The disputed investment at the heart of the Goldman Sachs fraud allegations -- and the subject of last week's Senate hearings -- may seem a long way removed from the financial concerns of the rest of us.
After all, few of us ever deal with collateralized debt obligations, exclusive hedge funds or complex billion-dollar derivative products. And Goldman, which is contesting government charges, insists the case only touches a very narrow and specific part of its business, dealing with very sophisticated institutional clients.
Nonetheless if you're an ordinary investor with $50,000, rather than a hedge-fund manager with $500 million, it's still worth paying attention to the case of the doomed $1 billion Abacus fund.
Why so? Because it's a timely reminder that, for many big financial institutions on Wall Street, we're simply customers to be sold a product.
The case is also a great example of how not to invest. You could go a long way in this life just by observing the behavior of wealthy and powerful investors in Abacus and then doing the opposite.
Never assume the big money is also the smart money.
What are the lessons?
1 Never put too much faith in a bank.
Goldman denies defrauding customers in Abacus 2007-AC1, the complex financial product in this dispute.
But whatever the legalities, nobody is going to claim it behaved well. The bank worked closely with hedge-fund tycoon John Paulson to construct a sucker's bet on subprime bonds that Mr. Paulson could bet against.
Then it went looking for suckers ... er, customers ... to take the other side of the bet. According to the Securities and Exchange Commission, it didn't tell those customers that Mr. Paulson had helped construct the portfolio. They ended up losing more than $1 billion.
I don't want to over-romanticize the past. Wall Street banks have always been businesses run for a profit. But once upon a time, they were, at least, partnerships. That meant the owners had some vested interest in the long-term reputation of their firms, and hence in treating the clients decently.
Today you should probably view them the way you view someone selling a used car. (Indeed, that may actually be unfair to used-car dealers.)
Goldman calls what it did "market making," and says in this instance it was permitted. Either way, it's clear Fabrice Tourre, the broker who devised the deal, was willing to sell a product about which he privately expressed serious misgivings.
Mr. Tourre denied to the Senate subcommittee that he misled customers and that the Abacus deal was designed to fail.
"We certainly did not bet against our clients," added CEO Lloyd Blankfein, though he conceded "how such a complicated transaction may look to many people."
Typical Wall Street bankers have three priorities: their own bonuses for the year, their bosses' bonuses and their own stockholders. Customers -- you and me -- come a very distant fourth. It's a mistake to forget that.
True, few funds are going to do to you what Abacus 2007-AC1 did to its investors. But they are products that are created to be sold to the public for the benefit of the bank. Don't take too much on trust.
2 Think twice before buying any complicated financial product.
It still baffles me that investors are so willing to buy complex "synthetic" products that the banks have cooked up in the back room. These are usually a poor deal (for the customers, if not for the bankers).
That's because, even when they're not being put together as a sucker's bet, they're often being put together to sock you with high fees.
Someone I know, who used to work on Wall Street about 10 years ago, always gets the simplest mortgage possible. Why? "I used to sit in the room when we designed the complicated mortgages in order to get higher fees," he says.
Today the banks -- from Wall Street to Main Street -- are out hustling new complicated structured financial products to the public. Some are called "reverse convertibles." Others, offering some stock-market "action" with limits on the upside and the downside, come with names like "principal guarantee" or "equity participation" notes.
No, they probably won't be a disaster. Don't assume they're a new "Abacus." But as a rule of thumb, the more complex a product is, the worse the deal. If the problem isn't the hidden traps, it's probably the hidden fees.
3 Be wary of investing in something you don't understand.
In the world of investing, the easiest way to end up looking really stupid is to try to do something really clever.
What were Goldman's customers thinking? OK, so they didn't know that Mr. Paulson had helped construct Abacus 2007-AC1. But it seems pretty clear that they didn't understand much about the product at all. Yet they still invested more than $1 billion into it.
Whatever the SEC achieves, over time it has very little ability to prevent the inevitable divorce between a fool and his money.
When it comes to investing, humility and common sense will go a long way. Investors in Abacus 2007-AC1 would have been far better off investing in some really boring blue-chip dividend stocks with business models like selling hamburgers or shampoo.
4 And when in doubt...
The doomed product was hustled by Goldman's Mr. Tourre. There's one simple question that the customers could have asked him that would have saved them a lot of grief, as well as about a billion dollars:
"How much of your own money are you putting into this?"
When all else fails, it's not the worst question to ask your broker. His reaction may tell you what you need to know.
SOURCE: THE WALL STREET JOURNAL
Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Cuts
By Christos Ziotis and Jonathan Stearns
May 2 (Bloomberg) -- Greece accepted an unprecedented bailout from the European Union and International Monetary Fund valued at more than 100 billion euros ($133 billion) to prevent default, agreeing to budget cuts that unions called “savage.”
The measures are worth 30 billion euros, or 13 percent of gross domestic product, and include wage cuts and a three-year freeze on pensions, Finance Minister George Papaconstantinou said in Athens today. Greece’s main sales tax rate will rise to 23 percent from 21 percent. The exact bailout amount will be agreed by euro-region finance ministers currently meeting in Brussels. Germany will provide 28 percent of the euro region contribution.
“Greece will be shielded from the international markets and will be able to put its house in order,” Papaconstantinou said in Athens. Prime Minister George Papandreou said “avoiding bankruptcy is a national red line” and the agreement will demand “big sacrifices” from Greeks to avoid “catastrophe.”
Policy makers are trying to prevent a Greek default as its fiscal crisis shows signs of spreading through the euro region. The agreement, following 10 days of talks and protests, comes after a surge in Greek borrowing costs left the government struggling to finance its debt and investors speculating that Portugal and Spain could also suffer their fate.
‘Arduous’
Euro region ministers started their meeting at 4 p.m. and will later hold a press conference, which will also be attended by European Central Bank President Jean-Claude Trichet. No time has yet been set.
German Chancellor Angela Merkel, who has expressed reluctance to bailout Greece with taxpayers’ funds, described the plan as “ambitious” and “arduous.” Arriving at the Brussels meeting, Belgian Finance Minister Didier Reynders said the package will be between 100 billion euros and 120 billion euros.
The bailout plan will give Greece time to fix its budget before returning to the market, which it wants to do “as soon as possible,” Papaconstantinou said.
“We want to implement our plan without the daily attacks of markets on Greek bonds,” he said. Other measures include abolishing the 13th and 14th wage payments that civil servants get annually for workers earning more than 3,000 euros per month, he said. Payments for those earning less than that will be capped at 1,000 euros, he said.
Lifeline
About two-thirds of the funds will come from Greece’s 15 euro-area partners, which must still sign off on the disbursement by a unanimous decision. The European Commission said today it approves of Greece’s request for aid. The International Monetary Fund will provide the rest of the funds.
The financial lifeline will last three years and will force Greece to cut its budget deficit below the EU’s limit of 3 percent of gross domestic product by the end of 2014. That’s one year later than originally planned. The shortfall was 13.6 percent in 2009.
The scale of the budget cuts has prompted some economists to speculate that Greece will have to restructure its debt because the strains placed on the economy will be too great. The government now expects the economy to shrink 4 percent this year and 2.6 percent in 2011 before expanding 1.1 percent in 2012 and almost double that in the following two years. In January, it forecast a 0.3 percent contraction for 2010.
“There is a very real possibility that at the end of two or three years, Greece will still have an unsustainable debt and will have to restructure because it will have a deep, deep recession in the meantime,” said Barry Eichengreen, economics professor at the University of California, Berkeley.
Contagion Risk
“We find ourselves before the most savage, unprovoked and unjust attack,” Spyros Papaspyros, head of the ADEDY civil servants union, said last week after seeing an outline of the cuts.
At stake is the future of the euro 11 years after its creators left fiscal policy in national capitals. As the Greek talks dragged on this past week, bonds dropped across Europe on investors’ concern that Portugal and Spain will also struggle to cut their deficits.
Spreads also widened as Merkel refused to immediately ratify the disbursement of loans as she faces a regional election in North Rhine-Westphalia in a week’s time. Fifty-six percent of Germans oppose giving Greece aid, calling such support “wrong,” Bild am Sonntag reported, citing an Emnid survey.
Relief?
The extra yield that investors demand to hold Portuguese debt over German bunds surged to 298 basis points on April 28, the most since at least 1997. The Greek premium touched 827 points. The spread on Spain climbed to the highest since March 2009. Standard & Poor’s followed its decision to cut Greece’s credit rating to junk on April 27 was followed by downgrades on Portugal and Spain.
“After the immediate relief” from today’s aid package “the focus will be squarely on implementation risk in Greece and I believe Portugal, and probably Spain, will need to put on the table a stronger fiscal effort to avoid coming under renewed pressure in the coming weeks and months,” said Marco Annunziata, chief economist at UniCredit Group in London.
