Bubble trouble in junk bonds

NEW YORK (CNNMoney) -- As yield-hungry investors continue to jump head first into junk bonds, experts are warning that a potential bubble may be forming.

So far this year, investors have plowed a record $49 billion into U.S. high-yield bond mutual funds and exchange-traded funds, more than twice as much as the previous record of $21 billion, set in 2009, according to fund flow tracking firm EPFR Global.

"That alone is indicative of an overheating type of market," said George Rusnak, director of fixed income at Wells Fargo, adding that he trimmed his clients' exposure to high-yield corporate bonds last month to neutral from overweight.

"In a year, we earned a 20% return on our high-yield corporate bond investments, but we've been starting to see more signs of a bubble-like phenomenon," Rusnak said. And as the Federal Reserve sticks to its low-rate monetary policy, and investors keep reaching for yield, Rusnak expects the high yield market to get even more bloated.

Frenzied buying has pushed yields on junk bonds to record lows of about 6%. In 2009, the average yield of bonds included in the Bank of America Merrill Lynch High Yield Master II Index stood at a whopping 19.5%.

Related: It's time to get choosy about junk bonds

Experts are also worried that investors are taking on more risk than they intend to, as weaker companies that don't typically have access to the $1.3 trillion high-yield bond market have been able to issue bonds because of the increased demand.

"Up until recently, bond issues were of good quality and purpose, though arguably a bit over-priced in certain circumstances," said Tim Gramatovich, chief investment officer at Peritus Asset Management. "This is beginning to change."

For example, Gramatovich noted that Alpha Natural Resources (ANR, Fortune 500) recently issued bonds with a decent rating and a 10% yield, which would seem like a "tremendous value," but is far from that when considering the tepid outlook for the coal industry.

Related: Higher yields on savings? It will be awhile

Gramatovich, who also manages the Peritus High Yield ETF (HYLD), notes that companies, such as Petco and Jo-Ann Stores, are issuing more so-called PIK-Toggle notes. The PIK stands for "pay in kind" and allows a company to pay bondholders with more bonds rather than cash.

"If the company can't afford to pay me in cash, then why would I want more bonds they can't pay?" asked Gramatovich. "It is amazing how quickly investors lose their discipline and composure."

While the default rate for U.S. high-yield bonds is expected to end 2012 unchanged from the previous year's rate of around 3.5% according to Moody's Investor Services, Gramatovich says investors should be prudent and choose companies that can still pay their bills if the economy turns sour.

"We are not drinking any growth Kool-Aid and continue to believe that the world remains mired in a no growth, recessionary mode for the foreseeable future," he said. "It does appear this conservatism is warranted."

Gramatovich said that for his fund, which has a robust yield of 9%, he's finding the best values in smaller companies, such as nuclear waste firm EnergySolutions (ES) and propane gas distributor Ferrellgas Partners (FGP). His fund also includes bonds issued by Supervalu (SVU, Fortune 500) and Navistar (NAV, Fortune 500).

"Smaller companies don't necessarily mean more risk," said Gramatovich. "The primary risk in the high-yield bond market is default, so the most important thing is that a company is performing well, and I believe I'm likely to keep getting paid."

Meanwhile, Rusnak of Wells Fargo has been finding opportunity in high-yield bonds outside of corporate issues, with floating rate bonds that protect against rising interest rates, as well as high-yield municipal bonds.

First Published: October 28, 2012: 10:19 PM ET

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10 questions for China's Huawei

Huawei, China's largest telecom, has been the subject of congressional scrutiny.

HONG KONG (CNNMoney) -- The U.S. House Intelligence Committee released a stinging report in early October focused on the business practices of Huawei and ZTE, two Chinese telecom companies that would like to expand their operations in the U.S.

The report recommended the U.S. "view with suspicion" any plans for domestic expansion by Chinese telecom companies, saying they "cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems."

Huawei rejected the report's findings, calling them "baseless." CNNMoney met last week with Scott Sykes, the company's vice president for corporate media affairs, in Hong Kong. What follows is an edited transcript of the conversation.

What was your reaction to the House Intelligence Committee report?

It is just very disappointing. We engaged with the committee in good faith throughout the investigation. We had in-person meetings in Shenzhen, Washington and Hong Kong. One of our top executives appeared at a congressional hearing and we even provided a list of our shareholders.

But the committee completely ignored the really important and pertinent facts. We've been in business for 25 years. We've never had any security issues. If we did have security problems, we wouldn't have gotten to be a $32 billion company.

The committee also ignored the fact that companies like Huawei and Ericsson (ERIC) and Cisco (CSCO, Fortune 500) are transnational businesses. We all use essentially the same components, in the same proportion, from the globally interdependent supply chain.

If the report and the investigation was really about broadly protecting the integrity and the security of the telecommunications infrastructure in the United States, then all vendors, no matter their country of origin, should be looked at equally and fairly and transparently, with the same criteria applied to everybody.

Related: What makes China telecom Huawei so scary?

We are already participating in good faith in the U.S. market. We spent $6.6 billion just last year with American companies, and their components go into our products. We opened an office in 2001 in Plano, Texas. Today we have 13 offices. We employ 1,800 people in the U.S. We're bringing jobs, competition and really good technology for a really good price.

Where does Huawei go from here?

We need to keep talking and sharing our story. We want to be open and transparent. We are a private company that is 100% employee owned. We are not a state-owned enterprise like many large companies in China.

We are really taking great strides to be open and transparent because we know it's important. We put out an annual report that details our financials, even though, as a private company, we are not required to do so.

It has been suggested that listing Huawei on an international exchange would take some heat off the company. Have you hired bankers to look at options?

No, we have no plans of doing that. Of course we consider many things at many times. We are a commercial company, and it would behoove us to consider lots of things, but as far as the recent reports, you can put that in the category of rumor.

What else can you do to encourage trust? Can you show governments your source code?

Yes, and we are already doing that today. In the United Kingdom, we have been the sole supplier of equipment for the national broadband network for six years, with no security problems.

As part of our operation there, we have a cybersecurity assurance center. Inside that center, officials from the government can look inside the source code of our equipment, and do whatever they like to feel assured about the security of our products.

Yesterday, an independent chairman of our business indicated a willingness to do the same thing in Australia.

Related: The trouble with China's Huawei

Many, if not all, of our competitors would not do that. For a tech company, the source code is your secret sauce and your intellectual property.

Did the House Intelligence Committee ask to see your source code?

There was no specific request as far as I know. But are we willing to do it? Of course. In other places we have always been willing to be open and share our source code. Let us know what you need to feel secure, and we'll do it. That's the bottom line.

The House committee claimed to have uncovered criminal wrongdoing by Huawei officials, including fraud and bribery. Their report said those cases would be referred to the Justice Department. Have you been contacted by any law enforcement officials?

What are these allegations? That part of the report is classified, and we haven't seen any allegations. If there are specific allegations, we would be happy to respond. We cannot respond to what we don't know.

But have have you been contacted by the Justice Department?

No, not that I know of. This is the thing -- if there are facts, if there is evidence -- the United States is a country ruled by law. Let's be fair. If you've got something to say, put your cards on the table. Let's go. What are the facts?

I think the whole thing is just really, really disappointing. It's very frustrating.

What I can say is that we have never engaged in any cyberhacking, malfeasance, or other nefarious activity on behalf of the Chinese government or any government.

We are an international company. Seventy percent of our revenue today comes from outside China. If we were ever thought or proved to be doing that kind of nonsense, we would lose 70% of our business overnight. And we don't want to do that.

Are you seeing much return on your lobbying and public relations efforts in Washington?

I think it is having an impact. For many years, we were terrible at telling our own story, and that has contributed to misunderstandings. There is still a lot of room for improvement, but in the past five years we've gotten much, much better.

The reality is that in the last 10 years, cybersecurity has become a major concern. And countries are beginning to see telecom infrastructure as a national asset.

But all vendors need to be looked at the same way under exactly the same kind of criteria. Every vendor's source code should be tested. If that's going to be the criteria for Huawei, it should be the rules for everybody. Let's be fair.

Is there a risk that, despite your investments and lobbying, the U.S. market will never open to Huawei?

The tone is slowly changing. I think the fact we are engaging is helping, and telling our story is helping.

We are doing everything we can think of. We are engaging, talking and giving our perspective. We are sharing information about our company financials, our corporate governance structure and our executive leadership.

We are hopeful that, while it might take some time, our situation will change. Part of it is that relationships and comfort take time to develop. There are still people in the United States who have never heard of our company. It will take some time.

Huawei founder Ren Zhengfei is notoriously media-shy. Would more openness on his part help improve the company's position with U.S. lawmakers?

It is true that he has never given any media interviews. And I would speculate that he probably never will, at least not in any prolific way.

You can point to a number of reasons to explain that. His generation -- he is 68 -- this is the way things were done. He has built this business from nothing to a $32 billion company in the space of 25 years. He has never done media interviews, and the company has done exceedingly well.

It's kind of like: "Tell me why I should?"

First Published: October 28, 2012: 10:29 PM ET

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Top U.S. supercomputer guns for fastest in world

NEW YORK (CNNMoney) -- A new kind of global arms race is unfolding -- and this one is measured in petaflops.

