that’s a fraction of the $9 trillion in debt the CBO projects the country could incur over the same time period.
"I think it is a small step," CBO chief Douglas Elmendorf told lawmakers on Wednesday. He added that there is no single step that can adequately balance the budget.
Pay for new policies: Obama has also thrown his support behind the push for statutory pay-go rules. Those rules would legally require lawmakers to pay for proposed tax cuts or spending increases by raising taxes or reducing spending elsewhere in the budget.
Pay-go rules don’t actually reduce the debt load already accrued, but they put the brake on future increases in the debt load, which is helpful first step, budget experts say.
The effectiveness of pay-go rules, however, depends on their parameters. The strongest form would not allow any policy to be exempt.
But the president has backed a proposal that would only apply to "any new non-emergency tax cut or mandatory spending expansion," according to a White House statement.
The problem: That would exempt Obama proposals that are not deemed "new" — for instance, the permanent extension of the 2001 and 2003 tax cuts for most Americans — which is estimated to cost federal coffers more than $2 trillion over 10 years.
Curbing some tax cuts: The president also reiterated some pledges he has made before but that have yet to be passed by Congress. He favors, for instance, taxing the portion of profits paid to managers of hedge funds and private equity funds as ordinary income rather than as a capital gain. That would subject it to much higher tax rates than the 15% capital gains rate currently imposed. Such a provision is estimated to raise roughly $24 billion over 10 years.
What’s really needed
Any credible long-term solution to the country’s fast-growing debt puts Obama in a tight political spot.
That’s because it would have to involve a combination of tax increases (sure to rankle Republicans) and spending cuts (certain to disturb Democrats).
To use just one would be economically prohibitive.
Just how prohibitive?
Suppose Obama and Congress wanted to rely solely on individual income tax increases to get annual deficits down to 3% of GDP by 2015. If they just raised taxes on high-income households — something Obama has promised — they’d have to more than double the top two tax rates.
And that would push the top rate above 75%, according to research by the Tax Policy Center.
If they relied only on spending cuts, they would have to slash the federal budget to the bone. That means they would have to cut much of the discretionary spending pot, including defense.
Elmendorf noted that lawmakers often object in general to "wasteful" discretionary spending.
But when it comes to the specifics, individual programs have fierce defenders, he said. It is after all the pot that pays for everything from public schools, safe roads, health research, national parks, veteran benefits and the court system. To name a few.
James B. Lockhart III, vice chairman of WL Ross & Co. and the former director of the Federal Housing Finance Agency, said the U.S. housing decline may not be over.
Lockhart said at a conference in New York that he’s concerned there may be “another leg down” because of the pace of foreclosures. Foreclosures will “spike” unless the Obama administration’s programs to spur home loan modifications do more to reduce homeowners’ debts, he said.
“We need to be more aggressive in writing down mortgages and reducing principal to keep people in homes,” he said. “A spike could be pretty big.”
Lockhart also said he expects that “hundreds of banks will be taken over.” The possibility comes from troubles in commercial real estate, which lags behind housing in finding a market bottom, he said payday loans.
“We are overbuilt in many areas,” he said.
Lockhart, 63, joined the distressed-investment unit of Atlanta-based Invesco Ltd. this year after serving as head of the FHFA. WL Ross was among nine asset managers chosen by the Treasury Department to take part in the $40 billion U.S. Public- Private Investment Program, under which taxpayer and private capital will be paired to invest in mortgage bonds.
WL Ross manages funds that own American Home Mortgage Servicing Inc. and made “substantial investments” in bond insurer Assured Guaranty Ltd., according to a statement in August announcing Lockhart’s hiring.
DUBAI, United Arab Emirates–Kuwait’s sovereign wealth fund said Sunday it booked a profit of $1.1 billion (U.S.) by selling the stake it took in Citigroup Inc. less than two years ago when the banking giant was strapped for cash.
The Kuwait Investment Authority said in a statement it sold the preferred shares after converting them to common stock for $4.1 billion. That works out to a gain of nearly 37 per cent on its $3 billion investment.
Calls to the Kuwait fund for further details went unanswered. A Citi spokesman declined to comment.
Gulf Arab countries’ sovereign wealth funds have been heavy investors in U.S. and European companies, using their oil wealth to buy large stakes in companies ranging from Citi to Germany’s Volkswagen AG and Mercedes-Benz parent Daimler AG.
