1 of 2. New housing construction is seen in Darnestown, Maryland, October 23, 2012.

WASHINGTON | Fri Jan 18, 2013 1:07am EST

WASHINGTON (Reuters) - Americans are feeling increasingly confident in the future and more and more are striking out to set up their own homes, a move that is helping propel the housing recovery.

The deep financial crisis and recession of 2007-2009 kept many Americans from leaving their parents' nests and drove others back into them, putting a sharp brake on the pace at which new households formed.

Household growth averaged about 500,000 per year from 2008 through 2010 - less than half the rate seen at the height of the housing boom in the years just before that. The pace in 2010 was the weakest since 1947.

But the rate at which individuals or families are getting their own homes picked up over the past two years, underpinned by a steady if tepid economic recovery and gradual labor market gains. In 2011, households increased 1.1 million and they grew closer to 1.2 million last year.

"The rise in household formation bodes well for the housing recovery. Instead of having too many houses, we are turning to a situation where there aren't enough," said Guy Berger a U.S. economist at RBS in Stamford, Connecticut.

Indeed, housing has turned from the economy's sorest spot to its brightest, with new building activity at 4-1/2-year highs. Housing activity in turn spurs related areas like furniture.

That is because of people like Linna Chhean. After graduating from college in May 2007, she moved back in with her parents, helping out in a family-run business.

The 27-year-old finally moved into her own one-bedroom apartment four weeks ago after she was hired as a designer in the Dallas offices of a global public relations firm.

"I wanted to get a job in my field, which is art. I was working for them in a convenience store, which is not what I wanted to do at all," said Chhean.

BRIGHTENING PROSPECTS

The worst recession since the Great Depression of the 1930s cost the economy 8.8 million jobs and drove the unemployment rate up to 10 percent.

Dim job prospects and growing financial stress undercut the pace of household formation - a central force behind housing demand - even though the population kept growing at a rate of about 2.7 million per year.

Republican vice presidential candidate Paul Ryan seized on the dashed hopes of young Americans in bashing President Barack Obama's policies at the Republican national convention in August.

"College graduates should not have to live out their 20s in their childhood bedrooms, staring up at fading Obama posters and wondering when they can move out and get going with life," he said.

An analysis by economist Timothy Dunne at the Cleveland Federal Reserve Bank found there was a shortfall of 2.6 million households from 2008 through 2011 compared to what pre-recession trends would have suggested.

Younger adults between the ages of 18 and 34 accounted for almost three quarters of this gap; the number of people in this age cohort living with their parents increased by 2 million between 2007 and 2011.

But the tide appears to be turning.

Last August, Edward Kennedy, 22, moved into his own apartment in Bridgeport, Connecticut, after landing a job at Sacred Heart University's undergraduate admissions office.

"I moved home after graduating in May 2012. It seemed like the best idea to save some money," said Kennedy. "I plan on getting my MBA over the next year and a half, while working at the university."

He said more and more of his peers were likewise setting out on their own.

HOUSEHOLD GROWTH BOOSTS RENTAL MARKET

The gains are being felt primarily in the rental market, where rising demand has spurred a sharp pick up in construction of apartment buildings. In contrast, the U.S. homeownership rate hasn't risen much from a 15-year low reached in early 2012.

"We are going to see more recovery in the rental market, in the very short run. As the market improves, people will start to face higher rents and over time, that will spill over into the owner-occupied market," said Gary Painter, a public policy professor at the University of Southern California.

New home completions have lagged the increase in household formation, leading to a tightening supply.

According to RBS' Berger, more than 1.3 million new residential structures should have been completed last year to keep pace with household growth. But only 651,400 homes were finished, the second lowest on record.

"Given that the stock of homes available for sale is already very low, inventories alone are unlikely to meet the demand presented by these new households," said Berger.

A monthly survey conducted by the National Association of Home Builders shows that growing demand and tightening supply have pushed homebuilder sentiment up to a near seven-year high.

NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Florida, said builders were now gearing up, unperturbed by the possibility that banks could dump an increasing number of foreclosed homes onto the market as conditions improve.

"Even if we have a wall of supply coming in, we will have a wall of demand to balance it," he said.

Rutenberg estimated 916,000 new residential projects would be started this year, compared to 780,000 in 2012. And Rutenberg expects rising demand to keep builders busy for years to come.

He said new construction would satisfy about 46 percent of the demand for single-family homes this year, and 83 percent of the demand for apartment buildings over the next 10 years.

Although home building accounts for only about 2.5 percent of U.S. gross domestic product, economists believe the turnaround in the housing market has just enough momentum to take over the baton from manufacturing as a driver of growth.

Economists estimate that for every new single family home constructed, at least three permanent jobs are created. There is also a boost through demand for items ranging from furniture to paints.

"Housing will take a leading role. We anticipate that (inflation-adjusted) residential investment will grow 22 percent this year, the fastest since the early 1980s," economists at JPMorgan wrote in a research note.

They estimate homebuilding could add around 0.5 of a percentage point to economic growth this year.

(Reporting by Lucia Mutikani; Editing by Tim Ahmann and Tim Dobbyn)

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U.S. President Barack Obama announces that White House Chief of Staff Jack Lew (R) will be his nominee for U.S. Treasury Secretary, replacing Timothy Geithner (L), in the East Room of the White House in Washington, January 10, 2013.

WASHINGTON | Thu Jan 10, 2013 7:53pm EST

WASHINGTON (Reuters) - President Barack Obama broke the mold on Thursday by choosing a budget wonk to serve as U.S. Treasury secretary, leaving gaps on the international and financial side that could make for a rocky transition.

Jack Lew, Obama's chief of staff, was chosen to lead the Treasury Department as the White House heads into another round of difficult talks with Congress on how to put the nation on a sound fiscal path.

By tapping a two-time White House budget director, Obama signaled the importance he places on the ongoing budget battles.

If the Senate confirms Lew, as widely expected, the budget expert's most pressing task will be to ensure that Congress raises the nation's debt ceiling in time for the United States to avoid a damaging default and credit-rating downgrades.

In selecting a Washington insider, Obama has potentially left the Treasury Department with holes in crucial areas: financial markets, regulation and international economics.

Obama's outgoing Treasury secretary, Timothy Geithner, was previously president of the New York Federal Reserve Bank, where part of his job was to liaise with Wall Street and regulate big banks. He also had held top positions in President Bill Clinton's Treasury Department and at the International Monetary Fund.

Geithner's immediate predecessor, former Goldman Sachs CEO Hank Paulson, was also deeply steeped in the ways of Wall Street, as was Geithner's boss during the Clinton administration, then-Treasury Secretary Robert Rubin.

"Jack Lew is by all accounts highly qualified to be secretary of the Treasury," said Dennis Kelleher, the chief executive of the left-leaning group Better Markets, which supports tougher financial regulation.

"The one area of concern is whether or not he is sufficiently committed to quickly and thoroughly implementing financial reform and re-regulating Wall Street."

WALL STREET SHORT-TIMER

Bankers and other financial services executives privately expressed concern that Lew lacked financial markets experience, even though he worked on Wall Street for two years. Sheila Bair, a former bank regulator, told CNBC television on Wednesday that "someone with a little broader perspective would be good."

Lew, who is known as a strong administrator, admitted his financial experience was scant when he was vetted by the Senate to serve as a State Department deputy secretary and then as Obama's budget chief.

At a Senate Budget Committee hearing in September 2010, he was pressed by Senator Bernie Sanders for his views on whether deregulation contributed significantly to the 2007-2009 financial crisis.

"I don't consider myself an expert in some of these aspects of the financial industry," Lew responded. "My experience with the financial industry has been as a manager, not as an investment adviser."

"I don't personally know the extent to which deregulation drove it, but I don't believe that deregulation was the, you know, proximate cause," he added.

Those comments upset Sanders, a political independent who supports tougher regulation. Sanders voted against Lew's selection as budget chief, and on Thursday said he was prepared to vote against him again.

While Lew is expected to win confirmation, he could face a fair amount of opposition from a combination of left-leaning, pro-regulation lawmakers like Sanders and Republicans who have clashed with the nominee in past budget talks.

During his time on Wall Street, Lew was the chief operating officer of Citigroup's global wealth management division. He later became COO for Citi Alternative Investments, a largely administrative role that was apart from investment decisions that portfolio managers would have made.

"I found that things he was responsible for doing worked better after he joined," said Todd Thomson, who headed Citigroup's wealth management unit in 2006 and hired Lew. "He's very good at working across an organization, and bringing people together to resolve issues."

Lew joined Citi on the recommendation of former Treasury Secretary Robert Rubin, who was then chairman of Citigroup's executive committee. Rubin knew Lew from their time together in the Clinton administration.

LEW WHO?

Outside of Washington policy circles, Lew is little known. A number of financial officials in Asia and Europe drew a blank when asked by Reuters for their appraisal.

