Five new ETNs (exchange-traded notes), dubbed ETN+, from Barclays began trading yesterday (11/18/2009). When Barclays sold their iShares business, it appears that all their marketing and product naming people were also part of the deal. Here are the official names, but they won’t give you any clue as to the leverage employed:

• Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return Index (BXUB)
• Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return Index (BXUC)
• Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDB)
• Short C Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDC)
• Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDD)

Further analysis of the naming reveals no identifiable pattern. For example “Long B” refers to 3x while “Short B” refers to -1x. If you want -3x, then you need to buy the “Short D” note. The two notes with 2x leverage both happen to contain the letter “C” in their name, but this appears to be a random coincidence. Perhaps there is a code-breaker reading this that can help me out.

For the time being, I am going to boycott the official names, and instead, refer to these new products as:

• Barclays S&P 500 3x Long 2009 ETN+ (BXUB)
• Barclays S&P 500 2x Long 2009 ETN+ (BXUC)
• Barclays S&P 500 1x Short 2009 ETN+ (BXDB)
• Barclays S&P 500 2x Short 2009 ETN+ (BXDC)
• Barclays S&P 500 3x Short 2009 ETN+ (BXDD)

I suspect that someone is wondering why my “name” for each ETN contains “2009” when these notes are due to mature in 2014. Since the leverage is never reset in these products, I think it is much more important to know when the leverage was established as opposed to the maturity date. To be more precise, the leverage was probably established at the close on November 17, 2009, the day before they began trading. My guess is that Barclays plans on releasing additional series of these notes, perhaps every year.

Most critics of leveraged funds believe they should perform just the same as if you had bought additional shares on margin. Barclays is moving toward that goal with these new products. However, unless new products are issued every day, the “same as margin” performance cannot be achieved. The reason for that is simple – the leverage level is established at the time of purchase, or in the case of these new ETNs, at the time of creation. The S&P 500 did not finish unchanged yesterday, so if you try to buy any of these ETNs today, tomorrow or next year, your exposure will be different than when issued. Barclays realizes this and calls it the “participation” rate, which they will publish every 15 seconds along with the intraday indicative value.

One of the great features of ETFs with daily or monthly reset of leverage is that you are protected from a total wipeout and protected from losing more than your investment. That same feature is also what causes them to have path-dependent performance over periods longer than their reset interval. Investments that do not reset their leverage must employ other techniques to help mitigate a loss greater than the original investment.

The odds are very high that the S&P 500 will hit a level that is more than 33% higher or lower than it was yesterday, thereby sending the value of one of these notes to zero or lower. Barclays realizes this too and has put in place a stop-loss and liquidation mechanism if the value of any note falls below $10. The 3x long note (BXUB) was issued with an original value of $50, so if the S&P 500 hits 814 (plus adjustments for dividends and fees), anytime in the next five years, then the note will be terminated. That’s about a -26.6% decline from the issue level. Like I said, it’s much more important to know the date the leverage was established than the maturity date.

Fees on these new products are even harder to pinpoint as they do not charge a fixed fee. Instead, they opt to “charge an annualized fee based on notional cash amounts underlying each security (the financing level for Long Notes, and the T-bill amount for Short Notes)…under certain circumstances and in the particular in the case of Barclays ETN+ Notes where the financing level or T-bill amount is a high multiple of the [underlying value], the fees may represent a significant percentage of the [underlying value].”

Don’t get me wrong. I’m not saying these are bad products. I am saying be careful what you wish for. If you think daily reset is too hard to understand, then don’t go jumping into these thinking that all your problems are solved.

You need to understand what you are buying. To start that process, here are links to:

• Barclays’s 11/18/09 press release announcing ETN+
• The BARX website
• Long notes brochure
• Short notes brochure
• ETN+ FAQ

The following background information was taken from the press release…

“We are pleased to offer investors the first exchange traded notes that provide access to leveraged returns in the US equity market. The Barclays ETN+ Notes were designed to provide transparent investment solutions to sophisticated investors who have a strong directional view of the market and, specifically, of the performance of the Index,” said Philippe El-Asmar, Managing Director, Head of Investor Solutions at Barclays Capital. “Today’s launch is the first in a series of leveraged ETNs that we plan to develop and link to other equities indices and asset classes.”

Barclays ETN+ Notes are senior, unsecured, unsubordinated debt securities issued by Barclays Bank PLC. The Notes are designed to provide investors with a new way to access leveraged returns of a market or strategy, less certain costs and fees. The primary features of the Barclays ETN+ Notes are a leveraged return, a fixed maturity date, a stop-loss mechanic resulting in automatic early redemption and an optional redemption feature for holders. The Barclays ETN+ Notes track a fixed multiple of the performance of the underlying index over the term of the notes, before the deduction of certain costs and fees.

Ron Rowland
Invest With An Edge

Disclosure compliant with FTC 16 CFR Part 255 covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Barclays Launches No-Reset Leveraged ETNs

"Namibian uranium producer Paladin Energy Ltd plans to undertake an institutional placement of up to 15% of its issued capital, worth about A$450 million (US$388 million), with part of the funds earmarked for consolidation opportunities.

The funding will “provide Paladin with the financial capacity to advance M&A and inorganic growth opportunities”, the firm said.
The ASX-listed company recently approved the US$71 million stage 3 expansion of its flagship Langer Heinrich uranium mine, to produce 5.2Mlb/y (2,359t/y) of U3O8 by September 2010. Funds from the institutional placement will also be used for this expansion.

The company also owns, or has an interest in, exploration projects in Australia, which will be driven closer to development with funds from the institutional placement.
Paladin said the price and terms of the offering would be determined after marketing effort, to be undertaken by RBC Capital Markets and UBS AG Australia acting as global joint lead placing agents."

My comment: Paladin was the Stock of the Year pick for 2009. The stock was up over 100% for us and I continue to hold Paladin as the management continues to execute on their expansion plans. They are now cashing up for mergers which is consistent with the managements desire to create a global uranium mining house.

John Polomny
The Real Deal

(See: ETF Guide: Down $16 Billion – Has Warren Buffett Lost His Touch?; MSN Money: The problem with Warren Buffett; Forbes: Has Buffett Lost His Touch; Reuters: Is Warren Buffett losing his touch?)

In June, financial advisor and CNBC contributor Dennis Gartman even called Buffett “an idiot.”

But now that Berkshire has rallied more than 35% from its March lows, the only idiots to be found are those that ever doubted the world’s second-richest man’s business savvy. Indeed, many of the moves Buffett made during last year’s market melee are paying off in a big way.

Take, for instance, his $5 billion investment in Goldman Sachs Group Inc. (NYSE: GS). Berkshire last September agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest.  In addition, Berkshire received warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share.

Critics lampooned that deal when shares of Goldman Sachs fell to a 52-week low of $47.41 in November. Since then, however, Goldman’s stock has rocketed more than 240% to close yesterday (Tuesday) at $160.25.

If Berkshire cashed in it’s warrants today, it would make a 40% profit or about $2 billion. But Warren Buffett has always been a long-term investor, which makes that highly unlikely.

"We will hold the warrants," Buffett said on Fox Business Network. "Every instinct in my body tells me that we will want to hold those warrants until they’re very close to their expiration date. The preferred pays us the dividend and the warrants are going to make us the money."

While Berkshire waits, the $5 billion in preferred Goldman shares pay an annual interest of $800 million in dividends.

Berkshire’s total stake in Goldman is now worth more than $9 billion – $4 billion more than the company paid for it – according to University of Louisiana finance professor Linus Wilson.

Berkshire’s investment in BYD Co. Ltd., a Chinese producer of both cars and specialized batteries, has also paid off.  Berkshire’s MidAmerican Energy Holdings Co. agreed last Sept. 26 – just three days after the Goldman deal was announced – pay roughly $230 million for a 9.89% stake in BYD. MidAmerican bought 225 million shares of BYD at a HK$8 a piece. Those shares have since risen 430% to close yesterday at HK$42.40, handing Buffett a paper profit of about $1 billion.

Berkshire reported second-quarter profit of $3.3 billion, up from $2.88 billion a year earlier. The boost was largely attributable to derivative gains, which soared to $2.36 billion from $689 million the year prior.

Berkshire’s book value rose 11.4% in the second quarter, to $73,806 a share, and Barron’s estimates that it already could have increased since to around $79,000 now.

What Buffett’s Buying

So if Buffett’s supposedly cold hand has suddenly turned hot, how can investors benefit? Simple: By following the leader.

A 2007 study by two university professors titled “Imitation is the Sincerest Form of Flattery” showed that buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns.

"The market … appears to under-react to the news of a Berkshire stock investment since a hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year,” the study said.

And according to a regulatory filing disclosed Aug. 14, Berkshire is reading the tealeaves on healthcare reform. As of June 30, the company had loaded up 1.2 million shares of Becton Dickinson & Co. (NYSE: BDX), a maker of such medical equipment as scalpels, catheters and syringes, while winding down its positions in healthcare insurers. Berkshire cut its holdings in WellPoint Inc. (NYSE: WLP) by 27% to 3.5 million shares and sold 3.4 million shares, or 24%, of its UnitedHealth Group Inc. (NYSE: UNH) stock.

“If the government is going to open health care to more people, demand for health care supplies would increase,” Gerald Martin, a finance professor at American University’s Kogod School of Business told Bloomberg. “The plan that’s going through Congress could be a real negative to the health insurers, but the people who provide the supplies could really benefit.”

Berkshire also increased its holdings in Johnson & Johnson (NYSE: JNJ), the world’s largest maker of health-care products, by 14% to 36.9 million shares. The purchase of J&J shares marks the second straight increase in the size of Berkshire’s stake, according to Bloomberg.

All of the biggest holdings listed in Berkshire’s filing gained in value in the second quarter. American Express Co. (NYSE: AXP) rose 71% in the period, Wells Fargo & Co. (NYSE: WFC) rose 70%, and Burlington Northern Santa Fe Corp. (NYSE: BNI) jumped 22%. Berkshire’s single largest holding, The Coca-Cola Co. (NYSE: KO), rose 9.2% in the three months ended June 30.

By Jason Simpkins
Money Morning

When the U.S. economy is facing collapse and merger and acquisition volume is way down, it seems odd that investment banks like Goldman had record quarters.

Well, here’s the secret: They’ve found a new way to skim more of the cream off the top of U.S. economic activity. It’s called “High-Frequency Trading” (HFT).

High-frequency trading uses the speed of supercomputers to trade faster than a human trader ever could. Human owners of the supercomputers program them to take advantage of information milliseconds faster than other computers, and whole seconds faster than ordinary human traders.  This is not a minor development; HFTs now represent about 70% of the trading volume in the U.S. equity market.

HFT computer servers are able to beat other computers because they are located at the exchanges. They take crucial advantage of the finite speed of light and switching systems to front-run the market. They also gain information on orders and market movements more quickly than the market as a whole. They operate not only on the New York Stock Exchange (NYSE), but also on the electronic trading exchanges such as the NYSE hybrid market.

According to a paper “Toxic equity trading order flow on Wall Street” by the brokerage Themis Trading LLC, there are a number of different types of HFT. Liquidity rebate traders take advantage of volume rebates of about 0.25 cents per share offered by exchanges to brokers who post orders, providing liquidity to the market. When they spot a large order they fill parts of it, then re-offer the shares at the same price, collecting the exchange fee for providing liquidity to the market.

Predatory algorithmic traders take advantage of the institutional computers that chop up large orders into many small ones. They make the institutional trader that wants to buy bid up the price of shares by fooling its computer, placing small buy orders that they withdraw. Eventually the “predatory algo” shorts the stock at the higher price it has reached, making the institution pay up for its shares.

Automated market makers “ping” stocks to identify large reserve book orders by issuing an order very quickly, then withdrawing it. By doing this, they obtain information on a large buyer’s limits. They use this to buy shares elsewhere and on-sell them to the institution.

Program traders buy large numbers of stocks at the same time to fool institutional computers into triggering large orders. By doing this, they trigger sharp market moves.

Finally, flash traders expose an order to only one exchange. They execute it only if it can be carried out on that exchange without going through the “best price” procedure intended to give sellers on all exchanges a chance at best price execution. The Securities and Exchange Commission (SEC) has now promised to ban this technique, and flash trading on the Nasdaq will stop on September 1.

This toxic trading has caused volume to explode, especially in NYSE listed stocks. The number of quote changes has also exploded and short-term volatility has shot up. NYSE specialists now account for only around 25% of trading volume, instead of 80% as in the past.

