California gets top ratings on planned debt sale

California on Thursday got the highest possible credit ratings on the short-term debt it plans to issue the week of Sept. 12. That’s should be good for taxpayers, at the expense of the investors who are expected to buy the securities.

Standard & Poor’s rated the debt SP-1+, the first time California has received that top-rung rating from S&P since 2007, Treasurer Bill Lockyer said.

Moody’s Investors Service also gave the debt the highest possible rating, at MIG-1.

The state will raise $5.4 billion via the sale of so-called revenue anticipation notes, or RANs. Lockyer will use the money to pay off a bank loan the state took out in late July.

California and many other state and local governments issue RANs at this time of year to bridge the gap between their cash needs and the arrival of tax revenue later in the fiscal year. California's notes will mature in late spring of next year.

Lockyer had planned to sell RANs in August. But fearing that the debate in Washington over the federal debt ceiling might rile financial markets, he chose to borrow first from major banks to have the money in hand, and sell notes later to retire the bank loan.

Credit rating firms typically grade RAN debt based on the amount of cash the borrowers are expected to have on hand when the securities mature. Moody’s said in a statement Thursday that it expected the  state to have cash “sufficient to repay the notes with moderate additional cushion, even in the case of [budget] stress scenarios run by Moody's.”

Gov. Jerry Brown lauded the ratings decisions, calling them “a strong indication that our state’s finances are on the right track. Despite the uncertain economy, I intend to do everything possible to keep state revenues and spending in balance.”

California borrowed $10 billion via RANs last November and had to pay dearly because of upheaval in the municipal debt market at the time. Investors were dumping muni securities nationwide because of worries about state and local governments’ finances.

Lockyer was forced to boost interest rates on the notes to get the deal done. The state paid a hefty tax-free annualized yield of 1.5% on notes that matured in May and 1.75% on notes that matured in June. Because those yields are exempt from state and federal income taxes for California residents, they're equivalent to much higher taxable yields, depending on an investor’s tax bracket.

This time around, short-term interest rates in general are well below their levels of last fall, and the muni bond market is relatively placid. That backdrop, along with the top ratings from S&P and Moody’s, should mean the RANs will cost the state a fraction of what it paid last year.

Last month, Texas sold $9.8 billion of short-term notes at an average annualized interest rate of just 0.27%.

Historically, California’s RANs have been popular with individual investors. Lockyer will allow individuals to put in orders for the notes on Sept. 13-14. Orders must be placed with brokerages; the state doesn’t sell directly to investors.

Institutional investors will bid on Sept. 15, which is when the interest rates will be set.

-- Tom Petruno

RELATED:

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California's long-term-debt rating outlook raised to "stable" by S&P

Top photo credit: Makaristos

Inset photo: Treasurer Bill Lockyer. Credit: Armando Arorizo/Bloomberg News

BofA, Chase must do more to help troubled homeowners, Obama administration says

 
Bank of America and J.P. Morgan Chase Bank are in substantial need of improvement when it comes to helping troubled borrowers modify their mortgages, the government said Thursday.

The Obama administration said the two banks were in need of substantial improvement, judging them unworthy of receiving financial incentives through its signature foreclosure relief program until they improve their practices. The banks will be denied financial incentives for completing modifications until they improve.

Wells Fargo and Ocwen Loan Servicing had previously been on the list of banks that needed "substantial" improvement. Those two banks are now only in need of moderate improvement, according to the administration, as were American Home Mortgage Servicing; CitiMortgage; and Select Portfolio Servicing. The banks that were in need of minor improvement included GMAC Mortgage; Litton Loan Servicing and OneWest Bank.

The assessments of the 10 largest servicers in the program were intended to compel the nation's biggest mortgage servicers to improve their practices in the program, officials said.

The mortgage modification program has long been criticized as ineffective and falling short of its goal of helping 3 million to 4 million borrowers escape foreclosure by December 2012.

A total of 675,447 active permanent modifications through the Obama administration's program existed at the end of July, up 3% from the previous month.

 

RELATED:

A silent spring for housing

Historic day for interest rates: 10-year Treasury yield falls below 2%

Mortgage rates fall to lowest level in Freddie Mac survey's history

-- Alejandro Lazo

Twitter: @AlejandroLazo

Photo: A representative from Bank of America meets with a homeowner to discuss mortgage modifications at a workshop in New York City  this week. Credit: Spencer Platt/Getty Images

Jobs Report Preview

On Friday morning, the Labor Department will release its first estimate for the number of jobs created in the United States in August, and right now expectations are low.

CATHERINE RAMPELL

Dollars to doughnuts.

