U.S. recession fears will likely outweigh Canadian banks, economic data this week

TORONTO - The usually influential Canadian bank earnings season starts this week, but with the dreaded r-word — recession — looming over markets, it's likely any positives from the financial reports will be overshadowed by bad news abroad.
Canada's big banks are generally expected to report earnings growth compared with a weak quarter a year ago. But global economic and market turmoil are expected to hit their bottom lines, especially in their capital markets businesses.
Bank of Montreal (TSX: BMO), will kick off the third-quarter earnings season Tuesday, followed by Royal Bank (TSX:RY) on Friday. A CIBC World Markets report said the big six Canadian banks are expected to average 13 per cent year-over-year growth.
Paul Vaillancourt, vice-president at Canadian Wealth Management in Calgary, said he anticipates the banks will see a deceleration of profit growth, but an improvement nonetheless — following the trend of a majority of Canadian companies that have already reported.
Bank stocks have been battered in recent weeks and are down 15 per cent from highs in early April as they feel the heat from worries about Europe's banking sector and economic turmoil in that continent and in the United States., Canada's largest trading partner.
But Vaillancourt said Canadian banks are some of the most insulated from exposure to Europe's debt problem, putting them far ahead of their global peers.
Canadian retail trade figures, expected to have risen 0.7 per cent in June, and payroll and earnings data will also trickle in this week, but are unlikely to move the Toronto Stock Exchange -much — after positive reports on leading indicators, wholesale trade and inflation data last week were lost on investors.
That's because traders are intently focused on whether the U.S. and global economies are on the cusp of another recession — and what impact that will have on the Canadian economy.
"The Canadian numbers as they stand really don't have much meaning in the context of what's going on in Europe, with this focus on, is the U.S. going into another recession? Those themes are so dominant right now, it's pretty hard to see any impact of Canadian numbers out there," said Andrew Pyle of Scotia McLeod.
The stock market ended last week down 4.3 per cent from the week before and down 15.9 per cent from its April 5 high of 14,270.53, putting it squarely in correction territory. A 400-point selloff Thursday was sparked by a slew of troubling economic data out of the U.S., which renewed fears it could slip into a recession.
Investors are acutely aware of the fact that Canada derives much of its revenue and business from the U.S. and any indicators suggesting the American economy isn't in good shape is bad news for Canada as well, Pyle said.
On Friday, Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney testified before the Commons finance committee. They didn't paint an rosy picture, but they also said it's unlikely Canada would find itself back in a recession.
Carney said the U.S. is facing its weakest recovery since the Depression, while Flaherty said the global economy continues to grow — albeit more slowly — and the results so far have been consistent with forecasts set out in the budget.
Pyle said that negative momentum is likely to continue this week, unless eurozone leaders or U.S. president Barack Obama can come up with any semblance of a concrete solution to their debt problems over the weekend, Pyle said.
"Everything depends now on politics as has been the case for the last four weeks," he said.
"A lot will depend on how sentiment evolves in these next two weeks and how the markets evolve."
Given the lack of political will to come up with concrete solutions to the European and U.S. crises, traders have been hitting panic mode as negative economic news trickles in.
Next week will be light with data from the U.S. but reports on new home sales and durable goods could move markets.
And although any negative news will continue to batter markets for the coming weeks, Vaillancourt said the upheaval this time — caused by worries over government debts— is quite different from the banking and corporate sector crisis of 2008.
Fundamentals, such as corporate balance sheets, remain strong, but are being overshadowed by the uncertainty on the government side, he said.
"Companies are not losing money, they're just instead of having EPS growth at 15 per cent for the market, it's now going to come in at nine or ten per cent."
Vaillancourt said he believes the global economy is slowing, but added it's far from a foregone conclusion that its slipping into a double dip recession.
"The fear right now, as there's so much panic, that you see deceleration and you see the world economy stalling because of panic, and therefore a crisis of confidence, it does impact selloffs ... and then a recession becomes a self-fulfilling prophecy."
Last Thursday, economists with Morgan Stanley said that the U.S. and Europe are "dangerously close to recession," adding, "it won't take much in the form of additional shocks to tip the balance." JPMorgan Chase & Co. followed suit on Friday, slashing its fourth-quarter growth forecast to one per cent from 2.5 per cent.

