But they may be struggling in vain.

Since 1945, the party that has controlled the White House has lost an average of 16 House seats in the president’s first midterm election, according to the Cook Political Report, a nonpartisan publication in Washington. However, losses for the Democrats could be far steeper next year if they fail to put unemployed Americans back to work.

Then-U.S. President Bill Clinton and the Democrats lost 52 House seats in 1994.

“Unemployment is the leading economic indicator when it comes to politics,” Democratic pollster Peter Hart told The Wall Street Journal. “Anytime unemployment hits double digits, it’s hard to see the party in control having a good election year.”

Right now, polls are showing that the majority of Americans list jobs as their top concern. And rightfully so.

The economy unexpectedly shed 263,000 jobs last month as the jobless rate soared to a 26-year high of 9.8%.  And many economists expect the unemployment rate will reach 10% by the end of the year and peak at about 10.5% next summer.

Lawmakers are scrambling to staunch the bleeding, but that process has been made difficult by an escalating budget deficit.

The government ended its 2009 fiscal year in September with a total deficit of $1.4 trillion, the Congressional Budget Office (CBO) said. That equates to 9.9% of gross domestic product and is the largest deficit since 1945.

Government spending rose by 18% in the year, with the bailout of the financial industry, which alone required $245 billion. The spending increases and tax cuts included in the economic stimulus package approved in February added almost $200 billion to the 2009 deficit, the CBO said.

The Obama administration’s $787 billion stimulus plan, which was touted as a catalyst for job creation, has been criticized for its slow progress and ineffectiveness.

Only about a quarter of Obama’s stimulus, or $164 billion, has been paid out. About half, nearly $400 billion, will be paid out over the next 12 months in the build-up to mid-term elections, and the remainder will be disbursed in 2011.

In January, the administration claimed the stimulus package would keep unemployment below 8% and push it below 7% by the end of 2010 – a fact that has already been seized on by Republican opposition.

“We’ll continue to remind Democrats of their failed promises that led to what is now, at best, a jobless recovery,” said National Republican Congressional Committee (NRCC) spokesman Paul Lindsay told The Journal.

President Obama said in his Saturday radio address that he would “explore additional options to promote job creation.”

But with a growing perception that the stimulus has failed and a deepening concern about the nation’s snowballing deficit, the White House has bristled at talk of a second stimulus package.

“This is not a discussion of second fiscal stimulus,” Jen Psaki, the senior White House economic spokeswoman told the Financial Times. “The president and his economic team have continued to look at a wide number of policy options to create new jobs and ease the burden of those who cannot find employment but any notion that we are any farther along than preliminary discussions about new proposals is wildly inaccurate.”

In particular, the administration is hoping to extend such stimulus measures as the $8,000 tax credit for first-time homebuyers.

When it expires on Dec. 1, the homebuyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, Mark Zandi, chief economist at Moody’s Economy.com, told The New York Times. That’s roughly in line with estimates from the National Association of Realtors (NAR).

Zandi, who formerly advised Senator John McCain, recommends extending the credit through August 2010. Legislators are also considering extending the credit to current homeowners.

The administration may also consider expanding the federal transportation funding program, which comes up for renewal every six years. That 2003 program expired on Sept. 30 and is currently operating under a 30-day extension period.

Obama is also expected to push for an extension of the “Making Work Pay” middle class tax cut that accounted for about a third of the February stimulus.

Extending these programs could cost the government tens of billions of dollars in tax revenue.

For example, congressional analysts estimate the cost of the current homebuyer credit at about $1 billion a month. Expanding the credit through next August could cost as much as $30 billion, according to Moody’s Zandi.

That, in turn, could lead to another large run-up in the budget deficit, which in the last year was exacerbated by dwindling tax revenue. Individual income taxes, the biggest source of tax receipts, fell by 20%, and corporate income taxes dropped by 54%, the CBO said.

“There may not be anything we can do,” a Democratic Congressional leadership aide conceded to The Times. “Under any circumstances, it’s going to take a while for jobs to recover.”

Source: Can Democrats Anchor Unemployment Without Doing More Damage to the Deficit?

Since the stock market rally reached a pinnacle nearly two weeks ago, the Dow Jones Industrial Average has lost about 3.3% while the Standard & Poor’s 500 Index has fallen about 3.7%. And if this week’s earnings report come in below expectations, the rally that helped stock prices surge more than 50% could come to an abrupt end.

Fortunately, many of the companies set to report earnings this week are traditionally strong performers and for the most part, companies that have weathered the financial crisis. But not all of them have met Wall Street’s expectations.

The quarterly results for five companies in particular – Yum! Brands Inc. (NYSE: YUM), Alcoa Inc. (NYSE: AA), Costco Wholesale Corp. (Nasdaq: COST), Monsanto Corp. (NYSE: MON) and PepsiCo Inc. (NYSE: PEP) – will of particular interest to investors.

Yum! Brands Inc.

Scheduled to report today (Tuesday), the Louisville, Ky.-based Yum! will be one of the first companies to report its quarterly take.

As owner of the Taco Bell, Kentucky Fried Chicken (KFC) and Pizza Hut brands, Yum! is the world’s largest restaurant company. Even more impressive, the company has beaten the market’s consensus forecast in the last four quarterly reporting periods.

Analysts’ estimates for the quarter ending September 2009 range from a low of 52 cents a share to a high of 63 cents a share, with a consensus of $0.59 a share. Yum will lean heavily on its international business if it’s going to continue its trend of topping analysts’ estimates.

Yum! is a well balanced company with about 41% of its 2008 operating profit coming from the United States and the rest from overseas – particularly China.

By 2013, China will account for 40% of Yum’s operating profit – up from 28% in 2008 – while the United States and the rest of the world will each account for a 30% share, according to company projections.

KFC, in particular, has long seen its most robust growth coming from China, with less than 10% of its franchises on the mainland accounting for more than a quarter of the company’s earnings.

Yum! added 328 new restaurants in the second quarter, including 118 in Mainland China.

“Yum!’s global growth potential, consistent performance and track record of generating strong free cash flow give us the confidence and ability to return significant cash to our shareholders even in these challenging economic times,” said Yum! Chief Executive Officer David Novak.

