Category Archives: U.S. Debt

Penny Pricing for U.S. Stocks Said to Get Scrutinized for Harm

According to Bloomberg,

Securities executives are trying to determine if the 12-year-old decision to narrow the price increments for American stock trading has harmed investors, according to two people with knowledge of the matter.

Representatives from exchanges, brokers, mutual funds and regulatory agencies held two conference calls today to discuss concerns about market structure, said the people, who requested anonymity because the discussions were private. One topic was the U.S. mandate in 2001 to trade equities in pennies rather than eighths or sixteenths of a dollar, they said.

Compressing what traders call tick sizes reduced profits for human market makers and helped drive the ascent of high-frequency traders, which now account for about half of U.S. volume, according to data compiled by Tabb Group LLC. Widening price increments for smaller companies to a five or ten cents could spur trading and prompt more initial public offerings, according to U.S. Representative Sean Duffy, who has sponsored legislation to test such a shift.

“There are a couple of groups that are really driving this and want it to happen, and it seems like everybody else may not be convinced it’ll make a huge difference but feels it should be tried because it probably won’t hurt anything,” said Justin Schack, partner and managing director for market structure analysis at Rosenblatt Securities Inc. He declined to comment on the ICI meetings.

Third Meeting

Today’s talks were the third hosted in 2013 by the Investment Company Institute, a trade group whose members manage $16 trillion, according to two people with knowledge of the matter. This year’s participants have included senior officials from the New York Stock Exchange and Nasdaq Stock Market, mutual fund companies Fidelity Investments and T. Rowe Price Group Inc., broker-dealer Morgan Stanley, and the Securities and Exchange Commission, among others, according to one of the people.

Representatives of those firms declined to comment on the meetings.

Supporters of larger price increments for some stocks argue that it would encourage more volume for small companies by making trades more profitable for market makers.

The Jumpstart Our Business Startups Act, signed into law last year, instructed the SEC to study the impact of penny pricing and mandate a new minimum increment of less than 10 cents for “emerging growth companies” if the regulator found that was warranted.

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Amazon: Rejected by U.S. High Court on New York Sales Tax

According to Bloomberg,

The U.S. Supreme Court stayed out of the multibillion-dollar fight over Internet sales taxes, leaving intact a New York law that forces Amazon.com Inc. (AMZN) to collect money from customers in that state.

Acting on one of the biggest online-shopping days of the year, the justices made no comment in rejecting appeals by Amazon and Overstock.com Inc. (OSTK), another Internet retailer. The companies said the law, upheld by New York’s top court, violates the Constitution by demanding tax collection from businesses that don’t have facilities in the state.

States lose an estimated $23 billion a year in uncollected sales taxes from web retailers. Although Amazon has agreed to collect taxes in some states as it sets up distribution centers, it has resisted efforts by others to impose sales taxes unilaterally. New York’s measure is among a handful that have been dubbed “Amazon laws” because they affect only the largest online sellers.

The New York law “subjects Internet retailers to significant burdens on pain of serious civil and criminal penalties,” Seattle-based Amazon argued in its appeal. The world’s biggest online retailer now collects taxes in 16 states.

The rebuff leaves it to Congress to craft a nationwide approach to the sales-tax issue. Amazon supports federal legislation that would explicitly let states require tax collections by all online retailers above a certain size.

‘Physical Presence’

Amazon.com Homepage

Amazon.com Homepage

The legal dispute revolved around a 1992 Supreme Court case involving a mail-order company. The court said retailers can be forced to collect a tax only in states where they have a “physical presence.”

The rise of the Internet has increased the stakes since then, putting tens of billions of dollars at issue. New York alone lost $1.8 billion in 2012 on Internet and catalog sales, according to the National Conference of State Legislatures. Although consumers are supposed to pay the taxes themselves, few do unless the seller collects the money.

New York has a 4 percent statewide sales tax, and local jurisdictions impose additional levies. In New York City, the total tax rate is 8.875 percent.

New York said in court papers that its 2008 tax law “seeks to restore a level playing field between in-state brick-and-mortar stores and their out-of-state Internet-only counterparts.”

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Microsoft, Yahoo Upgrades Shows Snowden Won, Obama Failed

According to Bloomberg,

Former U.S. National Security Agency contractor Edward Snowden succeeded where President Barack Obama couldn’t — getting Microsoft Corp., Google Inc. and Yahoo! Inc. to upgrade computer security against hackers.

