Wednesday, September 7, 2011

World stocks unfazed by ECB hike, Portugal plea (AP)

LONDON ? Global markets were unfazed Thursday by the European Central Bank's first interest rate increase in nearly three years and Portugal's request for a bailout.

Both pieces of news had been widely predicted, although the timing of Portugal's bailout plea came earlier than anticipated given the country has no government.

There are even hopes that Portugal's long-awaited request may stabilize the situation within the 17-country eurozone for a while as fears of contagion to other countries, such as much bigger Spain, have diminished.

Those hopes have helped support the euro of late alongside the prospect of higher interest rates.

By mid-afternoon London time, the euro was trading 0.3 percent lower at $1.4289. On Wednesday, the euro hit a 15-month high of $1.4349 on the prediction that the ECB would raise borrowing costs. As a result, the decision to increase the main interest rate to 1.25 percent from 1 percent caused barely a whimper in the markets.

Higher interest rates would not necessarily mean that the euro would be backed if other central banks were also doing so. But with the U.S. Federal Reserve showing few signs that it's planning to change tack, the euro has been buoyant against the dollar.

Better-than-expected figures showing weekly jobless claims in the U.S. fell by 10,000 last week to 382,000 are unlikely to lead to much of a change in the Fed's thinking on their own. The monthly payrolls figures are more important when assessing the outlook for U.S. monetary policy.

The response in bond and stock markets over Portugal's bailout request has been equally relaxed. In Portugal, the bailout request has been met with an element of relief and the country's main stock index was up 1.5 percent, making it the best performer in the eurozone.

"Portugal's bailout appears to have been entirely priced into markets, as there was little reaction to the announcement," said Benjamin Reitzes, an analyst at BMO Capital Markets. "Attention will now turn entirely to Spain, though the decline in yields and credit default swap spreads so far this year suggest markets aren't concerned about contagion."

Elsewhere in Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 6,052 after the Bank of England kept its main interest rate unchanged at a record low of 0.5 percent. Germany's DAX was 0.3 percent higher at 7,235 while the CAC-40 in France rose 0.5 percent to 4,068.

In the U.S., the Dow Jones industrial average was up 0.1 percent to 12,432 soon after the open while the broader Standard & Poor's 500 index rose 0.2 percent to 1,338.

Earlier in Asia, Tokyo's Nikkei 225 index rose less than 0.1 percent to close at 9,590.93 even though the Japanese economy got a boost when the Bank of Japan, in a widely expected decision, kept its key interest rate unchanged at near zero and extended emergency loans to financial institutions affected by the earthquake and tsunami crisis.

Hong Kong's Hang Seng index was marginally down at 24,281.80, while South Korea's Kospi fell 0.2 percent to 2,122.14.

In the oil markets, the apparent stalemate in Libya, which accounts for a little under 2 percent of the world's daily oil production, kept oil prices high.

Benchmark crude for May delivery was up 12 cents at $108.95 a barrel in electronic trading on the New York Mercantile Exchange, a little shy of its 30-month high of $109.15.


Pamela Sampson in Bangkok contributed to this report.

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Warren Buffett?s PR Nightmare: The Sokol Saga Continues

"If questioned about this matter in the future, I will simply refer the questioner back to this release," Warren Buffett declared last week when he announced David Sokol's resignation.

Buffett may have wanted to have the last word, but the controversy isn't going away.

Buffett's claim that Sokol did nothing "unlawful" remains to be determined. The SEC is reportedly weighing an investigation of Sokol's trading in Lubrizol shares ahead of Berkshire Hathaway's bid for the company last month.

However, Sokol clearly violated Berkshire Hathaway's policy that bars company officials from trading in public companies "that may be involved in a significant transaction with Berkshire," The WSJ reports.

The key issue here is that Sokol first acquired Lubrizol shares in December after being pitched the company by Berkshire's bankers at Citigroup. (See: Did Buffett Blow It? The Sokol Story Doesn't Add Up )

Because of the nature of the meeting -- a top Berkshire executive meeting with the firm's M&A bankers -- it's unfair to compare Sokol's Lubrizol trades with Charlie Munger's position in BYD, as some apologists have done. Munger reportedly owned BYD "for years" in a personal account prior to Berkshire's purchase. By contrast, Sokol's fiduciary duty was to the firm and its shareholders in this case, not his personal portfolio.

Buffett: Myth vs. Reality

Given that, Buffett's public statements visa vis Sokol's trades are hard to fathom. If Sokol violated Berkshire's policy, why did Buffett defend his rumored successor and not fire him "for cause"? And does Buffet really think anyone will believe the Lubrizol trades were "not a factor in [Sokol's] decision to resign," as he claimed last week?

