Fundamentally: A Rally That Needs More ‘E’

IN the first leg of a bull market, when optimism and euphoria are ascendant, investors are willing to bet that the economy will improve and that corporate profit growth is just around the corner. This faith manifests itself not just in rising share prices, but also in rising price-to-earnings ratios.

True to form, the P/E ratio for companies in the Standard & Poor’s 500-stock index has soared 87 percent since this rally began on March 9.

But hope can take the market only so far. Earnings — the “E” in the P/E ratio — must soon recover and become the catalyst for rising prices if this rally is to last. All reports so far, however, show that earnings are still falling.

“The early-cycle P/E expansion is most likely behind us,” said Jeffrey N. Kleintop, chief market strategist at LPL Financial in Boston. From here on, he said, corporate profits will have to be strong enough to propel stock prices higher.

What makes him think so? For starters, P/E expansion alone has already lifted the market by more than 60 percent since early March, in one of the strongest short-term surges in recent memory.

But long-term history also offers an important clue.

Though conventional wisdom assumes that P/E ratios continue to grow throughout a bull market, that’s not always the case. In fact, it’s rarely the case.

On average, the market’s P/E tends to peak a little more than a year into a bull market, according to analysis by Ned Davis Research, an investment consulting firm in Venice, Fla. “And the lion’s share of that P/E expansion takes place in the first six months,” said Ed Clissold, senior global analyst at Ned Davis.

Indeed, Ned Davis researchers found that price-to-earnings ratios shot up 28 percent, on average, in the first 15 months of bull markets since 1929. But four-fifths of that expansion took place within the first six months.

Sam Stovall, chief investment strategist at S.& P., analyzed bull markets back to 1942 and found that in 9 of the last 11, the S.& P. 500’s P/E ratio grew within the first year by an average of 29 percent no credit check payday loans.

In the second year of those run-ups, though, the market’s P/E ratio actually fell — by 6 percent, on average. What’s more, in bull markets that survived into a third year, the P/E continued to slip.

In many cases, that’s because corporate profits expand so fast that their growth outpaces rising share prices. In other words, as the “E” in the P/E ratio grows faster than the “P,” the multiple contracts even as stocks gain ground.

As for the current decline in corporate profits, the best that can be said is that the rate of contraction has slowed. At the start of October, Wall Street analysts were bracing for a 24.8 percent decline in S.& P. 500 profits in the third quarter, versus the same period a year ago. Today, the consensus estimate is for a much more modest fall, of 13.7 percent.

WHEN will the earnings outlook turn around?

For a while now, analysts have been predicting that corporate profits will start growing in 2010. And, recently, some market strategists have begun raising their forecasts for next year. David Bianco, chief domestic equity strategist at Bank of America Merrill Lynch, for example, lifted his target for S.& P. 500 earnings to $73 a share in 2010, from $70.

Mr. Kleintop of LPL says his target for S.& P. profits stands at around $75 a share for next year, but adds that he would not be surprised if it ended up closer to $77 a share.

Still, he says he believes the S.& P. 500 will end 2010 at around 1,200. That would be up 10 percent from the current level and a 7 percent climb from 1,125, which is where Mr. Kleintop thinks the index will end this year.

Even if this rally survives through 2010 — and that’s a big if — modest returns may be all that can be expected.

After all, as investors shift their attention to the fundamentals, the euphoria is likely to die down.

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

Fundamentally: A Rally That Needs More ‘E’

Dubai’s Investment Troubles Leave Markets Unsteady

HONG KONG — Stock markets fell across Asia on Friday as investors were spooked by news this week that Dubai World, the emirate’s main investment vehicle, was seeking to suspend repayments on all or part of its $59 billion in debt.

The Hang Seng index in Hong Kong fell 4.8 percent and South Korea’s key market gauge, the Kospi, dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan both sagged 3.2 percent.

European markets, however, were flat, with the CAC 40 in Paris and the FTSE 100 in London turning a few points higher. The three major European markets all fell more than 3 percent on Thursday. Wall Street is expected to open sharply lower as investors there try to play catch up. American markets will be open for a half-day, after being closed Thursday for Thanksgiving.

The dollar gained against the euro, and crude oil prices fell $3.68 to $74.28 in premarket trading in New York. Treasury prices rose.

In the Asian markets, banks and construction firms were among the biggest losers, even as many companies issued statements declaring they had little or no direct exposure to the Dubai World debt.

European banks may be hit hardest if Dubai World cannot meet its obligations, according to a research note Friday from Credit Suisse. The Swiss bank estimated that European banks could have a total exposure of 13 billion euros.

Bloomberg News, citing a report by JPMorgan Chase and Company, said that the Royal Bank of Scotland Group underwrote more loans than any institution to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings had the most at risk in the United Arab Emirates.