Iran jails U.S. "hikers" as spies for 8 years

TEHRAN (Reuters) - Two Americans held in Iran for more than two years have been convicted as spies and sentenced to eight years' jail, Iranian TV reported on Saturday, a verdict that will further strain already very poor relations with Washington.
Shane Bauer and Josh Fattal were arrested on July 31, 2009 near Iran's border with Iraq, along with a third American, Sarah Shourd, who was freed on $500,000 bail in September 2010 and returned home.
The trio, in their late 20s and early 30s, say they were hiking in the mountains of northern Iraq and, if they crossed the unmarked border into Iran, it was by mistake.
"In connection with illegal entry into Iranian territory each was given three years in jail and in connection with the charge of cooperating with American intelligence service, each was given five years in jail," a state TV website said, quoting what it called an informed judiciary source.
They have 20 days to appeal, it said.
The United States, which does not have diplomatic relations with Iran, said it was trying to confirm the report through the Swiss Protecting Power, which handles U.S. diplomatic interests with Tehran.
"We have repeatedly called for the release of Shane Bauer and Joshua Fattal, who have now been held in Iran's Evin prison for two years. Shane and Josh have been imprisoned too long, and it is time to reunite them with their families," State Department spokeswoman Victoria Nuland said in a statement.
HOPES OF CLEMENCY
The affair has heightened tensions between Tehran and Washington, which severed diplomatic ties after the storming of the U.S. embassy in the wake of the 1979 Islamic Revolution.
The verdict was announced as Russia launches a fresh attempt to find a diplomatic solution to a standoff over Tehran's nuclear program, which Washington says is aimed at making nuclear bombs, something Iran denies.
The boxer Muhammad Ali and pop singer Yusuf Islam, both Western converts to Islam, are among those who have called for the Americans' release.
A Facebook page called "Free the Hikers" brimmed with comments expressing shock and disgust with the reported ruling, and offering prayers for the jailed young men.
President Barack Obama has denied that the Americans, who were working in the Middle East when they decided to hike in the scenic mountains of Iraq, had any link to U.S. intelligence.
Bauer and Fattal, who share a cell in Tehran's notorious Evin jail, pleaded not guilty at a closed-door court hearing on February 6 and had been awaiting a verdict following another trial hearing on July 31.
Their lawyer, Masoud Shafiee, told Reuters he had not been informed of the verdict and declined to say whether he would appeal, pending official confirmation. "I don't know if this report is true or not, but this is not a light sentence," he said.
In Iran, espionage can carry the death penalty but Shafiee had hoped that at worst his clients would be convicted of illegal entry and might then be freed due to the two years they have already served.
Media had speculated that the pair could be freed as a goodwill gesture during the Muslim holy month of Ramadan which began on August 1. Hopes for their release were raised on August 6 when Foreign Minister Ali Akbar Salehi said he hoped the trial would "advance in a way that would lead to their freedom."
But Prosecutor General Gholamhossein Mohseni-Ejei, giving no hint of clemency, told reporters on Monday he had not heard of "rumors" that the men would be released during Ramadan.
It remains possible that Muslim clemency could be granted, as is traditional, at the end of the fasting month, which will be toward the end of next week.
(Writing by Robin Pomeroy; Additional reporting by Paul Eckert, Editing by Alistair Lyon and Sandra Maler)

China Construction Bank says 1H net profit up 31 per cent on higher fee, interest income

SHANGHAI - State-owned China Construction Bank Ltd., the country's third-biggest commercial lender, says its first half profit rose 31 per cent, buoyed by higher income from fees and interest.
The Beijing-based bank reported late Sunday that profit for January-June was 92.8 billion yuan ($14.5 billion), or 0.37 yuan (6 U.S. cents) a share. Profit for the same period a year earlier was 70.8 billion yuan.
Like other Chinese lenders, the bank has benefited from rising interest rates and higher fees and commissions as it diversifies its revenue sources.
Interest income in the first half of the year rose 24 per cent, while income from fees and commissions jumped 42 per cent to 47.7 billion yuan ($7.5 billion).
The bank said it was strictly controlling lending to industries designated by the government as having excess capacity, such as iron and steel, coal and plate glass. Meanwhile, it boosted lending to small and medium-size companies.
Smaller businesses have usually struggled to get bank financing. Such lending increased 9.5 per cent by the end of June over December of last year, compared with a 6.8 per cent increase in total corporate lending.
Construction Bank, which is relatively heavily exposed to the property sector, also said it was limiting lending to local government investment entities, whose debts have ballooned in the wake of a binge of recession-fighting construction investments.
Lending to the real estate sector climbed a modest 4.1 per cent in January-June, the bank said.

