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Investors cheer India election's reform potential

Written By limadu on Kamis, 17 April 2014 | 14.44

HONG KONG (CNNMoney)

Mumbai's benchmark Sensex index has trounced its Asian peers in recent months, hitting a record high last week and gaining 7% since the start of the year. The rupee has strengthened too, clawing its way back from a dismal performance in 2013.

Much of the optimism hinges on forecasts that India's 815 million voters will make Bharatiya Janata Party candidate Narendra Modi the next prime minister.

Victory for a Modi-led coalition would end the Congress Party's dominance, and create an opening for a new government to implement economic reforms.

Analysts say India would benefit greatly from changes to its tax code, a reduction in excessive bureaucracy and more efficient agricultural policies. Momentum on these long-promised reforms stalled under the leadership of the Congress Party.

India's potential for growth was once mentioned in the same breath as that of China. But the world's second most populous nation and biggest democracy has failed to deliver and its economy is just a fifth the size of its Asian rival.

Economic growth has fallen below 5% in recent quarters, some of the lowest levels in years. The currency has lost more than a third of its value since 2011.

Observers don't expect much improvement this year, a troubling sign for one of the world's top 10 economies.

Modi has presented himself as a candidate in the mold of a CEO, campaigning on his economic record as head of Gujarat state. Investors are hoping that he will be able to conjure some of the same magic on a bigger stage.

Related story: Trial by fire for India's new central banker

But there are plenty of arguments for taking a more cautious view before the election concludes in the middle of May.

India's mammoth exercise in democracy is notoriously difficult to forecast, and polling data is thin. Even if the BJP does well in the vote tally, the party's ability to govern could be hamstrung by its eventual coalition partners.

In addition, the BJP may prove to be less enthusiastic about economic reforms than some observers imagine.

Eurasia Group analysts wrote recently that they expect only "piecemeal improvements," noting that the BJP is not resolutely free-market oriented. Instead, they said, the BJP should be characterized primarily as a nationalist party.

The election will also do little to change India's fractious legislative process, which can even trip up parties with plenty of political capital to burn.

"We continue to believe that the new government's potential accomplishments will be substantially more modest than current market expectations," the Eurasia Group analysts said.

Related story: Investors dip a toe back in emerging markets

Many observers have also expressed concern over Modi's association with Hindu nationalist causes -- a potentially destabilizing agenda.

Much of the criticism centers on Modi's handling of riots between Muslims and Hindus in 2002 that resulted in the deaths of 2,000 people. Modi was accused of not responding quickly or adequately to the tumult, but he has denied any responsibility.

Some are not convinced. The Economist won't back Modi, saying the candidate has stonewalled and refused to explain his role in the violence.

Should Modi choose to pursue a controversial agenda in office, investor sentiment could sour quickly. To top of page

First Published: April 16, 2014: 10:30 PM ET


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Ousted Yahoo exec gets $58 million golden parachute

castro

Henrique de Castro's golden parachute is worth nearly $58 million.

HONG KONG (CNNMoney)

The golden parachute is among the most generous in history, and especially notable given than de Castro worked at Yahoo for only 15 months.

De Castro was shown the door in January by CEO Marissa Mayer, apparently due to disappointing performance in improving Yahoo's advertising revenue.

Mayer reportedly announced his departure at the time in a memo to staffers that said, "I made the difficult decision that our COO, Henrique de Castro, should leave the company."

Mayer and de Castro -- two former Google executives -- were under tremendous pressure to revive Yahoo's battered core business. Somewhere along the line, Mayer decided that de Castro was not a good fit for the job.

Yahoo (YHOO, Fortune 500) said in its SEC filing that de Castro was not paid a bonus for 2013 because the compensation board "believed that he did not meet the performance standards."

But de Castro was compensated in other ways.

The executive earned a base salary of $600,000 in 2013, while stock grants and options raised his total compensation to around $11 million.

In 2012, de Castro received a whopping $39 million, although he will forfeit much of that because some stock had not vested at the time of his departure.

Related story: Marissa Mayer reveals Yahoo's big plans for 2014

Much of the $58 million severance package's value is attributable to Yahoo's rising stock price while de Castro was with the company.

