Information about Economic

Asian Stocks Advance on Faster U.S. Jobs Growth, Weaker Yen

2011-04-03T19:24:00.000-07:00

Asian stocks rose, driving the regional benchmark index to a three-week high, after a report showing U.S. jobs grew faster than forecast and a weakening yen boosted optimism in an economic recovery.

Canon Inc. (7751), which receives 28 percent of its revenue from the Americas, gained 1.2 percent in Tokyo. Fast Retailing Co., Asia’s biggest apparel chain, jumped 5.7 percent after Credit Suisse Group AG and UBS AG recommended investors “buy” the Japanese stock. Woodside Petroleum Ltd. (WPL), Australia’s second- largest oil and gas producer, increased 0.8 percent after oil prices climbed to a 30-month high.

“The U.S. jobs data had recovered more than expected, so investors’ risk tolerance will increase,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The yen is reacting to the jobs data, and this should be a plus for exporters.”

The MSCI Asia Pacific Index advanced 0.5 percent to 136 as of 9:45 a.m. in Tokyo, heading for its highest close since March 10, with two stocks rising for each that fell. The index has increased for two straight weeks as Japanese companies began resuming production after the nation’s worst earthquake on record on March 11 and as Chinese firms posted profits that beat analyst estimates.

Japan’s Nikkei 225 (NKY) Stock Average climbed 0.8 percent. Australia’s S&P/ASX 200 Index rose 0.6 percent and New Zealand’s NZX 50 Index gained 0.1 percent. South Korea’s Kospi Index fell 0.1 percent.

Futures on the Standard & Poor’s 500 Index were little changed today. The index rose 0.5 percent on April 1, adding to gains from the market’s biggest first-quarter rally since 1998, as faster-than-forecast jobs growth bolstered optimism and Nasdaq OMX Group Inc. started a bidding war for NYSE Euronext.

U.S. Employment

A U.S. government jobs report showed the U.S. unemployment rate dropped to a two-year low of 8.8 percent in March from 8.9 percent in February. Payrolls grew by 216,000 workers after a 194,000 gain the prior month, the Labor Department said. Economists projected a March gain of 190,000, according to the median estimate in a Bloomberg survey.

The yen depreciated to as low as 84.38 against the dollar today, compared with 83.55 at the close of stock trading in Tokyo on April 1. A drop in the yen increases the value of overseas income at Japanese companies when converted into their home currency.

Crude oil for May delivery advanced as much as 0.6 percent to $108.60 a barrel in electronic trading on the New York Mercantile Exchange.

The MSCI Asia Pacific Index lost 1.7 percent this year through April 1, compared with gains of 6 percent by the S&P 500 and 1.5 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.1 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.2 times for the Stoxx 600.

source:bloomberg.com

Deutsche Boerse-NYSE Takeover Turning Table on Shareholder Value: Real M&A

2011-04-03T19:18:00.000-07:00

Duncan Niederauer’s wish for NYSE Euronext (NYX)’s takeover by Deutsche Boerse AG (DB1) to be a merger of equals may be coming true -- at the expense of shareholders in the Frankfurt-based exchange.

Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE)’s unsolicited bid last week for NYSE Euronext valued the operator of the New York Stock Exchange at $42.50 a share, topping a February offer from Deutsche Boerse by almost 20 percent. Without committing any cash, the German exchange could be forced to surrender as much as 45 percent, up from about 40 percent, of the combined entity to NYSE Euronext’s owners to trump the Nasdaq OMX-ICE bid, according to data compiled by Bloomberg and Capstone Global Markets LLC.

While a bidding contest would help Niederauer, NYSE Euronext’s chief executive officer, recoup money for investors that lost more than 40 percent since the exchange went public in 2006, Deutsche Boerse’s all-stock offer has already cost the German exchange’s owners $1.4 billion since it was announced. Now, they face giving up even more equity if their managers counter Nasdaq OMX and ICE, which may push Deutsche Boerse to bid as much as $46 a share, the data show.

“If Deutsche Boerse were to engage in a bidding war, their shareholders will likely come out with the short end of the stick,” said Michael Wong, a Chicago-based analyst at Morningstar Inc. “NYSE shareholders would be the ultimate beneficiaries of the bidding war, with the acquirers being saddled with the winner’s curse.”
‘The Right Thing’

NYSE Euronext is studying the Nasdaq OMX-ICE bid, according to a letter from Niederauer, 51, to employees contained in a filing with the Securities and Exchange Commission last week.

“NYSE Euronext has always been committed to our shareholders, and our board will consider the new proposal and do the right thing for our shareholders,” he wrote. “In the meantime, we remain fully committed to our previously announced deal with Deutsche Boerse.”

Deutsche Boerse doesn’t plan to raise its bid, Die Welt reported in an advance release of a story to appear today, citing an unidentified person close to the situation.

Frank Herkenhoff, a spokesman for Deutsche Boerse, didn’t immediately respond to a message left on his mobile phone outside normal office hours. The company’s offer for NYSE Euronext is “the best possible combination for both shareholder groups and the stakeholders of the companies,” Deutsche Boerse said in a statement last week.
Nasdaq OMX Shares

Last week’s offer from Nasdaq OMX’s Robert Greifeld, 53, and ICE CEO Jeff Sprecher, 56, lifted New York-based NYSE Euronext 13 percent to $39.60 on April 1. Nasdaq OMX rose 9.3 percent to $28.23 for the biggest gain since March 2009, while Deutsche Boerse fell 1.4 percent to 52.81 euros ($75.19).

The German exchange, led by 55-year-old Reto Francioni, has declined 14 percent since Feb. 14, the day before it and NYSE Euronext announced their deal. The slump has lowered the value of its all-stock offer to $35.44, or 11 percent less than NYSE Euronext’s closing price last week.

Deutsche Boerse offered 0.47 of its own stock for each NYSE Euronext share in a deal currently valued at $9.3 billion to create the world’s largest exchange operator with venues in the U.S. and Europe.

At the time the deal was announced, Niederauer said on a conference call it was a “merger” with Deutsche Boerse, rather than an acquisition by the German exchange.
‘How Many More’

“I don’t know how many more times we can say that,” Niederauer said.

Last week, New York-based Nasdaq OMX and ICE of Atlanta made a cash-and-stock offer that valued the 219-year-old exchange operator at about $11.3 billion, Bloomberg data show.

NYSE Euronext owners will get 0.4069 Nasdaq OMX share, 0.1436 ICE share and $14.24 a share in cash, valuing the transaction at $42.50 on March 31. Currently, the offer is worth about $42.92 a share, the data show.

ICE would purchase NYSE Euronext’s Liffe futures markets, while Nasdaq OMX would keep its U.S. options markets. The deal would give Nasdaq OMX a monopoly on listing companies in the U.S., the world’s largest capital market.

Nasdaq OMX, the second-largest U.S. bourse operator, and ICE said they will eliminate about $740 million in expenses in three years. That’s 74 percent more than Deutsche Boerse predicted in its agreement.
‘One and Only’

“Deutsche Boerse has been very clear about this being the one and only deal for them,” said Ian McDonald, a Baltimore- based exchange analyst at T. Rowe Price Group Inc., which oversees $482 billion and is NYSE Euronext’s biggest shareholder. “To get it done, they have to raise their synergies and their price.”

Deutsche Boerse’s current offer gives its owners about 60 percent of the combined company, the data show.

While Deutsche Boerse could raise its bid to $54.13 and still retain a 51 percent stake, data compiled by Bloomberg show, issuing the additional shares would devalue its own stock as currency, according to Capstone Global’s Sachin Shah.

Without offering cash, retaining at least a 55 percent stake would keep Deutsche Boerse from increasing its bid above $45.86, based on last week’s closing price, the data show.

“The higher the stake they give up, the more control they’re giving up,” said Shah, a special situations and merger arbitrage strategist at Capstone Global in New York. “It becomes a little problematic not only in the context of shareholder value for their shareholders, but also the Germans are probably kind of wanting them to have significant control.”
‘The Only Game’

“At the end of the day they don’t want a U.S.-based company to be running a German exchange,” Shah said. Still, “the only game they can play is upping the offer,” he said.

Speculation of a bidding war for NYSE Euronext made it one of the stock market’s biggest winners in 2011. The shares have posted the 13th-biggest gain in the Standard & Poor’s 500 Index, rising 32 percent. The exchange is up 155 percent since the market bottomed on March 9, 2009, compared with a 97 percent advance in the S&P 500, according to data compiled by Bloomberg.

NYSE Euronext shares have still trailed the S&P 500 by more than 45 percentage points since its first trading session as a public company in March 2006. The company has fallen 64 percent from a record peak of $108.96 in November 2006. Losses in market share and pricing spurred by competition in equities trading weighed on the price, according to Morningstar’s Wong.

Overall, there have been 6,113 deals announced globally this year, totaling $603.3 billion, a 19 percent increase from the $504.9 billion in the same period in 2010.

source:bloomberg.com

Japan Tankan Signals Concern Confidence Will Keep Sliding

2011-04-03T18:50:00.000-07:00

Japan’s large manufacturers signaled increased concern about business confidence in coming months after the nation’s strongest earthquake on record devastated the northeast region on March 11.

The quarterly outlook index of sentiment among big manufacturers is seen falling to minus 2 in June from 6 in March, the biggest drop since September, according to a breakdown of the Bank of Japan’s Tankan survey released in Tokyo today. A negative number means pessimists outnumber optimists.

The report underscores how last month’s disaster has worsened corporate sentiment, as damage to plants and power shortages limit production. Economists at Nomura Securities Co. and RBS Securities Japan Ltd. forecast gross domestic product will contract this quarter and stagnating sentiment may increase the case for the central bank to ease monetary policy further.

“Given the earthquake, the economy will likely contract both in the first quarter and the second quarter, putting off an escape from the economic lull,” Takahide Kiuchi, chief economist at Nomura in Tokyo, said before the report. “The BOJ may expand the size of its asset purchase program” this month.

The yen traded at 84.17 per dollar as of 9 a.m. in Tokyo. The Nikkei 225 (NKY) Stock Average rose 0.7 percent.
Car Sales Plunge

A report last week including all responses gathered from Feb. 24 to March 31 showed sentiment improving to 6 from 5 in December. Confidence among large manufacturers after the earthquake was little changed from a reading of 7 based on responses collected before the temblor.

Data so far for March have shown that manufacturing fell at the fastest pace in at least nine years, while new car sales in Japan decreased 37 percent, the biggest drop for the month ever. The earthquake and tsunami crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant, causing the world’s worst nuclear crisis since Chernobyl in 1986.

Companies from Honda Motor Co. and Sony Corp. have halted production after the disaster.
Shortage of Parts

Toyota Motor Corp., the world’s largest automaker, has said it lost 140,000 units of production from March 14 to March 26, citing a shortage of electronic parts, rubber and plastics. Scarce parts and electricity may prompt it to delay making at least 500,000 vehicles in Japan, according to Koji Endo, an auto analyst at Advanced Research Japan. Honda Motor Co. has seen a production loss of 46,600 cars and trucks and 5,000 motorcycles.