Having been the beneficiary of largely glowing coverage over the years ? some it deserved ? perhaps Buffett has started to believe his own press clippings.

Of course, some of this is our own fault. It was na�ve to think that Buffett could become one of the world's richest men merely by being a nice guy who outworked and outsmarted the competition. Arguably, he's done as good a job managing the media as his portfolio, as another legendary investor ? Michael Steinhardt ? suggested on CNBC this week.

But no one is above reproach or above the law and it seems like the time has (finally) come for the investing public ? and once-fawning journalists ? to ask: Is Buffett's image as a purveyor of "homespun wisdom" reality or merely just spin? (See: Will the Real Warren Buffett Please Stand Up? )

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at

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Tuesday, September 6, 2011

The SOX Tests 50-Day Simple Moving Average as Nasdaq Struggles

The key to sustaining gains requires that the Philadelphia Semiconductor Index (SOX) trends above its 50-day simple moving average at 445.43. The NASDAQ has traded several days above 2800 since testing 2840.51 on February 18, but has not had a single daily close above 2800 since February 18. All daily charts (except the SOX) are extremely overbought on their daily charts with the S&P 500, the NASDAQ and the NASDAQ 100 (NDA) below their February 18 highs at 1344.07 SPX, 2840.51 NASDAQ, and 2403.52 NDA.

Stocks Remain Overvalued Fundamentally ? We are operating under a ValuEngine Valuation Watch with more than 60% of all stocks overvalued. Today 64.3% of all stocks are overvalued. In addition all 16 sectors are overvalued with nine by double-digit percentages. A ValuEngine Valuation Warning occurs when more than 65% of all stocks are overvalued. This last occurred at the mid-February highs. The last time we had a ValuEngine Valuation Warning was February 18.

10-Year Note ? (3.545) The yield on the 10-year is trading above its 50-day simple moving average at 3.472 as bond traders worry about inflation. Annual and quarterly value levels are 3.796 and 4.016 with a daily pivot at 3.513 and weekly and monthly risky levels at 3.275 and 3.181.

Comex Gold ? ($1461.6) Gold traded to a new all-time high at $1463.7, above my semiannual pivot at $1452.6. Daily and annual value levels are $1448.0 and $1356.5 with semiannual pivot at $1452.6, and weekly, quarterly and monthly risky levels at $1473.0, $1523.7 and $1559.9.

Nymex Crude Oil
? ($108.59) Traded to a new 52-week high at $109.15, above my semiannual pivot at $107.14, but below this week?s risky level at $110.68. My annual and monthly value levels are $101.92, $101.09 and $99.91 with daily and semiannual pivots at $108.08 and $107.14, and weekly and quarterly risky levels at $110.68, $114.27 and $120.52.

The Euro ? (1.4327) Traded to a new 52-week high at 1.4348 versus weekly and quarterly pivots at 1.4328 and 1.4308. Daily and monthly pivots are 1.4154 and 1.4170 with quarterly and weekly pivots at 1.4308 and 1.4328, and semiannual risky level at 1.4624.

Daily Dow ? (12,427) Traded to a new 52-week high at 12,450.93 below this month?s risky level at 12,481. Weekly, annual and semiannual value levels are 12,317, 11,491, 10,959, and 9,449 with monthly, daily, quarterly and annual risky levels at 12,481, 12,484, 13,774 and 13,890.

Key Levels for the Other Major Equity Averages ? All major equity averages are overbought on their daily charts except for the Philadelphia Semiconductor Index (SOX), which has a neutral daily chart. The SOX tested its 50-day simple moving average at 445.36.

S&P 500 ? (1335.5) My weekly pivot is 1328.1 with the February 18 high at 1344.07, and daily and monthly risky levels at 1342.4. and 1360.0. My quarterly value level is 1277.7.

NASDAQ ? (2800) My weekly pivot is 2762 with a daily pivot at 2816, the February 18 high at 2840.51, and monthly risky level at 2898.

NASDAQ 100 (NDX) ? (2332) My weekly pivot is 2329 with the February 16 high at 2403.52, and daily, monthly, annual and quarterly risky levels at 2345, 2477, 2590 and 2685.

Dow Utilities ? (417.05) My semiannual value level is 397.84 with weekly and daily pivots at 412.49 and 419.00 and monthly and quarterly risky levels at 423.25 and 448.17.

Dow Transports ? (5344) My annual, weekly and monthly pivots are 5179, 5341 and 5371 with daily risky level at 5425. The high for the move is 5404.33 set on Friday, April 1.