TSX slides on nagging recession fears

TORONTO (Reuters) - Toronto's main stock index dropped sharply for a second day on Friday as financial and energy issues were hit by fears of a new U.S. recession and by a Bank of Canada warning on risks to the global economy.
The index reversed an earlier rally on the back of safe-haven golds, as U.S. markets also slipped further into the red after Hewlett-Packard's weaker outlook and corporate shakeup added to investor uncertainty.
Banks were the heaviest decliners on the TSX, down more than 3 percent. Toronto-Dominion Bank tumbled nearly 4 percent to C$71.10, Bank of Nova Scotia sank 4.3 percent to C$50.25, and Royal Bank of Canada lost 3 percent to C$48.97.
Ron Meisels, a technical analyst and president of Phases & Cycles in Montreal said some financials were showing "serious negative signals," after tumbling to near August 8 lows, a day characterized by panic selling spurred by the United States' loss of its triple-A credit rating.
"Given that we expect better days next week or so I would suggest taking that strength to sell into rallies the weak stocks and at the same time accumulate the gold and silver stocks because they might have a correction," added Meisels.
The Toronto Stock Exchange's S&P/TSX composite index ended down 179.24 points, or 1.47 percent, at 12,007.47, with eight of its 10 main sectors lower. On the week, the market sagged 4.3 percent.
Energy shares were also down sharply, sliding 2 percent, with Canadian Natural Resources off 2.4 percent at C$33.10.
"The market is clinging now to the hope that the (U.S. Federal Reserve) would engage in additional policy steps with (it) looking at Fed Chairman (Ben) Bernanke's speech at Jackson Hole next week," said Fergal Smith, managing market strategist at Action Economics.
Gold miners were among the day's bright spots, gaining 2.2 percent as the price of bullion hit a record high of $1,877 an ounce.
Goldcorp was the top heavyweight gainer, up 3.5 percent at C$51.81, while Barrick Gold advanced 2.1 percent to C$50.32.
The flight-to-safety bid was further bolstered by closely watched testimony from Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty, who both highlighted the risks posed by Europe's stubborn debt crisis and the slow U.S. recovery from recession.
($1=$0.99 Canadian)