An analyst with Credit Suisse Group AG (NYSE ADR: CS) earlier this week told Barron’s that Yum! shares deserve a better premium because of its large international footprint and ongoing reallocation of capital.

Yum! shares should trade at a premium to their peer group and could climb nearly 25%, a the analyst said.

Shares of Yum! surged 5.13% yesterday to close at $34.85.

Alcoa Inc.

Though its release comes a day after Yum’s, Alcoa’s quarterly report marks the unofficial start of earnings season.

Hit hard by the collapse of commodities prices and sluggish industrial demand, Alcoa has missed earnings expectations in three of the past four quarters. And the company’s latest earnings report will likely show that its struggles continued, albeit at a slower pace.

Alcoa is expected to report a net loss of 12 cents per share for the three months that ended in September. That’s down substantially from a profit of 37 cents a share in the same period last year, but would be a marked improvement on the 32 cents a share loss the company posted in the second quarter.

Indeed, Alcoa’s earnings will provide an important look at just how far global demand for industrial metals has come. Hopes are high, as Alcoa stock has surged more than 143% since mid-March.

Deutsche Bank AG (NYSE: DB) analyst Jorge Beristain has increased his rating of Pittsburgh-based Alcoa to “Buy” from “Hold” and increased his price target to $17 from $12.

The upgrade partially reflects Deutsche Bank’s higher price projections for base metals. The bank sees base metal prices climbing an average of 31% next year, on account of strong third-quarter “price surges” and increased demand from China, Beristain said in a note to clients.

“China’s seemingly insatiable appetite for industrial raw materials has led to record high imports in many metals and a consequent tightening in market balances,” he said.

Alcoa’s stock rose 4.68% in trading yesterday, to close at $13.42 a share.

Costco Wholesale Corp.

Costco is the largest membership warehouse club chain in the world by sales volume. That makes it an ideal choice for cost-conscious consumers. Costco has enjoyed seven straight years of earnings growth, but the company’s past two quarters have disappointed investors.

The third time might be the charm for the nation’s largest warehouse chain. William Blair & Co. LLC analyst Mark Miller last month upgraded the stock to “Outperform” from “Market Perform” and after the company stepped up sales in August.

Sales at established locations declined 2%, beating Wall Street expectations for a larger 5.7% decline.

“With the step-up in sales during August and positive takeaways from our meeting last week with [Costco Chief Financial Officer] Richard Galanti and [Vice President of Financial Planning and Investor Relations] Bob Nelson, we are more confident that sales and earnings could meaningfully surpass Street expectations over the next year,” said Miller.

Like Yum!, Costco could receive a significant bump from its overseas operations, as recent store openings in Asia have been strong and the dollar has weakened.

For the third quarter, the average analysts’ estimate is for a profit of 76 cents a share – a 17% drop from the 92 cents a share it earned in the same quarter last year.

Costco CEO Jim Sinegal said earlier this month in an interview with Motley Fool that he expects his company to turn around regardless of whether or not the economy experiences a quick recovery.

“We can always blame bad sales on weather and on economic conditions and everything else,” he said. “But when we have the right merchandise out on the floor, it sells. … [We] don’t like the fact that the [average customer] basket is down, but we certainly like the fact that the customers are coming back more frequently and, as things turn, they will start to buy again. Now it is on us to get the hot merchandise.”

Costco stock edged up 0.73% yesterday to close at $56.88 a share.

Monsanto Co.

As the world’s largest producer of genetically modified seeds, Monsanto is a closely watched biotech bellwether. Like Alcoa, Monsanto was hit in recent quarters by a drop in commodities prices, as well as a drop in demand for its products.

However, the company announced an acquisition, a partnership, and a divestiture in its fiscal fourth quarter. It is expected to squeeze out a one cent per share profit, compared to three cents per share loss in the same quarter last year.

Monsanto’s acquisition of WestBred LLC – a Montana-based company that specializes in wheat germplasm – will bring wheat into its seeds and traits portfolio, and its joint venture with Dole Fresh Vegetables, Inc. will put more genetically modified vegetables on Monsanto’s plate. Meanwhile, Monsanto’s divestiture of its global sunflower assets to Syngenta brought in $160 million.

The company also shed 9,000 employees in a bid to cut costs, and despite being heavily targeted by anti-trust groups and chief rival E.I. du Pont de Nemours & Co. (NYSE: DD), Monsanto insists it’s on track to more than double its 2007 profit by the year 2012.

“We have committed to using our technology to double yields in our three core crops – corn, soybeans and cotton – by 2030, while reducing our use of key resources by one-third per unit produced,” said Monsanto Chairman and CEO Hugh Grant. “Innovation has us well on our way to achieving this, with our most robust pipeline ever. We’re on the verge of an unprecedented technology explosion that will deliver the types of products growers want most – those that offer greater yield and value.”

By 2012, Monsanto expects its gross profit from its core seeds and traits business to be between $7.3 billion and $7.5 billion – about 2.5 times its 2007 level. Grant said this increase will be facilitated by the development of seven new “high impact technologies” that by 2020 will boost revenue by $3 billion.

Monsanto has reported better-than-expected earnings in the past three quarters, and at Monday’s close of $74.85 a share is an undervalued stock according to Morningstar.

“Monsanto is a fierce competitor that continues to dominate a market that it essentially created more than a decade ago,” said Morningstar senior analyst Ben Johnson. “Through its ongoing commitment to research and development and assertive capital allocation, the company has positioned itself to grow value for its shareholders over the long haul.”

PepsicCo Inc.

Of all the companies reporting this week, PepsiCo has generated the most buzz. Bullish speculators yesterday piled into PepsiCo call options after Deutsche Bank raised its earnings for the salty-snack-and-soda giant.

Call volume surged by nearly 700%, according to optionMonster.

Deutsche Bank raised its price target for PepsiCo shares, which closed yesterday at $60.85, to $70 from $66. The bank maintained its buy rating on the stock, and said shares have been negatively affected by an “unwarranted deal overhang” related to the company’s acquisition of Pepsi Bottling Group Inc (NYSE: PBG).

