How to play bonds in 2008

Bonds seem likely to struggle, at least through the first half of 2008. Our prescription: Stick to the safest of the safe.

(Fortune) -- For all the subprime-related turmoil in the stock markets, it's the fixed-income markets that have been most shaken by the mortgage tumult and subsequent drying up of credit. (After all, all those exotic CDOs and the like were just gussied-up bonds.)

There's no reason to think the situation is going to improve anytime soon. Changing yields- falling for Treasurys, soaring for junk bonds- "show we've priced in a hard landing, meaning a recession," says David Ader, a bond strategist at RBS Greenwich Capital. "The first half of next year is not going to look good, and the full economic repercussions of what began in housing and moved to bonds will be felt."

Our view: Be very cautious in 2008.

The market is going through what will be a healthy realignment, restoring traditional risk premiums (no more junk bonds offering Treasury-like returns). The bad news is that the value of lower-quality bonds will drop.
So investors who need bonds for income and capital preservation should limit themselves to low-expense funds with the highest-quality options- namely Treasurys and AAA-rated corporates- with short- to medium-term maturities.
Here are three strong funds, each of which has a miserly 0.2% expense ratio. There is the Fidelity Spartan Short-term Treasury Bond Index fund (FSBIX), which has a total return of 8.1% this year, according to Lipper. Eighty percent of its portfolio consists of Treasurys with maturities of one-to-five years.
With inflation a less distant threat than it once was, TIPS (a.k.a. Treasury Inflation-Protected Securities) are also a good choice now, says Jonathan Lewis, a principal at Samson Capital Advisors. We recommend the Vanguard Inflation-Protected Securities fund (VIPSX), which has averaged 6.6% returns over the past five years. Finally, an index fund such as the Vanguard Total Bond fund (VBMFX) (offers a broad mix of Treasurys, corporates, and others, with 80% of its portfolio AAA-rated. Despite having one-third of its holdings in mortgage-related debt, the fund returned 6.9% in 2007.

Are tradies better at mobile business?

ARMED with the latest mobile devices and fast broadband access, Australian tradies are proving more reliable and more responsive than ever.

In fact, you might say they’re better at the ‘road warrior’ game than the suits.

When most people think of what a business ‘road warrior’ looks like, they have an image of a well-manicured, highflying creature that wraps up business deals on tiny laptops in airport lounges.

No time is wasted on getting a deal done. They’ll happily stride out to grab a quick lunch or on the way to another meeting, all the while negotiating margins and deadlines with clients on a hands-free mobile.

Busy and focused, yes. Worried about dust or dirt jamming up mobile phone controls? Probably not.

Unlike their suit-wearing counterparts, mobility has always been part of the job for Australian tradies.

Tradespeople such as plumbers, electricians, gas fitters and carpenters spend their working lives on the road, attending jobs that are often hours from home or head office.

But although they don King Gees instead of slick suits, tradespeople and business execs share a dislike for returning to the office to perform administrative tasks that can increasingly be done on the road with the help of mobile broadband.

Since wireless broadband hit its stride with higher data transfer speeds, increased coverage and affordable price plans, Australian workers of all descriptions can check email, browse the internet and send or receive photographs, job quotes or work plans through their mobile device.

Businesses large and small can integrate office-based systems with laptops and other mobile communication devices, meaning workers are kept up-to-date without constantly having to touch base.

Scott & Sons is a plumbing, draining and gas fitting business based in Hornsby, Sydney.

The business employs nine tradespeople, with eight constantly on the road, each equipped with a broadband-enabled smartphones.

Director of Scott & Sons, Craig Scott, says the customer service of his business tripled as a result of using mobile broadband connectivity to conduct many core business functions remotely.

Armed with smartphones that ‘talk’ to head office, Scott & Sons workers switch on their phones in the morning to access the day's jobs and a list of materials needed to complete the task.

While onsite with customers, they can zap details back to office such as credit card transactions and pricing estimates.

"We don't really need to see them for a week," says Mr Scott. "They even put their timesheets in remotely."

Scott & Sons workers also use their smartphones to download email, browse the internet and send photographs.

"The boys can take a picture to check something with me or the supervisor in the office," says Mr Scott.

"It saves us physical trips to sites every day and huge amounts of time."

Mr Scott, also vice-president of the Master Plumbers Association, makes frequent business trips but stays abreast of his business minutiae using his mobile devices coupled with high-speed wireless broadband roaming services.

"No matter where I am, I know what plumber is on what job with what apprentice and with what materials," he says.

His ability to access such detailed business data means Mr Scott can give customers current and accurate information if they call in an emergency.

"By the time I have hung up, a job spec is already with the plumber, with all the details downloaded to their device.

"When I say a plumber will be there at 7am, I know it's going to happen. Or, if someone is running late - I know when they will arrive."

Remote mobile banking is another huge boon to Mr Scott, who pays his workers weekly.

"The office sends the wages bill to my mobile and I transfer the money into the boys' accounts in two or three minutes, even if I am overseas," he says.

Mr Scott doesn't underestimate the competitive advantage mobile devices and broadband services have delivered to his business.

"I don't know how some of the other guys survive without it," he says.

"It eliminates 80 per cent of the perception the public have with 'unreliable' tradespeople."

For businesses looking to access the internet on the move there are two market leading price plans to look out for.

Vodafone Australia offers a mobile broadband package supplying 5GB of data for just $39 a month - ensuring mobile broadband is well within reach of all small business users.

Additionally, Vodafone’s $79 a month MyBusiness Cap plan with unlimited mobile email from Vodafone brings mobile email devices well within reach of small business customers.

Presents of ill will

APART from the office Christmas party there is no greater minefield this time of the year than the cross-cubicle gift exchange. Especially 'Secret Santa'.

"It's become a huge operational risk to businesses," explains Andrew Nicholls, director of NCS-Nicholls, a boutique chartered accounting firm.

So huge, says Mr Nicholls, who is launching a corporate gift service early next year, that larger corporations have started sending out explicit "rules of engagement" for office gift-giving.

Just one dodgy present can be all it takes to fall foul of harassment, discrimination and corporate ethics policies - and smart companies aren't taking any chances.

Particularly problematic are the common 'Secret Santa', or 'Kris Kringle', gift swaps, where employees are randomly appointed to purchase an anonymous gift, usually with a price tag limited to $10 or $20, for one of their co-workers.

Revenge gifts

"It can be an issue because people often use it as a way to get back at others in the office, and let out their innermost frustrations with an individual," says Lisa Montgomery, head of marketing and consumer advocacy with mortgage company Resi.

Seeing someone renowned for hissy fits unwrap a packet of baby's dummies, or a stinky-footed manager who's always shedding his shoes in the office saddled with a pair of charcoal-infused insoles, can provide some fleeting moments of satisfaction.

But even when defended as "jokes", such mean-spirited actions can sink workplace morale and, in the very worst-case scenarios, open up career-destroying claims of harassment, discrimination or bullying.

"It's a very dangerous area to be in," says Wayne Spanner, national leader of the workplace relations group with Deacons, a law firm which reports seeing discrimination complaints spike during and after the festive period.

"You do have to tread very carefully."

Don't give sex toys

Trouble can arise even if the recipient of a bad-taste gift seemingly cops it all with a blush and a big smile - yet people standing around them don't find it such a hoot, he explains.

All it takes, for instance, is one person to be offended by the sight of a secretary unwrapping a pair of edible undies, a sex toy, or a slinky set of lingerie, for the makings of a discrimination or harassment complaint.

As Barbara West and Frances Murphy discovered while researching their recently released book G'Day Boss! Australian Culture and the Workplace, other cheap and nasty novelties "can push the boundaries of acceptability" in different ways.

"Someone we interviewed was at a corporate function where the boss received a toy that said things like 'f-off' and 'you're an a-hole' when you pushed a button - awkward for everybody else," says Ms West.

Be sensitive

Even seemingly innocuous gifts can miss the mark in the highly-charged environment leading up to Christmas.

"In the work environment, we've always got a bit of a joke about someone who is slow or late, or perhaps someone who messed up big time on a major project," says Meredith Fuller, a Melbourne-based psychologist who specialises in career change.

"You might give someone a gift that alludes to that, and get everyone laughing, but the person on the receiving end is standing there, wanting the floor to swallow them up," she says.

"People tend to take things more stoically at other times of the year.

"When giving gifts, you need to be aware that we're all more sensitive, and stressed, and a bit frayed around the edges coming up to Christmas," she says.

Don't spend too much

While it doesn't have quite the same devastating consequences, another common pitfall during the annual present whirl is spending up too big on gifts for colleagues.

Firstly, it sets up precedents and expectations, which might not match your fortunes or desires in years to come.

And, even if you're a generous person by nature, your actions may still provoke resentment, hostility, suspicion that you're trying to curry favour, or claims that "we must be paying you too much".

Thought that counts

In any case, says Ms Fuller, it's the thought behind a gift that counts, not the monetary value attached to it.

"There's something about the intention that's more important," she says. "People can spend a lot of money on something that does not touch your heart at all."

This can be a tough call for people who can barely remember the names of people they work alongside, let alone whether they have pets, read Patricia Cornwall or prefer pink to purple.

Sonya Clancy, head of people capital for the personal division of ANZ Bank, points out that a personal, handwritten note acknowledging the recipient's work that year, can be more meaningful than an expensive gift chosen at random.

And if you're planning to exchange gifts with friends you've made at work, it's best to do so off-site and after hours to avoid others feeling excluded, adds Mr Nicholls.

Client gift ethics

The issue of giving gifts to clients, or receiving gifts from them, is a ball game with its own set of ethical, and sometimes legal, dilemmas.

These sorts of reasons, along with demands for greater transparency, have resulted in many businesses telling their employees that any gifts valued over a certain dollar amount must either be approved, or politely declined, says Mr Nicholls.