Titan, the U.S. Department of Energy's top open science computer, is going live on Monday with an upgrade that will likely make it the fastest supercomputer on the planet. At 20 petaflops -- that's 20 quadrillion calculations each second -- Titan outperforms by four petaflops the DOE's Sequoia supercomputer, which has held the crown since June. The official "Top 500" ranking of the world's fastest supercomputers will be announced next month.

The United States is back on top of the computing world after ceding ground to Japan, China and Germany over the past three years.

That's not just a badge of honor: It's also critical to national security and the country's economic viability. Titan will help U.S. scientists pioneer research into climate change, biofuels, nuclear energy, new materials and other crucial fields, which will help them create the next wave of car batteries, switchgrass ethanol and improved weather forecasting tools -- all developed in America.

Formerly known as Jaguar, the Cray (CRAY) supercomputer at the DOE's Oak Ridge National Laboratory got a major upgrade and an appropriately intimidating new name.

Titan replaced its predecessor's 224,256 central processing units (CPUs) with 299,008 faster CPUs made by AMD (AMD, Fortune 500), along with 18,688 graphics processing units (GPUs) made by Nvidia (NVDA). The GPUs serve as accelerators to the CPUs. That's why Titan has just a third more central processors and the same number of computing nodes and cabinets as Jaguar, but delivers 10 times the performance.

Even more crucially, Titan's processors are five times more energy-efficient than their predecessors.

Related story: What it's like to play with the Jaguar supercomputer

Power constraints are the biggest challenge in the race to maximize speed. Running at just 2.3 petaflops, Jaguar required 7 megawatts of energy -- the same amount of electricity required to power 7,000 homes. The cost of simply plugging in Jaguar was $7 million last year.

If Jaguar had been expanded with CPUs, not GPUs, a 20 petaflop machine would have required 60 megawatts of power, at a cost of $60 million. That would have been a dealbreaker.

The Oak Ridge National Laboratory says Titan's energy costs are very slightly higher than Jaguar's. The system's design is "a responsible move toward lowering our carbon footprint," says Jeff Nichols, laboratory director at the Oak Ridge National Laboratory.

The GPUs powering Titan aren't special. They're actually same the hardware that's in high-end consumer PCs, popularized by hardcore PC gamers.

It's not the first time gaming has helped supercomputing. IBM's (IBM, Fortune 500) RoadRunner supercomputer at the Los Alamos National Laboratory runs on the same processors used in the Sony (SNE) PlayStation 3.

"It costs billions of dollars to develop high-performance computing processors, and there's no way to make that money back," says Steve Scott, chief technology officer at Nvidia. "We couldn't do what we're doing without a consumer business for these processors."

So what's the DOE's plan for all of Titan's new speed and power?

The Oak Ridge National Laboratory plans to stay focused on the 40 projects currently using the supercomputer. Instead of tens of millions of CPU hours, each project will get hundreds of millions.

That will help researchers accelerate their breakthroughs. Still, it's only a matter of time before they'll want more. By 2016, the Department of Energy will be upgrading Titan to its successor, which it hopes will reach 200 petaflops -- 10 times the speed of Titan.

"Demand will never stop," Scott says. "Once we're on the verge of an exaflop" -- that's 1 quintillion calculations per second -- "scientists will be talking about their demand for a zettaflop."

First Published: October 29, 2012: 12:15 AM ET

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Protect against a commodities meltdown

A rural worker collects Arabica coffee beans at a farm in the state of Minas Gerais, Brazil.

(Money Magazine) -- Booming growth in developing markets, coupled with inflationary money-printing in the U.S. and Europe, helped fuel a bull market in commodities for a dozen years.

Today, though, Wall Street is flashing a yellow light: Commodity bugs had better scoot to avoid being squashed by the global slowdown.

"The secular bull market in commodities is done," says Jeff Weniger, senior investment analyst at Harris Private Bank. "Finished. Kaput."

Don't let the recent rise in prices for oil (partly caused by unrest in the Middle East) and corn (the drought in the Midwest) fool you.

While central banks are still courting inflation by pumping up cheap credit, which may be bullish for gold, global economic growth continues to cool. That, in turn, has slowed demand for raw materials ranging from steel to Arabica coffee beans; the prices of many began to slide last year.

China holds the key, as it accounts for 30% to 60% of demand for several industrial metals, says Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management and author of the global investing book "Breakout Nations." But that economy is decelerating and may never regain its former pace.

Even longtime commodity fans are adjusting their expectations.

Mihir Worah, manager of Pimco Commodity Real Return Strategy Fund (PCRAX), thinks basic materials will continue to offer long-term inflation protection. The decline in prices, though, is a clear sign "the bull market is maturing."

That is something you must pay attention to, even if you don't own commodities directly. Raw materials are linked to emerging-market stocks and affect profits globally.

Pros like Worah and Sharma suggest three ways to guard against and profit from this turn.

Shift your emerging-market focus

The so-called BRIC countries -- Brazil, Russia, India, and China -- have been a mainstay of foreign portfolios, as they delivered 37 times the gains of global equities between 2000 and 2009.

Related: 5 hot emerging market blue-chips

These markets, though, are among the most sensitive to commodities, as Russia and Brazil are leading energy producers and India is a big source of agricultural goods. And while China is a major raw material consumer, it is also a huge supplier of industrial minerals and metals.

Since the Dow Jones-UBS Commodity index started to fall last year, BRIC stocks sank more than foreign shares in general.

Because these regions represent more than 40% of the developing world's market capitalization, it would be hard -- and foolhardy -- to eliminate them from your portfolio. You can, however, go with a conservatively managed fund that's cautious with these countries.

Take Scout International (UMBDX). Jim Moffett, manager of this MONEY 70 fund, has reduced stakes in Brazil and India and shied away from investing directly in Russia or China. He does have commodity exposure, but mostly through investments in developed countries such as Australia.

Focus on firms that benefit from low commodity prices

Kurt Umbarger, a global equity portfolio specialist at T. Rowe Price, suggests moving up the production chain -- into shares of manufacturers benefiting from cheap materials. T. Rowe Price Emerging Markets (PRMSX), another MONEY 70 member, is doing just that with a big stake in Samsung.

Related: China: Handle with caution

Looking for a more globally diversified collection of industrial stocks? Vanguard Industrials ETF (VIS) owns multinational manufacturers such as General Electric (GE, Fortune 500) and 3M (MMM, Fortune 500).

Opt for a more defensive commodities fund

Investors who want to keep a commodity hedge -- for fear inflation will eventually reignite -- can reduce risk by sticking with funds, like Worah's, that are pulling back from the riskiest resources.

In response to declining factory orders, Worah has lightened his exposure to industrial materials while overweighting precious metals. Since last year, his fund has eked out slight gains while the average commodity fund has lost ground.

First Published: October 29, 2012: 4:32 AM ET

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Penguin and Random House in publishing merger

Bertelsmann, the Germany-based parent company of Random House, will own 53% of the new venture with Penguin.

HONG KONG (CNNMoney) -- Penguin and Random House, two major publishers, said Monday they intend to combine operations. The merger announcement comes as publishers struggle to find profits in the digital age.

Bertelsmann, the Germany-based parent company of Random House, will own 53% of the new venture. Penguin's U.K. parent company, Pearson, will control the remaining 47%.

While the deal requires regulatory approval, the publishers said they hoped to compete the merger by the second half of 2013. Current Random House CEO Markus Dohle will serve as chief executive of the new venture. Penguin CEO John Makinson will become chairman of the board.

Random House reported an operating profit of $259 million last year, while Penguin reported $179 million.

The move comes as digital retailers such as Amazon (AMZN, Fortune 500) and Apple (AAPL, Fortune 500) exert enormous pressure on the publishing industry. Amazon is not just producing popular e-readers, but it has also launched its own book imprint and is working to sign up authors. In June, Amazon bought small publisher Avalon Books and its backlist of 3,000 titles. Avalon's books fall mainly in the romance, mystery and Western genres.

Related: Amazon's grip tightens on the entire book-publishing chain

The consolidation might help Penguin and Random House blunt changes in the industry, but it also means the Rupert Murdoch-owned News Corp. (NWSA, Fortune 500) won't be able to make a run at Penguin. According to multiple media reports, News Corp. had been preparing to make an offer for Penguin in recent days.

According to a news release announcing the merger, the publishing imprints of Random House and Penguin "will continue to publish their books with the autonomy they presently enjoy, and retain their distinct editorial identities."

First Published: October 29, 2012: 5:43 AM ET

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New York tech events canceled due to Hurricane Sandy

Tech blog AllThingsD was one of several companies forced to cancel New York events this week due to the weather.

NEW YORK (CNNMoney) -- Silicon Valley is the national technology hub, but New York gets its share of tech events -- and many of this week's were canceled in anticipation of Hurricane Sandy pounding the East Coast.

New York City has declared a state of emergency, and public transportation was suspended starting at 7 p.m. Sunday. Flooding and power outages throughout the city are a concern.

Google (GOOG, Fortune 500) was the first to spike its New York event, a mobile announcement planned for Monday morning. The company was expected to unveil a new Nexus smartphone and tablet.