The SEC filing indicates that the package was worth only $17 million in October 2012. By early 2013, the parachute had increased to its final size of $58 million.

Also on Wednesday, Yahoo shares surged 6% the company posted earnings and sales that came in slightly ahead of expectations.

Of particular note was the company's success in stemming declines in revenue from its search and display ads, which have flagged in recent quarters.

"We believe we've moved from our core business being in decline to stable to modest growth," Mayer said Tuesday in a presentation of the results. To top of page

First Published: April 17, 2014: 12:45 AM ET


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Nearly 2 million homeowners no longer 'seriously' underwater

NEW YORK (CNNMoney)

During the first quarter, 9.1 million, or 17%, of homeowners were seriously underwater on their home, meaning their debt exceeded the home's value by 25% or more, according to RealtyTrac. That's down from 10.9 million, or 26%, of all properties a year earlier.

These states have the highest levels of underwater homeowners

Nevada 261,272 34%
Florida 1,717,637 321%
Illinois 747,473 30%
Michigan 410,362 29%
Ohio 584,854 27%
Rhode Island 31,302 26%
Missouri 192,256 22%
Connecticut 93,519 21%
Arizona 252,232 20%
Maryland 291,225 20%

Source: RealtyTrac
Seriously underwater mortgages are loans where debt balances exceed home values by 25% or more.

States with the highest percentage of seriously underwater homes included Nevada, Florida and Illinois.

Related: Buy vs. rent -- what you'll pay in 10 big cities

RealtyTrac also found that fewer properties in foreclosure are underwater.

"Because of rising home prices, many of the homeowners in the foreclosure process -- more than a third -- actually have positive equity. That will enable some of them to avoid foreclosure," said Daren Blomquist, a vice president for RealtyTrac.

These homeowners could leverage the home's value to either refinance or sell their home. "But many distressed homeowners with equity may not realize they have it and in some cases have vacated the property already, assuming that their foreclosure is inevitable," he said.

Related: Priced out! I can't afford a home in my town

Metro areas where more than half of the foreclosures actually have positive equity include Denver, Boston, Minneapolis, Houston and Washington, D.C.

RealtyTrac also reported that the number of "equity-rich" homeowners, those with 50% or more equity in their home, grew to 9.9 million in the first quarter. That represents 19% of all mortgaged homes.

Calculator: Was my home a good investment?

These equity-rich homeowners could help further lift the housing market, said Blomquist. They could trade up for bigger and more expensive homes and put their old homes up for sale -- opening up much needed housing for first-time buyers and those on tighter budgets.

Metro areas with the most equity-rich homes included San Jose, Calif., Honolulu, San Francisco, Poughkeepsie, N.Y. and Los Angeles, RealtyTrac reported. To top of page

First Published: April 17, 2014: 1:02 AM ET


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GM will ask court to halt recall lawsuits

Written By limadu on Rabu, 16 April 2014 | 14.44

NEW YORK (CNNMoney)

At issue is a legal shield GM gained as part of its 2009 bankruptcy. At the time, GM was facing about 2,500 lawsuits of various kinds. In most cases, plaintiffs have received only pennies on the dollar.

Now the question is whether that legal protection will help General Motors fend off lawsuits stemming from the ignition switch recall.

The automaker said it intends to file a motion "shortly" with a federal bankruptcy judge in New York seeking a court order stopping plaintiffs from suing the company over the ignition switch recall, according to court documents.

GM said it is facing at least 36 ignition switch lawsuits.

Among the cases GM wants stopped is one filed in a California federal court by 13 owners and leasers of recalled GM cars. The plaintiffs, who are seeking to broaden their case into a class action, seek compensation from the company for selling or leasing them cars that were "prone to fail."

On Friday, GM asked the judge in that case to hold off proceeding until the bankruptcy court makes its ruling.

A GM spokesman declined to comment on the pending litigation.

When the company went bankrupt, it shed lawsuits prior to 2009 because it technically emerged as a new corporation.

The ignition switch recall, which GM only initiated in February, involves vehicles from as long ago as 2005.

If GM pays people with claims from prior to 2009, it could open itself up to thousands of unrelated lawsuits.