SOURCE: BUSINESSWEEK
May 2 (Bloomberg) -- Greece accepted an unprecedented bailout from the European Union and International Monetary Fund valued at more than 100 billion euros ($133 billion) to prevent default, agreeing to budget cuts that unions called “savage.”
The measures are worth 30 billion euros, or 13 percent of gross domestic product, and include wage cuts and a three-year freeze on pensions, Finance Minister George Papaconstantinou said in Athens today. Greece’s main sales tax rate will rise to 23 percent from 21 percent. The exact bailout amount will be agreed by euro-region finance ministers currently meeting in Brussels. Germany will provide 28 percent of the euro region contribution.
“Greece will be shielded from the international markets and will be able to put its house in order,” Papaconstantinou said in Athens. Prime Minister George Papandreou said “avoiding bankruptcy is a national red line” and the agreement will demand “big sacrifices” from Greeks to avoid “catastrophe.”
Policy makers are trying to prevent a Greek default as its fiscal crisis shows signs of spreading through the euro region. The agreement, following 10 days of talks and protests, comes after a surge in Greek borrowing costs left the government struggling to finance its debt and investors speculating that Portugal and Spain could also suffer their fate.
‘Arduous’
Euro region ministers started their meeting at 4 p.m. and will later hold a press conference, which will also be attended by European Central Bank President Jean-Claude Trichet. No time has yet been set.
German Chancellor Angela Merkel, who has expressed reluctance to bailout Greece with taxpayers’ funds, described the plan as “ambitious” and “arduous.” Arriving at the Brussels meeting, Belgian Finance Minister Didier Reynders said the package will be between 100 billion euros and 120 billion euros.
The bailout plan will give Greece time to fix its budget before returning to the market, which it wants to do “as soon as possible,” Papaconstantinou said.
“We want to implement our plan without the daily attacks of markets on Greek bonds,” he said. Other measures include abolishing the 13th and 14th wage payments that civil servants get annually for workers earning more than 3,000 euros per month, he said. Payments for those earning less than that will be capped at 1,000 euros, he said.
Lifeline
About two-thirds of the funds will come from Greece’s 15 euro-area partners, which must still sign off on the disbursement by a unanimous decision. The European Commission said today it approves of Greece’s request for aid. The International Monetary Fund will provide the rest of the funds.
The financial lifeline will last three years and will force Greece to cut its budget deficit below the EU’s limit of 3 percent of gross domestic product by the end of 2014. That’s one year later than originally planned. The shortfall was 13.6 percent in 2009.
The scale of the budget cuts has prompted some economists to speculate that Greece will have to restructure its debt because the strains placed on the economy will be too great. The government now expects the economy to shrink 4 percent this year and 2.6 percent in 2011 before expanding 1.1 percent in 2012 and almost double that in the following two years. In January, it forecast a 0.3 percent contraction for 2010.
“There is a very real possibility that at the end of two or three years, Greece will still have an unsustainable debt and will have to restructure because it will have a deep, deep recession in the meantime,” said Barry Eichengreen, economics professor at the University of California, Berkeley.
Contagion Risk
“We find ourselves before the most savage, unprovoked and unjust attack,” Spyros Papaspyros, head of the ADEDY civil servants union, said last week after seeing an outline of the cuts.
At stake is the future of the euro 11 years after its creators left fiscal policy in national capitals. As the Greek talks dragged on this past week, bonds dropped across Europe on investors’ concern that Portugal and Spain will also struggle to cut their deficits.
Spreads also widened as Merkel refused to immediately ratify the disbursement of loans as she faces a regional election in North Rhine-Westphalia in a week’s time. Fifty-six percent of Germans oppose giving Greece aid, calling such support “wrong,” Bild am Sonntag reported, citing an Emnid survey.
Relief?
The extra yield that investors demand to hold Portuguese debt over German bunds surged to 298 basis points on April 28, the most since at least 1997. The Greek premium touched 827 points. The spread on Spain climbed to the highest since March 2009. Standard & Poor’s followed its decision to cut Greece’s credit rating to junk on April 27 was followed by downgrades on Portugal and Spain.
“After the immediate relief” from today’s aid package “the focus will be squarely on implementation risk in Greece and I believe Portugal, and probably Spain, will need to put on the table a stronger fiscal effort to avoid coming under renewed pressure in the coming weeks and months,” said Marco Annunziata, chief economist at UniCredit Group in London.
SOURCE: BUSINESSWEEK
Buffett Defends Goldman Sacks. By SCOTT PATTERSON And ERIK HOLM
By SCOTT PATTERSON And ERIK HOLM
OMAHA, Neb.— Warren Buffett offered a vigorous defense of Goldman Sachs Group Inc. Saturday, saying the embattled firm hadn't engaged in improper activity and shouldn't be blamed for the losses of its clients.
Goldman has been reeling from Securities and Exchange Commission allegations that the bank had engaged in fraudulent activities in relation to a mortgage deal called Abacus 2007-AC1. Goldman says it did nothing wrong.
Mr. Buffett's comments—which came early in the day at Berkshire Hathaway Inc.'s annual shareholders meeting—offer a powerful vote of confidence in Goldman, which has seen its shares slide since the SEC announced the investigation on April 16. Goldman's stock fell 9.4% on Friday alone after it emerged that the Manhattan district attorney's office was conducting a preliminary criminal probe into its mortgage-trading activities.
"We have had a lot of very satisfactory transactions with Goldman Sachs," Mr. Buffett said.
The billionaire investor said he fully supported Goldman CEO Lloyd Blankfein. Asked if he could choose a successor for Mr. Blankfein, Mr. Buffett said: "If Lloyd had a twin brother I'd go for him."
Speaking to a packed auditorium of some 40,000 investors hanging on his every word, Mr. Buffett said Berkshire Hathaway recorded a first-quarter profit of $3.6 billion, compared with a net loss of $1.5 billion a year earlier. Mr. Buffett said the company's results show that the global economy is showing significant signs of recovery for the first time. Operating profit was $2.2 billion, reversing a year-ago loss of $3.2 billion, he said, adding that individual units showed significant signs of improvement in March, after slight gains in prior months.
"What was sort of a sputtering recovery months ago seemed to pick up steam in March and April," Mr. Buffett said. "We're seeing a pretty good uptick."
The audience's reaction to Mr. Buffett's comments on Goldman was tepid. While a number of comments by the Berkshire chairman in the morning were greeted with strong applause by the crowd—almost entirely made up of Berkshire investors—his comments on Goldman were largely met with silence.
"I was surprised by how strong he stood by [Goldman] out of the gate and that he wasn't more critical of the Wall Street culture," said Justin Fuller, partner at Midway Capital Research & Management, which closely tracks Berkshire.
The SEC suit alleges that Goldman defrauded investors when it created a mortgage investment with the help of a bearish hedge fund and failed to disclose the fund's role and position. The suit is potentially of special concern to Mr. Buffett, known for his ethical standards. Ever since he was a small-town money manager in Omaha, where he has lived most of his life, he has lambasted the aggressive, self-serving tactics of Wall Street's banking elite.
Mr. Buffett, who invested $5 billion in Goldman at the height of the financial crisis, said he didn't believe that Goldman had acted improperly. Rather, counterparties to the deals, which plunged in value when the housing market fell apart in 2007, should be responsible for their own actions.
Mr. Buffett said he believed that one of the banks that had purchased Abacus deals in the transaction, the Dutch bank ABN Amro Group, was a sophisticated investor. "It's a little hard for me to get terribly sympathetic for a bank that made a bad credit deal," said Mr. Buffett.
He said a firm that had acted as an intermediary in the deal, ACA Management, had drifted from its original business of insuring municipal bonds into structured finance, a more complicated and risky business. He said he believes most press accounts haven't properly explained ACA's business model.
Mr. Buffett also said the fact that Paulson & Co., the New York hedge fund that worked with Goldman and ACA to structure the Abacus deal, was on the other side of the Abacus deal was irrelevant. "It doesn't make any difference whether it was Paulson on the other side of the deal or whether Goldman was on the other side of the deal or whether Berkshire was on the other side of the deal," he said.
Berkshire Vice Chairman Charlie Munger, who told The Wall Street Journal last month that Goldman was engaged in "socially undesirable" activities, told shareholders that he would have voted against SEC prosecution.
But Mr. Munger indicated he believes Goldman may have come closer to the edge of suspect behavior than Mr. Buffett does. "I think it was a closer case than you do," he told Mr. Buffett during an exchange.
Mr. Buffett said the charges against Goldman have hurt the bank's reputation. "There's no question that the allegation alone causes the company to lose reputation," he said. "The press of the past few weeks hurt the company and hurt morale."
But he said that the charges need to be proven if they are to have a lasting impact on Goldman. "I don't believe that the allegation of something falls within the category of losing reputation," he said. "If something is proven then you have to look at it."
