Economic Calendar

Friday, January 27, 2012

Pentagon’s Asia Shift Favors Subs, Tankers

By Tony Capaccio - Jan 27, 2012 6:40 AM GMT+0700

The Pentagon’s shift to forces focused on Asia and the Middle East in a budget outlined today may protect from deep cuts U.S. makers of aircraft carriers, submarines, surface-combat vessels, electronic-warfare sensors, drones, long-range bombers and tankers.

While the plan would slow the pace of shipbuilding, its emphasis on naval forces in an era of budget-cutting may help vessel-makers Huntington Ingalls Industries Inc., General Dynamics Corp. (GD), Lockheed Martin Corp. (LMT) and Austal Ltd. It also may provide opportunities for aircraft companies Northrop Grumman Corp. (NOC) and Boeing Co. (BA) and missile maker Raytheon Co. (RTN)

“This budget protects, and in some cases increases, investments that are critical to our ability to project power in Asia and the Middle East,” Defense Secretary Leon Panetta said at a news conference at the Pentagon today disclosing elements of a $613 billion defense proposal for fiscal 2013. That includes $88.4 billion for continuing combat, led by the war in Afghanistan.

Panetta and Joint Chiefs of Staff Chairman General Martin Dempsey presented the budget proposal as part of an effort to cut $487 billion, or 8.5 percent, from $5.62 trillion in spending that had been planned for 2012 to 2021. Of that, $259 billion in reductions would occur by 2017.

The fiscal 2013 budget proposes to save about $45 billion, increasing to $53 billion in fiscal 2014 and $54 billion by 2017, according to Pentagon figures.

‘Far More Lethal’

The biggest initiative other than military hardware is a reduction of the Army -- “gradually,” according to Panetta -- to 490,000 personnel from about 565,000 today. The Army numbered about 480,000 in February 2002, one year before the Iraq invasion. The budget also calls for reducing the Marines to 182,000 from about 202,000 today.

“They will be fundamentally shaped by a decade of war, far more lethal, battle-hardened and ready,” Panetta said of U.S. forces. The Army was increased by as much as 95,000 and the Marines by 30,000, largely because of the Iraq war.

Representative Howard “Buck” McKeon, a California Republican who is chairman of the House Armed Services Committee, said President Barack Obama “has abandoned the defense spending structure that has protected America for two generations, turning 100,000 soldiers and Marines out of the force.

‘‘Unmanned assets’’ and special forces that Panetta is relying on ‘‘are a vital component in defending America, but they are insufficient to meet the challenges America faces,’’ McKeon said.

Base Closings

Panetta said the troop reduction will be accompanied by a request to Congress for a new round of domestic base closings ‘‘with a goal of identifying additional savings and implementing them as soon as possible.’’ He provided no specifics about what bases might be at risk.

The Pentagon’s Asia and Middle East emphasis reinforces the need for a long-range, stealthy bomber, and sustaining the Navy’s 11-carrier force with 10 air wings and big-deck amphibious vessels, Panetta said.

Huntington Ingalls of Newport News, Virginia, is building the three-ship, $40 billion Gerald R. Ford class of carriers to be equipped with a new electromagnetic catapult system built by closely held General Atomics Aeronautical Systems Inc.

‘‘Modernizing our submarine fleet will be critical to our efforts to maintain maritime access in these vital regions,” Panetta said.

‘Strike Option’

The plan calls for increasing the size of the Navy’s current Virginia-class attack submarines to carry more Tomahawk cruise missiles and to develop an undersea, non-nuclear “strike option” similar to an intercontinental ballistic missile. Raytheon of Waltham, Massachusetts makes the Tomahawk. Huntington Ingalls and General Dynamics make the submarine.

The “strike option” concept was first proposed by the Bush administration and resurrected in fiscal 2011 under Obama.

The Littoral Combat vessels, made for operating close to shore by Lockheed Martin of Bethesda, Maryland, and Austal of Henderson, Australia, get an expanded role in the plan. Panetta said the Navy intends to base some of them in Singapore and other patrol craft in Bahrain. Still, two vessels are being cut from plans for 2013 to 2017, which had called for buying during that period at least 15 of the 55 ships planned.

The plan calls for retiring some existing ships, including seven cruisers that aren’t capable of defending against ballistic missiles.

Amphibious Vessel Delay

The largest shipbuilding reduction would eliminate, through 2017 eight of nine planned Austal Joint High Speed Vessels designed to carry Army personnel. There was no indication the vessels would be purchased later.

The budget proposal delays by one year the start of construction for the LHA-8 large-deck amphibious vessel to be built by Huntington Ingalls.

The budget doesn’t slow the Navy’s plan to buy additional Arleigh Burke-class DDG-51 destroyers from General Dynamics and Huntington.

F-35 Plans

Panetta said the Pentagon was making “substantial reductions to programs that are experiencing schedule, cost or performance issues.”

