Johnson & Johnson Recalls Sudafed Because of a Typo

Johnson & Johnson's (JNJ) recall woes aren't over yet. The company's McNeil Consumer Healthcare unit said Thursday it is recalling nine lots of Sudafed because of a typographical error in the directions. Yes, a typo.

The recall affects 667,632 packages, according to Bloomberg, which first reported the recall. McNeil is recalling, at the wholesale level in the U.S., the over-the-counter allergy and cold medicine Sudafed 24 Hour Extended-Release Tablets (10-count packs, 240 mg each) because the instructions repeat the word "not" as follows: "do not not divide, crush, chew, or dissolve the tablet."

The internal packaging contains the proper instructions: "swallow each tablet whole; do not divide, crush, chew, or dissolve the tablet." The company further says in its statement: "To date there have been no reports of adverse events caused by this labeling error."

In a previous Sudafed recall in January, which was part of a larger one, the company said it had found insufficient equipment cleaning procedures on the production line. "McNeil identified the inadequacies as part of a thorough, proactive quality and process assessment of all McNeil produced products," the company said in a statement.

A String of Recalls That Started in 2009

The largest consumer health care company's recall woes began in 2009. In April 2010, J&J initiated a huge recall of over-the-counter children's medicines, such as Tylenol and Motrin, because of manufacturing deficiencies that affected the quality, purity and potency of the products. These recalls were the subject of two Senate investigations, and the Oversight Committee hearings revealed cover-ups and phantom recalls.

In response, J&J suspended manufacturing at its Fort Washington, Penn., plant, made changes at a plant in Puerto Rico, and has been conducting a complete review of its products, leading in some cases to further recalls. It was expected that as the product reviews proceeded, there might be additional recalls.

And J&J has had to pull other products along the way, as well, including its 1 Day Acuvue TruEye contact lenses in Japan, its cancer drug Velcade and a hip implant. Also, children's Benadryl and heartburn drug Mylanta were recalled. WSJ Health Blog lists all the recalls it has kept track of, including three just this past month. While some of the recalls were generally harmless, others, such as for the hip replacement, were far from it.

On top of the investigations by regulatory bodies and lawmakers, loss of confidence by consumers and investors alike, J&J also said the recalls cost $900 million in sales last year. The company that was once a symbol of quality -- in product, business and management -- is becoming a caricature of itself.

View all Articles » Stock Market Writer and AnalystMelly Alazraki is a ten-year veteran of the financial world, working internationally for both sell and buy side firms. She's been a contributing editor with BloggingStocks for nearly four years and writes about the stock market and pharmaceutical industry for DailyFinance.

Read More

View the original article here

Justice Denied: Why Countrywide Chief Fraudster Mozilo Isn't Going to Prison

Angelo Mozilo, the former head of Countrywide Financial, isn't going to jail. In fact, he won't even face a trial in which there's a chance of going to jail -- nor will he experience the stress of being charged.

Countrywide's vast numbers of fraudulent mortgages -- which were created to feed a securitization machine, not to secure repayment of properly underwritten loans -- may still doom Bank of America (BAC), which purchased Countrywide in 2008. Countrywide was such a bad actor it was sued by 11 attorneys general, leading to an $8.7 billion predatory lending settlement.

Sufficient evidence of Mozilo's knowledge of -- indeed, his direction of -- Countrywide's bad deeds existed for him to accept a record $67 million settlement with the Securities and Exchange Commission. As large as that was, from the point of view of anyone looking for justice, the deal was entirely unsatisfactory. First, because Bank of America picked up most of the tab. Second, because even if Mozilo had paid the full amount, it would only have been about half of the $132 million he took home in 2007.

The New York Times reported this weekend on a Countrywide whistle-blower -- Michael Winston -- who wouldn't play ball with the company's practices, and was fired as a thank you. A jury awarded him $4 million as compensation for the firing. Surely Winston could have been a witness for the prosecution. But the prosecutors have dropped the case.

Mark Malone, a former federal and state prosecutor who spent eight years prosecuting the mob, white collar criminals and political corruption, said:

"Mozilo was the boss of bosses of predatory lending. He was the inspiration for MERS, the electronic database used to facilitate much of the fraud surrounding predatory lending, mortgage securitization and fraudulent foreclosure practices. If prosecutors are not going to go after low-hanging fruit like Mozilo, the rest of the bankster bosses can sleep well, assured that their fortunes are secure.

Why No Bankers Have Been Charged

Mozillo is just one of a line of financial crisis titans -- in my opinion, crooks -- who are not being criminally charged. And in the little civil justice pursued so far, not only have judges questioned the lightness of the settlements, but the SEC's top cop, Robert Khuzami, is being investigated for overruling prosecution-minded SEC staff and cutting a sweetheart deal for a couple of Citibank (C) executives.

So what is going on? After all, we're a nation that takes fighting crime so seriously we use SWAT teams and submachine guns to pursue marijuana possessors and dealers. And we go after some white-collar crime aggressively, such as targeting insider trading with wiretaps and informants. We even convicted some of the Enron guys, and jailed a big law partner for facilitating the Refco fraud.

But not a single architect of the financial crisis that brought America to its knees has yet been charged. And of all the crimes against "the People," the financial crisis ranks as one of the all-time worst.

As Yves Smith at business blog Naked Capitalism touched on, one reason prosecutors aren't acting has to do with the laws and attitudes of the enforcers. Another reason, detailed by Matt Taibbi in Rolling Stone, is the revolving door between the U.S. Attorney's office in the Southern District of New York and the SEC on the prosecution side, and the big firms that defend the crooks. (The SDNY has Wall Street in its jurisdiction. Although the SEC can't bring criminal charges, it investigates and sends cases to the SDNY.) To that list, it's important to add the revolving door between big corporate law firms and the Justice Department in Washington.

When the Cops And Crooks Are Pals

Smith notes in part that the U.S. Attorney's office in New York has set a ludicrously high bar for itself: If conviction isn't 100% certain, don't even bother filing the charges. One result of the must-be-able-to-guaranty-victory standard, Smith says, is that the prosecutors are inexperienced and don't do a good job when they do prosecute, like in the Bear Stearns traders case. Another result is that the criminal statutes have no deterrent effect on white collar crime. Deterrence is based on the certainty of getting caught and prosecuted, not on whether the prosecution will be successful or how severe any punishment would be.

In a follow up, Smith highlights both the lack of resources given to the SEC -- surely a factor -- and the resume-building incentives of SEC staff to go for a bunch of quick settlements rather than a big, time- and resource-consuming jury trial.

Taibbi's piece, if your blood pressure can take it, is worth reading in full. I'll impart only one example of the anti-justice relationship between the SDNY prosecutors and their erstwhile targets, and that's the tale of Gary Aguirre, an SEC staffer wrongfully fired shortly after he tried to investigate an insider trading case.

In the summer of 2005, Aguirre had enough evidence that then-Morgan Stanley (MS) CEO John Mack had supplied inside information to a trader to want to interview Mack. But Aguirre' boss tried to discourage him, citing Mack's political connections. Within a few days, Mack's power was on full display. First, Morgan Stanley had a former top staffer of the "Sheriff of Wall Street" Eliot Spitzer try to dissuade Aguirre. Then the SEC's director of enforcement told Mary Jo White, a Morgan Stanley attorney who was once the U.S. Attorney for the SDNY, that the evidence didn't amount to much, reassuring White.

As Taibbi explained:

Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive -- not handcuff the guy or impound his yacht, mind you, just talk to him. [But] his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division ... Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.

... A month after [Aguirre] complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. ... [Aguirre] had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal."

Observe the switch for White, Lynch and the Spitzer aide, as they jump from policing Wall Street to apparently nipping a worthy insider trading investigation in the bud, and prompting the firing of the person who dared initiate it. Taibbi has more examples in his piece, including, as Smith discusses, Khuzami making inappropriately defense-friendly comments at a high-priced schmooze-fest between Wall Street enforcers and the white collar defense bar.