PepsiCo in August said it would merge with Pepsi Bottling, as well as invest in Russia, during the three months that ended in September, and is expected to post a profit of $1.02 per share – four cents per share less than a year ago. Revenue for the quarter is expected to come to $11.3 billion, about the same as last year.

PepsiCo has only missed expectations in one of the past four quarters, and by just two cents at that.

Source: The Five Stocks to Watch This Week

China has used depressed commodities prices to stock up on long-term supplies of raw materials such as oil, copper, and iron.  And it’s used structural weakness in the U.S. financial system as justification for replacing the dollar as the world’s main reserve currency.

Now, the Red Dragon is looking to make headway on the highway by winning global market share in the automotive market while U.S. heavyweights spin out.

“We aren’t afraid of the financial crisis,” Zhou Fuquan, vice president of Geely Automobile Holdings Ltd. (PINK: GELYF), told Bloomberg News. “On the contrary, we hope it will penetrate even further as it has provided us with some opportunities.”

Geely is China’s biggest private automaker, but that isn’t exactly saying much. The company’s annual output is just 300,000 units, and its market share in China is a meager 3%. Still, Hangzhou- based Geely is determined to become a global player in the auto industry. It has ambitions to sell 2 million cars a year, including 1.3 million overseas – even though right now the company generates just 5% of its sales from abroad.

Of course, that’s why the financial crisis has been more of a financial opportunity for Geely. In March, Geely bought key assets from bankrupt Australian gearbox maker Drivetrain Systems International – the world’s second-largest maker of automatic transmissions.

“The economic downturn provides us with very good overseas acquisition opportunities,” Daniel Dai, vice president for international business at Geely, told China Daily. “We get the best technology with the best price.”

Geely has also set up a joint venture with Manganese Bronze Holdings PLC (MBH) to produce the TX4 London Taxi in Shanghai. MBH supplies taxis to Saudi Arabia, Turkey, and Spain as well, boosting Geely’s global presence.

For months, analysts have speculated that Geely will continue to its overseas expansion by launching a bid for Ford Motor Co.’s (NYSE: F) Volvo unit. Ford, which is the only “Big Three” auto company to not receive government aid, last December started looking to offload the Swedish car brand in an effort to pay off the debt it accrued when the company borrowed $23.5 billion in 2006.

Geely said on Sept. 9 that it might partner with a state-owned investment company to bid for Volvo. And earlier this week, the company announced that it would raise $334 million in funds from Goldman Sachs Group Inc. (NYSE: GS) through a convertible bond offering to “fund the capital expenditures of the group, potential acquisitions by the group and for general corporate purposes of the group.”

However, some analysts have pointed out that the Goldman capital falls well short of the roughly $2 billion Ford is asking for Volvo. They believe Geely instead will use the money to increase capacity and market the models it already has to buyers outside of its home market.

“The management is planning to expand its distribution channel to foreign countries,” Richard Li, research director at Celestial Asia Securities Holdings, told Forbes magazine. “This deal can provide this company enough funds so that the cash flow will be upgraded long term.”

And if nothing else, Goldman’s investment could be enough to instill investor confidence in the small Chinese carmaker.

Almost a year ago to the day Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) subsidiary MidAmerican Energy Holdings Co. agreed to pay roughly $230 million for a 9.89% stake in Chinese car and battery producer BYD Co. Ltd. Since then, BYD’s shares have jumped more than fivefold in that time.

“A big name investor certainly helps boost stock prices and brand recognition,” Li Lixi, a Northeast Securities Co. analyst in Shanghai, told Bloomberg. “Goldman’s investment in Geely may repeat the impact that [Warren] Buffett had on BYD.”

Geely’s Hong Kong shares yesterday (Wednesday) surged to their highest in more than nine years on the news of Goldman’s investment.

The Race to Build a Competitive Chinese Brand

Geely isn’t the only Chinese companies looking to use the financial crisis as an opportunity to broaden its global reach either. Other Chinese companies, including Beijing Automotive Industry Holdings Co. (BAIC), SAIC Motor Corp. Ltd., and Sichuan Tengzhong Heavy Industrial Machinery Co., are determined take the lead in what has become a race to be the first world-renowned Chinese automotive company.

“It takes decades to establish a recognized, renowned brand,” Jim Hossack, an industry analyst at researcher AutoPacific Inc., told Bloomberg. “China wants to do it much faster, perhaps within as little as five years.”

BAIC on Sept. 9 joined Koenigsegg Group in its bid for GM’s Saab division. Koenigsegg – backed by U.S. and Norwegian investors – in June agreed to buy Saab from GM, but struggled with financing the deal.

SAIC group, the parent of China’s largest automaker, had also considered coming to Koenigsegg’s aid in the Saab bid. But ultimately it was BAIC that came through with the $420 billion in financing needed to close the deal.

“This is a great opportunity for us to partner up with a brand like Saab that we believe has a great future with a new business plan and new ownership,” Wang Dazong, general manager of Beijing Auto, said in a statement posted on its Web site.

Koenigsegg and BAIC will form a joint venture to market Saab cars in China, where the brand has little-to-no presence. BAIC will also gain valuable technology from the Swedish car company.

“Chinese manufacturers are hoping to buy up technology that will help them catch up to world standards on both the product and the development side more quickly than they would on their own,” Christoph Stuermer, automotive analyst at IHS Global Insight Inc., told the Financial Times.

However, not every Chinese endeavor has been greeted with success. Shanghai-based SAIC in 2004 paid $500 million for 49% of Ssangyong Motor Co. just to watch the South Korean carmaker go into receivership in February. And Sichuan Tengzhong Heavy Industrial Machinery’s attempted takeover of GM’s Hummer brand is still being stalled by China’s central government.

“It’s not in coordination with our nation’s industrial policy,” Vice Minister of Commerce Chen Jian said after sending back Sichuan’s application to acquire the Hummer brand for $100 million.

Still, Chinese auto companies won’t be satisfied until they race ahead of their Western counterparts.

“I’m fighting for what’s in overseas automakers’ rice bowls,” Geely founder Li Shufu told Bloomberg. “I want to build Geely into a global first-tier automaker.”