They include Lockheed Martin’s Joint Strike Fighter, the F-35, and the Army Ground Combat Vehicle that’s in competition between General Dynamics and a team of BAE Systems Plc (BA/) and Northrop Grumman.

The Pentagon remains committed to the F-35 “but in this budget we have slowed procurement to complete more testing and allow for developmental changes before buying significant quantities,” he said.

The Defense Department will propose spending about $9.2 billion to buy 29 F-35 jets in its fiscal 2013 budget, 13 fewer than previously planned.

Beyond the next budget year, the Pentagon’s previous plan to purchase 62 F-35s in fiscal 2014 is being reduced to 29, according to budget data. The request for 2015 is dropping to 44 from 81, and the planned purchase for 2016 will decline to 66 from 108.

The Pentagon plans to postpone 179 aircraft beyond 2017, according to officials who spoke on condition of anonymity before today’s announcement.

Global Hawk Curtailed

The Pentagon is canceling the final 10 of one version of Northrop Grumman’s Global Hawk drones it was to buy, stopping at 21 of the Block 30 model because of rising costs. Dollars will be shifted instead into maintaining U-2 manned aircraft made by Lockheed Martin.

Experience with the Block 30 version “will help other Global Hawk programs,” including the advanced Block 40 and maritime and NATO versions, according to the budget document.

The Pentagon reversed a decision to cancel the $6.8 billion Joint Air-to-Ground Missile, pitting Lockheed against Raytheon, “significantly reducing” the program instead, and continuing to buy Hellfire missiles from several contractors including Lockheed.

The Pentagon also is delaying by as much as five years an Army helicopter modernization program and terminating a multi- billion dollar program to upgrade its fleet of Humvee all- terrain vehicles.

Northrop Grumman’s Defense Weather Satellite System program also was canceled.

The fiscal 2013 budget proposal is 1 percent less, unadjusted for inflation, than this year’s $531 billion plan. The numbers include spending on military construction.

The defense number, not including combat, grows to $534 billion in fiscal 2014, $546 billion in fiscal 2015, $556 billion in fiscal 2016 and $567 billion in 2017.

Adjusted for inflation, the Pentagon projects a 1.6 percent reduction in real spending power between 2013 and 2017.

To contact the reporter on this story: Tony Capaccio in Washington at

To contact the editor responsible for this story: Mark Silva at


‘Extreme’ S&P 500 Momentum, VIX Signal Drop: Technical Analysis

By Lu Wang - Jan 27, 2012 12:00 AM GMT+0700

The Standard & Poor’s 500 Index’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said.

The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.

The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg show. The VIX is the benchmark gauge of S&P 500 options prices.

“We’re definitely in a rare spot,” Josh Dollinger, Chief quantitative and technical strategist at BTIG in New York, said in a telephone interview. “These are extreme readings. They more often than not prove to be exhaustion tops.”

The S&P 500 rose 5.4 percent this year through yesterday, poised for the best January since it rose 6.1 percent during the first month of 1997, according to data compiled by Bloomberg. Stocks are extending the measure’s 11 percent rally in the October-December period, its best fourth-quarter increase since 2003 as improvements in hiring, manufacturing and home sales bolstered confidence in the world’s largest economy.

To contact the reporter on this story: Lu Wang in New York at

To contact the editor responsible for this story: Michael P. Regan at


‘Stop-Newt’ Republicans Confront New Base

By Julie Hirschfeld Davis - Jan 27, 2012 3:28 AM GMT+0700

Two days after Newt Gingrich defeated Mitt Romney in the South Carolina presidential primary one of Romney’s big-name backers offered a grim prediction for his fellow Republicans.

“The possibility of Newt Gingrich being our nominee against Barack Obama I think is essentially handing the election over to Obama,” former Minnesota Governor Tim Pawlenty told reporters on a Jan. 23 conference call. “I think that’s shared by a lot of folks in the Republican Party.”

Pawlenty’s comments echoed those being uttered publicly and behind the scenes by elected Republicans, party activists, fundraisers and pundits, who represent a portion of the party establishment -- a “stop-Newt” caucus -- populated largely by people who have known the former U.S. House speaker for decades.

The question is: Can they?

For two decades, the Republican Party has seen an erosion of its traditional, top-down hierarchy, a decline aided by Gingrich himself in 1990 when he led a House revolt against a budget agreement negotiated by President George H.W. Bush that raised taxes. The rise of the anti-tax Tea Party wing in 2009 splintered the internal levers of power further, making it even harder to impose a choice on the rank and file.

“There really is no Republican establishment left that can control anything,” said Matthew Dowd, a onetime aide to President George W. Bush and now a Bloomberg Television contributor. “Some try to act like they are in charge, but the fraternity is now running the campus.”

