Caterpillar says the world's economy is weaker than it thought,and it doesn't expect growth to pick up untilthe second half of nextyear.
The company on Monday cut its 2012 revenue and profit guidance, and said next year won't be much better.
Caterpillar makes the yellow-painted excavators, heavy tractors, and other construction equipment often seen on road-building projects. It's the world'slargest maker of construction and mining equipment, and also makes engines, so its results are watched closely forsigns of where the broader economy is headed.
Where it's headed rightnow is for some weak growth, based on whatCaterpillar was saying on Monday.
It predicted worldwideeconomic growth of 2.7 percent for next year, up from the 2.5 percent growth it expects for 2012. It expects the cheap lending offered in mostcountries to continue next year, although"growth has been slow to respond," the company said.
"As a result, we are not expecting improvement in overalleconomic growth untilthe second half of 2013," the company said.
Caterpillar sells to dealers, who turn around and sell to end users like construction and mining companies.Those dealers are tryingto cut inventory, so they're ordering less equipment than customers are buying.
In response, Caterpillar said it has reduced production, resulting intemporary shutdowns and layoffs. Lower production will continue until dealer demand lines up with end user demand, Caterpillar said.
As a result, Caterpillar cut its 2012 outlook for the second time this year. Revenue is expected to grow 9.7 percent to $66 billion, after rising 41 percent in 2011. Profit is now forecast at $9 to $9.25 per share, down from aprevious forecast of$9.60 per share.
Analysts surveyed by FactSet had expected revenue of $67.2 billion, with profit of$9.41 per share.
The economy this year"has been a disappointment," Caterpillar said, with growth lower than expected in the U.S. and China, and with much of Europe in recession.
Caterpillar expects 2013 revenue to be about the same as this year, in a range of up 5percent to down 5 percent.
"We're not expecting rapid growth, and we're not predicting a global recession," Chairman and CEO Doug Oberhelman said.
The company said salesof mining gear will fallnext year. Lower prices for metals and coal, along with higher operating costs, have hurt profit margins at many mining companies, Caterpillar said. Sales of construction gear are expected to increase, and it expects improving activity in the U.S. It expects engine sales to be flat.
Profit in the third quarter rose 49 percentto almost $1.7 billion, or $2.54 per share. Thatcompares with profit of$1.14 billion, or $1.71 per share, a year earlier.Revenue rose 4.6 percent to $16.45 billion.
The results included a gain of $273 million, or 27 cents per share, from selling a majority interest in a logistics business. Analysts surveyed by FactSet had been expecting a profit of $2.21 per share, on revenue of$16.64 billion.
Monday, 22 October 2012
Ancestry.com AgreesTo Buyout By Private Equity Firm
After months of speculation about a possible buyout, Ancestry.com ( ACOM ) announced Monday that it is being purchased by an investor group led by European private equity firm Permira.
Permira and co-investors have agreed to pay $32 a share in cash for Ancestry.com, the world's leading online genealogy service. The deal is valued at $1.6 billion. The transaction represents a 41% premium over Ancestry's closing priceon June 5, the last trading day before press reports leaked that Ancestry had retained a financial adviser in connection with a possible sale of the company. Ancestrystock closed Friday at 29.18 and was up 8%, at 31.50, in early trading Monday.
Ancestry CEO Tim Sullivan and CFO Howard Hochhauser will maintain a majority of their equitystakes in the company as part of the transaction. Spectrum Equity, which owns 30% of the company's outstanding shares, alsowill remain an investor in the company.
Ancestry.com has morethan 2 million subscribers for its online family history service. Over the past 15 years, Ancestry has assembled a worldwidecollection of more than 10 billion digitized and indexed records. It has grown through acquisitions, most recently picking up companies like Archives.comand 1000memories.
"We're excited that Permira shares our commitment to keep investing in our technology and product experience to make family history easy and accessible for more and more families around the world," Sullivan said in a statement . "Their strong investment trackrecord in the technology and Internet sectors makes them a terrific adviser and partner as we take the company forward."
Ancestry expects the deal to close in early 2013, pending shareholder approvals.
