Thu Aug 28, 2008
Economy gets big stimulus boost
Economy gets big stimulus boost
U.S. gross domestic product grew by 3.3% in the second quarter - much more than previously stated. Economists say the economic stimulus package contributed to the rise.
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See all CNNMoney.com RSS FEEDS (close) By David Goldman, CNNMoney.com staff writer
Last Updated: August 28, 2008: 10:34 AM EDT
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NEW YORK (CNNMoney.com) -- A revised reading on gross domestic product announced Thursday showed much better U.S. economic growth than previously reported for the second quarter.
GDP, the broadest measure of the nation's economic activity, stood at an annual rate of 3.3% in the quarter, adjusted for inflation, the Commerce Department said.
Economic growth between 2.5% and 3.5% is typically viewed as the norm for a healthy economy.
The revised result surpassed last month's initial estimate of 1.9%. It also surprised economists surveyed by Briefing.com who expected a revision to 2.7%.
Stimulus works: The $90 billion in economic stimulus payments that reached taxpayers during the quarter helped boost GDP up from just 0.9% growth in the previous quarter.
Personal spending helped add 1.2% to the second-quarter preliminary GDP reading released Thursday, up from the advanced reading of 1% for the quarter and just 0.6% in the first quarter.
But many economists say the boost in consumer spending is a temporary factor attributed to the tax rebate checks, making the jump in the second quarter an anomaly.
"We got a decent boost from the stimulus, which hit the economy at a time when we really needed it," said Wachovia senior economist Mark Vitner. "It will have less of an impact going forward, though and we may even have a payback in the fourth quarter."
Trade helps too: The increase from the initial estimate was also partially due to June's U.S. trade gap reading, which was not available until after the advanced GDP numbers were reported. Much improved demand for U.S. exports added 3.1% to GDP, compared to just 0.8% in the advanced reading.
"We would have had growth even without the stimulus, as much of the rise in GDP had to do with the trade deficit," Vitner added.
A pickup in government spending, particularly a 0.4% rise in defense spending by the federal government, also boosted GDP.
But imports declined over the period, meaning lower inventory levels for retailers, which account for more than half of all GDP. Changes in non-farm inventories subtracted nearly 1.3% from overall growth.
Inflation: The government report also showed mixed readings for inflation in the previous quarter.
The GDP price index, the so-called "price deflator," which measures prices overall, rose at a 4.2% annual rate.
But the core PCE deflator - a more closely watched inflation reading that measures prices that individuals pay excluding volatile food and energy prices - rose 2.1%, the same as was reported in the first GDP report.
Inflation is still just barely above the perceived comfort zone of central bankers. The Federal Reserve is generally believed to want to see the 12-month change in core inflation readings remain between 1% and 2%.
"Without a price spiral, the Fed won't have to squeeze the life out the economy, which should help sustain modest economic growth," Vitner said.
First Published: August 28, 2008: 8:38 AM EDT
The economic growth mirage
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Mon Jul 14, 2008
Analysts say IndyMac's seizure foreshadows more failures
Analysts say IndyMac's seizure foreshadows more failures
Real Estate Investment SmartBrief | 07/14/2008
Investors are scanning the banking industry for signs of more trouble after the biggest U.S. bank failure in more than two decades. Last week, U.S. regulators seized California savings and loan company IndyMac Bank and its $32 billion in assets. Troubles are mounting so quickly at some of the country's 7,500 banks that as many as 150 could fail over the next year or so, analysts said. Healthier banks are expected to shut branches or merge. Wall Street Journal, The (subscription required) (07/14) New York Times, The (07/14)
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Thu Jul 10, 2008
Six months, 343,000 lost homes
Six months, 343,000 lost homes
Through the first half of 2008, the foreclosure rate shows little sign of letting up.
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Last Updated: July 10, 2008: 8:27 AM EDT
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NEW YORK (CNNMoney.com) -- The number of Americans losing their homes to foreclosure continued to soar in June, according to a report released Thursday.
RealtyTrac, an online marketer of foreclosed properties, reported that lenders repossessed 71,563 homes in June. A year ago, just 26,369 homes were taken back.
During the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007.
The report revealed that foreclosure filings of all types, including notices of default, notices of auction sales and bank repossessions, rose 53% from June 2007, to 252,363. For the first six months, total filings rose 56% to 1.4 million.
