Business and Finance

World stock markets were mixed Monday as fears of a Greek debt default dampened the euphoria from a stronger-than-expected increase in U.S. jobs.

Benchmark oil fell to near $97 per barrel while the dollar rose against the euro and the yen.

European stocks fell in early trading as Greece’s coalition government was facing another day of tough negotiations with international lenders to reach a deal for Athens to receive a euro130 billion ($171 billion) emergency bailout.

The deal is vital for Greece to avoid bankruptcy as it cannot cover a euro14.5 billion ($19.1 billion) bond repayment due March 20.

Britain’s FTSE 100 slipped 0.3 percent to 5,883.86. Germany’s DAX fell 0.4 percent to 6,739.95 and France’s CAC-40 lost 0.8 percent to 3,399.17. Wall Street also was headed for a lower opening, with Dow Jones industrial futures down 0.3 percent to 12,751 and S&P 500 futures shedding 0.4 percent to 1,333.20.

Asian shares closed higher on the heels of a data released Friday that showed U.S. unemployment had fallen to its lowest in three years, suggesting a stronger recovery in the world’s No. 1 economy that could benefit the region’s exporters.

Japan’s Nikkei 225 index rose 1.1 percent to close at 8,929.20, its highest closing in more than three months. South Korea’s Kospi was marginally higher at 1,973.13.

Hong Kong’s Hang Seng lost 0.2 percent to 20,709.94, slipping into negative territory as investors began to cash in some of their investments as the talks in Greece dragged on.

“We hit 21,000 and now there is profit-taking, because there is still potential bad news from Greece,” said Jackson Wong, vice president at Tanrich Securities in Hong Kong. “The Greek debt talks are still going on, and no one knows if significant bad news will come out of there.”

Australia’s S&P ASX/200 added 1.1 percent to 4,296 while benchmarks in Singapore, mainland China and the Philippines also rose. Taiwan’s and Indonesia’s main indexes fell.

On Friday, the Dow Jones industrial average was propelled to its highest close since May 2008 after the U.S. Labor Department said the economy added 243,000 new jobs in January, the strongest job growth in nine months.

That helped to push the unemployment rate down to 8.3 percent and the number of unemployed down to 12.8 million.

Noting that a similar gain occurred in April 2010, only to be followed by a negative trend, analysts at DBS in Singapore said, “Stay optimistic but keep a few grains of salt close at hand.”

Falling unemployment in the U.S. is likely to be good news for Asia, as it suggests stronger consumer demand for the region’s exports of clothing, cars, consumer electronics and other goods.

Among Japanese shares, Panasonic Corp. soared 6.3 percent and Mazda Motor Corp. jumped 6.9 percent. Camera maker Nikon Corp. shot up 11.2 percent after revising upward its net pretax profit for the current business year, Kyodo News reported.

Chinese shipping companies, which also stand to benefit from increasing exports, also rose. Hong Kong-listed China Shipping Container Lines rose 5.1 percent. China COSCO Holdings gained 4.9 percent.

Benchmark oil for March delivery was down 66 cents to $97.19 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.48 to finish at $97.84 per barrel on the Nymex on Friday.

In currencies, the euro fell to $1.3059 from $1.3153 late Friday in New York. The dollar rose to 76.66 yen from 76.55 yen.

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The frightful images of a sinking Italian cruise ship have scared off some cruise passengers, at least temporarily, during the industry’s peak booking season.

Travel agents — who book more than two-thirds of cruise passengers worldwide — have been nervously watching bookings since the Costa Concordia, which is owned by Carnival Corp, ran aground on Jan. 13.

On Monday, they got a new reason to be nervous: bookings fell significantly for Miami-based Carnival Corp. following the Costa accident. Attention is now focused on Royal Caribbean Cruises Ltd., which reports earnings Thursday. An increase there could show that passengers are fleeing Carnival over safety fears. A decrease could indicate an overall distrust of all cruise lines.