The bottom line for us ordinary market participants is that insiders are using computers to game the system, extracting billions of dollars from the rest of the market. While it is illegal to trade on insider knowledge about company financials, these people are trading on insider knowledge about market order flow. That’s how Goldman Sachs and the other biggest houses make so much from trading. By doing so they are rent-seeking, not providing value to the market.

There are two ways to stop this: Ideally, the SEC will employ both. First, they can introduce a rule that all orders must be exposed for a full second. That will reduce the volume of HFT, but still doesn’t truly protect non-computerized outsiders.

The second, and better, solution is to introduce a small “Tobin tax” on all share transactions. It could be tiny; maybe 0.1 cents per share. (The SEC would also need to ban “exchange rebates” to traders.) Such a tax would make the worst HFT types unprofitable without imposing significant costs on retail investors.  It would also provide funds to help run the vast apparatus of regulation and control that seems to be necessary to run a modern financial system.

Goldman Sachs, and other financial institutions of its ilk, have imposed huge costs on the U.S. public with their “too big to fail” status. Now they are adding to the problem by scooping out money from the stock market through HFT. It’s about time the government imposed some taxes to stop the worst of these scams and recover the public some of its money.

Martin Hutchinson
Money Morning

Retail sales fell 0.1% in July from the previous month, and 8.3% from a year ago, the Labor Department said. Excluding auto sales, the sales declined 0.6%. A Bloomberg News poll of 76 economists projected sales including autos to rise 0.8%.

Grocery stores, where consumers find many necessities, saw their sales decline to $43.74 billion in July, down 1.4% from June’s $43.87 billion.

The drop in sale reflects the still-shaky sentiment of consumers.

“Until we start seeing job growth, consumers are still going to be very cautious,” Michael Gregory, a senior economist at BMO Capital Markets told Bloomberg. “It’s premature to talk about the sustainability of a recovery,” he said, until there’s “follow-through on the demand side.”

Wal-Mart, the world’s largest retailer, saw its sales drop 1.4% to $100.08 billion in the three months ended July 31. The company’s profit fell to $3.44 billon from $3.45 billion a year ago. One of the reasons for the decline was a stronger dollar, which shaved about $4.2 billion off of the company’s revenue. Excluding currency exchange rates, Wal-Mart’s revenue actually climbed 2.7% to $104.28 billion.

However, a dearth of consumer confidence was also evident in the retail giant’s overall same-store sales, which fell 1.2%. Wal-Mart had expected same store sales to remain flat or gain 3%. Only its Sam’s Club discount stores held true to the estimate, showing an increase of 0.6%. Sales at Wal-Mart outlets fell 1.5%.

The gain at Sam’s Club, where consumers pay $40 a year to buy everyday items like shampoo and toothpaste at bulk prices, shows how club stores offer a better value proposition than Wal-Mart’s namesake outlets. For instance, a tri-color ink cartridge from Hewlett-Packard Company (NYSE: HPQ) that costs $39.97 at Wal-Mart sells for $33.84 at Sam’s Club, a savings of nearly 16%.

“Our customers are more disciplined in their spending,” Wal-Mart Chief Executive Officer Mike Duke said in a conference call with investors, adding that consumers are saving more and spending less.

The Reuters/University index of consumer sentiment dropped to 66 in July from 70.8 the month before, Bloomberg reported. The Conference Board’s Consumer Confidence Index fell to 46.6 in July, down from June’s 49.3.

With consumer confidence and spending waning, the coming months, particularly the October-December holiday shopping season, retail sales may see growth in Sam’s Club and other warehouse stores like Costco Wholesale Corp. (Nasdaq: COST) and BJ’s Wholesale Club (NYSE: BJ).

Same-store sales at Costco shrank 2% in July, while growing 5% at BJ’s. Costco blamed the decrease on less discretionary spending but noted its strongest categories included food and fresh food products, including deli, candy and frozen food items. BJ’s reported gains in similar categories.

By Bob Blandeburgo
Money Morning

More consumers are turning to their checking accounts for purchases, and this could make for a significant boost in overdraft fees. Charges related to overdrawn accounts this year may add up to $38.5 billion following last year’s $36.7 billion, according to data from research firm Moebs Services Inc.

The shift from credit to debit cards means banks still have another avenue to collect lucrative fees despite legislation signed in May by U.S. President Barack Obama that protects consumers from excessive fees and last-minute contract changes such as interest rate hikes.

“Fee abuse hasn’t disappeared in banking with the credit- card legislation,” Tony Plath, a finance professor at the University of North Carolina Charlotte told Bloomberg News. “It’s just migrated to checking accounts.”

If President Obama gets his way, a new consumer protection agency would be formed and have the power to ban “unfair, deceptive and abusive practices.” This puts the Obama administration at odds with the U.S. Federal Reserve, the agency that is currently tasked with regulating such practices.

Overdraft fees, which account for more than 75% of all bank fees, could make or break some banks. Without the fees, 45% of the banks and credit unions would have been unprofitable, according to Moebs.

“Banks are returning to a fee-driven model and overdraft fees are the mother lode,” Mike Moebs, founder of Moebs Services, said in an interview with the Financial Times.

The largest banks charged the largest overdraft fees: The median fee among banks worth $50 billion or more, including Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), JPMorgan Chase (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC), is set at $33.  The median fee among all banks is $25 to $26.

Fees for overdrawing an account can be astonishingly high when calculated as an annual interest rate. For example, a consumer who overdraws an account by $20, repays the bank in two weeks and pays a $27 fee, would be charge the equivalent of a 3,520% annual interest rate according to a study conducted last year by the Federal Deposit Insurance Corp.

Higher fees at bigger banks are appropriate because they do not know their customers as well as smaller local banks, and need to be compensated for the higher risk, Nessa Feddis, general counsel at the American Bankers’ Association told The FT. Consumer advocacy groups reject this, saying that overdrafts are the least risky form of credit, and the most expensive for consumers.

“The banks own your paycheck before you do, so the only way you can default on your overdraft is if you choose to open another account and deposit your income elsewhere,” said Eric Halperin, director of the Center for Responsible Lending.

By Bob Blandeburgo
Money Morning

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Despite investors’ newfound optimism, the economy is still contracting, unemployment is still rising and consumer spending and sentiment is still abating. That could mean the sharp “V-shaped” recovery many analysts are anticipating may turn out to be a more-prolonged “U-shaped” rebound.

"We’re looking at a U-shaped recovery, which means getting off the bottom is going to be a lot more difficult than people are anticipating in the market," Doug Roberts, chief investment strategist at Channel Capital Research, said in a Reuters interview.

Indeed, a bullish equities market means little to still-employed consumers who can’t be certain that they’ll still have a job next week. And since consumers account for as much as 70% of the U.S. economy’s output, the threat of unemployment poses a major risk to any recovery.

Why Unemployment Could Undermine a Recovery

The national unemployment rate hit 9.5% in June and analysts say it could easily surpass 10% by yearend. Statistics from the Labor Department today (Friday) are expected to show that roughly 328,000 jobs were shed in July, according to a Bloomberg survey. 

Payroll firm Automatic Data Processing (Nasdaq: ADP) said earlier this week that job cuts are slowing, but that’s mainly because there are fewer people left to fire. ADP’s National Employment Report showed that non-government employers cut 371,000 jobs last month, compared to a revised 463,000 in June.

The ADP data "suggest the unemployment rate continues to rocket and household cash flows continue to fall,” Ian Shepherdson, an economist for High Frequency Economics, told The Washington Post. “Not a great outlook for spending, we’d say."

Piling on the shrinking employment news was outplacement consulting firm Challenger, Gray & Christmas Inc., which said layoff plans in the United States ballooned 31% in July, compared to June’s 15-month low.

“We are still a long way from a full recovery,” said Chief Executive Officer John A. Challenger.

Lastly, employment activity as measured by the Institute for Supply Management (ISM) was equally dismal, as the index contracted for the 18th time in last 19 months.

The ISM’s employment index for non-manufacturing jobs – that is, service jobs like retail work, health care, and public administration – shrunk to 41.5% in July, down from 43.4% in the previous month. Any percentage on the index below 50% represents contraction.

Comments from respondents in the ISM’s survey included “Continued attrition and layoffs due to economic conditions,” and “Hiring freeze in place, and we are unable to fill open positions.”

Since the recession began in December 2007, more than 6.5 million jobs have been lost and most economists now have the unemployment rate bottoming out at or slightly above 10%. Economists in the Bloomberg survey expect July’s rate to be 9.6%, meaning there’s still some more job erosion left before any turnaround occurs.

Crisis of Confidence

In addition to taking money directly out of consumers’ pockets, soaring unemployment has an adverse affect on those fortunate enough to keep their jobs, as well. Fearful that their job will be next, wary consumers lose confidence and save more.

And the two leading indicators of U.S. consumer sentiment – the Reuters/University of Michigan index of consumer sentiment and the Conference Board’s confidence index –show that consumers are not yet ready to return to the level of extravagance that helped keep the economy humming before last year’s financial meltdown.

The Reuters/UM index dropped to 66 in June from 70.8 the month before, and a preliminary report for July shows further erosion to 64.6, Bloomberg reported. The Conference Board’s index fell to 46.6 in July, down from June’s 49.3.

Consumers who are looking over their shoulders at work are much less likely to spend beyond the bare necessities. Discretionary spending is down, as evidenced by the 31% drop in June sales for the video game industry, once thought of as recession-proof. Discount retailers such as Wal-Mart Stores Inc. (NYSE: WMT) and Dollar Tree Inc. (Nasdaq: DLTR) are prospering in the weak economic environment.

Equally troubling is the fact that the consumer spending that has been strong is largely the result of government incentives.

A 3.6% boost in the National Association of Realtors’ (NAR) pending home sales index in June represented the fifth consecutive month of gains, thanks in part to the $8,000 tax credit for first-time buyers that is part of the $787 billion stimulus package passed in February.

The opportunity for consumers to take advantage of the credit is good until Nov. 30, but Senate Majority Leader Harry Reid, D-Nev., told Nevada reporters in a conference call that an extension of the bipartisan-backed program is likely, the Las Vegas Sun reported.

Then there’s the popular Car Allowance Rebate System (CARS), also known as “cash for clunkers.” The government’s $1 billion program paid consumers $3,500 to $4,500 to trade in their older, less fuel-efficient vehicles in for an automobile with a combined fuel economy of at least 22 miles per gallon.

CARS was expected to last until November, but once claims started to be processed on July 24, the program was on fumes within a week. At the urging of U.S. President Barack Obama, legislators in the House approved an additional $2 billion of funding for the program and the Senate is expected to do the same.

Should CARS get the expected additional funding, the combination of it with year-end model clearance markdowns could make for a relatively next few months of consumers snapping up new automobiles.

Still, the government can’t prop up spending forever, and with the national deficit expected to equal 13% of gross domestic product (GDP) in 2009 and 10% of GDP in 2010, another stimulus package will be a tough sell.

Indeed, the American consumer is far from out of the woods, and any economic recovery will likely be long and painful.

“The consumer isn’t going to be a leader in this recovery,” Nigel Gault, chief U.S. economist at IHS Global Insight, told Bloomberg. “Consumers are aware that the labor market is still pretty bleak. Any recovery in consumer spending will be very, very modest.”

The Flip Side

There are two factors that hint at a more-upbeat outcome for the U.S. economy: The stock-market-rally itself, and so-called “first-time jobless claims.”

Many of the indicators from recent reports are known as “lagging indicators,” because they are snapshots of the past. That’s true of unemployment, retail sales, GDP and others. But the stock market is “forward-looking,” meaning it tends to factor in expectations about future corporate earnings, income growth, inflation, unemployment and economic output. The unprecedented rally in U.S. stock prices hints at much better times to come.

The second factor is first-time jobless claims.

Since peaking in April, the four-week moving average of initial jobless claims has dropped more than 15%. That’s actually a bigger decline in jobless claims during a recession than in any of the other six economic downturns recorded since 1969, said a research report released a week ago by Bespoke Investment Group LLC.

“For the last couple of weeks, we have been highlighting how the recent trends in initial jobless claims suggest that the recession is over or winding down,” Bespoke wrote in a new research report. “However, there remains a considerable amount of skepticism towards the market’s rally. Critics contend that any meaningful rally cannot occur until the economy improves. With jobless claims still at high levels, they claim we have not reached that point.”

