Finance news. My opinion.

The Department of Transportation announced the first increase in 25 years of the nation’s fuel economy standards Friday.

Under the new rules, 2011 model year, cars will be required to get, on average, 30.2 miles per gallon and light trucks, such as pick-ups, SUVs and vans, will have to average 24.1 mpg.

The combined fleetwide goal for cars and trucks will be 27.3 mpg, a 2 mpg increase over the current standard of 25.3 mpg.

This represents the first step, under new fuel economy laws passed by Congress in late 2007, toward a 35 mpg average - including cars and trucks - by 2020.

The Department of Transportation estimates that the 2011 model fuel economy year requirements will save about 887 million gallons of fuel and reduce carbon dioxide emissions by 8.3 million metric tons.

"These standards are important steps in the nation’s quest to achieve energy independence and bring more fuel efficient vehicles to American families," said transportation secretary Ray LaHood said in a prepared announcement online cash advance.

Under the rules, carmakers will be given individual fuel economy requirements based on their particular mix of models and vehicle sizes. Manufacturers that exceed the requirements will earn credits that would allow them to fall short of requirements in future years.

Since the requirements are based on averages, manufactures that sell more hybrid or electric vehicles could use those to offset sales of less-efficient vehicles.

"The finalization of the federal Corporate Average Fuel Economy standards for model year 2011 is an important first step," Dave McCurdy, president the Alliance of Automobile Manufacturers, a trade group representing major carmakers, said in a statement. "It is now important that the Department of Transportation provide automakers with the certainty and consistency needed by setting standards for model year 2012 and beyond." 

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Sales of newly constructed homes rose unexpectedly in February, rebounding nearly 5% after sinking to the lowest level on record in January, according to a government report released Wednesday.

The U.S. Census Bureau reported that new home sales rose 4.7% to a seasonally adjusted annual rate of 337,000 in February from a revised 322,000 in January. It was the first increase since July, and comes after sales tumbled to an all-time low in the previous month.

Economists were expecting a sales rate of 300,000, according to consensus estimates compiled by Briefing.com.

While February purchases were up from January’s record low, the sales rate is still down more than 41% from February 2008, when sales were an estimated 572,000.

The report is "generally a good sign," said Andreas Carbacho-Burgos, an economist at Moody’s Economy.com. "But it’s definitely not enough to say that the housing market is starting to recover," he said.

Carbacho-Burgos noted that new home sales have recorded monthly increases several times over the past few years even as the overall trend in sales declined.

"This is only a single month’s worth of data," he said. "You need at least three months of increases before you can say the market is recovering."

The report also showed that the median sales price of new houses sold in February was $200,900, down 18% from $245,300 a year ago. That was the biggest year-over-year decline in history, according to real estate analysts at Weiss Research payday loans.

The estimated number of new homes for sale at the end of February was a seasonally adjusted 330,000. At the current sales pace, it would take more than a year to sell through that inventory, according to the report.

Wednesday’s report was the latest in a series of better-than-expected readings on the housing market. But many analysts remain wary of the prospects for a long-term recovery.

"The worst of the drop in sales is over but a sustained recovery…is a way off still," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research note.

On Monday, the National Association of Realtors said that existing home sales rose 5.1% in February to a seasonally adjusted annual rate of 4.72 million units from a rate of 4.49 million in January.

Last week, the Commerce Department reported that initial construction of new homes surged 22% in February to a seasonally adjusted annual rate of 583,000, up from a revised 477,000 in January. It was the first time housing starts increased since June.

Meanwhile, a report from the Mortgage Bankers Association showed Wednesday that the number of Americans applying for home loans jumped 30% last week, driven mostly by applications to refinance existing loans.  

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Outback Steakhouse Canada, an Australian-style restaurant chain, has closed its doors in Ontario, citing the impact of a weaker Canadian dollar and a slowing economy.

Problems in its home market south of the border were also a factor at the third-largest U.S. casual dining chain as cash-strapped consumers shunned mid-priced restaurants in favour of cheaper fast-food outlets.

In Canada, a signature Outback steak dinner costs $19.95 while an Outback burger sells for $13.75, according to an online menu for three franchisee-owned restaurants in Edmonton that remain open for business.

