Legion of Angels News Archive

(Money Magazine) – TeRon Lawrence, 37, sees opportunity in the recent stock and real estate market turmoil. In fact, he sees a lot of opportunities.

A self-described aggressive investor, he admits that he’s “taken some pretty severe blows this year,” but he hasn’t been scared away from owning stocks. Instead, he says he’s willing to get even more aggressive in preparation for a market rebound.

At the same time he’s considering investing in real estate and could sell some stock to help buy a property. He also figures this is a good time to be paying down debts, primarily $12,000 in credit-card balances. “I probably haven’t taken that debt as seriously as I should,” he says.

He’d like to be free of his credit-card ball and chain as soon as possible, but he’s not sure how to weigh that desire against his investment goals. If opportunity really is knocking in today’s financial turmoil, Lawrence doesn’t want to miss it.

Where he is now

Fortunately, Lawrence has the wherewithal to deal with his debt without ignoring his investments. His telecommunications sales job pays around $115,000 a year in salary and bonuses, and he’s been vigilant about keeping his monthly expenses low.

He owes $155,000 on his home outside Dallas, which is worth about $190,000, making for a manageable mortgage expense. He also maxes out his 401(k) contributions, plowing $15,500 a year into his plan. Between his 401(k), IRA, company stock and a variable annuity, he has about $200,000 salted away.

What he should do

* Build up an emergency fund.

While Lawrence has been diligent about investing in his 401(k), he hasn’t created much of a cash cushion for himself. Given that he’s recently divorced, with no spousal income to fall back on, Lawrence would be in a precarious position if he lost his job or faced some other financial crunch.

It’s important that he save enough to cover at least three months’ worth of expenses, says financial planner Brent Little of Odyssey Wealth Management in Irving, Texas. (He recommends an even higher target.) If Lawrence sells off the annuity, he should set aside $12,000 in savings right away to cover potential crises.

* Pay off the plastic - now.

Lawrence has already stopped using his credit cards and consolidated his debt onto two cards carrying interest rates of 7.9% and 9.9%. But eliminating the remaining tab should be his top priority, says Little.

To come up with enough money to completely pay off that debt, Little recommends that he cash out the $91,000 he has in a variable annuity - an investment saddled with expensive fees that hobble his return. Lawrence would incur a tax hit - and a 2% penalty if he sold before October 2009 - but Little notes that he’ll be paying almost that much in fees if he holds on for another year.

And that doesn’t even factor in the mounting credit-card charges he faces. Lawrence is not sure that he’s comfortable cashing out immediately - “I don’t really like the thought of paying those penalties,” he says - but Little says the payoff will be worth it.

* Get smart about risk.

With his long investing time horizon and his high tolerance for risk, Lawrence can continue to be aggressive with his retirement portfolio. But his current mix, which includes a hefty 49% stake in international stocks and just 2% in bonds, hasn’t provided rewards that adequately match the risks.

He also continues to buy shares of his employer at a 15% discount through an employee stock-purchase plan. Little suggests that he limit company stock to about 5% of his overall portfolio by selling off shares he’s held for at least a year (making them eligible for long-term capital-gains tax treatment). Better diversification could reduce the risk his portfolio undergoes without lowering its expected long-term returns.

Little also suggests that he add a small-cap mutual fund such as Royce Value Plus and bump up his bondholdings to 18% of his portfolio by buying a fund such as Vanguard Total Bond Market Index.

Lawrence seems comfortable with this balanced approach. “I like the plan,” he says.

* Take a pass on real estate.

Lawrence has often heard that buying a rental property is the best path to building wealth. That’s why he wants to make his first foray into investment real estate.

Little, though, suggests holding off altogether. “The risk isn’t worth the reward in this case,” he says. A rental property wouldn’t add much diversification to his portfolio, might be difficult to unload if he ever needed money in a hurry, and most important, would be time consuming and stressful.

Lawrence accepts that advice happily. “I don’t want the headache,” he says. “I never really wanted to be a landlord.”

The makeover

* The problem Lawrence is carrying $12,000 in credit-card debt, with monthly interest payments eating into his cash flow.
* The plan Pay it off. Raise the required $12,000 by cashing in a variable annuity, even though that will entail penalties.
* The payoff Once rid of monthly credit-card payments, he will have more cash available to funnel into his investment portfolio.

* The problem Lawrence’s portfolio is concentrated in volatile stock markets overseas and his employer’s stock. That’s way too much risk.
* The plan Cut the employer’s stock from 15% of the portfolio to just 5%. Trim the international fund and add a bond fund.
* The payoff Better portfolio diversification should make his investment returns much more stable.

