Logo Background RSS

» Business

  • Earnings lift Wall Street, but Amazon.com plunges
    By Asiri on July 23rd, 2010 | No Comments Comments

    NEW YORK (Reuters) – Earnings from economic bellwethers 3M, UPS and Caterpillar catapulted stocks on Thursday as investors shed some of their fears about the strength of the recovery.

    The parade of prominent names reporting profits continued after the market’s close. Microsoft Corp (MSFT.O) reported a 48 percent rise in quarterly profit late on Thursday. In regular trading its shares rose 2.9 percent to $25.84, but they were down 0.2 percent after hours.

    In other after-hours action, online retailer Amazon.com Inc’s (AMZN.O) earnings fell far short of Wall Street’s estimates, sending its shares 13.5 percent lower to $103.88.

    During the regular session, the major indexes posted their largest daily gains in more than two weeks, led by United Parcel Service Inc (UPS.N), which rose 5.2 percent after it raised its profit outlook. The world’s largest package delivery company is viewed as a barometer of consumer and business demand.

    “UPS guiding higher is a very good sign since the amount of shipping volume is directly correlated to the strength of the economy,” said Peter Jankovskis, co-chief investment officer of OakBrook Investments LLC in Lisle, Illinois.

    Caterpillar Inc (CAT.N), up 1.7 percent to $68, and 3M (MMM.N), up 3 percent to $84.75, were among multinationals that raised their outlooks, suggesting the global economy may also be on a stronger footing.

    “The companies that are doing well generally are the ones that have significant overseas revenues or some kind of unique product,” said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

    The Dow Jones industrial average (.DJI) gained 201.77 points, or 1.99 percent, to 10,322.30. The Standard & Poor’s 500 (.SPX) added 24.08 points, or 2.25 percent, to 1,093.67. The Nasdaq Composite (.IXIC) rose 58.56 points, or 2.68 percent, to 2,245.89.

    Thursday’s rally reversed losses from a day earlier after testimony by Federal Reserve Chairman Ben Bernanke soured investors on the economic outlook.

    But for the fourth time this month the S&P 500 came close but failed to break through 1,100, a level that is proving to be a tough hurdle and could be in the way of further gains.

    Earlier on Thursday, data showed weekly applications for unemployment insurance rose. Job growth has slowed after strong gains early in the year, cutting into household spending and holding back the economy’s recovery from the toughest recession since the 1930s.

    “We can’t find a story that’s going to convince us unemployment is going to materially get better any time soon and that weighs on the consumer, who controls a lot of the economy,” Caughey said. “That’s a prevailing negative force investors think about.”

    Home resales declined less than expected but still hit a three-month low in June, while the median home sale price rose by 1 percent from the previous year.

    KB Home (KBH.N) rose 3.9 percent to $11.06 and Lennar Corp (LEN.N) added 3.1 percent to $14.76. The PHLX Housing index (.HGX) jumped 4.2 percent.

    Advancers outnumbered decliners by almost seven to one on the New York Stock Exchange, and by five to one on the Nasdaq.

    About 8.86 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s estimated daily average of 9.65 billion.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Should Zimbabwe be allowed to sell diamonds?
    By Asiri on July 22nd, 2010 | No Comments Comments

    Raw diamonds are checked for their quality. Photo courtesy of  AFP/Getty Images.

    Raw diamonds are checked for their quality. Photo courtesy of AFP/Getty Images.

    The World Diamond Council recently announced that Zimbabwe will be allowed to sell its diamonds by September after an agreement was made with the Kimberly Process, which monitors trade in the precious stones to stop the use of blood diamonds’ to fuel conflicts.

    This decision comes after much wrangling because the Zimbabweans say they need to earn foreign currency from the sale of the diamonds, while the Kimberly Process was concerned about reports of human rights abuses at Zimbabwe’s Marange diamond fields.

    The Zimbabwe army is accused of killing and torturing hundreds of illegal diggers in the Marange diamond fields in 2006, which prompted the international community to stop buying Zimbabwean diamonds.

