Tuesday, May 25, 2010

The Meaning of Wealth Translated Around the World

We like to think the reasons for seeking wealth are universal. Humans, by nature, like to be comfortable, like to have power and like to have the choices and freedoms offered by lots of stuff and money.

Yet it turns out there are some regional variations in the meaning of wealth around the world.

The new Barclay’s Wealth Insights study, released this morning from Barclay’s Wealth and Ledbury Research, finds that the emerging-market rich view wealth very differently from the older-money Europeans and the slightly less nouveaux Americans.

The study surveyed 2,000 people from 20 countries with investible assets of $1.5 million or more. They shared some common themes: a vast majority of rich people from all regions agreed that wealth enables them to buy the best products and that wealth gives them freedom of choice in their life. Most also agreed that wealth is a reward for hard work.

But the differences are more interesting:


Asians and Latin Americans were more likely (49% and 47%) to say that wealth "allows me to get respect from friends and family." Only 28% of Europeans and 38% of Americans said respect was a byproduct of wealth.


About three-quarters of respondents in the U.S. and Latin America said wealth enabled them to give to charity. That compares with 57% in Europe and 66% in Asia.


About two thirds of Europeans and Americans said wealth made them happy. But it had a greater happiness affect in emerging markets, with 76% of Asians and Latin Americans saying wealth made them happy.

Role Models

Less than half of Americans and Europeans say the wealthy "set an important example to others to be successful." That compares with 71% of Latin Americans and 61% of Asians.


Wealthy Europeans are far more likely to spend their dough on travel and interior decorating. Latin Americans seem to put the highest spending priority on education, while the U.S. surges above the rest in philanthropy (which the report counts as spending).

We can read several things into the differences. Most obviously, the U.S. has a more formalized and tax-favorable system of philanthropy than the rest of the world. (It is too sweeping to say Americans are the most "generous.")

What is more, the global financial crisis may have tarnished the image of the wealthy -- even among the wealthy. And finally, the longer a country has wealth, the less it craves the attention and respect wealth brings.

What patterns or explanations do you see in the regional differences?

Tuesday, May 18, 2010

US SEC proposes new trading rules

US stock exchanges would briefly halt trading of some stocks that have big prices swings under new trading rules proposed on Tuesday that are aimed at avoiding market plunges like the one that stunned Wall Street earlier this month.Regulators say it makes sense to reach for remedies now, even though they have yet to determine the exact cause of the May 6 market dive.The rules would take effect in mid-June under a six-month pilot program agreed to by major US exchanges and the Securities and Exchange Commission. The SEC announced them Tuesday and put them forward for public comment.Under the plan, trading of any Standard & Poor's 500 stock that rises or falls 10 per cent or more within a five-minute span would be halted for five minutes. These rules, known as "circuit breakers," would be applied if the price swing occurs between 9:45 a.m. and 3:35 p.m. Eastern time. That's almost the entire trading day.In the so-called "flash crash" on May 6, about 30 stocks listed in the S&P 500 index fell at least 10 per cent within five minutes.Importantly, the new circuit breakers would apply to all US exchanges. Most of the 50 or so US exchanges regulate themselves and design their own tools for slowing or halting trading.During the May 6 plunge, the New York Stock Exchange slowed trading according to its rules but the orders that couldn't be executed migrated in a torrent to electronic exchanges, industry officials said.The SEC and the Commodity Futures Trading Commission, in a report by their staffs, said the agencies' investigation of the epic dive — in which the Dow Jones industrials lost nearly 1,000 points in less than a half-hour — is still in a preliminary stage."The decline and rebound of prices in major market indexes and individual securities on May 6 was unprecedented in its speed and scope," said the joint report released Tuesday evening. "The whipsawing prices resulted in investors selling at losses during the decline and undermined confidence in the markets."Only a preliminary picture has started to emerge, the report said. Investigators are focusing on, among other things, a possible link between the steep decline in prices of stock indexes, and "simultaneous and subsequent" waves of selling in individual stocks.Also being looked at is a "severe mismatch" of liquidity in the market that may have been worsened by the withdrawal of electronic traders and the use of so-called "stop-loss" market orders, the report said. Stop-loss orders set the price at which a stock is automatically sold when it declines to a specified level.SEC Chairman Mary Schapiro told a gathering of financial analysts Tuesday there are issues "we think can be remediated quickly even before we understand necessarily what the exact cause of the crash was."The SEC would vote on formally approving the rules sometime after a 10-day comment period, unusually short for the agency's rule-making and indicating the urgency of the issue. The changes are intended to prevent a recurrence of the plunge that briefly wiped out more than $1 trillion in the market value of stocks."We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges," Schapiro said in a statement. "As such, I believe it is important that all the exchanges quickly reached consensus on a set of uniform circuit breakers that would be triggered when needed."The markets can use the six-month pilot period, which would end on Dec. 10, to make needed adjustments based on how the new rules work, and the scope of the rules could be expanded to stocks beyond the S&P 500 "as soon as practicable," the SEC said. That could include exchange-traded funds, increasingly popular investments that often track a market index such as the S&P 500 and can be traded throughout the day, unlike mutual funds.ETFs as a group were affected by the plunge more than any other category of securities, according to the report.Schapiro has asked the SEC staff to consider during the pilot period ways to address the risks of "stop-loss" and other market orders, and whether so-called "stub quotes" should be curbed or banned. Market makers use stub quotes as placeholders and they are often far above or below actual stock values. But the report said their presence at the top and bottom of order books on May 6 "may have led to a very large number of broken trades."The pilot period will give all market participants, including the SEC, the exchanges and brokerage firms, an opportunity to study the impact of the new rules and fine-tune them, Wall Street's biggest trade group, the Securities Industry and Financial Markets Association, said in a statement.But it may take another market meltdown before anyone knows if the new system of circuit breakers will work, independent market analyst Edward Yardeni noted."The only way we'll find out is if we have another plunge," Yardeni said. "If they kick in and stabilize the situation, then fine. If not, it's back to the drawing board."The SEC already has rules requiring market-wide halts in trading if the Dow falls 10 per cent, 20 per cent or 30 per cent. None of them were triggered on May 6, but it's possible that those rules, also known as circuit breakers, will be re-examined in light of the plunge.The plunge highlighted the growing complexity and splintered diversity of the fast-evolving securities market. Sleek electronic trading platforms compete with the traditional exchanges and powerful computers give traders a split-second edge in buying or selling stocks. The risk looms that electronic errors at high speeds could ripple through markets and disrupt them.Regulators say new rules could help level the playing field for market players and bring order to a patchwork of regulations that are about a decade old.The May 6 freefall also underscored the growing importance of trading in index futures, which allow investors to trade based on expectations whether a group of stocks will rise or fall, rather than simply trading the underlying stocks.While it is too soon to know whether the proposed new rules "will prove sufficient to protect investors and to shelter our markets from sudden, drastic technology-driven swings in our markets, they are an important first step," said Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services subcommittee that oversees the SEC.