Meanwhile, the company has hired attorney Ken Feinberg for advice on how to compensate victims.

Feinberg is best known for his work deciding how to compensate victims of tragedies such as the Sept. 11 attacks, the BP oil spill and the Boston Marathon bombing.

In testimony before Congress earlier this month, CEO Mary Barra said "GM has both civic responsibilities and legal responsibilities," when it comes to the recall, which now affects 2.6 million cars and is linked to 13 deaths. To top of page

First Published: April 15, 2014: 9:10 PM ET


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Fears grow over China property flameout

housing china

There are signs that China's housing market may be significantly overheated.

HONG KONG (CNNMoney)

The sector is second only to the related problem of credit growth on a list of threats to China's economy -- according to economists surveyed by CNNMoney.

Talk of a property bubble in China is nothing new -- economists have long fretted over the meteoric rise of home prices, and the runaway pace of new construction.

Media reports on "ghost cities" -- newly constructed Chinese municipalities that were never occupied -- led to frequent warnings of a crisis, which has not yet materialized.

The sector's continued strength results in a kind of Rorschach test, where the same image is perceived very differently: Pessimists say real estate is emblematic of problems such as rapid credit growth and backward economic incentives. Bulls counter that the boom is sustainable, especially as hundreds of millions of Chinese migrate into urban areas.

The sheer size of the real estate sector -- some 16% of GDP -- underscores the importance of the debate for a world economy that is increasingly connected to China.

The fears of a slowdown have now returned, sparked by a flurry of reports from third and fourth-tier cities that suggest ailing developers are offering big discounts to unload property quickly. Even in some major cities, sales have slowed and homeowners are fretting over lower demand.

The far flung smaller cities account for almost 70% of all home sales, according to Japanese brokerage Nomura.

"In China, the true risks of a sharp correction in the property market fall in third- and fourth-tier cities, which are not on investors' radar screens," Nomura analysts wrote recently.

Yet it is difficult to make a definitive case that trouble is ahead.

Some statistics point to resilience. One indicator tracked closely by Beijing is the labor market, and that is holding up. Developers may be under stress, but there's no sign yet of a wave of defaults or bailouts.

Official data released by the Chinese government is largely unhelpful in gauging market risk. Prices are only offered for the largest cities, and home ownership statistics are not published.

The lack of data has produced a bevy of "known unknowns" -- or potential problem areas that are known to researchers, but remain clouded in mystery.

How much excess inventory currently exists? To what extent is the banking system exposed? How might Beijing respond in a crisis? Will developers receive government bailouts?

Related story: Top 10 U.S. cities for Chinese homebuyers

Foreign investors would likely be insulated in the short term because China's equity and property markets are largely closed to outsiders.

The immediate pain would be felt much closer to home. Many Chinese view their property as investments, and huge amounts of household wealth are tied up in real estate. Down payments of 30% are common.

But a housing shock could ripple out to the broader economy, especially the banking sector -- which provides financing to many developers. In addition, real estate is closely tied to the manufacturing and services sectors.

"Property sector over investment is the top macro risk because the property sector is currently the keystone of China's economy -- if it slows, systemic risks rise," said analysts at Nomura.

Beijing would have numerous cards to play in response to a crisis. Banks and developers could be bailed out, and toxic loans corralled and sealed off from the financial system.

And there's another reason to think the fallout could be contained: Unlike in the United States prior to 2008, China has not chopped up and securitized its mortgages, lowering the risk of contagion. To top of page

First Published: April 15, 2014: 9:39 PM ET


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China GDP slows to 7.4% in first quarter

china gdp

China's economic growth slowed in the first quarter of this year.

HONG KONG (CNNMoney)

The world's second-largest economy grew by 7.4% in the first quarter, compared to the same period last year, according to the National Bureau of Statistics. Economists surveyed by CNNMoney had forecast slightly slower growth of 7.3%.

The government has set an official GDP target of 7.5% for the full year, while economists expect full-year growth to slow to 7.3%. That compares with GDP growth of 7.7% in each of the past two years, 9.3% in 2011 and 10.5% in 2010.