Source: Financial Crisis Gives Chinese Car Companies a Chance to Get Up to Speed

After slashing its forecast for the region in March, the ADB reversed course in its updated Asian Development Outlook (ADO) 2009. The bank said developing economies in Asia would grow by 3.9% this year, up from its previous forecast of 3.4%.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said ADB Chief Economist Jong-Wha Lee.

However, the growth will not be evenly distributed. Economic growth in East Asia will be driven largely by China’s dynamic economy. But economic growth in Southeast Asia will be sluggish, because the recoveries of Vietnam and Indonesia will not be enough to offset weakness in Malaysia, Thailand and Cambodia.

ADB boosted its outlook for annual economic growth in China to 8.2% from 7% earlier this year, and the bank believes China’s economic expansion will accelerate to 8.9% next year. That will help push economic growth in East Asia to an annual rate of 4.4%, compared to 0.1% growth in Southeast Asia.

ADB had underestimated China’s resilience in March when it predicted just 3.6% growth for East Asia.

“In the People’s Republic of China, aggressive monetary easing and the massive fiscal stimulus package rolled out by the government bolstered the region’s largest economy, which is now expected to grow by 8.2% in 2009 and 8.9% in 2010, up from the March forecast of 7% and 8% respectively,” said ADB.

Indeed, the potency of China’s $587 billion (4 trillion yuan) stimulus plan caught many analysts off guard.  Two of the world’s key global institutions – the World Bank and the Organization for Economic Cooperation and Development (OECD) – and a large swath of investment banks were forced to raise their 2009 and 2010 growth estimates for China’s economy after the country announced second-quarter gross domestic product (GDP) growth of 7.9%.

The OECD said it now expects China’s economy to grow by 7.7% this year and the World Bank boosted its projection to 7.2% growth.  GDP will expand by 9.3% in 2010, according to OECD estimates.

BNP Paribas SA (OTC: BNPQY), Barclays Capital, Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), UBS AG (NYSE: UBS), Morgan Stanley (MS), Standard Chartered Bank, and RBC Capital Markets all raised their forecasts for China’s economy as well.

China’s stimulus package gave the economy a big kick in the first half of the year, spurring bank lending and driving fixed asset investment. It even stimulated the oft-maligned Chinese consumer, boosting domestic demand while the market for exports remained dormant.

Chinese banks lent about $1.08 trillion (7.37 trillion yuan) in the first half of the year, nearly double the total loans extended throughout all of 2008.

Fixed-asset investment rose 33.5% in the first half year to $1.34 trillion (9.132 trillion yuan), according to the National Bureau of Statistics (NBS). Investment in infrastructure rose 57.4% year-over-year, with spending on railways up 126.5% and highway spending up 54.7%. Property sales were up 53% in the first six months from a year earlier.

Of course, fixed-asset investment has been consistently strong in China for the past decade. The real turnaround in the past six months has been that the frugal Chinese consumer has begun to spend more liberally.

China’s retail sales in the first half of the year rose 15% to $859.6 billion (5.87 trillion yuan).

Still, the ADB did warn Asian countries that their strong recovery is still uncertain and said they should continue to carry out stimulus measures until Western countries catch up.

“The improved regional outlook should not make developing Asian economies complacent,” said Lee. “A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region’s ongoing recovery.”

Source: Asian Economies to ‘Lead the Recovery,’ Says ADB

Supply has outrun demand this year as a global recovery has yet to accelerate. Yet, oil prices more than doubled from February to August and are up about 50% from where they started the year.

Now, many traders are positioning themselves to profit from a pullback. The gap between prices of options betting on a decline in prices and those that would profit as a result of a rise in oil has widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch.

Put options, which give traders the right to sell oil in December below current prices have an implied volatility of 54.3%, compared to 43.3% for options to call, Bloomberg News reported. Implied volatility is estimated volatility of a security’s price. Implied volatility generally increases when the market is bearish and decreases when the market is bullish.

Implied volatility is used in calculating an option’s premium and right now the premium for December and other put options shows “the market is worried,” Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA (NYSE ADR: BNPQY) told Bloomberg.

“If puts are pricing higher than calls, we are looking at a situation where the market is more averse to the downside and is looking for more compensation” for the option, he said.

Perhaps the biggest reason the market is worried is that a generous supply of oil remains on the market, some of it piled up in offshore tankers. Meanwhile, the global economy is healing at a considerably slow pace with many analysts forecasting a so-called U-shaped recession for the United States – the world’s largest petroleum consumer.

U.S. stockpiles of crude are 14% higher than they were a year ago, according to the International Energy Agency (IEA). U.S. distillate fuel inventories – which include heating oil and jet fuel – stood at 167.8 million barrels as of Sept. 11 of this year, according to the Energy Information Administration (EIA). That’s the highest level since 1983.

As of Sept. 11, U.S. gasoline supplies are at 207.7 million barrels – 2.2% higher than they were in late May at the start of peak summer driving season, according to the EIA.

The story is much the same overseas where gasoil stockpiles – the European equivalent of heating oil -reached a record 23 million barrels on Sept. 10, according to PJK International BV, Bloomberg reported.

At the end of July, oil inventories in the 30 nations of the Organization for Economic Cooperation and Development (OECD) totaled about 2.8 billion barrels – 4.6% more than the same time last year, according to the IEA. More than 60 million barrels of oil are being held in tankers offshore.

The Centre for Global Energy Studies (CGES) in a monthly report that it expects high crude stockpiles will continue to constrain the market.

“The CGES expects little sustained upward pressure on oil prices over the remainder of this year and even next year prices are unlikely to rise much unless clear signals emerge that world is pulling out of recession in a sustainable fashion,” the CGES said. “High inventories, particularly of middle distillates, are putting a ceiling on oil prices at the moment … and this will only lift once those inventories start to be drawn down.”

The report also noted the Organization of Petroleum Exporting Countries (OPEC), which controls 40% of the world’s oil supply, sees promoting economic growth as being more important than the short-term pursuit of higher prices.

“OPEC signaled its broad satisfaction with the current level of oil prices when it met in Vienna earlier this month,” CGES said. “It recognized that sustainable upward price pressure will only come with economic recovery and rising oil demand.