"People in the know should know a person who has served as OMB (Office of Management and Budget) chief. To me he is a total stranger," said one official of a Group of 20 nation.

As Treasury secretary, Lew will not only have to represent the United States on the global stage, but he will have to deal with a host of tricky international economic problems from the challenges presented by China's growing economic clout to Europe's debt crisis.

One euro zone official involved in fighting the region's debt problems said he was encouraged by Obama's pick.

"The sign it sends is that (the United States) will be serious about the deficit and fiscal policy since (Lew) is an experienced fiscal policy specialist," the official said.

If confirmed, Lew would come to the Treasury Department at a critical time for regulation. The Treasury secretary is essentially a regulator-in-chief who chairs the relatively new Financial Stability Oversight Council, a panel comprised of the country's top banking and market regulators.

As chairman, he would have the authority to veto any FSOC initiative, even if all of the other members disagree.

The council is currently receiving comments on a controversial framework that proposes stringent new regulations on money market funds. It is also close to imposing additional rules on a handful of large, complex financial institutions meant to ensure they never threaten the stability of the financial system.

Both initiatives could be put on hold as Lew gets up to speed, or a top deputy could be required to play a bigger role.

QUICK STUDY

The 57-year old Lew is considered a quick study.

He was a rising star when he served as a top policy adviser to then-House of Representatives Speaker Tip O'Neill in the 1980s, a Democrat who worked with Republican President Ronald Reagan to reform the tax code and put the Social Security retirement program on more solid footing.

Former Securities and Exchange Commission Chairman Arthur Levitt said Lew could handle any issue and that his lack of regulatory experience was not a problem.

Levitt said Lew was a strong defender of the SEC when Republicans once threatened to cut the agency's budget over rules Levitt pushed to reduce auditor conflicts of interest. "I would say Jack Lew is probably a better person from an investor's point of view than anyone I could think of," he said.

The Chamber of Commerce, the country's biggest business lobby, and other influential trade and lobby groups also said Lew has the skills for the top U.S. economic post.

Lew's selection could put pressure on the Obama administration to find a deputy with business and financial experience to help round out Lew's deep knowledge of Congress and the budget. Current Treasury No. 2 Neal Wolin is expected to depart once he assures a smooth transition is in place.

"It's important (Lew) has people around him who understand the markets," said Tom Quaadman, a vice president with the Chamber. "So I think it will be more telling, to a degree, who he brings with him into the department itself."

(Additional reporting by David Henry, Dan Wilchins, Jan Strupczewski, Tetsushi Kajimoto and Andrew Quinn; Editing by Tim Ahmann and Will Dunham)

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A Sirius Satellite Radio unit is shown installed in a private vehicle in Washington February 20, 2007.

NEW YORK | Thu Jan 10, 2013 5:41pm EST

NEW YORK (Reuters) - Sirius XM Radio Inc's grip on drivers is under an increasing threat as the availability of Internet connections in more cars is helping Pandora Media Inc counter some of its rival's big selling points.

In a sign of how important drivers are to the two companies, each of their top executives made the trek to Las Vegas this week to court automakers at the annual Consumer Electronics Show.

Sirius XM, which has its satellite radios in 70 percent of new vehicles, generates the vast majority of its revenue through subscriptions and derives only a fraction from advertising dollars. Streaming service Pandora is just the opposite, collecting most of its revenue from advertising and operating only a nascent subscription business.

Right now, Sirius XM is the much bigger company, with almost 24 million subscribers and more than $3 billion in annual revenue. In the third quarter, it generated average revenue of $12.14 per subscriber.

Pandora, by contrast has 60 million users, about 1 million of whom are paid subscribers, and is on track to generate $424 million in revenue this year.

But the migration of music audiences to mobile devices threatens to upend a market that Sirius current dominates. The key to both companies' futures rests on winning the battle for the listener on the go, particularly people traveling by car.

With its presence in new vehicles, Sirius XM has a first-mover advantage over Pandora. But Pandora is making a huge push to get into the car, a move that dovetails with ubiquitous wireless access that makes it easier to listen to its service.

"Internet-enabled radio in the car has already begun," Pandora Chief Executive Officer Joe Kennedy said in an interview. "It will grow as a snowball, initially small but growing exponentially."

Sirius XM declined to make its executives available for interviews.

Of Pandora's 60 million total listeners, 77 percent have tuned in with a mobile device. The problem is, the revenue per 1,000 listener hours on mobile was only $26.96 in the third quarter, up from $23.60 a year earlier, but still less than half of the $56.40 the company generated from other listeners.

"They do have to continue their mobile monetization," said Cowen and Co analyst John Blackledge, who has a "neutral" rating on the stock.

Kennedy called the third quarter a "key milestone" since the mobile revenue increase outpaced mobile usage growth.

At Sirius XM, executives have said its customers are increasingly listening to its service on mobile devices, but it has never broken out figures on that usage. It costs Sirius XM car subscribers an extra $3.50 a month to stream the service over the Internet on devices.

"They don't really promote it, and it's not really a cornerstone of the product," Gabelli & Co analyst Brett Harriss said.

Sirius XM Chief Financial Officer David Frear said at an investor conference on Wednesday that the strategy was "to capture you in the car and then allow you to extend to other platforms."

DASH FOR THE DASHBOARD

While Sirius XM touts the ability of its satellites to deliver a strong signal and high audio quality, the importance of those attributes is likely to fade because of the widespread availability of faster and better Internet connections in cars.

"From the consumer standpoint, the reception advantages of satellite radio will be marginalized or go away over time," said a former Sirius XM executive familiar with the business models of the company and its competitors.

Indeed, Liberty Media Corp, which ranks as Sirius XM's largest shareholder and is close to gaining operating control of the company, has criticized its former longtime CEO, Mel Karmazin, for not adapting to changing technologies fast enough.

Critics say Sirius XM has relied too heavily on its position in the auto market and perceived programming advantage. About 50 million cars in the United States come equipped with the satellite radios, with just under half of their owners actually subscribing to the service.

For its part, Pandora is available in just 75 vehicle models, although it also has deals with automakers like General Motors Co, Ford Motor Co, BMW and most recently Chrysler Group LLC that allow drivers to plug in their Pandora-enabled mobile devices and use the car's dashboard to control the service.

More than 1 million people have used Pandora's dashboard integration, Pandora said.

Sirius XM also believes it has an edge with its programming from the likes of shock jock Howard Stern, talk show host Oprah Winfrey and major sports leagues. Access to this type of content, Sirius contends, justifies the subscription cost of at least $14.49 per month.

In the first three quarters of the year, Sirius XM's programming and content costs were $205.2 million, while it paid $409.4 million in revenue sharing and royalties, the company has reported. This represents roughly 25 percent of its revenue in the period.

On the other hand, Pandora spends roughly 55 percent its revenue on acquiring music.

"Having music is an important thing, but having the diversity of the content, the music, the news, the talk and the entertainment content is really what sets us apart," Sirius XM CFO Frear said at a December 3 investor conference.

But as Internet access becomes more readily available in cars, people will be able to listen to podcasts and other content.

"The value of commercial-free music on Sirius could decrease," said Gabelli analyst Harriss. "There is no doubt competition from Pandora will increase in the next two or three years."

RIHANNA VS. PANDORA

Still, Sirius XM has an unlikely ally in its battle with streaming music services: the U.S. government.

As it stands, Pandora and other streaming music services pay a much bigger percentage of revenue to license songs than Sirius XM does. Plus, the more popular these services become, the more they have to shell out for music royalties.

Based on rules that U.S. lawmakers set under the Digital Millennium Copyright Act, Pandora pays more than 50 percent of its revenue to an agency called SoundExchange to license songs on a per-performance basis.

Sirius XM pays 8 percent of its revenue for song licensing, and that will increase to just 11 percent by 2017 under a new deal struck with regulators. Traditional radio pays nothing at all to SoundExchange, although it pays composers to air their music.

Pandora and its brethren are pushing for changes in how royalties for online radio are collected and are backing the Internet Radio Fairness Act, a bill that would change regulation of royalties.

But they are up against big stars like Billy Joel, Rihanna and Missy Elliott, who are opposed to the bill because they believe their royalties would be cut drastically.

"Music is a poisonous area of investment because the royalty structures are so out of whack, it's impossible to be profitable," said David Packman, a veteran of the music industry and partner in venture capital firm Venrock.

"We think innovation is seriously depressed in this sector because of the licensing challenges."

(Editing by Peter Lauria and Lisa Von Ahn)

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House Speaker John Boehner (R-OH) arrives to speak to the media on the ''fiscal cliff'' on Capitol Hill in Washington, December 21, 2012.

WASHINGTON | Wed Jan 2, 2013 11:13pm EST

WASHINGTON (Reuters) - In the wake of bruising fights in their own ranks over the "fiscal cliff" and aid for victims of superstorm Sandy - Republicans in the U.S. House of Representatives open a new Congress on Thursday more divided than ever.