Paul Howard, an independent insurance analyst who tracks Berkshire, said the defense of Goldman wasn't surprising. "Buffett shows his loyalty to those who have helped him over the years," said Mr. Howard.
In a twist, Mr. Buffett said the SEC charges against Goldman have helped Berkshire Hathaway. He noted that Goldman could redeem Berkshire's $5 billion investment at any time, and that Goldman has an economic incentive to do so. The reason: Goldman is paying a 10% rate on the investment, coming to $500 million a year, or, as Mr. Buffett said at the meeting, $15 a second.
He held up a hand and counted up the profit to illustrate the point.
"Tick, tick, tick," said Mr. Buffett. "Goldman would love to get rid of that."
But Goldman likely believes that having Mr. Buffett as an investor can help its reputation. "Recent developments have probably delayed the calling of our preferred," said Mr. Buffett, who guzzled Coke and munched on See's Candies throughout the meeting.
Mr. Buffett has also been taking some heat for a push he has made on Capitol Hill for exemptions for several large derivatives deals his firm has made in recent year. A bill before Congress could force Berkshire to post billions in collateral for the deals. In the past, Berkshire hasn't been required to put up much cash—if any—to back its derivatives transactions.
Mr. Buffett said he's confident that his firm would likely not be required to post collateral on existing derivative contracts under the financial-overhaul bill currently before the Congress.
Mr. Buffett said he doesn't see any consequences "unless there's some sweeping requirement that all companies have to post collateral" on old contracts. Berkshire had lobbied to have such a provision added to the overhaul bill to clarify the requirements under the proposed law.
Still, if required to put up such collateral, Berkshire would do so, he said.
Berkshire has never paid dividends and Mr. Buffett is famous for shunning them. At the shareholder's meeting, he didn't explicitly say anything about a dividend nor did he utter the actual word. However, he said the company is now so large and generates so much cash that it might struggle to find investments that are both big enough and offer enough return.
"I think we can go out further than I thought 30 years ago," Buffett said. "But there is a limit. There will come a time when we cannot intelligently use 100% of the capital we've developed internally. Whatever is in the best interests of the shareholders will be done at this point."
"I don't think he said anything that people weren't already thinking," said Jeff Matthews, the founder of hedge fund Ram Partners and author of "Pilgramage to Warren Buffett's Omaha." "Still, it was a little more specific and a little more emphasis than people are used to hearing."
Mr. Howard, the insurance analyst, said Buffett was "leaving the option open for the future, probably after his death."
SOURCE: WALL STREET JOURNAL ONLINE
OMAHA, Neb.— Warren Buffett offered a vigorous defense of Goldman Sachs Group Inc. Saturday, saying the embattled firm hadn't engaged in improper activity and shouldn't be blamed for the losses of its clients.
Goldman has been reeling from Securities and Exchange Commission allegations that the bank had engaged in fraudulent activities in relation to a mortgage deal called Abacus 2007-AC1. Goldman says it did nothing wrong.
Mr. Buffett's comments—which came early in the day at Berkshire Hathaway Inc.'s annual shareholders meeting—offer a powerful vote of confidence in Goldman, which has seen its shares slide since the SEC announced the investigation on April 16. Goldman's stock fell 9.4% on Friday alone after it emerged that the Manhattan district attorney's office was conducting a preliminary criminal probe into its mortgage-trading activities.
"We have had a lot of very satisfactory transactions with Goldman Sachs," Mr. Buffett said.
The billionaire investor said he fully supported Goldman CEO Lloyd Blankfein. Asked if he could choose a successor for Mr. Blankfein, Mr. Buffett said: "If Lloyd had a twin brother I'd go for him."
Speaking to a packed auditorium of some 40,000 investors hanging on his every word, Mr. Buffett said Berkshire Hathaway recorded a first-quarter profit of $3.6 billion, compared with a net loss of $1.5 billion a year earlier. Mr. Buffett said the company's results show that the global economy is showing significant signs of recovery for the first time. Operating profit was $2.2 billion, reversing a year-ago loss of $3.2 billion, he said, adding that individual units showed significant signs of improvement in March, after slight gains in prior months.
"What was sort of a sputtering recovery months ago seemed to pick up steam in March and April," Mr. Buffett said. "We're seeing a pretty good uptick."
The audience's reaction to Mr. Buffett's comments on Goldman was tepid. While a number of comments by the Berkshire chairman in the morning were greeted with strong applause by the crowd—almost entirely made up of Berkshire investors—his comments on Goldman were largely met with silence.
"I was surprised by how strong he stood by [Goldman] out of the gate and that he wasn't more critical of the Wall Street culture," said Justin Fuller, partner at Midway Capital Research & Management, which closely tracks Berkshire.
The SEC suit alleges that Goldman defrauded investors when it created a mortgage investment with the help of a bearish hedge fund and failed to disclose the fund's role and position. The suit is potentially of special concern to Mr. Buffett, known for his ethical standards. Ever since he was a small-town money manager in Omaha, where he has lived most of his life, he has lambasted the aggressive, self-serving tactics of Wall Street's banking elite.
Mr. Buffett, who invested $5 billion in Goldman at the height of the financial crisis, said he didn't believe that Goldman had acted improperly. Rather, counterparties to the deals, which plunged in value when the housing market fell apart in 2007, should be responsible for their own actions.
Mr. Buffett said he believed that one of the banks that had purchased Abacus deals in the transaction, the Dutch bank ABN Amro Group, was a sophisticated investor. "It's a little hard for me to get terribly sympathetic for a bank that made a bad credit deal," said Mr. Buffett.
He said a firm that had acted as an intermediary in the deal, ACA Management, had drifted from its original business of insuring municipal bonds into structured finance, a more complicated and risky business. He said he believes most press accounts haven't properly explained ACA's business model.
Mr. Buffett also said the fact that Paulson & Co., the New York hedge fund that worked with Goldman and ACA to structure the Abacus deal, was on the other side of the Abacus deal was irrelevant. "It doesn't make any difference whether it was Paulson on the other side of the deal or whether Goldman was on the other side of the deal or whether Berkshire was on the other side of the deal," he said.
Berkshire Vice Chairman Charlie Munger, who told The Wall Street Journal last month that Goldman was engaged in "socially undesirable" activities, told shareholders that he would have voted against SEC prosecution.
But Mr. Munger indicated he believes Goldman may have come closer to the edge of suspect behavior than Mr. Buffett does. "I think it was a closer case than you do," he told Mr. Buffett during an exchange.
Mr. Buffett said the charges against Goldman have hurt the bank's reputation. "There's no question that the allegation alone causes the company to lose reputation," he said. "The press of the past few weeks hurt the company and hurt morale."
But he said that the charges need to be proven if they are to have a lasting impact on Goldman. "I don't believe that the allegation of something falls within the category of losing reputation," he said. "If something is proven then you have to look at it."
Paul Howard, an independent insurance analyst who tracks Berkshire, said the defense of Goldman wasn't surprising. "Buffett shows his loyalty to those who have helped him over the years," said Mr. Howard.
In a twist, Mr. Buffett said the SEC charges against Goldman have helped Berkshire Hathaway. He noted that Goldman could redeem Berkshire's $5 billion investment at any time, and that Goldman has an economic incentive to do so. The reason: Goldman is paying a 10% rate on the investment, coming to $500 million a year, or, as Mr. Buffett said at the meeting, $15 a second.
He held up a hand and counted up the profit to illustrate the point.
"Tick, tick, tick," said Mr. Buffett. "Goldman would love to get rid of that."
But Goldman likely believes that having Mr. Buffett as an investor can help its reputation. "Recent developments have probably delayed the calling of our preferred," said Mr. Buffett, who guzzled Coke and munched on See's Candies throughout the meeting.
Mr. Buffett has also been taking some heat for a push he has made on Capitol Hill for exemptions for several large derivatives deals his firm has made in recent year. A bill before Congress could force Berkshire to post billions in collateral for the deals. In the past, Berkshire hasn't been required to put up much cash—if any—to back its derivatives transactions.
Mr. Buffett said he's confident that his firm would likely not be required to post collateral on existing derivative contracts under the financial-overhaul bill currently before the Congress.
Mr. Buffett said he doesn't see any consequences "unless there's some sweeping requirement that all companies have to post collateral" on old contracts. Berkshire had lobbied to have such a provision added to the overhaul bill to clarify the requirements under the proposed law.
Still, if required to put up such collateral, Berkshire would do so, he said.
Berkshire has never paid dividends and Mr. Buffett is famous for shunning them. At the shareholder's meeting, he didn't explicitly say anything about a dividend nor did he utter the actual word. However, he said the company is now so large and generates so much cash that it might struggle to find investments that are both big enough and offer enough return.
"I think we can go out further than I thought 30 years ago," Buffett said. "But there is a limit. There will come a time when we cannot intelligently use 100% of the capital we've developed internally. Whatever is in the best interests of the shareholders will be done at this point."