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in the report, citing Dealogic data.

The turmoil was touched off by Wednesday’s announcement from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow Dubai World to suspend its debt repayments for six months. European markets reacted negatively to the news Thursday.

Dubai’s move — the global high-finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

“This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said by phone from Paris.

“But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

Some market experts noted, for instance, that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its debt, worries about the sovereign debt of oil-rich Middle Eastern countries were unfounded.

Paul Schulte, head of multi-strategy research at Nomura in Hong Kong commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s cash advances pay day loan. Happily, the U.A.E. has oil. Thailand did not.”

Still, the news had companies scrambling Friday as their stock prices dropped.

In Hong Kong, HSBC and Standard Chartered — British banks that both have large operations in the Middle East — fell 7.6 percent and 8.6 percent, respectively. Both declined Friday to comment on what exposure they had to Dubai World. Standard Chartered said it would issue a statement “if there was anything material to disclose.”

Mr. Schulte said he believed the two banks had “insignificant exposure to Dubai.”

Chinese banking giants including ICBC, Bank of China and Bank of Communications said they had no exposure, Reuters reported, but their shares all dropped.

In Japan, Sumitomo Mitsui Financial Group fell 3.7 percent, Mizuho Financial dropped 3.9 percent and Mitsubishi UFJ 2.2 percent, though none would say how large their exposures were, according to Bloomberg News. Taiwan’s fourth-ranked Mega Financial said it had exposure to Dubai World loans and was trying to find out how much.

Real estate and construction firms of varying sizes were also scrambling to assess the impact. In India, for example, Reuters reported that the chairman of realty firm Omaxe said the company had an exposure of 450 million rupees, or $9.6 million, through a joint venture with Dubai World’s property developer unit Nakheel, and was looking to exit the project.

And the South Korean builder C&T Samsung said it had stopped work on a $350 million bridge in the city after a unit of Dubai World halted payments, according to Bloomberg News.

Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn.

“Dubai was fairly much the worst example of overextension. It had the worst debt per capita in the world by far,” Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday. “I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has little oil, was backed by its Arab emirate neighbors, especially oil-rich Abu Dhabi — or so investors had assumed.

Saud Masud, head of research at UBS in Dubai, said Thursday that negotiators would feel pressure to reach some kind of deal to present to the markets before trading in the region resumes next week after the Eid holiday. The Dubai government’s total debt is estimated at about $80 billion, of which, Mr. Masud estimated, about two-thirds is held by local investors.

Mr. Schulte of Nomura commented in his note that, in his view, “it is not a matter of when but at what price Abu Dhabi will bail out Dubai.”

Mr. Wolter of RBS said he too believed Abu Dhabi would have no choice but to ultimately come to Dubai’s rescue. Until that becomes clear, though, he said, markets would remain extremely nervous.

Dubai’s Investment Troubles Leave Markets Unsteady

Hot News: Greenberg and A.I.G. Settle Legal Disputes

U.S. economy grew 2.8 pct in Q3

WASHINGTON (Reuters) – The U.S. economy grew more slowly than initially thought in the third quarter, held back by strong imports and weak investment in nonresidential structures, according to data on Tuesday that hinted at a lackluster recovery.

In its second reading of third-quarter gross domestic product, the Commerce Department said the economy grew at a 2.8 percent annual rate, rather than the 3.5 percent pace it estimated last month.

It was still the fastest pace since the third quarter of 2007. The return to growth after four straight quarters of decline in output probably ended the most painful U.S. recession in 70 years. The economy contracted at a 0.7 percent rate in the April-June period.

The growth pace in GDP, which measures total goods and services output within U.S. borders, was a touch below market expectations for a 2.9 percent rate.

Surging imports, which outpaced the growth in exports, restrained the economic growth rate in the third quarter. Imports jumped 20.8 percent, the biggest gain since the second quarter of 1985, instead of 16.4 percent. They knocked 2.53 percentage points off real GDP, the department said.

Another drag on GDP came from the construction of nonresidential structures, which dropped 15.1 percent in the last quarter rather than 9.0 percent, highlighting the problems in the commercial property market. That shaved just over half a percentage point off GDP.

Businesses reduced accumulated stocks of unsold goods in the last quarter at a slightly faster rate than had been anticipated. Business inventories fell $133.4 billion rather than the $130.8 billion the government estimated in October easy payday loans.

The decline was still a slowdown from the record $160.2 billion plunge in the second quarter. The change in inventories added 0.87 percentage points to real GDP in the third quarter.

Excluding inventories, GDP rose at a 1.9 percent rate instead of 2.5 percent. Final sales increased at a 0.7 percent pace in the second quarter.