South Carolina Dynamics

Those dynamics were on display in South Carolina. Romney, a former Massachusetts governor, lost by 12 percentage points even after campaigning throughout the state with Governor Nikki Haley and just a day after receiving the endorsement of Virginia Governor Bob McDonnell, the chairman of the Republican Governors Association. Haley, who rose to power with Tea Party backing, didn’t deliver either her state or its grassroots activists.

Meanwhile, Gingrich’s campaign gained momentum after Sarah Palin, the former Alaska governor who also has support from the Tea Party faction, said she’d vote for Gingrich in South Carolina if only to extend the length of the primary.

Similar signs of an insurgence came to light in the 2010 midterm elections, when Nevada voters tapped Sharron Angle -- a Tea Party-endorsed politician opposed by many of the state’s prominent Republicans -- to challenge Senate Majority Leader Harry Reid. And Delaware Republicans chose Christine O’Donnell over former governor and nine-term U.S. House Representative Mike Castle to seek an open Senate seat. Both Angle and O’Donnell lost.

Voters ‘in Charge’

“The voters are now in charge, and Republican leaders need to come to terms with that,” Dowd said. “The media needs to drop the myth that there is a Republican establishment capable of orchestrating anything more than a one-float GOP parade.”

Romney’s campaign, backed by well-known party strategists and fundraisers, has kept up a steady rollout of endorsement announcements from Republican elected leaders that demonstrate his broad support among the insiders. As of Jan. 20, he had the nods of five governors, 14 senators and 59 U.S. House members. That compares with two governors and a dozen congressmen who have endorsed Gingrich, according to Democracy in Action, a political web site that tracks endorsements.

‘Terrified About Newt’

“There are a lot of major players in the Republican Party who are terrified about Newt,” said Gary Gerstle, a specialist on social and political movements a Vanderbilt University in Nashville, Tennessee. “At a more conventional moment in American politics, the establishment would count for a lot more, but this is not a conventional moment. There are now big segments of the Republican Party that will not bow down to the establishment.”

Gingrich -- who served 20 years in Congress, four of them as speaker, and then began a lucrative career in Washington consulting on federal policy -- has been working to turn party leaders’ angst about his candidacy to his advantage, portraying himself as a candidate feared by the ruling class.

Campaigning today in Mount Dora, Florida, Gingrich called Romney’s campaign attacks against him “the desperate last stand of the old order throwing the kitchen sink, hoping something sticks.” He added that when he speaks out about it, “the entire establishment jumps up and says, ‘That’s cheating. How can you tell the truth? Don’t you know that’s politically incorrect?’”

Internal Power Struggle

The Romney-Gingrich face-off is bringing the simmering power struggle between the Republican grassroots and the party establishment to the fore, said Richard Viguerie, a veteran Republican direct-mail strategist and the chairman of

“There is a war going on here between the grassroots and the establishment,” said Viguerie, who is backing former Pennsylvania Senator Rick Santorum. “People in the grassroots see the Republican establishment as part of the problem, not part of the solution, and Gingrich has the ability to go over the heads of the Republican leaders.”

Some political analysts and Gingrich backers argue he has harnessed a transformed landscape of presidential politics, in which technology and social media -- decentralized means of communication with voters -- are powerful forces, and campaign money flows more freely from outside traditional party channels.

Social Media

Gingrich has capitalized on the social media networks Facebook and Twitter to trumpet his message, and his campaign has benefited from the super-PAC Winning Our Future, largely funded by casino magnate Sheldon Adelson, that is raising and spending unlimited sums on his behalf. The Supreme Court legalized such groups in the 2010 ruling Citizens United v. Federal Election Commission.

“It’s a different communications beast, a different communications infrastructure and vehicle out there today” than in years past, former Oklahoma Congressman J.C. Watts told reporters Jan. 23. “Newt tapped into something that I think Republicans like. I think there is a backlash.”

At the root of the concern about Gingrich is whether he will be able to appeal to the broader U.S. electorate. Polls indicate that he has high unfavorable ratings and wouldn’t fare well in a head-to-head matchup against Obama. A January Gallup study found that all national political figures are viewed negatively.

‘Intensely Negative’

Still, “Americans have become more intensely negative in their evaluations of Newt Gingrich -- who now has the lowest score overall,” the study concluded.

Some prominent Republicans say there isn’t yet enough of a consensus that Gingrich is unelectable to give rise to a concerted effort among party operatives to thwart his ascent.

“I haven’t seen that there’s an all-hands-on-deck movement to try to block any candidate -- Newt or anyone else,” said Frank Donatelli, the chairman of GOPAC, a training organization for state and local Republican candidates once headed by Gingrich, and a former top party official.

The last time there was such an effort was in 1996, he added, after Pat Buchanan won the New Hampshire primary and prominent Republicans quickly coalesced around Bob Dole, who ultimately claimed the nomination.

“I haven’t heard that kind of alarm emanating about Newt,” Donatelli said.