"I don't think he said anything that people weren't already thinking," said Jeff Matthews, the founder of hedge fund Ram Partners and author of "Pilgramage to Warren Buffett's Omaha." "Still, it was a little more specific and a little more emphasis than people are used to hearing."
Mr. Howard, the insurance analyst, said Buffett was "leaving the option open for the future, probably after his death."
SOURCE: WALL STREET JOURNAL ONLINE
For Investors, Diabetes Is a Growth Industry. By Joan R. Magee
The numbers are sobering. Approximately 24 million Americans today have diabetes, and another 12 million are expected to be diagnosed by 2020, according to the American Diabetes Association. One survey puts the toll of lost productivity and caring for diabetes patients at $218 billion annually in the U.S. alone.
Yet for investors, the fast-growing diabetes industry suggests something else: opportunity.
Each week seems to bring another development. Earlier this month, Swiss pharma giant Roche Holding AG announced its acquisition of a unit working on a new type of insulin patch. That development came on the heels of AstraZeneca's rollout of the new diabetes drug, Onglyza, in India — a country that is projected to have the most diabetes cases globally by the end of 2010, according to the International Diabetes Federation (IDF). In January, Novo-Nordisk got approval for its new once-a-week diabetes drug, Victoza, one of a new generation of similar medications.
Of course, not every new diabetes product is a success. The FDA may be considering halting trials of GlaxoSmithKline’s diabetes treatment Avandia due to possible side effects like increased risk of heart attack. (In a statement, GlaxoSmithKline says it “welcomes additional scientific information that could help guide decisions around clinical trials and ultimately patient safety.”) Inhaled insulin drugs have also been something of a bust, with Eli Lilly, Pfizer and Novo-Nordisk abandoning efforts to develop those products.
Who are some of the biggest players? Here is a look:
Roche Holding
Ticker: ROG.VX
P/E ratio: 19
Stock price change YTD: -2.0% (as of April 29, 2010)
With $137 billion in global revenues, Roche is the biggest single player in the diabetes market. Among its hundreds of products, Roche makes blood glucose meters, lancing devices, data management systems and education programs, all related to diabetes.
In early April, Roche drew attention when it announced the acquisition of the Medingo unit of Elron Electronics. Medingo makes patches that let patients regulate the amount of insulin they take through the use of a remote control. The technology is considered promising because “it’s less invasive, and more comfortable, as well as more sanitary, as needles can be prone to infection,” says Andreas Dirnagl, managing director of health care services at Stephens, Inc., a financial services firm.
Elsewhere, Roche is betting on Taspoglutide, a Type 2 diabetes drug in the development stage which it hopes to file for FDA approval next year. Taspoglutide has drawn interest in the industry because it allows patients to inject the medicine just once a week, instead of daily, says Andrew Weiss, Bank Vontobel analyst. If approved, the medication eventually could add up to more than $2 billion in peak sales, analysts say.
Fresenius Medical Care North America
Ticker: FMS: 54.12*, -0.09, -0.16%
P/E Ratio: 18.41
Stock price change YTD: -3.36%
In its more advanced stages, diabetes can lead to kidney failure — a condition affecting 1.7 million people around the world today, according to Fresenius Medical Care North America. The company, a subsidiary of a German concern, offers dialysis care services in centers, at home and in hospitals. FMS says it has 2,553 dialysis clinics and some 195,650 patients world-wide, up from 1,680 clinics and 131,450 patients in 2006. At least some of that growth has come through acquisitions. In 2006, Fresenius’s purchased Renal Care Group, a Nashville, Tenn.-based dialysis services provider.
More recently, in 2008, the company paid $4 billion for Illinois-based APP Pharmaceuticals, maker of heparin, a blood-thinning drug used in dialysis treatments. (APP became the primary provider of heparin in the U.S. in 2007, after Baxter International (BAX: 47.68*, -0.55, -1.14%) withdrew its version from the market.) FMC’s dominance on the clinic side and its control of the heparin market sets it up for a healthy revenue stream, says Dirnagl. He adds that the business will just keep growing, as “no current technologies are on the horizon that would make dialysis obsolete.”
Eli Lilly and Amylin Pharmaceuticals
Eli Lilly
Ticker: LLY: 35.04*, +0.00, +0.00%
P/E Ratio: 9.10
Stock price change, YTD: 1.50%
Amylin
Ticker: AMLN: 20.83*, -0.69, -3.20%
P/E Ratio: N/A
Stock price change: YTD: 43.3%
These two companies are longtime players in the diabetes market, and in 2002 teamed up to produce the injectible Type 2 diabetes drug, Byetta. The newest iteration of Byetta (which is still in development) would be injected once a week, like Roche’s Taspoglutide and Novo-Nordisk’s Victoza. All three drugs operate on similar principles and are being promoted by their makers as more comfortable for patients.
But the yet-to-be released variant of Byetta hit a stumbling block in March, when the FDA asked for more information and delayed its introduction. The problem: Although weekly Byetta has shown to help glucose-control and weight-loss, it has also been linked to pancreatitis, says Steven Silver, an analyst at Standard & Poor's in New York. Lilly says it is working to better understand the link between Byetta and pancreatitis.
Separately, Lilly in 2008 ended development of its inhaled insulin drug, citing “increasing uncertainties in the regulatory environment.” It followed in the footsteps of Pfizer (PFE: 16.77*, -0.09, -0.53%), which in late 2007 pulled its inhaled insulin product, Exubera, off the market and gave back the drug rights to a partner company, Nektar Therapeutics.
Novo-Nordisk
Ticker: NVO: 82.21*, -0.23, -0.27%
P/E ratio: 20
Stock price change: YTD: 24%
NVO blazed a trail in 1923 when it became the first company to market insulin. Today, the $56 billion firm supplies more than half of the world’s insulin — a product that has racked up 31 consecutive quarters of double-digit sales growth, according to a spokesman. It also has a range of other insulin products, including the FlexPen, which allows insulin to be administered though a pen-like device. In 2009, the company’s diabetes arm brought in around $7 billion, a 12.4% increase from 2008, and spent $1 billion in diabetes research.
Like Lilly, Novo-Nordisk also has a drug injected once a week aimed at improving blood-sugar levels as well as weight control. But while Lilly and Amylin’s newest form of Byetta is awaiting FDA approval, the Novo-Nordisk version, called Victoza, won FDA approval in January 2010. (It has been available in some European countries and Japan since 2009.) According to Novo-Nordisk, global sales of Victoza in the first quarter of 2010 were $68 million.
Sanofi-Aventis
Ticker: SNY: 34.18*, +0.05, +0.14%
P/E ratio: 7.8
Stock price YTD: - 7%
France’s Sanofi-Aventis has long been known for its popular insulin, Lantus, and the company continues to broaden its diabetes offerings. It has a number of new products in the works, including Lixisenatide, a drug to manage Type 2 diabetes, which just completed a final-stage study.
The $98 billion company continues to expand into other realms, as well. In early April, Sanofi signed a long-term agreement with New Hampshire-based AgaMatrix for the development, supply and commercialization of blood glucose monitoring (BGM) solutions. "There is ample room for growth in the diabetes treatment area, given the size of the market, the unmet medical need, and safety concerns over current treatments," says Standard & Poor's Silver.
DaVita
Ticker: DVA: 62.50*, -1.46, -2.28%
P/E ratio: 15.73
Stock price change YTD: 8.17%
Denver-based DaVita, with a market cap of $6.6 billion, runs about a third of all dialysis clinics in the U.S. -- approximately the same number as Fresnius. In 2005, the company paid $3.1 billion for the U.S. renal care business of Sweden’s Gambro Healthcare. Other than that, DaVita says it has been growing organically about 4% to 5% a year. It is now in the process of buying the University of Chicago Medical Center’s three off-site dialysis clinics, a deal which should be finalized by late summer.
“Really over the long term, the only way that dialysis is going to see a downturn or become obsolete is if there is a cure for diabetes,” says Stephens’ Dirnagl. Cutting down on the number of new patients, along with discovering ways to grow or implant substitute or artificial organs could hinder the dialysis market, he adds. But “either one of these things is clearly more than a decade down the line at a minimum right now,” he says.
Yet for investors, the fast-growing diabetes industry suggests something else: opportunity.
Each week seems to bring another development. Earlier this month, Swiss pharma giant Roche Holding AG announced its acquisition of a unit working on a new type of insulin patch. That development came on the heels of AstraZeneca's rollout of the new diabetes drug, Onglyza, in India — a country that is projected to have the most diabetes cases globally by the end of 2010, according to the International Diabetes Federation (IDF). In January, Novo-Nordisk got approval for its new once-a-week diabetes drug, Victoza, one of a new generation of similar medications.