But jobless statistics say differently. Since peaking in April, the four-week moving average of initial jobless claims has dropped more than 15%. That’s actually a bigger decline in jobless claims during a recession than in any of the other six economic downturns recorded since 1969.

In other words, in the other downturns, Bespoke measured the percentage decline in the four-week moving average of initial jobless claims from their peak until the recession officially ended. That hints strongly that the current recession is over – or at the very least is at or near its end, Bespoke said.
That picture only got brighter yesterday (Thursday).

The Labor Department said first-time filings for state unemployment benefits declined by 38,000 to a seasonally adjusted 550,000 last week.
Economists surveyed by MarketWatch.com had expected initial claims to fall much less, to around 580,000. And the four-week average of new claims dropped to 555,250 – the lowest level since January.

Compared with a year earlier, initial claims were up 22%, while continuing claims were up 89%. Compared with six months ago, initial claims have fallen 12% while continuing claims are up 33%.

In an interview on cable-TV channel CNBC early yesterday, one trader looked at the first-time-jobless claims numbers and concluded: “The recession’s over.”

By Bob Blandeburgo
Money Morning

The Wall Street Journal recently reported that Andrew J. Hall, head of Phibro LLC – Citigroup’s energy trading unit – is pressing the company to honor a 2009 compensation package that could be worth as much as $100 million. Such a lofty payout would put Citi at odds with Kenneth Feinberg the Treasury Department’s newly appointed pay czar.

Citigroup, which reported a net loss of $27.7 billion in 2008, received $34 billion in funding from the Troubled Asset Relief Program (TARP). That means Citi, along with six other financial firms, will have the compensation for its one hundred highest-paid paid employees reviewed by Feinberg.

“Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives,” said a Treasury Department official. “That process is just beginning now, and Mr. Feinberg has begun consulting with those firms about their compensation plans. We are not going to provide a running commentary on that process, but it’s clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance.”

The pay czar cannot force companies to break contracts with their employees, but he could ask those companies to reduce an employee’s future pay to compensate for a single large payment or factor the amount of a contract into an employee’s overall pay and use that calculation to bring down total compensation.

However, Hall’s compensation will be particularly tricky. According to The Journal report he has long had a profit sharing contract with Citi entitling him to a sizeable portion of Phibro’s gains. Hall’s 2008 compensation totaled more than $100 million, people familiar with the matter told the paper. And while we’re only halfway through 2009, Phibro is reportedly having a good year.

Also, until this year, Phibro’s financial year ended in September. But now the firm’s pay will be calculated to a full calendar year. That means Hall’s pay period will run a full 15 months from September 2008 to December 2009.

According to The Journal report, Hall and others on his team earlier this year threatened to leave if their pay was cut to accommodate government mandates.

Hall’s departure would be a huge blow to Citigroup’s effort to return to profitability.  The Phibro unit has at times accounted for the bulk of revenue at its parent company. Hall himself is credited with anticipating the sharp run up in crude oil prices and producing a healthy track record of large and profitable investment bets.

Citigroup does not report the details of Phibro’s financial dealings. However, the company’s annual report indicated that $667 million of Citigroup’s 2008 revenue from “principal transactions” related to commodities was largely the result of Phibro’s performance.

Regardless of Hall’s contributions, the government says $100 million in compensation seems excessive.

“One could easily come to the conclusion that that’s probably a bit out of whack on any pay scale,” said White House Press Secretary Robert Gibbs. “The justification of setting outsized salaries is this notion of simply a series of unique skills or traits that can’t be replicated by anybody on the planet. I don’t know that the president would necessarily buy that notion.”

By Jason Simpkins
Money Morning

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Now, publishers and retail bookstores are standing at the precipice of a similar fate as digital readers – like Amazon.com Inc.’s (Nasdaq: AMZN) Kindle and Sony Corp.’s (NYSE ADR: SNE) Reader Digital Book – lure readers out of the cozy confines of Barnes & Noble and Borders Books and Music by offering a wide selection of portable e-books.

Barnes & Noble Inc. (NYSE: BKS) fell short of expectations in the first quarter with a net loss of $2.2 million, or $0.04 per share. The company also lowered its full-year comparable store sales guidance at Barnes & Noble stores from slightly positive to slightly negative.

Eager not to become a relic, Barnes & Noble last week launched the world’s largest e-book store – an online bazaar that will make roughly 700,000 titles available for download. New releases and best sellers will cost $9.95 each, but the site will also offer nearly 500,000 public-domain books for free.

“Today marks the first phase of our digital strategy, which is rooted in the belief that readers should have access to the books in their digital library from any device, from anywhere, at any time,” said William J. Lynch, president of BN.com.

Barnes & Noble’s e-bookstore will ratchet up competition with Amazon.com, whose critically acclaimed Kindle has been building a solid user base.

Amazon does not release specific sales figures pertaining to its Kindle, but Credit Suisse Group AG (NYSE ADR: CS) estimates that the company will sell 1.8 million of the electronic reading devices in 2009, TWICE.com reported. That figure could increase to 2.9 million units in 2010 and 8.5 million in 2014. Revenue from the device could climb from $623.6 million in 2009 to $813.7 million in 2010 and $1.8 billion in 2014, the bank said.

While sales of the Kindle are profitable, each e-book Amazon sells costs the company $1.50, Credit Suisse analysts estimate. However, that is expected to change by 2012 as Amazon’s costs come down. At that point Amazon’s profit on e-book sales will soar to $31 million.

However, Amazon only offers about 330,000 e-books for its Kindle, and does not have the rights to publish the roughly 500,000 public-domain books that B&N acquired through a deal with Google Inc. (Nasdaq: GOOG).

And while Barnes & Noble does not have a reading device of its own, its catalogue of 700,000 titles will be available for download on a wide range of devices, including the iPhone, BlackBerry, Windows-based PCs and Macs. Amazon’s e-books are only available for the Kindle and iPhone.

Additionally, B&N said its e-bookstore would be integrated into the upcoming e-reader from Plastic Logic Ltd., which will compete head-on with Amazon’s Kindle.

The Plastic Logic reader “has the potential to blow the Kindle out of the water,” Michael Norris, an analyst with media researcher Simba Information, told BusinessWeek. “It’s Barnes & Noble’s way of hedging their bets and being able to attach their name to a cool electronic device.”

Of course, some analysts are skeptical that Barnes & Noble’s e-bookstore, and its new deal with Plastic Logic, will be able to compete with the Kindle.

“I don’t think they will be stealing market share from Amazon,” Sarah Rotman Epps, a media analyst with Forrester Research told the New York Times. “If anything, I think they are contributing to the growth of the whole category of digital reading.”

But even if B&N fails to wrestle market share away from Amazon and its Kindle, it will still gain a valuable foothold in a fast-growing market.

Sales of e-books grew to $113 million in 2008, up 69% from the year prior, according to the Association of American Publishers.

E-readers will account for about a third of the U.S. adult book-reading population in just five years, according to Credit Suisse. The installed base of e-readers will rise from 1 million in 2008 to 4 million this year and 32 million in 2014, the bank estimates. 

Meanwhile, the total U.S. e-book wholesale industry will grow from $52.3 million in 2008 to $196.6 million in 2009 and $1.8 billion in 2014.

The International Digital Publishing Forum says that wholesale e-book revenue exceeded $25 million in the first quarter of this year, compared to $7.5 million in the same period last year.

By Jason Simpkins
Money Morning

When Airbus recently announced the delivery of its first China-built passenger jet, it was more than just the usual bit of corporate PR. It was an admission that any company that wants to remain a global leader in its industry will have to embrace China as a customer – and probably as a partner.

Airbus – a subsidiary of defense giant European Aeronautic Defense and Space Co. NV, also known as EADS NV – said it assembled the A320 passenger jet in a plant in Tianjin, China’s sixth-largest city. The factory is 49%-owned by a Chinese consortium, and is expected to produce another 10 passenger jets this year alone.

The China connection doesn’t end there, either: The just-completed A320 will be sold to a leasing company and eventually put into service by Sichuan Airlines Co. Ltd., a regional carrier.

Both Airbus and its U.S. rival, The Boeing Co. (NYSE: BA), understand that the Chinese market is crucial to their futures. Boeing has said that China will become the largest aviation market outside the United States by 2028, with the mainland set to require 3,700 additional aircraft – worth more than $350 billion – in that time. Airbus, which projected a slightly lower figure of about 2,800 aircraft, hopes to see its market share rise from about 30% now to about 50% in the next couple of years.

In the near term, the global downturn has left China’s carriers feeling the pinch, too, but it’s the long term that has companies such as Airbus and Boeing feeling both excited – and worried.

In many industries, partnerships represent the price of entry. And in the long haul, China has ambitious plans of its own. In the commercial airliner business, for instance, it is already developing a regional airliner and more recently has launched plans to design and build a globally competitive jumbo jet of its own.

The Rise of China as a Powerhouse Market

One of the hallmarks of any great economy is its ability to produce technically complicated machinery. I’m not talking flat screen TVs here but stuff like spaceships and, closer to earth, commercial and military aircraft. While Airbus is a partner right now, the point is that China is moving up on the technology scale both hard and fast. Faster, in fact, than most Westerners realize.

But the rollout of a completely Chinese-built Airbus A320 highlights something else, the significance of which is lost on most investors: It’s not really about Chinese airplanes or even the fact that China is making something new. The real key here is that Airbus – like many companies – understands that the Chinese market is growing so fast, and has the potential to be so huge, that that it has to invest there, and do so as a partner, or risk getting left behind.

Chances are good that Airbus understands something else that I’ve been telling investors since I first visited China nearly 20 years ago: There will come a time when China makes the transition from just being the world’s biggest manufacturer and becomes the world’s biggest market. In the long run, it’s not about China the export machine – it’s about the Red Dragon’s transition into a full-fledged consumer market.

With more than 300 million people – the majority of whom save an average of 35% of their income, China’s quickly emerging middle class is by itself potentially larger than the entire U.S. population. And the top 2% of China’s academic community – I’m talking the best and brightest only – is larger than our entire university population.

The bottom line: China not only has the capability to produce entirely new and different products, but its consumers increasingly have the ability to buy them.
Consider Snow Beer. Most people have never heard of the ubiquitous green bottled stuff because it’s sold only in China. Yet according to beer-market-researcher (yes, they do exist) Plato Logic Ltd., Snow Beer sold about 6.1 billion kiloliters of beer in 2008, up 19.1% from the year before – outselling such former brand leaders as Bud Light and Budweiser.

Not surprisingly, Snow Beer is a partnered product – the result of a collaboration between China Resource Enterprise Ltd., and London-based SABMiller PLC (OTC ADR: SBMRY) news portal alibaba.com reported.

Maybe this won’t surprise you, but it never fails to surprise the majority of people I talk with when they learn that China is now the world’s largest beer market, having surpassed the United States as early as 2001.

It’s much the same story with cars. For the past four months running, China has been the world’s largest automobile market. There are still a dozen or more automakers slugging it out for Chinese consumers’ hearts and minds, but all the biggies are there – including the only profitable business unit of General Motors Co., the Japanese, European makers and more. China this year also became the world’s largest producer, consumer and exporter of light-duty electric automobiles.

China Profits Poised to Zoom

And that brings us back to Airbus.

After delivering the 10 planned A320s from its Tianjin factory this year, Airbus plans to deliver aircraft at a rate of four a month by the end of 2011. Overall, Airbus expects to deliver 70 A320s to China in 2009 – a total that includes jetliners built in Europe.

But it’s just not enough, notes Airbus China President Laurence Barrons. In fact, the executive told the China Daily that the “ramp-up [production] capacity of 48 planes a year is insufficient to meet [domestic] demand.”

It’s not surprising, then, that Airbus is planning on boosting production to 286 aircraft a year in Tianjin, which puts the China production facility on par with Toulouse and Hamburg, where the company has its European plants. Ultimately, and again here’s the really important stuff, there’s no reason in the world why Airbus won’t begin selling Chinese-made aircraft overseas to non-Chinese carriers within the next few years. Not only will this further pressure Boeing, but also it demonstrates yet again that there isn’t an asset class on the planet that won’t be affected by China’s growth – a point that I’ve made so often that it’s basically become a Money Morning mantra.

Speaking of which, Chinese domestic air passenger growth would make a western air exec drool. According to China’s Aviation Administration, domestic traffic is up 17% to 56.9 million in the first four months of 2009, at a time while international traffic fell 17% to 5.6 million. Some consider that a wash, but get this: Over the past 30 years, air passenger traffic rose at an average annual rate of 16% – reaching 190 million at the end of 2008.