Google's Android team sent an email to attendees on Saturday afternoon, saying "we will let you know our plans as soon as we know more. Stay safe and dry."

Tech blog AllThingsD was next to pull the plug, canceling its D: Dive Into Mobile conference in a blog post published Sunday afternoon eastern time. The conference was scheduled to take place Monday and Tuesday in the Battery Park section of downtown Manhattan, a low-lying area that was declared an evacuation zone on Sunday.

"The situation is truly out of our hands," the conference moderators wrote. They said Dive Into Mobile will be rescheduled at some point, and tickets will be honored. Would-be attendees can also opt to use their tickets for AllThingsD's media conference, scheduled for February in California, or receive a full refund.

Facebook (FB) is the third company to forgo its New York plans this week. The social network deep-sixed its plans for an engineering open house on Tuesday, plus an event for Facebook Gifts -- a feature that lets users send friends real, physical goods -- that was slated for Thursday. AllThingsD reported those cancellations, and Facebook did not immediately reply to a request for comment Monday morning.

Another Facebook cancellation of sorts: Many employees were supposed to get their first chance to sell their company stock on Monday, but instead stock exchanges were closed due to the hurricane. Facebook's current and past employees hold about 225 million restricted stock units that converted into real, trade-able shares last week. Adding in other stocks and options that were also unlocked, a total of 234 million shares were supposed to be newly eligible for sale Monday.

Back in sunny, 70-degree Silicon Valley, the tech world is functioning as usual. Microsoft (MSFT, Fortune 500) is expected to unveil its Windows Phone 8 at a San Francisco event later on Monday.

First Published: October 29, 2012: 10:48 AM ET

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NYSE and Nasdaq closed as Hurricane Sandy hits

The New York Stock Exchange will close Monday as Hurricane Sandy makes landfall.

NEW YORK (CNNMoney) -- U.S. stock exchanges were closed Monday as Hurricane Sandy bore down on New York.

The New York Stock Exchange (NYX) said in a statement late Sunday that it would close its markets Monday. Markets are likely to remain closed on Tuesday as well.

The Nasdaq (NDAQ) stock market, which trades many technology stocks, including Google (GOOG, Fortune 500) and Microsoft (MSFT, Fortune 500), also closed down Monday. The exchange will later announce plans for Tuesday.

"Dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority," the NYSE said in a statement.

New York has declared a state of emergency and the city suspended subway service, bus and commuter rail service, which started at 7 p.m. ET Sunday. (Look ahead to stocks: Key jobs report)

The NYSE originally planned on staying open for electronic trading, while closing its trading floor, but later said all operations would close after consultations with regulators and other exchanges.

Related: Black Monday: 25 years after the crash

NYSE rarely shuts down for weather-related emergencies: Hurricane Gloria in 1985, and a snowstorm in 1969 were the last major weather events to bring the exchange to a halt.

Monday marks the first unscheduled market-wide shutdown since September 2001, when markets were closed for four full trading days following the Sept. 11 attacks on the World Trade Center.

The last market-wide shutdown was on January 2, 2007, in accordance with the country's national day of morning in memory of President Gerald Ford, who had died a week earlier.

In other markets, CME Group (CME) halted floor trading since its Nymex trading floor is in New York City's mandatory evacuation zone. The CME closed and settled all stock-related futures and options at 9:15 a.m. ET, with U.S. stock futures declining between 0.4% and 0.6%.

All other electronic futures and option markets, including energy and metal, will remain open.

CBOE Holdings Inc (CBOE), the world's largest options exchange, also closed trading Monday and said it would make a further announcement if closures are determined for additional days.

The weather forecast prompted the U.S. Treasury to revise its schedule of debt sales for the week, moving Tuesday's 4-week bill auction to Monday from Tuesday.

The bond market will remain open Monday. The Securities Industry and Financial Markets Association is recommending an early close of noon ET and a full day close on Tuesday, but the ultimate decision is left up to the firms that trade bonds, including Treasuries, mortgage-backed securities, corporate bonds, and municipal bonds.

Currency trading activity typically follows the fixed income markets.

Even though Federal government offices were closed, the Commerce Department released its monthly report on personal income and spending on schedule Monday morning. Spending rose 0.8% in September, above expectations, while income inched up 0.4%, right in line with forecasts.

Meanwhile, some companies with offices in the flood zone in lower Manhattan, like American Express (AXP, Fortune 500), have closed their New York offices on Monday.

Goldman Sachs (GS, Fortune 500) will be open for business Monday, though most of its New York employees will work from home due to its offices' proximity to the evacuation zone and transit suspensions, according to a memo to staff obtained by CNNMoney and confirmed by a spokesman.

The firm will rely on its teams in London and around the world for support. The memo said that employees "deemed critical to the operation of the firm," however, will be asked to go into its lower Manhattan offices Monday, but stressed that safety remains a top priority.

Pfizer (PFE, Fortune 500), which had been scheduled to issue its quarterly financial report on Tuesday, said that it would reschedule for Thursday morning. Meanwhile, power companies Entergy (ETR, Fortune 500) and NRG Energy (NRG, Fortune 500) said they were delaying their third-quarter conference calls because of the storm.

First Published: October 28, 2012: 2:12 PM ET

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Hurricane Sandy grounds airlines for days

NEW YORK (CNNMoney) -- Airlines have canceled thousands of flights ahead of Hurricane Sandy, and stranded travelers shouldn't expect any relief until the weekend.

Cancellations have been announced for flights going to and from East Coast cities such as New York, Boston and Washington, D.C., and also for flights as far west as Pittsburgh and Buffalo, N.Y.

But the good news is that the hurricane is happening during a slow travel season -- between summer and the holidays -- which will minimize the number of flights disrupted, according to Farecompare.com Chief Executive Rick Seaney.

"Barring significant airport damage, flight patterns should be back to normal by the end of the weekend," he said.

Hurricane Sandy, the so-called "Frankenstorm," is expected to make landfall in the New York-New Jersey area after cutting a destructive swath through the Caribbean. But having said that, it should be less disruptive than the Icelandic earthquake that paralyzed European air travel in 2010 with its colossal cloud of ash.

Related: Storm supplies flying off shelves

"This is certainly bigger than [Hurricanes] Irene and Katrina [but] probably not as big as the shutdown caused by the Icelandic volcano disruptions as far as hitting the airlines' bottom lines, since the volcano lasted for many more days and recurred," said George Hobica, president of the travel site Airfarewatchdog.

In the case of Sandy, airlines and travelers had some warning of the storm beforehand, which has helped to minimize the number of people stranded.

"With airlines precanceling thousands of flights, fewer people will be stuck this week trying to return home. And airlines have had plenty of time to position their aircraft out of harm's way so they'll be ready to handle the backlog [of flights] when things calm down," said Seaney.

Related: Sandy's hit to the economy

According to some forecasts, the storm might be leaving the East Coast behind by Tuesday.

"United expects to resume service on Tuesday with selected cancellations, weather permitting," announced United Continental (UAL, Fortune 500), which is allowing passengers to reschedule affected flights, free of charge.

Jetblue (JBLU), which has canceled about 1,000 flights scheduled from Sunday through Wednesday, was a bit more cautious when it comes to resuming air travel.

Related: Sandy shuts down U.S. markets

"We expect to be operational the day after the storm passes," said Victoria Lucia, spokeswoman for Jetblue, which is also allowing travelers to reschedule canceled flights without being charged.

U.S. Airways (LCC, Fortune 500) is also waiving fees on rescheduling storm-affected flights, while AMR's (AAMRQ, Fortune 500) American Airlines and Southwest Airlines (LUV, Fortune 500) are inviting passengers to request refunds.

Southwest has canceled 58 flights, which is about 2% of its total traffic. The airline has less of a presence on the East Coast compared to its competing airlines, and is therefore less affected by the storm.

First Published: October 29, 2012: 10:34 AM ET

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Sandy's hit to the economy

Experts believe Hurricane Sandy's impact will be enough to lower the nation's gross domestic product.

NEW YORK (CNNMoney) -- Even before Hurricane Sandy causes any significant property damage, it is costing billions of dollars as businesses shut down along the storm's expected path.

Economists say it will take a while to fully estimate the economic impact of the storm. But they believe the impact will be enough to lower the nation's gross domestic product, the broadest reading of the nation's economic activity, in the fourth quarter.

"The big story this morning is how much stuff is shut down," said Mark Vitner, senior economist with Wells Fargo Securities. "Business interruption is the biggest impact, at least until we see what happens in terms of property damage." He said early estimates of property damage range around $15 billion.

Vitner said lost business from a storm like this typically amounts to as much as 40% to 45% of the property damage figure. But given the fact that it could shut businesses in New York City and other big East Coast cities for two days or more, the business interruption will be greater than normal.

Related: Sandy shuts down U.S. markets

Economists say some of the lost business -- such as bottled-up shipments in shuttered ports and rail yards -- will be made up as soon as the storm has passed.

"But a lot just won't occur," said Vitner. "For example, business at restaurants, that's a permanent loss. You're not going to eat two lunches tomorrow if you don't eat lunch out today."