Of course, not every new diabetes product is a success. The FDA may be considering halting trials of GlaxoSmithKline’s diabetes treatment Avandia due to possible side effects like increased risk of heart attack. (In a statement, GlaxoSmithKline says it “welcomes additional scientific information that could help guide decisions around clinical trials and ultimately patient safety.”) Inhaled insulin drugs have also been something of a bust, with Eli Lilly, Pfizer and Novo-Nordisk abandoning efforts to develop those products.
Who are some of the biggest players? Here is a look:
Roche Holding
Ticker: ROG.VX
P/E ratio: 19
Stock price change YTD: -2.0% (as of April 29, 2010)
With $137 billion in global revenues, Roche is the biggest single player in the diabetes market. Among its hundreds of products, Roche makes blood glucose meters, lancing devices, data management systems and education programs, all related to diabetes.
In early April, Roche drew attention when it announced the acquisition of the Medingo unit of Elron Electronics. Medingo makes patches that let patients regulate the amount of insulin they take through the use of a remote control. The technology is considered promising because “it’s less invasive, and more comfortable, as well as more sanitary, as needles can be prone to infection,” says Andreas Dirnagl, managing director of health care services at Stephens, Inc., a financial services firm.
Elsewhere, Roche is betting on Taspoglutide, a Type 2 diabetes drug in the development stage which it hopes to file for FDA approval next year. Taspoglutide has drawn interest in the industry because it allows patients to inject the medicine just once a week, instead of daily, says Andrew Weiss, Bank Vontobel analyst. If approved, the medication eventually could add up to more than $2 billion in peak sales, analysts say.
Fresenius Medical Care North America
Ticker: FMS: 54.12*, -0.09, -0.16%
P/E Ratio: 18.41
Stock price change YTD: -3.36%
In its more advanced stages, diabetes can lead to kidney failure — a condition affecting 1.7 million people around the world today, according to Fresenius Medical Care North America. The company, a subsidiary of a German concern, offers dialysis care services in centers, at home and in hospitals. FMS says it has 2,553 dialysis clinics and some 195,650 patients world-wide, up from 1,680 clinics and 131,450 patients in 2006. At least some of that growth has come through acquisitions. In 2006, Fresenius’s purchased Renal Care Group, a Nashville, Tenn.-based dialysis services provider.
More recently, in 2008, the company paid $4 billion for Illinois-based APP Pharmaceuticals, maker of heparin, a blood-thinning drug used in dialysis treatments. (APP became the primary provider of heparin in the U.S. in 2007, after Baxter International (BAX: 47.68*, -0.55, -1.14%) withdrew its version from the market.) FMC’s dominance on the clinic side and its control of the heparin market sets it up for a healthy revenue stream, says Dirnagl. He adds that the business will just keep growing, as “no current technologies are on the horizon that would make dialysis obsolete.”
Eli Lilly and Amylin Pharmaceuticals
Eli Lilly
Ticker: LLY: 35.04*, +0.00, +0.00%
P/E Ratio: 9.10
Stock price change, YTD: 1.50%
Amylin
Ticker: AMLN: 20.83*, -0.69, -3.20%
P/E Ratio: N/A
Stock price change: YTD: 43.3%
These two companies are longtime players in the diabetes market, and in 2002 teamed up to produce the injectible Type 2 diabetes drug, Byetta. The newest iteration of Byetta (which is still in development) would be injected once a week, like Roche’s Taspoglutide and Novo-Nordisk’s Victoza. All three drugs operate on similar principles and are being promoted by their makers as more comfortable for patients.
But the yet-to-be released variant of Byetta hit a stumbling block in March, when the FDA asked for more information and delayed its introduction. The problem: Although weekly Byetta has shown to help glucose-control and weight-loss, it has also been linked to pancreatitis, says Steven Silver, an analyst at Standard & Poor's in New York. Lilly says it is working to better understand the link between Byetta and pancreatitis.
Separately, Lilly in 2008 ended development of its inhaled insulin drug, citing “increasing uncertainties in the regulatory environment.” It followed in the footsteps of Pfizer (PFE: 16.77*, -0.09, -0.53%), which in late 2007 pulled its inhaled insulin product, Exubera, off the market and gave back the drug rights to a partner company, Nektar Therapeutics.
Novo-Nordisk
Ticker: NVO: 82.21*, -0.23, -0.27%
P/E ratio: 20
Stock price change: YTD: 24%
NVO blazed a trail in 1923 when it became the first company to market insulin. Today, the $56 billion firm supplies more than half of the world’s insulin — a product that has racked up 31 consecutive quarters of double-digit sales growth, according to a spokesman. It also has a range of other insulin products, including the FlexPen, which allows insulin to be administered though a pen-like device. In 2009, the company’s diabetes arm brought in around $7 billion, a 12.4% increase from 2008, and spent $1 billion in diabetes research.
Like Lilly, Novo-Nordisk also has a drug injected once a week aimed at improving blood-sugar levels as well as weight control. But while Lilly and Amylin’s newest form of Byetta is awaiting FDA approval, the Novo-Nordisk version, called Victoza, won FDA approval in January 2010. (It has been available in some European countries and Japan since 2009.) According to Novo-Nordisk, global sales of Victoza in the first quarter of 2010 were $68 million.
Sanofi-Aventis
Ticker: SNY: 34.18*, +0.05, +0.14%
P/E ratio: 7.8
Stock price YTD: - 7%
France’s Sanofi-Aventis has long been known for its popular insulin, Lantus, and the company continues to broaden its diabetes offerings. It has a number of new products in the works, including Lixisenatide, a drug to manage Type 2 diabetes, which just completed a final-stage study.
The $98 billion company continues to expand into other realms, as well. In early April, Sanofi signed a long-term agreement with New Hampshire-based AgaMatrix for the development, supply and commercialization of blood glucose monitoring (BGM) solutions. "There is ample room for growth in the diabetes treatment area, given the size of the market, the unmet medical need, and safety concerns over current treatments," says Standard & Poor's Silver.
DaVita
Ticker: DVA: 62.50*, -1.46, -2.28%
P/E ratio: 15.73
Stock price change YTD: 8.17%
Denver-based DaVita, with a market cap of $6.6 billion, runs about a third of all dialysis clinics in the U.S. -- approximately the same number as Fresnius. In 2005, the company paid $3.1 billion for the U.S. renal care business of Sweden’s Gambro Healthcare. Other than that, DaVita says it has been growing organically about 4% to 5% a year. It is now in the process of buying the University of Chicago Medical Center’s three off-site dialysis clinics, a deal which should be finalized by late summer.
“Really over the long term, the only way that dialysis is going to see a downturn or become obsolete is if there is a cure for diabetes,” says Stephens’ Dirnagl. Cutting down on the number of new patients, along with discovering ways to grow or implant substitute or artificial organs could hinder the dialysis market, he adds. But “either one of these things is clearly more than a decade down the line at a minimum right now,” he says.
New graduates, students will be facing tough market for job-seekers
A resurgent stock market and an increase in the index of leading economic indicators have some analysts pointing to a rebounding economy. While these signs, along with reports that Illinois employers are beginning to hire, may be positive factors, job seekers in Southern Illinois continue to face a tight market with a few pockets of growth.
"Even though the job creation numbers are positive, they will have little effect on someone who may be unemployed right now," Greg Rivara, spokesman for the Illinois Department of Employment Security, said. "Even though we've had three consecutive months of job growth, we had nearly two years of losses leading up to it."
Rivara said while nothing short of a new job feels good to someone who hasn't worked in a while, things will get better. "The three months of growth is a positive sign, we just don't know how positive yet," he said. "In the grand scheme of things it will be good news."
The job market may tighten even more as spring brings students looking for summer jobs and new graduates-both high school and college-into the mix.
Toby Misner, guidance counselor at Marion High School, said students who are looking for summer work are not finding it.
"We think summer employment is going to be limited, so we're pushing students to be eager to take any job, even if they are jobs the kids weren't originally interested in, maybe mowing lawns, fast food and babysitting," he explained. "We're telling them that they need to look at those fields."
Misner said with high levels of unemployment, many students are competing for jobs not only with other teenagers, but also with adults.
"Right now, a job is a job both for students and for adults," he said.
It's not just seasonal employment that is tough to find. Misner said students choosing to enter a trade or work after graduation are struggling to find employment.
"We're not hearing of a lot of them already lining up jobs. We have a lot of kids hoping and praying for something," he added.
The situation is no better for college students. Rob Miller, a sophomore from Johnsburg studying public relations at Southern Illinois University Carbondale, said he had hoped to find a part-time position in the area so he could enroll in summer classes. His inability to find summer work has caused him to change his plans.
"I applied at a bunch of places, but I didn't hear back from any of them," he said. "So, I'm not going to school this summer. Instead, I'm going home, and I'll look for something there," he said.
