Finance and Economic

Investors will be watching to see if the stock market can sustain its rally Wednesday, a day after the Dow Jones industrial average closed at its highest level in 2 1/2 years.

The Dow closed above 12,000 on Tuesday for the first time since June 2008. Another major market index, the Standard & Poor’s 500, closed above 1,300 for the first time since August 2008. A strong manufacturing report and positive earnings from companies such as UPS and Pfizer drove stocks higher.

Another round of earnings will likely sway stocks Wednesday.

Time Warner Inc. rose 3.5 percent ahead of the opening bell after the owner of Warner Bros., HBO and CNN said its fourth-quarter profit jumped 22 percent. The company also offered a forecast for 2011 that topped analysts’ estimates.

Mattel Inc. rose 5 percent in pre-market trading after the nation’s largest toymaker said its revenue rose 9 percent on strong sales of Barbie and Fisher-Price toys.

Hershey rose 1 percent ahead of the opening after the candy maker said its fourth-quarter profit increased nearly 7 percent thanks to brisk holiday sales in the U.S. and growth in emerging markets. The company also raised its quarterly dividend.

Ahead of the opening bell, Dow futures are down 24, or 0.2 percent, at 11,950. S&P 500 index future are down 4, or 0.3 percent, at 1,299. Nasdaq 100 index futures are down 5, or 0.2 percent, at 2,313.

Treasury prices are rising, pushing their yields lower. The yield on the 10-year Treasury note fell to 3.40 percent from 3.43 percent late Tuesday.

Payroll processor ADP reported that private companies added 187,000 jobs in January, more than the 145,000 that economists were expecting.

“This jobs report is very positive,” said Curvin Miller, vice president of Russell & Co., a wealth advisory firm. “This job growth we’re seeing is predictable and it’s increasing in strength.”

The most important report on the job market comes Friday when the Labor Department puts out its monthly survey of payrolls. Economists caution that ADP’s figures usually differ from the government’s _ sometimes by a wide margin.

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Treasury Secretary Timothy F. Geithner and federal regulators need to fix the mortgage foreclosure process so that it doesn’t derail the economic recovery, Senator Jack Reed and 16 other senators wrote in a letter yesterday.

“Mortgage market issues point to an emerging threat to financial stability that should be forcefully addressed now,” wrote Reed, a Democrat from Rhode Island. The letter, obtained by Bloomberg News, was also signed by Senator Bernie Sanders, an independent of Vermont, and 15 other Democrats including Senators John Kerry and Dick Durbin.

The letter shows increasing concern from lawmakers that the Obama administration hasn’t done enough to stem the housing crisis. Home prices may decline 5 percent this year as the housing market starts to stabilize, Jan Hatzius, chief U.S. economist at Goldman Sachs, said in a Dec. 31 Bloomberg Television interview.

The senators’ letter was also addressed to the Financial Stability Oversight Council, often referred to as FSOC, created last year to guard against future financial crises.

The oversight council discussed foreclosures at its November meeting and is waiting for the findings of an Obama administration foreclosure task force.

“The reviews are ongoing,” Treasury spokesman Steve Adamske said today. “We are awaiting the conclusions of the reviews.”

‘Poorly Handled’

The financial system faces “serious” problems from “poorly handled, if not illegal” foreclosure processing that has created headaches for state and federal governments, according to the 17 lawmakers.

The senators called for a “robust and comprehensive solution” that would protect homeowners and investors. They urged the council to respond “promptly” and indicate whether it needs additional tools or legislative changes.

“The FSOC should determine whether there is a need for some independent referee, whether it is a bankruptcy court or other institution, in finally addressing these foreclosure processing and loan modification issues,” the senators wrote. They said that bankruptcy courts are increasingly involved in “creatively and proactively” addressing foreclosure issues.

Geithner and the council, which includes the heads of the Federal Reserve, the Securities and Exchange Commission and other regulatory agencies, also should lead and coordinate efforts among state and federal authorities, the senators said. They said homeowners should be “quickly and fairly” evaluated for loan modifications to prevent foreclosures.

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures.

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Apple’s iPhone is widely expected to come to Verizon Wireless next year. Here’s the surprise twist: That won’t spell disaster for AT&T.

AT&T (T, Fortune 500) has been pounded for years about its network struggles, which recently got it crowned "worst carrier" in America in a Consumer Reports survey. IPhone addicts are often the company’s most vocally unhappy customers.