As Taibbi notes, "over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions."

Attorney General Eric Holder and his top staff have spun through that revolving door too.

The Front Door at Justice Leads into Covington & Burling

Prior to becoming attorney general, Holder was a litigation partner at Covington & Burling in its D.C. office for eight years. In particular, his practice involved "high stakes civil litigation and white collar criminal defense." In 2008, Holder was one of six Covington attorneys ranked top in the country in white collar criminal defense. Another awardee -- and co-chair of the white collar criminal defense department at Covington -- was Lanny Breuer, now the assistant attorney general in charge of the criminal division. The Best in America White Collar Criminal Defense award was one both attorneys had received multiple times. The firm as a whole was "recognized by Chambers USA (2010) as one of the nation's leading firms in the field of Financial Services Enforcement and Investigations."

But the Justice-Covington connection reaches past Holder and Breuer. It includes Holder's recent deputy chief of staff, James Garland, who just rejoined Covington, where he defends white collar criminals. Until rejoining Covington, Garland

"advised Attorney General Eric Holder on a range of enforcement issues, with an emphasis on criminal...matters, and helped to spearhead the Department's response to the ongoing economic crisis. He was deeply involved in the creation of President Obama's Financial Fraud Enforcement Task Force... He worked closely with senior officials at the White House, Main Justice, the U.S. Attorneys' Offices, and other federal, state, and local enforcement agencies." [Bold added]

Remember, folks: "President Obama established the Financial Fraud Enforcement Task Force (FFETF) in November 2009 to hold accountable those who helped bring about the last financial crisis, and to prevent another crisis from happening."

Nor is Garland the only Covington connection to that task force. Partner Steve Fagell was

"a member of the Criminal Division's senior leadership team, [and] a key advisor to Assistant Attorney General Lanny A. Breuer ...[Fagell] was integrally involved, for example, in the formulation and communication of Division policy in connection with...corporate and securities fraud, and other forms of financial fraud. ...Mr. Fagell also coordinated the Division's work with the Financial Fraud Enforcement Task Force and the Financial Crisis Inquiry Commission, and he routinely represented the Division in meetings with the SEC, the FBI, and other key regulators and law enforcement agencies." [Bold added]

Another notable player who recently rejoined Covington is John Dugan, the recent head of the Office of the Comptroller of the Currency. The OCC regulates the big banks. As Covington explains:

"During his five-year term, he led the Office of the Comptroller of the Currency (OCC) through the financial crisis and ensuing recession that resulted in extraordinary regulatory and supervisory actions for national banks of all sizes, including government assistance provided under the Troubled Asset Relief Program (TARP)..."

Partner David Kornblau was the Chief Litigation Counsel for the SEC's Enforcement Division from 2000-05, and then went to Merrill Lynch for four years. At Merrill, Kornblau:

"oversaw the firm's responses to regulatory and law enforcement investigations by the SEC, DOJ, FINRA, New York Attorney General's Office, and other federal, state and foreign regulators. These matters concerned all of the firm's business areas, including subprime mortgage securities..."

Kornblau went from Merrill to Covington. One of his representative matters is "Defend[ing] Merrill Lynch in investigations concerning disclosure and valuation of the company's inventory of subprime mortgage securities."

The Credibility of the Revolving Door

And the list goes on. Indeed, Covington itself notes that:

Our white collar practice includes 30 partners, most of whom are former prosecutors and SEC enforcement attorneys who have held senior positions in United States Attorney's Offices, the U.S. Department of Justice, the White House, the Securities and Exchange Commission, and other government agencies involved in white collar criminal and regulatory enforcement.

Covington claims that its experience has paid dividends: it has " a deep and invaluable reservoir of credibility with courts, prosecutors and regulatory agencies nationwide."

In addition Covington boasts of a deep, decades-long relationship with the financial services industry. That relationship is encapsulated by another recent Covington hire: Edward Yingling, the just retired president and CEO of the American Bankers Association. Covington points out that "The breadth of Ed's experience will be a tremendous asset to our clients" in all types of enforcement actions.

Covington has represented the financial industry in ways relevant to the prosecution of the mortgage fraud and related securities fraud at the center of the meltdown. Check out Covington's "Financial Institutions Investigations" subdivision of its white collar criminal defense division, and its broader "Financial Services" practice descriptions.

Specific matters include representing (taken from various Web pages at Covington except the last):

Freddie Mac in enforcement inquiries initiated by its federal financial regulator (OFHEO) and SEC ...

Two former national bank officers in formal investigations before OCC regarding loan underwriting ...

The former CEO of IndyMac Bancorp in matters arising out of the failure of IndyMac Bank ...

Wells Fargo in litigation ... with respect to securitization of subprime mortgage loans on properties located in Cleveland."

Underwriting syndicate [that is, investment bankers] in a class action alleging securities fraud.

A global financial services firm in an action brought by companies that insured principal and interest payments for a collateralized debt securitization.

MERS (at p. 5.) The presentation by MERS notes its registry was "Supported [by] Covington & Burling legal opinion."

More Than the Appearance of Conflict of Interest

But why does the tight relationship between Covington and Main Justice matter if I'm not alleging specific impropriety of the types Taibbi described? And I'm not. Indeed, as a general matter, outside of prosecuting financial fraud by Wall Street titans, I'm not suggesting that the relationship matters at all. But within that narrow but important context, how happy are you that your top prosecutor (Holder) and his key deputy (Breuer) were award-winning white collar defense partners for the same law firm that their recently departed staff (Garland, Fagell) just joined as partners? That's quite a bridge between enforcers and targets, isn't it? And what did Holder and Breuer learn, and what relationships with the banks and their execs did they develop, while practicing at Covington?

Does it give you a warm and fuzzy feeling to realize that those same two ex-staffers were deeply involved with what is supposed to be the key system for holding the architects of the financial crisis accountable? Are you thrilled that the top bank regulator for the past five years (Dugan) is now working for the banks? And after finishing their turns at Justice, where do you imagine Holder and Breuer will end up? After their previous turns at public service, they returned to Covington.

Malone noted: "Since becoming Attorney General, Holder's Justice Department has been extraordinarily passive in pursuing criminal and civil remedies against the mortgage bankers, securities firms and mortgage servicing businesses at the heart the 2008 collapse of our economy. ... The Covington & Burling relationship provides a glimpse into why the Department of Justice has been so passive."

What should be done about this situation? Well, attorneys are supposed to sit out cases where there's a conflict of interest, even with former clients. The model rule says an attorney is prohibited from representing a client -- and in this hypothetical instance, that client would be "The People" -- whose interests are "materially adverse" to a former client of that attorney or of the attorney's law firm -- that would be Covington's clients -- unless the former client consents. And if consent is given, the attorney can't use information from the former client to the disadvantage of that client, even if it would help the current client. That is, if Holder or Breuer knew some dirt, they couldn't use it.

Given their tenures at Covington, how likely is it that Holder and Breuer are free of conflicts when it comes to pursuing the titans of the financial crisis? Personally, I'd be a whole lot happier if they'd recuse themselves from such matters and name someone else with a strong prosecutorial background but no tenure -- no recent tenure at least -- representing the big banks or Wall Street.

But that's about as likely, I imagine, as criminal indictments of Wall Street.

View all Articles » Abigail Caplovitz Field is an attorney with a solo general practice on Shelter Island, New York. After graduating from NYU Law with honors in 2001, she worked as an associate for a major corporate law firm in New York City, and then as a consumer and good government lobbyist for the New Jersey Public Interest Research Group. Her lobbying duties included identity theft prevention, financial privacy and health care. She's written on topics as diverse as pharmaceutical marketing, toxic pollution, and racial profiling.