Vitner said some of the lost stock market trades likely will not be made up whenever the markets reopen. But Vitner said with the election only a week away, it was expected to be a relatively light trading week even without the storm, as investors waited to see the outcome of the close presidential race.

One New York City business that is losing work is Lightspeed Express, a messenger service, which was in the process of shutting down Monday. It will remain closed until Wednesday.

"It ends up costing us a lot of money. It's like two holidays in a row," said Robert Wyatt, the company's president.

Wyatt said there was a rush of business Sunday as customers sped up some deliveries. "But you're talking (an extra) hundreds of dollars versus a loss of revenue close to six figures. Most of that won't be made up."

Wyatt said he does have business interruption insurance, but he'll have to wait until Wednesday to find out how it applies to him.

Related: Stores sell out of supplies

Keith Hembre, chief economist at Nuveen Asset Management, said that some of the lost business will be made up by increased spending preparing for the storm -- residents of the Northeast rushing out to buy flashlights, batteries and even generators, as well as spending on rebuilding and repairs that might take place after the storm. Home improvement retailers such as The Home Depot (HD, Fortune 500) and Lowe's (LOW, Fortune 500) were jammed over the weekend.

"You can look back on impact of Katrina, in immediate aftermath, there was an economic downturn in a number of data points," Hembre said. "Ultimately the rebuilding activity ended up being stimulative."

Hembre said it's much too soon to estimate how much business will be lost or property damage because of the storm. But while there may be a slight reduction in GDP this quarter, he doesn't think the economic impact will be long lasting.

"The storm won't change the underlying patterns of demand," he said.

First Published: October 29, 2012: 10:32 AM ET

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Cell phone carriers brace for Hurricane Sandy

Emergency responders in Freeport, N.Y., surveyed the situation Monday morning as parts of the area began flooding.

NEW YORK (CNNMoney) -- As Hurricane Sandy churned toward the Northeast, wireless carriers spent the weekend battle-proofing their networks.

Verizon (VZ, Fortune 500) readied repair equipment, Sprint (S, Fortune 500) engineers deployed backup generators just outside the storm path and AT&T (T, Fortune 500) installed new batteries at cell sites. The nation's three major carriers shut down most retail stores in the mid-Atlantic region and New England on Monday.

With most preparations complete, it's now time to wait and see what havoc Sandy brings.

Carriers readied a fleet of emergency equipment with some peculiar, farm-like names: COWs (Cells On Wheels), COLTs (Cells On Light Trucks), and GOaTs (Generators on Trailers). These temporary cell towers, generators, diesel trucks and sand bags are stationed along the storm's edge, and action teams are on standby to roll in with them as soon as something goes down. The carriers' monitoring centers are watching their networks for any signs of trouble.

Flooding and winds can sometimes threaten cell towers, but most are strong enough to handle the worst that even a Category 5 hurricane can bring. Sprint's towers, for instance, are built to withstand winds of up to 110 miles per hour, a company spokeswoman said.

But she also noted that frequently hit areas like Florida tend to have cell towers on high ground, unlike the areas where Sandy is expected to strike. Flooding could make it difficult to reach cell towers that have lost power. In preparation for Sandy, many of Sprint's cell sites were sandbagged.

Power outages are by far the biggest threat to cell towers during a hurricane. That's why many towers have battery backups, which can power the cell for a day or two. Many also have backup diesel generators in case the battery fails. Cell phone companies have contracts with local diesel providers to keep the generators refilled.

If flooding from Sandy makes the towers unreachable, that's when the cell phone companies will roll out the COLTs and COWs, forming makeshift cell towers in an attempt to maintain constant coverage.

That's crucial not only for customers, but also for first responders. Each of the biggest carriers has a special team that works directly with law enforcement to ensure they have capacity to communicate in a disaster.

Cell phone carriers also need to keep their networks from overloading when a serious storm hits. When Hurricane Katrina made landfall in New Orleans on Aug. 29, 2005, AT&T's network was overwhelmed with calls in and out of the Gulf Coast region. At one point that day, 10 million people tried to call into New Orleans simultaneously. It was among the biggest localized calling events in the network's history.

That's why all three carriers monitor their networks from both central and regional command centers, constantly communicating with responders on the ground and rerouting traffic when necessary.

Emergency coordinators are counting on the wireless networks to hold up. The Federal Emergency Management Agency fired off a tweet Monday morning suggesting people take advantage of their mobile gadgets: "Phone lines may be congested during/after #Sandy. Let loved ones know you're OK by sending a text or updating your social networks."

First Published: October 29, 2012: 11:36 AM ET

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Stocks to open higher

Click for more market data.

NEW YORK (CNNMoney) -- U.S. stock futures rose Monday, ahead of another batch of corporate earnings.

Global bellwether Caterpillar (CAT, Fortune 500) kicked off a busy week of corporate earnings with a disappointing outlook, even as its quarterly results came in better than expected.

The heavy equipment manufacturer said it expects to earn between $9 and $9.25 per share on sales of about $66 billion in 2012. Analysts surveyed by Thomson Reuters had predicted full-year earnings of $9.40 per share on sales of $67 billion.

Despite the negative guidance, Caterpillar earned $2.54 per share in the third quarter, topping analysts' expectations.

Yahoo (YHOO, Fortune 500), with new CEO Marissa Mayer at the helm, reports after the bell. Yahoo is expected to post earnings of 26 cents a share on $1.08 billion in revenue.

Fellow tech heavyweights Facebook (FB) and Apple (AAPL, Fortune 500) are up later in the week, as are AT&T (T, Fortune 500) and Boeing (BA, Fortune 500).

Related: Facebook's week of reckoning

U.S. stocks fell Friday, the worst day on Wall Street since June, following a slew of weak earnings reports.

Analysts at S&P Capital IQ predict third-quarter earnings for companies in the S&P 500 will grow by just 0.04% overall this quarter, the worst since the third quarter of 2009.

Fear & Greed Index

World Markets: European stocks were mixed in early trading. Britain's FTSE 100 rose 0.1%, the DAX in Germany was little changed, and France's CAC 40 added 0.2%.

Asian markets closed higher. The Shanghai Composite rose 0.2%, the Hang Seng in Hong Kong advanced 0.7%, and Japan's Nikkei gained 0.1%.

Related: China currency plays role in U.S. politics

Companies: DISH Network (DISH, Fortune 500) reached an agreement with Voom HD Holdings, which owns Cablevision and AMC Networks, on Sunday. DISH agreed to pay $700 million in cash to settle a dispute over wireless multichannel video distribution and data service licenses.

BP (BP) said Monday it was in "advanced discussions" on a deal that would result in the sale of 50% of its Russia-based assets to Rosneft, a state-owned oil and gas company.

Hasbro (HAS) reported third-quarter earnings of $1.24 per share, down from $1.27 per share in the same period last year. Excluding foreign exchange costs, the toymaker said it made $1.28 per share.

Genealogy website Ancestry.com (ACOM) announced plans to be taken over by an investor group led by private equity firm Permira. The cash transaction values Ancestry.com at $1.6 billion, or $32 per share. Shares surged 8% ahead of the bell.

Halcón Resources (HK) announced a $1.4 billion deal with Petro-Hunt to develop a stake in North Dakota's gas-rich Bakken and Three Forks region.

Currencies and commodities: The dollar fell against the euro and the British pound, but edged higher against the Japanese yen.

Oil for November delivery rose 17 cents to $90.22 a barrel.

Gold futures for December delivery gained 5 cents to $1,724.50 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged lower, pushing the yield up to 1.81% from 1.77% late Friday.

First Published: October 22, 2012: 6:15 AM ET

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Secrets of the truck stop king

Jim Haslam II: "I wanted to be in business for myself."

(Fortune) -- If you do a lot of driving on the nation's highways, there's a good chance you've been a customer of James "Jim" Haslam II. Starting with one gas station in 1958, Haslam has built the largest chain of travel centers in North America. Knoxville's Pilot Flying J now has 496 outlets -- combination gas stations and retail stores -- that produced about $30 billion in sales in 2011, the latest data available from the closely held company. Over the years Haslam, now 81, has kept the company in the family. His son Jimmy Haslam III, 58, is chairman of Pilot and, at presstime, was about to be approved as the new owner of the Cleveland Browns football club. Former Pepsi (PEP, Fortune 500) exec John Compton is the new CEO. Another son, Bill, 54, is a former Pilot president and now the Republican governor of Tennessee. (The family is a big donor to Mitt Romney's presidential campaign.) Haslam's story:

My upbringing was typical of American children born in the 1930s. I was the youngest of three siblings and the only boy in my family. Our mother was a homemaker, and our father worked as a salesman for the old Studebaker company and served as an officer in the Army in both World War I and World War II. He said cars were so slow to sell back then that he'd take a car off the freight train and drive it around from dealer to dealer until he sold it. Then he'd go back to the train to get the next one. We lived in Philadelphia until I was in the 11th grade; then I finished high school in St. Petersburg, Fla.

I played all kinds of sports and got a scholarship to play football at the University of Tennessee, where I was captain of the 1952 team. The things that help one succeed in football will also help one to succeed in business. In football, you've got a coach who has to get the best players, put them in the right position, make them practice hard, and execute a game plan. If the players do all those things, you win. Business is the same thing.

