There's barely three months left before the $8,000 tax credit for first-time buyers ends -- and it can take that long to close on your new home.
Use any metaphor you want: the ticking clock, sands running through the hourglass or pages falling away from the calendar. The fact is, time is running out to claim the $8,000 first-time homebuyers tax credit.
Passed earlier this year as part of the economic stimulus package, the credit is good for up to $8,000, or 10% of the purchase price, and applies to people who have not owned a home in the previous three years. (There are some income restrictions.) The best part: Unlike a similar program from 2008, the credit does not have to be repaid.
The bad part: It ends on Dec. 1.
Because it usually takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. As of Thurs., Aug. 27, there were only 96 days left before the credit ends.
"Buyers have to get a home under contract very, very soon," said Tom Kunz, CEO of Century 21. "They probably should get out looking."
Sense of urgency
What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range. (Check prices in your city.)
In Whittier, Calif., for example, there are few repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe.
"That's why there's such a sense of urgency now," said Irma Tapper, a Century 21 real estate agent in Whittier. "The banks have to approve short sales, and they're taking three to six months to do that."
That means a first timer putting a bid on a short-sale might not get an answer form the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy.
Chuck Whitehead, who runs the Coldwell Banker agency in Temecula, Calif., said one recent listing hit the market on a Friday and by Monday there were 57 bids.
The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.
"It makes a big difference because most of these clients are in a lower price range," said Michelle Edmunds, an agent with Coldwell Banker in Temecula, Calf., who has closed sales for six first-time buyers. "The houses they buy need work and normally they wouldn't want to move in because of the [less than perfect] conditions the homes are in."
That is true for Wesley Forsythe. This June, the 30-year-old computer consultant and his girlfriend bought a row house in the Fishtown section of Philadelphia. Since he paid just $80,000 for the three-bedroom, two-bath place, the credit acted like a 10% discount.
"It allowed us to expand our price range and plan additional renovations," he said. "My mortgage is several hundred dollars less than what my new rent would have been."
Forsythe applied for the credit immediately after closing, filing an amended 2008 tax return. The IRS cut him a check in less than seven weeks. He's spending it now on new hardwood floors, repainting most of the interior and renovating a bathroom. He's stretching the cash by doing much of the work himself.
Cash for Clunkers effect
Of course, analysts worry that this frenzy will dry up once the tax credit expires. They argue that without the incentive, much of the pressure on homebuyers to act quickly will vanish, and the nascent housing recovery could slump.
In many ways the tax credit is similar to the Cash for Clunkers program that ended this week. Already, auto dealers are anticipating that car sales will evaporate after accelerating during the program.
"It's just like Cash for Clunkers," said Robert Dye, a senior economist for PNC Financial Services Group. "It runs the risk of a let-down as the program runs its course."
Johnny Isakson, R-Ga., who is a former real estate broker, is pushing legislation to extend the tax credit through next year, increase it to $15,000, include non-first-time homebuyers, and remove income restrictions.
The effort has drawn strong industry support.
"We need to stimulate the move-up buyer," said Century 21's Kunz, "so it works its way up the pricing food chain. That's what we need to get inventory moving again."
http://money.cnn.com/2009/08/27/real_estate/homebuyer_tax_credit_ending/index.htm?postversion=2009082715
Monday, August 31, 2009
Win at the credit scoring game
To get the best deal on a loan, you need some new strategies to bump up your score - and keep it there.
Borrowing money today requires impressing an increasingly hard-to-please crowd. With creditors of all kinds more cautious than ever, you need an A+ application to land the best terms -- and that means an A+ credit score, the number lenders use to judge your risk of default.
The most commonly used credit scoring system, called FICO, rates people from a very risky 300 to a pristine 850. And right now we're in the middle of a credit score crunch: "You need a 750 or better today to have the same treatment you got with a 700 two years ago," says John Ulzheimer, president of consumer education at Credit.com.
John D'Onofrio, CEO of Autoloandaily.com, seconds that: "Two years ago a 680 was enough to get a great car loan rate. Today it's often the minimum to qualify at all."
Think you're still in the clear? Don't be so sure. Lenders have been making changes that could cause your score to slip from excellent to average. Improve and protect your number with these strategies:
Learn your score. You have three FICO scores, based on your credit reports at the three credit bureaus: Experian, Equifax, and TransUnion. The numbers tend to be in the same ballpark, so pony up $16 to get one representative score at myfico.com. You can get an estimate free at Creditkarma.com. But the FICO score gives you a better sense of what lenders see.
Scout for mistakes. Your scores are only as good as the information they're based on. And a third of people who've pulled their reports have found errors, according to a Zogby poll. That's good reason to read your report.
When you buy your FICO score, you'll get a copy of the report it was based on. Get gratis histories from the other bureaus via annualcreditreport.com (you're entitled to one free from each bureau every 12 months).
Spot an error? Request a correction, following the instructions on the bureau's website. Let's say the size of a credit line was misstated or an account was mistakenly marked delinquent. Getting the error fixed could raise your score as much as 200 points, says Ulzheimer, who has also worked for Equifax and FICO.
Never, ever be late. As you'll see in the pie chart on the right, the biggest chunk of your credit score comes from your payment history. Just one late payment can shave 100 points off a 750-plus credit score, says Ulzheimer. Lenders can't tattle on you to the bureaus until you're 30 days past due, adds credit expert Gerri Detweiler. But don't risk it. For all your bills, enter recurring due-date reminders on your computer calendar.
Missed a payment? Get back on track within the next 30 days, and you should "get back the lion's share" of points lost, Ulzheimer says. More than 90 days late? The damage can stick for years. If it was a one-off lapse, call your issuer and plea for a good-will adjustment to your credit report. (It's a long shot.)
Remember the magic 20%. The second-biggest factor in your score is how much you owe vs. how much credit has been extended to you. The part of this that's easiest to finesse is your credit card utilization rate, or your total card balances compared with your total credit limits, as well as each card's balance relative to its limit.
Example: If you've charged $5,000 on cards and have $50,000 in credit, your rate is 10%. For the best score today, 10% is ideal, but you can probably creep up to 20% and keep a high rating.
Unfortunately, with banks lowering credit limits and canceling unused cards, it's harder to maintain such a low percentage. In the previous example, if your available credit is cut to $20,000, your rate shoots to 25%. That could sink your score by as much as 50 points, says Ulzheimer. The lesson: Know your limits, watch for changes, and stay under 20% on each card and in total (0% if you'll be applying for a loan soon).
Already above 20%? Paying down debt is the obvious way to lower your utilization rate, but another strategy is to apply for an additional credit card to increase your overall credit limit. That may cause you to lose a few points in the short term -- so don't do it if you're about to apply for a mortgage -- but it should pay off in the long run.
Keep oldest cards in play. As noted, credit issuers these days are eagerly canceling cards that are not in use. Besides reducing your limit and increasing your utilization ratio, having an account closed can hurt you in another way, especially if it's among your older ones.
See, 15% of your score rides on the length of your credit history. The longer you ably manage revolving debt, the better you look. So don't cancel your oldest cards. And don't let them get canceled on you: Move a recurring charge to each so they stay active.
Already ditched or been ditched? A new card (see previous) can help with your utilization rate, but there's little you can do to help the "history" component of your score, except to keep other old accounts in use.
Accept fate on the rest. There are other factors involved in your score, but they're not so easy to manipulate. For example, 10% is based on how well you manage a mix of credit types, such as mortgages, car loans, and credit cards. But you don't want to go out and, say, finance a car just for a score boost; besides, you can easily get 750-plus with just a few well-tended credit cards.
Along the same lines, 10% is based on "new credit," but the effects of a new application can be positive or negative, depending on your history.
In other words, if you want to be among the crème de la credit crème, accept what you can't change, and focus on what you can.
http://money.cnn.com/2009/08/24/pf/credit_score.moneymag/index.htm?postversion=2009082405
Borrowing money today requires impressing an increasingly hard-to-please crowd. With creditors of all kinds more cautious than ever, you need an A+ application to land the best terms -- and that means an A+ credit score, the number lenders use to judge your risk of default.
The most commonly used credit scoring system, called FICO, rates people from a very risky 300 to a pristine 850. And right now we're in the middle of a credit score crunch: "You need a 750 or better today to have the same treatment you got with a 700 two years ago," says John Ulzheimer, president of consumer education at Credit.com.
John D'Onofrio, CEO of Autoloandaily.com, seconds that: "Two years ago a 680 was enough to get a great car loan rate. Today it's often the minimum to qualify at all."
Think you're still in the clear? Don't be so sure. Lenders have been making changes that could cause your score to slip from excellent to average. Improve and protect your number with these strategies:
Learn your score. You have three FICO scores, based on your credit reports at the three credit bureaus: Experian, Equifax, and TransUnion. The numbers tend to be in the same ballpark, so pony up $16 to get one representative score at myfico.com. You can get an estimate free at Creditkarma.com. But the FICO score gives you a better sense of what lenders see.
Scout for mistakes. Your scores are only as good as the information they're based on. And a third of people who've pulled their reports have found errors, according to a Zogby poll. That's good reason to read your report.
When you buy your FICO score, you'll get a copy of the report it was based on. Get gratis histories from the other bureaus via annualcreditreport.com (you're entitled to one free from each bureau every 12 months).
Spot an error? Request a correction, following the instructions on the bureau's website. Let's say the size of a credit line was misstated or an account was mistakenly marked delinquent. Getting the error fixed could raise your score as much as 200 points, says Ulzheimer, who has also worked for Equifax and FICO.