Read More

View the original article here

Calm May Have Returned to Egypt, but Not American Tourists

Egypt's pyramids and antiquities museums have reopened after weeks of violent protests in Cairo. A trickle of intrepid European tourists is even flowing into beach resorts like Sharm el-Sheik and Taba. But so far, most Americans are giving Egypt a miss.

"Business is down sharply," says Ahmed Elemam, CEO of Tour Egypt, a Lubbock, Texas-based tour operator that arranges group visits for Americans. "We had to cancel hundreds of thousands of dollars worth of travel."

Stability Equals Nile Cruises

Abercrombie & Kent, a luxury tour company based in Downers Grove, Ill., says it canceled all its Egyptian tours through the end of March. But Pamela Lassers, a spokeswoman for the firm, says its luxurious Nile cruises will resume as of April 1.

"We're very hopeful the situation will resolve itself," she says.

Amr Badr, managing director for Abercrombie in Egypt and the Middle East, reports the situation is stabilizing in Egypt, now that President Hosni Mubarak has stepped down.

"There have been some tangible moves back to normal such as the reopening of the Egyptian Museum," Badr says. "All major tourist sites throughout Egypt are now open and functioning normally." He says his firm has already sent visitors to Cairo locations, and the feedback was very favorable.

Warnings, Uncertainty Hurt Local Economy

Egypt earns upwards of $13 billion a year from its tourism industry -- an integral part of the nation's struggling economy.

But Masood Ahmed, director of the International Monetary Fund's Middle East and Central Asia Department, told a press conference last week the decline in tourism was likely to seriously hurt Egypt.

"The recent popular protests in Egypt will definitely have a short-term economic cost," Ahmed said. "We will see tourism and investment going down, and certainly the 5.5% growth rate that we saw in the last two quarters of 2010 will likely be considerably lower in the next six months."

And that decline in tourism isn't likely to change anytime soon. The U.S. State Department is still warning Americans to stay away from Egypt for "non-essential travel."

"Due to continuing uncertainties regarding the restructuring of Egyptian government institutions, the security situation remains unresolved," the department said in a travel warning posted on its website. "Until the redeployment of Egyptian civilian police is fully restored, police response to emergency requests for assistance or reports of crime may be delayed."

The U.S. government has also ordered the departure of all nonemergency personnel from Egypt. Cairo is one of the largest duty stations in the world, with thousands of U.S. employees administering economic and military aid.

But British Prime Minister David Cameron visited Egypt this week -- and his government is allowing British tourists to return to Sharm el-Sheik and the Red Sea resorts. So has Germany's government.

Other Regional Business Is Stable

Pamela Lassers says there has been no fall off in visits booked by Abercrombie & Kent to other Middle Eastern countries because those tours are usually booked months in advance. For those who canceled vacations in Egypt, she says, the "overwhelming majority" rescheduled for the autumn or took other tours to Morocco or Tanzania.

June Farrell, a spokeswoman for Marriott International (MAR) -- which manages 29 hotels in the region -- says while its Egyptian business was severely affected by the recent violence, most other parts of the Mideast have seen no disruption. That includes the company's two hotels in Bahrain, which haven't been affected by the violence there.

"Travel to the Middle East by long-haul travelers is down, but not local business," Farrell says. "Obviously, those areas that have experienced political unrest certainly have been negatively impacted. Travel to Cairo and the Red Sea has not gone back yet -- that's going to take a while."

Bad Timing in Libya

But Farrell says Marriott's business in places Like Qatar, Dubai and Saudi Arabia has remained "pretty much normal." Most of that business is intraregional, with visitors from Dubai visiting Saudi Arabia and vice versa. "It's too early to say what the impact of the violence is going to be long term," she says. "It depends on how all this plays out."

Marriott had the misfortune last week to open a five-star JW Marriott branded-hotel in Tripoli, Libya, complete with oceanfront rooms and a ballroom. That business came to a quick end with the violent uprising against Libya's leader, Moammar Gadhafi.

"There were guests, but I think most of them have departed," Farrell says. "We're not accepting any new reservations at the moment." It may be a while before that happens.

View all Articles » Charles Wallace is a veteran business journalist who has written about economics, corporate finance and consumer electronics for Time, Fortune, The Los Angeles Times, The Financial Times and Institutional Investor magazine. He won the Business Journalist of the Year award given by the city of London for a piece about stock markets

Read More

View the original article here

Fraud Files: Plenty of Blame to Go Around in the Madoff Case

Although it has been more than two years since Bernie Madoff's gigantic Ponzi scheme collapsed, the case is still making headlines. And it seems there's plenty of blame to go around. The only question is who will be left standing in this game of musical chairs? Many of the players are jockeying for position, hoping to recover some money from other parties who might be deemed partly responsible for the fraud.

One target is JPMorgan Chase. It had money invested in hedge funds that had ties to Madoff, and Madoff bankruptcy trustee Irving Picard has sued the bank for $6 billion. The lawsuit against Chase (JPM) says warning signs existed, but the executives just ignored them while earning hundreds of millions of dollars. Chase employees notified regulators of their concerns in late 2008, but it's thought that company personnel knew about issues much earlier than that. Madoff himself says banks and hedge funds were "complicit" in his fraud. I doubt anyone takes anything Madoff says seriously these days because the world knows him only as a conman.

Swiss bank UBS AG is being sued by the Madoff bankruptcy trustee for $2.5 billion. It is alleged UBS (UBS) "capitalized on the Ponzi scheme in the face of clear indications of fraud." The bank put $1 billion into Madoff's fraud, and allegedly received extraordinary returns on those funds. HSBC Holdings Plc is being sued for $6 billion, with Picard claiming HSBC knew about fraud concerns surrounding Madoff but did nothing to protect investors. The trustee adds that HSBC saw "warnings and other obvious badges of fraud" that should have caused them to act.

Estates and Individuals Sued, Too

The estate of Norman F. Levy settled with Picard for $220 million last year. Levy was reportedly a "surrogate father" to Madoff, and allegedly deposited and withdrew money from Madoff's funds in a much larger volume than anyone else. More than $83 billion allegedly went in and out of Levy's account with Madoff, and some say Madoff's access to this cash flow allowed the Ponzi scheme to flourish for so long. A settlement of $7.2 billion was secured from the estate of Jeffry Picower, representing the profits Picower received from his investments with Madoff. Of that amount, $5 billion will go to the bankruptcy trustee, while the remainder will go to the U.S. Attorney's Office in Manhattan.

Sonja Kohn, head of Bank Medici in Austria, is accused of sending $9.1 billion of investors' money to the Madoff funds, participating in what a lawsuit calls a "criminal relationship" with Madoff. Carl Shapiro reached a $625 million settlement with the Madoff trustee, although it was alleged he profited more than $1 billion from his investments with Madoff.

The New York Mets and its owner Fred Wipon were drawn into the battle over the Madoff fraud. A lawsuits alleges the Mets Limited Partnership invested $523 million with Madoff, but later withdrew $571 million. That $48 million profit is now being targeted. In total over 100 lawsuits now seek recovery of funds from many Madoff investors.

Who Really Missed the Fraud?

What's the funniest part of all these allegations? Many of the victims are finger-pointing, saying each of these parties should have known Madoff was committing fraud. Meanwhile, the Securities and Exchange Commission -- the supposed watchdog for investors -- was ignoring all the evidence it had of the fraud. Harry Markopolous notified the SEC of his concerns about Madoff several times, providing detailed narratives that supported his allegations of fraud. He offered to help the SEC understand his allegations and verify what he was saying. The agency summarily rejected him -- either through incompetence, corruption or both.

