Geithner: 'The credit crunch is not over'

One day after Goldman Sachs' CEO apologized for his bank's role in the financial meltdown, Treasury Secretary Tim Geithner called on the nation's financiers to step up and do more to fix the damage they helped cause.

"This credit crunch is not over," Geithner at a small business financing forum in Washington hosted by the Treasury. "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

The nation's banking system was stabilized with taxpayer dollars, and Geithner said he holds the biggest banks accountable for passing the torch from Wall Street to Main Street.

"Banks bear some responsibility for the extent of the damage caused by the crisis," he said. "And they carry a substantial obligation to help our communities get back on their feet."

Geithner and an assortment of top Washington officials, including Small Business Administrator Karen Mills, met Wednesday with a gathering of bankers and small business owners to address the credit crunch that has plagued small business owners for more than a year. Frozen out by banks unwilling to make risky lending bets on startups and small companies, the nation's 6 million small employers are struggling.

"In my home state of Virginia, we have long-term, successful retailers who are not going to be able to hire up for the holiday season," said Senator Mark Warner, D-Va. "Small businesses have hung on as long as they can and are basically at the end of their rope."

Many voices, little consensus: The Obama administration has made several attempts to unlock small business lending, with middling success.

Stimulus provisions aimed at motivating banks to increase their participation in the Small Business Administration's loan programs helped staunch the bleeding, but 2009's SBA loan volume still fell sharply from the year before. Last month, President Obama unveiled a new set of proposals, including increasing the cap on SBA loans and offering community banks ultra-low interest government loans. Business owners and bankers gave the plan a lukewarm reception.

The day-long forum Treasury hosted on Wednesday was aimed at generating fresh ideas.
0:00 /2:41Small biz credit crunch

Participants enthusiastically plunged into brainstorming, offering up a blizzard of suggestions. Many targeted specific, technical obstacles that have slowed the flow of small business loans, like onerous paperwork requirements for SBA-backed lending and the regulatory problems banks face if too many of their small business loans default.

Senator Warner touted a proposal he sent to President Obama last month, with the endorsement of 32 other members of the Senate. Warner is backing the creation of a $50 billion small business lending pool, drawing on $40 billion from TARP (Troubled Asset Relief Program) funds and $10 billion from participating banks. Bankers would manage the loan pool funds, but because the money would stay off their books, banks wouldn't be able to simply absorb it into their own working capital.

"I think we need to be exponentially more aggressive," Warner said of the government's response to the deepening crisis.

Geithner seemed to agree. He and other officials acknowledged that the small business situation remains critical.

"As we wind down programs that help big banks, we are committed to doing more to help small businesses access the credit they need to grow and hire new workers," Geithner said.

That was a refreshing to hear, said Steve Steinour, CEO of Huntington Bank (HBAN). There was "clear recognition that the successes so far are not adequate."

Huntington, based in Columbus, Ohio, has kept its small business lending steady through the recession. It made almost 1,000 loans last year through the SBA's primary loan program, totaling $141.4 million. Steinour found Wednesday's brainstorming session fruitful.

"The SBA got an awful lot to work from -- a very rich palate," he said.

The SBA plans to compile the conference comments into a report that will be sent to President Obama and publicly released online.

Why it matters: One theme recurred throughout the day: Scarce credit is preventing small business owners from creating jobs.

With the unemployment rate topping 10%, that's a critical obstacle to the nation's economic recovery. Entrepreneurs like William Ortiz-Cartagena of San Francisco were on hand to illustrate how financing can translate directly into jobs.

Ortiz-Cartagena is the owner of Gentle Parking, a company that coordinates parking logistics. He banged on bank doors repeatedly to find loans to get his company launched, with no success. Finally, in February, he landed a $10,000 loan from Opportunity Fund, a community development financing fund that specializes in working with underserved populations. Gentle Parking now has a staff of 12.

Lack of financing is keeping the company from expanding further, Ortiz-Cartagena said.

"Once we have the tools, we got it. We'll take care of the rest," he said. "I am excited to see the government actually rolling up their sleeves and talking to me."

