Archive for the ‘Large Cap Stocks’ Category

Markets Drop 200 Pts; Banks Take Hit

Friday, September 2nd, 2011

After 4 days of phenomenal gains, markets remain volatile. Yesterday’s last 60 minute drop was led by a report that the US government was seeking billions from US banks did not stem the selling. The Dow Jones Industrial Average opened sharply lower, led by BofA down 220 points to 11270. Employment growth  or the lack of exacerbated the selling, grounded to a halt in August as non-farm payrolls were unchanged, according to the Labor Department—the weakest reading since last September. Despite the lack of employment growth, the jobless rate held steady at 9.1 percent. So as long we stay above that 1270, markets can possibly regroup and come back. Anything below 1270, will signal a sell.

A lawsuit is being prepared against the big U.S. banks by the Federal Housing Finance Agency. Separately, the Fed has asked Bank of America (NYSE:BAC) to show what measures it could take if business conditions worsen, adding to the bank’s sharp decline. The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs, and Deutsche Bank. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Greek Drama

Meanwhile, Greece and its international lenders said that the country will miss its budget deficit target this year, adding to concerns that the region’s sovereign debt crisis may worsen. Greece’s 2011 budget deficit will be higher than originally thought. Just how high remains a point of disagreement between the Greek government and officials from the IMF and EU, as talks over handing over the next tranche of aid to the ailing euro zone member continue in Athens.

The IMF and EU now see the deficit hitting 8.6 percent of gross domestic product while the Greek government put the number closer to 8 percent, blaming a deeper than expected recession. The IMF and EU, while aware of the recessionary impact, are reported to believe failure to implement medium-term fiscal plans are behind the higher than expected shortfall.

To add further to the insult talks between Greece and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, officials said on Friday, after disagreements over why and by how much its deficit cuts program has fallen behind schedule. Finance Minister Evangelos Venizelos said the talks had been suspended and would resume on Sept 14, after technical experts had had a chance to study relevant data. The first cycle of negotiations is completed. The inspectors will return in 10 days to see the budget plan for 2012 and conclude the procedure.

There are no Greek government bonds maturing before March next year, which means the country will not be at immediate risk of default even if it does not get this month’s 8 billion euro tranche from the rescue package as planned. But the country is continuing to generate large deficits and could at some point face cash shortages. An official close to the inspectors said on Thursday the 2011 budget deficit will be at least 8.6 percent of GDP compared to a target of 7.6 percent.

On Tap Next Week:

MONDAY: Labor Day Holiady—All Markets Closed
TUESDAY: ISM non-mfg index, Fed’s Kocherlakota speaks; Earnings from PepBoys
WEDNESDAY: Weekly mortgage applications, Beige Book; Earnings from Hovnanian
THURSDAY: BoE announcement, ECB announcement, international trade, jobless claims, quarterly services survey, oil inventories, Bernanke speaks, consumer cerdit, TI mid-quarter update, OECD’s global economic outlook, Obama talks jobs/economy; Earnings from Smithfield Foods
FRIDAY: McDonald’s August Sales, wholesale trade, G7 finance ministers meet; Earnings from Kroger, Lululemon Athletica

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Buffet Invests $5billion In BofA (NYSE:BAC)

Thursday, August 25th, 2011

PHOTO: Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. attends the Allen & Co. Media and Technology Conference in Sun Valley, Idaho in this July 7, 2011 file photo.

BofA

Warren Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America (NYSE:BAC), stepping in to shore up the company in the same way he helped prop up Goldman Sachs during the financial crisis. Bank of America shares rose 24 percent to $8.65 in early trading, erasing a large part of the stock’s August losses. This helps with the credibility gap that I think has existed in the minds of some shareholders. It reiterates the point that the balance sheet is healthy. They needed an endorsement in the market and they got it.

Bank of America will sell Berkshire // 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend, it said in a statement Thursday. Bank of America can buy back the investment at any time by paying Buffett a 5 percent premium. Berkshire also will get warrants to buy 700 million Bank of America shares at an exercise price of just over $7.14 a share, with the ability to exercise any time in the next 10 years. It is virtually a mirror of the deal Berkshire did with Goldman Sachs (NYSE:GS) in the depths of the crisis in fall 2008, except in this case the dividend is less. The Goldman deal paid Berkshire $15 a second in dividends until Goldman bought Buffett out earlier this year.