After I received my B.S. in finance from the University of Tennessee, I went into the Army. I served in Korea for 13 months, after the war ended, and was a company commander in a combat engineering company. When I got out in 1955, I was offered three jobs -- being a high school football coach, selling advertising for a TV station, and being a wholesale salesman for Fleet Oil. The coaching job wouldn't start paying until summer, and I wasn't sure TV was going to make it. So I went to work for Fleet Oil, which was getting into the wholesale business, in LaFollette, Tenn. After I had spent six months in sales, the owner, Sam Claiborne, said, "Come learn about the operations side of the gas station business." He started the chain of Sail Oil gas stations, and let me run it.

I wanted to be in business for myself, and after two years I decided to start Pilot. We wanted to call the company Jet, but that trademark was taken. We decided to name the company Pilot because the word conveys being in charge. Sam had taught me all I knew, so I agreed not to build any locations near his gas stations for three years.

MORE HOW WE GOT STARTED: The Blue Man Group

In 1958, there were a lot of independent, cut-rate stations on the border between Tennessee and Virginia. Because of the tax situation, gas and cigarettes were cheaper in Virginia. A station became available in Gate City, Va., and we bought it for $6,000. It did well from the start, so we were lucky. By 1965 we had 12 locations in Virginia, Tennessee, and Kentucky. We always chose places where there was a market with good volume, which back then was usually small towns.

Our team would travel to a town and get up early to look at traffic patterns. We wanted to be on the right-hand side of the road on the far corner, past the traffic light, so drivers could get in and out easier. At the time there were the big company gas stations -- Exxon (XOM, Fortune 500), Mobil, Shell (RDSA), Texaco -- and then there were the independents like us. There were gas stations on every corner, and it was dog eat dog. In the 1960s, to stand out in customer service, we'd find out customers' names, then put a piece of tape with their name on it inside the gas cap so that when they left, the attendant could say, "Thank you, Mrs. Smith." Today we get their name from the credit card. But that's how you say thank you to people. You use their name.

Gas was 27.9¢ a gallon when we started in 1958. In the '60s and '70s there were a lot of price wears, and we'd lose money at times, selling gas at cost. It was difficult starting from scratch. We borrowed from a number of banks to start each location.

We didn't have a lot of capital, and Marathon Oil (MRO, Fortune 500) saw that we were expanding. Marathon was looking for people who would buy their products, and it offered to buy half our business, for $200,000 in 1965. It also loaned us $4 million to build new gas stations. The stations were little 200-square-foot buildings with restrooms on the side and six gas pumps. All we sold were drinks, Lance cookies, cigarettes, and motor oil. We repaid the loan in the mid-1970s.

In 1974 my first wife, Cynthia, died. Our oldest son, Jimmy, was 20 when he took her seat on the Pilot board in 1975. He was a senior at the University of Tennessee and started working full-time for the company in 1976. In the early 1970s we figured out we'd have to sell more stuff to pay for the properties. So we built convenience stores. We added food and the things one can buy in convenience stores today. The challenge one always has is, How will we get sales? One has to have a clean place that looks good, gives customers good value, and has good people working there.

MORE HOW WE GOT STARTED: The Lucky Jeans guys

Today we have a sophisticated Pilot Flying J University for training. But back then we'd have district managers who would train people one by one on everything from customer service to watching the numbers. We would try to get 50% of our profit from petroleum and 50% from nonpetroleum products. Even today we want our people to be conscious of how much profits and margins should be.

One of the secrets to success is adding new products and creating new ways to do business. We have to keep changing because our customers are always changing. In 1980 a friend of ours told us about Ken Pritchard, a former football player at the University of Tennessee, who had built a new concept in Slidell, La., that was a convenience store with gas pumps in front and diesel fuel behind it. We decided to do the same thing.

So in 1981 we built our first travel center. President Reagan had just deregulated trucking, so there was a proliferation of small trucking companies that became good customers. We filled a real niche. In 1988 we bought out Marathon Oil, got the company back to ourselves, and kept building travel centers.

I'm really proud of what Pilot has become. Our reputation is built on cleanliness and customer service. It varies by store, but maintenance is supposed to check every 30 minutes to make sure the restrooms are clean. In the past other managers and I would go into the stores and get a feel for what was going on. Friends would tell us if they ran into a dirty restroom somewhere. Now we do spot checks through mystery shoppers.

In 2001 we again partnered with Marathon (Marathon Ashland Petroleum's Speedway SuperAmerica), and merged our travel centers. Together, we had 232 travel centers, and then we bought out Williams' Travel Centers for $189 million in 2003, and added 40 more locations.

MORE HOW WE GOT STARTED: Zappos' silent founder

Marathon has always been a good partner. It provided us with the products to sell and the financing. We've always been the operating partner, and it let us operate independently. In 2008, Marathon was disposing of some of its marketing assets, and told us it wanted to sell. So we got together with CVC Capital Partners and bought Marathon out for $700 million. The family retains 60% of the company.

In 2010 we felt it was logical to merge with Flying J because our locations meshed. Today Pilot Flying J has 496 travel centers in the U.S. and Canada. We also kept 40 convenience stores in Knoxville.

Pilot has been a family business that suits our energy and interests. When I turned 65 in 1995, my older son, Jimmy, became CEO, and I became the chairman. My son Bill was president from 1995 to 1999 and is now the governor of Tennessee.

Now, as founder and chairman emeritus, I visit stores as much as I can, to greet people and tell them how important they are to us. The most important customer is the one walking in the door right now. I want to make sure we keep this culture going. Everything starts at the top in a business. As a leader, one has to set the example.

My advice

Do the right thing. If an employee needs medical treatment for a family member, give him time off. If a customer is dissatisfied with a product, take it back and make him happy. Be a good corporate citizen. People will remember what you do.

Hold people accountable. We have monthly goals. If our people don't make them, they have to explain why. When they make their goals, we reward them.

Keep an eye on the competition. We'll have a mystery shopper visit one of our stores, and he'll mystery-shop one of our competitors. If the competition wins, we look at why it was better than us, and we make sure it never happens again.

This story is from the October 29, 2012 issue of Fortune.

First Published: October 22, 2012: 6:30 AM ET

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'Walking Dead' back for DISH subscribers

Fear not, DISH subscribers! The zombies of "Walking Dead" are back on your TV after settlement of a dispute with AMC Networks.

NEW YORK (CNNMoney) -- The zombies are back on DISH Network, after a deal with AMC Networks and Cablevision ended a dispute that kept "Walking Dead" and other AMC shows off DISH subscribers' TVs.

The dispute left AMC -- as well as the IFC, Sundance Channel, WE tv, and IFC Films networks -- dark on DISH since July. The disagreement was over a lawsuit by AMC Networks (AMCX) and Cablevision (CVC, Fortune 500) over DISH's decision to cut short a deal to carry AMC's high-definition service Voom HD.

Under a settlement announced Sunday, DISH (DISH, Fortune 500) agreed to pay $700 million to Cablevision and AMC Networks. It also agreed to give up its 20% stake in Voom HD.

In return DISH will receive some wireless spectrum licenses in 45 separate major markets, which between them have 150 million people.

"We are glad to partner again with DISH Network and are delighted to bring back our popular channels and programming to their customers," said Josh Sapan, CEO of AMC Networks, in a statement Sunday.

DISH's 14.1 million subscribers represents about 13% of the homes that get AMC. The network is home to such critically acclaimed and popular dramas as "Breaking Bad" and "Mad Men," as well as the zombie-themed show "Walking Dead" that is now airing new episodes of its third season.

Related: The start-up that wants to conquer television

"We are glad to have settled the case and reestablished our long-term relationships with AMC Networks and Cablevision," said Dave Shull, senior vice president of programming at DISH in a separate statement. "This multi-year deal delivers a fair value for both parties."

Cablevision, a Long Island, N.Y., cable company, spun off AMC Networks to its shareholders in 2011, but the Dolan family still controls the voting shares of both companies.

Related: Ditching cable made easy

While AMC returned to DISH Sunday in time for the airing of this season's second episode, the other networks covered by the agreement will not return until Nov. 1. Also returning that day will be the music-oriented network Fuse, which is owned by Madison Square Garden Co. (MSG), another former Cablevision unit still controlled by the Dolan family.

First Published: October 22, 2012: 7:45 AM ET

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Facebook exec quits to lead UK's Tech City

Former Facebook exec Joanna Shields is aiming to turn London into the next Silicon Valley

LONDON (CNNMoney) -- Facebook's European chief is quitting the social media giant to spearhead London's efforts to compete as a world leader in technology start-ups.

Joanna Shields will become chief executive of the Tech City Investment Organization in January. Tech City was set up in 2011 by the British government to attract foreign investment to an emerging tech cluster, known as "Silicon Roundabout" because of the east London traffic intersection at its heart.

American-born Shields has a resume that reads like a "Who's Who" of the digital media world. Before joining Facebook (FB) in 2010, she held senior positions at AOL (AOL), social networking start-up Bebo and Google (GOOG, Fortune 500).