"Some gifts can be effectively considered bribes," he adds.

Safe Christmas gift choices

Pens, stationery, photo frames, maps, sunblock, calendars, books, magazine subscriptions, movie passes, hampers, chocolates, gift vouchers, donations to charity, pot plants, board games, clocks.

Proceed with caution (or not at all)

Clothes, lingerie, jewellery, sex toys, toiletries, alcohol, religious items, cash.

Reducing stress in the office

PILES of untouched reports are strewn across your desk. Your deadline is drawing nearer and, as each hour passes, your anxiety and stress levels rise.

The universal feeling of being swamped with work afflicts even the most organised worker but, as offices become more streamlined and bosses adopt tougher cost-cutting measures, employees are becoming increasingly overworked.

The pressure has become so great workers are not only making themselves sick, but are costing their employers millions of dollars in lost productivity.

Research by recruitment firm PKL found work-related stress is costing Australian companies $200 million each year in compensation claims.

And according to the National Health and Safety Commission, stress accounts for the longest stretches of absenteeism.

Causes of stress

The findings show that while unrealistic job demands were the major cause for stress, constant change in the workplace, tight deadlines and staff conflict were also affecting productivity.

Roxanne Calder, a director of PKL, says companies that fail to address the issue will be severely affected in the long run.

She believes work-related stress not only causes an increase in the number of sick days taken by employees, but can also lead to a higher turnover of staff and a drop in workplace productivity.

Ms Calder says now many companies already offer facilities such as specialised office seating, desks and lighting, food and beverage services, as well as de-stress rooms, bosses should ensure staff now enjoy a stress-free work environment.

"With the availability of skilled workers and unemployment levels at an all-time low, Australian companies are being forced to realise the importance of looking after, and retaining staff," she said.

"Making sure staff are properly trained for their job, discussing issues and grievances with them and encouraging an environment where employees have more say over their duties, promotional prospects and safety, are all necessary steps to avoid the pitfalls of a stressful workplace," she says.

Identify stress in staff

Campbell Sallabank, CEO of recruitment site linkme.com.au, says it is extremely important to learn how to identify stress in its early stages.

He believes the onus should be on bosses to notice any high levels of sick leave or signs of disengagement and lack of interest from staff.

"It is important for managers to understand their employees' personal situations and to ensure there is a proper fit between their personal lives and their work lives," he says.

"Bosses can manage their staff by ensuring they communicate openly with them and ask them directly how they are going.

"There's a big difference between sitting at your desk and assuming how your staff are going, and actually walking around the office and engaging with staff as real people."

Web business in fast lane

AN ONLINE car hire business has become Australia's fastest-growing internet travel company, growing its revenue by 242 per cent in three years.

VroomVroomVroom, founded by brothers Richard and David Eastes in 2001, when the pair were just 22 and 17 respectively, is one of 11 Queensland companies in the 2007 Deloitte Technology Fast 50.

With a staff of just six, the Brisbane-based company has spread its wings with offices in the UK and the US and mown down Victoria's Webjet to become the speediest mover in the online travel space.

Perversely, it is by not trying to grow too fast that VroomVroomVroom has managed to grow so fast, says general manager Richard Eastes.

"I know some of our competitors made that mistake, they tried to grow too quick and it meant they didn't have as good a product in Australia.

"(They) got distracted doing all sorts of other things but we just focused on purely creating the best car rental search we can possibly do."

VroomVroomVroom allows travellers to compare prices and book car rentals online, in turn drawing commissions from Avis, Thrifty, Budget, Europcar and Hertz.

"We have had over a million Australians visit our site this year, which is pretty amazing," Eastes says.

"We get close to 500 bookings a day and all of them are guaranteed cheapest prices."

It is often described as the Wotif of car hire and, coincidentally, VroomVroomVroom came to life as a start-up in an office beside the online accommodation giant in inner Brisbane's Spring Hill six years ago.

It now links to car depots at 240 destinations in Australia and 700 around the world.

This year Queensland companies have nearly doubled their representation in the Deloitte Fast 50, which ranks companies across communications, software, semiconductors, components and electronics, life sciences, internet and computer peripherals.

Topping the local list was Bing Technologies, whose online "snail mail" services have proved a smash with business customers such as Seek.

The Brisbane company, founded by Steve Cranitch in 2001, grew a muscular 436 per cent in three years, placing it at 11th on the national list.

Bing.com takes in customer mail electronically, prints it out and sends it in an envelope into the Australia Post network as regular hard-copy business mail.

It claims to, on average, cut its business clients' mailing costs in half.

Clients also tend to cough up for invoices quicker when they come in hard copy rather than via email, according to its customers.

Cranitch says he is delighted with Bing.com's ranking in the awards as it "acknowledges the organisation's viability in the marketplace".

Private equity group Ramico has a 30 per cent stake in the company, which holds numerous patents on its award-winning software.

Charitable Investing

America's 200 Largest Charities

Here's our big suggestion to those brimming with holiday charitable spirit: Treat any would-be donation like you would an investment. After all, as a supporter, you become a stakeholder. Do your research and learn all you can.

Toward that goal, we present here our annual list of the country's 200 largest nonprofits--just a slice, albeit a very hefty one, of the more than 1 million nonprofits now operating in the U.S.

As might be expected from a business publication, we closely examine the financial efficiency of each organization. These numbers can tell you a lot, but are by no means the entire story; there are a lot of other factors to consider. So our list doesn't relieve you from doing your own due diligence--although it can give you a start.
By The Numbers: The Largest U.S. Charities

During the last year, the charities on this list reported average gifts of $203 million, up 2.5% from the previous period. That was slightly more than the 2.1% jump in top pay (usually that of the nonprofit's top person) to $496,965. Gifts continued to comprise about 40% of a nonprofit's total revenue.

We determine the country's largest nonprofits on the basis of private gifts (not total revenues) reported in the latest available fiscal year. Among other criteria, the list excludes academic institutions (who generally solicit only among alumni, but are usually fairly efficient), charities with only a few donors (such as most private foundations and, say, Ted Turner's United Nations Association), community foundations, religious entities that don't report numbers and outfits whose data we question. We have classified each within 10 broad categories, such as domestic social needs, public affairs and youth.

For each nonprofit, we present a considerable amount of basic raw data, as well as a link to its website, where, often, annual reports and detailed financial statements can be found. In addition, we calculate three major efficiency ratios and the trend from a previously reported period. The higher, the better. Here's a description of these statistics:

Charitable Commitment: This measures how much of total expense went directly to the charitable purpose (also known as program support) as opposed to management, certain overhead and fundraising. The average this year is 85%, down 1%. The individual figures range from a bottom of 0% for Nevada Cancer Institute, 32% for World Trade Center Memorial Foundation and 63% for San Francisco public TV station KQED to 100% for three: Brother's Brother Foundation, Gifts in Kind International and Gleaning for the World.

Fundraising Efficiency: Perhaps the most closely watched statistic, this shows the cut of gifts left after subtracting the cost of getting them. The average this year: unchanged at 90%. We recommend a cold, hard look at anyone with an efficiency below 70%. The bottom of our list holds the same three as last year: Veterans of Foreign Wars of the U.S., at 65%, Paralyzed Veterans of American at 66%, and KQED at 68%. At the top end, 16 nonprofits have a 100% fundraising efficiency, often thanks to larger gifts. This group includes Brother's Brother Foundation, Direct Relief International and Public Broadcasting System.

Donor Dependency: The trickiest, and, thanks largely to investment performance, most volatile of our ratios, this measures how badly a nonprofit needs your contribution to break even. We subtract the annual surplus or deficit from gifts, then divide this figure by the gifts. Reflecting a slightly improving stock market (remember, the data is often lagged by a year or more), the average this year was 68%, down 1%. The higher the percentage, the more the charity—well, needed the charity. A result above 100% means the nonprofit ran a deficit. Tops this year was Robert W. Woodruff Arts Center in Atlanta at 129%, followed by Project Orbis International at 120% and Heart to Heart International at 116%. A negative number means the nonprofit's surplus actually was bigger than total gifts. Fourteen nonprofits, mainly hospitals and museums collecting fees for service, were at this extreme, led by the Children's Hospital of Philadelphia, at -413%.

We again warn against mindlessly comparing ratios of different kinds of nonprofits, as each has a certain degree of uniqueness. But our data certainly can be helpful in the early stages of an evaluation of any nonprofit--on our list or not. Say you're interested in contributing to a smaller agency that helps the needy overseas. The ratios of several similar larger ones on our list can provide a sense of the norms for such enterprises.

Total Energy Consumption

A Breakthrough, Of Sorts

For the latter half of the bull run in energy prices, oil has traded in a $10 band either side of $70 a barrel, with the occasional spike above $80 a barrel. The reason? Supply has struggled to keep up with the other face of the energy market, demand.

Economic growth around the globe in developed and developing economies alike has kept the world hungry for more energy. Supply has barely kept up. Stocks are thin and any threat of interruption to supply sends oil futures traders scrambling to bid up the price. And oil seems to exist mainly in trouble spots such as the Middle East and eastern Nigeria, or in weather challenged locations such as the Gulf of Mexico or the North Sea.

All that has been true for the past four years. It has sent nations scurrying to secure supplies, the best example being China's expanding natural resources diplomacy in Africa.

The demand shows no sign of abating. The International Energy Agency (IEA) forecasts that energy demand between now and 2030 will increase by a half, an annual average increase of 1.6%. Two-thirds of the new demand will come from developing nations, with China accounting for 30%.

What is new is the focus on the environmental impact of consuming as much energy as we do in the way that we do. And that is what provides the hope that the world can modify its demand for energy, or at least its fossil-fuel energy demand, through efficiency and conservation.