March reports have overshadowed February data that showed industrial production rose for a fourth month and the unemployment rate dropped to a two-year low, data that indicated the economy’s resilience would cushion the effect of the natural disaster this quarter.

The overall sentiment index among large manufacturers climbed to 6 in March from 5 in December, the central bank said on April 1. The survey was conducted from Feb. 24 to March 31 and 72 percent of responses came by March 11, the day of the quake, the bank said.
Currency Intervention

The disaster, which has claimed more than 11,000 lives, has also caused a plunge in Japanese stocks and sent the yen to a post-World War II high against the dollar, prompting the first coordinated currency intervention by Group of Seven nations in more than a decade. Damage from the quake and tsunami is estimated by the government to swell to as much as 25 trillion yen ($300 billion). Prime Minister Naoto Kan is preparing an extra budget to pay for reconstruction efforts.

The BOJ doubled its asset-purchase program to 10 trillion yen on March 14, increasing the funds injections into the financial system. Nomura’s Kiuchi said the bank may increase the size of the asset buying program by between 3 trillion yen and 5 trillion yen at its meeting on April 28. The central bank will next meet on April 6-7.

The central bank is also considering offering temporary loans to banks to encourage lending to companies with cash-flow shortages in the wake of the quake, according to three people familiar with the matter.

source:bloomberg.com

Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak

2011-04-01T01:13:00.000-07:00

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.
Bank of America

Those programs also loaned tens of billions of dollars to each of the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. and Morgan Stanley.

The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”

The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed was ordered to release more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.
Public Outrage

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount window credit.

David Skidmore, a Fed spokesman, declined to comment.

Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.

The Charlotte, North Carolina-based bank borrowed $29 billion from the discount window on Oct. 6, in the week after it nearly collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.

Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.
Bank of Scotland

Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.

The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)

“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”

Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.

Bank of China

“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.

Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month, while two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.

Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to borrow at least $1.1 billion from the discount window in October 2008.

The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.

Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.
‘Backward-Looking’

Dexia’s outstanding balance at the Fed has been reduced to zero, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.

“This information is backward-looking,” she said. “We experienced a great deal of tension concerning the liquidity of the dollar at the time of the crisis. The Fed played its role as central banker, providing liquidity to banks that needed it.”

Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009. Oliver Gruss, a spokesman for Depfa’s parent company, didn’t respond to requests for comment.

Many foreign banks own large pools of dollar assets --bonds, securities and loans -- funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.
‘Playing With Fire’

“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding -- bingo, you have a liquidity crisis.”

The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.

Bank Valuations Stuck at 2009 Lows Showing No Crisis Recovery

2011-01-23T19:47:00.000-08:00

Valuations for U.S. financial stocks have fallen so far, it’s like the rebound from the worst crisis since the 1930s never happened.

Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 percent this year, exceeding the S&P 500, data compiled by Bloomberg show.

While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc. collapsed in September 2008, the failure of price- earnings ratios to widen is a sign to Pioneer Investments and Gamco Investors Inc. that gains in banks may end when government stimulus ends. Bulls such as OppenheimerFunds Inc. say forecasts for a three-year economic expansion mean the stocks will prove bargains as earnings and dividends increase.

“It may be awhile before investors feel comfortable paying above-average multiples for financial companies,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “What everyone is waiting for is a sign that the companies are really back, that they’re really on their feet again and can survive without continued government support and subsidy.”

Industrial Production

The biggest yearly increase in U.S. retail sales since 1999 and higher-than-estimated industrial production show the U.S. expansion is gaining momentum. The Commerce Department may say Jan. 28 that gross domestic product rose at an annual rate of 3.5 percent in the fourth quarter, based on the median estimate from 67 economists surveyed by Bloomberg.

That may not be enough to boost bank shares because investors are still trying to gauge how much profits will be reduced by last year’s financial reform law, Carey said. The last time the industry was this cheap, in March 2009, the economy had been in a recession for about 14 months, the S&P 500 was at a 12-year low and regulators were conducting stress tests to determine how much capital lenders needed to cover losses.

Earnings for S&P 500 companies rose 30 percent in 2010, the fastest growth since 1995, according to analyst estimates. Profits for financial companies almost doubled, aided by the Federal Reserve’s decision to keep benchmark interest rates near zero. The U.S. government and Fed have pledged about $12.8 trillion since 2008 to fix the financial system and prevent deflation, and policy makers committed $600 billion to buy Treasuries to stimulate economic growth, data compiled by Bloomberg show.

Weekly Retreat

The S&P 500 fell 0.8 percent to 1,283.35 last week, halting the longest streak of increases since May 2007. Among the 25 financial institutions in the U.S. equity benchmark to report results since Jan. 10, the average company beat analyst estimates by 2.2 percent, data compiled by Bloomberg show. Banks topped forecasts by an average 17 percent in the previous earnings season and 24 percent in the period that began in July, data compiled by Bloomberg show.

Investors will get more information on profits this week, with at least 128 companies in the S&P 500 scheduled to report results, according to Bloomberg data. Peoria, Illinois-based Caterpillar Inc., the world’s largest maker of construction and mining equipment, and Procter & Gamble Co. in Cincinnati, the maker of Tide detergent, are scheduled for Jan. 27.

Goldman, Citigroup

Goldman Sachs Group Inc. fell 5 percent and Citigroup Inc. lost 4.7 percent last week as earnings from the New York-based companies failed to exceed analysts’ estimates. New York-based American Express Co., the world’s biggest credit-card issuer by purchases, lost 0.5 percent after reporting lower-than-estimated profit and cutting 550 jobs.

Bank of America Corp. in Charlotte, North Carolina, fell 2 percent on Jan. 21 and 6.6 percent for the week. The largest U.S. bank by assets reported a $1.24 billion fourth-quarter loss as costs mounted for refunds, writedowns and litigation tied to faulty mortgages. The S&P 500 Financials Index declined 1.7 percent, the biggest weekly retreat in almost two months.

“Banks have lost the revenue stream from mortgage lending, and M&A activities and capital markets activities have been muted,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset management Inc., which oversees about $51.4 billion. “All these things just add up to basically speculating on banking stocks as opposed to feeling really secure about the future.”

Estimated Profit

Goldman Sachs, JPMorgan Chase & Co. and Bank of America trade for less than 10 times estimated 2011 profit, making them among the 50 cheapest companies in the S&P 500, data compiled by Bloomberg show. Valuations have held steady even as the S&P 500 Financials Index gained 165 percent since March 9, 2009, leading the broader gauge’s 90 percent advance.

Financial institutions in the benchmark measure of U.S. equities are cheaper using estimated income than utilities, whose earnings are forecast to drop 0.9 percent in 2011 and 1.2 percent in 2012, according to data compiled by Bloomberg.

Banks and brokerages trade at 1.2 times book value, or assets minus liabilities, compared with the 18-year average multiple of 2. Still, that marks a recovery from right after Lehman Brothers collapsed in September 2008. Two months later, Goldman Sachs was valued as low as 0.5 times book, while Citigroup’s fell to 0.1 in March 2009 and the bank required a $45 billion taxpayer-funded bailout. The companies are now valued at multiples of 1.3 and 0.9.

Valuing Paper

For industrial companies, book value represents the liquidation value of plants and equipment. Financial firms’ valuations depend on prices for paper assets such as stocks, bonds, loans and contracts.

Starting in 2007, record declines in property values and rising mortgage defaults made it impossible for banks to value securities whose prices were derived from home loans, sparking the credit crisis that led to $1.98 trillion in losses and writedowns for financial institutions worldwide, according to data compiled by Bloomberg.

Even after the Fed took steps to reduce soured credit, financial companies in the U.S. have $378 billion in loans and leases that are 90 days or more past due, data from the Federal Deposit Insurance Corp. show. The ratio of so-called noncurrent assets and other foreclosed properties to total assets was 3.25 percent at the end of the third quarter, compared with 0.7 percent three years ago.

Book Value Calculations

“The issue here is how trustworthy are the book value calculations given all the asset quality issues banks have had the last couple of years,” said Howard Ward, a money manager at Mario Gabelli’s Gamco, which oversees about $30 billion in Rye, New York. “This is not an industry that is poised for a sharp return.”

The Dodd-Frank Act, passed in July, created the Consumer Financial Protection Bureau and requires most swap trades in the $583 trillion over-the-counter derivatives market to be processed by clearinghouses. The top five U.S. commercial banks generated an estimated $28 billion in revenue from privately negotiated swaps in 2009, according to company reports collected by the Fed and people familiar with banks’ income sources.

“Revenue growth is certainly an issue,” said Michael Levine, a money manager at OppenheimerFunds, which oversees about $180 billion. Levine remains bullish, with financial stocks representing the biggest share of the Oppenheimer Equity Income Fund, which has beaten 97 percent of its rivals in the past five years, according to data from the New York-based firm’s website and Bloomberg.

Dividend Increase

JPMorgan, the fund’s top holding, will quadruple its quarterly dividend to 20 cents a share in March, according to Bloomberg estimates that factor in criteria such as earnings and options prices. The New York-based bank, Wells Fargo & Co., Bank of America and Morgan Stanley are among at least 10 financial stocks in the S&P 500 likely to increase payouts by twofold or more this year, the data show.

The 19 biggest U.S. banks must show regulators they can withstand losses before boosting dividends or buying back shares, the Fed said in a Nov. 17 report. More companies may lift their payout in February than any other month, Howard Silverblatt, a New York-based analyst at S&P, wrote in an e-mail this month.

“The banks think they’re going to be allowed to start returning capital to shareholders sometime this year,” said David Honold, a fund manager and financial stock analyst for Turner Investment Partners Inc., which oversees about $18 billion in Berwyn, Pennsylvania. “That’s a very important inflection point.”

TARP Payments

Fifth Third Bancorp, Ohio’s largest lender, raised $2.7 billion through debt and equity sales last week to pay back borrowings under the Treasury Department’s Troubled Asset Relief Program, created in 2008 to prevent a collapse of the U.S. financial system. The Treasury has $118.5 billion of TARP borrowings outstanding, a 64 percent decline from $328.9 billion of funds received, according to data compiled by Bloomberg.

While companies may boost payouts in 2011, the biggest U.S. banks said the profitability of loans narrowed in the fourth quarter. JPMorgan’s net interest margin, the difference between what the bank pays for funds and what it charges borrowers, dropped to 2.88 percent from 3.01 percent in the third quarter. Citigroup’s fell to 2.97 percent from 3.09 percent, and San Francisco-based Wells Fargo’s narrowed to 4.16 percent from 4.25 percent.

“It’s going to take a return to significant profitability and resumption of meaningful dividends before people breathe a sigh of relief and think it’s safe to go back in the water here,” said Pioneer’s Carey. “It’s still a mixed picture. We’re still careful and cautious about the group, but getting more involved as the quarters go by.”

source:bloomberg.com

Euro's Slide Meets Resistance as Analysts Draw Line at $1.30

2011-01-23T19:38:00.000-08:00

Traders are starting to believe German Chancellor Angela Merkel when she says Europe’s biggest economy will do whatever it takes to save the region’s currency.

