History > 2008 > USA > Economy (VI)

Oil hits record

over $143 on Iran-Israel tensions

Mon Jun 30, 2008
1:55pm EDT
Reuters

NEW YORK (Reuters) - Oil prices hit a record high above $143 a barrel on Monday as mounting tensions between Iran and Israel stirred supply concerns.

U.S. crude was up 65 cents at $140.86 a barrel by 1:30 p.m. EDT, as weak U.S. oil demand pulled prices off a record high $143.67 hit earlier. London Brent crude gained 57 cents to trade at $140.88 a barrel.

The U.S. Energy Information Administration revised downward U.S. April oil demand by 863,000 barrels per day to 19.77 million bpd -- 3.9 percent below year-ago levels -- as surging fuel costs erode demand in the world's top consumer.

The revision showed April demand was the lowest for the month since April 2002, and came even before prices scaled to new highs in June.

"This revision of the U.S. oil demand for April has certainly put pressure on crude futures. This is demand destruction before our very eyes," said Phil Flynn of Alaron Trading. "This is a huge revision, and it happened when (fuel) prices were still lower, so you can expect that there could be more future downgrades in demand data."

Crude prices rushed to a fresh high on the weaker dollar and escalating tensions between Iran, a member of the Organization of Petroleum Exporting Countries, and Israel over Tehran's nuclear program.

Iran's Revolutionary Guards said Saturday Tehran would impose controls on shipping in the Persian Gulf and Strait of Hormuz, if it were attacked. Roughly 40 percent of the world's traded oil flows though the narrow waterway separating Iran from the Arabian Peninsula.

The U.S. Navy's Fifth Fleet said on Monday the United States and its allies would not allow Iran to hamper shipping in the Gulf. Iran's foreign minister said Sunday he did not believe Israel was in a position to attack.

Tehran's dispute with the West over its nuclear development program has supported oil's steep rise this year, as has an influx of cash from investors seeking to hedge against inflation and the slumping U.S. dollar.

Oil prices have jumped nearly seven-fold since 2002 as part of a broader commodities rally sparked by surging demand from emerging economies like China and India.

"Demand from the investment side has been boosted by problems in the financial sector as well as a desire for diversification," said Frances Hudson, investment director and strategy and asset manager for Standard Life Investments.

"Also, inflation concerns encourage investment in real assets, such as oil and gold."

Inflation in the euro zone rose to a record high of 4 percent in June, data showed Monday.

Oil prices have risen more than 40 percent this year, extending a six-year rally, in response to the Middle East tensions, plus expectations that supply will struggle to keep pace with rising demand from emerging economies such as China and India.

Saudi Oil Minister Ali al-Naimi reiterated his country's position that oil prices were being driven mostly by speculation and said the OPEC kingpin was prepared to supply all the oil its customers needed.

The heads of some of the biggest oil companies, gathered at an oil conference in Madrid, said fundamentals, not investor flows, were the main driver of prices.

"This is a fundamental signal. This is not about speculation," said Tony Hayward, chief executive of BP Plc.

(Reporting by Matthew Robinson, Gene Ramos, Robert Gibbons in New York; Jane Merriman in London; Fayen Wong in Perth; Editing by Walter Bagley)

Oil hits record over $143 on Iran-Israel tensions, R, 30.6.2008, http://www.reuters.com/article/newsOne/idUST14048520080630

Crude Oil Continues Its Climb

June 28, 2008
The New York Times
By THE ASSOCIATED PRESS

Oil futures climbed briefly to a new record above $142 a barrel Friday on expectations that the weakening dollar, a major factor in crude’s stratospheric rise, will extend its decline and add to oil’s appeal.

Retail gas prices inched lower overnight, but are likely to resume their own trek into record territory now that oil futures have broken out of the trading range where they had been for nearly 3 weeks.

Light, sweet crude for August delivery rose as high as $142.26 a barrel in premarket electronic trading on the New York Mercantile Exchange before pulling back to trade up $1.05 at $140.69 in late morning trading. On Thursday, the contract shot past $140 and rose more than $5 to a new settlement record.

Oil rose Thursday in part on comments by OPEC officials; the organization’s president predicted prices will rise further, and a top Libyan oil official suggested his nation may cut production.

Meanwhile, traders were coming around to the belief that the dollar, whose long decline has contributed greatly to oil’s dramatic advance this year, will continue to weaken.

The stock market’s recent swoon is also sending investors in search of higher-yielding investments. On Thursday, the Dow Jones industrial average fell nearly 360 points to its lowest level since September 2006 on a combination of worries about oil prices and the financial, automotive and technology sectors.

“The renewed attraction of commodities as an investment vehicle is contrasting with the unattractiveness of the stock market,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill., in a research note.

“When money has nowhere to go, it is parked in commodities as it is one of the few investment instruments that actually rises the more money you pour into it,” said Oliver Jakob, an analyst at Petromatrix Gmbh, in Switzerland in a note.

In other New York trading Friday, July gasoline futures rose 1.64 cents to $3.5277 a gallon, and July heating oil futures rose 3.53 cents to $3.9187 a gallon. August natural gas futures rose 10.2 cents to $13.35 per 1,000 cubic feet.
 

Michael Grynbaum in New York contributed reporting.

    Crude Oil Continues Its Climb, NYT, 28.6.2008, http://www.nytimes.com/2008/06/28/business/28oil.html

Letters

Our Corner of the American Dream

June 27, 2008
The New York Times

To the Editor:

Re “Home Not-So-Sweet Home” (column, June 23):

A renting retiree who used to be a homeowner, I can appreciate Paul Krugman’s point that home ownership is not for everyone. Indeed, rock music is not for everyone (I prefer Mozart), nor is eating meat, using public transportation or having a pet. Everyone’s situation is unique, requiring thoughtful decisions based on what we believe is best for us and our families.

I would have said it a bit differently: it is not so much home ownership that we need to look at, but rather the crowd mentality that seems to have afflicted us. When a particular way of being is deemed “better” by the media, too many of us get sucked into going along rather than expending the effort necessary to think things through.

David Zinkin
Princeton, N.J., June 23, 2008

•

To the Editor:

As a 59-year-old woman who has owned a home for the last seven years but rented in the San Francisco Bay area for two decades before that, I read Paul Krugman’s column with interest.

Yes, yes, yes, I completely agree that the stigma should be removed from renting. But for renting to be just as good as ownership in other ways, real conditions in which renters are forced to live would have to improve as well.

Neighborhoods would have to be safer, and some sort of controls that would protect tenants from arbitrary rent increases and forced evictions for the landlord’s convenience and/or profit would have to be in effect.

As an owner, I now know what my monthly mortgage payment will be for the next 25 years, and I know that as long as I make that payment, nobody will decide for me when I have to move.

Patti Wiley
Davis, Calif., June 23, 2008

•

To the Editor:

Homeownership is the safety net for the middle class. We no longer have job security. Increasingly, we worry about keeping our health insurance and sending our children to college.

Until we as a country can find better ways to assist dislocated workers, ensure access to health care and send our children to college without impoverishing ourselves in the process, people will continue to aspire to own their own homes, even though — as Paul Krugman points out — it may not always make sense to do so.

Karen FitzGerald
Silver Spring, Md., June 24, 2008

•

To the Editor:

Paul Krugman vastly overstates the financial risk of becoming a homeowner.

The peak of the housing bubble from 2005 through early 2007 was a wildly atypical period for home buyers, many of whom jumped into the market because of rapidly rising home values, low interest rates and lax mortgage underwriting. Whether those buyers end up losing their entire financial stake in those homes that many, especially in the hottest markets, were able to buy with little or no money down depends upon when they sell them.

Today’s downturn will eventually come to an end, and prices will once again begin to rise.

It’s always a mistake to compare housing with the stock market. First and foremost, the vast majority of Americans buy a home as a place to live even though they can also expect their home equity to grow into their most important financial asset. As a confessed homeowner himself, Mr. Krugman must know the difference.

Mr. Krugman is right to suggest that renting opens up a healthy range of housing options, and he is to be commended for advocating on behalf of the nation’s renters. But even in a difficult housing downturn, Americans do aspire to become homeowners, and now more than ever, they deserve the continuation of policies that enable them to realize that goal.

Jerry Howard
Chief Executive, National
Association of Home Builders
Washington, June 25, 2008

•

To the Editor:

How does one “own” a home, or a car, for that matter, if he is still paying for it, and it will be taken away if he stops?

Paul Hartman III
Sacramento, June 23, 2008

•

To the Editor:

Paul Krugman’s observations about our uncritical bias in favor of home ownership and the resulting widespread attitude toward home renters as second-class citizens calls to mind an exchange I had several years ago while ordering a pizza.

When I told the delivery dispatcher my address, she asked, “Is that an apartment or a home?”

I still don’t know what the right answer would have been, though the pizza did arrive.

James Bloom
Bethlehem, Pa., June 23, 2008

    Our Corner of the American Dream, NYT, 27.6.2008, http://www.nytimes.com/2008/06/27/opinion/l27krugman.html

Worries About Banks Send Markets Falling

June 27, 2008
The New York Times
By MICHAEL M. GRYNBAUM

Stocks on Wall Street took a sharp plunge on Thursday after a discouraging report on the prospects of the nation’s biggest brokerage firms. The Dow Jones industrial average fell more than 300 points to its lowest level of the year.

A report from Goldman Sachs predicted a new round of write-downs at Citigroup and Merrill Lynch, and downgraded Citi to a strong “sell” rating.

Shares of Citi slipped 4.8 percent; Merrill Lynch shares were down 5.8 percent.

The sell-off in brokerage firms helped push the Dow down 2.2 percent, past its intraday low for the year. The blue-chip index is now lower than it was at the height of the Bear Stearns debacle.

A downgrade of General Motors also put pressure on stocks. Shares of G.M. were off by 10 percent in midday trading. Shares of Ford were down 3.8 percent

The broader Standard & Poor’s 500-stock index slipped 2.2 percent, or 29 points, and the technology-heavy Nasdaq composite index was off 2.6 percent.

Many investors had hoped that the investment banks had suffered the worst of the credit squeeze. But Goldman’s report, released Thursday morning, downgraded the entire brokerage sector to “neutral,” a sign of decreasing confidence that set of investors’ already-frayed nerves.

Some had hoped that shares of financial services firms would begin to recover after nearly a year of painful sell-offs.

Instead, shares fell again, with Bank of America, JPMorgan Chase and Lehman Brothers all trading lower.

It also became more expensive to guard against the risk of default on bonds from investment banks. Spreads on credit default swaps widened for most of the major brokerage firms, an indication decreased confidence in the financial stability of Wall Street’s marquee names.

Goldman itself suffered a downgrade at the hands of Wachovia, which said the bank faced a poor outlook over the summer.

Shares of G.M. declined after an analyst at Goldman Sachs cut the company’s rating, and wrote that the car market could get even worse.Also adding pressure to the markets was the price of crude oil. In New York, oil was trading up about $5.20, to $139.75 a barrel. The euro gained against the dollar. Yields fell on the major Treasury notes, a sign that investors are moving to the relative safety of government bonds.

    Worries About Banks Send Markets Falling, NYT, 27.6.2008, http://www.nytimes.com/2008/06/27/business/27stox.html?hp

Oil Prices Jump on OPEC Statements

June 26, 2008
Filed at 2:36 p.m. ET
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- Oil futures shot above $140 Thursday after OPEC's president said oil prices could rise well above $150 a barrel this year and Libya said it may cut oil production.

Light, sweet crude for August delivery rose as high as $140.05 in afternoon trading on the New York Mercantile Exchange before retreating slightly to trade up $5 at $139.55.

Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said he believes oil prices could rise to between $150 and $170 a barrel this summer before declining later in the year. Khelil said he doesn't think prices will reach $200 a barrel.

Khelil joins a long list of forecasters who have made bold oil price predictions this year. Each new forecast -- such as Goldman Sachs' recent prediction that prices could rise as high as $200 -- causes a jump in prices as speculative buyers are drawn into the market.

Meanwhile, the head of Libya's national oil company said the country may cut crude production because the oil market is well supplied, according to news reports.

''Shokri Ghanem, the nation's top oil official, declined to say when a decision would be made on whether to lower production, or give any indication of the size of the cut under consideration,'' said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

Oil's move above $140 a barrel was the first for what's known as a front-month crude contract, or the contract with the earliest expiration date. But it was not the August contract's first foray above $140 -- August crude futures rose as high as $140.42 a barrel while July futures were still traded as the front-month crude contract. Many other later contracts have also traded above $140.

The previous trading record for a front-month contract was $139.89, set by the July contract on June 16.

    Oil Prices Jump on OPEC Statements, NYT, 26.6.2008, http://www.nytimes.com/aponline/business/AP-Oil-Prices.html

Fed Keeps Rates Steady, but Notes Inflation Worries

June 26, 2008
The New York Times
By LOUIS UCHITELLE

Caught between inflationary pressures and a weakening economy, the Federal Reserve’s policy makers voted on Wednesday to deal primarily with the weakening economy by keeping interest rates at their present level.

The decision to hold at 2 percent the key short-term federal funds rate — which affects what consumers pay for mortgages, car loans and other credit — brought to a halt a stream of rate cuts since August, reductions that brought the fed funds rate to its lowest level since November, 2004.

The halt signaled concern among policy makers that they might have to reverse course by the end of the year if rising oil prices push up the prices of goods and services across the economy. So far, apart from significant increases in food and energy, that has not happened.

Still, the Fed, in its statement after the meeting, expressed greater concern about inflation than it had after its last meeting in April.

“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased,” the statement said. “The committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

In the statement, the Fed said that it expected inflation to moderate later this year and next year, but “in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.”

Yet, the statement said: “Labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction and the rise in energy prices are likely to weigh on economic growth over the next few quarters.”

The decision was widely expected on Wall Street, where the major stock indexes showed little reaction. An initial spurt just after the announcement quickly dissipated.

The Fed’s decision came as reports this week showed that home prices and consumer confidence continued to decline as foreclosures multiply. There have been signs that the economy might be stabilizing, but the latest data suggested that the economy was still unwinding. A rising unemployment rate and shrinking payrolls as employers shed workers have reinforced the impression of an economy still in need of help.

“I don’t think we are out of the woods yet, and I don’t think the Fed does either,” said Lyle E. Gramley, a former Fed governor who is now a senior adviser at the Stanford Washington Research Group.

Trying to revive the economy, the Fed has cut interest rates to its present level of 2 percent from 5.25 percent in August, doing so at each of its policy meetings and at emergency sessions between meetings in the early days of the crisis over the credit markets.

The reductions have helped. The economy has continued to grow, although not by much. But it has avoided the outright contraction that marks a recession. And the Fed’s new lending practices, hastily put together last fall, has channeled loans not only to banks, to encourage them to continue lending, but to investment houses that otherwise might collapse.

In the midst of this rescue process, surging oil prices have threatened to raise the inflation rate and the Fed policy makers, starting with the chairman, Ben S. Bernanke, recognized this problem in recent speeches, suggesting to Wall Street that the Fed might raise rates. The policy makers, however, “were surprised by the intensity of the market’s reaction,” as Ian Sherpherdson, chief United States economist for High Frequency Economics, put it in a newsletter.

And Nigel Gault, chief domestic economist at Global Insight, added: “At this point most of Wall Street wants low rates because the financial sector is in trouble and low rates help that sector.”

So the Fed’s policy makers backed off in subsequent comments, signaling that they would not raise rates in the near term, thus making credit more expensive, or lower them, an indication that 2 percent is low enough to stimulate spending on credit even in a weak economy.

“They are trying to balance concerns about growth against inflation risks,” Mr. Gault said, “and their answer for the moment, from most of the policy makers, is that the inflation risk is not big enough to warrant raising rates right now.”

The Fed, in holding rates steady, has placed less importance on inflation than the European Central Bank. Jean Claude-Trichet, the bank’s president, has indicated that the European bank may raise short-term rates at its meeting in July. The European economy, which has not been as hard hit by the housing slowdown and the tight credit market, has been generally stronger than America’s, which has helped to make fighting inflation a greater priority.

Nevertheless, Mr. Bernanke has often expressed his concern that failure to act or to signal the Fed’s determination to suppress inflation would raise “inflationary expectations,” which means that the public comes to expect prices to keep rising and acts accordingly. This was an issue in the late 1970s, when companies raised prices and workers demanded and received wage increases. Another price increase set off another round of rising wages and in resulting wage-price spiral, inflation got out of hand — until the Fed, led then by Paul A. Volcker, suppressed it with huge rate increases that pushed the economy into a steep recession.

