Eric Cantor: Congress will find the money for earthquake aid

August 24, 2011 3:59 PM By Lucy Madison, Tolleah Price

House Majority Leader Eric Cantor assured his constituents on Wednesday that Congress "will find the monies" to assist earthquake victims in Mineral, Virginia - but the Republican lawmaker noted that "those monies will be offset with appropriate savings or cost-cutting elsewhere."

Cantor and Virginia Governor Bob McDonnell, speaking together in a news conference, had previously toured Mineral to assess the amount of damage the city sustained in the wake of Tuesday's 5.8 magnitude earthquake. Mineral, which was at the epicenter of the quake, falls in Virginia's 7th district, which Cantor represents.

Cantor was in Israel when he heard news of the quake, but said he "quickly decided that I had to get home to ensure I could do anything I could."

When asked if the district would be receiving federal assistance from the government, McDonnell noted that the state had yet to do a thorough analysis determining "our own capacity through state and local resources and private and benevolent resources to be able to handle it," and had not yet determined whether it was "prudent" to request federal aid.

But, Cantor added, "the federal government does have a role in situations like this. When there's a disaster there's an appropriate federal role and we will find the monies. But we've had discussions about these things before and those monies will be offset with appropriate savings or cost-cutting elsewhere in order to meet the priority of the federal government's role in a situation like this."

Mineral residents experienced at least four aftershocks in the wake of Tuesday's earthquake, and more were expected to follow.

McDonnell described the damage to the district as "significant," but said it was a "blessing" there had been no reported deaths.

"The damage is more widespread and significant than the preliminary reports that we had gotten yesterday," McDonnell said. "The great blessing out of this seems to be that with an event of this proportion on the East Coast that there were virtually no significant injuries."

"This is obviously a time where the people of Virginia and hopefully beyond will need to rally together," he added. "The local government, the state government, the federal government, the churches the synagogues, the benevolent organizations to all find ways to be able to help these citizens in need."

Democratic Rep. Ed Markey of Massachusetts, the top Democrat in the House Natural Resources Committee and a senior member of the Energy and Commerce Committee, called for stronger nuclear safety standards in the wake of the quake, writing in a letter to the Nuclear Regulatory Commission that "the Virginia earthquake is now our local 911 call to stop delaying the implementation of stricter safety standards."

The Wall Street Journal reports that Central Virginia's North Anna power station issued an "alert" status Wednesday after losing power in the earthquake's aftermath.

Cantor said in Wednesday's press briefing that he and McDonnell were headed to the plant later that day.

"Obviously that's the first thing that crossed my mind when I heard the news," Cantor said, "Oh my goodness, what about the nuclear power plant? So I'm glad to hear and read the reports that what should have happened, happened."

He added: "As for the road forward, I'm here to work along with the governor and along with all the residents of the seventh district and the commonwealth to do what we do best in times of disaster: we pull together. We are a can-do people and we will get through this."

SOURCE: http://www.cbsnews.com/8301-503544_162-20096790-503544.html

Buffett's one-day win on Bank of America: $357 million

by Maureen Farrell August 26, 2011: 12:41 PM ET

NEW YORK (CNNMoney) -- Warren Buffett earned $357 million in paper profits on Thursday simply on warrants related to his $5 billion equity infusion into Bank of America. Not bad for a day's work.

In exchange for the Buffett brand name and $5 billion, the Charlotte, N.C. financial institution granted Warren Buffett the option to buy up to 700 million of its shares any time in the next 10 years for $7.14. Yesterday those warrants would've reaped the Omaha investor a nine-figure profit.

Such paper profits could be ephemeral should Bank of America (BAC, Fortune 500)'s stock drop dramatically and stay there.

For now, with the bank's stock trading at $7.67 by midmorning Friday, investors are betting that yet again Buffett correctly spotted a long-term safe haven for his and his investors' fortunes.

During the financial crisis, Buffett famously refused to loan money to Lehman Brothers, yet gave Goldman Sachs (GS, Fortune 500) a similar stamp of approval with a $5 billion investment during the financial crisis.

His bets were right: Lehman folded, and the Goldman Sachs investment reportedly generated a $3.7 billion profit for Berkshire Hathaway (BRKA, Fortune 500).

"The question is whether Bank of America gave too many of those warrants away to get Warren Buffett to put the $5 billion preferred investment in the company. In the end that will be the question," says Marty Mosby, a managing director at Guggenheim Securities. The warrants give Buffett the right to purchase up to 6.5% of the company's equity.

As part of the Buffett investment, Bank of America will also pay the famed investor $300 million -- a 6% annual dividend or $821,000 a day -- for a decade, on his $5 billion in preferred shares.

Buffett's dealmaking skills came into play in crafting the warrants on Bank of America, not the dividend, investors say.

Compared to 10-year Treasuries, which currently yield 2.2% annually, investors say this dividend is commensurate with the riskiness of the stock and financial sector. By contrast, Goldman Sachs offered Buffett a 10% dividend on his 2008 investment.

When the investment was announced Thursday, investors were quickly giddy on the news, sending shares up as high as 26% by midmorning. Exuberance subsided, but the stock still closed up 9.4% at $7.65.

SOURCE: http://money.cnn.com/2011/08/26/markets/warren_buffett_bofa_profit/index.htm?iid=Popular

A Major Opportunity for Oil Bulls

By LIAM DENNING

Sometimes, it's better to own the guy who makes stuff rather than the stuff itself. That's the case with oil right now.