But AT&T isn’t sweating bullets about the prospect of customers fleeing en masse when its exclusivity deal with Apple (AAPL, Fortune 500) comes to an end.

The telecom giant — and many of the industry analysts who cover it — predict that the vast majority of AT&T’s roughly 20 million iPhone customers will stick with the wireless carrier.

AT&T had the strategic foresight to lock most of them into long-term contracts lasting deep into 2011 and beyond. That makes it painful for those subscribers to switch to another carrier — and makes the Verizon iPhone pill much easier for AT&T to swallow.

Here’s a closer look at why AT&T doesn’t have to worry too much about its upcoming iPhone rival:

Early upgrades: Over the past six months, AT&T enticed millions of its iPhone customers to lock themselves into new two-year contracts by offering early upgrades.

When Apple started selling the iPhone 4 in June, AT&T allowed any customer whose contract was running out at any point in 2010 to get the new iPhone for $199, instead of the typical $599 price for customers in the middle of their contracts. The catch: Customers had to sign a new long-term contract.

In the first three months that the iPhone 4 was on sale, AT&T locked in 5.2 million customers. Analysts expect the company to have reeled in millions more during this quarter.

"AT&T knew the window of exclusivity would collapse, so there was a very explicit effort on AT&T’s part to give customers an expanded window of time to get the subsidy on the iPhone," said Charles Golvin, analyst at Forrester Research. "It was quite successful in locking those customers in."

It’s really expensive to switch: Customers under contract will need to fork over a $325 "early termination fee" to AT&T if they switch. It’s prorated, but each each month of completed service knocks just $10 off the tab.

That’s not all. AT&T’s iPhone customers will also need to buy a whole new iPhone if they want to switch to Verizon (VZ, Fortune 500). That’s because the two carriers operate on a different technology standard, and the chip in AT&T’s iPhone is not compatible with Verizon’s network.

If you bought a new iPhone 4 on AT&T when it came out in June and then switch to Verizon in early 2011, you’ll have shelled out around $645 for iPhones in a matter of months — $200 for the AT&T iPhone 4, about $200 for the essentially identical Verizon iPhone 4, and $245 or so for the early termination fee.

Switching is particularly painful for those with family plans, since they have to buy all new phones for their whole family. AT&T says 80% of its customers with integrated devices — a category that includes the iPhone — are on "Family Talk" or business plans.

AT&T’s customers are ’sticky’: About two-thirds of AT&T customers are happy with their service and say they won’t switch wireless companies for any reason, according to a recent a Booz & Co. survey.

For the other third, the biggest factor that would motivate them to switch is lower costs. But experts don’t expect Verizon’s iPhone pricing to be substantially different than AT&T’s. (The margins are ultra-thin on the iPhone, since carriers take a hit of about $400 in subsidies for each device.)

AT&T can weather the storm: An estimated 2.5 million AT&T iPhone customers will defect to Verizon in 2011, according to Yankee Group, which based its forecast on a survey of 15,000 U.S. consumers. That prediction falls right into the range of most analysts’ forecasts.

That sounds like a lot, but it represents just 3% of AT&T’s base of 93 million customers.

Plus, defections are a fact of life of the wireless business — one that AT&T has successfully weathered in the past. About 12% to 15% of the company’s wireless subscribers have historically terminated their contracts each year, but AT&T has consistently added more customers each year than it lost.

For those that do leave, AT&T will reap the rewards of their early termination fees, blunting the loss to the company’s revenue.

The end result of all those calculations is that most analysts expect a minimal impact on AT&T’s bottom line.

Mike McCormick, a financial analyst at Nomura, expects AT&T to lose a net 1.3 million customers next year. He thinks company will probably take a $689 million hit to sales. Booz & Co.’s George Appling, who expects a 2 million customer loss, anticipates a $1.7 billion hit.

But that’s a drop in the bucket for a company the size of AT&T.

"AT&T is a $120 billion a year company," Appling said. "$2 billion could get easily washed away and hidden."

Don’t expect AT&T to simply roll over: AT&T’s network has a few technical advantages over Verizon’s. Expect them to be heavily advertised.

