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Fluors Military Hopes – US-FOREX.US

Forex-Publisher — Fri, 07 Aug 2009 13:46:15 +0000

Fluor will demonstrate Monday whether its government contracts have been paying off during the downturn.Over the past year, U.S. military contracts have been offered to Fluor
, DynCorp International
and KBR
, which recently said it’s expecting new contract awards for Iraq later this year or in early-2010.Wall Street is expecting the company to report quarterly earnings of 91 cents per share, slightly ahead of the 84 cents recorded in last year’s corresponding period. Since the beginning of the year, the company’s market value gained 24.1%, but its trading levels are still about half their year-ago value. Investors in Fluor, the largest publicly traded engineering company in the United States, should prepare for some possible bad news on Monday. In July, Jacobs Engineering Group
, the nation’s second-largest engineering firm, took a major hit on the stock market after it cut its full-year earnings outlook, citing expected contract terminations. The announcement was then followed by a downgrade from Goldman Sachs.Fluor has also experienced managerial shifts in its government-related business, having recently named Bruce Stanski, previously from KBR, as head of its government group. The move came less than a month after the U.S. Army chose DynCorp and Fluor over incumbent KBR for five-year contracts worth up to 7.5 billion each, to support troops in Afghanistan.

Write Down Your Own Debt – US-FOREX.US

Forex-Publisher — Fri, 31 Jul 2009 19:46:06 +0000

The debate over mark-to-market accounting—whether to value assets at market prices—will take on a strange twist once banks, investors and regulators get wind of the latest proposal from the group that sets accounting standards. Under new rules being reviewed by the Financial Accounting Standards Board, companies will have to record gains or losses in the market values of assets they own and show them to shareholders on the income statement. The move is part of the broad push by regulators to force firms to recognize gains and losses where shareholders can easily find them. What will likely surprise investors more is that the new rules also allow corporations to mark their debts to market prices as well.For a troubled company like General Motors
before it filed for bankruptcy, it could have meant seeing a financial gain as the value of its bonds fell. Under current accounting rules, when a company like GM borrows 1 million it records the principal amount as a liability and the interest it must pay each year as an expense. If GM’s bondholders doubt the company’s ability to pay its debts, its bonds might fall to 80 cents per dollar face value. Under the proposed rule, creditors’ pain would be GM’s gain—the car company would recognize a 200,000 reduction in its liability, which is the same as a gain for a like amount.That sets up the paradox of troubled companies benefiting, at least in accounting terms, from their own misfortune, says Dr. Paul Miller, accounting professor at the University of Colorado at Colorado Springs. “If a liability gets smaller, the company is better off,” says Miller. “People don’t like the idea—if they’re in trouble, how could they possibly be showing gains?”From an accounting standpoint, the ability to write down one’s own debt makes some sense. If you believe the market accurately prices assets, then the price of a bond is the current value of all its future interest and principal payments. Theoretically, GM could go out and retire those debts at less cost because its lenders would be willing to accept the lower price. What shareholder advocates and frothing senators and congressmen could point to is that, in reality, if GM tried to buy up its own debt, the price would almost certainly rise, in the same way it would if an investor tried to buy all of GM’s stock.Still, the FASB rules will re-start the ongoing debate between corporations and regulators about how to best serve shareholders already burdened with financial statements running hundreds of pages and laden with opaque footnotes and exhibits. On the asset side, banks and other companies that hold large amounts of stocks and bonds may soon have to report the price swings of their portfolios directly on the income statement where it will impact the all-important earnings-per-share.
The accounting board will likely spend the rest of the year drawing up a formal draft and taking comments on it, before deliberating and making its final decision. All manner of public companies, as well as the major accounting firms, will likely weigh in with objections and modifications. But Professor Miller says FASB looks like it has picked up a head of steam and will push hard for mark-to-market rules. If that happens, investors might want to scoop up some shares of the nation’s most troubled companies, just in case.