"The seeds have been sown in east London for a dynamic and successful cluster: we have the infrastructure, the technology, and the talent, now we need to accelerate the growth," Shields said in a statement. "With the right boost now, there is no reason why we can't make London the number one location for tech in the world."

Tech City has attracted investments from world leaders such as Google, Intel (INTC, Fortune 500)and Cisco (CSCO, Fortune 500), but most of the 3,000 companies in the area are start-ups.

Related: Facebook's week of reckoning

Shields will also serve as Britain's business ambassador for the digital industries.

"Tech City is a great success story and I believe Joanna Shields has the expertise and ability to make a hugely valuable contribution to its development," said trade and investment minister Stephen Green, a former chairman of HSBC.

Wired dubbed Shields "the most influential person in European technology" last year.

"Her appointment will raise the profile of the industry in London and that is a good thing," Gareth Bourne, founder and CEO of Beam, a London-based real-time content licensing and payments platform, told CNNMoney.

But tech entrepreneurs also say she'll need to lobby effectively for improved access to funding and skills to generate lasting benefits for the UK start-up sector.

"The UK has a real opportunity to become Europe's Silicon Valley but we're only going to do that if we're very bold and adventurous in what we do," said Bourne.

Related: Why coding is hot in high school

Mike Vieyra, Beam chairman and former CEO of iView Multimedia, which was bought by Microsoft (MSFT, Fortune 500)in 2006, said access to finance was still the biggest obstacle to new technology companies getting started in the UK, despite several government initiatives to support lending to small businesses.

"If she can make any difference to that, she'll do a fantastic job," Vieyra told CNNMoney.

Shields' departure from Facebook comes at a difficult time for the company.

Facebook, which has struggled to get its share price up ever since its botched IPO back in May, will issue its second earnings report as a public company Tuesday. And 225 million shares of restricted stock units will convert to common stock later this week.

First Published: October 22, 2012: 7:54 AM ET

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Obama's alternative energy bankruptcies

Of the 63 companies that received government energy funding under the Obama administration, five have gone bankrupt. That's a failure rate of about 8%.

NEW YORK (CNNMoney) -- President Obama is getting hammered for funding renewable energy companies that have since gone belly up.

During the first presidential debate, Mitt Romney said half of the companies Obama funded in the first two years through the program that supported Solyndra went bankrupt. That is true, in terms of that specific program, for just those two years.

But a spokesman for the Energy Department said that agency has dozens of programs that funded over 1,300 companies in the renewable energy space, and that less than 1% have gone bankrupt -- also true.

So just how many federally-funded energy companies have failed?

Of the companies that received significant funding from the Department of Energy, a total of five have gone bankrupt, according to the House Committee on Energy and Commerce. The five bankruptcies occurred in two DOE programs, which in total funded 63 firms. The other 58 are still in business. That's a failure rate of about 8%.

While other departments within the government have given money to renewable energy firms, some of which may have also gone bankrupt, the bulk of the funds were administered by the Energy Department.

The companies -- and what became of taxpayer money -- are as follows:

A123: The battery maker received a $249 million Department of Energy stimulus grant to build two factories in Michigan to manufacture batteries for electric cars.

The company drew down $132 million of that grant, and the factories are up and running, according to the DOE.

As part of A123's bankruptcy announced earlier this week, the factories were sold to Johnson Controls (JCI, Fortune 500), which is expected to keep them open. Since the investment was a grant, the government got no money back. It's unclear whether Johnson will be eligible to draw down the remaining grant funds.

Abound Solar: The manufacturer of thin-film solar panels received a $400 million DOE stimulus loan guarantee to build two factories -- one outside Kokomo, Indiana and another outside of Denver.

Abound drew down $70 million of the grant to build the Denver factory. Abound declared bankruptcy in June amid strong competition and the collapsing price of solar panels.

Its assets are being auctioned off, and DOE is expected to lose to $40 to $60 million on the deal.

Beacon Power: The company received a $43 million DOE stimulus loan guarantee to build a facility in upstate New York that uses flywheels to store extra energy from the power grid, and then release it when needed. Such technology is seen as essential to integrate wind and solar into the grid, as those sources don't produce energy 24/7.

The company spent $39 million to build the project, which consists of wheels inside vacuum tubes that can spin at near perpetual motion. Beacon went bankrupt amid low prices for natural gas, which can be burned to produce electricity.

The flywheel plant was sold to a competitor, and DOE is slated to receive at least $27 million in the deal.

Ener1: A subsidiary of the company, EnerDel, received an $118.5 million grant to build two plants outside Indianapolis to manufacture batteries for electric cars and other uses.

Ener1 declared bankruptcy in January, and the company was bought by a Russian investor. The plants in Indianapolis continue to make batteries.

Solyndra: The manufacturer of advanced solar panels received a $535 million loan guarantee to build a factory outside of San Francisco.

Solyndra went bankrupt in 2011 amid falling prices for solar panels, and has since served as the poster child for well-meaning government policy gone bad.

Its assets are being auctioned off, and DOE is not expected to recover any meaningful amount of money.

Related: Obama vs. Romney: 9 energy flashpoints

The House Committee also pointed to two other DOE-funded companies that have made negative headlines as of late, but are still in businesses.

Fisker Automotive: The electric car maker received a $529 million DOE-backed stimulus loan to design a mid-priced model and build a factory to manufacture the vehicle in Delaware.

In February, Fisker put the manufacture of the sedan on hold amid lower than expected demand for electric cars and announced layoffs, though still says it plans on building the car in 2014. The company has drawn down about $200 million of the loan.

Nevada Geothermal Power: The firm received a $98 million DOE-backed loan to build a geothermal power plant north of Reno.

According to the House Committee on Energy and Commerce, an internal audit of the firm revealed $98 million in net losses and significant debt.

DOE says the power plant the loan built has a long-term agreement to sell electricity, and its investment will be protected no matter what happens to the parent company.

First Published: October 22, 2012: 6:03 AM ET

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Ancestry.com to be sold for $1.6 billion

Ancestry.com has agreed to be purchased by a private equity firm.

NEW YORK (CNNMoney) -- Ancestry.com, the online genealogy site, agreed Monday to be purchased by Permira, a European private equity firm, for $1.6 billion.

The purchase price of $32 a share is a 9.7% premium from Friday's closing price. Shares were up 7.9% in premarket trading on the news.

The purchase price is a 41% premium from its closing on June 5, just before a press report that the company had hired Qatalyst Partners as an adviser to look into a possible sale of the company. Shares of Ancestry.com (ACOM) jumped 10.7% on heavy trading the next day, and got as high as $33.80 a share in early July before retreating.

Reuters had reported in September that two other private equity firms, Hellman & Friedman and TPG Capital, had also made bids for the company.

"Our board conducted a thorough sale process, and we are pleased to be able to offer our stockholders this premium transaction," said company chairman Charles Boesenberg in a statement.

Related: The ancestry detective

The company will remain based Provo, Utah. Ancestry.com's CEO Tim Sullivan, and Howard Hochhauser, its chief financial officer and chief operating officer, will maintain a majority of their equity stakes in the company as part of the transaction. Affiliates of Spectrum Equity, which together own approximately 30% of Ancestry.com's stock, will also remain investors in the company.

Related: M&A drought not letting up

Ancestry.com is a 15-year old company that went public in 2009. It has more than 2 million paying subscribers who can use the site to search more than 10 billion records. It has been profitable since going public.

First Published: October 22, 2012: 9:26 AM ET

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Colleges take aim at student loan debt

Syracuse University identifies students who are overborrowing from private lenders gives them direct grants for future semesters averaging $5,000 to $7,000 per year.

NEW YORK (CNNMoney) -- In an effort to reduce student loan default rates, some colleges and universities are launching programs to improve student-loan literacy and, in a few cases, offer other kinds of financial assistance to students so they don't get too deep into debt.

It's not entirely altruistic. Universities and colleges are increasingly being judged on their average loan debt and default rates, and stress about finances can derail students and cause them to drop out at a time when funding of public higher education is increasingly tied to success at producing graduates. (Read: The other reason students are drowning in debt).

Syracuse University, for instance, identifies students who are overborrowing from private lenders and helps them stop by giving them direct grants for future semesters averaging $5,000 to $7,000 per year. Called the Money Awareness Program, the initiative has reduced the debt of some 90 to 100 sophomores, juniors, and seniors per year by an average of $21,000 each. In exchange, recipients are required to attend money-management courses once every semester until they graduate.

Related: The other reason grads are drowning in debt

Alvernia University, a Catholic liberal arts college in Pennsylvania where 86% of undergraduates have some type of loan averaging about $10,000, requires that all of its incoming students take an hour long financial management seminar.

An experimental program called Aid Like a Paycheck, being tested on low-income students at community colleges in California, Illinois and other states, parcels out student scholarship and grant money not in one or two lump sums each semester, but in smaller portions every two weeks in order to teach recipients to budget and manage their money better. It may be expanded to include loans.

Of course, giving students money so they don't have to take out loans in the first place is the easiest way to slow the mounting red ink. In a program called Opening Doors, which was launched in 2003, Louisiana offered $1,000 performance-based scholarships to students on the condition that they stay in school at least half time and maintain a GPA of 2.0.