Ancestry.com and Permira said the company will continueexecuting on its growth strategy and initiatives led by content acquisition and technology investment, including the company's new DNA service.
Permira and co-investors have agreed to pay $32 a share in cash for Ancestry.com, the world's leading online genealogy service. The deal is valued at $1.6 billion. The transaction represents a 41% premium over Ancestry's closing priceon June 5, the last trading day before press reports leaked that Ancestry had retained a financial adviser in connection with a possible sale of the company. Ancestrystock closed Friday at 29.18 and was up 8%, at 31.50, in early trading Monday.
Ancestry CEO Tim Sullivan and CFO Howard Hochhauser will maintain a majority of their equitystakes in the company as part of the transaction. Spectrum Equity, which owns 30% of the company's outstanding shares, alsowill remain an investor in the company.
Ancestry.com has morethan 2 million subscribers for its online family history service. Over the past 15 years, Ancestry has assembled a worldwidecollection of more than 10 billion digitized and indexed records. It has grown through acquisitions, most recently picking up companies like Archives.comand 1000memories.
"We're excited that Permira shares our commitment to keep investing in our technology and product experience to make family history easy and accessible for more and more families around the world," Sullivan said in a statement . "Their strong investment trackrecord in the technology and Internet sectors makes them a terrific adviser and partner as we take the company forward."
Ancestry expects the deal to close in early 2013, pending shareholder approvals.
Ancestry.com and Permira said the company will continueexecuting on its growth strategy and initiatives led by content acquisition and technology investment, including the company's new DNA service.
Bank of Queensland (BOQ) denies it's a takeover report
THE head of the Bank of Queensland(BOQ) has rejected speculation that his company is now a takeover target afterit posted the first loss by an Australianbank in two decades.
Chief executive Stuart Grimshaw saidthe worst was behind the bank, just days after declaring a $17 million full year loss due to $401 million in costs from unrecoverable loans.
Mr Grimshaw deniedthe bank would haveto be taken over at some point.
"No I don't think that's the case," he said.
"When we recorded a loss in the first half, that was about a $90 million after tax loss, the second half we reported a$70.3 million dollar profit."
While the Bank of Queensland was exposed to bad debts in the southeast corridor of Queensland, it still had a great future, Mr Grimshaw told ABC's Inside Business program onSunday.
"We believe we haveseen the worst.
"It won't be an instantaneous returnto like 2006 bad debt expense levels, but we believe that within the next threeyears we will return to a level similar to that."
He said the cost of deposits was increasing.
"We've actually beenable to manage both sides of the balance sheet prettywell in what's been avery tough and competitive market."
The company shed 100 management roles about four weeks ago after highlighting seven layers of people between the chief executive and customers.
"In a small bank that's just way too many," Mr Grimshawsaid.
"In Bank of Queensland Finance,and even at the bank, we have a number of people doing roles which could be better shared rather than isolated."
Mr Grimshaw confirmed the bank's funding was made up of 59 per cent deposits and 41 per cent wholesale funding.
Around 40 per cent of its business was now done outside Queensland, with 29branches in Western Australia, 35 in Victoria and 42 in NSW.
He added that the bank was not interested in being afunds manager or a large institutional bank.
"We're not going to bank every agri-business in Australia."
On Friday BOQ shares closed 11 cents, or 1.5 per cent, higher at$7.38.
Sunday, 21 October 2012
"Black Monday" stock market crash, 25years later
, specifically October 19, 1987. Themorning started with stock selling and lots of it and ended with aday of historic losses. Twenty five years later,although the recent financial crisis was more severe and long-lasting, the crash of 1987 remains the single-most dramatic day of trading that most people have everexperienced on Wall Street.
That day came to be known as "Black Monday" because the Dow Jones Industrial Average plummeted 508 points, losing 22.6percent of its total value in a single session. It was the greatest percentage loss Wall Street had ever suffered on a single trading session. Despite the agonizing days of the financial crisis of 2008, those downside moves barely crack the top ten worst days for the Dow Jones Industrial Average - the 7.8 percent loss on October 15, 2008 is number nine.