In a statement issued on April 8, Li Jiaxiang, the director of the Civil Aviation Administration of China, stated that China intends to boost travel to some 700 million trips a year by 2020. And that underscores yet again the projected growth in China’s middle class strength. Somebody’s going to be paying for all that travel. My own travel experiences in China suggest that it will be the Chinese Yuppies, or “Chuppies.”

With the increase in demand has come an escalation in quality – of products and services. Gone are the days when flying Air China meant taking your life into your own hands and ghostly silent terminals at a few scattered airports. Also gone are the formerly ubiquitous souvenir shirts depicting overcrowded aircraft with parts falling off as they zoom skyward.

Flying in China today is a wonderful experience that I look forward to each time I visit China. The airports are modern and well staffed, the security is generally excellent and the flight crews are as sharp as they get. Increasingly, the aircraft are mostly all new – a welcome change from some of the timeworn airframes I routinely hop aboard when traveling back here in the United States. Of course, having real food with real silverware is a nice perk, too, in an era when a boxed lunch sets you back seven bucks.

Now, before you guys jump all over me with comments about state subsidized travel and the like, I know – you’re right. But that doesn’t change the fact that air travel in China is a throwback to an earlier – and eminently more pleasurable – time when travel was an experience to be enjoyed, and not just time spent getting from Point A to Point B, as is now the rule in the Western world.

In a recent interview, the president of Sichuan Airlines Co. Ltd., showed me that China understands the path to take to win in the global game of business when he said that “when air travel becomes a consumer pastime, that’s when you will see the real peak of aviation demand and industry growth.”

That’s true of virtually every market in China these days – which is why investors better not miss their flight: The Red Dragon’s domestic market is just getting ready for takeoff …

By Keith Fitz-Gerald
Money Morning

“Better conditions in financial markets have been accompanied by some improvement in economic prospects,” Bernanke said in a prepared testimony before the House Committee on Financial Services. “Businesses have continued to cut capital spending and liquidate inventories, but the likely slowdown in the pace of inventory liquidation in coming quarters represents another factor that may support a turnaround in activity.”

Still, the rising unemployment rate in the United States – which the Fed expects to top off between 9.8% and 10.1% in the second half of this year – as well as the prospect of a jobless recovery will likely keep interest rates at their record low – a range of 0.00% – 0.25% – for some time to come.

When unemployment does start to subside after next year, job growth will continue to be sluggish. The Fed estimates the rate will be between 9.5% and 9.8% in 2010, 8.4% and 8.8% in 2011 and won’t return to the historical norm of around 5% until the “longer run” beyond 2011, according to the central bank’s 49-page Monetary Policy Report to Congress.

“Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending,” said Bernanke. “The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook.”

Rep. Ron Paul, R-Texas, who believes the Fed created the economic crisis, considers the underemployment rate as the true measure of unemployment in the United States.

“Real unemployment is now 20% and there has not been any economic growth since the onset of the crisis in the year 2000,” Paul said in his opening statement, citing non-government statistics.

Political Face-Off

Bernanke’s appearance before Congress yesterday was the first time he has publicly spoken face-to-face with Paul, who in February drafted a bill that calls for the Fed to be audited. Paul challenged Bernanke’s urging of Congress to keep the audit away from monetary policy duties, accusing the Fed’s bank loans of being political.

"Just the fact that [the Fed] can issue a lot of loans and special privileges to banks and corporations," said Paul, "That’s political."

Bernanke said auditing the Fed “could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability.”

While the Government Accountability Office (GAO) does already audit the Fed, it is not complete. Congress purposely excludes potential GAO reviews from some sensitive areas, particularly monetary policy deliberations and operations, including open market and discount window operations.

While the current administration has drafted a proposal to increase the Fed’s powers to supervise the economy, U.S. President Barack Obama’s policy of government transparency will be put to the test should Paul’s bipartisan bill pass through Congress and find its way on to his desk.

“The Necessary Tools” to Avoid Inflation

Bernanke does not expect the economic recovery to begin until late this year or early 2010, but when it does, concerns about inflation – which has remained subdued in the first half despite the stimulus efforts – abound.

The Fed’s “highly accommodative stance of monetary policy” will be warranted for an extended period, Bernanke said.

When the time does come to pull back the unprecedented stimulus, the Fed will be ready with its “exit strategy,” Bernanke said. “The [Fed] has been devoting considerable attention to issues relating to its exit strategy, and we are confident that we have the necessary tools to implement that strategy when appropriate.”

Rep. Barney Frank, D-Mass., chairman of the House Committee on Financial Services, voiced support in Bernanke’s ability to curb any post-recession inflation.

“When you are talking about inflation it is not just about reality but about perception,” Mr. Frank said in a report that appeared in The New York Times, adding that Bernanke has “consistently shown that he is aware” of the danger of inflation.

On a Second Stimulus

Earlier this month, Laura Tyson, former chair of the U.S. President’s Council of Economic Advisers during the Clinton Administration and current advisor to President Obama said that the $787 billion stimulus passed in February was “a bit too small.”

“The economy is worse than we forecast on which the stimulus program was based,” Tyson said during a speech at the Nomura Asia Equity Forum in Singapore. “We probably have already 2.5 million more job losses than anticipated.”

While the Obama administration may have underestimated the financial crisis, Bernanke said yesterday any talk of a second stimulus is premature and less than a quarter of the first one has been spent.

President Obama earlier defended the stimulus’ slow start earlier this month in an interview with Fox News.

“You just can’t push [funding] out that quickly, partly, not just because the federal government has to process applications but also because states and local governments have to gear up to get these projects going,” President Obama said. “There are a whole bunch of critics out there who said we shouldn’t have any stimulus at all. And in fact, some of the same folks who are now saying, ‘Where are the jobs?’ don’t really have a recipe other than doing nothing for the economic circumstances that we’re in.”

By Bob Blandeburgo
Money Morning

Executives from the Redmond, Wash. Microsoft traveled to Silicon Valley late last week to iron out remaining issues in a deal that would create a search and advertising partnership between the two companies, according to The Wall Street Journal’s All Things Digital blog.

Barring a major breakdown in talks, the deal could be announced this week, the blog said, citing sources at both companies.

The deal has Microsoft paying Yahoo “several billion dollars” upfront to guarantee to take over its search advertising business and guarantee certain payments back to Yahoo. Also, Yahoo would sell premium advertising for the companies.

Talks for the deal have been ongoing for more than a year. Microsoft’s unsolicited attempt to acquire Yahoo last year for $47.5 billion failed.
One big name pulling for the deal to happen is billionaire investor and Yahoo board member Carl Icahn.

“I’ve been a strong advocate of getting a search deal done with Microsoft,” Icahn told Reuters on Friday. “It would enhance value if a deal got done, because of the synergies involved.”

Microsoft upped the search ante early last month when it launch its Bing search engine, pouring $100 million into marketing the site in a bid to take away market share from search giant Google Inc. (Nasdaq: GOOG). So far, Bing has only managed to take away share from the very company Microsoft is trying to partner with: Yahoo. As of June, Google commands a 65% market share while Microsoft and Yahoo combined hold a 28% share of search queries.

By Bob Blandeburgo
Money Morning

CIT, which received $2.3 billion in Troubled Asset Relief Funds (TARP) in December, said “there is no appreciable likelihood of additional government support being provided over the near term,” and that it is “exploring alternatives.”

The most likely alternative for CIT is bankruptcy, according to analysts.

“Maybe they can put together a last-minute deal and try to sell themselves,” said Adam Steer, an analyst with CreditSights Inc. in an interview with Bloomberg News. “The most viable alternative once the government decides to not step in is a trip into bankruptcy.”

The company is seeking $2 billion in rescue financing from existing debtholders and has given them 24 hours to come up with the cash, according to a report in The Wall Street Journal, which cited anonymous sources. Should that effort fail, bankruptcy won’t be far off.

Retail Impact

A CIT bankruptcy could have a trickle down effect on the supply chain of many small- to mid-sized retailers.

“At the risk of sounding overly cautious, if the government did not help CIT, we could see significant inventory issues for the holidays,” David Strasser, an analyst at Janney Montgomery Scott LLC told the Los Angeles Times. “Some vendors would simply not be able to finance shipments to retailers for holiday.”

Vendors for retail giants such as Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT) rely on CIT for factoring, an old form of finance in which the lender pays the vendor for its accounts receivable. If the retailer fails to pay for the goods, the lender assumes the responsibility to pay the vendor.

Not even an open statement on Wednesday from the National Retail Federation endorsing the need for TARP funds for CIT could help the lender.

“If the criterion for whether a financial institution should receive government assistance is whether it is ‘too large to fail,’ CIT is most certainly too important to the retail industry to be allowed to fail, and the retail industry is too important to the economy to be placed under additional stress,” NRF President and Chief Executive Officer Tracy Mullin said. “A failure of CIT would impact thousands of retailers and, consequently, the consumer spending that makes up two-thirds of our nation’s economy. That cannot be allowed to happen at a time when retailers are already struggling to survive the national recession.”

While inventories are important to retailers – especially during the holiday season – the fear of declining consumer spending amid rising unemployment could keep retail merchandise supplies at a lower rate than last year, especially after last year’s dismal holiday shopping season. Thus, the lack of CIT may be offset in part by shrinking retail inventories.

Share of CIT plummeted in midday trading yesterday (Thursday), falling more than 68% to 51 cents.

By Bob Blandeburgo
Money Morning

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In a blog posting, the Mountain View, Calif.-based company introduced the Google Chrome Operating System, which shares the same name as the web browser it introduced in September. Google expects the OS to be available in the second half of 2010, and it initially will run on netbooks, or low-cost laptops designed for Internet access. The company is working with multiple manufacturers such as Acer Inc., Hewlett-Packard Co. (NYSE: HPQ) and Toshiba Corp. to bring Chrome OS-backed netbooks to the market, Google said.

No. 1 computer seller H-P told the Dow Jones Newswires that it is “studying” the Chrome OS.

“We want to assess the capability it may have for the computer and communications industries,” said H-P spokeswoman Marlene Somsak.

Dell Inc. (Nasdaq: DELL) is also giving consideration to Chrome OS.

Analysts were mixed on the news.

“There is a possibility that the new OS can break the paradigm Microsoft and Intel created over the past 20 years,” aid Yukihiko Shimada, a computer analyst at Mitsubishi UFJ Securities Co. told Bloomberg News. “There is plenty of business opportunity for Google in this market.”

However, FBR Capital Markets Corp. (Nasdaq: FCBM) analyst David Hilal said Google could capture some share on the netbook front, but could find it tough to get beyond that.

“I really don’t picture Google going upstream to laptop or PC market,” he said in an interview with MarketWatch.com. “They may try, but that is a much tougher row to hoe.”

Comparing the Chrome OS to its Chrome web browser, Google said it is “going back to the basics and completely redesigning the underlying security architecture of the OS so that users don’t have to deal with viruses, malware and security updates. It should just work.”

The move represents a natural progression for Google, which for years has been experimenting in applications beyond its search. Its most successful experiment is undoubtedly Gmail, which earlier this week left its beta phase after five years. Since Gmail’s inception, the company produced Google Apps, which gives users a central location for calendar, word processing and spreadsheet applications-all of which are compatible with Microsoft Office applications.

Google Apps, a prime example of cloud computing, allows for a more consistent collaboration between users: Instead of emailing attachments, the document will be on a central server where anyone with permission can access edit it within the web browser from any computer.

Chrome OS will utilize the same “cloud” that Google Apps is using. For app developers, “the web is the platform,” Google said. This will give Chrome OS a competitive advantage over the top three operating systems on the market right now (Windows, MacOS and Linux) because any app that runs in the Chrome OS will also run on the others.

“We hear a lot from our users and their message is clear-computers need to get better,” Google said. Whether Google can make an impact on the quality of computers is an entirely different issue. It faces a steep uphill battle against not only Microsoft, but also Apple Inc. (Nasdaq: AAPL), which is slowly eroding Microsoft’s commanding lead in the OS market.

Last November, Microsoft’s Windows OS market share dropped to 89.6% according to market research firm Net Applications. That marked the first time the OS held less than a 90% share of the market. In May, that share was down to 87.8%, while Apple’s MacOS was up to 9.8% from November’s 8.9%.

