Black People In Business – World Wide

By BEN LEVISOHN

One little word from the Federal Reserve caused investors to pile out of stocks in the past two weeks, only to rush back. They would be better off doing less trading and focusing more on the bigger picture, strategists say.

After rallying nearly 13% this year, the Standard & Poor’s 500-stock index dropped 4.3% during five consecutive trading days ending on Tuesday, the longest losing streak since November.

The selloff began on April 3, after the release of the minutes from the Federal Open Market Committee’s March 13 meeting. The rally-shaking information in the report had little to do with the state of the economy or how long the Federal Reserve expected to keep rates at ultralow levels. Rather, it boiled down to a single word: According to the minutes from the most recent Fed meeting, a “couple” of Fed governors believed that the economy was weak enough to justify a third round of bond buying, or quantitative easing, in the near future. In January, a “few” had favored that approach.

While retail investors have much to worry about, the Fed shouldn’t be one of them, strategists say.

Chairman Ben Bernanke and his cohorts have explained what the central bank plans to do. On Wednesday night, Janet Yellen, the Fed’s vice chairman, laid it out once again: The economy is recovering, but slowly, and interest rates will remain low through 2014. The Fed is prepared to do everything in its power, including more bond purchases, to boost growth as necessary.

“Market expectations have gone back and forth,” says Jeff Applegate, chief investment officer at Morgan Stanley Smith Barney. “The Fed has not.”

Recent economic data support Ms. Yellen’s comments. The March jobs report, for instance, was unexpectedly weak, while the Labor Department on Thursday reported that 380,000 Americans filed for first time unemployment benefits last week, the most since January.

A new round of bond buying would likely send stock prices higher. The market returned 42% during the first 16 months after the Fed announced its first round of asset purchases in November 2008, and gained 28% during the six months following the Mr. Bernanke’s strong suggestion in August 2010 that a second round was on its way.

But the market might not need another round of quantitative easing to keep moving higher. That’s because the mere expectation that the Fed will act might be enough to get traders to buy in. The Dow Jones Industrial Average rallied 1.4% on Thursday, the first trading day following Ms. Yellen’s remarks.

“If the perception that the Fed will act is out there, the Street will act accordingly,” says David Sherman, portfolio manager of the RiverPark Short-Term High Yield Fund.

That doesn’t mean there won’t be hiccups along the way. Aaron Gurwitz, chief investment officer at Barclays Wealth and Investment Management, expects U.S. stocks to be higher at the end of the year—perhaps much higher—but says they could be hit by “strong, possibly gale-force headwinds” on the way. The biggest threats: weaker-than-expected U.S. economic data and slower corporate earnings growth.

Still, he recommends investors stay fully invested in the market, if they can stomach some volatility.

“The tone of the data has softened,” Mr. Gurwitz says. “But the Fed will be there as needed.”

Investors should favor the less-risky parts of the market, says Chris Verrone, chief technical strategist at Strategas Research Partners. Already, the market’s riskiest stocks appear to be falling out of favor. After gaining almost 17% during the first quarter of 2012, the PowerShares S&P 500 High Beta exchange-traded fund, which aims to track the stocks with the biggest price swings relative to the S&P 500, has lost 0.4% during the past month, while the S&P 500 returned 1.4%.

Mr. Verrone says investors should look for companies that have the ability to boost their dividends, a theme that could remain popular as long as interest rates remain ultralow.

His favorites include consumer-products manufacturer Colgate-Palmolive,

International Business Machines

and McGraw-Hill Cos., all of which have enough cash to pay their dividends two-times over.

For investors who prefer mutual funds, Sam Katzman, chief investment strategist at Constellation Wealth Advisors, recommends the Nuveen Santa Barbara Dividend Growth Fund, which has returned 8.4% this year. Investors also should also companies that can continue to boost their profits even if the economy weakens, Mr. Katzman says.

“The two things we expect people to pay for are dividends and growth,” Mr. Katzman says. “Those stocks should be the core of any portfolio.”

