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Wall Street Sheds Morning Gains

February 26, 2013 by Leave a Comment

After beginning the day with a partial rebound from Monday’s steep drop, stocks on Wall Street gave up some of their gains Tuesday in the course of Congressional testimony by Ben S. Bernanke, the Federal Reserve chairman.

In afternoon trading, the Standard Poor’s 500-stock index was up 0.1 percent, while the Dow Jones industrial average rose 0.6 percent. The Nasdaq composite index was down 0.2 percent.

In his prepared testimony before the Senate Banking Committee, Mr. Bernanke defended the Fed’s bond-buying program and said the economy was growing at a “moderate if somewhat uneven pace.” Senators were questioning him on the prospects for a global currency war and the potential economic effects of the latest budget impasse in Congress.

The major indexes fell more than 1 percent on Monday, with the S.P. 500 recording its biggest daily drop since November. The falloff came as investors fretted that if Italy does not undertake reforms, the euro zone could once again be destabilized. The Euro Stoxx 50 index was off more than 3 percent in late trading Tuesday.

Groups in Italy opposed to economic reforms posted a strong showing in the recent election, resulting in a political deadlock with a comedian’s protest party leading the poll and no group securing a clear majority in Parliament.

“We’ve gone to an environment of political stability to instability, and until we get some type of clarity over who is in charge, which could take days, the market will have renewed concerns,” said Art Hogan, managing director of Lazard Capital Markets in New York.

Still, market participants speculated that a coalition government would eventually emerge in Italy and ease worries about a new euro zone crisis.

The early market gains suggested the recent trend of investors buying on dips would continue. Last week, concerns that the Federal Reserve might roll back its stimulus efforts earlier than expected prompted a sharp two-day decline, though equities recovered most of the lost ground by the end of the week.

“Investors are taking advantage of the drop, and once some kind of coalition government is formed, most of our concerns will be put to rest,” Mr. Hogan said.

Home Depot reported adjusted earnings and sales that beat expectations, sending shares up more than 5 percent.

Macy’s rose 3.1 percent after stating it expected full-year earnings to be above analysts’ forecasts because of strong sales in the holiday period.

For the benchmark S.P. 500, 1,500 points will be watched as a key benchmark after the index closed below it on Monday for the first time since Feb. 4, with selling accelerating after falling below it. An inability to break back above it could portend further losses.

Financial shares may be among the most volatile, as that sector is closely tied to the pace of global economic growth. Morgan Stanley was one of the top percentage losers on the S.P. on Monday, dropping more than 6 percent on concerns about the company’s exposure to European debt. It was up 0.4 percent.

This article has been revised to reflect the following correction:

Correction: February 26, 2013

Because of an editing error, an earlier version of this article misidentified the Senate panel before which Ben S. Bernanke, the Federal Reserve chairman, was testifying Tuesday. It was the Banking Committee, not the Finance Committee.

 

Article source: http://www.nytimes.com/2013/02/27/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Wall Street Stages Partial Rebound

February 26, 2013 by Leave a Comment

After beginning the day with a partial rebound from Monday’s steep drop, stocks on Wall Street gave up their gains Tuesday in the course of Congressional testimony by Ben S. Bernanke, the Federal Reserve chairman.

In late morning trading, the Standard Poor’s 500-stock index was essentially flat, while the Dow Jones industrial average was up 0.4 percent. The Nasdaq composite index was down 0.1 percent.

In his prepared testimony before the Senate Banking Committee, Mr. Bernanke defended the Fed’s bond-buying program and said the economy was growing at a “moderate if somewhat uneven pace.” Senators were questioning him on the prospects for a global currency war and the potential economic effects of the latest budget impasse in Congress.

The major indexes fell more than 1 percent on Monday, with the S.P. 500 recording its biggest daily drop since November. The falloff came as investors fretted that if Italy does not undertake reforms, the euro zone could once again be destabilized. The Euro Stoxx 50 index was off more than 3 percent in late trading Tuesday.

Groups in Italy opposed to economic reforms posted a strong showing in the recent election, resulting in a political deadlock with a comedian’s protest party leading the poll and no group securing a clear majority in Parliament.

“We’ve gone to an environment of political stability to instability, and until we get some type of clarity over who is in charge, which could take days, the market will have renewed concerns,” said Art Hogan, managing director of Lazard Capital Markets in New York.

Still, market participants speculated that a coalition government would eventually emerge in Italy and ease worries about a new euro zone crisis.

The early market gains suggested the recent trend of investors buying on dips would continue. Last week, concerns that the Federal Reserve might roll back its stimulus efforts earlier than expected prompted a sharp two-day decline, though equities recovered most of the lost ground by the end of the week.

“Investors are taking advantage of the drop, and once some kind of coalition government is formed, most of our concerns will be put to rest,” Mr. Hogan said.

Home Depot reported adjusted earnings and sales that beat expectations, sending shares up more than 5 percent.

Macy’s rose 2.6 percent after stating it expected full-year earnings to be above analysts’ forecasts because of strong sales in the holiday period.