What caused the crashof 1987? According toa 2006 Federal Reserve paper, a combination of circumstances made the crash possible. In the five years preceding the crash, stocks were supported by new entrants into the market (pension and 401(k) plans), which drove up prices.The Dow bottomed out at 776 in August 1982 and marched upto a high of 2,722 in August 1987.
Equities were also boosted by favorable tax treatments given to the financing of corporate buyouts, which "increased the number of companies that were potential takeover targets and pushed up their stock prices." These buyouts benefitted from lower interest rates. However,in the months leading up to the crash, interest rates were rising globally and concerns about inflation caused fears of further interest rate increases in the U.S. as well.
Two fuses were lit in the days before the crash. On Wednesday October 14, there were reports that legislation had been proposed in Congress to eliminate tax benefits associated with financing mergers, and separately, the U.S. trade deficit was revealed to be worse than expected, which caused the value of the dollar to dive and raised expectations that the Fed would increase interest rates.
Once these fuses were lit, other conditions added fuel to the fire. The increase in computer "program trading" strategies added to the magnitude of the losses, as did the impact of margin callsand the inability for investors to gather information in the chaotic environment. The combination of all these factors led to that historic and frightening day of trading. Sound familiar?
Could it happen again? Of course it could! It is almost ironic to go back readaccounts published onthe twentieth anniversary of the crash in October 2007, like this one in the Wall Street Journal:
"Some of the root causes of the 1987 crash appear to be missing today...Stocks don't look as overpriced today as they did in 1987...the Fed already has stepped in, lowering target short-term interest rates and pumping money into the banking system...Despite the continuing housing crisis and difficulties that many borrowers still face raising money, many investors believe the worst of the year's troubles are over."
Oops! So what have we learned in the 25 years since "Black Monday" and the subsequent financial crisis that started four years ago?
Cash is King : For those investors near or already in retirement, a cash cushion of 1-2 years of living expenses can reduce the urge to panic and sell at the bottom.
Planning is Queen : A thorough financial plan that contemplates both good and bad marketscan help you navigatea crash and its aftermath.
Diversification and rebalancing complete the Royal Family : Understanding your risk tolerance to build your asset allocation on a diversified basis, followed periodic rebalancing really canwork! The numbers back up the royal family and prove that using different types of assets (stocks, bonds,commodities and cash), based on your particular risk tolerance and rebalancing the allocation on a regularbasis (quarterly, semi-annually or evenannually) can help protect your money when the next crash occurs.
That day came to be known as "Black Monday" because the Dow Jones Industrial Average plummeted 508 points, losing 22.6percent of its total value in a single session. It was the greatest percentage loss Wall Street had ever suffered on a single trading session. Despite the agonizing days of the financial crisis of 2008, those downside moves barely crack the top ten worst days for the Dow Jones Industrial Average - the 7.8 percent loss on October 15, 2008 is number nine.
What caused the crashof 1987? According toa 2006 Federal Reserve paper, a combination of circumstances made the crash possible. In the five years preceding the crash, stocks were supported by new entrants into the market (pension and 401(k) plans), which drove up prices.The Dow bottomed out at 776 in August 1982 and marched upto a high of 2,722 in August 1987.
Equities were also boosted by favorable tax treatments given to the financing of corporate buyouts, which "increased the number of companies that were potential takeover targets and pushed up their stock prices." These buyouts benefitted from lower interest rates. However,in the months leading up to the crash, interest rates were rising globally and concerns about inflation caused fears of further interest rate increases in the U.S. as well.
Two fuses were lit in the days before the crash. On Wednesday October 14, there were reports that legislation had been proposed in Congress to eliminate tax benefits associated with financing mergers, and separately, the U.S. trade deficit was revealed to be worse than expected, which caused the value of the dollar to dive and raised expectations that the Fed would increase interest rates.
Once these fuses were lit, other conditions added fuel to the fire. The increase in computer "program trading" strategies added to the magnitude of the losses, as did the impact of margin callsand the inability for investors to gather information in the chaotic environment. The combination of all these factors led to that historic and frightening day of trading. Sound familiar?