While their leader, Speaker John Boehner, seems in no danger of losing his position because of the divisions, his ability to speak for his membership in the House appears greatly diminished.

That could not come at a worse time for Republicans as they prepare for their next attempt to get more spending cuts out of President Barack Obama. They will try to use the debt ceiling - and Obama's request to raise it - as leverage, as they did in 2011.

But if the final days of this Congress were indicative of things to come, Republicans will have a rough time effectively using their majority in the House against Obama, who even Republicans acknowledge is at the top of his game following the Democrat's re-election in November.

The fiscal cliff battle to avert steep tax hikes and spending cuts that were due to kick in at the start of this year proved gut-wrenching for Republicans.

Obama's demand for a tax hike on the rich challenged a core principle that has guided Republicans for decades: No new taxes. Ever.

Yet, late on New Year's night, 85 Republicans in the House did just that, voting to raise income taxes on household income of more than $450,000 a year.

Some of the Republican Party's biggest stars were among the 85 - including Boehner and Paul Ryan, the 2012 Republican vice presidential candidate, who is seen as a conservative anchor.

But 151 House Republicans stood in defiance, leaving Boehner in the unenviable position of having to rely on opposition Democrats to pass major legislation.

Earlier in the fiscal cliff fight, Boehner suffered a humiliating defeat when his "Plan B" solution - which would have limited the tax hikes to income of $1 million a year or more, got so little support he had to cancel the vote.

No sooner had the fiscal cliff battle ended than Boehner found himself in trouble with other Republicans over aid for victims of Sandy, the second costliest storm in U.S. history, which smashed New York and New Jersey coastal communities in late October.

Legislation providing disaster relief to New York, New Jersey and other East Coast states was delayed. A House Republican aide said that given Republicans' frustration with the fiscal cliff bill and its lack of significant spending cuts, "it was not a good time to immediately vote on $60 billion in new spending."

"I don't enjoy saying this. I consider myself a personal friend of John Boehner's," said Republican Representative Peter King of New York. "It pains me to say this, but the fact is that the dismissive attitude that was shown ... toward New York, New Jersey and Connecticut typifies, I believe, a strain in the Republican Party."

Earlier, King had condemned House inaction on Sandy as a "knife in the back."

Republican Representative Michael Grimm, also of New York, said of Boehner's refusal to bring the disaster bill to a vote: "There was a betrayal. There was an arrogant judgment that is going to cost I think the trust of the American people."

Ironically, Grimm first won his seat in Congress in 2010 with the help of conservative Tea Party activists who sometimes show displeasure with disaster aid spending.

By midday on Wednesday, Boehner had changed course, promising a House vote by week's end on a $9 billion down payment in storm assistance, with a second bill providing $51 billion to be voted on January 15.

TEA PARTY EFFECT

Paul Light, a New York University professor and a specialist on Congress, said the vote on the fiscal cliff bill could mark the start of a "major realignment" in the run-up to the 2014 congressional elections and the 2016 presidential race.

Republicans who voted for the legislation "are going to have to find a home. They're not going to find it with the Tea Party," Light said.

He said that Republicans who were uncomfortable with the Tea Party could begin aligning themselves more closely with a dwindling band of centrist Democrats.

Congressional Republicans, especially in the House, have been buffeted for two years by the Tea Party, which helped them win control of the House in 2010.

Boehner had to navigate Tea Party demands throughout the 2011 fight over raising U.S. borrowing authority or risking a historic government default.

In rapid succession, Tea Party-fueled battles were waged over infrastructure investments, farm subsidies, payroll tax cuts and the fiscal cliff.

At the core of the disputes was whether the government should be made smaller, forcing Boehner to balance that demand with the need to govern and keep the federal government operating in an orderly way.

For all the heartache over the past several weeks as Republicans fought with one another over whether to let taxes on the rich go up, many see better days ahead.

"By and large, people are probably happy to have it behind them. This was obviously the worst part of the fiscal debate," said one House Republican staffer, referring to the tax hikes.

The staffer added, "Republicans get to point out that we still have a $1 trillion deficit and ask Democrats what kind of spending cuts, entitlement reforms they are willing to do to fix it."

Republicans feel that will be an easier lift for them - one that they can sell to the American public as they move on to the fight over the debt ceiling.

(Editing by Fred Barbash and Peter Cooney)

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Wed Dec 26, 2012 7:28pm EST

n">(Reuters) - A Christmas Eve glitch traced to Amazon.com Inc that shuttered Netflix for users from Canada to South America highlights the risks that companies take when they move their datacenter operations to the cloud.

While the high-profile failure - at least the third this year - may cause some Amazon Web Services customers to consider alternatives, it is unlikely to severely hurt a fast-growing business for the cloud-computing pioneer that got into the sector in 2006 and has historically experienced few outages.

"The benefits still outweigh the risks," said Global Equities Research analyst Trip Chowdhry.

"When it comes to the cloud, Amazon has got it right."

The latest service failure comes at a critical time for Amazon, which is betting that AWS can become a significant profit generator even if the economy continues to stagnate. Moreover, it is increasingly targeting larger corporate clients that have traditionally shied away from moving critical applications onto AWS.

AWS, which Amazon started more than six years ago, provides data storage, computing power and other technology services from remote locations that group thousands of servers across areas than can span whole football fields. Their early investment made it a pioneer in what is now known as cloud computing.

Executives said last month at an Amazon conference in Las Vegas they could envision the division, which lists Pinterest, Shazam and Spotify among its fast-growing clients, becoming its biggest business, outpacing even its online retail juggernaut. Evercore analyst Ken Sena expects AWS revenue to jump 45 percent a year, from about $2 billion this year to $20 billion in 2018.

The service has boomed because it is cheap, relatively easy to use, and can be shut off, scaled back or ramped up quickly depending on companies' needs. As the longest-running player in the game, Amazon now boasts the widest array of datacenter products and services, plus a broader stable of clients than rivals like Google Inc, Rackspace Inc and Salesforce.com Inc.

Outages such as the one that took down Netflix and other websites on the eve of one of the biggest U.S. holidays are part and parcel of the nascent business, analysts say. Moreover, outages have been a problem long before the age of cloud computing, with glitches within corporate datacenters and telecommunications hubs triggering myriad service disruptions.

COMING SOON: POST-MORTEM

Amazon's latest service failure comes months after two high-profile outages that hit Netflix and other popular websites such as photo-sharing service Instagram and Pinterest. Industry executives, however, say its downtimes tend to attract more attention because of its outsized market footprint.

Netflix - which CEO Reed Hastings said relies on AWS for 95 percent of its datacenter needs - would not comment on whether they were pondering alternatives. Analysts say the video streaming giant is unlikely to try a large-scale switch, partly because all cloud providers experience outages.

"Despite a steady stream of these service outages, the demand for cloud services offered by AWS, Google, etc. continues to escalate because these services are still reliable enough to satisfy customer expectations," said Jeff Kaplan, managing director of consultancy ThinkStrategies Inc.

"They offer cost-savings and elasticities that are too attractive for companies to ignore."

But "Netflix and other organizations which rely on AWS will have to reexamine how they configure their services and allocate their service requirements across multiple providers to mitigate over-dependency and risks."

AWS spokeswoman Rena Lunak said the outage was traced to a problem affecting customers at its oldest data center, run out of northern Virginia, which was linked also to the June failure.

The latest glitch involved a service known as Elastic Load Balancing, which automatically allocates incoming Web traffic across multiple servers in order to boost the performance of a website. She declined to provide further details about the outage, saying the company would be publishing a full post-mortem within days.

AWS has traditionally been used by start-up tech companies and smaller businesses that anticipate rapid growth in online traffic but are unwilling or unable to shell out on IT equipment and management upfront.

The company has more recently started winning more and more business from larger corporations. It has also set up a unit that caters to government agencies.

Regardless, Amazon's clientele would do well not to put all their eggs in one basket, analysts say.

"Service outages do occur, but they are not common enough to cause users of these services to abandon today's Cloud service providers at significant rates. In fact, every major Cloud service provider has experienced outages," Kaplan said.

"Therefore, organizations that rely on these services are putting backup and recovery systems and protocols in place to mitigate the risks of future outages."

(Additional reporting; editing by Edwin Chan and Richard Chang)

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U.S. President Barack Obama hosts a bipartisan meeting with Congressional leaders in the Roosevelt Room of White House to discuss the economy, November 16, 2012. Left of President Obama is Speaker of the House John Boehner.

WASHINGTON | Sun Dec 23, 2012 12:49am EST

WASHINGTON (Reuters) - The "fiscal cliff" deadline is days away and the U.S. Congress and President Barack Obama have left town for Christmas.

But even if they were still here, it wouldn't have mattered, according to Steny Hoyer, the second-ranking Democrat in the House of Representatives. He says they were going nowhere to resolving the disagreement over how to fix the nation's fiscal problems.