Saturday, May 15, 2010

Secretive speed traders in spotlight after crash

If you saw a penny on the sidewalk, would you pick it up?
You may think it's not worth the effort, but a breed of investors who have been in the news do. Using super-fast computers, high-frequency traders in effect bend down to pick up pennies lying about in the stock market -- then do it again, sometimes thousands of times a second.
More than a week after the Dow Jones industrial average fell nearly 1,000 points, its biggest intraday drop ever, regulators are still sifting through buy and sell orders to figure out what sparked it. One big focus are orders placed by high-frequency traders, or HFTs, and for good reason. These quick-buck firms barely existed a few years ago but now account for two-thirds of all U.S. stock trading.
In other words, all those TV pictures of the stately New York Stock Exchange building on the evening news are an illusion. The real action on Wall Street is far away in Kansas City, Mo., and in New Jersey, in towns like Carteret and Red Bank, where HFTs named Tradebot and Wolverine and Tradeworx ply their trade.
High-frequency trading firms, which number over 100, use computers programmed with complex mathematical formulas to comb markets for securities priced too high or too low because traders haven't had to time to react to the latest data. The computers then buy or sell in a split second, locking in a profit.
The opportunities seem hardly worth noting. They're not just fleeting, but small, often a penny or less.
But those pennies can add up to a lot of money, enough to draw the attention of Goldman Sachs Group Inc., the giant Chicago hedge fund Citadel Investment and other big financial firms. In recent years they've paid hundreds of millions of dollars for stakes in high-frequency trading companies.
The money has stoked what was already fierce competition among the firms for a leg up.
To spot opportunities and act on them before others, HFTs are constantly hunting for faster computers. They also locate themselves close to the big exchanges' data centers. That can cut their trade times by milliseconds.
One way these traders make money is by exploiting the fact that stock indexes sometimes don't immediately reflect falling or rising prices of their component stocks, said Manoj Narang, chief executive at Tradeworx of Red Bank, N.J. If Microsoft shares rise 5 percent but an index fund that includes it such as the SPDR S&P 500 lags by a fraction of second to adjust, his computers will automatically buy shares of SPDR S&P 500 at the lower price and then sell them again when they are fully valued.
Or maybe Microsoft is trading in London at a penny less than it's trading at the same moment in New York. A high-frequency trader will buy shares in London and wait for them to rise.
Since the discrepancy lasts a mere fraction of a second, speed is key.
Narang boasts it takes only 15 millionth of a second for his computers to place a buy or sell order after detecting an opportunity.
Or, as he puts it, "If you try to pick up the penny, we'll probably beat you to it."
So is that good or bad for the market?
If you listen to HFTs, all their fast trading benefits big and small investors alike. More trading means more bids and asks for shares, and that cuts the time needed to find someone willing to buy what you're selling or vice versa. Costs also fall. With more bids and asks, the difference between the price you seek and the price offered (what traders call the "spread") will likely narrow. You get to keep more of your money.
High-frequency traders see themselves as part of a long tradition of using technology to shake up Wall Street.
For decades an order to buy or sell a security went to a person in a trader's jacket standing on the floor of an exchange, often at the NYSE in Lower Manhattan. If you wanted to sell stock in General Electric, for instance, these so-called specialists would find a buyer. If they couldn't find one, they bought it themselves.
In exchange for their services, the specialists pocketed some of the difference between the price at which you were willing to buy and the price at which a GE holder was willing to sell.
This system came under attack in the early 1980s from Nasdaq, a rival marketplace for stocks, which began using computers to make trades. The pitch was it could match buyers and sellers faster than humans, and for less money.
Then, starting in the late '90s, the NYSE specialists got hit again, this time with a series of blows: new rules encouraging computer matching of buyers and sellers, a shift to quote stock prices in minute increments of decimals instead of fractions, and a decision to cut the minimum spread that specialists or other middlemen could grab for themselves from 6.25 cents per share to a penny.
"It used to be an oligopoly, an old boy's club," said Irene Aldridge, head of an HFT shop called Able Alpha Trading and author of "High-Frequency Trading." "But now it's a completely level field."
Critics of high-frequency trading say all this talk about narrowing spreads for ordinary investors distracts from a key problem: Split-second trading without human supervision is a recipe for disaster
Exhibit A: the May 6 crash.
One theory about the drop is that, unlike the NYSE, the new exchanges and trading networks catering to HFTs didn't apply any "circuit breakers." These are designed to halt trading momentarily during a freefall to stop selling from feeding on itself.
In others words, without circuit breakers the computers went crazy.
Another theory holds that it wasn't quick-fire trading by HFTs that made things worse but a lack of it. Some reportedly pulled back when stocks started dropping, removing liquidity when it was needed the most.
Whatever the answer, this much is true: These secretive firms are likely to grab the spotlight for a while now. And their trading might get even more frenetic.
After the May 6 freefall, all manner of trading rules are up for debate. But it's worth noting that until recently regulators were considering cutting the minimum spread again, possibly to half a penny.
"People will be needing even better computers," said author Aldridge.

Friday, May 14, 2010

Cars You'll Be Driving In 10 Years

What can consumers expect to see on roads by 2020? Lightweight and fuel-efficient sports cars; innovative design schemes; and powerful four-door sedans from some of the world’s most exclusive luxury automakers.

China is already taking steps to increase car sales. Transactions are expected to more than double by 2015, according to an April 22nd forecast by J.D. Power and Associates. Last year China's government awarded the equivalent of one-third of the country's gross domestic product to consumer-stimulus and bank-lending plans--which translated into roaring vehicle sales and record profits for many long-established automakers, according to the report.

Those automakers have got some special vehicles planned to capitalize on that fervor. BMW is hoping its zero-emissions Megacity Vehicle and GM's EN-V (Electric Networked-Vehicle) will become big sellers in Asia's big cities.

"China’s rapid growth makes the automotive market highly attractive and almost irresistible to any automaker," John Humphrey, senior vice president of global automotive operations for J.D. Power, said in the report. "The retail landscape in China is going to undergo dramatic change in the coming years."

Stateside, drivers can expect luxury--in both small and large vehicles. Think along the lines of a four-door Bugatti and Porsche 918 Spyder hybrid. Bugatti, for one, is competing with recent luxe four-door entries from Porsche and Maserati. Porsche, with its super-fast hybrid, is hoping to capitalize on the growing hybrid market. Hybrid sales in the U.S. decreased just 7.5% to 290,280 units in 2009, compared to a 21.2% decline for all vehicles. They held about 3% of the U.S. automotive market last year but are expected to triple by 2015, according to J.D. Power.

Model Cars

To get a sense of what cars we'll be driving 10 years from now, we spoke with automakers including General Motors, BMW, Audi and Porsche. While they couldn't divulge which cars and trucks we'll see in showrooms in 2020 (new-product specs are closely guarded secrets), the concepts they are currently debuting give us a pretty good idea.

The Bugatti 16C Galibier concept gives the public a peek at what the automaker will produce in the next several years. Judging from photos Bugatti has already released, the car based on the 16C Galibier will have blue carbon-fiber and polished aluminum bodywork, eight external exhaust pipes and a body-long spine that opens like flywings along the front hood. If the Veyron is any indication, the four-seat Galibier will be the most expensive, most powerful four-door car in the world.At the other end of the automotive spectrum, the car based on the electric Toyota FT-CH will be an even more economical counterpart to the $22,800 Toyota Prius. The car is part of Toyota's goal to sell one million hybrids each year globally before 2015; it's launching eight all-new hybrids in the next few years. FT-CH will be smaller (22 inches shorter in overall length), lighter and cheaper--and targeted to a younger audience.

When is a Car Not a Car?