This time, many economists say, a wage-price spiral is not possible because workers lack the bargaining power, particularly the union bargaining power, to push up wages. Indeed, they have stagnated in recent years.

“There isn’t a wage-price spiral,” Mr. Gault said. “The public might come to expect a rising inflation rate, but it isn’t likely to have much influence on wage setting.”

    Fed Keeps Rates Steady, but Notes Inflation Worries, NYT, 26.6.2008, http://www.nytimes.com/2008/06/26/business/26fed.html?hp

White House: U.S. economy resilient long term

Tue Jun 24, 2008
12:56pm EDT
Reuters

WASHINGTON (Reuters) - The White House said on Tuesday, after data showing U.S. consumer confidence fell to a 16-year low, the long-term resiliency of the U.S. economy was very strong.

"We know that Americans are concerned about the economy, we have been concerned about the economy," White House spokeswoman Dana Perino said.

But she also said it was going to take a while for the economic stimulus package to take effect and for that to be reflected in economic data, such as retail sales.

"We are confident that it will have the impact that we thought it would toward the latter half of the year. We believe that the long-term resilience of our economy is very strong," Perino said.

(Reporting by Tabassum Zakaria)

    White House: U.S. economy resilient long term, R, 24.6.2008, http://www.reuters.com/article/newsOne/idUSWBT00926120080624

House prices, consumer confidence dive

Tue Jun 24, 2008
1:23pm EDT
Reuters
By Lynn Adler

NEW YORK (Reuters) - Consumer sentiment slid to a 16-year low in June while house prices suffered record annual drops in April, according to data Tuesday that suggested a retrenchment in spending that will keep squelching economic growth.

The Conference Board's monthly survey of consumers showed the overall index of consumers' mood fell to 50.4 in June, the lowest since 47.3 in February 1992.

The index has now dropped by more than half since 111.90 last July, before the housing market troubles triggered the most severe credit crisis in at least a decade.

"To put it in perspective, that's a bigger decline than what we saw after the September 11 attack and Hurricane Katrina," said Dana Saporta, economist at Dresdner Kleinwort Securities.

"It sends out the signal that the consumers are not about to ramp up their spending," she said. "We worry about the contraction in the economy once the tax rebates dissipate."

In addition, the survey showed an index measuring consumer expectations for the future sank to a record low as inflation forecasts matched an all-time high this month.

The inflation threat has been highlighted in the past 24 hours by massive price increases announced by some of the world's largest basic materials conglomerates.

First, mining titan Rio Tinto secured an agreement with China's largest steel maker to nearly double the price Rio gets for iron ore, and rival producer BHP Billiton is expected to follow through with similar price hikes.

Then early Tuesday, Dow Chemical Co. said it would raise prices up to 25 percent, just weeks after the largest U.S. chemicals maker implemented a 20 percent across-the-board price increase.

U.S. home prices in April, meantime, extended their record annual slump in April although the pace of decline subsided a bit in the month, according to Standard & Poor's/Case-Shiller data.

S&P's 20-city index for April posted a smaller-than-expected 1.4 percent drop from March, but it also slumped by a record 15.3 percent annually and by 17.8 percent since hitting its peak in July 2006.

By another measure, the Office of Federal Housing Enterprise Oversight, which gauges prices based on relatively low risk loans purchased by Fannie Mae and Freddie Mac, said its home price index fell 0.8 percent in April from March for a 4.6 percent annual downturn.

Both housing reports suggest consumers will be less in the mood to ramp up spending any time soon.

However, U.S. Treasury Secretary Henry Paulson said on Tuesday he thought that most of the slump in U.S. housing prices would be over by year end and that growth should be stronger by then.

In an interview on Mexican television, Paulson said the global economy was being strained by costly energy but said U.S. economic fundamentals were sound.

"I feel moderately optimistic that at the end of the year we will have signs of an economic recovery," Paulson said. "Hopefully the biggest part of the housing decline will be over by the end of the year."

(Additional reporting by Richard Leong and Burton Frierson in New York and Glenn Somerville and Jason Lange in Cancun, Editing by Chizu Nomiyama)

    House prices, consumer confidence dive, R, 24.6.2008, http://www.reuters.com/article/newsOne/idUSN2433847420080624

Op-Ed Columnist

Home Not-So-Sweet Home

June 23, 2008
The New York Times
By PAUL KRUGMAN

“Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.

Oops. While homeownership rose as the housing bubble inflated, temporarily giving Mr. Bush something to boast about, it plunged — especially for African-Americans — when the bubble popped. Today, the percentage of American families owning their own homes is no higher than it was six years ago, and it’s a good bet that by the time Mr. Bush leaves the White House homeownership will be lower than it was when he moved in.

But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting!

Even Democrats seem to share the sense that Americans who don’t own houses are second-class citizens. Early last year, just as the mortgage meltdown was beginning, Austan Goolsbee, a University of Chicago economist who is one of Barack Obama’s top advisers, warned against a crackdown on subprime lending. “For be it ever so humble,” he wrote, “there really is no place like home, even if it does come with a balloon payment mortgage.”

And the belief that you’re nothing if you don’t own a home is reflected in U.S. policy. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own.

In effect, U.S. policy is based on the premise that everyone should be a homeowner. But here’s the thing: There are some real disadvantages to homeownership.

First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.

This isn’t a hypothetical worry. From 2005 through 2007 alone — that is, at the peak of the housing bubble — more than 22 million Americans bought either new or existing houses. Now that the bubble has burst, many of those homebuyers have lost heavily on their investment. At this point there are probably around 10 million households with negative home equity — that is, with mortgages that exceed the value of their houses.

Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

And these are not the best of times. Right now, economic distress is concentrated in the states with the biggest housing busts: Florida and California have experienced much steeper rises in unemployment than the nation as a whole. Yet homeowners in these states are constrained from seeking opportunities elsewhere, because it’s very hard to sell their houses.

Finally, there’s the cost of commuting. Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.

There are, of course, advantages to homeownership — and yes, my wife and I do own our home. But homeownership isn’t for everyone. In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners.

O.K., I know how some people will respond: anyone who questions the ideal of homeownership must want the population “confined to Soviet-style concrete-block high-rises” (as a Bloomberg columnist recently put it). Um, no. All I’m suggesting is that we drop the obsession with ownership, and try to level the playing field that, at the moment, is hugely tilted against renting.

And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.

    Home Not-So-Sweet Home, NYT, 23.6.2008, http://www.nytimes.com/2008/06/23/opinion/23krugman.html?ref=opinion

Gas prices climb to record $4.10

Mon Jun 23, 2008
1:25pm EDT
Reuters
By Martinne Geller

NEW YORK (Reuters) - Gasoline is costing U.S. drivers a record $4.10 per gallon on average, but pump prices may be at a peak and could start to come down, an industry analyst said on Sunday.

That optimism is linked to a pledge by Saudi Arabia to pump more oil in response to consumer countries' requests, according to Trilby Lundberg, editor of the nationwide Lundberg survey of about 7,000 gas stations.

"I suspect that oil prices have peaked and will flip further because of this news and the physical addition of more oil on the market in July," Lundberg said. "This gives a strong chance that pump prices are peaking now, or may already have done so."

A barrel of oil has doubled in price over the past year, stoking inflation, triggering protests from Asia to Europe, and compounding the financial pain of U.S. consumers already grappling with a sagging housing market, job uncertainty and soaring food costs.

Top officials, policy makers and oil company executives met on Sunday in Jeddah, Saudi Arabia, for emergency talks on how to bring prices down.

"Crude oil prices may spike at any moment from existing trouble in areas including Nigeria, or from some unforeseen hit to global supply," Lundberg said. "This may sound optimistic, (but) it seems likely at this moment as the meeting in Jeddah, Saudi Arabia is being concluded, that oil prices may have peaked and may drift down."

One common reason cited for the rise of oil prices is soaring demand from developing economies such as India and China, whose emerging middle classes are gobbling up more oil.

Lundberg said it was unclear whether other countries with fuel subsidies would follow China's lead and cut them in efforts to cap demand.

Demand in the United States has fallen about 1 percent year-to-date, though it is closer to 2 percent lower in recent weeks, Lundberg said.

Prices at the pump vary across the country. The luckiest drivers live in Tulsa, Oklahoma, where the city average was $3.76 per gallon, the nation's lowest. At the other end, Los Angeles and Fresno, California, were tied for the nation's most expensive gasoline, with the city averages reaching $4.59 per gallon of regular grade gasoline.

On June 20, U.S. crude closed at $134.71 per barrel, up from $68.19 a year ago.

(Editing by Phil Berlowitz)

    Gas prices climb to record $4.10, R, 23.6.2008, http://www.reuters.com/article/domesticNews/idUSN2244992620080623

Ford Delays Pickup as Big Vehicle Slump Hurts Outlook

June 21, 2008
The New York Times
By NICK BUNKLEY

DEARBORN, Mich. — The Ford Motor Company said on Friday that it would delay introducing its new pickup truck and that it will probably lose money for a fourth consecutive year in 2009 because of the slowdown in demand for large vehicles.

Ford said it would begin selling the highly anticipated 2009 version of the F-150 pickup in late fall, two months later than intended, so that dealers would have more time to clear out the current model. In addition to the delay, the company said it would build 90,000 fewer trucks in the second half of the year than it had previously planned, while increasing production of cars and crossovers that are more fuel-efficient.

“As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industry-wide auto sales slowing further and demand for large trucks and S.U.V.’s at one of the lowest levels in decades,” Ford’s chief executive, Alan R. Mulally, said in a statement. “Ford has taken decisive action to respond to this accelerating shift in customer demand away from large trucks and S.U.V.’s to smaller cars and crossovers, and we will continue to act swiftly moving forward.”

For the second time in a month, Ford issued a warning about next year’s financial results. “Unless the economy improves, it will be difficult for Ford to break even companywide on a pretax basis in 2009, excluding special items,” the statement said. In May, executives had abandoned Ford’s long-held goal of becoming profitable in 2009, predicting a break-even performance.

The automaker said the market had deteriorated to such a degree that its financing arm, Ford Motor Credit, which has been a dependable source of profit, would lose money this year.

Losses from automotive operations would be worse this year than in 2007, the statement said, the opposite of its previous guidance. Ford lost $2.7 billion overall in 2007 and has not earned a full-year profit since 2005.

Ford Credit will have a pre-tax loss — excluding any potential payment related to Ford’s profit maintenance agreement — primarily because of further weakness in large truck and S.U.V. auction values. Ford Credit is no longer is planning a distribution payment to Ford in 2008.

Shares of Ford fell nearly 6 percent, to $5.96, in morning trading.

The F-150 delay increases the likelihood that the F-series will lose its distinction as the best-selling vehicle in the United States after 31 consecutive years. In May, four Japanese sedans, led by the Honda Civic, outsold the F-series, the first time in 16 years that a pickup truck was not the top seller in any given month. Sales of the F-series fell 33 percent last month and are down 20 percent so far this year.

Ford has spent several years and hundreds of millions of dollars, if not billions, overhauling the F-150, which has generated huge profits and is responsible for a large part of Ford’s image. It is one of two new full-size pickups scheduled to go on sale this fall, along with Chrysler’s 2009 Dodge Ram.

Chrysler executives said they had no plans to delay the Ram’s launch.

“There’s no better way to fight a slower pickup market than to introduce what we think is a game-changing truck,” a Chrysler spokesman, Bryan Zvibleman, said.

General Motors announced earlier this month that it would close four truck plants in North America, and more recently has decided to pull back on plans to revamp its pickups and S.U.V.’s in order to focus attention on smaller cars.

Because of the precipitous drop in demand for trucks, Ford said it now expected total industry sales to be 14.7 million to 15.2 million vehicles, down from its previous projection of at least 15 million.

Analysts say the first three weeks of June have been particularly dismal, with J.D. Power and Associates estimating that sales are equal to an annualized rate of 12.5 million vehicles, the worst in at least 15 years.

In response, Ford is shutting its truck plant in Wayne, Mich., for nine weeks starting Monday, though the adjacent car plant, which builds the fast-selling Focus sedan, is adding a third shift and increasing the speed of its assembly line.

The company will eliminate a shift at each of the two plants that build the F-150, in Kansas City and Dearborn. The Dearborn plant will be idle for “most of the third quarter,” Ford said. Meanwhile, a sport-utility vehicle plant in Louisville will lose a shift in the third quarter.

In contrast, shifts will be added to a plant in Ontario that builds crossover vehicles and to the assembly line in Kansas City that builds Ford’s most fuel-efficient S.U.V.’s, including hybrid versions.

“We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand,” Mr. Mulally said. “In the near term, we are adjusting production to the actual demand — increasing small cars and crossovers and reducing large trucks and S.U.V.’s. For the long term, we are moving fast to introduce more small cars, crossovers and fuel-efficient powertrains — including more hybrids.”

    Ford Delays Pickup as Big Vehicle Slump Hurts Outlook, NYT, 21.6.2008, http://www.nytimes.com/2008/06/21/business/21ford.html?hp

Oil Nears $140 a Barrel; Weak Dollar Cited

June 17, 2008
The New York Times
By THE ASSOCIATED PRESS

Oil futures are hitting a new milestone near $140 a barrel, a dramatic surge analysts attributed to the weakening dollar. The surge comes even despite expectations that Saudi Arabia, the world’s biggest oil exporter, was planning to increase its output by about a half-million barrels a day.

Light, sweet crude for July delivery rose to a trading record of $139.89 a barrel Monday, but retreated slightly to trade up $3.45 at $138.31 a barrel on the New York Mercantile Exchange.

The dollar fell on a weak report on New York state manufacturing activity, analysts said. Many investors buy commodities like oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies.

Many analysts believe the dollar’s protracted decline is a major factor behind oil’s doubling in price over the last year.

Plans by Saudi Arabia to increase production could bring its output to a level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest ever. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices.

Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.

While they are reaping record profits, the Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy.

    Oil Nears $140 a Barrel; Weak Dollar Cited, NYT, 17.6.2008, http://www.nytimes.com/2008/06/17/business/worldbusiness/17oil.html

Foreclosures Rose Again in May

June 14, 2008
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON — The number of homeowners swept up in the housing crisis rose last month, with foreclosure filings up nearly 50 percent compared with a year earlier, a foreclosure listing company said Friday.

Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month a year ago and up 7 percent from April, the listing company, RealtyTrac, said.

One in every 483 households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-consecutive monthly record.

Foreclosure filings increased from a year earlier in all but 10 states, with Arizona, California, Florida, Michigan and Nevada having the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for 9 of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing economy has left financially strapped homeowners with few options to avoid foreclosure.

Rick Sharga, RealtyTrac’s vice president for marketing, said foreclosures were unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels.

About 50 to 60 percent of borrowers who receive foreclosure filings will probably lose their homes, Mr. Sharga said. The rest are likely to be able to sell or refinance.

    Foreclosures Rose Again in May, NYT, 14.6.2008, http://www.nytimes.com/2008/06/14/business/14mortgage.html

Oil and Food Push Consumer Prices Higher in May

June 14, 2008
The New York Times
By MICHAEL M. GRYNBAUM

Inflation hit hard in May as prices for a wide swath of consumer goods rose at their fastest pace in six months, underscoring warnings from central bankers and adding to a growing consensus that the Federal Reserve might raise interest rates by the end of the year.

The Consumer Price Index, which measures prices of a batch of common household products, rose 0.6 percent last month, as Americans were forced to cope with a sharp increase in fuel costs. The report, released Friday by the Labor Department, is considered a benchmark measure of inflation.

On Wall Street, the major stock indexes rose after the report, with the Standard & Poor’s 500-stock index up 1.3 percent before 10:30 a.m. The Dow Jones industrials gained more than 140 points.

The index, which rose more than economists had forecast, comes on the heels of repeated warnings about inflation from the world’s central banks. Ben S. Bernanke, the chairman of the Fed, joined other top officials this week in focusing on higher prices, citing the economic damage wrought by the record run-up in food and oil prices around the world.

The speeches have fueled a growing sense on Wall Street that the Fed has shifted its focus from supporting growth to fighting inflation. The May C.P.I. will probably heighten expectations that higher interest rates, which tend to hold down prices, may be in the offing.

In May, gasoline prices rose 5.2 percent, and were up 21 percent compared with a year ago, according to the report. They may rise again in June: the nationwide average for gasoline topped $4 a gallon last weekend as the price of oil leaped to a new high.