* The problem Lawrence lacks an emergency fund, making his financial security highly vulnerable to job loss.
* The plan Use extra proceeds from the annuity cash-out to create a $12,000 emergency fund.
* The payoff With money set aside to cover three months of expenses, he has a cushion against negative surprises.

Source — CNN

NEW YORK (CNNMoney.com) – The United States has sneezed. And while it may be too strong to say that China has now caught a cold, it has, at the very least, come down with a bit of a runny nose.

And that’s not an encouraging sign for the U.S. economy.

China’s government reported on Monday that its economy grew 9% in the third quarter. That is, of course, still robust expansion by any measure.

But it is a cause for concern considering that China’s gross domestic product increased at a greater than 10% clip in the first two quarters of this year and has been growing at a double-digit pace annually since 2002.

The Chinese economy was expected to slow a bit following the Olympics in Beijing this past summer. But this is clearly more than a post-Olympic pullback.

It’s even more troubling when you take into account the fact that China is a big investor in U.S. stocks and bonds. The Chinese sovereign wealth fund China Investment Corp. has stakes in U.S. financial firms Morgan Stanley (MS, Fortune 500), Visa (V) and Blackstone (BX), for example.

And as I pointed out last week, foreign purchases of U.S. securities - with the notable exception of Treasurys - is starting to slow.

Simply put, a slowing Chinese economy is not good news for the United States. Consider another reason: China is an important customer of U.S. goods.

According to figures from the U.S. Department of Commerce, exports to China increased 18% last year. And China is now the country’s third-largest export market. China surpassed Japan in 2007 and trails only Canada and Mexico.

Christian Broda, an economist with Barclays Capital, said in a research report last week that China helped keep the U.S. economy from slipping into a deeper recession in 2001 since it was just beginning to become a more active trading partner with the rest of the world at that time.

China was only added to the World Trade Organization in December 2001.

But Broda pointed out that China’s exposure to the global economy is now double what it was in 1998-2002 because of its more active role as an importer and exporter. In other words, it’s now too big to be immune from the financial crisis.

“We don’t expect China to provide a buffer this time,” Broda wrote. “As growth decelerates in the developed world, there is unlikely to be a region in emerging markets that will act as a natural countervailing force.”

To be sure, China’s economy is not going to grind to a halt. But even a marginal slowdown could hurt large U.S. firms. Many of them have been able to offset sluggish growth in the United States with sales to China and other developing markets.

And it’s not certain that China’s economy will continue to keep expanding at such a rapid pace in the next few years if this credit crunch continues to persist for much longer.

“This enormous shock to the worldwide banking business, which was really magnified in mid-September, should probably lead to a reduction of 2.5% in the growth for all global economies next year. So if you thought China would grow 10% in 2009, you now have to figure it will grow 7.5%,” said Alexander “Sandy” Cutler, CEO of Eaton, a Cleveland -based manufacturer of industrial equipment.

Cutler said he expected China to remain a big growth opportunity for the company. Still, Eaton (ETN, Fortune 500) warned Monday that its fourth-quarter results would be lower than expected in large part due to slowing demand around the globe.

Construction equipment giant Caterpillar (CAT, Fortune 500) also hinted that China’s economy would slow down next year when it reported slightly lower-than-expected results for the third quarter Tuesday.

Stuart Hoffman, chief economist of PNC Financial Services in Pittsburgh, said it would not be a surprise if China’s slowdown affected other industrial companies, as well as tech firms that have increasingly looked to China as a growth market.

However, he added that there is one piece of good news worth mentioning - China is now the world’s second-largest importer of oil. So the sharp decline in crude prices could help keep China spending more than other countries.

And since China doesn’t rely as heavily on oil production as other developing nations - Russia being the most notable - it is unlikely to experience as much economic hardship due to falling oil prices.

Still, it’s crucial for the health of the U.S. economy that China’s doesn’t suffer a severe meltdown.

To that end, Treasury Secretary Henry Paulson is giving a speech in New York on Tuesday night about China and the global economy. It will be very interesting to hear what he has to say.

There is already some evidence to suggest that the two nations may need to work together to avert more global economic pain.

When the Fed announced a coordinated interest rate cut on Oct. 8 with banks in Europe and Canada, China’s central bank also lowered interest rates that day.

The Fed’s announcement didn’t mention the Chinese rate cut and China’s central bank didn’t acknowledge the rate cuts in the United States and Europe. But does anyone honestly think that the United States and China coincidentally decided on the same day to lower interest rates?