The introduction of such innovative vehicles means that those behind the wheel will have to think differently about their driving habits. For people living in European and Asian cities, the future of transportation could look a lot like GM's EN-V--an electric two-wheeler created by GM and the Shanghai Automotive Industry Corp (built on previous concepts that GM created with Segway). It's about five feet long and less than 1,000 pounds, with a top speed of 25 miles per hour. The pod uses a GPS system to navigate traffic and even has an auto-drive mode--perfect for commuters who want to be driven on their way to work but also want their own vehicle.

These innovations might also include high-quality, luxurious interiors, super-advanced crash-avoidance technology and drastically reduced carbon emissions--something along the lines of the Audi E-Tron. E-Tron's air intakes open and close depending on driving conditions, decreasing drag on the car and improving driving range. The cabin is shifted toward the front axle (the battery unit is in the rear) to improve handling performance, and the cockpit is oriented toward the driver, with a "floating" dash and slim center console. There are almost no buttons or switches inside (it has no transmission, and the gear selector emerges only when the car is started.) Energy-efficient automatic headlamps and LED lighting line inside and outside the car."There's a perception that everybody's a car freak or a car geek and cars have to look like cars, but to a lot of people, an automobile is just a means of getting someplace," says Clay Dean, GM's director of advanced global design. "So we're looking at the things that you can do that perhaps are unique, things that are very, very small, things that are extremely efficient."Automakers keep notoriously mum about exactly how much they spend on research and design, but it's safe to assume most spend tens of millions of dollars on it each year: Dave Engelman, a spokesman at Porsche, says the Stuttgart-based company spends about 15% of its total budget on R&D--and didn't slough off any when the industry went south."It's a tremendous amount to spend, especially from a percentage standpoint, from the size of the company that we are," he says. "But it's where we learn quite a bit."Two-seater car-pods and silent sports cars may seem futuristic, but they actually aren't that far off. It takes about seven years to design, develop, test and produce a new car--in fact, GM designers have already developed what's slated for the next several years, Dean says: "In my mind, I'm already living in 2015."

Underground broker network a bane in terror probes

Long before there was MoneyGram and Western Union, people in South Asian countries often used an informal network of brokers, called an "hawala," to transfer money over long distances when it was too inconvenient or dangerous to send cash by courier.

Today, the centuries-old system still exists and is used to move billions of dollars annually in and out of countries like Pakistan, Afghanistan and Somalia — often to the chagrin of U.S. law enforcement.

A federal law enforcement official told The Associated Press that terror suspect Faisal Shahzad is believed to have tapped into such a network to help fund a plot to detonate a car bomb in Times Square on May 1. The official spoke on condition of anonymity because the investigation is ongoing.

Authorities say three Pakistani men — two in the Boston area and one in Maine — supplied funds to Shahzad but may not have known how the money would be spent. The three have been arrested on immigration violations.

In Washington, a senior military official said Pakistani authorities had arrested a man claiming to be an accomplice of Shahzad. The official was unable to say what information the suspect may have provided. The official spoke on condition of anonymity to discuss intelligence matters.

While most money transfers made through these hawaladars, or brokers, are benign, the system is also routinely used by drug smugglers, terrorists, and other criminals who want to move money without leaving a paper trail.

"Hawalas are not themselves nefarious," said Matthew Levitt, a former U.S. Treasury intelligence official, now a senior fellow at The Washington Institute for Near East Policy.

"If you live in Somalia or Yemen, or someplace in Pakistan where there is no bank, this is a simple way to send money."

But because the dealers operate informally, outside of regulation, they are also a hindrance to law enforcement agents trying to investigate the flow of illicit dollars across international borders.

"You are able to send money quickly and effectively under the radar without going through the formal banking system," Levitt said.

The networks operate like this:

A person who wishes to send cash abroad visits a broker, who takes the money plus a fee of around 5 percent. The broker then contacts a counterpart in the country where the money is going and relays instructions on how much is being sent and to whom. Within a day or two, the recipient gets a cash delivery, typically in local currency.

Usually, the two brokers don't need to actually exchange any money. Instead, they essentially work off of IOUs. Each one makes the needed payments out of his own pocket, then carries the other broker's debt until someone needs to move cash in the other direction.

Occasionally, the two brokers will need to balance their books by making an actual cash transfer, if more money is needed one way than the other.

For a U.S. immigrant of modest means, the system has great advantages. You don't need to have a bank account. There are no forms to fill out. It is faster and cheaper than using an official money transfer service.

Plus, the whole system is built on trust. In the U.S., the brokers are often small businessmen who see themselves as performing a public service for their countrymen.

For these reasons, U.S. authorities have had a difficult time shutting the networks down.

Operating an unlicensed money remitter in the U.S. is a crime, but the State Department reports that only a fraction of the businesses performing such services have registered as required.

Even a handful of high-profile prosecutions after the Sept. 11 attacks have failed to eradicate the system here, despite tough penalties for those who have broken the law.

In one New York case, the Yemeni-born owner of a Brooklyn ice cream shop was sentenced to 15 years in prison for transferring nearly $22 million overseas. One of his customers was Sheik Mohammed Ali Hassan al-Moayad, a Yemeni cleric convicted of conspiring to aid al-Qaida.

This week in Manhattan federal court, Iranian-born business consultant Mahmoud Reza Banki is on trial for allegedly violating a U.S. trade embargo against Iran. Authorities say he used a hawala to illegally move more than $3 million to Iran. His defense attorney says he was just trying to help out his family.

Thursday, May 13, 2010

Greece, Debt and a Lesson for the U.S.

It’s easy to look at the protesters and the politicians in Greece — and at the other European countries with huge debts — and wonder why they don’t get it. They have been enjoying more generous government benefits than they can afford. No mass rally and no bailout fund will change that. Only benefit cuts or tax increases can.

Yet in the back of your mind comes a nagging question: how different, really, is the United States?

The numbers on our federal debt are becoming frighteningly familiar. The debt is projected to equal 140 percent of gross domestic product within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger. Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.

The United States will probably not face the same kind of crisis as Greece, for all sorts of reasons. But the basic problem is the same. Both countries have a bigger government than they’re paying for. And politicians, spendthrift as some may be, are not the main source of the problem.

We, the people, are.

We have not figured out the kind of government we want. We’re in favor of Medicare, Social Security, good schools, wide highways, a strong military — and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and this country.

Many people, including some who claim to be outraged by the deficit, still haven’t acknowledged the disconnect. Just last weekend, Tea Party members helped deny Senator Robert Bennett, the Utah Republican, his party’s nomination for his re-election campaign, in part because he had co-sponsored a health reform plan with a Democratic senator. Economists generally think the plan would have done more to reduce Medicare spending than the bill that passed. So, whatever its intentions, the Tea Party effectively punished Mr. Bennett for not being a big enough fan of big government.

Or consider the different fates of two parts of President Obama’s agenda. Mr. Obama has unrealistically said that taxes do not need to rise on households making less than $250,000, and this position has come to be seen as an ironclad vow. He has also called for billions of dollars in sensible cuts to agribusiness subsidies, tax loopholes and the like. The news media and Congress have largely ignored these proposals.

The message seems clear: woe unto the politician — in Washington, Athens or London — who tries to go beyond platitudes and show some actual fiscal restraint.

This situation obviously can’t continue, as Robert Greenstein, perhaps the leading liberal budget expert, points out. Mr. Greenstein’s politics make him sympathetic to the worry that all the deficit talk will become an excuse to pull back on stimulus spending while unemployment remains high or to gut social programs. But he also knows the numbers well enough to understand that our Greece moment, whether it takes the form of a crisis or not, is coming.