Never, ever be late. As you'll see in the pie chart on the right, the biggest chunk of your credit score comes from your payment history. Just one late payment can shave 100 points off a 750-plus credit score, says Ulzheimer. Lenders can't tattle on you to the bureaus until you're 30 days past due, adds credit expert Gerri Detweiler. But don't risk it. For all your bills, enter recurring due-date reminders on your computer calendar.
Missed a payment? Get back on track within the next 30 days, and you should "get back the lion's share" of points lost, Ulzheimer says. More than 90 days late? The damage can stick for years. If it was a one-off lapse, call your issuer and plea for a good-will adjustment to your credit report. (It's a long shot.)
Remember the magic 20%. The second-biggest factor in your score is how much you owe vs. how much credit has been extended to you. The part of this that's easiest to finesse is your credit card utilization rate, or your total card balances compared with your total credit limits, as well as each card's balance relative to its limit.
Example: If you've charged $5,000 on cards and have $50,000 in credit, your rate is 10%. For the best score today, 10% is ideal, but you can probably creep up to 20% and keep a high rating.
Unfortunately, with banks lowering credit limits and canceling unused cards, it's harder to maintain such a low percentage. In the previous example, if your available credit is cut to $20,000, your rate shoots to 25%. That could sink your score by as much as 50 points, says Ulzheimer. The lesson: Know your limits, watch for changes, and stay under 20% on each card and in total (0% if you'll be applying for a loan soon).
Already above 20%? Paying down debt is the obvious way to lower your utilization rate, but another strategy is to apply for an additional credit card to increase your overall credit limit. That may cause you to lose a few points in the short term -- so don't do it if you're about to apply for a mortgage -- but it should pay off in the long run.
Keep oldest cards in play. As noted, credit issuers these days are eagerly canceling cards that are not in use. Besides reducing your limit and increasing your utilization ratio, having an account closed can hurt you in another way, especially if it's among your older ones.
See, 15% of your score rides on the length of your credit history. The longer you ably manage revolving debt, the better you look. So don't cancel your oldest cards. And don't let them get canceled on you: Move a recurring charge to each so they stay active.
Already ditched or been ditched? A new card (see previous) can help with your utilization rate, but there's little you can do to help the "history" component of your score, except to keep other old accounts in use.
Accept fate on the rest. There are other factors involved in your score, but they're not so easy to manipulate. For example, 10% is based on how well you manage a mix of credit types, such as mortgages, car loans, and credit cards. But you don't want to go out and, say, finance a car just for a score boost; besides, you can easily get 750-plus with just a few well-tended credit cards.
Along the same lines, 10% is based on "new credit," but the effects of a new application can be positive or negative, depending on your history.
In other words, if you want to be among the crème de la credit crème, accept what you can't change, and focus on what you can.
http://money.cnn.com/2009/08/24/pf/credit_score.moneymag/index.htm?postversion=2009082405
Friday, August 28, 2009
Hobart to get 'its own Fed Square'
A Sydney-based developer will transform Hobart's Parliament Square in a project worth $100 million.
Citta Property group will develop the site into what has been described as Hobart's version of Federation Square in Melbourne.
The developer has paid $7.5 million for the site.
It has promised to create an open public space that preserves the long-term use of the surrounding heritage buildings as well as construction of five-star-rated green office building.
The 10 Murray Street building will be demolished at the cost of $8m.
Construction is expected to start around March next year and should be completed within three years.
http://www.abc.net.au/news/stories/2009/08/28/2669686.htm?section=business
Citta Property group will develop the site into what has been described as Hobart's version of Federation Square in Melbourne.
The developer has paid $7.5 million for the site.
It has promised to create an open public space that preserves the long-term use of the surrounding heritage buildings as well as construction of five-star-rated green office building.
The 10 Murray Street building will be demolished at the cost of $8m.
Construction is expected to start around March next year and should be completed within three years.
http://www.abc.net.au/news/stories/2009/08/28/2669686.htm?section=business
Harvey Norman sees profit slump, but brighter outlook
Harvey Norman has reported a big drop in its full-year profit, to just over $214 million, compared to earnings of $358.4 million dollars last year.
The 40 per cent decline in profit was largely a result of smaller retail margins as companies discounted to maintain sales.
Harvey Norman's sales increased 3.8 per cent over the year, although the rise was mostly driven by increasing sales at the company's 195 franchise outlets.
Harvey Norman's 69 company-owned stores recorded a much more modest 0.8 per cent rise in sales.
The large decline in profit came as little surprise to analysts, with the average prediction being for a $213 million result.
Harvey Norman releases regular sales updates throughout the year, and had repeatedly warned that margins were under strong downward pressure because of the economic downturn.
The retailer says it is cautiously optimistic about the future, after the challenging conditions it has faced during the past 12 months.
It says the second half of the financial year was much stronger than the first, partly due to the "positive impact of the government stimulus package."
The company says sales have increased 5.7 per cent during the period between July 1 and August 27 compared to the same period a year earlier for stores that have been open at least a year. It says this beat internal expectations.
The company's chairman Gerry Harvey says confidence is on the way up, with consumers buoyed by Australia avoiding a technical recession.
"Consumer sentiment has obviously increased an awful lot, and our figures are showing the result of that consumer sentiment, so it does look as if the worst of all of this has passed and we're now in the growth phase," he said.
The company will issue a final dividend of 6 cents per share, bring the total for the 2009 financial year to 11 cents, which is the same payout as in the 2007 financial year and down on last year's 14 cent dividend.
The company's shares surged 10 per cent after the earnings report came out, and were 7.8 per cent higher at $3.45 at about 11:30am (AEST).
http://www.abc.net.au/news/stories/2009/08/28/2669698.htm
Bernanke: I was identity theft victim
Fed chairman was one of 500 tagged in alleged bank fraud scheme that led to federal indictment of 22 people.
Fed Chairman Ben Bernanke, the man in charge of the nation's money supply, discovered last summer that even he is not immune to the risk of identity theft.
A thief stole his wife's handbag, taking with it a family checkbook, credit cards and her identification, according to a police report and court documents.
Investigators say they eventually tied the case to a wider scheme of bank fraud that has led to a federal indictment against 22 people. Among them is the suspect in the Bernanke theft, who authorities believe is the man seen in a bank surveillance video trying to use one of the stolen checks to get money from the Bernanke account.
The Federal Reserve Board chairman and his wife, Anna, had to take steps against identity theft after the August 2008 loss, according to Newsweek magazine, which first reported the story Tuesday on its Web page.
Bernanke, through a spokesman at the Federal Reserve, acknowledged the theft and said in a statement provided Thursday to CNN: "Our family was but one of 500 separate instances traced to one crime ring."
The purse was taken in the customer area of a Starbucks coffee shop at Washington's famous Eastern Market.
Metropolitan Police Department records show Anna Bernanke was carrying four credit cards, her driver's license, the checkbook, and a small amount of cash in the handbag. The police officer who took the theft report quoted her as saying the purse was stolen from the back of her chair, and she did not see the theft take place.
According to a criminal complaint filed in October with District of Columbia Superior Court, the suspect, George L. Reid, 41, was involved in a scheme to pass fraudulent checks against multiple bank accounts, including Bernanke's.
With the federal indictments against Reid and the 21 others, the case has moved to U.S. District Court for the Eastern District of Virginia. The suspects are charged with conspiracy to commit bank fraud.
The scheme was said to involve "pickpocket theft, mail theft, theft from businesses, and corrupt employees" who helped the accused obtain bank account information, according to an affidavit filed in support of the charges and arrest warrants.
The U.S. attorney's office in Alexandria did not immediately return phone calls seeking information on whether Reid is now in custody.
The statement from the Federal Reserve Board chairman noted that "identity theft is a serious crime that affects millions of Americans each year."
He added, "I am grateful for the law enforcement officers who patiently and diligently work to solve and prevent these financial crimes.
http://money.cnn.com/2009/08/27/news/economy/bernanke_ID_theft.cnnw/index.htm?
Fed Chairman Ben Bernanke, the man in charge of the nation's money supply, discovered last summer that even he is not immune to the risk of identity theft.
A thief stole his wife's handbag, taking with it a family checkbook, credit cards and her identification, according to a police report and court documents.
Investigators say they eventually tied the case to a wider scheme of bank fraud that has led to a federal indictment against 22 people. Among them is the suspect in the Bernanke theft, who authorities believe is the man seen in a bank surveillance video trying to use one of the stolen checks to get money from the Bernanke account.
The Federal Reserve Board chairman and his wife, Anna, had to take steps against identity theft after the August 2008 loss, according to Newsweek magazine, which first reported the story Tuesday on its Web page.
Bernanke, through a spokesman at the Federal Reserve, acknowledged the theft and said in a statement provided Thursday to CNN: "Our family was but one of 500 separate instances traced to one crime ring."
The purse was taken in the customer area of a Starbucks coffee shop at Washington's famous Eastern Market.
Metropolitan Police Department records show Anna Bernanke was carrying four credit cards, her driver's license, the checkbook, and a small amount of cash in the handbag. The police officer who took the theft report quoted her as saying the purse was stolen from the back of her chair, and she did not see the theft take place.
According to a criminal complaint filed in October with District of Columbia Superior Court, the suspect, George L. Reid, 41, was involved in a scheme to pass fraudulent checks against multiple bank accounts, including Bernanke's.
