US treasury secretary urges IMF reform

ISTANBUL – U.S. Treasury Secretary Timothy Geithner on Sunday urged the IMF to implement reforms that would give emerging market and developing countries more say in the financial institution.

"A more representative, responsive and accountable governance structure is essential to strengthening the IMF's legitimacy," Geithner said in a statement.

He noted that G-20 countries had committed to shift some control in the International Monetary Fund from countries with strong representation to those with little input. The Group of 20 includes developing economic powerhouses such as China, India and Brazil.

Geithner said the IMF should outline how the proposed transfer of at least 5 percent of voting power within the institution can occur.

"We call on the IMF to facilitate this process by providing scenarios of how the quota shift could be implemented in the very near-term," he said.

The remarks came at the IMF's annual meeting, held this year in Istanbul. They followed a decision at a Pittsburgh forum that the Group of 20 nations would become the world's main economic decision-making forum, effectively taking over the role of the G-7 group of rich countries.

Geithner said reform of the IMF's executive board was vital to modernizing the Washington-based institution, which represents 186 countries. The U.S. recommends reducing the board size while preserving the current number of emerging market and developing country chairs.

The IMF is usually headed by a European and the World Bank by an American. It has received pledges of more money to help poor countries struggling to emerge from the global economic crisis, and a broader range of nations wants to have more say in how the funds are handled.

Aid agency OXFAM says current voting formulas at the IMF give Luxembourg more weight than the Philippines, which has almost 200 times the population. It said the 5 percent shift in voting power was insufficient.

"They need to give more voice to the poorest countries, have fewer European seats on the Board, and get rid of the U.S. veto," said Caroline Pearce, OXFAM policy adviser. She said the IMF can only be relevant if it gives "countries hardest hit by the financial crisis a say in their own destiny."

The U.S. has a 17 percent voting stake in the IMF, effectively giving it veto power because major decisions require an 85-percent majority to pass.

In the past, the IMF has been criticized for allegedly imposing austerity measures on countries in exchange for loans and without sufficient regard for the impact on the poor.

IMF officials say they have shown more flexibility in recent years. John Lipsky, the IMF's No 2. official, has said the IMF is undertaking "substantial efforts" toward internal reform that will provide "a fair shake for all our members."

At the Istanbul conference, a group of 35 heavily indebted countries welcomed the G-20's new role as a leader in global economic decisions, but said poor nations also needed representation to express their financing needs.

"We need at least one seat so that almost 1 billion Africans can express their views," said Lazare Essimi Menye, Cameroon's finance minister.

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Associated Press Writer Suzan Fraser contributed to this report.

Dividends: Smart Plays for Tight Times

Investing in companies that have a proven history of raising their dividends has been a popular strategy among stock-market players over the years. But lately, finding firms that continue to boost their payouts has been getting harder.

Standard & Poor's said on Oct. 1 that only 191 out of 7,000 companies that report dividend information to S&P boosted their dividends during the third quarter, down nearly 45% from a year earlier. That makes the just-completed quarter the worst ever for rising dividends. It was also the worst third quarter for dividend cuts since 1982, with 113 companies reducing their cash payouts, S&P said.

The worst may be over in terms of dividend cuts or eliminations, according to S&P. But even if the economy responds to the Obama Administration's stimulus programs, companies may still not feel comfortable enough to raise or re-initiate payments until they have seen several quarters of improving financial results, S&P added.

Don Taylor, portfolio manager of Franklin Templeton's Rising Dividends Fund (FRDTX), agrees with S&P that dividend cuts "are largely behind us," and expects some companies that have trimmed their dividends in the past year, such as some banks, to start raising them again within the next six months. Nor would he be surprised, he says, if Pfizer (PFE), which slashed its dividend when it announced it was buying Wyeth earlier this year, starts to increase it by the end of this year or the early part of 2010.

Disappointing Funds

He notes that the vast majority of banks no longer qualify to be included in his fund because most have either cut their dividends or, if they have accepted money from the Treasury's Troubled Asset Relief Program, are prohibited from raising their dividends until they have paid it back.