Nearly 11 million Americans took a cruise last year, generating an estimated $14.5 billion in revenue for the industry, according to PhoCusWright, a travel research firm. Like the rest of the travel industry, cruise lines are still recovering from the recession. Several new megaships started sailing just as passengers struggling with finances decided to stay home. But 2012 was supposed to be a year of moderate growth.

Carnival won’t say exactly how much bookings have dropped, but it disclosed Monday that in the 12 days following the Concordia capsizing, there was a percent decline “in the midteens compared to the prior year.” Reservations hit a low on Jan. 16, the company said in its annual report filed with the SEC.

Carnival operates 101 ships under several brands including Costa, Carnival, Cunard, Holland America, Princess and Seabourn. It said reservations with the Costa line are “down significantly” but difficult to interpret because many Costa customers were rebooked on other ships because of the loss of the Concordia ship.

Unlike plane tickets or hotel rooms, which are mostly booked directly through the Internet, most cruises are sold by travel agents. That scattered sales approach makes it harder to gauge the impact of an accident like the Concordia.

“Who knows how many people … (were) on the fence and decided not to book?” said Michael Driscoll, editor of Cruise Week.

Barclay’s Capital noted that on Thursday, the Carnival line began offering promotional onboard credits of up to $200 for things like drinks and spa treatments.

“Despite this ad, which in normal circumstances would have stimulated strong call volume, calls remain down 10 (percent),” Barclay’s analyst Felicia R. Hendrix wrote in a note to investors.

A major unnamed online travel agent has also seen cruise call volume fall 30 percent, Hendrix said.

Hendrix also noted that cancellations in the U.S. are up 10 to 15 percent. That’s because savvy travelers are backing out of trips now in anticipation of getting the same cruise later for less.

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European financial chiefs are trying to soothe global CEOs and political leaders, insisting they have a handle on the eurozone’s troubles.

Germany’s Finance Minister Wolfgang Schaeuble says he’s “quite optimistic” about a Greek debt restructuring deal, despite recent strains in the complex talks. He says he doesn’t expect Greece to default.

He stressed that recent developments in markets have been “positive” for Italy and Spain.

France’s Finance Minister Francois Baroin welcomed actions by the European Central Bank that he says have helped “reduce tensions in the European banking system payday loans.”

Both spoke Friday at the World Economic Forum in the Swiss ski resort of Davos, where many business and political VIPs fear that Europe’s debt crisis will drag the global economy into a new recession.

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Japan’s central bank said Tuesday it expects the economy to shrink slightly during the fiscal year ending in March instead of expanding as it forecast earlier because of the overseas slowdown.

The Bank of Japan kept its key interest rate the same at close to zero percent but downgraded its growth forecast for the year ending March 2012 to a 0.4 percent contraction from the 0.3 percent expansion it gave in October.

The bank stuck to its projection for a moderate recovery starting the first half of the next fiscal year.

But it lowered its projection for fiscal 2012 to 2.0 percent growth from 2.2 percent growth No teletrack payday loans. It was more upbeat about fiscal 2013, raising that to a 1.6 percent expansion from 1.5 percent.

The bank said the massive debt problems in Europe as well as uncertainty about the U.S. economy are risks for Japan’s outlook.

The strong yen, which erodes the value of exports from the world’s third largest economy, also dragged down growth, keeping economic activity “more or less flat,” it said.

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Mexico

Should Republican presidential candidate Mitt Romney choose to release his tax returns, it likely will spur yet more debate about how much the rich should pay in taxes.

In particular, a lot of scrutiny may be given to how much tax Romney paid on the money he has made from Bain Capital, an investment firm he founded in 1984 and left in 1999.

That’s because the U.S. tax code lets fund managers of some investment firms pay a far lower tax rate on much of their compensation than they would if that money were treated as a salary or bonus.

The rule applies to managers of venture capital funds and private equity funds, both of which Bain runs.

The firm, which is a privately held investment partnership, uses money from outside investors to either invest in start-ups, buy out public companies, or invest capital in private ones, all in an attempt to boost their value and sell them at a profit.

