Stocks ended with modest losses Thursday, fighting off a bigger decline that surrounded the latest worries about Greece’s debt crisis and weaker-than-expected reports on the economy.
The Dow Jones industrial average (INDU) lost 53 points or 0.5%. The S&P 500 index (SPX) fell 2 points, or 0.2%. The Nasdaq composite (COMP) lost 2 points or 0.1%.
Stocks tumbled out of the gate after both Standard & Poor’s and Moody’s said they may have to cut Greece’s debt rating if the country doesn’t implement its so-called austerity measures, meant to rein in its deficit.
But after a bigger selloff through the early afternoon, stocks cut losses heading into the final hour of the session.
Greece has said it will raise the retirement age and have civil servants take bonus cuts, among other measures. A workers’ strike Wednesday added to questions about the nation’s ability to cut its debt. Investors are concerned about the broader implications for other euro zone countries, and the euro, should Greece default.
"It seems like the market doesn’t know how worried it should be about Greece, which is why we’re rallying off the lows of the day," said Ryan Atkinson, market analyst at Balestra Capital.
While the Greek debt situation is a serious one for the market, it’s probably going to come in waves over the next six to nine months, Atkinson said. "Maybe they’ll cut a deal initially [with officials], but longer term there are going to be more issues."
He said that investors were likely just as concerned about the day’s economic news, including worse-than-expected reports on jobless claims and factory orders.
Market breadth was mixed. On the New York Stock Exchange, losers and winners were roughly even on volume of 1.15 billion shares. On the Nasdaq, decliners topped advancers five to four on volume of 2.1 billion shares.
Greece: The threat of a Greek default rattled global markets earlier in the month, pushing U.S. stocks to three-month lows and causing the S&P 500 to lose over 9%, just shy of the technical definition of a correction.
Investors worried that Greece’s problems could reflect a broader euro zone debt crisis that could impact Portugal, Spain, Ireland, Italy and other debt-challenged European nations.
But European officials said earlier this month that they were ready to step in and help Greece if need be, and that seemed to calm investors for a few weeks. S&P and Moody’s downgrade talk revived the worries.
In addition, stocks have been rising for the last two weeks, setting the market up for a little pullback, particularly in the aftermath of last year’s big rally.
Bernanke: Federal Reserve Chairman Ben Bernanke told Senators Thursday that the central bank is looking into whether Goldman Sachs and other big banks worsened Greece’s debt crisis.
News reports have said that Goldman and other banks helped arrange deals that may have disguised the extent of Greece’s debt problems. In addition, the banks have made bets that Greece will default on loans it took from U.S. financial institutions, according to a New York Times article.
Bernanke spoke before the Senate Banking Committee Thursday in his second day of Congressional testimony on the economy payday loans.
On Wednesday he told a House committee that while the economic recovery is chugging along, the job market remains weak. Against that backdrop, interest rates will stay low for the foreseeable future. That seemed to reassure investors worried about the outlook for the economy and stocks rallied Wednesday.
Jobs: The number of Americans filing new claims for unemployment jumped last week to 496,000 from a revised 474,000 the previous week. Economists surveyed by Briefing.com expected 460,000 new claims.
Claims have jumped 12% over the past two weeks, due in part to the impact from the severe winter storms on the east coast.
Durable goods orders: Orders for big-ticket items meant to last three years or more jumped in January, with aircraft demand fueling the rise.
Durable goods orders rose 3% in January, the biggest increase since last summer and better than the 1.5% jump forecast by economists. Orders rose 1.9% in the previous month.
Orders excluding transportation fell 0.6% after rising 2% in December. Economists expected a rise of 1%.
Coke: Coca-Cola (KO, Fortune 500) said it will buy the North American operations of its biggest bottler, Coca-Cola Enterprises (CCE, Fortune 500) (CCE) in a deal that would cut costs and give it more control of its distribution.
The multi-layered deal has Coca-Cola giving up its 34 percent stake in CCE, worth about $3.4 billion, and taking on $8.88 billion in debt.
Additionally, the companies agreed that CCE will buy Coke’s bottling operations in Norway and Sweden for $822 million and that it has the right to buy Coke’s 83% stake in its German bottling operations.
The deal comes as rival PepsiCo (PEP, Fortune 500) is about to close a $7.8 billion deal to buy Pepsi Bottling Group and PepsiAmericas, its largest bottlers.
Coke shares plunged 4% and CCE shares rallied 33%.