Europe

The three major rating agencies Fitch, Moody’s and S&P reaffirmed Germany’s rating and outlook on Thursday, after the country’s main stock index fell sharply on market speculation that a downgrade was on the cards. The markets were awash with speculation throughout the afternoon, with German regulator BaFin earlier denying earlier rumors that a ban on short selling will be implemented for the DAX. We are not planning any changes of the short selling rules which are already in place, BaFin representatives said. US stocks dropped around 1 percent, tracking earlier weakness in the DAX and Europe.

Gold Correction

 Gold prices fell for the third day as stronger equities and hopes of more monetary stimulus emboldened traders to seek riskier investments. Gold prices have slumped 11% peak to trough, putting them firmly in correction territory, as fears about a U.S. recession and the spread of Europe’s sovereign-debt problems take a back seat to renewed risk appetite. Investors have been willing to pay higher and higher prices for gold, which soared to a record $1,917.90 a troy ounce, as growing uncertainty about the global economy stirred demand for a sound store of value. Gold has been the only safe haven for a while there but some trades are concerned that gold has been going parabolic, we’ve been going up since the middle of July with no meaningful pullback. 

The recent 10% correction in benchmark U.S. stock indexes has some investors searching for bargains and selling profitable gold positions to pay for stocks. There’s a sense that maybe this equity selloff has been over done,” while gold’s ascent has been too much, too fast. A speech by Federal Reserve Chairman Ben Bernanke scheduled for Friday is further clouding the outlook for gold. Bernanke is due to address an economic symposium at Jackson Hole, Wyo., and many traders are hoping the Fed Chairman will hint at a third round of monetary stimulus. Dashing these hopes could damp the outlook for stocks and renew concerns about a U.S. recession, which would boost demand for gold as a haven. Yet, without such stimulus, inflation another driver of gold demand is unlikely to resurface. A lack of fresh easing signals by Bernanke on Friday could send gold down to $1,580

Gold on the Comex division of the New York Mercantile Exchange fell further on Thursday morning due to heavy liquidation after CME Group said it would raise margin requirements another 27 percent. As of the close of business tonight, speculators in Comex gold will be required to make an initial deposit of $9,450, up from $7,425 previously, to hold a benchmark 100-ounce gold contract overnight. The maintenance margin requirement for speculative traders and the margin for hedge accounts will rise to $7,000 from $5,500. By raising the margins, CME aims to rein in speculation by making it more expensive to hold the same amount of gold. This places short-term downward pressure on prices because smaller investors will be forced to liquidate positions to meet the higher margins.
“[But] while this might have placed a dampener on gold, and will probably continue to weigh on prices today, we don’t view this as overly bearish for gold.

But many in the market suspect that this is only the second in a series four or five margin increases. When silver approached $50 per ounce earlier this year, CME increased margins four times over a three-week period. “Proper margining would seem to be closer to $15,000 per contract, for given the volatility that exists presently the exchange needs to protect itself and its clients from the possibility that a large speculator or two or three cannot put the exchange into jeopardy.

Furthermore, exchange-traded fund (ETF) investors are currently taking profits after the record-breaking price rally and are shifting money to other investments such as equities, broker Commerzbank said in a note. For example, SPDR Gold Trust, the world largest ETF, registered outflows of more than 27 tonnes yesterday and 58.5 tonnes in total this week. “Although the price fall may to continue for a while, the lower price level could be used for greater physical gold buying, especially in Asia, and this is likely to prevent the price from dropping much further,” Commerzbank added. Another factor in gold’s slide has been the strong performance of the global share markets over the past several sessions. There is a feeling among market participants that equities had been oversold, while gold was overbought.