"June was the second straight month with more than a quarter-million properties nationwide receiving foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac.
There was a shred of good news: When compared with May, filings declined 3%.
Part of that decline may be traced to the actions of states, including Maryland and Massachusetts, that have put moratoriums on foreclosures, according to Rick Sharga, a spokesman for RealtyTrac.
"Massachusetts put a 90-day hold on new foreclosures," he said, "and filings dropped 3% there over last year."
But big increases were more common. In 13 states, filings more than doubled from a year earlier, including in Arizona, Nebraska and Oregon.
"The year-over-year increase of more than 50% indicates we have not yet reached the top of this foreclosure cycle," said Saccacio.
Adding to foreclosure woes is that home prices have been falling all year, down more than 14% in the first quarter, according to the latest figures from the S&P Case-Shiller Home Price Index.
Price declines strip homeowners of equity, making many mortgage borrowers owe more than their homes are worth. When they're underwater, they can't borrow against home equity to help out during a rough financial stretch.
Underwater properties are hard to sell because any deal would be for a sum below the mortgage balance - the bank would have to agree to take a loss. Many of these "short sales" get turned down and wind up as bank-owned properties.
"The real explosion has been in bank repossessions," said Sharga. "There's really no place else for these places to go except back to the lenders when they're underwater."
Two things work against short sales, according to Duane LeGate, president of HouseBuyerNetwork.com, a short-sale specialist. One is there is often a question of who has authority over the loan. Mortgage servicers are loath to make decisions that will result in losses of mortgage principal of loans in investor pools, even if it means smaller losses than foreclosures produce.
The second is manpower. Servicers simply don't have the personnel to handle the volume of short-sale and other loss-mitigation requests they've been receiving. Delays in processing short sales can mean approvals come too late.
"We hear about all these streamlined mortgage lending programs," said LeGate. "Where are the streamlined processes to undo the mortgages they originated?"
Sun Belt still hard hit
Nevada led all states in the rate of foreclosure activity for the 17th consecutive month, with one filing for every 122 households, a total of 8,713. California had the most filings with 68,666, one for every 192 households.
Other states with very high foreclosure rates included Arizona, one for every 201 households, Florida (one for every 211), Michigan (one in 375) and Ohio (one in 382).
California had seven of the 10 metropolitan areas worst hit by foreclosure. Stockton had one for every 72 households - more than six times the national average of one for every 501 households. Merced, was second with one for every 77 households, and Modesto - one in 86 - was third.
Cape Coral-Fort Myers, Fla., where one in every 91 households received a foreclosure filing, had the fourth highest rate. In Las Vegas, the only city outside of California and Florida with a foreclosure rate ranking among the top 10, one in 99 households received a foreclosure filing in June.
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Tue Jun 24, 2008
Home prices post record 15.3% drop
Home prices post record 15.3% drop
Prices in 20 cities fall for 21st month in a row. One sign of hope: Pace of decline eased in many areas.
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See all CNNMoney.com RSS FEEDS (close) By Les Christie, CNNMoney.com staff writer
Last Updated: June 24, 2008: 11:16 AM EDT
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NEW YORK (CNNMoney.com) -- U.S. home prices posted record declines in April, extending a painful losing streak for U.S. home prices.
The S&P/Case-Shiller 20-city Home Price Index fell to a record low of 15.3% on a year-over-year basis, and was down 1.4% from March. The 10-city index was down 16.3% year-over-year and 1.6% for the month.
The 20-city index is based on data going back 19 years, while the 10-city index is 21 years old.
There is one sliver of hope. Although every city surveyed posted year-over-year price drops, the month-to-month pace of declines did slow in many cities. And eight metro areas actually posted gains from March to April.
Hard-hit Cleveland was the biggest winner, with prices up 2.9%. Charlotte, N.C. posted a slight gain of 0.2%, up for the second straight month, while Dallas prices were up 1.1% in April, also up for the second month in a row.
"There might be some regional pockets of improvement, but on an annual basis the overall numbers continue to decline," said David Blitzer, Chairman of the Index Committee at Standard & Poor's.
Indeed, there are anecdotal reports that investors have begun to snap up distressed Cleveland properties at very low prices, according to Dean Baker, Co-Director of the Center for Economic and Policy Research, a Washington-based think tank.