Oil bulls bidding Brent crude back up on every rumor of a revival in Col. Moammar Gadhafi's fortunes are missing the bigger picture. U.S. economic data on everything from manufacturing to home sales remain weak—and gasoline demand is following suit. China is battling inflation and Europe is mired in its ongoing fiscal crisis.

Yet Brent crude, at about $110 a barrel, remains 15% above where it began the year. Moreover, Wall Street is forecasting an average price for 2011 of about $106 for the year, according to FactSet Research Systems. Given prices year to date, that implies Brent needs to average just under $95 for the rest of the year, 14% below today's level.

Brent prices clearly don't discount a recession. If they did, they would be closer to, or below, the marginal cost of supply, which Sanford C. Bernstein pegs at $80 to $90 per barrel. Perhaps they reflect hopes of another round of quantitative easing from the Federal Reserve. But a resort to QE3 would signify that the underlying economy—you know, the place where oil actually gets burned—is very weak.

Given the risks of a correction in oil prices, better value can be found in the stocks of major oil producers. They have fallen even more sharply in the recent selloff, with Exxon Mobil off about 10% since the end of June compared with Brent's fall of less than 4%. Remarkably, Exxon, Italy's Eni and France's Total are actually valued lower now than they were at the end of 2008, when the world really did look like it was ending. Since then, Brent has more than doubled.

The stocks of Europe's major oil companies are priced for a long-term Brent price of $75, according to Citi. That provides a cushion against further declines in the commodities markets. In addition, they offer investors high cash payouts in the form of dividend yields and share buybacks that commodities can't compete with. On average, Exxon, Chevron, ConocoPhillips, Royal Dutch Shell, BP, Eni and Total yield 5.5% on dividends and 9.3% including buybacks, according to Credit Suisse.

What's more, given strong balance sheets in general—Exxon now scores higher than Uncle Sam, at least in the eyes of Standard & Poor's—it would take a prolonged recession with Brent stuck at $70 or below for a year to endanger payouts, reckons brokerage Raymond James.

The cheapest stocks are Eni and Total, in part because of their Italian and French provenance, where sovereign-debt worries reign. Shell, meanwhile, is just exiting from a multiyear period of spending that will fuel output growth of about 3% per year to 2014, according to Credit Suisse. Yet its stock commands less than seven times 2012 earnings and yields 5.3%. That looks safer than relying on further explosions in the desert.

SOURCE: http://online.wsj.com/article/SB10001424053111904787404576528300279054730.html?mod=WSJ_hpp_MIDDLE_Video_Top

'Made in China' makes money for the U.S.A.

August 12, 2011: 5:00 AM ET By Sheridan Prasso, contributor

If you don't want your dollars going toward Chinese-made products, don't sweat it -- most of the cash you spend on them goes to U.S. companies and workers.

FORTUNE -- Worried about buying a $70 pair of sneakers that say "Made in China" this back-to-school season because you'd rather spend your dollars on "Made in U.S.A." products instead? Worry not, according to a new study.

More than half the amount you spend on products made in China actually stays here -- going to American companies, workers, marketers, retailers, and transport providers. The amount is least 55 cents per each $1 spent, says a report from the Federal Reserve Bank of San Francisco. So for that $70 pair of sneakers, $38.50 of it boosts bottom lines here in the U.S.

And despite what you may conclude from shopping at Wal-Mart (WMT) or other large stores -- or hearing big, scary figures about the trade deficit with China -- imports from China make up just a very small portion of our total economy: just 2.5% of gross domestic product in 2010. Overall, products from around the world accounted for only 16% of our GDP last year. "The vast majority of goods and services sold in the United States is produced here," according to FRBSF report authors Galina Hale and Bart Hobijn. The exceptions are furniture and household items, electronic goods, and clothing and shoes. A third of U.S. consumer purchases for clothing and shoes in 2010 carried a "Made in China" label. For furniture, it was one fifth.

But it's services that make up the overwhelming majority of the U.S. economy, according to the data, and no services at all came from China -- just manufactured products. 88.5% of U.S. consumer spending is for products and services originating here, the report says. "This is largely because services, which make up about two-thirds of spending, are produced locally," according to Hale and Hobjin.

The authors also point out that a large number of component parts -- like semiconductor chips and designs used in the iPhone -- originate in the U.S. They point to a 2009 Asian Development Bank Institute study reporting that it cost about $179 to produce an iPhone in China. The phone is then sold here for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese imported content. But only $6.50 actually went to cover assembly costs in China. The other $172.50 was for parts produced in other countries, including $10.75 for parts made in the U.S.

The reason for the new FRBSF report is the red flag raised by China's growing inflation. The latest numbers from Beijing show a 6.5% annual rise across the country in July, up from 6.4% in June and breaking a three-year record. But with such low levels of Chinese content in products like iPhones, the report's authors conclude that recent increases in labor costs and inflation in China are not likely to translate into broad inflationary pressures in the U.S. "This suggests that Chinese inflation will have little direct effect on U.S. consumer prices," Hale and Hobjin say. Given the state of the U.S. economy these days, consumers can take that data and breathe a small sigh of relief.

SOURCE: http://finance.fortune.cnn.com/2011/08/12/made-in-china-makes-money-for-the-u-s-a/