The GDP report also showed after tax corporate profits grew 13.4 percent in the third quarter, the largest gain since the first quarter of 2004. It was faster than market expectations for 6.2 percent. The strong profit growth was largely a reflection of deeper cost-cutting by companies, mostly headcount reduction, to deal with insipid demand.

Consumer spending was not as robust as the government had estimated last month, the report showed.

Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, rose at a 2.9 percent rate instead of the 3.4 percent pace reported by the government last month. It was still the biggest rise since the first quarter of 2007. Spending fell at a 0.9 percent rate in the second quarter.

Home building activity rose at a 19.5 percent rate in the third quarter, below previous estimates of 23.4 percent. Home construction still contributed to GDP for the first time since 2005. Residential investment declined 23.3 percent in the April-June period.

Consumer spending and residential investment were supported by government stimulus programs.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. economy grew 2.8 pct in Q3

Study Links Chinese Drywall and Corrosion in Homes

Federal investigators reported Monday that a “strong association” existed between chemicals contained in Chinese drywall and complaints by homeowners of metal and electrical corrosion.

In addition, investigators said they found a “possible” link between the hydrogen sulfide gas emitted from the imported drywall and reported health problems.

When combined with formaldehyde, which is common in new homes, hydrogen sulfide can cause many of the health problems reported by homeowners in several Southern states, the report said. In addition, investigators found that high humidity, high temperatures as well as poor air circulation were contributing factors.

The finding was released by the Consumer Product Safety Commission and is the second in a series of progress reports on an investigation into complaints by homeowners that their newly build houses were giving off a rotten egg odor, causing respiratory problems and that their electrical systems and appliances were failing at abnormally fast rates.

The commission said that more than 2,100 homeowners in 32 states have filed complaints with most coming from Florida, Louisiana and Virginia, three states that experienced a building boom after devastating hurricanes. With domestic sources of drywall running low a few years ago, many homebuilders turned to imported drywall from China, which investigators are now saying is linked to many of the problems.

“The real suspect can now be confirmed, “ said Jack McCarthy, a spokesman for Environmental Health and Engineering, a firm contracted by the government to conduct a study of 51 homes quick payday loan. “There’s a strong association with the drywall and hydrogen sulfide and the corrosion that we see in these homes. Temperature, humidity and air exchange rates are contributing factors.”

Federal investigators shied away from any definitive statements about the relationship with the drywall and reported health problems, saying that further studies were under way. But they clearly pointed in that direction.

“When we look at these levels, we see how this could possibly contribute to some of the health problems reported to the C.P.S.C.,” Mr. McCarthy said, referring to the product safety commission.

The study looked at 51 homes, 41 affected with problems and 10 without. The investigation included taking air samples, using X-Ray and infrared tools to determine drywall composition, examining wiring and copper plumbing, testing homes for temperature and air exchange as well as doing an array of sampling over time.

Scott Wolfson, a spokesman for the product safety commission, said that the agency’s next step would be to look into possible ways to fix the problems facing the homeowners as well as to examine ways to provide financial aid to homeowners with these problems.

Study Links Chinese Drywall and Corrosion in Homes

Hot News: U.S. existing home sales pace highest in 2-1/2 yrs

Fed independence doubts could hurt recovery: report

NEW YORK (Reuters) – The independence of the Federal Reserve is essential for credible monetary policy and doubts about the U.S. central bank's ability to do its job without political interference could hurt the nascent economic recovery, a senior Federal Reserve official said on Sunday.

"Talk of eroding the Fed's independence can be counterproductive for economic recovery," St. Louis Federal Reserve Bank President James Bullard said in slides to accompany a presentation prepared for a panel discussion in New York.

Bullard said that non-independent central banks have historically been forced to finance large government budget deficits. "This can be very inflationary," he added.

Last week, a U.S. congressional panel approved a measure to open the Fed's monetary policy decisions to government audits — a surprise blow to the central bank's efforts to shield its independence and a signal of the frustration on Capitol Hill with the central bank.

The amendment was a further congressional slap at the U.S. central bank after a Senate regulatory overhaul proposed stripping the central bank of its regulatory authority.

Some lawmakers fault the Fed for failing to anticipate or prevent the financial crisis that pitched the economy into a deep recession.

Bullard batted back criticism that the Fed missed the brewing crisis, saying the central bank provided "important warnings" before the crisis began.

He noted that his predecessor at the St. Louis Fed, William Poole, argued in the early 2000s that Fannie Mae and Freddie Mac were "ticking time bombs," while former Federal Reserve Bank of Minneapolis President Gary Stern published a book entitled "Too Big To Fail," warning some financial firms were growing too large for proper supervision fast payday loan.

"These types of warnings show that the Fed is well aware of systemic risk concerns in real time," Bullard said in his slides.

He argued the Fed needs a role in regulating institutions to whom it may lend if required to as the "lender of last resort."