With the federal indictments against Reid and the 21 others, the case has moved to U.S. District Court for the Eastern District of Virginia. The suspects are charged with conspiracy to commit bank fraud.
The scheme was said to involve "pickpocket theft, mail theft, theft from businesses, and corrupt employees" who helped the accused obtain bank account information, according to an affidavit filed in support of the charges and arrest warrants.
The U.S. attorney's office in Alexandria did not immediately return phone calls seeking information on whether Reid is now in custody.
The statement from the Federal Reserve Board chairman noted that "identity theft is a serious crime that affects millions of Americans each year."
He added, "I am grateful for the law enforcement officers who patiently and diligently work to solve and prevent these financial crimes.
http://money.cnn.com/2009/08/27/news/economy/bernanke_ID_theft.cnnw/index.htm?
Thursday, August 27, 2009
UK regulator seeks to deflate financial sector with global tax
The head of Britain's top banking watchdog supports the idea of new global taxes on financial transactions, warning that a "swollen" financial sector paying excessive salaries has grown too big for society.
Adair Turner, chairman of the Financial Services Authority, says the debate on bankers' bonuses has become a "populist diversion" and that more drastic measures may be needed to cut the financial sector down to size.
He also says the FSA should "be very, very wary of seeing the competitiveness of London as a major aim", claiming the city's financial sector has become a destabilizing factor in the British economy.
His comments, floated in an interview in Prospect magazine published on Thursday, may be read in other financial centers, including New York, as a sign that Britain is becoming increasingly skeptical about the perceived advantages of being a leading financial centre.
Lord Turner's suggestion that a "Tobin tax" -- named after the economist James Tobin -- should be considered for financial transactions is also likely to reverberate around the world. The proposed tax, which has previously been championed by development economists and the French government as a means of funding the developing world, has been fiercely opposed by the finance industry.
Lord Turner appears worried about a return to "business as usual" in the banking sector, suggesting that new taxes may be necessary to curb excessive profits and pay in the financial sector.
"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he says.
Lord Turner says higher capital requirements will be the FSA's main tool to eliminate excessive activity and profit, but that a tax on transactions on a global level may be an additional option.
Aides to Alistair Darling, chancellor, said no such taxes were under consideration. Mr Darling insists that the banking industry in London should continue to play a leading role in global finance.
Angela Knight, chief executive of the British Bankers' Association, also defended the financial industry's role in the economy saying the sector was a main provider of jobs and tax revenues and could be undermined by the wrong kind of taxes or regulation.
The FSA chairman also claims that parts of the financial services sector had grown "beyond a socially reasonable size", including derivatives and hedging and aspects of the asset management industry and equity trading.
http://edition.cnn.com/2009/BUSINESS/08/26/london.global.tax.ft/index.html
Wednesday, August 26, 2009
U.S. between a deficit and a hard place
White House estimates $9 trillion in deficits over decade, citing cost of economic rescue as a major reason. Congress' budget office also shows increase in deficit outlook.
New estimates of the federal deficit leave many questions unanswered but underscore one cold fact of life in Washington right now: Boosting the economy without making an already bad deficit worse is really hard to do.
The Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 trillion, or about $2 trillion more than it estimated earlier in the year.
Peter Orszag, director of the Office of Management and Budget, pointed to a number of measures put in place to stem the pain of the economic downturn.
"As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection," Orszag said in a statement.
A 10-year deficit of that magnitude means the debt held by the public -- the accumulation of all annual deficits over the decades -- would reach 82% of gross domestic product. That's double the 41% recorded in 2008.
Douglas Elmendorf, director of the Congressional Budget Office, summed up the bind that policymakers face.
"Action to reduce federal spending or raise taxes could further slow an already slow recovery," Elmendorf said at a Washington briefing. But then again, he noted, if lawmakers don't act the deficit would get worse. "We face perils in acting and perils in not acting."
Keeping score
The new White House deficit estimate assumes that President Obama's 2010 budget proposals will be passed. It brings the White House in line with a $9.14 trillion deficit estimate of the president's budget made by the CBO in June.
The CBO, which is Congress' official scorekeeper, also issued an update of its budget and economic outlook on Tuesday.
But its new 10-year deficit estimate is based on policies already in current law, and so it does not include the president's budget proposals. That new forecast is $7.1 trillion -- up from CBO's March estimate of $4.4 trillion.
The increase is driven by a few factors, including supplemental appropriations that lawmakers have made since March, such as spending money on the war in Iraq and Afghanistan, and revisions to the CBO's economic forecasts and technical assumptions, according to Elmendorf.
Elmendorf said the CBO would not be revising its 10-year deficit estimate of $9.14 trillion based on the president's budget.
But Tuesday's report did map out the effects on the deficit under a number of policy alternatives other than what's in current law. Some of those ideas have been called for by Obama, although his proposals are somewhat narrower in scope.
For instance, Obama has proposed making permanent the 2001 and 2003 tax cuts for the majority of Americans. Extending those tax cuts for everyone would add another $2.3 trillion to the 10-year deficit, CBO estimates. With interest, it would be closer to $2.8 trillion.
Obama has also called for the Alternative Minimum Tax to be adjusted so that it doesn't hit middle- and upper-middle-income families. The cost of doing so is $448 billion over 10 years, according to the CBO. Add in interest that would be owed on that debt and the ways in which the AMT fix would interact with the extensions of the tax cuts and the bill rises to just over $1 trillion.
Lastly, the congressional agency estimates that $1.8 trillion could be added to the deficit if other expiring tax provisions are extended. Some of these are among the president's proposals -- such as permanently enacting his Making Work Pay credit for lower- and middle-income families. With interest, the tab would come to $2.2 trillion.
The fiscal conundrum
Experts say that the CBO's deficit estimates would jump higher if the agency had updated its deficit estimates to account for the president's budget proposals.
"An updated CBO analysis of the President's budget would presumably provide even larger deficit projections than those released by OMB," the Committee for a Responsible Federal Budget wrote in a statement after the reports' release. The committee is made up of tax and budget experts from the left and the right.
Just how much is impossible to say, but it could push past $10 trillion, experts say. But even if it doesn't, the deficits must be brought under control.
"Something will have to give," said Rudolph Penner, a former CBO director who is now an institute fellow at the Urban Institute.
Indeed, most budget experts describe the growth in deficits as unsustainable.
"What does unsustainable mean? It means we'll be forced off track by an international crisis in the debt markets or a very large increase in interest on the debt," said Penner.
And there's no telling when something like that could happen.
"The reports highlight the need for the president and Congress to begin taking steps now to ensure that deficits will fall to reasonable levels through 2019 and that they do not grow very rapidly in later decades, as they will under current policies," said Jim Horney, director of federal fiscal policy at the liberal Center on Budget and Policy Priorities.
http://money.cnn.com/2009/08/25/news/economy/us_deficit_projection/index.htm?cnn=yes
New estimates of the federal deficit leave many questions unanswered but underscore one cold fact of life in Washington right now: Boosting the economy without making an already bad deficit worse is really hard to do.
The Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 trillion, or about $2 trillion more than it estimated earlier in the year.
Peter Orszag, director of the Office of Management and Budget, pointed to a number of measures put in place to stem the pain of the economic downturn.
"As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection," Orszag said in a statement.
A 10-year deficit of that magnitude means the debt held by the public -- the accumulation of all annual deficits over the decades -- would reach 82% of gross domestic product. That's double the 41% recorded in 2008.
Douglas Elmendorf, director of the Congressional Budget Office, summed up the bind that policymakers face.
"Action to reduce federal spending or raise taxes could further slow an already slow recovery," Elmendorf said at a Washington briefing. But then again, he noted, if lawmakers don't act the deficit would get worse. "We face perils in acting and perils in not acting."
Keeping score
The new White House deficit estimate assumes that President Obama's 2010 budget proposals will be passed. It brings the White House in line with a $9.14 trillion deficit estimate of the president's budget made by the CBO in June.
The CBO, which is Congress' official scorekeeper, also issued an update of its budget and economic outlook on Tuesday.
But its new 10-year deficit estimate is based on policies already in current law, and so it does not include the president's budget proposals. That new forecast is $7.1 trillion -- up from CBO's March estimate of $4.4 trillion.
The increase is driven by a few factors, including supplemental appropriations that lawmakers have made since March, such as spending money on the war in Iraq and Afghanistan, and revisions to the CBO's economic forecasts and technical assumptions, according to Elmendorf.
Elmendorf said the CBO would not be revising its 10-year deficit estimate of $9.14 trillion based on the president's budget.
But Tuesday's report did map out the effects on the deficit under a number of policy alternatives other than what's in current law. Some of those ideas have been called for by Obama, although his proposals are somewhat narrower in scope.
For instance, Obama has proposed making permanent the 2001 and 2003 tax cuts for the majority of Americans. Extending those tax cuts for everyone would add another $2.3 trillion to the 10-year deficit, CBO estimates. With interest, it would be closer to $2.8 trillion.
Obama has also called for the Alternative Minimum Tax to be adjusted so that it doesn't hit middle- and upper-middle-income families. The cost of doing so is $448 billion over 10 years, according to the CBO. Add in interest that would be owed on that debt and the ways in which the AMT fix would interact with the extensions of the tax cuts and the bill rises to just over $1 trillion.
Lastly, the congressional agency estimates that $1.8 trillion could be added to the deficit if other expiring tax provisions are extended. Some of these are among the president's proposals -- such as permanently enacting his Making Work Pay credit for lower- and middle-income families. With interest, the tab would come to $2.2 trillion.