A version of this article appeared April 14, 2012, on page B9 in some U.S. editions of The Wall Street Journal, with the headline: Fed Watching Gets Trickier.

Admit it: You’ve asked your 6-year-old to walk on your back. Or you pop your knuckles after hours at the keyboard. But what are you really doing to your body when you crack your spine, neck, or other joints? We asked Joseph Feinberg, chief of physiatry who specializes in nonsurgical treatments of musculoskeletal and some neurological disorders at the Hospital for Special Surgery in New York, to crack the code.

What is happening when we crack a joint?

The belief is that there can be some misalignment, called a subluxation, in the joint, and a sudden movement or manipulation can lessen the tension on the ligament, muscle or joint. But the science hasn’t been well demonstrated—you don’t generally have an X-ray before and after a manipulation. When that has been documented, the clinical assessment hasn’t always shown true realignment.

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And that horrible ‘pop’—what makes that sound?

The joint has negative pressure in it naturally. By moving a body part quickly, the pressure changes—air bubbles move out of the joint. Other sources of the sound could be a ligament or tendon slipping over the joint or bones. Occasionally, a joint can get locked into place by torn cartilage or a piece of bone or ligament, and moving that piece out will realign the joint and make a loud crack. That second and third type of sound tend to be associated with pain rather than relief.

What about other areas, like the neck or knees?

When someone stands up and his knee caps pop, he is likely just loose-jointed, hyperflexible or has patellas that are slipping with age. If you hear a pop or a crack periodically, it’s probably not a big deal. All the time? There may be some micro-trauma happening, so go get yourself evaluated.

Chiropractors make their livelihood cracking people’s backs, but
can you hurt yourself by doing those sorts of adjustments on your own?

There have been cases of patients causing permanent nerve damage to themselves by forcing their joints to crack. Sudden rapid motion is generally not a good thing for the joints.

But if a joint-sufferer just leaves it be, could he also cause damage?

Actually, yes. If you have abnormal tension, that can change the alignment over time, putting extra pressure on the joints and discs. If you feel the need to crack your joints frequently, stretch instead, and see a specialist.

Are there appropriate ways to crack one’s joints? Back-walking?

No one has ever told me that his daughter walking on his back makes him feel better, to be honest. As a physician, I certainly wouldn’t recommend any of those methods. Your joints will crack by themselves if they need to. If not, a slow, sustained stretch, or even just icing the muscles or applying heat around the joint, will achieve the same effect.

So, you’re saying you never lean back in your chair and crack your knuckles?

No, I really don’t. I do a stretch and some ergonomic postures, but I can honestly say I never crack my joints intentionally.

—Heidi Mitchell

A version of this article appeared May 8, 2012, on page D4 in some U.S. editions of The Wall Street Journal, with the headline: QUICK CURES / QUACK CURES: To Crack or Not to Crack.

During the last decade the march to democratize the markets has charged forward, with each new innovation or revamp heralded as evening the playing field and giving smaller investors a sense of fairness and trust.

These efforts have yielded two tangible results: lightning-fast execution and slashed trading costs. The floor of the New York Stock Exchange is witness to this shift. The number of floor brokers has shrunk by half, to 1,500, in just five years. Actual trading on the floor is less than 10% of volume.

MarketWatch columnist David Weidner visits Mean Street and spotlights the sentiment many have that the markets are unfairly tilted against them, and it is increasingly difficult to buy low and sell high. Photo: AP.

Taking the place of humans are those coldly efficient and incorruptible machines.

And yet despite these efficiencies, most investors find themselves questioning tried-and-true principles and strategies: value investing, technical analysis, momentum plays and even the simplest maxim, “buy low and sell high.”

Poll after poll shows that investors feel the markets are tilted unfairly against them. What’s worse is that investor skepticism is higher than it was before market “reforms” allegedly improved the system.

In its latest poll, released in December, the Chicago Booth/Kellogg School Financial Trust Index found that only 16% of investors said they trust the stock market. That is roughly the same level of “trust” the survey found in the months after the collapse of Lehman Brothers Holdings Inc. and the Dow Jones Industrial Average fell to below 7,000.