Bullard also said that to do its job of setting monetary policy effectively, the Fed needs to know the conditions of the financial system.

"The need to know the status of financial markets has been underscored by recent events," Bullard said. The United Kingdom's model, in which the Financial Services Authority is in charge of regulation and the Bank of England is in charge of monetary policy "did not work well during this crisis," he said.

"The crisis in the UK has been even worse in some dimensions than in the U.S.," Bullard said.

He also said that despite the current crisis, the Fed's track record of handling crises in the last 25 years has been "reasonably good."

Bullard, who will vote on the Fed's policy-setting panel next year, did not comment on outlook for monetary policy.

Fed independence doubts could hurt recovery: report

Wall Street drops after Dell, D.R. Horton results

NEW YORK (Reuters) – U.S. stocks fell on Friday after worse-than-expected quarterly results from computer maker Dell Inc and homebuilder D.R. Horton Inc underscored that the road to recovery would not be smooth.

Dell (DELL.O) fell nearly 9 percent to $14.49 a day after it reported third-quarter sales that missed estimates.

Investors have been watching the technology sector closely after a big run-up, with the S&P information technology sector (.GSPT) soaring more than 70 percent from its March lows. On Thursday, tech shares were pummeled after a bearish analyst comment on semiconductors.

"Dell usually does well in the holiday season. So this suggests that we won't get good results from other retailers. That's pushing the market down," said Dan Faretta, senior market strategist at Lind-Waldock in Chicago.

The Dow Jones industrial average (.DJI) was down 4.23 points, or 0.04 percent, at 10,327.99. The Standard & Poor's 500 Index ( payday loan.SPX) fell 3.24 points, or 0.30 percent, at 1,091.66. The Nasdaq Composite Index (.IXIC) dropped 13.37 points, or 0.62 percent, at 2,143.43.

D.R. Horton (DHI.N) shed 9 percent to $11.15 after it reported a fourth-quarter loss that was wider than expected and said market conditions were "still challenging." The Dow Jones U.S. Home Construction index fell (.DJUSHB) 4 percent.

If the markets end in negative territory on Friday, it will be the third straight day of losses, as investors reassess the global economic outlook and see few reasons to make big bets after the market has jumped 20 percent in 2009.

The U.S. dollar gained 0.6 percent against a basket of currencies (.DXY), pushing December crude futures down by 1.3 percent, extending Thursday's sell-off.

(Editing by Jeffrey Benkoe)

Wall Street drops after Dell, D.R. Horton results

U.S. Mortgage Delinquencies Reach a Record High

The number of people at least one month behind on their house payments rose to a record in the third quarter, the Mortgage Bankers Association said Thursday.

Nearly 10 in 100 homeowners are delinquent, according to the association’s data, up from about seven out of 100 in the third quarter of 2008.

These numbers do not include those who are actually in foreclosure, a figure that also rose sharply. The combined percentage of those in foreclosure as well as delinquent is 14.41 percent, or about one in seven of mortgage holders.

“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in G no teletrack payday loans.D.P.,” Jay Brinkmann, the association’s chief economist, said in a statement.

The data indicates that borrowers in trouble are no longer just those who took out subprime loans. High-quality prime fixed-rate mortgages now represent the largest share of new foreclosures.

The survey is based on a sample of more than 44 million mortgage loans serviced by mortgage companies, commercial banks, thrifts, credit unions and others. The association’s records date back to 1972.

U.S. Mortgage Delinquencies Reach a Record High

Mortgage delinquencies hit record-high in 3Q

WASHINGTON – More than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September, a record-high for the ninth straight quarter and a problem that could threaten the economic recovery.

The Mortgage Bankers Association’s report Thursday adds to fears that the housing market and broader recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. While optimists hope the worst is over, pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market and expect further price declines.

About 4 million homeowners were either in foreclosure or at least three months behind on their mortgage payments as of September, according to the mortgage bankers group. Even if a quarter of those borrowers are able to stay in their homes, “there’s a lot of potential inventory coming into the market next year,” said Jay Brinkmann, chief economist with the Mortgage Bankers Association.

Those foreclosures will push home prices downward, especially in the hardest-hit California and Florida cities, places that are also coping with soaring unemployment, he said cash loans.

The record-high foreclosure numbers are being driven by borrowers with traditional fixed-rate mortgages, rather than the shady subprime loans with adjustable rates that kicked off the mortgage crisis.

Fixed-rate loans made to so-called prime borrowers with good credit histories caused nearly 33 percent of new foreclosures in the July-September quarter, compared with 21 percent a year ago.

Subprime loans with adjustable rates have fallen to 16 percent of new foreclosures from 35 percent a year earlier.

Loans backed by the Federal Housing Administration also show increasing signs of trouble. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure.