China's GDP growth is the most comprehensive gauge of the country's economic health -- an important number to monitor as Beijing works to bring about stability after decades of breakneck growth. As part of efforts to find more sustainable growth, the government has introduced over the last year or so a wide range of reforms that tackle everything from fiscal policy to family planning standards.

Related story: Fears grow over China property flameout

China's economic strength is one of the most important bellwethers for the world economy. China is a major trading partner for any number of countries, and a significant slowdown could knock those relationships out of balance.

Some experts fear that the pace of China's expansion could slow further. Exports have slowed in recent months, and the real estate market is showing signs of weakness. Manufacturing, industrial production, retail sales and investment growth have also disappointed.

If the economy continues to flounder, it could prompt Beijing to step in with more robust stimulus measures -- so far, only a few minor spending initiatives have been announced.

Those measures, set forth earlier this month, included a tax break for small and mid-sized companies, financing for infrastructure projects already in the pipeline, and support for social housing construction.

Related story: China has first corporate default

"Policymakers appear comfortable with the current pace of growth," wrote Julian Evans-Pritchard of Capital Economics in a research note. "[China's Premier] Li Keqiang presumably already had a good idea of where first-quarter growth would come in when he ruled out major stimulus last week."

Looking ahead, credit growth continues to be a major risk facing the economy, according to a CNNMoney survey.

"The unresolved overhang of questionable investments made during the recent credit boom makes it difficult to breathe too easy," said Bill Adams, senior economist for PNC Financial Services. To top of page

First Published: April 15, 2014: 10:25 PM ET


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Obamas' income drops 21% to $481,098

Written By limadu on Minggu, 13 April 2014 | 14.44

obamas tax return

Like a lot of high-income Americans, the Obamas were subject to an additional Medicare tax to help pay for the president's signature health reform law.

NEW YORK (CNNMoney)

The bulk of their income came from the president's salary, but the Obamas also reported roughly $100,000 in business income from Random House and literary management company Dystel & Goderich.

The White House released the couple's 2013 federal tax return on Friday.

Their federal tax bill for 2013 came to $98,169, according to their return. That's an effective federal tax rate of 20.4% on the First Family's AGI.

But because they already paid $117,277 in federal taxes, they're due a big refund of $19,108. They opted to have it applied to their 2014 taxes.

Related: 4 ways the rich will pay more in taxes

Like a lot of very high-income Americans, the Obamas were subject for the first time to the additional Medicare tax that went into effect in 2013 to help pay for the president's signature health reform law.

The extra tax cost them an additional $2,310.

They also owed $136 in additional Medicare taxes on $3,578 in net investment income. Also as a result of Obamacare, net investment income is now subject to a 3.8% Medicare tax for people making more than $250,000.

And like roughly a third of all U.S. tax filers, the Obamas are itemizers. They claimed $147,769 in itemized deductions, the biggest of which was $59,251 in charitable contributions to organizations such as the Fisher House Foundation, American Red Cross and CARE.

A distant second was $42,383 deduction in mortgage interest.

Unlike a lot of Americans, the Obamas put aside a lot for their retirement, saving $20,681 in tax-advantaged retirement plans. To top of page

First Published: April 11, 2014: 5:26 PM ET


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Lawmakers release 250,000 GM recall documents

mary barra email

CEO Mary Barra's name appears on just one of the documents made public Friday, but GM says the email is unrelated to the ignition switch recall.

NEW YORK (CNNMoney)

Just one email released by the committee has GM CEO, Mary Barra's name on it. It discusses steering problems in Cobalts and Ions and was sent to her in 2011, before she became CEO.

The email didn't mention the ignition switch problem that sparked this year's massive recalls. Barra testified that she did not know the issue was even being investigated within GM until December of 2013. The recall was first ordered on January 31.

GM spokesman Alan Adler told CNNMoney Friday that the email has nothing to do with the ignition switch recall and "in no way contradicts Ms. Barra's previous statements."

The committee requested the documents as it tries to find out why it took GM more than a decade to recall 2.6 million vehicles with a defective part that lets the car sometimes shut off while being driven.

Related: GM finds new ignition flaw, will replace second part

Some of the GM documents show communication about investigations into why airbags were failing to deploy in some Cobalt accidents. Others show discussions about steering problems with some GM models. The documents also include memos from Delphi, the maker of the ignition switch, which we now know was flawed.