States Pain Is Prison Firms Gain – US-FOREX.US

Forex-Publisher — Wed, 22 Jul 2009 20:45:56 +0000

What started as an inconvenience—less tax money to pay for schools, roads and prisons—has quickly mushroomed into a catastrophe for the states. Thanks to the financial crisis and ensuing recession, unemployment is the highest since the early 1980s, spending is down, personal income and business taxes are falling. In California, which had to issue IOUs instead of paying its bills this month owing to a 54 billion deficit, the governor and the legislature averted default through accounting gimmickry and by pushing payments into next year.One group of contractors, though, may benefit from states’ newfound attention to cost-cutting and budgeting. Publicly traded companies that run prisons—the business is known as private corrections—could see their portfolios increase dramatically as states look to cut costs, writes RBC analyst Jamie Sullivan. Some state prison systems are bursting with inmates and could shift the burden to private contractors to relieve overcrowding. One sign that these firms have become indispensable to state governments is that although corrections budgets are falling in states that use private prison firms, the amount going to those firms is increasing.Three firms dominate the business of running prisons: Corrections Corp. of America
, The Geo Group
and Cornell Companies
. CCA, the biggest of the three, owns and runs most of its own prisons in 19 states. Geo mixes in some overseas contracts as well as mental health and residential programs. Cornell adds youth detention and group homes for adults. All three get about a third of their business from federal agencies. RBC’s Sullivan recommends CCA and Geo and has a hold on Cornell.The gap in state finances is big, 183 billion in the next two years by some reckonings and tax revenues are falling rapidly in states that boomed with the real estate or financial markets. That has led governments in states that use private firms to slash prison budgets by about 2.9% this year but the amount of money going to those contractors is up 2.6%, says Sullivan, who estimates that the private firms offer states savings of 15% to 20%.As for winning new customers, Sullivan notes that among states not already using the firms, between 11 and 17 have as many or more inmates than their facilities can handle with little money available to build new prisons.

Buy Goldman Sell The Economy – US-FOREX.US

Forex-Publisher — Mon, 13 Jul 2009 18:46:12 +0000

Meredith Whitney thinks you should buy Goldman Sachs, but not because the economy’s improving or things are going well in the financial market. On the contrary, she expects a tidal wave of public debt to fill massive government budget gaps, and the way she sees it, someone has to be the market’s facilitator.”This is not an equity revival story,” Whitney quipped, upgrading of Goldman Sachs
to “Buy” with a 12-month price target of 186. Nonetheless, her call pushed the bank-holding company’s shares up 5.0%, or 7.10, to 148.97, in midday trading. In her report, the closely followed analyst stressed the unique nature of her recommendation. Instead of being a good stock to play the equity market, her thesis depends on the firm acting as an agency, principal and product specialist. In other words, Whitney’s bullish argument for Goldman is based on her fundamentally bearish take on the U.S. economy, and the state of the U.S. financials. “Specifically,” said the head of the Meredith Whitney Advisory Group, “we expect a tsunami of debt issuance from federal, state and local governments ramping up debt issuance to fund woefully underfunded budget gaps.”She expects most of what Goldman will earn will be tied to those factors. She added that she anticipates corporate debt issuance to be at least 60% as strong as peak cycle levels, reflecting sizable debt maturity rolls. “Given fewer players in the market, not only is Goldman benefiting from market share gains on these products, but more widely in the derivatives products.” Her report comes a day before Goldman is due to release its second quarter results.Goldman, which received Uncle Sam’s permission to repay its bailout funds, has consistently been singled out by analysts as the strongest financial firm in the wake of the crisis. In a report published by Whitney earlier this year, Goldman was the bright spot among otherwise weak prospects. Since the beginning of the year, Goldman’s stock has increased 73.5%, while Morgan Stanley
‘s has grown 68.0%. The other big financial firms have had a more difficult time, as JPMorgan Chase
has only risen 5.3%, while Bank of America
, Wells Fargo
and Citigroup
have all fallen 11.7%, 19.4% and 60.2%, respectively. The broader financial sector, as measured by the Financial Select Sector SPDR
exchange-traded fund, has slipped 5.8%.
Meanwhile, Goldman performed well in the rankings known as league tables, according to Dealogic, leading merger advisory underwriting in the first half of the year, and was second to JPMorgan in equity underwriting. Goldman only ranked fifth in bond underwriting, though it is the least profitable among the three.