The fiscal conundrum
Experts say that the CBO's deficit estimates would jump higher if the agency had updated its deficit estimates to account for the president's budget proposals.
"An updated CBO analysis of the President's budget would presumably provide even larger deficit projections than those released by OMB," the Committee for a Responsible Federal Budget wrote in a statement after the reports' release. The committee is made up of tax and budget experts from the left and the right.
Just how much is impossible to say, but it could push past $10 trillion, experts say. But even if it doesn't, the deficits must be brought under control.
"Something will have to give," said Rudolph Penner, a former CBO director who is now an institute fellow at the Urban Institute.
Indeed, most budget experts describe the growth in deficits as unsustainable.
"What does unsustainable mean? It means we'll be forced off track by an international crisis in the debt markets or a very large increase in interest on the debt," said Penner.
And there's no telling when something like that could happen.
"The reports highlight the need for the president and Congress to begin taking steps now to ensure that deficits will fall to reasonable levels through 2019 and that they do not grow very rapidly in later decades, as they will under current policies," said Jim Horney, director of federal fiscal policy at the liberal Center on Budget and Policy Priorities.
http://money.cnn.com/2009/08/25/news/economy/us_deficit_projection/index.htm?cnn=yes
Toyota poised to slash production
Toyota is poised to slash production by as much as 580,000 vehicles -- or almost 6 percent of global capacity -- in an effort to stem losses amid the sharp downturn in car sales. Japan's largest carmaker, which is forecasting its second consecutive net loss this year, said it would shut a production line in western Japan from next spring through to the second half of 2011, reducing output by 220,000 vehicles. Toyota is also looking to pull out of Nummi, its manufacturing joint venture with General Motors, in California, the company said. "While nothing has been decided, we are in discussions [with GM's administrator] with a view to pulling out of Nummi," said Toyota. Japanese media have been reporting that the carmaker is also looking at cutting production in the UK, where it makes the Auris, along with other lines in Japan. If this proves to be the case, Toyota will bring its total of production cuts to almost 1m vehicles, or 10 percent of its global production capacity. It is the first time Toyota has planned to cut production on such a large scale and comes as the group's global sales have been battered by the recession. The company is expected to produce about 7.2m vehicles globally this year, compared with 9.7m in 2007, said Masatoshi Nishimoto, analyst at CSM Worldwide, the market research group. In its home market, Toyota is expected to see production fall to 3.3m vehicles this year compared with 4.9m in 2007, said Mr Nishimoto. However, it is in the US -- where Toyota was forced by plunging sales to halt the building of a new plant in Mississippi -- that the group has suffered most from the dramatic drop in demand for vehicles. Sales in North America fell 34 percent to 945,000 in the period from January to July this year, the company said. The drop was noticeably larger than the 23 percent drop in Japan and the 27 percent decline in Europe. Akio Toyoda, the founding family scion who took over as Toyota chief executive in June, is on a mission to cut costs and bring the company back to profitability next fiscal year. Mr Nishimoto at CSM said Toyota would have to wait until 2011 to return to its post-crisis levels of production. He said it would be relatively easy for Toyota to pull out of the Nummi facility, where it produced 359,000 vehicles last year, by shifting production of the popular Corolla model it makes there to another plant in the US. http://edition.cnn.com/2009/BUSINESS/08/26/toyota.production.ft/index.html
Monday, August 24, 2009
Wall Street hopes to extend hot streak
Although many bulls are on the beach, stocks may continue their summer surge this week. But experts say more recovery evidence is needed to keep rally going.
Investors are hoping the surprisingly strong summer market rally will last at least one more week -- before any second-guessing in the fall kicks in.
"We saw a huge rebound at the end of last week and that will probably carry over," said Richard Hughes, co-president of Portfolio Management Consultants. "But the trading volume is going to be very light."
The S&P 500 has jumped just shy of 52% since hitting a 12-year low on March 9. Bets that the sky is not falling after all and the economy will recover - paired with generous fiscal and monetary stimulus - have boosted the market.
But the recent leg of the advance has been run on thin trading volume, even for summer. Low volume tends to exaggerate market moves.
"It won't be until September that we'll be able to really see how it settles," Hughes said. "The focus is shifting from wondering when the recession is going to end to wondering what a recovery is going to look like," he said.
Next week brings reports on personal income and spending, as well as home prices, all of which are important in the bigger discussion about how the consumer is holding up. A revision of second-quarter gross domestic product (GDP) is also on tap.
Confirming a recovery: Last week, Fed chief Ben Bernanke said the U.S. economy is nearing a recovery, although the pace will be slow as unemployment stays high.
Reports on housing and manufacturing showed surprising gains last week, while the closely-watched weekly jobless claims report showed more Americans filed for first-time benefits than economists were expecting. In the weeks ahead, Wall Street is going to be looking for more confirmation that a recovery is underway.
"Typically when you're moving from recession to expansion, you get numbers that conflict with each other, like the jobless claims," said David Chalupnik, head of equities at First American Funds. "That trend will continue."
He said that of greater interest in the weeks ahead will be "how quickly the economy makes the transition" into a period of expansion and whether the consumer starts spending again. Consumers have jumped into the government's soon-to-end Cash for Clunkers program, but have otherwise held back on non-essentials..
On the docket
Monday: There are no market moving events on the schedule Monday.
Tuesday: The August consumer confidence index from the Conference Board is expected to have risen to 48.8 from 46.6 in July, according to a consensus of economists surveyed by Briefing.com.
The S&P/CaseShiller home price index, a measure of 20 major cities, is expected to have fallen 16.4% in June versus a year ago after falling 17.1% in May. If that estimate turns out to be accurate, it would be the third month in a row that the pace of declines has lessened.
In May, the report showed that home prices rose versus the previous month, the first monthly increase in almost 3 years.
Wednesday: New home sales are expected to have risen to an annualized rate of 390,000 in July from an annualized rate of 384,000 in June. The Commerce Department report is due after the start of trading.
July durable goods orders are expected to have risen 3.2% after falling 2.5% in June. Orders, excluding transportation, are expected to have risen 1% after rising 1.1% in June. The Commerce Department report is due in the morning.
The weekly crude oil inventories report from the Energy Information Administration is also due in the morning.
Thursday: Second-quarter gross domestic product growth (GDP) is expected to have contracted at a 1.4% annualized rate, worse than the initially reported 1% rate, but not as sharp as the 6.4% decline in the previous quarter. The Commerce Department report is due before the start of trading.
A report is also due in the morning on weekly jobless claims.
Toll Brothers (TOL) reports results in the morning. The homebuilder is expected to report a loss of $1.26 per share versus a loss of 18 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters.
Dell (DELL, Fortune 500) reports results after the close. The computer maker is expected to have earned 23 cents per share versus 31 cents a year ago, according to forecasts.
Friday: The Commerce Department releases reports on July personal income and spending before the start of trading.
Income is expected to have risen 0.1% after falling 1.3% in June. Spending is expected to have risen 0.2% after rising 0.4% in June. The PCE Core deflator, the report's inflation component, is expected to have risen 0.1% after rising 0.2% in June.
The University of Michigan's consumer sentiment index, due shortly after the start of trading, is expected to be revised up to 64.8 from the originally reported 63.2.
http://money.cnn.com/2009/08/23/markets/sunday_lookahead/index.htm?postversion=2009082309
Existing homes selling fast - record fast
The volume of home re-sales has been on the upswing for four consecutive months.
Sales of existing homes rose in July for the fourth consecutive month, lending support to economists who argue a recovery is near.
Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999.
"The housing market has decisively turned for the better," said Lawrence Yun, NAR's chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales."
July home sales hit an annualized rate of 5.24 million proprieties, marking the first breach of the 5 million annualized rate mark since last September, when they hit 5.1 million. Since then, they have stayed in a very narrow range, bouncing between between January's low of 4.49 million and October's high of 4.94 million.
The July performance far exceeded expectations: A consensus of real estate experts had forecast sales of 5 million.
Low prices
Of course, homes should be selling. Prices have fallen more than 32% from their peaks, set in the summer of 2006. Plus, mortgage rates near historic lows makes the cost of purchasing a home lower than they've been in nearly 20 years.
http://money.cnn.com/2009/08/21/real_estate/home_sales_rise_in_July/index.htm?postversion=2009082114
How we got started
The founders of four breakout companies on how they built billion-dollar global brands like Costco and Re/Max from scratch.
Costco was once a scrappy startup with the relatively modest goal of raising $7.5 million to open a few warehouses.
Costco was once a scrappy startup with the relatively modest goal of raising $7.5 million to open a few warehouses.
Jim Sinegal was a former Price Club executive. Jeffrey Brotman was a lawyer who had returned from a trip to Paris with a vision of importing a retail concept the French embraced.
"I called around to retail contacts and asked them to list executives who could run such a business. Jim was on most lists. I cold-called him one day and flew to California to meet him," Brotman recalls.
In 1983 they opened the first Costco, in Seattle, financing the business with savings and credit cards.
"Jim and I went to a hardware show in Las Vegas. By then we had hired buyers, who were using our credit cards to check in. But the bank had canceled the cards, so they were denied entrance," Brotman says. "They had worked with us for only a month and were probably wondering whether we'd make it. I thought we'd lose half of them, but they stayed."