"These initial documents revealed failures within the system," said House Energy and Commerce Committee Chairman Fred Upton in a prepared statement.

The document dump comes less than two weeks after the committee heard testimony from Barra and David Friedman, the head of the government's auto safety agency.

Officials are also looking closely at the way the safety agency, The National Highway Traffic and Safety Agency, oversaw GM's recall.

One email dated July 24, 2013, indicates that at least one person at the agency thought GM was "slow to communicate" and "slow to act."

A subsequent email from Mike Robinson, GM's vice president of sustainability and global regulatory affairs, says that he hopes the agency as a whole does not have that view.

"We worked way too hard to earn a reputation as the best and we are not going to let that slide," Robinson wrote.

NHTSA could not be immediately reached for comment.

The House committee's investigation is ongoing. It is still receiving documents from GM (GM, Fortune 500), a spokeswoman said. To top of page

First Published: April 11, 2014: 7:18 PM ET


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Stocks: Let's put the volatility in context

NEW YORK (CNNMoney)

Consider this: We've already had roughly twice as many "big market swing" days -- when the Nasdaq, the S&P 500, and the Dow close 1% (or more) higher or lower -- than we did at the same point a year ago.

The market is always going to have some bumps along the way, but a lot of substantial jumps tend to coincide with really bad years for people who invest in stocks.

Last year was a dream for investors. The markets gained almost 30% in 2013. So far this year, stocks are down.

The Nasdaq has slid over 4%, the Dow over 3%, and the S&P more than 1.5%.

Ryan Detrick of Schaeffer's Investment Research thinks the volatility confirms that while we're not out of the bull market, we're at least on pause.

"Bull markets don't come with a lot of volatility. Historically speaking, a lot of volatility does not lead to big up moves," he said.

He's absolutely right.

If you look at two periods that were especially rough years for investors: 2008 (financial crisis) and 2000 (Dot.com bust), you can see that volatility doesn't bode well for the bull.

Detrick's team predicts that given the volatility we've seen so far this year, 2014 should turn out to be twice as volatile as 2013.

That means the "big market swing" day count could look something like this at the end of the year: Nasdaq: 77, S&P: 55, and Dow: 51.

When you look at these numbers compared with the amount of 1% or more daily moves we saw in 2000 and 2008, it doesn't seem so bad, does it?

To top of page

First Published: April 11, 2014: 6:26 PM ET


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Obamas' income drops 21% to $481,098

Written By limadu on Sabtu, 12 April 2014 | 14.44

obamas tax return

Like a lot of high-income Americans, the Obamas were subject to an additional Medicare tax to help pay for the president's signature health reform law.

NEW YORK (CNNMoney)

The bulk of their income came from the president's salary, but the Obamas also reported roughly $100,000 in business income from Random House and literary management company Dystel & Goderich.

The White House released the couple's 2013 federal tax return on Friday.

Their federal tax bill for 2013 came to $98,169, according to their return. That's an effective federal tax rate of 20.4% on the First Family's AGI.

But because they already paid $117,277 in federal taxes, they're due a big refund of $19,108. They opted to have it applied to their 2014 taxes.

Related: 4 ways the rich will pay more in taxes

Like a lot of very high-income Americans, the Obamas were subject for the first time to the additional Medicare tax that went into effect in 2013 to help pay for the president's signature health reform law.

The extra tax cost them an additional $2,310.

They also owed $136 in additional Medicare taxes on $3,578 in net investment income. Also as a result of Obamacare, net investment income is now subject to a 3.8% Medicare tax for people making more than $250,000.

And like roughly a third of all U.S. tax filers, the Obamas are itemizers. They claimed $147,769 in itemized deductions, the biggest of which was $59,251 in charitable contributions to organizations such as the Fisher House Foundation, American Red Cross and CARE.

A distant second was $42,383 deduction in mortgage interest.

Unlike a lot of Americans, the Obamas put aside a lot for their retirement, saving $20,681 in tax-advantaged retirement plans. To top of page

First Published: April 11, 2014: 5:26 PM ET


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