AT&T operates on the GSM standard, which allows customers to talk and surf the Web at the same time — a features that Verizon’s CDMA network doesn’t allow. GSM is also used in far more countries, allowing AT&T’s phones to work across the globe — something most of Verizon’s phones can’t do. Analysts expect AT&T to go hard after Verizon on those points in advertisements once both networks carry the iPhone.

AT&T says it’s serene about its future.

"We are the industry leader in smartphones; we offer the iPhone and other great devices and we will continue to do so," said company spokesman Mark Siegel. "We operate the nation’s fastest network and we plan on making it even faster."

So if there is a massive fallout from Verizon getting the iPhone, it likely wouldn’t happen until the latest round of two-year contracts are up. That wave hits in late 2012 and early 2013.

But by that time, AT&Ts 4G network — a years-in-the-works upgrade that the company has poured billions into — will be in place. All of those network problems that the company’s customers have suffered through for years could become a thing of the past.

"It’s certainly possible that some AT&T customers will leave for Verizon in 2012 or 2013, but the smartphone market is rapidly changing," said Forrester Research’s Golvin. "It’s hard to look out and say one way or another."  

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Spartech Corp. reported a loss of $55.7 million for its fourth fiscal quarter, pressured by increased expenses and some charges.

President and CEO Vicki Holt said in a statement that the company’s quarterly results reflected disruptions from asset consolidations.

“Although I strongly believe the changes we have made to our manufacturing footprint will provide a more cost efficient infrastructure and position the company for long-term earnings growth, we have made mistakes in implementation that are being corrected and which have slowed our recovery,” she said.

Late Monday the plastic sheet and packaging maker reported that its loss amounted to $1.80 per share, for the period ended Oct. 30. That compares with net income of $8.2 million, or 26 cents per share, a year earlier.

Loss from continuing operations was $1.78 per share. Excluding restructuring costs, impairment charges and other items, earnings from continuing operations amounted to a penny per share.

Analysts surveyed by Thomson Reuters predicted net income of 6 cents per share. These estimates typically omit one-time items.

Total costs and expenses climbed to $332.7 million from $233.3 million.

Revenue rose 43 percent to $259.6 million from $242.6 million on higher prices and a slight increase in volume.

But the performance missed Wall Street’s $272.6 million.

Spartech’s annual loss was $50.4 million, or $1.63 per share. In the previous year the Clayton, Mo.-based company reported net income of $8.4 million, or 27 cents per share. Full-year revenue improved to $1.02 billion from $926.8 million.

 

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The aggressive push federal prosecutors are making against potential insider trading is sending investigators into a legal gray area that may redefine insider trading itself.

Mutual fund company Janus Capital Group said Tuesday it was cooperating with an inquiry on insider trading. A day earlier, the FBI searched the offices of three hedge funds in New York, Connecticut and Massachusetts as part of what outside experts say could turn out to be one of the largest probes in Wall Street history.

Investigators are thought to be pursuing suspicions of trading by hedge funds and mutual funds that might have profited illegally using inside information not available to ordinary investors.

But the behavior being targeted by investigations appears more elusive and complex than the common understanding of insider trading _ high-powered executives picking up the phone, whispering secret tips about big deals, and trading stock at an unfair advantage. These were the types of cases that ensnared executives such as Ivan Boesky in the 1980s and Enron’s Jeffrey Skilling more recently.

How the alleged scheme may have worked is unclear. Federal prosecutors declined to comment on Tuesday. But what is clear is that the way information is shuttled around the world of finance today is faster, more complex and more shadowy. It involves an increasingly digitized financial world where networks of insiders can share bits of information with blinding speed.

It can also tap into so-called expert networks of industry analysts, experts and consultants who squirrel details between corporate America and Wall Street about what companies are up to _ potentially giving some investors an unfair edge.

Federal authorities have traditionally pursued high-ranking executives and their confidants in insider-trading cases. Now, they’re increasingly going after the rank and file. In September, for instance, the Securities and Exchange Commission accused a railroad supervisor and a trainman of insider trading after they noticed an “unusual number” of tours of people in “business attire” in a railyard.

The two workers and their relatives then bet in the stock market that the company would soon be taken over and made $1 million when that turned out true, according to the SEC suit.

The federal crackdown on insider trading that burst into view this week is being led by Preet Bharara, the top United States prosecutor in Manhattan. Bharara has called insider trading “rampant” and suggested it is growing.