    Now the Finance Minister Tendai Biti, who is one of the opposition leaders for the Movement for Democratic Change, has won a small victory by getting the green light for the sale of two batches of diamonds, which will take place under strict monitoring and regulation.

    All in all, Zimbabwe says it holds a stockpile of 4 million carats of Marange diamonds, worth about $1.7 billion.

    For Biti, selling just some of these will help boost the economy and offset the lack of donor aid, which has not come flooding into the country after a political agreement was made between Robert Mugabe’s Zanu PF and the opposition MDC. Zimbabwe’s international debt is estimated at about 5.5 billion dollars.

    So my question is, do you think this is a good thing? Should Zimbabwe be given a chance to sell diamonds to help earn much-needed revenue for its bankrupted state coffers? Or is this decision premature and are the abuses at the Marange diamond fields still occurring?


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Wall Street rises on Goldman while Apple up late
    By Asiri on July 21st, 2010 | No Comments Comments

    NEW YORK (Reuters) – U.S. stocks rose for a second consecutive day on Tuesday, led by gains in shares of Goldman Sachs and strength in beaten-down homebuilders and raw materials companies.

    Goldman Sachs Group Inc (GS.N) rose 2.2 percent as buyers materialized after an early selloff on news the investment bank’s quarterly earnings tumbled 82 percent, steeper than forecast.

    “Most stocks opened weaker, so it was a buying opportunity for people willing to take the risk,” said Peter Costa, president at Empire Executions in New York.

    The Dow Jones industrial average (.DJI) rose 75.53 points, or 0.74 percent, to 10,229.96. The Standard & Poor’s 500 Index (.SPX) gained 12.23 points, or 1.14 percent, to 1,083.48. The Nasdaq Composite Index (.IXIC) added 24.26 points, or 1.10 percent, to 2,222.49.

    Stock could extend gains for a third straight day as futures rose after Apple Inc (AAPL.O) reported results that surpassed Wall Street’s forecasts.

    Shares of Apple, maker of the iPhone and iPad, gained 3.2 percent to $260 in extended-hours trading.

    BUYERS COME IN LATE

    Some market analysts said the late buying during the regular session was driven in part by speculation that the Federal Reserve would take steps to spur lending by eliminating interest paid on excess bank reserves held at the Fed.

    The S&P 500 hit a session low near a key support level of 1,060, the 23.6 percent retracement of the index’s 2010 high-to-low slide.

    Housing starts fell more than expected in June, the government said, but applications for building permits, a measure of future activity, unexpectedly rose.

    “It looks like things have turned around on economic news, which was better than earnings today,” said Andy Fitzpatrick, director of investments at Hinsdale Associates, in Hinsdale Illinois.

    Weyerhaeuser Timber Co (WY.N) shot up 3.9 percent to $15.96 and the Morgan Stanley housing index (.HGX) gained 4.2 percent.

    The materials sector (.GSPM), up 2.9 percent, led gains on the S&P 500, helped by a 2.5 percent jump in copper futures — the largest daily percentage gain in almost a month.

    Despite some indicators signaling a possibly overbought level, investment bank Goldman Sachs’ technical momentum and its moving average convergence divergence point to a near-term rally.

    “Short-term, the stock has a decent shot to move back up to around a $165-$175 potential target,” said Vinny Catalano, investment strategist with Blue Marble Research in New York.

    The S&P energy index (.GSPE) was up 1.9 percent, helping to underpin the market. Crude oil settled up 1.2 percent at $77.44 per barrel.

    REVENUE MISSES ARE PUNISHED

    International Business Machines Corp (IBM.N) fell 2.5 percent to $126.55 a day after reporting quarterly revenues missed estimates as new technology services contracts declined. IBM, the world’s biggest technology services company, was the top drag on the Dow.

    Texas Instruments Inc (TXN.N) also missed revenue expectations due to weaker-than-expected orders from one mobile phone customer, and shares of the chipmaker dropped 3 percent to $24.78.

    In after-hours trading, Internet company Yahoo Inc (YHOO.O) dropped 6.3 percent to $14.25 after net revenue fell short of Wall Street expectations.

