World financial news

Apple is the world’s most valuable company. The Dow Jones industrial average is probably the world’s best-known stock index. So don’t they deserve each other?

If Apple had been added to the Dow in June 2009, the last time there were serious rumors that it would happen, the average would be about 2,500 points higher than it is today. It would also be well above its all-time high.

That’s the calculation of Paul Hickey of Bespoke Investment Group, which crunches numbers about the markets guaranteed online personal loans. He says the Dow would be at 15,360, about 1,200 points above its record.

Dow Jones Indexes, which maintains the average, says its purpose is to reflect the broad economy _ not pick the hottest stocks.

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A surprisingly big rebound in a closely watched U.S. manufacturing survey continued to shore up markets Wednesday, particularly in continental Europe where traders returned to their desk after the May Day public holiday to the news that Dow Jones industrial average closed at its highest level in five years.

The Institute for Supply Management reported that U.S. manufacturing expanded last month at its strongest pace since June, with orders, hiring and production all up. That news came on top of a similar report out of China, the world’s No. 2 economy and has helped boost optimism about the state of the global economy, despite the ongoing debt-related problems in much of Europe.

“Just as I am getting really concerned about the depths of Europe’s economic slowdown, and the lack of policy measures to combat it, global financial markets have a spring in their step thanks to better surveys in the U.S. and elsewhere,” said Kit Juckes, an analyst at SG Securities.

In Europe, Germany’s DAX was up 0.8 percent at 6,810 while the CAC-40 in France rose 1.2 percent to 3,250. The FTSE 100 index of leading British shares, which was open Tuesday and reacted to the ISM upside rise unlike its counterparts in Frankfurt and Paris, was down 0.3 percent at 5,793.

Wall Street was poised for further modest gains, a day after the Dow Jones industrial average closed at its highest mark since 2007 _ both Dow futures and the S&P 500 futures were up 0.1 percent.

The focus over the rest of the week is likely to center on the U.S. economy in the run-up to Friday’s release of March nonfarm payrolls data _ the figures often set the market tone for a week or two after their release payday loan.

Later Wednesday, investors will have the monthly private payrolls report from ADP to assess. The ADP figures often provide a guide toward the actual government report.

“A strong reading would follow on nicely from yesterday’s data, and would set the stage for a positive report on Friday,” said Chris Beauchamp, market analyst at IG Index.

In the currency markets, the euro was giving up some recent gains and trading 0.8 percent lower at $1.3136 as figures showed the parlous state of the eurozone economy. Eurostat, the EU’s statistics office, reported that unemployment across the 17-country eurozone rose to 10.9 percent in March, its highest level since the euro was launched in 1999.

Earlier in Asia, Japan’s Nikkei 225 rose 0.7 percent to close at 9,380.25 after a sharp tumble the day before. Hong Kong’s Hang Seng gained 1 percent to 21,309.08.

Mainland Chinese shares advanced after authorities said that China’s two stock exchanges would cut fees charged for trading yuan-denominated shares by 25 percent from June 1. The benchmark Shanghai Composite Index rose 1.8 percent to 2,438.44 and the Shenzhen Composite Index gained 1.7 percent.

Benchmark oil for June delivery was down 34 cents to $105.82 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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ORLANDO, FLA.

The first time I wrote about Sean Egan and his small, independent credit-research firm, Egan-Jones Ratings Co., was in December 2007 for a column about the bond insurer MBIA Inc. And man, did he nail it.

The three big credit raters — Moody’s Investors Service, Standard & Poor’s and Fitch Ratings — all had AAA ratings on MBIA’s insurance unit, their highest grade. Egan said it deserved much lower. Anyone reading MBIA’s financial reports could see the company was losing money and needed billions of dollars of fresh capital.

By mid-2008, the Big Three had cut their ratings. Once again, Egan, a lonely voice of reason who saw the financial crisis coming, had shown his larger competitors to be incompetent or compromised. It was one of many great calls to come for Egan-Jones. As for MBIA, which had no revenue last quarter, it’s still struggling.

So if you had told me back then that the Securities and Exchange Commission’s enforcement division more than four years later would be accusing Egan, and his firm, of securities-law violations — but not any of the big rating companies — there’s no way I would have believed you. That’s what happened last week, though.

Life isn’t fair, as they say. The big raters, paid by the issuers of securities they grade, so far have gotten a pass, even after helping cause the financial crisis by slapping AAA scores on oodles of subprime-mortgage dreck. Egan-Jones, with fewer than 20 employees, makes its money by selling subscriptions to investors, meaning it’s not beholden to issuers. Yet Egan and his firm are getting pinched, although nothing in the SEC’s administrative complaint indicates investors were harmed.

None of this is to excuse infractions Egan-Jones might have committed. We will have to wait and see if the agency’s claims stick in court. That said, it seems Egan-Jones’ mistake was to seek recognition from the SEC at all.

The allegations mainly concern the application Egan-Jones filed with the agency in 2008 to expand its license as a so-called nationally recognized statistical rating organization. The firm, based in Haverford, Pa., first received that designation in 2007 for rating corporate debt, insurance companies and banks. Its 2008 application, which the SEC approved, sought recognition as a rater of asset-backed securities and government bonds.