The KIA joined other big investors – including the Government of Singapore Investment Corp. and long-time shareholder Prince Alwaleed bin Talal of Saudi Arabia – in pumping some $12.5 billion into New York-based Citi in January 2008. At the time, the bank was reeling from a huge drop in the value of its mortgage holdings.
At the same time it made its Citi investment the fund took a $2 billion stake in Merrill Lynch, which also needed cash as a result of the credit crisis.
Merrill was later bought by Bank of America Corp., which last week surprised investors by paying back $45 billion in federal bailout money. Analysts say that move puts pressure on Citi and other banks that tapped U.S. government aid to follow suit, even though they still could face further losses as consumers struggle to pay their bills.
The Kuwait fund’s move came as a surprise. In September, it said it had no intention of selling its holdings in either Citi or Bank of America in the short term because its investment policies are based "on a long-term vision."
Kuwait took its stake in Citi last year after another Gulf fund, the Abu Dhabi Investment Authority, paid $7.5 billion for a 4.9 per cent stake in the company.
ADIA’s holdings, known as "equity units," will begin to convert into ordinary shares starting in March next year.
A spokesman for the Abu Dhabi sovereign wealth fund, the world’s largest, declined to comment on plans for its Citi stake.
Kuwait’s fund is not the first major Gulf investor to cash in on the sharp rebound of western banks’ shares this year.
Abu Dhabi’s International Petroleum Investment Co. made a $2.5 billion profit in June by selling part of a stake it held in London-based Barclays. Then last moth, Qatar’s sovereign wealth fund, the British bank’s top shareholder, unloaded a stake worth about $2.25 billion.
Barclays turned to investors from Abu Dhabi and Qatar last November for a total injection of up to $12 billion to shore up its balance sheet rather than take on the British government as a major shareholder.
From the Star’s wire services
A prospective homebuyer might be surprised to find a new subdivision of large houses and townhouses in the city of St. Louis.
But there it is, the Boulevard Heights development, just off Blow Street and Trainor Court in south St. Louis.
Bearing the same name of the surrounding neighborhood, the project’s 11 acres are subdivided for new houses comparable to those offered in competing subdivisions throughout the suburbs.
C.F. Vatterott Construction Co. and Rolwes Homes Inc., the subdivision’s developers, are betting on the city’s housing renaissance. And they’re hoping to grab some of those returning to south St. Louis.
"This is a neighborhood that has deep roots, and a lot of people want to come back to it," said Gregory Vatterott, president of C.F. Vatterott.
Selling the houses hasn’t been helped by the recent collapse of the housing market. Despite the challenge, the project is doing rather well, said Joe Zanola, president of a real estate market research firm based in Rock Hill.
"Boulevard Heights, in line with the total St. Louis region market, has been closing more new homes than (they) have been starting," Zanola said. "This is a very healthy sign."
Mayor Francis Slay even gave a personal vote of confidence in the project. His family moved into a house he bought there earlier this year.
The subdivision is being built on the former site of greenhouses once maintained by the St. Louis Public Schools for a horticulture program.
The developers’ plan calls for 44 single-family houses and 32 townhouse units, with the first houses constructed in 2007. Sizes range from 1,200 square feet for the smallest townhouse unit to more than 3,000 square feet for the largest house.
So far, 25 houses and 11 townhouse units have been finished. Of those, 22 houses and nine units are occupied.
Work and sales of the houses and townhouses are split between the two developers. If there is enough interest, condominiums also could be built, Vatterott said.
Partnering on the project gave each company more leverage in financing about $35 million they’ve invested in the subdivision, he added.
Norma Stoltz, a Rolwes Homes sales manager for Boulevard Heights, said one good feature of the subdivision’s architecture was that "we maintain the historic integrity of the (Boulevard Heights) neighborhood in our designs."
Like sales elsewhere, demand for housing in Boulevard Heights subdivision slowed this year, Vatterott said. But he said there was a recent spike in interest.
The least expensive townhouse unit starts in the $190,000 range, while the most expensive house is in the $400,000 range.
The developers are offering customized house styles. Vatterott’s green package with energy-saving features includes high-efficiency heating and air-conditioning, tankless water heaters and double-pane insulated glass windows.