Russell 2000 ? (854.17) Annual and quarterly value levels are 784.16 and 778.81 with a weekly pivot at 848.50, and daily and monthly risky levels at 863.47 and 856.67. Set a new high for the move on Tuesday at 858.05.

The SOX ? (445.50) My weekly pivot is 427.31 with a daily pivot at 441.11, the 50-day simple moving average at 445.43, and monthly, quarterly and annual risky levels at 452.34, 498.75 and 531.14.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.

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How a Government Shutdown Affects Your Tax Refund

Government shut downOn Thursday, Senate Majority Leader Harry Reid announced that there will likely be a government shutdown effective Friday at midnight. In response to the deadline, the U.S. Office of Personnel Management has posted information on its website indicating that federal employees whose salaries are funded through annual appropriations won't be able to work and will be furloughed, unless their duties qualify under the law as "excepted" to continue to work during periods of lapsed appropriations. That means approximately 800,000 government workers will be asked to stay home until the budget crisis is resolved. And yes, that includes those government workers at the Internal Revenue Service.

Don't get too excited, though. The IRS Commissioner, Doug Schulman, has announced that a government shutdown will not affect the due date for federal income tax returns. Tax Day is still April 18, 2011.

Even though the due date remains the same, there will be some noticeable changes if the government does shut down. Chief among them: There will be a delay in processing paper returns, which are those returns taxpayers mail through the U.S. Postal Service or have submitted using a private delivery service. A delay in processing will likely mean that there will be a significant lag in your refund if you submit a paper return this year or if your return must be processed manually because you are claiming a first-time homebuyer's credit or the newly refundable adoption credit.

Fortunately, most taxpayers have already submitted their tax returns. As of March 25, the IRS reported receipt of 82,760,000 individual returns; total receipts are expected to hover around 140,000,000. About one-third of all individual tax returns for the year will be mailed between now and Tax Day, April 18. Most of those taxpayers won't be seeking a refund, however. Statistically, taxpayers expecting to receive a tax refund file early in the season; those taxpayers expecting to pay a tax bill tend to put it off toward the end of the season. That is proving true this year since, according to IRS data, approximately 85% of taxpayers who have already filed received a refund.

While delayed tax refunds may be cause for concern for some taxpayers, others are getting a reprieve. With nonessential workers on furlough, audits and collections activities are likely to slow down.

Of course, these actions are all dependent on an actual government shutdown. How likely is that to happen? Consider this: The fiscal year is 189 days old and Congress has yet to pass a budget. Instead, Congress has passed six -- yes, six -- short-term spending bills. The first proposed budget was submitted by President Obama last year, an amazing 431 days ago. There has been no real movement since. Nobody knows for certain what will happen next ... but don't be surprised to see a "Closed" sign on the IRS doors next week.

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U.S. Consumer Credit Rises in February on Student Loans

April 07, 2011, 3:31 PM EDT

By Vincent Del Giudice

(Updates with economist?s comment in fourth paragraph.)

April 7 (Bloomberg) -- U.S. consumer borrowing rose for a fifth straight month in February on an increase in non-revolving credit as education loans expanded, the Federal Reserve reported today.

Credit climbed $7.62 billion, the most since June 2008, to $2.42 trillion after increasing a revised $4.45 billion in January, the Fed said in Washington. The February figure exceeded the median economist forecast of a $4.7 billion increase in the measure of credit card debt and non-revolving loans, according to a Bloomberg News survey.

The second consecutive drop in revolving credit, which includes credit cards, indicates Americans remain reluctant to take on more debt even as the economy and job market improve. In addition, rising fuel and food prices are limiting people?s buying power, raising the risk that consumer spending, which accounts for about 70 percent of the economy, will cool.

The increase in loans for education shows that ?people are going back to school to improve their skills,? said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. ?We expect consumer spending to continue growing. The recovery has the strength to continue.?

The total increase reflected an $8.2 billion non-seasonally adjusted rise, to $349 billion, in the federal government category of borrowing, which includes school loans.

Estimates from 33 economists in the Bloomberg survey ranged from a $2 billion decrease to an $8 billion gain. The revised January reading was lower than the initial figure of $5 billion.

Credit Breakdown

Revolving debt, which includes credit cards, decreased $2.71 billion in February, according to the central bank?s statistics. Non-revolving debt, including educational loans and borrowing for autos and mobile homes, rose $10.3 billion for the month, the Fed said.