Egan-Jones at the time said it had about 150 ratings on issuers of asset-backed securities and about 50 on government-debt issuers. The complaint said those numbers were overstated and that the firm hadn’t made any such ratings publicly available free online credit report. Attorneys for Egan, 54, and the firm say their clients filled out the SEC’s application based on their understanding of what the form required.

Additionally, the complaint accused Egan-Jones of committing numerous book-and-record violations, such as failing to maintain a system for retaining e-mails. It also said the firm let two analysts participate in determining ratings for companies in which they owned securities, in violation of agency rules. An attorney for the defendants, Alan Futerfas, said the claims are without merit.

What about the big rating companies? McGraw-Hill Cos., S&P’s parent, in September said the SEC’s staff had issued S&P a “Wells notice” warning that the agency may seek penalties over its rating of a $1.6 billion collateralized debt obligation in 2007. S&P received its letter the month before Egan got its Wells notice. There’s no telling if the SEC will follow through.

In 2010, the SEC issued an investigative report that said a Moody’s rating committee in 2007 knowingly decided to keep inflated ratings on about $1 billion of notes after discovering an error in one of the firm’s models. Later in 2007, Moody’s applied to the SEC for recognition under the same 2006 federal law that Egan-Jones saw as its chance to join the same club as the Big Three.

The rating process used by Moody’s in that instance violated the policies described in the company’s application, the SEC said. However, the report said the agency decided not to accuse Moody’s of violating any laws, because some of the conduct occurred outside the U.S., presenting jurisdictional hurdles. Lucky break, I guess.

The way Congress and the SEC have rigged this game, nationally recognized credit raters are a unique species of opinion merchants, endowed with sweeping authority and special privileges. Institutional money managers often are required by law to abide by their judgments. The better approach would be to scrap the designation, so investors are encouraged to do their own homework.

Egan-Jones, which has been in business since 1992, could have continued as an independent, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to the whims of the SEC. Now it’s paying the price.

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Swiss central bank President Thomas Jordan said policy makers are ready to take further measures if needed to weaken the franc as its strength poses

The U.S. unemployment rate might now be below 8 percent had Congress adopted all of President Barack Obama

While the debate over "QE3" continues within the Federal Reserve, it seems more policymakers are leaning away from supporting further stimulus.

At the central bank’s last policymaking meeting, Fed officials continued to discuss whether they should buy more assets in a third round of quantitative easing, commonly known as QE3.

But only "a couple" members were in favor of more stimulus, as opposed to two months earlier, when a "few" did so.

"A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate consistent rate of 2% over the medium run," minutes released Tuesday said.

The Fed’s language on the overall economy also seemed more upbeat than in January, pointing to "encouraging" jobs data.

Since the financial crisis, the Fed has purchased $2.3 trillion in Treasuries and mortgage debt in the first two rounds of quantitative easing. The intent is that these policies will bring interest rates lower, boosting the economy by giving businesses and consumers access to cheaper credit.

Some members have recently indicated that by buying more mortgage backed securities, the Fed may be able to give a bigger boost to the struggling U.S. housing market.

Others have pointed to stronger jobs data as a sign that the economy is healing on its own, and may not need further assistance from the Fed.

Richmond Fed President Jeffrey Lacker was the only member of the central bank’s 10-person Federal Open Market Committee voting against the use of language that specifies interest rates will likely remain low until the end of 2014.

He believes the economy will heat up enough to warrant a hike in interest rates before then. 

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People under 65 are applying for reverse mortgages at a much higher rate than previously, according a new survey, and they’re using the money largely to pay down debt.

The survey, by the Metlife Mature Market Institute and the National Council on Aging, found that 21 percent of people considering reverse mortgages in 2010 were under 65.  That age group made up only 6 percent of applicants in 2006.

The authors didn’t speculate as to whether tough economic times might be behind the interest among people who are still of working age.

The biggest motive cited at all ages was to pay down debt.  But those under 70 listed that as a priority in 73 percent of cases, compare to 62 percent for the over-70 group.

The survey was based on answers from 21,000 people who attended independent counseling required for people applying for reverse mortgages guaranteed cash advance.

Reverse mortgages are limited to people aged 62 and over.  Homeowners can borrow a certain percent of the equity in their homes, and borrowers make no payments on the debt as long as they live in the house.

Because of that long delay in collection, the amount people can borrow rises with their age.  The rising interest among working-age people comes despite the fact that they could borrow more if they waited.

For instance, the study notes that a 65-year-old with a $250,000 home

could borrow $103,000.  An 85-year old could borrow more than $141,000 on the same house.

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Billionaire Warren Buffett wants Berkshire Hathaway shareholders to know that the company has someone in mind to replace him eventually, but he’s emphasizing that he has no plans to leave.

Buffett offered a couple new details about Berkshire’s succession planning in his annual shareholder letter Saturday. Investors have long worried about who will replace Berkshire’s 81-year-old CEO.

Buffett isn’t naming the successor. But he says the Berkshire board is enthusiastic about the executive it has picked. He says there are two good back-up candidates.

Previously, Buffett had said only that the board had three internal candidates for the job.

Berkshire has also cleared up some succession questions by hiring two hedge fund managers. Buffett says those two have the “brains, judgment and character” to manage Berkshire’s entire portfolio eventually.

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The European Central Bank is likely to refuse to show its hand on how it will help cut Greece