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President Bush Delivers Oil Plan

Wednesday, 26 April 2006 12:00 AM

President Bush, addressing the Renewable Fuels Association, rolled out his oil plan for 2006. Among the initiatives, the president emphasized the need to increase the use of alternatives to oil, such as ethanol, bio diesel, and hydrogen-powered fuel cells.

Bush urged oil companies to step up their investments in alternative energy initiatives and refinery expansion. The president said, "Listen, at record prices, these energy companies have got large cash flows, and they need to reinvest those cash flows into expanding refining capacity, or researching alternative energy sources, or developing new technologies, or expanding production in environmentally friendly ways."

The president also said that he would like to end big oil's tax breaks, saying that the record profits that they have made this year prove that the oil companies don't need tax incentives. He urged Congress to remove the breaks and instead expand tax incentives for buyers of hybrid cars.

The president talked about the money that has been earmarked for alternative energy. His 2007 budget calls for $150 million for bio diesel and ethanol, $31 million for battery technology to create "plug-in hybrids," and $289 million to accelerate the development of hydrogen-powered fuel cell cars.

President Bush also announced the Department of Energy will stop adding oil to the strategic petroleum reserve for a few months in order to increase the supply of oil on the market. In addition, he directed the Federal Trade Commission to look into any allegations of price gauging. The president also lifted some regulations on gasoline standards.

After the speech, oil prices fell to their lowest levels in a week. 

Sales of existing homes inched up 0.3% in March – the second month in a row that existing home sales edged up.

The rise in sales was once again due to unseasonably warm weather in the Northeast and Midwest. Sales in the West and South slid 0.7% in the month.

Overall, the trend in home sales is down. Sales are 5% below their June 2005 peak, according to Economy.com. And compared to the fourth quarter of 2005, sales in the first quarter tanked 16%.

Plus, it's taking longer to sell a home. The average amount of time it takes to sell a house rose to 5.5 months. That's way above the level a year ago.

For example, the inventory of single-family homes is 33% higher than a year ago, and inventory levels are at their highest since October 1998, says Economy.com.

Condo inventories are up an astounding 85% over last year, and it takes nearly 7 months on average to unload a condo in this market, compared to 3.7 months last year, according to Economy.com.

At this point, the pace of sales is not keeping up with the number of houses coming on the market. In March, the number of existing homes for sale reached a record 3.194 million.

In addition, prices of existing homes are dropping. The median price of an existing home dropped 1.6% nationally in March compared to February. Prices fell in the Midwest, South, and West. 

The Conference Board this morning announced that its consumer confidence survey rose to its highest level in almost four years. The survey indicates that consumers will continue their robust spending levels.

The optimism displayed by consumers was a surprise to analysts who expected confidence to ease in April amidst higher fuel prices and a rocky housing market.

But, the improved employment situation seems to have bolstered consumers' outlook.

Consumer outlook on present conditions and future expectations jumped in April, while consumers agreed that business conditions and employment opportunities were good.

However there is some cause for concern. Despite their upbeat outlook, consumers plan to hold back on major purchases, such as appliances, in the coming months.

This could be an indication that higher fuel prices and a drying up of home equity cash will cause consumers to tighten their purse strings. The survey is taken over the first 18 days of the month, which means that it didn't include the recent spike in gas prices.

So, April may just be the peak in consumer confidence this year. Stay tuned.

In the wake of a current worldwide mergers-and-acquisitions boom, more and more hedge funds are reverting to using convertible bonds as investments, according to a Monday article in The Wall Street Journal.

Convertible bonds are vehicles that can be transformed into stocks once they hit a specific price. They "are a popular way for companies to raise money to fund acquisitions because other investors' shareholdings aren't immediately diluted by the issuance of new stock, and the convertible securities can be brought to market quickly," says the WSJ.

"That means a company can get cash fast, rely less on banks for short-term financing, and avoid a lot of the time and costs associated with drumming up interest among investors for other types of securities."

Previously, convertibles had been exceptionally attractive to hedge funds as they offered numerous trading strategies to allow funds to profit from minor fluctuations "in the bond, the underlying stock, or the difference between the two."

That was until markets calmed down considerably and few new convertible bonds materialized, causing hedge funds to sustain a major hit. But now, it seems, funds could be regaining their taste for convertibles – with the return of market volatility and success in the equity markets.

In 2005 the market saw only $77 billion in issued convertibles – the lowest amount in seven years. But there has since been a rally.

"Companies raised over $31 billion globally in convertible bonds in the first three months of 2006, the highest quarterly tally in nearly two years and a 51% increase from last year's first quarter," says the WSJ.

Many experts attribute the resurgence to mergers and acquisitions.

"The biggest change has been M&A, as it has been the catalyst for companies needing funding again," said Martin Fisch, who heads convertible origination in Europe for Deutsche Bank, according to the article.

But overall, while performance of convertible bonds has improved, hedge funds remain considerably less invested in them, compared to the past, "when, at times, the private investment funds for wealthy investors accounted for as much as 75% of all convertibles trading," said the article.

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President Bush, addressing the Renewable Fuels Association, rolled out his oil plan for 2006. Among the initiatives, the president emphasized the need to increase the use of alternatives to oil, such as ethanol, bio diesel, and hydrogen-powered fuel cells. Bush urged oil...
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Wednesday, 26 April 2006 12:00 AM
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