Palm: Palm (PALM) said it expects revenue to fall far below current forecasts due to worse-than-expected sales of its new smartphones. Shares plunged 19% on the forecast.
Health care: The Obama administration’s health care summit was underway Thursday, with Republican and Democratic leaders from both houses of Congress debating ways to reform the system.
The president said that both sides agree that costs need to be contained, but they remain bitterly divided over whether to press through with the current bill or start over.
World Markets: In overseas trading, major European and Asian markets ended lower.
The dollar and commodities: The dollar gained versus the euro after seesawing versus the European currency throughout the session. The greenback fell versus the yen.
U.S. light crude oil for April delivery fell $1.83 to settle at $78.17 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $11.30 to settle at $1,108.50 per ounce.
Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.63% from 3.69% late Wednesday. Treasury prices and yields move in opposite directions.
The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.
The nation’s gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.
Economists surveyed by Briefing.com had forecast growth of 4.7%.
Good end to a terrible year. The growth in the fourth quarter was the highest since the third quarter of 2003. The economy rose at a 2.2% annual pace in the third quarter of last year.
But even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.
The GDP report does not mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months — if not more than a year — to declare when recessions ended and began.
But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009. The Federal Reserve even used the word "recovery" in the statement following its latest meeting earlier this week.
Inventories lead the way. Much of the improvement was driven by a turnaround in inventories, the supply of goods that businesses produce in anticipation of sales. Businesses slashed inventories in late 2008 and early 2009 due to concerns about worsening economic conditions.
According to Friday’s report, 3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly.
But the U.S. consumer was somewhat of a bystander in the fourth quarter, as personal consumption grew at only a 2% annual rate in the period. Spending by consumers accounts for more than two-thirds of economic activity.
Lakshman Achuthan, managing director of Economic Cycle Research Institute, said that growth from inventories shouldn’t be dismissed since they are typically a driving force of strong recoveries.
"In late 2008 into 2009 everyone freaked out to prepare for Armageddon," he said. "They fired everybody and stopped buying inventories. That overreaction is what’s being undone. Yes, you have to have jobs growth, but we’ll get that next, probably in January or February."
Other economists say the turnaround in inventories isn’t enough to lead to strong growth over a sustainable period. A better labor market that would give consumers the confidence and money they need to spend is also necessary.
"I’m not dismissing the inventory gain, but now that inventories are getting more into line with final sales, then the thrust of economic growth depends on final demand picking up," said John Silvia, chief economist with Wells Fargo Securities.
Stimulus, exports, also feed growth. Economic growth in the third quarter was greatly attributed to the federal stimulus bill passed at the beginning of 2009. But stimulus doesn’t appear to have had as big of an impact in the fourth quarter.
Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed little to growth by itself, even as non-defense spending by the federal government rose at an annual 8% rate in the quarter.
But money pumped into the economy by tax cuts, such as the first-time home buyer tax credit, coupled with spending by businesses that received stimulus dollars, did have an impact in the quarter, even if it was harder to quantify.
An 18% jump in the value of exports also played a major role in the economy’s rebound, contributing nearly 2 percentage points of growth. Silvia said exports have a chance to be a significant source of growth in the coming year, helped by the weaker dollar and stronger growth in developing economies, particularly in Asia.
Investment in business equipment and software jumped at a 13% annual rate, the biggest increase in nearly four years. That spending added almost a full point to GDP, and is often a precursor to employers starting to hire once again.
Slower growth ahead? Sung Won Sohn, economics professor at Cal State University Channel Islands, said there was good news in the report, but cautioned that the economy is unlikely to keep growing at such a strong pace.
"The not-so-good news is that most of the growth came from temporary factors such as inventories and government stimulus which can’t be sustained," he said.
Sohn’s forecast is for GDP growth of 2.6% in the first quarter, and only a bit higher than that for the full year. Silvia expects GDP growth of 2.3% in the first quarter of 2010, and 2.7% for the full year.
But Achuthan said growth doesn’t have to stay above 4% or 5% for the economy to start making significant gains.
"It is normal to have a burst of acceleration coming out of a recession, particularly a sharp recession, and then have growth ease back," he said.
Fewer Americans than anticipated filed claims for unemployment benefits last week, pointing to an improvement in the labor market that will help sustain economic growth next year.
Initial jobless claims fell by 22,000 to 432,000 in the week ended Dec. 26, the lowest level since July 2008, Labor Department figures showed today in Washington. The number of people collecting unemployment insurance fell in the prior week to 4.98 million, and those receiving extended benefits jumped.