The companies are adopting harder-to-crack code to protect their networks and data, after years of largely rebuffing calls from the White House and privacy advocates to improve security. The new measures come after documents from Snowden revealed how U.S. spy programs gain access to the companies’ customer data — sometimes with their knowledge, sometimes without — and that’s threatening profits at home and abroad.

“These companies actively fought against numerous mechanisms that would have mandated far more secure data,” Sascha Meinrath, director of the Open Technology Institute at the New America Foundation in Washington, said in a phone interview. “Now they are paying the literal price.”

While Google, Yahoo, Microsoft and Facebook Inc. provide data to the government under court orders, they are trying to prevent the NSA from gaining unauthorized access to information flowing between computer servers by using encryption. That scrambles data using a mathematical formula that can be decoded only with a special digital key.

The NSA has tapped fiber-optic cables abroad to siphon data from Google and Yahoo, circumvented or cracked encryption, and covertly introduced weaknesses and back doors into coding, according to reports in the Washington Post, the New York Times and the U.K.’s Guardian newspaper based on Snowden documents. He is now in Russia under temporary asylum.

‘Government Snooping’

Microsoft is the latest company considering measures to ensure the protection of customer data and strengthen security “against snooping by governments,” according to Brad Smith, general counsel for the Redmond, Washington-based company.

Microsoft’s networks and services were allegedly hacked by the NSA, the Washington Post reported Nov. 26. Documents disclosed by Snowden suggest, without proving, that the NSA targeted Microsoft’s Hotmail and Windows Live Messenger services under a program called MUSCULAR, the newspaper said.

“These allegations are very disturbing,” Smith said in an e-mailed statement. “If they are true these actions amount to hacking and seizure of private data and in our view are a breach of the protection guaranteed by the Fourth Amendment to the Constitution.”

Smith didn’t provide details about what the company is considering doing.

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U.S. Stocks Fluctuate Amid Confidence, Housing Reports

According to Bloomberg,

U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell from a record yesterday, as investors assessed reports showing higher home prices and an unexpected drop in consumer confidence.

Lennar Corp. and PulteGroup Inc. climbed at least 3.5 percent, leading a rally among homebuilders. Tiffany & Co. jumped 7.9 percent after profit topped analysts’ estimates and the jeweler boosted its forecast. Jos. A. Bank Clothiers Inc. surged 9.2 percent after Men’s Wearhouse Inc. offered to buy the apparel company for about $1.54 billion. Take-Two Interactive Software Inc. fell 3.5 percent as the gaming company said it bought back all 12 million shares held by Icahn Group.

The S&P 500 gained 0.1 percent to 1,804.59 at 11:29 a.m. in New York after falling as much as 0.1 percent earlier. The Dow Jones Industrial Average rose 22.99 points, or 0.1 percent, to 16,095.53. Trading in S&P 500 stocks was 18 percent below the 30-day average at this time of the day.

“We’re tending to move in a positive direction,” Kate Warne, a St. Louis-based investment strategist at Edward Jones & Co., said by phone. Her firm oversees $746 billion. “We’re getting data in a sweet spot. It’s positive but not so positive as to raise worries about the Fed moving sooner and yet it continues to show that the economy is gaining some traction.”

The S&P 500 fell 0.1 percent yesterday after closing Nov. 22 for the first time above 1,800 to cap seven straight weeks of gains.

Fed Stimulus

Home Prices See Highest Gains Since February 2006

Three rounds of Federal Reserve bond purchases have helped push the S&P 500 up 166 percent from a bear-market low in 2009. Four out of five investors expect the Fed to delay a decision to begin reducing the stimulus until March 2014 or later, according to a Bloomberg Global Poll on Nov. 19.

Policy makers have been scrutinizing data to determine whether the economy is strong enough to withstand a reduction in their $85 billion a month in bond purchases.

More applications for home construction were issued in October than at any time in the past five years, figures from the Commerce Department showed today. The agency postponed publishing housing-starts data, due today, to Dec. 18 because of a lapse in funding after a 16-day partial government shutdown last month.