They're talking. The next step is action. Which won't be easy.

Banks remain under tremendous pressure to shore up their balance sheets and avoid risky loans -- which small business loans typically are. Defaults have spiked this year as companies struggle to keep up with their bills, even as their sales deteriorate.

"There are no quick fixes," Federal Deposit Insurance Corporation chief Sheila Bair said at the conference. She expects the current quarter to be a rough one for banks, which are still suffering losses from past bets gone bad.

But until someone -- the banks or the government itself -- starts lending, small companies will continue to feel shut out from recovery efforts.

Lani Hay, the founder of technology services firm Lanmark Technologies in Fairfax, Va., has seen her credit lines slashed and her financing options dry up. She compared the current situation with business owners and bankers to a middle-school dance: Boys on one side, girls on the other, and a wary refusal to mingle.

SBA Administrator Mills liked the analogy. "We have our marching orders," she said. "We have to get on some music and get people dancing."

Stocks down on recovery doubts

Stocks tumbled Thursday, adding to losses in the previous session, as concerns about the economic recovery resurfaced and the U.S. dollar strengthened.

The Dow Jones industrial average (INDU) was down 138 points, or 1.3%, with about two hours left in the session. The S&P 500 (SPX) fell 1.7% and the Nasdaq composite (COMP) fell 1.9%.

The selloff came as overseas markets retreated, helping the dollar regain some ground against rival currencies.

The stronger dollar weighed on the oil and metals markets, which undermined shares of energy and materials companies. Chevron (CVX, Fortune 500) fell 2.2% and Alcoa (AA, Fortune 500) was down 4.6%.

Tech shares remained under pressure following a batch of bearish profit outlooks in the previous session. Intel (INTC, Fortune 500) was down 5% and Hewlett-Packard (HPQ, Fortune 500) fell 2%.

"Overseas markets set the tone for a negative day in the U.S.," said Russell Lundeberg Jr., chief investment officer at Barrett Capital Management. However, a move lower is not surprising given the market's push to a 13-month high earlier this week, he added.

"I think a lot of people are concerned that we've come too far, too fast," Lundeberg said.

Stocks ended lower Wednesday after a government report showed a drop in new home construction.

The surprisingly weak housing report was the latest in a string of less-than-stellar economic indicators that have put many market participants on edge. Investors are now looking for more concrete evidence of improvement in the job market, retail sales and corporate profits.

"Overall, it's not surprising that people are getting nervous," said Lundeberg. "We still have a long way to go in the recovery."

Investors largely shrugged off a weekly government report Thursday that showed the number of Americans filing first-time claims for unemployment benefits was unchanged from the preceding week.

Analysts said the volume of shares trading hands recently has been low, suggesting that many big investment funds have moved to the sidelines to protect gains before publishing their year-end reports.

At the same time, thin trading volumes and a general lack of conviction in the market could result in increased volatility. The CBOE Volatility index, or the VIX, rose 9% to 23.59 from 21.63.

Meanwhile, investors continue to focus on the the plight of the U.S. dollar, which has shown some signs of strength recently after Federal Reserve officials -- including chairman Ben Bernanke -- indicated that the U.S. central bank is monitoring the currency's decline.

"The market has definitely been trading off the dollar recently," said Ron Kiddoo, chief investment officer at Kozad Asset Management. "I think the stronger dollar is a bigger factor than the jobless claims."

Despite the recent rebound, the dollar remains near a 15-month low against a basket of other currencies. The greenback, which is seen as a safe-haven asset, has tumbled about 7% so far this year as investors gravitate towards more risky bets in stocks and commodity markets.

Economy: The Labor Department released its weekly report on initial jobless claims, showing that the number of claims was unchanged from the prior week, virtually matching expectations.

The government said that jobless claims totaled 505,000 in the week ended Nov. 14. This was very close to the forecast of 504,000 claims, according to a consensus of economist opinion compiled by Briefing.com.

A report on leading economic indicators showed an increase of 0.3% in October, below the 0.4% forecast and the 1% rise in September. The Philadelphia Federal Reserve survey, a reading on regional manufacturing, rose slightly.

