The Ben Bernanke Show

Brian Wingfield (Forbes)

Federal Reserve Chairman Ben Bernanke spends so much time testifying before Congress these days, it might seem he barely has time for his day job as the central bank's top regulator. Wednesday, Bernanke heads back to Capitol Hill, where he'll give his mandatory, semi-annual report on monetary policy to the House Financial Services Committee. He'll repeat those remarks to the Senate Banking Committee on Thursday. They'll be the 12th and 13th times he's faced Congressional panels since January 2007. In all probability, he'll parrot much of what he has said in the three appearances he's made on the Hill since September: The economy is growing more slowly than usual, it will rebound later this year, recession isn't likely, more rate cuts are possible, inflation remains a concern, etc., etc. Tedious? Absolutely. But lawmakers can't seem to get enough of Bernanke. So far this year, he's appeared before the Senate Banking Committee and the House Budget Committee for routine oversight hearings. Committee chairmen are well aware that Bernanke is a big draw, especially in an election year, when the economy is ailing. Of course, every time he's speaks publicly, he might hint at a further rate cut. Rep. Paul Ryan, Wisc., the top Republican on the House Budget Committee, says that when a Fed chairman testifies before his committee in early January, he is simply trying to get a better understanding of how the Fed is deriving its monetary policy decisions. Allan Meltzer, a professor of political economy at Carnegie Mellon University who has written a history of the Federal Reserve, says it doesn't necessarily sully Bernanke's reputation to repeat the same mantra every time he visits the Hill. "What will hurt him is the fact that he's not saying things like 'I have to watch both inflation and the unemployment rate,'" he adds. And surprising as it may seem, Bernanke actually appears before Congress less than his predecessor Alan Greenspan did. Not counting his re-nomination hearings, Greenspan testified an average of more than 10 times per year between 2000 and 2005. In 2005, his last year at the central bank's helm, Greenspan saw a Congressional panel 12 times. The year before that, he was there 11 times. Bernanke, by contrast, appeared before lawmakers 9 times in 2007 and 6 times in 2006.

The figures for both men include the Fed chairman's semi-annual reports to Congress, which account for four separate hearings each year (two each for the House and Senate). In addition to the House Financial Services and Senate Banking Committees, where the semi-annual remarks are delivered, Fed chairmen often face the Joint Economic Committee and the budget panels of both chambers. Every one of Bernanke's appearances before Congress has focused on the general economic outlook, the subprime mortgage mess or fiscal challenges for the United States--often a combination the three issues. No surprise there, given the state of the economy in recent months. Congress summoned Greenspan for his wisdom on a range of topics outside the overall health of the U.S. economy. Examples: China's exchange-rate policy (June 2005), education (March 2004), the nation's natural-gas supply (twice--in June 2003 and again the next month), the aging global population (also 2003), U.S. trade policy (April 2001) and commodity futures trading (June 2000). "What Greenspan did was somewhat on the unusual side," says Meltzer. "He had a view and he wanted it to be heard." Bernanke, on the other hand, has deliberately stayed relatively far from the policy debate.

Markets generally don’t like the Fed chairman’s remarks. On the dates coinciding with Bernanke’s four most recent appearances before Congressional panels, the Dow Jones industrial average closed slightly down. The most severe example was on Jan. 17, 2008, when it closed at 12,159.21 from an opening of 12,467.05--a 2.5% slide. During his semi-annual testimony on July 19, 2007, the Dow closed just half a percentage point higher. The day before, down 0.2%. The Wall Street barometer treated Greenspan in much the same way. On the day of his final testimony as Fed chairman, the market closed up 0.5%. During his last semi-annual address, it ended the first day of testimony up 0.6%, the second day down 0.5%. But a month earlier, when Greenspan addressed the Senate Finance Committee on China’s exchange rate, the Dow dropped 1.6%, from 10,587.09 at the start of the day to a close of 10,421.44. Nonetheless, markets and policymakers will be paying close attention to what he says this week. During his semi-annual report last July, Bernanke made this pronouncement: "Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend."

"Moderate" growth isn't exactly what happened. The economy grew at a 4.9% rate during the third quarter of 2007 before dropping sharply to 0.6% growth for the final three months of the year. Amid a deluge of economic data to be released this week are revised figures for growth in the fourth quarter, due out Thursday. If the update is worse than the previous estimate and the economy continues to falter, expect the Ben Bernanke Show to become a running feature this year on Capitol Hill.

Ahead of the Bell: Senate's Mortgage Fix

AP - WASHINGTON

The Senate could begin debating Tuesday another round of remedies for homeowners caught in the worsening housing crisis. Senators may vote this week on a package of legislative proposals, designed by Democrats, that includes easing bankruptcy rules and boosting funds for foreclosure-prevention counseling. The proposed revision to the U.S. bankruptcy code would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. At stake are potentially millions of dollars of profits for mortgage lenders, which have been lobbying against the measure. Their opposition is echoed by many Republican lawmakers. Consumer advocates, meanwhile, are pushing senators to approve the change. Currently, lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.