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US Market Swings +423

Thursday, August 11th, 2011
Prices
Date Open High Low Close Volume Points Up/Down
Aug 11, 2011 10,729.85 11,286.39 10,729.85 11,143.31 3,685,050,000 423.71
Aug 10, 2011 11,227.92 11,227.92 10,662.04 10,719.94 5,018,070,000 -519.83
Aug 9, 2011 10,810.91 11,251.08 10,588.55 11,239.77 2,366,660,000 429.92
Aug 8, 2011 11,433.93 11,433.93 10,779.05 10,809.85 2,615,150,000 -634.76
Aug 5, 2011 11,384.29 11,634.04 11,126.32 11,444.61 5,454,590,000 60.93
Aug 4, 2011 11,893.79 11,893.79 11,365.74 11,383.68 4,266,530,000 -512.76
Aug 3, 2011 11,863.89 12,152.96 11,857.91 11,896.44 6,446,940,000 29.82
Aug 2, 2011 12,130.22 12,152.96 11,857.91 11,866.62 1,674,180,000 -265.87
Aug 1, 2011 12,144.30 12,320.94 11,978.55 12,132.49 4,967,390,000 -10.75
Jul 29, 2011 12,239.28 12,262.74 12,044.21 12,143.24 5,061,190,000 -96.87
Jul 28, 2011 12,301.95 12,412.48 12,200.99 12,240.11 4,951,800,000 -62.44

The Dow Jones Industrial Average (DJIA – 11,143.31) recovered most of Wednesday’s losses, adding 423.4 points, or nearly 4%, to reclaim the 11,000 level. For the second time this week, all the DJIA finished higher. The S&P (SPX – 1,172.64) reversed yesterday’s deficit, almost exactlY, advancing 51.9 points, or 4.6%. Markets have become bipolar as of late with triple digit swings. The VIX dropped 9.28% or 3.99 to close $39. The last three session in the VIX has been making higher lows. Volatility remains extremely high as if it has reached its high or has been stalling. There were 2 stories that drove the markets higher if you don’t count the modest job gains. Both were related to Europe. The European Union’s financial market regulator ESMA said on Thursday that Belgium, France, Italy and Spain announced new bans on short selling or short positions would take effect from August 12. French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet next week as concerns over the spread of the euro-area debt crisis rattled French markets.

Europe News

France and three other European countries are banning short selling, with the moves coming after weeks of wild swings in global equity markets, reflecting investor worries about slowing growth, debt burdens and credit downgrades. Belgium, Italy and Spain round out the other countries that will impose or extend existing short-selling bans beginning Friday morning. As you recall, the ban on short sales on order by the U.S. Securities and Exchange Commission in September 2008 that prohibited short sales of 799 financial stocks through October of that year. That didn’t help much as markets continued to fall further, 4000 to be exact in the DJIA. Short sales are bets that a stock price will decline over time. In a regular short sale, the seller borrows a stock and sells it, understanding that the loan must be repaid by buying the stock. The authorities in the respective countries have decided to impose the bans “either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close inter-linkage between some E.U. markets. The French ban will prevent creating a short position or increasing any net-short position in French securities in the financial sector, according to French regulator AMF in a statement. The order covers 11 entities, including BNP Paribas, Crédit Agricole and Société Générale. Shares of French banks were rocked this week, in part on fears that France could lose its AAA credit rating, though surges on Thursday helped limit losses toward week’s end. The shares faced weekly losses ranging from 12% to 16%.

French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet next week as concerns over the spread of the euro-area debt crisis rattled French markets. The leaders of Europe’s two biggest economies will discuss economic governance of the 17-nation euro region in Paris on Aug. 16, according to separate statements issued today by Sarkozy and Merkel’s offices. Sarkozy and Merkel have called for their parliaments to approve measures by the end of September to strengthen the euro- area bailout fund as agreed on by European leaders on July 21. They have also backed a European Central Bank role in determining when bond buying is needed to stop contagion. Both leaders said at the July summit that “they would formulate joint recommendations aimed at strengthening political and economic governance in the euro area before the end of the summer,” the statement issued by the Chancellery in Berlin said. The proposals will feed into steps drawn up by European President Herman Van Rompuy on “improved working methods and a better crisis management in the euro area.” The leaders meet amid market turmoil that prompted France to speed up completion of its 2012 budget. The French government’s commitment to its deficit goals is “untouchable,” Sarkozy said in a statement after interrupting his vacation to chair an emergency meeting in Paris yesterday.