"The data suggests that Cleveland has found a bottom," he said, "although it's just one month's data and I wouldn't make too much of it."
The overall price declines have been remarkably consistent through the past two years with prices on the 20-city index dropping for 21 straight months, since July 2006. The 10-city index has fallen every month since June 2006.
What's more, recent drops have been particularly steep. The 20-city index fell 2.2% in March, 2.6% in February and 2.3% in January, and now it has gone down another 1.4%.
"In the bubble markets, we continue to see very rapid rates of price declines," said Baker. "If anything, it may be accelerating."
Las Vegas prices plunged 26.8% compared with April of 2007, the worst drop among the 20 cities Case-Shiller covers. Prices there fell 2% in April.
Other hard hit cities include Miami (down 26.7% year-over-year and 4.1% in April), Phoenix (25% and 3.4%) and Los Angeles (23.1% and 2.2%).
Plummeting prices could derail some of the foreclosure prevention efforts underway across the nation. As home prices fall, that wipes out home equity, often leaving homeowners underwater, with mortgages worth more than what their homes are worth.
Some 10 million homeowners are now underwater, according to Moody's Economy.com, and that number will continue to grow as home prices plummet.
Underwater borrowers have higher rates of foreclosure than those with some home equity, since they can't tap their homes for cash in case of an emergency. And some owners are simply walking away from homes that have lost so much value rather than continuing to make expensive payments every month.
Foreclosed homes go back on the market, often at distressed sale prices, pulling down home values further, and adding to the downward spiral of prices.
Case-Shiller is one of the most respected gauges of home prices available because it tracks the sale prices of the same homes over the years. That removes some of the seasonal variations that exist in other home prices indicators such as the median home price statistics from the National Association of Realtors.
First Published: June 24, 2008: 9:18 AM EDT
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Mon Jun 23, 2008
Closed fund? Open your options
Closed fund? Open your options
If your mutual fund shuts its doors to new investors, it might be a sign that the party's over.
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See all CNNMoney.com RSS FEEDS (close) By George Mannes, Money Magazine senior writer
June 23, 2008: 10:00 AM EDT
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(Money Magazine) -- Question: Money Magazine has recommended mutual funds after they've reopened to new investors. But what if your fund has just closed? Is it time to sell? - Marc Maschhoff
Answer: If a fund shutters its doors to new investors, it's not a reason to panic. But it's not cause for celebration either.
Funds typically close to new investors for the same reason popular restaurants limit the number of diners each night: Although it's tempting to accept more business, having too many customers can spoil the entire dining experience.
A fund manager might decide that there are too many risks in accepting more assets, such as having to sit on cash (which can drag down returns) or be less selective in picking stocks if too much money comes in all at once.
So a fund that closes its doors to new investors is, in theory, protecting the interests of existing shareholders. But people already in the fund shouldn't expect dramatic results. Research shows that funds tend to fall back in the pack after closing, though not to an alarming degree.
Morningstar, for example, found that the average shuttered fund beat 77% of its peers in the three years before it closed but only 64% in the three years following.
The roots of the falloff lie not in the closing itself but in what prompted the influx of money: a manager and/or asset class on a hot streak. And all streaks, sadly enough, come to an end. But you knew that already, right?
A really late start on a nest egg
Question: My husband and I have tried to add the maximum allowable money to his 401(k) each year, but he's considered a highly compensated employee who doesn't get to contribute as much. We max out our Roth IRAs, but we'd like to save more. What can we do? - Julie Barber, Kent, Wash.
Answer: You have to look beyond your retirement accounts.
In the interest of fairness, the IRS limits how much highly paid workers (nowadays those earning $105,000 or more) can put in their 401(k)s annually based on how much the rank and file in those plans are saving. And those rules aren't going anywhere.
On the bright side, you may be able to put more in your Roths than you think: The annual cap per person rose from $4,000 in 2007 to $5,000 this year, plus $1,000 more in "catch-up contributions" if you're 50 or older.
Not enough? Put additional savings in ordinary brokerage or fund accounts. You won't enjoy the pretax contributions and the tax-sheltered returns you get in your 401(k) - or the tax-free returns and withdrawals of a Roth - but you can still limit Uncle Sam's cut by investing wisely.
