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Thursday, November 3, 2011

Gold jumps as European Central Bank cuts interest rates

Gold broke out to a six-week high Thursday after the European Central Bank surprised markets by cutting interest rates.

For investors who believe that paper currencies are headed for further debasement by central banks, the move provided a good excuse to shovel money into precious metals as an alternative.

Near-term gold futures in New York rose $35.50, or 2.1%, to $1,764.20 an ounce, the highest closing price since Sept. 21.

Silver got a smaller lift, adding 56 cents to $34.49 an ounce. Silver had reached a five-week high of $35.29 last Friday.

The ECB, under new chief Mario Draghi, cut its benchmark short-term rate to 1.25% from 1.50%, in the first reduction since May 2009.

Draghi said the cut was justified because he believed the Eurozone economy was headed for a “mild recession.” Europe has been reeling from its debt crisis and from the austerity imposed by government spending cuts.

The euro currency initially slid after the surprise rate move, falling as low as $1.367 from $1.374 on Wednesday. But the euro rebounded after Greece’s prime minister reneged on his threat to hold a voter referendum on the terms of the country’s bailout by the rest of Europe. The euro was at $1.382 at about 1 p.m. PDT.

Draghi vowed the ECB would not accede to calls that it print massive amounts of new money to boost its purchases of sovereign bonds in Europe. But that didn't deter gold buyers.

Gold had rocketed in August, reaching a record closing high of $1,888.70 an ounce Aug. 22, as stock markets tumbled worldwide on fears that the Eurozone would implode.

But as stocks fell further in September, gold and silver too were slammed. Many analysts say the metals took a hit as some investors and traders sold whatever they could to raise cash amid continued market turmoil.

After bottoming at $1,595 on Sept. 26, gold has been fighting its way higher again. It’s now down 6.6% from its August peak but up 24% year to date -- on track for an 11th straight annual gain.

Federal Reserve scales back projections of economy's growth

-- Tom Petruno

Photo: Gold coins and bars. Credit: Mike Segar / Reuters

Rising gas prices will not affect holiday shopping, poll says

Despite high gas prices, shoppers still plan to spend this holiday season, according to a new poll.

More than half of those surveyed said they plan to shell out the same amount on gifts as they did last year and 8% said they plan to spend slightly more, according to a member poll conducted by the Automobile Club of Southern California, which released it Wednesday.

Still, rising gas prices weigh heavily in the back of consumers’ minds. Seventy percent of Southern California shoppers said that gas cost already has had a significant effect on their household budget.

Gas currently averages $3.82 a gallon in Southern California -– up from a steady $3.10 a gallon during the same period last year.

Months of bad economic news have shoppers concerned, but not the overly cautious that many retailers fear. Only 16 percent of local consumers said they will spend less this year. Most cited unemployment, rising housing costs and mounting bills as reasons they were tight-fisted with their money this holiday.

Gas prices aren't falling fast enough to suit consumers

Gas below $3 a gallon in some places -- but not in California

-- Angel Jennings

Photo: Toke Fusi posts prices at a Shell station in Menlo Park, Calif. Credit: Paul Sakuma / Associated Press

Weekly jobless claims drop below 400,000

The number of people filing new claims for unemployment benefits dipped below 400,000 last week, a key move that indicates the job market is improving.

The 397,000 initial claims were down 9,000 from the previous week, the Labor Department said Thursday. The figure has hovered near 400,000 for several weeks. The average over the last month has been 404,500.

At the height of the Great Recession, in early 2009, weekly claims were above 600,000.

The new data come a day before the government will release the October unemployment report. Economists are expecting about 100,000 jobs were created last month, slow growth that is unlikely to significantly move the nation's 9.1% unemployment rate.

But the jobless claim figures Thursday were another sign of modest progress recently in the economic recovery. Last week, the government reported that the economy grew at a 2.5% annual rate from July through September.

The improved economic growth -- nearly double the pace in the second quarter -- was cited by the Federal Reserve on Wednesday as an indication that the recovery has begun to strengthen. Still, with the European debt crisis hanging over the global economy, the Fed downgraded its projections for growth through 2013.