The news of a Google OS could ice its relationship with Apple, where Google Chief Executive Officer Eric Schmidt has a seat on the board of directors. The two companies have already been competing on the mobile phone front with Google’s Android OS competing with Apple’s iPhone.

In November 2007, when Google announced it would develop the OS for a line of T-Mobile USA Inc. phones, some analysts were surprised that Schmidt would remain on the board of operations at both companies.

In May, The New York Times reported the Federal Trade Commission launched an inquiry into the close ties of the two boards. And now with the Chrome OS news, respected tech site CNET is calling for Schmidt to step down from Apple’s board.

When Chrome OS is released, it will mark the third major front in its war with Microsoft. The other two are cloud applications and search.

Microsoft is attempting to chip away at Google’s ubiquitous search engine with its newly launched Bing search engine. To a lesser extent, Google competes with Microsoft with its Chrome web browser (which has 1.8% of the market share in May versus Microsoft Internet Explorer’s 65.5%) and on the mobile phone front, pitting its Android OS against Windows Mobile.

Chrome OS, an open source project that will have its code readily available for anyone to see-will be free, Google spokesman Eitan Bencuya told Money Morning in an e-mail. This strategy removes an important barrier for many and will likely serve as a funnel to Google’s other products and lucrative ads.

Microsoft is set to debut its latest version of Windows, Windows 7 on October 22. Market research firm International Data Corp. (NYSE: IDC) expects Windows 7 to become the dominant OS by 2012.
Shares of Google were boosted 1.48% by the news yesterday, closing at $402.49, up $5.86.

By Bob Blandeburgo
Money Morning

The American Recovery and Reinvestment Act – otherwise known as the “Stimulus Bill” – provides $120 billion to begin to address our nation’s crumbling infrastructure.

It’s the largest infrastructure investment since Eisenhower’s Federal-Aid Highway Act of 1956, which created the U.S. interstate highway system.

Infrastructure investment – under-funded since the 1960s – will be unprecedented over the next three to five years, and let’s face it: the need is huge.

According to the National Surface Transportation Policy Review Study Commission, $225 billion needs to be spent annually for the next 50 years… that’s over $11 trillion, and that’s just for the transportation sector.

Of course, public infrastructure projects such as roads, bridges and water and sewer systems are by their very nature huge, expensive undertakings, requiring massive amounts of capital and manpower.

But very little actual construction activity is getting underway. Here’s why, and what you can do about it in the meantime.

What’s Going on in Big Infrastructure Project Financing?

So, why is little construction happening? Simple.

The current economic environment has upset the applecart with regards to funding these capital-intensive projects. As tax revenue continue to plummet, over 30 states have serious budget shortfalls, and most have shutdown funding for large capital projects. Most municipalities aren’t in any better shape.

At the Federal level, Congress is transfusing the Highway Trust Fund every year – last year it was $8 billion – as consumers drive less and switch to more fuel-efficient cars and trucks.

Clearly, new and innovative ways to fund infrastructure projects are needed. Last week, the fourth annual U.S. Infrastructure Investment Summit was held in New York to address this issue, and I was delighted to be in attendance at this important two-day event.

This high-level gathering annually brings together a small, but influential group of individuals in the world of infrastructure finance and investing.

In addition to yours truly, attendees included directors and managers of a number of infrastructure investment funds, together with those from Barclays Capital, UBS, the Blackstone Group, Jolene Molitoris (Ohio DOT). Several managers of large pension funds rounded out the group.

This year, the discussions and panel sessions focused on several key areas. Below are a few of the highlights:

• The Federal Infrastructure Spending Bill

Besides the $120 billion earmarked for infrastructure in the stimulus bill, the Federal Transportation Authorization bill provides for an additional $450 billion of funding over six years, in the form of a national infrastructure bank.

It accomplishes two things: It relies on bonds to provide the necessary funding for major infrastructure projects and it eliminates the huge, upfront payments. Clearly, there will be plenty of capital available from the government for infrastructure projects.

• The Impact of the Global Financial Crisis on Infrastructure Spending

The global financial crisis has changed the financial landscape for the foreseeable future. Retail lenders are far more conservative, warning potential homebuyers that they will need “serious skin in the game” in order to qualify for a mortgage.

The same thing is happening with infrastructure, according to Ben Heap, Executive Director of Infrastructure Asset Management at UBS, and Stephen Howard, a Director at Barclays Capital.

Most of the deals being done right now are more like partnerships with other investors and pension funds. And they have much more equity in them today as opposed to those done several years ago. The reason is that traditional debt financing is hard to come by with state budgets in crisis mode.

As a result, political acceptance of private funding deals is warming fast (money talks) – especially at the municipal level – where partisan politics is often non-existent. At the local level, most deals are small, bottom-up deals involving a few million dollars.

• The Current Lending Environment and Infrastructure Valuation

“Not all infrastructure is the same… many perform differently from an investment standpoint”, says Michael Dorrell, Senior Managing Director of Blackstone Group. Toll roads have very low earnings volatility, airports are higher and seaports are the highest.

According to Dorrell, earnings for infrastructure are off only 3% to -5%, versus the S&P index that’s off nearly 85%. Even infrastructure stocks are off 35% to 40% from their highs. His main criteria for valuing good infrastructure assets?

Making sure the capital structure of the underlying asset is durable and robust. In the past, over-enthusiasm on the capital structure side has had a significant impact on asset valuation.

• What it Takes to Create Public-Private Partnerships (P3s)

People don’t want to pay twice for infrastructure. They think it should be free, given that they’ve already paid taxes. The federal gas tax – due to its fixed nature – has lost much of its value as a proxy for the use of roads and bridges.

Paying for use is coming as a result of all of this. Proper tolling is a way for people to understand the value of the asset they are using. Expect toll roads to proliferate across the country.

States and municipalities will partner with private equity funds and pension funds as a means of raising capital and reducing annual budgets. These P3s will proliferate at the local level, where partisan politics is relatively absent. Some state deals will happen, particularly in those states with budgetary crises, where raising capital by any means is paramount.

What it All Means for Investors

The bottom line is this: The funding issues are being solved, albeit slower than initial expectations.

Dorrell said it best:“Now is a terrific time to buy infrastructure assets. They are extremely undervalued.” Of course infrastructure stocks are good buys as well… and for all the same reasons: nobody likes them.

Jacobs Engineering Group, Inc. (NYSE: JEC), Fluor (NYSE: FLR) and Foster Wheeler AG (Nasdaq: FWLT) are three great examples of companies that stand to benefit as the infrastructure cash gets deployed this year and next.

As credit markets loosen, it will begin to free up billions in capital that will be put to work on infrastructure projects all across America, creating hundreds of thousands of jobs in the process.

As most of you know, I’ve been following the energy and infrastructure sectors for some time now for both Investment U and The Oxford Club – I believe that in the next three to five years there will be incredible investment opportunities in these two sectors.

And the prospects are exciting enough that we’re looking to devote an entire service to profiting from them. So stay tuned for more information as things unfold.

Good investing,

David Fessler
Investment U

The move removes an important barrier to the company’s plan to exit bankruptcy.

Judge Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York issued a ruling saying the sale was GM’s only option and that it would "prevent the death of the patient on the operating table,” according to Reuters.

The 87-page ruling rejected appeals from a group of bondholders, tort claimants and unions who had objected to the plan.

“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation — a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates,” Gerber said in the opinion.

When the sale is completed, it would transfer GM’s “good assets” – including the Chevrolet, Cadillac, Buick and GMC brands – to a new company majority-owned by the U.S. Treasury.  It would also pave the way for the new GM to exit bankruptcy in less than two months, one month earlier than the government’s projection.

The plan would allow the company to jettison unwanted property to the old GM, including 16 automotive plants in Delaware, Ohio, New York, Indiana, Pennsylvania, Virginia and Michigan. The Treasury will also provide the estate with $1.175 billion to unwind the remaining assets, up from original projections of $950 million after creditors complained about possibly getting stuck with liquidation costs.

The U.S. government would own 60% of the new GM in return for $50 billion in loans, the Canadian government would get 11.7% for $9 billion in loans, and workers would receive a 17.5% stake for relinquishing future health-care benefits.

Bondholders would be forced to convert about $27 billion in bonds into about 10% of stock in the new company, plus warrants with a total value of $7.4 billion. New GM’s total equity is anticipated to be worth more than $38 billion, according to Bloomberg News.

During three days of hearings, the workers and bondholders objected to the plan, saying the “new GM” is just “old GM” minus a slew of liabilities. They contend the company would market nothing new, pedaling the same cars and trucks, made by the same workers managed by the same executives.

Gerber dismissed the bondholders’ assertion that GM should restructure under a Chapter 11 reorganization plan, which would let creditors vote on details of the plan, saying the argument was unrealistic.

"In the event of liquidation, creditors now trying to increase their incremental recoveries would get nothing," he ruled.

Gerber’s ruling also torpedoed arguments from dealers whose contracts are being terminated, groups of car-accident victims who said they would now be unable to sue GM for their injuries, and others who claimed that the U.S. government had been overbearing in its negotiations to restructure the automaker.
Gerber issued a typical four-day stay of the order approving the sale, which allows for possible appeals.

Steve Jakubowki, a lawyer for product-liability claimants said he would appeal the ruling even though GM recently revised its bankruptcy plan to take on claims from future car-accident victims.

"This issue is too important, too unsettled and too many people’s lives hang in the balance for me not to pursue this appeal through to the end," Jakubowski told The Wall Street Journal.

Gerber ruled that the sale could be “free and clear of claims,” because his hands were tied by precedents established in the second judicial circuit during the bankruptcy filed by Chrysler LLC.  The second judicial circuit encompasses Gerber’s court.

But in the end, Gerber concluded that the government’s plan was the only one that makes sense.

"GM cannot survive with its continuing losses … and without the governmental funding that will expire in a matter of days," Gerber wrote.

The ruling marks the second big victory for the Obama administration’s auto task force, which will be charged with supervising the liquidation of the remaining assets.  The task force had previously engineered the sale of Chrysler to a consortium headed by Italy’s Fiat S.p.A. (ADR OTC: FIATY).

By Don Miller
Money Morning

The unemployment rate crept up to 9.5% last month – its highest level since 1983, according to the latest report from the U.S. Department of Labor. That’s up from May’s 9.4% rate. Total job losses for the month were 467,000, far below the 365,000 economists at Briefing.com expected, which were also slightly off on their estimate of a 9.6% unemployment rate.

Of the sectors hurt most by payroll losses, none was worse than the service-providing industry, which saw a loss of 244,000 jobs. That was followed by the goods-producing industry, which shed 223,000 jobs.

“The stimulus has probably stabilized income, but it has not moved the economy forward,” Wachovia Corp. chief economist John E. Silvia said in an interview with The New York Times. “It’s a finger in the dike. But in terms of getting the economy going, there’s no evidence of that yet.”

Underemployment, where desperate workers take jobs that are not meeting their desired compensation, hours or level of skill and experience, increased to 16.5% in June from 16.4% in May. The underemployment rate last month was the highest since the Labor Department started tracking it in 1994.

Some analysts, such as Themis Trading’s Co-Manager of Trading Joe Saluzzi, believe underemployment is the “real” amount of unemployed people in the market.

“[16.5% is] the real amount if unemployed people out there. If anything you see wage growth is not there, hourly earnings and the workweek is lower. Now you have a recipe that is a mess here, because nothing is improving. People still want to say that unemployment is a lagging indicator, I don’t get that,” Saluzzi told Reuters.“The only thing we’ve got going is stimulus, which is government, Fed type stuff. There’s a lot of problems still. So people have to come back down to earth and realize where we are. This should not have been a surprise to anyone."

Indeed, the increasing unemployment is not a surprise considering analysts expect the unemployment rate to reach 10% or higher.
But with so many missed estimates, is it better to not predict these numbers at all?

According to Money Morning Investment Director Keith Fitz-Gerald, the answer is yes.

“Predicting unemployment numbers is really a moot point,” Fitz-Gerald said. “[The unemployment rate] is posted after the fact and are designed to produce wishful thinking. The reality is we have no idea what these numbers will look like six months from now.”

According to Fitz-Gerald, the unemployment rate actually spurs innovation in business.

“If there is a good sign in all of this, it’s that periods of economic strife tend to promote unprecedented entrepreneurship levels,” he said.

When the recovery does happen, it is likely new jobs will be hard to come by as employers try to make up for lost profits by keeping payrolls leaner and expect existing workers to be more efficient.