Saudi Arabia’s oil minister, Ali al-Naimi weeks ago told reporters that the cartel is more concerned with reinvigorating the global economy than raising oil prices.

“Economic growth is the name of the game, that’s what’s going to drive the price,” said al-Naimi. “As long as economic growth is there, the price is going to go up.”

OPEC has last year lowered its production quotas by 4.2 million barrels per day (bpd) – about 5% of global demand – hoping to put a floor under prices that plunged more than 80% from their record high above $147 a barrel last summer. The reduction was effective in halting the fall in prices, but even with the cuts supplies continue to grow.

Additionally, some OPEC nations have not strictly adhered to the mandate. The cartel’s production exceeded its quotas by 1.2 million barrels a day in August, according to Bloomberg estimates.

The glut of oil on the market has some analysts wondering whether or not spooked speculators will hasten their retreat from the market.

“If ever there was going to be a retreat below $60 a barrel, it is now,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pa., told Bloomberg in a telephone interview.

Light, sweet crude for December delivery yesterday tumbled $2.33 a barrel, or 3.24% to settle at $69.71.

Source: Traders Anticipate a Drop in Oil Prices as Supply Outruns Demand

Oracle reported revenue for the three months ended Aug. 31 fell 5%, to $5.05 billion. Analysts were expecting $5.2 billion of sales.

Net income rose 4% to $1.1 billion, or 22 cents a share, by Generally Accepted Accounting Principles (GAAP), but the company leaned heavily on support contracts and cost cutting to maintain profitability. The world’s second-largest software maker blamed the drop on declining overseas sales and a stronger U.S. dollar.

“Oracle’s results were impacted by the reduced value of foreign currencies when compared to U.S. dollars, reducing Q1 GAAP earnings by $0.02 per share,” the company said. “Without this impact, Oracle’s Q1 GAAP and non-GAAP earnings per share would have been $0.24 and $0.32, respectively.”

Oracle issued a more positive outlook for its fiscal second quarter, which ends in November. The summer is traditionally a slow period for the company which typically sees business pick up as its fiscal year moves forward. Additionally, the global economy is showing signs of improvement.

Oracle President Safra Catz said profit would be 35 cents to 36 cents per share in the second quarter. The company forecast revenue of about $5.6 billion to $5.8 billion for the period.

However, analysts remain skeptical that a fledgling economic recovery will necessarily lead to an increase in earnings.

“Just because people are starting to feel better about the economy doesn’t mean they’re ready to spend money on software,” said Partrick Walravens, an analyst at JMP Securities Inc. (NYSE: JMP), told BusinessWeek.

Sales of new software licenses – a key indicator of future revenue – fell 17% to $1.03 billion. Sales of database and middleware licenses plunged 21.5%. Middleware is software that helps different kinds of programs share information.

Additionally, Oracle’s $7.4 billion acquisition of Sun Microsystems has not gone as smoothly as planned.

Sun Setbacks

In April, Oracle announced it would takeover Sun in a move that gives it control of the database market as well as Sun’s coveted Java programming language. Java-based software is not operating system-dependent and runs on over 1 billion devices worldwide, from cell phones to supercomputers.

JMP’s Walravens believes the buyout is partly responsible for Oracle’s lackluster first-quarter earnings.

“There’s a ton of pre-merger planning you want to do before an acquisition, and [first-quarter sales decline] shows management were probably distracted by the Sun purchase,” he told Bloomberg in an interview. Walravens rates Oracle’s shares “market perform” and doesn’t own them.

Of course, the bigger threat to Oracle’s business is an ongoing antitrust investigation that has been launched by the European Commission (EC). While, the U.S. Justice Department approved the deal last month, the EC is worried that by acquiring Sun, Oracle will be too strong a presence in the database market.

“Databases are a key element of company IT systems,” said Neelie Kroes, The EC’s competition commissioner. “In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.”

It’s possible that Oracle will have to spin off Sun’s MySQL open-source database to accommodate the EC. The commission has until January 19 to reach a verdict on the merger. But as the commission deliberates, former Sun customers are defecting to Oracle’s biggest competitors.

Hewlett-Packard Co. (Nasdaq: HPQ) says it signed deals with more than 100 Sun customers between February and July, BusinessWeek reported. Meanwhile, International Business Machines Corp. (NYSE: IBM) has lured 250 customers from Sun to its own computer systems since January, and is adding about two accounts a week, according to Inna Kuznetsova, IBM’s director of Linux strategy.

“The longer [the closing process] wears on, the more Sun’s business deteriorates, and the more market share IBM and Hewlett-Packard take away,” said Walravens.

Faced with an exodus of Sun clients, Oracle has taken some small steps to inspire more confidence in its fleeing customer base.

Earlier this month the company unveiled the Sun-Oracle Exadata Database Machine V2, a co-developed co-branded system that is meant to show that close engineering cooperation between the two companies is already underway.

The databased server is “a perfect example of what we can do together,” said Oracle’s Catz. “We continue to do what we can at arm’s length.

Oracle and Sun don’t have to be merged to make a product together. However, the first version of the machine was manufactured with Hewlett Packard.

“While the first version was built in partnership with H-P, this version leverages Sun’s hardware, clearly signaling the company’s intentions for Sun’s hardware division under the pending acquisition,” Tom Klasell, an analyst with Thomas Weisel Partners, wrote in a note to clients.

Oracle also took out an advertisement in The Wall Street Journal that said it plans to spend more money on Sun’s Solaris and SPARC development. That ad was meant to stem the tide of defections from Sun’s computer systems, as it made specific reference to increased competition with IBM. On its Web site, IBM describes Sun’s hardware business as “highly uncertain” and having an “undefined future.”

“I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” Rob Enderle, an independent analyst, told ComputerWorld.

The ad was a positive step for many Sun customers, but if Oracle is going to stop the bleeding it’s going to have to keep the pressure on until the merger is finally approved.

“A lot of our clients are nervous, and they want to know what’s going to happen,” Irene Griffith, Sun customer and owner of PetroSys Solutions Inc. in Houston, told ComputerWorld.