What happened? The political impasse impeding progress was broken.

The climate change deal reached by leaders of the Asia-Pacific Economic Cooperation forum (APEC) at their summit in Sydney in early September--a gathering that included all the main players save for the European Union--coalesced regional support for what could be called the pro-growth camp backed by the Bush administration.

This approach puts technology, voluntary targets and energy efficiency at the heart of any global agreement on climate change in a way that would contain the growth of greenhouse gas admissions but still not curtail economic growth.

APEC leaders agreed to work towards a 25% reduction by 2030 in energy intensity, the amount of energy used to produce a dollar of gross domestic product. Developing countries prefer this measure to absolute cuts in carbon outputs because it puts the onus for action on the big polluters like the U.S. and China.

The Bush administration, which was first to push the idea, favors this approach, and China likes it too. They can continue to consume the energy they need for their economic growth; they just have to do so more efficiently, i.e., technology not hair shirts to the fore.

But it means that emissions will continue to rise with growth, just at a much slower rate. Before the APEC summit, Australia's Bureau of Agricultural and Resource Economics forecast that present patterns emissions from APEC nations would grow by 130% between now and 2050. Hitting the APEC energy-intensity target, plus some help from cleaner fuels like nuclear and renewables, could limit the rise to an estimated 15% by 2050.

But a global agreement around energy intensity goals would be at odds with the consensus reached by the leaders of the eight richest countries, the G8, at their summit in Heiligendamm earlier this year and the subsequent U.N. climate convention in Vienna to cut greenhouse gas emissions by 25% to 40% by 2020. Note not only the difference in goal from APEC, but the difference in date.

Two leaders, President George W. Bush, a late convert to the cause of climate change, and Russia's Vladimir Putin, were parties to both agreements, which only illustrate the political complexity of a topic (mostly) everyone agrees needs tackling but on which agreement on the how is as elusive as ever.

Similarly, the APEC, while it got Beijing to agree to quantifiable targets--albeit non-binding ones, also puts China into the camp of framing a global climate change agreement in terms of improving energy intensity rather than reducing greenhouse gas emissions, while at the same time staying in the camp of those arguing that the U.S. should join the U.N.-sponsored talks on a successor to the Kyoto protocol on climate change-- which seeks to cut emissions.

China and other developing nations don't want to see progress towards Kyoto-2 die. Kyoto doesn't impose any firm targets on developing nations for reducing emissions. It also means money for them, through aid for clean technologies and to adapt to the social and economic impacts of climate change.

Whichever approach ends up being adopted, there is no escaping the fact that fossil-fuels will remain the dominant energy source for the next quarter of a century and probably beyond. Half the forecast increase in energy use will be accounted for by energy generation and 20% by transport. Almost all of that energy, the IEA says, will come from oil.

The world will be using more coal and more natural gas. The expansion of nuclear energy is constrained by the length of time it takes to build plants and get the regulatory approvals to be operate them. The use of biofuels and renewable alternatives such as wind and solar power will grow rapidly, but they have such a small base of use they will not replace significant quantities of fossil fuels any time soon--nor diminish the competition between countries to secure supplies.

India & China: Energy And The Environment

Total Energy Consumption

China: 59.6 quadrillion Btus: Coal (69%), Oil (22%), Hydroelectricity (6%), Natural Gas (3%), Nuclear (1%), Other Renewables (0%)

India: 14 quadrillion Btus: Coal (52%), Oil (34%), Natural Gas (7%), Hydroelectricity (5%), Nuclear (1%), Other Renewables (0%)

Protect yourself from fraud

IT NEED not be as much as the $510,000 Renea Hughes fleeced from NSW company RailCorp over several years so she could go gambling.

It may be $50 missing from the cash box. It may be a stolen wallet. It may be false expenses claims for entertaining clients or for taxi rides home after a late night at the office.

But they are all indications that something is amiss, and that a staff member may have a gambling problem that is getting out of hand.

Often it is in the workplace where the money is found to fuel the addiction.

According to the latest KPMG fraud survey, gambling addiction and greed are the most common drivers of fraud in Australian and New Zealand workplaces.

Renea Hughes last month admitted to the NSW Independent Commission Against Corruption (ICAC) that, among other actions, she had embezzled $366,000 from RailCorp in false invoices paid to a contractor and friend, that she faked $100,000 in salary claims and fraudulently used a rental car for two years, costing RailCorp $30,000.

She admitted every cent of the stolen $366,000 went into the pokies at pubs in Penrith in Sydney's west. The mother of two admitted she would lose sums of up to $40,000 a month in binges that went until dawn.

"Fraud in the workplace costs Australian businesses more than $77.5 million each year and often this is due to offenders seeking money for gambling," First Advantage managing director Peter Stackpole said.

"This highlights the importance of not only checking a candidate's criminal record but their employment history. If someone has had four jobs in 12 months, it is worth asking why.

"Missing petty cash or falsifying invoices may have played a role in why the individual left each job, but may not have been reported to police."

Gambling can become an addiction as pernicious as a drug addiction, with all the attendant and consuming emotions of anticipation, excitement, euphoria and despair.

While the pokies loom large in people's minds as the main form of gambling addition, horse and dog racing, scratchies, even the little old ladies game of bingo also play a significant part.

Because there is no obvious deterioration of health, a gambler can hide their addiction.

"To minimise the risk of hiring fraudulent employees, employers should thoroughly check as many components of the candidate's history as possible." Mr Stackpole said.

"The more points of reference an employer gains about a potential employee, the more informed the hiring decision."

Mr Stackpole said many organisations invested time and money in the management of fraud rather than in fraud prevention.

"To minimise the risk of fraud, employers need to take a holistic approach," he said.

"Periodic screening, in addition to pre-employment screening, helps to monitor staff as to whether they have developed any criminal affiliations or are involved in any activity that could put the organisation and their colleagues at risk.

"While a thorough background check is common in the financial services sector, few other Australian industries have adopted this level of screening in their recruitment process with the same rigour unless legally required.

"Employers who combine background screening with internal controls to protect sensitive information, minimise the chances of fraud occurring in their workplace."

Keeping staff biggest worry in 2008

HOW to keep staff in today's tight job market is once again the biggest concern for Australian employers in the new year, a survey has found.

The challenge has remained the same for about four years, but now engulfs more employers.

A survey of 7000 employers by recruitment firm Hudson found 44 per cent of Australian bosses believe staff development and retention will be their top priority in 2008.

This shows a rise from 2004, when 36 per cent of employers rated it as the number one task.

The second major challenge, according to the survey, is attracting suitable candidates. This trend shows a rise from 15 per cent in 2004 to 29 per cent of employers for 2008.

Increasing productivity shows a corresponding decrease in interest among employers, from 30 per cent for 2004 to 14 per cent now.

"Smart employers are ensuring that they are managing their talent effectively so their staffing needs continue to be met and business goals achieved over the long term," Gary Lazzarotto, managing director of Hudson Australia and New Zealand, says.

"The cost of losing good employees far outweighs the cost of implementing simple and effective talent management initiatives," he says.

"Ultimately, it's about offering an attractive employment proposition that attracts high quality talent while keeping existing employees satisfied, challenged and motivated."

Surviving Christmas

FOR many small businesses, 'tis the season to be jolly busy. Retailers can expect foot traffic to double and sales figures to follow suit, as shoppers plunder stores.

But for the predominantly white-collar small businesses, the festive season can be a touch dull, bordering on lifeless.

Clients are busy, in-boxes dry up, new projects are put off until the new year and the phones stop ringing for a few weeks.

It is usually a perfect time to shut up shop and send the loyal troops on a much-needed break.

But the head of Commonwealth Bank's local business banking team Michael Blomfield warns that a loss of momentum can seriously hurt a small business's bottom line.

The warning comes as part of his team's release of a 10-point plan for small businesses to survive the Christmas-New Year period.

"There are some business that shut down over Christmas and they've decided that it is the best thing to do. That's okay," he said.

"But there is a loss of productivity in the process of shutting down as you're not taking on new work. It takes a couple of weeks to slow down and a couple of weeks to build up again, and there aren't many businesses that can go six weeks in low volume and still have a great financial year.

"We are not about being the Grinch that stole Christmas, but people don't sit down and do the maths and get caught out."

Mr Blomfield suggests small businesses facing a slow festive season take stock of their financial situation, conduct a detailed analysis of cash flow, and use the time to plan ahead.

The team also encourages small business owners to take a counter-cyclical view of the slowdown and provide a service that other businesses are not providing over the period.

"You could say, 'Well if nobody is doing much marketing at this time of the year, maybe I should be the one to do it'," he said.

"It could be the perfect time to grab the client list and start ringing. Even if people don't answer the phone, at least you are trying to do something useful for your business."

On the flip side, retailers should also be taking stock and preparing for the onslaught, or risk being caught out with supply issues.

The CBA team suggest retailers are stocked up well in advance of Christmas, lines of credit are locked in place as an emergency and suppliers are kept in the loop.

"Really good planning is important. They need to have made some decisions about their increase in turnover, they need to think about what that means for the margins, does it mean they might be able to drop their margins, sell more and make more money," Mr Blomfield said.

"Also make sure you are keeping your suppliers in the loop because the worst thing in the world is running out of stock. Are they briefed on your increase in turnover expectations and will they be there to support you?"

Other pertinent issues are the need for extra vigilance about shoplifting, easy access to extra staff, and collecting outstanding debts before the holiday season to ensure cash flow is high.

Online shopping booming

THE allure of shopping centres does not appeal to every Christmas shopper. Some prefer the peace of buying gifts at home, and they are a growing breed.

According to the latest Sensis business survey one in four Australians will do some Christmas shopping on the internet this year, a remarkable statistic that has plenty of online business owners smiling.