The cost of eating rose, as well, as Americans paid 5 percent more for foods and beverages in May than a year ago.

On an annual basis, inflation worsened for the first time in three months, reversing a downward trend. Inflation ran at 4.2 percent in May compared with a year ago.

High oil prices also pushed up costs for other products, as businesses, squeezed by higher shipping and production costs, sought to raise the prices paid by their customers. Prices for transportation, commodities, tobacco and utility fuels all increased for the month. Excluding the cost of food and gasoline, inflation ran at 0.2 percent for the month.

“Both consumers and financial market participants are becoming sensitized to large headline price rises, and were especially ready this month amid heightened inflation anxiety,” Peter Kretzmer, an economist at Bank of America, wrote in a note.

Consumers, however, do not appear content with rising prices. A measure of Americans’ confidence in the economy fell to its lowest level since 1980, another period of high inflation and slow growth. The University of Michigan’s consumer confidence survey dropped to 56.7 in June, the fifth consecutive month of decline.

    Oil and Food Push Consumer Prices Higher in May, NYT, 14.6.2008, http://www.nytimes.com/2008/06/14/business/14econ.html?hp

Stocks Rise on Retail Sales Figures

June 13, 2008
The New York Times
By MICHAEL M. GRYNBAUM

Wall Street warmed to strong sales numbers on Thursday, as stocks moved higher on a sign of some resilience in the primary engine of the economy.

The Dow Jones industrials gained 170 points, erasing its losses for the week, after the Commerce Department reported that retail sales rose more than expected last month.

“The sharp improvement in May was clearly driven by receipt of the first wave of tax rebate payments,” Joshua Shapiro, chief United States economist at the research firm MFR, wrote in a note. “These payments will continue to be a positive factor for the consumer in the next couple of months.”

Some economists remained skeptical that May’s sales bump would continue.

“Once one begins to look over the horizon for a catalyst to support consumption, all that remains is a stressed consumer whose purchasing power is rapidly being reduced by the ravages of inflation,” Joseph Brusuelas, an economist at Merk Investments, wrote in a note.

But even as Americans headed to the mall, they faced higher prices when they got there. A separate measure of import prices rose sharply in May, driven up by expensive oil and the comparatively weak dollar.

That report will play into the fears of inflation that have been aired by Federal Reserve policy makers over the last few weeks. A rise in import prices offers further evidence that Americans are being pressured by higher prices, with little letup expected in the coming months.

Though Wall Street rallied on the developments — the broad Standard & Poor’s 500-stock index was up more than 1 percent before noon — the data could open the door for the Fed to raise interest rates or keep them steady over the next few months. The yield on the two-year Treasury bond, a gauge for investors’ interest rate expectations, was up more than a tenth of a percentage point, a relatively big one-day rise.

Rate increases tend to curb inflation, but shut off economic growth. The retail sales report is considered a good gauge for consumer spending, which accounts for more than two-thirds of the nation’s economic activity. Last month’s pickup in sales suggested that the economy may be resilient enough to withstand a rise in rates.

Sales of retail goods and services rose 1 percent last month, twice the expected increase. Sales were strongest at gasoline stations, a likely result of the record gain in oil prices during the survey period. But sales at general merchandise outlets, which can include thrift shops and dime stores, climbed 1.2 percent, evidence that Americans were trying to cut down on more expensive items.

The government also revised up its estimates for previous months, reporting that April sales increased 0.4 percent, compared with an initial drop of 0.2 percent, and March sales went up 0.5 percent, compared with an earlier reading of a 0.2 percent increase.

The better-than-expected report may be tempered by last month’s surge in the price of imports. In a separate report on Thursday, the Labor Department said that import prices rose 2.3 percent in May after a 2.4 percent rise in April.

Compared with readings a year earlier, import prices have grown by nearly 18 percent; excluding oil, the rise was 6.6 percent. Energy products fueled much of the increase, with petroleum imports gaining 7.8 percent last month.

A separate report from the Labor Department showed that the number of workers who filed first-time claims for unemployment benefits rose 25,000, to 384,000, in the week ended June 7.

The Commerce Department also said that business inventories rose 0.5 percent in April, up from 0.2 percent in March. Retailers and wholesalers reported the biggest gains in inventories, while manufacturers stayed flat.

    Stocks Rise on Retail Sales Figures, NYT, 13.6.2008, http://www.nytimes.com/2008/06/13/business/13econ.html?hp

Lehman Posts Loss and Plans to Raise Capital

June 10, 2008
The New York Times
By JENNY ANDERSON and LOUISE STORY

Lehman Brothers, seeking to ally concern that it might become the next Wall Street bank to founder, said Monday that it would raise $6 billion to shore up its weakened finances.

The move came as the investment bank stunned Wall Street with news that it had lost $2.8 billion in the second quarter, its first loss since going public in 1994. The deficit far exceeded even the most pessimistic forecasts and reflected a triple blow of soured assets, bad trades, and hedges that were supposed to cushion losses but instead added to them.

The developments mark a stark turnabout for the scrappy Lehman, which had repeatedly assured shareholders that it was managing its risks well. Many investors have feared for Lehman’s health since Bear Stearns collapsed, and the red ink at the bank could fuel the debate over whether Lehman, one of the smallest players on Wall Street, can survive as an independent firm.

“I am very disappointed in this quarter’s results,” Richard S. Fuld, Lehman’s chairman and chief executive, said in a statement.

Erin Callan, Lehman’s chief financial officer, said Monday that the bank had moved aggressively to reduce its leverage and bolster confidence among its investors. In addition to raising fresh capital by selling common stock and convertible preferred shares, Lehman has sold about $130 billion in assets since April, Ms. Callan said on a conference call.

"It’s designed to end the chatter of Lehman Brothers, and let us get back to business," Ms. Callan said of the new capital. Lehman does not expect to sell more assets or raise more money, she said.

Such assurances aside, Lehman may not be out of the woods. The firm has been engaged in a very public battle with short-sellers who have questioned the way Lehman values many illiquid assets, like residential and commercial mortgages, and who have questions on the aggressive leverage the firm has engaged in.

Investors were particularly concerned about Lehman’s leverage level considering its small equity base. In a statement, the firm said it reduced gross leverage to 25 from 31.7 — borrowing $25 for every $1 of equity — at the end of the first quarter and reduced net leverage to less than 12.5 from 15.4.

But after seemingly weathering the storm in the credit markets, Lehman now joins the ranks of banks like Merrill Lynch and Citigroup, which have suffered billions of dollars of write-downs and have been forced to raise tens of billions of dollars in capital. Moody’s Investors Service downgraded its outlook on Lehman to negative from stable on Monday, citing insufficient hedges and continued exposure to troubled sectors. Fitch Ratings cut Lehman’s credit rating to A+ from AA-.

Lehman’s shares were off $2.90, or about 9 percent, to $29.39 at 1 p.m. They are down more than 50 percent this year.

Hedges that saved Lehman Brothers billons early this year either failed to work during the second quarter, leaving the firm to take its losses, or worked against it, meaning the bank lost money both on the value of the assets and the hedges.

For example, in the first quarter, Lehman’s gross mark-to-market adjustments — the write-downs the firm faced in light of declining asset values — totaled $4.7 billion. But hedges on residential mortgages and commercial mortgage-related positions allowed the firm to post net write-downs of only $1.8 billion.

In the most recent quarter, the net write-down was $3.7 billion — more than the gross write-down of $3.6 billion. The worst-performing hedge was on commercial mortgage-related positions: asset values lost $700 million but ineffective hedging resulted in a total net write-down of $1.1 billion (in the first quarter the gross write-down was $1.1 billion and the net only $700 million).

On Monday’s conference call, Ms. Callan said counterparties to Lehman’s trades were not pulling out, refuting statements by others that Lehman might lose money in the quarter because of some of its trading partners back out.

Last Thursday, Brad Hintz, the banking analyst at Sanford Bernstein and former chief financial officer at Lehman, lowered his estimate for Lehman’s third- and fourth-quarter earnings each by 11 cents per share, writing: “Confidence concerns about any broker will have a negative impact on the firm’s bottom line. Fixed-income counterparties become more discerning about which LEH subsidiaries they will trade with.”

When analysts asked Ms. Callan about its hard-to-value assets, known as Level 3 assets, she said she could not say whether they would be down this quarter. She said some assets would move to Level 3 categorization this quarter.

William F. Tanona, an analyst at Goldman Sachs, predicted that Lehman’s stock would fall as investors digested the unexpected loss, but would recover as the day wore on as short sellers covered their positions.

“Today’s results were far worse than anyone had anticipated,” he wrote. “Results were plagued by continued write-downs and ineffective hedges.”

    Lehman Posts Loss and Plans to Raise Capital, NYT, 10.6.2008, http://www.nytimes.com/2008/06/10/business/10lehman.html?hp

Dow Rebounds as Oil Prices Decline

June 10, 2008
The New York Times
By ABHA BHATTARAI

Oil prices retreated in volatile trading on Monday, helping the Dow Jones industrial average bounce back from its big losses on Friday. But a larger-than-expected loss from Lehman Brothers added to continued concerns about credit markets.

The Dow Jones industrial average, which took its biggest hit in 15 months on Friday, was up 89.48, or 0.7 percent, to 12,299.29, at 12:30 p.m.

The Standard & Poor’s 500-stock index gained 0.4 percent, while the Nasdaq composite index, after opening slightly higher, was down 0.7 percent.

More upbeat news came Monday with an unexpected increase in pending home sales in April. The National Association of Realtors reported the highest reading in the index since October, though it remains more than 13 percent below a year ago.

A record one-day surge in the price of oil on Friday, to more than $138 a barrel, helped send markets into a tailspin. The three main indexes were down 3 percent or more, with the Dow dropping almost 400 points.

Analysts said the stock market’s slight gains on Monday were not cause for celebration.

“If you take a cat and throw it off the top of a building, it’ll bounce off the street but that doesn’t mean it’s alive,” said Marc Chandler, who oversees currency strategy at Brown Brothers Harriman. “This is partly a dead cat bounce, and it’s partly because investors are thinking Friday went too far too fast.”

Investors were keeping an eye on oil prices, which pulled back on Monday. West Texas intermediate crude for July delivery was down $3 shortly after 10 a.m., then recovered most of those losses before heading down again. At 11 a.m., it was at $136.80, down $1.74.

Bruce Bittles, an investment strategist at Robert W. Baird & Company, said the drop in oil prices was “not significant.”

“What’s happening right now is to be expected after Friday’s brutal beating,” he said. “I don’t think you can read too much into the action right now.”

Traders were also watching Lehman Brothers, which announced an unexpected $2.8 billion loss and said it planned to raise $6 billion in capital. Its shares were down about 9 percent, to $29.40, at loss of $2.89, shortly after noon. They are down more than 50 percent this year.

    Dow Rebounds as Oil Prices Decline, NYT, 10.6.2008, http://www.nytimes.com/2008/06/10/business/10stox.html

Bush says strong dollar in U.S. interest

Mon Jun 9, 2008
9:43am EDT
Reuters
By Tabassum Zakaria

WASHINGTON (Reuters) - U.S. President George W. Bush acknowledged economic concerns as he left for Europe on Monday, saying the United States was committed to a strong dollar and that energy prices were high.

"I'll talk about our nation's commitment to a strong dollar. A strong dollar is in our nation's interests. It is in the interests of the global economy," Bush said at the White House before departing for a U.S.-European Union summit in Slovenia.

The dollar tumbled on Friday after a jump in the unemployment rate underscored the U.S. economy's weakness and was a factor that contributed to the biggest one-day price gain in the history of the oil market. Oil surged by nearly $11 a barrel to a record above $139.

Europeans are concerned about the dollar's weakness and have urged the Bush administration to speak up more forcefully in defense of the U.S. currency.

Since oil is priced in dollars, Europeans blame some of their inflation pressures on the dollar's weakening value and fear the cheap dollar will make their products more expensive in U.S. consumer markets.

Bush will discuss the economy with European leaders during his June 9-16 trip, which will include stops in Germany, Italy, France and Britain.

"Our economy is large and it's open and flexible," Bush said. "Our capital markets are some of the deepest and most liquid. And the long-term health and strong foundation of our economy will shine through and be reflected in currency values."

He said he recognized the public was concerned about the U.S. economy in the face of rising energy prices.

"A lot of Americans are concerned about our economy," Bush said. "I can understand why. Gasoline prices are high, energy prices are high."

He said he would discuss with European allies the need to advance technologies to become less dependent on hydrocarbons. Bush reiterated his stance that the United States should increase domestic oil production and that Congress should allow drilling in Alaska's Arctic National Wildlife Refuge.

Record-high oil prices have raised concerns about the impact on the U.S. economy, which is barely growing. The U.S. unemployment rate jumped to 5.5 percent in May, its highest in more than 3-1/2 years, contributing to renewed fears that the U.S. economy was at risk of sliding into recession.

"The U.S. economy has continued to grow in the face of unprecedented challenges," Bush said.

"We got to keep our economies flexible. Both the U.S. economy and European economies need to be flexible in order to deal with today's challenges," he said.

Bush said he also would discuss with European allies the need to do more to help Afghanistan. His wife, Laura, visited Afghanistan during the weekend and reported that she saw progress but also "there's a lot of work to be done," Bush said.

(Editing by Bill Trott)

    Bush says strong dollar in U.S. interest, R, 9.6.2008, http://www.reuters.com/article/politicsNews/idUSN0944596220080609

EYES ON THE ROAD

By JOSEPH B. WHITE

Top Car Dealer Says High Gas Prices Are Good for the U.S. Auto Industry

AutoNation CEO Says Increase Will Drive Demand For Hybrids, Electric Cars and Other Alternatives

June 9, 2008
The Wall Street Journal

Detroit's big auto makers are slashing jobs, closing factories and undertaking costly revamps of their product strategies to cope with $4 a gallon gas. What's the worst thing that could happen now? Gas could get cheap again, says the man who runs America's biggest auto retailer.

"For once we actually have viable alternatives and exciting technology that are really game changers" in the effort to wean transportation from petroleum, says Mike Jackson, chairman and chief executive officer of AutoNation Inc. "However, if the price of petroleum goes down … it undercuts the viability of new technology."

"You have to tell the American people the truth," he says. "Energy costs will be higher."

It might seem odd that America's leading car salesman would want gasoline prices to stay high, given how much damage the recent surge in pump prices has done to demand for the big sport-utility vehicles and pickups that once powered sales at many AutoNation stores.

But Mr. Jackson's point of view about energy policy and the auto industry isn't based on concerns about this month's sales. What has him worried, he says, is that in the future he -- and by extension the whole auto industry -- will be stuck trying to make sense of a fundamentally incoherent national energy strategy, which was mirrored by the seemingly incoherent product strategies that the big U.S. auto makers were pursuing until $130 a barrel oil blew them up.

Readers, over to you: If you had a big SUV or pickup would you be getting rid of it now? Discuss.Mr. Jackson confronts a daunting challenge trying to read American culture and make intelligent bets about what consumers will want to drive.

If he looks in one direction, he sees a widespread consensus that, for a combination of environmental and national security reasons, Americans should consume less oil. To that end, Americans want the auto industry to speed production of electric vehicles and high-mileage, gasoline-electric hybrids, while substantially improving the mileage of conventional oil-powered cars.

Here's the big news: The auto industry finally appears willing and eager to respond.

It's entirely possible that a decade from now, we'll realize that this was a pivotal moment in the auto industry's history. This could be the moment when a century of relying almost exclusively on petroleum to power personal mobility gives way to a new model, in which electricity powers our transportation.

Indeed, there's a case that consumers who want to buy into the next generation of transportation technology shouldn't buy a new car until 2010 or 2011. By then, General Motors Corp. has promised to deliver its hybrid-electric Chevrolet Volt; Nissan Motor Corp. has said it will begin offering electric cars; Honda Motor Co. and several European manufacturers have promised to launch in the U.S. new, advanced, high-mileage clean diesel cars; and Toyota Motor Corp. might have a whole family of hybrid vehicles based on the next generation Toyota Prius.

A gaggle of small companies such as Norway's Think Global AS and Silicon Valley's Tesla Motors Inc. are all gearing up to expand the electric vehicle market if the big guys won't. But the excitement over projects like the Tesla Roadster can't compare to the significance of the shift in mindset among the people who run the world's biggest auto companies. This isn't a crowd given to green idealism, but they have come to the conclusion that remaining totally shackled to petroleum is bad for business and are re-gearing their future vehicle plans accordingly.