Companies are retaining staff as sales improve and production picks up. Gains in consumer spending, which accounts for 70 percent of the economy, may encourage more hiring in coming months, helping to bolster the rebound from the worst recession since the 1930s.
“It’s boding well for outright job growth,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who forecast claims would drop to 430,000. “It seems that some of the layoffs that took place in the early part of the year were excessive.”
Treasury securities fell after the report, pushing the yield on the benchmark 10-year note up to 3.84 percent, from 3.79 percent late yesterday. The Standard & Poor’s 500 Index dropped 1 percent to 1,115.1 at 4:09 p.m. in New York. The S&P 500 gained 23.5 percent this year, the biggest annual advance since 2003.
Unexpected Drop
Economists forecast claims would rise to 460,000 from a previously reported 452,000, according to the median of 29 projections in a Bloomberg News survey. Estimates ranged from 430,000 to 490,000.
“What we’ve seen is definite stability and just a hint toward things trying to get better,” Jeffrey Joerres, chief executive officer of Manpower Inc., said in a Bloomberg Television interview today. The world’s second-largest provider of temporary workers, is experiencing “slow but steady increases in people who are out on assignment,” he said. “It’s a little in every office, which is a good sign because it’s broad-based.”
A Labor Department spokesman said last week’s figures were “consistent” with recent trends and were not influenced by any unusual factors. Even so, the week of the Christmas holiday is difficult to adjust for seasonal variations, he said.
The four-week moving average of initial claims, a less volatile measure, dropped to 460,250 last week from 465,750 the prior one. Claims are down from a 26-year high of 674,000 in the week ended March 27.
Continuing claims decreased by 57,000 in the week ended Dec. 19, reaching the lowest level since February. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
Extended Benefits
Today’s report showed the number of people who’ve use up their traditional benefits and are now collecting extended payments climbed by about 199,000 to 4.82 million in the week ended Dec. 12. Twenty-nine of the states and territories where workers are eligible to receive government extension have begun to report that data, a Labor Department spokesman said. Two states have started reporting data on the latest emergency extension, he said.
President Barack Obama this month signed into law legislation that included a stopgap provision to ensure that unemployment benefits weren’t cut off over the holidays.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.8 percent in the week ended Dec. 19, today’s report showed.
State Breakdown
Twenty-seven states and territories reported a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.
The government is scheduled to release its December payrolls report on Jan. 8. In November, the economy lost the fewest jobs since the recession began two years ago and the unemployment rate receded to 10 percent from a 26-year high of 10.2 percent the prior month.
Even so, Americans are concerned about their financial future. Fewer consumers in December believed their incomes will increase over the next three to six months, the Conference Board’s confidence report this week showed.
Warren Buffett’sBerkshire Hathaway Inc. is among companies that slashed employment in 2009. The Omaha, Nebraska-based company last week said it cut 21,000 workers from its payroll amid a slump at the firm’s manufacturing and retail units. The company and its subsidiaries now have about 225,000 workers, it said in regulatory filings.
Retail sales jumped 1.3% in November, according to the Commerce Department, well more than the expected increase.
Economists had expected retail sales to rise 0.6% from October, according to a consensus of forecasts compiled by Briefing.com.
The seasonally adjusted November increase represents $352.1 billion worth of monthly sales. This is slightly less than the October increase, when retail sales jumped 1.4% month-to-month.
Automobile sales had little to do with November’s gains. Without including autos, retail sales rose 1.2% last month.
A consensus of economists had projected ex-auto sales to rise 0.4% in November, compared to October, when ex-auto sales notched up 0.2%.
The year-to-year increase was more dramatic No teletrak payday loan. November retail sales jumped 1.9%, compared to the same month in 2008.
November sales included Black Friday, the post-Thanksgiving shopping spree that is generally one of the hottest days of the year for retail. But this year’s Black Friday disappointed retailers, with sales rising an anemic 0.5%, falling short of Thomson Reuters’ forecast of a 2.1% rise.
Also today, at 9:55 a.m. ET, the University of Michigan will release its preliminary consumer sentiment index for November. The November index is expected to rise to 68.8, according to a Briefing.com consensus, from the prior month’s index of 67.4.
Spanish producer prices fell the least in six months in October as oil prices rose.
Prices of goods leaving Spain’s factories, mines and refineries declined 4.2 percent from a year earlier, the National Statistics Institute in Madrid said today, after a 5.4 percent drop in September. Prices were unchanged from the prior month, today’s report showed.