Bernanke to aid recovery with gradual boost in dosage

WASHINGTON (Reuters) - While it's not time for emergency measures, the patient still needs the drip.
The U.S. economy is grinding so painfully and haltingly toward recovery that the Federal Reserve looks poised to incrementally strengthen the dosage to keep growth on track.
Expect Fed Chairman Ben Bernanke to use a speech at an annual central bank conference in Jackson Hole, Wyoming, next Friday to acknowledge his disappointment over the pace of growth, even downgrade his outlook, and explain which medicines left in the Fed's cabinet are best suited to fortify the economy.
He looks unlikely to reach for shock treatment.
"With the recovery grinding to a halt in the first half of this year and the economy operating perilously close to a second recession, the Fed will remain on guard against a negative surprise on growth, and will be willing to act accordingly," Millan Mulraine, an economist with TD Securities, wrote in a note to clients.
So, how is Fed to administer further remedies?
With interest rate tools well exploited, Bernanke is most likely to focus on the Fed's balance sheet and opt for tinkering with the size and composition of its portfolio to get the world's largest economy out of its funk.
Interest rates are already near zero, and the central bank's policy-setting Federal Open Market Committee just two weeks ago signaled it is willing to hold borrowing costs at rock bottom levels for two years if necessary. There is little more that can be achieved using the rates tool.
Many of the balance sheet steps are well known, and each carries its own risks and rewards, which Fed staff would research carefully. But chances for a major new bond buying operation announced at Jackson Hole would appear limited currently.
In shaping its thinking, the Fed is likely guided by a sense that the current situation, though rather uncertain, merits a cautious approach and does not arise to the crisis proportions seen in 2008 through 2010 that justified bold and aggressive moves.
The last of these - the $600 billion bond purchase program dubbed QE2 because it was the second installment of quantitative easing - was the Fed's response to historically low inflation that risked tipping the U.S. economy into a vicious cycle of falling prices and falling consumption and investment.
The situation today is different.
Unlike mid-2010, U.S. inflation is now higher, and core inflation, which strips out volatile food and energy prices has accelerated. While higher readings are a concern for some Fed officials, they are not raising widespread alarm at the central bank on the assumption that overall inflation will fall as energy prices recede and that core prices will remain in check.
Instead, the focus is on stumbling growth and the risks ahead. A central group of policymakers on the Fed's decision-making committee see mounting evidence that growth originally forecasts at around 3 percent for the second half of the year will be slower. While not as dismal as the 1 percent that some Wall Street firms are forecasting, growth this sluggish would fall well short of what's needed to reduce the steep 9.1 percent jobless rate.
Looming large as a risk factor is Europe's long running sovereign debt saga, which is pummeling U.S. financial markets and business confidence. So far Europe's woes and the market turmoil have not caused distress on the scale of the 2008/2009 credit crisis, but it is worrisome.
NO BIG GUNS
Against that backdrop, Bernanke appears unlikely to reach for dramatic measures, but the Fed could be primed to gradually boost the dosage for the ailing economy over the coming months.
One initial step might be simply to use verbal communication. It could commit to maintain its balance sheet, which has ballooned to $2.8 trillion from a pre-crisis level of around $900 billion, at this high level for an extended period of time -- even adding a timeframe just as it has for the fed funds rate.
Another measure would be to put downward pressure on medium to long-term interest rates, where mortgages are fixed and corporations borrow, by taking steps to weight the mix of assets in the Fed's balance sheet toward longer-maturity instruments. This can be done either by replacing its maturing securities with longer-term ones, or by actively exchanging shorter maturities with longer ones.
"Last year at Jackson Hole when the Chairman laid the groundwork for QE2, inflation was rapidly decelerating -- the opposite is true at present," Deutsche Bank economist Carl Riccadonna wrote to clients.
"As a result, if the Fed does move toward additional accommodation, it may first try to extend the average maturity of its portfolio rather than further expand its asset holdings."
A bolder step would be to buy more bonds, though conditions do not seem to merit that at this juncture. While Fed officials argue bond buying has held longer term rates lower than they would otherwise have been and moved investors to seek riskier assets than safe-haven Treasury securities, the strategy has drawn sharp criticism domestically and internationally.
As a way to tamp down worries that bond buying would spur inflation, the Fed could consider sterilizing new bond buying by simultaneously draining bank reserves. Doing so would remove risk and duration from credit markets, push down interest rates at the longer end of the yield curve, while keeping abundant reserves in check.
FACING THE CRITICS
U.S. critics charge that fresh measures would court inflation. Detractors abroad say bond buying drives down the dollar, drives up commodity prices and unleashes volatile investment flows into emerging markets. Even some within the Fed object to aggressive easing, and the Fed's August low rate pledge drew an unusual three dissents.
The Fed faces domestic political attacks as well. Republican presidential candidate Rick Perry this week said any further Fed monetary easing would be "almost treacherous, treasonous.
But the Fed has a track record of political independence and its credibility stems from a reputation of being free to act regardless of the political winds. To bow to these critics when the economy needed further support would be unusual.
Bernanke has a chance to make his case on Friday.
(With additional reporting by Pedro Nicolaci da Costa. Editing by Stella Dawson)

$1 million may not be enough for retirement

A quick primer on how you should look at saving for your Golden Years 

 A famous financial planner’s rule of thumb is that you can spend 4 percent of your initial savings per yeark, adjusted for inflation, and it will last for 30 years.

 

So here’s a sign of the times: $1 million isn’t enough to retire on anymore.

To be clear, here’s what we mean by $1 million: We’re including what you have in any savings and retirement accounts, including tax-deferred plans like 401(k) and IRAs. You’ll still have to pay taxes when you withdraw money from those. We’re also including the present value of any pension accounts and Social Security payouts.

When you run those numbers, and compare them with how much you’re spending, you may be in for a shock. “Americans just plain are not saving enough,” says Fred Reish, a lawyer at Drinker Biddle in Los Angeles specializing in retirement issues. “It’s a huge crisis.”