“Most of the public thinks, ‘If only the darn politicians could get their act together to cut waste, fraud and abuse, and to make tax avoidance go away and so on,’ ” Mr. Greenstein, head of the Center on Budget and Policy Priorities, says. “But the bottom line is, there really is no avoiding the hard choices.”

For Greece and possibly other European countries, change will come from the outside. The countries lending the money for the Greek bailout — chiefly Germany — are demanding big cuts to the welfare state. Greek citizens will soon have a harder time retiring in their 40s.

Here in the United States, we’re likely to have the chance to solve our problems before our lenders demand it. Those lenders continue see the American economy as a safe haven, thanks to our history of strong economic growth and political flexibility.

It is even possible that future growth will make the current deficit projections look too pessimistic. That sometimes happens when the economy is weak. In the wake of the early 1990s recession, for example, almost no one imagined that the budget would show a surplus by the end of the decade.

But the main issue isn’t the near-term deficit — the one created by the recession, the wars in Iraq and Afghanistan, the Bush tax cuts and the Obama stimulus. The main issue is the long-term deficit.

As societies become richer, citizens tend to want better schools, better medical care and other government services. This country is following that pattern, but without paying the necessary taxes. That combination has us on a course to Greece-like debt.

As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer we wait, the bigger the cuts will need to be (because of the accumulating interest costs).

Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.

This is why fixing the budget through spending cuts alone, as Congressional Republicans say they favor, would be so hard. Representative Paul Ryan of Wisconsin has a plan for doing so, and it includes big cuts to Social Security and the end of Medicare for anyone now under 55 years old. Other Republicans have generally refused to endorse the Ryan plan. Until that changes or until the party becomes open to new taxes, its deficit strategy will remain unclear.

Democrats have more of a strategy — raising taxes on the rich and using health reform to reduce the growth of Medicare spending — but it is not nearly sufficient.

What would be? A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers, as Republican governors favor; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.

Much of this may be unpleasant. But by no means will it doom us to reduced living standards or even slow economic growth. We can still afford to spend more on Medicare — even more per person — than we do today, and more on education, the military and other areas, too. We just can’t afford the unrealistic promises that the government has made. We need to make choices.

“It’s not a matter of whether we have the resources to solve our problems,” as Alan Krueger, the chief economist at the Treasury Department, says. “It’s a matter of political will.”

For now at least, our elected officials are hardly the only ones who lack that will.

Tuesday, May 11, 2010

Teenage Entrepreneurs

Cupertino High School senior Diane Keng pitches MyWeboo.com, her third start-up, at the Web 2.0 Expo in San Francisco.

Here is one indicator of the allure of Silicon Valley's entrepreneurial culture: Diane Keng just launched her third start-up -- and she is still in high school.

In March, the 18-year-old launched Internet company MyWeboo.com to help teens manage their digital lives and social-network identities in one place. She is now pitching the company to venture capitalists, and earlier this week presented at the Web 2.0 Expo in San Francisco.

Yet each morning, Ms. Keng also heads to Cupertino's Monta Vista High School for a schedule of classes that includes Advanced Placement economics and government. In the afternoons, the high-school senior squeezes in varsity badminton practice.

"My age, my gender and my lack of experience don't deter me from going after what I want for the company," says Ms. Keng, who runs marketing for MyWeboo.com from home and co-founded the venture with her 25-year-old brother, Steven.

Ms. Keng has several advantages in pursuing her entrepreneurial ambitions, including her father, a venture capitalist who splits his time between Beijing and Cupertino and gave her $100,000 in seed money.

Another big advantage is that Ms. Keng is here in Silicon Valley and can tap the region's unique ecosystem of tech resources and experience -- not to mention supportive parents and teachers. Her high school alone is home to about 10 entrepreneurs, including a student who buys and flips websites that he thinks have potential.

The Valley is filled with teen-entrepreneur legends: Gurbaksh Chahal started online ad company Click Agents in San Jose when he was 16, and sold it for $40 million two years later. He then founded ad network BlueLithium, which he sold for $300 million when he was 25.

Kristopher Tate, who five years ago finished high school early and drove his parents' car from San Diego to Cupertino at the age of 16 to launch photo-sharing site Zooomr, says Silicon Valley is a great place for budding entrepreneurs. "Everybody is there, and when you want to step up or feel like your idea is worth a grain of salt, there are people who will take it seriously." Today, Mr. Tate is 22 and runs a portfolio of Internet companies from Tokyo, but isn't involved in Zooomr's day-to-day operation.

Despite the encouraging business environment, teen entrepreneurs have their own set of work-life balance issues.

"For the first two years that it took me from starting Click Agents to selling it, I basically sacrificed my youth," says Mr. Chahal, who dropped out of high school to focus on his start-ups. "I slept and worked in the office."

In addition, many start-ups don't succeed, which can bring some particularly harsh lessons for young entrepreneurs. They are, as a set, more inclined to overvalue their own ideas, according to YouNoodle Inc., which tracks start-ups. In a recent survey, YouNoodle found that founders under the age of 25 expected their companies would be worth about 27% more after three years than other founders (who are, on average, 35 years old).

Ms. Keng co-founded the venture with her 25-year-old brother, Steven.

Other young entrepreneurs end up putting school first. Virtual goods marketplace PlaySpan Inc. was founded in 2006 in the garage of San Jose sixth-grader Arjun Mehta, who wanted a better way to sell items he had won in online games. He created a mock-up of his ideal website, then passed the baton to his dad, who now runs the company while Arjun attends eighth grade.

"In my free time, I test out the commerce side of the site," says Arjun. He says he doesn't demand a salary, but has kept the title of co-founder.

Ms. Keng launched her first venture at age 15, when she started a T-shirt screen-printing business and later began a teen marketing-consulting firm. She says she ended up dropping the T-shirt company because it wasn't making enough money, and the second business because she felt she was spreading herself too thin amid activities, and needed to devote time to prepare for the ACT.

With MyWeboo.com, it helps that Ms. Keng's school encourages entrepreneurial activity and makes allowances for an enterprise's demands. Fiercely competitive Monta Vista offers business classes that include marketing and finance, and brings groups like the Silicon Valley Private Equity Roundtable to workshops on how to write a business plan. Teachers allow Ms. Keng to miss class and make up tests as needed.

"If they're going to fail, they might as well fail when they are young," says Carl Schmidt, Ms. Keng's business teacher at Monta Vista. He teaches students that 90% to 95% of all new products fail, so they must focus on doing their research and solving a real consumer need.

Still, balancing so much requires focus. Ms. Keng, who says she gets As and Bs and will attend Santa Clara University beginning in the fall with a full scholarship, turns off her cellphone and email while at school or doing homework. "If it's a business call, that's what voicemail is for. I will call you back," she says.

And her father, Brian Keng, says he insists academics remain his daughter's top priority. Ms. Keng's parents also ask that she communicate with them about all her business activities.

"She is just in high school," says Mr. Keng, "and sometimes it is very difficult for her to make a judgment."

Even with those boundaries, developing a business is a far cry from traditional high-school diversions like glee club or yearbook. Those activities are still around, but "there needs to be a place for those kids who are entrepreneurs and are a little bit eccentric and are willing to push the envelope," says Mr. Schmidt.