While the Fed?s policy-setting Federal Open Market Committee said March 15 that the economy is on a ?firmer footing,? New York Fed President William Dudley, the panel?s vice chairman, said April 1 that the U.S. recovery is ?still tenuous? and the jobless rate ?much too high? at 8.8 percent. The central bank is buying $600 billion of Treasuries through June in an effort to boost growth with the benchmark rate close to zero since December 2008.

Moody?s Investors Service raised its outlook for the credit card industry to ?stable? from ?negative? last month, citing a recovery in card issuers? ?asset quality and profitability in an improved economic environment.?

Discover Profit

Discover Financial Services, benefiting from a rebound in its card-lending business, reported a record fiscal first- quarter profit and raised its dividend last month. Its write- offs for loans deemed uncollectible fell to 5.8 percent in February from 9.1 percent a year earlier.

In the auto industry, U.S. vehicle sales rose 6.7 percent in February to an annual rate of 13.4 million, the fastest since August 2009, before slipping in March to 13.1 million. General Motors Co. said sales rose 46 percent in February as discounts and new financing options lured buyers. Ford Motor Co. and Chrysler Group LLC also reported February gains.

?We continue to believe that the economy is going to continue to stay on its current course of slow but steady recovery,? Don Johnson, vice president of U.S. sales for General Motors, said during an April 1 conference call. ?With credit availability improving, continuing historically low interest rates and pent-up demand, we continue to believe that consumers are going to be returning to showrooms in even greater numbers this year.?

The Fed?s report doesn?t track debt secured by real estate, such as residential mortgages and home equity lines of credit.

--Editors: Scott Lanman, Vince Golle

To contact the reporter on this story: Vincent Del Giudice in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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Stocks fall after new Japan earthquake

Global equities fell after a strong earthquake shook Japan and the euro fell against the dollar as the European Central Bank raised rates but signaled it was not necessarily the start of a round of hikes.

US and European stocks fell after the earthquake measuring 7.4 shook northeast and eastern Japan. A tsunami warning was issued for the northeastern coast, an area badly hit by March's earthquake.

European stocks ended down 0.2% and the dollar extended losses against the yen. Nikkei futures were down 1.8%. Japan is the world's third-largest economy and investors feared the new quake could harm global recovery.

"We started to drop on this earthquake news out of Japan. It seems to be generating a bit of jitteriness and has caused people to take a bit of profit," said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

"In a couple hours from now if it looks like damage is minimal, the market the will go back to trading economics as opposed to earthquakes."

European shares had earlier gained after Portugal's request for aid fostered hopes the region's debt crisis will be staunched. The pan-European European FTSEurofirst 300 stock index was down 0.2%. Portugal's stock market bucked the trend, the PSI 20 index up 1.2%.

The Dow Jones industrial average dropped 36.63 points, or 0.29%, to 12,390.12. The Standard & Poor's 500 Index dropped 2.34 points, or 0.18%, to 1,333.20. The Nasdaq Composite Index dropped 0.95 points, or 0.03%, to 2,798.87.

World stocks as measured by MSCI gave up 0.3%.

Rate hike

The ECB raised rates by 25 basis points to 1.25%to counter firming inflation pressures. ECB President Jean-Claude Trichet said it was not necessarily the start of a series of similar steps, disappointing some who had expected a more hawkish tone.

"This makes the ECB the first major developed economy central bank to hike rates, and the decision will cement its reputation as a single-minded inflation fighter," said ABN Amro economist Nick Kounis.

"The hike is unwelcome for peripheral countries, but arguably the core member states were in need of this move already some time ago. In that sense, the timing of the increase is a balancing act, which is part and parcel of the one-size-fits-all monetary policy," he added.

The euro was down 0.5% on the day at USD 1.4268, off a more than 14-month high of USD 1.4350 touched on Wednesday. Spot gold hit a new record at USD 1,464.80 an ounce following Trichet's comments.

It was the first rate increase since 2008 and followed a day after Portugal's caretaker government requested European Union aid at the urging of leading bankers. They wanted a bailout to help the economy and safeguard its banking system.

Portugal said it will make the formal request for aid later on Thursday. The rescue package could reach 85 billion euros (USD 122 billion).

Spain vowed it would not follow Portugal in seeking a bailout. A successful Spanish bond auction suggested markets do not fear contagion at the moment.

Investors got more signs of a firming labor market as new US claims for unemployment benefits fell slightly more than expected last week. Other data showed March was not as bad as expected for many US retailers even in the face of higher gasoline prices.

Among commodities, spot gold was recently bid at USD 1,464.12 an ounce after hitting a new peak, while Chicago corn futures reached a fresh all-time high at USD 7.73-1/4 before falling from the peak.

