2nd UPDATE: Microsoft CEO: Economy Not Through All Issues

By Jon Kamp 
   Of DOW JONES NEWSWIRES 
 

BOSTON (Dow Jones)--Microsoft Corp. (MSFT) Chief Executive Steve Ballmer said Friday that a permanently changed economy will be slow to recover from the recession, but he also cited signs of improvement and issued an upbeat outlook for long-term information-technology opportunities.
"What we see today feels like a new normal," Ballmer said about the economy in an address during a luncheon held by the Boston College Chief Executives' Club of Boston. "I don't think we're through all the issues."
Ballmer also addressed the rationale behind Microsoft's expansion into retail stores, which is expected to start soon with an opening in Scottsdale, Ariz., and provided an update on the company's pending search deal with Yahoo Inc. (YHOO)

San Joaquin Bank shut down by regulators

Calif. bank becomes 99th in US to be shut in 2009

By STEPHEN BERNARD (AP) – 59 minutes ago

NEW YORK — Regulators have shut down San Joaquin Bank in California, marking the 99th failure this year of a federally insured bank.
The Federal Deposit Insurance Corp. was appointed receiver of San Joaquin Bank, based in Bakersfield, Calif. It had $775 million in assets and $631 million in deposits as of Sept. 29.
The FDIC said Friday the bank's deposits will be assumed by Citizens Business Bank, based in Ontario, Calif. Its five branches will reopen Monday as branches of Citizens Business Bank.
San Joaquin Bank's failure is expected to cost the FDIC's insurance fund $103 million.
Depositors' money is not in danger. The FDIC is backed by the government, and deposits are guaranteed up to $250,000 per account. But the deposit insurance fund has fallen into the red. The FDIC board recently proposed to have U.S. banks prepay about $45 billion of their insurance premiums — three years' worth.
That plan isn't a long-term remedy for the depleted fund. But it would spare ailing banks the immediate cost of an alternative idea: paying an emergency fee for the second time this year. And the FDIC still has billions in loss reserves apart from the insurance fund.

CIT amends restructuring plan with bondholders

CHICAGO (Reuters) - Commercial finance company CIT Group Inc and a group representing its bondholders have agreed on changes to the company's proposed restructuring plan as it looks shore up its finances.

The changes, announced by CIT late Friday, include a mechanism to accelerate the repayment of new notes; the shortening of maturities by six months for all new notes and junior credit facilities; and offering more equity to subordinated debt holders.

The changes would include notes maturing after 2018 in the company's exchange offer and increase the interest paid on Series B notes being offered by CIT Delaware Funding to 9 percent from 7 percent. They would also provide preferred stockholders contingent value rights in the reorganization and modify the allocation of common stock in the company's recapitalization after the exchange offers, as part of an agreement with the Treasury Department.

Israel rejects UN council backing for Gaza war crimes report

UN human rights council passes resolution endorsing Goldstone report, which accused Israel and Hamas of war crimes
Israel has angrily rejected what it called a "one-sided" resolution by the UN human rights council today that backed a highly critical report on the Gaza war and opened the way to possible international war crimes investigations.

The council voted to endorse the report by a South African judge, Richard Goldstone, which accused both Israel and Hamas of committing war crimes and possible crimes against humanity during the three-week war in Gaza in January. Goldstone, whose work was hailed by leading international human rights groups, found there may be individual criminal responsibility over the killing of civilians.

BofA Agrees to Give More Details on Merrill

WASHINGTON/NEW YORK (Reuters) - Bank of America Corp agreed to give federal authorities more information about why it refrained from disclosing details about Merrill Lynch's performance before it bought the investment bank, U.S. regulators said on Tuesday.
The pact, still subject to court approval, would allow the U.S. Securities and Exchange Commission to look at details on the bank's failure to disclose information to shareholders about Merrill's $15.8 billion fourth-quarter losses and about bonuses paid to the investment bank's employees.
Bank of America's board voted on Friday to waive its attorney-client privilege that protects the names of those who made decisions on the Merrill merger, according to sources familiar with the matter.