Demand for contracts used to hedge against a decline in the euro is disappearing at the fastest pace since September as speculators slash bets that the currency will fall, a pattern that preceded a 13 percent gain over about two months. Strategists have stopped cutting their estimates for the euro against the dollar, with their fourth-quarter predictions at $1.30 since Jan. 10, according to data compiled by Bloomberg.

Since then, the euro climbed 5.9 percent to $1.3621 from a four-month low of $1.2867 as Germany joined euro-region finance ministers for the first time in saying it’s contemplating expanding a financial backstop that Economic and Monetary Affairs Commissioner Olli Rehn predicts will repel the most aggressive speculators. A bigger safety net would free European Central Bank President Jean-Claude Trichet to fight an emerging inflation threat as Germany fuels regional growth.

“Euro-zone policy makers are finally moving ahead of the curve,” said Thomas Stolper, a global markets economist at Goldman Sachs Group Inc. in London. “We are near a breaking point in terms of the pressure. It’s getting more difficult for the skeptics to find a crack in the euro.”

Attractive Yields

For all the focus on Europe’s debt crisis, the region’s economy is showing signs of improvement. The Munich-based Ifo institute said Jan. 21 that its index of German business confidence increased to 110.3 in January from 109.8 in December, the highest since records for a reunified Germany began in 1991. French business sentiment also rose.

The euro and the region’s fiscal crisis will be discussed at the “Bloomberg European Debt Briefing” conference in New York tomorrow.

Traders are buying the currency for returns of as much as three times the equivalent American assets amid signs the region’s debt crisis may not get any worse. German two-year notes yield 68 basis points more than Treasuries, the most since January 2009. As recently as July they were the same. The three- month euro interbank offered rate is 1.03 percent, compared with 0.30 percent for the London interbank offered rate in dollars.

The euro rose 1.7 percent versus the dollar last week, and climbed 1.4 percent to 112.48 yen. It has strengthened 2 percent this year in a basket of 10 developed-nation currencies including the Australian and Canadian dollars, after tumbling 10 percent in 2010, its worst year since the successor to the deutsche mark and the French franc was introduced in 1999. It appreciated almost 15 percent against the dollar from a four- year low on June 7.

Bonds, Swaps, Stocks

“Markets are clearly buying into the view that the European debt crisis is being resolved with modest pain,” Steven Englander, the head of currency strategy for the group of 10 nations at Citigroup Inc. in New York, wrote in a Jan. 21 research note.

Portuguese 10-year yields fell last week to the lowest this month relative to benchmark German bunds, and demand increased at a Spanish debt auction Jan. 13. The cost to protect European sovereign securities fell the most on record the past two weeks, based on the Markit iTraxx SovX Western Europe Index of credit- default swaps. The Euro Stoxx 50 Index rose to 2,970.56 last week, the highest level since April.

“We support whatever is needed to support the euro, also with respect to the rescue fund,” Merkel told reporters in Berlin on Jan. 12.

‘Comprehensive’ Plan

Merkel was responding to remarks by Rehn, who called for a “comprehensive” plan to contain Europe’s debt crisis. His proposals included an expansion of the European Union’s 440 billion-euro ($599 billion) rescue fund, the European Financial Stability Facility.

The EU has already agreed to bail out Greece and Ireland, and bond investors are concerned Portugal, and possibly Belgium and Spain may be next. Portugal 10-year yields have reached the 7 percent mark that preceded Ireland and Greece’s aid requests.

Bonds yields are still sending danger signals to some of the most-accurate forecasters, who say the rebound won’t last.

Wells Fargo & Co., the best foreign-exchange predictor in the 18 months ended Dec. 31, expects a drop to $1.25 by year- end. John Taylor, chairman of the world’s largest currency hedge-fund firm, FX Concepts LLC, said on Jan. 5 the euro may fall below parity with the dollar this year.

“There’s a very significant risk of restructuring in the not too distant future in one of those peripheral economies, which we think should drive the euro quite a bit lower,” said Shaun Osborne, chief currency strategist at TD Securities in Toronto, who sees a decline to $1.05 by the third quarter.

China’s Support

Finance ministers from Europe’s top-rated countries, Germany, France, Austria, the Netherlands, Finland and Luxembourg, met on Jan. 17 to discuss strengthening the rescue fund. A “comprehensive package” will be assembled by March, Finance Minister Wolfgang Schaeuble said Jan. 13.

China, which has the world’s largest foreign-currency reserves, said this month it plans to buy securities from the region’s most-indebted countries. Japan said on Jan. 11 it will purchase bonds issued by one of Europe’s bailout funds, while Russia, holder of almost $500 billion of reserves, said it may do the same on Jan. 18.

“You have to take the broadening of the safety net as a good development for the euro zone,” said Paul Mackel, director of currency strategy at HSBC Holdings Plc in London. “There’s going to be this realization that what Europe has done has been the right thing, and that’s going to put the spotlight on the dollar in a very negative way.”

Risk-Reversals

Euro-dollar three-month risk reversals, which measure demand for options to sell the single currency relative to those that allow for purchases, declined to 1.325 on Jan. 13 from 2.150 on Jan. 7, the fastest drop since the three days ended Sept. 16, according to data compiled by Bloomberg. The euro rallied from $1.2644 on Sept. 10 to about a 10-month high of $1.4282 on Nov. 4.

Futures traders reversed bets the euro will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a gain compared with those on a drop, so-called net longs, was 4,109 on Jan. 18, compared with net shorts of 45,182 a week earlier, the biggest increase since June.

“The fast-acting speculative community has probably closed out most of their shorts,” said Goldman Sachs’s Stolper. Further improvement in the euro-region economy “will probably imply quite a bit more euro buying,” he said.

‘Muddle Through’

A Citigroup gauge of data surprises, which measures how often and by how much economic indicators surpass Bloomberg median estimates, was at 73 last week for the euro region and 39 for the U.S.

Europe is ahead of the U.S. in tackling deficits from the global financial crisis and recession. U.S. federal government debt will climb to 99 percent of gross domestic product this year from 93 percent in 2010, while the euro region will total 87 percent, according to International Monetary Fund forecasts.

“As there is more evidence of progress being made in Europe on that front it will heighten the attention on the fact the U.S. has made next to no progress in reigning in their deficit,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “The euro-zone will muddle through the crisis.”

source:bloomberg.com

Chinese Corporate Bond Sales Have Busiest Start on Record

2011-01-23T19:33:00.000-08:00

Chinese companies raised four times more from bonds than from equities this year in a record start for the debt market as government efforts to curb inflation curbed access to loans and the stock market.

Corporate bond sales totaled 100 billion yuan ($15.2 billion) since Jan. 1, up 68 percent from a year earlier and the most since Bloomberg started tracking the data in 1999. Domestic currency share sales in 2011 total 23.5 billion yuan, down from 34 billion yuan a year earlier, data compiled by Bloomberg show.

“Regulators have strengthened their control over the amount of loans,” said Chen Jianbo, a Beijing-based fixed- income analyst at BOC International, a unit of Bank of China Ltd. “This has put an obstacle in the way of companies getting loans. On the other hand the regulators are encouraging direct financing, especially debt financing.”

Slumping equity prices and restrictions on loan growth mean that bonds have become the only option for many companies to raise funds. The Shanghai Composite Index slumped 13 percent in the past year, the worst performer among benchmark measures in the 10 biggest equity markets tracked by Bloomberg. Fixed-income fund managers avoided losses as yuan corporate bonds returned 3.1 percent in the same period, according to the Bank of America Merrill Lynch China Corporate Index.

Debt sales have been led this year by companies such as China National Petroleum Corp., the country’s biggest oil and gas producer, which has issued 30 billion yuan of notes through four sales, and Beijing-based Huaneng Power International Inc., a unit of China’s biggest electricity producer, which has completed one sale of 5 billion yuan, according to data compiled by Bloomberg.

Beating Rate Rises

Chinese firms may be selling bonds on expectations that interest rate rises in the coming months will boost their borrowing costs, according to Wu Tianshu, a Beijing-based fixed- income analyst at China Galaxy Securities Co. “As long as the economy keeps growing there will be more demand for debt financing,” he said.

Yields on 10-year AAA corporate bonds have climbed 1.05 percentage points from last year’s low on Aug. 20 to 5.19 percent, according to data compiled by Bloomberg. Similar- maturity government yields climbed 72 basis points in that period to 4 percent, a spread of 119 basis points.

The yield on the 2.68 percent government bond due November 2013 rose two basis point, or 0.02 percentage point, to 3.40 percent on Jan. 21, Chinabond prices show. The yield on India’s three-year bonds is 8.31 percent, while similar-maturity bonds yielded 7.03 percent in Russia and 12.77 percent in Brazil.

China’s benchmark money-market rate has surged to the highest since October 2007 as lenders ran short of cash after the central bank’s four increases in their reserve requirements in the past three months.

Cash Crunch

The seven-day repurchase rate, which measures money availability between banks, climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center in Shanghai on Jan. 21, after reaching 8.8 percent earlier that day. China reported Jan. 20 its economy grew at a faster-than-expected 9.8 percent in the fourth quarter from a year earlier, and inflation averaged 3.3 percent in 2010, breaching the government’s goal.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 37 basis points last week to 3.64 percent.

Chinese new bank loans fell for three straight months to 480.7 billion yuan at the end of December, down from 563.97 billion yuan a month earlier, and a year-high of 1.39 trillion yuan last January, government data show. Regulators set a 7.5 trillion yuan annual limit on bank lending last year following the record 9.59 trillion yuan of new lending in 2009.

‘Abnormal’ Loan Growth

Premier Wen Jiabao pledged last week to prevent “abnormal” loan growth. The People’s Bank of China raised reserve ratios for lenders effective Jan. 20 to slow inflation that reached a 28-month high in November. The central bank also raised the benchmark one-year lending rate by 25 basis points to 5.81 percent Dec. 25.

The government may raise interest rates by another 25 basis points, as early as next month, Wensheng Peng, a China International Capital Corp. economist, wrote in a Jan. 21 report. This may be followed by another increase in the second quarter, Peng wrote.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has fallen 3.3 percent this year after plunging 14 percent in 2010.

Stock Markets

“Valuation for IPOs needs to be lower to reflect weak market sentiment,” said Wang Yang, director of fixed-income research at the China unit of UBS AG in Beijing, referring to initial public offerings on nation’s stock markets. “Regulators may also consider slowing down new issuance to ease supply pressure in such a weak market.”

Five-year credit-default swaps on the nation’s bonds have risen nine basis points this year to 77 basis points on concern economic growth that’s averaged more than 10 percent over the past five years will be derailed on anti-inflation measures. The swaps protect debt against default and traders use them to speculate on credit quality. An increase in price suggests deteriorating perceptions of creditworthiness.

Yuan Strength

The yuan traded near a 17-year high on Jan. 21 after the U.S. stepped up pressure for faster appreciation while President Hu Jintao is in the country on a state visit. The yuan rose 0.1 percent last week to 6.5833 per dollar, according to China Foreign Exchange Trade System data. Non-deliverable forwards show traders are betting on a 2 percent increase in the coming 12 months.