The Mortgage Bankers Association has said the proposal would hurt more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention for some homeowners. The measure is expected to face tougher resistance than the recently approved economic stimulus package, which narrowly touched on the mortgage crisis. Democratic backers consider the new legislation a way to make up for shortcomings in the Bush administration plan to freeze interest rates on a relatively small percentage of loans made to high-risk borrowers.

Monday brought more evidence of the housing sector's ills. The National Association of Realtors reported that sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month. "Today's dismal housing news reinforces the need for congressional Republicans to join Democrats to address the bulls-eye of our economic troubles by passing a housing recovery package this week," said Sen. Charles Schumer, D-N.Y. "The housing crisis has mushroomed in part due to Washington's inaction, and declining home values cut to the very heart of families' sense of financial security and our economy's overall health." Also included in the Senate package is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.

GTx Surges on Late-Stage Trial Results (The Street)

Shares of GTx(GTXI) soared nearly 50% Monday after the biopharmaceutical company said its Acapodene drug showed success in a late-stage study in reducing side effects from certain prostate cancer treatments. The Memphis, Tenn.-based company's shares recently were up $6.21, or 48%, to $19.10. The phase III trial looked at Acapodene in patients receiving androgen deprivation therapy, a common first line treatment for advanced prostate cancer patients. Acapodene, or toremifene citrate 80 mg, is designed to fight the side effects of the hormone therapy, such as loss of bone density, fractures and increased cholesterol and heart attack risk. GTx said the drug reduced vertebral fractures by 50% in patients who were given at least one dose of the drug or placebo and who had at least one evaluable study radiograph. There was a 5% rate of these fractures in the placebo group. Of those who were more than 80% compliant with the treatment, the drug reduced the fractures by 61%. GTx said Acapodene also resulted in a statistically significant increase in bone mineral density. It also showed a statistically significant decrease in LDL, or "bad," cholesterol, and an increase in HDL, or "good" cholesterol, among other things. The company said the drug had a favorable safety profile and was well tolerated. Based on the results, it will file a new drug application for Acapodene by this summer. GTx licensed the rights to toremifene citrate from Finnish drug company Orion for all indications worldwide, except breast cancer outside the U.S. GTx also has a development and collaboration agreement with French specialty pharmaceutical company Ipsen in Europe. Ipsen is responsible for filing the drug for regulatory approval in Europe, but GTx will seek its approval and commercialize it in the U.S. GTx also markets Fareston, a treatment for metastatic breast cancer in postmenopausal women.

U.S. Stocks Fall, Led by Financials; Fannie Mae, Goldman Drop

By Michael Patterson

Feb. 22 (Bloomberg) -- U.S. stocks fell for a second day, led by financial shares, on concern that profits at brokerage firms will decline and dropping demand for mortgages will curb growth at Fannie Mae and Freddie Mac. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. slumped after Sanford C. Bernstein & Co. analyst Brad Hintz slashed his first-quarter profit estimates by more than 40 percent. Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, tumbled after Merrill Lynch & Co.'s Kenneth Bruce said the worst housing market in a quarter century will stifle earnings through 2011. The Standard & Poor's 500 Index retreated 8.4 points, or 0.6 percent, to 1,334.13 at 11:55 a.m. in New York. The Dow Jones Industrial Average slid 77.42, or 0.6 percent, to 12,206.88. The Nasdaq Composite Index decreased 22.83, or 1 percent, to 2,276.95. More than two stocks declined for every one that rose on the New York Stock Exchange. Shares in Asia and Europe also fell. ``People are coming to grips with what is the degree of financial issues,'' David Darst, the New York-based chief investment strategist at Morgan Stanley Global Wealth Management, which oversees $734 billion, said in a Bloomberg Television interview. ``We think caution is called for.'' The S&P 500 has lost 1.1 percent this week and is down 9.1 percent in 2008 after a worse-than-forecast manufacturing report yesterday added to evidence that the economy is falling into a recession. The world's largest banks and securities firms have reported about $160 billion of credit losses and asset writedowns since the beginning of 2007 as the collapse in subprime mortgages spreads across debt markets.

Weekly Declines

Financial shares in the S&P 500 lost 1.2 percent today, bringing their decline over the past year to 30 percent, the worst performance among 10 industries. The 92-member S&P 500 Financials Index is still 3.5 percent above its four-year low on Jan. 18, buoyed by the Federal Reserve's fastest easing of monetary policy since 1990. Goldman, the biggest U.S. securities firm by market value, dropped $1.11 to $174.06. Lehman Brothers fell 95 cents to $53.19. Hintz said slumping credit markets, combined with weak revenue from underwriting and advisory fees, will hurt profits this quarter. Fannie Mae declined $1.24 to $27.75 today. Freddie Mac fell $2.24 to $25.51. Bruce downgraded the shares to ``sell'' from ``neutral.''