By Bob Blandeburgo
Money Morning

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Starting July 6, Sears Holdings Corp. (Nasdaq: SHLD) will credit one-twelfth of the purchase price of any appliance bought that is $399 or higher should a consumer lose their job between 60 days and one year after the purchase. Those unemployed for more than a year will have the full debt cancelled.

The Sears offer requires consumers to use its branded credit card, backed by Citigroup Inc. (NYSE: C).

The move is similar to previous promotions earlier this year by Ford Motor Co. (NYSE: F), General Motors Corp. (OTC: GMGMQ) and Hyundai Motor Co., but with one important difference: While the debt will be forgiven after a year for those unemployed for a year or more, consumers will be able to keep the appliance.

The Sears promotion more closely resembles one by JoS. A. Bank Clothiers Inc. (Nasdaq: JOSB), which in March offered consumers who involuntarily lost their jobs to get a refund on the price of a suit up to $199 while keeping the suit.

“It’s a differentiated program, and we believe that that’s going to get people to choose us over the other guys,” Sears Chief Marketing Officer for Home Appliances Kevin Brown told Bloomberg News.

Sears’ same-store sales-a key measure of retail performance-dropped 11.7% in stores open 12 months or more for the quarter ended May 2. While the retailer did not go into great detail, it did blame the adverse effects of the shabby housing market for a drop in appliance, lawn and garden and tool sales.

Best Buy Co.’s (NYSE: BBY) appliance sales declined 20.1% in its last quarter ended May 30, versus a 4.9% drop in overall same-store sales for stores that have been open at least 14 months.

Since those earnings were reported, rays of light appeared last week for the durable goods category as a whole, when the U.S. Department of Commerce reported that new orders for manufactured durable goods increased 1.8% in May. Shipments were down 2.1%, but inventories have shrunk five consecutive months to 0.8%.

Sears’ promotion comes at time when the recession is slowing down and headed toward a bottom, after which it is expected to go through a “jobless recovery” that yields better financial results for companies but no hiring due to lost profits in the past.

Sears’ shares rose more than 4% yesterday (Monday) to close at $67.67 a share.

By Bob Blandeburgo
Money Morning

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Indeed, some regions – and some sectors – that are proving quite resilient.
       
So, if you’re in the market for a job, it might be a good idea to target those areas and sectors that have demonstrated flexibility over several decades and are best able adapt to 21st century trends.

For job-seekers, it all comes down to this: You have to know what’s hot – and what’s not.

The three graphs below – based on data from the Federal Reserve Bank of St. Louis – show the number of people working in the 12 different sectors of the U.S. economy since 1939. The shaded areas represent periods of recession.

Virtually all of the sectors have grown consistently over the past 70 years. The one noticeable exception is manufacturing, which peaked in the late 1970s and has been in decline ever since.

Government jobs and jobs in education and healthcare – referred to as “Eds & Meds” in economic parlance – have provided the most consistent growth, even in the current recession, which has also been the most severe in the time period studied. However, the biggest supplier of jobs continues to be the trade, transportation and utilities sector.

In the current recession – which began in December 2007 – job losses were severe in the commercial and resident real estate business, but more recently have shown signs of stabilizing. Employment in construction decreased by 59,000 in May, compared with an average monthly job loss of 117,000 in the industry for the previous six months, according to the U.S. Labor Department.

Job losses in professional and business services also moderated in May. The industry shed 51,000 jobs, compared with an average loss of 136,000 jobs per month in the prior six months.

Employment in the leisure-and-hospitality and government sectors was about flat, but the manufacturing sector continued to deteriorate— with employment falling by 156,000 for the month.

But the healthcare sector continued to display resilience, increasing by 24,000 jobs. That makes sense: Long term, as the U.S. population continues to “gray,” the healthcare sector figures to keep adding workers in order to keep pace.

Job Growth in the ‘Clean Energy Economy’

While healthcare and education, along with the government, continue to be the most consistent employers of the American public, increased environmental awareness and more government incentives have made the clean energy sector a viable option for steady employment.

In fact, from 1998 to 2007, the number of jobs in the “clean energy economy,” grew nearly two and a half times faster than the overall job market, according to a recent study by the Pew Center on the States.

Jobs in the clean energy economy grew at a rate of 9.1% during that time, compared to a rate of 3.7% for traditional jobs. By 2007, more than 68,200 clean energy businesses across the United States accounted for about 770,000 jobs.

The clean energy economy includes jobs in clean energy, energy efficiency, environmentally friendly production, conservation and pollution mitigation, and training and support.

The report found that 65% of jobs in the clean energy economy are in the category of conservation and pollution mitigation. However, jobs in the categories of clean energy, energy efficiency, and environmentally friendly production are growing at the fastest rate.

California has more jobs in the clean-energy economy – more than 125,000 – than any other state, and that number has grown at an average annual rate of 0.9% between 1998 and 2007. Other states in the Pacific Northwest – Oregon and Washington – also have large and growing clean energy industries. Florida, Texas, Tennessee, and Colorado are also notable for their large and growing clean energy industries.

The St. Louis Fed report notes that venture capital was a driving force behind clean energy before the global financial crisis struck. In 2008, investors directed $5.9 billion, or 15% of all global venture capital investments, into the clean energy economy, a 48% increase over 2007. Between 1998 and the end of 2008, a total of about $12.6 billion in venture capital money had been directed into the clean-energy economy.
Of course, venture capital investment has declined considerably since the collapse of the global economy. The Pew Center study found that during the first three months of 2009, investment in clean energy was down 48% compared to a year earlier. However, the report also found that investment in clean energy still outpaced such investment elsewhere. During the same time period, total venture capital investment decreased by 61%, and that trend is expected to continue.

“Analysts suspect that the green industry will weather the downturn better than other market segments, both because of stimulus and because the drivers for growth are still there,” Kil Huh, Project Director for the Pew Center on the States and a principal author of the study, told Social Funds.com. “Consumers continue to call for a viable alternative to traditional energy sources.”

Furthermore, increased government investment should help compensate for the dearth of venture capital. The American Recovery and Reinvestment Act of 2009 (ARRA) provides $85 billion in spending for energy and transportation, and includes $21 billion in tax incentives for renewable energy, as well as more than $30 billion for spending on a variety of clean energy programs. 

Additionally, 29 states and the District of Columbia have established renewable portfolio standards, Social Funds reported. And 19 states have established Energy Efficiency Resource Standards that encourage a continual increase in energy savings on the part of utilities.

While venture capital was abundant in the years leading up to the financial crisis, government funding was absent. Huh believes this new wave of political support will continue to carry the industry until private sector investment rebounds.

“The growth happened with a lack of sustained government support, and we suspect that recent government actions will help job growth in the green economy significantly,” Huh said. “Federal proposals for a market-based system for climate control will help shape consumer demand. The legislation would move the entire industry in that direction of clean energy. The green energy economy seems poised for continued growth.”

Location, Location, Location

Just as some sectors have fared better than others, the financial crisis has had an unequal impact on various metro areas across the country. Parts of the country that had overly inflated property markets suffered greatly from the collapse of the housing market. Similarly, local economies in the Midwest were devastated by bankruptcies in the American auto industry.

On the other hand, metro areas with high concentrations of government jobs or jobs in health and education have been much better off.

The Brookings Institution’s MetroMonitor examined such economic indicators as employment, unemployment, wages, output, home prices and foreclosures throughout the first quarter of 2009.

“Economic pain is widespread in Midwestern metro areas that depend heavily on the auto industry and its supply chain,” the report said. “Most metro areas in Michigan and Ohio have experienced employment and output declines exceeding national averages. Several, including Dayton, Detroit, and Youngstown, began losing jobs two to three years earlier than the U.S. economy as a whole.”

These areas are likely to continue to struggle as both General Motors Corp. (OTC: GMGMQ) and Chrysler LLC engage in lengthy restructuring processes.

Additionally, large portions of the South and West – including such states as Florida, Arizona, Nevada and California – continue to suffer the fallout from the housing collapse.

However, the effects of the financial crisis have been far more muted in other parts of the country.

“Job losses have been more modest, and housing prices have risen slightly, in many Northeastern metro areas that have less auto-oriented manufacturing sectors (e.g., aerospace in Hartford [Connecticut], photonics in Rochester [Upstate New York], plastics in Scranton [Eastern Pennsylvania]),” according to the MetroMonitor. “Parts of the Southwest and Deep South—including metro areas in New Mexico, Texas, Oklahoma, Arkansas, and Louisiana—have performed relatively well, experiencing less severe job losses, relatively large wage gains, and modest home price increases.”

The report attributes buoyancy in the Southwest – particularly Texas – to a strong specialization in energy. It also points out that large amounts of hurricane recovery funding for the Gulf Coast and smaller increases in housing prices in the earlier part of the decade could also be factors in that region’s resilience.

Predictably, city centers with large educational and medical labor forces performed better than the broader job market. Metro areas with specializations in education and healthcare saw employment drop by an average of 2% from the fourth quarter of 2007 through the first quarter of 2009. That compares to a national employment decline of 3.7% over that same period.

Metro areas with a specialization in government/military employment – such as Washington D.C., El Paso, Texas, and Honolulu Hawaii – saw average job losses of 1.3%.

Some of the areas that were most susceptible to the housing collapse were also hit by a decline in tourism, as metro areas specializing in entertainment and recreation – such as Orlando, FL and Las Vegas, NV – experienced a 4% average drop in employment.

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Money Morning

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Jobs, who has been on a leave of absence since January and is expected to return at the end of this month, reportedly traveled to Tennessee in April to undergo a liver transplant, The Wall Street Journal reported Saturday morning. “Steve continues to look forward to returning at the end of June, and there’s nothing further to day,” Apple spokeswoman Katie Cotton told The Journal.

Apple’s lack of disclosure – specifically that Jobs had a liver transplant – raises questions about how much should be disclosed about a CEO of a publicly traded company.

“In the interests of transparency, I think it would be necessary for them to disclose something as serious as a liver transplant,” Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware said in an interview with Bloomberg News. “Investors want to know if he’s healthy and if he can continue to run the company.”

There are no laws requiring executives at public companies to disclose the state of their health, but proponents of such legislation are out there.

“The SEC lacks specific guidelines regarding executive health disclosures,” Dr. Perryman, assistant professor of management in the Neely School of Business at Texas Christian University told Newswire Business News. “This leaves companies to decide what does and does not constitute material information.”

Jobs, 53, first disclosed his health issues in an open letter on January 5, in which Jobs’ doctors blamed his much talked about weight loss on a hormonal imbalance. The following week, Apple disclosed in an SEC filing that Jobs’ health-related issues “are more complex” than first thought.

Demonstrating how important investors believe Jobs is to Apple’s operations, the company’s shares closed at $78.20 on January 20, a 52-week low that was down from $94.58 just 15 days earlier. However, shares for Apple are now in the 130s, and they have outpaced the Standard & Poor’s 500 Index by six times since Jobs began his leave.

Since then, Apple’s stock has rebounded thanks to key product releases, such as a more affordable notebook computers and Friday’s release of the third iteration of its popular iPhone, the 3GS. In that time, Chief Operating Officer Tim Cook has been running the company’s day-to-day operations.

Cook, 48, oversaw Apple in 2004 when Jobs was diagnosed and successfully treated for pancreatic cancer. He was named COO in 2005, and is a likely candidate to succeed Jobs when the time comes.

By Bob Blandeburgo
Money Morning

The good news came in spite of a small jump in initial applications for state unemployment insurance, which rose by a more-than-expected 3,000 to 608,000 in the week ended June 13. Analysts polled by Reuters were expecting claims to dip to 600,000 from a previously reported 601,000.

But analysts were largely focused on a trend in continuing claims, which tracks jobless workers who stayed on government benefit rolls. 

Those claims plunged by 148,000 to a smaller-than-anticipated 6.69 million in the week ended June 6, the latest week for which data was available. That is the lowest number since May 9, and the largest one-week drop since November 2001, Reuters reported.

And in another sign the labor market may be thawing, the closely watched four-week moving average for new claims, which smoothes out short-term volatility, shrank to 615,750, the least since February 14.

The drop also halts a streak of 21 straight increases in continuing claims, including 19 that were records.

“The labor market remains weak but it’s starting to stabilize,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York told Bloomberg News. “An improvement in employment conditions and improvement in confidence go hand in hand with an improvement in consumer spending.”