Demand for yuan-denominated assets on expectations of currency appreciation helped Hong Kong sales of yuan bonds increase 10-fold since 2008 to 35.7 billion yuan last year, Bloomberg data show. Sales in the so-called dim sum bond market, total 4.5 billion yuan this year, the data show.

Companies may sell around 1 trillion yuan in China’s bond market this year, according to Guo Qinmiao, a Beijing-based analyst at Citic Securities Co., China’s largest brokerage by market value, in an e-mail interview.

Investment companies linked to local governments set up to fund infrastructure projects will drive bond sales this year, said Tan Weisi, who oversees about 400 million yuan as head of Fortune SGAM Fund Management Co.’s fixed-income arm in Shanghai.

Chongqing City Construction Investment Corp. sold 2.5 billion yuan of 10-year bonds on Jan. 10, according to data compiled by Bloomberg. Guiyang City Construction Investment Group Co. issued 2 billion yuan of bonds due January 2018 the following day, the data show.

“They have no options,” Tan said. “They can’t get loans easily from the bank. If the project is already underway the only option is to issue bonds. They can’t issue equity.”

source:www.bloomberg.com

ICBC Gets U.S. Retail Network With Purchase of Bank of East Asia Unit

2011-01-23T19:29:00.000-08:00

Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, agreed to buy a stake in Bank of East Asia Ltd.’s U.S. operations, according to a company statement today.

ICBC will buy an 80 percent stake in Bank of East Asia’s U.S. unit for $140 million, the two companies said in a joint e- mailed statement today. Both companies are seeking regulatory approval in the U.S. and in China for the transaction, according to the statement.

“Our acquisition of an 80 percent interest in BEA USA will enable us to establish a solid presence in the U.S.,” ICBC Chairman Jiang Jianqing said in the statement. “With this commercial bank license in the U.S., ICBC can further expand its retail banking business and operating network across the nation.”

If completed, the deal would mark the first purchase of a majority stake in a U.S. depository institution by a Chinese bank. It may give financial companies in both countries greater access to each others’ markets, Chip MacDonald, a partner a law firm Jones Day in Atlanta, said of the transaction on Jan. 22.

Chinese President Hu Jintao concluded a four-day visit to the U.S. with a signing ceremony in Chicago on Jan. 22. China’s Commerce Minister Chen Deming said that deals worth $25 billion were being reached among U.S. and Chinese companies during the visit, excluding an accord with Boeing Co.

Agreements Reached

Beijing-based ICBC and Bank of East Asia, based in Hong Kong, are among as many as 60 companies signing contracts, the Chicago Council on Global Affairs said in a statement. The list of firms didn’t include details on the agreements.

ICBC opened its first branch in the U.S. in October 2008. The Chinese bank bought a 70 percent stake in Bank of East Asia’s Canadian unit for about C$80.3 million last year to gain a “strong platform to further expand our businesses and network across North America,” ICBC’s Jiang said then. ICBC last week opened five branches in Europe, doubling its presence in the region to nine countries.

The Federal Reserve will have to make a determination, under the Bank Holding Company Act, that China’s central bank has enough information on ICBC operations to supervise its financial condition and compliance with the law, MacDonald said.

The U.S. operations of Bank of East Asia include 13 branches, with 10 in California and three in New York, according to its website. Bank of East Asia is run by the family of Chairman David Li. The U.S. unit held about $425.2 million in domestic deposits at the end of September, according to the Federal Deposit Insurance Corp.

source:http://www.bloomberg.com

Brisbane Roads Circling Globe Twice Needed in Flood Disaster

2011-01-23T19:26:00.000-08:00

To build an average house, you need 6,200 bricks, 2,950 roof tiles, 785 floor tiles and 15 cans of paint -- multiply that 28,000 times and you get a picture of the task to rebuild Brisbane after Australia’s worst flood.

It gets worse: the state of Queensland will need to rebuild 90,000 kilometers (56,000 miles) of roads, enough to circle the globe twice, thousands of kilometers of rail line, almost 100 schools, an unknown number of bridges, several regional airports, power lines, sewers and water treatment -- the list goes on.

Australian companies, including its largest building- materials seller Boral Ltd., the No. 1 furniture and electrical retailer Harvey Norman Holdings Ltd., paint maker DuluxGroup Ltd. and plumbing supplier Reece Australia Ltd., will benefit from the reconstruction estimated to cost A$20 billion ($20 billion). The floods are the most expensive natural disaster in the nation’s history and have claimed at least 20 lives.

“The state’s a disaster zone,” said Greg Hoffman, general manager at the Queensland Local Government Association, which estimates up to 90,000 kilometers of road and “tens of thousands of drains” will need to be replaced or repaired across Queensland. “Roads have been torn away, airport terminals have been uprooted and you can’t believe your eyes when you see the wasteland left behind,” he said in a telephone interview.

Reinforcements Needed

The average cost of building a new home is A$300,000, meaning the bill to replace housing alone in Brisbane, Australia’s third-largest city with a population of 2 million, may be A$8 billion, Australia & New Zealand Banking Group Ltd. says. ANZ based its forecast on the state Premier Anna Bligh’s Jan. 16 comment that 28,000 dwellings need rebuilding. Bligh says 2.1 million people have been affected by Queensland’s flood.

Since Jan. 10, 20 people have died and nine are missing as a result of the floods, Queensland police said yesterday.

It will take two years and 34,000 tradesmen to rebuild homes in Brisbane, according to Graham Cuthbert, Master Builders Queensland executive director.

“Australia has never before seen a program of this scale,” Cuthbert said in a telephone interview. “We will probably need reinforcements.”

Builder John Rist, from Port Sorrell in Australia’s southernmost island state of Tasmania, is ready to pack his tools and drive 1,800 kilometers north to Queensland.

“I’ll be there in a flash, as long as there is a need,” 38-year-old Rist said in a telephone interview. “Things will probably slow down here, so it could be just what I need.”

Competition for Labor

Finding skilled labor for the reconstruction in Queensland, plus the flood-damaged eastern states of Victoria and New South Wales, may be difficult. A mining boom, to feed China’s appetite for raw materials, has caused a shortage of tradesmen at a time when the jobless rate was just 5 percent in December, the lowest level since January 2009.

Already two coal-seam gas projects, expected to cost more than A$30 billion, are proceeding near the Queensland port of Gladstone. Santos Ltd., Australia’s third-largest oil producer, and BG Group Plc, the U.K.’s third-biggest gas producer, will start hiring the first of more than 10,000 construction workers needed for the two projects later this year.

The Queensland Resources Council estimates A$2.3 billion of coal sales have been lost because of the floods and just 15 percent of Queensland coalmines have been at full production.

The extra construction work and spending to replace lost consumer goods may add as much as 1 percentage point to the nation’s economic growth rate, according to ICAP Australia Ltd. senior economist Adam Carr. The Reserve Bank of Australia forecast in November that the economy would grow 3.75 percent this year.

Curtains to Cars

“Think of the building supplies that will need to be purchased, the carpets that need to be bought, the curtains, toasters, refrigerators and the cars,” Carr said in a Jan. 19 note.

Gerry Harvey, executive chairman of Harvey Norman, said sales in Queensland would outpace the rest of the country in February and March as people replaced plasma televisions, washing machines and household goods.

“This is Queensland’s very own economic stimulus and our sales will be stronger there than anywhere else,” Harvey said in a telephone interview. “People will need to refurnish their homes, so there will be a benefit for retailers.”

Boral and James Hardie Industries NV, Australia’s largest supplier of fiber cement products, both told Bloomberg News they expect demand for their products will increase as the damage becomes clearer. The Insurance Council of Australia on Jan. 19 said companies had so far received 12,000 claims worth A$410 million.

Stocks to Watch

“It’s clear that there’s going to be a significant rebuild required in areas both involving construction materials and building products,” said Penny Berger, a spokeswoman for timber, tiles and concrete supplier Boral. Berger said customers would lodge orders after the clean-up was completed.

Since Jan. 12, after evacuations began in Brisbane, Boral shares gained 0.8 percent, Reece rose 4.3 percent, Harvey Norman gained 7.9 percent, James Hardie fell 4 percent and DuluxGroup advanced 1.1 percent.

“There are more losers than winners, but the winners are the homebuilders and some of the smaller retailers,” said Chris Stott, who helps oversee about $400 million at Wilson Asset Management in Sydney. “It’s clear they’ll benefit, but in terms of quantifying that, it’s still too early because the clean-up is still happening.”

Stocks he tips will benefit include Boral, Harvey Norman, Reece, Dulux, Fantastic Holdings Ltd., a furniture seller, Breville Group Ltd., an electrical appliances maker, CSR Ltd., which manufactures building materials, and Brickworks Ltd., which makes bricks and floor tiles.

Volunteer Army

Queensland’s initial flood clean-up is being done by about 60,000 mop-wielding volunteers.

“They’re scraping mud from walls, shifting ruined furniture, it’s dirty work,” Volunteering Australia spokesman Peter Cocks said from Brisbane. “After the clean-up, people can assess the damage and look toward replacing things and rebuilding their homes. It’s a process.”

The flooding across three states represents Australia’s biggest natural disaster in economic terms, said Prime Minister Julia Gillard, who has pledged the federal government will cover 75 percent of the reconstruction cost. ANZ Bank said the bill to rebuild just Queensland could be as much as A$20 billion, or 1.5 percent of the national economy.

The sugar- and coal-producing state accounts for about 20 percent of the A$1.3 trillion economy. The national and state governments have not yet said how much the flooding will cost.

“This effort is bigger than Cyclone Tracy in 1974, which destroyed Darwin, it’s bigger than the 1989 Newcastle earthquake, the 1999 Sydney hail storm and any other flood or bushfire we have seen,” said Professor Peter Grace, from the Queensland University of Technology. “It will take at least two years.”

source:http://www.bloomberg.com

Super-Cycle Leaves No Economy Behind Before Davos Summit

2011-01-23T19:21:00.000-08:00

For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.

Investment, Urbanization

Lyons and his colleagues predict a “super-cycle” of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before World War I and the three following World War II. He’s betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.

Richard Dobbs, a director of the research division at New York-based McKinsey & Co., will use the Davos meeting to highlight a study by the international consulting firm that sees an imminent end to cheap capital. The causes are a building bonanza in developing economies and aging populations who are draining their savings, according to the report, which was released Dec. 9.

Signs of Momentum

The 10-year U.S. Treasury note yielded 3.41 percent in New York on Jan. 21, according to BGCantor Market Data, compared with 15.8 percent in 1981 and a record low of 2.04 percent in December 2008. Signs of momentum in the U.S. economy have helped increase the yield from about 2.9 percent at the start of December.

“It’s a topic capturing the attention of people who want to think beyond the crisis,” said Seoul-based Dobbs.

While Goldman Sachs Asset Management Chairman Jim O’Neill has found fame for promoting the “BRIC” economies of Brazil, Russia, India and China, he says their rise has positive impact beyond their borders, with Chinese imports totaling about $400 billion, almost the equivalent of South Africa’s economy last year. That should attract investors to rich-nation companies with links to these markets, and the resurgence in the U.S. economy has prompted O’Neill to predict higher U.S. bond yields in 2011. He didn’t provide a specific forecast.