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Monday, September 5, 2011

Consumers borrowed more in February to buy cars (AP)

WASHINGTON ? Consumers borrowed more money in February to buy new cars but cut back on pulling out their credit cards to make purchases.

The Federal Reserve says consumers increased their borrowing by $7.6 billion in February. It was the fifth consecutive monthly gain.

All of the strength came in the category that includes car loans. Borrowing in the category that covers credit cards fell. That category has risen only once in the more than two years since the 2008 financial crisis peaked.

The gains in total credit pushed borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That's 1 percent from the three-year low hit in September. Economists believe consumers need to start borrowing more to support sustained economic growth.

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Jobless claims fall, retail sales stronger (Reuters)

WASHINGTON (Reuters) ? New claims for jobless benefits fell last week and retailers racked up much stronger-than-expected sales in March, signs that high fuel prices have not knocked the economy off its growth path.

Initial claims for state unemployment aid slipped 10,000 to 382,000, the Labor Department said on Thursday, a touch below economists' expectations and firmly beneath the 400,000 level associated with steady jobs growth.

Other data showed shoppers shrugged off higher gasoline prices last month to boost sales at many retailers as improving labor market conditions encouraged discretionary spending.

Same-store retailer sales had been expected to decline for the first time since August 2009, in part because Easter falls three weeks later than last year, delaying some spending.

"The claims report is one more piece of evidence that the general labor market is improving," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

"The economy is growing and employers are no longer laying off workers because of a weakening in the general economic conditions but rather they doing so for normal business reasons."

The claims data underscored the strengthening labor market tenor and came on the heels of a report last week showing employers added 216,000 jobs in March, with the unemployment rate falling to a two-year low of 8.8 percent.

Last week, the four-week average of unemployment claims, a better measure of underlying trends, fell 5,750 to 389,500.

With the labor market conditions firming, consumers are feeling a little more confident to loosen their purse strings.

Sales at stores open at least a year rose 1.7 percent in a tally of 25 retailers, topping expectations of a 0.7 percent decline, according to Thomson Reuters.


The stronger-than-expected same-store sales bode well for the government's overall retail sales report for March, which is scheduled for release next week and is expected to be heavily influenced by the high gasoline prices.

They offered some relief after other data on consumer spending suggested a moderation in the pace of economic growth early in the year after a fairly brisk pace in the fourth quarter.

Consumer spending -- which accounts for about 70 percent of U.S. economic activity -- got off to slow start in the first two months of 2011 -- held back by bad weather. Rising gasoline prices also took spending away from other sectors.

The stronger-than-expected same-store sales were little boosted by inflation, given the nature of the merchandise which economists said was less sensitive to the high energy prices.

"Consumers have held back for a long time, there is a certain amount of pent-up demand. Wage growth isn't much, but we are also seeing an increase in income because of an increase in job growth," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"Job growth also means that for those who are employed there is reduced concern about being laid off so the pent up demand is coming out."

With the latest fall, initial claims for jobless benefits are now beneath the 400,000 level, which is generally associated with steady job growth, for four weeks in a row.

The four-week average has held below that mark for the sixth straight week. Economists say both measures need to drop to about 300,000 to signal a strong labor market recovery.

Signs of improvement in the jobs market were also evident in the number of people still receiving benefits under regular state programs after an initial week of aid, which fell in the week ended March 26 to the lowest level since October 2008.

However, long-term unemployment remains a major problem.

A total of 8.52 million people were claiming unemployment benefits under all programs in the week ended March 19, the latest week for which data is available.

"While the labor market has stabilized and employment may be increasing, it's not increasing so rapidly that previously unemployed people who were claiming benefits are returning to work at a fast clip," said J.H. Cohn's O'Keefe.

(Additional reporting by Jessica Wohl in Chicago; Editing by Neil Stempleman)

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Consumer Alert: Spring is Used Car Scam Season

used car scamSpring is traditionally a busy shopping season for those looking for a new car, but it's also open season on consumers for scammers looking to take unsuspecting victims for a ride, warns a consumer watchdog.

The National Consumers League, a Washington, D.C.-based nonprofit watchdog, says its Fraud Center has reported an increase in complaints about used car scams, and cautions consumers not to fall victim to fraudsters during the upcoming peak car-buying season.

"Scam artists prey on consumers in search of a bargain, and these scams are no exception," John Breyault, Director of the Fraud Center, said in a statement. "Unfortunately, the only person that's getting a steal are the con artists themselves."

