Defense contractor Technica Corp. expects to double its presence in Columbia by the fall as it expands from Northern Virginia into Greater Baltimore.
As the Baltimore Business Journal reported Friday, the company has leased a 7,600-square-foot facility at the Columbia Gateway business park in Howard County.
Mark O’Donnell, senior vice president of business development for Technica, said his company plans to expand its space at 6750 Alexander Bell Drive to 14,000 square feet by the fall. By then the Dulles, Va.-based company hopes to have hired or shifted as many as 45 workers to the area.
The timing of the company’s move, and others like it, has been a matter of much debate among the region’s real estate and economic development community since 2005.
That’s because Technica is one of dozens of defense contractors to the federal Defense Information Systems Agency, an arm of the U.S. Defense Department focused on communication part of the Pentagon focused on cyber security and other areas of information technology.
DISA is relocating from Arlington, Va., to Fort George G. Meade in Anne Arundel County as part of the Pentagon’s Base Realignment and Closure plan. BRAC, as the plan is known, is expected to bring about 25,000 government and private contracting jobs to Central Maryland. The bulk of those jobs are being shifted to Fort Meade and Aberdeen Proving Ground in Harford County. The BRAC moves are slated to be completed by September 2011.
The shift should create a significant demand for new homes, office space, restaurants and shops supporting the new workers. But few of those moves have taken place yet, leaving many developers to wonder when to expect the demand for those new projects will pick up.
Several projects have been put on hold until that happens, and many developers have been unable to finance their projects until they have signed tenants to take space in them.
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Diversified Restaurant Holdings Inc. has bought nine Buffalo Wild Wings Grill & Bar locations, including three in the Tampa Bay area.
The company, based in Southfield, Mich., said it exercised its option to buy the restaurants in Brandon, Fish Hawk Ranch and Sarasota, plus another three in Michigan, for $3.1 million.
Diversified (OTC BB: DFRH) already managed the locations, which generated $18.3 million in revenue during the nine months ended Sept. 30. DRH’s management fee was 15.9 percent for that time, a release said.
The company received the right to exercise the purchase option as part of its initial public offering in August 2008. The deal was financed through a 6-year promissory note from the sellers, the company said.
Diversified (OTC BB: DFRH) now owns 16 Buffalo Wild Wings locations, including five in Florida.
Whether or not you’re personally convinced that the recession is just about over, those in the big buck mergers-and-acquisitions game are believers.
Biotechnology stocks, for example, have made dramatic gains because investors consider them ripe for picking. Big drug companies want innovative products in place for an economic revival.
Bristol-Myers Squibb recently bought biotech group Medarex Inc. for $15 a share, or $2.4 billion, about a 100 percent premium for Medarex shareholders.
"There are all these biotechnology companies out there that have been dying throughout the recession and unable to get capital or funding," observed Richard Bove, banking analyst with Rochdale Securities of Stamford, Conn.
Other deals include Walt Disney Co. buying Marvel Entertainment Inc., PepsiCo Inc.’s purchase of Pepsi Bottling Group Inc. and, in energy, Baker Hughes Inc. acquiring BJ Services Co.
In pharmaceuticals, there’s been the Pfizer Inc. deal for Wyeth and Merck & Co. acquisition of Schering-Plough. In technology, there’s the Adobe Systems Inc. deal for Omniture Inc. and Oracle Corp. purchase of Sun Microsystems Inc. In candy, Cadbury Plc has been in play since Kraft Inc.’s hostile bid.
"It’s all a sign you can’t keep a good capitalist down, and eventually greed will overcome fear," said James Paulsen, chief investment officer for Wells Capital Management, Minneapolis. "People are saying, ‘Gee, not only are we not going to have a depression, but it looks like we’re actually going to have a recovery.’"
Stock is still available at a "30-percent-off sale price," and there is excess cash lying around, said Paulsen. "That boatload of cash is on hand at so many companies because nine months ago everyone was saying cash was king — even though they were earning nothing on it," he said.
While he doesn’t expect a red-hot M&A market the rest of this year, he thinks it will continue to noticeably improve.