Energy-efficient features have helped Boulevard Heights compete with large older houses for sale in the area, said Jill Woodard, a Vatterott sales manager for Boulevard Heights.
"That’s one of the hidden benefits of new construction," she said.
Another draw is the variety of stores and restaurants nearby at shopping center Loughborough Commons, at Interstate 55 and Loughborough Avenue, Woodard added.
The Boulevard Heights project brings to almost 500 the number of city housing units Vatterott has built either on its own or with other developers since the mid-1980s.
But it is the first time the company has been involved in developing so large a subdivision within the city limits.
The developers said Boulevard Heights would be completed within a few years.
As the Dow closed above 10,000 for the first time in more than a year Wednesday, economists cautioned that the blue-chip average shouldn’t be seen as giving a green light to the economy.
The stock market is what is known as a leading economic indicator, as investors place bets on how strong they believe company results and the broader economy will be in the near future.
Lately, there has been a growing consensus among both investors and economists that the battered U.S. economy hit bottom and turned around earlier this year, and is now in a recovery.
The Federal Reserve said economic activity has "picked up" in its statement after its Sept. 23 meeting, and about 80% of leading economists surveyed by the National Association for Business Economics agreed in a survey earlier this month that the recovery has begun.
But even economists who agree the economy is in recovery say that growth will be slow and difficult, with continued job losses, tight credit and further declines in home prices. And even some who believe that the current Dow 10,000 level is justified say there’s still a significant risk that the economy will take a step backward.
"One of the great challenges is whether consumers and small businesses come along with this recovery," said John Silvia, chief economist with Wells Fargo. "If they don’t, you either sit at 10,000 or slip back to 9,500. To sustain another double-digit (percentage) gain to Dow 11,000 is asking too much from this economy and the risks we still see out there."
There are also economists who question whether the economy is truly in recovery, given that it continues to lose about a quarter-million jobs a month. They say the more than 50% rally in the Dow since it closed at a low of 6,594.44 on March 5 is only a reflection that the fear of the economy toppling into a full-fledged depression has abated.
"We’re not at Armageddon anymore, so of course you should have some kind of rally," said Rich Yamarone, director of economic research at Argus Research. "But I think there’s a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We’re not out of the woods yet."
Several experts point out than many of the relatively strong earnings reports helping to lift the markets in recent days are being driven by cost cuts, rather than strong revenue growth that would be a better indicator of consumers and businesses being willing to spend again. If businesses keep cutting costs to make the numbers that Wall Street wants to see, that can only put more downward pressure on jobs and wages, and result in weaker economic growth or another downturn.
"The companies are cutting fat, and in many cases cutting bone and muscle. There’s no organic economic growth there," said Yamarone.
Barry Ritholtz, CEO and director of equity research at Fusion IQ, said that despite their reputation as a leading indicator, the stock markets do a terrible job forecasting the economy.
"Beware of economists pointing to the stock market," he said. "The rallies tend to be false starts because it’s a reaction to what came before. The sell-offs tend to be overdone because, as they gain momentum, they lead to panics."
Ritholtz said comparisons of current earnings to those of a year ago or stock levels to the lows of earlier this year greatly exaggerate the strength even the market sees in the economic outlook.
"It’s like saying the Detroit Lions have better year-over-year comparisons because they’re no longer winless," he said about the football team that went 0-16 in 2008, but has won one of five games so far this year. "But they’re still in last place and they’re not winning the Super Bowl."
Another reason that comparisons to Dow levels of a year ago are risky is that two of the more troubled components — General Motors and Citigroup (C, Fortune 500) — were dropped and replaced by stronger companies such as Cisco Systems (CSCO, Fortune 500) and Travelers Cos. (TRV, Fortune 500) in June.
Without those changes the Dow would be almost 100 points lower now than it is with the stronger companies, although precise comparisons are difficult since GM shares are no longer traded on the New York Stock Exchange.
"You take out the worst, put in the best, and by definition you’ll get better numbers," said Yamarone.
A recent column advocating a fiduciary standard for all financial advisers — meaning always putting the client’s interests first — prompted a spate of questions about how to make sure advisers adhere to such a standard.
I’ll discuss that and also how to find an adviser who can help you even if you don’t have a lot of money.