Could it happen again? Of course it could! It is almost ironic to go back readaccounts published onthe twentieth anniversary of the crash in October 2007, like this one in the Wall Street Journal:
"Some of the root causes of the 1987 crash appear to be missing today...Stocks don't look as overpriced today as they did in 1987...the Fed already has stepped in, lowering target short-term interest rates and pumping money into the banking system...Despite the continuing housing crisis and difficulties that many borrowers still face raising money, many investors believe the worst of the year's troubles are over."
Oops! So what have we learned in the 25 years since "Black Monday" and the subsequent financial crisis that started four years ago?
Cash is King : For those investors near or already in retirement, a cash cushion of 1-2 years of living expenses can reduce the urge to panic and sell at the bottom.
Planning is Queen : A thorough financial plan that contemplates both good and bad marketscan help you navigatea crash and its aftermath.
Diversification and rebalancing complete the Royal Family : Understanding your risk tolerance to build your asset allocation on a diversified basis, followed periodic rebalancing really canwork! The numbers back up the royal family and prove that using different types of assets (stocks, bonds,commodities and cash), based on your particular risk tolerance and rebalancing the allocation on a regularbasis (quarterly, semi-annually or evenannually) can help protect your money when the next crash occurs.
BP Board Approves Rosneft Deal (Moscow)
BP's boardhas approved an offer from the Russian state oil company, Rosneft, to buy most of BP's business in Russia for cash and shares in Rosneft, further consolidating Russia's control of its oil industry, an executive with knowledge of thedecision said.
Under the terms of thedeal, BP would remainin Russia but - initially at least - only as a minority investor in anoil company controlled by the government of President Vladimir V. Putin. Later, BP is hoping to use this newstrategic tie with the Kremlin to drum up other business.
BP had been telegraphing its willingness to make a deal for some time, and Rosneft formally submitted an offer on Thursday to buy out BP's 50 percent of a joint venture here called TNK-BP.The board's authorization allowed BP's chief executive, Robert W. Dudley, to negotiate the final terms for BP's sale of its Russian holdings within a range of acceptable combinations of cash and shares,
Under the terms of thedeal, BP would remainin Russia but - initially at least - only as a minority investor in anoil company controlled by the government of President Vladimir V. Putin. Later, BP is hoping to use this newstrategic tie with the Kremlin to drum up other business.
BP had been telegraphing its willingness to make a deal for some time, and Rosneft formally submitted an offer on Thursday to buy out BP's 50 percent of a joint venture here called TNK-BP.The board's authorization allowed BP's chief executive, Robert W. Dudley, to negotiate the final terms for BP's sale of its Russian holdings within a range of acceptable combinations of cash and shares,
Interest rate (IR)
Interest rate(s)
The price(s) of obtaining the temporary use of money that one borrows from someoneelse who actually ownsit, normally expressed as a percentage of the amount borrowed per year. Since loans and loan repayment extendover considerable periods of time and entail more complex security arrangements than a simple cash-on-the-barrelhead exchange, interest ratesto be paid are normallyspelled out as part of a relatively complex written contract between borrower and lender.
The price(s) of obtaining the temporary use of money that one borrows from someoneelse who actually ownsit, normally expressed as a percentage of the amount borrowed per year. Since loans and loan repayment extendover considerable periods of time and entail more complex security arrangements than a simple cash-on-the-barrelhead exchange, interest ratesto be paid are normallyspelled out as part of a relatively complex written contract between borrower and lender.
Interest rate (IR)
Interest rate(s)
The price(s) of obtaining the temporary use of money that one borrows from someoneelse who actually ownsit, normally expressed as a percentage of the amount borrowed per year. Since loans and loan repayment extendover considerable periods of time and entail more complex security arrangements than a simple cash-on-the-barrelhead exchange, interest ratesto be paid are normallyspelled out as part of a relatively complex written contract between borrower and lender.