For the benchmark S.P. 500, 1,500 points will be watched as a key benchmark after the index closed below it on Monday for the first time since Feb. 4, with selling accelerating after falling below it. An inability to break back above it could portend further losses.

Financial shares may be among the most volatile, as that sector is closely tied to the pace of global economic growth. Morgan Stanley was one of the top percentage losers on the S.P. on Monday, dropping more than 6 percent on concerns about the company’s exposure to European debt. It initially rose 0.8 percent on Tuesday, but was down 0.5 percent by late morning.

This article has been revised to reflect the following correction:

Correction: February 26, 2013

Because of an editing error, an earlier version of this article misidentified the Senate panel before which Ben S. Bernanke, the Federal Reserve chairman, was testifying Tuesday. It was the Banking Committee, not the Finance Committee.

 

Article source: http://www.nytimes.com/2013/02/27/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Economic View: A Liberal Obama vs. a Moderate Obama in the Fiscal Debate

November 25, 2012 by Leave a Comment

Here is the dialogue, as I imagine it, between the two policy wonks — the Moderate Obama and the Liberal Obama — struggling for control of the president’s soul.

THE MODERATE OBAMA: I am sure glad the election is behind us. I was really getting tired of giving all those platitudinous campaign speeches …

THE LIBERAL OBAMA: Yeah, me too.

MOD: … and beating up on Bain Capital.

LIB: Actually, I enjoyed that. It’s fun to make the plutocrats squirm.

MOD: The good news for the nation is that we can now resolve the budget impasse quickly and avoid the fiscal cliff.

LIB: Really? I don’t see how.

MOD: Didn’t you listen to Speaker Boehner’s press conference the other day? He’s finally conceded the need for more tax revenue. He is ready to throw Grover Norquist’s tax pledge under the bus.

LIB: You think Boehner is ready to raise income tax rates for the rich? I don’t think so.

MOD: Well, sure, he won’t agree to increase tax rates, but he is ready to increase tax revenue by broadening the tax base. As long as the rich pay more, I don’t care how we do it.

LIB: We tried negotiating this back in 2011, and nothing came of it. What’s new here?

MOD: The election is over. The Republicans are ready to make a deal.

LIB: I’m not sure I believe that. But let’s say it’s true. Can we raise enough money that way?

MOD: According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we’d raise $749 billion in tax revenue over 10 years. And 96.2 percent of the extra revenue would come from the top fifth of taxpayers, with 79.9 percent from the top 1 percent.

LIB: I have a couple of concerns about that.

MOD: What?

LIB: First, if you limit deductions, people in high-tax states will be hit particularly hard, because state and local taxes are deductible.

MOD: Isn’t that fair? I don’t see why states and towns that choose to have very high taxes should be subsidized by everyone else.

LIB: These states generally have liberal agendas, which I want to encourage, not penalize. And many of them, like New York and California, vote Democratic. After they helped us win such a great victory, I don’t think we should be asking our allies to bear a disproportionate share of the burden.

MOD: O.K., what’s your other concern?

LIB: I don’t think that $749 billion is enough revenue to solve the long-term fiscal problem.

MOD: By itself, it won’t solve the problem. We’ll need to combine it with reforms on the spending side. Maybe we should gradually but significantly increase the ages of eligibility for Social Security and Medicare.

LIB: Our signature achievement in the first term was to make the social safety net more generous with Obamacare. (I’ve really come to like that term.) I don’t want to devote our second term to undermining the safety net by making Social Security and Medicare less generous.

MOD: But we promised a balanced approach. That meant raising taxes on the rich, together with substantial reductions in government spending.

LIB: We should start by cutting military spending.

MOD: Maybe, but that’s not the main source of our long-term fiscal imbalance. Spending on entitlements is.

LIB: Then why don’t we focus on bending the cost curve for health care?

MOD: Sure, everyone would like to pay less for health care without reducing its availability or quality. But it’s not so easy.

LIB: We have lots of great ideas: increased preventive care, greater reliance on health information technology, more research on the cost effectiveness of alternative procedures.

MOD: That all sounds good, but it ultimately might not amount to very much savings. I am afraid that you’re being tempted by wishful thinking.

LIB: We’ve barely started. Look at Europe. They have a more robust social safety net than we do.

MOD: True, but they pay for it by taxing the middle class more heavily. They impose a value-added tax, for example. We just promised that we wouldn’t raise middle-class taxes. Besides, Europe’s fiscal picture doesn’t look very pretty, either.

LIB: Then we’ll just have to raise taxes on the rich even more.

MOD: What are you proposing?

LIB: We can both broaden the base and raise the top tax rates. The economist Peter Diamond, whom we tried to appoint to the Federal Reserve, has calculations suggesting that the top tax rate should be 73 percent. That is close to the 75 percent rate that President Hollande of France is now pursuing.

MOD: Are you nuts? I don’t want to become France.

LIB: We don’t have to go that far, but we can go higher than where we are now. California just created a new tax rate for married couples earning more than $1 million a year and singles earning more than $500,000. Maybe the federal government should do the same thing.

MOD: California is not exactly a role model for sound fiscal policy.

LIB: True, the state has had its problems. But it is now coming to grips with them, in a progressive way.