Other prominent Republicans are sounding just such a warning. Dole endorsed Romney today, writing in a letter that the party should nominate the former governor “if we want to avoid an Obama landslide in November.”

Former Pennsylvania Congressman Bob Walker, a senior adviser to Gingrich’s campaign, said that rationale is backfiring on Romney with voters.

“It took them a little bit of time to realize that Newt Gingrich is capable of beating Obama, but now, I don’t think that they’re going to listen to party bosses anymore,” Walker said. “Newt is basically channeling the people’s anger.”

To contact the reporter on this story: Julie Hirschfeld Davis in Washington at

To contact the editor responsible for this story: Jeanne Cummings at


BofA Said to Limit Bonuses for Investment Bankers, Traders

By Dawn Kopecki and Hugh Son - Jan 27, 2012 4:10 AM GMT+0700

Bank of America Corp., the U.S. lender seeking to preserve capital, will freeze base salary levels and limit cash bonuses to $150,000 for some investment bankers, said two people with knowledge of the plans.

The cap on cash payments applies to those getting as much as $1 million in total year-end bonuses, with the rest coming in shares of the Charlotte, North Carolina-based lender, said the people, who asked for anonymity because the matter is private. Employees are being told of their payments today and can sell some of the stock starting on Feb. 15, the people said.

“I can’t think of one banker who doesn’t have two or three times that in expenses,” said Gustavo Dolfino, a former UBS AG banker and now president of Whiterock Group LLC, a New York- based executive search firm, referring to the $150,000 limit. “They are probably making exceptions for their superstars. You haven’t seen the end of this, there will be musical chairs.”

Wall Street firms are getting bolder in curbing pay and shifting compensation methods as companies move to limit expenses. Bank of America Chief Executive Officer Brian T. Moynihan, 52, has said he may target as much as $3 billion in cost cuts in units including the investment bank as part of his plan to revive profit.

Cuts Are Coming

Earlier this month, Bank of America told investment bankers to expect compensation that averages 25 percent less than last year, people said this week. Employees in some departments were told packages were 30 percent smaller, and some managing directors will get no bonuses, said one of the people.

Awards include a combination of cash and shares, some of which can’t be sold for as long as three years. The firm’s decision to leave salaries unchanged comes after companies boosted them in 2009 to de-emphasize bonuses, which lawmakers said encouraged unwarranted risks that fueled the financial crisis. The bank uses a tiered system based on the size of the bonus when determining the percentage to pay in cash.

At Bank of America, a typical vice president’s base salary is about $175,000, while a director may make $250,000 and managing directors may earn $400,000, the people said. Bonuses, especially for senior workers, can be several times base pay.

Who Gets Cash

The restricted part of bonuses typically rises with the size of the total payout. For instance, bonuses less than $100,000 will be paid all in cash, the people said. Awards above that amount are a combination of cash and stock that vests over three years and unrestricted shares that can be sold immediately.

Bank of America said last week that it would issue about $1 billion in new stock to replace some cash incentives. The bonuses are called “special equity awards,” the people said. Jessica Oppenheim, a spokeswoman for the company, said she couldn’t comment. Reuters reported last week that the bank plans to give investment bankers more of their bonuses in stock.

Traders and investment bankers getting from $100,000 to $249,999 were told they will get 20 percent of that in cash, 20 percent in restricted stock and 60 percent in the new unrestricted shares, the people said. Employees (BAC) in this level typically received about 70 percent of awards in cash and 30 percent in restricted shares.

Bonus Allocations

Payouts between $250,000 and $499,999 will be split among 18.75 percent in cash, 25 percent in restricted stock and 56.25 percent in unrestricted stock. Historically, bonuses of that size would be split between 60 percent cash and 40 percent restricted stock.

Bonuses between $500,000 and $999,999 will be paid 15 percent in cash, 40 percent in restricted stock and the rest in unrestricted shares. That breakdown is more closely aligned with the historical practice of paying out 60 percent of awards in cash and 40 percent in restricted shares. Senior managers will get about 70 percent of their packages in restricted shares with the rest in cash or unrestricted shares.

The division, run by co-chief operating officer Thomas K. Montag, posted annual profit that plunged by half to $2.97 billion in 2011 as the European sovereign-debt crisis roiled markets. Montag, 55, told employees on Jan. 19 that the investment bank was rebounding after credit-rating downgrades last year sparked concern among clients.

Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent in the fourth quarter to $1.1 billion, the bank said. The market was “challenging” because of Europe and the fallout from Standard & Poor’s downgrade of the U.S. credit rating, the lender said.

Cash Bonus

Compensation declines at Bank of America mirror actions by other firms. Morgan Stanley (MS) is reducing pay for senior investment bankers and traders by an average of 20 percent to 30 percent for 2011, people with knowledge of the move said. The firm is also capping immediate cash bonuses at $125,000 as it seeks to defer the pay of senior executives.