“IBM is very good at creating FUD” – fear, uncertainty and doubt, she said. Adding to her anxiety, Griffith said that she has been unsuccessful at getting information from Sun. “They’re not talking to us, they’re not reaching out to us,” she said.

Source: Oracle’s Future Clouded by Sun Takeover Complications

But since then, little progress has been made on financial regulatory reform, and many of the large investment banks that received billions of dollars in government bailouts are booking huge profits on the same risky wagers they were making before the financial crisis.

In fact, the five biggest banks in the country – Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Wells Fargo Corp. (NYSE: WFC), and Bank of America Corp. (NYSE: BAC)  – posted second quarter profits totaling $13 billion.

That’s more than double what they made in the second quarter of 2008 and almost two-thirds as much as the $20.7 billion they earned in the second quarter of 2007, when the economy was still strong, CNBC reported.

Goldman Sachs reported record earnings in the second quarter. As was the case before the financial meltdown, Goldman leaned heavily on its trading desk for revenue. Trading revenue accounted for 50% of the firm’s total revenue. At $6.8 billion, trading revenue was up 186% from the second quarter of 2008.

The bank also saw a massive bump in equity trading where revenue jumped to $2.2 billion – a 110% quarterly increase.

The story was much the same at JPMorgan whose investment-banking operations generated $1.47 billion of profit, almost quadruple the amount earned in last year’s second quarter.

Investment-banking fees – which zoomed 29% from a year ago and 62% from the first quarter – totaled $2.2 billion, and were a “record for any investment bank in any quarter,” according to JPMorgan Chief Financial Officer Michael J. Cavanagh.

Citigroup and Bank of America- which received some $45 billion in government bailout funds – also topped profit estimates in the second quarter.

Of course, it’s not the fact that Wall Street has returned to profitability that’s raised the hackles of analysts, it’s that Wall Street firms are turning huge profits by employing much of the same risky behavior that led to Lehman’s undoing.

“We’re seeing the same kind of behavior from the banks, and that could lead to some huge and scary parallels,” Simon Johnson, former chief economist with the International Monetary Fund, told CNBC.

For instance, banks are still making bets that put far more money at stake than they have on hand to cover potential losses. The five biggest banks average potential losses from a single day of trading topped $1 billion in the second quarter, up 76% from two years ago, according to regulatory filings.

Even more disconcerting is that banks are still packaging risky mortgages into securities and selling them as investments, which is precisely the behavior that helped inflate the real estate bubble and lead to the financial meltdown.

With the full blessings of ratings agencies, banks are repackaging their money-losing securities into higher-rated ones called re-securitization of real estate mortgage investment conduits, or “re-remics,” The New York Times reported. At least $30 billion in residential re-remics have been done this year, according to Morgan Stanley (NYSE: MS).

Wall Street bankers have even set out to create new and exotic financial products, including the securitized life insurance policies.

Indeed, bankers plan to buy so-called “life settlements,” which are life insurance policies that sick and elderly people sell for cash, and package them into bonds for investors. This essentially creates a whole new bond market that lets firms gamble on the lives of thousands of people.

Many analysts fear that insurers will have to raise premiums, because they could end up paying more death claims out to investors than they previously had anticipated. That is, if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have otherwise been abandoned by policyholders. If that’s the case insurance companies will have based their premiums on false assumptions.

“The securitization of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards,” U.S. Sen. Herb Kohl, D-Wis., told The Times.

Meanwhile, the regulatory overhaul that U.S. President Barack Obama proposed back in June has been derailed by lobbyists and cast aside by a Congress that is preoccupied with the heated debate over healthcare reform.

Obama’s Overhaul Losing Traction

President Obama on June 17 proposed a sweeping overhaul of the U.S. financial regulatory system.

Under President Obama’s proposal:

• Hedge funds and other private pools of capital would have to register with the U.S. Securities and Exchange Commission (SEC).
• Many financial institutions would be required to increase capital reserves to protect against unexpected losses, and companies would also have to keep part of the credit risk for loans they have packaged into securities.
• The Federal Deposit Insurance Company (FDIC) would have the power to seize and break up large financial companies that are under duress.
• The U.S. Federal Reserve would be granted more powers over payments and settlements systems in U.S. financial markets to prevent a breakdown that officials fear could destabilize the economy.
• The Office of Thrift Supervision would be merged with the Office of the Comptroller of Currency.
• A new consumer protection agency would be created. That agency would write rules related to mortgages, credit cards and other consumer products, taking away powers previously held by the Fed.

However, the proposal has lost much of the momentum it would have had earlier this year. Now that the U.S. economy is seemingly back on track and many banks have paid back their huge government loans, much of the anger over Wall Street’s hand in the financial crisis has dissipated.

“As we get a little more distance from the actual collapse and things begin to stabilize, then people think we don’t need to take as much drastic action,” Michael Bernstein, an expert in political and economic history who is currently serving as provost at Tulane University, told NPR. “That’s a very disappointing reality.”

In fact, a large portion of the anti-business rhetoric that provided the backdrop to the financial crisis has been replaced by public rants against big government and the vehement debate over healthcare reform that has consumed Congress.

“The president has offered a reform proposal that would grant broad new authorities to government bureaucrats while intruding in private markets and restricting personal choice,” Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee told The Times. “The obvious lesson of the events of September 2008 is that we need smarter regulation, not more regulation, not more government bureaucracy, and not more incentives to engage in harmful business practices.”

Meanwhile, big financial institutions and community banks have unified against several pillars of the proposal, including the creation of a new consumer protection agency, and tighter regulation and more transparency regarding derivatives and credit default swaps – the very instruments that have been blamed for exacerbating the financial crisis. They’ve also lobbied hard against restrictions on executive pay, The Times reported.

On the one-year anniversary of Lehman’s collapse, President Obama again sounded the call for reform, warning that “there are some in the financial industry who are misreading this moment.”

“I want everybody here to hear my words,” Obama said in a speech at Federal Hall in New York. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.”

Still, many in Congress continue to bristle at the prospect of more government oversight.

“President Obama supports changes that push us in the wrong direction,” Rep. Tom Price of Georgia, chairman of the conservative Republican Study Committee, told The Washington Times.