The price of crude oil rose 14 percent in the year to the end of October and traded at $76.94 today. Weak demand is still pulling producer prices lower as the Spanish economy contracted for a sixth quarter from July through September even as Germany, France and the euro region expanded.
Spanish consumer prices have been falling in annual terms since March, as inflation slows more sharply than in the euro region overall. The Spanish economy may contract 0.7 next year, the International Monetary Fund forecast on Oct. 1, while the euro area, the U.S. and the U.K. post full-year growth.
Industrial production in Spain decreased 12.5 percent from a year earlier in September, declining for a 17th month as companies reduced staff to weather the slump. Nissan Motor Co. cut production of cars and light trucks 57 percent in September from a year earlier, compared with a global decline of 8.5 percent, it said on Oct. 28.
Gas prices are up slightly from two weeks ago — despite a decline in the price of oil, according to a survey published Sunday.
The average price nationwide for a gallon of self-serve regular is $2.68, up 3 cents from Oct. 23, the Lundberg Survey found.
"This is not from the price of crude, which actually backed off slightly in the past few days," said publisher Trilby Lundberg. "Instead, that small rise came from a bounce-back in the gasoline retailers’ margin, which had been squeezed into single digits in October."
The margin retailers take per gallon is generally about 10 to 14 cents, she said. In October, it averaged between 7 and 9 cents. "This is a normalization," Lundberg said, "because (the margin) had been abnormally low."
The price is 39 cents higher than it was a year ago — the first time a year-to-year increase has been seen this year, she said. "Last year, prices peaked in early July and they crashed all the way through the rest of the year at varying speeds … but now, with the 18-cent rise between Oct. 9 and Oct. 23 plus this additional 3 cents … these two lines in the graph, as it were, have crossed."
It’s likely, however, that the current price represents a peak, and prices will begin to slip, absent a rise in crude oil prices, Lundberg said bad credit payday loans. Demand is down for a number of reasons, chief among them the unemployment rate.
"It is the work commute that causes that gallon to be sold much more than anything else," she said. In addition, fewer daylight hours and the approach of winter weather leave people driving less this time of year.
The highest average price for a gallon of self-serve regular was in Anchorage, Alaska, at $3.30 for a gallon of self-serve regular, Lundberg said. The lowest was in Tucson, Ariz., at $2.36. Interactive map: Gas prices state by state.
A look at prices in some other cities:
- Honolulu, Hawaii — $3.20
- San Francisco, California — $3.04
- Houston, Texas — $2.49
- Atlanta, Georgia — $2.58
- Des Moines, Iowa — $2.62
- Boise, Idaho — $2.70
- Burlington, Vermont — $2.78
- Chicago, Illinois — $2.88
- Sacramento, California — $2.91
- Boston, Massachusetts — $2.70
- Long Island area, New York — $2.85
- Los Angeles, California — $2.97
The real estate investment manager who led the California Public Employees’ Retirement System, the nation’s largest pension fund, into a money-losing land venture has resigned as an adviser to the fund, according to news reports.
Victor MacFarlane, chairman and chief executive of MacFarlane Partners, “has terminated” his relationship with the $200 billion pension fund, the Wall Street Journal reported on Saturday.
A spokeswoman for MacFarlane said his resignation was voluntary and that he would continue advising Calpers through the end of the year, the Journal reported.
MacFarlane’s resignation was first reported by Reit Zone Publications.
Representatives for MacFarlane Partners and Calpers could not be reached to confirm the reports on Saturday afternoon.
MacFarlane Partners Inc is a real estate investment management firm in San Francisco that manages $10 billion in assets for some of the world’s largest pension plans and institutions, according to its website.
The firm came under fire for a $970 million investment it managed for Calpers into LandSource Communities Development, the Journal said.
LandSource filed for bankruptcy in 2008, about 18 months after Calpers had bought into the 15,000-acre (6100-hectare) tract outside Los Angeles, Calpers said in a 2008 press release.
Calpers had invested in the development through its investment partner, MW Housing Partners, which was jointly managed by MacFarlane Housing and Weyerhaeuser Realty Investors, the release said.
MW Housing held a 68 percent interest in LandSource, whose holdings were hit hard by the California real estate bust, it said.
The separation comes as Calpers examines its relationships with private equity firm Apollo Global Management and other outside money managers.
Calpers said earlier this month that its probe centers on around $50 million in payments that outside managers made over a five-year period to ARVCO Financial Ventures LLC, a firm headed by former Calpers board member Al Villalobos, to win the pension fund’s business.