Credit Suisse Group AG, the second-biggest bank in Switzerland, told senior investment bankers that compensation for 2011 will be 30 percent lower on average than the previous year, four people briefed on the discussions said. Goldman Sachs Group Inc. (GS) Chief Financial Officer David Viniar said last week that discretionary compensation declined “significantly more” than the firm’s 26 percent drop in revenue.

To contact the reporters on this story: Dawn Kopecki in New York at; Hugh Son in New York at

To contact the editor responsible for this story: David Scheer at


Gingrich Attacks Romney in Florida as Swiss Account Owner

By Jonathan D. Salant and John McCormick - Jan 27, 2012 5:46 AM GMT+0700

Newt Gingrich opened a new line of attack against Mitt Romney, focusing on his wealth and ties to Goldman Sachs Group Inc. (GS), a firm he says added to the housing crisis.

Gingrich’s remarks, ahead of the Jan. 31 Florida (BEESFL) primary, were designed to blunt criticism of his work for Freddie Mac, the government-backed mortgage-lending company that Republicans link to the financial meltdown.

“We’re not going to beat Barack Obama with someone who owns Swiss bank accounts, Cayman Island accounts,” Gingrich said during a stop today in Mount Dora, Florida. “I am running for president to represent you, not to represent the Washington establishment, not to represent Goldman Sachs.”

Gingrich portrayed himself as the victim of attack ads run by Romney and his allies, calling them a “desperate last stand of the old order.” The former U.S. House speaker suggested that the ads ware being paid for by companies that foreclosed on the homes of Floridians.

With both men planning to appear tonight at a debate in Jacksonville, Gingrich also said Romney is spreading lies about him.

“We aren’t that stupid and you aren’t that clever,” Gingrich said, referring to Romney, the former Massachusetts governor and business executive.

Romney Response

Andrea Saul, a Romney spokeswoman, said it’s “puzzling to see Speaker Gingrich and his supporters continue their attacks on free enterprise. Unlike President Obama and Speaker Gingrich, Mitt Romney spent his career in business and knows what it will take to turn around our nation’s bad economy.”

Meeting later with reporters, Gingrich again brought up New York-based Goldman Sachs, whose employees and their families have provided more contributions to Romney than any other single employer. The company’s employees gave $367,200 to Romney through Sept. 30, according to the Washington-based Center for Responsive Politics, which tracks campaign finance. That’s more than the $235,275 he received from the company’s employees during his failed 2008 White House bid.

Gingrich said Romney had personal holdings in “a part of Goldman Sachs that was explicitly foreclosing on Floridians.”

David Wells, a Goldman Sachs spokesman, declined to comment.

Basis of Attack

When asked for the basis of his attacks, Gingrich’s campaign provided a link to an online post by Think Progress, whose website says it seeks to advance “progressive ideas and policies.”

The post’s author focused on Romney’s August financial disclosure that reported investments, through a blind trust, of between $1 million and $5 million in the Goldman Sachs Strategic Income Fund. Romney’s wife, Ann, also in a blind trust, placed between $200,001 and $500,000 in the fund, according to the disclosure.

That fund, which began in June 2010, held mortgage-backed obligations that constituted about a quarter of its investments as of March 31 last year, according to an annual report. Those obligations included adjustable-rate securities issued by Countrywide Financial Corp. and Washington Mutual Inc., lenders that were later purchased by Bank of America Corp. and JPMorgan Chase & Co., respectively.

Gingrich Investment

While the Think Progress report mentions that Countrywide and Wamu are involved in thousands of foreclosures filed in Florida, it doesn’t say that any of those foreclosed properties were held in the securitizations owned by the fund.

Gingrich, in a disclosure filed in July, listed retirement account investments of between $15,001 and $50,000 in the Pimco Total Return Fund and the Blackrock Global Allocation Fund, both of which listed holdings of mortgage-backed securities in their latest annual filings.

Gingrich also pointed to connections between Romney’s supporters and Freddie Mac. Romney has criticized Gingrich for his earnings of $1.6 million from Freddie Mac as a consultant.

Former Representatives Vin Weber of Minnesota, a Romney campaign adviser, and Susan Molinari of New York, who has made an anti-Gingrich TV ad, both were registered to lobby for Freddie Mac, according to the Center for Responsive Politics.

Another Romney supporter, Representative Mary Bono Mack, a California Republican, disputed Gingrich’s statements that Freddie Mac hired him as a historian.

‘Very Disingenuous’

“It is very disingenuous to say that he’s not an influence peddler,” she said in a conference call arranged by the Romney campaign. “There’s no doubt that he is. You cannot leave the speakership and not have influence, not only with your former colleagues, but future colleagues and the country as well.”

Romney, who has assailed Gingrich more vigorously following the former speaker’s Jan. 21 South Carolina primary win, pivoted back to his standard message today and focused on Obama.