The sudden closing Monday of its nine corporate-owned restaurants in southern Ontario has left an untold number of customers holding potentially worthless gift cards. The company said it was trying to find a way to honour those cards conveniently and urged customers to visit its website next week for an update.

The move comes after Outback’s owners, OSI Restaurant Partners LLC of Tampa, Fla., hired turnaround specialists AlixPartners LLC to help cut it costs and boost sales.

OSI, which operates more than 1,000 Outback restaurants, mainly in the United States, lost $739 million (U.S.) last year as sales declined 5 per cent to $3.9 billion.

Restaurants are typically among the first businesses to feel the impact of an economic downturn as consumers cut discretionary spending. But while some are closing others have announced plans to open or expand payday advance.

Sales in restaurants across Canada rose 4.6 per cent last year, according to Statistics Canada, but almost all the growth in average unit volume came in the first half of the year before the credit crisis hit.

The number of full-service restaurants in Ontario grew 2.5 per cent last year to 12,770, but consumer spending on restaurants fell 4.3 per cent in December as the full impact of a looming recession hit home.

"Fine dining is the first to feel the pinch as consumers and businesses cut back, then casual dining, then family dining," said Jill Holroyd, vice-president of research with the Canadian Restaurant and Foodservices Association.

"Quick-service restaurants benefit from this trading-down effect, but in a prolonged recession consumers will trade over, shifting more of their food dollar to the grocery store."

In Outback’s case, a sharp decline in the value of the Canadian dollar last fall was also a factor as it made supplies imported from the U.S. more expensive, explained Steve Nilsen, vice-president international marketing for the chain.

Outback restaurants have been in Ontario since 1996. They were located in Etobicoke, Richmond Hill, Whitby, Ancaster, Oakville, Niagara Falls, Kitchener, London and Windsor.

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With less than a week to apply for retirement or stay with General Motors Corp., Matt Jolly has been torn over a difficult choice.

Does he retire, amid a recession, after 30 years with the automaker? Or does he stay and ride out the dramatic changes in the auto industry?

Jolly, 49, has stayed after his shift at the Wentzville van plant to ask fellow workers about their plans. At night, he has examined expenses and mulled over options with his wife.

About 60,000 GM workers — including Jolly and about 1,900 others at the van plant — have until Tuesday to decide to retire, take a buyout or stay with the company. More than 1,400 local Chrysler LLC workers must decide by Friday.

The timing has only complicated matters because workers may have to decide before knowing the outcome of the automakers’ negotiations with the United Auto Workers union and bondholders. Both companies are seeking major concessions before the March 31 deadline to submit restructuring plans to the federal government. It’s unlikely those talks will be resolved by Friday, observers say.

"I was hoping that GM would have had some agreement by now to let me know where the company is going," said Jolly, a St. Peters resident who assembles doors for full-size vans. "I don’t know what to do."

At GM since 1979, Jolly qualifies for a retirement offer that would give him pension and benefits, plus $25,000 for a new GM vehicle and $20,000 in cash. The money would be enough to survive, he figures.

But he has plenty of incentive to stay. He likes the work and doesn’t want to retire before his house is fully paid. And he’d like to know the level of the government’s support for GM and the future of the UAW-controlled retiree health care fund, which is a Voluntary Employee Beneficiary Association or VEBA, before deciding on his own future.

For GM and Chrysler, those pieces, along with their perceived futures, seem to be changing constantly.

The Jobs Bank, which protected workers from permanent layoff, was recently eliminated as part of the government loan conditions. Speculation swirls that one or both will be forced into bankruptcy, which could alter union contracts.

Plus, the buyout and retirement incentives offered now are less generous in some cases than past packages. GM has said it’s unlikely another round will be offered. Chrysler declined to comment.

FEW TAKERS SO FAR

Some of those factors were enough to persuade John Glore, 73, a skilled trades worker with GM, to retire.

"They’re cutting people down so tight, and everything is changing from what it used to be," the Bridgeton resident said.

Glore submitted his retirement offer Friday morning and said he’s leaving 50 years to the day — April 1 — that he started with GM.