Congressional investigators as well as the New York Attorney General Andrew Cuomo will have access to the protected information, according to a letter the bank sent to Cuomo's office on Monday.

Barack Obama's health care plan could get support from second Republican senator

President Barack Obama's plans to overhaul the American health care system received a boost on Wednesday when a second Republican senator indicated that she may support the legislation.
Susan Collins joined fellow moderate Republican senator Olympia Snowe, in endorsing the goal of far-reaching changes in the US health care system.

The proposals to overhaul of the $2.6 trillion (£1.6 trillion) system were passed by the Senate Finance Committee, setting the stage for a major battle on the Senate floor itself.
My hope is that we can fix the flaws in the bill and come together with a truly bipartisan bill that could garner widespread support," Mrs Collins said.

Pakistan launches all-out assault on Taliban

Pakistani troops maintain a curfew in Bannu on the edge of Waziristan as the army begins a major assault against the Taliban. Photograph: Ijaz Muhammad/AP

More than 30,000 Pakistani soldiers have launched a much-awaited ground offensive in an al-Qaida and Taliban stronghold along the Afghan border.

The offensive in South Waziristan follows months of air strikes intended to soften up militant defences. The bombing has forced tens of thousands of civilians to flee.

Pakistan's full-scale operation comes after two weeks of militant attacks that have killed more than 175 people, increasing the pressure on the army to take on the insurgents.

Forex Top Story Euro Hits 14-Month High Versus Dollar

(RTTNews) - The euro maintained its recent gains versus the dollar and yen as global stocks saw further strength, adding to risk appeal. With the rally, the euro moved to its best level in more than a year versus the dollar.

The Eurostat said in a report today that the Eurozone industrial production decreased 15.4% year-on-year in August, compared to the 15.9% fall in the previous month Economists expected a decrease of 15.5%.

On a monthly basis, industrial production climbed 0.9% in August, faster than the 0.2% growth in July, revised from 0.3% decline reported initially. Economists were looking for an increase of 1.2%.

The euro leveled off against the dollar after reaching a 14-month high of 1.4919. The European currency has been trending higher throughout October.

In the U.S., a Labor Department report showed that retail sales fell 1.5 percent in September following a revised 2.2 percent increase in August. With the monthly decrease, retail sales in September were down 5.7 percent compared to the same month a year ago.

US retail sales dragged down by auto sales

WASHINGTON — US retail sales saw their biggest decline of the year in September as auto sales were dented by the end of government trade-in incentives, official data showed Wednesday.

Sales fell 1.5 percent following a revised 2.2 percent jump in August. The figure was not as weak as a 2.1 percent drop expected by most analysts.

The September contraction, the biggest since December 2008, was attributed to tumbling auto sales after the government ended a rebate program in which car owners swapped old vehicles for new, more fuel-efficient models.

Auto sales fell dramatically by 10.4 percent, reflecting the end in August of the "cash-for-clunkers" program.

But retail sales excluding autos were surprisingly strong, however, up 0.5 percent in September and comfortably higher than expectations of a 0.2 percent rise in core sales, the Commerce Department said.

Analysts said the report was mostly optimistic but wondered whether sales growth -- a key to recovery from recession -- can be sustained.

"Despite the large top-line sales decline, this was a strong retail sales report," said Scott Hoyt, senior director of consumer economics for Moody's Economy.com, pointing out that "very few" segments reported sales declines.

"This suggests that consumers are becoming more optimistic about economic conditions," he said, hastening to add however that the positive numbers may be difficult to sustain.

Hoyt said consumers remained financially constrained and lack the cash to spend aggressively, citing general wage incomes, which were not growing appreciably although declines have ended, and wealth levels that were substantially below previous levels even as equity and house prices rose.

"While sales are up, there is limited confidence that consumers can sustain this pace without jobs," said Stephen Gallagher of Societe Generale.

The US unemployment rate is approaching 10 percent even though data indicated the economy was poised for growth in the third quarter after nearly two years of recession.

"We view the retail sales and consumer data as encouraging and believe that faced with this private demand, order and production increases require employment increases," Gallagher said.

Employment gains are not expected until early 2010.