Speaking at Paramount Printing in Jacksonville, a paper factory in the process of closing a plant there, Romney, 64, criticized the president for his handling of the economy.

“This has been a groundhog-day presidency,” Romney said. “He keeps saying the same things and we keep waking up to the same things going on.”

Dole Letter

The Romney campaign today released a letter from former Senate Majority Leader Bob Dole of Kansas, who led the Senate when Gingrich led the House. Dole said he is backing Romney for president.

“If we want to avoid an Obama landslide in November, Republicans should nominate Governor Romney as our standard bearer,” Dole, who lost the 1996 presidential election to incumbent President Bill Clinton by 8 percentage points, wrote.

Dole called Gingrich, 68, a “one-man-band who rarely took advice. It was his way or the highway.” Dole said Gingrich had “a new idea every minute and most of them were off the wall.”

Two polls released yesterday showed Romney and Gingrich in a virtual tie in Florida, heightening the pressure on both as they prepare for their televised debate. The surveys by Hamden, Connecticut-based Quinnipiac University and CNN/Time/ORC each showed Romney with 36 percent support and Gingrich with 34 percent.

The race’s two other remaining candidates -- former Senator Rick Santorum of Pennsylvania and U.S. Representative Ron Paul of Texas -- trailed far behind in the polls.

Santorum said today that Romney and Gingrich have refused to debate on policies because both agree on “the big issues of the day” such as cap-and-trade, health care mandates and the Wall Street bailout.

‘Real Contrasts’

“We want to have the real contrasts with President Obama,” Santorum told reporters in Tallahassee, the state capital. “Those two don’t disagree and I do. And that’s what makes us a much stronger and more viable candidate in the general election.”

As Romney’s Jan. 24 release of tax returns has provided fodder for his opponents, he has been emphasizing that he “didn’t inherit” his wealth. He also discussed yesterday why his tax rate is lower than those of many Americans.

“One of the reasons why we have a lower tax rate on capital gains is because capital gains are also being taxed at the corporate level,” Romney said during a stop in Miami. “The tax rate is really closer to 45 or 50 percent” for such income.

Romney Disclosure

His disclosure earlier this week showed he made $21.6 million in 2010 and used preferential rates for investment income and charitable contributions to hold his overall tax rate to 13.9 percent.

In Congress, Romney’s returns reignited a debate on the tax treatment of so-called carried interest, which provides some investment executives with preferential tax rates.

Romney said in an interview yesterday with CNBC that he would seek to keep the provision in the tax code, if elected, because he doesn’t want to raise taxes on anyone.

“If it’s actually a capital investment, and it’s fairly priced at the time people invest in it, and then it rises in value as a capital gain, then you treat it as a capital gain,” he said. “If someone turns it into what looks like ordinary income or a bonus, why then, obviously, it’s not a capital gain.”

To contact the reporters on this story: Jonathan D. Salant in Mount Dora, Florida at; John McCormick in Hollywood, Florida at

To contact the editor responsible for this story: Jeanne Cummings at


New Yorkers Face “Downward Mobility”

By Elizabeth Ody - Jan 27, 2012 1:54 AM GMT+0700

About one third of New York City residents nearing retirement age won’t be able to quit or will have to rely entirely on Social Security because they have less than $10,000 in savings, according to a study released today.

About 40 percent of New York workers had access to an employer-sponsored retirement plan in 2009, compared with the national average of 53 percent, according to the report by the New School’s Bernard Schwartz Center for Economic Policy Analysis. It was released by the Office of New York City Comptroller John Liu.

“It’s going to mean a generation of retirees will do worse than their parents and grandparents,” Teresa Ghilarducci, the center’s director, said in a telephone interview. “This means a lot more downward mobility.”

About 36 percent of households near retirement had less than $10,000 in liquid assets and about 19 percent had $10,000 to $99,999, according to the report. The median net worth of New York households where the head is nearing retirement, defined as age 55 to 64, was $442,450 including home equity, for married couples. It was $46,000 for single people.

“We have a large proportion of people who are nearing retirement, but without enough money to live comfortably,” Liu said in a telephone interview. For those households with less than $10,000, “that gives you probably a movie every couple of months,” said Ghilarducci.

The top 1 percent of New York taxpayers earned an average of $2.2 million in 2009, according to a Dec. 6 letter by the city’s Independent Budget Office. There were almost 35,000 taxpayers in that group.

Retirement Assets

Total retirement assets in the U.S. were $17 trillion in September, according to the Washington-based Investment Company Institute, a trade group for the mutual-fund industry. That included about $4.2 trillion in government-sponsored pension plans and $2.3 trillion in private-sector defined-benefit plans.

The study from the Comptroller’s Office included data from 2001 and 2010 surveys by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics, in addition to data from a 2008 nationwide survey on income levels and 2009 New York State income-tax returns, according to the report.