Wall Street analysts have a median forecast of just a 60,000 net gain in nonfarm payroll jobs, about half of the gain from July. The unemployment rate — which comes from a different survey, and reflects the share of people who want work and are actively looking for it but can’t find a job — is expected to remain 9.1 percent.

Dollars to doughnuts.

To put this in perspective, the United States generally needs to add about 150,000 jobs each month just to keep up with the growth in the working-age population.

These are among the factors that economists are citing for their weak forecasts:

Even if the numbers come in just as expected, economists will be scouring the report for any signs of what lies ahead.

Here are some details to keep an eye on:

Gov. Brown questions whether California can afford Amazon sales tax offer

 Gov. Jerry Brown and the state's two top legislative leaders are showing little enthusiasm for Amazon.com Inc.'s offer to build at least two giant distribution centers and hire up to 7,000 workers if the state postpones until 2014 an attempt to force the Internet retailer to collect California sales tax.

Brown on Thursday did not dismiss the Amazon bid out of hand. But, he stressed that he's mostly concerned about losing an estimated $300 million in badly needed state revenues that his budget expected to get once Amazon complies with a new law that took effect on July 1.

"I'm concerned about anything that would reduce revenues going forward because we're in a very uncertain economy," the governor said after attending an awards ceremony for correctional officers in Sacramento. "We need more revenues unless we're going to keep curbing schools, courts, corrections."

Amazon, so far, has refused to collect the tax on purchases made by California customers. Instead, it's contributed more than $5 million to a referendum campaign to repeal the new sales tax collection law.

Amazon would not comment on its new offer or the preliminary talks it held with legislative staff and representatives of California big-box retailers.

Supporters of the new law, led by the California Retailers Assn., argue that unfair competition from Amazon and other companies that do not collect sales tax has cost California about 18,000 jobs.

In a counterstrike, Democrats in the Legislature last week came up with a parliamentary maneuver that, if successful, would nullify the referendum. The trick would be passing a new law that would contain all the elements of the old one but could not be subjected to a referendum. To make that plan work, Democrats would need to win a bipartisan two-thirds vote of the members of both houses and persuade a handful of generally anti-tax Republicans to vote their way.

For now, top Democratic lawmakers said they are not interested in cutting a deal with Amazon and are pursuing the move to turn aside the referendum. They would do that by passing a bill, AB 155, in the last few days of the legislative session that recesses on Sept. 9.

"The Amazon proposal in my view is interesting, but 155 is more interesting because it upholds the law and guarantees that the state will be able to collect the sales tax from Amazon over the next two fiscal years," said Senate President Pro Tem Darrell Steinberg (D-Sacramento).

Not collecting the sales tax on purchases from Amazon turns California taxpayers into "tax cheats," said Assembly Speaker John Perez (D-Los Angeles).

The Democrats' reluctance to find a compromise with Amazon is not realistic, said George Runner, a conservative Republican and an elected member of the state Board of Equalization, the government agency that collects the sales tax. Since the Internet sales tax collection law took effect two months ago, neither Amazon nor any other out-of-state Internet seller has filed for an official permit to collect sales tax in California, Runner said.

"Clearly, there is no revenue" from the new law, he said. "To me, the compromise position has more potential revenue attached to it than the current law."

Runner isn't the only state tax official deeply involved in the continuing controversy over collection of sales tax from out-of-state Internet retailers.

Reacting to a story published earlier this week in The Times, Runner's fellow board member Betty Yee  said she has been asking questions of Wal-Mart Stores Inc. about why some affiliated companies that sell their products on Walmart.com don't collect sales taxes on California purchases.

The Times reported that CSN Stores of Boston sells hundreds of sometimes high-priced products on California-based Walmart.com but does not collect the sales tax along with the sales price and sometimes shipping.

Wal-Mart said it leaves the decision on sales tax up to CSN and other so-called Marketplace partners.

Such collections, though, appear to be required under California's new law, Yee said.

Wal-Mart, which is a major player in the campaign to make Internet sellers collect sales tax just as big-box retailers do, has agreed  to "assist the BOE in reaching out to these partners to assist them in understanding their obligations under California's e-fairness law," Yee said in a statement.

The law, she said, "is about leveling the playing field so that any business can compete on fair and equal terms."

Related:

Amazon offers to build facilities in bid to end sales tax fight

California lawmakers try to head off Amazon sales tax referendum

Amazon ups the ante in Internet sales tax fight

 

-- Marc Lifsher and Anthony York

Photo: Amazon fulfillment Center in Phoenix. Credit: Bloomberg News

Unemployed, and Wanting to Be Younger

Just ahead of the monthly jobs report on Friday, the Heldrich Center for Workforce Development has released its latest update on the wave of unemployed workers it has been following for two years now.