Small companies create more than half of America’s jobs, but the entrepreneurs who drive this part of the economy continue to complain that access to credit two years into the recession remains scarce.
Small business owners say banks remain extremely wary of risk and a world away from the carefree lending that inflated an epic boom in housing values that went bust and pushed America into its worst economic downturn in decades.
They say their home equity lines of credit have been cut, business credit lines withdrawn and credit card limits slashed. Still profitable firms complain of a major pullback by banks, which many warn will leave a U.S. economic recovery stillborn.
“It’s like we’ve gone back 15 years in time,” said Carmine Ryan, who founded Ryan Bros Coffee in San Diego with his brothers Tom and Harry in the early 1990s, using credit cards.
“We have a proven track record, we pay our bills early and we’re profitable,” he said. “But banks are so gun-shy now that no one would touch us. They’re just sitting on the money.”
The Ryans developed a wholesale coffee business and opened a second coffee shop earlier this year. After they opened it, they sought a loan of $120,000 to finance operations. Nonprofit lender CDC Small Business Finance was able to arrange a $90,000 loan. The rest they had to come up with themselves.
“This is not the way it should be right now,” Harry Ryan said banks issue payday loans. “Banks should be lending to people like us.”
A few miles away, Yi Ping Lai runs an online business, Heart to Heart Gifts, which sells toys and decorations ranging in price from $6 to $100 for girls up to six years of age.
Last year, her sales passed $1 million. With the downturn, her revenue will end up about 50 percent lower this year. But she will still turn a profit, she says.
In August, she got a letter from her bank canceling her $55,000 business line of credit. She said the bank cited routine credit checks that had reduced her credit score.
“All of those credit checks were for legitimate personal reasons,” Yi said. “For instance, I move apartment and my landlord ran a credit check on me. I tried to explain that to the bank. But they said I was now a risky option for them.”
The bank later restored $20,000 in credit. But Yi said she is being hampered in developing a new product line.
“I need that cash flow for my business,” she said.
Susan Lamping, a senior community loan officer at the nonprofit CDC in San Diego, helped Yi obtain $35,000 in credit.
“Financing is extremely hard to come by and many businesses can’t get help through the banks,” she said.
Whether or not you’re personally convinced that the recession is just about over, those in the big buck mergers-and-acquisitions game are believers.
Biotechnology stocks, for example, have made dramatic gains because investors consider them ripe for picking. Big drug companies want innovative products in place for an economic revival.
Bristol-Myers Squibb recently bought biotech group Medarex Inc. for $15 a share, or $2.4 billion, about a 100 percent premium for Medarex shareholders.
"There are all these biotechnology companies out there that have been dying throughout the recession and unable to get capital or funding," observed Richard Bove, banking analyst with Rochdale Securities of Stamford, Conn.
Other deals include Walt Disney Co. buying Marvel Entertainment Inc., PepsiCo Inc.’s purchase of Pepsi Bottling Group Inc. and, in energy, Baker Hughes Inc. acquiring BJ Services Co.
In pharmaceuticals, there’s been the Pfizer Inc. deal for Wyeth and Merck & Co. acquisition of Schering-Plough. In technology, there’s the Adobe Systems Inc. deal for Omniture Inc. and Oracle Corp. purchase of Sun Microsystems Inc. In candy, Cadbury Plc has been in play since Kraft Inc.’s hostile bid.
"It’s all a sign you can’t keep a good capitalist down, and eventually greed will overcome fear," said James Paulsen, chief investment officer for Wells Capital Management, Minneapolis. "People are saying, ‘Gee, not only are we not going to have a depression, but it looks like we’re actually going to have a recovery.’"
Stock is still available at a "30-percent-off sale price," and there is excess cash lying around, said Paulsen. "That boatload of cash is on hand at so many companies because nine months ago everyone was saying cash was king — even though they were earning nothing on it," he said.
While he doesn’t expect a red-hot M&A market the rest of this year, he thinks it will continue to noticeably improve.
"It seems like a lot is happening because finally, after the whole economic crisis, some deals are actually getting done," said Jonathan Marino of the M&A Journal in New York. "It’s not driven by availability of money because credit markets are just as frozen as they were in May, but many acquirers have cash on their balance sheets."
Cash lets firms avoid issuing stock or paying high loan costs, he said.
"Some of these deals are tacit indication that the companies can’t grow their businesses much beyond what they are now, so they’re looking to fill some holes with key partnerships," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill. "Certain companies reach a ceiling where they are limited in how fast they can grow their revenue organically."