But as Congress continues to substitute rhetoric for action, America’s largest financial institutions are growing more powerful and analysts see a precious opportunity for real reform slipping away.

“The clock is ticking and we’re at a cross roads,” Travis Plunkett, chief lobbyist for the Consumer Federation of America, told CNNMoney. “If we don’t see a substantial move this fall, financial reform may wither on the vine.”

Rep. Barney Frank, D-MA, who leads the House Financial Services Committee and largely supports Obama’s plan, will begin marking up the bill in October and is expected to have legislation to the floor of the House by the end of next month or early November.

Source: Wall Street Back to Business as Obama’s Regulatory Overhaul Loses Momentum

“Even though, from a technical perspective, the recession is very likely over at this point,” Bernanke said, “it’s still going to feel like a very weak economy for some time, as many people still find that their job security and their employment status is not what they wish it was. So that is a challenge for us and all policy-makers going forward.”

The real challenge for Fed policymakers will be to gingerly dismantle all of the programs they set in place to backstop the markets – such as the Commercial Paper Funding Facility – which holds $109.2 billion in short-term IOUs issued by corporations – and the Term Asset-Backed Securities Loan Facility (TALF) – which has lent $25 billion to investors to buy securities tied to auto and other consumer and business loans.

In all, Bernanke has injected more than $2 trillion into the U.S. financial system. He’s also lowered the Federal Reserve’s benchmark lending rate to a record low range of 0.00%- 0.25%.

Earlier this month, Bernanke said that the central bank’s program to buy U.S. Treasury securities would be shut down by the end of October. He’s also pointed out that some of the Fed’s emergency lending facilities automatically wind down as the economy recovers, because they have onerous pricing and terms.

The central bank could undertake two key steps to accelerate that whole process. It could:

• Increase the amount of interest paid on balances held at the Federal Reserve by depository institutions (banks).
• Sell securities from the Federal Reserve’s portfolio with the agreement to buy them back at a later date.

However, Bernanke has provided very few clues about what his so-called “exit strategy” will involve, or how it will be implemented. That is, at what point will inflation become enough of a concern, and at what point does U.S. growth become sustainable enough, to warrant a change in Fed policy?

At some point, Bernanke will have to raise the Fed’s benchmark rate from its current record low range. However, doing so to soon could undermine the fragile recovery, while waiting too long could lead to a surge in inflation.

The Federal Open Market Committee (FOMC) voted unanimously to keep the benchmark Federal Funds Rate at its at its record low range. But as the economy recovers, there is likely to be more disagreement over whether or not the withdrawal of monetary stimulus is moving at the appropriate pace.

“In my career, I have never witnessed a situation like the one that exists now, when views about inflation risks have coalesced into two diametrically opposed camps,” said San Francisco Federal Reserve Bank President Janet Yellen. “My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy.”

Yellen, like Bernanke, acknowledged that an economic recovery appears to be underway, but said that it will “remain vulnerable.” Unemployment will remain high, she said, and “threatens to push inflation lower.”

Still, Yellen was steadfast in her assertion that the Federal Reserve will keep a close eye on inflationary pressures.

“We at the Fed are ready, willing, and able to tighten policy when it’s necessary to maintain price stability, ” she said. “We don’t want to wait until we’re at 5% unemployment and 2% inflation because if we wait that long, given the lags in monetary policy, we’d clearly overshoot.”

Source: Fed: Recession ‘Very Likely Over’, but Threats Remain

Fast-growing industry and a reliance on coal-fired power plants turned China into the world’s largest emitter of greenhouse gas a few years ago. Clouds of smog far thicker than that of Los Angeles hang over many of its cities and much of the water is densely polluted. But that’s something the central government aims to change.

China plans to reduce energy consumption per unit of its gross domestic product (GDP) by 20% of 2005 levels by the end of next year. It’s more immediate goal is to reduce reliance on coal-fired plants to 60% of its energy production from 70%, and replace with renewable energy sources like wind and solar.

Since 2007, about 54 gigawatts – about 7% of the nation’s electricity-generating capacity – of coal and oil-fired power plants have been closed down as part of the effort to reduce carbon emissions.

Alternative energy sources, including wind, solar, and hydropower, are in line to replace fossil fuels. China’s market for green technology could reach $1 trillion annually, or about 15% of the country’s forecast 2013 GDP, according to a report released last week by the China Greentech Initiative and the American Chamber of Commerce.

“Climate change brings a range of new risks and challenges for business, but it is also creating huge opportunities, particularly in the greentech sectors,” Richard Gledhill, global leader on climate change and carbon market services for consultancy PricewaterhouseCoopers, told the People’s Daily. “The International Energy Agency predicts that we will have to spend an additional $9 trillion over the next 20 years to deliver a stabilization scenario of two degrees Celsius.”

Already solar companies in China are benefiting from the government’s push for clean technology.  China plans to install more than 500 megawatts of solar pilot projects in two to three years.

“Given the nascent nature of China’s solar domestic market, this 500 mW program, though not huge, sends a strong signal that China is serious about developing its domestic solar market, and will undoubtedly stimulate more activity in domestic deployment by enterprises outside of the subsidy program,” Julian Wong, a senior policy analyst with the Center for American Progress, told the People’s Daily.

The central government could raise its 2020 solar power generation target more than fivefold to at least 10 gigawatts, the paper reported. Analysts expect that more than two gigawatts of new solar capacity will be installed by 2011, up from about 100 megawatts in 2008.

To help the country meet its goal, the central government in July said it would subsidize 50% of investment for solar projects as well as transmission and distribution systems that connect to grid networks. The subsidy rises to 70% for independent photovoltaic power generating systems in remote regions of the country that have no power supply.

However, Chinese solar companies aren’t just benefiting from the growing market of the mainland. Many are now building factories in the United States to bypass protectionist legislation. They’re also encouraging executives to join industry trade groups to squelch any anti-Chinese sentiment.

One such company is Suntech Power Holdings Co. (NYSE ADR: STP), which earlier this year said it plans to build a factory in the Southwest United States. The company said it is exploring opportunities in several states as it seeks to expand its presence in the U.S. solar market.