Make no mistake. The two countries clearly realize they need each other and that economic hardship suffered by the other is not good for either. China may not have the exact problems that the U.S. does but its third-quarter GDP slowdown is definitely a sign that the credit crunch is hitting China as well.

“This is proof positive that the world is very much interconnected and not decoupled. The U.S. is not the only locomotive for growth. China’s growth is likely to continue slowing down,” Hoffman said.

Source — CNN

NEW YORK (CNNMoney.com) – Yahoo announced Tuesday that it plans to cut at least 10% of its workforce, or more than 1,500 employees, in the fourth quarter in an effort reduce costs.

The struggling Internet company also announced sales for the third quarter that were roughly in line with Wall Street’s forecasts and earnings that matched expectations.

Yahoo had 15,200 employees at the end of the third quarter. The much-anticipated round of layoffs comes on the heels of another 1,000 job cuts in late January.

“We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity,” said Yahoo co-founder and CEO Jerry Yang in a written statement.

“The steps we are taking this quarter should deliver both near-term benefits to operating cash flow, and substantially enhance the nimbleness and flexibility with which we compete over the long term,” he added.

In a conference call after the results were announced, Yang said the company was working to reduce costs in other ways than just slashing jobs, including relocating offices and consolidating real estate. “We are identifying ways we can operate more efficiently,” he said.

Yahoo (YHOO, Fortune 500) reported revenue of $1.79 billion in the quarter ended Sept. 30, an increase of 1% from the $1.77 billion in the same quarter one year ago.

Excluding commissions paid to advertising partners, Yahoo posted sales of $1.33 billion, slightly lower than the $1.37 billion in sales that analysts polled by Thomson Reuters expected on this basis.

Yahoo reported net income of $54 million, or 4 cents per share, a decline of 51% from a year ago. Excluding certain one-time charges, Yahoo recorded profits of $123 million, or 9 cents per share, which was in line with what analysts had forecast on this basis.

Yahoo’s stock ended the regular trading day down 79 cents at $12.07 but rose 7% in after hours trading.

The report provided “no more negative surprise beyond what we had already expected,” said Sandeep Aggarwal, Senior Internet Analyst at Collins Stewart.

And given the weak economy, Yahoo’s report “could have been a lot worse,” noted Jeffrey Lindsay, senior analyst with Sanford C. Bernstein & Co.

Lindsay said that Yahoo’s decision to reduce costs, mostly through massive job cuts, has the potential to buoy the company through the hard times. “If they really do take the staff numbers down for real, that will have a very beneficial effect,” said Lindsay.

Yahoo’s stock has been battered in recent months due to concerns that companies would cut their online advertising spending as a result of the economic slowdown. Executives admitted that Yahoo’s performance has been taking a hit from the sluggish economy.

“An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range,” said Yahoo Finance Chief Blake Jorgensen in a statement.

“While we are disappointed with our results, we’re pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year,” he added.

Looking forward. In light of the distressed global economic climate, Yahoo lowered its sales guidance for the remainder of the year. At the end of the second quarter, the company was expecting sales to be in the range of $7.35 billion and $7.85 billion. However, the company has now trimmed that revenue guidance to between $7.18 billion and $7.38 billion.

Even thought Yahoo cut its sales forecasts, the company didn’t decrease operating cash flow guidance. According to Aggarwal, that means that Yahoo’s profit margins will be higher than originally thought.

Investors are worried that large companies will spend less on so-called Internet display ads, such as banners and video. Automakers and banks, two of the nation’s hardest hit sectors, have typically been big purchasers of display ads.

Yahoo turned down several takeover offers from Microsoft (MSFT, Fortune 500) this year, a decision that has frustrated many Yahoo shareholders. Since then, Yahoo has pursued an ad-sharing deal with top rival Google (GOOG, Fortune 500).

The partnership has been put on hold, however, as the Justice Department investigates whether the deal would create an online advertising monopoly and violate antitrust laws.

In the conference call, Yang shot down speculation that Google might pull out of the partnership and said that the company was still working with the Department of Justice to negotiate the deal with Google. “We look forward to bringing the benefits to the marketplace as soon as possible,” said Yang.

Also on the conference call, Yahoo president Susan Decker talked about Yahoo’s efforts to move away from a “one size fits all” portal to a more customized experience. Yahoo has been criticized by some for being too broad and lacking a definite focus.