CATHERINE RAMPELL

Dollars to doughnuts.

The most recent report has a number of interesting findings, but particularly striking were the open-ended responses to the question, “What is the one thing you think would help the most in getting you a new job?”

Dollars to doughnuts.

Many of the responses were filled with a sense of hopelessness, or at the very least a sense of resignation. Two of the respondents said they needed “a miracle.”

Perhaps most worrisome, dozens said that the only thing that could help them was “being younger.” Fears of age discrimination have frequently come up in my conversations with unemployed workers as well, given that older workers have the longest spells of joblessness (though there are other possible explanations for this).

Here’s a word cloud of the responses showing how prevalent age-related answers were:

World stock market tally for August: 2 up, 43 down

As many investors might suspect, there was almost nowhere to hide last month in world stock markets.

Just two of 45 markets tracked by Standard & Poor’s Indices rose for the month: Morocco (up 3.1%) and Peru (up 1.8%).

S&P measures all market returns in dollars, meaning the gains or losses are what U.S. investors would have experienced. That reflects both the actual change in share prices plus the effect of any change in the dollar’s value versus other currencies.

A weaker dollar can reduce foreign market losses or boost net gains for U.S. investors. A stronger dollar can worsen foreign losses or reduce net gains.

Market charts around the globle looked pretty much the same for August: Most markets followed U.S. and European stocks off the cliff in the first week of August on rising fears of recession and as Europe’s government debt crisis worsened yet again.

Many markets bottomed around the same time that Wall Street did, on Aug. 8. The S&P 500 index (charted at left) closed at 1,119.46 that day, its lowest level since Sept. 10.

Even as share prices have clawed higher from last month’s lows, they were able to recoup only a portion of what was lost in the early-August meltdown.

The S&P 500 index lost 5.7% in August, its worst monthly decline since it slumped 8.2% in May 2010. The index was off 3.1% year to date through Wednesday.

The worst-hit markets last month were mostly in Europe, reflecting the continent’s never-ending government debt woes. Greece, the epicenter of the debt crisis since the fall of 2009, was the biggest loser among global equity markets, plummeting 25.3% in dollar terms on expectations that the government faces default on at least some of its debts.

The next-worst markets, according to S&P: Tiny Luxembourg, off 18.9%; Germany, down 18%; Hungary, down 17.4%; Turkey, off 15.6%; and Italy, which lost 14.4%.

Asian markets either held up better than European markets in the early-August plunge or posted bigger comebacks later in the month, or both. Malaysia lost 8.2% in August, Thailand fell 6.1%, Japan slid 7.4% and Singapore was off 10.3%. Asia's economic outlook remains upbeat, at least compared with the U.S. and Europe.

Latin American markets also snapped back reasonably well after an early plunge, as investors focused on the region’s still-robust growth prospects. Chile was down 4.6% for the month, Mexico fell 5.4% and Brazil gave up 6.8%. Losses were deepened for U.S. investors because the dollar strengthened against many emerging-market currencies in August amid the global flight to safety.

Year to date through August, just five of S&P’s 45 markets were in the black in dollar terms: New Zealand, up 9.1%; Indonesia, 8.3%; Thailand, 4.3%; the Czech Republic, 4.1%, and the Philippines, 3.4%.

There’s always a bull market somewhere . . .

RELATED:

Manufacturing activity rises but at a slower pace

U.S. retail sales weather hurricane, market storms

Investors continue to pull money from stock mutual funds

-- Tom Petruno

Photo: A pedestrian walks by the German stock exchange in Frankfurt. The German market was one of the world's worst performers in August. Credit: Frank Rumpenhorst / AFP / Getty Images

Spending by international visitors keeps growing

And now for some good economic news: The U.S. continues to build a strong trade surplus in travel and tourism.

International visitors to the United States spent nearly $12.5 billion on travel to and tourism activities within the country in June, a 9% increase over the same month in 2010, according to the U.S. Department of Commerce.

The latest numbers mark the 18th straight month of growth in international travel and tourism spending, which has increased by an average of more than $1.3 billion per month.

In the first six months of the year, visitors to the country spent $73.5 billion on travel to and tourism-related activities in the U.S., according to the Commerce Department. In the same period, Americans traveling abroad spent $53.6 billion, creating a travel and tourism trade surplus of $19.9 billion.

Previous reports show that Los Angeles is the second-most-popular destination for foreign visitors, behind New York.