Market Swings & Day Traders

The Dow industrials have traded in a range of 400 points every day in the last five days as seen in the above chart, while the CBOE Volatility index has more than doubled from a recent closing low on July 22. Fear has increased alongside signs of slowing growth and an unprecedented downgrade of the U.S. credit rating by Standard & Poor’s. But swings have gone both ways: the S&P recently posted not only its worst day since 2008, but also its best. Day-traders are making a killing, taking advantage of wild market swings that have scared off even strong-stomached investors. Many of the day-traders including myself are not holding positions overnight due to uncertainty the next day and several hundred point swings. Too much risk to hold over night in this volatile markets. Daytraders take a short-term outlook on the market, holding positions for less than a day. They often sell securities short to profit from both upward and downward movements, bringing the chance of big wins, or equally large losses. Primary stocks have been the double and triple the daily performance of Indexes or sectors bull/up or bear/down direction. The velocity of the changes in market direction means traders who are not nimble can get caught on the wrong side of a trade, exposing themselves to massive losses. The last four trading days have seen a 2000 point swing with the bears having a 300 point advantage.

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Thrashing On Wall Street; US Markets Erase Yesterday’s Gain

Thursday, August 11th, 2011

The Dow Jones industrial average (DJIA) lost 520 points, or 4.6%, to 10,720. The index ended the day near session lows. The S&P 500 (SPX) fell 52 points, or 4.4%, to 1,121. 1120 in the S&P remains a key factor of support. Stocks were led lower by the financial sector. On Wednesday afternoon CEO of embattled Bank of America (NYSE:BAC) Brian Moynihan tried to reassure investors that conditions at the bank and in the country are much better than they were four years ago when the financial crisis hit. BofA has fallen nearly 50% so far this year. On Wednesday, shares of French bank Societe Generale tumbled 15% on the Paris stock exchange amid speculation that France, Europe’s second-largest economy after Germany, may be first to face a rating cut. European banking shares also fell sharply. Deutsche Bank’s (NYSE:DB) stock dropped 12% while Spanish bank Banco Santander (NYSE:STD) dropped 9.5%. Even though the major rating agencies have reiterated France’s AAA rating, there’s growing concern that France could get downgraded, which caused the markets to drop further. Ahead of the opening bell Wednesday, the New York Stock Exchange invoked Rule 48, which gives the exchange the right to pause trading in the event of extreme volatility. The NYSE typically invokes the rule several times each year. Wall Street’s most widely cited measure of volatility and fear in the market, the VIX, surged almost 22% to 43. A reading higher than 30 is considered a sign that investors are getting worried, but the VIX is still way below the peak level of almost 90 hit in October 2008 — after Lehman Brothers collapsed.

Gold

Gold futures kept the winning streak alive today, tagging another record high. Tuesday’s decision by the Federal Reserve to keep interest rates extremely low, coupled with uncertainty about the fate of France’s credit rating, only strengthened the commodity’s “safe haven” allure. Against this backdrop, gold for December delivery added $41.30, or 2.4%, to close at $1,784.30 an ounce. Earlier in the session, the contract topped out at an all-time best of $1,801 an ounce. Gold, which doesn’t pay dividends or interest and costs money to store, has become more attractive amid low interest rates. A rise in real interest rates is one of the drawbacks of gold investing, as it encourages investors to sell the metal rather than missing out on higher-yielding assets. Worries about weak global growth and currency debasement have also driven gold higher, especially in recent days amid turmoil following the Standard & Poor’s downgrade of U.S. debt and a string of disappointing economic data. The “opportunity costs of holding gold remain extremely low. Furthermore, there is also a risk of inflation rising further should the Fed actually loosen the monetary policy even more.

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Soro’s To Return Investors Money

Tuesday, July 26th, 2011

Global financier George Soros, best known for breaking the Bank of England, is ending his career as a hedge fund manager and returning money to outside investors in his $25.5 billion firm. He will return roughly $1 billion to outside investors and turn Soros Fund Management into a family office.