Meanwhile, Google announced last week that its profits jumped a better-than-expected 26% in the third quarter. Google has continued to report strong growth despite the economic downturn thanks to its dominance in search advertising.

Source — CNN

INDIANAPOLIS - Eli Lilly and Co. aims to grow leaner and more diverse as it pushes to keep pace with changes spreading through the drug industry, CEO John Lechleiter said in a Wednesday afternoon speech.

Biotechnology drugs that can be tailored more closely to individual patient needs and networks that speed drug development will become keys for Lilly as it approaches the patent expiration dates for several top sellers.

“We’re flat-out rejecting the conventional wisdom that says it must take 10 to 15 years, and a billion dollars-plus, to bring a single new molecule to patients,” Lechleiter said in a luncheon speech for The Economic Club of Indiana.

Lechleiter, who became CEO in April, touched on several topics as he outlined the company’s future for a hometown audience.

“We’re still a proud, Indiana-based company, but folks, this is not your grandfather’s Lilly,” Lechleiter said. “It can’t be anymore.”

The company also announced last week that Lechleiter, 55, will become chairman next year, replacing former CEO Sidney Taurel in that role too.

Lilly’s total employment ballooned from 30,000 to about 46,000 in the late 1990s and early part of this decade. It has since retreated back below 40,000 mostly through attrition and some buyouts, and Lechleiter said the company will continue to push that total down. But he did not offer specific goals for total jobs.

Meanwhile Lilly plans to expand networks with other companies that lead to drug developments through partnerships or alliances. The CEO noted that the U.S. Food and Drug Administration approved only 19 new medicines last year, the lowest annual total since 1983.

“Lilly cannot succeed as an innovator in the 21st century if we’re maintaining capacity we no longer need or undertaking tasks that others can perform better or for less,” he said.

Major acquisitions or mergers don’t make sense for Lilly, Lechleiter said. But the drug maker does plan to bulk up its animal health business with smaller-scale deals.

Biotechnology products, which are developed from living cells instead of chemical compounds, already account for about a third of Lilly’s annual revenue, which totaled $18.6 billion last year. But Lechleiter wants these drugs to account for more so the company can tailor medicines to better treat disease variations or patient groups.

Biotech molecules also are less susceptible to generic competition than chemical compounds because of the complexity of their manufacture.

Lilly spent $1 billion to develop a biotech center in Indianapolis and started building a new biotech manufacturing site last April in Ireland.

Lilly’s stock price soared past $100 in 2000 but has dropped considerably since then. Shares sold for $46.16 Wednesday, and they could take another hit Friday, when the FDA is expected to decide the fate of the cardio drug prasugrel.

Lilly and its Japanese partner, Daiichi Sankyo Co., hope to gain approval of the drug to treat patients with acute coronary syndromes, such as heart attacks or unstable angina, who are at risk of developing blood clots.

Analysts, who have expressed concern about the depth of Lilly’s product pipeline, say the drug could eventually bring in more than $1 billion in annual sales.

Lilly could use a new blockbuster. The patent protecting its top-selling drug, anti-psychotic Zyprexa, expires in 2011. The one covering its second-largest seller, the antidepressant Cymbalta, expires in 2013.

Lechleiter said before his talk Wednesday these looming expirations offer motivation for the company’s changes. But he also noted that patent expirations are part of the business cycle of a drug company.

Broader problems like the cost of developing drugs and the decrease in new drug approvals play more of a role in Lilly’s strategy.

“I do believe what’s going on in our industry right now is more fundamental than that, and we have to respond to it,” he said.

Source — Yahoo!

WASHINGTON - President Bush on Wednesday warned Americans and lawmakers reluctant to pass a $700 billion financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs and closed businesses. “Our entire economy is in danger,” he said.

His dire warning came not long after the president issued extraordinary invitations to presidential candidates Barack Obama and John McCain, one of whom will inherit the mess in four months, as well as key congressional leaders to a White House meeting on Thursday to work on a compromise.

“Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold,” Bush said in a 12-minute prime-time address from the White House East Room that he hoped would help rescue his tough-sell bailout package.

Bush explicitly endorsed several of the changes that have been demanded in recent days from the right and left. But he warned that he would draw the line at regulations he determined would hamper economic growth.

“It should be enacted as soon as possible,” the president said.

The bailout, which the Bush administration asked Congress last weekend to approve before it adjourns, is meeting with deep skepticism, especially from conservatives in Bush’s own party who are revolting at the high price tag and unprecedented private-sector intervention. Though there is general agreement that something must be done to address the spiraling economic problems, the timing and even the size of the package remained in doubt and the administration has been forced to accept changes almost daily.