    About 8.22 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq during regular hours, below last year’s estimated daily average of 9.65 billion.

    Advancing stocks outnumbered declining ones on the NYSE by a ratio of more than 4 to 1, while on the Nasdaq, about 12 stocks rose for every five that fell.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Homebuilders losing confidence in the recovery
    By Asiri on July 20th, 2010 | No Comments Comments

    – Homebuilders are feeling increasingly pessimistic about their industry, more evidence that the economic recovery is slowing.

    The National Association of Home Builders said Monday that its monthly reading of builders’ sentiment about the housing market sank to 14 — the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market.

    The weak job market and an increasing number of foreclosed properties have prompted builders to limit construction of new homes. A modest revival in sales over the past year ended in May after federal tax credits expired at the end of April.

    Conditions are not likely to improve soon. Reports this week on new home construction and previously owned home sales in June are expected to show the housing market remains deeply hobbled. An update on the Obama administration’s effort to help those in danger of losing their homes is also expected Tuesday.

    While the overall economy appears unlikely to fall back into recession, many analysts expect housing to struggle for some time.

    “With growth slumping again, and unemployment hovering near the double digits, we simply don’t have the necessary ingredients for a sustainable recovery in housing,” said Mike Larson, real estate and interest rate analyst at Weiss Research.

    Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in May fell to 213,000, the lowest level in nearly 40 years. And, at the current sales rate, it would take 8.5 months to exhaust that supply. In a healthy economy, new home inventory takes about six months to exhaust.

    Five years ago, at the peak of the housing boom, there were about 460,000 unsold homes on the market. And because of the frenzied pace of sales, it would have taken a little more than four months to exhaust that supply.

    In some ways, it could be good news that builders are scaling back. It means they won’t add to the supply of homes on the market and that could create more demand for the current stock.

    But it won’t help the job market. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the builders’ trade group. The impact appears in multiple industries, from makers of faucets and kitchen appliances to lumber yards.

    New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. The number of buyers who signed contracts to purchase previously occupied homes tumbled 30 percent in May. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.

    Still, the trade group’s latest survey of 502 residential builders nationwide suggests the market will remain sluggish for the rest of the year. The index is broken into three separate readings. Its index measuring expectations for the next six months fell one point to 21. Current sales conditions fell two points to 15 and foot traffic from prospective buyers sank to 10.

    Even if homebuilders keep construction to a minimum, it could be three years before the supply of housing comes into balance with demand, said Paul Dales, U.S. economist for Capital Economics.

    “The supply of housing remains very high and could rise even further,” Dales said. “It’s going to be a very long time before all the excess supply is worked off.”


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Government says leak detected ‘a distance from’ oil well
    By Asiri on July 19th, 2010 | No Comments Comments

    Click to play

    In his letter Sunday, Allen asked BP to provide its “latest containment plan and schedule in the event that the Well Integrity Test is suspended” within 24 hours and said the company should be prepared to discuss its efforts to detect leaks during a regular conference call between BP and government scientists that was scheduled for 9 p.m. ET.

    Earlier Sunday BP Chief Operating Officer Doug Suttles said a variety of tests showed oil and gas were not escaping from the well, noting that the recently recapped oil well in the Gulf of Mexico could remain closed until the relief well is drilled if tests remained favorable.

    “No one associated with this whole activity wants to see any more oil flow into the Gulf of Mexico,” Suttles told reporters Sunday morning. “We will continue integrity tests all the way until we get the well killed. There is no target to return the well to flow.”

    Allen said earlier Sunday that testing would determine whether keeping the well capped was the right solution. Pressure testing results in the well have been lower than expected, he said, which means oil could be leaking out from below.

    “While we are pleased that no oil is currently being released into the Gulf of Mexico and want to take all appropriate action to keep it that way, it is important that all decisions are driven by the science,” he said. “Ultimately, we must insure no irreversible damage is done which could cause uncontrolled leakage from numerous points on the sea floor.”