As of Friday afternoon, 87 GM workers signed up for a retirement or buyout, said Tom Brune of UAW Local 2250, which represents most of the hourly workers at the Wentzville plant. Nearly 300 local workers took the previous round of offers last year, but Brune said the number this time is likely to be lower.

Chrysler faces a similar scenario.

About 1,800 workers in the minivan and pickup plants in Fenton took buyouts and retirements in November, union officials said at the time no fax cash advance. Of nearly 430 workers still active in the minivan union, less than 10 signed up by Friday for the new round, said Joe Shields, president of UAW Local 110, which represented about 1,600 workers when the minivan plant was idled in October.

No figure was available for the number of Chrysler’s pickup workers who opted for the packages. The lower acceptance numbers aren’t surprising, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "The incentives are less (than previous offers), and the older employees are pretty much gone already," he said.

Workers who haven’t transferred to another plant or accepted a package remain in limbo, collecting a mix of state unemployment and supplemental benefits. But that money will end in several months, depending on a worker’s layoff date.

In the past, laid-off workers would go into Jobs Bank when the unemployment money ran out. There they would get paid until the company found work for them. With the recent end of the Jobs Bank program, these workers will only have recall rights if a plant or job opens.

Joshua Constantine Sr., 32, is among those waiting since he was laid off from the Chrysler’s pickup plant in late August. Despite the industry’s uncertainty, Constantine said he’s not interested in taking the package he qualifies for — a buyout of $115,000 in cash and a $25,000 vehicle voucher.

"That money goes quick," said Constantine of Dupo, who has worked on a Chrysler assembly line for 13 years.

DIFFICULT TIMES AHEAD

In recent years, the Detroit Three offered buyout and retirement programs to control expenses and conserve cash. They’re arguably more critical at a time when U.S. sales fell 18 percent to 13.2 million last year and are expected to be around 10 million this year.

Earlier this month, Ford Motor Co. confirmed that it also will offer buyouts and retirements to most of its 42,000 U.S. hourly workers.

Given the auto slump, even Toyota Motor Corp.’s U.S. division began offering voluntary buyouts to 18,000 employees last month.

GM, Chrysler and the others declined to say how many workers they hope to shed. If the numbers are too low, the companies could be forced to lay off more workers, Cole said.

"We’re in the middle right now of what has to be viewed as a battle for survival," he added.

Meanwhile, the future of the automakers weighs heavily on workers. Their jobs paid for their children’s college education and provided for their families for decades, but they also feel jarred by the uncertainty of what’s next.

They hope for sales to return and production to stabilize.

For now, all they can do is make their decision, then hope it’s the right one for them.

Jolly, the GM worker considering retirement, said: "I know money-wise, we could do it, but it’s just a matter of: Do I want to walk away?"

By Friday, Jolly hadn’t turned in any paperwork.

atablac@post-dispatch.com | 314-340-8140
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new york — Stocks slid the most in two weeks Friday as analysts cut earnings estimates for General Electric Co. and Congress moved toward raising taxes on bank employees bonuses.

GE lost 5.8 percent after presenting what investors called a more sober assessment of its earnings. Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. led financial shares to the biggest drop among the 10 main industry groups in the Standard & Poor’s 500 index. American International Group Inc. slumped 22 percent as 19 states began probing its employee bonuses.

The S&P 500 tumbled 2 percent to 768.54. The Dow Jones industrial average slid 122.42 points, or 1.7 percent, to 7,278.38. The Nasdaq composite index decreased 1.8 percent to 1,457.27. The S&P 500 rose 1.6 percent this week. The Dow added 0.8 percent and completed is first consecutive weekly advances since May.

GE tumbled 59 cents to $9.54.

Bank of America, the biggest U.S. bank by assets, fell 11 percent to $6.19 for the biggest drop in the Dow cash advance payday loan. Wells Fargo, the largest on the West Coast, lost 9.3 percent to $13.99. JPMorgan Chase, the biggest by market value, slid 7.2 percent to $23.15.

American International Group Inc. lost 39 cents, or 24 percent, to $1.23 for the biggest decline in the S&P 500.