How I got a $200,000 credit line
You'll need to demonstrate more than solid financials to get a bank behind your business.
I learned the hard way that bank financing is all about personal relationships.
In 1995 my husband, Daryck, and I launched Environmental and Occupational Safety Services (EOSS) from our kitchen table. We were both mechanical engineers who wanted to spend more time with our children, so we went into business for ourselves. I ran the company full-time. Daryck helped out but kept his day job in engineering (he has since joined EOSS full-time).
We bootstrapped the business at first, providing environmental health and safety training for the state of New Jersey. Eventually we added services such as managing environmental cleanup projects. And in 2005 we won a big federal contract to operate and maintain groundwater treatment plants for a military airport in Lakehurst, N.J. I promptly applied for a $50,000 bank loan to cover the expenses we would incur before we received our first payment from the government.
Money isn't everything
I had a good history with that bank: I'd had a merchant account there for a decade, and in recent years our monthly deposits had averaged between $20,000 and $30,000. The government contract promised more than $50,000 a month for the next three years, so I thought I was a shoo-in for the loan.
But despite my solid financials, the bank turned me down. In the end we used personal savings and a $30,000 loan from Daryck's parents to cover our costs until we got paid.
After that I became disenchanted with banks. To tide us over I started selling our accounts receivable to a local factoring firm, which wasn't cheap. Then my uncle, a business owner, gave me some invaluable advice. "Never bank at the window," he said. "Always go inside and establish a relationship with your bankers."
Banking goodwill
It was worth a try. After all, I'd never even met a bank manager before. I headed to the local branch of our new bank -- we had transferred our business by then -- and introduced myself to the manager and even the tellers. That year I invited the whole branch to our Christmas party at a nearby hotel. Very few bank employees came, and those who did stopped by only to say hi (bank rules prohibited accepting food or drink from customers), but it certainly helped them remember me!
And even though I preferred online banking, I started dropping by the branch at least twice a month. I would chat with the vice president about everything from her latest handbag to recent articles about EOSS -- and I always made sure to e-mail her news clippings about our company.
In 2006 I applied for a $50,000 line of credit. It was approved. Less than a year later I went to the branch and found that I'd been automatically approved for double that amount! Today we have a $200,000 line of credit at a rate that's only slightly above prime. And we've finally stopped factoring.
I never realized how important it is to create a positive banking relationship. Many bank decisions, such as loan approvals, depend not only on credit reports and cash flow statements but also on a banker's subjective judgment, so it's essential that the manager know you personally, understand your core values and see you as a good investment. That's the best way to make sure you're taken seriously.
http://money.cnn.com/2009/08/21/smallbusiness/small_business_bank_loan.fsb/index.htm?postversion=2009082115Friday, August 21, 2009
Dollar General files $750 million IPO
The discount retailer owned by private-equity firm KKR plans one of the largest initial public offerings this year.
http://money.cnn.com/2009/08/20/news/companies/Dollar_General_IPO/index.htm?postversion=2009082019
Discount retailer Dollar General Corp. on Thursday filed to sell up to $750 million worth of stock in an initial public offering.
The Goodlettsville, Tenn.-based chain, which was bought by private-equity firm Kohlberg Kravis Roberts & Co. in 2007, opperates 8,362 stores in 35 U.S. states.
The $750 million estimate was calculated solely for the purpose of registering with the Securities and Exchange Commission and the actual amount sold could vary. If the company raises the estimated amount, it would be one of the biggest IPOs this year.
KKR will underwrite the offering along with Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500) and J.P. Morgan (JPM, Fortune 500), among others.
The filing did not say when the offering would take place.
Dollar said it will pay a "special dividend" of $200 million to existing shareholders using cash generated from operations. It will also pay a $64 million fee to KKR and Goldman for management and advisory services.
The offering comes as the stock market has rallied broadly over the last several months, raising bets that a revival in the IPO market is on the horizon after demand evaporated in the credit crunch last year.
The company has fared well during the recession as consumers have become increasingly more bargain-minded.
Dollar's profits surged to $83 million in the quarter ended May 1 from $5.9 million a year earlier.http://money.cnn.com/2009/08/20/news/companies/Dollar_General_IPO/index.htm?postversion=2009082019
4 million home loans are delinquent
Mortgage lenders say the flood of foreclosures has not yet crested. Highwater mark should come this fall.
http://money.cnn.com/2009/08/20/real_estate/Mortgage_delinquenciies_keep_rising/index.htm?postversion=2009082017
The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That's way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states -- California, Florida, Arizona and Nevada -- accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida's total delinquency rate comes to 22.8% -- almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It's hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."http://money.cnn.com/2009/08/20/real_estate/Mortgage_delinquenciies_keep_rising/index.htm?postversion=2009082017
The end of the phone as we know it
Startups and disruptors (yes, Google) seek to rethink voice calling.
Andy Jagoe is zigging while the rest of the mobile world zags. Let everyone else chase the next hot iPhone app. He’s betting the next big thing is a twist on the same old thing: making calls.
He may be right. Jagoe, CEO and co-founder of startup 3jam, is one of several Silicon Valley dreamers who thinks he can reinvent the phone call. And really, let’s admit it’s in need of some Internet-style innovation. We’re in 2009, for crying out loud. Why isn’t call forwarding as easy as e-mail forwarding? Why don’t your voicemails live in a nifty little online inbox?
Remember web 2.0? It’s time for phone 2.0.
And it’s arriving. The most prominent example is Google's (GOOG) Google Voice, an invitation-only service that offers a free Internet telephone number that forwards calls wherever its owner chooses and delivers features like visual voicemail, call screening and transcription.
Mountain View-based Ditech Networks (DITC) has a similar invitation-only offering called toktok. San Francisco-based 3jam, which is open to the public and starts at $5 per month, adds tricks like convenient group text messaging.
Voice apps are coming
Not everyone is a fan. Apple (AAPL) caused a stir last month when it barred Google Voice software from the iPhone App Store, saying it duplicates features the handset already provides. But Jagoe thinks the services will prevail eventually. “It's going to be hard,” he says, “to prevent this kind of functionality from appearing on a phone.”
Indeed, people who use these services swear by them, and in Silicon Valley these days it’s a growing cohort. (At a mobile technology panel this month at Microsoft’s (MSFT) Mountain View campus, Google Voice users outnumbered Amazon (AMZN) Kindle users five to one.) The reason is simple: phone 2.0 is liberating phone calls the same way webmail liberated e-mail a decade ago. Now you can keep your phone number, your call history and your voicemails no matter how many times you move, change jobs or switch carriers.
Over a burger at a San Francisco lunch spot, Jagoe explains why this revolution in phone calls is happening now. First, it recently became more affordable for startups like 3jam to forward calls to landlines. Second, Neustar (NSR), a company that enables text messaging, this year gave Internet-based phone numbers a boost by allowing them to send and receive text messages. And third, mobile consumers increasingly crave better options for managing their conversations and staying productive.
Of course, even if the masses are ready for a phone call revolution, there’s no guarantee they’ll buy it from 3jam. If Google Voice opens up its free service to the general public soon, it will get a lot tougher for Jagoe to sell monthly plans. And then there’s the threat from the phone giants: Glenn Lurie, president of Emerging Devices at AT&T (T), tells Fortune that he’s keeping an eye on Internet-based voice services. Clearly carriers would prefer to be the ones selling those kinds of features.
Regardless, Jagoe has a couple of things going for him. 3jam recently finalized a deal with Peek, maker of the eponymous e-mail device, where 3jam will offer phone numbers to Peek users. With those numbers, users soon will be able to more reliably send texts as well as e-mails, and even get voicemail transcripts.
Perhaps more important, Jagoe is running a lean operation, having recently cut 3jam’s full-time payroll from 25 people to 5. He says the company is on track to be cash flow positive by the end of the year, which should help him to avoid the fate of VoIP peers like Yoomba and Jangl that burned through cash before they could figure out a long-term business model.
In the end, the business part has to work. Even in the phone 2.0 world, if you can’t pay the bills, you get disconnected.
Andy Jagoe is zigging while the rest of the mobile world zags. Let everyone else chase the next hot iPhone app. He’s betting the next big thing is a twist on the same old thing: making calls.
He may be right. Jagoe, CEO and co-founder of startup 3jam, is one of several Silicon Valley dreamers who thinks he can reinvent the phone call. And really, let’s admit it’s in need of some Internet-style innovation. We’re in 2009, for crying out loud. Why isn’t call forwarding as easy as e-mail forwarding? Why don’t your voicemails live in a nifty little online inbox?
Remember web 2.0? It’s time for phone 2.0.
And it’s arriving. The most prominent example is Google's (GOOG) Google Voice, an invitation-only service that offers a free Internet telephone number that forwards calls wherever its owner chooses and delivers features like visual voicemail, call screening and transcription.
Mountain View-based Ditech Networks (DITC) has a similar invitation-only offering called toktok. San Francisco-based 3jam, which is open to the public and starts at $5 per month, adds tricks like convenient group text messaging.
Voice apps are coming
Not everyone is a fan. Apple (AAPL) caused a stir last month when it barred Google Voice software from the iPhone App Store, saying it duplicates features the handset already provides. But Jagoe thinks the services will prevail eventually. “It's going to be hard,” he says, “to prevent this kind of functionality from appearing on a phone.”