"It seems like a lot is happening because finally, after the whole economic crisis, some deals are actually getting done," said Jonathan Marino of the M&A Journal in New York. "It’s not driven by availability of money because credit markets are just as frozen as they were in May, but many acquirers have cash on their balance sheets."
Cash lets firms avoid issuing stock or paying high loan costs, he said.
"Some of these deals are tacit indication that the companies can’t grow their businesses much beyond what they are now, so they’re looking to fill some holes with key partnerships," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill. "Certain companies reach a ceiling where they are limited in how fast they can grow their revenue organically."
Firms aren’t using their traditional sources of financing, said Nolte. In the case of Kraft, financing for the deal was lined up well in advance of an offer being made.
"It’s really a broad spectrum this year," he said. "We’ve seen deals in the food industry, entertainment, technology and oil industry."
There will be windfalls for some investors. Greatest gains typically fall to those holding shares of the company being bought, especially if there are several competitors due to a hostile bid. Meanwhile, the acquiring firm’s stock often suffers on worries over whether the merger is logical or could stretch finances too thin.
Investors are buying a variety of shares in the likely target industries. Much of the acquisition activity will take place in digestible smaller firms, along with some larger companies if they have strong product lines.
The fact that mining company BHP Billiton has built up $18 billion in cash, for example, has investors looking at its possible acquisition of Freeport-McMoRan Copper & Gold Inc., Potash Corp. or Anglo American Plc.
Nonetheless, everyone is still into low risk these days. Lenders aren’t over-lending, individuals aren’t overpaying for houses, most firms aren’t expanding their business, and assets are still priced for "the depression that wasn’t," Paulsen said.
The 2009 merger environment is "high risk and high reward," according to a recent report by the Transaction Services unit of PriceWaterhouseCoopers. It believes a number of deal makers, including private equity firms, are eager to get back to business. While some companies will merge for survival, others will simply decide it is a good time to combine with a partner to prepare for an uptick in the economy.
Here are the sectors best-positioned for mergers and worthy of monitoring by investors, according to the PriceWaterhouseCoopers partners:
— Technology is "poised for another wave" of consolidation because many of its companies have mature business models and healthy balance sheets.
— Energy is experiencing greater stabilization in crude oil prices. This industry features excellent cash flow and growth prospects that make it a "consolidation hot spot."
— Pharmaceuticals and health care are now in the merger "spotlight," no matter what type of reform may be passed in Washington. Drug companies are seeking to fill their product pipelines through acquisitions, while some health care companies will be realigning their business models to take advantage of a new industry environment.
— Financial services consolidation will be "rampant," driven by mergers of necessity based on the distressed circumstances of some competitors. There will a flight to quality banks in the top one-fourth of the banking industry because they aren’t so hamstrung by government oversight.
Great. The global economy finally starts to show signs of emerging from the recession and now a possible trade war between the U.S. and China is throwing a monkey wrench into the recovery.
The U.S. just slapped a 35% tariff on tires imported from China, beginning Sept. 26.
And in a move that doesn’t look like mere coincidence, the Chinese government announced Sunday that it is launching a probe into possibility of the U.S. dumping auto parts and chickens on the Chinese market.
This is not good news. This spat could have a major impact on more than just Goodyear Tire & Rubber (GT, Fortune 500), Cooper Tire & Rubber (CTB) and poultry producer Tyson Foods (TSN, Fortune 500).
If the tension between the U.S. and China escalates into a full-blown bout of global protectionism, we might need to kiss the notion of an economic recovery goodbye. This could be the start of that much-feared double dip into another recession.
Or as Michael Corleone said in an often parodied line from the "The Godfather: Part III": "Just when I thought I was out … they pull me back in!"
On the one hand, it makes sense for the White House to try and enforce existing trade laws so that U.S. tire makers can compete more effectively with cheaper tires imported from China.
The trade deficit with China has soared in recent years, hitting a record high in 2008. This is a concern for obvious reasons: If we continue to buy a lot more from China than we sell to them, more U.S.-based manufacturing jobs could be lost.