‘Out of Date’

“World-trend economic growth is being lifted,” said London-based O’Neill, who helps manage $840 billion. “The notion that BRICs benefit at the expense of others is increasingly out of date.”

Investors should buy copper, coal and oil to take advantage of the growth of cities in emerging markets, according to Standard Chartered, which says the Chinese yuan, Indian rupee and Korean won will appreciate on strengthening domestic growth.

Developed nations also will benefit as their emerging- market counterparts invest more abroad, hire more of their workers and rely on their expertise in areas such as financial services, said Lyons, who will be at Davos. He predicts both the U.S. and European Union will enjoy an average trend growth of 2.5 percent through 2030, compared with the 1.9 percent and 1.7 percent he forecasts for this year.

“It’s a win-win situation,” said Lyons, who concedes growth won’t always be strong and continuous during the entire period.

Increasing Integration

The increasing integration of China and other developing economies will boost commerce and investment worldwide, agrees Edward Prescott, a senior monetary adviser to the Federal Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for analysis of business cycles and economic policy.

Prescott points to South Carolina, which has benefited from new factories opened by Chinese companies such as appliance maker Haier Group. The International Monetary Fund projects this year will be the first in which Chinese foreign investment outpaces inward flows.

“The whole world’s going to be rich by the end of this century,” Prescott said.

Such euphoria may be muted in Davos, given the European sovereign-debt crisis, fears of a real-estate bubble in China and mounting public-debt burdens, said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, who is attending the meeting.

“There’s going to be more optimism but still some worries,” he said.

High Unemployment

Talk of a super-cycle gets little support from Joseph Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends that globalization and free trade may be stymied by unemployment in rich nations and the risk that more of these countries’ jobs will be lost abroad. The U.S. jobless rate has remained above 9 percent since May 2009.

“Standard Chartered works mostly in developing markets, and that shapes its world view,” said Stiglitz, an economics professor at Columbia University in New York. “If you work in emerging markets, you feel the energy. If you are in the U.S. or Europe, you see the numbers and it’s hard not to feel depressed.”

The difference reflects a “shift in the center of gravity in the world economy, in which the West is struggling to keep up with turbo-charged,” emerging markets, says Stephen King, chief global economist in London at HSBC Holdings Plc and a former U.K. Treasury official. He will outline in Davos what he calls the next phase of globalization: increased trade among emerging countries.

Rising Global Output

His team calculated this month that by 2050, global output will have trebled and average annual growth will accelerate toward 3 percent from 2 percent in the last decade, with emerging markets contributing twice as much to the expansion as the developed world.

Ian Bremmer, president and founder of the Eurasia Group, a political-risk consulting company in New York, is more downbeat as he heads to the Swiss ski resort. He predicts what he calls a “G-Zero” era in which no country has the political or economic leverage to dominate the international agenda and all nations focus on their own priorities. That will reduce economic efficiency and prompt trade conflicts, he said.

Volatility, Uncertainty

The subsequent volatility and uncertainty mean U.S. assets will prove the “comparative safest bet” and the price of gold will stay high, Bremmer said, after touching a record $1,432.50 an ounce on Dec. 7. Fixed-income securities still may suffer as nations impose capital controls, which Brazil and South Korea have done lately, while companies will continue saving rather than spending, he predicted.

“Corporations will keep trillions of dollars on the sidelines,” he said Jan. 5 on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “They’re just very uncertain about where the world is heading.”

John Hawksworth, the London-based head of macroeconomics at PricewaterhouseCoopers, is confident a so-called zero-sum world isn’t in the cards. His own attempt to see into the future this month generated a projection that a bloc of seven leading emerging markets, including India and China, will be 64 percent larger than the current Group of Seven by 2050 at market- exchange rates, compared with 36 percent smaller today.

Even so, average income levels in the G-7 countries will rise in absolute terms as new market opportunities open up for their businesses, and consumers will benefit from lower-cost imports, predicts Hawksworth, who has served as a consultant to the World Bank and whose company will release its annual survey of executives in Davos tomorrow.

“There is a shift in economic power from West to East, but the West can still do well,” Lyons said.

source:http://www.bloomberg.com

China Mobile Uses Hotspots to Stem Internet Addicts Defections

2011-01-18T19:36:00.000-08:00

Yolkie Sun’s addiction to Facebook Inc. cost China Mobile Communications Corp. a longtime customer.

Sun, who used China Mobile for 11 years, switched to China United Network Communications Group Co., parent of China Unicom, to access the social networking site. Her smartphone accesses the website through a virtual private network that can take three times longer to run on China Mobile.

“I can’t live without Facebook,” Sun, 23, said. “Lots of people use Unicom for the 3G because the Internet is very fast. China Mobile’s 3G is not as good.”

Defections such as Sun’s may cause the world’s largest mobile-phone company by users to lose market share even as the nation doubles its 3G subscribers this year. The Beijing-based company plans to more than triple its Wi-Fi hotspots this year so subscribers have another way to connect to the Internet, said Kelvin Ho, a Shanghai-based analyst at Yuanta Securities Co.

China Mobile may increase its number of hotspots to 1.1 million by year’s end from the 300,000 it had in June, he said. Its capital expenditures of 111 billion yuan ($16.8 billion) this year may be 13 percent above previous projections, he said.

‘Worried’ About Unicom

“They are more aggressive than before in terms of Wi-Fi rollout and coverage,” Ho said. “China Mobile is worried its higher-spending customers will turn to Unicom.”

China Mobile, the world’s largest phone carrier by market value, has the nation’s largest 3G user base with 18.8 million as of Nov. 30, compared with China Unicom’s 12.8 million, according to subscriber data. China Unicom is the only carrier offering Apple Inc.’s iPhone with a contract.

China Mobile’s 3G market share may drop to 40 percent this year from 44 percent last year, and China Unicom’s may rise to 33 percent from 31 percent, Donald Lu, a Beijing-based analyst for Goldman Sachs Group Inc., said in a Jan. 6 report.

China Mobile Chairman Wang Jianzhou said building out the Wi-Fi network is “the fastest way” to meet rising Web demand by phone users. The company started the expansion last year and will speed it up this year, he said.

“The competition in the 3G market is very fierce,” Wang said Monday at the Asian Financial Forum in Hong Kong. “We will be adding a lot more hotspots and access points in areas with high population density.”

China Mobile Ltd. rose 6 percent last year in Hong Kong, trailing the 8.2 percent gain in shares of China Unicom (Hong Kong) Ltd.

Italy’s Population

China’s 3G users will reach 103.3 million this year from an estimated 46.8 million last year, Lu said. Those 57 million new subscribers almost equal Italy’s population.

China Mobile’s subscriber numbers include 5.2 million people using its less lucrative “fixed wireless” phone package, according to estimates from Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. The phones for home or office use the 3G network for voice and texting, though not the Internet.

The growing popularity of tablet computers, including Apple’s iPad, is stoking demand for 3G services that China Mobile hopes to meet with Wi-Fi, Wuh said.

“If people with smartphones or iPads or iPhones want to surf the Web and don’t want to switch to China Unicom, Wi-Fi is one way that China Mobile can help them get around that,” he said.

Zhang Jie received an iPhone three years ago and still uses China Mobile’s 2G network and Wi-Fi, believing it handles phone calls better.

Inferior Network

“China Unicom can be quicker with data, but in many areas even the voice service won’t work,” Zhang said. “China Mobile still has the broader coverage.”

China Mobile in January 2009 received its 3G license for the Time Division Synchronous Code Division Multiple Access system, or TD-SCDMA. The Chinese system was developed as an alternative to the global W-CDMA and CDMA2000 standards.

China Mobile was picked to use the homegrown network because of its market dominance, said Jim Tang, a Shanghai-based analyst at Shenyin Wanguo Securities Co. The government gave China Unicom a license for W-CDMA and China Telecommunications Corp., with a 26 percent market share, one for CDMA2000.

“TD-SCDMA is not as mature,” Tang said. “To offer users a better Web experience, China Mobile has to rely on Wi-Fi.”

In a test by Tang, China Unicom’s 3G network loaded a video clip of a popular song in China called “Tan Te,” or “Perturbed,” about three times faster than China Mobile’s network. Unicom started playing the clip in 25 seconds, compared with 75 seconds for China Mobile, Tang said. Unicom’s data- transfer speed of 110 kilobytes per second compared with China Mobile’s 33 kilobytes.

Planning for 4G

China Mobile customers can buy unlocked iPhones at Apple’s Beijing store and at gray markets. The handsets only work on its older, international 2G network because they aren’t compatible with the homegrown 3G standard.

China Mobile wants Wi-Fi to be an interim solution until it gets a fourth-generation network in place, Ho said.

China Mobile said last month it received government approval to start a network trial in six cities, including Shanghai and Shenzhen. China Mobile likely won’t get a 4G license within two years because the government wants carriers to recoup 3G investments, Ho said.

“China Mobile is pushing 4G hard because their network technology is lagging,” he said.

China Mobile customer Wang Zhen of Beijing said he can wait. The tour guide will use an unlocked iPhone on China Mobile’s 2G network rather than lose his current phone number.

“China Mobile’s network will be slower, but if I need to make heavy use of the Internet, there are lots of hotspots around,” Wang, 24, said. “The problem is I don’t want to change my number.”

Li Gang, 30, started using China Mobile 10 years ago with his first mobile phone. When he recently bought an iPhone 4 for downloading maps and directions, he switched to China Unicom.

“I always used China Mobile but their 3G service is just not as good,” Li, a mining equipment salesman at Jin Feng Co., said at the Apple store. “I like to use my phone to watch movies online, and I don’t want to be restricted to having to find a Wi-Fi hotspot to do it.”

source:bloomberg.com

Apple Profit Rises 78% on Holiday Demand for Gadgets

2011-01-18T19:27:00.000-08:00

Apple Inc., whose Chief Executive Officer Steve Jobs said yesterday he is taking a medical leave of absence, posted a 78 percent jump in quarterly profit, helped by holiday buying of iPads, iPhones and Macintosh computers.

Net income in the fiscal first quarter rose to $6 billion, or $6.43 a share, from $3.38 billion, or $3.67, a year earlier, Apple said today in a statement. Analysts projected profit of $5.41 a share, the average of estimates compiled by Bloomberg. Apple rose as much as 4.8 percent in extended trading.

Sales increased 71 percent to a record $26.7 billion, exceeding the $24.4 billion predicted by analysts in a Bloomberg survey. The company sold 7.33 million iPad tablet computers in the first holiday season for the device, topping the 6 million projected by Mike Abramsky at RBC Capital Markets LLC. The results suggest Apple will fare well in the coming months as Jobs hands day-to-day operations to Chief Operating Officer Tim Cook, said Ashok Kumar, an analyst at Rodman & Renshaw LLC.