The returns of most dividend-focused funds so far this year generally have been disappointing. These funds have underperformed because they don't invest in the lesser-quality, higher-risk stocks that don't pay dividends, which have been favored by the market since the rally began nearly seven months ago.

Taylor's fund was up 10.97% year-to-date as of Sept. 30, lagging the large-cap blend category by more than 10 percentage points and the S&P 500 index by 8.3 percentage points. The Franklin fund has been hurt by not including shares of big non-dividend-paying gainers such as Apple (AAPL).

Taylor prefers stocks he thinks are more likely to increase their dividends over the long term over ones currently paying high yields. Two that fit the bill are among the more defensive consumer staples names—Family Dollar Stores (FDO) and Wal-Mart (WMT). When it comes to retailers, the market lately has been focused on companies with greater potential for a big snap-back from several quarters of depressed sales, while companies that were able to consistently increase same-store sales during the downturn—such as Wal-Mart and Family Dollar—have been ignored in the rally.

"Longer-Term Phenomenon"

"We value that consistency and predictability and the appeal that they have to the consumer," says Taylor. "People have gotten more frugal, more careful. They're looking for discounts. It's not just cyclical, it's a longer-term phenomenon, and companies that appeal to that mindset will continue to benefit."

Wall Street to Comcast: Are You Serious?

Reports that the cable giant might want to buy NBC Universal sent its stock reeling. Media investors have seen this horror film before

Brian Roberts, President and CEO of Comcast, speaks to the press after it was announced that his company made a proposal to the Walt Disney Company to merge the two companies in a tax free transaction. Timothy A. Clary/AFP/Getty Images

By Ronald Grover

As Yogi Berra once said, it's déjà vu all over again. Comcast (CMCSA) is rumored to be interested in buying NBC Universal from General Electric (GE). And just like back in 2004, when Comcast bid $54 billion for the Walt Disney Co. (DIS), investors are horrified. The Sept. 30 reports sent the cable giant's stock price plunging the next trading day, down more than 6% as of 2:30 p.m. ET, even after the Philadelphia company hustled out denials as fast as its spokeswomen could e-mail reporters.

Why does Wall Street give so little love to Comcast CEO Brian Roberts whenever he's seen to be straying outside his mainstay business of wiring homes with cable and delivering crisp pictures and Internet service? For starters, it's hard to find a more notoriously fickle business than entertainment, where TV ratings and hit movies often disappear overnight. Just ask Comcast executives, who five years back paid an estimated $300 million for a 20% stake in movie studio MGM. The cable company has since written down that investment as the debt-laden MGM struggles to avoid bankruptcy. Or ask GE, which has spent a decade in the ratings desert with NBC.

So how might this deal be different? Savvy folks like Roberts and lieutenant Steve Burke, a onetime ABC executive, see value in NBC. Comcast already owns cable channels E!, Style, and others, and plainly is aching to add NBC's brace of cable channels, which include Bravo, the USA network, MSNBC, and SyFy. In fact, cable channels are the hottest properties in the fragmented media world. By collecting fees from cable and satellite operators in addition to selling advertising, cable channels are a hedge against the fast-changing (and not for the better) advertising market.

(According to a report on CNBC, Comcast officials are now talking about merging their content assets with those of NBC Universal to create a new company. Comcast would have 51% control and would put in $7 billion, but wouldn't endanger its credit rating or issue any stock.)

Cable Operators Aren't Growing

But you get the idea that Comcast is mostly worried about the rapidly shifting media landscape and where that will leave the company. Increasing numbers of folks are getting video from online sites and some (though not yet a lot) are killing their cable or satellite service to log onto TV shows via the Internet instead.

Satellite continues to add subscriptions, as do telephone operators such as AT&T (T) and Verizon (VZ) that offer TV service. Cable operators, meanwhile, largely haven't been growing. In the last six months, for instance, Comcast lost about 1% of its 24 million subscribers to "increased competition," it said in its most recent financial filing. It's done a great job so far of making up for the loss by selling its customers on higher-priced digital service and phones, but clearly it can't do so forever.