"It’s not uncommon for the government to side with certain industries to protect American workers," said Keith Hembre, chief economist with First American Funds in Minneapolis. "These tariffs wouldn’t be happening if the unemployment rate was substantially lower."
But we’ve been down this road before. The launching of tariffs during a severe economic slowdown has done more than harm than good in the past.
Many historians blame the Smoot-Hawley Tariff Act of 1930, which raised tariffs to their highest levels ever, for making the Great Depression worse.
Protectionism is a bad idea. In this increasingly globalized economy, it just doesn’t make sense to alienate trading partners.
"One would hope we can avoid more of this. There is no positive side to raising tariffs," said Kurt Karl, chief U.S. economist with Swiss Re. "In this global crisis, you want global cooperation. This doesn’t help."
And that’s especially true with China since it is also the largest foreign holder of U.S. Treasury debt, owning about $776 billion of Treasurys as of June.
If the Chinese stopped buying Treasurys — or worse started selling them en masse — it could have a catastrophic effect on the dollar and the nation’s fiscal state as a whole.
"A trade war would be very detrimental to the U.S. and the global economy," said Michael Pento, chief economist with Delta Global Advisors, Inc., a money management firm. "We should have fair, open trade. But our banker right now is the Chinese, and it’s best not to bite your banker’s hand."
Karl isn’t too concerned that China would dump Treasurys. He argues that would be the equivalent of China shooting itself in the foot since it would further erode the value of its holdings.
Nonetheless, Karl does worry that China could retaliate against the tire tariff with tariffs of its own and even more government subsidies of Chinese manufacturers. That could make the trade deficit worse.
But at least one economist thinks cooler heads will eventually prevail and that the brouhaha over tires won’t lead to the China and U.S. levying more tariffs on other goods.
Michael Strauss, chief economist with Commonfund, a money management firm based in Wilton, Conn. said there is not going to be a repeat of the mistakes of Smoot-Hawley.
Strauss said both the U.S. and Chinese are smart enough students of economic history to know that the last thing the world needs now is for arguably the two most important economic powers to turn a spat over tires and chickens into something that could derail a global rebound.
"This is not that big of a deal. You get these battles once in a while and they pass. This is not reminiscent of what happened 80 years ago," he said. "Deep down, the U.S. and China know that they need one another. There’s going to be more negotiation than retaliation."
Here’s hoping that he’s right.
Talkback: Would a trade war between the U.S. and China be a bad thing? Or should the U.S. be more protectionist to try and save jobs? Share your comments below.
Central clearing of privately traded derivatives contracts won’t be enough to make the $600 trillion sector safe, while clearing of some bespoke trades may not be desirable, the Bank of International Settlements said.
The lack of transparency in parts of the over-the-counter (OTC) derivatives market has alarmed regulators, particularly after U.S. insurer AIG nearly failed last September when it faced massive collateral calls on contracts.
Lehman Brothers and Bear Stearns were also involved in OTC derivatives and when they crashed last year market participants did not know their exact exposures to the two banks.
The G20 group of countries agreed in April that credit default swaps, an insurance-type derivatives product at the heart of AIG’s problems, should be centrally cleared.
A central counterparty (CCP) is widely seen as reducing risk and improving transparency in markets by ensuring there is a default fund at hand in case one side of a trade fails.
Clearing of CDS contracts has already begun in the United States and the European Union but the BIS’ latest quarterly review said on Sunday this is not enough.
“The introduction of CCPs alone, however, is not sufficient to ensure that OTC derivatives markets operate efficiently and remain resilient,” the review said.
“It is important to complement the introduction of CCPs with improvements in trading and settlement infrastructure,” the review said totally free credit score.
“Finally, introducing CCPs for nonstandard, custom-made OTC derivatives may not be feasible or even desirable,” it added.
The BIS said OTC markets have been an engine of financial innovation and continue to offer cost-effective and well-tailored risk reduction products.
Preserving the incentives to create new financial instruments is important and OTC markets have clear advantages, the BIS said.
“As new contract types become more widely used, however, the overall benefits from using a central counterparty will likely outweigh the flexibility offered by the over-the-counter format,” the review said.