Keith Anderson, who has been Soros’ chief investment officer since 2008, will leave the firm. In a letter to investors, Soros’ two sons cited impending industry regulation as a reason for returning the money the fund still oversaw for outsiders, which is a relatively small percentage of the roughly $25 billion Soros oversees. They made the decision because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission (SEC) by March 2012 if it continued to manage money for outsiders. Hedge funds with more than $150 million in assets will be required under the new law to report information about their investors and employees, the assets they manage, potential conflicts of interest, and their activities outside of fund advising. The firm would also be subject to inspections by the SEC.

Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, the sons decided made more sense to run the firm as a family business.

At a time where many men of his age have retired, Soros, who will soon be 81, joins a growing list of wealthy and well-established fund managers to reconfigure the business. Carl Icahn another long-time fund manager recently also returned money to outsiders. But there is also a growing number of younger fund managers who are preferring to closing up shops to manage only their own money as new regulations threaten to dramatically change the $2 trillion hedge fund industry. Stanley Druckenmiller, Soros’ long-time deputy who helped engineer Soros’ winning bet against the British pound in 1992, closed up his shop as did Chris Shumway, who was mentored by another industry great, Julian Robertson.

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Alcoa (NYSE:AA) 2011 Q2 Earnings Inline

Monday, July 11th, 2011

Alcoa aluminum factory

Alcoa (NYSE:AA) reported a sharp jump in earnings and revenue in part due to a rise in aluminum prices but analysts cautioned that the company’s results for the current quarter might fall short as prices have softened. Alcoa posted a profit of $322 million, or 28 cents a share, up from $136 million, or 13 cents a share, in the year-earlier period. Excluding charges, income from continuing operations came in at 32 cents a share. Revenue rose to $6.59 billion from $5.19 billion in the year-ago quarter. Analysts were looking for Alcoa to report earnings of 33 cents a share, on average. Sales were expected to reach $6.28. Alcoa is typically seen as a barometer of economic health in the U.S. and also as the unofficial start of the earnings season.

Basically earnings doubled. It was a good quarter. They didn’t do as well in the aluminum business because they had a 6 percent increase in prices but flat earnings. “Although the economic recovery is uneven, the overall outlook for Alcoa  and for aluminum  remains positive,” Chairman and Chief Executive Klaus Kleinfeld said in a statement. “Demand for aluminum continues to rise and so does growth in our major markets,” he continued. “These factors support our projection that aluminum demand will grow 12% this year and will double by 2020.” U.S. dollar, which makes it more expensive to import raw materials.

Alcoa shares closed down 2.9% at $15.91 before edging lower late. The stock, has managed to eke out a 3.4% gain so far this year. 

Aluminum sold in a range of $2,500 to $2,600 a tonne on the London Metal Exchange during the second quarter, up from $1.977 in the same quarter a year earlier. “The real issue is going to be looking ahead because the third-quarter aluminum price could be down 5 cents a pound,” said Charles Bradford, of Bradford Research in New York. “I think (analysts) are going to have to take the third-quarter estimates down.” Indeed, many analysts had already lowered their estimates for the second quarter as the price of aluminum has slipped in recent weeks but Alcoa ultimately met analysts’ earnings target.

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Alcoa (NYSE:AA) To Set Tone For Q2 Earnings

Saturday, July 9th, 2011

Alcoa Inc.’s (NYSE:AA) second-quarter report next week is expected to offer further proof that the company and the U.S. economy are still on the mend, though a brutal jobs report Friday clouded the prospects for a sustained recovery. Alcoa’s (AA) earnings report will unofficially kick off the Q2 earnings season on Monday, July 11 after the market close, with a conference call scheduled for 5:00 pm ET. Analysts are looking for EPS of 34c on revenue of $6.32B. The consensus range is 28c-45c for EPS, and $5.75B-$6.55B for revenue, according to First Call. Alcoa posted mixed results in Q1, beating EPS but narrowly missing revenue estimates. On its Q1 earnings release, management reiterated estimates of 2011 global aluminum demand at 12%. The company said the outlook for the remainder of 2011 remained positive, and that it was well on track to achieving its 2011 financial targets. The stock has traded slightly lower since Q1 results were released, falling approximately 10%. Mixed Q1 earnings, higher commodity costs, and the situation in Japan have contributed to the decline. It’s worth noting that the shares are up approximately 60% over the past 12 months, and have risen about 7% over the past two weeks, but are down almost 2% in trading today. As such, investors anxiously await Alcoa’s Q2 results before committing themselves further.