`More Pain'

``We do not think the stocks fully reflect the severity or duration of the financial headwinds facing the companies,'' he wrote in a research note to clients dated today. There is ``more pain than gain.'' Intuit Inc. lost $3.60 to $26.19. The world's largest maker of tax-preparation software lowered its third-quarter profit forecast to between $1.31 and $1.34 a share. Analysts predicted profit of $1.37, according to the average in a Bloomberg survey. Express Scripts Inc. gained $1.95 to $66.71. The third- largest U.S. manager of drug benefits raised its 2008 earnings forecast and reported profit that beat analysts' estimates as clients used a higher proportion of cheaper generic medicines. Eli Lilly & Co. added 38 cents to $50.20. The drugmaker said its experimental blood-thinning drug prasugrel will get a priority review by U.S. regulators. With no major economic reports due today, investors will look to next week for further clues on the economy. A report on Feb. 25 will probably show existing home sales declined in January, while a release on Feb. 27 is likely to show a drop in durable goods orders for the same month, according to economists' estimates compiled by Bloomberg News.

Next up: Amazon sides with Blu-ray

Posted by Caroline McCarthy (CNET)

On Wednesday, online retailer Amazon.com became the latest to declare its support for the victorious high-definition technology, announcing that it "will more prominently promote Blu-ray hardware and software products on its Web site." The company will not, however, discontinue its sales of HD DVD products. "The high-definition landscape is rapidly changing, and consumers are looking for guidance on how to make the best high-definition buying decisions," Peter Faricy, Amazon's vice president of movies and music, said in a statement from the company. "Our customers have clearly voiced their support for the Blu-ray format." But in a sense, Amazon is also an indicator that Blu-ray's struggles aren't quite over. With its Unbox movie download service, Amazon is among a number of major Web retailers that offer digital downloads of movies and TV shows. Some have said that with all the bickering over HD DVD and Blu-ray for so many months, digital downloads from companies like Amazon, Netflix, and Apple's iTunes were able to find a steadier footing. Luckily for Blu-ray overlord Sony, your average digital movie download isn't nearly up to par in the quality department.

Antitrust Fears Few in Airline Deal

By SUSAN CAREY (Wall Street Journal)

A merger between Delta Air Lines Inc. and Northwest Airlines Corp. -- which could be announced as early as this week -- has less to fear from antitrust enforcers than past aviation deals, unless regulators grow uncharacteristically squeamish about the combination's sheer size. If the airlines can reach an accord with their unionized pilots and hammer out the final details of a deal to create the world's largest carrier by traffic, the U.S. Department of Justice will be the ultimate judge of whether the merger can proceed. The department, which would be likely to review the case before a new administration arrives in Washington in January, has been kind in the past to deals like this one that don't involve a lot of overlap. A transaction -- as well as any airline mergers that could follow a Delta-Northwest deal -- is certain to face political opposition from some members of Congress, and could run into turbulence with Northwest's other labor unions. Delta's pilots are its only major union. Rep. James Oberstar, a Minnesota Democrat who is chairman of the House Transportation and Infrastructure Committee, has warned that he will oppose big airline mergers. "We can't stop a merger ourselves," said Jim Berard, spokesman for the House committee. "But we can make a lot of noise." AFL-CIO union leaders met in Washington last week to develop strategies on possible mergers, and issued a statement saying they were "united in our commitment to protect airline employees from the severe harm that may stem from poorly conceived airline consolidations that ignore the needs of employees and the flying public." In assessing proposed airline mergers, the Justice Department reviews nonstop and connecting routes between cities where the two carriers overlap, as well as whether their respective hubs are close enough to make them dominant in a region. The department also weighs the likelihood of rivals starting service within two years on city-pairs where the merged airline would have increased market power, potentially reining in the new carrier's ability to raise prices.

Delta, the world's No. 3 airline by traffic, has a big market share in the Southeastern U.S., in New York, and on trans-Atlantic routes. Northwest, which is ranked sixth globally and fifth in the U.S., is strong in the upper Midwest and on trans-Pacific routes. "There isn't that much overlap between Northwest and Delta," said Andrew Steinberg, a former airline antitrust lawyer who recently stepped down as the Department of Transportation's assistant secretary for aviation and international affairs. If another airline merger is proposed soon, that doesn't mean the regulators will automatically reject the first, he said. "They analyze each transaction separately." The last time the Justice Department shot down a big merger proposal was in 2001, when it identified competitive problems in the proposed combination of UAL Corp.'s United Airlines and US Airways Group Inc. At the time, the government found the two were the only significant providers of nonstop flights from Washington, D.C., to a number of cities, were the most significant carriers on a number of nonstop routes between their hubs, and would have had undue concentration along the East Coast. The department in 2005 approved a merger of US Airways and America West Airlines, whose operations had little duplication. Delta and Northwest see their proposed marriage as a merger with little overlap domestically and none on overseas routes, said people familiar with the matter. The two also don't anticipate reducing a lot of capacity, shuttering existing hubs or laying off many front-line workers.