Minimum Wage Minimum Effect – US-FOREX.US

Forex-Publisher — Wed, 08 Jul 2009 20:46:57 +0000

When the federal minimum wage rises to 7.25 an hour on July 24, don’t expect California workers to cheer. Their state already sets minimum pay at 8.00. The same goes for hourly employees in Massachusetts, Illinois, Oregon and Washington . In fact, half the states have their own rules setting pay higher than the federal minimum, which is currently 6.55 an hour. Even Wal-Mart
, the nation’s largest private employer, backed the wage hike a few years ago, saying it was indifferent to the increase because it paid more than the minimum anyway.The national minimum wage, set by Congress, has been rising in little annual jumps since 2007 after a decade stuck at 5.15 an hour. While some workers, especially in fields like janitorial work and meatpacking, will see their pay rise, the minimum wage affects a relatively small percent of the workforce. According to the Bureau of Labor Statistics, about 2.2 million American workers make minimum wage or less . That equates to only 3% of the hourly workforce and just 1.7% of the total workforce. The government says it undercounts the true number of minimum wage workers because it doesn’t look at certain types of employment, but the long-term trend has fewer and fewer minimum wage workers in the U.S. In 1979, 13.4% of hourly workers made the minimum or less and that portion has been decreasing fairly steadily since then.Another reason this year’s wage bump might have less effect than otherwise is that the economy is in shambles, with unemployment at 9.5% and projected to go higher by the end of the year. “Ideally, you’d like to have it come into force in a strong labor market when firms are expanding and having trouble filling positions,” says Daniel Seiver, a finance lecturer at San Diego State University. Right now unemployment is especially high for teens , who make up a high fraction of the minimum wage workforce.
Economists have spent decades debating whether a government-mandated wage helps or hurts workers. If demand for labor, especially the kind of entry-level jobs that young workers need to get started in their careers, is very strong, then those workers should see their collective pay rise about as much as the law says it will, says Seiver. If demand is weak, then businesses will look to save the extra salary by cutting back on the number of workers they employ.Data show that demand usually remains pretty strong and that not many workers lose their jobs as a result of a higher minimum wage, says Seiver. But the workers that do lose their jobs tend to be the ones society can least afford to have unemployed-teens, especially from the inner city, who need a first job.

How Congress Could Boost Solar – US-FOREX.US

Forex-Publisher — Wed, 08 Jul 2009 14:47:08 +0000

With the real estate market in ruins, a full-blown recession laying waste to corporate spending and oil at less than half its 2008 peak, the solar industry that boomed from 2004 to 2007 has recently seen its fortunes reversed. So makers of photovoltaic power cells and their suppliers had reason to cheer when the House passed a global warming bill on June 26. The American Clean Energy and Security Act of 2009 comes loaded with programs designed to boost the nation’s use of renewable energy – and as a result, say analysts at Deutsche Bank, solar orders could grow at close to 30% for the next decade.At the heart of the new law is a mandate to have the U.S. derive 20% of its electricity from renewable sources by 2020, compared with around 6% today. While some of that can come from energy efficiency measures and other clean sources such as biofuel and wind power, photovoltaics will likely benefit, writes Steve O’Rourke, who follows the industry for Deutsche Bank
. The bill would also introduce a cap-and-trade system that penalizes power generators who don’t use renewables, while crediting those that do, allowing both sides to swap credits in lieu of paying fines. Solar would get an extra boost because small, site-specific power generators-a solar array on a building’s roof, for example-would get triple the credits.One overall effect of the bill would be higher electricity rates, which would make solar power more competitive with grid electricity, which currently costs, in general, far less than solar. A move toward electric vehicles, which the bill encourages, could also make electricity more expensive and solar more attractive.That could result in growth of 27% a year for the next decade, in terms of installed solar capacity, says O’Rourke. The industry has grown at 40% a year for 10 years but Deutsche Bank forecasts it will shrink this year as the recession hampers spending.Who stands to benefit the most? The current leading makers of solar cells in the U.S., including First Solar
, Evergreen Solar
and SunPower
. Applied Materials
, create the machines that make solar cells while MEMC Electronic Materials
produces the ultra-pure silicon wafers that absorb sunlight and turn it into electricity. All have seen their share prices fall precipitously in the last year.
There are some major obstacles for solar power to overcome, warns O’Rourke in his report. First, the bill barely made it through the House, passing by a margin of seven votes; the Senate looks likely to make changes to the bill, especially to the contentious cap-and-trade system. Then there’s the labyrinth of state laws and tax credits that could play a bigger role in some places than any nationwide legislation.In some states that have, or are contemplating, even stricter requirements than the federal government, the impact could be minimal in light of local politics, O’Rourke notes. California is thinking of requiring a third of its power to come from green sources. But other states have no mandates in place and the federal rules could send solar orders soaring there. Finally, solar power is still a nascent industry, despite decades of booms and busts, and remains highly dependent on subsidies from governments and enthusiasm from investors to develop more efficient products.