In a strikingly revealing speech last month to the New York City Bar Association, Bharara said the detection of insider trading has “perhaps never been more difficult to attack through traditional investigative means.”

The explosion of financial information, including blogs, tweets and online newsletters, makes it easier for an accused insider trader to argue that he or she was acting on information “based on some report somewhere,” he said.

Bharara also spoke of the need to target insider trading by using a tool more typically deployed in racketeering cases: wiretaps.

“The question of why we use wiretaps to investigate illegal insider trading is, to my ear, like my asking a defense lawyer, why do you cross-examine the government’s witnesses at trial?” he said. “Court-authorized wiretaps, so long as all the legal requirements can be met, will continue to be in our toolbox in insider trading cases.”

Bharara’s office was already pursuing an insider-trading case against the Galleon Group, a once-powerful hedge fund led by Raj Rajaratnam cashadvance. He was charged last year with conspiring to trade insider information. He has pleaded not guilty.

Monday’s raids targeted three hedge funds: Level Global Investors in New York, Diamondback Capital Management in Stamford, Conn., and an address that matched Loch Capital Management in Boston. Federal law enforcement agencies would not comment other than to confirm an investigation.

Investors can use the expert networks to glean details of what’s occurring within certain industries or particular companies. Someone interested in learning more about fast-food dining in China, for example, might connect with local store managers, suppliers or experts on dining in the region.

The expert networks connect the investor and the source, getting a fee from the investor and then paying the source, who could make $400 to $500 an hour, says Sanford Bragg, CEO of the consulting firm Integrity Research Associates, which connects investors with these research firms.

Hedge funds have been paying people to dig for hard-to-find numbers on companies for years.

Tammer Kamel, president of Iluka Consulting Group Ltd. in Toronto, recalls visiting a Hong Kong fund 10 years ago that wanted to better gauge future sales by a company with factories in China. Its solution: Pay Chinese farmers near a company warehouse to count trucks leaving the site.

For a possible investment in a casino, another fund paid people to stand outside the casino and count visitors walking in, Kamel says. Then the fund multiplied that number by average losses per visitor to get a better sense of the casino’s daily take.

“The managers were openly discussing technique,” Kamel said. “They clearly thought it was just smart data gathering.”

This week, retailer Big Lots filed a lawsuit accusing a research firm of having “wrongfully induced” stores managers to disclose “trade secrets” about the chain’s inventory levels, sales and strategy. A report on those figures subsequently sent to clients “caused” Big Lots’ stock to drop 6 percent, the suit alleges.

When Bharara announced arrests in the largest hedge fund insider trading case in history a year ago, targeting the head of the Galleon Group hedge fund, he said law enforcement for the first time had made extensive use of wiretaps, just like in drug cases.

Stephen A. Miller, a longtime federal prosecutor before becoming a criminal defense lawyer at Cozen O’Connor in Philadelphia several months ago, said Bharara seemed to be packaging insider trading cases for “dramatic effect” to send a message of deterrence to the industry.

Miller said Monday’s raids might have been a reaction to the leak of the investigation in published reports over the weekend. He said it would be difficult to pinpoint when arrests might result, though he said he thought hundreds of people could be potentially subject to charges given the size of the net that’s been cast.

Miller added: “I think it’s wrong when you think of these arrests to demonize the entire hedge fund industry. There are a lot of really honorable people working at hedge funds making good smart investment decisions and not doing anything wrong.”

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General Motors is expanding its initial public offering of common shares by 31 percent, a sign of stronger than expected demand for a stake in the revitalized automaker that is just 16 months out of bankruptcy protection.

GM said in a statement on Wednesday that it would increase the planned offering of common stock to 478 million shares from the previously expected 365 million shares.

The move, coupled with an expected stock price of up to $33 per share, would bring the U.S. government closer to getting back the $50 billion it spent bailing out GM last year.

It could also make GM’s IPO the largest in history for a U.S.-based company.

GM plans to finalize the IPO share price on Wednesday. The share price is targeted at $32 to $33 per share.

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The Miami Herald will cut another 49 jobs, the second round of major layoffs in as many years at The McClatchy Co.’s largest newspaper.

The newspaper will offer buyouts and conduct layoffs, including nine newsroom employees and four from the El Nuevo Herald newsroom, the Spanish-language newspaper. Publisher David Landsberg was blunt — the bad economy mixed with still-hurting advertising revenue forced the move, according to an Associated Press report.