Annual online spending is set to top $13 billion this year, with internet shoppers spending an average $2500 each.

And with the prevalence of online stores, combined with the increasingly busy lives for consumers, Christmas is becoming a boom period for internet-based businesses, as it always has for their traditional retail colleagues.

One crew that have been overwhelmed with the online Christmas rush are Sydney identical twins Jonathan and Anthony Bass.

The 27-year-old pair set up Dinosaur Deals six years ago as university students, using eBay to sell mobile phones to fund a few beers at the pub every Friday night.

They have become one of eBay's number one re-sellers in Australia, boasting an extensive range of products, a monthly turnover of several hundred thousand dollars and a customer base pushing 100,000.

During the pre-Christmas rush, sales on their website increase a massive 40 per cent.

Jonathan said the business imports the majority of products from overseas and sells them for up to 40 per cent cheaper than shopping centre retailers because their rent is significantly lower.

He believes online shopping will increase rapidly in the coming years, particularly leading up to Christmas.

"There is no question about it. In November it really picks up and our figures are about 40 per cent higher than other times of the year," he said.

"For the first two weeks of December our sales are about 70 per cent up on previous months. It certainly is the way the world is moving.

"People are sick and tired of battling for a park at a Westfield and fighting the crowd. This way they can sit in their PJs in front of their computer at a time convenient to them and do their shopping.

"There are also significant savings to be had. We don't pay Westfield rent and we run a simple operation, so we pass on the savings to our customers."

Commentary

To Re-Gift Or Resell?

As if the daily grind doesn't take a big enough chunk out of our lives, it's that time of year again--here come the holidays, the gift-giving season. Which in turn ushers in the re-gifting season.

It's tough enough to make it through the average day without having to figure out what to give your friends, family and coworkers. And it's even tougher to figure out what to do with gifts you get and don't need.

Despite the craziness, the holidays bring happy times and feelings of goodwill. Don't you wish you could show your goodwill by finding the right gift for your loved ones?
In Pictures: To Re-Gift Or Resell?

But what about everyone else--the people you are required to give to? Those are gifts you really have to think about, and you usually end up grabbing something quick and hoping for the best.

The truth is that according to eBay's (nasdaq: EBAY - news - people ) annual re-gifting survey (conducted by Harris Interactive (nasdaq: HPOL - news - people )) 83% of American adults receive unwanted gifts during the holiday season. This can't be just the casual-acquaintance category of gifts--it has to include gifts from loved ones too. This means that most people are potential re-gifters or resellers. Do you think the gift you gave could end up being re-gifted? The survey said that nearly half of those adults (47%) typically re-gift or resell items.

Better than re-gifting, and becoming more and more acceptable, is reselling. Businesspeople and housewives, college students and professionals are all finding their way to an Internet-driven marketplace to sell their gifts and fatten their wallets. EBay to the rescue. The same survey found that unwanted does not mean unappreciated: Nearly one-third of all adults surveyed (32%) would rather get a present they could re-gift or resell than not get a present at all.

Selling unwanted gifts on eBay requires little in the way of training and can bring in much-needed extra money to pay off holiday bills.

I've been doing this since 2000, and I end up using the proceeds to buy what I really want for myself. You can do it too. Here are a few simple tips:

--Take a clear photo of the item to upload to eBay's Gallery (a picture is worth 1,000 words). This is a simple task. EBay's online widget will upload the picture automatically from your computer.

--Write a descriptive title. EBay gives a seller only 55 characters for the title. Make your title count. Use only keywords that describe your item--brand name, size, color, fabric. Use only words that people might type into eBay's search engine to find the item you're selling. No adjectives, please.

--Write a concise description. It won't take long. You need a paragraph or so that tells the prospective buyer about the item. Here's where you put the adjectives. Give all the details and encouragement to buyers to convince them that buying your items will make their day.

--Accept credit cards. You will get more sales and higher bids if you accept credit cards. Even without being a big business, you can accept credit cards through eBay's PayPal payment service. It's simple to sign up, and believe it or not, the processing fees you pay are no higher than those an average retailer pays.

--Start your auction with a low, low starting bid. Don't say to yourself, "This is worth at least $25," because--let's face it--no matter what it's worth, you don't want it. Start the bid as low as your gut will let you. You'll have a lot more bidding action if you follow this rule.

--List your item for a seven-day period and watch the action.

If you get hooked on pocketing cash after you sell off your unwanted gifts, consider starting a part-time business selling on eBay. Certainly you have an entire house full of stuff you haven't touched in years. Wouldn't Aunt Martha's cloisonné candy dish make someone else very happy?

Shopping Season

Holidays 2007: Retail Winners And Losers

What to do with a tight holiday budget? Buy electronics and hit the discount clubs for everything else. Department stores? Forget 'em.

That's the consumer story so far for Christmas 2007. "The only safe haven is technology; everything else is weak," says retail economist Richard Hastings of the Federation of Credit and Financial Professionals. One reason: Many retailers worked hard to keep from discounting, focusing on inventory control and profits. It backfired. They failed to ignite excitement among cash-strapped shoppers who opted for Wal-Mart (nyse: WMT - news - people ) instead.

Traditional mid-market department stores "just haven't given customers the kind of deals they want," says Britt Beemer, head of industry tracker America's Research Group. Beemer estimates industry same-store sales growth at 1.8% from the 2006 holiday season, which would be the weakest in 10 years. The big losers this year figure to be the mall-based apparel retailers like Macy's (nyse: M - news - people ) and Sears, the most common places at which consumers getting pinched with $3 a gallon gasoline are cutting back, according to ARG surveys.

A couple of exceptions to that trend, Beemer notes, are Kohl's (nyse: KSS - news - people ) and J.C. Penney (nyse: JCP - news - people ), department stores that are benefiting from slightly more aggressive promotions. Penney is also reaping the dividends of a recent revamping, one that's resulted in most of its newer stores as stand-alones rather than mall anchors.

Good news for electronics firms like Best Buy (nyse: BBY - news - people ) and Circuit City (nyse: CC - news - people ), which selectively discounted some plasma television sets, digital cameras and global positioning systems, among other goods, but not with "50% off" fanfare. Both companies have 10% to 25% sales scattered around their Web sites; Circuit City is also offering free installation to nudge more people into getting a GPS for their car.

Wal-Mart, which sells a lot of consumer electronics goods at cheaper prices, also figures to do well from the surge, as customers walk over from the apparel and toy sections to spend on videogames and television sets.

The other big winners this season figure to be membership clubs specializing in savings--Costco (nasdaq: COST - news - people ), BJ's Wholesale and Wal-Mart's Sam's Club--as consumers supplement their pricey tech toy purchases with cheap clothing and basic staples.

Even the luxury sector, where customers aren't as affected by little-people problems like gas prices, hasn't been immune from this year's slowdown. ARG is looking for 4% growth at big luxury players like Saks (nyse: SKS - news - people ) and Nordstrom (nyse: JWN - news - people ). That's better than the overall industry, but lower than the typical 6% to 8% growth of recent years. Wall Street bonuses are down, a leading indicator that life for some at the top is at least a tad less cushy.

"You can't have the same year-over-year growth every year anyway, unless there's an economic improvement," Hastings says, noting that as the industry's base sales number increases every year, growth becomes more difficult. The rule of thumb: When economic conditions stay the same, the pace of growth drops. That doesn't add up to much growth in 2007. Unless you're selling a GPS or a flat screen television.

Retail

Toy Scare Could Help Wal-Mart

For some time now, Wal-Mart's tried to juice sales by peddling high-ticket goods. The company's wish may finally be coming true--thanks to consumer nervousness over lead-tainted toys.

Concerned parents still need to find something to put under the tree amid the lead fears. That means higher-priced electronics and sporting goods.

"The growth in electronic purchases is a bonus for Wal-Mart as they generate high-average tickets," says Britt Beemer, president of America's Research Group, which tracks consumer behavior.

Surveying Wal-Mart (nyse: WMT - news - people ) shoppers during the first weekend in December, America's Research Group found that 32% planned to buy electronic goods at the store this year, compared to 20% that did so in 2006. About twice as many as last year said they were shopping for sporting goods (11.3% vs. 5.7%).

Those gains come mostly at the expense of toys, which polled at 37% vs. 39% a year ago, and children's clothing, which dropped all the way down to 10% from 18% last year.

On Wednesday, the Michigan-based Ecology Center put out a report saying that 35% of 1,268 toys tested showed traces of lead paint. About half of those, the report said, had levels high enough to trigger a recall. The Toy Industry Associated disputed the report, questioning the Center's testing procedures.

No matter who's right, parents will err on the side of protecting their children. This year's theme is non-chewable gifts for kids, which means more videogames and baseball bats and fewer small toys and shirt sleeves that can go into their mouths.

That hurts a company like Toys 'R' Us, one of the featured retailers in the Ecology Center's toy-testing laboratory. But it's just fine for Wal-Mart (also a major seller of the Center's test sample), where customers can just slide over to another section of the store to find Christmas gifts.

Already coming off a better-than-expected third quarter in which it grew earnings 8% from a year earlier, the Bentonville, Ark.-based Wal-Mart seems well positioned to improve on last year's miniscule 1.5% rise in same-store sales for the November-through-January holiday period.

"They've returned to price leadership," says Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consultancy.

Wal-Mart plans to keep a steadier flow of customer traffic this year by planning out an early discounting season rather than waiting until mid-December to clear out slow-moving merchandise. Consumers' acceptance of Wal-Mart's flat-screen TVs and other expensive gizmos is a stark contrast to their rejection of its higher-end clothing. No one wants to say they buy their clothes at Wal-Mart, but anyone will get a Sony there.

"That's why Circuit City and Radio Shack are closing so many stores," Davidowitz says.

And with more people ambling over from the toy department, the season could be a little bit jollier in Bentonville this year.