Thursday, May 6, 2010

U.S. stock plunge raises alarm on algo trading

A spine-chilling slide of nearly 1,000 points in the Dow Jones Industrial Average, its biggest intraday points drop ever, led to heightened calls for a crackdown on computer-driven high-frequency trading.
The slide, which in one 10-minute stretch knocked the index down nearly 700 points, may have been triggered by a trading error. Major stock indexes eventually recovered from their 9 percent drops to close down a little more than 3 percent.
But the follow-through selling that pushed stocks of some highly regarded companies into tailspins exacerbated concerns that regulators can quickly lose control of the markets in a world of algorithmic trading.
High-speed trading, which uses sophisticated computer algorithms based on specific scenarios to automate transactions at speeds in the millionths of a second, now accounts for about 60 percent of U.S. equity volume.
"The potential for giant high-speed computers to generate false trades and create market chaos reared its head again today," Senator Edward Kaufman said in a statement.
"The battle of the algorithms -- not understood by nor even remotely transparent to the Securities and Exchange Commission -- simply must be carefully reviewed and placed within a meaningful regulatory framework soon."
Kaufman and Senator Mark Warner -- both Democrats -- said Congress needs to investigate the plunge, which at its deepest point wiped nearly $1 trillion off equity values.
And a House panel has slated a hearing on the causes for the market swoon for next Tuesday, with its chairman, Rep. Paul Kanjorski, urging the SEC to investigate as well.
The scary afternoon in markets came at a bad time for Wall Street, already reeling from accusations that it is a rigged casino -- a criticism stoked by recent civil fraud allegations against Goldman Sachs Group Inc (NYSE:GS - News).
The industry has been trying to stave off the Obama administration's calls for tough financial regulation, and the sell-off came as the Senate turned back a Republican effort to weaken a plan to set up a financial consumer watchdog.
Lending credence to the sense that the sell-off was exacerbated by technical errors, the Nasdaq stock exchange and NYSE-Arca said they would cancel certain trades that happened during the period in question.
But only trades in stocks that moved 60 percent up or down were covered by the cancellations, leaving some investors with potentially major losses on stocks such as Apple Inc (NasdaqGS:AAPL - News) and Procter & Gamble Co, which suffered lesser, but still significant, declines.
The U.S. Securities and Exchange Commission and Commodity Futures Trading Commission said they were reviewing the unusual activity and working with the exchanges to protect investors.
Citigroup Inc (NYSE:C - News) said it was investigating a rumor that one of its traders entered the trade, a spokesman for the bank said on Thursday. Citigroup, the third-largest U.S. bank, said it has no evidence that an erroneous trade has been made.
Several market participants cited speculation that a trader at Citigroup had erroneously placed an order for at least $16 billion in E-Mini contracts -- stock market index futures contracts that trade on the Chicago Mercantile Exchange's Globex trading platform.
But a source familiar with the situation said Citigroup had traded a total of just $9 billion of the E-Mini contracts, adding that that amounted to less than 3 percent of the $319 billion traded on the E-Mini on Thursday.
CME said the bank's trades in CME index futures appeared normal.
Earlier, sources told Reuters that the plunge in the Dow Jones Industrial average may have been caused by an erroneous trade entered by a person at a big Wall Street bank.
During the sell-off, Procter & Gamble shares plummeted nearly 37 percent to $39.37 at 2:47 p.m. ET (1847 GMT), prompting the company to investigate whether any erroneous trades had occurred. The shares are listed on the New York Stock Exchange, but the significantly lower share price was recorded on a different electronic trading venue.
"We don't know what caused it," said Procter & Gamble spokeswoman Jennifer Chelune. "We know that that was an electronic trade ... and we're looking into it with Nasdaq and the other major electronic exchanges."
A different P&G spokesman had said earlier the company contacted the Securities and Exchange Commission, but Chelune said that he spoke in error.
One NYSE employee leaving the Big Board's headquarters in lower Manhattan said the P&G share plunge lay at the center of whatever happened.
"I'll give you a tip," the employee said, speaking on condition of anonymity. "P&G. Check out the low sale of the day. Something screwed up with the system. It traded down $30 at one point."
A vicious market sell-off like Thursday's can be exacerbated when quickly sliding stock prices turn stop loss orders into market orders, meaning shares get sold at any price available.
NYSE Euronext (NYSE:NYX - News) said it was a safer place to trade than its electronic rivals -- who have been taking market share from it in recent years -- because it deliberately slowed down market making when it realized there was something extraordinary happening.
Triggered by unusual volatility in some stocks, NYSE brought in a "mini circuit-breaker" -- a liquidity refreshment point, or LRP -- to slow trading, which then jumped to other, fully electronic exchanges.
"It validates the decision to offer a hybrid market here where there's a human component married with the electronic," Louis Pastina, executive vice president of NYSE Operations told Reuters in an interview.
The NYSE's rivals advertise lower prices or faster transaction speeds.
The market plunge and especially wide swings in some individual stocks reignited some wider criticism of high-frequency trading, a strategy using lightning-fast computer programs to track market trends.
"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey, a frequent critic of computer-driven high frequency trading.
Investors had already been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some hoped they would to calm markets.
While the exchanges' move to cancel some of the most suspect trades may mollify some, there remained more questions than answers about the market's wild afternoon.
"The trouble is the exchanges aren't saying what caused the erroneous trade," said James Angel, a professor at Georgetown University's McDonough School of Business who specializes in market structure. "What they are saying is that it's not my fault, it was somebody else's fault."

Tuesday, May 4, 2010

Picasso sells at NYC auction for record $106.5M

A 1932 Pablo Picasso painting of his mistress has sold for $106.5 million, a world record price for any work of art at auction.
"Nude, Green Leaves and Bust," which had a pre-sale estimate of between $70 million and $90 million, was sold at Christie's auction house on Tuesday evening to an unidentified telephone bidder.
There were nine minutes of bidding involving eight clients in the sale room and on the phone, Christie's said. At $88 million, two bidders remained. The final bid was $95 million, but the buyer's premium took the sale price to $106.5 million.
Conor Jordan, head of impressionist and modern art for Christie's New York, said he was "ecstatic with the results."
"Tonight's spectacular results showed the great confidence in the marketplace and the enthusiasm with which it welcomes top quality works," he said.
The striking work of Picasso's muse and mistress Marie-Therese Walter has been exhibited in the United States only once, in 1961 in Los Angeles to commemorate the 80th anniversary of Picasso's birth. The painting, which measures more than 5 feet by 4 feet, shows a reclining nude figure with an image of Picasso in the background looking over her.
The painting had belonged to the late California art patron Frances Lasker Brody, who bought it in the 1950s. It had been kept in her family since then.
Part of the sale proceeds will benefit the Huntington Library, Art Collections and Botanical Gardens in San Marino, Calif., where Brody was on the board.
The previous record for a work of art at auction was $104.3 million for "Walking Man I," a sculpture by Alberto Giacometti sold on Feb. 3 at Sotheby's in London. The previous high price for a Picasso work was $104.2 million for "Boy With a Pipe (The Young Apprentice)," attained in 2004 at Sotheby's New York.
On Wednesday, another rarely seen Picasso is slated to sell at Sotheby's auction house. "Woman in a Hat, Bust" is a 1965 work inspired by Jacqueline Roque, the last love of Picasso's life. It is estimated to sell for $8 million to $12 million.
The work hung for 50 years in the Manhattan apartment of Patricia Kennedy Lawford, a sister of former President John F. Kennedy. It's being sold by her estate.