    Rep. Ed Markey, who has been a vocal critic of BP’s response to the gusher, said Sunday that the company could have another motivation for wanting to keep the well capped.

    “If the well remains fully shut in until the relief well is completed, we may never have a fully accurate determination of the flow rate from this well. If so, BP — which has consistently underestimated the flow rate — might evade billions of dollars of fines,” Markey said in a letter to Allen released Sunday.

    Using ships on the surface to collect 100 percent of the gushing oil would allow scientists to calculate the flow rate — a figure that the government would use to determine how much to fine BP, Markey said.

    On Saturday, Allen said that once testing is eventually stopped “we will immediately return to containment, using the new, tighter sealing cap with both the [vessels] Helix Producer and the Q4000.”

    BP is conducting regular seismic runs, monitoring sonar, visual and acoustic activity and the data has been “encouraging,” showing no problems.

    However if tests show problems, BP officials said they are prepared to remove the tightly fitting containment cap and reassess.

    “We’re just taking this day by day,” Suttles said Sunday. “Nobody wants to see any more oil go into the gulf, but clearly we have to make sure we don’t make the situation worse.”

    No oil has gushed out since Thursday when BP closed all the valves in a new custom-made cap that was lowered into place earlier in the week. The undersea video images of a quiet ocean inspired cautious optimism in the hearts of Gulf

    Coast residents devastated by three months of disaster.

    Meanwhile, BP has restarted work on drilling two relief wells. Wells said that the first relief well is now about five feet away from the ruptured Macondo well and an intersection could occur by the end of July. BP then plans to pump mud and cement down to kill the ruptured well.

    Leaving the well capped Sunday past the 24 hours of testing is a new development. On Saturday, it was expected the testing would extend only into Sunday afternoon.

    Engineers and scientists have intensified monitoring of the well, pouring over images and data collected by robots, sonar scans and seismic and acoustic examinations. A government ship is in the area, fitted with equipment for detecting methane gas, which would be an indication of a leak.

    The well integrity test began Thursday after two days of delays, first as government scientists scrutinized testing procedures and then as BP replaced a leaking piece of equipment known as a choke line.

    Since there’s less oil on the surface, BP officials said Sunday that the nearly 50 skimmers deployed at the well site collected nearly half the amount they had the day before. They only conducted one controlled burn, and Suttles said there have been numerous days in a row with no new shoreline impacts.

    In the coming weeks, BP also plans to bring in two more oil collection ships in addition to the two already in the Gulf, bringing containment capacity to 80,000 barrels (about 3.4 million gallons) of oil a day, more than high-end estimates of how much oil had been leaking.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Car bomb in Mexican drug war changes ground rules
    By Asiri on July 18th, 2010 | No Comments Comments

    CIUDAD JUAREZ, Mexico – The first successful car bombing by a drug cartel brings a new dimension of terror to a Mexican border region already shocked by random street battles, bodies dangling from bridges and highway checkpoints mounted by heavily armed criminals.

    The attack, seemingly lifted from an al-Qaida playbook, demonstrated once again that the cartels are a step ahead of both an already guarded public and federal police, who have recently taken over command from the military of the battle against traffickers in Ciudad Juarez, a city across the border from El Paso, Texas.

    “It’s a lot like Iraq,” said Claudio Arjon, who owns a restaurant near the scene of the attack and was surveying the damage from behind police lines Saturday morning. “Now, things are very different. It’s very different. It’s very ugly.”

    People in Ciudad Juarez already live under siege. Like many restaurant owners, Arjon closes his business long before dark every day to avoid criminal gangs that threaten him and his clientele. Parents take separate cars to the same place so one can warn the other of dangers up ahead. Ambulance drivers and emergency room doctors come under fire from gang members trying to finish off wounded rivals.

    The car bomb, which killed at least three people Thursday, was the one thing nobody was expecting. It was a carefully planned attack designed to catch the extremely wary population and security forces off guard.

    A street gang tied to the Juarez cartel lured federal officers and paramedics to the site of the bomb by dressing a bound, wounded man in a police uniform and calling in a false report of an officer shot, said Ciudad Juarez Mayor Jose Reyes.