The NCL's Fraud Center has been tracking scams and issuing alerts about consumer fraud since 1992. Since January 2011, Fraud Center has received more than 100 complaints from consumers nationwide about used-car ripoffs, with reported losses totaling more than $290,000.

Most used car scams reported to the Fraud Center involve online classified listings on popular sales and auction sites including craigslist, eBay or Yahoo! Autos. These questionable listings often involve late-model luxury brands priced far below their regular market value.

When consumers contact shady sellers, the con artists tell them they aren't local and tell victims payment for the car (which often involves "shipment") must be sent via wire transfer. This in itself is a huge red flag, and as Consumer Ally has repeatedly warned readers, never, ever wire money to someone you don't know.

Used car con artists often pretend to be a members of the armed services as well, and claim they're either deployed or preparing to ship out. This time-tested lie helps build trust, tugs on patriotic heartstrings, and allows fraudsters to insist on swift payment.

"Scam artists are imaginative, and they have tricks aplenty to get a victim to trust them," said Breyault. "However, consumers can protect themselves by recognizing the most common red flags involved in these scams and never, ever rush to buy."

The NCL says consumers can avoid used car scams by being on the lookout for the following red flags:

  • The seller asks for payment via wire transfer or bank transfer.
  • The car is offered at a price well below common market value (such as Kelley Blue Book value).
  • The seller demands urgent payment, since they are or will soon be relocating overseas.
  • The seller says that they are located overseas, but have an American middleman or online escrow service that will hold the money until the vehicle is delivered.
  • The seller refuses to meet in person or communicate over the phone.
  • The seller's email or instant messages contain multiple grammatical or spelling errors.
  • The seller claims the transaction is insured by a "protection program" associated with a real site (such as eBay, Google Checkout, PayPal, etc.) or another online payment system.
Victims of used car scams or any other kind of fraud are encouraged to file a complaint with the NCL at

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Google Reinvents YouTube Again with Premium Video Channels

In 2006, Google (GOOG) bought Internet video powerhouse YouTube for $1.65 billion. The search giant claims the deal was a financial success. Management says that YouTube's revenue rose to nearly $1 billion last year, and it hints that the site may be profitable. But Google doesn't have to break out YouTube as a unit in its quarterly financial statements, and profits within divisions of big firms always depend what expenses the parent assigns. For example, who pays for the video storage and bandwidth costs for YouTube -- the video site or Google?

Google's latest move to boost the site and raise revenues is to create premium video channels on YouTube, several media outlets are reporting. The premium zone would include as many as 20 sections of content, all streamed to TVs, PCs, and portable devices. That makes YouTube's new model sound just like those of nearly every challenger in the premium video market, from Netflix (NFLX) and Comcast (CMCSA) to Amazon (AMZN), Apple (AAPL) and Hulu.

Google has battled with content-creating companies in the past. Viacom (VIA) sued YouTube for copyright infringement to the tune of $1 billion. Some observers thought that the legal action would ruin YouTube, but a federal court ruled in favor of Google last year.

Google has one advantage over its competition in the online video race: viewers. According to Comscore, in February, Google video sites had 141 million unique U.S. visitors, and almost all of that traffic was to YouTube. Those visitors accounted for 1.8 billion viewing sessions. No other U.S. video site even came close. So if size matters, Google may be able to get a large share of the premium video content delivery market.

But size may not matter as much as consumers' mindsets. Many people think of YouTube as primarily the online home of grainy, amateur clips of laughing babies, dancing dogs, and music videos. It's a reasonable perception: YouTube has for the most part been a collection of an odd mix of home videos since it was founded. Google will have to change that image if it hopes to get large numbers of consumers to visit YouTube looking for premium video. And old images die hard -- especially on the Internet.

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Sunday, September 4, 2011

Searching for Value on the High Seas

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These aren't good times to be an ocean shipper.

The Baltic Dry Index, which measures the rates charged by bulk transporters such as DryShips (Nasdaq: DRYS) and Diana Shipping (NYSE: DSX), has fallen from a peak above 4,000 in May to 1,043 today. It has declined by nearly 60% just in the past three months, and it's taken the share prices of many fleet operators down with it.

The following companies have fallen between 12% and 40% in the past year and are likely to report some pretty ugly numbers in the coming quarters. But if you look past the near future, you may find some considerable long-term value in owning a carefully selected ocean carrier. Most now trade for significantly less than the price of their ships, and many can be had for less than the cash flow they generated over the past three years, which was a depressed environment to begin with. And things just may be on the cusp of turning around.

A new beginning?