I have a hard time accepting the idea that the SEC is going to "get tough" on swindling of investors. Its track record is poor, and it often seems like there's no rhyme or reason to who the SEC decides to pursue. The agency couldn't catch a fraud that was happening on a grand scale right in front of it, even when it had someone (Markopolous) who did all the hard work and analysis proving that Madoff couldn't possibly be legitimately generating the investment returns he claimed.

It has been said that government agencies are even considering criminal action against some of the Madoff investors. Apparently, they're being accused of knowing they were involved in a Ponzi scheme, such that their continued deposits of cash might make them criminally liable for the fraud.

Don't Hold Your Breath

I've got an idea: How about if the people at the SEC who rejected Markopolous's analysis and evidence are prosecuted criminally? They had at least as much information as the Madoff investors, and probably more. Let's hold them accountable for the failure to stop the fraud scheme years before it finally collapsed.

But something tells me the SEC won't be too keen to prosecute its own people and that other law-enforcement agencies won't want to take them on, either.

View the original article here

Inflation Seems Like a Safe Prediction, but It's Hardly So Simple

Wall Street's penchant for overreaction aside, it's understandable why many investors might be bracing for scorching inflation ahead. Already posting a stronger rebound than many commentators had expected, the U.S. economy shows signs of picking up yet more steam. Some high-profile economists are expecting growth rates as high as 6% in the year ahead, and bellwether companies like Caterpillar (CAT) continue to report strong global demand.

That by itself is often enough to result into inflationary pressure. But lately, fears of a conflagration in prices have been exacerbated by the vast easing measures the Fed continues to take in response to the financial crisis.

The reasons to count on major inflation under these circumstances seem straightforward enough. But much like the actual impact of spiking commodity prices, the way inflation plays out is far more complicated. And while the usual pressures get plenty of press, countervailing forces can be far easier to overlook.

Restarting Idled Resources

While U.S. GDP may be ready to deliver impressive gains, measures like industrial production, which took a major hit during the recession, still have a ways to go. Indeed, industrial production remains 6% below its pre-recession peak, analysts at TD Economics wrote in a research note this week, and it will take another year to close the gap even at the present three-month average growth rate.

"Throughout the post-recession expansion, growth in [industrial production] has stemmed not from the generation of new productive capacity, but from increased utilization of existing resources that had lain idle during the downturn," analysts at TD Economics wrote in a research note.

That means plenty of spare capacity can still be brought on-line, and that should help dampen inflationary forces. "With industry operating below potential, we believe inflation will stay subdued for now," the analysts wrote. "And with a fair amount of slack to absorb, the Fed will be in no rush to tighten monetary policy soon."

All that money the Fed created, meanwhile, might not lead to inflation as directly as some of Ben Bernanke's most strident critics claim. Along with the raw supply of money, the amount of that cash put into circulation -- sometimes called the velocity of money -- plays an equally important role.

Dormant Cash Isn't So Dangerous

And that leads to a much more complicated relationship to inflation than the constant howling about the obviously dire consequences of the Fed's money-printing would suggest.

"In order for any monetary variable to be reliable, the so-called 'velocity' of money in circulation needs to be stable, which is not often the case," Jim O'Neill, the high-profile head of Goldman Sachs Asset Management wrote in a research note. More money supply, in other words, doesn't simply translate into inflation. Cash laying dormant doesn't bid up the value of prices.

It's also natural for investors to think back to times when inflation ravaged the economy, like during the 1970s, when assessing risks. But things have changed dramatically since then, and the fact is that inflation has remained at benign levels for decades since that awful time. A combination of many fundamental shifts in the economy is often credited for this.

"Originating with the tough anti-inflationary policies of Paul Volcker at the Federal Reserve in the U.S., the widespread introduction of deregulated markets, globalization, and the introduction of the Internet have all been huge forces to bring the inflation process to where we broadly sit in current times," O'Neill wrote.

Given an economy now gaining steam and a vast expansion in the money supply, it's easy to assume inflation is up next. The causes of inflation, however, are anything but straightforward. And investors are better off keeping a close eye on incoming data than blindly believing the pundits who have a simplistic view of inflation.

View all Articles » Vishesh Kumar, previously a staff reporter at The Wall Street Journal, has joined DailyFinance, where he will be focusing on investing, particularly in tech and telecom. Vishesh has also been on the staff of TheStreet.com, where he produced hundred of videos and also served as a writer; his work has appeared widely in many other major publications. His TV appearances include CNBC and ABC's "Good Morning America," and he has been a radio guest on National Public Radio and "The Brian Lehrer Show."

Read More

View the original article here

This Gift-Tax Change Is a Huge Gift -- If You're Wealthy Enough

By MATTHEW SCOTT Posted 3:00 PM 02/25/11 Taxes, Video One of the biggest intergenerational transfers of wealth in U.S. history could potentially take place over the next two years as an expansion of the gift-tax exemption creates a short-term opportunity for the wealthy to transfer assets now and avoid estate taxes later.

For 2011 and 2012 only, the gift-tax exemption increases from $1 million to $5 million, allowing individuals to transfer five times more assets to relatives without penalty. It's estimated that the federal government could lose as much as $68 billion in estate and gift taxes as the wealthy rush to capitalize on this temporary change in the tax code.

The new law amounts to another tax cut that most Americans won't be able to take advantage of. However, to the extent that wealthy people transfer assets to relatives who aren't so wealthy, it could have a positive affect.

Kevin Sanderford, principal of Colorado West Investments in Montrose, Colo., says older individuals with estates valued at more than $1 million and couples with estates valued above $2 million should consider taking advantage of this change. He's advising his high net-worth clients to begin executing asset transfers and business succession plans that previously had much longer time horizons.

The benefits include being able to transfer a greater amount of assets tax-free before you die and saving relatives millions of dollars in estate taxes before the law reverts back in 2013. In 2013, the gift tax goes back to the $1 million exemption, and the estate tax rate jumps from 35% back to the 55% rate that was in place prior to the Bush tax cuts. That is, unless new tax cut legislation is passed. (For more about what else is new in the tax code this year, check out WalletPop's Tax page.)

"This allows people to give away more money and assets to kids and keep things in the family," says Sanderford. "We are a talking about intergenerational wealth transfers, and the opportunity exists now. I don't think the opportunity will exist in the future" With the new change in the gift tax, individuals could give away $5 million in 2011 or 2012 and not have to worry about paying estate taxes later. People can give away real estate, jewelry, family heirlooms, cash, stocks, bonds and even businesses.

"Some of my clients have businesses, and if their kids have to come up with $3 million or more to pay taxes, where does that money come from?" Sanderford asks. "Avoiding taxes makes it easier for that business to go from one generation to the next."

To get the maximum benefit of the asset transfer, Sanderford suggests gifting assets that will appreciate the fastest. For example if you are considering gifting either timber land or a condo in New York, he says gift the condo.

"Sit down with a CPA and tax attorney and do some planning," he says. "This is a huge opportunity with a two-year window."

View all Articles » Matthew Scott is a markets and investing writer for DailyFinance. He spent 13 years covering investment and business news as managing editor and personal finance editor of Black Enterprise magazine. He has written columns for the AOL Black Voices Money Talks blog and recently covered corporate finance, real estate, and commodities as online reporter for Financial Week. He has won or shared awards from the Society of American Business Editors and Writers, American Business Media, the National Association of Black Journalists and Folio Awards for Editorial Excellence.

Read More

View the original article here

Is Penney Wise? The Retailer Is the Latest to Risk Rebranding

The Nike Swoosh. McDonald's Golden Arches. Apple's -- well, apple. Corporate logos are the proverbial picture worth a thousand words. Or millions of dollars in sales.

As the recession recedes and companies return to business as usual, they're back to tinkering with their looks. J.C. Penney (JCP) announced this week it will introduce a new logo and brand identity as part of its effort to regain stature in the department-store sector.