Among states, the worst of the trouble is still concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 13 percent of all loans in Florida were in foreclosure, the highest in the U.S., followed by Nevada at more than 9 percent.

Mortgage delinquencies hit record-high in 3Q

Market Snapshot: Blue chips battle back to end with small gain

NEW YORK (MarketWatch) — Stocks managed to finish with their third straight session of gains Tuesday, as the dollar returned near 15-month lows, helping fuel gains in commodities and offsetting a batch of weak economic reports and a glum outlook from Home Depot.

The latest big-picture economic data were tepid but didn’t derail investors’ recent hopes that low interest rates and improvement in corporate profits will last through the next few quarters. See Economy & Politics section.

The Dow Jones Industrial Average , which was off 45 points at its morning low, finished with a 30-point gain, up 0.3%, at 10,437, its highest close since October of last year.

The Dow’s advance was powered by gains in all its commodity-producing components, which benefited from a modest gain in prices of raw materials. Exxon Mobil Corp. rose 0.8%, Alcoa Inc. gained 1.1% and Chevron Corp. was up 0.3%.

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Oil prices rebounded from a morning sell-off to close with a slight gain as traders placed bets ahead of inventory data due out Wednesday. Crude futures ended up 24 cents, or 0.3%, at $79.14 a barrel in New York. See more about crude oil in Futures Movers.

The rally helped spur a 0.3% gain in the Dow Jones-UBS Commodity Index, which also benefited from rallies in copper, wheat and other components.

In economic news, the government reported weaker-than-expected levels of industrial production and wholesale-level inflation for October. The International Council of Shopping Centers and Goldman Sachs monthly index of chain-store sales slipped 0.1% in the week ended Saturday, but the measure was up a solid 2.4% from a year ago.

The National Association of Home Builders’ monthly gauge of builders’ confidence held flat at 17 in November, contrary to analysts’ hopes for a slight uptick. See MarketWatch’s story about the home-builder sentiment index.

Investors lately have tended to see a silver lining in bad economic data, interpreting such reports as further incentives for the Federal Reserve to keep its key rate target near zero well into 2010.

“There’s no question the economy is facing a long slog to recovery, but at the same time, all the talk about rates has brought a lot of buyers into the market,” said Malcolm Polley, chief investment officer at Stewart Capital Advisors.

After Tuesday’s session, the Dow has posted gains in nine out of the past 10 sessions. On Monday, all three major indexes closed at new highs for the year, with larger, more globally diverse firms leading the market higher for much of November saving account payday loan.

Hot Stocks: Retail in Retreat

The retail sector declines after Home Depot’s implied fourth-quarter forecast misses expectations. Plus, quarterly results roll in from TJX, Target, Dillard’s and Saks. MarketWatch’s Andria Cheng reports.

Helping to hold the Dow in check Tuesday was a 2.3% slide in Home Depot Inc. after the firm was cautious about the coming holiday season. Although the home-improvement retailer posted a smaller-than-expected decline in fiscal third-quarter profit, its outlook for the fourth quarter came in below analysts’ forecast. Details on Home Depot’s results and outlook.

Home Depot’s woes also weighed on the S&P 500 Index’s consumer-discretionary category, which was the index’s weakest sector, off 1.1%. But gains in basic materials, technology and telecommunications stocks lifted the S&P 500 , up 0.1%, to 1,110.31, also a fresh 13-month high.

The Nasdaq Composite Index gained 5.93 points, or 0.3%, to 2,203.78. The Russell 2000 Index finished off 0.1%.

“It’s getting a lot harder to find well-valued stocks here,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors. But he added, alluding to March’s lows: “If we’re starting a new bull market, this has been a pretty short one at just eight months. You would expect that we have longer to go, though we could certainly get a short-term pullback of 5% or 10% along the way.”

Tuesday’s session revealed a slowdown in volume. After averaging about 5.8 billion shares a day of NYSE Composite volume this year, the past two weeks have regularly seen less than 4 billion shares changing hands. Approximately 3.9 billion shares changed hands on Tuesday.

“When the volumes are this light, even though the prices are up, you feel like you are standing on a snow bridge in the spring,” said Chris Wolf, managing partner of Cogo Wolf Asset Management. “It’s worrisome to us as it wouldn’t take a lot to shake this right now.”

Among stocks to watch, Ford Motor shares gained 3% after the automaker got a vote of confidence from billionaire investor George Soros, whose Soros Fund Management reported a new $53 million stake in the company.

Pacific Sunwear of California Inc. plunged 22%, further weighing on consumer companies, after the teen retailer reported fiscal third-quarter loss widened as it suffered slumping sales, particularly toward the end of the quarter. The company also warned of a much bigger loss in the current quarter than Wall Street had been expecting.