-- Hugo Martin

Five Guys, In-N-Out beat out McDonalds, Burger King in poll

McDonald’s and Burger King have tens of thousands of U.S. locations, but when it comes to consumers’ favorite quick-service restaurants, smaller companies like Five Guys, Chick-fil-A and In-N-Out leave their giant competitors cooked.

The chains are known for their friendly service, which consumer research firm Market Force Information suggests may be more important to customers than the taste of their food.

Five Guys, Panera and Chipotle customers said they’d recently had a satisfactory meal worthy of a recommendation, pushing the restaurants to the top of a “Delight Index” from Market Force.
McDonald’s and Burger King barely rounded out the top 15. 

When 4,500 customers were asked to select their top choice among 55 eateries, Chick-fil-A scored 10.4% of the votes, followed by Panera with 9.9% and Five Guys with 9.1%. The golden arches were next with 7.5%. In-N-Out lagged with 2.4%.

But since some chains are much larger than others -- Chick-fil-A and Panera each have more than double the reach of Five Guys and In-N-Out -- researchers also ranked the companies after factoring the number of branches.

The burger joints Five Guys and In-N-Out won out with the most votes per restaurant.

The results are close to the conclusions reached by Consumer Reports in a similar study last month.

Volt electric vehicle production ramps up

Electric cars still continue to only trickle into the market.

General Motors said that it sold only 300 of its Chevrolet Volt plug-in hybrid sedans in August, bringing its total for the year to 3,172.

Meanwhile, Nissan North America said it sold 1,362 of its battery-electric Leaf in August and 6,187 since its December launch. Nissan said its Leaf supply is stable and that it will be able to sustain the sales rate.

Combined, the cars account for not quite 10,000 sales this model year.  Meanwhile, the industry sells more than 1 million gasoline-powered vehicles a month.

"Shopper consideration for the Leaf and the Volt is flat, and down from earlier in the year. Consumer awareness just doesn't seem to be significant yet," said Edmunds.com analyst Ivan Drury.

GM took its Detroit-Hamtramck plant down for about two months to make changes to ramp up production of the Volt and the Ampera –- its sibling for the European market.  But now it is up and running, and manufacturing capacity this year will increase to 16,000 cars.

Some of that will be sucked up by exports and a fleet of several hundred demonstration units sent to U.S. dealers so that Chevrolet can expand sales nationwide.

In 2012, GM plans to build 60,000 of the vehicles, with an estimated 45,000 to be delivered in the United States.

RELATED:

Auto sales rise in August

Consumer guide to electric vehicles

Can the auto industry prevent a recession?

-- Jerry Hirsch

Twitter.com/LATimesJerry

Photo: A Chevrolet Volt gets charged at a GM factory in Detroit. Credit: Reuters

 

Do Parents Put Too Much Pressure on Students?

Even Tiger Moms seem to think they’re pressuring their kids too much.

That is one possible reading of a new Pew Research Center global survey of parents’ attitudes to the pressured placed on students.

The survey, conducted March 18 to May 15 by the Pew Research Center’s Global Attitudes Project, found that China was the only one of 21 countries or territories where a majority believes parents put too much pressure on students to do well in school. In China, 68 percent of adults think parents pressure students too much, and just 11 percent think they don’t push them hard enough.

On the other side of the spectrum is the United States, where more than 6 in 10 Americans say parents do not put enough pressure on their children.

It’s hard to know what to make of these attitudes. The countries where people are most likely to say students are pressured too much do have reputations for being pressure-cookers for students (China, Pakistan, India). And the United States has repeatedly disappointed on international testing.

Does that mean surveyed attitudes are correct? If they are, why aren’t they affecting behavior?

Consumer Confidential: Gas prices, car sales, gel-fuel recall

Here's your throat-clearing Thursday roundup of consumer news from around the Web:

--Some news you don't need: Gas prices are surging as we approach the Labor Day weekend. A run-up in oil prices this year, combined with refining problems throughout the U.S., has boosted pump prices. The national average is now $3.629 per gallon (in Los Angeles, it's $3.867). Drivers will pay more for gasoline this Labor Day than in any other year except 2008, when pump prices hit an average of $3.686. Prices are rising despite a drop in U.S. gas purchases. Americans may be using less, but drivers in developing nations are using more. That's pushing fuel prices higher around the world. Just thought you'd want to know.