But when Mr. Jackson looks in the other direction he sees a widespread consensus that Americans shouldn't have to pay $4 a gallon or more for gasoline, and a Congress that in an election year has put driving down gas prices at the top of its agenda.

Further, he confronts the inertia of more than half a century of automotive marketing investment in teaching consumers that size and power are what make a vehicle desirable, and worth more money.

Mr. Jackson, like others of his baby boom generation, remembers well what happened in the 1980s, after the last big oil price shock. Through a combination of conservation and new production, the U.S. turned the tables on the oil producers. Gas prices plunged, sales of gas guzzlers took off and the table was set for the crisis the U.S. auto industry faces today.

"We are highly skilled at selling size, horsepower and speed at a premium price, and giving away fuel efficiency," Mr. Jackson says. "Now, going forward over the next 10 years we are going to have to convince consumers why they should pay more for a smaller engine…or some new technology that is going to give them a tremendous benefit on fuel efficiency. That's a completely new world for us."

"I'm a good car salesman," Mr. Jackson says. "If I have high gas prices and an open-minded consumer, it's very doable. There is a connection between their needs and what we have to offer them. If we have cheap gasoline, it's mission impossible."

    Top Car Dealer Says High Gas Prices Are Good for the U.S. Auto Industry, WSJ, 9.6.2008, http://online.wsj.com/article/SB121276760051852173.html?mod=hpp_us_inside_today

Rural U.S. Takes Worst Hit as Gas Tops $4 Average

June 9, 2008
The New York Times
By CLIFFORD KRAUSS

TCHULA, Miss. — Gasoline prices reached a national average of $4 a gallon for the first time over the weekend, adding more strain to motorists across the country.

But the pain is not being felt uniformly. Across broad swaths of the South, Southwest and the upper Great Plains, the combination of low incomes, high gas prices and heavy dependence on pickup trucks and vans is putting an even tighter squeeze on family budgets.

Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.

People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.

The disparity between rural America and the rest of the country is a matter of simple home economics. Nationwide, Americans are now spending about 4 percent of their take-home income on gasoline. By contrast, in some counties in the Mississippi Delta, that figure has surpassed 13 percent.

As a result, gasoline expenses are rivaling what families spend on food and housing.

“This crisis really impacts those who are at the economic margins of society, mostly in the rural areas and particularly parts of the Southeast,” said Fred Rozell, retail pricing director at the Oil Price Information Service, a fuel analysis firm. “These are people who have to decide between food and transportation.”

A survey by Mr. Rozell’s firm late last month found that the gasoline crisis is taking the highest toll, as a percentage of income, on people in rural areas of the South, New Mexico, Montana, Wyoming and North and South Dakota.

With the exception of rural Maine, the Northeast appears least affected by gasoline prices because people there make more money and drive shorter distances, or they take a bus or train to work.

But across Mississippi and the rural South, little public transit is available and people have no choice but to drive to work. Since jobs are scarce, commutes are frequently 20 miles or more. Many of the vehicles on the roads here are old rundown trucks, some getting 10 or fewer miles to the gallon.

The survey showed that of the 13 counties where people spent 13 percent or more of their family income on gasoline, 5 were located in Mississippi, 4 were in Alabama, 3 were in Kentucky and 1 was in West Virginia. While people here in Holmes County spent an average of 15.6 percent of their income on gasoline, people in Nassau County, N.Y., spent barely more than 2 percent, according to the survey.

Economists say that despite widespread concern about gasoline prices, the nationwide impact of the oil crisis has so far been gentler than during the oil crises of the 1970s and 1980s, when shortages caused long lines at the pump, set off inflation and drove the economy into recession.

Americans on average now spend about 4 percent of their after-tax income on transportation fuels, according to Brian A. Bethune, an economist at Global Insight, a forecasting firm. That compares with 4.5 percent in early 1981, the highest point since World War II. At its lowest point, in 1998, that share dropped to 1.9 percent.

“Gas prices have doubled over the last year but the economy has not fallen off the cliff,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “But for the rural lower income people, as a proportion of their income the rise of gas prices is very high.”

While people everywhere are talking about gasoline prices these days, some folks in Tchula (the T is silent) have gone beyond talking.

Anthony Clark, a farm worker from Tchula, says he prays every night for lower gasoline prices. He recently decided not to fix his broken 1992 Chevrolet Astro van because he could not afford the fuel. Now he hires friends and family members to drive him around to buy food and medicine for his diabetic aunt, and his boss sends a van to pick him up for the 10-mile commute to work.

A trip from Tchula to the nearest sizable town about 15 minutes away can cost him $25 roundtrip — for the driving and the waiting. That is about 10 percent of what he makes in a week.

Taking a break under some cottonwood trees beside a drainage ditch filled with buzzing mosquitoes, Mr. Clark and members of his work crew spoke of the big and little changes that higher gas prices have brought. The extra dollars spent at the pump mean electric bills are going unpaid and macaroni is replacing meat at supper. Donations to church are being put off, and video rentals are now unaffordable.

Cleveland Whiteside, who works with Mr. Clark and used to commute 30 miles a day, said his Jeep Cherokee was repossessed last month, because “I paid so much for gas to get to work I couldn’t pay my payments anymore.” His employer, Larry Clanton, has lent him a pickup truck so he can get to work.

Signs of pain and adaptation because of the cost of gas are everywhere. Local fried chicken restaurants are closing because people are eating out less. At the hardware store here, sales have plummeted to $30 a day from $250 a day a month ago.

“Money goes to gasoline — I know mine does,” said the hardware store’s manager, Pam Williams, who tries to attract customers by putting out choice crickets for fishing bait beside the front door.

Local governments are leaving grass high along the roads and doing fewer road repairs to save on fuel costs. The Holmes County government has cut the work week to four days to give workers gasoline relief (keeping the same total of hours), and politicians are even considering replacing sanitation workers with prison inmates on some shifts to conserve money for fuel.

The local price for a gallon of regular unleaded gasoline was roughly $3.85 last week, slightly below the national average, but the median family income in Holmes County is about $18,500.

Nationwide, regular unleaded gasoline reached an average of $4.005 on Sunday, according to the American Automobile Association. That is the highest price ever and about a dollar higher than at the start of the year.

While looking to cut workers at his fish processing plant in nearby Isola, Miss., Dick Stevens, president of Consolidated Catfish Producers, said that 10 workers walked into his office last week and volunteered to take a buyout rather than continue commuting from Charleston, Miss., 65 miles away. “The gas ate them alive,” he said.

Workers at the plant are trying to find ways to cope. Josephine Cage, who fillets fish, said her 30-mile commute from Tchula to Isola in her 1998 Ford Escort four days a week is costing her $200 a month, or nearly 20 percent of her pay.

“I make it by the grace of God,” she said, and also by replacing meat at supper with soups and green beans and broccoli. She fills her car a little bit every day, because “I can’t afford to fill it up. Whatever money I have, I put it in.”

Sociologists and economists who study rural poverty say the gasoline crisis in the rural South, if it persists, could accelerate population loss and decrease the tax base in some areas as more people move closer to urban manufacturing jobs. They warn that the high cost of driving makes low-wage labor even less attractive to workers, especially those who also have to pay for child care and can live off welfare and food stamps.

“As gas prices rise, working less could be the economically rational choice,” said Tim Slack, a sociologist at Louisiana State University who studies rural poverty. “That would mean lower incomes for the poor and greater distance from the mainstream.”

    Rural U.S. Takes Worst Hit as Gas Tops $4 Average, NYT, 9.6.2008, http://www.nytimes.com/2008/06/09/business/09gas.html?hp

Gasoline pump price relief nowhere in sight

Mon Jun 9, 2008
1:39pm EDT
Reuters
By Chris Baltimore and Tom Doggett

WASHINGTON (Reuters) - Average U.S. gasoline pump prices -- already above $4 a gallon -- could run up 20 cents or more by mid-summer, if crude oil prices don't fall from record levels near $140 a barrel, analysts said.

Gasoline prices are up about a third from a year ago, heaping pressure on a U.S. economy beleaguered by falling home values, a sagging dollar and an anemic job market. Oil prices have risen six-fold in the past 6 years and are up 40 percent since January.

Travel group AAA reported national average retail gasoline prices over the weekend hit $4 a gallon for the first time ever.

There are more gasoline price increases lurking in the fuel delivery chain, especially if U.S. refiners are able to boost historically low profit margins and pass more of their soaring crude oil costs along to consumers.

"There is still a very big upside potential to gasoline prices, because refining margins are not anywhere near where they were a year ago," said Fadel Gheit, an analyst with Oppenheimer & Co.

"By the middle of July, if oil prices don't go lower, we are going to see another pop of at least 20 cents," Gheit said of gasoline retail prices.

U.S. crude settled up $10.75 at $138.54 a barrel on Friday, after touching an all-time high of $139.12, in its biggest gain in dollar terms on record. U.S. oil futures were lower on Monday at about $136.50 a barrel.

If Friday's jump were fully priced into retail gasoline prices, they would increase about 25 cents a gallon, Gheit said.

So far, that hasn't happened because low demand for gasoline, as well as a mandate for refiners to use corn-blended ethanol, has kept U.S. refining margins weak, he said.

According to Credit Suisse, a U.S. Gulf Coast refinery can make about $16.03 from turning a barrel of oil into gasoline and other products. That's down from $28.59 a year ago.

So far, profit incentives to produce gasoline are so anemic that major refiners like Valero Energy Corp are shutting down gasoline-making equipment.

"They are all cutting (gasoline production) because they say they are not in the business of losing money," Gheit said. "They are not running a charity for the truckers and the motorists."

Oil prices could top $150 a barrel by July 4, one of the busiest U.S. travel holidays, as strong demand in Asia triggers a slowdown in shipments of crude to the United States, investment bank Morgan Stanley said last week.

A $150 oil price would equate to about $4.50 a gallon for gasoline, if refinery profit margins hold steady, according to Tancred Lidderdale, an analyst with the federal Energy Information Administration.

"It will be going higher," Lidderdale said about the national pump price. "The price will be going up, and it all depends on the price of crude oil." Crude oil prices comprise more than 70 percent of gasoline prices.

Such estimates vary, however. According to analysts at the Oil Price Information Service, a $150 oil price would yield a retail pump price in a range of $4.32 to $4.37 a gallon.

Consumption in the United States already has shown signs of faltering, even as the world's top consumer enters the summer vacation season, when gasoline demand generally peaks.
 

(Editing by Walter Bagley)

    Gasoline pump price relief nowhere in sight, R, 9.6.2008, http://www.reuters.com/article/GCA-Oil/idUSN0947606920080609

Gasoline rises above $4 a gallon for first time

Mon Jun 9, 2008
11:31am EDT
Reuters
By Bernard Woodall

LOS ANGELES (Reuters) - The U.S. average price for a gallon of regular gasoline topped $4 for the first time, a survey issued on Sunday by the travel group AAA showed.

AAA's survey showed a national average price of $4.005 per gallon, up from $3.67 a month ago and $3.10 a year ago.

Average national gasoline prices had stabilized last week before Thursday and Friday's spike of U.S. crude oil futures by $16 to a record above $139 a barrel. Friday's one-day gain of $10.75 for crude oil was the biggest daily gain in history, and Thursday's gain was the second biggest.

A year ago, U.S. crude was trading at $66 per barrel. Since then, a weakening dollar and the chances of violence in oil-producing nations such as Iran have pushed oil prices higher.

The record crude and gasoline prices have taken a bite out of U.S. motor fuel demand and cut sales of gas-guzzling pickup trucks and sport utility vehicles in favor of smaller cars that use less fuel per mile, said Geoff Sundstrom, AAA's fuel price analyst.

"It's looking like the late 1970s or the early 1980s," said Sundstrom referring to increased sales of smaller vehicles. And available now but not decades ago are hybrids, which run on both electricity and gasoline.

"AAA expresses the same degree of shock and concern that consumers all over the United States are feeling as gasoline prices reach this very high level," said Sundstrom. "The upcoming national presidential and congressional elections ought to reflect the concern in the policy debates that are about to take place."

While Americans cringe at the price of gasoline, they are still paying far less than drivers in many nations, including most European countries. Britain, France and Germany each have average gasoline prices that are at least double the average price in the United States, according to the U.S. Energy Information Administration.

REDUCING GAS CONSUMPTION

A survey issued last week found that 74 percent of Americans would change their driving habits if gasoline were to top $4 per gallon.

If gasoline prices hit $5 a gallon, 85 percent of Americans would cut out nonessential driving, consolidate errands, carpool, walk or bike, according to the survey by Ipsos Public Affairs.

Gasoline price analyst Trilby Lundberg's biweekly survey issued on Sunday also showed a national average for regular at $4 per gallon.

"If crude oil prices stay at nearly $139 a barrel, a 30-cent rise (for a gallon of gas) over the next few weeks is possible," said Lundberg, whose publication surveys about 7,000 gasoline stations.

EIA chief Guy Caruso told a Reuters Global Energy Summit last week that the average price for U.S. regular could peak at $4.10 a gallon this month if oil prices are in the $120 to $125 per barrel range.

Investment bank Goldman Sachs analyst Arjun Murti told Barron's oil is likely to rise to $150 to $200 per barrel, but he said $200 was not sustainable because such prices would deeply cut global demand.

At $200 a barrel, Murti said, U.S. gasoline prices would be $5.75 per gallon.

Alaska on May 14 became the first U.S. state to reach $4 for average gasoline. On Sunday, California, with a statewide average for regular gasoline at $4.436, had the highest price among the 50 U.S. states and the District of Columbia.

The AAA survey showed Connecticut and Alaska tied for the second-highest, at $4.296 per gallon. Missouri was the lowest at $3.80.

Prices in some U.S. cities have been above $4 per gallon for months. And mid-grade and high-grade gasoline has been over $4 a gallon for weeks or months in many parts of the United States.

(Editing by Cynthia Osterman)

    Gasoline rises above $4 a gallon for first time, R, 9.6.2008, http://www.reuters.com/article/domesticNews/idUSN0643890320080609

Oil's record jump defies single explanation

Mon Jun 9, 2008
7:37am EDT
Reuters
By Alex Lawler - Analysis

LONDON (Reuters) - Oil's record jump to $139 a barrel at the end of last week defies any single explanation, although some leading analysts and producers predict the price could yet go higher.

Crude jumped $10.75 on Friday to $139.12, taking two-day gains to more than $16. Some put the move down to comments by an Israeli minister about a possible attack on Iran, the world's fourth-largest producer.

Others cited strong oil market fundamentals.

"There is a strong fundamental baseline to all of this," said Kevin Norrish, oil analyst at Barclays Capital. "On top of that, Iran has come back onto people's radar screens."

Iran's dispute with the West over Tehran's nuclear work had until last week faded in importance to oil investors, although the comments from Israel's transport minister Shaul Mofaz sparked a scramble to buy.

Banks such as Goldman Sachs and Barclays are prominent among those saying oil market fundamentals are a key factor in rising prices. Producers, including OPEC, tend to blame factors other than supply, such as speculation.

Citigroup, in a note on Monday, said the broader themes behind oil's latest jump were probably disappointing growth in supply and robust world demand, and prices could rally even further.

World demand, while crimped by record prices, is still expected to rise by about 1 million barrels per day (bpd) this year, while supply from producers outside OPEC is at risk of posting no growth, the bank said.

"Until clear evidence emerges that demand is moving towards negative territory in absolute terms, a break of the bull run in oil is unlikely," the bank said.

MARKET MANIA?

For some, oil's jump last week defies explanation and is comparable to financial market bubbles of the past, such as the 1990s dot-com boom.

"If anyone tries to spin a rational explanation as to what transpired last Thursday and Friday in the energy complex, then just tune them out or better yet, punch them in the nose," analysts The Schork Report said.

That aside, others in the market pointed to a renewed bout of dollar weakness for fuelling last week's price jump.

European Central Bank President Jean-Claude Trichet signaled a possible interest rate hike later this year, pushing the single European currency higher against the dollar and sparking oil's latest surge.

Still, those comments could prove bearish for oil should they lead to rate increases by the U.S. Federal Reserve and other central banks, argued John Kemp, economist at RBS Sempra.

"It is far from clear that the confluence of events last week was really bullish for the oil market at all," he said.

The weakness of the U.S. currency has been a major factor behind this year's commodity price gains as dollar-denominated raw materials offer a potential hedge against inflation.

Other explanations for the rally emphasized fundamentals.

According to the International Energy Agency, the lack of a rise in oil inventories in the second quarter -- a time when they usually rise -- and concern about Iran were reasons behind Friday's price jump.