The price(s) of obtaining the temporary use of money that one borrows from someoneelse who actually ownsit, normally expressed as a percentage of the amount borrowed per year. Since loans and loan repayment extendover considerable periods of time and entail more complex security arrangements than a simple cash-on-the-barrelhead exchange, interest ratesto be paid are normallyspelled out as part of a relatively complex written contract between borrower and lender.
Law of diminishing returns (LoDR)
Sometimes also referred to as the law ofvariable proportions , this "law" is really a generalization economists make about the nature of technology when it is possible to combine the same factors of production in a number of different proportions to make the same product. The law states:
When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller.
(That is, first the marginal returns to successive small increases in the variable factor of production turn down, and then eventually the overall average returns per unit of the variable input start decreasing.) Since the law assumes that the available quantity of atleast one factor of production is fixed at agiven level and that technological knowledge does not change during the relevant period, the lawof diminishing returns normally translates intoa statement about the short-run choice of production possibilities facing a firm (since in the longer run it is virtually always possiblefor the firm to acquire more of the temporarily "fixed" factor -- building an additional factory building, buying additional land, installing additional machines of the same kind, installing newer and more advanced machinery, and so on.
When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller.
(That is, first the marginal returns to successive small increases in the variable factor of production turn down, and then eventually the overall average returns per unit of the variable input start decreasing.) Since the law assumes that the available quantity of atleast one factor of production is fixed at agiven level and that technological knowledge does not change during the relevant period, the lawof diminishing returns normally translates intoa statement about the short-run choice of production possibilities facing a firm (since in the longer run it is virtually always possiblefor the firm to acquire more of the temporarily "fixed" factor -- building an additional factory building, buying additional land, installing additional machines of the same kind, installing newer and more advanced machinery, and so on.
Monetary policy (MP)
Monetary policy
That part of the government's economic policy whichtries to control the size of the total stock of money (and other highly liquid financial assets that are close substitutes for money) available in the national economy in order to achieve policyobjectives that are often partly contradictory: controlling the rate of increase in the general price level ( inflation ), speeding up or slowingthe overall rate of economic growth (mainly by affecting the interest rates that constitute such a large share of suppliers' costs for new investment butpartly by influencing consumer demand through the availabilityof consumer credit andmortgage money), managing the level of unemployment (stimulating or retarding total demandfor goods and services by manipulating the amount of money in the hands of consumersand investors), or influencing the exchange rates at which the national currency trades for other foreign currencies (mainly by pushing domestic interest rates above or below foreign interest rates in order to attract or discourage foreign savings from entering or leaving domestic financial markets).
That part of the government's economic policy whichtries to control the size of the total stock of money (and other highly liquid financial assets that are close substitutes for money) available in the national economy in order to achieve policyobjectives that are often partly contradictory: controlling the rate of increase in the general price level ( inflation ), speeding up or slowingthe overall rate of economic growth (mainly by affecting the interest rates that constitute such a large share of suppliers' costs for new investment butpartly by influencing consumer demand through the availabilityof consumer credit andmortgage money), managing the level of unemployment (stimulating or retarding total demandfor goods and services by manipulating the amount of money in the hands of consumersand investors), or influencing the exchange rates at which the national currency trades for other foreign currencies (mainly by pushing domestic interest rates above or below foreign interest rates in order to attract or discourage foreign savings from entering or leaving domestic financial markets).
National debt (NB)
National debt
As usually defined, this denotes the total sum of the outstanding debtobligations of a country's central government. (But occasionally writers may use the term somewhat more broadly to refer to the total indebtedness of all levels of government, including regional and local governments, and sometimes also the indebtedness of government owned business entities such aslocal transit and communications systems or nationalized industries as well.) The national debt represents the accumulated total of all the government budget deficits of past years, less the accumulated total of all the government budget surpluses of past years.
As usually defined, this denotes the total sum of the outstanding debtobligations of a country's central government. (But occasionally writers may use the term somewhat more broadly to refer to the total indebtedness of all levels of government, including regional and local governments, and sometimes also the indebtedness of government owned business entities such aslocal transit and communications systems or nationalized industries as well.) The national debt represents the accumulated total of all the government budget deficits of past years, less the accumulated total of all the government budget surpluses of past years.
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