Some analysts believe the largely positive retail picture can help in US recovery from recession.

Patrick O'Hare of Briefing.com pointed to core retail sales, which excludes autos, gasoline sales, and building materials, which were up 0.5 percent, based on the governmment data.

"That marked the second straight increase for this series, which is noteworthy given that it factors into economists' GDP (gross domestic product) assumptions," he said.

Then US economy is expected by many analysts to chalk up its first growth rate -- of about three percent -- in the third quarter after a year of contractions.

But with credit still tight and consumer caution lingering, US retailers are bracing for a difficult period as the year end holiday shopping season approaches.

Many early projections suggests retail spending in the final two months of 2009 -- a season that accounts for a large proportion of sales and profits -- will be flat or lower

Sept. retail sales fall 1.5 percent post Clunkers

By MARTIN CRUTSINGER (AP) – 2 hours ago

WASHINGTON — Retail sales declined in September by the largest amount this year as car sales plummeted following the end of the government's popular Cash for Clunkers program. But outside of autos, sales were better than expected.

The Commerce Department said Wednesday that retail sales dropped 1.5 percent last month. That's smaller than the 2.1 percent fall economists had expected, but still the biggest setback since sales dropped 3.2 percent in December.

Car sales plunged 10.4 percent, but excluding autos, retail sales rose 0.5 percent. That's better than the 0.2 percent increase analysts expected.

Consumer demand, which accounts for 70 percent of total economic activity, is being watched closely by economists who worry that any recovery from the recession could stall due to the strong headwinds that households still face.

"The increase in sales excluding autos is still fairly modest by normal standards," Paul Dales, an economist at Capital Economics, wrote in a research note. "Moreover, with households' finances likely to remain constrained by falling employment, declining real incomes and tight credit, we doubt that consumption will continue to growth at such rates."

But on Wall Street, the better-than-expected retail sales figures and surprisingly strong earnings reports from Intel Corp. and JPMorgan Chase & Co. pushed the Dow Jones industrials about 35 points away from the 10,000 mark, a level not seen in a year. Major stock indexes all rose about 1 percent in morning trading.

Analysts had expected increases at general merchandise stores following reports last week from the nationwide retailers that sales grew in September at stores open at least a year compared with activity in September 2008. It marked the first year-over-year rise in sales after a year of declines, according to data from the International Council of Shopping Centers and Goldman Sachs.

Shoppers are hungry for markdowns, looking for sales signs at stores, while cashing in on a tax credit for first-time homebuyers and low mortgage rates and home prices. A late Labor Day and delayed school openings also helped retailers last month because consumers purchased some items in September that they would normally have bought in August.

Kohl's Corp. department store chain, Limited Brands Inc., which runs Victoria's Secret and Bath & Body Works, and accessories chain The Buckle Inc. all said their September sales rose at stores open more than a year.

J.C. Penney Co., Cincinnati-based Macy's Inc. and Target Corp. reported their same-store sales fell, but not as much as they had expected.

Also Wednesday, the Commerce Department said businesses slashed their inventories 1.5 percent in August, the 13th straight decline and more than the 0.9 percent fall analysts had expected. Still, many economists say businesses soon may begin rebuilding depleted store shelves after more than a year of cuts. If that occurs, factory production will begin to rise and help bolster a broad recovery from the worst recession since the 1930s.

Analysts believe the overall economy, as measured by the gross domestic product, is growing in the second half of this year at an annual rate of 3 percent or more. But the concern is that growth rate could slip sharply next year if consumer spending falters.

The 1.5 percent drop in retail sales in September followed a 2.2 percent surge in August, which was revised down from an initial estimate of 2.7 percent.

Demand for new cars surged in August as buyers rushed to take advantage of the government's incentives of up to $4,500 to trade in old models for more fuel-efficient cars under the clunkers program that wrapped up at month's end.

Outside of autos, demand at gasoline stations rose 1.1 percent September, partially reflecting higher prices. Excluding gas and auto sales, retail sales rose 0.4 percent in September.