Company Name

Market Cap

Price/3-Year Average OCF



52-Week % Performance

DryShips $1.5 billion 3.67 0.52 97% (12%)
Diana Shipping $945 million 4.80 0.85 30% (12%)
Navios Maritime (NYSE: NM) $492 million 4.32 0.48 219% (22%)
Genco Shipping (NYSE: GNK) $403 million 1.64 0.37 163% (40%)
Excel Maritime (NYSE: EXM) $378 million 1.93 0.23 70% (19%)
Eagles Bulk Shipping (Nasdaq: EGLE) $256 million 2.46 0.39 174% (18%)
Paragon Shipping (NYSE: PRGN) $161 million 2.09 0.33 72% (30%)

Data from Yahoo! Finance, Morningstar, and author's calculations. As of 1/30/11.

Even as commodities have continued their strong performance, dry bulk shipping has suffered from a confluence of woes. For starters, the worldwide cargo shipping fleet is estimated to grow by 18% this year, and that forecast has sparked fears of oversupply. It also hasn't helped that Australia, a major exporter of iron and coal, has seen its exports hampered by excessive flooding. Analysts have estimated that these floods may eventually cause more than 30 percentage points of decline in the Baltic Dry.

With any luck, these matters will be temporary, and they will shortly blow over. Some observers are expecting a new record in goods shipped this year, and so long as the demand for commodities continues to soar, shippers should work through this eventually.

Granted, there are considerable risks. Investors looking to navigate through these waters should know that high levels of debt are all too common in this industry. Small changes in value therefore have a disproportionate equity effect. It's also difficult in such an environment to keep up with debt payments during prolonged periods of slowdown.

The industry has also become heavily dependent on China. The Chinese consume more than 50% of the world's iron ore and import more than one 150 million tons of coal each year to satisfy their domestic demand. A slowdown in China could very quickly bring with it a drop in shipping demand.

But despite the potential headwinds, one has to get excited about these historically cheap valuations. Many of these businesses trade at only a fraction of their five-year average price-to-book values. Investors believing in the strength of commodities may find that with a little bit of due diligence, an investment in the shipping industry may turn into a profitable adventure.

For related Foolish content:

Keep up with the latest Foolish coverage of shipping stocks, or any other stocks you'd like to follow. Just add the stocks you're interested in to My Watchlist.

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The Frugal Consumer: Three Classic Home Theater Films for Teens

The U.S. economy is recovering, but stagnant incomes mean family budgets are tighter, with less money left for entertainment. And if you're a parent of teenagers, you may not have as much discretionary cash as you once did to spot them $30 or $40 every week for a night out at the movies with a date or friends.

But that creates a dilemma: How does a family stay within its budget without having the young adults conclude that their lifestyle is more austere than the that of the Puritans?

Here's one option: Consider bringing the movie home to the teens via a home theater system. If you have a big-screen TV with a decent pair of speakers, you're halfway there.

If your teens balk at the option, ask them to try it for just one night. Odds are, after a test drive, they'll make it a regular event.

But for it to work, you'll need the second half of the equation: A great movie that young adults will like. Unfortunately, this takes a little research, because Hollywood hasn't produced too many gems lately. Don't fret: The research has already been done here. Listed below are three classic movies -- all available on DVD for less than $15 -- that should please the younger crowd.

Three Screen Gems for Teens

American Graffiti (1973). Genre: Romantic/Comedy. Stars: Ron Howard, Richard Dreyfuss. Most teens probably will balk at the thought of watching this film, but recommend it to them, anyway. More than likely, after a few minutes, they'll be 100% engrossed in the movie. Director George Lucas' tribute to his youth in the early 1960s in California's car culture is a masterpiece, combining a brilliant script, issues that teens can identify with (dating, impressing friends, social pressures, growing up), humor, and a classic rock 'n' roll soundtrack. Produced by Francis Ford Coppola, this box office blockbuster redefined how soundtracks are applied to films. Teens who have heard of it but never seen it may dismiss it as "a really old film," but after viewing it, most will probably change their verdict to "I didn't know it was a really good film."

Jaws (1975). Genre: Thriller. Stars: Roy Scheider, Richard Dreyfuss, Robert Shaw. Director Steven Spielberg's adaptation of Peter Benchley's novel is almost certain to keep the teens riveted to the screen. True, the special effects are basic compared to today's technology, but very little else is mediocre in this blockbuster ocean-faring thriller that literally left many Americans scared to swim in the ocean that summer. Jaws has many themes young adults will find appealing: the beach, generational conflict, and the price one pays to do the right thing in the face of social or political pressure. More than likely, your teens will be engrossed from the first few notes of the film's legendary score.