"Owning a major content stake would give Comcast a tremendous amount of control over the future evolution of distribution venues," says Bernstein Research analyst Craig Moffett. He figures Comcast could help control the destiny of Hulu, the online content site started by NBC and Fox (NWS) and whose online TV shows are seen by cable operators as a looming threat. Moffett also postulates that Comcast would be able to control the timing of when NBC shows or Universal movies show up on its video-on-demand services, perhaps making them earlier than current offerings to enhance their popularity. And that may be true: Even as its investment in MGM tanked, Comcast gained access at cut-rate prices to the studio's large library of older films.

Settling for a Only a Piece?

The payouts from those synergies—a frightening word when it comes to media M&A—are mostly theoretical, though. Most analysts believe the staggering price tag for all of NBC Universal—possibly $35 billion—likely would force Comcast to take a smaller piece. For one thing, federal regulators might not allow Comcast to own NBC TV stations in the same markets in which it owns cable systems.

A truncated acquisition might be just as well for Roberts. He would seem to get his prize, while possibly dodging the storm of criticism that an outright deal would almost certainly set off.

Grover is Los Angeles bureau chief for BusinessWeek.

Trimming Health-Care Costs Without Reforming the System

In the heated debate over health-care reform, one inconvenient fact is often ignored. There's little evidence to support the use of many of today's routine treatments and procedures. By some estimates, the portion of medicine that has been proven truly effective is still in the range of 25%. That means billions of dollars are being spent on care that may not be effective. And there's even a raging debate over whether the country should do "comparative effectiveness" research to try to figure out what does really work.

That's the bad news. The good news is that these woes mean there is enormous room for improvement, if doctors can understand how to care for people more effectively. The latest proof of the gains that are possible comes from a study published Oct. 1 in The American Journal of Managed Care by researchers from Kaiser Permanente.

In the study, patients with diabetes or heart disease were given a simple, low-cost regimen of aspirin, a generic cholesterol-lowering drug, and a blood-pressure drug. Compared with similar patients not taking the combination, these patients had 60%-80% fewer heart attacks and strokes in a two-year period. Plus, the approach saved hundreds of dollars per patient. "This is an example of an opportunity that has been sitting there for more than a decade," says Dr. David Eddy, founder and chief medical officer emeritus of Archimedes Inc., a private health-care research firm whose work paved the way for the study. "It shows how we can be smarter at determining the right treatments and find clever, simple ways of delivering those treatments."

At the same time, the study also offers a cautionary tale of how hard it is—and how long it can take—to prove that changes in treatment really are effective. This particular story starts way back in the early 1990s, when Eddy began developing a computer simulation he dubbed Archimedes. The idea was to create a SimCity-like world in silicon, where virtual doctors conduct virtual clinical trials on virtual patients.

Modeling a Cholesterol Drug's Benefits

Eddy showed that the predictions of the model almost exactly matched the results from clinical trials. Then it was time to tackle a real-world problem.

At the time, Kaiser was prescribing to its patients what was then a relatively new cholesterol-lowering drug, Mevacor, from Merck (MRK). "We were treating everyone who walked in the door," recalls Dr. James Dudl, diabetes expert at the Kaiser Permanente Care Management Institute. "We thought the drug would do spectacular things."

But maybe not. When Kaiser plugged the data into the Archimedes model, the computer simulation predicted that the net benefit was tiny. "We were treating the wrong population with an expensive drug," says Dudl.

Was there a better approach? Dudl began to think of ways to target high-risk patients, such as those with diabetes and other conditions like hypertension and heart disease. The conventional wisdom was that the best treatment for diabetes was keeping blood-sugar levels consistently low, which would help ward off complications like heart disease. But Dudl wondered what would happen if he flipped that around, aiming treatment at the downstream problems instead of blood sugar. His idea: give patients a trio of generic medicines—aspirin, a cholesterol-lowering statin, and a blood-pressure-lowering ACE inhibitor.

Using Archimedes and thousands of virtual patients, Eddy compared the drug combination to the traditional approach. The model took about a half-hour to simulate a 30-year trial, and the results were startling. Controlling blood sugar accomplished little, but the simple three-drug combination would cut heart attacks and strokes by 71%.