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Honduras Votes for President as Drug Violence Crimps Growth

According to Bloomberg,

Hondurans choose a new president and Congress today as the world’s highest rate of violent crime crimps economic growth in the country four years after a military coup ousted former President Manuel Zelaya.

Polls show the race in a statistical tie between the ruling National Party’s Juan Orlando Hernandez, 45, and Zelaya’s wife, Xiomara Castro, who heads the newly formed Libre party. Both candidates have vowed to improve security after a surge in murders fueled by drug gangs linked to Mexican cartels. Polls opened at 7 a.m. local time and will close at 5 p.m.

Castro, 54, is seeking to break a century-long grip on the presidential palace by the country’s two traditional parties. She has tapped into frustration from the coup, during which she led protests to have her husband returned from exile. Hernandez led the national assembly when Zelaya was ousted for backing a referendum to change the constitution.

In the eight-candidate race, no party is expected to win a majority in the legislature.

“It’s going to be difficult for whoever wins to govern,” said Geoff Thale, director of the Washington Office on Latin America.

Bordered by Nicaragua, El Salvador and Guatemala, Honduras has a murder rate of more than 80 per 100,000 inhabitants, the highest in the world, according to the United Nations. The U.S. State Department estimated that last year about 90 percent of all cocaine smuggling flights departing South America for the U.S. first land in Honduras, where illegal airstrips abound in poorly patrolled parts of the country.

International Observers

The government plans to deploy 14,000 soldiers and police to safeguard the process, while almost 750 international observers will monitor the vote. Current President Porfirio Lobo is barred from seeking re-election and whoever gets the most votes wins. There is no second round.

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S&P 500 Posts for Seventh Weekly Gain as Drugmakers Rally

According to Bloomberg,

U.S. stocks rose, capping a seventh week of gains for the Standard & Poor’s 500 Index, after the pace of hiring increased and drugmakers rallied on favorable decisions by European regulators.

Stanley Druckenmiller on Strategy, Shorting IBM

Health-care stocks in the S&P 500 jumped 1.2 percent as a group, led by Biogen Idec Inc. and Gilead Sciences Inc. Time Warner Cable Inc. surged 10 percent on renewed takeover speculation. United Continental Holdings Inc. (UAL) climbed 3.9 percent after billionaire David Tepper said his “big play in the market” is airlines. International Business Machines Corp. slid 1.5 percent after billionaire Stan Druckenmiller said he’s shorting the shares.

The S&P 500 climbed 0.5 percent to a record 1,804.76 at 4 p.m. in New York. The advance pushed the U.S. equity benchmark to a 27 percent gain for the year, poised to be the biggest annual increase since 1998. The Dow Jones Industrial Average (INDU) rose 54.78 points, or 0.3 percent, to 16,064.77. About 5.6 billion shares changed hands in the U.S., 8 percent below the three-month average.

“I don’t see any reason why the market shouldn’t go up,” Karyn Cavanaugh, a vice president and market strategist at ING U.S. Investment Management in New York, said in a phone interview. Her firm oversees $196 billion. “There’s not really any bad news. We have a little bit of a pullback and then people jump in and say, ’Hey, I want a piece of this.’”

The Dow advanced 0.6 percent this week, finishing its seventh straight weekly gain, the longest streak since January 2011. The S&P 500 rose 0.4 percent during the past five days.

Job Openings

Appaloosa's Tepper Says Stock Markets Not in Bubble

David Tepper, the hedge-fund manager who runs Appaloosa Management LP, said stock markets are not inflated as economies in the U.S., Europe and China are on “firm ground.” He said that while he remains bullish on U.S. stocks, markets may fall 5 percent to 10 percent when the Fed curbs its stimulus program.

“I know there’s talk about bubbles, this is not one,” Tepper said in an interview with Bloomberg Television’s Stephanie Ruhle at the Robin Hood Investors Conference in New York yesterday.

Job openings in the U.S. climbed to a five-year high in September, indicating employers were confident about demand before the federal government shutdown. The Labor Department report showed the number of people hired increased to 4.59 million in September, the most since August 2008, from 4.56 million. The hiring rate rose to 3.4 percent from 3.3 percent in August.

The S&P 500 rallied yesterday after three days of losses as data showed weekly jobless claims fell to the lowest level since September and a confidence survey indicated American consumers became less pessimistic this month.

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