The new look will appear first on ads during Sunday's Academy Awards broadcast, but Penney's is already getting flak over the design change. "JCPenney's Logo Is Changing, Bet You Won't Notice," was the Advertising Age headline. "Like a U.S. Senator that sends out tweets using 'omg' texting lingo, it's just kind of lame," blogged the marketing site Brandchannel.com.

"Our new logo honors our legacy while reflecting the modern retailer we've become," said CEO MIke Ullman, in a conference call with analysts. "We think it's an evolution, not a revolution."

A Hard Sell

Like Penney's, companies often change logos to communicate excitement and a shift in strategy, said Rob Scalea, CEO-North America of The Brand Union, a branding and design agency. But he acknowledged shoppers can be a hard sell.

"The logo is a way to identify quickly what the consumer is looking for, " said Scalea. "The logo represents the brand. That carries a lot of connection."

Penney's is only the latest of several retailers to tinker with their looks recently, with varying degrees of success:

Starbucks (SBKS): To mark its 40th anniversary this year, the coffee chain removed both its name and the word "coffee" from its logo. The new symbol kept only the mermaid icon and gave her a facelift. The reaction has been mixed. But since not everybody goes to Starbucks for the coffee anymore, why advertise it in the logo?

Target (TGT): Like Starbucks, Target has been quietly dropping the type from its logos and letting the red bull's eye logo do all the talking in most of its ads and displays. But the red-and-white design was already so ubiquitous in stores, hardly anyone has noticed the missing verbiage.

Seattle's Best: If Starbucks' new logo was streamlined, its down-market Seattle's Best brand went downright minimalist with its new identity. Several respondents to a Seattle Times poll noted the logo looked like it belonged on a blood bank, but Seattle's Best is sticking with it.

Gap (GPS): Gap made a big splash in October with its new logo, but not the kind of splash it wanted. Critics said the design was bland and unimaginative. Comments online were merciless, saying the logo looked like it was generated by a computer program, among other insults. Gap tried to smooth things over by going on social media to ask for better ideas -- and what it got was more backlash. It surrendered after a week and went back to its old logo.

Tough Customers

Consumers can be tougher critics than designers when companies switch logos: Witness Tropicana (PEP), which until the recent Gap follies probably held the record for the fastest makeover about-face. Critics said the 2009 repackaging of this orange juice brand made it look like a generic. The design replaced the orange-with-a-straw logo on the carton with a close-up of a juice glass that was so close-up shoppers couldn't tell what it was. Sales dropped 20%, and Tropicana went back to the old packaging after two months.

People can become very attached to logos as a stand-in for the company they represent, says Richard Bates, chief creative officer of The Brand Union in North America. "That's partially why they get so upset when it changes," he says. "You're signaling that what they perceived that brand to be has shifted."

Gap's problem was partly that shoppers didn't see a shift in the store to go with the new logo. "You don't want to use a logo change as a Band-aid," says Bates.

If a logo change is part of a true overhaul, it will survive, even if the initial reaction is negative, he says: "If you've done that properly, then sticking to your guns is fine. People always have a reaction to change. It dies down pretty quickly."

Instant Reactions

But expect plenty of comments after the Penney ads appear in the Oscar telecast. The Internet has given these brand identity crises a life of their own, warn the admen.

"The same reactions happened in the past, but it wasn't so effective when it took two weeks to write a letter to the home office," says Bates. "Now everybody can flame online."

View all Articles » Mercedes M. Cardona is a New York-based freelance writer. In 25 years as a journalist she has written about business, travel, lifestyle, health, decor, and career issues. She has worked for media organizations including the Gannett Co., Fairchild Publications, Crain Communications and the Associated Press. Her writing has appeared in newspapers, websites and magazines worldwide, including USA Today, Advertising Age and the websites of The Miami Herald and Newsday.

Read More

View the original article here

Week in Preview: Employment, Bernanke and More Retail Earnings

This week we turn the calendar page, and that change brings with it a raft of economic data. Scheduled for release on Monday are pending home sales and personal income numbers for January, as well as the Chicago PMI and car and truck sales data for February.

On Tuesday, as March comes in like a lion, look for the ISM Manufacturing Index for February and construction spending numbers for January. That's followed on Wednesday by the week's first employment data: the Challenger Job-Cuts announcement and the ADP employment report for February. Federal Reserve Chairman Ben Bernanke will deliver his semiannual monetary policy testimony before Congress on both days.

On the economic calendar for Thursday are labor productivity numbers for the fourth quarter, as well as the ISM Non-Manufacturing Survey for February. Also, the initial jobless claims for last week; fewer claims are anticipated.

Then on Friday we'll see if there was any movement in the unemployment rate in February. Payroll gains are expected to be modest. The week also ends with factory orders data for January and the ECRI Inflation Gauge for February.

Foot Locker Earnings Expectations

On the earnings front, last week's results from retailers like Home Depot (HD), JCPenney (JCP), Target (TGT) and Walmart (WMT) were largely solid. And analysts surveyed by Thomson Reuters expect retailer Foot Locker (FL) to be one of this week's biggest earnings gainers. During the three months that ended in January, the athletic footwear and sports gear purveyor was recognized as a top performing retailer of 2010 and its CEO bought shares. The New York-based company is expected to post earnings of 36 cents per share, a 33.3% rise from a year ago. And the fourth-quarter revenue forecast calls for a 4.1% year-over-year increase to $1.4 billion.

Analysts also anticipate full-year per-share earnings of $1.07 (+49.5%) on $5.0 billion in revenue (+3.8%). Foot Locker beat EPS estimates in the past three quarters, by 16 cents per share in the previous quarter.

Foot Locker has a long-term EPS growth forecast of 10.8%, as well as a forward price-to-earnings ratio (P/E) of 16.2. Its PEG ratio is 1.5 and the dividend yield is 3.1%. There have been takeover rumors about Foot Locker, and the First Call consensus recommendation has been to buy FL for more than 90 days. The mean price target is currently $22.89. The share price is in the same neighborhood as three months ago, as the stock has faced resistance at $20 during that time.

AutoZone Q2 Report

Analysts anticipate that AutoZone (AZO), the nation's largest auto parts chain, will report Tuesday that its fiscal second-quarter earnings came in at $3.05 per share, up 19.3% year over year. Memphis-based AutoZone bought back shares during the three-month period that ended in February, and revenue for the quarter is predicted to total $1.6 billion. That's an increase of 8.3% from a year ago.

Looking ahead to the third quarter, the consensus estimates thus far call for sequential and year-over-year growth of both EPS and revenue. AutoZone earnings have topped consensus expectations in recent quarters, by as much as 53 cents a share.

The long-term EPS growth forecast of 14.6% is better than that of competitor Advance Auto Parts (AAP). The forward P/E is 13.7, which is less than the industry average. AutoZone also has a PEG ratio of 0.9. Its net cash flow from operations has grown in recent quarters, and short interest has fallen in the past month to about 6% of the float. While AutoZone doesn't have a consensus buy recommendation, the stock caught the Motley Fool's eye for its buyback yield. Shares hit a 52-week high of $272.05 last December, but have traded mostly between $250 and $260 since the beginning of the year.

And More ...

On the industrial side, mining equipment maker Joy Global (JOYG), defense contractor URS Corp. (URS) and packaging and shipping container maker Greif (GEF) are also anticipated to report strong results this week. The Street is looking for more than 30% year-over-year EPS growth from Joy Global and more than 25% from the other two. And revenue for all three is anticipated to be more than 20% higher than a year ago. All three companies have tended to beat EPS estimates in recent quarters. Joy Global and Greif have consensus buy recommendations. Shares of all three have been marching higher since September, and Joy Global and Greif recently hit 52-week highs.

