Archive for December, 2008

Jobless claims dive while mortgage rates ease again (Reuters)

Wednesday, December 31st, 2008 | Finance News

WASHINGTON (Reuters) –
U.S. weekly jobless claims plummeted last week but the improvement was probably a seasonal quirk rather than a turning point for the recession-ravaged labor market.

Separate reports on Wednesday on business activity in New York City and Milwaukee showed no sign of a recovery, while 30-year fixed mortgage rates eased for the ninth consecutive week as official efforts to bolster the housing market appeared to gain traction.

Although the government reported the biggest drop in jobless claims since 1992, economists said the data did not reflect a change in the labor market which has been weakening for a year.

"We have once again entered a silly season for (jobless) claims," said JPMorgan economist Abiel Reinhart.

Initial claims for state unemployment insurance benefits fell 94,000 to a seasonally adjusted 492,000 in the week ended December 27 from an unrevised 586,000 the prior week, the Labor Department said.

It was the lowest reading for initial claims since the week ended November 1 and well below the 565,000 new claims analysts had expected, according to a poll by Reuters.

"Economic conditions have been difficult and unemployment claims remain higher than anyone would want to see," said White House spokesman Tony Fratto.

The government and U.S. Federal Reserve has pumped hundreds of billions of dollars into the economy to support banks and restore consumer spending.

Yet a yearlong U.S. recession has already destroyed 2.7 million jobs while pushing the country's unemployment rate up to 6.7 percent, with many economists expecting it to advance well above 8 percent in 2009.

A Labor Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.

"The numbers seemed unbelievable but the states certified they were correct," the Labor Department official said.

Prices on U.S. government bond, which usually fall on signs of economic strength, extended losses on the drop in claims while major stock indexes gained more than 1 percent.

"The bottom line here is that it probably won't be until mid-January that we begin to get a clear picture of what claims are saying. Until then it is best to focus on the four-week average," said Reinhart, the JPMorgan economist.

The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.

The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended December 20, the most recent week for which data is available.

This was the highest since the week ended December 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.

In separate reports, the National Association of Purchasing Management-New York's index of business activity was little changed in December, but managers were a little less pessimistic.

A report from the Institute for Supply Management-Milwaukee showed business activity in the region contracted for a 10th straight month, and the pace of the decline accelerated.

Both of the regional reports showed employers continue to chop payrolls.

Government-backed mortgage giant Freddie Mac said 30-year fixed mortgage rates fell to 5.10 percent from 5.14 percent the week before, notching the third consecutive all-time low since records began in 1971.

The U.S. Federal Reserve said on Tuesday it plans to spend $500 billion on mortgage securities in the next six months in a bid to cut lending rates for home loans. Mortgage rates have tumbled since the Fed announced the program last month.

The drop in mortgage rates has sparked a recent flurry of demand for home loans, with applications holding at a five-year high last week, according to a report by the Mortgage Bankers Association.

However, economists cautioned that a surge in interest in mortgages will not necessarily translate into demand for housing, as most of the applications have been to refinance existing mortgages.

(Additional reporting by Julie Haviv and Chris Reese in New York, Ros Krasny in Chicago and Jeremy Pelofsky in Washington)

(Editing by Tom Hals)

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U.S. lawmakers to question SEC watchdog about Madoff (Reuters)

Wednesday, December 31st, 2008 | Finance News

WASHINGTON (Reuters) –
The internal watchdog at the U.S. Securities and Exchange Commission will testify Monday at a hearing by U.S. lawmakers who want to know how the investor protection agency failed to detect the alleged $50 billion fraud by Wall Street financier Bernard Madoff.

Members of the U.S. House Financial Services committee will take their first close look at the alleged Ponzi scheme that has touched everyone from bearish "Dr. Doom" economist Henry Kaufman to actor Kevin Bacon, both of whom invested with Madoff.

Madoff, a former Wall Street fund manager, is accused by federal prosecutors of running a $50 billion scam that ensnared wealthy investors, banks and charities around the world.

He faces a Wednesday deadline to tell the SEC how much he is worth and where his money and other assets are. In general, the SEC is not required to immediately publicly file such disclosures with the courts.

Critics say the SEC missed warning signs and failed to uncover the scandal until Madoff's sons went to authorities and told them Madoff had confessed to the fraud. SEC Chairman Christopher Cox recently asked inspector general David Kotz to probe the agency's conduct in the case.