“It was a blowout quarter,” said Kumar, who’s based in Palo Alto, California. “The momentum should sustain for the next 12 months with the iPad and iPhone refresh. The uncertainty investors have to prepare for is beyond that time frame in terms of the company’s ability to execute in this flawless manner and develop new markets.” He rates Apple a “buy” and doesn’t own it.

Apple, based in Cupertino, California, climbed to as high as $357 in extended trading, after earlier falling $7.83 to $340.65 at 4 p.m. New York time on the Nasdaq Stock Market. The shares rose 53 percent last year. The company is the world’s second-most valuable company behind Exxon Mobil Corp.

‘Well-Oiled Machine’

Jobs, 55, who has been fighting a rare form of cancer since 2004, said in an e-mail disclosed yesterday, “I love Apple so much and hope to be back as soon as I can.”

The company is likely to fare well under Cook, said Barry Jaruzelski, a partner at Booz & Co.

“It’s a well-oiled machine,” said Jaruzelski. Jobs’s “ethos and things he focuses on from marketing and innovation are deeply embedded in the process and people, making it an institutional capability,” he said.

Apple sold 16.2 million iPhones, 4.13 million Mac computers and 19.5 million iPod media players, according to the statement. Abramsky at RBC Capital Markets predicted sales of 16 million iPhones, 6 million iPads, 18.7 million iPods and 4.2 million Macs.

More Products Coming

Apple, whose potential U.S. customer base for the iPhone will almost double by adding Verizon Wireless as a carrier next month, said profit this quarter will be $4.90 a share on sales of $22 billion.

“We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon, which customers can’t wait to get their hands on,” Jobs said in the statement.

Analysts estimate Apple will have second-quarter profit of $4.47 a share on sales of $20.9 billion, according to data compiled by Bloomberg.

The period will be the first to include sales from Verizon Wireless, the largest U.S. carrier, which will begin selling the iPhone on Feb. 10. The arrangement ends AT&T Inc.’s exclusive U.S. rights to the iPhone and adds 93.2 million potential customers for Apple.

The iPhone is Apple’s top-selling product, accounting for 39 percent of revenue last fiscal year. The iPad also is becoming a bestselling product for Apple, accounting for 17 percent of revenue last quarter. The company has now sold 14.8 million since it was introduced in April.

Macbooks, Beatles

Gross margin, the percentage of sales left after deducting production costs, was 38.5 percent in the first quarter, compared with 36.9 percent in the fourth quarter.

Apple introduced a lineup of the Macbook Air notebook computers and iPod media players to entice shoppers last quarter, while also adding songs from the Beatles to iTunes for the first time.

Jobs took a leave of absence as his health deteriorates from a bout with a rare form of cancer and the effects of a liver transplant he had almost two years ago, according to a person with knowledge of the situation.

The CEO has been unable to keep on weight as he undergoes treatment for his conditions, said the person, who requested anonymity because the matter is private. He took two previous leaves -- for cancer surgery in 2004 and the transplant in 2009.

Jobs will continue as the CEO, according to a company statement citing an e-mail he sent to employees. Jobs co-founded Apple in 1976 and after being ousted in 1985, he returned in 1997 and transformed it from a computer-industry also-ran into the world’s largest technology company by market value.

“I hope he comes back,” said Jane Snorek, who helps oversee about $75 billion at Nuveen Asset Management and said Apple is Nuveen’s biggest holding. “I don’t care who they get, there’s no way you can replace Steve Jobs.”

source:www.bloomberg.com

Toyota Readying Electric Motors That Don't Use Rare Earths

2011-01-13T18:34:00.000-08:00

Toyota Motor Corp., the world’s largest seller of hybrid autos, is developing an alternative motor for future hybrid and electric cars that doesn’t need rare-earth minerals at risk of supply disruptions.

Toyota engineers in Japan and the U.S. are working on a so- called inductive motor that’s lighter and more efficient than the magnet-type motor now used in its Prius, said John Hanson, a company spokesman. Research is at an “advanced stage,” he said, without saying when vehicles with the motors may be sold.

“It’s a long-term approach,” said Hanson, who is based at Toyota’s U.S. unit in Torrance, California. “When you’re looking at a geopolitical issue like rare-earth supply, that can lead to developments that create very good solutions.”

The motor could help cut Toyota’s dependency on rare-earth materials from China, which controls more than 90 percent of the global market for the metals. China’s government cut export quotas for the first half of 2011 by 35 percent last month. That follows a 72 percent reduction in the second half of 2010, causing the price of some of the metals to more than double.

In addition to the Prius, rare-earth minerals such as neodymium and dysprosium are used in motor magnets in Nissan Motor Co.’s all-electric Leaf car, General Motors Co.’s plug-in Volt and Honda Motor Co.’s Insight hybrid, as well as in mobile phones and rechargeable batteries. Toyota confirmed last year it has a task force to find rare-earth supplies outside China.

Toyota rose 1.6 percent to 3,590 yen as of 10:40 a.m. in Tokyo trading. The stock has gained 11 percent this year.

Battery-Powered RAV4

In 2012, Toyota will sell a battery-powered RAV4 compact sport-utility vehicle with an inductive motor supplied by Tesla Motors Inc. that uses no rare-earth minerals. Tesla’s all- electric Roadster sports car and future Model S sedan use a similar motor, also without rare-earth materials.

The RAV4 EV motor is separate from Toyota’s next-generation electric motor project, Hanson said.

Toyota is developing efficient, cheaper, lighter motors, along with advanced batteries and power electronics, as electric propulsion is essential for next-generation autos, Takeshi Uchiyamada, Toyota’s executive vice president for research and product development, said in an interview this week in Detroit. The company is making progress in all three areas, he said, without elaborating.

Singapore Plans More Housing Curbs as Prices Rise to Record

2011-01-13T18:25:00.000-08:00

Singapore will raise down payment requirements for second mortgages and extend the period homeowners must hold properties to avoid a sales tax as it steps up efforts to curb speculation after prices rose to a record.

Individuals with more than one mortgage can only borrow up to 60 percent of a property’s value, down from 70 percent, the government said in a statement yesterday. On loans to entities other than individuals it will be reduced to 50 percent from 60 percent. Sellers will now have to pay a stamp duty for all homes and land sold within four years of purchase, from three years.

Singapore private home prices climbed to a record as the nation’s fastest economic growth since independence in 1965 overwhelmed government measures to cool the market. The city- state has been attempting to rein in home prices since 2009 when the government barred interest-only loans for some housing projects and stopped allowing developers to cover interest payments for apartments still being built.

“The government is erring on the side of caution,” said Donald Han, Singapore-based managing director at Cushman & Wakefield, the world’s largest closely held real estate services company. “We need to monitor this because history has shown that some of these measures lasted only two to three months, and the market comes right back to full life again.”

Singapore’s Straits Times Real Estate Index fell as much as 1.4 percent, with 28 index members out of 38 falling as of 9:18 a.m. CapitaLand Ltd., Southeast Asia’s biggest developer, declined as much as 3.7 percent to S$3.70.

Buoyant Sentiments

While Singapore’s private home prices climbed 2.7 percent to a record in the fourth quarter from the previous three months, the increase was the smallest in six quarters, government data showed. Han said he expects the gain in home prices to cap at 5 percent this year with the latest curbs, from an earlier estimate of as much as 12 percent.

“Previous government measures have to some extent moderated the market, but sentiments remain buoyant,” according to the statement yesterday. “The government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence.”

With the additional steps, Singapore joins markets across Asia that added measures to curb property speculation driven by low interest rates. Hong Kong imposed additional taxes and higher down payments in November after home prices climbed more than 50 percent since the beginning of 2009. China, battling at least 18 months of price increases, suspended third mortgages and raised interest rates for the first time in three years.

‘Strong Disincentive’

Singapore’s homeowners who sell a property within a year of purchase will have to pay a tax of 16 percent from 3 percent now. That drops to 12 percent in the second year, 8 percent in the third, and 4 percent in the final year. The government also said it will take further steps if necessary.

“The seller’s stamp duty rates will be increased sharply so as to provide a strong disincentive for investors looking to make short term gains,” the government said. “The impact of the seller’s stamp duty is especially significant as it is payable regardless whether the property is eventually sold at a gain or loss.”

Singapore in February last year said it will levy a seller’s stamp duty on all residential properties and land that are sold within one year from the date of purchase. That was increased to three years in August, when the government also raised down payments for second mortgages.

Caught by Surprise

“This new round of cooling measures will adversely affect sentiments in the property market in the coming months,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “They could also catch many investors who had bought residential properties in the last two years by surprise. Some of the buyers could be investors who are banking on rising property prices to make a quick profit.”

Private residential sales in November rose the most in seven months. Property transactions reached an unprecedented level in the first 11 months of 2010 as developers sold 15,025 properties, according to preliminary data from the government. That exceeded the high of 14,811 homes in 2007.

“December sales would be as aggressive as the November numbers,” Han said. “The tide is coming onto the shores of places like Singapore, China and Hong Kong, and it’s hard to stop the tide with low interest rates. The only way is to pump in regular measures like what we’ve seen.”

Singapore’s three-month interbank rate fell to 0.43751 percent on Jan. 3, the lowest since Bloomberg began compiling the data in 1999. It was at 0.43779 percent yesterday.

‘Incremental’ Measures

CapitaLand said in November that government measures to curb property speculation had been “incremental” and will help the real estate market develop sustainably over the long term.

The Monetary Authority of Singapore in November said low borrowing costs and excess liquidity globally may push the island’s property prices higher again. There is a risk that financial institutions may ease lending standards and extend more loans to make up for narrowing interest margins, while buyers may also take on “excessive leverage” amid expectations of a sustained period of low rates, the central bank said.

“Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals,” according to yesterday’s statement. “The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.”

China Inflation May Ease Yuan Pressure at Hu-Obama Summit

2011-01-13T18:18:00.000-08:00

Rising inflation in China that is causing headaches for President Hu Jintao at home may help relieve tensions with the U.S. over the yuan as he prepares to meet President Barack Obama in Washington next week.

Prices are climbing faster in China than in the U.S., making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said this week. Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported U.S. goods such as Boeing Co. aircraft and Microsoft Corp. software.

Hu may seek the easing of a U.S. ban on technology exports, while Obama is likely to focus on access to Chinese markets, lower subsidies for companies and cooperation on North Korea. Meantime, the U.S. economic recovery and new Republican leaders in Congress who don’t see the yuan as a priority may also help make the issue less contentious, said Michael Paulus, who heads the Asia Public Sector Group at Citigroup Inc. in Hong Kong.

“That the renminbi is starting to get on a track that people feel somewhat comfortable with takes it off the front burner,” former Treasury official Paulus said in an interview. “The people at the White House and the Treasury and elsewhere will not try to downplay it, but not play it up either.”

Geithner, speaking in Washington on Jan. 12, said that while the yuan was still “substantially undervalued” the “fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates.”

Factoring in rising prices, the erosion of Chinese companies’ advantage over U.S. rivals was equivalent to the yuan strengthening at an annual rate of about 10 percent, he said.