The Fed said the unemployment rate would not drop below 9% this year and would remain high next year, within a range of 8.5% to 8.7%.

At G-20 summit, Greece still the problem

Federal Reserve scales back projections of economy's growth

Economy grows at 2.5% in third quarter, easing recession fears

-- Jim Puzzanghera in Washington

Photo: Job seekers at a New York City career fair last month. Credit: Getty Images.

Corporate taxes: Many top U.S. firms paid none, report says

Many of the nation's most profitable companies are paying far less than the 35% corporate income tax rate, with dozens paying none at all, according to a new report.

Advocacy and research groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy examined 280 companies and concluded that they paid an average 18.5% rate from 2008 through 2010 -- about half the official rate.

Companies lashed out at the findings.

GE accused the report of being “inaccurate and distorted” and said that it expects to pay a 30% overall tax rate this year. Verizon said the study was “union-orchestrated” as well as being “deceptive and politically motivated,” adding that the company paid out $1.8 billion in taxes over the three-year period.

But according to the study, only a quarter of companies paid close to 35% of their U.S. profits, while another quarter paid less than 10%.

The report also found that 78 paid zero -- or had a negative tax rate -- for at least one year due to nearly $223 billion in tax subsidies, 17% of which went to the financial services industry. Thirty companies went tax free for all three years, researchers found.

Wells Fargo alone took in nearly $18 billion in tax breaks over the last three years, followed by around $14 billion for AT&T and $12 billion for Verizon, researchers found.

Over the period, the tax rate of energy company Pepco Holdings averaged out to negative 57.6%, according to the report. General Electric’s was negative 45.3%.

The study, the 10th since 1984, culled from firms listed among the Fortune 500 who were profitable for each of the last three years. Amid a backdrop of calls from Republican presidential candidates Herman Cain and Rick Perry to lower the existing corporate tax rate, report authors said their findings were not mean to be “anti-business.”

Corporations are also on the hook for state and local corporate income taxes as well as sales, property and payroll taxes, said Will McBride, an economist with the nonpartisan Tax Foundation research group. From 1994 through 2008, he said, corporations paid out more in taxes than they pulled in through after-tax profits for all but three years.

This week, the congressional Joint Committee on Taxation said that in order for the government to bring in a consistent amount of revenue, the corporate tax rate should drop no lower than 28%.

Federal government wastes half of every tax dollar: poll

Young people (seem to) support Warren Buffett's tax idea

-- Tiffany Hsu

Photo: Brian van der Brug / Los Angeles Times

Consumer Confidential: Apple battery fix, pet-food warning

Here's your thunder-road Thursday roundup of consumer news from around the Web:

-- Apple says a fix is in the works for its gadgets' battery woes. The company says there's a problem with its latest mobile operating system that is shortening the battery life of iPhones, iPads and iPods that use the software. A small number of customers have reported lower-than-expected battery life on devices running on the company's iOS 5 operating system. Apple says it's found bugs in the program and will release a software update to address them in a few weeks. The latest iPhone, the 4S, comes with iOS 5. Other devices that can be upgraded to run the software: the iPhone 3GS or 4, iPads and an iPod Touch released in September 2009 or later.

-- Some yucky but important tips: The Food and Drug Administration is warning pet owners that they can get sick from their loved one's food. The agency says it's increasing inspections of dry pet food and pet treats from distributors, wholesalers and retailers. There have been numerous recalls of pet food tainted by salmonella and other contaminants in recent years. While humans usually get salmonella poisoning by eating contaminated food, it's also possible to pick up the disease by handling contaminated pet food. In January 2006, at least 70 people were sickened by salmonella-tainted pet food from a Pennsylvania plant. Government officials say you should wash their hands after feeding your pet. Also, only purchase products (canned or bagged) with no visible signs of damage to the packaging, such as dents, tears or discolorations.

-- David Lazarus

Photo: Apple says a fix is on the way for a battery-sapping software glitch. Credit: Henrik Kettunen / Bloomberg

Jon Corzine caught up as MF Global inquiries escalate

Each morning this week has brought a new batch of revealing details about what brought down MF Global, the trading firm run by former U.S. senator and Goldman Sachs Chief Executive Jon Corzine.