Last month's dreams of a "grand bargain" of tax hikes and spending cuts seem long gone. They had been reduced to more modest bargains in mid-December, and as 2013 approaches, are on the verge of relegation to a "stop-gap measure," at best the sort of temporary fix that Congress undertook in 2011.

A stop-gap that puts everything off for a while but resolves nothing is now the most promising alternative, if there is to be one, to the across-the-board tax hikes and spending cuts described as a "fiscal cliff" because they threaten to send the U.S. economy plunging into another recession.

It is also the way fiscal showdowns have ended in Washington in recent years.

Such a fix, at best, would delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a government budget that has generated deficits exceeding $1 trillion in each of the last four years. Even worse, it would set up a huge fight in January and February over raising the U.S. debt ceiling, which controls the amount of money the federal government can borrow.

Dysfunction in Washington was specifically cited as one of the reasons rating agency Standard & Poor's cut the U.S. debt rating to AA-plus after a battle over the debt ceiling in 2011. That alone - not to mention going over the cliff - could lead to another rating cut.

At worst, the new year could start with a full-fledged jump off the 'cliff,' with an understanding, communicated to financial markets, that Congress and the White House would come back and try again for a solution.

Given the apparent deadlock, some congressional aides this week said that Washington needed to begin telegraphing to Wall Street that markets should not panic if a "fiscal cliff" deal is not struck in December.

The goal, one aide said on condition of anonymity, is to avoid starting 2013 with a steep stock market drop like the one the U.S. suffered in 2008, when the country's financial industry was falling apart and Congress was divided over what to do.

On Friday, Obama acknowledged that only small steps might be possible with so little time remaining.

Those, the Democratic president said, would consist of extending benefits for the long-term unemployed and keeping income tax rates low for 98 percent of Americans - meaning raising taxes on households with net incomes above $250,000 a year but not for those earning less.

He held out the possibility of something "comprehensive," as he put it, but it had a hollow ring at the close of a work week that saw House Speaker John Boehner step back from negotiations and pursue a partisan plan that even some of his fellow Republicans could not stomach.

MARKET PRESSURE

The steps that Obama outlined were immediately rejected by Republicans, who have given ground on their previous steadfast opposition to any tax hikes but are still demanding that the White House agree to more substantial spending cuts.

"The president has failed to offer any solution that passes the test of balance," declared Boehner spokesman Brendan Buck, minutes after the end of Obama's statement on Friday.

On Saturday, a spokesman for Senate Republican leader Mitch McConnell was similarly dismissive, noting Obama's call had neither bipartisan support nor spending cuts to ride along with tax increases.

McConnell, on Friday, suggested bringing up a House-passed bill that extends current tax rates for all Americans, including the top earners, and then pushes for comprehensive tax reform next year that theoretically could raise new revenues to help cut deficits.

But Obama has promised repeatedly to veto any extension of the expiring Bush-era tax cuts that fail to hike rates for the wealthy.

And Democrats, who control the Senate, have dismissed the McConnell idea, arguing that Obama ran his successful 2012 re-election campaign on a promise of forcing the wealthy to bear more of the burden of deficit reduction.

Democratic aides in Congress think their own bill implementing Obama's $250,000 income threshold, which passed the 100-member Senate in July with 51 votes, could breeze through this month, or next year after the "fiscal cliff" is breached.

The prospect of a breach is being discussed far more seriously now, and not just as a bluff or to set up the other side for blame.

"I think we're going to go over the cliff," said Republican Representative Patrick Tiberi of Ohio. "I don't see something getting done."

In an MSNBC interview Friday, Hoyer, a 31-year veteran of Congress from Maryland, said it wouldn't matter if everyone was in Washington instead of on holiday.

"Frankly, we've been in town for four weeks and members haven`t been doing much," he said, calling it "one of the least productive times that I've been in Congress."

Even Obama speaks of "a mismatch" between how people are thinking about the looming tax hikes and spending cuts "outside of this town and how folks are operating here. And we've just got to get that aligned," he said in his statement.

ITG Investment Research Chief Economist Steve Blitz on Saturday said sliding the "fiscal cliff" negotiations into the new year was not a huge deal. "I think markets will pressure for a deal in January," he said.

The "pressure" could be in the form of a significant stock market drop, which would hit workers' retirement plans, threaten to deter consumer and business spending, and possibly rattle other countries' economies at a time when the global economy is far from robust.

(Additional reporting by Rachelle Younglai; Editing by Martin Howell and Paul Simao)

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U.S. President Barack Obama hosts a bipartisan meeting with Congressional leaders in the Roosevelt Room of White House to discuss the economy, November 16, 2012. Left of President Obama is Speaker of the House John Boehner.

WASHINGTON | Sun Dec 23, 2012 12:49am EST

WASHINGTON (Reuters) - The "fiscal cliff" deadline is days away and the U.S. Congress and President Barack Obama have left town for Christmas.

But even if they were still here, it wouldn't have mattered, according to Steny Hoyer, the second-ranking Democrat in the House of Representatives. He says they were going nowhere to resolving the disagreement over how to fix the nation's fiscal problems.

Last month's dreams of a "grand bargain" of tax hikes and spending cuts seem long gone. They had been reduced to more modest bargains in mid-December, and as 2013 approaches, are on the verge of relegation to a "stop-gap measure," at best the sort of temporary fix that Congress undertook in 2011.

A stop-gap that puts everything off for a while but resolves nothing is now the most promising alternative, if there is to be one, to the across-the-board tax hikes and spending cuts described as a "fiscal cliff" because they threaten to send the U.S. economy plunging into another recession.

It is also the way fiscal showdowns have ended in Washington in recent years.

Such a fix, at best, would delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a government budget that has generated deficits exceeding $1 trillion in each of the last four years. Even worse, it would set up a huge fight in January and February over raising the U.S. debt ceiling, which controls the amount of money the federal government can borrow.

Dysfunction in Washington was specifically cited as one of the reasons rating agency Standard & Poor's cut the U.S. debt rating to AA-plus after a battle over the debt ceiling in 2011. That alone - not to mention going over the cliff - could lead to another rating cut.

At worst, the new year could start with a full-fledged jump off the 'cliff,' with an understanding, communicated to financial markets, that Congress and the White House would come back and try again for a solution.

Given the apparent deadlock, some congressional aides this week said that Washington needed to begin telegraphing to Wall Street that markets should not panic if a "fiscal cliff" deal is not struck in December.

The goal, one aide said on condition of anonymity, is to avoid starting 2013 with a steep stock market drop like the one the U.S. suffered in 2008, when the country's financial industry was falling apart and Congress was divided over what to do.

On Friday, Obama acknowledged that only small steps might be possible with so little time remaining.

Those, the Democratic president said, would consist of extending benefits for the long-term unemployed and keeping income tax rates low for 98 percent of Americans - meaning raising taxes on households with net incomes above $250,000 a year but not for those earning less.

He held out the possibility of something "comprehensive," as he put it, but it had a hollow ring at the close of a work week that saw House Speaker John Boehner step back from negotiations and pursue a partisan plan that even some of his fellow Republicans could not stomach.

MARKET PRESSURE

The steps that Obama outlined were immediately rejected by Republicans, who have given ground on their previous steadfast opposition to any tax hikes but are still demanding that the White House agree to more substantial spending cuts.

"The president has failed to offer any solution that passes the test of balance," declared Boehner spokesman Brendan Buck, minutes after the end of Obama's statement on Friday.

On Saturday, a spokesman for Senate Republican leader Mitch McConnell was similarly dismissive, noting Obama's call had neither bipartisan support nor spending cuts to ride along with tax increases.

McConnell, on Friday, suggested bringing up a House-passed bill that extends current tax rates for all Americans, including the top earners, and then pushes for comprehensive tax reform next year that theoretically could raise new revenues to help cut deficits.

But Obama has promised repeatedly to veto any extension of the expiring Bush-era tax cuts that fail to hike rates for the wealthy.

And Democrats, who control the Senate, have dismissed the McConnell idea, arguing that Obama ran his successful 2012 re-election campaign on a promise of forcing the wealthy to bear more of the burden of deficit reduction.

Democratic aides in Congress think their own bill implementing Obama's $250,000 income threshold, which passed the 100-member Senate in July with 51 votes, could breeze through this month, or next year after the "fiscal cliff" is breached.

The prospect of a breach is being discussed far more seriously now, and not just as a bluff or to set up the other side for blame.

"I think we're going to go over the cliff," said Republican Representative Patrick Tiberi of Ohio. "I don't see something getting done."

In an MSNBC interview Friday, Hoyer, a 31-year veteran of Congress from Maryland, said it wouldn't matter if everyone was in Washington instead of on holiday.

"Frankly, we've been in town for four weeks and members haven`t been doing much," he said, calling it "one of the least productive times that I've been in Congress."