One tax-conscious option: Invest in index funds, which have less of a tax bite than many actively managed funds. Or try broad-based ETFs, which generally don't make capital-gains distributions (another tax trigger). Among actively managed funds, look for "tax managed" ones from firms like Vanguard or Eaton Vance.
Low taxes aren't everything, but they don't hurt. Large-cap tax-managed funds, according to Lipper, have beaten their unmanaged peers over the past decade.
Global investing: One world, one fund
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State, city layoffs: 45,000 and counting
State, city layoffs: 45,000 and counting
A squeeze on tax revenues could force local leaders to cut tens of thousands of more jobs. That could add to the nation's economic woes.
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See all CNNMoney.com RSS FEEDS (close) By Chris Isidore, CNNMoney.com senior writer
Last Updated: June 23, 2008: 8:31 AM EDT
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NEW YORK (CNNMoney.com) -- The latest hit to the economy could come from state houses and city halls across the nation, which are in their worst budget crisis in years.
With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.
The American Federation of State, County and Municipal Employees, a public employees union, says about 45,000 government layoffs have been announced this year.
All but four states are set to begin their new fiscal years on July 1, which means that tough decisions will have to be made soon. Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.
"This isn't a wrecking ball to a healthy economy, but it could be the straw that broke the camel's back," said Bob Brusca, economist with FAO Economics in New York.
There are 29 states, including California, Florida and Ohio, facing a combined budget shortfall of at least $48 billion in the fiscal year that starts July 1, according to the Center on Budget and Policy Priorities (CBPP), a liberal think tank.
The National Association of State Budget Officers estimates that spending by all 50 states will be up 1% in fiscal 2009. But that would be the third lowest increase in the past three decades.
There are nearly 20 million state and local government employees in the country. So a 1% decline in employment at cities, towns, schools and states would result in a job loss of almost 200,000 people, a much larger amount than we've seen from battered sectors such as automakers or home builders in the past two years.
Even in states, towns and cities not yet laying off people, hiring freezes and early retirement packages are now common, said Robin Prunty, senior director in the public finance department of credit rating agency Standard & Poor's.
"The biggest cost they face is related to personnel," she said. "You typically do have some downsizing."
Tennessee plans to cut 2,000 positions, or about 5% of that state's work force, according to the CBPP. New Jersey is looking at cutting, 3,000 jobs while Ohio may trim 2,700 positions. The Detroit News reports that Detroit may lay off 1,300 workers after July 1 if the City Council doesn't sell the Detroit-Windsor Tunnel.
Brusca said many of the local governments facing the biggest squeeze are in Michigan and Ohio, which already have the weakest local economies, causing the unemployment situation in those hard-hit areas to worsen further.
What's more, Kerry Korpi, director of research for the American Federation of State, County and Municipal Employees, said local governments are faced with a downturn in tax revenue at the same time that there is greater demand for many of the social services they provide.
At the same time, many local governments are also grappling with much higher expenses due to rising fuel prices.
Housing bust causing biggest problems
The 2001 recession was tough for state and local governments because even after the economy started to pick up, job losses continued for nearly two years.
But property tax revenues increased during that downturn as home prices and housing construction boomed.
Sales taxes, income taxes and property taxes each make up roughly a third of the tax collections from state and local governments, according to CBPP.
This local government budget crisis is likely to be more severe, according to experts, because the bust in home building and the decline in home prices will cut into property tax collections.
And it will probably get worse before it gets better -- even if the national economy starts to show signs of improvement.
That's because income and property taxes are likely to see declines lag the current slowdown. Sales tax declines are an early sign of a weakening economy.
But the drop in income taxes from job losses this year might not hit government revenue until next year while a drop in property taxes from a house being sold in the foreclosure process might not be felt in property tax collections for more than a year.
Still, the problems are already serious enough to cause widespread budget problems and repeated downward revisions in spending plans.
"Some budgets were out of balance almost immediately upon being introduced," said S&P's Prunty.
The city of Vallejo, Calif. filed for bankruptcy last month due to a ballooning budget deficit from soaring employee costs and declining tax revenue. Labor contracts with the city's unions were part of the problem but the city's plunging real estate market also was a factor.
Home values in Vallejo are down 24% year-over-year and 91% of homeowners who bought in the past two years have mortgages larger than their home's value, according to real estate site Zillow.com.
While Vallejo's housing problems are an extreme, they are not unique to that San Francisco suburb. Experts say the hit to property taxes that lays ahead for many cities could make this local government budget crisis the worst in nearly 30 years.