    Among those killed was a private doctor who rushed to the scene to help treat the wounded man. Among the injured was a local TV cameraman who had been filming the paramedics treating the man. Even in a country where beheadings and drive-by shootings are routine, they could not imagine the cartels would choose that vulnerable moment to strike.

    “In all my time working, nothing like this had ever happened to me,” Channel 5 cameraman Luis Hernandez said in an interview with Milenio television.

    The Red Cross in Ciudad Juarez already instructs their personnel to wait until police cordon off the scene of an attack before treating the wounded — but that wasn’t enough Thursday when the attackers clearly waited until everyone was in place before striking.

    Now, Red Cross officials said they were instructing their rescuers to look out for anything unusual — a parked car or an abandoned bag — that could be a bomb.

    “They have to think with their heads and not their hearts,” said Gilberto Contreras, the president of the Red Cross in the city.

    Federal police said the bombing attack was in retaliation for the arrest earlier in the day of a top leader of the La Linea gang, which works for the Juarez drug cartel. Investigators were still trying to determine what type of explosives the attackers used.

    Brig. Gen. Eduardo Zarate, the commander of the regional military zone, said as much as 22 pounds (10 kilograms) of explosives might have been used. He said it might have been detonated remotely, adding that burned batteries connecting to a mobile phone were found at the scene.

    A senior U.S. law enforcement official, who spoke on condition of anonymity because the Mexican investigation is ongoing, said it is possible Mexican drug cartels were receiving bomb training from foreign groups — but it is just as likely they are learning on their own. “They could be looking at the Internet, and there are publications out there,” he said.

    There have long been indications that the drug gangs were experimenting with explosives — and steadily improving their know-how. Gunmen have stolen explosive substances from transport vehicles and private companies. In a February 2009 raid on a U.S. firm in the northern state of Durango, masked gunmen stole 900 cartridges of Tovex water gel explosives.

    In March, an improvised explosive device went off without injuring anyone at a gas station in Cadereyta, a town in the northern state of Nuevo Leon.

    That bomb consisted of two large cylinders filled with nails and possibly black powder — a substance easily available on the black market — according to a U.S. Bomb Data Center report. A cell phone hard-wired to a cattle prod was found at the scene.

    The report said the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives was helping investigate that blast and several other situations around Mexico possibly involving remotely controlled IEDs.

    While Mexican federal police have training in post-blast investigations, no security force in the country has experience with patrolling cities that could be mined with car bombs or roadside explosives.

    “There’s no way the Mexicans are prepared for it,” said Eric Olson, a senior associate at the Wilson Center’s Mexico Institute. “I hate to say it but the cartels seem to have no limits to the violence and terrible things they are willing to do.”

    Olson said the best way for federal police to confront this new threat would be to improve their intelligence capabilities — an area he called a serious weakness.

    “It requires operational intelligence. It requires ‘We know this is going to happen or likely is going to happen in this neighborhood,’” he said. “That kind of refined intelligence is extremely difficult anywhere. But it doesn’t seem to be available in a place like Ciudad Juarez.”

    The cartels, on the other hand, “have an amazing intelligence capability,” he said. “They are far ahead of law enforcement. All that keeps law enforcement from getting ahead of the curve.”

    Mexican cartels — armed with billions of dollars and networks of informers among corrupt police forces — have long demonstrated their ability to target the highest-ranking security officials and government officials.

    Last month, cartel gunmen killed 12 federal police in the western state of Michoacan. A jailed suspect later described the carefully planned ambush to police, making it clear the gang knew exactly where the police patrol was going to be and when.

    And in another first, suspected cartel gunmen assassinated two candidates during campaigning last month for local and state elections, including the leading contender for governor of the northern border state of Tamaulipas. Never before had drug gangs killed such a high-ranking electoral candidate.

    Reyes, the Ciudad Juarez mayor, told The Associated Press that city authorities have “started changing all our protocols, to include bomb situations,” he said.

    But there was little information from the federal government on what its next steps would be.