Even Obama speaks of "a mismatch" between how people are thinking about the looming tax hikes and spending cuts "outside of this town and how folks are operating here. And we've just got to get that aligned," he said in his statement.

ITG Investment Research Chief Economist Steve Blitz on Saturday said sliding the "fiscal cliff" negotiations into the new year was not a huge deal. "I think markets will pressure for a deal in January," he said.

The "pressure" could be in the form of a significant stock market drop, which would hit workers' retirement plans, threaten to deter consumer and business spending, and possibly rattle other countries' economies at a time when the global economy is far from robust.

(Additional reporting by Rachelle Younglai; Editing by Martin Howell and Paul Simao)

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Amazon CEO Jeff Bezos demonstrates the Kindle Paperwhite during Amazon's Kindle Fire event in Santa Monica, California September 6, 2012.

SAN FRANCISCO | Sun Dec 23, 2012 12:33pm EST

SAN FRANCISCO (Reuters) - When Amazon.com Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize product catalogs a decade ago, the seeds of a burgeoning rivalry were planted.

The news was a "wake-up" call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.

"He realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitized" and then sell electronic editions, the former executive said.

Thus began a rivalry that will escalate in 2013 as the two companies' areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.

It could upend the last remaining areas of cooperation between the two companies. For instance, Amazon's decision to use a stripped down version of Google's Android system in its new Kindle Fire tablet, coupled with Google's ambitious plans for its Motorola mobile devices unit, will only add to tensions.

The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others' turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.

"Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset," said Chi-Hua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. "So when you marry those facts I think you're going to see a natural collision."

Both companies have a lot at stake. Google's market capitalization of $235 billion is about double Amazon's, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent net profit margin, according to Thomson Reuters I/B/E/S. By contrast, Amazon is seen reporting a small loss this year.

Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage - more likely if it grows in higher margin areas such as advertising. Google's share price, on the other hand, is vulnerable to signs of slowing margin growth.

AD CLASH

Not long after Bezos learned of Google's catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.

Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Google's main search website.

Amazon's fledgling ad business is still a fraction of Google's, with Robert W. Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue - tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96 percent of Google's $38 billion in 2011 sales came from advertising.

But Amazon's newly developed "DSP" technology, which taps into the company's vast store of consumer purchase history to help marketers target ads at specific groups of people on Amazon.com and on other websites, could change all that.

"From a client's perspective, the data that Amazon owns is actually better than what Google has," said Mark Grether, the chief operating officer of Xaxis, an audience buying company that works with major advertisers. "They know what you just bought, and they also know what you are right now trying to buy."

Amazon is discussing a partnership with Xaxis in which the company would help Amazon sell ads for the service, Grether noted.

Amazon did not respond to an email seeking a comment.

STARTING POINT

Amazon can bring in higher-margin revenue by selling advertising than it can from its retail operations. By showing ads for products that it may not actually sell on its own website, Amazon establishes itself as a starting point for consumers looking to buy something on the Web.

Research firm Forrester reported that 30 percent of U.S. online shoppers in the third quarter began researching their purchase on Amazon.com, compared with 13 percent who started on a search engine such as Google - a reversal from two years earlier when search engines were more popular starting points.

Amazon now sells ads that show up to the side of product search results on its website. There were 6.7 billion display ad impressions on Amazon.com in the third quarter, more than triple the number in the same period of 2011, according to comScore.

That early success is a "huge concern" for Google, whose business relies heavily on product searches and product search ads, said Macquarie Research analyst Ben Schachter.

Partly in response, Google recently revamped its product search service, Google Shopping, by charging retailers and other online sellers a fee to be listed in results.

Founded four years apart in the late 1990s, Bezos has long worried about Amazon's reliance on Google for traffic, according to people close to the company, while also being dubious about Google's high market valuation.

"He'd say: ‘This is the first time in the history of the world where the map maker is worth more than the territory that it's mapping,'" recalled the former Amazon executive of Bezos' comments about Google's popular online mapping service.

TENSIONS BUILD

Google's Android system is thriving but still has not cracked the nut of how to make money from mobile search ads and sales of digital goods like games, apps, music and video.

"If they can figure out mobile ads, that would truly be Google's second act," said Forrester analyst Sucharita Mulpuru.

But Amazon launched a broadside against Google in 2011 with the creation of its own version of Android for its Kindle Fire tablets that replaces key Google money-making services, such as a digital music and application storefront, with its own.

Not unlike Apple, "Amazon wants to control the experience on their devices," said Oren Etzioni, a University of Washington computer science professor. "That doesn't make Google happy."

The two are also clashing in cloud computing software.

Amazon started its cloud business more than six years ago, providing data storage, computing power and other technology services from remote locations. Google only launched its cloud computing business this year, but the market is growing so quickly there is still room to grab share, Etzioni said.

"I would not write Google off," he added. "Amazon has the early lead but it's very early."

TRANSACT OR DIE?

Still, mobile gadgets and cloud computing are currently tiny businesses compared with the multibillion-dollar opportunity presented by advertising and online commerce.

Google recently acquired BufferBox, a company with a network of lockers that shoppers can use to receive packages. It is also testing same-day delivery in San Francisco, hinting at growing interest in a larger role in online retail.

It is not talking about its full plans for retail, but some analysts think features such as same-day delivery or "pick-up" lockers, are valuable features it can use to enhance its existing online ad business. An ad for shoes, for example, might also make the shoes available for pick-up in a locker nearby, said Needham & Co analyst Kerry Rice.

If Google can own the search and the delivery, it will be able to provide the same experience as Amazon, with no inventory - "a higher margin, more efficient model," Chien said.

Earlier this year, Google launched a new certification service highlighting merchants that ship quickly and reliably and backing it with up to $1,000 in "purchase protection."

Google could create a database of products and send shoppers to a page that has a way to buy quickly through the company's payments service Google Wallet, Forrester's Mulpuru said.

Google could then send that transaction to the retailer who would ship the product to the consumer. That ability is critical, according to Schachter, who said if consumers lack the ability to purchase items through Google it will lag Amazon and eBay Inc.

(Editing by Edwin Chan, Peter Lauria, Martin Howell and Maureen Bavdek)

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U.S. House Speaker John Boehner (R-OH) speaks to the media on a ''fiscal cliff'' on Capitol Hill in Washington, December 20, 2012.

WASHINGTON | Fri Dec 21, 2012 7:38am EST

WASHINGTON (Reuters) - Now that House Speaker John Boehner's "Plan B" for addressing the "fiscal cliff" has crashed and burned, the top U.S. Republican appears to have two remaining options - wash his hands of the entire matter or negotiate a compromise with Democrats that could abandon scores of his fellow Republicans.

The Republican rank and file and Democrats may face an equally stark choice: work together for a change, or plunge together off the cliff.

Boehner tried to ram a "fallback" plan through the House on Thursday - a relatively tiny tax increase on millionaires and billionaires - and failed. His rambunctious Republicans, who see opposition to all tax hikes as a matter of bedrock principle and of political survival, refused to go along.

President Barack Obama and his Democrats who control the Senate take the opposite view - tax hikes on the wealthy are a condition for their support of a fiscal cliff bill. If there is to be a resolution it will largely depend on an improbable scenario - Democrats in the House teaming up with less militant Republicans to back away from the fiscal cliff.

Compromise has been out of style in recent years, and many think it could require some prodding from the markets.

"At this point, I only see one route to avoiding the cliff, a replay of the TARP debacle in 2008," said George Washington University's Sarah Binder, an expert on Congress. In September 2008, the House defeated the bank bailout bill and the market collapsed, prompting a terrified lawmakers to reconsider and pass it.

"In this case, a harsh market and public reaction would be needed to force the hand of the speaker to negotiate a deal that can pass with Democratic votes," she said.

"If the GOP takes a beating in the headlines and the market tanks, I suspect a good number of rank-and-file GOP will demand that the speaker go back to the table. But absent whiplash from the markets and voters, I suspect it's over the cliff we go."

For the time being - or at least the 11 days until the automatic tax hikes and spending cuts are triggered - the House is in disarray and no deal to avert the fiscal cliff is in sight.

While the House in recess for a Christmas break that is likely to last at least until December 27, Boehner must decide whether to move any further in Obama's direction and agree to tax increases much higher than his own proposal that so angered his fellow Republicans on Thursday.

The Ohio Republican also might have to settle for fewer long-term spending cuts than he had hoped for.

WALK ON BY

Boehner's only other apparent option - one that he hinted at late on Thursday following the collapse of his bill - would be to walk away and leave the problem on Democrats' doorstep.

"Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff," Boehner said in a statement referring to Senate Majority Leader Harry Reid.

But in a closed-door session before that statement, Republican lawmakers said Boehner told them that he would at least try to work out something with Obama.

Either way, Boehner faces the possibility of having to battle not only Democrats for the next two years, but also his own membership on major bills.