Indeed, people who use these services swear by them, and in Silicon Valley these days it’s a growing cohort. (At a mobile technology panel this month at Microsoft’s (MSFT) Mountain View campus, Google Voice users outnumbered Amazon (AMZN) Kindle users five to one.) The reason is simple: phone 2.0 is liberating phone calls the same way webmail liberated e-mail a decade ago. Now you can keep your phone number, your call history and your voicemails no matter how many times you move, change jobs or switch carriers.
Over a burger at a San Francisco lunch spot, Jagoe explains why this revolution in phone calls is happening now. First, it recently became more affordable for startups like 3jam to forward calls to landlines. Second, Neustar (NSR), a company that enables text messaging, this year gave Internet-based phone numbers a boost by allowing them to send and receive text messages. And third, mobile consumers increasingly crave better options for managing their conversations and staying productive.
Of course, even if the masses are ready for a phone call revolution, there’s no guarantee they’ll buy it from 3jam. If Google Voice opens up its free service to the general public soon, it will get a lot tougher for Jagoe to sell monthly plans. And then there’s the threat from the phone giants: Glenn Lurie, president of Emerging Devices at AT&T (T), tells Fortune that he’s keeping an eye on Internet-based voice services. Clearly carriers would prefer to be the ones selling those kinds of features.
Regardless, Jagoe has a couple of things going for him. 3jam recently finalized a deal with Peek, maker of the eponymous e-mail device, where 3jam will offer phone numbers to Peek users. With those numbers, users soon will be able to more reliably send texts as well as e-mails, and even get voicemail transcripts.
Perhaps more important, Jagoe is running a lean operation, having recently cut 3jam’s full-time payroll from 25 people to 5. He says the company is on track to be cash flow positive by the end of the year, which should help him to avoid the fate of VoIP peers like Yoomba and Jangl that burned through cash before they could figure out a long-term business model.
In the end, the business part has to work. Even in the phone 2.0 world, if you can’t pay the bills, you get disconnected.
Wal-Mart recalls 1.5 million DVD players
Recall of Durabrand DVD players is the result of a dozen reports the machines overheat and burst into flame.
Wal-Mart is recalling about 1.5 million Durabrand DVD players because of a potential for the device to burst into flames, the U.S. Consumer Product Safety Commission said Thursday. Wal-Mart (WMT, Fortune 500) received 12 complaints of the DVD players overheating; in five of the cases, the overheating caused a fire that damaged property, according to a statement from the CPSC. No injuries have been reported. The DVD player, imported from China, was sold at Wal-Mart stores from January 2006 through July 2009 for $29. The DVD player came with a remote control and is silver with a U-shaped opening at the top to insert the DVD. Consumers should stop using the DVD player immediately and return it to Wal-Mart for a full refund. For additional information, contact Wal-Mart at (800) 925-6278 between 7 a.m. and 9 p.m. CT Monday through Friday, or visit the Web site at http://walmartstores.com
Thursday, August 20, 2009
IRS gets a key to Swiss bank accounts
Government reaches deal to access as many as 5,000 UBS accounts that U.S. investors might have used to avoid taxes.
The Internal Revenue Service announced Wednesday that it has reached a deal with the Swiss government, gaining access to thousands of UBS AG accounts that Americans might have used to avoid paying taxes.
"Thousands of taxpayers who avoided paying taxes in the past are being brought into compliance," said IRS Commissioner Douglas Shulman in a teleconference with reporters. "As this agreement demonstrates, the world of international taxes has drastically changed."
An IRS press release stated that 4,450 accounts held by rich American investors were included in the settlement.
In the teleconference, Shulman said the IRS expects to gain access to a total of more than 5,000 UBS (UBS) accounts, through the IRS-UBS settlement, combined with a voluntary disclosure program and "other sources." He said these accounts have held $18 billion in assets at one time, though he did not have a current tally for their value.
A UBS spokeswoman would not comment on the value of the accounts and referred questions to a company press release. In the release, UBS Chairman Kaspar Villiger said the settlement "helps to resolve one of UBS' most pressing issues."
"I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service," said Villiger. "UBS welcomes the fact that the information-exchange objectives of the settlement can be achieved in a lawful manner under the existing treaty framework between Switzerland and the United States."
Deterrent: The announcement is the result of a settlement that the IRS and Switzerland-based UBS reached earlier this month to track down and identify wealthy Americans who have avoided paying taxes by hiding their assets in offshore accounts. Shulman said the deal should deter Americans from evading taxes in the future.
Shulman said investors who evaded taxes through UBS can avoid prosecution by reporting their tax activity by the Sept. 23 voluntary disclosure deadline, so long as they meet certain requirements.
"Although the clock is ticking, there is still time for you to come in and get right with your government," said Shulman. "Talk to your tax professional."
Asher Rubinstein, an offshore attorney with New York-based Rubinstein & Rubinstein, said that some of his clients have participated in the voluntary disclosure program. He said that taxpayers have to provide "complete and honest disclosure" and cannot participate if their funds are the proceeds of illegal activity.
"This is a government that is in need of cash, and the IRS is trying to raise the cash," said Rubinstein, explaining the incentive for the program.
He said that the IRS was initially seeking 52,000 accounts and received about 5,000, so it wasn't a complete victory. But still, he said the landscape has changed dramatically for U.S.-based tax evaders.
"The bottom line is that the days of tax havens are gone," said Rubinstein. "If you're a wealthy American, you can't just expect to stash your money in the Cayman Islands or Switzerland or Liechtenstein and expect to be off the IRS radar."
Shulman said during the teleconference that the IRS was "never interested in pursuing 52,000 accounts and this was never an IRS number. "Remember," he explained, "we filed this lawsuit when the Swiss government was taking the position that we could not have access to any of these accounts. That posture changed in the past month and we were able to gain access to the accounts we wanted."
http://money.cnn.com/2009/08/19/news/companies/ubs_irs/index.htm?postversion=2009081912
The Internal Revenue Service announced Wednesday that it has reached a deal with the Swiss government, gaining access to thousands of UBS AG accounts that Americans might have used to avoid paying taxes.
"Thousands of taxpayers who avoided paying taxes in the past are being brought into compliance," said IRS Commissioner Douglas Shulman in a teleconference with reporters. "As this agreement demonstrates, the world of international taxes has drastically changed."
An IRS press release stated that 4,450 accounts held by rich American investors were included in the settlement.
In the teleconference, Shulman said the IRS expects to gain access to a total of more than 5,000 UBS (UBS) accounts, through the IRS-UBS settlement, combined with a voluntary disclosure program and "other sources." He said these accounts have held $18 billion in assets at one time, though he did not have a current tally for their value.
A UBS spokeswoman would not comment on the value of the accounts and referred questions to a company press release. In the release, UBS Chairman Kaspar Villiger said the settlement "helps to resolve one of UBS' most pressing issues."
"I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service," said Villiger. "UBS welcomes the fact that the information-exchange objectives of the settlement can be achieved in a lawful manner under the existing treaty framework between Switzerland and the United States."
Deterrent: The announcement is the result of a settlement that the IRS and Switzerland-based UBS reached earlier this month to track down and identify wealthy Americans who have avoided paying taxes by hiding their assets in offshore accounts. Shulman said the deal should deter Americans from evading taxes in the future.
Shulman said investors who evaded taxes through UBS can avoid prosecution by reporting their tax activity by the Sept. 23 voluntary disclosure deadline, so long as they meet certain requirements.
"Although the clock is ticking, there is still time for you to come in and get right with your government," said Shulman. "Talk to your tax professional."
Asher Rubinstein, an offshore attorney with New York-based Rubinstein & Rubinstein, said that some of his clients have participated in the voluntary disclosure program. He said that taxpayers have to provide "complete and honest disclosure" and cannot participate if their funds are the proceeds of illegal activity.
"This is a government that is in need of cash, and the IRS is trying to raise the cash," said Rubinstein, explaining the incentive for the program.
He said that the IRS was initially seeking 52,000 accounts and received about 5,000, so it wasn't a complete victory. But still, he said the landscape has changed dramatically for U.S.-based tax evaders.
"The bottom line is that the days of tax havens are gone," said Rubinstein. "If you're a wealthy American, you can't just expect to stash your money in the Cayman Islands or Switzerland or Liechtenstein and expect to be off the IRS radar."
Shulman said during the teleconference that the IRS was "never interested in pursuing 52,000 accounts and this was never an IRS number. "Remember," he explained, "we filed this lawsuit when the Swiss government was taking the position that we could not have access to any of these accounts. That posture changed in the past month and we were able to gain access to the accounts we wanted."
http://money.cnn.com/2009/08/19/news/companies/ubs_irs/index.htm?postversion=2009081912
Sony to launch slimmer PS3 with lower price
Sony has officially confirmed rumors surrounding the PlayStation 3 game console. In a video posted on the PlayStation Blog SCEA President and CEO Jack Tretton announced a new slimmer PS3 will be available September 1st. In addition, all PS3 consoles got a $100 price cut today, dropping the cost to an enticing $299. Engadget received an early look at the new PlayStation 3 Slim and provides a great hands-on gallery. Price has always been an obstacle preventing the widespread adoption of the PS3. Just last week Ars Technica criticized the cost of the console: In many cases, price is the most important factor, and while Blu-ray and wireless may be nice, they’re not always enough to convince a parent or grandparent to spend $200 extra dollars in the store. Right now, price is everything, and no checklist will change that. The secret? Just lower the damn price. With hot titles such as God of War 3 and Final Fantasy XIII on the horizon and a $100 price cut, the PlayStation 3 may finally be a true competitor in the console wars. Will a $299 feature-rich PS3 be able to dethrone the value-priced Nintendo Wii ($250) or challenge Microsoft’s Xbox 360 Pro ($299)?
http://scitech.blogs.cnn.com/2009/08/19/sony-to-launch-slimmer-ps3-with-lower-price/
Why oil won't return to triple digits
Worries about hurricane season, the pace of economic recovery and a volatile stock market will keep prices in check.