Schlumberger Ltd. and Halliburton Co. led oilfield service and equipment companies lower. Citigroup analyst Robin Shoemaker said first-quarter earnings for the group may fall short of estimates. Schlumberger declined 6.3 percent to $41.52. Halliburton lost 5.5 percent to $16.84.

Ford Motor Co. gained 9.6 percent to $2.75, the highest since Jan. 6. The second-largest U.S. automaker was rated "buy" at UBS AG. General Motors Corp., the largest, added 11 percent to $3.18, a one-month high.
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Sony Ericsson sparked fresh fear of crumbling consumer demand on Friday when the world’s No 4 handset maker said it would sell barely half of the phones it sold last quarter.

Shares across the wireless sector dropped sharply on the news — compounded by smaller rival Palm’s overnight report of slumping quarterly sales — and by 1229 GMT (8:29 a.m. EDT), Ericsson was down 8.7 percent and Nokia was down 5.5 percent.

Sony Ericsson said it expects to sell just 14 million phones in January-March, hit by weak demand and retailers cutting their inventories. Analysts polled by Reuters in January expected between 15.5 million to 21.8 million phones sold.

“Investors are questioning the whole market now, even though I think the issue for Sony Ericsson is more company specific,” said Jari Honko, analyst with eQ Bank.

Overnight, U.S. rival Palm Inc reported a widening loss for the December-February quarter and said revenue sank 70 percent from a year ago.

The cellphone industry has entered its toughest year ever as consumers rein in spending and retailers try to clear inventories of unsold phones after bleak Christmas sales.

“The market, overall, continues to be very challenging,” said Gartner analyst Carolina Milanesi.

Fears over the future of the mobile market also sent shares in chipmakers sharply lower, with Infineon down 6 fast cash loans.6 percent and STMicro 5 percent lower.

VERY WEAK QUARTER

Sony Ericsson said it expected to make a pretax loss of 340-390 million euros ($459 million-$526 million) in the quarter as it heads into a second year of losses.

“It’s a real catastrophe. Those are very big losses and they are probably losing a lot of market share,” said Greger Johansson, from analyst firm Redeye.

“It’s obvious that the volumes are much lower than the market had thought. And first and foremost, the losses are much, much bigger,” he said.

Sony Ericsson, the no. 4 global handset maker after Nokia, Samsung and LG, said it expects gross margins to decline both year-on-year and sequentially.

“What is happening now is that everyone will be forced to cut their forecasts for Sony Ericsson and Ericsson,” said analyst Hakan Wranne from Swedbank.

Ben Wood, head of research at CCS Insight said Sony Ericsson was suffering most from the weak portfolio and the challenging market conditions it faces in European markets. 

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Production at the Bear Run mine, just south of Terre Haute, will begin later this year, and output is expected to total 2 million to 3 million tons of coal in 2010.

The mine will ultimately produce about 8 million tons a year, making it Peabody’s largest mine in the Midwest and the largest surface mine in the eastern United States, the St. Louis-based company said.

Development will cost $350 million to $400 million over a period of several years, Peabody said.

The company said it signed sales contracts with two major Midwest power generators for 90 million tons of coal.

The agreements are worth $6 billion over 17 years, or about $67 a ton, according to Jefferies & Co. analyst Michael Dudas.

More than a third of Peabody’s 9.2 billion tons of coal reserves are in the Illinois Basin, a coal-producing region that occupies parts of Southern Illinois, southwest Indiana and western Kentucky no credit check payday loan.

Dudas said the new mine and related sales agreement demonstrate the potential for expansion of coal output in the Illinois Basin as production from underground mines in Appalachia continues to decline.

The new Peabody mine will create 350 jobs in Sullivan County, Ind., where the unemployment rate is 10 percent. It will significantly increase coal production in the state. Last year, Indiana produced 26.6 million tons of coal, according to the state Department of Natural Resources.

Last week, Peabody announced plans to shutter the Vermillion Grove mine in eastern Illinois. The mine employed 160 workers, all of whom would be offered jobs at other mines, the company said.

jtomich@post-dispatch.com | 314-340-8320

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U.S. builders probably broke ground in February on the fewest houses on record as the worst real- estate slump in 70 years deepened, economists said before a government report today.