"I think as a result of that we saw a surge of a combination of risk management buying and a reluctance to sell," said Lawrence Eagles, head of the Oil Industry and Markets Division at the Paris-based IEA.

But many oil producers, including the Organization of the Petroleum Exporting Countries and some of the world's largest fully publicly traded oil firms, say supply is enough and blame speculation for rising prices.

OPEC officials have lined up to say the exporter group does not need to pump more and Jeroen van der Veer, head of Royal Dutch Shell Plc, has blamed market "psychology," not shortages, for record prices.

While they cite different reasons for oil's rally than investment banks such as Citigroup and Goldman, some OPEC officials also predict that oil will rally even higher.

"I forecast that by the end of summer the price of oil will reach $150," a senior Iranian oil official, Mohammad Ali Khatibi, was quoted on Sunday as saying.
 

(Additional reporting by Muriel Boselli, editing by Peg Mackey)

    Oil's record jump defies single explanation, R, 9.6.2008, http://www.reuters.com/article/ousiv/idUSL0930489320080609

Crude Leaps Nearly $11, In Fresh Hit to Economy

June 7, 2008; Page A1
The Wall Street Journal
By NEIL KING JR.

Crude oil notched its largest price jump ever on Friday, leaping nearly $11 to more than $138 a barrel, on news of a weakening dollar and continued jitters over the reliability of world supplies.

The surge, coming just as many analysts thought oil prices were set to fall, sent stocks plunging amid fears that the U.S. economy could be in for a combined bout of inflation and slow growth. The skyrocketing price of oil, now up more than 44% so far this year, is battering the airline and auto industries and causing consumers to cut back on driving and nonessential spending.

Oil's dramatic rise helped whip up a day of turmoil for the broader financial and commodities markets. U.S. benchmark crude settled up by a record-setting $10.75, to close at $138.54 on the New York Mercantile Exchange. That jolt is reinvigorating worries that crude prices could ratchet still higher, putting a severe squeeze on many economies around the world and deepening the growing tension between the world's big oil exporters and consuming countries.

Friday's jump -- which was equivalent to the entire price of a barrel of oil in late 1998 -- was fueled in large part by the dollar's sharp fall, with investors snapping up oil as a hedge against the currency's eroding value. Reflecting those inflation fears, other key commodities also resumed rising Friday. Gold, a classic inflation hedge, soared 2.7% to close at $895.40 an ounce, while other metals like copper, which had been slumping, shot up.

But crude's big jump was also driven by other irritants, including a sudden rise in political tempers in the oil-rich Middle East. A senior Israeli official told a prominent Israeli daily Friday that an Israeli attack against Iran was "unavoidable" if Tehran continued to push forward on its controversial nuclear program. Some observers said that single comment, from Transport Minister Shaul Mofaz, may have given oil prices a greater shot of adrenaline than anything else.

"It's one word that did this," said Guy Gleichmann, president of United Strategic Investors Group, a commodities brokerage in Hollywood, Fla. "'Unavoidable.' It's basically saying, 'We're going to attack.'"

Rumors of war with Iran, Mr. Gleichmann said, have often led to a spike of several dollars in the price of oil. The issue had died down for a while, he said, but "this is like Jason coming back from the dead."

Crude's sudden rebound after a week of easing prices left some OPEC officials complaining privately that the market had lost all logic, and was now operating by forces untethered to the realities of supply and demand. Still, the soaring price of crude is sure to ramp up pressure on the Organization of Petroleum Exporting States to weigh a production increase.

The group of 13 major exporters, who supply about a third of the world's demand, haven't formally raised output since last fall, and the group's next planned meeting isn't until September.

One worry weighing on the market, however, is whether OPEC and its dominant member, Saudi Arabia, are really in a position to contribute big amounts of additional oil in a pinch. The group's spare capacity is now unusually thin -- around two million barrels a day in a market of 86 million barrels a day -- and much of that consists of a grade of heavy, sour oil that's less attractive to the market because it yields fewer high-value products such as gasoline.

Before this year, gyrations of the magnitude of Friday's $10 jolt were almost unheard of in an oil market where a $2 or $3 shift in the price of crude used to be headline news.

The apparent irrationality of oil's recent leaps and falls is sure to add fuel to accusations that the price rise is largely the work of market speculators.

The U.S. Commodity Futures Trading Commission announced last week that it had launched an investigation into whether there was evidence of market manipulation in the wholesale trading of petroleum products. The CFTC said Thursday that it is hosting an international gathering of energy regulators in Washington next week to discuss ways "to detect and deter manipulation in the global energy markets."

Some analysts said that Friday's spike might have been driven in part as investors who had placed bets on a fall in prices rushed to buy back oil.

After hitting its previous peak of $133.17 a barrel last month, oil tumbled 8.2% in nine days -- emboldening investors who believed prices would keep falling. Then, on Thursday, the market abruptly lurched upward, wiping out gains investors might have made betting against oil. There was no definitive evidence that panicked so-called short sellers contributed to the rally, but volume in exchange-traded funds used to sell oil short did rise on Friday. Volume in the biggest oil-exchange traded fund, the Energy Select SPDR, hit nearly 47 million shares, almost double its typical pace. But while such trading may have contributed to a surge in activity, it didn't appear to be the main cause of the upward spike, traders said.

At the same time, oil analysts say there are fundamental forces keeping prices high. Despite soaring retail prices, the demand for diesel -- the lifeblood fuel of the world economy -- continues to rise as consumers in places like China and Chile turn to generators to fill in for failing electricity grids.

The investment bank Morgan Stanley is predicting that prices will top $150 a barrel as the U.S. market -- which consumes nearly a quarter of the world's daily output -- confronts tightening supplies of crude. Oil stockpiles in the U.S. have fallen far below the five-year average, a report from the bank points out.

One factor leading to a crimped U.S. market: Persian Gulf suppliers are shipping increased quantities to fast-growing Asia, at a time when exports are falling sharply from two of America's largest suppliers, Mexico and Venezuela.

It takes time for price moves in the futures market to make their way to the pump, so consumers are unlikely to see significantly higher gasoline prices right away. According to the AAA, the national average price for gasoline actually slipped to $3.986 a regular gallon Friday, from a record-high of $3.989 the previous day.

But Friday's move doesn't bode well for drivers in coming weeks. Over the past few months, the refiners who turn crude into gasoline have absorbed part of the rise in oil prices. Cooling fuel demand has made it hard for them to charge more for their products. While crude-oil prices in the spot market have roughly doubled from last year, retail gasoline prices are only about 25% higher. But if refiners have to pay much higher prices for oil, they might resort to finally passing on the full increase in crude to consumers. Refiners could also cut back production, reducing gasoline and diesel supplies and putting pressure on prices.

Many traders began to predict earlier this week that oil was headed downward. They noted that the dollar began to rebound after Fed Chairman Ben Bernanke announced Wednesday that he didn't foresee future U.S. rate cuts, which would tend to weaken the greenback against other currencies. But European Central Bank President Jean-Claude Trichet put a spike through the dollar Thursday when he suggested the European bank could move to raise rates.

Traders lately have tended to flock to buy oil partly as a hedge against the falling dollar, though the two are hardly joined at the hip. U.S. benchmark crude has risen over 40% so far this year, while the dollar is down against the euro just over 6% in the same period.

Even those warning that an oil bubble is about to burst acknowledge that there are also some enduring forces propelling crude higher. In testimony before the Senate Tuesday, billionaire hedge-fund manager George Soros cautioned that commodities prices could soon crash. But he also pointed out the "accelerating depletion" of the world's aging oil fields, and the cost and difficulty of finding new pools of oil, rank among many forces causing jitters in the financial community over future oil supplies.

The ongoing rise in oil prices has increased pressure from producers and their allies to open up areas that have been off-limits to drilling, such as the Arctic National Wildlife Refuge in Alaska and the waters off California and Florida.

J. Larry Nichols, president and chief executive of independent oil and gas producer Devon Energy Corp., renewed that call on Friday. "It just drives home once again how misguided our energy policy has been for the last two decades," Mr. Nichols said.

    Crude Leaps Nearly $11, In Fresh Hit to Economy, WSJ, 7.6.2008, http://online.wsj.com/article/SB121279421263753561.html?mod=special_coverage

Job Losses and Surge in Oil Spread Gloom on Economy        NYT        7.6.2008
 http://www.nytimes.com/2008/06/07/business/07econ.html?hp

Job Losses and Surge in Oil Spread Gloom on Economy

June 7, 2008
The New York Times
By PETER S. GOODMAN

The unemployment rate surged to 5.5 percent in May from 5 percent — the sharpest monthly spike in 22 years — as the economy lost 49,000 jobs, registering a fifth consecutive month of decline, the Labor Department reported Friday.

The weak jobs report, coupled with a staggering rise in the price of oil — up a record $10.75 a barrel to more than $138 — unleashed a feverish sell-off on Wall Street, sending the Dow Jones industrial average down nearly 400 points. The dollar plunged against several major currencies.

Investors’ recent hopes that the United States might yet skirt a recession sank swiftly in the face of gloomy indications that the economy is gripped by a slowdown and pressured by record fuel prices.

For tens of millions of Americans struggling to pay bills, the jobs report added an official stamp of authority to a dispiriting reality they already know: A deteriorating labor market is eliminating paychecks just as they are needed to compensate for the soaring cost of food and fuel, and as the fall in house prices hacks away at household wealth and access to credit.

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and it’s really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”

President Bush acknowledged the jump in unemployment as an indication of “slow economic growth,” but he held out hope that $100 billion in tax rebates now being distributed to American households would spur spending and generate jobs.

"We’re beginning to see the signs that the stimulus may be working," Mr. Bush said during a swearing-in ceremony for the housing secretary, Steven C. Preston.

In a presidential election year in which the economy has emerged as a crucial issue, both major candidates used the employment data as an opportunity to criticize their opponent’s governing philosophy.

“The wrong change for our country would be an economic agenda based upon the policies of the past that advocate higher taxes,” said Senator John McCain, Republican of Arizona, in a written statement. “To help families at this critical time, we cannot afford to go backward as Senator Obama advocates."

Senator Barack Obama, Democrat of Illinois, called the labor report “a reminder that working families continue to bear the brunt of the failed Bush economic policies that John McCain wants to continue,” in a statement. “We can’t afford John McCain’s plan to spend billions of dollars on tax breaks for big corporations and wealthy C.E.O.’s.”

Democrats on Capitol Hill and advocates for the unemployed pointed to the spike in joblessness in arguing for the swift extension of federal unemployment insurance.

Among the 8.55 million people who were unemployed in May, 1.55 million had been unemployed for 27 weeks or longer. Unemployment benefits now expire after 26 weeks. An Iraq war financing bill approved by the Senate includes a provision that would extend cash benefits for an additional 13 weeks.

“It would show a new level of callousness by Congress, a new level of disconnect between Washington and the rest of the country, not to pass an extension now,” said Andrew Stettner, executive director of the National Employment Law Project, an advocacy group.

The White House has said it would veto the bill for imposing deadlines on the withdrawal of troops from Iraq. The administration also argues that jobless benefits should not be extended, with the unemployment rate still low by historical measures. Tony Fratto, a White House spokesman, said Friday’s report did not change that position.

The spike in joblessness significantly cooled talk that the Federal Reserve could stop worrying about recession and might soon begin to raise interest rates to choke off rising prices for crucial goods like gasoline and food.

Since last fall, as fears of recession have grown along with the financial turmoil resulting from falling home prices, the Fed has cut interest rates to encourage investment and spur economic activity. A chorus of economists has warned that the Fed has unleashed too much easy money, feeding inflation and driving down the dollar. Some have suggested the Fed might have to reverse course and raise rates. Not anymore, as the labor market continues to offer up evidence of enduring trouble.

“There’s a greater chance of peace breaking out in the Middle East,” said Mr. Barbera, the ITG economist.

The report fleshed out how economic troubles that began with falling home prices have rippled out to other areas of the economy — to shopping malls, grocery stores and home improvement outlets. As merchants cut payrolls in response to declining business, that takes purchasing power out of the economy, reinforcing a downward spiral of retrenchment.

Professional and business services — which include lawyers, accountants, architects and management consultants — led the way down in May, shedding 39,000 jobs, according to the report. Construction declined by 34,000.

Manufacturing lost 26,000 jobs. Retail payrolls shrank by 27,000 and transportation and warehousing by 10,500. Finance and insurance lost 3,700 jobs, amid continuing worries that more red ink lies in wait for banks.

Sallie Mae, the giant provider of student loans, last month shut an office in Mount Laurel, N.J., eliminating jobs for 160 people, the company said. Among those joining the ranks of the unemployed was Brenda Davis, who earned $17 an hour there, and whose husband is disabled, making her the sole breadwinner.

Given that she worked in the collections department, Ms. Davis figures she carries skills that are always in demand, even in a shrinking market.

“As long as people are going to be in debt, there’s going to be a need for collectors,” she said.

But Ms. Davis’s realm of potential jobs has effectively been shrunk by the price of gasoline. She commuted to New Jersey from her home in Philadelphia, a roughly 40-minute drive that took $60 a week in gas and tolls. As she looks for the next job, she must stay closer to home.

“With gasoline being $4 a gallon,” she said, “I want to stay in the city.”

The jobs picture has become particularly punishing for more vulnerable communities, with unemployment among African-Americans leaping to 9.7 percent in May from 8.6 percent in April . Over the same period, joblessness among those ages 16 to 19 climbed to 18.7 percent from 15.4 percent.

Health care remained a bright spot, adding 33,900 jobs in May, while restaurants and bars added 11,400 jobs.

Even those with jobs have been losing ground. Average hourly wages for rank-and-file American workers — roughly 80 percent of the American work force — nudged up to $17.94 in May, an increase of about 3.5 percent compared to a year earlier. But over the same period, rising food and gas prices contributed to inflation of roughly 4 percent, more than canceling out the buying power of the extra wages.

The White House and some economists questioned the validity of the spike in unemployment, noting a surge in people counted as entering the labor force. Some suggested the Labor Department might have botched the statistical adjustments it uses to cancel out seasonal fluctuations in employment, perhaps inflating the effect of graduating college students looking for their first jobs.

“I think this move is exaggerated,” said Michael T. Darda, chief economist at the trading and research firm MKM Partners. New unemployment claims, while recently rising above 370,000 a week, are still not consistent with such a dramatic surge in joblessness, he said.

Others saw the report as catching up with other indicators that have spelled weakness, such as plunging consumer confidence.

The unemployment rate does not count people who have given up looking for work. Over all, the percentage of working age Americans employed dropped to 62.6 percent in May from 63 percent a year earlier.

In recent months, many companies have been cutting working hours for those on their payrolls, eschewing layoffs while hoping the economy improves.

“Companies didn’t have so many people on their payrolls to shrink in the first place,” said Ed McKelvey, an economist at Goldman Sachs, adding that American businesses have been hiring tepidly for years.

In May, those working part time because they could not find full-time work or because of slack business nudged up to 5.23 million, from 5.22 million. But that was a much smaller increase than in the previous month, a possible sign that businesses are running out of hours to cut: next, they may have to resort to layoffs on a larger scale.

“This is what happens when an economy grows solidly below trend for six months,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “Employers cut back first on hours, then on jobs.”

    Job Losses and Surge in Oil Spread Gloom on Economy, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07econ.html?hp

Oil Prices Take a Nerve-Rattling Jump Past $138

June 7, 2008
The New York Times
By JAD MOUAWAD

The rise in oil prices turned into a stampede on Friday with futures jumping a staggering $11 a barrel to set a record above $138 a barrel. The unprecedented surge came as the dollar fell sharply against the euro and a senior Israeli politician once again raised the possibility of an attack against Iran.

Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.

Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.

“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”

The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.

Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.

The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.

Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.

Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”

Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.

The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.

One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

But many analysts say that fundamentals, not speculation, are driving prices.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

    Oil Prices Take a Nerve-Rattling Jump Past $138, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07oil.html

Oil Prices Skyrocket, Taking Biggest Jump Ever

June 7, 2008
The New York Times
By JAD MOUAWAD

Oil prices had their biggest gains ever on Friday, jumping nearly $11 to a new record above $138 a barrel, after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell sharply against the euro.

The unprecedented gains on Friday capped a second day of strong gains on energy markets, and fueled suspicions that commodities might be caught in a speculative bubble.

Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange. The record gain followed a jump of 5.5 percent on Thursday, bringing total two-day gains to $16 a barrel.