Oil prices have surged more than 50% from the start of the year, but don't expect a return to triple digits anytime soon -- worries about the pace of an economic recovery will continue to drive near-term volatility.
"The market is manic right now," said Phil Flynn, analyst at PFG Best. "This is more uncertainty than I've seen in a very long time: big rallies followed by big breaks, and that's reflective of feelings about the overall economy."
Concerns about the recession -- and more recently the timing of recovery -- have translated into some big swings. Worldwide consumption faltered as the global recession took hold, sending prices lower. There have been signs of a recovery, but it won't be a straight line.
Just last month, prices swung from a 6% decline one day to a 6% gain the next. While that's not a daily occurrence, it does signal some trepidation.
On Wednesday, U.S. crude for September delivery rose $2.23, or almost 5%, to settle at $72.42 a barrel after a weekly government inventory report showed an unexpected drop in oil supplies.
Weekly inventory reports typically influence crude prices, but lately the effect is more muted as other factors gain prominence.
Mixed data stifle predictions. If the oil market is looking to economic reports for signs of recovery, the optimism barometer changes almost daily. Data in recent weeks have painted a mixed picture.
Two recent reports, for example, signaled opposite directions: Industrial production saw its first rise in 9 months, but a measure of consumer confidence showed a surprise decline.
"The data are confusing about the main question: Where are we at in the recession?" Flynn said. "One day we're jubilant about better housing data, and the next day stocks plunge on bad retail sales. It's all over the place."
Even a statement from the Federal Reserve, which said the economy is "leveling out," contained a major caveat that activity would remain weak in the near term.
Investors are left wondering whether the recovery is beginning, slowing, or even falling into a double-dip recession.
"If the data continue to be mixed, we'll see sideways movement in energy," said James Cordier, president of Liberty Trading Group. "They'll track the bounces." He predicted that oil will trade within about a $5-$7 range for the short term.
"It'll stick there until we're clear on this recession," Cordier said. "And at this point, who knows when that will be?"
Stocks offset dollar pressure. Oil prices generally move in the opposite direction of the dollar, and in tandem with stocks.
Lower crude prices typically push the greenback higher because oil is priced in U.S. dollars around the world. Conversely, crude investors look to the stock market to gauge when fuel demand will rebound.
The dollar has fallen about 10% against a basket of currencies since stocks bottomed in early March, while the S&P 500 index has rebounded 45% off its lows.
Both the foreign exchange market and global stocks have also seen day-to-day fluctuations based on data from around the world. Those influences are overtaking traditional supply and demand numbers in the oil market, Flynn said.
Hurricane season looms. Meanwhile, hurricane season is unpredictable and can easily wreak havoc on the oil market if refineries get taken out or severely damaged. The National Hurricane Center has reported three storms -- Ana, Bill and Claudette -- that could affect oil production. Production disruptions boost supply worries and subsequently crude prices.
Flynn said hurricane concerns may have driven up oil prices "a bit" as of late, but gains were limited because none of the three storms appear to pose an immediate threat.
However, hurricane season has just begun and Cordier said he expects more storms will spark a rally in oil prices within the next 30-45 days.
Meanwhile, the average price of gasoline slipped for the fifth consecutive day, to $2.628 a gallon from the previous day's $2.634, according to motorist group AAA.
China's influence. News from the world's third-largest economy has had a significant effect on markets around the globe in recent weeks, Cordier said.
For example, a 5% drop in Chinese stocks on Wednesday pressured U.S. markets early in the session before Wall Street managed to recoup those losses. In the bond market, many analysts are concerned that major buyers of U.S. debt like China and other Asian central banks are losing their appetite for Treasurys.
A Wednesday report from energy information provider Platts said Chinese oil demand rose 4.2% over last year, though Cordier noted the country has said it planned to stockpile commodities.
http://money.cnn.com/2009/08/19/markets/oil_price_fluctuation/index.htm?cnn=yes
Oil prices have surged more than 50% from the start of the year, but don't expect a return to triple digits anytime soon -- worries about the pace of an economic recovery will continue to drive near-term volatility.
"The market is manic right now," said Phil Flynn, analyst at PFG Best. "This is more uncertainty than I've seen in a very long time: big rallies followed by big breaks, and that's reflective of feelings about the overall economy."
Concerns about the recession -- and more recently the timing of recovery -- have translated into some big swings. Worldwide consumption faltered as the global recession took hold, sending prices lower. There have been signs of a recovery, but it won't be a straight line.
Just last month, prices swung from a 6% decline one day to a 6% gain the next. While that's not a daily occurrence, it does signal some trepidation.
On Wednesday, U.S. crude for September delivery rose $2.23, or almost 5%, to settle at $72.42 a barrel after a weekly government inventory report showed an unexpected drop in oil supplies.
Weekly inventory reports typically influence crude prices, but lately the effect is more muted as other factors gain prominence.
Mixed data stifle predictions. If the oil market is looking to economic reports for signs of recovery, the optimism barometer changes almost daily. Data in recent weeks have painted a mixed picture.
Two recent reports, for example, signaled opposite directions: Industrial production saw its first rise in 9 months, but a measure of consumer confidence showed a surprise decline.
"The data are confusing about the main question: Where are we at in the recession?" Flynn said. "One day we're jubilant about better housing data, and the next day stocks plunge on bad retail sales. It's all over the place."
Even a statement from the Federal Reserve, which said the economy is "leveling out," contained a major caveat that activity would remain weak in the near term.
Investors are left wondering whether the recovery is beginning, slowing, or even falling into a double-dip recession.
"If the data continue to be mixed, we'll see sideways movement in energy," said James Cordier, president of Liberty Trading Group. "They'll track the bounces." He predicted that oil will trade within about a $5-$7 range for the short term.
"It'll stick there until we're clear on this recession," Cordier said. "And at this point, who knows when that will be?"
Stocks offset dollar pressure. Oil prices generally move in the opposite direction of the dollar, and in tandem with stocks.
Lower crude prices typically push the greenback higher because oil is priced in U.S. dollars around the world. Conversely, crude investors look to the stock market to gauge when fuel demand will rebound.
The dollar has fallen about 10% against a basket of currencies since stocks bottomed in early March, while the S&P 500 index has rebounded 45% off its lows.
Both the foreign exchange market and global stocks have also seen day-to-day fluctuations based on data from around the world. Those influences are overtaking traditional supply and demand numbers in the oil market, Flynn said.
Hurricane season looms. Meanwhile, hurricane season is unpredictable and can easily wreak havoc on the oil market if refineries get taken out or severely damaged. The National Hurricane Center has reported three storms -- Ana, Bill and Claudette -- that could affect oil production. Production disruptions boost supply worries and subsequently crude prices.
Flynn said hurricane concerns may have driven up oil prices "a bit" as of late, but gains were limited because none of the three storms appear to pose an immediate threat.
However, hurricane season has just begun and Cordier said he expects more storms will spark a rally in oil prices within the next 30-45 days.
Meanwhile, the average price of gasoline slipped for the fifth consecutive day, to $2.628 a gallon from the previous day's $2.634, according to motorist group AAA.
China's influence. News from the world's third-largest economy has had a significant effect on markets around the globe in recent weeks, Cordier said.
For example, a 5% drop in Chinese stocks on Wednesday pressured U.S. markets early in the session before Wall Street managed to recoup those losses. In the bond market, many analysts are concerned that major buyers of U.S. debt like China and other Asian central banks are losing their appetite for Treasurys.
A Wednesday report from energy information provider Platts said Chinese oil demand rose 4.2% over last year, though Cordier noted the country has said it planned to stockpile commodities.
http://money.cnn.com/2009/08/19/markets/oil_price_fluctuation/index.htm?cnn=yes
IMF: 'Nascent recovery' under way
LONDON, England - The International Monetary Fund's chief economist described a "nascent" global recovery on Wednesday, but warned that US policymakers walked a tightrope in timing the end of the fiscal stimulus.
Olivier Blanchard wrote that a rebound in US consumer confidence and increased US exports to surplus countries in Asia were needed to replace higher public spending.
But in a cautionary IMF paper, he said "it is clear" that the rebalancing may not take place, "at least not on the scale needed".
Without a pick-up in external demand to the US -- "central to any world recovery" -- the stimulus could be maintained too long, adding an undesirable amount to the country's debt burden, or choked off too soon, putting the recovery at risk.
If fiscal deficits were maintained for too long, he wrote, there could be "worries about US government bonds and the dollar... causing large capital flows from the United States. Dollar depreciation may take place, but in a disorderly fashion, leading to another episode of instability and high uncertainty, which could itself derail the recovery."
Japan, Germany and France returned to growth in the second quarter, according to economic data published in the last few days, while most economists think the US recession has ended or is coming to an end.
Germany's prospects for future growth brightened on Tuesday with the publication of confidence data from the ZEW institute, showing the highest level in more than three years.
"The turnaround will not be simple," said Mr Blanchard. "The crisis has left deep scars, which will affect both supply and demand for many years to come." His paper was published Wednesday on the IMF Web site.