Last year, the newspaper cut 175 positions in a companywide 15 percent work force reduction effort, and remaining staff endured 5 percent to 10 percent pay cuts, according to media reports.

McClatchy — owner of 30 daily newspapers, including The Sacramento Bee — announced dramatic cost-cutting efforts last year, including buyouts, layoffs and pay cuts online payday loan lenders. However, the company has lifted some restrictions in recent months.

Shares of McClatchy dipped 11 cents — or 3 percent — to $3.49 in trading Friday. The company has endured a roller coaster-like ride, with a one-year low of $2.13 and a high of $7.16. However, the stock is far from its $65-plus price several years ago.

McClatchy chairman Gary Pruitt has been direct about the challenges, citing declining advertising revenue and print readership. However, Pruitt, in recent months, said the advertising revenue decline has slowed, showing a possible improvement for the hard-hit sector.

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N.C. State University is teaming with the Charlotte campus of culinary school Johnson & Wales to study how to breed a better North Carolina strawberry.

The Rocky Mount-based Golden Leaf Foundation is supporting the project with a $200,000 grant.

Essentially, the project will work as follows: Johnson & Wales chefs will research and report the characteristics (size, flavor, texture, etc.) that culinary experts value most in strawberries. The NCSU team at the N us fast cash.C. Research Campus in Kannapolis then will work to find ways to breed a strawberry with the preferred characteristics.

“Ultimately, we want to increase the economic value and impact of N.C. strawberries while enhancing the eating experience,” says Jeremy Pattison, part of N.C. State’s Plants for Human Health Institute.

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UNC-School of the Arts has named David Nelson of Raleigh as the school's next chief academic officer, according to an announcement.

Nelson most recently was senior vice president of academic administration at the Southeastern Baptist Theological Seminary in Wake Forest, N.C. In that role he led more than 60 full-time faculty members and oversaw an $11 million annual budget. Southeastern Baptist has about 2,500 students.

UNCSA Chancellor John Mauceri said Nelson was the unanimous choice of the search committee.

“David is a theologian, philosopher, scholar and a musician," Mauceri said. "He had an immediate grasp of the complexities and opportunities the CAO position at UNCSA affords. He will make a great partner in mapping the future course of our school and its academic programs."

Nelson's appointment will take effect July 15.

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Nevada’s jobless rate hit a record high last month and and is now the highest in the nation, the first time in four years that Michigan doesn’t hold that distinction, according to a government report released Friday.

The Silver State’s unemployment rate climbed to 14% in May, the highest in the state since 1976 when the Labor Department began collecting the data. It was up from 13.7% in April.

Meanwhile, joblessness slipped to 13.6% from 14% the previous month in Michigan, which has been ravaged by the struggles of the auto industry. The state has been the leader in unemployment rate since April 2006.

During the last year, Nevada has lost a net total of more than 29,000 jobs, and posts the highest percentage increase in unemployment at 2.5%.

"So much of Nevada’s economy is tied to the gaming industry and housing sector, which continue to weigh on Nevada’s labor market across the board," said Mark Vitner, senior economist at Wells Fargo. "Consumer spending on travel and leisure is still in a pullback, and while the housing market is no longer in a free fall, there are still a lot of vacant homes in Nevada."

Senate Majority Leader Harry Reid, D-Nev., also said in a statement that mounting unemployment in the state is a sign that Nevada continues to suffer from extreme economic conditions.

"This increase in our unemployment rate only emphasizes the need to diversify our state’s economy and create jobs," said Reid, who is in a difficult fight for re-election.

Though it’s still the second highest in the nation, Michigan’s unemployment rate has improved after peaking at 14.5% in December.

"Auto sales and production are up, and that has helped generate a little improvement in Michigan," said Vitner, highlighting that the state added 4,500 manufacturing jobs in May, likely due to hiring at auto plants.

Meanwhile, a majority of U.S. states welcomed lower unemployment rates last month, the report said.

A total of 37 states and the nation’s capital posted declines in jobless rates in May on a monthly basis. Unemployment increased in six states and seven states reported no changes.

On an annual basis, the job market is still sluggish. Joblessness climbed in 31 states and in Washington, D.C., from a year earlier, and only eased in 17 states.  

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