Companies: JPMorgan Chase (JPM, Fortune 500) said Thursday it was buying the half of UK broker Cazenove that it does not already own for about $1.67 billion.

Sears Holdings (SHLD, Fortune 500) posted a narrower-than-expected quarterly loss, of $127 million, or $1.09 a share, from $146 million, or $1.16 a share, a year earlier. Earnings were helped by the first increase, of 0.5%, in same-store sales at its Kmart unit in four years.

After the closing bell, Dell (DELL, Fortune 500) and Gap (GPS, Fortune 500) are due to post their financial results for the latest quarter.

World markets: Asian shares mostly fell. Japan's Nikkei tumbled 1.3%. Major European indexes were also closed lower, with the CAC-40 in Paris falling 1.8%.

Money, oil and gold: The dollar was up against all major currencies except the yen. The dollar index (DXY), which gauges the U.S. currency against a basket of rivals, was up 0.2% to 75.32.

The price of oil fell $2.17 to $77.40 a barrel.

The price of gold fell $5.20 to $1,135.50 per ounce. On Wednesday, gold for December delivery settled at a record high of $1,141.20 an ounce, up $1.80 from the previous close.

Bonds. Treasury prices rose. The yield on the benchmark 10-year note, which moves inversely to its price, fell to 3.33% from 3.36% late Wednesday.

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$600 million spent to influence health care debate

The price tag to influence the health care debate in the halls of Congress has surpassed $600 million and is fast becoming a legislative record breaker.

Reaching beyond the half-billion mark, the total spent on lobbyists, television ads and political donations is enough to pay the insurance tab for about 45,000 families a year.

A third of that spending, $200 million, was raised and spent just in the past few months, as Congress has been more thoroughly ensconced in policy debates about public insurance options and taxpayer-funded abortions.

Senate Democrats are expected to unveil their official health care bill as soon as Wednesday, and debate it in December and vote by the year's end.

The big spenders range from drug companies, hospitals and doctor groups to organizations that advocate for unions, immigrants and retirees.

Lobbying: Lobbying continues to account for the largest chunk, with health care industry spending just shy of $400 million through Oct. 26, according to the Center for Responsive Politics.

"The health sector is on pace to spend more money than it ever has before," Dave Levinthal of the Center for Responsive Politics, which analyzes and collects lobbying and campaign spending figures. "Its spending obliterates its totals from previous years."

Health industry executives say that their spending is necessary, given what's at stake. It's also guaranteed by the Constitution.

"We're reforming one-sixth of the economy with an issue that effects every individual and employer across the country," said Robert Zirkelbach, spokesman for America's Health Insurance Plans, a group fighting against a public insurance option. "Sometimes that point gets missed in this debate."

Lobbying by drug companies accounted for nearly half of all health sector lobbying. Among other issues, the pharmaceutical industry is keen on making sure that the government doesn't start allowing imports of cheaper prescriptions from Canada or Mexico.

"We are doing everything possible to make comprehensive health care reform a reality this year," said Ken Johnson, senior vice president of the trade group PhRMA. "It will benefit patients, the economy and the future of our nation. There's a lot at stake right now."

The lobbying figure doesn't include lobbying by the Chamber of Commerce ($65 million) or AARP ($15 million), groups that have lobbied on health care, as well as other bills, including financial regulatory reform.

Other heavy hitters among health sector lobbying include hospitals and nursing homes ($77 million) and doctors and other health professionals ($59 million).

Television advertising: Spending on TV ads by health care interests is the next major record-breaking category - topping $165.7 million through Monday, according to the Campaign Media Analysis Group.

"This is far and away the most we've seen spent," said said Evan Tracey, president of the the media research group, which also consults for CNN. "There's certainly no comparison that comes right to mind."

Over the past month, opponents have spent $23 million in ads opposing health care reform while supporters have spent $11 million.

