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1. Budget Deficit Drops to $250 Billion
2. Why Is Warren Buffett Buying Utility Stocks?
3. Investors Relying on Strong Corporate Earnings
4. OPEC Cuts Production by 1 Million Barrels
1. Budget Deficit Drops to $250 Billion
The federal budget deficit estimate for the fiscal year just completed has
dropped to $250 billion, congressional estimators said Friday, as the economy
continued to fuel impressive tax revenues.
The Congressional Budget Office's latest estimate is $10 billion below CBO
predictions issued in August and well below a July White House prediction of
$296 billion.
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The improving deficit picture - Bush predicted a $423 billion deficit in his
February budget - has been driven by better-than-expected tax receipts,
especially from corporate profits, CBO said.
The 2005 deficit registered $318 billion; the record $413 billion deficit was
posted in 2004.
At $250 billion, it would be the lowest since the $158 billion figure in 2002,
the first deficit following four years of surpluses.
The CBO estimate continues a positive trend on the deficit after a grim deficit
performance during President Bush's first term, and comes despite soaring war
costs and $50 billion in emergency spending for hurricane relief.
House Budget Committee Chairman Jim Nussle, R-Iowa, credited the improving
deficit numbers to "a responsible budget blueprint and pro-growth policies,"
even as Democrats pointed out that at $250 billion, the deficit is still one of
the largest in history.
"Though today's estimates for 2006 are not as pessimistic as some earlier
estimates, it is clear that the budget remains on the wrong track," said top
budget panel Democrat John Spratt Jr. of South Carolina. "The Congressional
Budget Office and even the Bush administration are estimating that deficits will
be even larger next year."
White House budget chief Rob Portman said the economy's current performance,
with the unemployment dropping to 4.6 percent in September and the Dow Jones
industrial average hitting record highs this week, provided more evidence that
the president's economic policies are working.
"This economy is strong and growing," Portman told reporters at a briefing.
"This is a very strong indication that the president's tax relief program is
working."
But when measured against the size of the economy, which is the comparison
economists think is most important, the deficit picture looks even better.
At 1.9 percent of gross domestic product, the 2006 deficit registers far below
those seen in the 1980s and early 1990s. The modern record of 6 percent of GDP
came in 1983 and deficits greater than 4 percent in 1991 and 1992 drove Congress
to embark on a 1993 deficit-cutting drive.
Still, the long-term deficit picture remains bleak due to the looming retirement
of the Baby Boom generation, which threatens to swamp Social Security and the
Medicare health care program for the elderly.
The CBO estimates reflect actual government revenues and expenditures through
August and estimates for September. The Treasury and the White House budget
office are expected to release official deficit numbers next week.
Tax receipts are up $253 billion, a whopping 12 percent over last year. That's
the thirds consecutive year of strong revenue growth after a dismal performance
in the early part of the decade. Revenues dropped three years in a row after
fiscal 2000 but picked up again in 2004.
Taxes paid quarterly on corporate profits and by wealthier people and small
businessmen were especially strong in 2006. Corporate income taxes rose 27
percent over 2005 while nonwithheld receipts increased 19 percent.
In contrast, income taxes and payroll taxes for Social Security, Medicare and
unemployment insurance grew by only 7 percent. Critics of GOP economic policies
say that's a sign that lower- and middle-income people aren't getting as much of
a lift from the current recovery.
"The benefits of the economic expansion have not been equally distributed," said
Jim Horney, a budget analysts for the liberal-leaning Center on Budget and
Policy Priorities.
© 2006 The Associated Press.
Editor's Note:
2. Why Is Warren Buffett Buying Utility Stocks?
Why is Warren Buffett buying utility stocks? Because "that's where the cash is,"
says award-winning author and Bloomberg News columnist John Wasik. Wasik's new
book, "The Merchant of Power" (Palgrave, 2006), offers insight into the
fascinating and evolving history of electrical-generating companies. Acclaimed
by industry experts, "The Merchant of Power" delves into the history of the
industry from Thomas Edison in the 1880s to the collapse of Edison protégé Sam
Insull's powerful utility holding empire in 1932.
"Utilities have been cash generators for years, but unloved by the market in the
wake of the Enron fiasco and industry consolidation," said Wasik, who doesn't
pick stocks but can talk about industry history and growth. "Buffett is likely
seeing utilities as palpable bargains. In addition, the recent repeal of a
little-known Depression-era law - the Public Utility Holding Company Act - made
it easier for utility-holding companies to buy other utilities. Buffett said
that he would be buying more utilities if the law was repealed and made good on
his word."
Buffett's legendary financial acumen has proven profitable time and time again
and often sparks investing trends. In March of 2006, Buffett's Berkshire
Hathaway-MidAmerican Energy Holdings Company bought Scottish Power Plc for $5.1
billion in cash. He's still shopping around and has told reporters: "My guess is
that in the next 10 years we will buy one or two or three good-sized ones."