    Attorney General Arturo Chavez told a news conference Friday that the nature of the explosives used in the attack was still under investigation, and that there was “no evidence anywhere in the country of narco-terrorism.”

    It didn’t seem that way to many frightened Mexicans — or police.

    “It’s terrorism,” a federal police officer muttered at the bombing scene Saturday.

    Yuriria Sierra, a columnist for Excelsior Newspaper, questioned the attorney general’s remarks: “With a population terrified to go out because they don’t know if they will come home, we still can’t talk about ‘narco-terrorism?’”

    “We don’t need Al-Qaida to live in fear,” she wrote.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Dutch, Venezuelan diplomats discuss differences
    By Asiri on July 18th, 2010 | No Comments Comments

    CARACAS, Venezuela – The foreign ministers of the Netherlands and Venezuela agreed to strengthen cooperation after President Hugo Chavez’s government protested what it called violations of its airspace by a Dutch military aircraft, authorities said Saturday.

    Dutch Foreign Minister Maxime Verhagen met with his Venezuelan counterpart, Nicolas Maduro, who called it a welcome opportunity to discuss “the differences we have and to be able to communicate more closely and build an agenda,” the Venezuelan government said in a statement.

    The self-governing Dutch islands of Aruba, Curacao and Bonaire lie off Venezuela’s coast, and Chavez’s government complained that a Dutch military aircraft violated its airspace three times earlier this month.

    Chavez on Wednesday publicly questioned how long the Dutch islands off Venezuela’s coast will remain part of the Netherlands and said he believes they will one day be independent.

    Verhagen was accompanied by the leaders of Aruba and the Netherlands Antilles for the talks Friday night.

    A joint government statement released by Venezuela said the foreign ministers reaffirmed a commitment to “absolute respect of territorial integrity and sovereignty.”

    It said they also agreed to study the possible construction of a natural-gas pipeline from Venezuela to Aruba, and expressed support for maintaining a cooperative relationship between Venezuela’s state oil company and oil refineries in Aruba and Curacao.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Home Sellers Can Curb Taxes By Making Loans To Buyers
    By Asiri on July 16th, 2010 | No Comments Comments

    With the rocky real estate market in recent years, an owner who has a property pregnant with profit either bought at the right time way before the boom or has been blessed by lady fortune.

    In either case, selling such a property can be wise to do in a way that spreads taxability over time — an installment sale. It’s whenever a sale is made and any part of the purchase price is deferred to another year.

    “Given the current low interest rates and stock market volatility, it would be more than prudent to consider an installment sale to maximize after-tax returns,” said Jason Kesselman, a financial adviser for Estate Planning of Delaware Valley in Wilmington, Del.

    Who Can Benefit

    Installment sales can be particularly useful for property investors, and for homeowners who anticipate a gain of more than $250,000 from selling ($500,000 for a married couple filing a joint return).

    A typical installment sale would be where a seller finances part of a purchase, normally by taking back a note — a second mortgage — that covers what the buyer’s lender doesn’t finance. Seller financing could also be a primary mortgage, called a purchase money primary lien, and could be for the entire purchase amount.

    Sellers are normally taxed only as principal is received. IRS Form 6252 provides the formula and Richard Schank, a financial planner with PTS Brokerage in Mt. Laurel, N.J., provides an example.

    “To keep the numbers simple, say a tract of raw land was purchased two years ago for $100,000 and sold in 2010 for $200,000 — with the seller taking back a note for $100,000,” he said. “The total gain is $100,000. But the seller only recognizes the gain as dollars are collected, based on the gross profit percentage. In this case . .. the gross profit percentage is 50% and (so) 50% of every dollar collected is taxable.”

    Upon closing, the seller collects the $100,000 portion that he didn’t finance (but the buyer may have with another loan) and therefore $50,000 is taxable. The other taxable $50,000 is recognized and reported as the principal of the seller’s note collected over the life of the loan. As each dollar of principal is received, 50% of it is taxable.