Firms aren’t using their traditional sources of financing, said Nolte. In the case of Kraft, financing for the deal was lined up well in advance of an offer being made.
"It’s really a broad spectrum this year," he said. "We’ve seen deals in the food industry, entertainment, technology and oil industry."
There will be windfalls for some investors. Greatest gains typically fall to those holding shares of the company being bought, especially if there are several competitors due to a hostile bid. Meanwhile, the acquiring firm’s stock often suffers on worries over whether the merger is logical or could stretch finances too thin.
Investors are buying a variety of shares in the likely target industries. Much of the acquisition activity will take place in digestible smaller firms, along with some larger companies if they have strong product lines.
The fact that mining company BHP Billiton has built up $18 billion in cash, for example, has investors looking at its possible acquisition of Freeport-McMoRan Copper & Gold Inc., Potash Corp. or Anglo American Plc.
Nonetheless, everyone is still into low risk these days. Lenders aren’t over-lending, individuals aren’t overpaying for houses, most firms aren’t expanding their business, and assets are still priced for "the depression that wasn’t," Paulsen said.
The 2009 merger environment is "high risk and high reward," according to a recent report by the Transaction Services unit of PriceWaterhouseCoopers. It believes a number of deal makers, including private equity firms, are eager to get back to business. While some companies will merge for survival, others will simply decide it is a good time to combine with a partner to prepare for an uptick in the economy.
Here are the sectors best-positioned for mergers and worthy of monitoring by investors, according to the PriceWaterhouseCoopers partners:
— Technology is "poised for another wave" of consolidation because many of its companies have mature business models and healthy balance sheets.
— Energy is experiencing greater stabilization in crude oil prices. This industry features excellent cash flow and growth prospects that make it a "consolidation hot spot."
— Pharmaceuticals and health care are now in the merger "spotlight," no matter what type of reform may be passed in Washington. Drug companies are seeking to fill their product pipelines through acquisitions, while some health care companies will be realigning their business models to take advantage of a new industry environment.
— Financial services consolidation will be "rampant," driven by mergers of necessity based on the distressed circumstances of some competitors. There will a flight to quality banks in the top one-fourth of the banking industry because they aren’t so hamstrung by government oversight.
Leaders of the world’s biggest countries meet on Thursday to seek ways to nurture the recovery from the worst recession since the 1930s and build safeguards against future catastrophes.
President Barack Obama, hosting his first Group of 20 summit, will lay out a massive agenda that includes tackling one of the thorniest problems facing the global economy — how to even out massive imbalances between export powerhouses such as China and the deeply indebted United States.
The sheer volume of problems the two-day summit is set to address — from the lopsided global growth model to climate change, tougher financial regulation and caps on bankers’ pay — means expectations for any near-term action are low.
European Central Bank Governing Council member Axel Weber said on Thursday he still expected the summit to agree on long-term changes to global financial structures, proving more productive than previous meetings.
“I am happy that G20 leaders and regulators have a broad consensus on the issues and on the agenda,” Weber, who is also the chief of the German central bank, told German radio.
The summit in Pittsburgh, which has seen its own economic hardship as its once mighty steel industry lost out to global competitors, is the third G20 gathering since the collapse of investment bank Lehman Brothers a year ago sparked the global recession.
For Washington, however, the top issue at the summit will be its call for coordinated policies that would reduce the world’s reliance on U.S. consumers by boosting consumption in top exporting countries, while debt-laden nations save more.
DON’T COUNT ON U.S. CONSUMER
U.S. Treasury Secretary Timothy Geithner, who is expected to meet with G20 officials on Thursday, said Americans had to save more, meaning that countries that were counting on U.S. demand to drive their own growth would have to look elsewhere.
“If they learn anything from this crisis, it’s that basic imperative,” he said on Wednesday.
Such rebalancing will take a monumental effort, given that China’s private consumption accounts for little more than a third of its economy, while it exceeds 70 percent in the United States or Britain.
By contrast, China’s households saved about 40 percent of their disposable incomes last year, while the U.S. savings rate was just over 3 percent.
Signs of growing support for the principles of a more balanced world economy and curbs on excessive risk-taking by banks have also yet to translate into agreement on how to achieve those goals.
China, whose $585 billion stimulus package largely focuses on boosting domestic investment and consumption, agreed with the idea of more balanced global economic development and more international cooperation on policies.
But Beijing distanced itself from the U.S. suggestion to make the International Monetary Fund responsible for regular monitoring and policy recommendations to G20 members.
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