Last year’s results reversed a big loss in the same quarter of 2009, which was slammed by a reeling economy that sapped demand for aluminum and forced Alcoa to cut output and slash jobs. A more streamlined Alcoa has cashed in on an economic bounce in the past year as manufacturing customers have ramped up their spending. The strides have been clearly reflected in the share price. The stock has surged 53% in the past year, though jobs data on Friday put a lid on a recent broad market rally. Citigroup earlier this week cited rising costs and disappointing aluminum prices in its move to trim its outlook for 2011. The brokerage firm did, however, reiterate its hold rating and $17 price target. The shares are still up 6.4% since the beginning of 2011 and are the second-best performers in the benchmark over the past year behind only Caterpillar.

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WSG Large Cap Average Return 41.67% (AAPL,VLO,VMW,WMB,CSCO,EBAY)

Thursday, July 7th, 2011

On March 3, 2010, I selected 6 large cap stocks that have averaged 41.67%. I selected what I had anticipated would be the hottest industries -commodities & technology. 5 out of the 6 were huge winners, however I did have 1 loser that knocked 16% off my average. Batting 83.33% isn’t so bad. See the original post here. Summary of the gains below.

Stay tuned for my next picks through 2012

Best Performers

VMware Inc (NYSE:VMW) 98.98% gain        entry price $51.75 current $102.97

Apple Inc. (NASDAQ:AAPL) 70.91% gain        entry price $209 current $357.20

Valero Energy (NYSE:VLO) 40.37% gain        entry price $18.75 current $26.32

eBay Inc (NASDAQ:EBAY) 40.34% gain        entry price $23.75 current $33.33

Williams Comp. (NYSE:WMB) 34.53% gain        entry price $22.50 current $30.27

Worst Performer

Cisco Systems (NASDAQ:CSCO) -35.10% gain        entry price $24.50 current $15.90

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Banks Get A Reprieve On Debt Card Fees

Wednesday, June 29th, 2011

The Federal Reserve is set to limit the fees that banks charge retailers for swiping debit cards to 21 cents, a higher cap than initially proposed. Banks succeeded in convincing the Fed that its initial proposal of 12 cents was too low after a six-month lobbying blitz. They currently charge an average of 44 cents per swipe. The Fed will formally adopt the rule Wednesday, which was required under the financial regulatory law enacted last year. The rule takes effect Oct 1, later than expected. The move to limit swipe fees pitted the nation’s largest banks and payment processors like MasterCard Inc. and Visa Inc. against Wal-Mart and retailers of all sizes. The decision to settle on a higher cap pushed up bank and network stocks in late afternoon trading on Wall Street. Visa (NYSE:V) finished the day up 15% while Master Card (NYSE:MA) was up 11.31%. All the gains were made in the last 1/2 hour of the trading day.

In addition to the 21-cent cap, the rule will also allow banks to charge a fraction more to cover the costs of fraud prevention. Banks said roughly $16 billion was at stake if the 12-cent cap took effect. That would be more than 80 percent of the $19.7 billion in debit transaction fees paid by merchants in 2009, according to the Nilson Report, which tracks the payments industry. The banks warned that they would have to make up for some revenue lost by shifting costs to consumers. Many already eliminated unrestricted free checking accounts, and some ended debit card rewards programs. Other potential actions include annual fees for using debit cards, which are already being tested in some markets.

The higher cap may lead some to avoid taking such action. Merchant groups said that their savings would be passed on to customers in the form of lower prices. But many questioned whether retailers would simply pocket the difference. Some big retailer stocks declined late in Wednesday’s trading session.

Banks and credit unions with assets under $10 billion are exempt from the rule, under the premise that they rely more on swipe fees, also known as interchange fees. But those smaller institutions argued that the exemption won’t help. That’s because it invites merchants to discriminate against their cards. It also leaves the decision on which network to use to process the transaction in the hands of merchants, who could choose to bypass networks that charge higher fees.