"We have people (Republican lawmakers) who felt like they had to stand on the principle ... they couldn't vote for anything (that raised any taxes). I don't quite understand it," lamented Representative Buck McKeon, the powerful chairman of the House Armed Services Committee, who oversaw passage of a $633 billion defense spending bill for 2013.

"If you don't have the votes, you can't move forward," McKeon said of the Plan B fiscal cliff bill.

Representative Steven LaTourette, a moderate Republican who is retiring at year's end, told reporters that Thursday's legislative defeat - and public relations failure - will not stop Boehner from being re-elected House Speaker on January 3. "Name one member who opposes him," LaTourette challenged reporters.

Firing Boehner, LaTourette said, would be "like saying the superintendent of the insane asylum should be discharged because he couldn't control the crazy people."

Nonetheless, two years into his stint as Speaker, Boehner still has not found the right formula for corralling his Republican majority, especially the Tea Party conservatives whose victories in 2010 helped Republicans wrest control of the House. However, he has taken steps in recent weeks to punish a handful of uncooperative Republicans.

Since unveiling his plan on Tuesday, several conservative groups, including the Heritage Foundation, waged a spirited effort to kill the measure.

Those groups, LaTourette said, had been "making their phone calls, and they're bombing people" with pressure to vote against the bill. That, he added, "makes people nervous" about primary election challengers being recruited in 2014 by outside groups to defeat Republican lawmakers who vote for any tax increase.

"I doubt his speakership is in trouble," said American Enterprise Institute scholar Norm Ornstein, "The big question is whether, and when, he is willing to bring up a bill that will require more Democrats than Republicans to pass."

(Reporting By Richard Cowan. Editing by Fred Barbash)

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Attendees sit in front of an Apple logo during the Apple Worldwide Developers Conference 2012 in San Francisco, California June 11, 2012.

NEW YORK | Fri Dec 21, 2012 1:41pm EST

NEW YORK (Reuters) - The nearly 28 percent decline in shares of Apple Inc since mid-September isn't just painful to individual shareholders. It's also being felt by investors who chased hot mutual funds that loaded up on Apple as the stock raced to a record $705 per share.

Apple makes up 10 percent or more of assets in 117 out of the 1,119 funds that own its shares, according to data from Lipper, a Thomson Reuters company. Those big stakes have contributed positively to each fund's annual performance to date, with Apple still up about 32 percent for the year. It was trading at $527.73 soon after the opening on Friday.

But that year-to-date outcome may not accurately reflect the performance of the funds for individual investors. All told, approximately $4.5 billion has been added to funds with overweight stakes in Apple this year, according to Morningstar data. The majority of these dollars were invested after March and after Apple first exceeded $600 per share - meaning many investors have been riding down with the decline.

The $302 million Matthew 25 fund, for instance, holds 17.4 percent of its assets in Apple, according to Lipper. The fund's 31.9 percent gain through Thursday makes it one of the top performing funds for the year.

Most of its Apple shares were bought years ago at a bargain basement price of about $125 per share. But $158.9 million of the fund's assets - or 53 percent - were invested after the end of March, when Apple was trading near $615 per share, according to Morningstar data.

For those investors that bought after March, all that concentration in Apple hasn't led to a stellar gain but rather a drag on the portfolio. Someone who invested in Matthew 25 in early April has seen the value of the fund's Apple stake fall about 19 percent, while someone who invested at the beginning of September has watched that outsized Apple stake drop 27.2 percent.

In turn, the majority of the fund's investors have reaped a much more modest performance than its year-end numbers suggest. Since the end of March, the fund has gained 6.7 percent, according to Morningstar data, far less than its 31 percent year-to-date gain and about two percentage points more than the benchmark Standard & Poor's 500 index.

Since, September the fund is down nearly 3 percent through Thursday's close, compared with a 1.1 percent decline in the S&P 500 in that period.

The impact of Apple's falling stock price shows some of the drawbacks of portfolio concentration, experts say. These stakes can leave the funds overexposed to the ups and downs of one company - counter to what most mutual funds are supposed to do for investors.

"Any time you get over 10 percent of the portfolio in one company it's a red flag," said Michel Herbst, director of active fund research at Morningstar. Many fund managers do have risk management rules that prevent them from devoting more than 5 percent to 6 percent of their portfolio to any one stock, he said.

Then again, some funds purposely invest in just a few stocks. Mark Mulholland, the portfolio manager of the Matthew 25 fund, said that taking concentrated positions in companies is the only way to beat an index over longer periods of time.

'RIGHT-SIZING' PORTFOLIOS

Along with concerns about iPhone sales in China and tax-motivated selling among people who want to avoid potentially higher capital gains taxes in 2013, the wide fund ownership of Apple may be a factor in the size of the stock's recent declines, fund managers said. In addition, with so many funds already heavily invested in the high-priced stock, there may be fewer marginal buyers available to push prices up again when shares begin to dip.

"The stock didn't go from $700 to $520 because people didn't like the new iPad. It's become a favorite short of hedge funds because they know they can get in on this," said Mark Spellman, a portfolio manager of the $300 million Value Line Income and Growth fund with a small position in Apple.

Short interest in the stock rose to 20.6 million shares at the end of November from 15.1 million shares at the end of September, according to Nasdaq.

"Some of my competitors have 12 percent of their assets in Apple, which I think is ludicrous", said Spellman, who said the company is no longer trading on its fundamentals.

Sandy Villere, who has a 2.5 percent weighting of Apple in his $276 million Villere Balanced fund, said that some mutual fund managers are selling shares because of the over-weighting.

"Right now many people who did take huge overweight positions are right-sizing their portfolios to get it in line with their regular weightings," he said.

Still, some bullish investors see the stock's recent declines as a buying opportunity.

Mulholland, the Matthew 25 portfolio manager, continues to say that shares should be priced at over $1,000 per share based on his valuation of the company at 10 times enterprise value divided by earnings before interest, taxes, depreciation and amortization (EBITDA). Apple trades at about 7 times that figure now.

Wall Street analysts' average price target as of Thursday is $742.56, according to Thomson Reuters data. But Mulholland is happy to be more bullish than his peers.

"I'm glad that I'm able to get it at these prices," he said.

(Reporting By David Randall; Editing by Jennifer Merritt)

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Sat Oct 13, 2012 12:45pm EDT

n">(Reuters) - Shareholder lawyers may have embarrassed just about every top executive in the U.S. private equity industry with allegations of a wide conspiracy to rig deal prices during last decade's buyout boom, but proving their case will be a different matter.

Legal experts say much of the alleged collusion outlined in the antitrust lawsuit may have been nothing more than firms working together in perfectly acceptable ways to spread the risk of taking on a big investment. The practice, they say, allowed the investment firms to pursue the largest deals and offer premiums to shareholders.

A lack of action by the U.S. Department of Justice in a parallel antitrust investigation could also suggest there are few grounds to go after the industry. That probe dates to 2006, according to the lawsuit and regulatory filings from some private equity firms.

"If these allegations are true, and if the DOJ has been investigating since 2006, one wonders then why didn't the DOJ do anything?" said Maurice Stucke, a former Justice Department antitrust prosecutor who is now a professor at the University of Tennessee College of Law.

The Justice Department declined to comment.

The Boston federal judge overseeing the case released a mostly unredacted version of the complaint this week. The defendants had objected, arguing that competitive information about deals should remain blacked out from public view.

One exchange appears particularly revealing. According to the lawsuit, Blackstone Group LP President Tony James wrote in an email to KKR & Co co-founder George Roberts: "We would much rather work with you guys than against you. Together we can be unstoppable but in opposition we can cost each other a lot of money."

Roberts, the lawsuit said, replied later that day: "Agreed."

The emails were allegedly sent after KKR decided to step down in the $17.6 billion bidding for semiconductor company Freescale in 2006. A group led by Blackstone eventually won.

Blackstone, KKR and Roberts declined to comment. James did not return a call for comment.

Many lawsuits contain snippets of emails or other conversations involving defendants, and legal experts note that such excerpts may not tell the whole story.

In one instance, the plaintiffs accuse KKR of having "bragged" to its investors in 2005 that "Gone are the days when buy-out firms fought each other with the ferocity of cornered cats to win a deal."

But those words were not KKR's. The firm cited this sentence, which originally appeared in a March 31, 2005, article in The Economist magazine, in a presentation to investors discussing the trend of so-called club deals in which buyout firms pursue acquisitions together, according to KKR spokeswoman Kristi Huller. She said the quote was a bullet point in the presentation and was clearly cited as being from the magazine.

Chris Burke, a lawyer for the plaintiffs, said it was not misleading to include the KKR presentation in the lawsuit without more explanation.

"Was it lifted out of context? No," said Burke, of law firm Scott + Scott. "Was it out of an Economist article? Sure."

PRICE-RIGGING ALLEGATIONS

In the lawsuit, the plaintiffs contend that KKR, Blackstone, Bain Capital Partners LLC, the Carlyle Group and others conspired to suppress prices of takeover targets, hurting shareholders in many companies purchased in the deal boom between 2003 and 2007.