Kotz will testify at the hearing, which will help lawmakers planning "the most substantial rewrite" of laws regulating the U.S. financial markets since the Great Depression, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the subcommittee on capital markets.

Also appearing will be Harry Markopolos, the former chief investment officer at Rampart Investment Management who said he repeatedly tried to get the SEC to investigate Madoff, and Stephen Harbeck, president of the Securities Investor Protection Corp. The nonprofit SIPC was created by Congress in 1970 to maintain reserves to help investors at failed brokerage firms.

SIPC has said it expects it will take several years to find the money in remote locations and sort through investor losses from the alleged fraud.

The witness list also includes Allan Goldstein, a retiree and investor with Bernard L. Madoff Investment Securities; Tamar Frankel, a law professor at Boston University, and Leon Metzger, a hedge fund expert who has taught at Yale University.

(Reporting by Karey Wutkowski and Julie Vorman; Editing by Brian Moss and John Wallace)

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Top Dell execs leave as PC maker restructures (Reuters)

Wednesday, December 31st, 2008 | Finance News

BOSTON (Reuters) –
Two top Dell Inc executives recruited to help turn around the No. 2 PC maker are leaving as part of the second major staff shake-up in the two years since founder Michael Dell returned as CEO.

The company, once the top PC maker, has slashed jobs and struggled to regain market share it lost to Hewlett-Packard Co and its stock has dived more than 60 percent this year.

The revamp calls for all sales to businesses to be managed centrally, rather than from three regional headquarters around the globe.

The company's president of global operations, Mike Cannon, will be succeeded by 21-year company veteran Jeff Clarke. Marketing chief Mark Jarvis will also leave the company.

The two executives are departing less than two years after Michael Dell wooed them with sign-on bonuses of $2 million for Cannon and $250,000 for Jarvis.

"It's a big shake-up," said Tim Ghriskey, chief investment officer for Solaris Asset Management. "Will it succeed over the long term? Who knows? But I think a shake-up is positive."

Dell's larger rival HP has cut costs and boosted market share since it named Marc Hurd chief executive in September 2006. Michael Dell returned as CEO of his company four months later, shortly after HP wrested the top spot in the global PC market.

Dell has cut more than 8,000 jobs this year, and asked employees to voluntarily take up to five days of unpaid vacation to further lower costs.

Analyst Shannon Cross of Cross Research expects Dell to announce another round of layoffs next year as it struggles to bring costs in line with falling sales.

"My guess is that they will find some cost savings, that they will shrink their organization to match lower demand," Cross said. "We're going to see this play out in the next couple of quarters."

Michael Dell has failed to turn around market share losses since his return in January 2007. Dell's market share slipped to 13.6 percent of global unit PC sales in the third quarter of this year, from 16.1 percent in the third quarter of 2006, according to market researcher Gartner.

Meanwhile, HP's third-quarter share climbed to 18.4 percent from 16.3 percent two years earlier.

During the same period Acer Inc more than doubled its share to 12.5 percent, making it the No. 3 PC maker. Lenovo Group Ltd's share has dropped to 7.3 percent from 7.5 percent, putting it in fourth place.

BACK TO CENTER

Dell will centralize a far-flung global organization responsible for sales of its business products, which include personal computers, servers and storage equipment.

The three new segments will supervise Dell's business with large corporations, government agencies, and small to mid-sized companies.

Dell's consumer business is already centralized under unit president Ron Garriques.

Dell shares were up 8 cents at $10.31 in midday Nasdaq trading. They hit a 52-week low of $8.72 on November 21 and a high of $26.04 on August 2008.

Jarvis, the marketing chief, will be replaced by Erin Nelson, formerly vice president of marketing for the Europe, Middle East and Africa region.

The company's new large enterprise division will be headed by Steve Schuckenbrock, who is currently president of global services and chief information officer.

The public division will focus on technology work in areas such as government, education, health care and the environment, and will be overseen by Paul Bell, currently president, Dell Americas.

Lastly, Steve Felice, currently president of Dell Asia-Pacific and Japan, will head the small and medium business division.

The company plans to align its financial reporting with the new structure during the first half of Dell's fiscal-year 2010. That starts in February.

(Additional reporting by Paul Thomasch; Editing by Derek Caney)

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