(Headlines - scroll down for full stories)
1. Buffett to Execs: Don't Fall for Wall Street's Bag of Tricks
2. Greenspan: Housing Market Worst May Be Over
3. Fed's Yellen: Core Inflation ‘Uncomfortably High'
4. Mortgage Rates at Lowest Level in Seven Months
1. Buffett to Execs: Don't Fall for Wall Street's Bag of Tricks
In a memo to top managers at Berkshire Hathaway, Warren Buffett warns against
falling for Wall Street's bag of accounting tricks that has landed other
companies in a heap of trouble.
Specifically, Buffett was referring to the current options backdating scandal
that involves more than 140 companies. Buffett has always spoken against using
stock options as compensation, saying that it is not in the shareholder's
interest.
Story Continues Below
"My guess is that a great many of the people involved (in backdating options)
would not have behaved in the manner they did except for the fact that they felt
others were doing so as well," wrote Buffett.
Buffett calls the phrase "Everybody else is doing it" the "five most dangerous
words in business." He says the argument may be alluring, but he asks, "Why
would somebody offer such a rationale for an act if there were a good reason
available?"
Therefore, Buffett advises his top managers, whom he dubs "The All-Stars," to
"start with what is legal, but always go on to what we would feel comfortable
about being printed on the front page of our local paper, and never proceed
forward simply on the basis of the fact that other people are doing it."
Buffett acknowledges that Berkshire Hathaway isn't above such bad behavior. With
well over 200,000 employees, Buffett says "the chances of that number getting
through the day without any bad behavior occurring is nil." But he tells his
managers that they should "[jump] on anything immediately when there is the
slightest odor of impropriety."
"Berkshire's reputation is in your hands," concludes Buffett.
Editor's Note:
2. Greenspan: Housing Market Worst May Be Over
The U.S. housing market appears to be emerging from its recent travails and the
"worst may well be over," former Federal Reserve Chairman Alan Greenspan was
quoted as saying on Friday.
"I suspect that we are coming to the end of this downtrend, as applications for
new mortgages, the most important series, have flattened out," Greenspan said at
an event in Calgary, Canada, sponsored by BMO Financial Group, according to a
transcript BMO made available.
"There is a good chance of coming out of this in good shape, but average housing
prices are likely to be down this year relative to 2005. I don't know, but I
think the worst of this may well be over," he added.
Applications for U.S. home mortgages jumped in the latest week bolstered by
increases in refinancing and new home purchases as long-term rates decreased,
according to data from the Mortgage Bond Association.
Greenspan, the former Fed chief's comments suggest a more sanguine view of the
U.S. housing market than that offered by current Fed chairman Ben Bernanke, who
said last week that the housing market was currently undergoing a "substantial
correction."
Some bond market participants in London said on Monday that Greenspan's remarks
helped drive bond prices down further and yields higher, and obscured concerns
surrounding the news that North Korea said it safely and successfully conducted
an underground nuclear test over the weekend.
U.S. bond markets were closed on Monday in observance of the Columbus Day
holiday.
Greenspan said the fall of communism, not sharp interest rate cuts by the Fed,
was behind the housing boom in the early part of the decade. Cheap labor
flooding into the West after the fall of the Berlin Wall had a disinflationary
effect, causing bond yields to fall and house values to rise, he said.
On another topic, the former Fed chair said that China is unlikely to quickly
adopt a flexible exchange rate regime as it transitions to a market economy from
a centrally planned one.
Many economists and policy-makers believe China keeps the value of its yuan
currency low to make Chinese exports cheaper on world markets, fueling
export-led growth but contributing to China's large trade surplus with the
United States.
"The greatest fear of the central government of China is insurrection and so
they refuse to revalue their currency in the hopes of continued surging job
growth," Greenspan said.
He said the "threat" of U.S. trade protectionism had dissipated since U.S. Sens.
Charles Schumer and Lindsey Graham had decided not to push for a vote on their
bill to place high tariffs on Chinese imports into the United States.
"Schumer never thought he would get the congressional support he did," Greenspan
said of the New York Democrat. "He was only trying to pressure China to revalue
(the yuan), not to actually slap a 27.5 percent tariff on Chinese goods.
© 2006 Reuters.
Editor's Note:
3. Fed's Yellen: Core Inflation ‘Uncomfortably High'
Federal Reserve Bank of San Francisco President Janet Yellen said Monday that
while she remains concerned about the current level of inflation, she believes
the present stance of monetary policy appears well suited to brings those
pressures back in line over time.