Mitt Romney, the Republican presidential candidate and a Bain founder, left that firm in 1999, before the transactions in question. He is not named in the complaint.

In one email cited prominently in the opening pages of the complaint, Silver Lake Partners co-founder Glenn Hutchins seemingly anticipated that his fund would participate in rivals' future deals after bringing a half dozen others into the 2005 buyout of SunGard Data Systems.

"We invited you into Sun(G)ard and have a reasonable expectation of your reciprocating," Hutchins wrote to Blackstone's James, according to the complaint.

Silver Lake and Hutchins declined to comment.

Legal experts say email exchanges among top executives at rival firms do not necessarily mean collusion. While firms competed on smaller deals, they were increasingly working together to spread the risk of larger buyouts and needed to talk to one another, experts said.

The evidence in the emails "is pretty thin gruel," said Hays Gorey, a partner with the GeyerGorey law firm and a former Justice Department antitrust prosecutor.

"Without proof that each conspirator 'got something,' it's simply not believable that they were joint actors," said Gorey, who is not involved in the lawsuit.

The case, filed in 2007, seeks class-action status. Suits by several pension funds and individual shareholders were combined, and after being allowed to move forward, the plaintiffs updated the complaint with the fruits of their investigations into 11 private equity firms.

Burke, the plaintiffs' attorney, said substantial evidence of collusion has been uncovered and noted that the judge allowed him to expand his investigation to 27 deals, up from nine initially.

In every deal, he said, no rival ever offered a counter bid once a target company's board accepted a written offer from a buyout firm.

"It's a complete absence of competition. That's thin gruel?"

A trial could be at least a year away. Assuming the case survives summary judgment, a move by defendants to get a case thrown out before trial, Burke said the next hurdle likely would be a fight to formally recognize the case as a class action.

The buyout firms potentially could be on the hook to compensate the selling shareholders for what they should have received in a competitive auction.

In some antitrust cases, plaintiffs can receive three times the damages they suffered. The plaintiffs claim that the 2006 buyout of hospital chain HCA alone was depressed by $1 billion due to the alleged collusion.

It may be harder to make similar claims on other deals, such as the $45 billion takeover of power company TXU. In that deal, a consortium of KKR, TPG Capital, Goldman Sachs Group Inc's private equity arm and others teamed up, agreeing to pay a premium of more than 20 percent for the company.

"Many of these deals could not have been done by one firm individually, you need to pool the firms together," said University of Chicago Professor of Finance Steven Kaplan.

KKR has taken significant writedowns on the TXU acquisition, the largest buyout in history. Even if the plaintiffs prove collusion on the deal, they may not be able to prove damages, said Robert Miller, a law professor at the University of Iowa.

(Reporting By Tom Hals in Wilmington, Delaware, and Mike Erman in New York; Additional reporting by Nate Raymond in New York; Editing by Martha Graybow and Eric Beech)

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CHICAGO | Mon Oct 8, 2012 7:03am EDT

CHICAGO (Reuters) - Insurance companies, often stuck with the tab for health services when a medical device fails, are ready to share the pain.

As the number of costly, high-profile recalls rises, along with pressure to cut their own spending, insurers are starting to pin more of the responsibility on manufacturers.

If they succeed, medical device makers - already worried about weaker global demand for many of their products and the impact of a new U.S. tax on their profits - will have even more costs in the wake of product recalls, the biggest of which can already lead to billions of dollars in expenses.

"The (insurance) plans are being more aggressive. The reason it gets so much more focus now is because there are so many cases," said Mark Fischer, chairman of Rawlings & Associates, a unit of the Rawlings Group that helps insurance companies recoup payments from the party that was deemed at fault for claims, a legal service known as subrogation.

In recent years, more than a hundred medical devices were recalled out of concern they could cause serious injury or death.

Rawlings is one of the largest firms providing claims recovery services for the healthcare industry, along with Trover Solutions Group, both based in Louisville, Kentucky. Others include HealthCare Subrogation Group and Meridian Resource Company.

Rawlings is currently retained to pursue more than 30 mass tort cases related to healthcare, compared with an average of about three in a given year just a decade ago, Fischer said.

"There has been a drastic increase in the number of cases being pursued," he said. Insurers tend to hire Rawlings when there are enough cases being filed over a product to warrant multi-district litigation status.

Fischer helped recover funds for insurers from claims on Sulzer Medica's defective hip implants in 2000 and Medtronic Inc's faulty Fidelis defibrillator leads in 2007.

In the Fidelis case, Medtronic settled U.S. lawsuits covering more than 9,000 individual personal injury cases for $221 million, according to their regulatory filings.

Fischer then pursued Medtronic to recover money for clients like WellPoint Inc that had paid doctors and hospitals for treatment relating to the defective leads, or wires that connect an implantable defibrillator to the heart.

He expects a settlement - the first collected from a medical device maker - to be signed by year's end, but would not give a dollar amount.

WellPoint spokeswoman Lori McLaughlin said the insurer routinely tries to collect from manufacturers on recall-related health claims.

Aetna Inc, the nation's third largest insurer, said it has managed to wrest reimbursement from drug and device markers, and has negotiated payments to patients for costs from defective or recalled products, without providing details.

Trover Solutions Chief Executive Robert Bader reckons that about 80 percent of health insurers turn to firms like his to pursue manufacturers in recall cases.

"It's the fiduciary responsibility of the insurer to recover members' premiums from the manufacturer. It's a highly specialized process and so a lot of them outsource," Bader said.

The government's Medicare health plan for the elderly recovers part of the money it paid for recall-related medical services once a settlement is reached, said spokeswoman Kathryn Ceja. She would not give details on how it pursues those funds.

FALLOUT OVER THE RIATA RECALL

A 2010 recall of Riata defibrillator leads by St. Jude Medical could become the next tug-of-war between insurers and medical device makers over who picks up the tab.

Some 79,000 U.S. heart patients still have the lead implanted in a blood vessel leading to the heart. Deciding on how to proceed is tricky since removing the leads may be riskier than leaving them in.

The Food and Drug Administration in August said all Riata patients should receive medical imaging tests to see whether the insulation covering the thin wires eroded, exposing the cables and making them more prone to short-circuit, as well as making the surrounding tissue vulnerable to heat damage.

The agency did not say how often imaging tests should be performed. But ordering just one test per patient will add millions of dollars to the cost of their care.

A single fluoroscopy - which shows a real-time, continuous X-ray image on a monitor - for each Riata patient could cost between $7.9 million and $45.3 million overall, based on a Reuters review of the procedure's cost at different hospitals.

Doctors say more than one X-ray would be needed to monitor the leads, which can remain in a patient's body for many years. Dr. Bruce Lindsay, section head of Cardiovascular Medicine at the Cleveland Clinic, said doing an annual imaging study would probably be sufficient.

Even before the FDA guidelines, Medicare covered the extra cost of imaging studies in almost every instance, doctors say. But some private insurers had balked.

"I've had to call (insurers) constantly and justify it," said Dr. Martin Burke, director of the Heart Rhythm Center at the University of Chicago Medicine.

"We're definitely finding more problems (with Riata leads), but surveillance has gone up. We're finding more because we're looking more," he said.

St. Jude spokeswoman Amy Jo Meyer said the company has expanded its regular warranty to include a baseline fluoroscopic or X-ray screening if a patient's insurer does not cover it. Paying for additional imaging would be reviewed on a case-by-case basis.

"It would not be in device makers' best interest to balk at paying these costs. In the end, they do have to stand behind their products and these products do sometimes fail," said Debbie Wang, an analyst with Morningstar.

TALLYING THE COSTS

Burke and colleagues estimate that Medtronic's Fidelis recall cost Medicare some $287 million over five years for monitoring or replacing the leads, according to a study published in the Heart Rhythm Journal.

Medtronic spokesman Chris Garland said the company gave a credit to patients for its recalled Fidelis leads, plus $1,200 for "reasonable unreimbursed medical expenses." He would not say how many people received the replacement and additional funds.

The Fidelis case was just one out of 113 medical device recalls between 2005 and 2009 classified as serious enough to cause significant health problems or death, according to an analysis published in the Archives of Internal Medicine last year. Most involved devices that correct heart problems.

The study found that 24,000 patients underwent procedures in 2005 related to problems with devices from Medtronic or from Guidant, now part of Boston Scientific Corp.

"We expect manufacturers to take reasonable responsibility for costs associated with a recall of their products to prevent the healthcare system from absorbing the impact," said Aetna spokeswoman Tammy Arnold.

(Editing by Michele Gershberg, Bernard Orr)

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An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012.

NEW YORK | Thu Aug 9, 2012 11:43pm EDT

NEW YORK (Reuters) - A New York state case against Standard Chartered Plc is more about whether the British bank carried out an old-fashioned cover-up using allegedly false records and less about the role the bank played in the alleged money-laundering of funds tied to Iran, according to people familiar with the situation and court documents.