Still others heralded the news as a harbinger of a recovery in the overall economy.

"Overall, we judge this report as another among a growing number of signs [however tentative] that the economy is beginning to stabilize," Nomura Holdings Inc. (NYSE: NMR) economist Zach Pandl, wrote in a research note to investors, The Wall Street Journal reported.

After companies made deep job cuts earlier this year, the drop in claims is a welcome change for weary jobseekers battered by the recession.  Companies have slashed more than 6 million jobs since the recession began in December 2007.

Of course, the statistics don’t reveal whether workers on government rolls are successfully finding new jobs or dropping off because their benefits have simply run out after the normal allotment of 26 weeks.

Any drop in continuing jobless claims might be reflecting only the drop in initial claims, as fewer people join the rolls.

“It is unlikely that new hiring has picked up in any meaningful fashion,” Joshua Shapiro, chief economist with MFR Inc., a consulting firm, wrote in a note to clients, the Associated Press reported. “More probable is that long-term unemployed are starting to fall off the rolls.”

And the likelihood of significant hiring as the economy recovers remains in doubt.

As reported in Money Morning last week, U.S. Federal Reserve Bank Chairman Ben S. Bernanke threw cold water on hope for a full-blown economic rebound when he hinted recently that the U.S. labor market could well be facing a jobless recovery – an upturn in which the economy and corporate profits advance, but virtually no new jobs are created to compensate for years of layoffs.

The bankruptcies of General Motors Corp. (OTC: GMGMQ) and Chrysler LLC are likely to directly throw at least 32,000 more workers out of work in the coming summer months. And countless others at parts supply companies and other auto-related businesses may soon follow.

Nevertheless, a further reduction in continuing claims might be enough for some economists to call the recession over.

Bruce Kasman, chief economist at JPMorgan Chase & Co. (NYSE: JPM), said that a drop in the four-week average to 580,000 by next month would be sufficient to declare the recession over, according to the Associated Press.

Kasman is chairman of the American Bankers Association’s economic advisory committee, a group of economists for large banks that this week predicted the economy will recover in the third quarter.

By Don Miller
Money Morning

The purchase will include $6.6 billion in cash and the rest in shares. Barclays will own nearly 20% of BlackRock as a result of the deal. Bank of America Corp. (NYSE: BAC), which acquired a 49% stake in BlackRock through its purchase of Merrill Lynch, will see its stake in the company dwindle to just under 35%.

The acquisition of BGI will help BlackRock make the transition from a specialized fixed-income fund to a diversified asset manager by building on the company’s $8.5 billion takeover of Merrill Lynch’s investment unit in 2006. That purchase let BlackRock -a bond fund manager at the time – add stock funds.

The addition of BGI, and its iShares exchange-traded fund (ETF) unit, will give BlackRock about $1 trillion in investments that track market indexes, which are attracting clients at the expense of funds whose managers choose securities to buy and sell, Bloomberg News reported.  That makes BlackRock the first top-ranked firm to attempt to combine both types of businesses.

 ”This will bring the greatest sweep of products to our clients,” BlackRock Chairman and Chief Executive Officer Laurence Fink told Bloomberg in a telephone interview. “This transaction is transformational.”

Barclays in April agreed to sell BGI’s iShares business to London-based CVC Capital Partners Ltd. for $4.4 billion. However, Barclays was given until June 18 to find a better deal for iShares or the whole of BGI. CVC still has until June 18 to match BlackRock’s offer, or else accept a $175 million breakup fee.

BlackRock plans to finance the deal with a combination of debt, including $2 billion from Barclays and $2.8 billion from several sovereign wealth funds (SWFs). A person familiar with the deal told the Financial Times that those investors would include the Kuwait Investment Authority, Government of Singapore Investment Corp., and China Investment Corp.

Barclays said that it would use the $8.8 billion net gain from the deal to bolster its capital strength. The bank will boost its equity tier 1 ratio by 163 basis points and its core tier 1 capital ratio by 150 basis points.

By Jason Simpkins
Money Morning

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GM earlier this week announced that it plans to sell Hummer to China’s Sichuan Tengzhong Heavy Industrial Machinery Co., is offloading its European Opel operations to Magna International Inc. (NYSE: MGA), and is discontinuing its Pontiac unit. 

GM spent billions to open the Saturn unit in 1990 after gearing up with 5 years of design work and factory retooling.  The brand reached its high-point in 1994 when it sold 286,003 cars Bloomberg News reported, citing data from Autodata Corp. However, sales for 2009 had fallen by 58% through May.

The sale of Saturn will preserve 13,000 jobs and 350 dealers “in the near term,” GM said in a statement.  The price will be $100 million to $200 million, according to Bloomberg. Most of the U.S. dealers are standalone, GM said.

Penske, run by legendary racing icon Roger Penske, will receive the rights to the Saturn brands, trademarks, service and parts and distribution operations.  GM will continue to make and sell vehicles under a contract with Penske that runs through 2011. 

After that, it will rely on new deals for manufacturing and parts, possibly with South Korea’s Renault Samsung Motors Co. Those deals will probably include provisions for introducing new models to flesh out the Saturn vehicle portfolio, according to the Wall Street Journal.

GM’s announcement got widespread positive reviews from analysts in the auto business.

“Penske is incredibly well-respected in the business,” Stephanie Brinley, an auto analyst at consulting firm AutoPacific Inc. in Troy, Michigan told Bloomberg. “It should help Saturn maintain the reputation it has for reaching the consumers.”

For GM, getting a buyer that is capable of managing a dealer network and selling cars “is like finally finding your puppy a good home,” Jack Nerad, an auto analyst at car-pricing service Kelley Blue Book told Bloomberg.

Penske recruited retired Chrysler LLC President Tom LaSorda to consult on the deal and he will also take an unspecified role in the new business. Penske indicated the sale will close next quarter, and Saturn will become a wholly owned subsidiary.

By Don Miller
Money Morning

While the unemployment rate is at its highest level in 26 years, the narrowing of job losses last month is an indicator that the recession is tapering off. The job loss number is well below the median 520,000 decrease expected by economists surveyed by Bloomberg News. April’s job losses were 504,000 after a Labor Department revision.

"This tide is turning," Richard Yamarone, director of economic research for Argus Research, told The Associated Press. "We expect this trend of slower job loss to continue throughout the year."

While the news is positive, the U.S. Federal Reserve said unemployment will remain high into 2011, and economists said the United States might not return to its normalized rate in the 5% range until 2013. Yamarone predicts the rate will top off at 10.2% early next year.

Indeed, the bankruptcies of General Motors Corp. (OTC: GMGMQ) and Chrysler LLC. are likely to result in further job losses in the near future. GM is expected to employ 72,500 in the United states by 2012, down from its peak of more than 500,000. 

The hardest hit industries in May were:

• Goods-Producing: 225,000 jobs lost.
• Manufacturing: 156,000 jobs lost.
• Service-Providing: 120,000 jobs lost.

By themselves, the numbers are grim. But like the overall job loss number, losses in most sectors are slowing. For example, the slowing of construction job losses (59,000 in May, versus 108,000 in April) give credence to the "hyper local" stats that show the housing market’s bottom is in the past.

Not all industries lost jobs. Education/health services and leisure/hospitality-both subsets of the service-providing industry-added 44,000 and 3,000 jobs, respectively.

The job loss slowdown is "encouraging," White House Council of Economic Advisers Chair Christina Romer told Bloomberg in an interview. However, Romer was careful to point out that "you can’t ever say when the unemployment rate is 9.4% that’s good news, of course. We know the economy is still in a severe recession, but what this does say is we’re seeing the pattern we’d expect to see."

Another indication the recession is letting up is that the number of Americans drawing unemployment benefits decreased for the first time in four months.

The jobless rate does not include those who have taken part-time jobs below their skill levels to make ends meet, also known as underemployment. If the underemployed are included in the calculation, the jobless rate would have been 16.4%, the highest since the tracking of such records began 15 years ago.

One such company that could contribute to such underemployment is Wal-Mart Stores Inc. (NYSE: WMT). The Bentonville, Ark.-based retailer plans on adding 22,000 jobs for the 142 to 157 stores it may open or expand between now and Jan. 31.

By Bob Blandeburgo
Money Morning

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Productivity, a measure of worker output by the hour, rose at a revised 1.6% annual rate in the first quarter, the U.S. Labor Department reported today (Thursday). That’s double the 0.8% estimated last month and a vast improvement over a 0.6% drop in the fourth quarter of 2008.

The gain in productivity was largely the result of job cuts and fewer hours worked by employees. U.S. employers have already shed 5.7 million jobs since the recession began in December 2007. Hours worked by employees plunged at a 9% annual rate in the first quarter, according to the Labor Department report.

The tighter payrolls and increased productivity led to a jump in corporate profits, which surged 3.4% in the first quarter from the previous three months – the first gain in almost two years. And now that businesses have found away to boost their productivity and widen their profit margins, analysts are hopeful that the labor market will stabilize.

“Businesses are far advanced in their objective of cutting jobs and controlling labor costs,” John Herrmann, chief economist at Herrmann Forecasting LLC, told Bloomberg News. “That suggests that the pace of job cuts should slow materially.”

A separate report from the Labor Department today showed fewer workers filed new claims for jobless benefits for the third straight week. Initial claims for unemployment benefits fell to 621,000 in the week ended May 30, a decrease of 4,000.

The data also showed that continuing claims – the number of people staying on benefit rolls – fell by 15,000 to 6.74 million in the week ended May 23, the first decline in 17 weeks.

Still, jobless claims remain historically high, as does the unemployment rate, which stood at 8.6% in April. U.S. Federal Reserve Chairman Ben S. Bernanke said earlier this week that unemployment is likely to increase, and a report tomorrow (Friday) may show that the unemployment rate climbed to a 25-year high of 9.2%, Bloomberg reported.

“The downshift in claims continues but progress is painfully slow and claims at their current level are still consistent with massive declines in payrolls,” Ian C. Shepherdson, chief U.S. economist of High Frequency Economics, told the AFP.

Shepherdson doesn’t expect jobless claims to reach the 450,000 level until next year.

“Feeble green shoots don’t stop companies laying off staff, still less actually [start] to hire again,” he said.

By Jason Simpkins
Money Morning

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This plan was itself crafted in large measure with help from BlackRock.

It’s as if the moral hazards of cronyism, leverage, laissez-faire government and the doctrine of too-big-to-fail never happened.

The Background on BlackRock

In 1988, The Blackstone Group LP (NYSE: BX) – then a young-and-aggressive leveraged buyout shop that would eventually go public and is now the largest private equity company in the world – bankrolled a small asset-management startup called Financial Management Group. Heralding its roots out of Blackstone, Financial Management Group later changed its name to BlackRock.

BlackRock was originally run by Ralph L. Schlosstein, a former Lehman Brothers Holdings Inc. (OTC: LEHMQ) managing director of the mortgage-backed bond group, who stepped down as BlackRock’s president last year, and Laurence D. Fink, a former First Boston Group [now part of giant Credit Suisse Group AG (NYSE ADR: CS)] and a master-of-the-universe, fixed-income mortgage trader. That the expertise of the firm’s founders was in mortgage-backed securities is hardly ironic in this story.

As it happens, the story goes that Fink was one of the early pioneers at First Boston who helped create collateralized mortgage obligations (CMOs) out of fairly transparent mortgage-backed securities. Collateralized mortgage obligations, not unlike a virus, eventually yielded a whole host of spin-off products, now collectively lumped under the banner of collateralized debt obligations, or CDOs. For the most part, CDOs are like IEDs (improvised explosive devices) strewn along the road of once-straightforward securitized products. Sometime, in the not-too-distant future, when you look up the term “toxic assets” in your Barron’s “Dictionary of Finance and Investment Terms,” the definition will include a picture of the collateralized debt obligation family of products.

In 1994, Blackstone sold BlackRock to PNC Bank Corp. (NYSE: PNC), and in 1999 BlackRock went public (PNC still holds a 34% stake in BlackRock). Also in 1999, under Fink’s watchful eye, BlackRock Solutions was formed to provide risk-advisory and risk-management services. And again – not ironically – it is BlackRock Solutions that purports to have the “solution” to valuing toxic assets and the insight on how to manage associated risk with these products – the very same toxic assets that Fink helped to create.

As it turns out, however, BlackRock isn’t exactly the Rock of Gibraltar when it comes to its stability of performance, its timing or its risk management – whether that’s for its clients, itself, or the U.S. taxpayers.

Back in his First Boston days, Fink sold Freddie Mac (NYSE: FRE) its first $1 billion of collateralized mortgage obligations. Freddie Mac has been a longtime BlackRock client.

We know how well Freddie Mac is doing, now, with its burgeoning mortgage portfolios – it is technically insolvent. Three months before Lehman Brothers went bankrupt, BlackRock aggressively loaded up clients with Lehman stock in the high $20s – not a good move. In September 2008, Fink managed to get his firm a gig evaluating the suspect balance sheet of Morgan Stanley (NYSE: MS) when potential investor Mitsubishi UFJ Financial Group Inc. (NYSE ADR: MTU) was in talks with a desperate Morgan. According to a recent Wall Street Journal article, Mitsubishi later reviewed the BlackRock financial opinion, which helped push the deal through. It’s no wonder that Mitsubishi declined to comment on buying $3 billion of Morgan Stanley stock at $25.25 and $6 billion of perpetual noncumulative convertible preferred stock that carries a 10% dividend and a conversion price of $31.25 per share, because the stock subsequently sank to $9.20 and now trades at nearly $30.

About That Expertise…

BlackRock hasn’t just been an advisor and manager whose timing has been rocky; it has also been a manufacturer of the very same CDOs that caused the financial meltdown. According to The Journal, “the firm created about $5.5 billion of CDOs in 2007, most of which have defaulted, causing losses of more than 50% for investors.”

Another $2 billion deal fell apart in six months and hammered Bank of America Corp. (NYSE: BAC) with a $1 billion loss at the end of 2008. Bank of America owns 47% of BlackRock as a result of its purchase of Merrill Lynch. As fate would have it, Merrill, who helped take BlackRock public in 1999 bought into the company in 2005 as a strategic partner after BlackRock bought Merrill Lynch Investment Managers (an asset management business) for $9.5 billion. When Merrill got hit by the deadly financial flu, it sold itself to an unsuspecting BofA.

All in the family: Bear Stearns, AIG, Freddie Mac and Fannie Mae, opportunity knocks.

In March 2008, as Bear Stearns was crumbling under the onslaught of short sellers and credit-default-swap traders hammering its equity-and-debt securities, J.P. Morgan Chase & Co. (NYSE: JPM) hired BlackRock Solutions to help evaluate Bear’s balance sheet and formulate a potential offer. The timing was auspicious. As The Journal reported, “within 48 hours, Mr. Fink was called by Mr. [Timothy] Geithner, then New York Fed president. The request: To switch gears and help the Fed choose which of those Bear assets should be used to collateralize a $29 billion government loan as part of the deal.”

Luckily for J.P. Morgan, BlackRock’s client, BlackRock segregated the worst assets on Bears’ books and advised the bank not to do a deal unless the government did the heavy lifting.

Fink was no less propitious in offering to have BlackRock help with American International Group Inc.’s (NYSE: AIG) toxic assets, when the government came calling. BlackRock, again, was presumed to already have the inside view of the troubled AIG. It was hired to manage $100 billion of AIG’s junk.

BlackRock was also called on by the Fed last October to help shepherd the 80% stake the government took in mortgage dinosaurs Freddie Mac and Fannie Mae (NYSE: FNM). I’m talking no-bid contracts here.

When asked about the no-bid contracts to manage hundreds of billions of dollars of government bailout companies, Bloomberg Markets magazine reported that Fink responded: “We had the expertise; we had already evaluated the assets. It’s not that we’re being opportunistic.”

According to the Bloomberg story, “during hearings in Congress in January, [U.S. Sen. Charles Grassley, R-Iowa], an Iowa Republican and ranking member of the Senate Finance Committee, questioned the no-bid government contracts awarded to BlackRock.”

Now BlackRock is among an elite group of managers being considered by the Treasury Department to participate in what is being called the Public-Private Investment Program – not ironically, a program that BlackRock helped formulate. The potential conflicts of interest are staggering.

Special Inspector General for the Troubled Asset Relief Program (TARP), Neil M. Barofsky, in his latest report to Congress recently described how a conflict of interest would benefit managers participating in PPIP.

“By their nature and design, including the availability of significant leverage, the PPIF [Public-Private Investment Fund] transactions in these frozen markets will have a significant impact on how any particular asset is priced in the market. As a result, the increase in the price of such an asset will greatly benefit anyone who owns or manages the same asset, including the PPIF manager who is making the investment decisions. The incentives [to overpay for an asset] exist, for example, even if the fund manager does not own MBS [mortgage-backed security] X but is merely managing other funds that hold MBS X, as the manager earns fees based on the value of that fund, a value that would, in this example, be significantly overstated (temporarily) as it can increase the value of that fund based on valuing, or ‘marking’ the MBS X at the inflated ‘market’ price that it set. The conflict can even exist if the manager holds or manages equity tied to the value of the banks from which the MBS are being purchased; here, using PPIF funds to overpay for bank assets may increase the bank’s stock price, thus giving a greater profit to the fund manager.”

Getting the Gang Back Together

Bank of America owns Countrywide Financial Corp., as well as 47% of BlackRock. And as reported in The Huffington Post: “As if that were not enough financial incest, the former president and other top executives of Countrywide now run a company created by BlackRock, which is profiting mightily by snapping up the sort of distressed loans that they originally had marketed. Leading the pack of vulture capitalists profiting from the misery they inspired is the Private National Acceptance Co. (PennyMac), which BlackRock bankrolled. Stanford L. Kurland, chairman and CEO of PennyMac, is the former president of Countrywide Financial.”

With all its supposed expertise in the valuation business of toxic CDOs that it helped create, BlackRock’s trust in itself apparently leaves a lot to be desired. The Journal reported that “BlackRock executives say they typically use third-party pricing services and try to minimize the amount of securities they mark based on their own model.”

What?

Where will we end up if we are relying on the creators of our financial plague to provide the necessary salutary treatment and manage our wellness when their own interest is self-interest and they really don’t know how to manage the valuation or asset disposition process? We are on a merry go-round and headed back to the beginning. Until the government, prodded by outraged and decent Americans, strips the vested inside cabal of money-grubbing Wall Streeters, their lobbyists and congressional lackeys of their power to corrupt the financial landscape and the world’s economies, just as surely as it feels like spring now, winter is coming.

The public needs to be loud. We need to demonstrate, to agitate and to stand up together and demand total transparency and a new order that replaces Wall Street interests with those of Main Street Americans.

If we don’t act now, when will we have the chance again?

By Shah Gilani
Money Morning

• The housing market showed further signs of bottoming in April, as pending sales of previously owned U.S. homes saw their biggest monthly gain in seven and a half years, the National Association of Realtors reported. The number of Americans signing contracts to buy previously owned homes climbed 6.7% in April, more than forecast and the fourth increase in five months. The report supports the case for a housing bottom made in Money Morning on Monday, where it was noted that housing prices are starting to move upward in western U.S. markets and should soon slowly begin to rise in hard-hit east coast markets.  “Based on what we just heard, we are now formally calling for the end of the housing depression and that we increasingly think that the housing market is beginning to turn up. All signs are pointing to a bottoming out now of the housing market” Bernard Baumohl, Chief Global Economist at the Princeton-New Jersey based Economic Outlook Group, told Reuters.

• Detroit’s ailing Big Three automakers, all reported that May sales in the U.S. fell less than analysts’ estimates while Toyota Motor Corp. (ADR NYSE: TM) and Honda Motor Co. (ADR NYSE: HMC) did worse than expected. Sales at General Motors Corp. (NYSE: GM) dropped 30% from last year, Ford Motor Co.’s (NYSE: F) sales fell only 24% and Chrysler LLC plummeted 47%, better than estimates, as shoppers returned to showrooms.  Deliveries at Toyota plunged 41% and Honda plunged 42%. Among Japanese carmakers, only Nissan Corp sales exceeded estimates, falling only 33%, Bloomberg reported.

• Microsoft Corp (Nasdaq: MSFT) said on Tuesday its new Windows 7 operating system, which will replace the unpopular Vista, will be available on October 22, well ahead of its original schedule and in time for the holiday shopping season, Reuters reported.  Windows 7 was originally scheduled to launch at the start of next year, but Microsoft confirmed last month that it would push up the schedule to allow sales during the year’s busiest buying period.

• The U.S. Federal Reserve Bank has successfully pulled the economy back from the brink, Dallas Federal Reserve Bank President Richard Fisher said yesterday (Tuesday).  The Fed official also said that conditions are “getting less worse” over time and the Fed needs to unwind its new, expansive credit programs as soon as it can, Reuters reported.  Furthermore, the U.S. central bank needs to make it clear it will not “monetize” the rapid expansion of U.S. debt, Fisher told a gathering of community leaders at a Dallas Fed event.

• Unemployment in Europe rose to 8.6% in April, up from 8.4% in March and 6.8% during the same period last year. Although the economic downturn in Europe is showing signs of slowing, the employment rate typically lags behind economic health.

• Pepsi Bottling Group Inc. (NYSE: PBG) Chairman and Chief Executive Officer Eric Foss is being promised a minimum $16.5 million in severance pay and stock benefits  if PepsiCo Inc.’s (NYSE: PEP) takeover succeeds. He earned $6.1 million in total compensation last year. Pepsi Bottling, along with PepsiAmericas Inc. (NYSE: PAS) rejected a $6 billion acquisition attempt by PepsiCo, calling it “grossly inadequate” and “not acceptable.” Pepsi Bottling and PepsiCo are now locked up in a lawsuit, with PepsiCo accusing Pepsi Bottling of adopting a “poison pill” takeover defense that restricts its rights as a shareholder.

Money Morning

Bing was originally supposed to have debuted today (Wednesday).

Bing will represent Microsoft’s third attempt at developing a go-to search engine in the last 10 years. But the stakes have arguably never been higher. The software giant has watched over the past 11 years as Google Inc. (Nasdaq: GOOG) parlayed its targeted ads business into a dominating 64.2% of the Internet-search market. As of April, Microsoft’s market share in search was a relatively paltry 8.2%.

While Microsoft won’t say so publicly, the high-tech behemoth is clearly hoping to transform the product name into a synonym for search in order to achieve the Internet ubiquity that Google has enjoyed for most of this decade.

To succeed, Bing must establish its own identity: If Microsoft is going wrest any of the search market away from Google, Internet users will have to believe that Bing offers a slew of unique benefits. One such potential benefit: Bing Travel, which will predict airfare and hotel rates based on the time of year, ensuring users get better results. Microsoft gained this technology from its $115 million acquisition of travel Web site Farecast last year.

“I think the benefits are subtle,” Gartner Research (NYSE: IT) Vice President Andrew Frank told Computerworld. “I don’t think [those benefits] jump right out at you when you first start using it. It takes a while to appreciate the difference and I think the difference is a lot more pronounced in certain categories, like travel. Microsoft has focused on some specific categories, especially for ‘decision uses,’ as they call it. But you have to happen upon a lot of this to discover it.”

Backed by a $100 million ad campaign that’s being engineered by New York-based ad agency JWT, savvy consumers can soon expect to see the Bing brand plastered almost everywhere: online, on TV, on the radio and even in print. According to AdAge and Wired, the campaign will pose a key question: Do current search engines really solve your problems?

Google appears poised to defend its Internet-search-market share by integrating its powerful search engine capabilities into new products. Aside from evolving its search engine with more options (try clicking the “show options” link after searching with Google), products such as Google Earth, Google Chrome and its newest product, Google Wave, will all tie back to its lucrative search engine.

Interestingly, Chrome is Google’s attempt to take market share away from Microsoft’s Internet Explorer web browser, which itself held a monopoly-like market share in excess of 66% as of April. Wave, due to launch in the next few months, is Google’s attempt at an all-in-one collaboration tool – somewhat akin to Microsoft Outlook – which integrates its Gmail service with instant messaging, wiki, and social networking.

Before Microsoft can capture Google’s search throne, it will face hurdles from other competitors, particularly Yahoo! Inc. (Nasdaq: YHOO), which failed to seal a deal to be acquired by Microsoft. Yahoo currently holds 20.4% of the search engine market.

In related news, Bloomberg News reports that Google will bring its Android operating system to “netbook” laptops in an attempt to take on Microsoft’s firmly entrenched Windows.  Taipei-based Acer, Inc., the world’s second-largest laptop manufacturer, will release the first Android netbooks in the next quarter.

By Bob Blandeburgo
Money Morning

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