The U.S. Treasury wants as much standardization as possible of OTC contracts and for standardized products to be not only centrally cleared but also traded on an exchange if possible.
The EU’s executive European Commission is also studying likely regulation but so far has stopped short of saying trades should migrate to exchanges.
The United States and the EU say clearing must be done locally so that authorities can access data on trades, which has led to several clearing services being set up on both sides of the Atlantic to ensure competition.
Hundreds of thousands of first-time homebuyers across the country have begun to claim their tax credits, according to new government data released on Friday.
So far, nearly 315,000 people have claimed the tax credit after filing an amended 2008 tax return, according to a Treasury Department report on the status of the Recovery Act.
California led all states with 42,304 claimed credits.
Eligible first-time homebuyers can claim the credit of up to $8,000 — or 10% of the home’s value, whichever is less — on either an amended 2008 return or on their 2009 return.
Treasury’s figures more than likely sharply underestimate the real number of people who have taken advantage of the credit because many homebuyers have not yet claimed it on their tax return.
According to a recent National Association of Realtors survey, about 1.1 million first-time homebuyers have used the credit. NAR expects that number to grow to about 1.8 million by the time the credit expires on Nov. 30.
The discrepancy between Treasury and NAR probably stems from the fact that a majority of eligible first-time homebuyers have opted to wait to file for the credit on their 2009 returns, which they can file in early 2010.
State-by-state data. The Treasury figures show how some of the hardest-hit states during the housing downturn are now among the states with the largest numbers of claimed tax credits.
California, Georgia, Florida, Arizona and Michigan are all in the top 10, when it comes to claiming the credits. Though part of that is likely skewed by population figures, other large states like New York and Virginia have been left in the dust payday loans.
"We’re seeing some big increases in many of the areas with the biggest price corrections," said NAR spokesman Walter Maloney. "That’s no coincidence."
A National Delinquency Report from the Mortgage Bankers Association showed that California, Florida, Arizona and Nevada combined accounted for 44% of all foreclosure starts during the quarter. Last quarter, the Cape Coral metro area in Florida recorded the largest decline in home prices: 52.8% to $84,000, according to a NAR report.
After California, Texas and Florida were the next states with the largest number of claims, with over 29,000 each. Arizona had nearly 9,300 claims and Nevada rounded out the top 20, with 5,259.
Most of the smaller states made up the bottom of the list, with Vermont’s first-time buyers bringing up the rear, claiming just 351 credits.
Applying for the credit is as easy as filing income taxes. First-time homebuyers just have to claim it on their return — no other forms or papers have to be filed.
National Association of Realtors estimated an extra 350,000 sales will occur this year, solely because of the credit. The National Association of Homebuilders, more conservatively predicted 165,000 extra home sales.
The U.S. central bank must resist popular pressure to keep interest rates too low as the economy recovers, according to a top Federal Reserve official.
Kansas City Federal Reserve President Thomas Hoenig, in remarks at a private meeting last month that were released on Saturday, also said that top U.S. banks were still too highly leveraged, and would evade demands to raise more capital.
“As we become more confident that we are at the bottom of the recession and are moving into recovery, we must become more resolute in systematically reducing our balance sheet and raising interest rates,” Hoenig told the annual meeting of the Kansas Bankers Association on August 6.
The Fed has cut interest rates to almost zero and doubled its balance sheet to around $2 trillion to keep credit markets from seizing in panic after investment bank Lehman Brothers failed last September amid massive losses on mortgage debt.
“Moving from zero to one percent, for example, is not a tight policy. I don’t know what the neutral rate is, but I am certain it isn’t zero,” Hoenig said.
“Neutral” refers to a level of interest rates that neither stimulates nor hinders growth. The Fed reiterated at its August 12 policy meeting that the weak economy would warrant exceptionally low interest rates for an extended period.
Hoenig, who is regarded as one of the Fed’s most hawkish, or anti-inflation officials, will be a voting member of its policy-setting committee next year auto loan.
“We are carrying more debt than we have carried in most of our history, and the pressure to keep rates low is only going to increase as the economy begins to recover,” he said.