    Seller Pros And Cons

    The primary advantage to a seller is deferral of the tax due. The higher inflation rises from its recent modest levels and the longer the term of the note, the lower the true tax becomes. A $50,000 tax paid 30 years from today — say on a balloon note — is worth far less on an economic basis than $50,000 paid today. Using a 5% inflation rate over the 30 years, that $50,000 tax would only have a present value of $11,570.

    There’s no legal limit to the deferral period. The take-back note can provide periodic payments, a balloon payment, or both. There’s no tax till the dollars are actually received.

    A second advantage to the seller would be the interest earned on the financing. With money market rates struggling to reach 1%, a 5% rate on a take-back loan creates five times the wealth accumulation. Providing credit also makes it easier for a buyer to fund the purchase and may help support the seller’s asking price.

    The advantages are not cost-free. Yes, the seller defers the tax, but the receipt of the cash from the sale is also deferred, and that bears an economic cost. While the interest rate earned on the note may be higher than what could be earned elsewhere, all interest received is fully taxable at ordinary income tax rates.

    Prospective tax rate changes may also be a negative. A seller is taxed at the tax rate in effect when the dollars are received. If capital gains rates increase in the future, the seller will be paying taxes at those higher rates. The current top long-term capital gains rate is 15%. But that is scheduled to jump to as much as 23.8% in the future — 20% plus a 3.8% Medicare tax set to take effect in 2013.

    Remember, that tax only applies to taxable gains. The normal rules for excluding as much as $250,000 in gain ($500,000 on a qualifying joint return) on the sale of a principal residence still apply. If a seller has minimal taxable gains, the advantages of an installment sale are reduced.

    Then there’s the credit risk — how creditworthy is the buyer? Sophisticated advisers refuse to let clients take back a note on a sale without what’s called a “deed in lieu of foreclosure.” That’s an actual signed deed to the property, from the buyer back to the seller, which can only be filed if the buyer fails to timely pay the note. It eliminates the time and cost of an actual foreclosure and puts the burden on the buyer to prove that the note was timely paid.

    A Friend In Deed

    If there is a default, the seller merely records the deed, and the property is his, subject to any bank loans then securing the property. But be aware that if the property has fallen in value, a seller holding a second mortgage could end up owing on that primary mortgage. That’s why a substantial cash payment should be obtained from the buyer at closing — as security against a potential loss in the event the seller gets the property back.

    If a buyer hesitates to provide a deed in lieu of foreclosure, that’s a good indication that the buyer doesn’t want to commit to paying the note as required. As explained by former Cherry Hill, N.J., judge Fred Levin, now a practicing attorney, “A deed in lieu of foreclosure would provide the seller with additional security that would make the seller more comfortable taking back a mortgage.”

    When transferring real property, both sides would be more than prudent to get a good real estate attorney. With a mortgage take-back, the need is intensified. The attorneys will negotiate and draft the contracts, notes, mortgages and deeds. The attorney for the seller taking back a note will also need to check the credit of the borrower-buyer.

    Sellers also should know that they can’t always defer taxable gains by providing financing. Gains can’t be deferred if a property is sold to a related party. And in an investment property sale, all gains tied to prior depreciation are taxed immediately. Requiring a substantial down payment will help the seller pay the tax bill.

    Buyer Pros And Cons

    The major advantage for the buyer in an installment sale is that the seller is financing part of the purchase price. Expenses normally charged by a bank or mortgage company such as application fees and points may be eliminated or substantially reduced.

    In certain cases, a buyer might have difficulty getting a bank loan because of past credit problems. In the current banking environment, lenders would rather lose a good customer than risk a bad one. A motivated seller might look beyond the past problems and take that risk — especially if comforted by a deed in lieu of foreclosure. But, the buyer should pay a high rate of interest on the note.

    The biggest disadvantage from the buyer’s perspective is a combination of potentially overextending leverage and the lack of wiggle room if payments are not made on time. It can be a lot easier to negotiate with a bank if a payment is missed than with an angry seller who holds a deed in lieu of foreclosure.