Retention and the number of credits students earned improved, but the pilot effort was cut short by Hurricane Katrina and is only now being tried again, with support from the Bill and Melinda Gates Foundation, at six community and technical colleges in California, Louisiana, New York, and Ohio.

Meanwhile, City Colleges of Chicago is attempting to make the application process more meaningful by requiring students to fill out separate forms before they take out loans, rather than simply checking off a box on one financial aid form.

Related: Average student loan debt nears $27,000

The colleges also require all students to attend mandatory "college-success" seminars that include financial advice and meetings with counselors, who hand over what might be the most effective deterrent to financial risk: a copy of the applicant's borrowing history.

So far, the program has been a success. Fewer than 100 of City Colleges' 120,000 students now take out any private loans, and the average annual debt from any source is just $511.

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University.

First Published: October 22, 2012: 5:57 AM ET

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The other reason grads are drowning in debt

Many students end up taking out expensive private loans even though there are cheaper options available to them.

NEW YORK (CNNMoney) -- The first in her family to go to college, Alicia Aiello wanted more than anything to study at Syracuse University. But tuition was expensive, her parents couldn't help much with the then-$46,000-plus in tuition and expenses, and she didn't get enough financial aid to bridge the gap.

So during her first semester, Aiello found herself taking out an $18,000 bank loan, on which she'd owe $6,000 worth of interest before she paid back even a penny of it.

"[W]hen I found out someone would give me $18,000 without a co-signer, I was really excited -- until later down the line, when I found out how much I was going to owe," Aiello says. "That was probably the biggest mistake I ever made."

Many students are making mistakes like this. America's student debt crisis is not only being fueled by skyrocketing tuition and a weak job market, but also by students' ignorance about financial matters in a system that makes it surprisingly easy for them to attain a loan. In many cases, students barely understand the obligations they're assuming.

"A lot of us don't have parents who went to college or who understand anything about this process," Aiello says. "I have a lot of friends who just signed those loans without any idea what was going on."

Related: Average student loan debt nears $27,000

American university and college students graduated with an average of $26,600 of combined government-subsidized and private loan debt in 2011, according to figures released this month by the nonprofit Institute for College Access and Success' Project on Student Debt. More than 9% of new graduates default within two years, and 13.4% within three, the U.S. Department of Education reported last month.

Feeding this rising sea of red ink are loans from private lenders like banks, which typically charge more than federally-guaranteed loans administered by financial aid offices.

While federal loans have fixed interest rates and flexible repayment terms, private student loans carry variable interest rates that are usually higher, and while they sometimes are given without any co-signer, they often require parents or others to become responsible if the loan is not repaid.

A report this month by the government's Consumer Financial Protection Bureau found that private loans now account for $150 billion of total student debt, and at least $8 billion worth of these are in default. The agency said students who have borrowed from private lenders complain not only about confusing terms, rates, marketing, and sales tactics, but also about difficulties negotiating repayment plans or refinancing.

Related: Colleges take aim at student loan debt

A lot of this could be avoided. More than one in every five dollars of student loans comes from private lenders. Yet, like Alicia Aiello, at least half of undergraduates who take out private loans have yet to max out their eligibility for -- and could still easily get -- cheaper federal loans, according to the Institute for College Access and Success.

Financial aid officers say the best deterrent to this mounting debt is information. But students appear to be getting very little of that, especially since budget cuts are thinning the ranks of already overworked financial aid employees.

"There are many financial aid officers who agree that there should be one-on-one counseling to explain to students how much they'll owe, but most of them simply don't have the staffs," says Thomas Brock, director of post-secondary education at MDRC, a nonprofit research center created by the Ford Foundation.

Jason Deitz, assistant director of student financial planning at Alvernia University said his office only has five people serving nearly 4,000 students.

A study by the Project on Student Debt found that some college and university financial aid departments don't publicize their office hours or contact information, use technical language students don't understand, provide English-only materials while serving a growing number of non-native English speakers, are open only during the days when increasing numbers of students take night classes, and put their least experienced employees on the front lines to try to answer student questions.

Related: Colleges with the highest paid grads

"You hear people talking about this issue, but what are they doing about it? How are we educating our students to know how to borrow smart, and doing what we can to reduce the loan debt?" asks Deitz.

Some colleges and universities are starting to address the problem by requiring students to undergo financial literacy training. Last month, the State University of New York system announced the first statewide plan to curb student loan defaults, opening loan servicing centers on every campus to help students better understand the debt they're getting into, and by reaching out to students considered at high risk for default. (Read more about efforts by colleges and universities to tackle student loan debt).

And while technology has helped ease the burden on financial aid departments, it has done more harm than good for students. Students apply for loans on the same form they apply for grants, which can downplay the high stakes of borrowing.

There are also only minimal federal requirements that students receive live, in-person financial counseling. They can simply read the terms of the loan online, which is where they also sign the master promissory note.

Related: 7 college grads: 'How I'm surviving the jobs crisis'

Overall, the process takes about 20 minutes, says Cynthia Grunden, associate vice chancellor of student financial services at City Colleges of Chicago.

"Students will go through the [online] entrance counseling and they'll fly through it and try to get it done as quickly as possible," says Deitz. "They're not reading the fine print. And then they'll end up saying, 'I owe what? I have to pay how much?'"

Aiello learned the answer to that question the hard way. She has graduated now, and is working as an assistant video editor at a marketing company in Philadelphia. Good thing, too; her college loan repayments come to more than $400 a month, including $195 for just that one private loan she took out as a freshman.

"I really want get started hacking away at that," she says. "It's riding on my back."

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University.

First Published: October 22, 2012: 5:52 AM ET

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Japan owns almost as much U.S. debt as China

NEW YORK (CNNMoney) -- China's massive stake in U.S. Treasuries gets a lot of attention. But it's Japan, and not China, that has been busy gobbling up U.S. debt over the past year.

In fact, Japan could soon pass China as the largest foreign holder of Treasuries. China held about $1.15 trillion in U.S. bonds through August, the most recent reading available from the Treasury Department. That's little changed from the start of the year and down from 12 months ago.

Meanwhile, Japan has been steadily adding to its Treasury holdings. It now owns $1.12 trillion, up 24% from a year ago.

But despite this trend, it's the Chinese ownership of U.S. debt that has become an issue in the presidential election.

Republican challenger Mitt Romney said in the first debate on Oct. 3 that the level of debt held by China is a problem, and that he would cut all non-critical spending to avoid borrowing more.

Related: Why debt is a national security issue

China had been buying Treasuries as a way to keep its currency, the yuan, pegged to the U.S. dollar. That helped lower the value of the yuan and made China's exports more competitive in markets such as the United States.

But over the past two years, partly due to U.S. pressure and partly as an effort to curb its own inflation, China has allowed the yuan to rise in value.

Kevin Giddis, head of fixed income for Raymond James Morgan Keegan, noted that China simply doesn't need to buy as much U.S. debt as it did in the past.

Still, President Obama took credit for the rise in the value of the yuan in last week's debate, saying "the currency's actually gone up 11% since I've been president because we have pushed them hard."

Related: Treasury flash crash could become reality

But while China's Treasury holdings are down over the past year, Japan had little choice but to buy that U.S. debt, said Nick Stamenkovic, fixed income strategist at RIA Capital Markets in Edinburgh.

He noted that worries about the European sovereign debt crisis have pushed Japan back to dollar denominated assets like U.S. bonds.

"Japan has clearly pulled back from Europe and looked at other places to place their money," he said. "Treasuries have been a beneficiary of that."

First Published: October 22, 2012: 10:45 AM ET

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Earnings weigh on stocks

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NEW YORK (CNNMoney) -- U.S. stocks floundered Monday as investors took a cautious approach at the start of a big week for Corporate America.

Global bellwether Caterpillar (CAT, Fortune 500) kicked off the week's earnings deluge with a disappointing outlook, even as its quarterly results came in better than expected, citing continued economic weakness and uncertainty.

"We are taking a pragmatic view of 2013 -- we're not expecting rapid growth, and we're not predicting a global recession," said Caterpillar CEO Doug Oberhelman in a statement.

After a weak open, Caterpillar held on to slim gains, making it one of nine gainers on the Dow Jones Industrial Average. But General Electric (GE, Fortune 500) and Microsoft (MSFT, Fortune 500), which reported lackluster earnings last week, continued to drag on the blue chip index. The Dow slipped 0.3% in late morning trading.

The S&P 500 also lost ground, as a 3% decline in shares of VF Corp (VFC, Fortune 500) , the maker of North Face jackets and Wrangler jeans, weighed on the index. The company, which is also behind brands like Seven for all Mankind and Vans, posted revenue that missed expectations.

The Nasdaq was little changed, as gains in Netflix (NFLX) helped buoy the tech-heavy index. The online streaming service opens its books later this week, as do fellow tech heavyweights Facebook (FB) , Apple (AAPL, Fortune 500) and AT&T (T, Fortune 500) .

Related: Facebook's week of reckoning is here

But first Yahoo (YHOO, Fortune 500), with new CEO Marissa Mayer at the helm, will be in the spotlight when it reports after the bell Monday.