Stocks fell sharply. The Dow Jones industrials fell 323.97 points, or 2.53 percent, in midday trading. Chevron Corp. was the only stock that rose on the blue-chip index.

“This market is going to shoot itself in the foot,” said Adam Robinson, an analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. But this takes time. The market has gotten extremely impatient and is not willing to wait.”

Even as uncertainties abound about the fundamentals of the market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable.” Iran is the second-largest oil producer within the OPEC cartel and any interruptions in its exports could push prices higher levels.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued to puzzle investors and traders. Prices keep rising despite a lack of shortages in the market, and strong evidence of lower consumption in industrialized countries. But investors seem to be caught in a bullish mood, focusing instead on perceived risks to future oil supplies and continued growth in oil demand from emerging economies that subsidize fuels.

The latest jump in oil prices also came as the dollar lost almost 1 percent against the euro amid bleak economic news that fanned recession fears on Friday. The unemployment rate surged to 5.5 percent last month, the government said, the biggest increase in more than two decades.

Investors reacted to the latest forecast by a large Wall Street bank that oil prices would spike to $150 a barrel in the next month because of strong demand from Asian economies. Morgan Stanley said “an unprecedented share” of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron’s workers in Nigeria could lead to “considerable” shutdowns of Nigerian production. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is slated for June 15.

One view that has been gaining ground in recent months is that the commodity market is caught in a speculative bubble akin to the housing or technology bubble of the late 1990s. The notion is buffered by the fact the oil prices have doubled in 12 months despite a slowing economy.

That theory was raised by politicians in Washington and a slew of OPEC producers, who blame speculators for the staggering rally in oil prices. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said earlier this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before another Senate committee last month, said he saw no evidence of a speculative bubble in the commodity market. Instead, Mr. Harris pointed out to a confluence of trends that have contributed to the oil price rally, including a weak dollar, strong energy demand from emerging-market economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Oil prices had been weakening in recent days but reversed dramatically after the president of the European Central Bank, Jean-Claude Trichet, suggested on Thursday that the bank might raise interest rates. That pushed up the euro against the dollar and prompted investors to buy into commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are now paying an average of $3.99 for a gallon of gasoline nationwide, according to AAA, the automobile group. In many parts of the country, like California, Connecticut and New York, consumers are already paying well over $4. Diesel costs $4.76 a gallon on average.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. But I don’t see who would buy at these prices unless they need to.”

    Oil Prices Skyrocket, Taking Biggest Jump Ever, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07oil.html?hp

Stocks & Bonds

Oil Prices and Joblessness Punish Shares

June 7, 2008
The New York Times
By ABHA BHATTARAI

Wall Street suffered its worst losses in more than two months on Friday after crude oil prices spiked over $138, an increase of nearly $11, and the unemployment rate rose more than expected.

All 30 of the stocks that make up the Dow Jones industrial average took a hit as the index dropped nearly 400 points on fears that high energy prices will extend and deepen an economic slowdown.

“The market is meeting its worst fears right now,” said Quincy Krosby, chief investment strategist at the Hartford, a financial services firm.

The Dow fell 3.13 percent, or 394.64 points, to close at 12,209.81. The broader Standard & Poor’s 500-stock index lost 43.37 points, or 3.09 percent, to 1,360.68, its lowest point in four months. The technology-laden Nasdaq composite index declined 75.38 points, or 2.96 percent, to 2,474.56.

Shares opened lower after the government reported that the unemployment rate in May increased the most in one month in 22 years. The market decline accelerated as crude oil rose steadily, closing $10.75 higher in its biggest one-day climb ever.

“Oil prices have reached the tipping point,” said Richard Sparks, an analyst at Schaeffer’s Investment Research. “Prices have rallied for a good two months, but now it’s really weighing on the market.”

Friday’s session wiped out the gains the markets had Thursday, and left all three major indexes down for the week. The Dow fell 3.39 percent for the week, the S.& P. 500 was off 2.83 percent and the Nasdaq had a loss of 1.91 percent.

Wall Street has run into choppy waters over the last two weeks after a period of relative calm. Friday’s decline was a return to the triple-digit collapses of February and March, when the market was rocked by the Bear Stearns bailout and significant interest rate cuts from the Federal Reserve.

The last time the Dow fell this much was at the beginning of the subprime mortgage crisis in February 2007.

On Friday, the blue-chip index was dragged down by shares of American International Group, the big insurer, which stumbled after accusations that the company may have overstated the value of contracts tied to subprime mortgages.

A.I.G.’s shares fell $2.48, or nearly 7 percent, to close at an 11-year low of $33.93.

Shares of financial firms and companies that depend on discretionary spending were the hardest hit, as investors worried that the weak labor market was likely to raise anxieties among some Americans and put a pall on spending habits.

Friday’s report from the Labor Department said that the economy lost jobs for the fifth consecutive month and the unemployment rate surged to 5.5 percent in May, from 5 percent in April, the sharpest monthly rise in 22 years.

Investors are also worried that high energy prices will further slow the economy.

“If oil prices stay this high, you’re going to have to re-examine your estimates for G.D.P., inflation and consumers’ ability to spend outside of nondiscretionary items,” Ms. Krosby said. “This has all of the elements of an investor’s worst-case scenario.”

Oil prices surged almost 8 percent, to $138.54 a barrel after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell against the euro.

“As soon as that news hit the tape, oil spiked about $6,” said David Kovacs, an investment strategist at Turner Investment Partners.

Prices were buoyed further by a report from Morgan Stanley that predicted oil would reach $150 a barrel by July 4 because of higher demand in Asia.

Shares of General Motors, whose fortunes can depend on oil prices, fell more than 4 percent, to $16.22.

Mr. Sparks added that the market was also taking a hit from a string of bad news that came out earlier this week, including Standard & Poor’s downgrading of Lehman Brothers, Merrill Lynch and Morgan Stanley and the ousting of Wachovia’s chairman.

“All of this has culminated and it’s bringing the boogeyman back out of the closet,” he said.

Bond prices jumped on Friday as investors sought the safety of Treasuries in the volatile market.

The benchmark 10-year Treasury note rose 1 2/32, to 99 23/32. Its yield, which moves in the opposite direction, fell to 3.91 percent, from 4.04 percent.

    Oil Prices and Joblessness Punish Shares, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07stox.html

Dow Plunges 300 Points

June 7, 2008
The New York Times
By ABHA BHATTARAI

Stocks fell sharply Friday after bleak unemployment data and spike in crude oil prices spurred new concerns about the economy.

Investors were worried that the weak labor market is likely to raise anxieties among Americans, putting a pall on consumer spending, furthering the economic slowdown. Friday’s report from the Labor Department said that the unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline.

The Dow Jones industrials were down about 330 points, or 2.6 percent in afternoon trading, with financial stocks taking the biggest blow. The Dow was also dragged down by shares of American International Group, which stumbled after accusations that the company may have overstated the value of contracts tied to subprime mortgages. Shares of A.I.G. fell $2.43, or more than 6 percent, to an 11-year low of $43.98.

“The market is meeting its worst fears right now,” said Quincy Krosby, chief investment strategist at The Hartford. “If oil prices stay this high, you’re going to have to reexamine your estimates for GDP, inflation and consumers’ ability to spend outside of non-discretionary items. This has all of the elements of an investor’s worst-case scenario.”

Shares of General Motors fell nearly 4 percent to a record low, while Pfizer’s stock price reached an 11-year-low of $18.10.

Broader stock indicators also declined. The Standard & Poor’s 500-stock index fell 2.3 percent, and the Nasdaq composite index fell 2.4 percent, to 2,500.38.

Oil prices surged almost 6 percent, topping $136.50 a barrel. The increase, which came after a 5.5 percent jump on Thursday, came after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell against the euro.In addition, a report by Morgan Stanley on Friday said that oil prices could reach $150 a barrel by July 4 because of higher demand in Asia.

Bond prices jumped on Friday with investors seeking the safety of Treasuries in the volatile market.

The dollar declined against other currencies — a move that makes each barrel of oil more expensive. Gold prices rose.

Wall Street was caught surprised by a half-point jump in the unemployment rate reported on Friday by the Labor Department. The report suggested the labor market was weaker than analysts had expected and stocks of consumer discretionary companies were lower on Friday.Crude oil prices were also pushed higher by a weaker dollar, which fell on the government jobs data.

“As soon as that news hit the tape, oil spiked about $6,” David Kovacs, an investment strategist at Turner Investment Partners, said, adding that the declining dollar was “a slight tail-wind” that edged oil prices further up.

    Dow Plunges 300 Points, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07stox.html?hp

Oil Prices Jump $6, Sending Stocks Down Sharply

June 7, 2008
The New York Times
By ABHA BHATTARAI

The price of oil surged more than $6 a barrel Friday morning, the biggest gain in more than three months, sending the stock market into a nose-dive and reversing Thursday’s gains.

Investors are worried that the rising price of oil, coupled with bleak unemployment data that was released Friday morning, will continue to hurt businesses and suppress consumer spending in an already-weak economy.

In addition, a report by a Morgan Stanley analyst, Ole Slorer, on Friday said that oil prices could reach $150 a barrel by July 4 because of higher demand in Asia. Mr. Slorer said that Asia was building up its stock and was taking an unprecedented share of Middle East exports.

The Dow Jones industrials were down 234 points, or 1.85 percent in mid-morning trading, with financial stocks taking the biggest hit. The Standard & Poor’s 500-stock index fell 22.79 points, or 1.6 percent, while the Nasdaq composite index fell 37.76 points, or 1.5 percent.

Oil was up more than $6.10 a barrel, or about 5 percent, to $133.89 within the first hour and half of trading, hitting a new record high. The spike came despite no specific disruption in the oil market, suggesting that the move was based on speculation.

Wall Street was also caught off guard by a half-point jump in the unemployment rate reported on Friday by the Labor Department. The report suggested the labor market was weaker than analysts had expected and stocks of consumer discretionary companies were lower on Friday.

Crude oil prices were also pushed higher by a weaker dollar, which fell on the government jobs data.

    Oil Prices Jump $6, Sending Stocks Down Sharply, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07stox.html?hp

Unemployment Rate Hits 5.5%; Payrolls Shrink for Fifth Month

June 7, 2008
The New York Times
By MICHAEL M. GRYNBAUM

The American unemployment rate surged to 5.5 percent last month, the government said on Friday, the biggest increase in more than two decades. The report was the latest sign that workers face a darker outlook even as they struggle to cope with the housing slump and high energy prices that have cut into their spending power.

Employers also shed 49,000 jobs in May, the Bureau of Labor Statistics said in its monthly report. Payrolls have shrunk every month this year, the worst losing streak since 2003. Manufacturers, construction companies and the retail sector were the hardest hit, as businesses struggled with lower demand and looked to cut costs.

The jump in the unemployment rate, which was 5 percent in April, led to a sharp increase in the number of Americans who looked for jobs in May. The size of the work force grew, but fewer jobs were available, nudging up the percentage of unemployed to its highest level since October 2004.

The major stock exchanges fell sharply Friday morning as investors weighed the report’s implications on consumer spending and the broader economy. The Dow industrials dived more than 200 points, while the Standard & Poor’s 500-stock index was down about 1.3 percent.

The presumptive presidential candidates traded blows over the report, with Senator John McCain describing the economic plan of his opponent, Senator Barack Obama, as “backward.”

In a statement, Senator Obama fired back. “We can’t afford John McCain’s plan to spend billions of dollars on tax breaks for big corporations and wealthy C.E.O.s,” he said. “That’s why I’m offering change that will provide working families with a middle-class tax cut, affordable health care and college.”

Many economists were caught off guard by the sharp rise in unemployment.

“This is a pretty weak report. And you can’t dismiss a five-tenths of a jump in the unemployment rate, even if you figure there’s some flukiness to the data,” Ethan Harris, the chief United States economist at Lehman Brothers, said.

That flukiness referred to teenagers, who tend to enter the job market in May as schools let out for the summer; the result is a bloated labor pool, Mr. Harris said.

But the bad news could not be entirely blamed on the adolescent set.

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and it’s really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”

Economists said the report may keep the Federal Reserve from tightening interest rates in the near future. Fed policy makers meet again at the end of the month.

The government also revised down its payroll estimates for April and March for a net loss of 15,000 jobs.

The weak labor market is likely to raise anxieties among Americans, putting a pall on consumer spending. Many workers could be left with little room to maneuver if they lose their jobs, as home values decline and equity lines are maxed out.

Even employed Americans are feeling pressure. Salaries continued to shrink in May, after adjusting for inflation. Workers’ wages grew in May but at an anemic pace, with rank-and-file employees earning $17.94 an hour, on average. That was a 5 cent increase — or 0.3 percent — from April.

In the last 12 months, hourly earnings have risen 3.5 percent, below the pace of inflation, which is running at about 4 percent a year.
 

Peter S. Goodman contributed reporting.

    Unemployment Rate Hits 5.5%; Payrolls Shrink for Fifth Month, NYT, 7.6.2008, http://www.nytimes.com/2008/06/07/business/07jobs.html?hp

Retailers Post Surprising Sales

June 6, 2008
The New York Times
By ABHA BHATTARAI

Retailers’ fears that their customers would keep their pocketbooks shut proved to be unfounded last month.

Despite falling consumer confidence and gas prices that teetered around $4 a gallon, retailers said Thursday that same-store sales for May were stronger than expected, touching off a stock market rally that lifted the main indexes nearly 2 percent.

Discount retailers like Wal-Mart Stores, Costco Wholesale and TJX fared particularly well as price-conscious customers spent federal income tax rebate checks on groceries, gasoline and off-price clothing.

Analysts said forecasts for May were especially conservative as retailers braced for disappointing news. There was no telling whether consumers would spend or save their tax rebates as housing prices plunged and the economy weakened.

“The rebate checks were going to be a wild card this month, but it certainly looks like they kicked in,” said Ken Perkins, president of the research firm Retail Metrics. “The fear was that high gas prices were going to siphon off most of the stimulus checks into consumers’ gas tanks and, given rising food costs, into their grocery carts.”

The indication that consumers were willing to spend was good news for investors, who reversed a largely sluggish week. The Dow Jones industrial average rose 213.97 points, or 1.7 percent, to 12,604.45. The broader Standard & Poor’s 500-stock index gained 26.85 points, or 1.95 percent, to 1,404.05, while the Nasdaq composite index ended up 46.80 points, or 1.9 percent, at 2,549.94.

Stocks of the retailers helped lead the way. Wal-Mart’s shares jumped 3.7 percent, or $2.12, to $59.80, a four-year high. Shares of Costco, which rose 3.8 percent, to $73.50, and TJX, which rose 2.2 percent, to $32.95, also reached records.

For May, Wal-Mart’s same-store sales rose 3.9 percent, excluding fuel, as demand for groceries, flat-panel TVs and computers remained strong. Sales at the company’s namesake stores rose 4 percent, while sales at Sam’s Club outlets were up 3.6 percent.

The company attributed the results to its low prices and said sales of home furnishings were up for the first time in more than two years, which Mr. Perkins said might be because consumers were “spending their vacation money on their homes.”

Other wholesalers also benefited. Same-store sales at Costco climbed 5 percent, excluding gasoline, compared with an 8 percent increase last May. Comparable sales at BJ’s Wholesale Club rose 6.8 percent, excluding gasoline, in May.

“May came in better than expected,” Michael P. Niemira, chief economist at the International Council of Shopping Centers, a trade group, said in a statement. “It is very clear that consumers are spending in a conservative manner as the lift largely came from an increase in sales in the wholesale, drug store and discount sectors.”

Even so, same-store sales at Target fell 0.7 percent, compared with a 5.8 percent increase last May. Analysts said the retailer’s focus on discretionary items like apparel, jewelry and home furnishings had deterred customers shopping for groceries and medication.

The demand for discount goods has also affected clothing stores. Off-price retailer TJX reported a 2 percent increase in comparable sales, but sales at higher-end clothing stores lagged behind. Saks, for example, reported an 8.7 percent drop in sales, compared with a 4.5 percent increase last year.

The Gap Inc., which owns Banana Republic and Old Navy in addition to its namesake store, said comparable sales tumbled 14 percent. The largest hit came at Old Navy, where sales fell 25 percent.

Limited Brands, whose stores include Express, Victoria’s Secret and Bath & Body Works, said sales fell 6 percent in May, compared with a 2 percent increase last year, as customers cut back on trips to shopping malls.

Mid-tier department stores Kohl’s and J. C. Penney both reported drops in same-store sales. Kohl’s said sales fell 7.2 percent, while Penney attributed its 4.4 percent drop to weakened sales of big-ticket items like fine jewelry and housewares.