First, we need to know this:
— Registered investment advisers, or RIAs, who are regulated by the U.S. Securities and Exchange Commission and/or the states where they do business, must legally adhere to the fiduciary standard.
— Advisers who’ve earned the certified financial planner (CFP) designation, conferred by the independent group Certified Financial Planner Board of Standards, also are expected to act as fiduciaries based on their code of ethics (the same person can be an RIA and CFP).
— Stockbrokers, who fall under the jurisdiction of the industry group Financial Industry Regulatory Authority, are not held to the fiduciary standard. "Dually registered" brokers who are also RIAs must legally act as fiduciaries when giving investment advice but don’t have to when selling products as brokers.
Being held to a fiduciary standard, however, is no guarantee the standard will be followed. It’s up to you to ask questions.
"The adviser should be willing to state in writing his or her status as a fiduciary," said Knut Rostad, a member of the Committee for the Fiduciary Standard, a group of a dozen prominent investment advisers.
Also ask the adviser to explain, as part of a written "investment policy statement," how he performs "due diligence" before picking an investment and how investments will be monitored.
"If an adviser cannot articulate this, that’s a red flag," Rostad said. The adviser should also fully disclose and resolve, in the client’s favor, all unavoidable conflicts car loan.
Say your adviser is paid, as it is common, based on "assets under management" or a percentage of the money you invest. You ask whether you should pay down your mortgage. The adviser must give you his best recommendation while disclosing his conflict: Paying down the mortgage will reduce the amount you invest and lower his compensation.
You can find other questions to ask advisers at the Certified Financial Planner Board of Standards website. Among them: What services do you offer? How will I pay for your services? Could anyone besides me benefit from your recommendations? Go to www.cfp.net and click on "Learn about financial planning."
The best planner in the world can’t help you, however, if you cannot afford him or her. Most fee-only fiduciary advisers charge about 1 percent of assets under management "and cannot make a living" advising the 80 percent of Americans who have a net worth of less than $250,000 including the value of their home, said Robert Schumann, a certified financial planner with Cambridge Financial Advisors LLC in Colorado.
Some advisers who charge by the hour provide "as needed" services to those who can’t afford or don’t need an ongoing relationship. Still, I agree with Schumann that most Americans may not afford or be willing to pay the hourly fees of $150 or more these planners typically charge.
An option worth considering — one I believe will become more prevalent — are Internet-based, fee-only fiduciary registered investment advisers such as People’s Financial Advisor (www.peoplesfinancialadvisor.com), developed by Schumann.
While never as good as face-to-face advice from a trusted fiduciary, they beat hucksters pushing commission-laden products for their benefit, not ours.
National home prices may be on the road to recovery.
After three years of declines, home prices increased 2.9% in the three months ended June 30, according to the latest S&P/Case-Shiller report. That is the first quarter-over-quarter improvement in three years.
Prices in the national index are down 14.9% compared with the second quarter of 2008, the report said. But that is better than the record 19.1% decline that was set in the first three months of 2009.
"We’re seeing some positive signs," says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.
The Case-Shiller 20-city index rose quarter-over-quarter by 1.4% but fell 15.4% year-over-year. Still, that was a smaller loss than analysts were predicting: A consensus of experts compiled by Briefing.com had forecast a 16.4% drop
"This is great news; prices may be starting to grow again" said Pat Newport, a real estate analyst for IHS Global Insight. "Three independent sources, the National Association of Realtors, the Federal Housing Finance Agency and Case Shiller are showing price improvement."
Providing a boost
The slide may be over partially because prices have reached affordability levels not seen in a generation, drawing many buyers into the market.
Helping housing markets, too, is the government economic stimulus effort, which includes an $8,000 first-time homebuyers tax credit. That added discount has spurred many entry-level buyers into homeownership.
The rebound may mean that potential homebuyers will have more of a feeling of urgency, afraid that they’ll miss the market bottom.
That’s already happening in some of the markets that had gone through steep price declines over the past few years, such as the area east of Los Angeles that went through a severe boom and bust cycle. Home sales there are now booming again, according to Chuck Whitehead, a Coldwell Banker real estate broker.
"There’s such a frenzy to get in before prices go up again," he said. "Buyers are more concerned about that than about getting the first-time homebuyers tax credit."
