NEW YORK (CNNMoney.com) -- The Federal Reserve hoped that low bond yields would help heat up the housing market and consumer lending, but low yields may also have helped to ignite the stock market.

After announcing last week that the government will buy back its own debt over the next six months, Treasury yields, which move in a direction opposite to prices, have fallen near three-month lows.

Bond yields fell further by the end of trading Thursday, as the government completed a three-day debt auction totaling a record $89 billion and stocks rallied.

Although that may be good for borrowers of loans tied to bond yields, investors can't like the measly earnings they're due to receive on their holdings.
0:00 /4:54Investing for long-term growth

To be sure, stocks' earnings yields aren't much to write home about, either: The 12-month trailing earnings-per-share yield is just 5.6% versus an average of 5.5% for the past 21 years, according to Sam Stovall, chief investment strategist at Standard & Poor's.

But the earnings yield, which is measured by taking the reciprocal of a stock's price-to-earnings ratio, serves as a good guide to stocks' relative attractiveness to bonds. So 5.6% looks great compared to the 2.8% that the benchmark 10-year bond is yielding.

"The yield factor, in terms of risk, is much more attractive in the stock market, and that is a factor in the recent rally," said Peter Cardillo, chief market economist at Avalon Partners. "By the end of the quarter, that could help drive the S&P up to 850 [from its current level of 814], which would be very encouraging. Anything above that would suggest we made a bottom."

But other experts say that low yields could actually lead stocks down. As yields fall, U.S. assets become less attractive to foreign investors, leading to a decline in the dollar and lower profits for U.S. businesses.

"Stocks won't perform well in a deflationary environment, because companies will be forced to cut prices, which will ultimately drive profits lower," said Antonio Sousa, senior currency strategist at Forex Capital Markets. "We're not going to get out of this environment in 2009; people are looking forward to 2010."

Treasury yields have fallen near the all-time lows that they hit in December - the time when the last stock market rally ended and market indexes plunged to 12-year lows. Sousa says he thinks the current stock rally will suffer a similar fate.

But Stovall and Cardillo believe the stock market will ultimately head higher after withstanding earnings season, led higher by relative attractiveness to Treasurys, which held the title of "only attractive buy for investors" for the past six months. With yields this low -- which could remain low for the six-month duration of the Fed program -- stocks may appear attractive as well.

Bond prices: Bonds prices rose Thursday after another $24 billion auction in 7-year notes, bringing the total for the week to a record $89 billion.

Thursday's auction drew more than $60 billion worth of bids for the $24 billion offered. That made for a bid-to-cover ratio of 2.51, reflecting healthy demand. Last month's auction of 7-year notes had bid-to-cover ratio of 2.11.

The government sold $34 billion in 5-year notes on Wednesday, and $40 billion worth of 2-year notes Tuesday.

The benchmark 10-year note was up 13/32 at 100 2/32 and its yield fell to 2.74% from 2.79% late Wednesday.

The 30-year bond gained 1 21/32 to 97 11/32 with a yield of 3.64%, down from 3.74%.

The 2-year note advanced 3/32 to 99 30/32, and yielded 0.9%.

The 3-month yield held at 0.15%.

Lending rates: The 3-month Libor rate was unchanged from Wednesday at 1.23%, according to data on Bloomberg.com. The overnight Libor rate also held steady at 0.29%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two credit market gauge were relatively unchanged. The "TED" spread held even at 1.04 percentage points. The narrower the TED spread, the more willing investors are to take risks.

The Libor-OIS spread moved higher to 1 percentage point from 0.99 points on Wednesday. A narrower spread indicates that more cash is available for lending.
source:http://money.cnn.com/2009/03/26/markets/bondcenter/credit_market/index.htm?postversion=2009032617

NEW YORK (Fortune) -- With the economy mired in deep recession, inflation isn't exactly a top-of-mind concern for most investors. After all, it's hard to see how prices are going to get pushed up when consumers aren't buying anything. Indeed, for many Wall Street economists, deflation seems to be the more immediate concern.

Even so, there is good reason to fear that inflation - along with the higher interest rates that accompany it - is a looming threat. Maybe not right now, but watch out when the economy improves and consumer spending picks back up.
0:00 /02:41Hey Fed, turn off the extinguisher

Between the bailouts, the bank recapitalizations, the stimulus, and the latest Federal Reserve action plan - which involves buying up $1 trillion in Treasuries and mortgage bonds - the U.S. national debt has already ballooned past $11 trillion.

President Obama's proposed budget would force the government to sell another $3 to $4 trillion in bonds, and it's hard to envision how all that spending and borrowing won't eventually lead to a weaker dollar and a spike in inflation and interest rates.