To contact the reporter on this story: Elizabeth Ody in New York

To contact the editor responsible for this story: Rick Levinson at


U.S. Stocks Fall After Dow Average Gains

By Rita Nazareth - Jan 27, 2012 5:03 AM GMT+0700

U.S. stocks fell, reversing a rally that sent the Dow Jones Industrial Average toward its highest level since 2008 earlier today, as banks (S5BANKX) tumbled and a report showed that sales of new homes unexpectedly declined.

Banks had the biggest drop in the Standard & Poor’s 500 Index among 24 groups on concern about the industry’s ability to boost profits after the Federal Reserve yesterday pledged to keep the benchmark interest rate low. Wells Fargo & Co. (WFC) and Fifth Third Bancorp slumped at least 3 percent. PulteGroup Inc. (PHM) and Lennar Corp. (LEN) retreated more than 2.3 percent to pace losses in homebuilders. AT&T Inc. (T), the largest U.S. phone company, slid 2.5 percent as its profit forecast trailed estimates.

The S&P 500 lost 0.6 percent to 1,318.43 at 4 p.m. New York time, reversing a gain of as much as 0.6 percent. The Dow fell 22.33 points, or 0.2 percent, to 12,734.63, after earlier rising to the highest level on a closing basis since May 2008.

“It’s a little bit of cold water in the face,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “We’re in risk territory because we’ve come a long way in the market and in terms of optimism on the economy. It’s premature to think that we’ve solved all problems.”

The S&P 500 has risen 4.8 percent so far this year, poised for the best January since it gained 6.1 percent during the first month of 1997, according to data compiled by Bloomberg. Stocks are extending the measure’s 11 percent rally in the October-December period, its best fourth-quarter increase since 2003, as improvements in hiring, manufacturing and home sales bolstered confidence in the world’s largest economy.

Economic Data

Equities reversed gains today after a report showed that sales of new U.S. homes unexpectedly declined in December for the first time in four months, capping the slowest year on record for builders. Claims for U.S. jobless benefits rose last week, displaying the usual volatility around holidays that has masked an improvement in the labor market. Orders for U.S. durable goods advanced more than forecast in December.

Benchmark gauges rose yesterday as the Fed signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy. Investors also watched earnings reports. Of the 151 S&P 500 companies that reported results since Jan. 9, 103 posted per-share earnings that beat projections, according to data compiled by Bloomberg.

A measure of banks in the S&P 500 slumped 3.3 percent. Wells Fargo lost 3.8 percent to $29.05. Fifth Third Bancorp (FITB) slid 3 percent to $13.08.

Fed’s Pledge

The Fed’s low interest rate pledge may hurt lenders’ profits as they struggle to find loans or securities with yields high enough to support their net interest margins, a gauge of profitability that measures the difference between the cost of funds and what they earn on assets.

“The statement itself was market friendly in terms of reiterating that the Fed is going to remain largely accommodative,” Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a telephone interview. His firm oversees $250 billion in assets. “When you talk about the banking environment and some of these companies that are directly tied to interest rates, it’s going to probably put a cap on some of those companies going forward until rates start to increase.”

A gauge of homebuilders in S&P indexes slumped 3.4 percent. PulteGroup retreated 2.4 percent to $7.80. Lennar decreased 2.9 percent to $22.13.

AT&T Slumps

AT&T lost 2.5 percent to $29.45, the biggest decline in the Dow. The carrier projected “mid-single-digit or better earnings growth” for 2012. Analysts predicted 11 percent on average. AT&T also reported a fourth-quarter net loss of $6.68 billion because of a pretax charge of about $4 billion for the failed takeover of T-Mobile USA, and expenses for revaluing benefit plans and other assets.

E*Trade Financial Corp. (ETFC) tumbled 15 percent, the most in the S&P 500, to $7.99 after the online brokerage reported results that missed analyst estimates and Sandler O’Neill & Partners LP cut its rating.

SanDisk Corp. (SNDK) dropped 11 percent to $46.39. The biggest maker of flash-memory cards gave a sales forecast that fell short of estimates, citing lower prices for chips that store data in mobile phones.

Caterpillar Inc. (CAT) rallied 2.1 percent, the biggest gain in the Dow, to $111.31. The largest construction and mining- equipment maker posted fourth-quarter earnings and forecast full-year profit that topped analysts’ estimates as demand rose for shovels and trucks.

3M, Netflix

3M Co. (MMM) added 1.3 percent to $87.58. The maker of Post-it Notes and fuel system tuneup kits reported higher profit than analysts had estimated as demand increased for aerospace and auto industry products.

Netflix Inc. (NFLX) surged 22 percent, the most since January 2010, to $116.01. The online and mail-order video-rental service reported fourth-quarter profit that topped analysts’ estimates and forecast improving margins in its streaming business.

J.C. Penney Co. climbed 19 percent to $40.72 after saying cost reductions from new Chief Executive Officer Ron Johnson’s turnaround plan may boost 2012 profit more than analysts estimated.