Stocks tumble as new doubts about Greek aid emerge

Greece has been hit hard by the financial crisis — and it has asked for a bailout. The debt-ridden nation is seeking an aid package from the European Union in hope of avoiding further economic disaster. As part of the deal, the country agreed to impose severe austerity measures. One group is not happy with the budget cuts: the Greeks. Protesters have hit the streets and tangled with the police; some even broke locks on the Acropolis in Athens and raised banners that read “Peoples of Europe, rise up.” Other photos show protesters squaring off against cops in riot gear, although a teacher offers roses to one officer as a peace offering.
Stocks plunged around the world Tuesday as fears spread that Europe's attempt to contain Greece's debt crisis would fail. The euro fell to its lowest point against the dollar in a year.

The Dow Jones industrial average lost 225 points, its biggest drop in three months. The slide erased a 143-point gain from Monday. The Dow and broader indexes each fell more than 2 percent. Meanwhile, Treasury prices rose on increased demand for safe investments.

Stocks have seesawed in the past week as European countries' efforts to agree on a bailout package for Greece proceeded in fits and starts. An agreement finally came together over the weekend, but its ballooning size of $144 billion has investors worried that Europe would have an even tougher time assembling an aid package if a larger country such as Spain or Portugal were to get in trouble. Traders are concerned that problems in Greece and other countries could spill over to the rest of Europe and in turn, the U.S.

The market's plunge wasn't a surprise to some analysts who have warned for weeks that stocks were due for a retreat. After Monday's rally, the Standard & Poor's 500 index was up almost 14 percent from its 2010 low of 1,056.74, reached Feb. 8. Investors have spent the past three months largely shrugging off the problems in Europe and focusing instead on the continuing signs of improvement in the U.S. economy.

The stock drop was a reminder that it doesn't take much to rattle investors who are on alert for anything that could disrupt the economic recovery. The avalanche of selling could continue while investors await answers on Greece. But analysts said most drops are likely to be mild because buyers have been using pullbacks as opportunities to buy.

Tuesday's slump marked the fifth time in six days that the Dow rose or fell by triple digits. The market's moves are reminiscent of the fearsome swings in the fall of 2008 and early 2009 when investors were panicked over how bad the recession would get.

Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, said sudden turns in the market are to be expected as traders wrestle with concerns that stocks are overheated.

"The market has kind of gotten itself into a volatile trading range," Fullman said.

Investors are worried that other cash-strapped European governments could also ask for emergency loans while the economy of the entire region is still recovering.

"It's not as though even the strongest economies of Europe are doing particularly well," said Mike Shea, managing partner at Direct Access Partners LLC in New York. "Why is a plumber in Germany going to bail out Greece or Portugal?"

The Dow fell 225.06, or 2 percent, to 10,926.77, its lowest close since April 7. The Dow was down as much as 283 points at its low of the day.

The S&P 500 index fell 28.66, or 2.4 percent, to 1,173.60. As with the Dow, it was the worst drop for the S&P since Feb. 4.

The Nasdaq composite index fell 74.49, or 3 percent, to 2,424.25. The Nasdaq's more intense drop reflected the fact that it includes smaller companies seen as riskier investments than the big names in the Dow or S&P 500.

Investors rushed to safer holdings like Treasurys, pushing interest rates sharply lower. The yield on the benchmark 10-year Treasury note fell to 3.60 percent from 3.69 percent late Monday.

The Chicago Board Options Exchange's Volatility Index, which is known as the market's fear gauge, soared 18 percent. That is a signal that more investors are betting on big drops in the market.

The euro again fell against the dollar as traders turned away from the currency used by 16 European Union countries including Greece. When investors start doubting a country's economic strength, they tend to sell its currency.

Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York, said Greece's troubles aren't enough to spoil a global rebound but that investors are concerned that this small hole in the world economy will become bigger.

"My suspicion is that this won't end up being large enough to really cause the kind of problems that the market is obsessed with," he said.

The dollar rose against other major currencies, especially the euro. The euro sank as low as $1.2994 in New York, its weakest point since April 2009. It was worth $1.3212 late Monday and had traded as high as $1.51 last November.

The stronger dollar is a negative for investors because it would cut into profits for U.S. companies with sizable foreign operations. When the dollar is up, overseas profits translate into less money. The rising dollar also makes it more expensive for foreign buyers to purchase commodities like oil. That hurts demand.

Crude oil fell to $3.45, or 4 percent, to $82.74 per barrel on the New York Mercantile Exchange.

The drop in commodities hurt companies like aluminum producer Alcoa Inc., which fell 57 cents, or 4.3 percent, to $12.58. Caterpillar Inc., the maker of construction and mining equipment, slid $3.24, or 4.6 percent, to $66.70. Caterpillar posted the steepest percentage drop among the 30 stocks that make up the Dow industrials.

Banks also fell in response to the debt problems. Spain's Banco Santander S.A. fell $1.08, or 8.8 percent, to $11.14. Bank of America Corp. fell 50 cents, or 2.8 percent, to $17.56.

"Everybody is worried about who is going to be next," Fullman said. He predicted stocks would resume their climb after a drop of a day or two. "The trend of the market is still up."

Improved economic reports brought little help to stocks.

The Commerce Department said orders to U.S. factories rose 1.3 percent in March. Analysts had expected a drop. The National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.

About six stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 6.6 billion shares, compared with 5 billion Monday.

The Russell 2000 index of smaller companies fell 23.12, or 3.2 percent, to 709.70.

Britain's FTSE 100 and Germany's DAX index each dropped 2.6 percent, and France's CAC-40 tumbled 3.6 percent. Greece's main index fell 6.7 percent, while Spain's Ibex 35 index lost 5.4 percent. Portugal's PSI 20 fell 4.2 percent.

Monday, May 3, 2010

iPad sales cross million mark twice as fast as original iPhone

Whether you love it or hate it, the iPad is a hit, with Apple claiming Monday that it has already sold a million of the "magical" tablets — and at a pace more than double that of the first iPhone.
Apple sold the millionth iPad on Friday — the day that the 3G-embedded version of the iPad went on sale — according to a statement from Cupertino early Monday. Steve Jobs boasted that "demand continues to exceed supply and we're working hard to get this magical product into the hands of even more customers."Indeed, there were reports of iPad sellouts across the country over the weekend. Piper Jaffray analyst Gene Munster (by way of Fortune's Apple 2.0 blog) said that of the 50 Apple stores he and his assistants called on Sunday, all but one of them had run out of the 3G-enabled iPad and most had run dry of the iPad altogether.Back in 2007, the original iPhone took 73 days to cross the million mark. The iPad managed the same feat in just 28 days, about 2½ times as fast as the first iPhone did. The latest iPad sales numbers account only for U.S. customers; the iPad won't make its international debut until later this month. Apple says it'll announce official overseas launch dates (already delayed due to "surprisingly strong demand" here in the States) on May 10, the day it begins taking international pre-orders.iPad apps are selling at a blistering pace as well, Apple claims: more than 13 million iPad apps and 1.5 million iBooks downloaded. About 5,000 iPad apps are now available in the App Store, according to Apple's statement Monday.
The most popular paid app for the iPad as of Monday: Apple's own $10 Pages word processing app, followed by GoodReader (a 99-cent document reader), Numbers (Apple's $10 spreadsheet app for the iPad) and Pinball HD (an excellent pinball game for iPad, especially considering the $2.99 price tag). As far as free iPad apps go, Apple's iBooks e-reader app tops the list, followed by Weather Channel Max, the streaming Netflix app (a killer app for the iPad if there ever was one) and USA Today's iPad app.
Yet the current iPad sales figures may well pale in comparison with next year's expected iPad 2, which (I'm guessing) could see a simultaneous international launch, not to mention more storage and the oft-requested front-facing camera for video chat. Remember how iPhone sales exploded in 2008 once the speedier 3G- and GPS-enabled next-gen model arrived? I'd expect the same thing to happen for the iPad come 2011.(Of course, don't forget that the two-year contract price for the entry-level 8GB iPhone 3G was a full $300 cheaper than the 4GB version of the original iPhone; also, Apple and AT&T probably snagged untold thousands of new customers from people who'd been waiting patiently until their existing two-year contracts with other carriers were up.)
That's just my humble opinion, though. What do you think? Is the iPad a fad that's destined to fizzle out, or will it really take off once the next-generation version arrives? Also: Did you buy an iPad 3G this weekend?