Market Scan

Tiffany's Shares Don't Shine

Tiffany’s shiny quarter didn’t satisfy investors who pulled down shares of the luxury retailer.

By early-afternoon Friday, shares of the New York-based company were down 2.4%, or $1.16 cents, to $47.59.

For the third quarter, which ended on Oct. 31, Tiffany & Co. (nyse: TIF - news - people )’s sales increased 18.0% to $627.3 million from the $531.8 million reported during last year’s corresponding period.

Based on generally accepted accounting principals, earnings rose 239.9% to $98.9 million, or 71 cents per share, from $29.1 million, or 21 cents per share, posted last year.

Although impressive at first glace, Tiffany’s results include the sale-leaseback of its flagship store in Tokyo, which contributed 48 cents to the per share total. When excluding charges and gains, the company’s earnings were 27 cents per share.

According to Thomson Financial, Wall Street had anticipated $616.2 million in sales with earnings of 25 cents per share, but by the time of publication had not received a majority consensus on what figures those predictions were based.

On a same-store basis, the jeweler enjoyed a 8% sales increase in the United States, along with a 23% rise in Europe, and, excluding Japan, a 34% jump in Asia.

“I thought it was a very good quarter, especially given on what we’re seeing on a macro level with the economic slowdown,” said JMP Securities analyst Kristine Koerber. “Clearly the high-end consumer is showing resilience and I expect that to continue through the holiday period.”

Of note, sales in the New York flagship store increased 25% during the quarter due to higher sales to local customers and foreign tourists, while comparable branch store sales increased 4%.

Wall Street gave Tiffany special attention as investors anxiously look for any piece of information and insight into the behavior of luxury consumers during the holidays.

With one month over into the all-important November-December season, Tiffany Chief Executive Michael Kowalski said he was “pleased” with overall sales growth as it meets company expectations.

Tiffany lifted its 2007 outlook to between $2.25 and $2.30 per share, excluding charges and gains, from its prior guidance of $2.22 to $2.27 per share.

Despite the good news, Koerber speculated that Friday’s drop in share price could be because the company’s increased guidance was only inline with Wall Street’s “aggressive” expectations. She also conjectured that the drop was the result uncertainty surrounding the performance of its branch-stores in the U.S.

Japanese exporters gain on yen weakness

Japanese shares rose for a fourth straight session on Wednesday to end at a two-week high as the yen stayed weak and fears of an outright US recession receded slightly on better-than-expected retail data.

The yen traded at a seven-week low against the dollar of around Y114.2, helping export-related stocks and pushing the Nikkei index up 0.7 per cent, or 100.95 points, to 15,653.54. The broader Topix index rose 0.8 per cent, or 12.44 points, to 1,508.47.

The yen has weakened steadily since it broke through the Y110 level in November, sparking concern that the carry trade could unwind and the Japanese currency strengthen to Y100 to dollar.

Subsequent weakness has helped exporters. On Wednesday, Toyota (NYSE:TM) rose 1.3 per cent to Y6,180, helped by company projections that its global production would increase 5 per cent in 2008 to 9.85m units. Nissan (NASDAQ:NSANY) rose 1.6 per cent to Y1,223.

Canon (NYSE:CAJ), which makes photocopiers and digital cameras, was another beneficiary, gaining 1.7 per cent to Y5,330.

The rising market helped neither Sanyo (NASDAQ:SANYY), the battery and consumer electronics company, nor Central Japan Railway, which both fell sharply.

Sanyo dropped 10.7 per cent to Y167 following its restatement of earnings for six years to March 2006 and its admission that, as a result, it had paid illegal dividends on five occasions. Analysts said that although the company's financial position was not directly affected, its reputation could suffer.

Central Japan Railway, also known as JR Tokai, fell 8.85 per cent to Y1.03m after confirming its intention to build a $45bn magnetic railway link between Tokyo and Nagoya by 2025.

Yasuharu Sugimura, transport analyst at Goldman Sachs, said there was nothing new in the announcement that the company intended to build the high-speed link at that price tag. But he said investors may have been concerned about the lack of detail on how the company planned to finance such a large investment and the possible effect on profits.

Turnover was extremely thin with many Asian and other markets closed for Christmas and Japan preparing for a lengthy new year's holiday.

Sneak Peek 2008

Carrie Coolidge On Insurance

The Big Trend

Property casualty insurers will post record results in 2008, barring any big natural catastrophe. Investment gains in 2008 from the equity markets will be unimpressive, which will put more pressure on insurers to earn a profit from underwriting instead. Property/casualty insurers will be increasingly selective when reviewing insurance applications and will achieve some of the best underwriting results in nearly 50 years.

The Unconventional Wisdom

The banking sector is headed for troubled times, but not the insurance industry. Interest rates will creep up, which will be a boon for insurers, since the majority of their assets are invested in bonds. Property/casualty insurers will further benefit from profitable underwriting, and 2008 will bring few major natural catastrophes. Flush with cash, some of the larger property/casualty and life insurers will seek acquisitions abroad.

The Misplaced Assumption

For many years, it has been assumed that bigger is better in financial services, including the insurance industry. In 2008, this will prove to be a misplaced assumption. Citigroup's (nyse: C - news - people ) subprime credit losses will lead to its eventual breakup, which will lead to other large financial services companies being dismantled. The insurance industry will experience few, if any, large-scale domestic mergers in 2008. Insurers will look to grow organically in the U.S., and by acquisition abroad, where the growth opportunity is greater, especially in Japan, China, Russia and India.

The Watch List

Hartford Financial Services (nyse: HIG - news - people ) and MetLife (nyse: MET - news - people ) -- Both insurers will have record-setting performances, largely due to the retirement products they offer. Both companies will benefit from an aging population in the U.S. as well as Japan, where each has a significant presence. Both companies will continue to expand internationally.

A Bold Prediction
2008 is going to be a banner year for the stocks of many property/casualty insurers, including Travelers (nyse: TRV - news - people ), Chubb (nyse: CB - news - people ), MetLife, Allstate (nyse: ALL - news - people ) and Hartford, with all seeing impressive gains and solid fundamentals. Few insurers will suffer tremendous losses due to the subprime credit crisis. Seeking a safe haven, investors will choose to invest in insurance stocks over bank stocks, and the sector will thrive. In 2008, insurance stocks will outperform the S&P 500 and the banking sector.

Carrie Coolidge is a staff writer at Forbes covering the insurance industry.

Hype-y New Year

Tech and telecom companies talked a big game in 2007. Will they live up to the hype in 2008?

NEW YORK (Fortune) -- First thing's first: Let's give props to a pair of tech giants for shaking up the telecom industry in 2007. Computer maker Apple rocked the wireless world with its instantly iconic iPhone. And Internet search company Google, which is planning to bid on wireless spectrum, is developing a wireless operating standard, Android, that aims to make the mobile data experience more Internet-like.

Soon every phone maker was producing an "iPhone killer," and after Google (GOOG, Fortune 500) announced Android, U.S. carriers rushed to show their openness: Verizon's (VZ, Fortune 500) wireless unit said it would make its network open to any device that meets minimum technical standards - and customers can use any application they wish on these devices. AT&T (T, Fortune 500) then reminded the world that its network has always been open to any and all devices that operate on its GSM standard.

But for all the talk of openness, little has changed in the U.S. mobile user's experience. Yes, AT&T devices are open to other GSM phones, but it cannot guarantee all the features and functions of, say, a phone originally sold by T-Mobile.

The iPhone has helped some consumers recognize the benefit of a mobile device with a full HTML browser that readily lets users get mobile content from the Web instead of relying on a menu of choices offered by the mobile operator. In reality, though, high-end users (like those willing to spend big bucks for an iPhone) always have had access to mobile browsers in so-called smart phones, such as the Blackberry 8800.

Will the new year bring true openness and new experiences for U.S. consumers? Sort of, says Rich Nespola, chairman and CEO of tech consultancy The Management Network Group (TMNG). "My prediction for 2008 is that the open networks initiative will become a reality, but at the end of the day, the major network operators continue to dominate."

Nespola and others think AT&T, Verizon and Sprint Nextel (S, Fortune 500) will open up considerably, but still find ways to maintain control of the customer relationship - and that's not necessarily a bad thing for some consumers. While early adopters and folks with IT departments at their beck and call might be happy to rely on the carriers for access only, the teenager, stay-at-home mom or dad, or small-business owner might prefer to rely on the carrier for customer service support and handset replacement services.

"I think the idea of forcing people into walled gardens is going to break down next year," says Bill Howe, CEO of Azaire Networks, a telecom gear maker. He's referring to the "decks" of pre-approved content the carriers feature on their devices. But if content opens up, and consumers can access any games, videos or other applications they want, Howe thinks the carriers can still exercise control over the experience - and make money.

"The whole magic is making it dead simple in a mobile form factor, and I think that's something the operators can do," says Howe. "They have the billing relationship with the customer, they can make it so I just press a button and [content I want to purchase] gets on your phone bill right away."

Carriers aren't the only ones pondering the impacts of an open new world. Handset makers, energized by iPhone mania, now have to rethink what an open world means for their devices - and their business models. No. 1 handset maker Nokia (NOK) already is reinventing itself as a more service-oriented company complete with a digital music store, a la Apple's (AAPL, Fortune 500) iTunes.

Many analysts think openness will be good for device makers in 08, because consumers will start to upgrade to new phones that allow them to more easily access all the great new applications that openness is promising to unleash. And if networks and devices become more open, some consumers will choose to buy multiple phones (as some do in Asia) - all they need to do is transfer a little 'SIM" card from one phone to the other to maintain their phone numbers, contact lists, etc.