Treasury prices rose. The two-year note was up 1/32 to yield 0.761%. The 10-year note rose 4/32 to yield 3.324%.

Market Snapshot: Blue chips battle back to end with small gain

Wal-Mart confirms some Black Friday deals

NEW YORK – Wal-Mart Stores is confirming some of the deals it will be push to draw crowds for the day after Thanksgiving. They include a 50-inch Sanyo plasma HDTVs for $598 and $3 children’s sleepwear.

The day after Thanksgiving, known as Black Friday, is considered the official kickoff for the holiday shopping season. It is an important barometer of shoppers’ willingness to spend for the holiday period business cards design.

Melissa O’Brien, Wal-Mart spokeswoman, says that the deals that will be heavily advertised in its Black Friday circular also include Magnavox Blu-Ray disc players for $78, TomTom GPS systems for $59 and $7 reversible fleece jackets.

Wal-Mart confirms some Black Friday deals

Hot News: U.S. stocks trade slightly higher

Markets Rise as Traders See Growth

The continuing weakness of the dollar and more reassurance — this time out of Japan — that the recession was starting to ease helped push shares higher on three continents on Monday.

The Japanese government reported Monday that the country’s economy grew at a robust annual rate of 4.8 percent in the third quarter as stimulus spending and a rebound in exports appeared to bring the country out of its worst recession in the postwar era.

Japan’s gross domestic product grew 1.2 percent in the July-to-September period from the previous three months, or at an annual pace of 4.8 percent, the government said.

That followed reports last week that the economy in the 16-country euro zone grew 0.4 percent in the third quarter, the first increase in six quarters. The G.D.P. in the United States expanded at an annual rate of 3.5 percent in the quarter that ended in September. Both were partly propelled by stimulus programs.

Jeffrey Saut, chief investment strategist at Raymond James, said another factor leading to the Monday’s upturn was a desire by fund managers to end the year with strong performance. “These guys not only have performance anxiety, they’re also going to have bonus anxiety, and they are ultimately going to have job anxiety,” Mr. Saut said.

Other factors included the weakness in the dollar and positive signs in the retail reports.

In the currency markets, the dollar lingered just below $1.50 to the euro on Monday. The dollar’s steady slide since March, largely because of record-low interest rates and increased government spending, has fueled the equity markets by encouraging investors to move money into higher-yielding assets like stocks and commodities.

And the Commerce Department said that retail sales increased 1.4 percent in October, topping the 0.8 percent jump that economists had forecast. Sales declined 2.3 percent in September.

“Anything even vaguely positive as it relates to the consumer right now is going to be viewed as a big upside,” said Marc Harris, co-head of global research for RBC Capital Markets. “That is what the market is most focused on at the moment.”

But Bruce A. Bittles, chief investment strategist at Robert W. Baird & Company, said there were reasons for hesitation in the report, since much of the growth came from car sales.

“Expectations are low for the consumer going forward, and for the holiday season,” he said payday loans. “The retail sales report did not do a lot to relieve that. But if the consumer is going to be saving more, rather than maintaining a borrow-and-spend attitude, it is very bullish for the market long term.”

Shortly after 1 p.m., the Dow Jones industrial average was up 146 points, or 1.4 percent. The Standard & Poor’s 500-stock index rose 18.8 points, or 1.6 percent, while the Nasdaq rose 33 points, or 1.5 percent.

The Dow, which rose 2.5 percent last week after rising 3.2 percent the previous week, has gained 17 percent this year. The S.& P. 500-share index climbed 2.3 percent last week, while the Nasdaq added 2.6 percent.

Monday on Wall Street, the increases were across the board, led by chemical and energy shares as well as financial stocks. Shares in Exxon Mobil rose 2.4 percent, Occidental Petroleum rose 2.3 percent and ConocoPhillips rose 1.8 percent as oil prices rose $2.45 to $78.81.

Mr. Saut of Raymond James said strong earnings reports from retailers this week were buoying stocks. The home improvement retailer Lowe’s, for example, said Monday that while its profit declined 30 percent in the third quarter, its results had matched expectations. The company also said it was seeing signs that the housing market was stabilizing.

“All of this is pretty consistent with a moderate economic recovery,” Mr. Saut said. “You don’t need spectacular growth for stocks to do well. All you need is some growth.”

Shares in Europe and Asia were also higher. The FTSE 100 in London was up 86 points, or 1.6 percent. The DAX in Frankfurt rose 117 points, or 2.1 percent, while the CAC-40 in Paris was 57 points, or 1.5 percent, higher.

Earlier in Tokyo, the Nikkei closed up 20.87 points, or 0.2 percent, to 9,791.18.

In Beijing, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, added his voice to those calling on China to scrap its currency’s peg to the dollar.