$8 Billion in Potential Cost Savings

At a pivotal meeting of the board of the Care Management Institute in 2003, Eddy presented the results and made an impassioned plea to implement the findings. "I told them, 'This is as good as it gets to improve care and lower costs, which doesn't happen often in medicine,' " Eddy recalls. "'If you don't implement this,' I said, 'you might as well close up shop.' "

Kaiser listened. As reported in the new study, the company prescribed the drug combination to 68,560 Kaiser Permanente members in California with diabetes or heart disease. Researchers followed the fates of those patients for two years and compared them to 101,464 similar patients who didn't take the combination.

The results mirrored Archimedes' prediction almost exactly. Patients who took the drugs some of the time had a 60% reduction in heart attacks and strokes. For those who adhered more closely to the drug regimen, the benefit was an 80% reduction. "We're extremely happy with the results," says Dudl.

Dudl and his fellow researchers didn't do a cost analysis of the program. "Kaiser's motivation was to improve the quality of care and let the cost chips fall where they may," says Eddy. But Eddy wasn't so reticent. By reducing heart attacks and strokes, he calculated, the program saved about $350 per person treated. Multiply that by the number of diabetics in the country (23 million) and the potential for cost savings is huge: $8 billion.

"The general point here is that quantitative thinking is just beginning to enter health care," says Eddy. Imagine, he says, trying to optimize the operations of an airline without having any data on the numbers of passengers, the cost of fuel, and other basic information. The new study shows it's possible to get that key information in health care, and put it to use to both improve quality and cut costs. "This is equivalent to the Wright brothers flight at Kitty Hawk," says Eddy. "It's saying that something can be done."

A Nasty October Surprise for Stocks

The Dow and S&P 500 fell over 2% Thursday, while the Nasdaq lost over 3%, after unexpectedly weak reports on jobless claims and manufacturing

U.S. stocks managed to skate through the normally tricky month of September in good shape, with the S&P 500 index rising 3.5%. But the first day of October brought fresh reminders of of the fragility of the U.S. economic recovery, causing major indexes to plunge Thursday. The worst damage was sustained by the Nasdaq composite index, which lost more than 3% on the session.

In particular, an unexpected rise in jobless claims created some jitters ahead of Friday's release of the U.S. employment report for September, while a decline in the Institute for Supply Management's manufacturing index in September raised worries about the strength of the rebound in the factory sector.

On Thursday, the 30-stock Dow Jones industrial average finished lower by 203.00 points, or 2.09%, at 9,509.28. The broad Standard & Poor's 500-stock index was down 27.23 points, or 2.58%, at 1,029.85. The tech-heavy Nasdaq composite index lost 64.94 points, or 3.06%, to 2,057.48.

On the New York Stock Exchange, 25 stocks were lower in price for every five that advanced. Breadth on the Nasdaq was 22-5 negative. The basic materials, technology, and financial sectors were among the worst performers on the session.

Treasuries soared amid the equity sell-off, with yields moving sharply lower. The dollar index was higher, putting pressure on gold and crude oil futures.

What could Friday's session bring? "After a wash-out such as this in which few stocks are left unscathed, it is common to see a reversal to the upside, even if just for a day or two," says Standard & Poor's technical analyst Chris Burba. "This is certainly a possibility [on Friday]". However, notes Burba, much will depend on the reaction to the September employment report at 8:30 a.m. ET.

The weekly jobless claims report released Thursday appeared to have sparked fears of a downside surprise in Friday's jobs data. U.S. jobless claims rose 17,000 to 551,000 in the week ended September 26, vs. a revised 534,000 previously (was 530,000). Continuing claims fell 123,000 to 6,090,000 in the week ended Sept. 19, after a revised 6,160,000 (was 6,138,000).

"The headline print is higher than expected, and may make some nervous ahead of Friday's September employment report," says Action Economics.

Worries also surfaced about the recovery in the factory sector after the U.S. Institute for Supply Management's manufacturing index slipped to 52.6 in September, after rising 4 points to 52.9 in August.

The two reports countered some positive data on the real estate sector. U.S. construction spending rose 0.8% in August from a revised 1.1% drop in July (was -0.2%). Residential spending climbed 4.2% following a 0.7% increase (revised from 2.3%). Spending on nonresidential projects declined 0.4% after a 1.8% July drop (revised from 1.2%). Private spending rebounded 1.8% and public spending fell 1.1%.