There are some bright spots, however. John A. Logan College placement director Lisa Hudgens said the phones are beginning to ring more often in her office with employers looking to hire - both for the summer and in permanent positions.
"It's picking up. We are seeing employers calling us with both part-time and full-time positions," she said.
Hudgens explained that growth seems to be in specialized areas. She said she's seeing opportunities in fields such as accounting, health care and dental assisting.
She said there also has been an upswing in calls from contractors and construction firms, but those increases may be seasonal in nature.
Other hiring professionals are also seeing some growth. Jill Lewis of Extra Help, a Marion staffing agency, said the number of opportunities is starting to improve.
"We believe the market is coming back," she explained. "We've had a steady increase and we think we are on the way to a recovery."
Lewis said growth is coming in a number of sectors including manufacturing, general labor and transportation. She added that many companies are hiring for full-time, temporary positions, especially clerical and light industrial jobs.
"Employers are being very careful with hiring," she said. "They do not want to hire people just to lay them off later."
However, she explained that the temporary hires can point to longer-term improvements in the job outlook.
"Typically, when you see the number of temporary employees go up, that's the first sign of an economic recovery," she said.
Recovery can be a slow process, said IDES' Rivara.
"Illinois typically follows the nation into a recession and we tend to follow the nation out of one, too," he said. "When a recovery really takes hold, it may cause confusion because the national media will be talking about it, even when we may not be feeling it here yet."
He added that the same holds true for Southern Illinois compared to the rest of the state.
"That means as we come out of the recession, we may see slower recovery in some places."
Thom Shadle of Murphysboro said he understands that an uptick in indicators for the state does not necessarily mean all across the state.
"Those numbers mean that Chicago's doing better," Shadle said. "Right now, there's not that many large employers adding staff here and the small employers are not ready to jump in yet and bring people on."
Shadle, who has more than seven years experience in marketing, was laid off from a customer service and sales position more than a year ago. He has been unable to find similar work since.
"Jobs seem to be virtually non-existent outside of the entry level," he added. "There's really just not a lot out there."
Rivara said one of the best barometers is to look at what the region's top industries are doing on the national level. Those trends may be an indicator of what is to come locally, he said. He pointed to industries such as health care, which continues to expand both on the national and regional levels.
"It's definitely a stable field," said Kristin King, employment coordinator with Southern Illinois Healthcare. "In health care right now, employment is on the rise."
That is good news for job-seekers. King said her organization has an average of 55 positions open each month. The downside is that SIH receives about 2,000 applications for those jobs.
"It's great for us to see that many people interested in health care, but it is disheartening at the same time," she said.
Regardless of the industry, Rivara said people looking for work have to be flexible.
"We encourage individuals not to look at what job they had, but rather their skills and see what other industries those fit into. It's a matter of thinking about things differently," he said.
Lewis gave an example. She shared the story of a former fast food sandwich maker who used those skills to land a job in manufacturing because of his assembly experience.
"People need to look at all of their skills and how they may fit into a completely different industry," she said.
She said it should not matter whether a job seeker is a high school senior, a new college graduate, a laid-off executive or a miner looking for a new job; everyone looking for work should apply the same approach.
"You have to broaden your outlook and see how you can apply your skills into other industries that you haven't thought about before. Limited experience in a particular field should not hold you back," she said.
Rivara said it's all a matter of approach.
"Job growth will return to all of Illinois and those individuals who have not done anything to enhance their job skills will not be in a position to re-enter the workforce when jobs are available. It's all about thinking differently."
- Les O'Dell lives in Carbondale and is a freelance writer. He regularly is published in SBJ, The Southern Illinoisan and SI Magazine.
"Even though the job creation numbers are positive, they will have little effect on someone who may be unemployed right now," Greg Rivara, spokesman for the Illinois Department of Employment Security, said. "Even though we've had three consecutive months of job growth, we had nearly two years of losses leading up to it."
Rivara said while nothing short of a new job feels good to someone who hasn't worked in a while, things will get better. "The three months of growth is a positive sign, we just don't know how positive yet," he said. "In the grand scheme of things it will be good news."
The job market may tighten even more as spring brings students looking for summer jobs and new graduates-both high school and college-into the mix.
Toby Misner, guidance counselor at Marion High School, said students who are looking for summer work are not finding it.
"We think summer employment is going to be limited, so we're pushing students to be eager to take any job, even if they are jobs the kids weren't originally interested in, maybe mowing lawns, fast food and babysitting," he explained. "We're telling them that they need to look at those fields."
Misner said with high levels of unemployment, many students are competing for jobs not only with other teenagers, but also with adults.
"Right now, a job is a job both for students and for adults," he said.
It's not just seasonal employment that is tough to find. Misner said students choosing to enter a trade or work after graduation are struggling to find employment.
"We're not hearing of a lot of them already lining up jobs. We have a lot of kids hoping and praying for something," he added.
The situation is no better for college students. Rob Miller, a sophomore from Johnsburg studying public relations at Southern Illinois University Carbondale, said he had hoped to find a part-time position in the area so he could enroll in summer classes. His inability to find summer work has caused him to change his plans.
"I applied at a bunch of places, but I didn't hear back from any of them," he said. "So, I'm not going to school this summer. Instead, I'm going home, and I'll look for something there," he said.
There are some bright spots, however. John A. Logan College placement director Lisa Hudgens said the phones are beginning to ring more often in her office with employers looking to hire - both for the summer and in permanent positions.
"It's picking up. We are seeing employers calling us with both part-time and full-time positions," she said.
Hudgens explained that growth seems to be in specialized areas. She said she's seeing opportunities in fields such as accounting, health care and dental assisting.
She said there also has been an upswing in calls from contractors and construction firms, but those increases may be seasonal in nature.
Other hiring professionals are also seeing some growth. Jill Lewis of Extra Help, a Marion staffing agency, said the number of opportunities is starting to improve.
"We believe the market is coming back," she explained. "We've had a steady increase and we think we are on the way to a recovery."
Lewis said growth is coming in a number of sectors including manufacturing, general labor and transportation. She added that many companies are hiring for full-time, temporary positions, especially clerical and light industrial jobs.
"Employers are being very careful with hiring," she said. "They do not want to hire people just to lay them off later."
However, she explained that the temporary hires can point to longer-term improvements in the job outlook.
"Typically, when you see the number of temporary employees go up, that's the first sign of an economic recovery," she said.
Recovery can be a slow process, said IDES' Rivara.
"Illinois typically follows the nation into a recession and we tend to follow the nation out of one, too," he said. "When a recovery really takes hold, it may cause confusion because the national media will be talking about it, even when we may not be feeling it here yet."
He added that the same holds true for Southern Illinois compared to the rest of the state.
"That means as we come out of the recession, we may see slower recovery in some places."
Thom Shadle of Murphysboro said he understands that an uptick in indicators for the state does not necessarily mean all across the state.
"Those numbers mean that Chicago's doing better," Shadle said. "Right now, there's not that many large employers adding staff here and the small employers are not ready to jump in yet and bring people on."
Shadle, who has more than seven years experience in marketing, was laid off from a customer service and sales position more than a year ago. He has been unable to find similar work since.
"Jobs seem to be virtually non-existent outside of the entry level," he added. "There's really just not a lot out there."
Rivara said one of the best barometers is to look at what the region's top industries are doing on the national level. Those trends may be an indicator of what is to come locally, he said. He pointed to industries such as health care, which continues to expand both on the national and regional levels.
"It's definitely a stable field," said Kristin King, employment coordinator with Southern Illinois Healthcare. "In health care right now, employment is on the rise."
That is good news for job-seekers. King said her organization has an average of 55 positions open each month. The downside is that SIH receives about 2,000 applications for those jobs.
"It's great for us to see that many people interested in health care, but it is disheartening at the same time," she said.
Regardless of the industry, Rivara said people looking for work have to be flexible.
"We encourage individuals not to look at what job they had, but rather their skills and see what other industries those fit into. It's a matter of thinking about things differently," he said.
Lewis gave an example. She shared the story of a former fast food sandwich maker who used those skills to land a job in manufacturing because of his assembly experience.
"People need to look at all of their skills and how they may fit into a completely different industry," she said.
She said it should not matter whether a job seeker is a high school senior, a new college graduate, a laid-off executive or a miner looking for a new job; everyone looking for work should apply the same approach.
"You have to broaden your outlook and see how you can apply your skills into other industries that you haven't thought about before. Limited experience in a particular field should not hold you back," she said.
Rivara said it's all a matter of approach.
"Job growth will return to all of Illinois and those individuals who have not done anything to enhance their job skills will not be in a position to re-enter the workforce when jobs are available. It's all about thinking differently."
- Les O'Dell lives in Carbondale and is a freelance writer. He regularly is published in SBJ, The Southern Illinoisan and SI Magazine.