Compensation for general partners — as Romney was at Bain — is typically based in part on the profits made on winning investments.

The partnership will set a minimum rate of return that the fund must achieve when it sells an asset, say 8%. And the general partners then get 20% of any profits above that. That compensation is called "carried interest."

Fact or fiction? Romney’s private equity past

But rather than being taxed as regular income — rates on which go as high as 35% - carried interest is taxed at the much lower capital gains rate of 15%.

The case made for applying the capital gains rate is to encourage investment. But general partners are entitled to carried interest even if they have not invested their own money in the fund (although most do invest some).

That’s why many — including President Obama — have called for carried interest to be taxed as regular income that is paid in exchange for investment services.

General partners are also paid a fixed management fee, which is taxed as ordinary income. Typically that fee is worth about 2% of the fund’s assets.

Since 1999, Romney - whose personal fortune is estimated to be as high as $264 million — has continued to profit from Bain’s work thanks to the terms of his retirement package.

Those who support taxing carried interest as a capital gain make a few arguments.

First, they say, the "sweat equity" of the general partner is as valuable as the financial equity of fund investors.

Second, the partner gets paid carried interest only if the fund does well. And it’s potentially subject to a clawback if other asset sales don’t meet their minimum "hurdle" rates.

Last, they contend, if rates did go up, it would discourage investment and risk-taking.

Gingrich’s ‘Bain bomb’ fizzles

"Carried interest is an important aspect of the capital gains tax system that is based on the uniquely American principle that we reward those who take entrepreneurial risk, whether that risk involves investing capital or other aspects of ownership that require years of time, effort, and vision," said Ken Spain, a spokesman for the Private Equity Growth Capital Council.

Others aren’t convinced.

"It’s not going to change how people do business," said Victor Fleischer, an associate professor of law specializing in venture capital and private equity taxation at the University of Colorado. That’s because the tax increase would only affect general partners, not the people who invest the bulk of money in private equity funds, he said.

Moreover, just because carried interest is dependent on good performance and may be clawed back isn’t reason to tax it more lightly than other income, Fleischer added.

"The fact that compensation is risky and not guaranteed doesn’t justify treating it as a capital gain."

Since 2007, measures to tax carried interest as ordinary income have been included in various bills, often to help pay for the cost of other tax cuts or spending increases. Should the change ever pass, it’s not expected to swell federal coffers, raising less than $20 billion over 10 years. 

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Standard & Poor

Global stock markets were mixed Friday on 2011’s last trading day and turned in heavy losses for the year after Europe’s debt crisis and natural disasters battered a struggling global economy. Japan’s benchmark hit its lowest close in three decades.

Benchmark oil hovered below $100 per barrel and the dollar weakened against the yen but rose against the euro.

Asian traders recorded gains for the day Friday but markets in Tokyo, Shanghai and Hong Kong ended the year with double-digit losses.

Japan’s Nikkei 225 index, after three straight days of losses, rose 0.4 percent to 8,429.45, but it was the lowest closing since 1982. China’s benchmark gained 1.2 percent to close at 2,199.42 _ still, a 20 percent loss for the year.

European shares were steady or slightly down in early trading. Britain’s FTSE 100 lost 0.2 percent at 5,555.92. Germany’s DAX was marginally down at 5,846.35 and France’s CAC-40 was nearly unchanged at 3,127.34.

Wall Street appeared headed for a lower closing, with Dow Jones industrial futures down 0.2 percent at 12,194 and S&P 500 futures slipping 0.2 percent to 1,255.40.

Hong Kong’s Hang Seng Index gained 0.2 percent to close at 18,434.39.

Australia’s benchmark S&P ASX 200 ended the year at 4,140.4 _ down 0.4 percent on the day and 14.5 percent lower for 2011. A day earlier, South Korea’s benchmark Kospi closed at 1,825.74 on Thursday _ 11 percent down on its last trading session of the year Thursday.

Analysts said global stocks tumbled in lockstep, suffering from the effects of natural disasters, a wobbly recovery in the U.S. _ and an escalating European debt crisis that has resisted repeated measures taken by the region’s governments and financial institutions.