Seeking to explain himself to conservatives, Bush stressed he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies. He tried to address some of the major complaints from Democrats by promising that CEOs of failed companies won’t be rewarded.

“With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions by some to undermine the financial security of all,” Bush said. “These are not normal circumstances.”

The president turned himself into an economics professor for much of the address, tracing the origins of the problem back a decade to a large influx of money into the U.S. system from overseas, low interest rates, the “faulty assumption” that home values would continue to skyrocket, easy lending by mortgage companies, over-borrowing by home owners and exuberant building by construction firms.

But while generally acknowledging risky and poorly thought-out financial decisions at many levels of society, Bush never assigned blame to any specific entity, such as his administration, the quasi-indepedent mortgage giants Fannie Mae and Freddie Mac, or the Wall Street firms that built rising profits on increasingly speculative mortgage-backed securities. Instead, he spoke in terms of investment banks that “found themselves saddled with” toxic assets and banks that “found themselves” with questionable balance sheets.

Intensive, personal wheeling and dealing is not usually Bush’s style as president, unlike some predecessors. He does not often call or meet with individual lawmakers to push a legislative priority.

But with the nation facing the biggest financial meltdown in decades, Bush took the unusual step of calling Democrat Obama personally about the meeting, said presidential spokeswoman Dana Perino. White House aides extended the invitations to Republican McCain and to GOP and Democratic leaders from Capitol Hill.

Obama spokesman Bill Burton said the senator would attend and “will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution.” Senior McCain advisers said McCain will attend, too. The plans of the other invitees were unknown, and the exact details of the meeting, which Perino said was aimed at making fast progress to stem the biggest financial meltdown in decades, were still being set.

In another move welcome at the White House, Obama and McCain issued a joint statement urging lawmakers — in dire terms — to act.

“Now is a time to come together Democrats and Republicans in a spirit of cooperation for the sake of the American people,” it said. “The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail.”

The two candidates — bitterly fighting each other for the White House but coming together over this issue — said the situation offers a chance for politicians to prove Washington’s worth.

“This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe,” they said.

However, the Oval Office rivals were not putting politics aside entirely. McCain asked Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown. Obama said the debate should go ahead.

Bush last gave a prime-time address to the nation 377 days ago, on Iraq. This one, carried live by all five major television outlets, could be the last of his presidency.

White House and administration officials have warned repeatedly of a coming “financial calamity.”

But that has not closed the deal, which for many recalls previous warnings of grave threats from Bush — such as before the Iraq war — that did not materialize. So Bush’s goal with his speech was to frame the debate in layman’s terms to show the depths of the crisis, explain how it affects the people’s daily lives and inspire the public to demand action from Washington.

He said that more banks could fail, the stock market could plummet and erase retirement accounts, businesses could find it hard to get credit and be forced to close, wiping out jobs for millions of Americans.

“Ultimately, our country could experience a long and painful recession,” Bush said. “Fellow citizens, we must not let this happen.”

But he ended on a positive note, predicting lawmakers would “rise to the occasion” and that the nation’s economy will overcome “a moment of great challenge.”

Through the crisis, the White House has struggled over how to deploy Bush.

As the problem mushroomed over the weekend of Sept. 13, Bush generally stayed out of the limelight, letting Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke take the lead with reporters, lawmakers and the public. Bush remained silent for days.

Since last Thursday, however, the president has talked about the crisis almost daily, although usually briefly, and yet he still has had trouble breaking into the debate. News coverage has barely mentioned Bush’s comments.

The decision to pull out perhaps a president’s largest available weapon — the ability to demand a presence on evening television screens nationwide, from a setting with the ultimate bully-pulpit power — is one sign that the rescue package still faced daunting hurdles.

With so many crises hitting the United States at once, the presidential race has taken a back seat and so has Bush’s involvement in politics. Bush canceled a fundraising trip to Florida on Wednesday to deal with the problem, the third time in a week that he has scrapped his attendance at out-of-town fundraisers, either because of the market turmoil or Hurricane Ike.

The economic crisis also is almost certain to overshadow the rest of Bush’s four months left in office and could hugely impact his legacy. It has been assumed that the long-term view of Bush’s presidency was to be shaped largely by Iraq, Hurricane Katrina and the Sept. 11, 2001, attacks. Now, the dire economic problems and the aftermath of the government’s attempted solution will certainly be added to that list.

Source — Yahoo!