Since the firm declared bankruptcy Monday morning, we have learned the Commodity Futures Trading Commission and then the Federal Bureau of Investigation were investigating allegations of misused customer funds.

Today, it is the Securities and Exchange Commission that is reported to be opening a probe, according to the Wall Street Journal. The SEC is said to be looking at whether Corzine misled its investors as the company's share price was in freefall.

The case has raised questions about why regulators did not notice MF Global problems sooner. After all, critics say, MF Global was done in by the type of highly leveraged bets that regulators should have been very familiar with from the demise of Lehman Brothers and Bear Stearns in 2008.

Reuters reports today that Wall Street's industry funded regulator, the Financial Industry Regulatory Authority, started asking questions back in June, but that it was not enough to get MF Global to scale down its bets on the sovereign debt of struggling European nations.

At a conference in San Francisco on Wednesday, the chief investment strategist at Schwabs, Liz Ann Sonders, said, "It may show that we don't have adults manning the regulatory store."

At the same conference, PIMCO bond guru Bill Gross said the bankruptcy was another sign that Wall Street had "lost its way."

"We need a banking system that is attractively and conservatively capitalized," Gross said.

The most scathing new criticism of the situation, though, may have come in the form of a fable about Corzine and MF Global, penned by Financial Times columnist John Gapper. Gapper imagines Corzine as an emperor with no clothes, or in this case, an emperor with Goldman clothes, in reference to his previous employment at Goldman Sachs:

Some of the traders wondered if they should heed the emperor. He was oddly attired and his beard was gray. Perhaps he is just reliving past glories, they thought to themselves. But the emperor showed them the label sewn inside his worn-out suit. “Goldman,” they said admiringly. “They are the finest of weavers. We were wrong to doubt him.”

Shortly afterward, a messenger arrived from far-off lands with tales of great events. The grand emperors of France and Germany had settled an argument and lent florins to the southern kingdoms that had debased their currency. "We should load up," Emperor Corzine cried. “We must trade in size. Here,” he told the treasurer. “Borrow 40 more bags of coins like this one. Wear my cloak and no one will refuse you."

Corzine himself is contending not only with embarrassment and investigations, but also with the prospect that his $12-million golden parachute may not launch, according to Fortune.

MF Global files for bankruptcy, undone by Europe's financial crisis

-- Nathaniel Popper

twitter.com/nathanielpopper

Photo: File photo of MF Global CEO Jon Corzine. Credit: Rich Schultz / Associated Press

October retail sales up 3.4% at major chains, less than expected

The nation's retailers recorded a moderate increase in sales last month as consumers reined in their spending after splurging on back-to-school shopping and cautiously sized up the coming holiday season.

On Thursday, major chain stores reported a 3.4% sales increase in October compared with the same month a year earlier, according to Thomson Reuters' tally of 23 retailers. The results were below analysts' expectations.

"Some sectors cooled a little bit in October," said Michael McNamara, vice president of research and analysis at data service MasterCard Advisors SpendingPulse. Sales were hampered by unusually warm weather early in the month as well as by heavy snowstorms in the Northeast.

All told, about two-thirds of retailers reported sales that fell below expectations. The worse showing was by teen apparel chain West Seal Inc., based in Foothill Ranch, which posted a 9.7% decline. Struggling apparel giant Gap Inc., operator of the Gap, Banana Republic and Old Navy chains, saw sales drop 6%.

The discount sector had a relatively strong showing as cost-conscious shoppers sought bargains. Costco Wholesale Corp. posted a 9% gain. Cheap but trendy Target Corp. reported a 3.3% rise.

The percentage changes are based on sales at stores open at least a year, considered an important measure of a retailer's health because it excludes the effect of store openings and closings.

October is a slow time for merchants as they gear up for the holidays, so is not a good predictor of future consumer spending, analysts say. The National Retail Federation, a trade group, forecasts that sales will rise 2.8% in November and December compared with a year earlier.

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— Shan Li