TV ads had been more focused on policy issues, such as calls for insurance coverage for tests that detect autism. But now ads are starting to transition into focusing on politics, with attacks on lawmakers who vote for or against health care reform. That means even more will be spent in coming months, as ads begin running in media markets with competitive congressional races, Tracey said.
0:00 /2:25Lobbying for health care

Campaign contributions: Political donations are also on the rise.

Health care professionals and companies have plunked down $38 million to fund 2010 candidates for federal office, according to the Center for Responsive Politics. Some $95 million was raised during the 2008 cycle.

Top spending sectors include health professionals ($13 million), drug makers ($5 million) and hospitals and nursing homes ($4 million). Top recipients were Senate Majority Leader Harry Reid, D-Nev., Sen. Charles Schumer, D-N.Y., and Sen. Richard Burr, R-N.C.

Is 5th time the charm for the S&P 500?

To paraphrase the sage words of Spinal Tap guitarist Nigel Tufnel, investors are hoping that the S&P 500 goes to 11. Hundred, that is.

The S&P 500 rose Monday and cracked the 1,100 mark, the fifth time in the past month it has done so. But in that time, this key index has yet to close above that level.

In the tug of war that's taking place between market bulls and bears, the bulls could win a significant victory if the S&P 500 finally closes above 1,100. If it does so, that would be the first time since October 2008.

"Closing above 1,100 is not the be-all and end-all for the market but this has been a resistance point for the past month. It is a nice big round number and sometimes those numbers have significance," said Ryan Detrick. senior technical strategist with Schaeffer's Investment Research in Cincinnati.

Sure, the round number milestones for the Dow tend to grab more attention because the Dow is both older than the S&P and trades at a higher point level. But the S&P 500 is a far more important market indicator.

This is mainly true since the S&P 500 has 500 companies in it opposed to the 30 in the Dow. So the S&P 500 represents a much larger swath of the economy than the Dow. Because of that, it is the S&P 500, not the Dow, that many investors use as a benchmark for their own performance.

The SPDR (SPY), an exchange-traded fund (ETF) tracking the S&P 500 commonly referred to as the Spiders, is routinely among the most actively traded securities on a daily basis. (ETFs can be bought and sold like stocks but hold a basket of securities as mutual funds do.)

So in many respects, the S&P reclaiming 1,100 might be a truer sign that this rally is for real than the Dow heading back over 10,000.

"Getting above 1,100 and staying there would be important. It would force a lot of people that are still selling stocks to come back to the market and that could push the market up between now and the end of the year," said Mike O'Rourke, chief market strategist with BTIG, an institutional brokerage firm in New York.

O'Rourke makes an interesting point. While the stock market has headed sharply higher since March, it appears that some investors have chosen to sit the rally out. There is still a lot of skepticism about whether the recession is really over and if the economy is on the upswing again.

As I pointed out last week, a recent survey of individual investors showed that there are far more many bears than bulls right now.

This healthy dose of skepticism makes sense. Jack Ablin, chief investment officer with Harris Private Bank in Chicago, said that while he is confident about the market's prospects for the long-term, he's a little worried that investors may have gotten a little too ebullient as of late.

Ablin said that comments from Federal Reserve chairman Ben Bernanke Monday may also be giving investors reason to think that interest rates will remain near zero for the foreseeable future. That could also encourage more people to start buying -- regardless of how high stocks have run up in a relatively short period of time.

"The riskier the market gets, the more it's up. The hangover could wear off though. We're trading on technicals, not fundamentals and expectations for the economy and earnings are high," said Ablin. "This isn't a bubble but stocks certainly aren't cheap."
0:00 /1:44Index funds: A safe bet?

But the higher that the S&P 500 goes, the harder it may become to fight the positive momentum.

"It's undeniable that this is important. The ability to take out the 1,100 level sets the stage for a sprint to the finish. That could be the key that unlocks the door for a rally for the remainder of the year," said Richard Ross, global technical strategist with Auerbach Grayson, a broker dealer based in New York.

Ross said that if the S&P 500 closes above 1,100, the next level to look for would be 1,121. That's because 1,121 is the midpoint between the bull market high for the S&P 500 of about 1,576 in October 2007 and the bear market low of about 666 from this March.