Titanic (1997). Genre: Epic/Romance/Disaster. Stars: Leonardo DiCaprio, Kate Winslet. Director James Cameron combines a love story with social commentary in a fictionalized account of the tragic 1912 ocean liner disaster. The development of the relationship between the supercool DiCaprio and the striking Winslet offers more than enough to interest teens, and the pageantry of the age combined with the film's spectacular visuals should also impress. Note: Given its length (three hours), it's best to schedule an intermission.

OK -- the hard work is done. Now ask your teen to invite their crew over on a Friday or Saturday night, tell them to turn off the smart phones and computers for a couple hours, and enjoy.

Just remember to make a lot of popcorn.

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Free Water Bottle From Victoria's Secret

free water bottleGet a free water bottle from Victoria's Secret when you log in or register this week for PINK Nation, a sub-brand of the lingerie chain, and buy any PINK item in the store. Offer ends April 11, 2011. Your log-in for Victoria's Secret won't work, unfortunately. Click on the link above, then click on the words JOIN in blue on the left side of the screen.

Enter your name, address, and email to sign up. You can opt into receiving PINK Nation's email and texts if you choose. The form also asks for your birth date, college (PINK is geared towards students), graduation date, and your top and bottom sizes -- but this information is not required to join. I received an email confirmation within minutes, which had a link to print the coupon for a free water bottle.

The coupon will have your name on it and a cashier may ask you for ID to verify.

Caveats: Online, catalog, and factory outlet purchases are not valid for the free water bottle. One per person while supplies last. Valid at U.S. stores only. Photocopies not accepted.

Check back later today and through the week for more great freebies at WalletPop.

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Equitable Life: outcome not so equitable for all policyholders

The company says any policyholder who invested �10,000 into Equitable 15 years ago would now have savings worth a modest �14,000. By taking the one-off bonus this would rise to �16,000.

Equitable says it expects to pay out �40m to 30,000 policyholders during the first year, but in reality many more are likely to take advantage of the offer, having been trapped in their low-paying investments for many years.

Whilst this is good news for some people, it serves to remind us of those who were not so lucky.

Paul Weir, of the Equitable Members Action Group (Emag), said the money is a "drop in the ocean compared to the �6bn people have lost over the past two decades". The bonus has also come too late for the thousands of Equitable policyholders who have already died.

Let's just hope ministers and regulators prevent anything like this ever happening again.

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Saturday, September 3, 2011

Kudos To Paul Ryan And The GOP For Acknowledging Our Budget Mess

Rep. Paul Ryan's (R-WI) plan to cut the budget deficit makes some laughable assumptions and leaves many questions unanswered:
Namely, where the $4.4 trillion of the $6.2 trillion of "savings" are going to come from.

Ryan doesn't have the balls to actually specify these cuts: He just proposes capping federal spending at 20% of GDP. In the absence of specifics, saying that the plan will save $6.2 trillion over 10 years is misleading.

But Ryan and the Republicans deserve a lot of credit for at least acknowledging the huge fiscal mess the United States is in and proposing specific long-term remedies for dealing with it.

For the last several years, the United States has acted as though it can have everything forever: All the services and benefits everyone wants while also cutting taxes. The country's $1.6 trillion ANNUAL deficit, combined with debt approaching 100% of GDP (which doesn't even factor in future healthcare and Social Security liabilities) reveal that this is a pipe dream. (See: A Short Course On Why The US Is Screwed)

What can't go on forever won't. Our leaders have a duty to acknowledge the problem and propose a way out--even if the solutions are temporarily unpopular.

(That's what true leadership is, by the way: Doing the right thing even when it's unpopular, and finding a way to get folks to follow and support you because you can make them understand that it's the right thing).

The Republicans and Paul Ryan are at least taking steps in this direction. They are acknowledging our problem and proposing concrete steps to deal with it.

The Democrats, meanwhile, are just stuffing their heads in the sand.

This year's budget negotiations are pretty much irrelevant. Whether this year's budget cuts $30 billion of spending or $60 billion, the savings will be a rounding error on the overall deficit.

The Democrats have yet to even acknowledge the massive long-term problem the country faces, let alone propose to solutions to it.

We understand and respect the concern about whacking the budget in the midst of a fragile recovery--it's a valid one. If the Democrats were defending the minor cuts in this year's budget by proposing them in conjunction with a compelling long-term plan, we'd be more sympathetic.

As it is, we can only conclude the following: The Democrats are still dreaming of a perpetual free lunch. (And they'll do and say anything to get re-elected.)

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