UBS A Bid For Freedom – US-FOREX.US

Forex-Publisher — Fri, 26 Jun 2009 13:46:08 +0000

Is UBS testing the waters to see if it can get on without state support? This seems a possibility after the beleaguered bank announced Friday that it would place 3.8 billion Swiss francs with a small group of institutional investors to raise its core capital ratio by 100 basis points, to around 13%. “It could be a test and a sign that UBS wants to be able to work more independently,” said Marco Bider, a fund manager who helps oversee about 7 billion, including UBS shares, at Banque CIC in Basel.
This is the second capital-raising step by UBS this year, after it sold its lucrative Brazilian asset and wealth management division for 2.5 billion in April. The Swiss government holds 6 billion Swiss francs worth of mandatory convertible notes in the bank, which it took up last October, when an agreement was struck to put 60 billion of illiquid securities into a separate fund managed by the Swiss National Bank. Shortly afterwards, Credit Suisse announced it would be raising capital through private investors, leaving UBS potentially more vulnerable to state control than its main rival.
But analysts don’t see the capital raising as a sign of bigger problems to come. The Swiss National Bank has made it plain that it is eager for the two biggest banks in Switzerland, Credit Suisse
and UBS, to have more equity and less leverage than it had demanded previously. News of the capital raising came as the bank warned that it expected to post a loss for the second quarter of 2009, late on Thursday. The figure would be lower than the 2 billion Swiss franc net loss it booked in the first quarter, as activity picked up at its investment banking division and it took smaller write-downs as it reduced its risky positions.Speculation is rife about UBS’ second-quarter results being reported on Aug. 4. Some believe the worst could be over, and that the bank’s run-in with U.S. tax authorities may soon conclude. Others fear its loss in market share in investment banking will hinder a recovery.
Shares of UBS
fell 0.6%, or 8 centimes , to 13.89 Swiss francs , in Zurich on Friday morning.