Bank of Montreal (BMO), Costco (COST), Del Monte Foods (DLM), DineEquity (DIN), Kroger (KR), Newcastle Investment (NCT) and PetSmart (PETM) are also expected to report strong earnings results this week, while narrow declines in EPS are predicted for BJ'S Wholesale (BJ) and H.J. Heinz (HNZ).

View the original article here

Retail's 2011 Outlook: Rising Prices in a Down Economy

Retailers went back to work after the holiday, buying into an "as-is" economy.

As merchants reported their full 2010 numbers, they forecast that 2011 will be a year spent dealing with inflation, expanding stores and trying to wean shoppers off their markdown habit, rather than cutting costs and inventories and reacting to crises as they did for the last two years. Faced with rising material costs that are pushing prices higher, merchants say they have to focus on growing sales in 2011, regardless of the economic pressures.

"We're prepared to operate effectively in a slow-growth environment," said Robert Niblock, CEO of Lowe's (LOW). The hardware chain reported earnings for fiscal year 2010 rose 12.7% to $2 billion and comparable sales (for stores open at least a year) rose 1.3%.

Rival Home Depot (HD), which reported even better results, is also in "new normal" mode. It posted earnings of $3.34 billion for 2010, up 25.4% despite the weak housing and employment markets. It also announced it expects to repurchase about $2.5 billion worth of shares during 2011.

CFO Carol Tome noted the hardware chain will work around housing and employment pressures that don't look likely to let up. The 2010 numbers -- which included rising sales in 49 out of 50 states -- showed business can improve even as the housing market remains under stress, with housing remaining at historic lows as a percentage of GDP, she said.

"The overall picture of one of a stabilizing business," Tome said.

Sales Growth Is Still Hard to Find

Most retailers reported strong holiday seasons that helped push 2010 to a profitable close, and many announced share repurchases, debt repayment and expansion plans for 2011. Macy's (M), which posted its best comparable sales increase in 15 years, said it plans to use its free cash this year to retire more debt on top of the $1.2 billion it paid off in 2010 in an effort to pull its debt back to investment grade.

""Obviously there's a lot of competition there, but we feel very good about 2011," said CFO Karen Hoguet.

Macy's is among several retailers who said they plan to step up store remodeling programs in 2011. Target (TGT), which already revamped a large fraction of its stores in 2010 to add larger grocery sections, said it will continue that program in 2011. The discounter, which struggled with sales growth in 2010, posted a 21.4% increase in earnings for the year and comparable sales growth of 2.1%.

Many of the lower-end retailers noted sales growth is still proving a tough effort, and is expected to stay that way in 2011.

"The U.S. market for the kinds of goods we sell is not enjoying robust growth," said Target CFO Doug Scovanner. Without mentioning Walmart Stores (WMT) by name, he referred to the results the giant discount chain reported earlier in the week: Walmart's earnings rose 12% in 2010 during the year, but its U.S. comparable sales dropped 0.7%.

"A lot of people are picking on my big brother, but it's more of a reflection of what's happening in the economy," said Scovanner.

Watch Out: Here Comes Inflation

Shoppers are coming back to stores, but they're still holding back on spending, said Kathy Tesija, Target's executive VP of merchandising. She noted shoppers are increasingly finding ways to cut back their spending on everyday items buy using coupons, buying store brands and waiting for sales to pay for their splurges on other items. Since the holidays, Target has noted many shoppers have traded down to the "good" items in some categories such as housewares, while trading up to "better" and "best" price ranges in other categories, such as apparel, she explained.

That's going to be a problem as the retailers face the worst inflationary environment since well before the recession. Energy prices, labor costs in Asian manufacturing markets, and the price of commodities from cotton to copper are all on the rise, and vendors have stepped up their calls for price increases on items from clothing to housewares.

"For the first time, in a decade or more, we're seeing some inflation that is quite high," said Glenn Murphy, CEO of Gap Inc. (GPS), which posted 19% increase in earnings, despite only growing comparable sales by 1%.

Costs are expected to be up significantly, about 10% to 15% overall across all product categories, said Kevin Mansell, CEO of Kohl's (KSS). Product costs are already up by low single-digit percentages and that will "accelerate dramatically" this fall, he said. Kohl's is right to worry, because it had been doing well growing sales among moderate-income consumers: It posted net income of $1.1 billion in 2011, up 14% from 2009, and comparable sales growth of 4.4%. Management also announced the first cash dividend in the company's history, and increased share repurchase plans by $2.6 billion, to $3.5 billion by the end of 2013.

But the expected price increases are putting pressure on retailers' plans for the second half of 2011. Most retailers said they had worked around the cost pressures to stock up for spring, but vendors have stepped up their requests for price increases during the last two months, which will increase retail prices in the second half of the year, whether shoppers like it or not.

Balancing Price Increases with Customer Push-Back

"We fully recognize when you're taking the prices up... we recognize that units come down, so we're planning accordingly," said Kristin Hays, investor relations manager of J.C. Penney (JCP). Penney, which had struggled through the year to build up sales, reported comparable sales rose 2.5% in 2010, and earnings grew 55% to $389 million.

The department store chain has tested price increases in some areas to develop plans to pass on the cost increases. While Hays wouldn't give details, she noted the test results showed that higher prices in the "better" and "best" ranges made up for the lost sales in the "good" entry points.

So shoppers should be prepared to face higher prices, especially for the finer things. The merchants say they are managing on a real-time basis to balance both price-hike requests from vendors and push-back from customers.

"I think that's the question of the day. We know that we have to counter cost increases, the question is how much," said Mike Jeffries, CEO of Abercrombie & Fitch (ANF). The teen retailer turned things around during the holiday: It grew comparable sales by 7% in 2010 and posted net income of $150.3 million compared to net income of $300,000 in 2009.

"We're grappling with this," said Jeffries. "We have bought our back-to-school assortment, [but] we're still negotiating for Labor Day and on."

Figuring out what prices the traffic will bear will consume merchants' attention as they head into the key Easter selling season in April, and will really hit home during the second-largest shopping season of the year, the back-to-school period.

"The point of this tension is it has to be managed on a week-by-week basis," said Jeffries. "Those who can't have big problems."

View all Articles » Mercedes M. Cardona is a New York-based freelance writer. In 25 years as a journalist she has written about business, travel, lifestyle, health, decor, and career issues. She has worked for media organizations including the Gannett Co., Fairchild Publications, Crain Communications and the Associated Press. Her writing has appeared in newspapers, websites and magazines worldwide, including USA Today, Advertising Age and the websites of The Miami Herald and Newsday.

Read More

View the original article here

Stocks Fall and Oil Gains for Second Day on Libyan Violence

Stocks fell for a second straight day Wednesday, and oil prices briefly crossed the $100-a-barrel mark after violence escalated in Libya and tech bellwether Hewlett-Packard (HPQ) delivered a disappointing sales outlook.

The Dow Jones Industrial Average ($INDU) lost 107 points, or 0.9%, to close at 12,106. The blue-chip index was off as much as 149 points in midday trading before paring its loss. The broader S&P 500 ($INX) fell 8 points, or 0.6%, to finish at 1,307. The tech-heavy Nasdaq Composite ($COMPX) declined 33 points, or 1.2%, to settle at 2,723.

Forces loyal to Libyan leader Moammar Gadhafi continued their assault on anti-government protesters, leading to widespread chaos and shooting in the streets of the Libyan capital, Tripoli, the Associated Press reported. Nearly 300 people have been killed in the uprising so far, according to the New York-based Human Rights Watch.

The increasing violence in Africa's third-largest oil producing nation sent oil prices soaring again. Benchmark crude traded on the New York Mercantile Exchange rose another $3.07, or 3.2%, to close at $98.49 a barrel, its highest close since October 2008. Contracts broke above $100 a barrel at one point during the session. Crude oil hasn't closed above the triple-digit level since September 2008.