To illustrate how far trust in the market has fallen, consider that in 2002 a USA Today poll found that fewer than 50% of respondents trusted the stock market, a trend blamed on the accounting and financial scandals at Enron Corp. and WorldCom.

Market confidence has historically ebbed and flowed with market performance. People feel ripped off in a correction. They feel they are getting their fair share in bull markets. Today the Dow is in the midst of a six-month rally, flirting with the 13000 level—so why is confidence still in the tank?

There are multiple reasons. Regulators such as the Securities and Exchange Commission and Commodity Futures Trading Commission are forever a step behind. Alternative trading platforms, or “dark pools” are anonymous, menacing and have been susceptible to market manipulators, critics say.

Also, there are the high-profile wreckages: the botched BATS initial public offering, for one, which came on the same day Apple Inc.

shares went through a trading glitch that slashed value.

Those factors are enough to make investors nervous. But it is the bigger trends that are really at play here, not the momentary glitches. They make those of us old enough to remember long for the good old days when trades were handled by fallible, corruptible humans. In a nutshell there are three new trends that have made many investors spectators in a game they are supposed to be playing, not watching.

•High-frequency trading. Now an estimated 70% of the volume pie, computerized-trading platforms seem to have their own will. Most investors, while benefiting from the liquidity these machines provide, are reasonably skeptical of HFT’s influence on price, especially in periods when the markets have low volumes made up mostly of mechanized transactions. Witness shares of General Motors

that traded at more than $1 even after the company filed for bankruptcy in 2009, a mystery that was blamed on HFTs propping up the stock so they would continue to collect rebates for filling orders.

•Derivatives. Today’s markets are often the tail wagging the dog. Futures and exchange-traded funds are a part of this, but a bigger menace is the credit-derivatives market—the vast network of agreements and contracts that bet on debt. Bond prices are now set in the derivatives market, a trend that has extended to the equity market as well. A study by Greenwich Associates in 2007 concluded, “In many ways, hedge funds have become the market.”

•Absence of the big computer. Perhaps the biggest difference between today’s market and that of a decade ago is the disappearance of brain power. For as much as they were maligned, specialists and floor traders kept a measure of reason in stock trading. When a trade didn’t look right there weren’t big, inexplicable flash crashes. The trades were held by humans who used instinct and experience to avoid panic. For all electronic advances, the big computer—your brain—still is the most powerful of all. That is why much of the business during the May 6, 2010, “flash crash” ended up in the hands of humans—not that they were any match for the machines.

Ultimately, these factors have combined to make the best intentions of regulators and exchange companies ineffective. Investors used to worry that a specialist might front-run a trade or play favorites. And certainly, as SEC investigations of the early 2000s showed, those fears were real.

But when compared with an entire landscape so completely skewed by outside forces beyond simple supply and demand economics for a stock, the days of front-running almost seem quaint and innocent.

Buy low and sell high? What’s low? What’s high? Is there anybody out there?

Write to David Weidner at david.weidner@dowjones.com

By SIOBHAN HUGHES

WASHINGTON—The House passed on Thursday a Republican plan to cut taxes on small businesses by as much as 20%, a measure the party characterized as its answer to President Barack Obama’s “Buffett Rule.”

But the bill, approved on a mostly party-line 253-173 vote, is expected to stall in the Senate and has already drawn a White House veto threat.

House Republicans said the one-year tax cut for businesses with fewer than 500 workers would boost job creation. Only companies that pay wages would be eligible for the deduction of 20% of their domestic business income, with the total limited to no more than half of the amount of wages paid.

Businesses with fewer than 500 workers employ half of all private-sector employees, government data show, suggesting the tax cut would affect a wide swath of the economy.

“We need to let small-business owners keep more of their hard-earned money so they can start hiring again,” said House Majority Leader Eric Cantor (R., Va.), the bill’s main sponsor.

Democrats countered the bill amounted to a giveaway to wealthy business owners since it includes no requirement that companies hire workers. They also complained the legislation would cost $46 billion and add to the deficit at a time when Washington has been consumed by cutting government shortfalls.

That’s why Democrats said they backed Mr. Obama’s plan for an alternative minimum tax of 30% for people making more than $1 million. Known as the Buffett Rule, it was named after billionaire Warren Buffett, who has said his own tax rate is lower than his secretary’s.

Senate Democrats on Monday failed to muster enough support to advance the Buffett plan, and on Thursday, House Democrats unsuccessfully tried a parliamentary maneuver to take control of the floor to bring it up for a vote. Republicans voted down the effort, 234-179.

Another point of contention over the House bill was who would benefit. Republicans said the tax cut was fair because it was open to all businesses with fewer than 500 workers.

“It treats every small business equally,” said House Ways and Means Committee Chairman Dave Camp (R., Mich.). “This bill does not pick winners and losers,” he said.

Democrats said that the tax cut favored richer small businesses, since the tax savings would be larger for firms with higher income. Democratic aides cited a Joint Committee on Taxation report showing 125,000 business taxpayers with income of more than $1 million would receive $7.35 billion in tax cuts, or $58,500 a tax filer.

“This bill provides a windfall tax break to hedge-fund owners, big Washington law firms, to the very wealthy—even if they don’t hire a single person,” said Rep. Chris Van Hollen (D., Md.).

As an alternative, House Democrats offered to extend to small businesses for one year a popular tax break for new equipment purchases. The measure was voted down 236-175.

Senate Majority Leader Harry Reid (D., Nev.) promised on Thursday to schedule a vote soon on a small-business bill that combines a tax credit for hiring with a separate tax break for investment, known as bonus depreciation.

The debate on the House floor also provided a glimpse of some of the arguments being advanced ahead of the scheduled expiration of the 2001 and 2003 Bush tax cuts at year’s end. House Republicans have already begun meeting behind closed doors to figure out whether to move legislation to extend the tax cuts before the November elections.

Mr. Obama generally backs letting the cuts expire for upper-income taxpayers as a way to reduce the deficit.

Rep. Tim Huelskamp (R., Kan.), after participating in a Tuesday closed-door planning session in the office of Majority Whip Kevin McCarthy (R., Calif.), said: “We’ve got to have a strategy to make sure we stop the job-killing tax increases.”

Write to Siobhan Hughes at siobhan.hughes@dowjones.com

A version of this article appeared April 20, 2012, on page A6 in some U.S. editions of The Wall Street Journal, with the headline: House Approves Small-Business Tax-Cut Measure.

By SARAH E. NEEDLEMAN

The number of U.S. franchises declined for the third consecutive year, falling by a modest 0.6% in 2011, according to a new report commissioned by the International Franchise Association.

“There was a greater contraction in the number of businesses than we anticipated,” said Steve Caldeira, president of the IFA, the franchising industry’s largest trade group.

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Mr. Caldeira said in an interview with the Wall Street Journal that a lack of access to credit “probably was a factor,” in the decline this year. “We may have underestimated the potential significant downward impact,” he added.

In January, the IFA, the franchising industry’s largest trade group, had forecast 2.5% growth this year for the sector. Employment at franchises rose just 1.9% in 2011 compared with IFA’s previous forecast of a 2.5% increase.

The IFA has used different research firms for its recent reports, it said. Its 2011 forecast, released in January, was prepared by PricewaterhouseCoopers, while its 2012 forecast, released Monday, was prepared by IHS Global Insight, a unit of IHS Inc.

IHS Global said that it expects U.S. franchise establishments to increase in 2012, by 1.9%. It also expects franchise businesses to boost hiring and sell more goods and services in the year ahead.

Lodging, business services, and personal services are expected to see the most growth in 2012, it said.

Quick-service restaurants are expected to continue to make up the bulk of franchise establishments in operation next year (21%). They are also likely to provide the greatest number of jobs (37%) of all franchise categories, and to generate the most revenue (26%).

IHS says its outlook is based on modest improvements made over the past year in small-business lending, as well as signs that the overall U.S. economy is on the mend, such as the lowering of the national unemployment rate.

The forecast also presumes that the payroll tax cut for employees will be extended.

Stephen Bronars, a senior economist with Welch Consulting in Washington, D.C., said in an interview that he believes the new IHS/IFA study may be “overly optimistic” because the health of franchising’s largest sector, quick-service restaurants, is directly tied to consumer discretionary spending. “It will depend on what happens to housing prices and consumer sentiment,” he said. “Are people going to go out to eat and take vacations? What’s going to happen to the price of gasoline?”

Franchises in some parts of the country are less likely to see a rebound than those located elsewhere, he added. “States like Nevada and California, where real estate values declined and the economic downturn had the biggest negative impact, will have to rebound a lot in the next year for this optimist forecast to come true,” he said. “People have lost money on their houses and aren’t as wealthy as they used to be.”

In a survey earlier this month of 149 IFA members, more than one quarter of franchisees said they expect a “moderate improvement in access to credit” over the next 12 months, compared with just 6.3% who said this in a November 2010 survey.

Among franchisers, 55% said they expect a “moderate improvement in access to credit” in the year ahead, up slightly from 53% who said the same in November 2010.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

By RUTH SIMON

Lured by rock-bottom interest rates, a growing share of borrowers looking to refinance are opting for a 15-year mortgage instead of the traditional 30-year one.

Fifteen-year fixed-rate loans accounted for nearly one in five refinance applications in October, according to the Mortgage Bankers Association. That’s up from 9.1% a year earlier and 7.5% in October 2007. The October data are the most recent available.

The move to shorter-term loans comes as rates on these mortgages have dropped to near historical lows. Rates on 15-year fixed-rate conforming mortgages averaged 4.46% last week, according to HSH Associates in Pompton Plains, N.J., well below their recent high of 5.25% in mid-June. Rates on 30-year fixed-rate conforming loans averaged 4.99%, or about half a percentage point higher.

To be sure, 15-year loans have their disadvantages. Even with the low rates, monthly payments can be substantially higher because the loan must be paid off over a shorter term. Borrowers are locked into the higher payments for the life of the mortgage.

The higher payments make 15-year loans less popular with home buyers, accounting for less than 5% of purchase applications. “It’s entirely a refinance phenomenon,” says Jay Brinkmann, chief economist of the Mortgage Bankers Association.

Originations of 15-year mortgages at Wells Fargo

& Co. are up 55% through November from a year earlier. At J.P. Morgan Chase & Co., 15-year loans now account for 20% of refinances, up from 10% a year ago.

Many borrowers attracted to 15-year loans took out their previous mortgage six or seven years ago and would prefer to shorten the term of their mortgage rather than extend it, says Michael Menatian, a mortgage banker in West Hartford, Conn. Because they have already paid down some principal, the increase in payment isn’t as great as it would be if they were earlier in their mortgage, he adds.

Barry Halligan, a retired municipal employee who now works part-time as a consultant, opted for a 15-year fixed-rate loan when he refinanced his mortgage last month. His new one carries a rate of 4.375%, more than a full percentage point below the 5.5% rate he had been paying since he last refinanced in 2003. The new mortgage will raise his payments by $238 a month, but “there’s more going now to principal,” says Mr. Halligan, who lives in Rocky Hill, Conn.

Other borrowers see the 15-year mortgage as a good investment. Darryl Werner, a physician, is in the process of refinancing the 30-year, $188,000 mortgage he has on an investment property in Long Beach, Calif. The new loan, which carries a rate of 4.375%, will raise the monthly payments on his $188,000 mortgage by $294. “I could take the same money and put it in the bank and make 1%, or in the stock market and lose God knows what,” he says. “This way, it going to pay my loan down.”

Some experts take issue with the notion that paying your mortgage down early is a wise strategy. “Since rates are at all-time lows, there’s all the more reason not to take out a 15-year loan,” says Lou Barnes, a mortgage banker in Boulder, Colo. “Over the long term, rates of return on investments will be higher” than the after-tax cost of the borrowed money, he says.

Write to Ruth Simon at ruth.simon@wsj.com