Teens beware, summer jobs tight
By JACK KATZANEK
The Press-Enterprise
Teens looking for summer jobs in the next six weeks will face some of the same economic obstacles as last year. But in San Bernardino County there is an additional worry: There may not be any federal money for a county-run program.
A bill that would have funded a summer youth jobs program has yet to pass the U.S. Senate, and county officials worry that the measure won't be approved in time to do any good. This is on top of poor economic conditions, employers skittish about taking on new workers, and a work force that is loaded with underemployed adults. San Bernardino and Riverside counties both received federal money for summer job programs last year. The allocations were based on the counties' unemployment rates.
Riverside County still has some of that allocation and plans to use it to teach 1,278 teenagers basic job skills and get them working for about 240 hours, on either a private- or public-sector payroll this summer, said Loren Simms, operations manager for the county Economic Development Agency's work force division.
But San Bernardino County, which received less last year because its jobless rate is lower than Riverside County's, has virtually no money remaining from the American Recovery and Reinvestment Act allocation. The funds allowed the county to place 1,864 youths in summer jobs in 2009.
San Bernardino County officials were encouraged by the federal government to spend all of last year's allocation quickly and they did so, said Janice Lindsay, deputy director for the county's Department of Workforce Development. But she said they were expecting some sort of supplemental funding for 2010.
"We fully anticipated, because of the success of the program last year, that the federal government would make more money available, Lindsay said."
A bill that would have provided local governments $600 million for 2010 summer job programs was ratified in the House of Representatives on a party-line vote. But it did not get enough votes in the Senate to avoid a potential Republican filibuster, and Lindsay is concerned that the clock might run out before there is any action.
Republicans opposed the measure because of deficit spending issues.
The Senate's bill would have provided summer jobs for as many as 500,000 youths, said Matt McAlvanah, press secretary to Sen. Patty Murray, D-Wash., co-author of the Senate's version.
"It's searching for a path forward, but it's unclear when it will be taken up again," McAlvanah said. "We're trying to get it into some package, but time is not on our side."
Riverside County has about $3.5 million remaining from 2009, Simms said. More information about how to participate will be on a county website at the end of this week, he said.
The U.S. Bureau of Labor Statistics reported that last summer just over 5.9 million people between the ages of 16 and 19 were working, 11 percent fewer than in 2008.
A recent study by national outplacement firm Challenger, Gray & Christmas predicts there will be an increase in teen hiring this summer, but it will be a small one. The study suggested that small gains in retail sales might spur some hiring, and that relatively inexpensive entertainment options such as movie theaters and local amusement parks might draw slightly better crowds.
Tony Masi, the athletic director at King High School in Riverside, also teaches work experience classes. Interest from employers is the slowest he can remember, he said.
"There's not much out there," Masi said. "There are other entry-level workers who are not giving up those jobs."
Students typically get jobs late in the semester, said Connie Phillips, career development teacher at Cajon High School in San Bernardino. She said she usually processes a late rush of work permits for minors.
"I do know our seniors are diligently looking for jobs and telling me they're not having any luck," Phillips said. "I tell them to keep looking."
About 35 job listings are currently posted on Victoria Gardens' Web site, said Masa Liles, the marketing manager, and many of those jobs are seasonal, so teens might have a chance. Liles said the actual number of openings at the Rancho Cucamonga mall might be higher because the bigger retailers, such as Macy's and JC Penny, tend to advertise on their own websites,
Kristin Elfring, general manager of the Lake Elsinore Outlets, informally canvassed retailers and said the majority would hire between three and 10 part-timers in mid-May. They will probably hire about the same number as last summer.
Guess, Vanity Fair and The Gap are probably going to be among the most active, Elfring said, but she cautioned teens about just taking any job.
"My advice is that teens target some things that they're really interested in," Elfring said. "Don't spend the summer in an apparel store unless you really want to be there."
George Huang, economist with the San Bernardino County Economic Development Agency, agrees that teens should not waste the summer on a minimum-wage job if they can use it to advance their careers. Internships and summer classes might be better options.
There were about 260,000 unemployed people in Inland Southern California in March, according to state reports, and thousands more are underemployed, meaning they had to downsize their careers and take some of the same jobs teens usually seek, Huang said. Most employers, given a choice, would rather hire an adult.
Huang said an employer would hesitate hiring someone who will quit in late August to return to school, and generally older workers are more reliable and better motivated.
"If you are a business, you use summer as a check-out period for workers," Huang said. "That puts kids at a major disadvantage."
Reach Jack Katzanek at 951-368-9553 or at jkatzanek@PE.com
The Press-Enterprise
Teens looking for summer jobs in the next six weeks will face some of the same economic obstacles as last year. But in San Bernardino County there is an additional worry: There may not be any federal money for a county-run program.
A bill that would have funded a summer youth jobs program has yet to pass the U.S. Senate, and county officials worry that the measure won't be approved in time to do any good. This is on top of poor economic conditions, employers skittish about taking on new workers, and a work force that is loaded with underemployed adults. San Bernardino and Riverside counties both received federal money for summer job programs last year. The allocations were based on the counties' unemployment rates.
Riverside County still has some of that allocation and plans to use it to teach 1,278 teenagers basic job skills and get them working for about 240 hours, on either a private- or public-sector payroll this summer, said Loren Simms, operations manager for the county Economic Development Agency's work force division.
But San Bernardino County, which received less last year because its jobless rate is lower than Riverside County's, has virtually no money remaining from the American Recovery and Reinvestment Act allocation. The funds allowed the county to place 1,864 youths in summer jobs in 2009.
San Bernardino County officials were encouraged by the federal government to spend all of last year's allocation quickly and they did so, said Janice Lindsay, deputy director for the county's Department of Workforce Development. But she said they were expecting some sort of supplemental funding for 2010.
"We fully anticipated, because of the success of the program last year, that the federal government would make more money available, Lindsay said."
A bill that would have provided local governments $600 million for 2010 summer job programs was ratified in the House of Representatives on a party-line vote. But it did not get enough votes in the Senate to avoid a potential Republican filibuster, and Lindsay is concerned that the clock might run out before there is any action.
Republicans opposed the measure because of deficit spending issues.
The Senate's bill would have provided summer jobs for as many as 500,000 youths, said Matt McAlvanah, press secretary to Sen. Patty Murray, D-Wash., co-author of the Senate's version.
"It's searching for a path forward, but it's unclear when it will be taken up again," McAlvanah said. "We're trying to get it into some package, but time is not on our side."
Riverside County has about $3.5 million remaining from 2009, Simms said. More information about how to participate will be on a county website at the end of this week, he said.
The U.S. Bureau of Labor Statistics reported that last summer just over 5.9 million people between the ages of 16 and 19 were working, 11 percent fewer than in 2008.
A recent study by national outplacement firm Challenger, Gray & Christmas predicts there will be an increase in teen hiring this summer, but it will be a small one. The study suggested that small gains in retail sales might spur some hiring, and that relatively inexpensive entertainment options such as movie theaters and local amusement parks might draw slightly better crowds.
Tony Masi, the athletic director at King High School in Riverside, also teaches work experience classes. Interest from employers is the slowest he can remember, he said.
"There's not much out there," Masi said. "There are other entry-level workers who are not giving up those jobs."
Students typically get jobs late in the semester, said Connie Phillips, career development teacher at Cajon High School in San Bernardino. She said she usually processes a late rush of work permits for minors.
"I do know our seniors are diligently looking for jobs and telling me they're not having any luck," Phillips said. "I tell them to keep looking."
About 35 job listings are currently posted on Victoria Gardens' Web site, said Masa Liles, the marketing manager, and many of those jobs are seasonal, so teens might have a chance. Liles said the actual number of openings at the Rancho Cucamonga mall might be higher because the bigger retailers, such as Macy's and JC Penny, tend to advertise on their own websites,
Kristin Elfring, general manager of the Lake Elsinore Outlets, informally canvassed retailers and said the majority would hire between three and 10 part-timers in mid-May. They will probably hire about the same number as last summer.
Guess, Vanity Fair and The Gap are probably going to be among the most active, Elfring said, but she cautioned teens about just taking any job.
"My advice is that teens target some things that they're really interested in," Elfring said. "Don't spend the summer in an apparel store unless you really want to be there."
George Huang, economist with the San Bernardino County Economic Development Agency, agrees that teens should not waste the summer on a minimum-wage job if they can use it to advance their careers. Internships and summer classes might be better options.
There were about 260,000 unemployed people in Inland Southern California in March, according to state reports, and thousands more are underemployed, meaning they had to downsize their careers and take some of the same jobs teens usually seek, Huang said. Most employers, given a choice, would rather hire an adult.
Huang said an employer would hesitate hiring someone who will quit in late August to return to school, and generally older workers are more reliable and better motivated.
"If you are a business, you use summer as a check-out period for workers," Huang said. "That puts kids at a major disadvantage."