A famous financial planner’s rule of thumb is that you can spend 4 percent of your initial savings per year, adjusted for inflation, and it will last for 30 years. If you have $500,000 saved, 4 percent of that is $20,000 per year. Can you live on $20,000 per year, plus whatever you’re going to get from Social Security and a pension (the $20,000 and — for now — Social Security)? If you can’t, then you’d better start saving more or thinking about when and how you plan to retire.
The good news if you’re retiring soon is that you’ll probably be getting Social Security. To find out the present value of that, go to the Social Security Administration’s web site and find the retirement estimator. That will show you an estimate of the monthly check you’ll get if you elect to retire at age 62 or if you delay it until age 70.
And if you have a pension, that could help a lot. Rachel Sanborn, a fee-only planner in New Hampshire, recently worked with two clients who had $500,000 in savings accounts between them. She found herself surprised to see that they could retire with just that, but they can because they have two pensions — one client was a teacher, the other a state employee. For tips on verifying your pension, click here.

Forbes.com: 10 steps to boost your 401(k)


The bad news is that people are spending more in retirement on health care, utility bills, and particularly on mortgages. “The real reason why $1 million is not enough, sadly, is because a lot of people still have mortgages coming into retirement these days,” says Eileen Freiburger, a fee-only planner in Manhattan Beach, Calif. “I would never let a person retire if they haven’t learned to live within a certain dollar amount,” she says.


Of course, everyone is different. Some people, especially in low-cost areas of the country, with no mortgages or kids to support, will be just fine with $1 million. If you’re the kind of frugal person who has driven the same, beat-up Ford car for the past 20 years, this is your moment to shine.

But the typical overspending American might want to start worrying. “It’s an unpleasant conversation, but people really have to be aware of this,” says Kent Grealish, an hourly-rate investment advisor near San Francisco. To figure out what you have, and what you need, see the attached slideshow. (Note: The people pictured in the slideshow seem serene and almost blissful — don’t expect to feel the same.)


Forbes.com: How to retire early
If you don’t have enough, it’s time to make some tough choices. Consider working longer or getting a part-time job in retirement. “That’s the most powerful choice you have,” says Grealish. “It’s one more year of accumulating assets, one less year of drawing on those.”

If you have enough squirreled away, it’s often a good idea to delay taking social security. While you’re eligible to take it at 62, if you wait until age 70, you’ll get a bigger check. If you do that, and hopefully live a long time, you’ll be locking in an 8 percent return that will pay off in the long run.
Also, spend less. Avoid Apple, Best Buy, Nordstrom, or whatever your temptation may be. You might want to move to a lower-cost state.

Forbes.com: Best stock ideas from the warren buffets next door
Reassess your situation every year, says Grealish. If your investments don’t perform as well as you expected them to, you could be at risk of running out of money before you die.
But get ready to feel poor, even if you’re a millionaire. There’s a reason Travie McCoy sings about wanting to be a billionaire — with a B — “so frickin bad.” One million bucks just doesn’t go far enough anymore, it won’t even pay for retirement.

 

The madness of Wall Street

Finance professionals worry current market turmoil could reshape investor behavior 

 A trader is shown on the floor of the New York Stock Exchange. Some finance professionals worry that the market’s wild gyrations of the past few weeks could reshape investor behavior for months and years to come.

NEW YORK — The best thing to be said of the recent stomach-churning turmoil on Wall Street is that it's taking place in August, a time of year when many people are lounging at the beach or camping in the woods and not paying attention to stocks.

But for everyone else not on a 'stockation,' watching the markets rise and fall like giant ocean swells has been an unnerving experience that some finance professionals worry could reshape investor behavior for months and years to come.

"Everyone felt this was idiotic," says Susan Kaplan, president of Kaplan Financial Services, referring to last week's volatility. "Most clients didn't want to deal with the markets anymore and went back to their summer vacations," said Kaplan, whose firm manages about $1.3 billion in customer money.

In the short term, doing nothing may well prove to be the best strategy for dealing with the kind of dizzying gyrations that occurred the week of August 8 in the U.S. stock market. At one point, the S&P500 was down 8 percent for the week before it erased all of those losses and then some in the ensuing days.
Thursday brought another August storm. The S&P500 plunged 4.46 percent and the benchmark 10-year Treasury note yield fell below 2 percent for the first time in 70 years. And the trouble is this turmoil may not be some temporary anomaly.


Free fallin' Experts say investors should expect even more volatility in stocks, as herd trading by hedge funds, knee-jerk trader reaction to news and lightning fast computer programs combine to make for a new and uncomfortable normal on Wall Street.
This new trading frontier even has its own signature milepost, something called "a liquidity black hole." It's a trading phenomenon in which there's so much intense selling pressure in big-cap stocks that it sucks all the oxygen out of the market and stocks plunge precipitously - as on August 8 when every single stock in the S&P500 ended the day in the red.