    • Schnepper is a New Jersey lawyer and CPA, personal finance columnist and the author of several books on tax strategies.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • China’s economic growth eases to 10.3 percent
    By Asiri on July 15th, 2010 | No Comments Comments

    Click to play
    China growth slows

    China’s economy continued to grow at a robust pace last quarter, a spokesman for the National Statistics Bureau said Thursday.

    China’s gross domestic product, the broadest measure of economic output, grew at an annual rate of 10.3 percent during the second quarter of 2010. But the pace eased compared to the 11.9 percent rate during first quarter.

    With more than 1.3 billion people, China is the world’s largest country, and that fact, combined with its rapid economic growth of recent years, has made it a major player in the global economy.

    But the moderate slowdown was widely anticipated and is not a cause for concern for economists, many of whom were worried about China’s economy overheating and falling in danger of rampant inflation.

    “Even an 8 percent GDP growth rate is a very healthy for China right now,” said Todd Lee, managing director of the Greater China division at IHS Global Insight.

    In 2009, as the U.S. and other global economies were in a deep recession, China was able to maintain strong economic growth — at a pace of 8.7 percent.

    The nation’s exports have been surging and the real estate sector has been rapidly expanding, sparking fears of a Chinese housing bubble. But Chinese officials have been taking steps to control the growth.

    “The Chinese government has been jawboning banks to crackdown on mortgages and pullback on lending to help moderate prices,” said Jay Bryson, Wells Fargo global economist.

    “You don’t want to have China develop asset bubbles and go through boom and bust cycles. It’s better to have them clamp down now and have a soft landing instead of slamming on the brakes later,” Bryson said.

    The measures would appear to be working: Chinese property prices fell for the first time in 16 months, according to a government report released earlier this week. The nationwide index of property prices across 70 medium-sized Chinese cities decreased 0.1 percent in June.

    The People’s Bank of China also announced last month it would allow its currency to appreciate against the dollar. A rise in the yuan’s value could further slow growth in China’s exports by making its goods more expensive overseas. A sharp drop in the value of the euro compared to the dollar during the quarter already raised the price of Chinese exports to Europe, the leading market for its products. The yuan had been pegged to the greenback since 2008.


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

  • Singapore expects GDP to grow up to 15 pct in 2010
    By Asiri on July 14th, 2010 | No Comments Comments

    SINGAPORE – Singapore expects its economy to soar 15 percent this year after surging manufacturing fueled a record expansion in the second quarter.

    Gross domestic product grew 19.3 percent in the second quarter from a year earlier and jumped an annualized seasonally-adjusted 26 percent, the Trade and Industry Ministry said in a statement Wednesday.

    The city-state’s economy will likely expand between 13 percent and 15 percent this year, more than the government’s previous forecast of growth between 7 percent and 9 percent, the ministry said.

    Singapore, which has the highest percentage of millionaires in the world, is the first major Asian economy to announce GDP results for April to June, suggesting the region’s strong recovery from last year’s global recession remained on track in the second quarter.

    Singapore relies on industrial production, tourism and finance, and saw manufacturing explode 45.5 percent from a year earlier. The second quarter results were preliminary, based on data from April and May, the ministry said.

    “Growth was driven by a surge in the output of biomedical manufacturing, as well as a strong expansion in electronics underpinned by healthy worldwide demand,” the ministry said.

    Construction grew 13.5 percent while services expanded 11.4 percent, the ministry said. The ministry revised first-quarter GDP growth to 16.9 percent from 15.5 percent.

    The economy will likely slow in the second half of the year as high unemployment and a debt crisis undermine demand from the U.S. and Europe.

    “The sluggish final demand in the U.S. and E.U. has moderated industrial activities and lowered expectations for manufacturing output in the Asian economies,” the ministry said. “The momentum of the global economic recovery has thus moderated, although a double-dip recession remains unlikely.”


    View this Post in: English Chinese(S) Chinese(T) French Arabic Bulgarian Croatian Czech Danish Dutch Finnish German Greek Hindi Italian Japanese Korean Norwegian Polish Portuguese Romanian Russian Spanish Swedish

Advertisement