Libya is the world's 15th-largest exporter of crude oil, contributing 2% of global daily output. Fears that anti-government unrest could spread to other oil-producing nations in the region have caused crude oil futures to spike nearly 14% in less than a week.

The flight to safer assets punished equities around the globe, as did some disappointing corporate news. Hewlett-Packard weighed most heavily on the Dow after the tech giant issued a weak revenue forecast late Tuesday. The blue-chip index's decline was tempered somewhat by energy giants Exxon Mobil (XOM) and Chevron (CVX), shares of which rose sharply, thanks to the spike in oil prices.

The flight to safety also boosted gold prices, which notched a seven-week high Wednesday. Gold futures traded on the Comex division of the NYMEX rose $9.40 or 0.6%%, to finish at $1,411 an ounce.

In other corporate news, Lowe's (LOW), the nation's second-biggest home improvement retailer after Home Depot (HD), said fourth-quarter profit rose 39% to beat Wall Street's forecast, but a disappointing outlook hurt shares.

In U.S. economic news, existing-home sales rose 2.7% in January, but the increase was due to a rising number of foreclosures and all-cash deals rather than growth in the number of first-time home buyers.

View all Articles » Dan Burrows is a senior writer for DailyFinance. He spent five years at Dow Jones. Most recently he covered investing, markets, tech stocks and the economy at SmartMoney.com. Prior to that he was a reporter at MarketWatch.com. He also covered retail and manufacturing at Women's Wear Daily for three years. In his career, he's had writing stints at Time Inc.'s FYI and Spy magazines, and has freelanced for Esquire and Maxim, among other publications.

Read More

View the original article here

Boeing Lands $35 Billion Tanker Contract -- and a New Lease on Life

By DOUGLAS MCINTYRE Posted 6:45 AM 02/25/11 Boeing Boeing (BA) has won the contract to build a new U.S. military aerial refueling tanker after a review by the Air Force. The government decision ended the efforts of rival European Aeronautic Defence and Space Co. (EADS) to handle the project.

Boeing said in a statement, "The U.S. Air Force announced Thursday that it has selected Boeing's NewGen Tanker to be its new KC-46A air refueling jet.The contract award, which follows a rigorous Air Force review of industry proposals, means Boeing will build the next-generation tanker that will replace 179 of the service's 1950s-era KC-135s."

Boeing will deliver 18 of the planes by 2017. Industry experts believe the value of the first stage of the contract is about $35 billion.

The Air Force awarded a similar contract to Boeing in 2003, but a scandal over the procurement procedure led to the prosecution of a Defense Department official and a Boeing executive. The contract was put out for bid again.

The contract could give Boeing a chance to restore its tarnished reputation. It has announced numerous delays of its 787 Dreamliner due to design and production issues, as well as labor unrest. Boeing still has not delivered the aircraft, although it's scheduled to do so shortly. The delay has angered both investors and large airlines that have orders for the fuel-efficient planes. These carriers have had to make alternative plans, and some have canceled or threatened to cancel their 787 orders.

Now the challenge for Boeing is whether it can deliver the tanker on time.

View all Articles » Douglas A. McIntyre is the former editor-in-chief and publisher of Financial World Magazine. He was also president of Switchboard.com, which, at the time, was the 10th most visited website in the world. He was CEO of On2 Technologies, which proved the video compression for the nearly 800 million Flash players on PCs around the world. McIntyre has appeared on CNBC, Fox Business, CNN, and BBC News.

Read More

View the original article here

Are Solar Stocks Finally Regaining Their Shine?

Is the outlook actually brighter for solar stocks -- or is it just that the sector has been lost for so long in a dark midnight that even the slimmest glimmer of light looks like a new dawn? Such is the crossroad that solar stocks find themselves at as spring of 2011 approaches.

In 2007 -- back when Amy Winehouse was singing Rehab and Juno was a wizard film -- companies making solar modules and panels made up one of the hottest sectors of the stock market. Startup after startup went public and rocketed skyward.

In the summer 2008, crude oil futures neared $150 a barrel and solar manufacturers raced to build more factories. But as the fall brought the financial crisis, solar firms became equity pariahs. High borrowing costs coupled with plunging demand made the sector unpopular. The solar dream went cold.

As the economy bottomed out, the solar sector seemed left behind. Take a look at this chart comparing the TAN (TAN), an exchange-traded fund of solar-powered stocks against the S&P 500. In the fall of 2008, solar stocks fell much harder than the S&P 500 -- despite the latter's heavy weighting in banking stocks.

And since then, while the S&P has clawed its way back over the past two years, the TAN has moved sideways. But so far in 2011, things seem to have reversed. The S&P 500 has gained 4%. The TAN has gained 16%, even rising as much as 23% this month.

So, after three years of very mixed fortunes, solar-power looks like it's starting to take off again. Some of the sector's biggest names -- SunPower (SPWRA), First Solar (FSLR), Trina Solar (TSL) and SunTech Power (STP) -- have risen more than 20% so far this year. The tight credit markets on which solar manufacturers rely to fund their new production facilities have eased back open again. And crude oil prices are back above $100 a barrel for the first time since 2008.

Boom and Bust and Boom and Bust

Stocks of companies making solar-power modules and panels have long been volatile. Solar technology is highly cyclical, according to swings in both supply and demand. Rising demand is positive for solar manufacturers, but as time passes companies rush to build new facilities and expand production capacity. If capacity increases too fast relative to demand, prices tumble. In the long run, lower prices are good because they spur new demand. But in the short-term, it can eat into profits.

In that respect, solar modules are a lot like semiconductors. But the demand for solar goods has a complex and often unpredictable relationship with oil demand as well with the willingness of industrialized countries to offer subsidies. The recession that brought oil prices down also forced governments to cut back on alternative-energy subsidies. No wonder, investors grew bearish on the solar sector.

Now, however, optimism is on the rise, thanks to recent earnings of solar companies. SunPower said this week it's seeing more demand that it can meet with its solar-panel manufacturing facilities. Oil prices are heading upward, and no one is sure how far they'll go this summer as emerging economies demand more power (not to mention if the Mideast upheavals spread to other oil-producing nations).

Rising oil prices can lead to investments in solar-energy projects. But even though solar stocks frequently see a lot of speculative investing and can easily get ahead of themselves, profits could be rising at these companies after their dry spell. So, much of the gains could be based on fundamental strength.

Bullish Earnings Reports

For much of the past year, SunPower struggled below $15 a share, a victim of government budget-trimming in Europe, which has historically provided hefty subsidies for alternative energy. SunPower's earnings of $1.36 a share topped estimates of $1.05 a share. Not only is the company responding effectively to Europe's new austerity but it's increasing its sales in the U.S.

On Tuesday, Trina Solar also reported better-than-expected earnings, delivering $1.87 per American Depository Share, well ahead of the Street's forecast of $1.09 per ADS. Several analysts raised their price targets for Trina, with some noting that demand is surprisingly strong at a time when Trina and others are adding production capacity.

All of that follows another bullish earnings report from Yingli Green Energy (YGE), which said last week that revenue grew 66% year-over-year in the quarter. It posted earnings of 57 cents per ADS, ahead of expectations of 44 cents per ADS.

Not all solar companies are enjoying the gains. JA Solar (JASO) said Tuesday its earnings per share tripled to 41 cents, but the stock declined after that figure came in short of the 48 cents analysts had been looking for.

Straightforward? Not Here

These stocks have mostly been so strong that some analysts are suggesting investors take profits if earnings push the shares higher. On Tuesday, Pacific Crest analyst Weston Twigg issued a report saying that First Solar could easily beat the Street's estimates for its fourth-quarter earnings. If it does, Twigg said, investors might want to lock in their profits. First Solar's stock now trades at double its peers' price-earnings ratio of nine. But solar module prices may decline by 20% this year.