Housing starts dropped 3.4 percent to an annual rate of 450,000, according to the median forecast of 71 economists in a Bloomberg News survey. A separate report may show wholesale prices rose in February for a second month on higher fuel costs.

Record foreclosures are flooding already glutted markets, lowering home prices and battering builders including Hovnanian Enterprises Inc. and Toll Brothers Inc. The Federal Reserve, which meets today and tomorrow, and the Obama administration are under mounting pressure to promptly thaw credit markets and prevent the economy from sinking even more.

“The impediment of tighter credit and the lack of consumer confidence because of higher unemployment are working against builders,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York. “There’s no quick fix. Residential investment will keep declining through this year.”

The Commerce Department’s report on housing starts is due at 8:30 a.m. in Washington. Estimates in the survey ranged from 400,000 to 500,000, following a January pace of 466,000.

Building permits, a sign of future construction, likely fell to a record-low 500,000 annual pace, according to the median forecast.

Wholesale Prices

Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.4 percent in February after a 0.8 percent increase the prior month, the survey showed. Prices excluding food and fuel probably rose 0.1 percent, the smallest gain since November, indicating inflation is a distant concern for the central bank.

Fed policy makers will keep the benchmark interest rate close to zero following their two-day meeting and discuss additional measures to calm the credit crisis, economists said.

Fed Chairman Ben S. Bernanke and his colleagues are examining whether to expand existing asset-purchase and lending programs or initiate fresh measures, such as buying Treasuries free credit report and score. The central bank also is purchasing Fannie Mae, Freddie Mac and Federal Home Loan Bank debt under a program aimed to reduce mortgage costs.

Reflecting the dismal outlook for homebuilding, the National Association of Home Builders/Wells Fargo’s index of confidence held near a record-low in March, the group reported yesterday.

Unclog Credit

Banks need to “go the extra mile” and keep credit flowing to businesses to prevent the economy from worsening, Treasury Secretary Timothy Geithner said in remarks at the White House yesterday. The economy has lost 4.4 million jobs since the recession began in December 2007.

President Barack Obama has pledged a $275 billion rescue to help keep as many as 9 million borrowers in their homes and reduce foreclosures. His efforts also include a tax break of up to $8,000 for first-time homebuyers that wouldn’t require repayment.

For now, mortgage borrowers are hard-pressed. Foreclosure filings climbed 30 percent in February from a year earlier, and a total of 290,631 homes received a default or auction notice or were seized by the lender, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

The competition from foreclosed houses is hurting developers. Toll, the largest U.S. builder of luxury homes, this month reported its sixth consecutive quarterly loss while Hovnanian, New Jersey’s largest homebuilder, had a 10th straight loss.

“We expect demand for all homes, both new and existing, to remain far below normalized levels,” Chief Executive Officer Ara Hovnanian said in a March 10 statement. He urged for more government help for homebuyers, citing a “difficult economic backdrop.”

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How much of your long-term savings should you put into the stock market?

A tried and true rule is to subtract your age from 100.

The resulting number, in per cent, is the most you should have in stocks and equity funds.

At age 35, you can put 65 per cent of your long-term savings in stocks. You have time to sit through the inevitable down years and come out ahead when you retire.

But at 75, it’s enough to have 25 per cent of your savings in stocks and the rest in fixed-income investments.

Financial advisers often ignore the age rule when choosing an asset mix for older clients.

I’ve heard from many retirees who have most of their savings in the stock market. They say their financial advisers adopted a high-risk approach.

Take Allan, a 78-year-old retiree who has worked with a stockbroker at a major bank-owned firm since 2001.

On the account application form, the broker has written that Allan’s investment knowledge is good and he’s had experience with stocks, bonds and mutual funds. He wants an asset mix that is only growth (with no income requirements) and medium risk.

Allan’s account is 80 per cent invested in stocks. It fell from $766,000 to $508,000 last year, losing one-third of his capital.

He has an account that is managed by the brokerage firm without his active participation.

"It is now abundantly clear to me why my adviser did not do a single thing to help me avoid suffering a huge loss during the stock market’s collapse," Allan says. "Their income from my managed account was over $9,400 during 2008."