"I do want to see inflation move down, but I believe policy may now be
well-positioned to foster exactly such an outcome while also giving due
consideration to the risks to economic activity," Yellen said in comments
prepared for delivery before the California Independent Bankers 16th Annual
Convention in Laguna Beach, Calif.
She noted that "monetary policy makers again are doing a balancing act, seeking
the best way to temper inflationary pressures while not exposing the business
cycle expansion to undue risk." And against those risks, "holding the stance of
policy steady for a time makes sense to me," especially since "we appear to be
within range of the moderately restrictive policy," she said.
Yellen is currently a voting member of the interest rate-setting Federal Open
Market Committee. Economists and financial markets widely expect the Fed to hold
what is currently a 5.25 percent overnight target rate steady through the
remainder of the year, although markets generally believe the economy is poised
to weaken enough for the Fed to start easing rates next year.
Yellen, who has been a frequent speaker on the economic outlook over recent
weeks, offered views in her speech that were consistent with her past
statements. Yellen's address Monday wasn't open to the press.
"Core consumer inflation has been uncomfortably high recently," she said. "I
believe it is critical that inflation trend in a downward direction over the
medium term" and "my expectation is that this is the most likely outcome," she
said.
Yellen did acknowledge that she is "somewhat encouraged" by recent evidence of
slowing price pressures. That said, "I am keenly aware that this pattern has yet
to show up in the data on any sort of a sustained basis," she said.
And in a world where the outlook for price pressures is "highly uncertain,"
Yellen said that "until we actually see inflation begin to slow down, I will be
focused on the upside risks in the outlook." Still, the official pointed to
"well anchored" inflation expectations as a reason to be optimistic.
Yellen said that the Fed decided to hold rates steady in August in large part
because of rising evidence that past rate hikes were beginning to slow the
economy. "Since then, there have been further signs of slowing," which allowed
the Fed to again keep rates steady when it met in late September.
"The data we've been seeing in recent months point to a noticeable slowdown for
this half of the year, with growth running at only a modest pace and clearly
below the rate that is sustainable in the long run," Yellen said. Supporting the
economy are a number of factors on the business side of the equation, while
headwinds include energy prices and the cumulative impact of past interest rate
hikes, she said.
Yellen added to the list of factors weighing down growth the housing sector,
where the pace of the slowdown there has been "a little surprising." She said
"we have already seen that the pace of house-price appreciation has clearly
moderated, and there are signs that it may continue."
This will likely weigh on the consumer sector, Yellen said, as she warned that
banks should be particularly wary of the impact of this shift on their industry.
Yellen also said "it has been something of a relief to see that oil prices have
receded quite a bit in recent months," and if they stabilize, "the restraint
we've felt this year should evaporate over 2007" and "would actually contribute
to a pickup in growth next year."
© 2006 The Associated Press.
Editor's Note:
4. Mortgage Rates at Lowest Level in Seven Months
Rates on 30-year mortgages edged down this week to a seven-month low.
Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages
fell to 6.30 percent, down slightly from 6.31 percent last week. It put rates at
the lowest level since they were at 6.24 percent the first week of March.
Rates have been headed lower for more than two months as financial markets have
become convinced that a slowing economy will help ease inflation pressures and
that will keep the Federal Reserve from raising interest rates further.
The drop in mortgages has spurred a rebound in mortgage applications, driven in
part by homeowners with adjustable rate mortgages who want to refinance to a
fixed rate before their current mortgages reset to a higher monthly payment.
"Home refinancing rose 18 percent last week, accounting for almost half of all
mortgage applications," said Frank Nothaft, chief economist at Freddie Mac.
Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing,
averaged 5.98 percent last week, the same as the previous week. That is the
lowest rate for this type of mortgage since March 23.
Rates on one-year adjustable rate mortgages dipped to 5.46 percent, down from
5.47 percent last week.
Rates on five-year adjustable-rate mortgages were unchanged at 6.00 percent.
The mortgage rates do not include add-on fees known as points. For a 30-year
mortgage, the nationwide average fee was 0.3 point while the 15-year mortgage
carried a fee of 0.4 point. The one-year ARM had a nationwide average fee of 0.7
point and the five-year ARM carried a fee of 0.5 point.
A year ago, 30-year mortgages averaged 5.98 percent, 15-year mortgages stood at
5.54 percent, one-year ARMs were at 4.77 percent and the five-year ARMs were at
5.48 percent.
© 2006 The Associated Press.
Editor's Note:
Editor's Notes:
