Struggling homeowners turned to short sales in 2012

NEW YORK (CNNMoney)

There were nearly three times as many short sales as there were sales of foreclosed homes in 2012, according to RealtyTrac. Foreclosures accounted for 11% of all sales, down from 13% a year before. Meanwhile, short sales rose 5% year-over-year, accounting for 32% of all home deals.

"We're seeing fewer of the most disruptive sales, the [bank-owned foreclosures], hitting the market but there are still a lot of distressed property sales," said Daren Blomquist, spokesman for RealtyTrac. "They're shifting to short sales, though."

In a short sale, homeowners sell at a price that is less than what they owe the bank, and the bank agrees to absorb the loss. Typically, a seller has to demonstrate some kind of financial hardship before the bank will approve the deal -- and forgive the unpaid debt. The bank then sells the house, typically at a better price than it would have gotten had the home gone into foreclosure.

During the fourth quarter, the average discount on a foreclosure was a whopping 39%, while the average short sale sold for 23% below market, RealtyTrac found.

Related: Million-dollar foreclosures

The biggest spike in short sales last year occurred during the second half of the year. Fueling the increase was the National Mortgage Settlement, an agreement between the government and the nation's five biggest mortgage lenders which was finalized last February.

Under the terms of the deal, the banks receive credit towards the settlement when they approve short sales for distressed homeowners. Of the $45 billion in consumer relief that lenders have reported under that agreement, $19 billion has gone toward forgiving debt in short sales, according to the latest report from the Office of Mortgage Settlement Oversight.

Related: 10 great foreclosure deals

Many underwater homeowners were also scrambling to unload their properties before the Mortgage Forgiveness Debt Relief Act was set to expire December 31. Had the act been allowed to lapse, homeowners would have had to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.

The growing number of short sales helped buoy the housing market and push distressed home prices higher last year. During the fourth quarter, for example, homes that were either bank-owned or in foreclosure sold for an average of $171,704, an increase of 4% from a year earlier.

Related: Foreclosures -- hardest hit neighborhoods'

In Arizona, prices were 22% higher in the fourth quarter compared with late 2011. In Nevada, prices jumped 21%; and in California -- where short sales comprised more than a third of all sales -- they increased 14%, RealtyTrac reported.

First Published: February 28, 2013: 12:45 AM ET

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Europe to cap bankers' bonuses

U.K. bankers' bonuses will be capped by new EU rules.

LONDON (CNNMoney)

The measure, which could take affect as early as January 2014, will limit bonuses to the level of annual salary, or twice salary given the approval of a majority of shareholders. The cap will apply globally to European Union banks, and to international banks operating within the EU.

"This is the objective of the cap, to stop short term risk taking," European Commissioner Michel Barnier said at a news conference.

The cap is part of a broader package of rules requiring banks to hold higher amounts of capital to protect them from future shocks, set aside more funds to ensure liquidity in times of crisis and to be more transparent about their businesses.

"This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity to withstand shocks," said Irish finance minister Michael Noonan, who helped broker the deal between representatives of EU states and the European Parliament. "This will ensure that taxpayers across Europe are protected into the future."

A majority of the 27 European Union states must back the provisional agreement for it to become law and further changes may yet be negotiated.

The U.K. has resisted the cap on bonuses, worried that it may drive bankers out of London, Europe's financial capital.

Banks have already been forced to change the way they structure bonuses, paying them out over a longer period of time and adding claw-back arrangements. Some responded by increasing base pay, saying they risked losing top performers.

But this is the first EU cap on bonus size and reflects political frustration that big banks continue to pay millions to some employees while many incomes are dropping as governments and firms are forced to tighten their belts.

A series of high-profile scandals -- including market rigging, money laundering and mis-selling of products -- has fueled public anger at the apparent lack of restraint in setting bonuses for top bankers.

Related: Barclays CEO: I don't deserve a bonus

Businesses argue that markets should be allowed to determine levels of pay, and that companies should be treated no differently than the movie industry or sports clubs that pay top dollar for top talent.

The Confederation of British Industry, a business lobby group, has warned that an EU bonus cap could translate into higher levels of base pay, weakening the link between performance and reward -- the opposite of the desired effect.

The CBI has also warned that capping the variable element of bankers' pay would limit banks' ability to reduce costs in response to weaker markets.

But the new rules may do little more than reflect the reality for many now working in financial services. Bonuses have fallen due to a sharp drop in activity and employment.

Related: Wall Street CEOs: Who's paid the most?

The Center for Economics and Business Research estimates that bonuses in London totaled about £1.6 billion in the latest round, down from £11.6 billion in 2008.

Wall Street bonuses have also fallen since the bumper years of 2008 and 2009, when New York bankers enjoyed a share of $22 billion each year, but they are rising again. Average cash bonuses rose by 9% last year to nearly $122,000, and the total pot was up 8% at $20 billion.

First Published: February 28, 2013: 4:02 AM ET

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Stocks: Economy, earnings back in focus

U.S. stocks rose Wednesday.

NEW YORK (CNNMoney)

The Labor Department will release its weekly report on initial jobless claims at 8:30 a.m. ET, while the Commerce Department will publish its second estimate of fourth-quarter GDP.

In its initial estimate last month, the Commerce Department said the economy contracted at an annual rate of 0.1% in the fourth quarter, the first contraction since the second quarter of 2009.

On the corporate front, firms including Sears (SHLD, Fortune 500) and Barnes & Noble (BKS, Fortune 500) are set to report quarterly results in the morning, while Gap (GPS, Fortune 500) is up after the bell.

U.S. stock futures were steady ahead of the open on Thursday.

Fear & Greed Index

U.S. stocks rose Wednesday as investors welcomed more upbeat housing data and a second day of dovish testimony from Federal Reserve chairman Ben Bernanke. The Dow finished at its highest level since October 2007.

J.C. Penney (JCP, Fortune 500) shares plunged in after-hours trading Wednesday as the retailer reported dismal fourth-quarter earnings and same-store sales.

Not to be outdone, Groupon (GRPN) shares slumped 26% after the daily deals site's earnings missed already-low expectations.

Shares of Sturm, Ruger & Co. (RGR) rose in after-hours trading as the gun maker reported earnings that beat expectations. The company benefited from a surge in firearm sales on fears of new gun-control laws following the reelection of President Obama and the shooting in Newtown, Conn.

European markets were firmer in morning trading, drawing support from comments from European Central Bank President Mario Draghi that suggested the bank had room to relax policy further.

Asian markets had a banner day. After the nomination of Haruhiko Kuroda to be Japan's next central banker, the Nikkei posted a 2.7% increase. The Shanghai Composite rose 2.3% and the Hang Seng added 2.0%.

First Published: February 28, 2013: 4:41 AM ET

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Senate confirms Jack Lew as Treasury Secretary

The Senate confirmed Jack Lew to be the next Treasury secretary.

WASHINGTON (CNNMoney)

Lew, 57, most recently served as the White House chief-of-staff.

As a former budget director for Presidents Obama and Bill Clinton, Lew has overseen budget talks in times of deficits and also surpluses.

As the secretary of the Treasury, Lew will run U.S. domestic financial policy and is charged with collecting federal taxes and managing public debt, among other duties.

Lew was confirmed with a 71-26 vote. Compared with the bruising confirmation battle of Chuck Hagel as Defense secretary, Lew's was a breeze.

President Obama said in a statement that he was "pleased that the Senate took bipartisan action today to confirm Jack Lew as our nation's next Treasury secretary."

"His reputation as a master of fiscal issues who can work with leaders on both sides of the aisle has already helped him succeed in some of the toughest jobs in Washington," Obama said.

Republicans who voted against Lew said they were concerned about his experience at Citigroup (C, Fortune 500) during the financial crisis. Lew had served as the chief operating officer at Citi Alternative Investments in 2008, which made bets against the housing market.

Lawmakers questioned an offshore investment in the Cayman Islands and a $900,000 bonus Lew received even as the bank was being bailed out by taxpayers.

"In the past, the president has railed again the 'fat cats' on Wall Street," Sen. Charles Grassley of Iowa, who opposed the confirmation, said Wednesday. "Today, the president nominates a man who took a bonus from a bailed-out financially insolvent bank.

Lew has said he did not make investment decisions at Citigroup and that he has paid taxes on all his investments, many of which he sold for a loss.

Other Republicans and some on Wall Street have said they're concerned about Lew's lack of business and financial markets experience.

Still, Lew garnered a stronger confirmation vote than his predecessor, Tim Geithner, who took office in 2009, after a 60-34 Senate vote.

Geithner stepped down in January. He was the last holdover from President Obama's original economic team.

Related: How much is a Treasury Secretary worth?

Lew is expected to jump right in to the debate over how to address some $85 billion in forced budget cuts that are scheduled to hit Friday. He was part of the team that came up with the original idea of the cuts, as a key player in the 2011 debt ceiling talks. At the time, nobody thought the cuts would ever come to pass, as they were intended to be so horrible that they'd force a budget deal.

First Published: February 27, 2013: 6:19 PM ET

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It's official: Kuroda nominated to BoJ's top spot

Haruhiko Kuroda has been nominated to lead the Bank of Japan.

HONG KONG (CNNMoney)

Kuroda, the current president of the Asian Development Bank, has years of experience in international finance and monetary prescriptions that largely mirror those of Abe.

The former finance ministry official has been critical of the central bank in the past, saying it has been too timid in its efforts to spur growth and fight deflation.

The opposition Democratic Party of Japan signaled earlier this week it would not oppose Kuroda in the Diet, clearing the way for lawmakers to approve the nomination.

With Japan in recession, Abe based his election campaign last year on a commitment to take radical steps to end years of deflation, combining promises of looser monetary policy with pledges of fiscal stimulus. Kuroda, if confirmed, gives Abe a like-minded ally at the top of the central bank.

The Japanese yen has already weakened significantly in response to policy changes, falling 20% against the U.S. dollar since the beginning of October and driving up the stock market. It has also lost ground against the euro and some Asian peers, raising concerns that Japan may be engaged in a race to the bottom to promote exports.

Weak currency cheapens the price of a country's exports, making them more attractive to international buyers by undercutting competitors. Japan's exporters have cheered the yen's decline, and Abe's popularity has skyrocketed in recent weeks.

Related: Japan's economy contracts for third straight quarter

Kuroda appears willing to follow through on Abe's policies, telling the Wall Street Journal earlier this month that Japan has "plenty of room for monetary easing."

"If necessary and if appropriate, of course additional monetary easing this year could be justified," he said.

Masaaki Shirakawa, the current BoJ head, has announced he will stand down on March 19, several weeks before his term was due to end.

Shirakawa agreed last month to double the bank's inflation target and adopt open-ended purchases of government bonds. But he is opposed to some of the more extreme proposals considered by the bank and has been accused of doing too little, too late.

Related: Don't fight the BoJ

By way of contrast, Kuroda told the Journal that the BoJ must move aggressively to meet its 2% inflation target.

"You cannot wait for five years, 10 years or 15 years. You have to achieve the target within a reasonably short time period," he said.

The political pressure on the Bank of Japan has caused consternation in the international community, with some lobbing charges of currency manipulation in Japan's direction.

Tokyo has rejected those claims, saying its policies are aimed at the economy not the yen, but the G7 group of leading industrial nations - including Japan - felt compelled to issue a rare statement earlier this month aimed at cooling talk of a currency war.

Kuroda, for one, seems undeterred, telling the Journal that the yen's weakening is good for the global economy.

"From a global point of view, is it good for the Japanese economy to continue to suffer from deflation...and low growth?" he asked. "That is not good for Japan, not good for the world economy."

-- CNN's Junko Ogura and Yoko Wakatsuki contributed to this report.

First Published: February 27, 2013: 10:00 PM ET

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Struggling homeowners turned to short sales in 2012

NEW YORK (CNNMoney)

There were nearly three times as many short sales as there were sales of foreclosed homes in 2012, according to RealtyTrac. Foreclosures accounted for 11% of all sales, down from 13% a year before. Meanwhile, short sales rose 5% year-over-year, accounting for 32% of all home deals.

"We're seeing fewer of the most disruptive sales, the [bank-owned foreclosures], hitting the market but there are still a lot of distressed property sales," said Daren Blomquist, spokesman for RealtyTrac. "They're shifting to short sales, though."

In a short sale, homeowners sell at a price that is less than what they owe the bank, and the bank agrees to absorb the loss. Typically, a seller has to demonstrate some kind of financial hardship before the bank will approve the deal -- and forgive the unpaid debt. The bank then sells the house, typically at a better price than it would have gotten had the home gone into foreclosure.

During the fourth quarter, the average discount on a foreclosure was a whopping 39%, while the average short sale sold for 23% below market, RealtyTrac found.

Related: Million-dollar foreclosures

The biggest spike in short sales last year occurred during the second half of the year. Fueling the increase was the National Mortgage Settlement, an agreement between the government and the nation's five biggest mortgage lenders which was finalized last February.

Under the terms of the deal, the banks receive credit towards the settlement when they approve short sales for distressed homeowners. Of the $45 billion in consumer relief that lenders have reported under that agreement, $19 billion has gone toward forgiving debt in short sales, according to the latest report from the Office of Mortgage Settlement Oversight.

Related: 10 great foreclosure deals

Many underwater homeowners were also scrambling to unload their properties before the Mortgage Forgiveness Debt Relief Act was set to expire December 31. Had the act been allowed to lapse, homeowners would have had to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.

The growing number of short sales helped buoy the housing market and push distressed home prices higher last year. During the fourth quarter, for example, homes that were either bank-owned or in foreclosure sold for an average of $171,704, an increase of 4% from a year earlier.

Related: Foreclosures -- hardest hit neighborhoods'

In Arizona, prices were 22% higher in the fourth quarter compared with late 2011. In Nevada, prices jumped 21%; and in California -- where short sales comprised more than a third of all sales -- they increased 14%, RealtyTrac reported.

First Published: February 28, 2013: 12:45 AM ET

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Wealth inequality between blacks and whites worsens

Whites have accumulated far more wealth than blacks, according to a new Brandeis University study.

NEW YORK (CNNMoney)

That type of inequality can be a drag on economic growth for everyone, said Thomas Shapiro, director of the university's Institute on Assets and Social Policy, which conducted the research.

The difference in wealth between typical households in each racial group ballooned to $236,500 in 2009, up from $85,000 in 1984, according to the study, released Wednesday. By 2009, the median net worth of white families was $265,000, while blacks had only $28,500.

Brandeis researchers looked at the same set of 1,700 families over the 25-year period to see how their actual work and school experiences affected their wealth accumulation.

What they found is that home ownership is driving the growing gap. Price appreciation is more limited in non-white neighborhoods, making it harder for blacks to build equity. Also, because whites are more likely to have family financial assistance for down payments, they are able to buy homes an average of eight years earlier than black families and to put down larger upfront payments that lower interest rates and mortgage costs.

The home ownership rate for whites is 28% higher than that of blacks.

"How housing wealth is created in different communities is clearly what's driving this," Shapiro said.

Income gains are also a major differentiating factor, even when whites and blacks have similar wage increases. Whites are typically able to put more of their raises towards accumulating wealth because they've already built up a cash cushion. Blacks are more likely to use the money to cover emergencies.

Inheritances also make it easier for some families to build wealth. Among the families studied, whites were five times more likely to inherit money than blacks, and their typical inheritances were 10 times as big.

When it comes to education, black graduates are often more saddled with college loans, making it harder for them to start socking away savings than their white peers. Four in five black students graduate with debt, compared to 64% of whites.

The growing wealth gap has wider ramifications, Shapiro said. If the pattern continues, people could start believing the deck is stacked against them.

"Our economy cannot sustain its growth in the face of this type of extreme wealth inequality," he said.

First Published: February 27, 2013: 12:09 AM ET

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The myth of the Great Rotation

While investors have started to add money to the stock market this year, they are also still plowing into bonds. U.S. stock mutual funds have raked in nearly $20 billion in 2013, while bond funds have attracted more than $40 billion, according to ICI data.

NEW YORK (CNNMoney)

But so far it's proving to be more of a myth.

The Great Rotation came into the spotlight at the end of 2012, when Bank of America Merrill Lynch investment strategist Michael Hartnett predicted that investors who had fled the stock market for the safety of bonds would start to rotate back into stocks.

In fact, investors have added more money to bonds than stocks almost every week this year. In total, U.S. stock mutual funds have raked in nearly $20 billion in 2013, while bond funds have attracted more than $40 billion, according to data from the Investment Company Institute.

Rather than trimming their bond exposure, investors have been adding to stocks at the expense of their cash holdings, said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock.

Related: Bonds are riskier than stocks

"In the panic following the 2008 collapse, investors initially flocked to cash," said Rosenberg, noting that assets in money market funds jumped by nearly 40% to about $3.5 trillion and peaked at $4 trillion in 2009.

Cash levels declined steadily from there until the end of last year when fiscal cliff fears sent investors back to cash. And once a deal to avoid the cliff was struck, assets in money market funds and bank deposits began to fall - that's the money that has been flowing into stocks, said Rosenberg.

Related: Individual investors still nervous about stocks

While the Great Rotation out of bonds and into stocks may still be coming, it won't be anytime soon, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup.

"Unfortunately losing money in bonds may not cause a huge outflow from bond funds which would then pour into stock funds," he wrote in a recent note. Investors didn't start consistently pulling money out of stocks until two years after the tech bubble and stock market peaked in 2000, he noted, adding, "Believing in a rotation now seems fairly premature."

Still, even shifting from cash toward stocks signals a change in sentiment, according to Bill Stone, chief investment strategist at PNC Wealth Management.

"Perhaps some of the residual fear from the financial crisis that caused investors to shun stocks is starting to dissipate," he said.

First Published: February 27, 2013: 1:22 AM ET

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Stocks: Italy worries remain despite rally

U.S. stocks finished higher Tuesday.

NEW YORK (CNNMoney)

The heavily-indebted eurozone country will test investor sentiment Wednesday as it looks to sell 3-4 billion euros worth of 10-year bonds. Market strategists say yields may approach the 5% level, though that would still be well below last year's peak of 6.6% when the eurozone debt crisis was raging.

U.S. stock futures were up slightly ahead of the opening bell on Wednesday, and European stock markets edged higher before the bond sale.

Back in the U.S., the Census Bureau will release data on durable goods orders at 8:30 a.m. ET, and Federal Reserve chairman Ben Bernanke will be back on Capital Hill to give testimony before the House Financial Services Committee.

Firms including retailer TJX (TJX, Fortune 500) are scheduled to report quarterly results in the morning, while Groupon (GRPN) and J.C. Penney (JCP, Fortune 500) are up after the bell.

Fear & Greed Index

U.S. stocks closed higher Tuesday after Bernanke gave investors reason to believe that the central bank would continue to do its part to help the economy during testimony before the Senate Banking Committee.

Papa John's (PZZA) shares fell in after-hours trading Tuesday after the pizza chain said it had to restate earnings dating back to 2009 because of an accounting error related to a joint venture agreement.

First Solar (FSLR) shares sank sharply after-hours as the renewable energy firm beat expectations on earnings but missed on sales in reporting its quarterly results.

Asian markets ended mixed. Japan's Nikkei lost 1.3%, while the Shanghai Composite added 0.9% and Hong Kong's Hang Seng increased 0.2%.

First Published: February 27, 2013: 3:57 AM ET

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Defense stocks in cross hairs

Shares of defense contractors are under pressure as the industry is poised to be hit hard by forced budget cuts

NEW YORK (CNNMoney)

The so-called budget sequester will slash how much federal agencies are allowed to spend by $85 billion over seven months. Roughly half of those cuts would come from the Defense Department's budget.

Shares of Lockheed Martin (LMT, Fortune 500), Northrop Grumman (NOC, Fortune 500) and General Dynamics (GD, Fortune 500) have tumbled about 5% since late January. Raytheon (RTN, Fortune 500) Kratos Defense and Security Solutions (KTOS) and BAE Systems (BAESF) have also been punished.

Overall, the defense sector is trading at about a 35% discount to the broader market based on forward earnings expectations, said Yair Reiner, a senior analyst at Oppenheimer.

"There's clearly been a re-rating of the stocks over the last month, since it's become increasingly clear that sequester cuts will come into effect," said Reiner.

Related: Defense industry braces for major spending cuts

While lawmakers could still act to prevent the cuts, most analysts expect the automatic reductions to go into effect, at least for a short time.

"There may be some faint, lingering hope for a last minute deal in Washington," said Standard Life Investments equities analyst Jeff Morris, who specializes in the defense and aerospace sector.

But he said most investors are hoping the forced cuts will be replaced after the fact with ones that get phased in over a longer period of time. "If that does not happen, I would expect the defense stocks to come under additional pressure," said Morris.

He said the next big hurdle for defense stocks will come on March 27, when the latest continuing budget resolution expires. Congress will then need to pass another continuing resolution or risk a temporary government shutdown.

On the bright side, the Defense Department has signaled that it will try to avoid canceling contracts impacted by the cuts, according to William Loomis, an analyst at investment firm Stifel.

Loomis wrote in a note to clients this week that the Pentagon could conserve cash by slowing payments to prime contractors.

In addition, Defense Department officials have reportedly been authorized to begin discussing the cuts with suppliers, although it could be weeks before investors learn the outcome of the talks, said Loomis.

Related: Government contractors brace for spending cuts

Regardless of how the sequester plays out, the federal government is expected to shrink defense spending to help balance the budget and help get Washington's debt to a manageable level.

Over the next decade, defense spending is expected to be cut by $500 billion.

That would translate to a roughly 10% reduction in the Pentagon's budget compared with what was previously expected, said Reiner.

"Ultimately, something like that $500 billion cut is going to happen," he said. "It's just a question is how it gets implemented."

For the most part, he said investors believe that a short-term fix would not resolve the nation's long-term budget problems.

"There's a decent argument to be made that the stocks already reflect the likely headwinds for the sector," said Reiner. "But that doesn't mean there couldn't be subsequent shocks."

First Published: February 26, 2013: 11:11 PM ET

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Wealth inequality between blacks and whites worsens

Whites have accumulated far more wealth than blacks, according to a new Brandeis University study.

NEW YORK (CNNMoney)

That type of inequality can be a drag on economic growth for everyone, said Thomas Shapiro, director of the university's Institute on Assets and Social Policy, which conducted the research.

The difference in wealth between typical households in each racial group ballooned to $236,500 in 2009, up from $85,000 in 1984, according to the study, released Wednesday. By 2009, the median net worth of white families was $265,000, while blacks had only $28,500.

Brandeis researchers looked at the same set of 1,700 families over the 25-year period to see how their actual work and school experiences affected their wealth accumulation.

What they found is that home ownership is driving the growing gap. Price appreciation is more limited in non-white neighborhoods, making it harder for blacks to build equity. Also, because whites are more likely to have family financial assistance for down payments, they are able to buy homes an average of eight years earlier than black families and to put down larger upfront payments that lower interest rates and mortgage costs.

The home ownership rate for whites is 28% higher than that of blacks.

"How housing wealth is created in different communities is clearly what's driving this," Shapiro said.

Income gains are also a major differentiating factor, even when whites and blacks have similar wage increases. Whites are typically able to put more of their raises towards accumulating wealth because they've already built up a cash cushion. Blacks are more likely to use the money to cover emergencies.

Inheritances also make it easier for some families to build wealth. Among the families studied, whites were five times more likely to inherit money than blacks, and their typical inheritances were 10 times as big.

When it comes to education, black graduates are often more saddled with college loans, making it harder for them to start socking away savings than their white peers. Four in five black students graduate with debt, compared to 64% of whites.

The growing wealth gap has wider ramifications, Shapiro said. If the pattern continues, people could start believing the deck is stacked against them.

"Our economy cannot sustain its growth in the face of this type of extreme wealth inequality," he said.

First Published: February 27, 2013: 12:09 AM ET

15.30 | 0 komentar | Read More

The myth of the Great Rotation

While investors have started to add money to the stock market this year, they are also still plowing into bonds. U.S. stock mutual funds have raked in nearly $20 billion in 2013, while bond funds have attracted more than $40 billion, according to ICI data.

NEW YORK (CNNMoney)

But so far it's proving to be more of a myth.

The Great Rotation came into the spotlight at the end of 2012, when Bank of America Merrill Lynch investment strategist Michael Hartnett predicted that investors who had fled the stock market for the safety of bonds would start to rotate back into stocks.

In fact, investors have added more money to bonds than stocks almost every week this year. In total, U.S. stock mutual funds have raked in nearly $20 billion in 2013, while bond funds have attracted more than $40 billion, according to data from the Investment Company Institute.

Rather than trimming their bond exposure, investors have been adding to stocks at the expense of their cash holdings, said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock.

Related: Bonds are riskier than stocks

"In the panic following the 2008 collapse, investors initially flocked to cash," said Rosenberg, noting that assets in money market funds jumped by nearly 40% to about $3.5 trillion and peaked at $4 trillion in 2009.

Cash levels declined steadily from there until the end of last year when fiscal cliff fears sent investors back to cash. And once a deal to avoid the cliff was struck, assets in money market funds and bank deposits began to fall - that's the money that has been flowing into stocks, said Rosenberg.

Related: Individual investors still nervous about stocks

While the Great Rotation out of bonds and into stocks may still be coming, it won't be anytime soon, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup.

"Unfortunately losing money in bonds may not cause a huge outflow from bond funds which would then pour into stock funds," he wrote in a recent note. Investors didn't start consistently pulling money out of stocks until two years after the tech bubble and stock market peaked in 2000, he noted, adding, "Believing in a rotation now seems fairly premature."

Still, even shifting from cash toward stocks signals a change in sentiment, according to Bill Stone, chief investment strategist at PNC Wealth Management.

"Perhaps some of the residual fear from the financial crisis that caused investors to shun stocks is starting to dissipate," he said.

First Published: February 27, 2013: 1:22 AM ET

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Japan to sell $10 billion stake in tobacco company

HONG KONG (CNNMoney)

The sale should raise about $10 billion, with proceeds going toward reconstruction efforts in parts of the country most affected by 2011's earthquake, tsunami and nuclear disaster.

The government currently owns 50% of Japan Tobacco, which sells Winston, Camel, Mild Seven and Benson & Hedges brand cigarettes. The sale will be the fourth tranche of Japan Tobacco shares offered by government since the country opened its tobacco market to international competition.

Japan Tobacco can trace its roots to 1898, when the government created an agency to sell tobacco products. The Japan Tobacco and Salt Public Corporation enjoyed a domestic monopoly until 1985, when its assets were incorporated under the name Japan Tobacco.

The new government of Prime Minister Shinzo Abe is trying to end deflation and boost growth with an economic stimulus program and looser monetary policy.

The move will reduce the government's grip on the tobacco company, and the industry's scope to influence public health policy.

Japan is frequently accused of not doing enough to encourage people to stop smoking.

The close ties between the government and the company are a "national conflict of interest," according to the Global Business Group on Health, a U.S.-based group that says the arrangement encourages the government to treat smoking "as a behavioral issue rather than a health concern."

Related story: Japan's economy contracts for third straight quarter

Smoking is still popular in Japan. Almost 20% of adults reported smoking every day in Japan in 2010, according to the Organisation for Economic Co-operation and Development. That's better than the OECD world average of 21%, but well behind other developed economies like the United States, Australia and Iceland, all of which enjoy rates below 15%.

Smoking rates are particularly high among men in Japan, and the total market for cigarettes is one of the largest in the world.

Despite recent tax hikes, cigarettes in Japan are relatively cheap, with packs going for $4.45.

Still, smoking bans are slowly becoming more popular in urban areas, with local governments leading the effort.

-- CNN's Yoko Wakatsuki contributed to this report.

First Published: February 26, 2013: 3:45 AM ET

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Intel: Our phones are the fastest

Intel's mobile chief Mike Bell says the chipmaking giant is just getting started in smartphones.

BARCELONA, Spain (CNNMoney)

Chip production in mobile -- the tech industry's fastest-growing computing segment -- is instead dominated by a little-known British company called ARM (ARMH). Though hardly a household name like Intel, ARM's microchip designs can be found in 95% of the world's smartphones and tablets. ARM chips are in all the most popular mobile devices, including Apple's (AAPL, Fortune 500) iPhone and iPad, as well as the Samsung Galaxy phones and tablets.

Yet Intel (INTC, Fortune 500) believes it has a winning strategy to become the leader in mobile: Build the best chips.

When benchmarked -- a kind of microchip speed test -- against the top-of-the-line ARM chips, Intel says its mobile processors win hands down.

Intel says it's able to outperform the competition with a combination of smart design and a soup-to-nuts chipmaking process. The company's manufacturing prowess helps bring new technologies to market faster, and Intel engineers build the company's mobile processors virtually every step of the way.

ARM, on the other hand, only designs the chip core. It licenses those designs to dozens of partners, including big names like Qualcomm (QCOM, Fortune 500), Samsung, Texas Instruments (TXN, Fortune 500) and Nvidia (NVDA), as well as a whole load of of chipmakers you've never heard of. After those companies build the system on a chip, they send the blueprints off to a manufacturing company for construction.

Related story: Intel's secret phone

Mike Bell, Intel's mobile chief, says his company has the software and systems competence to be the most successful.

"To be successful in this industry, simply building chips is insufficient," said Bell. "We can write software that helps us get the most out of our hardware."

As a result, even though Intel's mobile chips don't yet have multiple cores (the best-in-class ARM chips have as many as four cores), the speed tests aren't even that close.

"It's a question of whether you'd rather have a jet engine or two propellers," said Bell.

Bell said that when mobile chip designs start getting smaller and smaller -- more than halving their current size down to 14 nanometers -- it's going to be difficult for many less-experienced companies using ARM's platform to manufacture something like that.

Related story: IPad chip designer ARM wants to crush Intel

Specs aren't the only factor in chip performance, however. The chips in the iPhone, for instance, aren't the industry's best, but they typically outperform the best Android devices, because Apple builds the software and hardware to work together. Intel's chips are designed for Google's (GOOG, Fortune 500) Android platform, which runs on literally hundreds of devices.

Bell, who came to Intel from Apple two years ago, says that's something Intel is working on as well.

"We have a great relationship with Google," said Bell. "We can do as good a job optimizing our systems as anyone, and Google has never told us 'no' when we have said we'd like to improve performance somewhere."

A year ago, Intel chips began popping up in smartphones for the first time. The chip architecture has gained some limited traction, but it hasn't been a barn burner. Its mobile chips still have virtually no U.S. presence.

Intel believes that will change with the release of its new 22 nm mobile chip design this fall, which will incorporate 4G-LTE capabilities. The company expects to announce a tablet partner in the fall and a phone in early 2014.

Meanwhile, it has a steep hill to climb.

First Published: February 26, 2013: 4:13 AM ET

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Stocks: Italy election roils markets

U.S. stocks fell Monday.

NEW YORK (CNNMoney)

Election results released by the government showed a narrow victory for the center-left coalition headed by Pier Luigi Bersani in the lower house of parliament.

But former Prime Minister Silvio Berlusconi and other anti-austerity parties were not far behind, and the results pointed to gridlock in the Italian Senate.

Should the Bersani coalition hold, governing will be very difficult, and investors are concerned that stalemate in the Senate could undermine the progress Italy has made in overhauling its troubled economy.

U.S. stocks fell Monday amid the concerns about Italy, with the Dow and S&P 500 suffering their biggest one-day declines of the year. U.S. stock futures were indicating a rebound for stocks at the open on Tuesday.

The latest edition of the Case-Shiller home price index will be released at 9:00 a.m. ET. At 10:00, the Conference Board will release its consumer confidence index and the Census Bureau will release data on new home sales.

In corporate news, firms including Macy's (M, Fortune 500) and Home Depot (HD, Fortune 500) are set to report quarterly results before the opening bell.

Fear & Greed Index shifts down from extreme greed

European markets were sharply lower in morning trading, while Asian markets retreated.

The Hang Seng in Hong Kong fell 1.3%, while the Nikkei in Tokyo dropped 2.3% and the Shanghai Composite lost 1.4%.

First Published: February 26, 2013: 4:02 AM ET

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Americans still aren't saving enough

Of those surveyed, 38% said they were saving less than last year.

NEW YORK (CNNMoney)

Only half of respondents reported good savings habits, including having a spending and/or saving plan in place, according to the Consumer Federation of America and the American Savings Education Council which conducted the survey.

While more than half of all Baby Boomers and Gen-Xers will be able to retire with enough money to cover basic retirement needs, including health care costs, a significant number are at risk of running short, according to projections by the Employee Benefit Research Institute.

The survey also found that only 49% of non-retired respondents feel they are saving enough to achieve a "desirable standard of living" in retirement.

When it came to overall household savings, the survey found there was little improvement compared to last year.

"Clearly the great recession has had a lingering effect on many Americans," said Stephen Brobeck, executive director of the Consumer Federation of America. "Millions of families have been unable to make progress in rebuilding their finances, especially their savings."

Related: Money 101 saving basics

Of those surveyed, 38% said they were saving less than last year, compared to 30% who said they were saving more than last year. Only 41% of all respondents said that they save outside of work through automatic transfers from checking to savings or investments. About two-thirds said they had sufficient emergency savings to cover unexpected expenses like car repairs or a doctor visit.

In a separate survey released earlier Monday, Bankrate reported that just 55% of Americans have more cash stowed away for hard times than they owe on their credit cards -- up from 52% two years ago.

"We know from other research that if one does not have adequate emergency savings, it's much more difficult for people to save for other purposes, either a home or retirement," said Brobeck.

Paying down credit card debt is also a key step in developing better savings habits, he said, because it's hard to save when losing cash to high interest payments.

In the Bankrate.com survey, nearly 70% of respondents making at least $75,000 a year had more savings than credit card debt, compared to 41% of those making less than $30,000.

Related: Make your money last

Less than half of low-to-moderate-income Americans even have a savings or money market account, Brobeck said, citing a CFA analysis of Federal Reserve data. "But having an account if you have a relatively low or moderate income is the most important thing you need to do," he said.

As part of America Saves Week, more than 1,300 national, state and local financial and nonprofit organizations are encouraging Americans to boost their savings through simple steps, such as opening a savings account, setting up automatic transfers and increasing their 401(k) contributions.

First Published: February 25, 2013: 3:47 PM ET

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HP sells off the last scraps of Palm: webOS

HP bought Palm for its webOS, but it left the software for dead after HP killed off its TouchPad tablet and webOS smartphone line.

NEW YORK (CNNMoney)

LG is buying all of the assets associated with webOS: the source code, engineering talent, patents, and more. It plans to use the software in its smart TVs. Financial terms of the deal were not disclosed, though a press release said neither company expects the deal "to have a material impact" on its financials.

HP (HPQ, Fortune 500) certainly won't miss webOS, which it acquired in 2010 when it bought the ailing Palm for $1.2 billion. Palm's webOS was innovative and well-respected, but its Pre and Pixi smartphones failed to take off with buyers.

HP swore it would be "doubling down" on webOS, but that's not what happened. Instead, webOS fell prey to issues at HP during the troubled reign of Leo Apotheker. In August 2011, a few months after taking the CEO, Apotheker made massive changes that included bad news for webOS.

HP killed off its webOS-based TouchPad tablet after just 49 days on the market. The company also pulled the plug on its entire webOS smartphone line, saying none of its webOS products reached the company's internal sales targets.

That appeared to kill webOS altogether, but the LG purchase revives the platform -- though not necessarily as mobile software. In the press release announcing the deal, LG focused on using webOS only in its Internet-connected TVs. WebOS staffers will join a new "LG Silicon Valley Lab," which will focus on research and development.

First Published: February 25, 2013: 5:23 PM ET

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Italian election rattles world markets

HONG KONG (CNNMoney)

The Hang Seng in Hong Kong fell 0.9%, while the Nikkei in Tokyo dropped 2.3% and the Shanghai Composite lost 0.1%

The Japanese yen, a safe-haven currency, strengthened overnight as investors sought refuge. European markets are not yet open for trading.

Results from Sunday's election showed the center-left coalition of Pier Luigi Bersani leading in both chambers of parliament. But former Prime Minister SIlvio Berlusconi and his anti-austerity allies were not far behind in the Senate race, which is decided on a regional basis.

Related: CNN coverage of the Italian election

Investors are concerned that "gridlock" in the Italian Senate, which now seems very likely, could undermine the progress Italy has made in overhauling its troubled economy.

Investors in the U.S. succumbed to jitters in the final hour of trading Monday, with the Dow and S&P 500 suffering their biggest one-day decline of the year after a late-day sell off.

In a clear sign of unease, Wall Street's so-called fear gauge, the CBOE market volatility index, or VIX (VIX), surged 32%.

Italy's political system encourages the forming of alliances, and a shaky coalition could still emerge, although none of the parties seem willing to negotiate.

If voters delivered one message, it is that they are largely opposed to austerity policies, exposing the country to questions about its commitment to fiscal consolidation.

Related: What's at stake in Europe's elections

Markets had hoped Italian voters would give Bersani a clear mandate to pursue the reforms started by Mario Monti, possibly including the economics professor's party in a coalition.

The scale of the challenge awaiting the next government should not be underestimated, and Bersani's coalition could face opposition from within its own ranks to more radical structural reforms.

"Elections are more problematic than market scares or sentiment shifts as they can't be undone by printing money," Steven Englander, a currency strategist at CIti, wrote in a research note.

Italy's economy has stagnated for years, and suffered the biggest contraction of any G7 nation in 2012 -- it shrank by 2.2%. Last week, the European Commission said it would contract by a further 1.0% this year, double the rate it had previously forecast.

At the same time, Italy has to service debts of two trillion euros, the eurozone's second biggest debt mountain -- relative to the size of the economy - after Greece. That costs some 5% of gross domestic product -- or about 100 billion euros --- each year and as the economy shrinks, the government has to retain an ever greater share of national income to pay for it.

Unemployment will rise to 11.6% in 2013, according to the European Commission, and then 12% next year.

First Published: February 25, 2013: 10:25 PM ET

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China's manufacturing sector stumbles

The pace of manufacturing expansion has slowed in China, according to HSBC.

HONG KONG (CNNMoney)

Global bank HSBC said its "flash" index of purchasing managers' sentiment fell to 50.4 in February from January's final reading of 52.3. Any reading above 50 signals expansion in the manufacturing sector.

The index, which had been on a winning streak, is now at a 4-month low. Still, economists are not ringing the alarm bells.

"The underlying strength of Chinese growth recovery remains intact, as indicated by the still expanding employment and the recent pick-up of credit growth," said Hongbin Qu, an economist at HSBC.

The timing of the Lunar New Year further complicates reading of the data.

Many Chinese factories shut down during the holiday as workers return to the countryside, a migration that can skew PMI readings.

Related: Scenes from China's annual migration

Not all of February's decline can be attributed to the holiday, according to economists at Nomura. Still, the government will likely wait for more data before making policy changes.

"We believe China's leaders will wait for the batch of macro data ... before making an assessment of economic conditions and deciding an appropriate policy stance," the economists wrote Monday.

The fate of manufacturing in China is considered a barometer of the global economy due to the nation's role as a powerhouse exporter.

China's economy has grown at an average of around 10% a year for the past three decades, allowing the nation to rocket past competition to become the world's second-largest economy.

While the growth slowed in 2012 to 7.8%, that figure topped government targets and analyst expectations, signaling an exit to the slowdown that had worried economists.

HSBC's final reading of February purchasing managers' sentiment is due on March 1, as is the Chinese government's reading.

First Published: February 24, 2013: 11:21 PM ET

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Spending cuts showdown may drag on

With just days before the spending cuts begin, there is little expectation President Obama and House Speaker John Boehner will make a deal.

NEW YORK (CNNMoney)

But there's no telling when.

Funding for numerous federal agencies and programs will be slashed, half from defense and half from nondefense spending.

Generally speaking, both parties say they don't want the cuts to kick in as planned.

Just how the cuts would be replaced -- if they are -- remains unclear, however.

Scenario 1 - Shutdown threat pushes Congress to act: The current measure funding the government expires on March 27. Known as a continuing resolution, that law is separate from the one that mandates the automatic cuts. It sets spending levels and authorizes the government to continue operating.

If lawmakers don't agree to new funding levels soon, the government will shut down on March 28 and remain closed until Congress reaches a deal.

A shutdown wouldn't bode well for either party. Most government offices and services would be shuttered. The only exception: services deemed "essential" -- those related to the safety of human life and protection of property. Taxpayer money would be wasted in the process because it costs money to close the government and to ramp it back up when Congress reaches a deal.

The urgency to avert a shutdown might spur lawmakers to agree on a replacement of the automatic spending cuts as part of a final deal.

Related: What you need to know about the cuts

Scenario 2 - Lawmakers keep fighting over the cuts: The pressure to avoid a shutdown may be so great that Congress takes the threat off the table before it even addresses the spending cuts.

One possibility is that House Republicans quickly pass a continuing resolution for six months until Sept. 30 at current funding levels, which would fall once the so-called sequester kicks in.

Senate Democrats, not wanting to be seen as the ones risking a government shutdown, sign on and decide to fight for a replacement to the automatic cuts later.

In that case, interest groups would step up pressure on lawmakers once the pain of the cuts really starts to set in.

"The sequester is a slow bleed that gets worse as it goes on," said Sean West, the U.S. policy director for the Eurasia Group.

Indeed, its bite won't be nearly as deep in March as it will be in April and beyond.

For instance, while more than 2 million federal workers may face unpaid furloughs for a day or two a week, those furloughs likely wouldn't start before April.

And the White House budget office may be able to instruct some agencies to hold off on implementing cuts for a short period of time.

The elephant in the room - Spending vs. taxes: Of course, there's no guarantee that lawmakers can bridge their ideological differences over spending and taxes.

Democrats have proposed replacing the automatic spending cuts with a combination of tax increases and spending cuts. Republicans want to replace the defense cuts with more non-defense cuts, and they oppose any revenue increases.

West of the Eurasia Group believes the two sides will agree on a replacement package by April. It may include mandatory spending cuts and tax increases, but the kind both parties can tolerate.

For instance, revenue increases might come from raising fees rather than tax rates, and thus be more palatable to Republicans. And mandatory spending cuts may not affect Medicare or Social Security benefits but rather reduce non-health-related spending -- for instance, by reforming federal retirement programs, he said.

Whatever ends up happening, get ready for a long and messy few weeks. Or months.

First Published: February 25, 2013: 2:15 AM ET

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Stocks: It's all international

U.S. stocks rose Friday.

NEW YORK (CNNMoney)

International developments may help fill the void. Investors will consider the emergence of a frontrunner for the Bank of Japan job, the outcome of a closely-fought election in Italy and some bad news about the U.K.'s credit rating.

U.S. stock futures were little changed ahead of the bell.

After U.S. markets closed Friday, Moody's stripped the United Kingdom of its AAA credit rating, citing the country's rising debt burden and tepid growth outlook.

Japanese media reports suggested Monday that Prime Minister Shinzo Abe is preparing to select Haruhiko Kuroda, president of the Asian Development Bank, as the next BoJ governor.

And Italy is expected to report initial election results that will determine the course of the country's economic reforms and could have broader implications for the eurozone debt crisis.

Last week was the worst of 2013 for the S&P and the Nasdaq, though the Dow managed a slight gain. U.S. stocks rose Friday, with the Dow jumping more than 100 points to close above 14,000.

Fear & Greed Index on the edge of extreme greed

Results are due later in the week from firms including Home Depot (HD, Fortune 500), Macy's (M, Fortune 500) and Groupon (GRPN).

European markets were firmer in morning trading, following a strong lead in Asia where news about Kuroda's likely appointment renewed talk of aggressive monetary expansion.

The Nikkei added 2.4%, while the Hang Seng increased 0.2% and the Shanghai Composite closed up 0.5%.

First Published: February 25, 2013: 3:48 AM ET

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HP takes cautious step into Android waters with new tablet

BARCELONA (CNNMoney)

HP's bid to rejuvenate its flagging business is the Slate 7 -- which is not a premium-grade tablet, nor a remarkably cheap device.

Instead, the $169 Slate 7 packs a 7-inch screen, 1024x600 resolution, a 1.6 GHz dual-core processor, and 8 gigabytes of storage. While it's not obnoxiously cumbersome, it is bigger and heavier than many of the notable 7-inch tablets, like Google's Nexus 7.

Those specs are fine, but hardly phenomenal by 2013 standards. And the same goes for performance and build quality. It isn't the fastest, or most powerful, or most attractive tablet, but it's powerful enough to do what most people need. And it's not an eyesore by any means. It does have a pretty recent version of Android installed -- 4.1 -- which means it has most of the new features.

The Slate 7 is HP's first major tablet release since the failed Touchpad tablet -- a byproduct of its disastrous acquisition of Palm in 2010. When rumors about a possible HP Android tablet surfaced, public expectations were a bit higher.

And rightfully so. But this latest offering is a tad bit perplexing. Going for the entry-level consumer market is a fine strategy in the short term (it has kept HP's computer sales afloat for awhile now). HP will probably need to be more aggressive with pricing.

Related: HP profit falls 16%, beating super-low expectations

Unlike the computer market, where HP (HPQ, Fortune 500) typically offers products that are a few hundred dollars cheaper than the top-rated machines, the Slate 7 is only $30 cheaper than Google's Nexus 7, which is thinner and lighter, more powerful and comes with a better display. The Nexus 7 will also have a slower decline into technological obsolescence.

The Slate 7 would be a fine tablet to buy if it were significantly cheaper than any other 7 or 8-inch tablet. But in this case, lower cost likely won't equate to a better value in the long run.

First Published: February 24, 2013: 10:35 PM ET

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China's manufacturing sector stumbles

The pace of manufacturing expansion has slowed in China, according to HSBC.

HONG KONG (CNNMoney)

Global bank HSBC said its "flash" index of purchasing managers' sentiment fell to 50.4 in February from January's final reading of 52.3. Any reading above 50 signals expansion in the manufacturing sector.

The index, which had been on a winning streak, is now at a 4-month low. Still, economists are not ringing the alarm bells.

"The underlying strength of Chinese growth recovery remains intact, as indicated by the still expanding employment and the recent pick-up of credit growth," said Hongbin Qu, an economist at HSBC.

The timing of the Lunar New Year further complicates reading of the data.

Many Chinese factories shut down during the holiday as workers return to the countryside, a migration that can skew PMI readings.

Related: Scenes from China's annual migration

Not all of February's decline can be attributed to the holiday, according to economists at Nomura. Still, the government will likely wait for more data before making policy changes.

"We believe China's leaders will wait for the batch of macro data ... before making an assessment of economic conditions and deciding an appropriate policy stance," the economists wrote Monday.

The fate of manufacturing in China is considered a barometer of the global economy due to the nation's role as a powerhouse exporter.

China's economy has grown at an average of around 10% a year for the past three decades, allowing the nation to rocket past competition to become the world's second-largest economy.

While the growth slowed in 2012 to 7.8%, that figure topped government targets and analyst expectations, signaling an exit to the slowdown that had worried economists.

HSBC's final reading of February purchasing managers' sentiment is due on March 1, as is the Chinese government's reading.

First Published: February 24, 2013: 11:21 PM ET

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Spending cuts showdown may drag on

With just days before the spending cuts begin, there is little expectation President Obama and House Speaker John Boehner will make a deal.

NEW YORK (CNNMoney)

But there's no telling when.

Funding for numerous federal agencies and programs will be slashed, half from defense and half from nondefense spending.

Generally speaking, both parties say they don't want the cuts to kick in as planned.

Just how the cuts would be replaced -- if they are -- remains unclear, however.

Scenario 1 - Shutdown threat pushes Congress to act: The current measure funding the government expires on March 27. Known as a continuing resolution, that law is separate from the one that mandates the automatic cuts. It sets spending levels and authorizes the government to continue operating.

If lawmakers don't agree to new funding levels soon, the government will shut down on March 28 and remain closed until Congress reaches a deal.

A shutdown wouldn't bode well for either party. Most government offices and services would be shuttered. The only exception: services deemed "essential" -- those related to the safety of human life and protection of property. Taxpayer money would be wasted in the process because it costs money to close the government and to ramp it back up when Congress reaches a deal.

The urgency to avert a shutdown might spur lawmakers to agree on a replacement of the automatic spending cuts as part of a final deal.

Related: What you need to know about the cuts

Scenario 2 - Lawmakers keep fighting over the cuts: The pressure to avoid a shutdown may be so great that Congress takes the threat off the table before it even addresses the spending cuts.

One possibility is that House Republicans quickly pass a continuing resolution for six months until Sept. 30 at current funding levels, which would fall once the so-called sequester kicks in.

Senate Democrats, not wanting to be seen as the ones risking a government shutdown, sign on and decide to fight for a replacement to the automatic cuts later.

In that case, interest groups would step up pressure on lawmakers once the pain of the cuts really starts to set in.

"The sequester is a slow bleed that gets worse as it goes on," said Sean West, the U.S. policy director for the Eurasia Group.

Indeed, its bite won't be nearly as deep in March as it will be in April and beyond.

For instance, while more than 2 million federal workers may face unpaid furloughs for a day or two a week, those furloughs likely wouldn't start before April.

And the White House budget office may be able to instruct some agencies to hold off on implementing cuts for a short period of time.

The elephant in the room - Spending vs. taxes: Of course, there's no guarantee that lawmakers can bridge their ideological differences over spending and taxes.

Democrats have proposed replacing the automatic spending cuts with a combination of tax increases and spending cuts. Republicans want to replace the defense cuts with more non-defense cuts, and they oppose any revenue increases.

West of the Eurasia Group believes the two sides will agree on a replacement package by April. It may include mandatory spending cuts and tax increases, but the kind both parties can tolerate.

For instance, revenue increases might come from raising fees rather than tax rates, and thus be more palatable to Republicans. And mandatory spending cuts may not affect Medicare or Social Security benefits but rather reduce non-health-related spending -- for instance, by reforming federal retirement programs, he said.

Whatever ends up happening, get ready for a long and messy few weeks. Or months.

First Published: February 25, 2013: 2:15 AM ET

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Judge rules against Apple in Einhorn cash fight

NEW YORK (CNNMoney)

Einhorn's Greenlight Capital filed a lawsuit earlier this month seeking to "unbundle" a number of shareholder proposals that would have been voted on as a group, including one that would have made it difficult for the company to issue preferred stock. The vote on this, known as Proposal No. 2, was scheduled to be voted on at Apple's annual shareholder meeting on February 27.

Judge Richard Sullivan of the Southern District of New York ruled that bundling four different items in one proposal violates Securities and Exchange Commission regulations.

"Given the disparate, material nature of the items in Proposal No. 2, it is probable that Apple has improperly bundled four 'separate matters' for a single vote," the ruling states.

Apple (AAPL, Fortune 500)shares rose 1% on Friday. News of the ruling came just a few minutes before the market closed.

Einhorn has launched an activist campaign to get Apple to unlock some of its $137 billion in cash by issuing preferred stock, or iPrefs, as he calls them. He argues that allowing the cash to sit idle on Apple's balance sheet is bad for the company and its shareholders.

A spokesman for Greenlight said that the ruling "is a significant win for all Apple shareholders and for good corporate governance" and added that "we look forward to Apple's evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet."

Related: Einhorn takes aim at Apple's cash hoard

But another big Apple shareholder was not pleased with the judge's ruling.

California's powerful pension fund, CalPERS, supported Apple's proposal, which it said would give shareholders more voting power over the issuance of Apple stock.

"We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard," said Anne Simpson, a CalPERS senior portfolio manager and director of global governance. "We applaud the company's commitment to strengthening shareholder rights."

Apple has said it is reviewing Einhorn's proposal, but CEO Tim Cook has called the lawsuit a "silly sideshow."

Spokespeople for Apple could not immediately be reached for comment.

First Published: February 22, 2013: 5:01 PM ET

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Moody's downgrades United Kingdom from AAA

God save the AAA rating.

NEW YORK (CNNMoney)

The U.K. was knocked down one notch to Aa1, with its ratings outlook at stable. Moody's said the key drivers of the downgrade included the country's rising debt burden and tepid growth outlook over the next few years.

"[A]lthough the U.K.'s debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other AAA-rated issuers," Moody's said.

The U.K. had held AAA status since Moody's first began rating the country in 1978.

In December, the U.K.'s budget monitor projected that the country's economy would grow by just 1.3% this year. The government has been pushing a much-criticized austerity program, and finance minister George Osbourne said he remained committed to those efforts, even after the downgrade.

"This is a stark reminder of the debt problems that Britain faces and the clearest possible warning to anyone who thinks we can run away from dealing with those problems," he said. "Far from weakening our resolve to deal with our debts, this should redouble our resolve."

Related: U.K. risks new recession

The British government has said its belt-tightening will have to continue until 2018.

In announcing the downgrade, Moody's said it expects the U.K.'s debt to peak at 96% of GDP in 2016, up from around 90% today.

A year ago, Moody's switched the outlook on the U.K.'s AAA rating to negative, in a prelude to Friday's downgrade. At the same time, the firm cut the ratings of half a dozen European countries.

The other major rating agencies, Fitch and Standard & Poor's, still have the U.K. rated AAA, though with negative outlooks.

Elsewhere in Europe, France lost its AAA rating from Moody's in November, after a similar downgrade from S&P in January.

The United States maintains its AAA rating from Moody's and Fitch, though it was downgraded by S&P in August 2011 following the debt ceiling standoff in Washington.

Steven Englander, a foreign exchange strategist with Citigroup (C, Fortune 500), said in a research note following the downgrade that the move was unlikely to raise borrowing costs for the U.K., as bond yields in the United States, France and Japan had remained stable following similar downgrades. But it increases pressure on the country to pursue growth by weakening the pound, he added.

"[W]hile by itself the announcement merely accelerates what was expected to happen at some point, the need for weakness [in the British pound] will become more apparent to policymakers and investors," Englander said.

Among Europe's other major economies, Germany, Switzerland and the Netherlands maintain their AAA ratings from Moody's. France sits at Aa1, while Italy is down at Baa2 with Spain at Baa3.

First Published: February 22, 2013: 5:01 PM ET

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Samsung stuffs a phone in new Galaxy Note 8.0 tablet

NEW YORK (CNNMoney)

It runs Android 4.1, has a 1.6 GHz quad-core CPU, 2 gigabytes of RAM, and an 8-inch, 1280 x 800 display that you can control with Samsung's S-Pen stylus. But on the international version of the device, there's something quite strange lurking near the top.
Yes, it's an earpiece. Yes, it's meant for you to make calls. Yes, Samsung expects you to hold an 8-inch tablet up to your face.

Samsung expects you to hold an 8-inch tablet up to your face.

The decision to imbue an 8-inch tablet with a phone very much seems like a reaction to the success of Samsung's Galaxy Note phones, which checked in at 5.3 and 5.5-inches, opening up some of the functionality of tablets. (Ugh, phablets).

I joked before about the day when we'd see a 7-inch phone. Turns out we got an 8-inch one sooner than we thought. But it is worth mentioning that it's undecided if a phone-enabled version of the Galaxy Note 8.0 will see the light of day in the U.S.

The device itself is suitably thin and light (more or less comparable to the iPad mini, it's closest known competition), and is responsive enough for most tasks. The stylus works pretty well, introducing a new feature that lets you activate preview panes of apps such as email and Flipboard, without ever touching the the screen (instead, you hover above the area you want to preview).

Related: Samsung overtakes Apple in 'smart connected devices'

But aside from the stylus, it also has a couple of tricks the iPad Mini does not. For starters, It has an IR remote which lets you enter the codes for most television sets and control your TV with your tablet, much like you would with any other remote. But sweetening the deal is the use of the media guide software from Peel Technologies, allowing you to seek out and directly jump to specific shows and movies without resorting to the channel up/down buttons.

It also supports a dual-window mode, where you can run two apps side by side, and without the loss of functionality. For now it only works with a handful of optimized apps, but includes a calendar app, a note-taking app, Chrome, Gmail, YouTube and more (adding up to more than 20 in all).

And while it's expected to arrive sometime in the next few months, there was not so much as a whisper about price. Judging from the year-old guts inside the Galaxy Note 8.0, it's possible Samsung made the necessary moves to offer it at a mainstream price point. If it falls anywhere under the $330 price tag of Apple's iPad Mini, it might just have what it takes to steal some of Cupertino's thunder.

But why...why does it have to have a built-in phone?

First Published: February 23, 2013: 9:57 PM ET

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Fed officials: Don't worry if we lose money

NEW YORK (CNNMoney)

But that's okay, Fed officials say.

After years of record profits, the Fed is likely to be saddled with losses starting in 2017 or 2018, economists predict in a paper that was presented Friday at the U.S. Monetary Policy Forum, a New York conference organized by the University of Chicago Booth School of Business.

Here's the scenario they think will play out: As the economy improves, the Fed will eventually tighten monetary policy. The central bank will stop buying mortgage-backed securities and Treasuries by the end of this year, they believe, and start raising interest rates in 2015.

Eventually, the Fed will have to start selling off the massive collection of bonds it acquired in its stimulus efforts.

And when that time comes, even the Fed admits that it will probably incur losses.

Inside the Fed's finances

Unlike most government agencies, the Federal Reserve funds itself. Its expenses are not paid for in by U.S. federal budget.

Each year after paying its own bills, the central bank hands over all its remaining profit to the Treasury Department. Most of the money comes from interest earned on holdings like Treasury bonds and other debt.

Those payments have ballooned in recent years. The Fed is earning huge profits from the large bond portfolio it amassed (and continues to amass) during its stimulus efforts.

In the decade preceding the Great Recession, the Fed paid out an average of $25 billion a year to the Treasury. In the last three years, its remittances have averaged $81 billion.

Based on those numbers, you could call the Fed the most profitable bank in the world. It's generating more income than America's top five banks -- JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) -- combined.

Once the economy improves to its liking -- which could still be years away -- the Fed will have to start shrinking its portfolio, to ward off rapid inflation.

As the economy gets better, the Fed will raise interest rates. At the same time, bond prices will probably fall as the Fed sells off massive amounts of them.

That means the central bank is likely to lose money.

That's not necessarily a problem. A relatively new accounting rule would allow the Fed to pay for its operations and make interest payments basically on credit, deferring its losses and paying them off later in profitable years.

The situation could easily become a public relations nightmare, though -- especially in the current political environment.

"We're in a period where the attacks on the Federal Reserve system are the worst I've seen in 40 years," said Frederic Mishkin, a former Fed governor who is now a professor at Columbia University.

"In any year where the Fed is not giving remittances back to the Treasury, this is going to come up big time in Congress," he added.

St. Louis Fed President James Bullard also calls it a "recipe for political problems." During the same period that the Fed will incur losses, the government will be paying billions of dollars in interest to foreign governments.

The Fed seems to be trying to get ahead of the PR blow-up.

The central bank put out a research paper on the topic last month, and minutes released earlier this week show the issue was discussed at the Fed's January meeting.

Since then, several officials have spoken about it quite openly.

"There is a chance that we could go through a period of time in which our income falls, and we could even take losses," said Janet Yellen, vice-chair of the Federal Reserve Board, in a speech last week.

Her colleague Jerome Powell, a Fed governor, reiterated that point Friday.

Some Fed watchers expect Fed Chairman Ben Bernanke to discuss the topic when he speaks before Congress next week in his semi-annual testimony.

He's stuck in a "damned if you do, damned if you don't" position. If the economy improves, great -- but when it does, the Fed has big losses and a PR crisis to look forward to.

First Published: February 22, 2013: 2:27 PM ET

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Judge rules against Apple in Einhorn cash fight

NEW YORK (CNNMoney)

Einhorn's Greenlight Capital filed a lawsuit earlier this month seeking to "unbundle" a number of shareholder proposals that would have been voted on as a group, including one that would have made it difficult for the company to issue preferred stock. The vote on this, known as Proposal No. 2, was scheduled to be voted on at Apple's annual shareholder meeting on February 27.

Judge Richard Sullivan of the Southern District of New York ruled that bundling four different items in one proposal violates Securities and Exchange Commission regulations.

"Given the disparate, material nature of the items in Proposal No. 2, it is probable that Apple has improperly bundled four 'separate matters' for a single vote," the ruling states.

Apple (AAPL, Fortune 500)shares rose 1% on Friday. News of the ruling came just a few minutes before the market closed.

Einhorn has launched an activist campaign to get Apple to unlock some of its $137 billion in cash by issuing preferred stock, or iPrefs, as he calls them. He argues that allowing the cash to sit idle on Apple's balance sheet is bad for the company and its shareholders.

A spokesman for Greenlight said that the ruling "is a significant win for all Apple shareholders and for good corporate governance" and added that "we look forward to Apple's evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet."

Related: Einhorn takes aim at Apple's cash hoard

But another big Apple shareholder was not pleased with the judge's ruling.

California's powerful pension fund, CalPERS, supported Apple's proposal, which it said would give shareholders more voting power over the issuance of Apple stock.

"We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard," said Anne Simpson, a CalPERS senior portfolio manager and director of global governance. "We applaud the company's commitment to strengthening shareholder rights."

Apple has said it is reviewing Einhorn's proposal, but CEO Tim Cook has called the lawsuit a "silly sideshow."

Spokespeople for Apple could not immediately be reached for comment.

First Published: February 22, 2013: 5:01 PM ET

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Moody's downgrades United Kingdom from AAA

God save the AAA rating.

NEW YORK (CNNMoney)

The U.K. was knocked down one notch to Aa1, with its ratings outlook at stable. Moody's said the key drivers of the downgrade included the country's rising debt burden and tepid growth outlook over the next few years.

"[A]lthough the U.K.'s debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other AAA-rated issuers," Moody's said.

The U.K. had held AAA status since Moody's first began rating the country in 1978.

In December, the U.K.'s budget monitor projected that the country's economy would grow by just 1.3% this year. The government has been pushing a much-criticized austerity program, and finance minister George Osbourne said he remained committed to those efforts, even after the downgrade.

"This is a stark reminder of the debt problems that Britain faces and the clearest possible warning to anyone who thinks we can run away from dealing with those problems," he said. "Far from weakening our resolve to deal with our debts, this should redouble our resolve."

Related: U.K. risks new recession

The British government has said its belt-tightening will have to continue until 2018.

In announcing the downgrade, Moody's said it expects the U.K.'s debt to peak at 96% of GDP in 2016, up from around 90% today.

A year ago, Moody's switched the outlook on the U.K.'s AAA rating to negative, in a prelude to Friday's downgrade. At the same time, the firm cut the ratings of half a dozen European countries.

The other major rating agencies, Fitch and Standard & Poor's, still have the U.K. rated AAA, though with negative outlooks.

Elsewhere in Europe, France lost its AAA rating from Moody's in November, after a similar downgrade from S&P in January.

The United States maintains its AAA rating from Moody's and Fitch, though it was downgraded by S&P in August 2011 following the debt ceiling standoff in Washington.

Steven Englander, a foreign exchange strategist with Citigroup (C, Fortune 500), said in a research note following the downgrade that the move was unlikely to raise borrowing costs for the U.K., as bond yields in the United States, France and Japan had remained stable following similar downgrades. But it increases pressure on the country to pursue growth by weakening the pound, he added.

"[W]hile by itself the announcement merely accelerates what was expected to happen at some point, the need for weakness [in the British pound] will become more apparent to policymakers and investors," Englander said.

Among Europe's other major economies, Germany, Switzerland and the Netherlands maintain their AAA ratings from Moody's. France sits at Aa1, while Italy is down at Baa2 with Spain at Baa3.

First Published: February 22, 2013: 5:01 PM ET

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