The New York Department of Financial Services on Monday ordered the bank to send representatives to a meeting next Wednesday to explain why its alleged breaches of records laws should not mean the loss of its state banking license. A source close to the case said on Thursday it was possible the meeting will be postponed to allow time for discussions about the case between regulators - both state and federal - and the bank.

By using the run-of-the-mill laws, the New York regulator has been able to put more immediate pressure on Standard Chartered and given backbone to its threat to revoke the London-based bank's New York license - a potentially devastating blow to a global bank.

There are fewer gray areas in a records case than there would be in a case involving more complicated, and harder to prove, federal laws that have restricted or prohibited dollar transactions with sanctioned countries such as Iran.

Experts say they eventually expect a settlement to be agreed between federal and state authorities and Standard Chartered that would allow it to keep its license as that would avoid a protracted and potentially damaging legal battle for both sides and remove a cloud hanging over the bank.

The state inquiry is not only expected to increase scrutiny of records the bank gave to state examiners but also the work of top consulting firm Deloitte LLP, which analyzed Standard Chartered's transactions for the bank.

The New York regulator and the federal agencies concerned all declined to comment, as did Standard Chartered.

"ROGUE" ACCUSATION

The bank had been in discussions with federal authorities - the U.S. Department of Justice, the Federal Reserve Bank of New York and the Manhattan District Attorney - to settle the case until the New York regulator published its explosive order, which included the release of embarrassing communications and its description of Standard Chartered as a "rogue institution."

The head of the New York regulator, Benjamin Lawsky, alleged Standard Chartered hid from regulators some 60,000 "secret transactions, involving at least $250 billion" tied to Iran. A lot of attention has been focused on the gulf between that number and the $14 million of transactions that the bank says flouted U.S. regulations.

But a review of Lawsky's order shows that the state regulator is more intent on showing the bank violated the so-called "books and records" laws.

The order cites seven alleged violations of state law. Five of them effectively allege that Standard Chartered didn't maintain proper records, failed to alert examiners to false records, and provided false information. The first violation, for example, cites the bank for "failure to maintain accurate books and records."

Lawsky "is taking the path of least resistance," said John Coffee, a securities law professor at Columbia University, noting that a books and records allegation is an easier charge to bring and the tactics "may well produce a settlement."

LAPSES

Standard Chartered's problems date back to 2004, when New York regulators and the Federal Reserve Bank of New York issued an enforcement action against the bank because of anti-money laundering lapses.

Deloitte was hired to review transactions and report the findings to regulators. Standard Chartered (SCB) subsequently asked Deloitte to "delete references to certain kinds of payments that might reveal ties to Iranian dealings," the New York regulator alleged this week.

A Deloitte partner "agreed" to the request, saying in an email to a bank compliance official, "This is too much and too politically sensitive for both SCB and Deloitte. That is why I drafted the watered-down version." According to a person familiar with the report, the Deloitte partner was Michael Zeldin, a top anti-money laundering compliance consultant.

In a statement on Thursday, Deloitte said "contrary to the allegation in the Order," it "absolutely did not delete any reference to certain types of payments" from a final report. Deloitte said the report didn't include a recommendation that had been included in a prior draft.

Deloitte "did so in favor of in-person discussions" with regulators regarding the issue and it included the facts relating to this issue in the final written report.

It declined to say what the recommendation was.

Deloitte said that Zeldin was unavailable for comment.

In 2006, New York regulators asked Standard Chartered for data on Iranian transactions, including the number and dollar amount. An initial review conducted internally by the bank uncovered 2,626 transactions totaling $16 billion in 2005-06, according to the New York regulator's order this week.

As the internal report wound its way up Standard Chartered's executive ranks — from a CEO for the Americas to a group executive director in London - concern grew that the bank would become a major focus for a review of Iranian transactions by regulators.

The bank opted to turn over only four days of data, the New York bank regulator said in his order this week.

"This evidence shows that members of SCB's top management was involved in yet another staggering cover-up," the New York regulator alleged. The Deloitte report and "fraudulent data" helped the bank convince regulators to lift the enforcement action, Lawsky's order said.

(Reporting By Carrick Mollenkamp; Additional reporting by Jed Horowitz; Editing by Martin Howell and Ian Geoghegan)

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A pedestrian walks across a bridge above a main road on a day with high air pollution in Beijing June 6, 2012.

OSLO | Fri Jul 27, 2012 10:23am EDT

OSLO (Reuters) - Scientists are finding evidence that man-made climate change has raised the risks of individual weather events, such as floods or heatwaves, marking a big step towards pinpointing local costs and ways to adapt to freak conditions.

"We're seeing a great deal of progress in attributing a human fingerprint to the probability of particular events or series of events," said Christopher Field, co-chairman of a U.N. report due in 2014 about the impacts of climate change.

Experts have long blamed a build-up of greenhouse gas emissions for raising worldwide temperatures and causing desertification, floods, droughts, heatwaves, more powerful storms and rising sea levels.

But until recently they have said that naturally very hot, wet, cold, dry or windy weather might explain any single extreme event, like the current drought in the United States or a rare melt of ice in Greenland in July.

But for some extremes, that is now changing.

A study this month, for instance, showed that greenhouse gas emissions had raised the chances of the severe heatwave in Texas in 2011 and unusual heat in Britain in late 2011. Other studies of extremes are under way.

Growing evidence that the dice are loaded towards ever more severe local weather may make it easier for experts to explain global warming to the public, pin down costs and guide investments in everything from roads to flood defenses.

"One of the ironies of climate change is that we have more papers published on the costs of climate change in 2100 than we have published on the costs today. I think that is ridiculous," said Myles Allen, head of climate research at Oxford University's Environmental Change Institute.

"We can't (work out current costs) without being able to make the link to extreme weather," he said. "And once you've worked out how much it costs that raises the question of who is going to pay."

Industrialized nations agree they should take the lead in cutting emissions since they have burnt fossil fuels, which release greenhouse gases, since the Industrial Revolution. But they oppose the idea of liability for damage.

Almost 200 nations have agreed to work out a new deal by the end of 2015 to combat climate change, after repeated setbacks. China, the United States and India are now the top national emitters of greenhouse gases.

Field, Professor of Biology and Environmental Earth System Science at the University of Stanford, said that the goal was to carry out studies of extreme weather events almost immediately after they happen, helping expose the risks.

"Everybody who needs to make decisions about the future - things like building codes, infrastructure planning, insurance - can take advantage of the fact that the risks are changing but we have a lot of influence over what those risks are."

FLOODS

Another report last year indicated that floods 12 years ago in Britain - among the countries most easily studied because of it has long records - were made more likely by warming. And climate shifts also reduced the risks of flooding in 2001.

Previously, the European heatwave of 2003 that killed perhaps 70,000 people was the only extreme where scientists had discerned a human fingerprint. In 2004, they said that global warming had at least doubled the risks of such unusual heat.

The new statistical reviews are difficult because they have to tease out the impact of greenhouse gases from natural variations, such as periodic El Nino warmings of the Pacific, sun-dimming volcanic dust or shifts in the sun's output.

So far, extreme heat is the easiest to link to global warming after a research initiative led by the U.S. National Oceanic and Atmospheric Administration and the British Meteorological Office.

"Heatwaves are easier to attribute than heavy rainfall, and drought is very difficult given evidence for large droughts in the past," said Gabriele Hegerl of the University of Edinburgh.

Scientists often liken climate change to loading dice to get more sixes, or a baseball player on steroids who hits more home runs. That is now going to the local from the global scale.

Field said climate science would always include doubt since weather is chaotic. It is not as certain as physics, where scientists could this month express 99.999 percent certainty they had detected the Higgs boson elementary particle.

"This new attribution science is showing the power of our understanding, but it also illustrates where the limits are," he said.

A report by Field's U.N. group last year showed that more weather extremes that can be linked to greenhouse warming, such as the number of high temperature extremes and the fact that the rising fraction of rainfall falls in downpours.

But scientists warn against going too far in blaming climate change for extreme events.

Unprecedented floods in Thailand last year, for instance, that caused $45 billion in damage according to a World Bank estimate, were caused by people hemming in rivers and raising water levels rather than by climate change, a study showed.

"We have to be a bit cautious about blaming it all on climate change," Peter Stott, head of climate monitoring and attribution at the Met Office's Hadley Centre, said of extremes in 2012.

Taken together, many extremes are a sign of overall change.

"If you look all over the world, we have a great disastrous drought in North America ... you have the same situation in the Mediterranean... If you look at all the extremes together you can say that these are indicators of global warming," said Friedrich-Wilhelm Gerstengabe, a professor at the Potsdam Institute for Climate Impact Research.

(Additional reporting by Sara Ledwith in London; Editing by Louise Ireland)

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