He noted that the recovery would be too slow to check the rise in the unemployment rate in many countries, which is at 9.4 percent the US and above 10 percent in parts of Europe.http://edition.cnn.com/2009/BUSINESS/08/19/imf.recovery.ft.ft/index.html
Google's anniversary gift: A 420% gain
The search engine titan's stock has more than quintupled since it went public in August 2004. But will Google's next five years be as successful as the past five?
Can you believe that it's already been five years since Google went public?
The search engine giant debuted on Aug. 19, 2004 at $85 a share. Today, the stock trades at about $445. That's a nearly 420% return during a time when the Nasdaq is up only 8%. And shares of top rival Yahoo! have been nearly cut in half during the past five years.
Yet, it doesn't look like all those Googleaires are too interested in celebrating their 5-year anniversary as a public company. Check out the Google (GOOG, Fortune 500) homepage and you don't see one of its usually witty cartoon renditions of the logo like you do on other "holidays."
I was hoping it would look like a tree carving or maybe a set of spoons, forks and knives since wood and silverware are the traditional five-year wedding anniversary gifts. (And yes, I Googled "wedding anniversary gifts" to find this out.)
Nonetheless, it's been an interesting five years for the search giant to say the least.
The company has used its strong stock price and mountain of cash reserves as currency to scoop up the likes of YouTube, DoubleClick and Postini to name a few.
It has watched Yahoo! (YHOO, Fortune 500) try (and fail) repeatedly to gain more market share in the lucrative world of search. It's weathered numerous challenges by Microsoft (MSFT, Fortune 500) to do the same. And it's continued to be innovative, rolling out a slew of products such as Gmail, Google Maps and Google Docs.
All the while, Google has also remained relatively focused its core search business, resisting the temptation to go overboard in the glitzy, but not all that profitable, social networking business. And that's a good thing.
News Corp. (NWS, Fortune 500)-owned MySpace and Silicon Valley darlings Facebook and Twitter have all generated a googol of hype but none has figured out a way to make gobs of money from their users as Google has.
Of course, remaining on top in a business as dynamic as technology is not easy. Online pioneer AOL, which is set to soon split from my parent company Time Warner (TWX, Fortune 500), is now a distant also ran in the world of Internet advertising. (Although it will be interesting to see if former Google sales guru Tim Armstrong, who is now running AOL, can turn that company around.)
So Google is probably too busy trying to figure out how to stay ahead of the competition to look back.
Google is facing perhaps its most significant threat yet from Microsoft now that it has launched the new search engine Bing and finally inked a search partnership with The Purple One (Yahoo!, that is, not Prince or new Minnesota Vikings quarterback Brett Favre).
According to the most recent online search rankings from comScore, Microsoft did gain ground against Google in July. But its market share of 8.9% pales in comparison to Google's whopping 64.7%. And even if you add Yahoo's market share to Microsoft's, they have a combined share of just 28.2%
Steve Weinstein, an analyst with Pacific Crest Securities, said that the Microsoft-Yahoo alliance bears watching. But he believes that Google shouldn't be that worried. In fact, he thinks Google could take advantage of any turmoil that takes place while Microsoft and Yahoo! join forces.
"Google is still in a very strong position in search and they should continue to gain market share in the U.S.," he said. The Yahoo-Bing partnership will take a couple of years to implement, so there is plenty of risk of disruption for them during that time."
Still, Google's growth has slowed in recent years. Sure, part of that is simply the so-called law of large numbers, i.e. the bigger a company gets, the more difficult it is to keep posting gaudy percentage increases in sales and earnings.
But Google has also shown that it's not immune to economic downturns. It's not a coincidence that profits were only up slightly in 2008, a year when -- stop me if you've heard this before -- the economy suffered its most severe recession since World War II.
Google's stock, while still a big winner for anyone who bought it shortly after it went public and has held onto it, is trading about 40% below its all-time jumbo jet high of about $747 from November 2007.
With all that in mind, Colin Gillis, an analyst with Brigantine Advisors, said that Google probably has to worry more about what the next big thing in online advertising will be as opposed to challenges from Microhoo or other upstarts.
"The easy money in the stock is gone," Gillis said. "Are we going to look back five to 10 years from now and say Google was a one trick pony or that it was successful in taking their search excellence and adapting it to other businesses?"
So far, Google hasn't really been able to do so. As dominant as Google has been in milking sales from contextual search links, Gills said that mobile Internet applications and online video ads have not been big sources of sales just yet. He adds that it's going to be crucial for Google to make more money off those products as well as others such as Web browser Chrome.
But Weinstein thinks that as long as the demand for online advertising doesn't collapse, Google should remain at the forefront of the business.
"There is a lot we don't know about how the online ad market will evolve. But whatever those trends are, they seem to be very favorable to Google," he said.
Talkback: Will Google still be the king of online advertising five years from now? Would you buy the stock at these levels? Add your comments below.
http://money.cnn.com/2009/08/19/markets/thebuzz/index.htm?postversion=2009081912
Can you believe that it's already been five years since Google went public?
The search engine giant debuted on Aug. 19, 2004 at $85 a share. Today, the stock trades at about $445. That's a nearly 420% return during a time when the Nasdaq is up only 8%. And shares of top rival Yahoo! have been nearly cut in half during the past five years.
Yet, it doesn't look like all those Googleaires are too interested in celebrating their 5-year anniversary as a public company. Check out the Google (GOOG, Fortune 500) homepage and you don't see one of its usually witty cartoon renditions of the logo like you do on other "holidays."
I was hoping it would look like a tree carving or maybe a set of spoons, forks and knives since wood and silverware are the traditional five-year wedding anniversary gifts. (And yes, I Googled "wedding anniversary gifts" to find this out.)
Nonetheless, it's been an interesting five years for the search giant to say the least.
The company has used its strong stock price and mountain of cash reserves as currency to scoop up the likes of YouTube, DoubleClick and Postini to name a few.
It has watched Yahoo! (YHOO, Fortune 500) try (and fail) repeatedly to gain more market share in the lucrative world of search. It's weathered numerous challenges by Microsoft (MSFT, Fortune 500) to do the same. And it's continued to be innovative, rolling out a slew of products such as Gmail, Google Maps and Google Docs.
All the while, Google has also remained relatively focused its core search business, resisting the temptation to go overboard in the glitzy, but not all that profitable, social networking business. And that's a good thing.
News Corp. (NWS, Fortune 500)-owned MySpace and Silicon Valley darlings Facebook and Twitter have all generated a googol of hype but none has figured out a way to make gobs of money from their users as Google has.
Of course, remaining on top in a business as dynamic as technology is not easy. Online pioneer AOL, which is set to soon split from my parent company Time Warner (TWX, Fortune 500), is now a distant also ran in the world of Internet advertising. (Although it will be interesting to see if former Google sales guru Tim Armstrong, who is now running AOL, can turn that company around.)
So Google is probably too busy trying to figure out how to stay ahead of the competition to look back.
Google is facing perhaps its most significant threat yet from Microsoft now that it has launched the new search engine Bing and finally inked a search partnership with The Purple One (Yahoo!, that is, not Prince or new Minnesota Vikings quarterback Brett Favre).
According to the most recent online search rankings from comScore, Microsoft did gain ground against Google in July. But its market share of 8.9% pales in comparison to Google's whopping 64.7%. And even if you add Yahoo's market share to Microsoft's, they have a combined share of just 28.2%
Steve Weinstein, an analyst with Pacific Crest Securities, said that the Microsoft-Yahoo alliance bears watching. But he believes that Google shouldn't be that worried. In fact, he thinks Google could take advantage of any turmoil that takes place while Microsoft and Yahoo! join forces.
"Google is still in a very strong position in search and they should continue to gain market share in the U.S.," he said. The Yahoo-Bing partnership will take a couple of years to implement, so there is plenty of risk of disruption for them during that time."
Still, Google's growth has slowed in recent years. Sure, part of that is simply the so-called law of large numbers, i.e. the bigger a company gets, the more difficult it is to keep posting gaudy percentage increases in sales and earnings.
But Google has also shown that it's not immune to economic downturns. It's not a coincidence that profits were only up slightly in 2008, a year when -- stop me if you've heard this before -- the economy suffered its most severe recession since World War II.
Google's stock, while still a big winner for anyone who bought it shortly after it went public and has held onto it, is trading about 40% below its all-time jumbo jet high of about $747 from November 2007.
With all that in mind, Colin Gillis, an analyst with Brigantine Advisors, said that Google probably has to worry more about what the next big thing in online advertising will be as opposed to challenges from Microhoo or other upstarts.
"The easy money in the stock is gone," Gillis said. "Are we going to look back five to 10 years from now and say Google was a one trick pony or that it was successful in taking their search excellence and adapting it to other businesses?"
So far, Google hasn't really been able to do so. As dominant as Google has been in milking sales from contextual search links, Gills said that mobile Internet applications and online video ads have not been big sources of sales just yet. He adds that it's going to be crucial for Google to make more money off those products as well as others such as Web browser Chrome.
But Weinstein thinks that as long as the demand for online advertising doesn't collapse, Google should remain at the forefront of the business.
"There is a lot we don't know about how the online ad market will evolve. But whatever those trends are, they seem to be very favorable to Google," he said.
Talkback: Will Google still be the king of online advertising five years from now? Would you buy the stock at these levels? Add your comments below.
http://money.cnn.com/2009/08/19/markets/thebuzz/index.htm?postversion=2009081912
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