Trading Range

The yuan’s trading range, set each morning by the People’s Bank of China, is increasingly linked to political events between China and the U.S. Shares in the exchange-traded, New York-based WisdomTree Dreyfus China Yuan Fund gained 3.1 percent in the month leading up to a scheduled Oct. 15 release of a Treasury report on whether China manipulates its currency, which was delayed. Shares fell 1 percent over the next two weeks. In the first three days of this week the fund gained 0.51 percent.

Last year Obama and Congress pushed China repeatedly to speed up yuan gains amid historically high unemployment. The jobless rate reached a 26-year peak of 10.1 percent in October 2009, and is now at 9.4 percent.

Obama said after meeting Hu in November that China is spending “enormous amounts of money” to keep the yuan undervalued. Democrats in the House pushed through a measure, which never saw a vote in the full Senate, making it easier for U.S. companies to seek penalties against Chinese imports because of an undervalued currency.

New Congress

With a new Congress elected in November, the legislation must pass the House again. The Republican leaders of the panels in charge of trade and currency have other priorities.

Representative Kevin Brady, a Texas Republican who now chairs the House Ways & Means subcommittee on trade, voted against the currency measure last year. David Camp, the Michigan Republican who is chairman of the full committee, said in September that the currency measure was “not on my trade agenda.”

“We’re going to keep pressure on China to float their currency, but we are not going to look at China just through the viewpoint of currency,” Brady said in an interview last month. “We think there are broader issues and a broader relationship with them that we have overlooked.”

Stronger Yuan

The yuan has appreciated more than 3 percent since China ended a two-year peg to the dollar last June. High inflation in China -- prices in November rose 5.1 percent from a year earlier after falling for most of 2009 -- continues to “stealthily” erode China’s competitiveness as U.S. inflation stands at about 1 percent, Paulus said.

China’s exports rose 17.9 percent to $154.2 billion from a year earlier and imports climbed 25.6 percent to $141.1 billion, the customs bureau reported Jan. 10.

Economists including Dariusz Kowalczyk at Credit Agricole CIB in Hong Kong, expect the yuan to gain because of the need to fight inflation and to improve the atmosphere for the Hu-Obama summit that begins Jan. 18.

Li Daokui, an adviser to China’s central bank, said last month that the yuan can strengthen at a faster pace if gains are “controllable.” Twelve-month non-deliverable yuan forwards rose for a fourth day yesterday to 6.4377, reflecting bets the currency will gain more than 2 percent in the coming year.

Stephen Roach

Stephen Roach, non-executive Chairman of Morgan Stanley Asia Ltd., says that while the Obama administration “gets” the effect of price gains on the dollar-yuan exchange rate, the U.S. public and lawmakers may demand more action amid continued high unemployment and a bilateral trade deficit. New commercial deals for companies like Chicago-based Boeing and Redmond, Washington- based Microsoft may not placate Congress, he said.

A poll released Jan. 12 by the Washington-based Pew Research Center for the People and the Press, found that 53 percent of 1,503 Americans surveyed from Jan. 5-9 said the U.S. should get tougher on China on the trade and economic fronts.

According to the poll, 47 percent of Americans consider China to be the world’s preeminent economic power, compared to 31 percent who say that title goes to the U.S. The survey had a margin of error of plus or minus three percentage points.

“From the U.S. point of view the domestic political dynamic is more aimed at China,” Roach said in an interview. “This trip is really going to be challenging.”

China Leading Indicator Rises the Most in 14 Months

2010-06-14T22:46:00.000-07:00

A leading indicator for China jumped by the most in 14 months, adding to signs that the world’s third-biggest economy is maintaining momentum as Europe’s debt crisis threatens to undermine the global recovery.

The measure gained 1.7 percent to 147.1 in April, compared with a revised 1.2 percent increase in March, The Conference Board said on its website today.

“China is performing among the best of any economy around the world,” Bill Adams, resident economist for the New York- based research organization, said in Beijing today.

The nation’s expansion could be capped by weakness in exports in coming months and a government crackdown to cool property prices, which rose at a near-record pace in May. The banking regulator warned today of growing risks of non- performing loans, especially in real estate, after unprecedented credit growth under the nation’s stimulus program.

Events in Europe are underscoring China’s importance as a driver of world growth. Moody’s Investors Service cut Greece’s debt rating to junk yesterday. The Reserve Bank of Australia said that the European crisis will inevitably weigh “somewhat” on global growth prospects, according to minutes of a June 1 meeting released today.

In Shanghai, the stock exchange was closed for a public holiday. The benchmark index has tumbled almost 22 percent this year on concern that the government may wind back stimulus measures too aggressively.

Surging Exports

China’s May data released last week highlighted strength in the economy, with exports surging from year-earlier levels and industrial production and retail sales climbing. Inflation jumped to the highest in 19 months and property prices rose 12.4 percent from a year earlier.

The increase in the indicator was the biggest since February 2009, Adams said in an e-mail today. At the same time, he highlighted a weakening in export orders over most of the past six months and a decline in consumer expectations in April, factors that may help to cool growth.

New construction work, the key factor pushing up the indicator in April, may not continue to grow so quickly, and, excluding real estate, “there is no strong basis for assuming accelerating growth” in China, he said.

Officials may introduce a trial real-estate tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.

China Vanke

Sales by China Vanke Co., the nation’s biggest publicly traded property developer, dropped 20 percent in May from a year ago, and Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent on year, according to the developers’ stock exchange filings.

Besides industry-specific measures, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks after first-quarter economic growth of 11.9 percent, the fastest pace in almost three years.

Adams’ view today was similar to last month, when he said that the “front-loading” of real-estate projects ahead of government controls probably helped to boost the leading indicator.

source:www.bloomberg.com

New York Fed’s Enhanced Powers May Come With Reduced Autonomy

2010-06-14T22:16:00.000-07:00

The Federal Reserve Bank of New York, which carried out central-bank rescues of money markets and Wall Street firms, is poised to have its powers expanded even more -- at the risk of reduced independence.

Senate and House negotiators meet today to begin hammering out a financial-regulation bill that puts the New York Fed at the forefront of the central bank’s new role as overseer for financial stability. Lawmakers also want its chief, now nominated by the bank’s board, to be a White House appointee.

Senate Banking Committee Chairman Christopher Dodd says the selection process must be overhauled to avoid conflicts of interest at the regional Fed bank, which supervises firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., where New York Fed chief William Dudley spent two decades. Opponents, including St. Louis Fed President James Bullard, say the legislation represents an effort by politicians to exert more control over monetary policy.

“Congress is concerned about accountability,” Gary Stern, Minneapolis Fed president from 1985 to 2009, said in a telephone interview. “You would get a different kind of person in the job. I am an economist by training. You might continue to get some people like that. But you might get people who are more active politically.”

The so-called base text of the financial-overhaul legislation would give the central bank a seat on a newly created Financial Stability Oversight Council. The Fed would be delegated to watch over firms that “may pose risks to financial stability,” including banks it supervises and non-bank financial firms.

Authority Extended

The New York Fed might have its authority extended to firms such as GE Capital. Jeffrey Immelt, chairman of General Electric Co., the parent of GE Capital, sits on the New York Fed Board.

Dodd’s proposal to have the regional Fed chief appointed to a five-year term subject to Senate approval means politicians would pick two-thirds of the Federal Open Market Committee. Dudley, whose term ends in February, is vice chairman of the rate-setting panel. Of the Fed’s 12 regional bank presidents, he’s the only one with a permanent vote on the FOMC alongside the seven Washington-based governors.

The New York Fed executes monetary policy through its trading desk, which bought billions in bonds during the financial crisis. The Fed’s total assets have expanded to $2.33 trillion as it bought Treasury bonds, mortgage-backed securities and agency debt to lower interest rates. That compares with $903 billion two years ago.

Treasury Secretary Timothy Geithner, a former New York Fed president, said in March he opposes White House appointment because it “would tilt the balance substantially in New York’s favor.”

‘Loose Money’

“What Congress ultimately wants out of this is loose money,” said Mark Calabria, a former Senate Banking Committee staffer who is now a director of financial-regulation studies at the Cato Institute in Washington, a research center that favors free markets.

Bernard Sanders, a Vermont independent, said having the New York Fed president nominated by the White House “is a great thing” because it removes bankers from the decision.

Senator Judd Gregg, a New Hampshire Republican, called it “bad policy” because it “injects too much congressional activity into the operational side of the Fed.” Even so, the presidential appointment clause probably “is going to survive” Gregg said in a June 9 interview.

Krishna Guha, a spokesman for the New York Fed, declined to comment.

Many emergency programs approved by the Board of Governors were designed by Geithner when he headed the Fed, with help from Dudley, who was then executive vice president in charge of markets. Dudley once slept on the carpet of his ninth-story Liberty Street office instead of checking into a nearby hotel during the crisis.

Berkeley Doctorate

Dudley, 57, holds an economics doctorate from the University of California at Berkeley and worked as a Fed economist from 1981 to 1983. He joined Goldman Sachs in 1986 and became its top U.S. economist. He moved to the New York Fed in 2007 and succeeded Geithner in 2009. Dudley’s salary at the New York Fed last year was $410,780.

The search committee that picked Dudley was comprised of former Goldman Sachs chairman Stephen Friedman, who was chairman of the New York Fed Board; Charles Wait, chairman of the Adirondack Trust Co. of Saratoga Springs, New York; and Denis Hughes, president of the AFL-CIO in New York. Six of the nine directors that sit on regional Fed boards are bankers or people chosen by them.

Political appointment of the New York Fed chief “makes a lot of sense” given its permanent vote on rates and the larger role the Fed will play in financial-system oversight, said Ken Rogoff, a Harvard University economist.

Center of Gravity

“I can understand concern about giving an administration too much power to shift the center of gravity at the Fed, but presumably the confirmation process still provides some degree of checks and balances,” said Rogoff, a former International Monetary Fund chief economist.

Fed officials disagree. The St. Louis Fed’s Bullard, in a letter to 13 senators last month, said the change “would introduce an unprecedented level of political intervention in the operation of a reserve bank.”

“I don’t think that is the right way to go,” Fed Chairman Ben S. Bernanke said at a Joint Economic Committee hearing in April.

Marvin Goodfriend, an economist at Carnegie Mellon University and a former Richmond Fed policy adviser, said the legislation “goes right to the heart of the Fed’s independent powers.”

The Fed opened the door to greater political pressures by stepping into the realm of fiscal policy with rescues of Bear Stearns Cos. and American International Group Inc., says Allan Meltzer, a historian of the central bank.

“The Fed has done more credit allocation and fiscal policy than ever before,” said Meltzer, an economist at Carnegie Mellon University in Pittsburgh. “Most of the damage was done before this bill.”

source:bloomberg.com

China’s Bank Regulator Sees Growing Real Estate Risks

2010-06-14T22:11:00.000-07:00

China’s banking regulator said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.

Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website today.

The regulator has told banks to report on risk exposure by the end of June to help prevent a credit boom from leading to more bad loans. Property-price gains spurred concerns that a record 9.59 trillion yuan ($1.4 trillion) of loans extended last year to combat the effects of the global financial crisis may be causing asset bubbles.