That's more bad news for an overall economy already fighting enough headwinds.
"The potential is there for this to be fairly prolonged," said Prunty.
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Tue Jun 10, 2008
Housing crunch, 90210
Housing crunch, 90210
Places like Beverly Hills, Calif. and Greenwich, Conn. have been hit by steep price declines, and a jump in foreclosures.
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Last Updated: June 10, 2008: 7:33 AM EDT
This 5 bedroom, waterfront home is new to the market in Medina, Wash. and listed at $8.9 million.
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NEW YORK (CNNMoney.com) -- Across the country, real estate agents and home sellers in wealthy neighborhoods who grew accustomed to seven-figure bidding wars during the boom are feeling the sting of the housing crunch.
Ed McMahon can vouch for that. The former Johnny Carson sidekick and TV pitchman recently saw his $5 million Beverly Hills home go into foreclosure.
In fact, McMahon is a celebrity face to a broader trend.
Three of the nation's richest zip codes saw particularly steep home-price declines in the three months ending April 30, compared with the previous three months.
In Palm Beach, Fla. (zip code 33480), median home prices fell 38% during that period, according to the real estate Web site Trulia. Prices in Greenwich, Conn. (06831), dropped 15%, while homes in Wayzata, Minn. (55391), are selling for 28% less.
Prices in other wealthy towns also declined: Gladwyne, Penn. (19035), was down 6%, and Beverly Hills (90210), Lincoln, Mass. (01773), and Ladue, Mo. (63124), each slid 2%.
"What I'm finding is that million dollar plus homes declined 4% or so [over the past 12 months]," said Don Kelly, a spokesman for Zaio, which is building a national data base of home value appraisals.
And foreclosure data tracks the pricing information. In Beverly Hills, filings nearly doubled to 41 in the first four months of this year, up from 22 in the same period last year, according to RealtyTrac, which compiles foreclosure stats. In Palm Beach, there were 34 foreclosure filings, up from 9 in the period a year ago. Greenwich had 23, up from 10, while Wayzata had 18, compared with 14 a year ago. Kenilworth, Gladwyne and Medina had just one each, while Lincoln had none.
Of course, the high-priced areas have generally held up better than overall home prices, which plunged a record-setting 14.1% in the 12 months ending March 31, according to the S&P Case/Shiller Home Price Index. And a handful of posh outposts are still posting gains. Prices rose 18% in the swanky Chicago suburb of Kenilworth, Ill. (60043), 9% in Medina, Wash., which is home to Bill Gates just outside Seattle, and 5% in Silicon Valley's Atherton, Calif. (94027).
But many ritzy areas are finding they are not immune to the housing slowdown.
Cautious buyers
Drew Peterson, an agent with Weichert Realtors in Greenwich, says sales volume has slowed as buyers have become more cautious.
"There are motivated sellers, and opportunities for buyers to capitalize on sellers downsizing," he said. Some of the owners of large estates are moving out and resettling in Greenwich's more urban downtown area.
In the Philadelphia suburb of Gladwyne, the wealthiest town in Pennsylvania which lies along the fabled "Main Line," the market has also slowed, according to Judy Getson, the sales manager for Prudential Fox & Roach in Haverford.
According to Trulia, just six homes sold in Gladwyne during the three months ending April 30, down from 14 sold in the same three months during 2003, a boom year. There are now 42 homes in town on the market for a million dollars or more, according to Realtor.com, ranging from $1.195 million to $17 million.
Getson is seeing a downsizing phenomenon similar to Greenwich in the Philadelphia area, although not in Gladwyne proper. "A lot of people are moving from mansions and buying condos in the city," she said.
Perhaps the hardest hit of the 10 wealthy zips in our sample is Palm Beach, Fla. Corcoran Group agent Paulette Koch says inventory is building up in the "low end" of the local market there - the $2 million to $6 million range.
"The volume of sales has declined," she said, "and the selling season this year started very late and slowly."
The ultra-high-end has, however, been very good. "There have been records set all over the place," she said.
Longer inventories
Sales are also moving much more slowly in the Minneapolis suburb of Wayzata, according to Linda Blyth, director of previews for Coldwell Banker Burnet.