"We are certainly doing things that could lead to a lot of inflation," Berkshire Hathaway (BRK.A) Chairman Warren Buffett said on CNBC earlier this month. "In economics there is no free lunch."

Commodities guru Jim Rogers has raised similar concerns, as have perma-bear investors such as Marc Faber and Peter Schiff. Schiff points out that prices of gold, oil and foreign currencies soared following the Fed's latest buying spree, indicating that "many market participants understand the inflationary implications of this policy."

No, we're not predicting for a return to 1970s-style, double-digit inflation. But neither are we ruling it out, which is why we think investors would be wise to add a little inflation protection to their portfolios.
Four investments to consider

Treasury Inflation Protected Securities. Better known as TIPS, these Treasury bonds are the easiest, safest, and most cost-effective way to hedge against inflation. The interest rate you earn rises with inflation, and best of all, for accounts of $100,000 or less, TIPS can be purchased without a transaction fee at TreasuryDirect.gov.

Rising Rates Opportunity 10 ProFund Think of this is a bear fund for bonds. The fund is designed to track the inverse price movement of the 10-year Treasury bond. So if inflation rises and investors start demanding a higher yield on their bonds (remember that the yield moves in opposite direction of the price with bonds), this fund will be a big winner.

SPDR Gold Trust Personally, I've always been a bit of a gold skeptic. (Why again is gold so valuable? Because it's pretty to look at?) But that's just me and the fact is that buying gold is a classic inflation hedge, and this exchange traded fund tracks the price of gold nicely.

Petrobras Inflation occurs when too many people want the same stuff. As soon as the economy recovers, the stuff everyone is going to want more of is oil. There's more than one good way to play oil of course.

You could do well snagging the industry leader, ExxonMobil (XOM, Fortune 500), just as you would hedging against commodity inflation with an oil ETF like SPDR Oil and Gas Exploration and Production (XOP).

Or you could go with Petrobras, the Brazilian oil giant. IT'S a riskier play, but the potential payoff is better because its enormous new oil fields give Petrobras the potential for significant production increases.
source:http://money.cnn.com/2009/03/23/magazines/fortune/investor_daily3.fortune/index.htm?postversion=2009032506

NEW YORK (Fortune) -- Imagine you're running an expansion team and the New York Yankees run into major financial problems. Derek Jeter and A-Rod are suddenly available...and affordable. That's the position in the M&A world where Peter J. Solomon, the 70-year-old head of his own investment bank, finds himself today. Solomon left Lehman Brothers, where he was a vice chairman of the firm and co-chairman of investment banking, 20 years ago because he thought the existing business model on Wall Street was broken.

"When I started this firm, I thought Wall Street was going to fall apart," Solomon said in an interview with Fortune.com. "I thought Wall Street would turn into -- I never knew the word 'hedge fund' -- but I thought it would turn into an organization that invested its capital and did not pay much attention to clients. I am amazed at how long [that model] endured."

Now Solomon has seen his premonition come true. To celebrate, he's gone on a signing spree. Picking up four senior M&A bankers -- Richard Brail, Frederic Seegal, Fred Frank and Mary Tanner -- to add to his small cadre of 17 managing directors, a not-insignificant increase of around 25%.

"We are now able to recruit very important, very serious people," adds Solomon. "Partially I think it's because their firms have imploded and partially it's because the [government] has become a wonderful recruiting agent for us. When you cap bonuses and you cap compensation, it certainly gets the attention of people who are working in firms."

As a result, Solomon's privately-held and TARP-free firm has had its pick of bankers. In February, Solomon hired Brail, 41, who had spent the last 18 years at Morgan Stanley, to head its media and communications advisory practice. Brail advised Sirius on its merger with XM satellite.

Nine days later, Solomon signed up Fred Seegal, 61, a longtime media M&A banker at Lehman Brothers whose advisory work includes the Time Warner merger. (Fortune is owned by Time Warner.) "If you look at the landscape in New York and you want to be at a private, independent, investment-banking advisory firm, there is no firm that has the pedigree of Peter J. Solomon," Seegal says.

Finally, on March 18, Solomon announced that he had hired Fred Frank and Mary Tanner -- husband and wife -- who together had built the health-care practice at Lehman Brothers when Solomon ran investment banking there.

Frank, 76, most recently was vice chairman of Barclays Capital, which bought Lehman's U.S. investment banking business out of bankruptcy in the week after Lehman's collapse last September. Since joining Barclays, Frank advised CV Therapeutics on its $1.4 billion sale to Gilead Sciences, a deal announced March 12.