In the past, Justice Department officials have said that if a merger brings cost and operational efficiencies, regulators could perceive those benefits as outweighing a merger's anticompetitive impact. Diana Moss, vice president of the nonprofit American Antitrust Institute, which advocates aggressive antitrust enforcement, said that because the big carriers now have marketing alliances with rivals domestically and internationally, regulators "will need to look at claimed efficiencies closely in light of anticompetitive effects." William Swelbar, an airline researcher at the Massachusetts Institute of Technology, says there are parallels between the current merger fever and the wave of combinations that occurred in the late 1980s. "In 1985, the industry was in its infancy and the focus was on the domestic market," he said. The same is true today, "but now we're talking about network size in the global marketplace."

Antitrust Fears Few in Airline Deal

By SUSAN CAREY (Wall Street Journal)

A merger between Delta Air Lines Inc. and Northwest Airlines Corp. -- which could be announced as early as this week -- has less to fear from antitrust enforcers than past aviation deals, unless regulators grow uncharacteristically squeamish about the combination's sheer size.

If the airlines can reach an accord with their unionized pilots and hammer out the final details of a deal to create the world's largest carrier by traffic, the U.S. Department of Justice will be the ultimate judge of whether the merger can proceed. The department, which would be likely to review the case before a new administration arrives in Washington in January, has been kind in the past to deals like this one that don't involve a lot of overlap.

A transaction -- as well as any airline mergers that could follow a Delta-Northwest deal -- is certain to face political opposition from some members of Congress, and could run into turbulence with Northwest's other labor unions. Delta's pilots are its only major union.

Rep. James Oberstar, a Minnesota Democrat who is chairman of the House Transportation and Infrastructure Committee, has warned that he will oppose big airline mergers. "We can't stop a merger ourselves," said Jim Berard, spokesman for the House committee. "But we can make a lot of noise."

AFL-CIO union leaders met in Washington last week to develop strategies on possible mergers, and issued a statement saying they were "united in our commitment to protect airline employees from the severe harm that may stem from poorly conceived airline consolidations that ignore the needs of employees and the flying public."

In assessing proposed airline mergers, the Justice Department reviews nonstop and connecting routes between cities where the two carriers overlap, as well as whether their respective hubs are close enough to make them dominant in a region. The department also weighs the likelihood of rivals starting service within two years on city-pairs where the merged airline would have increased market power, potentially reining in the new carrier's ability to raise prices.

Delta, the world's No. 3 airline by traffic, has a big market share in the Southeastern U.S., in New York, and on trans-Atlantic routes. Northwest, which is ranked sixth globally and fifth in the U.S., is strong in the upper Midwest and on trans-Pacific routes.

"There isn't that much overlap between Northwest and Delta," said Andrew Steinberg, a former airline antitrust lawyer who recently stepped down as the Department of Transportation's assistant secretary for aviation and international affairs. If another airline merger is proposed soon, that doesn't mean the regulators will automatically reject the first, he said. "They analyze each transaction separately."

The last time the Justice Department shot down a big merger proposal was in 2001, when it identified competitive problems in the proposed combination of UAL Corp.'s United Airlines and US Airways Group Inc. At the time, the government found the two were the only significant providers of nonstop flights from Washington, D.C., to a number of cities, were the most significant carriers on a number of nonstop routes between their hubs, and would have had undue concentration along the East Coast.

The department in 2005 approved a merger of US Airways and America West Airlines, whose operations had little duplication.

Delta and Northwest see their proposed marriage as a merger with little overlap domestically and none on overseas routes, said people familiar with the matter. The two also don't anticipate reducing a lot of capacity, shuttering existing hubs or laying off many front-line workers.

In the past, Justice Department officials have said that if a merger brings cost and operational efficiencies, regulators could perceive those benefits as outweighing a merger's anticompetitive impact.

Diana Moss, vice president of the nonprofit American Antitrust Institute, which advocates aggressive antitrust enforcement, said that because the big carriers now have marketing alliances with rivals domestically and internationally, regulators "will need to look at claimed efficiencies closely in light of anticompetitive effects."

William Swelbar, an airline researcher at the Massachusetts Institute of Technology, says there are parallels between the current merger fever and the wave of combinations that occurred in the late 1980s. "In 1985, the industry was in its infancy and the focus was on the domestic market," he said. The same is true today, "but now we're talking about network size in the global marketplace."