Time Warner Cable Inc. (TWC) advanced 7.8 percent, the biggest gain since April 2009, to $74.51. The second-largest U.S. cable- television provider reported fourth-quarter profit that beat analysts’ estimates and said it would repurchase $4 billion in shares.


“The backdrop that is coming forth is a nightmare for those who are way underinvested,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a phone interview. His firm manages $300 billion. “Earnings continue to come in better than expected, our economy is improving. In addition, it looks like the ‘euro-quake’ situation appears at least in the short term to be on the backburner.”

European stocks advanced, climbing 20 percent from a September low and entering a bull market. The Stoxx Europe 600 Index added 1.1 percent to 257.86 today.

The S&P 500’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said.

Too Far

The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.

The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg show. The VIX is the benchmark gauge of S&P 500 options prices.

“We’re definitely in a rare spot,” Josh Dollinger, Chief quantitative and technical strategist at BTIG in New York, said in a telephone interview. “These are extreme readings. They more often than not prove to be exhaustion tops.”

To contact the reporter on this story: Rita Nazareth in New York at

To contact the editor responsible for this story: Nick Baker at


Apple Investors Await a Dividend Gusher

By Adam Satariano - Jan 26, 2012 12:01 PM GMT+0700

Apple Inc. (AAPL) has Wall Street’s full attention after hinting at plans for the company’s $100 billion cash pile that may lead to stockholders receiving a dividend.

Apple is “actively discussing” uses for its cash, including a dividend, buyback, acquisitions and supply-chain investments, Chief Financial Officer Peter Oppenheimer told analysts and investors Jan. 24 in an earnings conference call.

The comments were a welcome sign for investors who have called for a dividend as Cupertino, California-based Apple has added to its balance sheet. Apple’s $97.6 billion in cash and investments is larger than the market value of all but 26 companies in the Standard & Poor’s 500 index. The total could reach $150 billion by year-end if the company doesn’t give money back to shareholders, said David Rolfe, chief investment officer of Wedgewood Partners Inc.

“They have turned into the First National Bank of Cupertino,” said Rolfe, whose firm manages $1.3 billion in assets, including Apple shares. “Common sense dictates that they don’t need a cash hoard of $150 billion.”

Apple reported fiscal first-quarter profit this week that more than doubled to a record $13.1 billion, boosted by holiday purchases of the iPhone and iPad tablet. Sales jumped 73 percent to $46.3 billion. Gross margin, the percentage of sales remaining after deducting the cost of production, rose to 44.7 percent, from 38.5 percent a year earlier, the company said.

Shares Surge

A dividend is a recurring payment made by companies to its shareholders, typically as a percentage of profit given each quarter. For Apple, a dividend of 3 percent could propel the stock as high as $550 a share, said Rolfe, who expects Apple to announce such a move later this year.

Apple rose 6.2 percent to $446.66 at the close of trading yesterday. The stock is up 31 percent in the past 12 months.

A policy change would attract a new class of investors who only buy shares of companies that offer dividends, said Brian White, an analyst at Ticonderoga Securities LLC.

“It’s going to be a gusher when they tap into that thing,” White said. “It’s like tapping into an oil field out in Texas.”

Analysts at Canaccord Genuity Corp., Jefferies & Co. and Morgan Stanley also expect Apple to announce a dividend or buyback.

Showing Confidence

Even so, not all analysts say a dividend is a good idea. Apple’s refusal to return the money to shareholders -- even a one-time payment that wouldn’t recur each quarter -- speaks to the confidence of a company that intends to chase giant growth opportunities, said Trip Chowdhry, an analyst at Redwood City, California-based Global Equities Research.

“If Apple declares a dividend, it would be an indication to me that it’s time to get out of the stock,” Chowdhry said.

Oppenheimer, Apple’s finance chief, didn’t say if, or when, Apple would disclose a decision about use for its cash.

“We’re examining all uses of our cash balance -- what we might do in the supply chain, what we can do from an acquisition perspective, and otherwise,” said Oppenheimer. “In the meantime, we’re not letting it burn a hole in our pockets.”

Apple Chief Executive Officer Tim Cook said last year that he wasn’t “religious” about holding on to Apple’s cash. That signaled a change from co-founder Steve Jobs, who had been more resistant to shareholder calls for a dividend or buyback.

Ticonderoga’s White said it would be a surprise if Apple made a large acquisition, something it typically doesn’t do.

On the call, Oppenheimer described Apple’s approach to making acquisitions.

“We have done acquisitions where they tended to be smaller or medium-sized companies that have just great engineering and other talent, a great start on a product or a technology that we’d like to bring into Apple,” he said. “We tend to do several a year. We’re very, very disciplined in how we think about this and how we do it, and I think our track record here has been very strong.”

To contact the reporter on this story: Adam Satariano in San Francisco at

To contact the editor responsible for this story: Tom Giles at