Tanner, 56, had been a senior managing director at Lehman and at Bear Stearns and most recently founded Life Science Partners to make health-care investments and to advise health-care companies. At Bear, she represented Pfizer in acquiring Pharmacia for $60 billion. The fact that Seegal, Frank and Tanner worked with Solomon at Lehman Brothers two decades earlier is no coincidence.

"Peter was a god in that era," explained Ed McGuinn, who was a member of Lehman's capital markets operating committee at that time.

But Solomon knew it was time to leave Lehman Brothers when he no longer "wanted to be in charge of people who were trading securities I didn't understand in time zones I rarely visited."

When Lehman failed last September, Solomon was not only shocked that its then-CEO Dick Fuld had allowed the firm to vaporize, but he also was upset from a personal, financial point of view, since his deferred compensation account remained at the firm from the time he was a partner.

Solomon remains a general unsecured creditor of the Lehman Brothers estate. There are roughly 500 other people in a similar position, including Blackstone's Steve Schwarzman and Evercore's Roger Altman as well as some 40 widows with a total claim of around $400 million. Solomon now has to stand in line behind all the secured creditors and will likely get just a few of the scraps, if any, that might fall from the firm's picked-over carcass.

The collapse of Lehman may have negatively impacted Solomon's personal income, but the tectonic shifts on Wall Street during the past 20 months have created a great opportunity for his firm. Solomon would not disclose his firm's revenues or earnings. "I don't discuss it," he said. "That's why I'm a private company." But Wall Streeters speculate his 2008 revenues to be around $100 million.

Solomon said he would like to see his firm grow to about 70 professionals -- from around 50 currently -- and he is interviewing top bankers in the paper, oil and gas and industrial sectors. He also knows that such a massive dislocation on Wall Street will give boosts to other small boutiques, such as Perella Weinberg and Moelis & Co. and will help the larger boutiques such as Lazard, Greenhill and Evercore, too. "Every day we compete against everybody," he said. "We can't rest on our laurels for more than seven seconds."
source:http://money.cnn.com/2009/03/27/magazines/fortune/cohan_solomon.fortune/index.htm

NEW YORK (Fortune) -- Google is getting serious about cutting costs. In a March 26 blog post, the Internet search behemoth announced it will lay off 200 people in its sales and marketing operations.

Senior vice president Omid Kordestani acknowledged the company had, in its haste to grow, made hiring mistakes, stressing Google's teams had become "less effective and efficient than they should be."

This is Google's third round of layoffs this year, and comes after CEO Eric Schmidt said in a January earnings call that further cuts were "unlikely."
0:00 /2:42Picky hiring in Silicon Valley

Google's newfound discipline has been notable in recent months: it has canned numerous projects without obvious lifespans and cut down on its famous perks (because who needs a gourmet chef and an annual ski trip anyhow?). The company cut 100 recruiting positions in January followed by 40 more jobs in February when the online radio effort was shut down.

Still, this particular round of layoffs is the most drastic in a series of recent measures Google (GOOG, Fortune 500) has taken to add rigor to a culture previously defined by its tendency toward constructive chaos in pursuit of brilliance.

The man behind this new attitude is most likely Patrick Pichette, the company's new chief financial officer. Pichette understands how to rein in expenses. He was a top operations executive at BCE (BCE), parent of Canada's biggest phone company, where he headed up a three-year cost-cutting and efficiency drive that reduced operating costs at Bell Canada by $2 billion.

Though this round is comparatively small, affecting just 1% of Google's 20,000 workforce, it is the first cut from a critical component of Google's core business. Nearly all of Google's revenues, which were up 18% in the most recent quarter, still come from online advertising. It's a strong signal that company leaders believe the toughest economic times are yet to come.
source:http://money.cnn.com/2009/03/26/technology/google_layoffs.fortune/index.htm?postversion=2009032705

NEW YORK (Fortune) -- First there were "blood diamonds," the gems that fueled conflict and human rights abuses in Liberia and Sierra Leone. Then there was "conflict cocoa," the chocolate source that's harvested by children and funds civil war in Ivory Coast. Now concern is rising about the minerals that go into common consumer electronics. Could that be a BloodBerry or a Conflict Cell in your pocket?

A new pressure-group campaign and pending legislation in Congress aim to increase awareness of "conflict minerals" from the Democratic Republic of the Congo and push companies to rid their supply chains of them. In question are ores mined by violent armed groups in the country's eastern region that can turn up in nearly any electronic product - like smart phones, MP3 players, and laptop computers. Activists say that buying products that contain the minerals indirectly allows outlaw factions to continue a conflict characterized by its brutality, including the murder of civilians, violence against women and conscription of child soldiers.