--Speaking of wheels, General Motors' U.S. sales rose 18% in August, while Chrysler Group and Nissan Motor also exceeded estimates. GM deliveries during the month rose to 218,479 vehicles, from 185,176 a year earlier, the company said. U.S. vehicle sales may have run at a 12.1-million seasonally adjusted annual rate in August, the average estimate of 14 analysts surveyed by Bloomberg. GM's Cruze benefited from lingering shortages of small cars at Toyota and Honda as their production recovers from the March earthquake and tsunami in Japan. Nissan, whose better supply of parts has buoyed inventory levels above its Japan-based rivals, said its deliveries climbed 19%.

--Heads up, patio types: Nine companies are recalling about 2 million bottles and jugs of the gel fuel used in outdoor decorations known as firepots because of a risk of serious burns. The Consumer Product Safety Commission says the gel fuel has been linked to several dozen cases in which people were burned when they couldn't tell whether the flame was out. Pouring more gel on a burning pot can lead to dangerous flares or burns. The companies are: Bird Brain of Ypsilanti, Mich.; Bond Manufacturing of Antioch, Calif.; Sunjel Company of Milwaukee; Fuel Barons of Lake Tahoe, Nev.; Lamplight Farms of Menomonee Falls, Wis.; Luminosities of St. Paul, Minn.; Pacific Decor of Woodinville, Wash.; Real Flame of Racine, Wis.; and Smart Solar USA of Oldsmar, Fla.

-- David Lazarus

Photo: You'll likely pay more at the pump this holiday weekend. Credit: Justin Sullivan / Getty Images

 

Freddie Mac: Mortgage rates scrape bottom again

 

Mortgage rates are scraping along near historic lows, Freddie Mac says in its latest survey of what lenders are offering to well-qualified borrowers.

The 30-year fixed-rate mortgage averaged 4.22% early this week, the same as the week before, and just above the 4.15% record low reached two weeks ago.

The rate on a 15-year fixed mortgage dropped to 3.39% this week from 3.44%.

Borrowers on average would have paid lenders 0.7% of the loan amount upfront to get a 30-year loan and 0.6% on a 15-year loan, said Freddie Mac, the giant government-controlled finance company.

Rates for loans that become adjustable after five years fixed set all-time lows for the eighth straight week, Freddie Mac said. Such loans indexed to Treasury bonds had a starting rate of 2.96% this week, down from 3.07% last week. The lender fees averaged 0.6%, Freddie said.

Economists said weaker economic signals and slowing home sales were keeping rates low. There's little immediate fear of inflation and the Federal Reserve has said it expects to hold its benchmark short-term rate close to zero through the middle of 2013.

"In addition," Freddie Mac economist Frank Nothaft said Thursday, "consumer confidence in August fell to the lowest reading since April 2009."

The result? An early-August surge of interest in mortgages, driven by homeowners refinancing at rates under 4.5%, appears to be running low on steam.

A Mortgage Bankers Assn. survey of mortgage applications, released Wednesday, showed the volume decreasing for a second straight week.

The lobbying group has revised its projections of mortgage volume for this year because of the refinancings. It now expects $1.1 trillion in residential mortgages to be originated in 2011, $100 billion more than earlier forecasts.

But adjustments for the weak economy have the home-lending association reducing its outlook for 2012. The group cut its forecast for mortgage volume next year to just $931 billion, which would be the lowest since 1997.

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Economy feels ripples from drop in spending

Home prices notch third straight monthly gain

BofA puts Countrywide loan unit up for sale

-- E. Scott Reckard

Photo: Freddie Mac headquarters in McLean, Va. Credit: Freddie Mac

Obama Backs Bill Barring Discrimination Against Jobless

We’ve written before about job ads and hiring practices that exclude unemployed candidates from applying. Mitchell Hirsch, an associate at the National Employment Law Project, recently alerted me that President Obama had expressed support for outlawing such practices.

CATHERINE RAMPELL

Dollars to doughnuts.

From an interview with the president on the Tom Joyner Morning Show, a national radio program, which aired on Tuesday:

Dollars to doughnuts.

Well, there is no doubt that folks who have been unemployed longer than six months have a tougher time getting back into the job market. Now, the single most important thing we can do is just have the economy strong so that employers aren’t as choosy because they’ve got to hire because their businesses are expanding.

But we have seen instances in which employers are explicitly saying we don’t want to take a look at folks who’ve been unemployed. Well, that makes absolutely no sense, and I know there’s legislation that I’m supportive of that says you cannot discriminate against folks because they’ve been unemployed, particularly when you’ve seen so many folks who, through no fault of their own, ended up being laid off because of the difficulty of this recession.

Mr. Obama appears to be referring to this bill, introduced by Representative Rosa DeLauro, a Democrat from Connecticut.