Nordstrom, which moved the beginning of its semi-annual sale up from June, said sales rose 10.9 percent in May. But the company expects a drop of 18 percent to 22 percent in June.

The shopping centers council expects a 2.5 percent to 3 percent increase in same-store sales in June as more consumers receive tax rebates. But analysts said the boost in consumer spending will last only as long as the rebate checks do.

“This is a one-time bump that’ll continue into June and maybe July,” Mr. Perkins said. But beyond that, “we just don’t see any near-term stimulus to boost consumer spending anytime soon,” he said.

    Retailers Post Surprising Sales, 6.6.2008, http://www.nytimes.com/2008/06/06/business/06shop.html

About 1 in 11 Mortgageholders Face Loan Problems

June 6, 2008
The New York Times
By VIKAS BAJAJ and MICHAEL M. GRYNBAUM

About 1 in 11 American mortgages were past due or in foreclosure at the end of March, according to a report released on Thursday, a figure that is rising fast as home prices fall and the job market weakens.

The first three months of 2008 marked the worst quarter for American homeowners in nearly three decades, according to the report, issued by the Mortgage Bankers Association. The rate of new foreclosures and past-due payments surged to their highest level since 1979, when the group first started collecting the data.

All told, about 8.8 percent of home loans were past due or in foreclosure, or about 4.8 million loans. That is up from 7.9 percent at the end of December. (About a third of American homeowners do not have mortgages.)

Delinquency and foreclosure rates started rising from historically low levels in late 2006 and have picked up speed in nearly every quarter since. Analysts say at first past due mortgages represented mostly high-risk loans made to borrowers with blemished, or subprime, credit. Now, as the economy has weakened and home prices have fallen in many parts of the country, homeowners with better loans are also falling behind.

Economists worry that a big loss of jobs in the coming months could drive default rates much higher. The Labor Department will release its report on the job market for May on Friday.

“It’s not going to help the housing market out at all if you have a loss of jobs,” said John Lonski, chief economist at Moody’s Investors Service. “When employment’s contracting, that makes it all the more difficult to sell your home at an attractive price.”

Though defaults are rising in many places, it is worst in areas where home prices soared in recent years or where the local economy is now struggling.

California and Florida, for instance, accounted for nearly a third of all mortgages that were in foreclosure or 90 days delinquent. Home prices, construction and mortgage lending were particularly ebullient in those states earlier this decade. The housing industry accounted for a bigger portion of their economies during the boom.

“The problems in California and Florida are extraordinary, and they are the main drivers of the national trend,” said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.

Midwestern states like Michigan and Ohio, where home prices did not soar, are suffering mostly from the loss of manufacturing jobs and high-risk loans. Default rates in those states appear to have leveled off in the last few months, which may be an early hopeful sign.

About 9.7 percent of loans in five Midwestern states were past due or in foreclosure in the first quarter, down from 10.5 in the fourth quarter.

“This decade has been brutal on the industrial economies of the United States,” said Michael D. Youngblood, a mortgage analyst at Friedman, Billings, Ramsey. But “the rate of labor market deterioration in these depressed cities is significantly slowing.”

Michigan, Indiana and Ohio are still among the five states with the highest default rates. The other two states in that list are Florida and Mississippi.

Defaults are highest for adjustable-rate mortgages — loans that promised a low, fixed-interest rate for the first few years. But people who took out such mortgages are falling behind even before those loans reset to a higher adjustable rate. Analysts say that reflects the fact that those mortgages were popular among investors, buyers who made small or no down payments, and those who did not provide proof of their incomes.

Falling home prices are also contributing greatly to foreclosures. Homeowners who owe more on their loan than their homes are worth are more likely to default if they encounter financial distress, said Robert Van Order, an adjunct finance professor at the University of Michigan.

In past housing downturns like the one in the early 1990s, he said, housing prices did not fall nationwide and even in local markets they fell much more slowly. So far, home prices have fallen about 16 percent from their peak in the summer of 2006, according to the Standard & Poor’s/Case-Shiller index. Economists at Lehman Brothers expect the decline to bottom at 25 percent.

“What that means now is people don’t have that equity cushion as they get into trouble,” said Mr. Van Order, who was once chief economist at Freddie Mac. “The incentive to beg, borrow and steal is not there.”

By many measures the job market is not falling apart; the unemployment rate was 5 percent in April. But these are challenging times even for those who have not lost jobs with gas prices at $4 a gallon, economists said.

“Wage increases are not keeping pace with inflation,” said Bernard Baumohl, managing director of the Economic Outlook Group. “That really puts a lot of pressure on households to make some very serious financial decisions.”

The surge in defaults has been challenging for mortgage servicing companies, which find it hard to keep up with the growing backlog of loans awaiting foreclosure, analysts say.

Some mortgage servicing firms appear to be holding off because lawmakers in Congress are talking about a plan to refinance up to $300 billion in loans using the Federal Housing Administration, Mr. Youngblood said. The discussions are “giving servicers hope of a better solution for many borrowers,” he said.

In states like California and Florida where they have huge inventories of repossessed homes, some companies are starting to move a little faster by auctioning off properties, Mr. Youngblood and others say. In some markets like Las Vegas about half the homes sold in recent months had been in foreclosure.

Dean Williams, chief executive of the auction firm Williams & Williams, said mortgage companies are most eager to hire his firm in markets that have a “rapidly and constantly increasing pile up” of homes.

    About 1 in 11 Mortgageholders Face Loan Problems, NYT, 6.6.2008, http://www.nytimes.com/2008/06/06/business/06mortgage.html

News Analysis

Big Airlines in a Rush to Go Small
 

June 6, 2008
The New York Times
By MICHELINE MAYNARD

In the three decades since deregulation, the nation’s major airlines have operated with a simple strategy that bigger was better, and that the way to win the industry dogfight was to fly more planes on more routes to attract the most passengers.

Now, with fuel prices almost double the level of a year ago, many big airlines have decided that less is more, and they are shrinking in a hurry.

Continental was the latest carrier to announce cuts, saying on Thursday that it would ground 67 planes. In all, airlines in the United States have announced plans since March to park more than 200 aircraft, from regional jets to big Boeing 747s, representing more than 10 percent of the major airlines’ fleet.

As they cut costs, they are also raising ticket prices and imposing new surcharges and fees to help offset soaring fuel costs. Air fares over all are up 16 percent this year, for coach tickets bought in advance, according to Harrell Associates, an industry consulting firm.

For passengers, it all means a system that made flights cheap and plentiful is slipping away. “Air travel will be less democratic from here on out,” said Tim Winship, an editor of SmarterTravel.com, a Web site offering travel advice.

Already, fewer Americans are flying. The soft economy is a factor, of course, but so are higher fares and the inconveniences of flying.

The Air Transport Association, the industry’s lobbying group, predicts 2.7 million fewer people will fly this summer than in 2007.

Industry executives say they can no longer provide the cheaper fares that made air travel an attractive substitute for car trips.

Even Southwest Airlines — which has long used the marketing slogan “You are now free to move about the country” — has eliminated its self-imposed cap of charging no more than $299 for any one-way flight. Now it charges close to $400 each way on some routes.

And this year, half a dozen smaller carriers, some of which offered low fares, have gone out of business or filed for bankruptcy.

“Higher fuel prices at the end of the day need to be reflected in our ticket prices,” said Edward H. Bastian, president and chief financial officer at Delta Air Lines.

Mr. Bastian said he was sympathetic to passengers’ complaints about higher fares, fuel surcharges and fees, like the new $25 charges imposed last month by Delta and many airlines to check a second bag. (American plans to add a $15 fee for the first bag for many passengers on June 15.)

“Our goal is not to take it out on the customers,” Mr. Bastian said. “Our goal is to be able to provide a more stable and better product, albeit at a somewhat higher price.”

Even some union leaders agree that prices need to rise, but say industry officials should have foreseen the impact of higher fuel costs.

“It’s management’s failure to prepare for the future,” said Robert Roach Jr., general vice president of transportation for the International Association of Machinists and Aerospace Workers, which represents workers at several airlines.

Mr. Roach has long been an advocate for government intervention to set ticket prices that would allow airlines to make money and avoid cutting more jobs. Since March, airlines have said they would eliminate nearly 5,000 jobs on top of more than 100,000 they have already cut this decade.

Airlines for the most part have tried to preserve their flying schedules for the summer, the busiest and most profitable time of the year.

American, though, is dropping its daily flight from Kennedy Airport to Stansted Airport outside London as of July 2, and will eliminate flights from Chicago to Buenos Aires and Honolulu. Cuts are expected to spread after Labor Day, as airlines speed up retirement of inefficient planes, cut flights and eliminate service to some cities altogether.

Continental is cutting 3,000 jobs, although officials said they hoped most of those cuts would involve voluntary departures by employees.

Brian Bagenski, a spokesman for the Air Line Pilots Association, which represents pilots at Continental, said the union was “pretty darned disappointed in the news.” He added, “Our concern is to protect jobs and find out how to mitigate effects on pilots and families.”

The impact on passengers, however, will be clear. They can expect to pay more for fewer choices — the industry’s new norm.

“The picture going forward for travelers is pretty grim,” said Mr. Winship of SmarterTravel.com. “There are going to be fewer flights since ticket prices will be significantly higher. From a service and comfort standpoint, consumers won’t be getting more for their money. If anything, less.”

Even with these steps, however, industry analysts say fuel prices are racing ahead of airlines’ ability to cut costs and raise fares. Jamie Baker, an analyst with JPMorgan, said airlines could lose a collective $7.2 billion this year if fuel prices stay at current levels or rise further.

That is raising fears of another round of bankruptcy filings.

To be sure, nobody in the industry expects any of the major carriers to go away, although the outlook for smaller airlines is less certain.

For its part, Delta, which announced a merger with Northwest in April, is looking for more places to save. The two airlines, which originally expected to cost cuts of about $1 billion, now expect to cut “significantly in excess” of that amount, Mr. Bastian said. An announcement is due next month.

But airlines cannot cut everything and expect passengers to endure the result, said Mr. Roach, the union official.

“The flying public will be inconvenienced, and the employees will suffer because the public doesn’t like what they’re finding,” he said. “This just doesn’t do well for the image of the industry.”

Mary M. Chapman contributed reporting.

    Big Airlines in a Rush to Go Small, NYT, 6.6.2008, http://www.nytimes.com/2008/06/06/business/06travel.html

Revived Paper Mill Brings a Town Back With It

June 5, 2008
The New York Times
By FERNANDA SANTOS

NEWTON FALLS, N.Y. — Eight years ago, a paper mill closed in this remote corner of the western Adirondacks, taking with it more than 100 jobs. Most of the 75 houses in this speck of a hamlet a two-hour drive from Canada soon fell into disrepair, their frames thrashed by weather and hardship.

Some families moved wherever they could find work. Others were stuck with homes they could not sell and long commutes over desolate country roads. The nearest gas station closed, the local hospital struggled to fill its 20 beds, and the volume of mail at the one-person post office shriveled by half, as if the place had been given up for dead.

It is a familiar story: industry leaves, jobs disappear, hardscrabble town is left adrift. Not Newton Falls. As if in a fairy tale, the shuttered mill has come back to life, thanks to a healthy dose of luck, a longtime paper executive’s willingness to take a chance, and the unbending commitment of two men to the place where they had labored for two decades.

For eight months now, the mill has churned out an average of 200 tons of coated paper a day, or 2,000 feet per minute, 54 percent more than it did before it went dark. It runs 24 hours a day, every day, making paper that has been used in Jessica Seinfeld’s cookbook, Wal-Mart newspaper inserts, a work-wear manufacturer’s catalog and biology textbooks full of colorful diagrams.

The mill received close to 600 applications last summer for 77 jobs; 104 people work there now, up from 97 when it reopened. About half had toiled at the mill before it closed and left other jobs to come back.

Among them are Andy Leroux and Levi Durham Jr., longtime friends who have lived their whole lives in these parts. Many credit them with saving the mill — and, along with it, Newton Falls. While the mill was closed, Mr. Leroux and Mr. Durham lubricated machines, dusted crevices and corners, shoveled snow and occasionally called former co-workers to ask whether they would be willing to return were the mill to make paper again.

They also gave tours to prospective buyers. Those who seemed interested in reviving the plant — they were in the minority — found it heated in the winter. Those who wanted to tear it apart and sell the machines overseas did not.

“We had to do what we had to do to get our mill going again,” shrugged Mr. Leroux, 44, a third-generation mill worker.

Mr. Durham, 51, the first in his family to work there, added: “If you were there the day this place closed, you had people working their hearts out to make the best paper possible. We knew we had something special.”

The mill in Newton Falls was one of about 600 paper mills operating in the United States when it closed in the fall of 2000. Nearly 150 of them have closed since, according to Kenneth Patrick, an analyst with the Technical Association of the Pulp and Paper Industry, leaving holes in communities like Great Barrington, Mass.; Augusta, Ga.; and Lufkin, Tex. Many more, Mr. Patrick said, have merged in an effort to stave off competition from China, India and Latin America, where the cost of raw materials and labor is low and demand for paper is rising.

“It’s extremely unusual for a mill that had been shut down for a while to start up again,” he said.

The Newton Falls paper mill was profitable until its close, but its owner at the time, Appleton Coated of Kimberly, Wis., decided to consolidate its manufacturing operations closer to home.

The new owners, partners from Canada and the United States, said that the business was too young to turn a profit, but that it was expected to start making money before the year’s end.

Opened in 1894 by a family named Newton, the mill had several owners before Appleton, which spent tens of millions of dollars upgrading the plant before closing it on Oct. 23, 2000.

In the two years that followed, the mill’s blue-and-white concrete buildings remained dark and unheated. Pipes froze and cracked during ruthless northern New York winters. A roof caved in under several feet of snow.

When the mill closed, Mr. Leroux and Mr. Durham found jobs at another paper-making plant in the village of Deferiet, 44 miles west. Then that plant closed in 2001. For a while, Mr. Leroux did construction work on summer homes in the area, while Mr. Durham ran his father’s auto repair shop six miles from the mill, in the town of Fine.

Not a day would go by, they said, when they did not think about the Newton Falls mill.

One day, Mr. Leroux said, “we decided to stop thinking about our mill and actually do something to save it.” They approached the owner at the time and offered to maintain the mill, with the help of two other former employees, for $35,000 a year each.

That was in 2003.

For four years, Mr. Leroux, Mr. Durham and the two others worked 12-hour shifts tending to several interconnected buildings totaling 400,000 square feet on 4,000 acres. They would turn the machines on and off, oil them and replace defective parts, tracking maintenance work in log books.

When a light bulb burned out, they changed it. When too much dust gathered, they cleared it out with an industrial leaf blower. When snow accumulated on the roof, they removed it, sometimes in temperatures of 20 degrees below zero and winds gusting at 30 miles per hour.

“In our hearts, we never considered the mill closed,” Mr. Durham said. “To us, the mill was idle. There’s a difference between closed and idle.”

Meanwhile, a cadre of small-business owners, retirees, teachers and elected officials reached out to whoever they thought could help in a desperate bid to find a buyer.

“When we’d hear that someone was interested, we’d get their names and call them up and invite them over for a tour,” said Christopher L. Westbrook, director of a state forestry school nearby.

Mr. Leroux and Mr. Durham were in charge of the tours. They would look up potential buyers on the Internet in hope of determining their intentions, and listen carefully to the nature of their questions.

If a visitor seemed more attracted to the mill’s heavy equipment than to the operation as a whole, they turned off the heat or kept some of the lights off where machines were stored, forcing the visitor to inspect them with flashlights.

“We were doing cover-ups, yup,” recalled Mr. Leroux, who started in the mill’s boiler room and is now its vice president of operations.

“Whatever it took,” added Mr. Durham, who started as a machine operator and is now maintenance supervisor. “We didn’t want to see our mill sold piecemeal.”

In 2006, someone suggested that they reach out to Dennis L. Bunnell, who grew up in Buffalo and had once served as the mill’s president. After a series of meetings, studies and consultations, Mr. Bunnell and three partners joined with Scotia Investments, a family-owned holding company from Canada, to buy the mill for about $20 million.

They began making paper again on Sept. 7, 2007. The mill has a new name, Newton Falls Fine Paper, and a new mission statement: “Restore Newton Falls to its role as a dynamic force in the paper industry and the economy of the western Adirondacks.”