However, just as carriers don't want to become "dumb pipes," cell phone makers don't want to become makers of dumb terminals, and it isn't hard to imagine a longer-term scenario in which the phone itself is just a touch screen with a broadband mobile connection, and all the cool stuff resides in applications that consumers download to the device. (Like, say, a plain vanilla laptop.)

Bottom line, all this talk of openness has been a much-needed jolt in the arm. It has the telecom industry thinking about itself in exciting new ways, and it certainly will lead to some new experiences for consumers. But the telecom industry is a business dominated by giant companies and international bodies that set rules and technology standards. In other words, big change for the mass market is coming, but not in '08.

Retailers Push Post-Christmas Discounts

Retailers Usher in Post-Christmas Business With Deep Discounts Amid Signs of Holiday Gloom

NEW YORK (AP) -- With the 2007 run-up to Christmas boosted by a last-minute sales surge, retailers are putting an extra emphasis on after-Christmas discounts, hoping bargain shoppers and gift-card splurgers can enrich stores' holidays.
Target Corp., the nation's No. 2 retailer, warned late Monday that its same-store sales might decline for December, while a broad gauge of consumer spending released by Mastercard Inc., which includes estimates for spending by check and cash, showed a modest 2.4 percent increase for the holiday season.

So stores tried to position themselves to extend the holiday season.

Toys "R" Us Inc., which will open at 8 a.m. on Wednesday, two hours earlier than last year, will offer such deals as 40 percent price cuts on all MP3 and iPod accessories. Macy's Inc. is offering 50-75 percent off cashmere sweaters, while Saks Fifth Ave. has cut prices on fur coats by 40 percent to 60 percent.

Online stores were also slashing prices further to get rid of holiday leftovers. Potterybarn.com is having a post-Christmas sale that will offer 60 percent discounts on holiday decor and 50 percent price cuts on rugs.

The post-Christmas season has become more important with the increasing popularity of gift cards. Gift card sales are only recorded on retailers' balance sheet when cards are redeemed.

According to the National Retail Federation, consumers are expected to spend a total of $26.3 billion in gift cards this holiday season, up 42 percent from $18.5 billion in 2005.

ShopperTrak RCT Corp said that the week after Christmas accounts for about 16 percent of total holiday sales.

"This is going to be a more important chunk of business than most people realize," said Scott Krugman, a spokesman at NRF.

Marshal Cohen, chief industry analyst at NPD Group Inc., a market research firm, agreed, noting that when the industry looks at the holiday results, they need to include January business.

"When we take a look at the results of this holiday retail season, it will be important to remember that the rules have changed and so should the way we read the success of the holiday," Cohen said.

National Retail Federation: http://www.nrf.com

Five investment guidelines for 2008

NEW YORK (MarketWatch) -- You've weathered the credit crunch. You've withstood the effects of the subprime mortgage crisis. You've probably taken some losses along the way -- as most investors do sooner or later. Now you're looking ahead to 2008 as the year you hope will turn the tide -- and a heftier profit -- on your investments.

Deciding where and when to spend, and how to invest, in the coming year doesn't have to be as daunting as the jitters of the past 12 months seem to warrant. Cake Financial, a new online investment community that lets users follow their own portfolios and real-time trades as well as track those of investment leaders and friends, offers this advice.
Don't trade so much. Trading too often is the No. 1 killer of investment performance, due to fees and capital gains that reduce profits. The best way to avoid both is to check yourself against other investors and key market indices before you buy or sell to be sure you're making intelligent decisions.
Don't forget the past. Examining how your investments performed in the past can help you refine your strategies for the coming year. Review as much of the history of your investments as possible -- it will provide context about how your portfolio has performed over time and lend insight into ways you might alter your investment habits to reap greater returns.
Don't talk to Chuck. Don't rely on just one or two people for advice. Tap into multiple, proven parties, not just a single banker or broker, say, but a number of them.
Do talk about money. If you know other people who have been successful investors, don't be afraid to discuss money with them, in broad terms that will not reveal your specific investments. A good question to ask is, "What's your asset allocation?" That is, what percentage of your total investments are in stocks, in bonds, in real estate and other broad sectors. Opening up about your investing and inquiring of others about their approach may lead you to information that can change your outlook for the long run.
Challenge your adviser. If you've entrusted your financial health to an investment adviser, don't hesitate to ask him or her to share his or her own investment record with you. You can verify it at www.cakefinancial.com, where it's free to create an account that reflects one's real portfolio and trades.
"The reason top-performers in the market share their ideas is that it's not a zero-sum game for investors," says Steve Carpenter, CEO of Cake Financial. "If you buy a stock and the whole world follows your choice, the market for that stock will go up and you'll make more money."

BOJ Kamezaki: Uncertainty rising in global outlook

YOKOHAMA, Japan (Reuters) - Uncertainty in the global economic outlook is rising and central banks need to be careful at such a time, Bank of Japan Policy Board member Hidetoshi Kamezaki said on Wednesday.

"At the moment, uncertainty in the global economic outlook is rising, centering on the U.S. economy," Kamezaki told business leaders in Yokohama, near Tokyo.

Kamezaki, a former trading house executive, has voted consistently with the majority not to raise rates since joining the board in April.

He has been considered a policy hawk, however, after saying in a newspaper interview in June that the bank should take action promptly once it confirms that growth is set to continue.

UK pensions' end-2007 surplus $29.74 billion

LONDON (Reuters) - The final-salary pension schemes of the UK's 100 largest companies will show an aggregate surplus of 15 billion pounds ($29.74 billion) at the end of 2007, Deloitte said on Wednesday.

This figure reflects an improvement of more than 55 billion pounds during the course of the year, Deloitte said.

A combination of relatively healthy investment returns of around 3.5 percent over the year, billions of pounds being pumped into pension schemes by employers and the falling price of corporate bonds which are used to measure company pension liabilities are responsible for the surplus, said Deloitte.

Critics argue the improvements are partly an illusion, because they are primarily driven by the benchmark having been lowered rather than a fundamental improvement in the financial strength of these schemes.

The subprime mortgage crisis has caused a tumbling in the price of AA-rated corporate bonds, which firms use as the benchmark measure for valuing their pension liabilities.

The surplus will rise to 30 billion by the end of 2008, Deloitte predicts, if companies' own expectations for 2008 stock market performance are proven correct.

This is likely to prompt an increase in the number of firms who seek to offload their pension liabilities in once-for-all deals with insurers such as Paternoster or specialist buyout firms such as Pension Corporation.

"Over 2008 companies will be looking to solve their pension problems for good," said David Robbins, a pensions partner at Deloitte.

Final-salary pensions, which guarantee members a retirement income linked to their pay, have become a major headache to many firms, which saw their schemes plunge deep into the red due to the bear market in equities in the early 2000s, contribution holidays and growing life expectancy.

Demands by the pension trustees of Sainsburys (LSE:SBRY.L - News) for a major cash injection into their scheme have helped derail two takeover attempts for the grocery firm, while attempts by airport operator BAA to close its final-salary scheme prompted workers to vote to strike.

(Reporting by Simon Challis; Editing by Rory Channing)

Earnings

Goldman Shines

Pull out your sunglasses. Goldman Sachs earnings report will blind you.

The world's largest securities firm by market value said net income rose to $3.22 billion, or $7.01 a share, in the quarter ended Nov. 30, from $3.15 billion, or $6.59 a share, a year earlier.

Net revenue rose 14 percent to $10.74 billion, though declining from even stronger results in the third quarter. The results capped a record year for the bank, which still generated a 33 percent return on equity despite the turmoil in credit markets and a slump in leveraged buyout activity, as Goldman escaped most of the bond market turmoil plaguing fellow brokers.

Analysts on average expected Goldman to earn $6.68 a share on $10.12 billion of revenue, according to Reuters Research.

There has been speculation in recent days that the bank's bonus pool includes a $70 million payout for Chief Executive Lloyd Blankfein, 20% more than his much-discussed $54 million take-home last year. Shares of Goldman are up 16% from December 2006 through the end of last month, the firm's fiscal 2007.

Goldman seems to get all the breaks. The Wall Street Journal last week reported the firm took a short position against the mortgage market, even as some divisions continued to sell mortgage-derivative-packed investments to firm clients, and generated nearly $4 billion in profit from that bearish bet. That would offset losses of $1.5 billion to $2 billion from mortgage-related investments.

"Goldman Sachs was a clear winner in 2007," writes Wachovia Securities analyst Douglas Sipkin. "Goldman Sachs will likely report a record year, while most of the competition has reported losses in the second half of 2007."

Rival banks were unable to get out of the way of their mortgage-related exposure, or unable to sell it fast enough. Merrill Lynch (nyse: MER - news - people ), Citigroup (nyse: C - news - people ), and UBS (nyse: UBS - news - people ) each have taken billions of dollars in write-downs. Lehman Brothers (nyse: LEH - news - people ), Bear Stearns (nyse: BSC - news - people ), Morgan Stanley (nyse: MS - news - people ), Bank of America (nyse: BAC - news - people ) and Wachovia have also taken write-downs, though their measures were not as drastic.

Deutsche Bank (nyse: DB - news - people ) analyst Michael Mayo estimated in November the write-downs by the banks could reach $130 billion when all is told, and that total losses from the subprime meltdown could approach $400 billion.

Most of the banks are talking about a rough fourth quarter and a treacherous 2008. "November was absolutely the worst month ever on record for the fixed-income markets," said Lehman Brothers Chief Financial Officer Erin Callan last week. "We expect it to be challenging for the better part of 2008, and we may see further valuation reductions from here."

Last week, Lehman, the largest U.S. underwriter of mortgage-backed bonds, took a $3.5 billion write-down in its positions, but managed to hedge its way out of most of that. Fourth-quarter profits were down 11%, to $870 million, from the same period in 2006.