Fed Chairman Ben Bernanke acknowledged small banks’ concerns during a May 12 hearing by the Senate Banking Committee. He said allowing them to charge more than big banks for processing debt card transactions could make debit cards issued by smaller banks less attractive to merchants. “There’s good reason to be concerned about it,” Bernanke said. It could result in some smaller banks “being less profitable or even failing.” Separately Wednesday, a federal appeals court in South Dakota ruled that a lower court judge was correct to deny a preliminary injunction against the fee limits taking effect.

The case challenging the regulations’ constitutionality was brought in October by Minnesota-based TCF National Bank, the unit of TCF Financial Corp., considered the first bank to offer free checking accounts. TCF is among the banks that no longer offer free checking without requirements such as using direct deposit or maintaining minimum balances. In a twist, TCF’s attorneys argued that the provision of the law exempting small banks and credit unions gave those unaffected banks an unfair advantage.

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New Jersey Senate Passes Pension/Benefits Reform

Monday, June 20th, 2011

Gov. Chris Christie’s agenda moved closer of becoming law on Monday, when a bill requiring government workers to pay much more for benefits, while limiting their bargaining rights, passed two crucial tests. To a chorus of boos from angry union members in the visitors’ gallery, the State Senate passed the bill, and on Monday evening a key Assembly committee sent it to the full chamber, where a vote was expected later this week. Democrats control both houses, and though most of them oppose the bill, Republicans support it.

If enacted, the bill would give the Republican governor a signal victory, shifting $3 billion in costs over 10 years from state and local governments to their workers. It also provides striking evidence of how far the public employees’ unions have seen their power fall. Mr. Christie has made a habit of beating the unions, verbally and legislatively, on issues — like spending, arbitration, job security and benefits — that have sown deep divisions among Democrats. With state workers’ contracts set to expire on June 30, the governor appears to have a strong upper hand in the talks.

For months, Mr. Christie and the Senate president, Stephen M. Sweeney, have taken the lead in pushing a bill to increase what a typical government worker pays for health care and a pension by thousands of dollars a year. With fast-rising costs, budget deficits, and employees’ pension funds far short of what is needed, Assembly speaker, Sheila Y. Oliver said, “inaction is just not an option for us.” “It is no employee’s fault; it is no union’s fault,” Ms. Oliver said. “It is the fault of successive generations and decades of short-sighted thinking that got us to the place where we are today.”

The bill would impose new terms for health insurance on the unions, stripping them of the power to address the issue in collective bargaining — and that, labor leaders say, is a bigger threat than the increased payments. Mr. Christie insists that he is not trying to eliminate collective bargaining, but union leaders say the New Jersey bill would have a similar effect. Under current state law, in a contract impasse, a governor or mayor can go through a series of steps and impose terms on most employee groups on every issue except health care. In the Senate, the bill won the votes of all 16 Republicans, and 8 of the 23 Democrats present. After being jeered loudly, Mr. Sweeney sounding much like the governor said the problem was that for years, union leaders lied to their members, creating unrealistic expectations. Stephen M. Sweeney, the Senate president, a Democrat and a high official in the ironworkers union, presided over a vote, his putative union brethren — teachers and firefighters and transportation workers. Some pension provisions were undoubtedly piled too high. And union leaders wheedled special deals and remained silent as governors, Republican and Democrat, declined to pay into the pension system. Labor leaders and politicians, no less than arbitragers and Goldman Sachs partners, relied on magic bubbles to keep it all afloat. The line between illusion and lie grew indistinct.

Most public employees now contribute 1.5 percent of their salaries to health insurance, or $975 for a person earning $65,000. Under the bill, low-income government workers could pay as little as 3 percent of their insurance premiums for full family coverage, while high-paid employees could pay up to 35 percent. For the $65,000-a-year employee, that would mean about $3,600 at today’s rates, but the increase would phase in over four years. The bill would also increase what most employees contribute to their pensions, from 5.5 percent of salary to 6.5 percent right away, and in stages to 7.5 percent. In private sector, contributing 15-20% of one’s paycheck is the norm.

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