US says it has 5,113 nuclear warheads

The United States has 5,113 nuclear warheads in its stockpile and "several thousand" more retired warheads awaiting the junkpile, the Pentagon said Monday in an unprecedented accounting of a secretive arsenal born in the Cold War and now shrinking rapidly.
The Obama administration disclosed the size of its atomic stockpile going back to 1962 as part of a campaign to get other nuclear nations to be more forthcoming, and to improve its bargaining position against the prospect of a nuclear Iran.
"We think it is in our national security interest to be as transparent as we can be about the nuclear program of the United States," Secretary of State Hillary Rodham Clinton told reporters at the United Nations, where she addressed a conference on containing the spread of atomic weapons.
The U.S. has previously regarded such details as top secret.
The figure includes both "strategic," or long-range weapons, and those intended for use at shorter range.
The Pentagon said the stockpile of 5,113 as of September 2009 represents a 75 percent reduction since 1989.
A rough count of deployed and reserve warheads has been known for years, so the Pentagon figures do not tell nuclear experts much they don't already know.
Hans Kristensen, director of Nuclear Information Project, Federation of American Scientists in Washington, said his organization had already put the number at around 5,100 by reviewing budget estimates and other documents.
The import of the announcement is the precedent it sets, Kristensen said.
"The important part is that the U.S. is no longer going to keep other countries in the dark," he said.
Clinton said the disclosure of numbers the general public has never seen "builds confidence" that the Obama administration is serious about stopping the spread of atomic weapons and reducing their numbers.
But the administration is not revealing everything.
The Pentagon figure released Monday includes deployed weapons, which are those more or less ready to launch, and reserve weapons. It does not include thousands of warheads that have been disabled or all but dismantled. Those weapons could, in theory, be reconstituted, or their nuclear material repurposed.
Estimates of the total U.S. arsenal range from slightly more than 8,000 to above 9,000, but the Pentagon will not give a precise number.
Whether to reveal the full total, including those thousands of nearly dead warheads, was debated within the Obama administration. Keeping those weapons out of the figure released Monday represented a partial concession to intelligence agency officials and others who argued national security could be harmed by laying the entire nuclear arsenal bare.
A senior defense official, speaking on condition of anonymity because the overall total is still classified, did not dispute the rough estimates developed by independent analysts.
Exposure of once-classified totals for U.S. deployed and reserve nuclear weapons is intended to nudge nations such as China, which has revealed little about its nuclear stockpile.
"You can't get anywhere toward disarmament unless you're going to be transparent about how many weapons you have," said Sharon Squassoni, a nuclear policy analyst at the Center for Strategic and International Studies.
Russia and the United States have previously disclosed the size of their stockpiles of deployed strategic weapons, and France and Britain have released similar information. All have signed the Nuclear Nonproliferation Treaty, which is the subject of the U.N. review that began Monday.
The U.S. revelations are calculated to improve Washington's bargaining power with Iran's allies and friends for the drive to head off what the West charges is a covert Iranian program to build a bomb.
Iranian President Mahmoud Ahamadinejad spoke ahead of Clinton at the conference, denouncing U.S. efforts to pressure his regime to abandon its nuclear program.
The U.N. conference will try to close loopholes in the internationally recognized rules against the spread of weapons technology.
Independent analysts estimate the total world stockpile of nuclear warheads at more than 22,000.
The Federation of American Scientists estimates that nearly 8,000 of those warheads are operational, with about 2,000 U.S. and Russian warheads ready for use on short notice.
The United States and Russia burnished their credentials for insisting that other countries forgo atomic weapons by agreeing last month to a new strategic arms reduction treaty.
The New START treaty sets a limit of 1,550 deployed strategic nuclear warheads for each side, down from 2,200 under a 2002 deal. The pact re-establishes anti-cheating procedures that provide the most comprehensive and substantial arms control agreement since the original 1991 START treaty.