The U.S. pending home sales index climbed 6.4% to 103.8 in August from 97.6 in July. That is the highest since March 2007. On a year-over-year basis the index is up 12.1%, but that is a little slower than the 12.9% pace in July. Gains were posted in all four regions.

U.S. personal income rose 0.2% in August, while spending climbed 1.3%. July's flat reading on income was revised up to 0.2%. Personal spending in July was revised to 0.3% (from 0.2%). Disposable income inched up 0.1% in August. The savings rate fell to 3.0% in August from 4.0% previously (revised from 4.2%). The chain price index rose 0.3% from flat in July, while the core rate was up 0.1%, the same as in July.

LA Times, Washington Post breaking up news service

The Los Angeles Times and The Washington Post are breaking up their news service after 47 years, making it the latest casualty of the media upheaval driven by the array of alternative information and entertainment sources on the Internet.

The divorce announced Wednesday takes effect Jan. 1. Beginning then, the Los Angeles Times will distribute some of its best work through a news service jointly owned by newspaper publishers McClatchy Co. and the Tribune Co., the Times' owner.

The Tribune Co. has been operating under Chapter 11 bankruptcy protection since December. The financial duress before and after the bankruptcy filing led to staff cutbacks at the Times and the Tribune's other newspapers, including The Baltimore Sun and Hartford Courant, whose stories also were distributed through the Times-Post venture.

It's unclear whether the Tribune Co.'s troubles factored into the demise of the Times-Post service -- a partnership forged in 1962 by two renowned publishers, Otis Chandler on the Los Angeles side and Philip Graham on the Washington end.

When the service started, newspapers were still highly profitable and the dominant news sources in their markets. But the number of people reading newspapers has been shrinking as more people turn to the Internet, leading more advertisers to shift their spending online.

The worst U.S. recession since World War II has drained even more ad revenue from newspapers, prompting both the Post and the Times to reduce the number of reporters and photographers feeding content to their news service.

Although they are smaller than they once were, the Times and Post still have large audiences. The Times is the fourth largest U.S. newspaper with a weekday circulation of 723,000 while the Post is the fifth largest with a weekday circulation of 665,000, according to the most recent figures from the Audit Bureau of Circulations.

Executives from the Times and the Post said they mutually agreed it was time to dissolve their marriage, although they didn't elaborate on the reasons for the decision.

But Washington Post Co. Chairman Bo Jones hinted the Internet played a role in the break up.

"As the news business and our newsrooms have evolved, the ways in which the organizations cover and distribute the news have changed," Jones said in a statement sent to the news service's subscribers. "We felt at this time it made sense for us to proceed separately."

Times Publisher Eddy Hartenstein said it was a "privilege" for the Los Angeles newspaper to package its stories with the Post.

The Times-Post venture distributed its stories to about 600 subscribers including newspapers and other media. The McClatchy-Tribune service that the Times is joining next year has more than 1,200 subscribers worldwide.

Survey: China manufacturing expanded in September

China's manufacturing expanded at a faster pace in September, supporting an economic recovery spurred by massive stimulus spending, a survey showed Thursday.

The state-sanctioned China Federation of Logistics and Purchasing said its purchasing managers index rose to 54.3 from August's 54 on a 100-point scale where numbers above 50 show activity expanding. It marked the seventh straight month of expansion.

Economic growth accelerated to 7.9 percent over a year earlier in the second quarter, up from 6.1 percent the previous quarter, driven by Beijing's 4 trillion yuan ($586 billion) stimulus. The plan is helping to boost industrial demand through heavy spending on building new highways and other public works.

Economists see the PMI as a better measure of China's economic outlook than gross domestic product because it includes forward-looking elements such as new orders.

The Chinese federation's survey is based on responses from managers who oversee purchasing for some 700 Chinese companies.

The government has warned that some industries suffer from overcapacity, suggesting the risk of an unsustainable boom that might lead to a bust.

On Wednesday, Beijing announced sweeping curbs on surging investment in steelmaking, cement, aluminum, wind turbine manufacturing and other industries.

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On the Net:

China Federation of Logistics and Purchasing (in Chinese): http://www.chinawuliu.com.cn