Among cities, Cleveland reported the biggest rebound; prices improved by 9.8% compared with the first quarter of 2009. Dallas prices rose 6.5% and San Francisco 5.9%. Prices declined in seven cities, including 7.8% in Las Vegas, 2.2% in Miami and 1.2% in New York.
Warning signs
Despite the upbeat report, Robert Shiller, one of the principle authors of the Case-Shiller index, expressed caution, pointing out that last year’s turnaround quickly fizzled out.
In early 2008, prices were falling 3% a month. That improved to -0.5% a month in the spring, giving the impression that the market would turn around. But prices quickly started falling more steeply again. The same thing could happen again, especially with the economy still in a downspin.
"The really important things [affecting home prices] are unemployment and momentum," said Shiller, who is a Yale economist. "We have momentum, which is very important, but we also have high unemployment."
And, he added, "the government has not yet handled the foreclosure problem."
Increased bank repossessions could unleash of flood of new supply on the market, which could dampen prices. Plus, is also some indication of shadow inventory — repossessed homes the banks are holding onto because they don’t want to flood inventories.
That leads Stuart Hoffman, the chief economist for PNC Financial Services Group (PNC, Fortune 500), to conclude that it’s still a good time to be a buyer.
"Given the tremendous amount of inventory, nearly a year’s worth," he said, "it should continue to be a buyer’s market for a while."
Shiller, too, is relatively optimistic despite being cautious. "I have found that momentum matters," he said, "and this is a sudden break in [downward] momentum. The [market] psychology seems to be changing."
from an NHL hockey team to Obama’s suit maker — that are hitting the skids.
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NEW YORK (Reuters) — CIT Group Inc. is in talks with JPMorgan Chase & Co. and Goldman Sachs Group Inc. about short-term financing as it looks for ways to avoid bankruptcy, a source close to the company said on Friday, sending the lender’s shares and bonds up.
CIT (CIT, Fortune 500) — a 101-year-old lender that services nearly one million small and mid-sized businesses — is in search of $2 billion to $3 billion of financing, according to the source, who declined to be identified because the talks were private.
The company is also in talks with bondholders about a debt for equity swap, the source said. However, another source familiar with the negotiations who also declined to be identified told Reuters that many bondholders were pursuing a "debt for new debt" exchange, and that a debt for equity exchange was not a real consideration.
The first source added one potential scenario is also a sale of some assets to raise capital.
Bankruptcy, however, is still possible over the next few days, and CIT is maintaining an ongoing dialogue with regulators about the situation, the first source said. The lender had wanted regulators’ permission to transfer assets to its bank unit, but that did not happen, the source said low rate car insurance.
"They haven’t thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event," said Sameer Gokhale, an analyst at KBW.
Shares were up 48 cents, or 117%, to 89 cents, after losing 75% of their market value on Thursday as government talks for financing collapsed and investors feared the company would have to file for bankruptcy.
The price of CIT’s floating-rate notes due in August rose to 66.5 cents on the dollar in busy trading, from about 61 cents late on Thursday, according to MarketAxess.
Asset sales?
The New York Post reported Friday that JPMorgan Chase & Co. (JPM, Fortune 500) could acquire CIT’s factoring unit, which finances more than $50 billion of wholesale inventory, at a time of the year when the collapse of the lender could disrupt retailers holidays plans.
CIT declined to comment and JPMorgan was not available for comment.
But Gokhale cooled expectations of an asset sale.
"It has some valuable franchises, but if they sell the assets in a distressed situation, they don’t even get the par value for the assets. They will have to take losses and those losses will further weaken the balance sheet, so that doesn’t seem to be a viable strategy," he said.
The company sought new help even after gaining the status of bank holding company in December so it could draw $2.33 billion of taxpayer money from the Treasury’s Troubled Asset Relief Program.
But the Obama administration declined help, saying it had set high standards for granting aid to companies and leaving private investors as the one alternative to avoid collapse.
The impact of CIT’s demise would likely pale by comparison with the collapse of investment bank Lehman Brothers Inc. last September, analysts said.
Still, the ripples of a collapse could be widespread and worsen the effects of the economic downturn for some firms.
CIT has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion of debt will come due in August, followed by about $2.5 billion by year end.
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