Hoenig said mixed signals from the economy indicate that the bottom of the recession had been reached, but predicted only a gradual recovery as businesses and households work off the consequences of the collapse of the U.S. housing market.
“In this environment, one of the Federal Reserve’s major challenges will be how to pull back its highly accommodative monetary policy without undermining the recovery and without igniting inflationary expectations,” he said.
Hoenig’s speech was on the implications of leverage and debt. He said that the country’s 20 largest banks had far less equity capital than their smaller rivals, controlling $12 trillion in assets but supported by just 3.5 percent of equity capital versus 6 percent for the next 20 largest firms.
“Some proposals being offered would require large institutions to hold more than this level of capital,” he said, referring to the 6 percent threshold. “I would suggest such proposals are wishful thinking and will not be achieved.”
(Reporting by Alister Bull, editing by Vicki Allen)
Federal Reserve Chairman Ben Bernanke said the huge amounts of money the U.S. central bank has pumped into the economy will not undercut its ability to push borrowing costs higher when the time is ripe.
Stressing that the weak U.S. economy will likely warrant exceptionally easy policies for a long time to come, Bernanke outlined in a newspaper opinion piece how the Fed could raise interest rates even with cash flooding the financial system.
"Accommodative policies will likely be warranted for an extended period," Bernanke wrote in the article published on the Wall Street Journal’s Web site. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."
The outline of the Fed’s "exit strategy" from the extraordinary monetary policy easing it has undertaken offers a preview of testimony Bernanke will deliver to Congress on Tuesday as he presents the Fed’s twice-a-year economic report.
Investors showed little reaction to the article.
"It doesn’t look like he’s sounding too anxious or urgent about removing excess stimulus from the system," said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.
The Fed has lowered benchmark overnight rates to near zero and pumped more than $1 trillion into financial markets to counter the worst banking crisis since the Great Depression and one of the most severe recessions in decades.
Some economists have expressed alarm that the U.S. central bank’s aggressive policies may have sown the seeds for an outburst of inflation when economic activity picks up.
Bernanke acknowledged the massive accumulation of bank reserves at the Fed could fuel unwanted price pressures when banks find more opportunities to lend money.
Fed’s tool box
But to soothe those worries, he described in detail the tools the Fed has at its disposal to raise borrowing costs and withdraw that money from circulation.
Fed officials have devoted extensive energy to thinking about their strategy for exiting from one of the most aggressive central bank responses to a financial crisis in U.S. history, he said.
"We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner," he said quick cash loans.
Chief among these is the Fed’s ability to pay interest on the reserves that banks hold at the Fed, Bernanke said. The interest rate the Fed pays on those reserves sets a floor under short-term rates.
If the Fed raises that rate, it can discourage banks from lending because banks will not want to lend money at rates lower than they can earn from the Fed, he explained.
Bernanke said the U.S. central bank also has other ways to raise short-term interest rates and limit the broad growth of money in the financial system.
For instance, it can arrange so-called reverse repurchase agreements with financial firms. The Fed would sell securities from its portfolio, taking cash out of the system, with an agreement to buy them back at a higher price at a later date.
The Fed could also offer "term deposits" similar to certificates of deposit to banks. Bank funds held at the Fed in such instruments would not be available for lending.
He also said the Treasury could issue securities and leave the funds on deposit with the Fed. Alternatively, he said the Fed could sell some of the securities it has accumulated.
While policy-makers have more fully turned their attention to how they might withdraw support for the economy, as opposed to how they might increase it, Bernanke made clear the central bank did not believe the economy was healthy enough for officials to remove easy money policies any time soon.
"As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period," Bernanke said.
While interest rate futures markets have toyed with the notion the U.S. central bank could begin to push interest rates up by the end of the year, most economists think a rate hike is further off.
In a research note, economists at Goldman Sachs said they did not see anything in Bernanke’s remarks that was at odds with their forecast that the Fed would hold rates near zero at least through the end of next year.
One year ago, on July 3, 2008, oil prices settled at a record high — a once-unthinkable $145.29 a barrel
On Thursday, it settled at $66.73, less than half the record price, following a $2.58 decline.