Wasik noted, "The Oracle of Omaha typically buys solid businesses that are good
values, generate high cash flow, often pay dividends and feature nearly
exclusive franchises. The best-run utilities fit that bill now."
Wasik's insights into the history of the industry have won him praise and an
influential following. "One of the most magnetic and powerful con artists of the
Great Depression was Sam Insull," said Pulitzer Prize winner Studs Terkel.
"Patron of the arts, philanthropist and Thomas Edison's right hand, he shafted
thousands of investors large and small. My mother, one of the latter, lost her
bundle during his adventures. I found the work of John Wasik not only personally
enthralling but an informal history of that traumatic time."
© 2006 MarketWire.
Editor's Note:
3. Investors Relying on Strong Corporate Earnings
Most investors are counting on strong corporate earnings to continue this
quarter and next, and any disappointment could send investors fleeing the
markets, putting the Dow's record climb in jeopardy. But so far, companies are
delivering, says USA Today.
Yesterday, Dow bellwether Alcoa and biotech-company Genentech reported
impressive third-quarter earnings, Alcoa's profits increased 86 percent and
Genentech's rose 58 percent.
Analysts are looking for companies in the S&P 500 to deliver earnings that are
on average 14 percent higher in the third quarter, reports USA Today. If they
meet those expectations, it would be the 18th consecutive quarter earnings have
increased by double digits.
"Investors are gearing up for a really big earnings season," says Ashwani Kaul
of Reuters Estimates. "Expectations are high, and companies will meet them."
Investors are expecting a strong corporate earnings season for several reasons,
points out USA Today.
First, earnings warnings are running below average for the quarter. The ratio of
companies in the S&P 500 that are warning investors earnings will disappoint is
two to one, slightly better than the 2.2 - 1 average.
Second, energy prices aren't driving earnings. In the second quarter, profits at
big oil companies added 2 percentage points to earnings growth, but consumer
discretionary companies, such as automakers, are making up for the dip in energy
prices, and consequently profits.
Earnings for consumer discretionary companies are expected to grow 24 percent,
compared to energy's 23 percent growth last quarter, Howard Silverblatt of S&P
tells USA Today.
Third, there have been no big surprises so far. Of the 30 S&P 500 companies to
report earnings, 24 beat expectations and four matched, according to Kaul.
Finally, there haven't been a slew of companies warning about future earnings.
"The market would be worried if a large number of companies warn about the
fourth quarter," Dick Green of Briefing.com tells USA Today.
Editor's Note:
4. OPEC Cuts Production by 1 Million Barrels
Oil prices rose Wednesday after the president of OPEC confirmed that the
organization will cut global crude production by 1 million barrels a day to prop
up the market.
"The cut itself is agreed," OPEC President Edmund Daukoru told reporters in
Abuja, Nigeria, adding the cut would begin at the end of the month. He said
members were "nearing consensus" on how to share out the cuts.
Daukoru's comments followed a slew of reports attributed to anonymous sources
from member countries of the Organization of Petroleum Exporting Countries
saying the cartel plans to trim its daily production by 1 million barrels.
A report from the International Energy Agency forecast the market for OPEC crude
for the first quarter of next year at 29.5 million barrels a day and for the
next at 29 million barrels.
OPEC's output quota now is at 28 million barrels a day. Including Iraq, which is
not bound by the quota system, OPEC's daily production is roughly 30 million
barrels.
The last time OPEC trimmed its output -- by 1 million barrels a day -- was
December 2004 when oil traded slightly above $40 a barrel.
Light sweet crude for November delivery was up 18 cents at $58.70 a barrel by
afternoon in Europe in electronic New York Mercantile Exchange trading. November
Brent crude was up 5 cents to $59.39 a barrel on the ICE Futures exchange in
London.
The Nymex crude contract had dropped $1.44 Tuesday to settle at $58.52 -- the
lowest close since Feb. 16.
Kuwait's energy minister had said Monday that OPEC was considering trimming its
daily output by anywhere from 700,000 barrels to 1 million barrels.
Phil Flynn, an analyst at Alaron Trading Corp., said "a real cut in production
of 1 million barrels of oil a day would be extremely bullish."
Other analysts have said prices could fall to $50 a barrel if economic growth
slows and if the Northern Hemisphere winter is not particularly cold.
After peaking at $78.40 in mid-July, oil prices plummeted because of rising
worldwide inventories, the mild Atlantic hurricane season and concerns about
slower economic growth.
Heating oil futures were up nearly a cent at $1.6902 a gallon, while gasoline
prices rose half a cent to $1.4710 a gallon. Natural gas futures advanced 12
cents to $6.585 per 1,000 cubic feet.
© 2006 The Associated Press.
Editor's Note:
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