“A stronger currency is part of the package of necessary reforms,” Mr. Strauss-Kahn said. “Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income, and provide the right incentives to reorient investment.”

Markets Rise as Traders See Growth

Hitachi to raise up to $4.5 billion: sources

TOKYO (Reuters) – Hitachi Ltd (6501.T), Japan's biggest electronics firm by revenues, plans to raise up to 400 billion yen ($4.5 billion) by issuing new shares and convertible bonds to shore up its battered capital base, two sources familiar with the matter said.

The sources, who asked not to be identified ahead of an official announcement anticipated as early as Monday, said Hitachi plans to sell about 300 billion yen worth of shares and another 100 billion yen in convertible bonds.

The public share offering would be its first in 27 years.

No one could be immediately reached at Hitachi for comment.

Faced with its fourth straight year of losses, Hitachi's shareholders' equity ratio has slipped to just below 11 percent, roughly half that of rival NEC Corp (6701.T), which earlier this month announced it would raise up to $1.5 billion.

The ratio is calculated by dividing shareholders' equity by total assets and is a measure of financial strength.

Issuing 300 billion yen worth of stock at Friday's closing price of 294 yen would boost Hitachi's shares outstanding by about 30 percent.

Hitachi, a sprawling conglomerate with more than 900 group firms, is trying to restructure unprofitable businesses while shifting resources to its power operations, which include nuclear power plants, railway systems, elevators and batteries for hybrid cars.

Some of the funds raised would help pay for this group restructuring, the sources said.

Hitachi launched a $3 billion bid earlier this year to make five listed units, including magnetic tape maker Hitachi Maxell (6810 same day payday loans.T) and plant engineering firm Hitachi Plant Technologies Ltd (1970.T), wholly owned.

Hitachi also must shoulder an investment of about 80 billion yen to pave the way for a merger of Renesas Technology — its chip venture with Mitsubishi Electric (6503.T) — and chipmaker NEC Electronics (6723.T) next year.

Massive losses have also taken their toll. Hitachi lost 787 billion yen in the past business year ended in March, a record for a Japanese manufacturer, and is forecasting a loss of 230 billion yen in the current year to March 2010.

The share and convertible bond offering will mark the first major step by Takashi Kawamura, a veteran of the power business who took over as president in April, to shore up the finances.

Hitachi will be joining a rush of Japanese companies raising money from the stock market following a recovery in the benchmark Nikkei average (.N225), which has rallied some 40 percent since hitting a low for the year in March.

Japanese firms have sold about $40 billion worth of shares so far this year, an almost nine-fold increase from $4.5 billion in the same period a year earlier, according to Thomson Reuters data.

Separately, sources told Reuters on Saturday that Mitsubishi UFJ Financial Group (8306.T) was planning to issue about $11 billion worth of shares, in the largest public offering by a Japanese financial firm on record.

(Editing by Keiron Henderson)

Hitachi to raise up to $4.5 billion: sources

Fair Game: Home Builders (You Heard That Right) Get a Gift

ON Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.

But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.

Before the bill became law, the so-called look-back on losses was limited to small businesses and could be used to counterbalance just two years of profits. Now the profit offset goes back five years, and the law allows big companies to take advantage of it, too. The only companies that can’t participate are Fannie Mae and Freddie Mac and any institution that took money under the Troubled Asset Relief Program.

Among the biggest beneficiaries are home builders, analysts say. Once again, at the front of the government assistance line, stand some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.

This is getting to be a habit: companies that participated on the upside and are now reaping rewards from the taxpayers on the downside. The banks that underwrote so many dubious loans, for example, received government aid to get them lending again. Unfortunately, that hasn’t been the result.

One can make an argument that throwing money at the banking system is necessary if we are to jump-start the economy. And banks need a bigger capital cushion to protect against future losses.

But dropping helicopter money on the home builders — the folks who massively overbuilt in community after community — seems decidedly less urgent (unless you are one of these companies, of course). Given that the supply of housing far outstrips demand, it is unlikely that these companies will use these tax breaks to hire workers (unless they go into a completely new line of business).

“I AM surprised that home builders are getting hundreds of millions of dollars given that many have very strong balance sheets,” said Ivy Zelman, chief executive at Zelman & Associates, a research firm. “We question the public policy decision to gift home builders with capital that many will not use to create jobs, since they admit that job growth will be dependent not on capital, but on improving demand.”

When Mr. Obama signed the law, his administration said the tax break would help “struggling businesses.” But as Ms. Zelman pointed out, many large home builders are sitting atop mountains of cash. Pulte Homes, which will receive refunds exceeding $450 million under the new law, has $1.5 billion in cash and cash equivalents on its balance sheet, according to its most recent financial statement.

Hovnanian Enterprises is another big beneficiary of the tax break. It anticipates a refund of $250 million to $275 million next year. It had $550 million in cash in its most recent quarter.