Nothing is straightforward in forecasting the solar industry. In the past, analysts have been too bullish at market tops and too bearish when things were just starting to get better. This suggests that the caution on Wall Street about 2011's solar rally may be overdone.

Whether that's true or not, investing in this sector requires a strong stomach -- and maybe some glare-reducing sunglasses.

View all Articles » Kevin Kelleher is a writer living in the San Francisco Bay Area. He is a regular contributor at Slate's TheBigMoney.com, GigaOm.com and Earth2Tech and has been a contributing writer for Wired, Popular Science, Portfolio.com, TheStreet.com and RealMoney.com. His work has also appeared in Salon, Consumer Reports, CNN Money, The Los Angeles Times, The New York Times, The Washington Post and the Hollywood Reporter. Previously, Kevin was a senior editor at The Industry Standard magazine, west coast bureau chief of TheStreet.com, founding executive editor of Wired News and a reporter at Bloomberg News covering the collapse of the Japanese stock market. He holds an MS from Columbia Journalism School and a BA from Reed College.

Read More

View the original article here

Investor Lawsuits Are Raising the Heat on Bank of America for 'Putbacks'

One of the straightest paths this country could take toward Bank Bailout 2, the Sequel, would be through forcing financial institutions to buy back the lousy mortgage-backed securities they sold before the meltdown. Large-scale buybacks could open gaping wounds on bank balance sheets, a risk Bank of America (BAC) is particularly vulnerable to because it swallowed Countrywide's gigantic -- and now infamously fraudulent -- mortgage machine. Regardless of that risk, banks should have to follow the rules of their contracts, and the law. But getting BofA to buy back its mortgage junk won't be easy.

As of June 30, 2010, BofA faced some $11 billion in requests for repurchase of such securities. Most of those requests came from government-sponsored entities such as Fannie Mae, from bond insurers, and from major investors. Less than a third of a percent -- $33 million -- were from so called "private label" buyers.

But those securities-holders are now beginning to make their demands, too. Investors in more than $1 billion of securities backed by 2006 vintage Countrywide mortgages have filed an unusual lawsuit to try to get many of those mortgages repurchased. That case, filed Wednesday in New York state court, is Walnut Place LLC v. Countrywide Home Loans Inc, and is one of the first investor putback efforts. Unsurprisingly, Bank of America told Reuters the suit was "meritless."

Investors Act Because Trustee Won't

Beyond the fact that the suit is one of the first investor attempts to force a large quantity of putbacks, it's unusual because the investors shouldn't have had to file it -- for two reasons. First, if the claims in the complaint are true, BofA is contractually required to buy back the mortgages. But also, Bank of New York Mellon, which is the trustee for the securities, is supposed to do the suing on the investors' behalf. BNYM's duty is to ensure the right mortgages are backing the securities. But it hasn't, so the investors have filed suit against BNYM as well as BofA, seeking to stand in BNYM's shoes and force the buy back.

Search Millions of Home ListingsBNYM spokesman Kevin Heine had no comment on the suit, but if the allegations in the complaint are true, it's hard to see what grounds BNYM has to refuse to sue. Interestingly, the key allegations in this suit are unlikely to be the ones related to the mortgages, because the evidence that Countrywide loans generally weren't of the promised quality has already been shown to be quite strong.

No, the key will be demonstrating that the litigating investors had in fact crossed all the t's and dotted all the i's necessary to get the trustee to act. Unsurprisingly, plaintiffs attorney Leanne Wilson believes all procedural hurdles have been crossed, and that their case is strong. So I'm betting any explanation about why BNYM's not suing will key off of one of those procedural requirements. Either that, or BNYM will get off the couch and sue.

Trustees are generally loathe to act, because taking the wrong action could leave them open to suits from other investors. That said, it's hard to see why any investor would object to forcing BofA to buy back Countrywide's garbage mortgages. And it's not as if BNYM's taken no action requested by the investors. After the investors gave their evidence of contract violations to BNYM, the bank did ask BofA to buy the mortgages back. It was only when the issue reached the stage where it became clear that BofA would have to be compelled to honor the contract that BNYM balked.

Loans Weren't What Countrywide Claimed

As to the mortgages, all the loans in the $2.8 billion issuance were pay-option adjustable-rate mortgages, a type of loan that's performing particularly poorly. Option ARMs are notoriously shaky, because the pay-what-you-want feature meant most borrowers paid so little they didn't even cover the interest due, much less the principal, which meant that every month their loan debt grew instead of shrank. Worse, the borrowers faced payment resets that would suddenly jack up their payments.

Of course, if Countrywide had complied with the terms of its contracts with investors, lousy performance wouldn't give the investors the right to sue. But as the SEC and multiple state attorneys general suits discovered, Countrywide routinely violated its official underwriting standards, and the investors' research indicates that this securitization was classic Countrywide in that regard.

The investors investigated about a third of the 6,500 mortgages backing the securities, and found that two-thirds of them appear to violate the contracts. The violations include mortgages that didn't meet Countrywide's official underwriting standards -- no surprise there -- and mortgages that were supposed to be on primary residences but weren't. The investors have evidence suggesting that the remaining, as yet unreviewed, mortgages would also have a high rate of problems.

BoA's potential liability depends on how many mortgages violate the securities contracts, as every put back is priced at the outstanding principal on the mortgage at that time, plus any unpaid but due interest. Wilson had no estimate of the stakes at this time.

The most common way Countrywide allegedly violated its contracts was by selling into securities mortgages in cases when borrowers had less than 5% equity in their houses. Borrowers with little equity are at especially high risk of default. The suit also alleges Countrywide relied on inflated appraisals and made loans that it knew wouldn't be repaid, as evidenced in part by loans that defaulted within the first few months of the mortgage.

One Suit Among Many
The plaintiff's firm in this case, Grais & Ellsworth, has filed many other mortgage-backed securities cases. Its clients include the federal home loan banks of San Francisco and Seattle, and Charles Schwab. The defendants include essentially all the big banks: BofA/Merrill Lynch/Countrywide, JPMorgan Chase/Bear Stearns, UBS, Credit Suisse, Deutsche Bank, Morgan Stanley, and a handful of smaller institutions. Those cases also allege securitized mortgages were not what was promised, however they are slightly different.

The putback case is a breach of contract claim; either the mortgages violated the terms of the contract or they didn't, and the contract specifies the remedy: buyback. The others are state securities law challenges, and involve proving the securities' selling documents were materially misleading, investors relied on the bad information, and were harmed by it. Nonetheless the suits involve similar methods of identifying bad mortgages and make similar claims about the mortgages' quality. Not one of the other cases has advanced very far yet. Some procedural rulings have been made, but no motions to dismiss have been ruled on, much less has discovery started.

Crawling to Toward Resolution

The buyback suit too is a long way from won, and at this stage, it's hard to tell how it will ultimately play out. But no matter the result, these cases are painful reminders that the whole financial crisis is really a slow-motion disaster. Yes, we had our speedy crash, our flash-frozen markets and our period of government bailouts. But several years on, the true damage isn't yet known.

The mortgage-backed securities lawsuits and the risk they represent to the financial system continue to crawl toward a resolution. Likewise, the multiple aspects of the foreclosure mess are only incrementally being clarified.

For those who wonder how long will it be before we have a clear perspective on the damage wrought by Wall Street's recklessness and regulators' inaction, the only answer is Yogi Berra's: It ain't over till it's over.

View all Articles » Abigail Caplovitz Field is an attorney with a solo general practice on Shelter Island, New York. After graduating from NYU Law with honors in 2001, she worked as an associate for a major corporate law firm in New York City, and then as a consumer and good government lobbyist for the New Jersey Public Interest Research Group. Her lobbying duties included identity theft prevention, financial privacy and health care. She's written on topics as diverse as pharmaceutical marketing, toxic pollution, and racial profiling.

Read More

View the original article here