In between, a global demand surge morphed into a global economic slowdown — one that would drive the price of oil as low as $33.87 in December — followed by the partial recovery that has been underway since.
A year ago, oil was driven higher by two factors. One was the emergence of new global economic powers such as China, India and Russia, competing with the United States and the West for the world’s oil. The other was a weak dollar, the currency of crude trading.
"Last year, we had a very weak dollar at the same time that we had very strong demand, insatiable demand," said James Cordier, founder of OptionSellers.com, a commodity brokerage.
But first, the high oil prices led to a curb in that demand. Then, weakness in the housing market and instability in the banking sector following the collapse of Lehman Brothers began to weigh on the world’s economies — particularly in the United States, the world’s biggest oil consumer.
Confidence shriveled, and investors pulled cash out of assets that involved risk — such as oil and stocks — and moved cash into the safe haven of Treasury debt.
Oil and Wall Street: Oil prices and stocks have moved in tandem since last fall, dragging each other lower and then helping each other higher.
From July 3 to Dec. 19, the S&P 500 fell 30%. But in the same period, oil prices sank 77%.
The S&P 500 and the Dow Jones industrial average fell to 12-year lows on March 9. Between then and June 11 — the recent peak for stocks — the S&P 500 gained 43%. The rally in stocks has since stalled.
Oil prices, while they fell harder in the fall, also bounced back stronger than Wall Street. Crude futures doubled, topping $70 a barrel in early June. In recent sessions, oil’s run-up has taken a breather, just as Wall Street has.
The reason that oil price swings are more extreme than the swings in the stock market is due to the heavy participation in the oil market by speculators, according to Cordier instant cash advance.
"We have oil supplies at a 20-year high at a time when demand is falling at the fastest pace on record," said Cordier. Based on supply and demand, oil should likely still be hovering closer to the yearly low around $33 a barrel, he said.
Since taking office in January, the Obama administration has been spending at an unprecedented clip to stimulate the economy. Optimism about a boost in demand pushed oil prices.
"This (recent) rally to $75 was extremely speculative," said Cordier. "It was based on green shoots — it was based on feeling that the economy was going to recover."
Dollar weighs in: Crude is a dollar-denominated commodity. When the dollar weakens against other currencies, the price of crude goes up.
Last year, the rally in crude was supported by a weak dollar. A weak dollar helped oil recovered from its lows in December, too. But oil prices only climbed half as high in the front half of 2009 as in the first six months of 2008.
"This year, we have a weak dollar, but we don’t have any demand," Cordier said.
He expects the recent rally in the price of oil to lose its legs.
"When headlines read in August or September that unemployment hit 10%, that will be a shock to the investors’ system and then oil will start to trade on its fundamentals — and that will be in the $50 to $55 range," Cordier said.
On Friday, the government reported that the unemployment rate increased to 9.5% in June.
Gasoline: Gasoline prices have risen along with oil. But the record for a gallon of $4.114 was set two weeks after the crude mark, on July 17, according to the daily survey conducted for motorist group AAA.
On Friday, the national average fell 0.1 cent to $2.629 a gallon — about a dollar above its recent lows set at the start of the year.
NYSE Euronext said it had signed a deal with Depository Trust & Clearing Corp (DTCC) to form a joint venture for clearing U.S. fixed income derivatives.
The new clearing house, New York Portfolio Clearing, will combine the NYSE Euronext’s U.S. futures exchange and DTCC’s Fixed Income Clearing Corp to offer risk management, clearing and settlement efficiencies for U.S. fixed income securities and derivatives.
NYSE Euronext, the world’s top exchange operator by the size of its listings, said it planned to commit a $50 million financial guarantee as an additional contribution to back the NYPC default fund same day payday loans.
The New York Stock Exchange parent company said the joint venture has been approved by both companies and was expected to be operational in the second quarter of 2010.
The company has also named Dennis Dutterer as interim chief executive of the new clearing house. NYSE Euronext’s shares closed at $27.08 Wednesday on the New York Stock Exchange.
(Reporting by Chakradhar Adusumilli in Bangalore; Editing by Dan Lalor)
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