Reach Jack Katzanek at 951-368-9553 or at jkatzanek@PE.com
Nuclear industry to hire for growth, retirements By RAY HENRY (AP)
ATLANTA — The Southern Co. believes it can break ground on the country's first nuclear plant in 30 years, but it will need a new generation of workers to run it.
Plans for building a wave of nuclear reactors would create a need for 12,000 to 21,000 new workers ranging from specially trained maintenance crews to nuclear physicists and engineers. The need for labor is compounded since more than a third of the country's existing nuclear workers will be eligible for retirement in four years.
To cope with the demand, nuclear power firms nationwide are partnering with more than 40 community colleges on a new curriculum designed to train entry level workers and give them a head start when it comes to finding a job.
In Georgia, Augusta Technical College began accepting applications in April from students interested in a two-year course to prepare them for entry-level jobs at the Southern Co.'s expanded Plant Vogtle and elsewhere.
If the Atlanta-based Southern Co. wins federal approval to build the reactors, the company hopes they will be fully operational by 2017 and provide 850 local jobs. Power companies have submitted 17 applications to build and operate nuclear reactors across the country, from Texas and Michigan to Missouri and South Carolina.
"We're putting together work force development pipelines," said Andrew Bouldin, who helps coordinate recruiting for Southern Co.'s nuclear subsidiary. "The technical colleges have a good track record of teaching technical education, and it's a great way to make sure we have technically savvy candidates."
Nuclear power companies have not faced a large need to hire workers for decades. All the nation's 104 operating reactors won permission to build by 1978. By the late 1970s, the industry was stalling because a bad economy cut the overall need for electricity and soaring interest rates made nuclear plants expensive to build.
In 1979, a nuclear meltdown at Three Mile Island in Pennsylvania turned public sentiment against the industry. Hiring dwindled as companies shied away from new reactors. Meanwhile, safety improvements required after the accident caused delays in plants where building was under way, further reducing the need for new employees.
Many of the workers who were hired during that period are approaching the end of their careers. A 2009 survey by the Washington-based Nuclear Energy Institute showed 38 percent of industry workers will be eligible for retirement by 2014.
"It's not worrisome, but it's something we need to plan for," said Carol Berrigan, the institute's senior director of industry infrastructure. "We haven't had the need to bring people in because we were pretty much fully staffed for quite some time."
One need is for workers who can monitor control systems, perform routine maintenance and check for radiation. Nuclear plants need far more of these technicians than higher-level plant operators, said Bruce Meffert, who launched a training program in 2004 at Linn State Technical College in Missouri.
Utilities once had better success hiring staff from the U.S. Navy, which trains sailors for its nuclear-powered fleet. However, the size of the fleet has shrunk, and the Navy now pays better retention bonuses to keep its skilled workers, Meffert said.
He began the program after an official at power utility AmerenUE told him about the difficulty of finding new radiation protection workers. The firm operates a nuclear power plant in Missouri.
"There just weren't schools that put out people that met the requirements," Meffert said.
Given the lack of training programs, officials with the Nuclear Energy Institute worked with Meffert and other educators to create a standard, two-year curriculum that will be offered at more than 40 community colleges nationwide. Besides fulfilling basic state requirements in the liberal arts, students take classes in mathematics, electrical engineering technology and learn about mechanical controllers, nuclear reactors, radiation protection and the utility industry.
The first students are set to graduate in May from pilot programs at Chattanooga State Technical Community College in Tennessee and Salem Community College in New Jersey.
Latricia Lloyd, 48, enrolled in Chattanooga after a battery maker outsourced her sales job and cut her pay.
"The nuclear industry is a growth industry right now," she said. "It's a very stable job."
Robert Bumpus, 38, enrolled at Salem Community College because he wanted to enter the nuclear industry after working as a church pastor and a university letter carrier. Power utility PSEG, which operates two nuclear plants near Bumpus' home, gave him a scholarship.
"I feel pretty confident that I'll have the opportunity to start working very soon after graduation," said Bumpus, who has not yet received a job offer but remains optimistic. "I would assume they're going to want a return on their investment."
Analysts say U.S. colleges and universities provide a more reliable supply of engineers and other nuclear scientists, although the number of graduates fluctuates with the industry's ups and downs. Professors credit increased U.S. funding with helping boost undergraduate enrollment in nuclear engineering from a low of 480 students in 1999 to 1,933 students three years ago.
Sekazi Mtingwa, a senior lecturer at the Massachusetts Institute of Technology, chaired a panel studying the nuclear work force for the American Physical Society. After years of flagging interest, he said more students are studying nuclear science.
"The interest is rising right now," he said. "I think the main thing right now is jobs."
Plans for building a wave of nuclear reactors would create a need for 12,000 to 21,000 new workers ranging from specially trained maintenance crews to nuclear physicists and engineers. The need for labor is compounded since more than a third of the country's existing nuclear workers will be eligible for retirement in four years.
To cope with the demand, nuclear power firms nationwide are partnering with more than 40 community colleges on a new curriculum designed to train entry level workers and give them a head start when it comes to finding a job.
In Georgia, Augusta Technical College began accepting applications in April from students interested in a two-year course to prepare them for entry-level jobs at the Southern Co.'s expanded Plant Vogtle and elsewhere.
If the Atlanta-based Southern Co. wins federal approval to build the reactors, the company hopes they will be fully operational by 2017 and provide 850 local jobs. Power companies have submitted 17 applications to build and operate nuclear reactors across the country, from Texas and Michigan to Missouri and South Carolina.
"We're putting together work force development pipelines," said Andrew Bouldin, who helps coordinate recruiting for Southern Co.'s nuclear subsidiary. "The technical colleges have a good track record of teaching technical education, and it's a great way to make sure we have technically savvy candidates."
Nuclear power companies have not faced a large need to hire workers for decades. All the nation's 104 operating reactors won permission to build by 1978. By the late 1970s, the industry was stalling because a bad economy cut the overall need for electricity and soaring interest rates made nuclear plants expensive to build.
In 1979, a nuclear meltdown at Three Mile Island in Pennsylvania turned public sentiment against the industry. Hiring dwindled as companies shied away from new reactors. Meanwhile, safety improvements required after the accident caused delays in plants where building was under way, further reducing the need for new employees.
Many of the workers who were hired during that period are approaching the end of their careers. A 2009 survey by the Washington-based Nuclear Energy Institute showed 38 percent of industry workers will be eligible for retirement by 2014.
"It's not worrisome, but it's something we need to plan for," said Carol Berrigan, the institute's senior director of industry infrastructure. "We haven't had the need to bring people in because we were pretty much fully staffed for quite some time."
One need is for workers who can monitor control systems, perform routine maintenance and check for radiation. Nuclear plants need far more of these technicians than higher-level plant operators, said Bruce Meffert, who launched a training program in 2004 at Linn State Technical College in Missouri.
Utilities once had better success hiring staff from the U.S. Navy, which trains sailors for its nuclear-powered fleet. However, the size of the fleet has shrunk, and the Navy now pays better retention bonuses to keep its skilled workers, Meffert said.
He began the program after an official at power utility AmerenUE told him about the difficulty of finding new radiation protection workers. The firm operates a nuclear power plant in Missouri.
"There just weren't schools that put out people that met the requirements," Meffert said.
Given the lack of training programs, officials with the Nuclear Energy Institute worked with Meffert and other educators to create a standard, two-year curriculum that will be offered at more than 40 community colleges nationwide. Besides fulfilling basic state requirements in the liberal arts, students take classes in mathematics, electrical engineering technology and learn about mechanical controllers, nuclear reactors, radiation protection and the utility industry.
The first students are set to graduate in May from pilot programs at Chattanooga State Technical Community College in Tennessee and Salem Community College in New Jersey.
Latricia Lloyd, 48, enrolled in Chattanooga after a battery maker outsourced her sales job and cut her pay.
"The nuclear industry is a growth industry right now," she said. "It's a very stable job."
Robert Bumpus, 38, enrolled at Salem Community College because he wanted to enter the nuclear industry after working as a church pastor and a university letter carrier. Power utility PSEG, which operates two nuclear plants near Bumpus' home, gave him a scholarship.
"I feel pretty confident that I'll have the opportunity to start working very soon after graduation," said Bumpus, who has not yet received a job offer but remains optimistic. "I would assume they're going to want a return on their investment."
Analysts say U.S. colleges and universities provide a more reliable supply of engineers and other nuclear scientists, although the number of graduates fluctuates with the industry's ups and downs. Professors credit increased U.S. funding with helping boost undergraduate enrollment in nuclear engineering from a low of 480 students in 1999 to 1,933 students three years ago.
Sekazi Mtingwa, a senior lecturer at the Massachusetts Institute of Technology, chaired a panel studying the nuclear work force for the American Physical Society. After years of flagging interest, he said more students are studying nuclear science.
"The interest is rising right now," he said. "I think the main thing right now is jobs."
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