"One of our own agents had his own $4.2 million house on Lake Minnetonka as part of the waterfront tour we do every Fall. It sold in April, at full price, to someone who was on that tour," she said. "People are taking longer to make a decision."
Even in stronger markets, like Medina, Wash., sales volume is down.
The market slowdown has unleashed a "fair amount of inventory," said Larry Williams, a real estate agent for John L. Scott Real Estate. And homes are often overpriced. "Many sellers haven't figured out that it's not a seller's market anymore," he said.
Still, Williams sold a $2.2 million house recently in less than a day, with multiple offers. And he had a waterfront lot for $4.4 million that went in nine hours.
"The stuff that is selling is going in 30 days or less, and the average sale is more than 100% of the asking price," said Williams. But to sell, it has to be high quality and the marketing - photos, advertising, pricing and staging - all have to be top-drawer as well.
Of course, most of the homeowners in the country's wealthiest zip codes - hedge fund chiefs, industrial moguls and dot-com billionaires - will probably have the means to wait out a slump. It's doubtful that these areas will see the flood of distressed sales that sent so many other areas into a downward spiral.
And that alone can be enough to give places like Beverly Hills a boost.
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Fri May 09, 2008
Why Europe will save us from $5 gas
Why Europe will save us from $5 gas
The unwillingness of Europe's central banks to cut rates will eventually lead to a continental slowdown, a stronger dollar and lower oil prices.
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May 9, 2008: 11:11 AM EDT
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The dollar has actually strenghtened against a basket of global currencies in recent months even as oil prices surge...
...and gold prices have tumbled as well, which could be a sign that other commodity prices (including oil) may soon head lower.
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NEW YORK (CNNMoney.com) -- With oil prices gushing above $126 a barrel, it's tempting to blame Europe for this inflationary mess.
Both the European Central Bank and Bank of England, following their inflation-fighting mandates, left interest rates alone this week.
The fact that the ECB and BOE have held the line on rates, while the U.S. Federal Reserve has been on a cutting binge, has made the commodities problems worse by contributing to the stronger euro and weaker dollar. Remember: Oil is traded in dollars.
"Currently, the focus is inflation inflation inflation for Europe despite their strong currencies. And it's a self-perpetuating cycle. Oil goes up. The ECB and BOE hold firm. The dollar weakens and the oil exporters want higher prices," said Kurt Karl, chief U.S. economist for Swiss Re.
But a funny - and, dare I say, encouraging - thing has happened in recent weeks. Even though oil prices have surged to new highs, the dollar has actually strengthened. What's more, the price of gold, another key inflation gauge, has fallen dramatically.
With that in mind, there may be something to be said for the notion that speculators aren't really the main culprit driving oil prices higher. Instead, demand outside the United States is getting stronger.
"Supply is not coming on fast enough to meet demand, particularly from Asia," said Karl.
Indeed, there are no signs that Asian demand will peak anytime soon. Healthy demand from Europe has also contributed to oil's rise.
The good news for U.S. consumers is that because the ECB and BOE have yet to lower rates, European economies - and hence demand for oil - will eventually weaken. That means that oil prices, at best, should edge down and, at worst, stabilize instead of spiking dramatically higher.
The Federal Reserve has cut interest rates seven times since September to deal with the effects of the subprime mortgage meltdown and credit crunch. But the ECB and BOE have not responded accordingly. That won't last much longer though, and that should lead to a stronger dollar, weaker demand for oil from Europe and lower oil prices.
"The ECB and BOE are holding monetary policy tighter than the Fed. That should have a restraining effect on broad economic performance in Europe and energy demand," said Keith Hembre, chief economist with First American Funds. "Ultimately, they will both cut rates."
Karl agrees. He thinks that by the end of the year, Europe's economy will weaken and that could lead to as much as a half-point in cuts by the BOE and ECB.
Of course, the Fed has to help out as well. Barring a more severe deterioration in the housing market, the onus on the Fed will be to keep the dollar from slumping further and to hold commodity prices in check.
So the Fed will need to, at a bare minimum, hold interest rates steady at 2% for the foreseeable future. Ben Bernanke and Co. may even need to start considering when it's time to raise rates again.
That's what Wall Street seems to think. According to the widely-watched federal funds futures listed on the Chicago Board of Trade, investors are pricing in an almost near-certainty that the Fed will hike rates by a quarter-point by early 2009.