Morgan Stanley is scheduled to report a fourth-quarter loss of 39 cents per share Wednesday, and Bear Stearns is expected to post a $1.79 per-share loss Thursday.

-- Reuters contributed to this report.

Credit Crunch

Morgan Stanley Meltdown

Remember that thing about November being the worst month ever in the fixed-income markets? It's definitely showing up in bank earnings.

Morgan Stanley (nyse: MS - news - people ) took a $9.4 billion hit for its fiscal fourth quarter, $5 billion more than most people were expecting, as it aggressively wrote down its exposures to credit derivatives and mortgage securities. Chief Executive John Mack said he shouldered the blame for a loss of $3.5 billion in the quarter, and he wouldn't take a 2007 bonus because of it.

On a conference call Wednesday, Mack called the performance "embarrassing" and laid the blame on an "error in judgment" by one desk of traders in the firm's mortgage operation.

"Across the firm, we have moved aggressively to make the necessary changes, and these isolated losses by a small trading team in one part of the firm should not overshadow the momentum we see in virtually all of our other businesses," Mack said in a statement.

The quarterly loss, which amounted to $3.61 a share, was far greater than the 39-cent-per-share loss analysts had forecast. Investors are bracing for bad news from Bear Stearns (nyse: BSC - news - people ) as well, where fourth-quarter losses are expected to be around $1.79 a share when it announces results on Thursday.

There was speculation this week that Bear Stearns' board of directors was considering the future of Chief Executive James Cayne, who along with other senior managers, reportedly won't be taking a 2007 bonus. Cayne already fired the firm's president, Warren Spector, this summer amid mounting mortgage-related losses and the closing of two of Bear Stearns' hedge funds.

The portfolio manager of those funds, Ralph Cioffi, quit the firm at the end of the fourth quarter in November, a spokeswoman confirmed Wednesday. Federal prosecutors and the Securities and Exchange Commission are said to be investigating withdrawals from the funds by insiders before their collapse this summer.

Morgan Stanley's write-down is among the largest yet as Wall Street tries to get a handle on the credit crunch and the firm joins UBS (nyse: UBS - news - people ) and Citigroup (nyse: C - news - people ) in securing an investment from a sovereign investment fund to help shore up its capital base. China Investment is taking a 9.9% passive stake in Morgan Stanley, or $5 billion.

UBS said earlier this month it sees fourth-quarter write-downs of $10 billion. It got an $11.5 billion infusion of capital from Singapore and an unnamed Middle Eastern investor. Citigroup is facing additional write-downs of $13 billion by some estimates after receiving $7.5 billion from Abu Dhabi's investment fund.

Merrill Lynch (nyse: MER - news - people ), now under new Chief Executive John Thain, is seen announcing bigger fourth-quarter write-downs than the $8.4 billion it estimated in November. Analysts see that number going up by another $3 billion to $6 billion. Merrill and Citi won't report earnings until mid-January.

CIBC (nyse: CM - news - people ) said Wednesday that it is a hedge counter-party with ACA Financial Guaranty, which Standard & Poor's downgraded to CCC from A, for $3.5 billion of U.S. subprime exposure. "CIBC believes there is a reasonably high probability that it will incur a large charge in its financial results for the first quarter ending Jan. 31, 2008," the bank said.

Meanwhile, Bank of America (nyse: BAC - news - people ) said last week it is anticipating another $3.3 billion in write-downs and provisions, and Wachovia (nyse: WB - news - people ) is setting aside $1 billion for expected credit costs.

Among the banks to report so far, Goldman Sachs (nyse: GS - news - people ) is the lone standout. It posted surprisingly strong profits, $7.01 a share, for the quarter and record profits of more than $11 billion for the year.

What's ironic is that the firms having the biggest problems with credit exposures tried the hardest to mimic Goldman. Morgan Stanley and Merrill threw more capital at their proprietary trading desks in recent years and took riskier bets, hoping to take advantage of booming fixed income and equity markets. Both also bought up mortgage companies near the peak of the housing boom. Both actions have led to losses.

Goldman bet against the mortgage markets earlier this year while people were still piling into it, and profited big because of it. Morgan Stanley also bet against the mortgage market, putting on a $2 billion short position in the lower tranches of collateralized-debt obligations, and taking a $14 billion long position in the senior tranches. The long position spelled disaster, as the value of the senior tranches plummeted when the credit markets seized up this fall.

In a double dose of irony, while many firms are now regretting their investments in subprime mortgage companies earlier this year if not last year, Goldman is jumping in. Last week it bought Litton Loan Servicing, a subprime mortgage loan-servicing company. On a conference call Tuesday, Goldman's Chief Financial Officer David Viniar said the purchase takes advantage of distressed prices for these businesses.

"It's a business we want to be in," he said. Warning: Don't try this at home.

Global Business

Sovereign Shift

Stability, liquidity and support in times of dire need: Sound like central banks? Today, they seem more fitting descriptions for some of world's fastest growing emerging market governments, thanks to their cash-rich sovereign wealth funds.

Unlike just about everyone else, they're investing in risky assets, from corporate bonds to real estate to banks. Last week, the European Central Bank said sovereign wealth funds (SWFs) could become a stabilizing influence in today's crisis-racked financial markets.

Sovereign wealth funds have been around for years, created from national budget surpluses and huge reserves of oil or U.S. treasury bills. The biggest are the Abu Dhabi Investment Authority, with $875 billion in assets under management, and Singapore's GIC, worth $330 billion.
Slide Show: The World's Richest Sovereign Wealth Funds


All that money can't be pumped back into their respective economies, or they'll ramp up inflation. Nor can governments just sit on the piles of cash. The result: Since May 2007, SWFs have made at least 15 large investments in banks and financial institutions worldwide, totalling more than $40 billion. The majority of those investments have come from sovereign funds of China and the Middle East.

Morgan Stanley announced Wednesday that state-run China Investment Corporation had made a $5 billion investment in exchange for a 9.9% stake, just as the investment bank announced a $5.8 billion loss for the fourth quarter.

And a few days before five central banks teamed together to pump $100 billion into the markets last week, China, Singapore and an anonymous Middle Eastern government had already injected billions of dollars into the biggest financial companies on either side of the Atlantic--Citigroup (nyse: C - news - people ) and UBS (nyse: UBS - news - people )--serving to boost their tier-one capital and shore up their balance sheets.

The attraction is more than bargain prices. SWFs are looking to tap into banks' expertise in trade finance and financial systems--crucial areas for countries like China and the Gulf states, with burgeoning middle classes and developing investment cultures.

China's banks are huge, but lack sophisticated systems of international trade and investment and the impressive global reach of the Anglo-Saxon banking model. When China Development Bank bought a 3.1% stake in Barclays (nyse: BCS - news - people ) in July, for instance, the two lenders detailed the myriad ways they would be working together.

It's also good P.R. "Sovereign wealth funds, until recently, had a very bad reputation," says Stephen Jen, chief currency strategist at Morgan Stanley. "But there was no rebuttal. They said very little in their own defence." Dubai's acquisition of P&O in 2006 sparked uproar in Congress, because it meant the emirate would control a handful of American ports. Dubai gave no official response; it just sold the ports to AIG and kept the rest of the company.

"Going into a sector that is in desperate need of assistance is a form of rebuttal," says Jen. "They are refuting the notion that sovereign wealth funds are going to be a source of volatility or uncertainty, or that they will disturb the market. What they have done is anything but."

SWFs may be opaque and mysterious in their dealings, but some say, in practice, they make ideal shareholders. "The history of sovereign funds--going back to the first major oil price rises in the early 80s--showed Gulf investors are passive, long-term, ask few questions and sit tight when the company is in trouble," said Jan Randolph, head of sovereign risk at Global Insight. Unlike many shareholders (think hedge funds) sovereign wealth funds are with their investments for the long haul.

They're also huge. The European Central Bank estimates SWFs have total assets worth more than $2.2 trillion--larger than the hedge fund industry--and represents about half the world's official reserves. According to Global Insight, these assets are also growing by 20% per year, and Morgan Stanley's Jen says they could be worth $12 trillion by 2015.

Companies who welcome these investments are still worried about a protectionist backlash. Standard Chartered (other-otc: SCBEF.PK - news - people ) Chief Economist Gerard Lyons warned there was a "serious likelihood" Western governments would resist them. In July, for instance, German Chancellor Angela Merkel hinted she might pass new laws blocking state-controlled foreign investments. Lyons warned these actions would threaten global trade and hinder opportunities to work more closely with emerging nations like China and Russia.

Indeed, sentiment toward sovereign wealth funds could just as easily switch back to suspicion once the log jam in money markets eases and the credit crunch is just a distant memory. That's perhaps another reason why these funds are investing in banks so heavily now.

Still, expect to see emerging-market governments like China and Dubai investing in Western companies with sophisticated banking systems and high-tech capabilities. "A relatively small number of very big SWFs, within a rather short period of time, will own large stakes in many domestic and international businesses all over the world," said William Buiter, a professor at the London School of Economics, adding that this would accelerate the shift of geo-political power toward the likes of China, India and the Gulf. As long as companies need the capital, they'll be ready to lend a hand.

ICE Announces Establishment of Personal Trading Plan by CEO Pursuant to SEC Rule 10b5-1

ATLANTA, Dec. 24 /PRNewswire-FirstCall/ -- IntercontinentalExchange (NYSE: ICE - News), a leading global exchange operator and over-the-counter (OTC) energy marketplace, announced today that Chairman and Chief Executive Officer Jeffrey C. Sprecher has adopted a pre-arranged stock trading plan to commence in January 2008. The plan was established in November 2007, pursuant to guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934.
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Under the terms of the trading plan for 2008, Sprecher will sell only shares of stock he received as compensation in connection with his employment through the vesting of restricted stock and the exercise of stock options. This pre-arranged plan will enable Sprecher to diversify his personal investment portfolio, implement certain tax planning measures, and pay income taxes incurred in connection with the awards. The sales under this plan represent less than 10% of his combined holdings of stock, restricted stock and stock options. The planned sales do not include the disposition of equity owned as the original shareholder of ICE. The plan contemplates stock sales over an 11-month period. The plan was adopted during an authorized trading period when Sprecher was not in possession of material, non-public information. Under Rule 10b5-1 trading plans, trades may be executed at times when the director or officer is in possession of material non-public information, based on the application of a formula or binding instructions determined at the time the trading plan was arranged.