Analysts at S&P Capital IQ predict third-quarter earnings for companies in the S&P 500 will grow by just 0.04% overall this quarter, the worst since the third quarter of 2009.

Meanwhile, also on the corporate front, shares of DISH Network (DISH, Fortune 500) rose after the company reached an agreement with Voom HD Holdings, which owns Cablevision and AMC Networks, on Sunday. DISH agreed to pay $700 million in cash to settle a dispute over wireless multichannel video distribution and data service licenses.

BP (BP) shares fell after the oil giant said Monday it was in "advanced discussions" on a deal that would result in the sale of 50% of its Russia-based assets to Rosneft, a state-owned oil and gas company.

Ancestry.com (ACOM) shares surged after the genealogy website announced plans to be taken over by an investor group led by private equity firm Permira. The cash transaction values Ancestry.com at $1.6 billion, or $32 per share.

Halcón Resources (HK) shares jumped after the company announced a $1.4 billion deal with Petro-Hunt to develop a stake in North Dakota's gas-rich Bakken and Three Forks region.

Fear & Greed Index

World Markets: European stocks were lower in afternoon trading. Britain's FTSE 100 fell 0.3%, the DAX in Germany slipped 0.7%, and France's CAC 40 lost 0.7%.

Asian markets closed higher. The Shanghai Composite rose 0.2%, the Hang Seng in Hong Kong advanced 0.7%, and Japan's Nikkei gained 0.1%.

Related: China currency plays role in U.S. politics

Currencies and commodities: The dollar fell against the euro and the British pound, but edged higher against the Japanese yen.

Oil for December delivery fell 47 cents to $89.97 a barrel.

Gold futures for December delivery gained $2.30 to $1,726.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged lower, pushing the yield up to 1.80% from 1.77% late Friday.

First Published: October 22, 2012: 9:42 AM ET

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Motor Trend SUV of the year: Mercedes GL

NEW YORK (CNNMoney) -- The Mercedes-Benz GL, a large luxury SUV, was named SUV of the Year by Motor Trend, the magazine announced Monday.

The GL isn't a cheap ride. The entry level GL350 starts at $63,305, while the top-level GL550 starts at about $88,500. With all the options, the GL550 tested by Motor Trend was priced at an ultra-hefty $108,310.

But, even at those prices, the GL still represents a strong value and a good buy given all that it offers, the magazine said.

Despite the rise in gas prices, SUVs, which have become lighter and more fuel efficient thanks to engineering advancements, remain a very popular choice with car shoppers.

To decide on the SUV of the year, the magazine started with every all-new or fully redesigned SUV model for the 2013 model year. Since these vehicles covered a wide range of types and prices, from small crossovers like the Subaru XV Crosstrek and the Honda CR-V to big vehicles like the GL and the Nissan Pathfinder, the vehicles were not compared directly to one another.

Instead, each vehicle was rated against six standard criteria: Design advancement, engineering excellence, performance of intended function, efficiency, safety and value. The winning vehicle would be the one that performed best against those six criteria, regardless of its price or size.

All the vehicles were put through a series of tests that included test-track maneuvers as well as on-road and off-road driving.

In the end, Motor Trend's judges narrowed the field of 11 eligible models down to just three. Besides the GL, these were the Nissan Pathfinder and the Ford Escape.

Related: Lamborghini unveils SUV

But the GL ultimately drove off with the award.

Despite its high price, the GL still did well against the judges "value" criteria because those numbers are right in line with other big luxury SUVs like the Cadillac Escalade and Infiniti QX56, while the GL offers a better experience and better technology.

Even though the QX56 and Escalade weren't entered in the contest --- because they're not new or redesigned -- the judges still had to consider each vehicle in the context of its own market segment, said Motor Trend senior features editor Jonny Lieberman. The winning vehicle had to be something that wasn't just best in this group but best-in-class, too.

Related: 10 best new trucks in America

"The GL is not only the best-in-class, but probably the best this class has ever seen," Lieberman said. "The GL just doesn't fall down anywhere."

The judges liked the GL's broad range of engine choices offering a range of price, fuel economy and performance options.

The GL350, with its V6 diesel engine, impressed the Motor Trend judges with its efficiency as well as its pulling power. The mid-level GL450 and the high-end GL550 come with turbocharged V8 engines.

Among the hi-tech options that impressed the judges was a parking camera that allowed a driver to see, simultaneously, a view out the front or back of the SUV as well as a simulated overhead view showing all around the vehicle at once.

"If you're a mother and you've got three screaming kids with you, that thing's a lifesaver," said Lieberman.

Besides SUV of the Year, Motor Trend also gives an award for Truck of the Year and Car of the Year. Those awards were decided in separate competitions and the winners will be announced later this year.

First Published: October 15, 2012: 6:27 AM ET

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Stocks look to start week higher

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NEW YORK (CNNMoney) -- U.S. stock futures were higher Monday, as investors digested economic data, earnings and an inflation report out of China.

Reports released in the morning showed signs of improvement in retail sales and manufacturing. Retail sales jumped 1.1% in September, boosted by higher gas prices and electronic sales, according to the Census Bureau. That's higher than the 0.7% rise expected by analysts.

The Federal Reserve Bank of New York's monthly Empire State Manufacturing Index remained in negative territory in October, but improved to a reading of -6.2 compared to a reading of -10.4 in September.

On the earnings front, investors kicked off the week with quarterly results from Citigroup (C, Fortune 500). The bank reported third-quarter earnings before the opening bell that topped forecasts. Shares rose about 2% in premarket trading.

U.S. stocks took a beating last week, capping a down week with modest declines Friday, as investors turned cautious ahead of an onslaught of corporate results and economic data. For the week, the Dow lost more than 2% -- the biggest weekly decline since June 1. The S&P 500 and Nasdaq suffered similar declines.

Fear & Greed Index

Federal Reserve Chairman Ben Bernanke gave a speech in Tokyo on Sunday defending the U.S. central bank. He insisted that the Fed's actions haven't hindered economic growth in developing countries, contrary to criticism in the international community.

In China, a report Monday showed that inflation slowed in September. Chinese consumers paid 1.9% more for goods in September than they did a year earlier, the government's National Bureau of Statistics reported. That's down from a 2% increase in August.

Asian markets ended mixed. The Shanghai Composite slipped 0.3%, the Hang Seng in Hong Kong was little changes, and Japan's Nikkei ticked up 0.5%.

Meanwhile, European stocks moved higher in morning trading. Britain's FTSE 100 edged up 0.6%, the DAX in Germany added 0.8% and France's CAC 40 rose 1.3%.

Related: Bernanke answers Fed's global critics

Companies: Sprint Nextel (S, Fortune 500) said early Monday that it reached an agreement to sell a 70% stake to Japan's Softbank for $20.1 billion. Shares of Sprint edged up 2% in premarket trading, pulling back from gains of as much as 8%.

Media conglomerate Gannett (GCI, Fortune 500) and brokerage Charles Schwab (SCHW, Fortune 500) both reported earnings that beat analysts' expectations. Results are due later in the week from blue chip companies including Goldman Sachs (GS, Fortune 500), IBM (IBM, Fortune 500) and Intel (INTC, Fortune 500).

Currencies and commodities: The dollar fell against the euro, but rose slightly against the British pound and Japanese yen.

Oil for November delivery rose 15 cents to $92.01 a barrel.

Gold futures for December delivery dropped $10 to $1,749.70 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.68% from 1.66% late Friday.

First Published: October 15, 2012: 6:43 AM ET

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Retail sales surge on gas, autos and electronics

Strong sales of the iPhone5 last month helped drive September retail sales higher.

NEW YORK (CNNMoney) -- Higher gas prices and strong car and electronics sales combined to lift retail sales in September, the government reported Monday.

Overall retail sales rose 1.1%, according to the Census Bureau, little changed from the 1.2% rise in August and stronger than the increase forecast by analysts surveyed by Briefing.com.

Much of the increased spending came from a 2.3% rise in spending at gas stations. Gas prices rose in much of the nation in September, especially in the Northeast.

But it wasn't just the higher pump prices prompting consumers to spend more. Car sales in the month reached their highest level in more than four years, driven by pent-up demand for new cars, higher prices for used cars and greater access to financing for many buyers.

The sector with the biggest increase in demand was electronics and appliance stores. That may have been helped by the introduction of Apple (AAPL, Fortune 500)'s new iPhone in the middle of the month.

But while those sectors had the biggest jump in spending by consumers in the month, there were solid gains across other most other sectors as well.

Only department stores and the catch-all miscellaneous store retailers suffered a decline from August spending levels. And almost all sectors report that spending is up 4% or more from year-ago levels, with department stores being one of the few sectors losing ground.

"Underlying consumer spending remains decent, enough to remove some of the near-term downside risk to the economy," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank.

Related: Spending increases driven by inflation

But other economists aren't sure the spending increases can last.

"Low rates and easier credit are having a positive effect on the consumer, (but) without a firming in employment, however, the bounce in spending is likely to be temporary," said Steven Ricchiuto, Chief Economist, MSUSA.

Retail sales are important because spending by consumers makes up almost three quarters of the nation's economic activity.

First Published: October 15, 2012: 8:44 AM ET

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