Sunday, May 2, 2010

This merger will create world's biggest airline

The deal, to be announced officially on Monday, would form a coast-to-coast behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe. The deal was completed in a remarkably swift two weeks, and would give the airlines the muscle to fend off low-cost rivals at home and to take on foreign carriers abroad.United is buying Continental, and the combined company will keep the United name and be based in Chicago. Jeffery A. Smisek, Continental's chief executive, would run the company. If the deal wins antitrust approval, the merged airline would replace Delta Air Lines as the top carrier.The boards of both companies met Sunday to approve the all-stock deal, according to people familiar with the companies who spoke on condition of anonymity because the negotiations were delicate. The UAL Corporation, United's parent company, would issue 1.05 shares for each Continental share, valuing the acquisition at $3.17 billion, based on Friday's closing price. The merger is expected to be completed before the end of the year.For consumers, the merger could eventually result in higher prices. Though the new company does not intend to raise fares, according to the people briefed on the matter, one of the rationales for airline mergers is to cut capacity. That reduces the number of seats in the industry and allows airlines to increase fares.In addition, United and Continental will no longer be competing against each other on some routes, allowing them to save money but offering travelers fewer options."Airlines are struggling to find a business model that makes sense," said Scott Sonenshein, an assistant professor at the Jones Graduate School of Business at Rice University. "Consolidation gives them more leverage. As a consumer, you will have less choices, fewer routes, higher prices and more fees."Still, in the last decade fares have declined because of pressure from low-fare airlines like Southwest Airlines and JetBlue Airways, as well as lower passenger demand. As a result, previous mergers have had a muted effect on ticket prices, especially on routes served by low-fare carriers.Even with the steep cuts made in the last two years, airlines are still losing money, with too many seats chasing too few passengers. For much of the last decade they have suffered a succession of powerful blows -- from the terrorist attacks of 9/11 to rapidly rising fuel costs and the recession. They have also been straining to keep up with low-fare competition.But with the economy starting to improve and passenger traffic picking up, the industry is generally healthier now, with more cash and less debt. Credit markets have also thawed, allowing access to capital.Combined, United and Continental have 21 percent of domestic capacity, in terms of so-called available seat miles, or one seat flown one mile. Delta has a market share of 20 percent. Globally, the merged companies would have a 7 percent market share.The merger would put pressure on American Airlines, which was once the market leader, but which would drop to third place. While American's executives say they do not feel threatened by industry mergers, Wall Street analysts have been displeased by the company's performance.US Airways, which three weeks ago began its own merger talks with United, is now left on the sidelines, raising questions about its ability to survive as a stand-alone carrier.The United-Continental deal has some major hurdles to clear. The airlines need to win approval from the Justice Department's antitrust division, a challenge given the renewed regulatory zeal in Washington. Unlike the Bush administration's six-month review of the Delta-Northwest deal, analysts expect a lengthier and more complex review of this merger.The merger also needs the backing of employee unions, whose opposition to mergers in the past has undone many of the proposed savings. One factor in favor of the deal is that United's pilots' union indicated last month it would not oppose a deal with Continental, whose own pilots have so far remained silent.The board approvals end nearly a month of intrigue after United initiated talks to combine with US Airways. Those negotiations caught Continental executives by surprise, according to people with knowledge of the matter. Many analysts said United's talks with US Airways were intended all along to lure Continental to the table.United and Continental were close to a merger two years ago, but Continental walked away because of United's poor financial health.The earlier talks allowed for swift negotiations this time. United and Continental executives quickly settled some potentially divisive issues, like the name of the combined company, where its headquarters would be and who would run it. United's chairman, Glenn F. Tilton, would remain for two years. After that, Mr. Smisek of Continental would become the executive chairman.The Chicago connection could provide additional benefits. Mr. Tilton has been courting local politicians, and the city is eager to retain a major business. United now could use that leverage with the Obama administration, whose ties to Chicago run deep.United shareholders would own 55 percent of the combined company, with Continental shareholders owning the rest. Management would be roughly split between the sides. The new entity would expect annual cost savings of $1 billion to $1.2 billion, and would still fly to 370 cities in 59 countries.The combined airlines would have a 40 percent market share at San Francisco International and 35 percent at Chicago O'Hare International, according to data compiled by Cambridge Aviation Research, a consulting company. At Houston Intercontinental, one of the city's two airports, they would have 64 percent of the market and at Newark Liberty International, 55 percent.A merger could yield more than $2 billion in additional revenue and cost savings, according to estimates by Vicki Bryan, an analyst at Gimme Credit.The deal is a personal success for Mr. Tilton, a former oil executive who ran the Texaco Corporation until it was acquired by Chevron. He took over United in 2002 as it was on the verge of bankruptcy, and has since pushed relentlessly for a merger.It also vindicates the work of Kathryn A. Mikells, United's chief financial officer since November 2008, who is the highest-ranking woman in an industry dominated by men. Analysts have praised her for United's cost-cutting efforts in the last year, Jeff Straebler, a strategist at RBS Securities, said.United's improved finances have allowed for a major turnaround in its fortunes. In 2008, it was Continental that was close to buying United. But as that deal was being negotiated, United reported steeper-than-expected losses, leading to doubts about the company's health even as soaring oil prices were crippling the entire industry. Just hours before a deal was to be announced, Continental executives walked away.But in the last two years, United has improved its cash position, aggressively reduced capacity, raised new revenue from bag and other fees, and cut costs. It now has $4.5 billion in cash.

Feisty Buffett supports Goldman, high on economy

Warren Buffett on Sunday intensified his feisty defense of a controversial mortgage transaction marketed by Goldman Sachs Group Inc, saying the investment bank's behavior does not warrant public fury.
Buffett also said he is seeing real signs of improvement in the economy, especially in manufacturing, though it will take another year for a sustainable housing recovery to take hold.
The world's third-richest person spoke at a press conference, a day after his company Berkshire Hathaway Inc held its annual meeting for tens of thousands of shareholders.
Berkshire owns $5 billion of Goldman preferred shares with a hefty 10 percent dividend, and Buffett has become Goldman's most powerful defender since it became the target of a U.S. Securities and Exchange Commission's civil fraud lawsuit.
The April 16 complaint alleged that Goldman hid from clients that securities underlying the mortgage transaction, Abacus, were chosen by Paulson & Co, a hedge fund firm betting they would lose value.
Goldman rejected the allegations, and Paulson was not charged. Buffett on Saturday said he loved the $5 billion investment and defended Goldman's chief, Lloyd Blankfein.
"I don't have a problem with the Abacus transaction at all, and I think I understand it better than most," Buffett said.
Sitting beside Berkshire Vice Chairman Charlie Munger, Buffett said he saw nothing in Goldman's behavior to justify the intense criticism it faces.
"It's very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded," Buffett said.
Buffett also said he had no reason to believe Goldman misled ACA, which helped create Abacus, about Paulson's involvement, and that it should not have mattered to ACA.
"Any bond insurer that is making a decision about what to insure and what to charge for it should not care a whit about who is on the other side of the transaction," he said.
Buffett said Berkshire itself is better off because it regularly enlists investment banks, such as Goldman, including when it was much smaller in the late 1960s and needed capital.
Like shareholders, including the many who streamed to Buffett's barber to get a trim, Buffett and Munger appeared more relaxed at this year's events relative to last year, when worries about the economy and swine flu prevailed.
During the press conference, Buffett took a bag of peanut brittle from Munger -- saying "I'll get that Charlie" -- and ostentatiously gnawed it open with his teeth.
Just over an hour earlier, Buffett appeared at the nearby, Berkshire-owned Borsheim's Fine Jewelry, where he played table tennis with Ariel Hsing, 14, the top-ranked U.S. female player under age 20. Buffett unveiled, as a joke, a giant blue paddle to give him a better shot of winning. (Didn't help.) Several Berkshire-themed items at Borsheim's sold out.
At the press conference, Buffett's said Berkshire's manufacturing businesses, including the conglomerate Marmon Holdings Inc and toolmaker Iscar Metalworking Cos, are benefiting from "pretty significant improvement.
He said luxury goods units including Borsheim's and the NetJets Inc plane leasing unit are seeing improved business, albeit from a "very, very low level," while results for housing-sensitive businesses such as Acme Brick Co and the insulation maker Johns Manville remain "very poor."
Yet Buffett cautioned policymakers not to artificially stimulate housing sales and perhaps derail a recovery.
"What would bother me is if we were to overstimulate them, and create a permanent overhang," he said. "I want to have a sustainable recovery, and I don't think you're going to have to wait more than a year for that."
At the press conference, Buffett maintained enthusiasm for Federal Reserve Chairman Ben Bernanke, saying "there's no one in the United States that I know of whom I would rather have running the Fed than Ben Bernanke."
Buffett has a much longer-term horizon for his largest acquisition, the $26.5 billion February takeover of Burlington Northern Santa Fe Corp.
"The key factor in our railroad investment is whether more people are moving goods 10, 20 or 50 years from now," he said. "The odds of that happening are extremely high."
Buffett and Munger had harsh words for some professions, including accountants and investment bankers, whom they said in part caused the 2008 crisis because they were too greedy and could not stand up to management.
"Everywhere you look this problem has been caused by high-IQ asininity" perpetrated by "high-IQ boobs," Munger said. "People who know the edge of their own competency are safe, and those who don't, aren't."
Munger added: "Investment banking will behave more responsibly if we as citizens force it to behave more responsibly."
And while Berkshire wants to make non-U.S. acquisitions, Buffett admitted its size rules out most countries, where the businesses or financial markets are too small. Berkshire's market value is about $190 billion, Reuters data show.
"Business opportunities, we can stretch out to 30 or 40 countries," Buffett said. "Our problem is finding them."