Such a high stock allocation at his age is indefensible, says John Hollander, an Ottawa lawyer who represents investors in lawsuits against financial advisers.

"My own inclination is to use the age rule. Typically, the older you get, the less variability you’re prepared to stomach," he says payday loans in one hour.

"You start thinking of your estate, selling your house or moving into a retirement residence."

Allan came into my office with his investment statements. He wanted to know if his portfolio was suitable and worth the cost.

I asked Warren MacKenzie, president of Second Opinion Investor Services, to look at last year’s statements without charging a fee and tell me what he thought.

As a benchmark, he used an index fund portfolio that had the same mix as Allan’s – 50 per cent Canadian equity, 15 per cent U.S. equity, 15 per cent international equity, 15 per cent Canadian fixed income and 5 per cent cash.

That portfolio, which had a lower management cost than Allan’s account, would have done three percentage points better last year.

He also used an index fund portfolio with a more stable asset mix – 60 per cent Canadian fixed income, 20 per cent Canadian equity, 5 per cent each for U.S. and international equity and 10 per cent cash.

That portfolio would have dropped only 7.8 per cent last year – a considerable improvement.

"There is no evidence of an investment strategy," MacKenzie said about Allan’s managed account.

"Without a doubt, the biggest problem is a high-risk portfolio for someone who should be in a balanced, or even better, a conservative portfolio.

"When we look through the statements, although no one investment was necessarily wrong, the motivation seems at least in part to be to generate commissions."

Next week, we’ll continue looking at the issue of seniors with heavy equity exposure.

eroseman@thestar.ca

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General Motors announced Thursday that cost-cutting efforts had improved its cash position enough to allow it to get by without $2 billion in additional federal loans later this month.

GM (GM, Fortune 500), which has already received $13.4 billion in government loans, is not trimming its request for up to $16.6 billion in additional federal help through 2011, however.

But GM chief financial officer Ray Young said in a statement that "the $2 billion of funding previously requested for March would not be needed at this time."

The company also announced that members of the Canadian Auto Workers union have ratified a contract to cover about 10,000 hourly workers at its plants there. The union said 87% of its membership at GM voted for the contract changes.

GM did not have an estimate for how much money that will save the company.

The battered shares of GM gained more than 13% in mid-afternoon trading on the announcement, although shares are still down 90% from year-ago levels.

Detroit gets thrifty?

GM has taken several high-profile steps to save money, such as not advertising during this year’s Super Bowl and getting rid of corporate jets. GM spokesman Tom Wilkinson added that a wide range of smaller moves have helped the company conserve cash.

But he added that sales have yet to improve significantly since GM filed its request for more help last month. GM’s U.S. sales are down 51% in January and February compared to the first two months of last year. Industrywide U.S. sales are down 39% during the same period.

GM and rival Chrysler LLC have both asked for additional loans to get them through the current sales slump. That request has yet to be approved by the Treasury Department.

The government is looking at the two companies’ turnaround plans and current sales trends to decide whether they can be viable businesses for the long-term payday advance.

But GM’s own auditing firm issued a statement last week saying there was "substantial doubt" about its ability to remain in business without additional federal loans and an improvement in sales.

GM is seeking $9 billion in loans sometime later this year, according to statements made to investors when it reported a fourth quarter loss of $9.6 billion late last month.

The company also said at that time that it anticipated that most of the cash it will burn this year will take place in the first quarter .GM indicated it needs between $11 billion and $13 billion in cash to continue operations.

The first loan of $4 billion on Dec. 31 allowed the company to end the year with $14 billion in cash on hand. It has received the additional $9.4 billion in government loans since then.

Chrysler, which has already received $4 billion from the government, asked for an additional $5 billion last month. The company said in its turnaround plan that it would need the money by March 17 or else it would run out of cash and have to start the process of shutting down its business.

Chrysler spokesman Stuart Schorr said Thursday there had been no change in the company’s timetable for when more loans would be needed.

The other member of Detroit’s Big Three, Ford Motor (F, Fortune 500), has a better cash position than its rivals and has so far not needed federal loans. But Ford has asked for a $9 billion line of credit in case sales continue to be worse than expected or if major suppliers have to halt operations. 

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