Bernanke Has No Regrets – US-FOREX.US

Forex-Publisher — Thu, 25 Jun 2009 17:46:24 +0000

It’s not easy being Ben. Did he threaten Lewis? Why didn’t he oversee Bank of America more closely? Why didn’t the government disclose its assistance? Is the Federal Reserve manipulating the housing market with Blackrock? On Thursday Fed chairman Ben Bernanke held his ground against the skeptical congressional committee that has been holding weeks of hearings about the financial crisis and various bailouts and handouts earlier this year). Bernanke insisted that his actions regarding Bank of America
‘s acquisition of Merrill Lynch were both appropriate and legal. He and officers of the Federal Reserve have been accused of forcing the deal through at great cost to taxpayers who had to put up 20 billion at the close and to BofA shareholders.”It was a successful transaction, it helped stabilize the financial markets, and it was good for taxpayers, I have no regrets,” Bernanke said.Akin to the testimony of BofA chief executive Ken Lewis, the committee members were left frustrated by the conflicting characterizations of the deal. Despite numerous internal documents and sworn statements that suggest otherwise, Bernanke insisted that he did not threaten, or tell anyone to threaten, Lewis’ job in order to keep him from invoking a “material adverse conditions” clause that would have allowed him to back out of BofA’s purchase of Merrill. Bernanke said only that he had expressed concern at the prospect that Lewis might walk away from the table.Bernanke noted that the Fed had to keep Lewis in the deal because if he had backed out, the Fed and the government wouldn’t have been able to do anything about it. The only action the government could have taken would have been to accuse Lewis of breaching his fiduciary duty to his own shareholders, a charge that would have been hard to make, particularly if BofA’s stock price had risen, as it likely would have given the magnitude of Merrill losses that BofA had to absorb.Most of the questions were about whether or not former Treasury Secretary Hank Paulson and Bernanke threatened Lewis, though Representative Dennis Kucinich took another line, arguing that Bernanke and other government officials did not provide enough oversight of BofA. “Our investigation reveals that what is remarkable is what the government did not do,” Kucinich said.
Bernanke seems to have ceded this point, at least in general. In subsequent questioning, hesaid that if the government had the legal channels to save Lehman Brothers
, it would have but that the real answer is to insulate the market from banks that are “too big to fail”. “We believe there have to measures that allow these institutions to fail when appropriate while not creating systemic risk to the financial system,” Bernanke said, “including greater oversight of capital and supervision of companies.”

Nilekani Quits Infosys To Join Government – US-FOREX.US

Forex-Publisher — Thu, 25 Jun 2009 14:46:12 +0000

MUMBAI -
In a rare and refreshing move, the Indian government has tapped a corporate executive to take charge of a long-delayed project to provide identification numbers to its 1.1 billion citizens, akin to a social security number. Nandan Nilekani, the much respected co-chairman of Infosys Technologies
, India’s second largest IT firm, will head the newly formed Unique Identification Authority of India. Nilekani’s appointment, announced Thursday, was mooted by prime minister Manmohan Singh and gives him the rank of a cabinet minister. The board of Infosys accepted Nilekani’s resignation which comes into effect from July 9. In a press release, N. R. Narayana Murthy, Chairman and Chief Mentor, said, “We are glad that an extraordinary individual like Nandan has got an opportunity to add value to India through this position.”Speaking to television channel NDTV, T.V. Mohandas Pai, director-human resources at Infosys commented that: “We’re going to miss him. But the larger context always has to win.”In an interview with CNBC-TV18, Nilekani said that while the decision to quit Infosys was a difficult one, it was an offer he couldn’t refuse. “The cause is so big and in the interest of the nation.” The ID project, he added, is crucial for not just security but ensuring financial inclusion for all citizens.
Nilekani’s contemporaries laud his move. Kiran Karnik, former head of the National Association of Software and Services Companies, an IT industry association that Nilekani helped co-found, said it was “rare” for a corporate executive to join the government. “That the government has picked someone of Nanda’s caliber and track record shows that they are serious about getting this project completed.”
Nilekani, 54, has been part of Infosys, a company he co-founded with five others, since its inception in 1981. The 3.45% stake that he holds with his family, worth 714 million today, has earned him a spot amongst India’s richest. Nilekani is also among the country’s more philanthrophically-inclined entrepreneurs. He’s a regular donor to IIT, his alma mater and he and his wife recently pledged 5 million to Yale University, where his children study, to start an India studies program. An engineer from the elite Indian Institute of Technology, he started his career as a low-paid software engineer at a time when India’s outsourcing industry was still to take off. He ran Infosys as chief executive officer and managing director for five years until 2007. Giving up operational charge provided Nilekani, whose views inspired the title of NewYork Times’ columnist Thomas Friedman’s book The World is Flat, to pursue his own passion for writing and public service. He is a member of the National Knowledge Commission and the national advisory group on e-governance. He also sits on the review committee of the Jawaharlal Nehru National Urban Renewal Mission. Last year, Nilekani published Imagining India: Ideas for the New Century, a book that devotes a chapter to harnessing technology for transformation.”This is Nandan’s big opportunity to walk the talk,” said Karnik.