To be sure, none of this will lead to immediately lower prices at the gas pump as the summer driving season approaches. Unfortunately, we might all have to get used to $4 a gallon gas.
But as long as Europe's central banks lower rates to deal with their own looming slowdowns and the Fed isn't forced to cut rates again, then that should spell relief for U.S. consumers on the inflation front by this time next year.
In other words, even though it's fashionable to predict higher and higher prices for crude and gas, a stronger dollar may save us from $200 oil and $5 at the pump.
Issue #1 - America's Money: All this week at noon ET, CNN explains how the weakening economy affects you. Full coverage.
Under the government's economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting April 28. What do you plan to do with your check? How do you think the stimulus plan will affect the economy? Send us your photos and videos, or email us and tell us what you think.
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$400 billion on the block - Citigroup
$400 billion on the block - Citigroup
Banking icon says it will wind down non-core businesses over the next 2-3 years. CEO Pandit: 'It's all about getting fit.'
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NEW YORK (CNNMoney.com) -- Citigroup Inc. said Friday it planned to unload $400 billion in assets over the few years as the beleaguered banking icon aims to reinvigorate itself.
The announcement, which was made during a widely anticipated company investor and analyst conference, comes after months of review of Citi's different businesses by CEO Vikram Pandit.
Divisions that had not been producing acceptable returns or fit Citigroup's core business model would be sold or allowed to run their course, said Pandit.
"It's all about getting fit," he said.
Citigroup identified roughly $500 billion in non-core assets - 22% of the company. The company said it would wind down those assets to less than $100 billion over the next two to three years.
While the move would affect close to 20% of the firm's assets, Pandit affirmed that he remained committed to the company's universal bank model, despite calls by critics to break up the firm.
"We believe the right model is a global universal bank," said Pandit. "This is the model that delivers the most shareholder value."
Since Pandit's ascension to the CEO post in December, management has attempted to whip into shape what some critics have called the company's bloated corporate structure.
Just this week, Citi and State Street Corp. announced plans to sell CitiStreet, a joint venture by the two firms, for $900 million. Last month, Citi announced the sale of its commercial lending and leasing business to General Electric and plans to get rid of Diners Club International.
The company added that it was aiming for 9% revenue growth going forward, after suffering through what has arguably been one of the toughest periods in the firm's 196-year-history.
Citi capped a particularly tough 2007 by posting a $10 billion fourth-quarter loss - the worst ever in its storied history. Citi followed that up last month by recording another staggering loss, this time worth $5.1 billion.
Citigroup (C, Fortune 500) stock, which is worth less than half of what it was just a year ago, rose 1.2% in early trading on Friday.
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Fri Apr 11, 2008
Gasoline sets another record
Gasoline sets another record
Nationwide average price for a gallon of regular unleaded grows nearly a penny to yet another all-time high of $3.365, AAA survey says.
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See all CNNMoney.com RSS FEEDS (close) April 11, 2008: 7:09 AM EDT
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NEW YORK (CNNMoney.com) -- The average price of regular gasoline jumped nearly a penny to a new record high, a survey by AAA showed Friday.
The average price of regular unleaded rose 0.8 cents to $3.365 a gallon from the $3.357 the day before, according to AAA's Web site.
Gas prices are up 19.9% from what they were last year. A month ago, the nationwide average was $3.246 a gallon.
Gasoline prices normally rise during the spring as people travel more. However, the record pump prices have also been supported by high crude prices as shrinking profit margins cause refiners to pull back on production.
Oil prices surged to a new trading high above $112 a gallon on news of an unexpected decline in inventories before falling back to $110.87 Thursday.
The rising price of diesel fuel, which is used to operate most heavy vehicles, has been driving up costs for businesses and other organizations that rely on trucks and busses.
Costliest in California
The average price per gallon of diesel fuel rose more than 2 cents to a new record high of $4.066. Diesel averaged $3.876 a gallon last month and $2.913 a year ago.
California continues to lead the nation in pricey gas, at $3.767 a gallon. Hawaii and Alaska both maintained prices above $3.60 a gallon.
New Jersey remained the only state to see gas prices below $3.10 a gallon. Prices rose to $3.094 a gallon.
The AAA survey, updated daily, tracks prices at roughly 80,000 service stations across the country. It is conducted for the group by Oil Price Information Service.
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