“It’ll be to facilitate sales — ‘buy American’ and things like that,” Steven Chan, Suntech’s head of global sales and marketing told The New York Times.

However, Suntech Chief Executive Officer Shi Zhengrong told The Times in an interview that 90% of the workers at the $30 million factory will be blue-collar laborers welding together panels from solar wafers made in China. And because of the generous subsidies it receives from Beijing, Suntech can sell solar panels on the U.S. market for less than the cost of the materials, assembly and shipping.

Yingli Green Energy Holding Co. (NYSE ADR: YGE), another large Chinese manufacturer, announced last week that it also had a “preliminary plan” to build solar panels in the United States, The Times reported.

Suntech is on track to pass Germany’s Q-Cells SE as the world’s No. 2 supplier of photovoltaic cells. After losing $69 million before interest and tax in the first half of the year, Q-Cells said it would cut 500 jobs – nearly a fifth of its workforce. Two other German solar companies – Conergy and Solarworld – also reported steep losses and are fighting for survival.

“A large part of the German solar cell and solar module manufacturers will not survive,” UBS AG analyst Patrick Hummel told the Financial Times Germany newspaper.

Both Conergy and Solarworld have accused Chinese manufacturers of dumping and called on Western governments to protect the solar industry with import tariffs on Chinese products. But so far there has been no action on the part of U.S. and European governments.

“It’s absolutely disgraceful that [U.S. President Barack] Obama is going around the world saying we will not resort to protectionist measures against China when they’re stealing the solar-panel business out from under us,” Peter Morici, an economist at the University of Maryland and former chief economist of the U.S. International Trade Commission, told The San Diego Union-Tribune.

Morici noted that China’s protectionist measures include a requirement that 75% of the content of government-purchased solar panels be Chinese-made. The United States has no such requirement.

In response to critics, Suntech’s Shi insists that his firm is helping the solar industry by making the technology more affordable.

“Western countries worry about the dramatic price reduction and talk about dumping. That shows a protectionist attitude. That’s wrong,” Shi told the United Kingdom’s Guardian. “We must work together to promote and utilise each other’s strengths.”

China recently  took a big step toward enhancing cooperation with Western solar companies by signing a deal with the Phoenix-based First Solar (Nasdaq: FSLR) to build the world’s largest solar plant.

The 2,000 megawatt complex will be built in Ordos City in Inner Mongolia by 2019. At that size, it would be about 30 times larger than any existing solar power stations in Europe.

“There are a few existing solar projects of about 50 to 60 megawatts, but this would be the biggest by a country mile,” Charles Yonts, an analyst specializing in alternative energy at CLSA Ltd. in Hong Kong, told Bloomberg. “China is suggesting the solar market will be up to 20,000 megawatts by 2020, but the scale of this project suggests these estimates are far too conservative.”

First Solar will consider solar module and manufacturing sites in Ordos City as part of the agreement.

The deal raised the eyebrows of many industry leaders who were skeptical about China’s willingness to work with Western companies.

“If you announce that we have such a huge need for solar panels that we are even going to put First Solar panels into China, all of a sudden we’ve gone from this massive threat to maybe we saw it the wrong way around,” Stephan Dolezalek, managing director of Silicon Valley-based venture capital firm VantagePoint Venture Partners, told Reuters.

“Maybe we should see the size of the Chinese market as this enormous upside potential, and maybe all of solar should be seeing it much more positively.”

BrightSource Energy Chief Executive Officer John Woolward said his company is moving “slowly and deliberately” to find a partner in China, while Tom Werner, chief executive of the California-based SunPower Corp. (Nasdaq: SPWRA) said the deal “clearly makes use more bullish on China.”

“We hope that that will result in us being able to penetrate that market as well,” he added.

Source: Solar Energy’s Future Shines Brightest in China

The gap between imports and exports rose 16% – the largest percentage increase since February 1999 – to $32 billion in July from a revised $27.5 billion in June that was larger than previously reported, the Commerce Department said. After eliminating the influence of prices, which are the figures used to calculate gross domestic product (GDP), the trade gap widened to $38.8 billion from $35.8 billion.

Imports surged 4.7% to $159.6 billion, fueled by an increase in oil prices and strong demand for industrial materials. Crude oil prices rose to an average $62.48 a barrel from $59.17 in June. And imports of capital goods, which include cars and auto parts, jumped to $30.2 billion from $28.9 billion.

The government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” was the driving force behind the increase rising demand for capital goods. The program fueled a 1.8% increase in durable goods spending for the month, as sales of cars and light trucks rose to an annual pace of 11.2 million units in July – the most since September 2008. The gain in auto imports was probably even bigger in August when car sales surged to an annual rate of 14.1 million units.

The rise in imports far outpaced the increase in exports, which rose just 2.2% to $127.6 billion. That, too, was the result of greater demand for capital goods and industrial supplies – particularly in China.

Despite the worsening in the overall trade gap, the U.S. trade deficit with China narrowed to $20.42 billion in July from $25.03 billion in the same month last year.

“China is back,” Alcoa Inc. (NYSE: AA) Chief Executive Officer Klaus Kleinfeld said in an interview with Bloomberg News. “They had a lot of shovel-ready projects” planned for 2011 that starting now as part of the country’s stimulus effort.

Alcoa last week raised its 2009 forecast for global aluminum consumption because of demand unleashed by China’s $586 billion (4 trillion yuan) in stimulus package.

China’s economy grew by 7.9% in the second quarter, exceeding most analysts’ expectations, and lending credence to Beijing’s goal of 8% annual growth.

U.S. exports to the rest of the world are expected to rebound in the months ahead as the global economy inches toward recovery.

“The outlook for U.S. exports is becoming increasingly positive,” wrote Michael Feroli, an economist for JP Morgan Chase & Co. (NYSE: JPM). “Foreign economic growth has returned.”

U.S. trading partners grew at a 4% annual rate in the second quarter on a trade-weighted basis, Feroli noted.

Trade has been one of the few bright spots in the economy throughout the recession, contributing 1.6 percentage points to second-quarter GDP, helping to make up for declines in consumption and investment. Total U.S. GDP contracted 1% last quarter.

Source: U.S. Trade Deficit Widens, but Signals a Healthier Economy