Other areas of strength included demand at furniture stores, which jumped 1.4 percent, reflecting the rebound in the housing industry. Sales at general merchandise stores, a category that includes big retailers such as Wal-Mart and Target, rose 0.9 percent. Sales at department stores edged up 0.4 percent.

Dollar wise

The hand-wringing over the US dollar's fall has been overdone. The greenback is expected to remain weak, but few think declines will accelerate in spite of debates over the dollar's role in the world economy.

Last week the dollar fell to a 14-month low against a basket of six major currencies in part because of concerns about the slow recovery in the US economy.

But the decline in the currency has been orderly and other measures of risk, such as the rally in stocks and low interest rates, suggest a healthy outlook toward US assets and economic growth.

The worries heightened earlier last week when several Asian central banks intervened in the markets to buy dollars to weaken their currencies. Markets were calmed only later after US Federal Reserve chairman Ben Bernanke made comments that supported the greenback.

The dollar is not so very weak from a longer-term perspective, analysts note.

"Everyone thinks the world is ending" because of the drops, said Mike O'Rourke, chief market strategist at BTIG. "But we're still above levels where we spent most of last year."

The dollar index is still more than 7 percent higher against a record low hit in March last year, and more than 8 percent higher than its July 2008 low hit against the euro.

And the action in the forex market has been relatively orderly, with low volatility. One-month realized volatility, a measure of a currency's movements based on underlying prices, was 8.8 on Friday for the dollar index, according to Reuters data, which is 41 percent lower than highs hit in mid- June.

The pattern is the same in the euro's price action versus the dollar. On a three-month rolling basis, realized volatility fell to a 14-month low on Friday. "There's nothing worrisome about the price action to suggest US authorities may need to make a more forceful defense of the currency," said Richard Franulovich, senior currency strategist, at WestPac Securities in New York.


Expectations for future gyrations in the forex market have not spiked either. Implied volatility, which reflects the expectation of discomfort or complacency among investors, has been falling as the dollar dropped. Friday's one-month implied vols in euro/dollar were at 9.9 percent, off their June highs at 16.0 percent.

This suggests that investors expect subdued movements in the euro versus the dollar over the next 30 days.

Still, investors are concerned that sentiment has turned against the dollar. Dollar bearishness has long hovered in the currency market, but that was in part a function of a reversal in the safe-haven bid that made investors flock to the dollar in late 2008 as the financial crisis raged.

Now, after the Reserve Bank of Australia raised benchmark interest rates to 3.25 percent on Tuesday and Canada's employment data on Friday showed a surge in jobs creation for September, concern is developing that other economies are poised to recover more quickly than the United States.

A primary concern for those investing in the United States are growing US deficits. Some see rising interest rates as a threat to the economy because it makes borrowing more expensive, potentially choking off growth.

"The part that's worrying is the rise in Treasury yields. and that US officials are keeping an eye on that," said Steven Englander, head of North American FX strategy at Barclays Capital in New York.

"The last thing they want is for dollar weakness to lead to a Treasury sell-off and premature upward pressure in those rates."

That hasn't happened yet though. Benchmark 10-year Treasury yields on Friday were at a reasonable 3.386 percent compared with about 3.30 at the end of September, and much lower than levels in late June last year when yields hit 4.16 percent.

Worries that investors will shun the world's most liquid government bond market due to a weak economy and growing deficit have not come to fruition. Last week's US Treasury auctions suggested healthy demand for US securities from foreign central banks. The stock market, meanwhile, a less reliable indicator, has been on a tear since March in expectation of renewed demand.

The Obama administration seems to be comfortable with a weaker dollar, analysts said, in spite of repeated rhetoric about the need for a strong US currency.

"It makes sense to let the dollar weaken; it is a global economy so everyone has to see some degree of weakening themselves," said BTIG's O'Rourke.

"If the dollar weakens you get to a more normal trade deficit - some parts of manufacturing come back as it becomes cheaper to produce here and exports would increase."

In the currency market, most are even predicting further declines going forward. Westpac's Franulovich said the dollar's structural flaws - a huge fiscal deficit relative to gross domestic product and record low interest rates - are too overwhelming to ignore.