“The big reason is Europe. Europe tried to muddle through without a real solution. They can save a small country like Greece, but they cannot save a big country like Italy. Two trillion euros in foreign debt _ nobody in the world has that kind of money,” said Francis Lun, managing director of Lyncean Holdings in Hong Kong.

“Europe will enter a lost decade, a decade of no solutions and no growth,” he said. “Maybe except in Germany, their machinery is still selling.”

Japan’s benchmark plunged after the March 11 tsunami and earthquake disaster that destroyed huge chunks of the island nation’s northeastern region, left 20,000 people dead or missing and set off the world’s worst nuclear crisis since Chernobyl.

Disaster damage extended to key suppliers for major companies like Toyota Motor Corp. and Sony Corp., which suffered production disruptions. The Thai flooding that followed caused similar problems for automakers, including Honda Motor Co., but on a smaller scale.

The Tokyo market also saw two big-name brands lose much of their value.

One was Tokyo Electric Power Co., the utility that runs Fukushima Dai-ichi nuclear power plant, where at least three reactors went into meltdown after tsunami destroyed backup generators to keep power going at the plant.

Some officials say TEPCO may have to be nationalized because of ballooning losses and the costs to bring the reactors under control and compensate victims.

Another was camera and medical equipment maker Olympus Corp., whose offices have been raided by criminal investigators after fabricated accounting to cover up massive investment losses came to light no fax payday loans.

A British executive, who has since resigned from the board, was first to draw attention to the dubious investments, and has become a celebrity figure raising questions about old-style Japanese management.

Across the board, Japanese companies have been slammed by the rising value of the yen, which erodes the value of revenue from exports.

The Nikkei lost nearly a fifth of its value over the past year. It nose-dived right after the disaster, recouped some of those losses in July, but then started a decline that has the benchmark hovering at below the March value.

China’s benchmark Shanghai Composite Index lost 21 percent in 2011 as the impact of Beijing’s multibillion-dollar stimulus faded and the government tightened curbs on lending and investment to cool blistering economic growth.

The flood of state spending and bank lending after the 2008 crisis fueled a surge in real estate and stock prices. In 2010, Beijing responded by clamping down on credit and real estate speculation to cool inflation and soaring housing prices.

Beijing is trying to steer growth to a more sustainable level after 2010’s explosive 10.3 percent expansion. Growth eased to 9.1 percent in the three months ending in September, down from 9.5 percent the previous quarter.

Chinese leaders have promised to ease credit to help exporters and smaller companies cope with falling global demand and weaker domestic growth. But they say most controls will remain in place. That has disappointed stock traders who are hoping for interest rate cuts and looser controls on bank lending. They have responded in recent weeks by dumping stocks and moving some money to U.S. and European markets.

The benchmark Hang Seng Index slipped in the second half of the year as concerns over Europe accelerated, sending it to a 2011 low in early October before bouncing slightly to end the year at a 20 percent loss.

Hong Kong is Chinese territory, but its financial markets are open to foreign companies and investors, which made it a popular destination this year for foreign companies looking to go public, drawn by the prospect of raising their brand profiles with China’s newly wealthy as growth flags in their home markets.

Italian fashion house Prada was one of the biggest names to list in Hong Kong, with an initial public offering in June that raised $2.5 billion, making it the sixth-biggest IPO globally this year, according to deal tracking service Dealogic.

Other foreign companies that took out primary or secondary listings in Hong Kong include MGM China Holdings Ltd., the Macau casino arm of MGM Resorts International, luggage maker Samsonite S.A. and U.S. luxury handbag maker Coach Inc. However, the slumping market means share prices for many companies that went public are ending the year lower than IPO price.

Benchmark crude for February delivery fell 28 cents to $99.37 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 29 cents to settle at $99.65 in New York on Thursday.

In currency trading, the dollar fell to 77.58 yen from 77.65 yen late Thursday in New York. The euro fell to $1.2913 from $1.2939.

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