Smaller recipients include Standard Pacific, which is poised to reap cash refunds of $80 million under the new tax break. According to its most recent financial filing, Standard Pacific held $523 million in cash and cash equivalents.

Finally, Beazer Homes told investors that it expects to receive a refund of $50 million. The company reported cash and equivalents of $557 million at the end of September payday loan.

Some of the home builders poised to receive tax refunds have even more cash today than they did last year. D. R. Horton, for example, has $1.966 billion in cash, up 45 percent from September 2008 levels. And some are healthy enough to have retired significant amounts of debt from their balance sheets this year. Pulte has bought back $1.93 billion in debt in 2009.

So what do these companies plan to do with their refunds?

Ken Campbell, the chief executive of Standard Pacific, said the money would allow his company to continue buying land. “Will we build more houses or will there be more people employed in the first quarter? Probably not,” he said. “Will employment accelerate when the market starts to grow? It will.”

Caryn Klebba, a spokeswoman for Pulte Homes, said in a statement that the company planned to use the funds it receives “to support its current operations and, when market conditions improve, fund future growth and expansion.”

In other words, job creation does not seem imminent, notwithstanding the claims of the administration or those in Congress who supported the giveaway.

Representative Lloyd Doggett, a Texas Democrat, has conducted a lonely fight against the tax break all year.

“Some have said this is like a bridge loan to these companies,” Mr. Doggett said in an interview. “Well if it’s a loan, it is like a no-doc loan, because the recipients provide no indication that they will create jobs or do anything other than keep the money. I just feel it is a total windfall.”

Unfortunately, this seems to be another example of an age-old phenomenon: Good Things Come to Those With Lobbying Power.

Securing this tax break was a top priority for home builders, lobbying records show. The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. Last year, the industry spent $8.2 million lobbying.

Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.

Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.

That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.

Meanwhile, the bag that we taxpayers are left holding gets bigger and bigger.

THE problem here is that this public policy decision was made with little to no input from the public. Sure, tax rebates like these give a lifeline to companies that were about to sink beneath the waves, but would it be so terrible if some builders that lost their heads during the housing mania ceased to exist? It is not as if a housing shortage will result or that more jobs will be lost if these companies don’t receive these tax breaks.

Pretending to promote job creation, the government is dispensing cash to companies that either do not need it or need it precisely because they didn’t run their businesses prudently. Isn’t there something wrong with that picture?

Fair Game: Home Builders (You Heard That Right) Get a Gift

GM repays $297.6 mln to Germany for Opel loan

CHICAGO, Nov. 13 (Xinhua) — U.S. automaker General Motors Co. Friday repaid 200 million euros (about 297.6 million U.S. dollars) in German government aid that kept its carmaker Adam Opel GmbH afloat this year, the company said.

GM also said it will repay another 400 million euros (about 595 million U.S. dollars by Nov. 30.

The payment comes more than a week after GM’s board of directors decided to keep Opel instead of selling it to Canada’s Magna International Inc payday loans in 1 hour. and its Russian partner, Sberbank.

The 1.5 billion euro (about 2.2 billion U.S. dollars) bridge loan was intended to keep Opel operating until a deal was finalized or rejected.

GM is now preparing its own 4.5 billion-dollar restructuring of Opel but faces skepticism in Germany. Special Report: Global Financial Crisis

GM repays $297.6 mln to Germany for Opel loan

FTSE 100 rises for second day

LONDON (AFP) – The leading stock exchange rose on Thursday on signs that government stimulus policies and record-low interest rates are helping to drag the global economy out of recession.

The FTSE 100 index gained 0.19 percent to finish at 5,276.50.

Telecom giant Vodafone was the most traded stock with traders exchanging 133 million shares, followed by Royal Bank of Scotland which saw 85 million units switch hands.

British Airways was the session's star performer after it was announced they were holding board meetings with Spain's Iberia on a potential merger. The flag carrier's shares gained 15.00 pence — or 7.50 percent — to finish at 215.

Satellite telecom firm Inmarsat followed adding 41.00 pence — or 6.72 percent — to stand at 651.

Energy engineer Amec was the biggest casualty after it said its order book fell to 3 billion pounds, down from 3 cash till payday.2 billion in June. Its shares dropped 43.50 pence — or 5.02 percent — to finish at 822.5.

Venture capital firm 3i came next after its net asset value failed to reach analyst estimates at Oriel Securites Ltd. Shares dropped 11.4 pence — or 4.09 percent — to finish at 267.5.

The pound gained ground against the euro but lost ground against the dollar.

At 16:58, sterling was trading at $1.6528, down from $1.6574 at Wednesday's close. The pound rose against the euro, climbing to 1.1122, up from 1.1065 over the same period.

FTSE 100 rises for second day