MOD: Let’s face facts: It’s impossible to resolve our fiscal imbalance just by taxing the rich more. The gap between spending and revenue is too big. If we are going to avoid much higher middle-class taxes, we need fundamental entitlement reform. Also, we need to keep Speaker Boehner on board. Even if he wanted to, he could never get the House Republicans to agree to a tax increase as large as you want.

LIB: We’ve got leverage now. If the House doesn’t cave, we can threaten to go over the cliff. The economy would most likely head into another recession, but we could blame it on the Republicans. That prospect should scare them into line.

MOD: Are you really sure that’s the mandate we got from the election?

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to Mitt Romney in the 2012 presidential campaign.

Article source: http://www.nytimes.com/2012/11/25/business/a-liberal-obama-vs-a-moderate-obama-in-the-fiscal-debate.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: ,

Panel to Scrutinize Causes Behind Weak State Budgets

June 24, 2011 by Leave a Comment

Americans who have wondered whether Illinois, California and other troubled states are slouching toward the fate of Greece may get their answer in the coming months.

Richard Ravitch, who won an emergency appointment as New York’s lieutenant governor during the 2009 budget impasse, announced a high-level new project Thursday to untangle the finances of the states and shine a light on their hidden debts.

“Whereas there is enormous public attention to the federal deficit, the problems of the states are very serious and nowhere near very well understood,” he said in an interview. “People have to understand this, and address it with the same degree of gravitas as the federal deficit problem.”

Mr. Ravitch will lead the project together with Paul A. Volcker, the former Federal Reserve chairman who is credited with wringing double-digit inflation out of the United States economy in the 1980s.

The project will look into the causes of the current fiscal problems of the states, to what extent they are the result of the 2008 financial crisis, and to what extent they are structural. The difference is important because structural problems will not necessarily go away as soon as the economy picks up again.

In his 17 months as lieutenant governor, Mr. Ravitch expressed concern that New York State’s annual budget dramas had become a self-sustaining chain reaction, with each year’s batch of accounting gimmicks and one-offs feeding an even bigger deficit the following year. Weaknesses in governmental accounting were making the accumulating shortfalls hard to see.

The new research team will also look at the way states are carrying out “mandates,” the services they are required to provide under America’s federalist system, like health care for the indigent. Since the 2008 crisis, the states have complained that they are legally bound by mandates they no longer have the resources to carry out. With the Obama administration’s fiscal stimulus running out this summer, the stage is being set for a major challenge of federalism.

In addition to studying the cause of the states’ problems, the research team will explore possible solutions, but not prescribe any course of action. States are considered sovereigns under law, and imposing new requirements on them is difficult, as the Obama administration has learned through the current court battle over the health care overhaul.

To keep the research from becoming unwieldy, the group will start by studying just five states: New York, Illinois, California, Texas and Virginia. Texas was chosen because it is prosperous but still has a significant budget deficit. Virginia was added to the mix because many observers believe it has the best fiscal practices. Illinois and California are on the list because of their low credit ratings.

New York State is on the agenda because of the size and complexity of its system of public authorities, which operate enterprises like hospital systems and toll roads, and are not bound by the rules that limit the amount of debt the state itself can issue.

Mr. Ravitch became interested in tracking state indebtedness during his abbreviated term as lieutenant governor. Known as a skilled negotiator who helped New York City avert bankruptcy in the mid-1970s, he was brought in to help with a budgeting process that had broken down. He dug into the state’s finances, saw that years of budget sleight-of-hand had papered over a major imbalance, and drafted a broad fiscal reform proposal.

His approach was to allow limited borrowing to cover operating expenses only if the state broke with the accounting skullduggery of the past. But his ideas were rejected by Gov. David A. Paterson and then by Andrew M. Cuomo, who was attorney general before becoming governor.

Sidelined, Mr. Ravitch continued to investigate New York State’s finances and to look for parallels with other states. He discovered an array of unsound practices, like using long-term debt to pay for short-term expenditures. In some cases, officials were violating conventional accounting practices, like selling public assets and treating the proceeds as found money.

In other cases, special accounting rules for governments were themselves at fault, making it possible for states to promise valuable retirement benefits to their workers without recording the true cost. (The accounting rule-making board for governments is slowly working on changes.)

Mr. Ravitch was surprised at how little uniform, accurate data existed, and eventually he decided to compile a database himself. Since completing his term as lieutenant governor in December, he has been raising the money from nonprofit foundations.

He and Mr. Volcker have assembled an advisory board from both political parties that includes several former cabinet members, Nicholas F. Brady, Joseph A. Califano Jr. and George P. Schulz, and the creator of revenue-sharing, Richard Nathan, among others.

The project will be led by Donald J. Boyd, currently a senior fellow at the Rockefeller Institute of Government in Albany.

Mr. Ravitch unveiled the research initiative in a speech Thursday at the Federal Reserve Bank of Chicago, which is holding a conference on the issue of fiscal sustainability.

Article source: http://feeds.nytimes.com/click.phdo?i=1d7c8dfc921e7a95c9521adf56789fe2

Filed Under: Economy News Tagged With: , ,