"We have to be aware that we can be hit by one of these liquidity black holes with ever increasing frequency," says G. Andrew Karolyi, a finance professor at Cornell University Johnson Graduate School of Management. If you are a long-term buy and hold investor you better be aware of these and not panic when you see it."
Yet some fear that's just what ordinary investors will do as this new hair-trigger trading dynamic becomes more common. There's a concern that frenzied trading could drive people further away from stocks at a time when, other than gold, there are few assets generating any kind of substantial return.
Story: Small investors fleeing stock market And that's something that could have long-term ramifications for the ability of investors to build retirement nest-eggs, especially given the historic poor ability of retail investors to time market swoons and surges. A portfolio with 20 percent in cash, 50 percent in a bond fund yielding 3.42 percent a year and 30 percent in stocks isn't going to enable a person in their 50s to retire any time soon.
Also if investors flee stocks it could make it harder for small, niche companies, such as ones in the biotech or clean energy sectors, to tap the public markets for capital. Or more of those companies might take their capital-raising business overseas to places like Hong Kong, which would be another blow to Wall Street.
"The market we are operating in is markedly different from five years ago," says Andrew Lo, a professor of finance at the MIT Sloan School of Management, who frequently writes on hedge fund trading strategies and markets. "We are seeing extraordinary emotional reactions from central banks, politicians, regulators and investors. That kind of reaction is not conducive for building long-term wealth. We have an environment that is highly unstable."
One might say Wall Street is a bipolar market that veers from despair to euphoria with each passing news headline.
19th nervous breakdown Over the past several weeks, stocks prices have swung widely based on a range of factors: the perceived progress of European leaders in dealing with the eurozone debt crisis; the fears of a double-dip recession in the United States; the fallout from Standard & Poor's downgrade of U.S. debt; and whether the Federal Reserve will embrace a new round of easy money to jumpstart the economy.
L. Randall Wray, a professor of economics at the University of Missouri-Kansas City, says much daily trading in stocks is like a self-fulfilling prophecy. "What matters is what the markets think not what people in the markets believe," says Wray. "Traders are constantly trying to guess how daily events might affect other market participants."
This guessing game is largely being driven by super-fast computers with algorithmic programs designed to react to headlines and overall market trading patterns. The Tabb Group, a financial markets' research firm, estimates that during the frenetic week of August 8, high-frequency trading firms and strategies accounted for 65 percent of the daily trading volume in the United States.
Life Inc.: Wanting or having no part in it The power of the machines over trading is one reason why technical analysis, often pooh-poohed as Wall Street alchemy, is gaining more believers among traders. There's more interest than ever in computer programmers who can write algos to simply buy and sell stocks whenever the S&P hits a predetermined target, or some bizarrely-named trading pattern such as a "Death Cross" forms on screens.
Some of the surge in volatility is also attributed to a growing legion of money managers who frequently trade exchange-traded funds - which are baskets of stocks, indexes and other assets - as a way to hedge their positions.
"There's a different dynamic now because of the pervasiveness of high-frequency traders and hedge funds," says John Longo, chief investment strategist at MDE Group, which manages $1.3 billion in assets. Longo, also a finance professor at Rutgers Business School in New Jersey, adds: "The down-5-percent one day, up-5-percent the next day volatility wouldn't have happened in the past."


Stormy weather The trouble for ordinary investors is that there are no good market forecasts for predicting what might spark a liquidity black hole. Fear about the United States and European countries slipping back into recession is a legitimate concern that could have real impact on corporate profits and stocks. But when traders act on those fears at lightning speed it can result in seemingly irrational sell-offs.
Take the scary 6.66 percent drop in the S&P500 on August 8. On that first trading day after the credit rating arm of S&P stripped the U.S. of its vaunted Triple AAA debt rating, all 500 stocks in the index closed the day in the red.
The selling was so ferocious that shares of McDonald's Corp, for instance, fell 3.5 percent to $82.11, even though the fast-food giant reported a 5.1 percent climb in same-store sales for July, higher than analysts had expected.
Story: $1 million may not be enough for retirement Such selling with no regard to corporate fundamentals makes the notion of stock picking seem quaint.
Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $18 billion in assets, says the indiscriminate selling means "good stocks are going down at the same pace as bad stocks."
Karolyi says the waves of wholesale selling driven by liquidity black holes are not just the byproduct of the over-computerization of trading, it's the end result of too much "group think" by institutional traders.