And Ross said he's fairly confident that the S&P 500 will soon surpass 1,121. He points to the continued surge in precious metals as a positive sign.

Gold, of course, is generating tons of headlines. In fact, gold and the S&P 500 are now both trading right around the same number. Gold hit a new high of $1,133 an ounce Monday.

But Ross said he's even more encouraged by the fact that the price of other metals that actually have an important use in manufacturing, such as copper, silver and platinum, are also soaring. He said their performance probably has more to do with real demand, and not merely as a byproduct of a weaker dollar.

"The rally in commodities speaks to a global economic recovery. It's hard to make a bearish case for stocks if the nuts and bolts of the economy are doing well," he said.

Hopefully he's right.

Dow jumps 130 points

Stocks rallied Monday, extending gains from the previous two weeks, as a softer U.S. dollar helped push energy and commodity shares higher.

The Dow Jones industrial average rose (INDU) 136 points, or 1.3%, at midday. The S&P 500 (SPX) gained 1.6%, and the Nasdaq composite (COMP) was up 1.5%.

The dollar fell 0.3% against a basket of rival currencies. Gold prices surged to a record high. Oil rallied nearly 3% to trade above $79 a barrel.

Energy producers Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500) both rose more than 1%. Industrial names Boeing (BA, Fortune 500) and Caterpillar (CAT, Fortune 500) also rallied sharply.

Shares of major retailers advanced after a government report showed U.S. retail sales rebounded in October, driven by a sharp rise in auto sales. The S&P Retail Index (RXL) rose 0.8%.

Art Hogan, chief market analyst at Jefferies & Co., called Monday's economic data "benign" and said the market is focused on the anemic dollar.

"As the dollar weakens, commodity prices go up," he said. "It's nothing new, but there's really nothing else driving the market right now."

Stocks have rallied over the past two weeks as investors have gained confidence in the pace of the economic recovery. The market has also been supported by signs that policy makers around the world will keep economic stimulus efforts in place for a prolonged period of time.

With the Dow holding firmly above the psychologically important 10,000 level, investors are now turning their attention to another key high-water mark. Analysts say a sustained push above 1,100 points on the S&P 500 could pave the way for further gains in the weeks ahead.

Economy: Retail sales jumped 1.4% in October from the prior month, according to the Census Bureau, exceeding the increase of 0.9% expected by a consensus of economists surveyed by Briefing.com. Excluding automobiles, sales rose 0.2%, falling short of the 0.4% gain forecast by Briefing.com consensus.

That's compared to an overall decline of 1.5%, or an increase of 0.5% without auto sales, the prior month.
0:00 /2:14Price war in aisle 5

A report from the New York Federal Reserve Bank showed manufacturing activity in New York State slowed in November. The Empire State index fell to 23.51 in early November from 34.57 in October, which was a five-year high.

Companies: Home improvement retailer Lowes (LOW, Fortune 500) reported a 30% drop in quarterly profit, but offered an optimistic outlook for fourth-quarter earnings.

The Fed: Bernanke will offer an outlook of the U.S. economy in a speech in New York City, starting at 12:15 p.m. ET.

Autos: General Motors (GM, Fortune 500), releasing its first financial results since emerging from bankruptcy in July, said it lost $1.2 billion in the third quarter. It also said it would begin repaying government loans in December. The U.S. government would receive $1 billion, with nearly $200 million going to the governments of Canada and Ontario.

World markets: Stocks worldwide were lifted amid optimism that governments would keep up stimulus efforts. In Asia, Japan's Nikkei added 0.2%. European shares also closed higher.

Money, oil and gold: The anemic dollar was lower versus major international currencies. The dollar index, which measures the U.S. currency's value against a basket of rivals, was down 0.3% to 74.94.

Commodities continued to benefit from the weaker greenback. Oil for December delivery jumped $2.71 to $79.06 a barrel.

And gold prices, which have been on a tear this month, reached a new record of $1,133.50 a troy ounce before retreating slightly. The precious metal was still up $18.10 per troy ounce to $1,134.20.

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