“All there is to a mill is machinery and people,” Mr. Bunnell said in an interview. “What makes a difference in this case is that the people who work here truly care about this mill.”

The paper made here comes from maple, birch and spruce trees. The fiber is bleached to keep the paper from yellowing when exposed to sunlight. It is then soaked, stretched, smoothed and steamed to remove the moisture in a 300-foot-long machine. The floor shudders and the machine whines, beeps and purrs as it spits out sheets hot to the touch. The air smells like candied popcorn.

Newton Falls lies in southern St. Lawrence County, within the town of Clifton, which has about 800 residents scattered over 150 square miles (the census does not keep track of the population of places as tiny as Newton Falls). It is 125 miles northeast of Syracuse, a solid seven-hour drive from New York City.

It is a picturesque place of rivers, lakes and a multitude of trees. Median family income hovers around $38,000, about $12,000 below the national median.

An iron-ore mill outside Newton Falls employed 1,200 people in its heyday, but it closed in 1978. Now the Newton Falls Fine Paper company is one of the largest private employers in the county.

Pay ranges from $15 an hour for jobs like packaging the paper for shipment to $22 an hour for maintenance crews, Mr. Bunnell said. Workers have medical and dental insurance and a 401(k) plan, many for the first time.

Raymond Fountain, director of the St. Lawrence County Office of Economic Development, said the mill “is a huge stabilizing factor in the community,” adding about $18 million a year to the economy, including a $4 million payroll.

Since the mill’s reopening, there have been modest improvements in and around Newton Falls, with the best news being that things have improved at all. The owner of a general store a mile from the mill expanded his business, and a motel that used to be open only during the summer is now open year-round.

On the quarter-mile stretch of County Road 60 linking Newton Falls to the mill, homeowners like Kimberly Provost are again investing in repairs: she recently bought an above-ground pool to replace the battered one that has sat for years in her backyard. A few doors down, Sylvia Bullock, whose late husband retired from the mill after 43 years, said the home she bought for $10,000 three years ago was recently assessed at $21,000.

“The mill and all the other positive changes you see here, I think they say something about the kind of people we are,” Ms. Bullock, 77, said from her newly built deck, the mill’s smokestack looming in the background. “We’re hard workers, we’re stubborn and even when it looks like the whole world is against us, we don’t give up.”

    Revived Paper Mill Brings a Town Back With It, NYT, 5.6.2008, http://www.nytimes.com/2008/06/05/nyregion/05mill.html?hp

The Food Chain

Food Is Gold, and Investors Pour Billions Into Farming

June 5, 2008
The New York Times
By DIANA B. HENRIQUES

Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.

But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.

One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.

Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.

And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.

“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”

These new bets by big investors could bolster food production at a time when the world needs more of it.

The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.

But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.

“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”

By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.

Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.

Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.

When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.

“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.

Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.

“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.

The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.

“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.

“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”

Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.

Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”

Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.

“It is not in our best interests for anyone to be negatively affected by what we do,” he said.

Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.

Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.

One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.

“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.

The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”

The Emergent fund is one of a growing roster of farmland investment funds based in Britain.

Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.

Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“

Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply. “No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.

For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”

He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”

    Food Is Gold, and Investors Pour Billions Into Farming, NYT, 5.6.2008, http://www.nytimes.com/2008/06/05/business/05farm.html?hp

Airline Group Sees ‘Desperate’ Times

June 3, 2008
The New York Times
By CAROLINE BROTHERS and MATTHEW SALTMARSH

ISTANBUL — Citing high oil prices and the slowing economy, the International Air Transport Association on Monday sharply lowered its industry forecast for 2008, saying it now expected a collective loss of $2.3 billion.

In March, the group had forecast a profit of $4.5 billion.

At its annual meeting here, the association urged governments to roll back regulations that they argue are damaging the industry at a time when many carriers are in a “desperate” situation.

If price of oil, which is now just below $130 a barrel, averages $107 over 2008, the aviation industry would lose $2.3 billion for the year, the chief executive of the group, Giovanni Bisignani, said. Should it hold at $135 a barrel for the rest of the year, the industry will lose $6.1 billion.

“After enormous efficiency gains since 2001, there is no fat left and skyrocketing oil prices are changing everything,” Mr. Bisignani said. “The situation is desperate and potentially more destructive than our recent battles with all the Horsemen of the Apocalypse combined.”

Other problems facing the airlines, the group said, include uncertainty about the approach by the European Union and governments toward state aid and airline mergers.

The chief executive of British Airways, William M. Walsh, said: “We’re definitely as an industry in a crisis situation. With a softening in the economic environment, high oil prices, it’s inevitable that fares have to go up.”

Mr. Walsh added that he expected to see additional bankruptcies soon.

John Leahy, chief operating officer of the European plane maker Airbus, said that the sector could adjust to higher fuel prices “but it will take several years, and how many will be left standing?”

Hartmut Moers, an analyst at the bank Sal. Oppenheim in Frankfurt, said “The key short-term question is who is best hedged against the oil rise.”

“And then further out,” Mr. Moers said, “you look for the airlines with robust operations, the flexibility to adjust and the ones that are best capitalized.”

In Europe, that probably means the strongest are the biggest — Air-France-KLM, British Airways and Lufthansa. The situation in the United States appears more complicated given difficulties of integrating different carriers and the weak dollar, which makes oil even more expensive.

Consolidation is the obvious solution, Mr. Moers said, but “there are more obstacles than you might think.”

In the United States, Delta Air Lines and Northwest Airlines said in April that they planned to merge. But last week, United Airlines and US Airways suspended merger talks. In Europe, Air-France back away from acquiring Alitalia of Italy. And in December, long-running talks by a consortium to buy Iberia of Spain collapsed.

Mr. Moers said that government support would be needed if a number of flag carriers are to survive. “It’s very hard for any government to let an airline go bankrupt,” he said, “and that is the scenario if nothing happens.”

One possibility, analysts said, is a resurrection of trans-Atlantic deals, provided antitrust rules are softened.

But Mr. Walsh of British Airways opposed government aid to support struggling flag carriers.

“If they were struggling with $65, $70, $80 dollar oil, I don’t see how they can survive.” Mr. Walsh said.

For its part, British Airways announced in May that it was “exploring opportunities for cooperation” with the two airlines in the United States, leading to suggestions that it would extend its OneWorld alliance with American Airlines to include Continental.

British Airways and American, a unit of the AMR Corporation, have failed to get an exemption from American antitrust laws to work more closely because of their dominance at Heathrow airport in London.

‘Things have changed” Mr. Moers said. “We now have the ‘open skies’ agreement. I’m not sure that we would see the same stringent conditions of such a move as before.”

At the industry conference, Mr. Bisignani said: “Twenty-four airlines have gone bust in the last six months and $130 per barrel oil is reshaping the industry even as we speak. In the next 12 months we could face $99 billion in extra costs from oil.”

He said governments must “stop crazy taxation, regulate monopolies effectively, ensure that the cost of energy reflects its true value, fix the infrastructure and change the rules of the game.”

“Labor must understand that jobs disappear if costs don’t come down,” he added.

In particular, he criticized the European Parliament for imposing 100 amendments an emissions trading proposal.

“We face a bill of 6.4 billion euros for a misguided and unilateral proposal that will inspire international legal battles but do very little for the environment,” he said. “These are reckless decisions when the industry is in crisis and oil prices have changed the game completely.”

Mr. Bisignani called for governments to develop an emissions trading scheme that is fair, voluntary and global. And he urged financing for innovation for biofuels and new generation engines and airframes.

    Airline Group Sees ‘Desperate’ Times, NYT, 3.6.2008, http://www.nytimes.com/2008/06/03/business/worldbusiness/03air.html?hp

Factory slump wears on,

construction dips

Mon Jun 2, 2008
11:42am EDT
Reuters
By Burton Frierson

NEW YORK (Reuters) - Factory activity contracted in May for the fourth consecutive month and inflation pressures surged to their highest since in four years, heightening concerns about the world's largest economy.

The Institute for Supply Management said its index of national factory activity rose in May to 49.6 from April's 48.6, below the level of 50 that signals contraction although slightly above market expectations. Combined with the ISM's data on inflation, the report gave rise to concerns about stagflation -- rising prices in a weak economy.

This year's manufacturing slump is the worst since 2003, when the ISM index spent five consecutive months below 50 from February to June that year.

A separate report showing construction spending, struggling with a protracted housing slump, fell less than expected in April added weight to the argument that the economy is weak but may not be in recession.

"This is consistent with an economy that's still expanding, not one that's in recession. So things are soft but are not collapsing," said Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut.

"You have an inflation threat that's been there for a while. I think it has been enhanced by the Fed's easy monetary policy."

The contraction in the May ISM index was the fifth in six months. The report also showed a worrying trend for inflation, with its index of prices paid jumping to 87.0 -- its highest since April 2004 -- from 84.5 in April.

On Wall Street, stocks extended losses, with benchmark indexes down around one percent on the day. The dollar extended its gains versus the euro.

U.S. government bonds, which abhor inflation and perform better during slow economic times, gave up some ground after the ISM release.

U.S. construction spending fell 0.4 percent in April on continued deterioration in the residential sector, but outside of home building private spending rose for the third straight month.

Economists polled by Reuters ahead of the Commerce Department's report were expecting a 0.6 percent decrease in construction spending after a 0.6 percent decrease in March that was first reported as a much bigger 1.1 percent decline.
 

(Additional reporting by Ellis Mnyandu and Joanne Morrison, Editing by Chizu Nomiyama)

    Factory slump wears on, construction dips, R, 2.6.2008, http://www.reuters.com/article/newsOne/idUSWEN600120080602

Consumers Lean on Rebate Checks for Bills and Gas

June 1, 2008
The New York Times
By PETER S. GOODMAN

MIAMI — The federal government is showering households with tax rebates to spur spending and invigorate a troubled economy. But many Americans are so consumed with debt and the soaring price of gasoline that they are opting to save the money or use it to pay bills, according to surveys, sales data and interviews with people from Florida to California.

Between late April and the end of last week, the Treasury handed out more than $50 billion of the $100 billion in tax rebates it plans to distribute to 132 million households. But only once in the last six weeks have chain stores registered an increase in sales, according to the International Council of Shopping Centers, whose weekly sales survey is a widely watched barometer.

“The initial sense is that people are not running out to the malls to spend their checks,” said Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. “It’s not quite proving to be a hot potato that’s burning a hole in people’s pockets.”

Here in Miami, where the economy remains stuck in the orbit of plummeting real estate prices, Guillermo Gonzalez is one of those using their tax rebates to dig out of debt.

A wine salesman who makes about $60,000 a year, Mr. Gonzalez received $1,033 via direct deposit. He understood the implicit invitation to spend it on a new gadget or a family vacation, but he was behind on his house payments, he said. As gasoline costs have doubled in recent months, and as grocery prices have spiraled higher, he has been struggling to pay the bills. With a click of the mouse, he sent the whole rebate to the mortgage company.

“They think they give you a check to go out and spend some money, but it’s not enough,” said Mr. Gonzalez. “The dollar doesn’t buy anything anymore. The way the economy is going, people are too scared to spend.”

Economists emphasize that the data remains preliminary, making it too early to assess the effectiveness of the rebates. And those who are paying off bills are potentially clearing the path for more spending later on.

Most experts assume that over the next six months, Americans will spend somewhere between 20 and 50 percent of their tax rebates, much like the last time the government took out its checkbook in such fashion, in 2001. That would mean $20 billion to $50 billion in fresh spending washing through the economy.

Given that consumer spending amounts to 70 percent of all American economic activity, such a surge should keep the economy growing at a modest rate through much of the summer, economists say. It would moderate layoffs if companies, buoyed by resurging sales, hang on to workers.

But by late in the year, experts say, the effects of the rebates will wear off, leaving the economy grappling with the same ills gnawing at it now: tight credit, making it hard for businesses to expand and consumers to borrow; a deteriorating job market, which is eroding paychecks; and falling real estate prices.

“We don’t think this will fundamentally cycle up the economy,” said Andrew Tilton, a senior economist at Goldman Sachs. “For a few months, you will see a noticeable uptick, but as you get to the fall and winter that goes away, and then you’re looking at all these unresolved problems.”

The most immediate question is whether the short-term gains will materialize — whether Americans will retain their willingness to consume, even in the face of economic strain.

For months, Americans have heard that the current troubles stem from an extravagant disregard of basic arithmetic. Families have lived in excess of their incomes, floated by credit cards and loans against the value of their homes. Now, the government is imploring Americans to spend anew, presenting a mixed message.

Recent surveys underscore that many households are now too worried about the rising cost of driving and eating to spend freely, even as cash lands in their laps.

A February survey by the National Retail Federation extrapolated that about 12 million rebate recipients planned to use some of the money to buy gasoline. By May, the number had grown to 17.2 million — a jump of more than 40 percent.

Another survey by the International Council of Shopping Centers found that those planning to use rebate checks to largely pay down debt jumped to 51 percent of respondents in mid-May from 46 percent in February.

At retail outlets across the country, many merchants say they have yet to enjoy a bump up in business from the tax rebates.

“We haven’t seen the effect,” said Tony Khoury, the store director at a Ralphs supermarket in the West Adams district of Los Angeles, a largely African-American and Hispanic part of town. “For people here, what’s on sale this week is what they’ll have for dinner. They just live day to day.”

In Southfield, Mich., a suburb of Detroit, sales at a Lowe’s home improvement store have been flat despite a promotion inviting customers to cash their rebate checks, said the manager, Chad Ratliff.

But lest one get the idea that the United States has suddenly turned into a land of tightwads, consider the scene at HowISpentMyStimulus.com, a Web site created by a freelance writer in Brooklyn, Rudy Adler. People across the country have been posting details of their spending. A spirit of free-money frivolity reigns.

“I’m goin’ to Disneyworld,” proclaimed a mother of three in Sioux Falls, S.D. A man in Johnson City, Tex., said he planned to use his rebate to send his chocolate Labrador retriever puppy to hunting dog school. A Houston couple took their rebate to Las Vegas and lost it all. In Hampton, Va., Diana Donahoo, 29, posted a picture of her finger sporting a diamond-studded engagement ring financed by the largess of Uncle Sam.

For some Americans, spending their rebate has become almost a national imperative.

“We’re going to buy a 42-inch television,” said William Meiklejohn, a self-employed computer technician, as he strolled through The Falls, a high-end shopping center south of downtown Miami, set around palm-fringed pools.

His annual income has dropped over the last year from about $100,000 to more like $80,000 as the economy has slid, Mr. Meiklejohn said. But he and his wife own their home and their two cars clear of debt, he said. Their two children are grown and married. No sense stashing their $1,200 tax rebate in a savings account.

“If I spend it, it stimulates the economy,” Mr. Meiklejohn said. “If people go around paying off bills, it’s not going to make any difference.”

In the town of Buckeye, Ariz., just west of Phoenix, Shawn and Leslie De Jesus used their $2,400 rebate to add a second car, a 1992 champagne-colored Toyota Camry. Mr. De Jesus, a utility worker, said he brings home about $60,000 a year. Ms. DeJesus takes care of their four children, with a fifth on the way.

“It’s hard for a family of seven to be able to save money,” said Ms. De Jesus, 29. “We needed something like this.”

For some, the rebates seem like a trifling compensation handed out by the same administration whose tax cuts and expensive foreign adventures have damaged the economy.

“It’s insulting and patronizing to try to satisfy a whole nation of people with a little payout,” said Joy Osmanski, 32, an actress in Los Angeles. “To think it’s actually going to inject the economy with anything — that’s bogus.”

In lower-income households, the money has been quickly applied to a backlog of unpaid bills, or set aside amid a spirit of hunkering down.

“Times are tough,” said Lili Gomez, a 54-year-old property manager in Miami who makes about $45,000 a year. She has become the sole breadwinner since her husband, Alejandro, was recently injured at work. When the $1,100 rebate check came, they put it in savings.

“These days, you never know what can happen, and we’re at an age where we feel like we need to save,” she said.

In Dallas, Steven Snow, 60, and his wife, Julia, quickly used up their $600 on gas and groceries.

“We spent it just trying to live,” Mr. Snow said. “They wanted everyone to spend it on stuff they don’t need from Wal-Mart and Home Depot. But really, how far does $600 go?”

Reporting was contributed by Mary M. Chapman in Detroit, Marina Trahan Martinez in Dallas, Michael Parrish in Los Angeles and David Schwartz in Phoenix.

Consumers Lean on Rebate Checks for Bills and Gas, NYT, 1.6.2008, http://www.nytimes.com/2008/06/01/business/01checks.html