 

Verizon workers agree to end strike

NEW YORK — Thousands of striking Verizon workers will return to work starting Monday night, though their contract dispute isn't over yet.

Both the company and the union say they have agreed to narrow the issues in dispute and have set up a process to negotiate a new contract. But the talks are likely to be contentious. The two sides still disagree on touchy subjects such as health care benefits, pensions, and work rules.
About 45,000 employees went on strike on Aug. 7, after their previous contract expired. They work in the company's landline division in nine states from Massachusetts to Virginia.
Verizon says that it needs to cut costs in the traditional landline phone business, which is in decline as more Americans switch to mobile phones. The company has proposed freezing its pension and switching union workers to its non-union health plan, which has higher costs for employees.
The unions counter that the landline business supports the growing wireless business and that Verizon, which earned about $3 billion in the first half of the year, can afford to maintain the benefits in the contract that expired on Aug. 6. They also say Verizon put too many proposals on the table.
Of the 45,000 striking workers, 35,000 are covered by the Communications Workers of America, while 10,000 are covered by the International Brotherhood of Electrical Workers.
Jim Spellane, a spokesman for the IBEW, said the strike occurred because Verizon "came in with an extreme set of proposals and never really moved off of them."

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But after the 14-day strike, "I think they realized the unions are serious," he said. "It's in everybody's best interest to get back to work."
Verizon spokesman Richard Young said that many of the benefits and work rules were put in place when Verizon faced much less competition in its landline business. "The contracts are not reflective of today's marketplace," he said.
Spellane said that much of the traditional phone network helps support the faster-growing wireless business. And many of the technicians that went on strike install and maintain the company's new fiber optic network, FiOS, which provides Internet, video and phone services.
Verizon has 196,000 workers, with 135,000 of those non-union. The wireless division, which wasn't affected by the strike, is mostly non-union.
Nearly 30 percent of U.S. homes have dropped landline phone service and rely on mobile phones only, according to the National Center for Health Statistics.
Verizon Wireless added 1.3 million wireless customers in the April-June quarter, for a total of 89.7 million. That growth has been helped by the addition of Apple Inc.'s iPhone in February. The company owns 55 percent of Verizon Wireless, with Britain's Vodafone owning the rest.
Meanwhile, total voice connections, which measures FiOS digital voice connections in addition to traditional landlines, declined 7.9 percent to 25 million. But the company has seen increases of more than 20 percent in customers subscribing to both FiOS Internet and TV services over the past 12 months.
Candice Johnson, spokeswoman for the CWA, said Verizon is asking $20,000 per worker in annual concessions. The company has disputed that but hasn't offered its own figure.
Johnson said earlier this month that the union's best-paid Verizon workers get about $77,000 a year in New York. The company puts the figure at $91,000 and said benefits average $50,000.
"These are very important issues" being negotiated, she said. "They are issues that help families ensure a middle-class life."
While union workers walked the picket lines, managers and non-union employees performed their duties.
Verizon's Young said the company began training managers and non-union workers at the beginning of the year to prepare for the strike. Thousands of employees were brought in from as far away as Texas, California, and Colorado, he said. They have worked 12 hours a day, six days a week, he said.

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The company also used newer technologies to resolve 50,000 problems a day remotely, Young said, such as resetting set-top boxes and routers and testing lines.
Peter Thonis, Verizon's chief communications officer, acknowledged there was "a little bit of a slowdown" in installing new services like FiOS, but said replacement workers largely kept up on repair work.
The company said in its statement that it will "quickly address any backlog in repairs and unfulfilled requests for service."
While customers who will now get their FiOS services installed on time may be winners, Verizon's Thonis said neither the company nor the workers could claim a victory.
"We still have a lot of hard and difficult bargaining to do. None of the major issues that were on the table before the strike, are off the table," he said.
Story: Verizon Says Equipment Sabotaged in Central NY
During the strike, hundreds of striking Verizon workers held a candlelight vigil outside their CEO's New Jersey mansion Thursday, hoping to draw a stark contrast between the contract demands of blue-collar workers and the quality of life enjoyed by the company's executives.
"It makes me sick that Americans have to come out and do this," said Joe Mastrogiovanni, a 29-year-old cable repairman from Piscataway. "We're not asking for more; we're asking to keep what we have."