"The consumer electronics industry is the largest end user of the minerals that are fueling the fighting in eastern Congo," says John Norris, executive director of the Enough Project, an Africa-focused advocacy group and leader of the coalition. "These companies have an obligation to ensure they are not financing armed groups by demanding more information and better behavior from their suppliers."

Consumer electronics companies have been aware of the issue for some time, but they have generally focused on only one of the ores coming from the region, coltan. Coltan is a colloquial African word for ore containing tantalum, which is used in electricity-storing capacitors, common in electronics. The Enough Project says it sent letters to 21 large electronics companies last month asking them to audit their supply chains for tin, tungsten and gold as well, using some kind of independently verifiable tracing system.

In Congress, Sen. Sam Brownback is partnering with Sen. Russ Feingold and Sen. Dick Durbin to revise legislation that Brownback introduced last year addressing the issue. Set to be introduced by April 4, the new bill would require companies that use minerals mined in the region to disclose sourcing to the SEC.

"In Congo, many people - especially young children and women - are suffering at the hands of armed groups who are trying to make a profit from mining 'conflict minerals' like coltan," Brownback said in a statement to Fortune. "I hope my colleagues and I are able to pass legislation that will bring accountability and transparency to the supply chain of minerals used in the manufacturing of many electronic devices, and that the legislation will ultimately save lives."

There's no question that the minerals fund armed groups in the largely lawless region. The factions - which include a mix of renegade Congolese army troops, Rwanda-influenced Tutsi rebels and fugitive Hutu fighters from the 1994 Rwandan genocide - control mines that generate an estimated $144 million to $218 million each, according to the Enough Project and reports by the United Nations, Global Witness and others. Since 1998, more than 5.4 million people have been killed in DR Congo's conflict, according to the International Rescue Committee, making it the deadliest on earth since World War II. The UN estimates that 200,000 women have been raped and the armed factions still active in the country's east have used children for mining, fighting and other work, according to Human Rights Watch, the UN and others.

Minerals from eastern DR Congo are shipped mainly to middlemen in Malaysia, Thailand, China and India, according to Enough. The companies buy the same minerals elsewhere and mix them together, but Congolese ore, although a small percentage of the total, is cheaper, according to Resource Investor. Once processed, the refined metals are bought by electronics manufacturing companies, turned into usable components (e.g., circuit boards containing tin), and put into electronic devices ranging from cell phones to digital cameras to televisions.

David Sullivan of Enough says they are appealing to electronics companies, users of the minerals, and not the middlemen, because they have the greatest leverage. "It is unrealistic to expect the average consumer to go to a smelter in Thailand," Sullivan says. "It is realistic for a consumer to ask for peace of mind that their purchases are not underwriting the worst sexual violence in the world."

Some companies already have policies on minerals from DR Congo. Motorola (MOT, Fortune 500), Apple (AAPL, Fortune 500), HP (HPQ, Fortune 500), Nokia (NOK) and RIM (RIMM) bar suppliers from selling them Congolese coltan. "Mining activities that fuel conflict are unacceptable," Motorola wrote in response to Enough's request.

HP also said it would work on the issue. "We take very seriously the issue of the social and environmental conditions associated with our electronics industry supply chain," says Judy Glazer, director of HP's global social and environmental responsibility operations.

But even if the companies want to help, it's not easy. There's no certification system for minerals from the region. "Short of banning all minerals coming from the Eastern Congo or coming from Central Africa, it's going to be very difficult to set up a system on the ground that will be able to distinguish between good and bad minerals," says Jason Stearns, a former UN DR Congo investigator. And simply avoiding minerals from the region isn't perfect either, both because rebels profit from other sources, like charcoal sales and bribery; plus, legitimately mined minerals are a critical economic driver for the region.

Many of the big companies are members of the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative, which have a joint workgroup focused on mineral issues like those from DR Congo. A report by the groups last year noted the challenges of getting rid of illegally mined minerals, mainly because there's no mechanism to differentiate between "good" and "bad" sources. The report outlined goals to address the problem, including the commissioning of "supply chain transparency models" for tin, tantalum and cobalt, but notes it would do so "without identifying their commercial relationships," at odds with Enough's proposal.

Previous efforts to clean up supply chains have had mixed results. The Kimberley Process, a joint government, industry and nonprofit initiative that certifies shipments of rough diamonds as "conflict-free," was largely successful, now covering most of the world's diamonds. But the chocolate industry's response to criticism over child labor on cocoa farms in West Africa, a voluntary protocol by which companies would wean themselves from child labor, then certify as much, hasn't significantly changed practices in Ivory Coast and elsewhere.
source:http://money.cnn.com/2009/03/27/news/international/congo.fortune/index.htm?postversion=2009032716