About IntercontinentalExchange

IntercontinentalExchange® (NYSE: ICE - News) operates global commodity and financial products marketplaces, including the world's leading electronic energy markets and soft commodity exchange. ICE's diverse futures and over- the-counter (OTC) markets offer contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including canola, cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar, in addition to foreign currency and equity index futures and options. ICE® conducts its energy futures markets through ICE Futures Europe(TM), its London-based futures exchange, which offers the world's leading oil benchmarks and trades nearly half of the world's global crude futures in its markets. ICE conducts its soft commodity, foreign exchange and equity index markets through its U.S. futures exchange, ICE Futures U.S.(TM), which provides global futures and options markets, as well as clearing services through ICE Clear U.S.(TM) In August 2007, ICE acquired the Winnipeg Commodity Exchange Inc., the leading agricultural futures exchange in Canada. ICE's state-of-the-art electronic trading platform brings market access and transparency to participants in more than 50 countries. ICE was added to the Russell 1000® Index in June 2006 and the S&P 500 Index in September 2007. Headquartered in Atlanta, ICE also has offices in Calgary, Chicago, Dublin, Houston, London, New York, Singapore and Winnipeg. For more information, please visit www.theice.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding IntercontinentalExchange's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2006, and the Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2007, each as filed with the SEC on February 26, May 4, July 27 and October 26, 2007, respectively.

Why the Rich Get Richer

Future Tense by Robert Kiyosaki

Most financial advisors say you can't predict the future. These experts claim you can't pick a market's top or bottom. And since you (or they) can't predict the future, they advise that you just leave your money with them for the long term.

For most people, this is good advice. But for those who want to get rich, being ahead of the future is one of the best ways to amass wealth.

The best way to predict the future is to study the past, or prognosticate. My rich dad often said, "There's a difference between a fortune-teller and a prognosticator." That's why he encouraged me to take the study of history seriously.

Read the Future

Starting in the fifth grade, my development as a prognosticator began with the study of the great explorers such as Columbus, Cortez, Pizarro, Marco Polo, Magellan, and others. They traveled the world in search of gold and international trade, and I try to follow in their footsteps.

Over the years, I've read some great books on economic history that have opened my mind to the world we face today. Some of the books that have altered my vision of the future are:

• "Critical Path" by R. Buckminster Fuller: Not an easy book, but one of the best I've ever read; it changed the direction of my life. Even though Fuller died in 1983, his predictions are coming true today.

• "The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers" by Robert Heilbroner: This book is essential for anyone who wants to see history through the eyes of economists. A very interesting read, even though it's somewhat dated.

• "The Dollar Crisis: Causes, Consequences, Cures" by Richard Duncan: This book is essential reading for anyone who wants to survive the next 20 years. It explains why the world is entering a global financial crisis, and explains why savers are losers.

World-Class Prognostication

I also follow the prognostications of James Dale Davidson and Lord William Rees-Mogg. Their 1987 book, "Blood in the Streets," predicted that year's stock market crash and the bankruptcy of the savings and loan industry. When their forecast came true, millions of average investors who had followed the standard advice to "invest for the long term" lost billions of dollars. But the 1987 crash made me millions, because I followed the advice of these two prognosticators.

Their next book, "The Great Reckoning: Protecting Yourself in the Coming Depression," predicted the break up of the Soviet Union, as well as the secession and break up of Yugoslavia and the ensuing tragedy of ethnic cleansing.

In 1997, my wife Kim and I were invited to Washington, D.C., for the launch of Davidson and Lord Rees-Mogg's latest book, "The Sovereign Individual." Many dignitaries, business leaders, and investors were there. Obviously, we had all gathered to listen to the authors' predictions for the year 2000 and beyond. Until then, I thought I had a pretty open mind. But as we listened to their predictions, Kim and I had a tough time grasping the magnitude of what they had to say about the near future.

Predictions Come True

As the saying goes, "Your mind is like a parachute -- it only works when it's open." Rather than object, question, and criticize -- as many in the audience at that reception were doing -- I simply took the book home and studied it. And the closer I studied it, the more I realized it was similar to past prognostications. As a result, between 1997 and 2000, I radically altered my thinking, my businesses, and my investment strategies.

In previous articles for Yahoo! Finance, I predicted the real estate crash, the fall of the dollar, and the rise in commodity prices. In future pieces, I'll continue to keep my mind open and peer into the future. In the meantime, if you're anxious to see what's coming up in finance, I recommend reading "The Sovereign Individual" and "The Dollar Crisis." Yesterday, these books were about the future. Today, they're about today.

In closing, remember that there is a difference between a fortune-teller and a prognosticator. I'll see you in the future.

Column: Credit Crunch Dims '2008 Outlook / ALL BUSINESS: Credit Crunch Headlines in 2007; Newsmakers' Views in Their Own Words

NEW YORK (AP) -- Just last summer, analysts were predicting the subprime mortgage mess had been "contained," big bank CEOs were "dancing" over the liquidity flowing in credit markets and private-equity titans yearned in Soprano-like fashion to "kill off" the competition.

Times have changed. The housing and mortgage crisis has escalated into a full-fledged credit crunch, which now threatens to throw the economy into a recession. People and places far removed from this mess are finding themselves caught in the fallout.

That's why 2007 is ending on a sour note, making it hard to focus on much else that happened in the business world this year.

D.R. Horton Inc.'s CEO Donald J. Tomnitz was well ahead of the curve in March when he said what most others in the housing business wouldn't: 2007 "is going to suck, all 12 months of the calendar year."

It was a blunt assessment that contrasted with much of the spin that had been coming then from lenders, real estate agents and home builders. The consensus seemed to think that the worst would soon be over.

Federal Reserve Chairman Ben Bernanke helped to stoke those views when he told Congress, also in March, that the increasing default rates among subprime borrowers with shaky credit were "likely to be contained."

That boosted Wall Street's confidence, and sent the major stock indexes soaring to new highs. Such gains were also fueled by the record-setting pace of debt-laden buyouts, which drove investors to scoop up shares of companies they wagered would be the next to be taken over.

Every now and then, naysayers would try to spoil the fun, but most didn't heed their warnings. Bank of America CEO Ken Lewis said in May that the only way to wake up investors to the risks of highly leveraged buyouts would be by a deal going bad. "We are close to a time when we will look back and say we did some stupid things," he said.

But cheap debt made dealmaking too attractive to let the party stop, and everyone seemed anxious to take part, as exemplified by the attention given to Blackstone Group's initial public offering in June.

Right before its IPO, Blackstone founder Stephen Schwarzman told The Wall Street Journal about how he operates his buyout firm. "I want war -- not a series of skirmishes," Schwarzman said. "I always think about what will kill off the other bidder."

It's a philosophy he will have to remember during the next dealmaking boom. Weeks after the much-hyped Blackstone IPO, credit conditions began to deteriorate quickly, causing a sudden halt in takeovers. Blackstone's shares have largely plunged since, losing a third of their value since the $31-a-share IPO.

The implosion in subprime mortgages forced a market-wide reassessment of risky debt. Once free-flowing liquidity dried up as lenders everywhere raised interest rates and investors demanded better protection against risk.

That put banks and other financial institutions on the spot. Not only were they unable to unload the debt to finance most buyouts, but their complex debt securities tied to subprime mortgage assets also plunged in value. Around $100 billion in subprime exposure has been written off at banks and brokers worldwide this year.

Such losses cost two big-name CEOs their jobs. Citigroup's Chunk Prince and Merrill Lynch's Stan O'Neal were blamed for letting their firms take on risk that clearly outweighed the reward.

Prince knew that trouble could come -- but was slow to see it happen. "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing," he told the Financial Times on July 10. Days later, broad credit woes would begin. By early November, he lost his job.

Those CEOs are now gone, but others have managed to stay -- to the wonderment of many analysts and investors. Topping that list is Countrywide Financial Corp.'s Angelo Mozilo, who has become the poster-child for the housing bust.

The CEO of the nation's biggest mortgage lender spent the first part of the year downplaying the subprime crisis and saying the company's financial condition "remains strong." Then he tried to use the spin that "nobody saw this coming" as the industry and his company melted down. Countrywide lost $1.2 billion in the third quarter, its first quarterly loss in its 25-year history.

Mozilo can salve his wounds with the $167 million, by Thomson Financial's count, that he got from the sale of Countrywide shares this year. The lender's investors aren't so lucky: Their shares are trading around $10 each, a quarter of what they were at the start of the year.

At other battered companies, too, including Morgan Stanley, Bear Stearns and Washington Mutual, executives' jobs are hanging by a thread.

The coming months will tell if they should go. The outlook for the economy isn't in their favor. An already terrible situation looks to be getting worse, with many economists -- including former Fed Chairman Alan Greenspan -- raising the likelihood of an upcoming recession.

Should that happen, it would hit as local governments and school districts in places like Florida and Montana already are feeling the pinch from debt investments gone bad. Other cities, universities and more are facing possible tax increases because future municipal bond offerings are likely to carry higher interest rates as a result of major bond insurers getting downgraded.

That shows just how contagious the housing and mortgage mess turned out to be. Bigger by far than almost everyone thought.

Rachel Beck is the national business columnist for The Associated Press.