“Coming through the global financial crisis, China’s banking sector has stepped onto a new level,” CBRC Chairman Liu Mingkang said in the report. “We remain cool-headed about the weaknesses to be addressed and fixed.”

Credit risks in some industries that have seen a surge in investment may “emerge soon” as restructuring efforts intensify, the regulator said in the report. The rise in investment exacerbated the problem of excess capacity and over- development, it said.

Economic Growth

The country, the world’s fastest-growing major economy, expanded 11.9 percent in the first quarter from a year earlier. Measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases.

China’s property prices rose 12.4 percent in May, the second-fastest pace on record, showing little sign yet that the government crackdown on speculation will work to avert an asset- price bubble. The gain compared with a record 12.8 percent increase in April from a year earlier.

Some banks in China have transferred loans off their balance sheets in an effort to circumvent regulatory requirements and capital and loan-loss provisioning, the CBRC said in the report.

Banks still assume the risks related to loan management and recovery even though the loans are not booked on their balance sheets, the report said. As a result, rising risks associated with banks’ activities in transferring their exposures off the balance sheet need “close supervisory attention,” according to the CBRC.

The forces driving a sustained growth in China’s economy remain weak, it said. Structural imbalances are “acute,” external trade is threatened by rising protectionism and unemployment pressures remain severe, according to the report.

“All these pose further constraint for a substantial and meaningful rebound,” the report said.

China’s changing macroeconomic environment and the acceleration of the economic restructuring means the possibility of a resurgence in credit risks or losses “remains high,” the watchdog said in the annual report.

BOJ to Offer 3 Trillion Yen to Spur Corporate Loans

2010-06-14T21:50:00.000-07:00

The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in a new credit program that will extend loans to companies for as long as four years in an effort to strengthen the economic recovery.

The central bank will accept loan requests through March 2012, it said in a statement released today in Tokyo. New loans will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.

Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt. The facility will do little to spur demand and is mainly aimed at averting calls for broader monetary easing, said economist Yasunari Ueno.

“The new program is a tool to flag the BOJ’s cooperation to the government,” Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before the announcement. “It’s also an attempt to prevent the bank’s monetary policy from being driven in an unfavorable direction.”

Yesterday, on the first day of the bank’s meeting, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken.

Critical Challenge

“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries.”

Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. The BOJ has discussed the boundaries of the program, with some members voicing concern that the bank should avoid getting too involved in allocating capital, minutes of an April 30 meeting show.

The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. The bank decided to resume a U.S. dollar currency swap agreement with the Federal Reserve in an unscheduled policy meeting on May 10.

Interest Rates

Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today.

Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent.

“The BOJ has already provided abundant liquidity” by lowering borrowing costs and through existing programs, said Mizuho’s Ueno. “Under the current circumstances surrounding interest rates, the advantages of tapping a new facility for commercial lenders is extremely small.”

If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage.

Recovery Trend

Japan’s economy is on a recovery trend and spending by companies is showing signs of picking up, the central bank said today.

Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months.

He is expected to unveil the midterm growth and fiscal strategy before the Group of 20 leaders’ summit this month. Vice Finance Minister Motohisa Ikeda, who has also pressed the BOJ to do more, is attending today’s gathering as a government representative.

“With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.”

source:www.bloomberg.com

Foxconn to scrap China 'factory town' model

2010-06-08T21:51:00.000-07:00

The head of Foxconn, the world's largest contract manufacturer, on Tuesday announced fundamental changes to the way it relates to its workers by abandoning the model of running big "factory towns" that has long underpinned Taiwanese and Hong Kong investment into China.

Terry Guo, founder and chairman, told shareholders at parent group Hon Hai's annual meeting in Taipei that a spate of suicides at Foxconn's manufacturing hub in Shenzhen, where 300,000 people live and work, as well as recent strikes at Honda, made him realise that the "structure [of the manufacturing industry in China] has to change."

The unrest at Foxconn -- whose clients include Apple, Dell and Hewlett-Packard -- and strikes at factories linked to Honda have highlighted growing pressure for better labour conditions in the "factory of the world".

Chinese manufacturers face labor upheaval

Foxconn on Sunday announced a second big pay rise for its frontline workers across China. The group said it would offer a 66 per cent performance-related pay rise from October 1, on top of a 30 per cent wage increase that was announced last week.

"Today we are going a bit quickly and moving ahead of everyone else," but when the adjustment to a higher-wage environment comes, "its speed and ferocity will be greater than you can imagine", Mr Gou said.

Mr Gou said that companies like Foxconn -- which operate a wide range of social services for its staff at large, self-enclosed manufacturing campuses -- had to build a community from scratch around their factories when they entered China during the early days of its liberalisation and economic development. But "today we are going to return these social functions to the government".

Inside China factory hit by suicides

The move is a big departure from the model of investing in China used for years by large Hong Kong and Taiwanese manufacturers.

Mr Gou said Foxconn was still exploring ways to separate the work and living environments of its workers, but one option was to sell all its dormitories to the government and rent them back for its staff as needed.

"If a worker in Taiwan commits suicide because of emotional problems his employer won't be held responsible, but we are taken to task in China because they are living and sleeping in our dormitories," he said.

This has become too big a burden for Foxconn to bear, Mr Guo said.

In Hong Kong, Samuel Chin, chairman of Hong Kong-listed Foxconn International, said that price negotiations with its clients would be concluded within the next quarter, and that the company aimed to pass on "as much as possible" of the increased costs to them.

SOURCE:edition.cnn.com

U.N. Security Council to vote on tougher Iran sanctio

2010-06-08T21:08:00.000-07:00

Diplomats hoping to slap tougher sanctions on Iran because of its nuclear program will vote on a new draft resolution on Wednesday.

The United Nations Security Council resolution -- which could change before it comes to a vote -- would put restrictions on Iranian entities and individuals, including members of the Revolutionary Guard Corps. CNN obtained a copy of the circulating draft from a Western diplomat.

A closed-door meeting was scheduled for later Wednesday to give Brazil and Turkey a chance to air their views on a nuclear fuel swap, said Mexican Ambassador Claude Heller, the current Security Council president.

Turkish and Brazilian leaders traveled to Tehran in May to broker a deal that was dismissed by the United States as inadequate.

The United States faces significant opposition from Turkey and Brazil. The deadly raid by Israeli forces on a flotilla of civilian ships hoping to provide aid to Palestinians in Gaza has complicated matters, especially with Turkey, which had significant numbers of its citizens aboard the flotilla.

The resolution needs nine votes in favor to pass, unless one of the five permanent members of the 15-nation Security Council vetoes it, which is not expected.

Iranian President Mahmoud Ahmadinejad lashed out Tuesday by saying Iran would cease negotiations with the West over its nuclear program if any new sanctions are adopted against his nation.

By calling for a resolution instead of sitting down for talks with Iran, the United States is "gravely mistaken," Ahmadinejad said. "Within the framework of respect and justice, we're ready to negotiate with everyone. Anyone who is going to resort to the language of force and aggression, the response is clear."

The draft resolution restates the Security Council's demand that Tehran suspend enrichment activities and other proliferation-sensitive nuclear activities. It requires Tehran to cooperate fully with the watchdog International Atomic Energy Agency.

Among other restrictions the sanctions would impose are an expanded arms embargo; a freeze on assets and a ban on travel of 40 entities and one individual; and a requirement that nations prohibit Iranian investment in foreign commercial activities capable of delivering nuclear weapons.

Fifteen of the 40 entities are "owned, controlled or acting on behalf of the Islamic Revolutionary Guard Corps," three are controlled by the Islamic Republic of Iran Shipping Lines, and the remaining 22 are linked to Iran's nuclear and ballistic missile programs, two senior U.S. officials said.

Officials say the individual subject to the travel ban is Javad Rahiqi, head of the Isfahan nuclear plant.

Another 35 people who were slapped with travel restrictions have been upgraded to full travel bans, the officials said.

source:edition.cnn.com

S.Korea May household loan growth at over 3-yr high

2010-06-08T20:08:00.000-07:00

South Korean banks' lending to households posted its fastest rise in almost 3-½ years in May, reflecting a surge in borrowing to buy into one of the country's biggest IPOs.

The Bank of Korea said on Wednesday that banks' overall household loans increased by 4.4 trillion won ($3.57 billion) to 415.4 trillion won as of end-May from the previous month, the biggest monthly gain since December 2006.

In April, banking loans to households rose 1.7 trillion won.

Despite slow property transactions, a fall in lending rates and banks' aggressive marketing also boosted mortgage loans to households by 1.7 trillion won in May versus 1.8 trillion won growth in April, the central bank said in a statement.

The data did not include loans by non-bank financial services companies.

In May, South Korea's largest life insurer Samsung Life Insurance Co Ltd (032830.KS) made its trading debut in Seoul after raising $4.4 billion in the world's second-largest initial public offering this year.

Aluminum Price ‘Slingshot’ to Boost Earnings for Rio, Alcoa

2010-06-07T21:59:00.000-07:00

Rio Tinto Group’s $38 billion takeover of aluminum maker Alcan Inc. in 2007 is looking more like a money spinner for the world’s third-biggest mining company as forecasts show prices for the metal will increase.

The metal “is going to go up because almost all of the people that use aluminum are using more of it, and lots more of it,” said Frank Lucas, a director of London-based fund manager and adviser Loeb Aron & Co., which holds Rio shares. “You are going to get a slingshot in the price and then because Rio doesn’t hedge it will be the biggest beneficiary.”

Profits at United Co. Rusal, the world’s biggest aluminum maker, and Rio’s Alcan unit are forecast to surge in the next two years as demand gains from aircraft and automakers. The price of the lightweight metal may rise 30 percent by 2015 as demand accelerates, according to Macquarie Group Ltd., which made Alcoa Inc. its top mining stock pick on May 26.

Airbus SAS, the world’s biggest maker of commercial aircraft, in February raised its forecast for demand in the Asia-Pacific region, estimating airlines will buy about 8,000 planes worth $1.2 trillion over 20 years. Global demand for aluminum may double in 10 to 15 years as use soars in developing countries, Jacynthe Cote, Rio Alcan’s chief executive officer, said in April.

“We are bullish on aluminum prices in the long run, say three to five years,” said Wan Ling, a Beijing-based analyst with CRU International Ltd. “It may be a good time now to buy aluminum plants or equities.”

Only once in the past seven years have aluminum prices outperformed copper prices, according to data compiled by Bloomberg.

China Conference

Alcan and Alcoa executives are scheduled to attend Beijing Antaike Information Development Co.’s China aluminum fabrication forum, which starts today in Shanghai.

The metal may rise 14.3 percent in three years, compared with a 2.1 percent drop in copper, according to forward price curves for both metals.

China’s decision last month to raise power charges for high-usage companies will drive up prices in the world’s biggest user, according to Rusal, which swung to a first-quarter profit. Energy accounts for as much as half the cost of producing aluminum.

“The situation for China is an interesting one and could potentially be a catalyst for a real aluminum bull market,” said Alan Heap, Sydney-based head of global commodities at Citigroup Inc. “The balance of risk is shifting in its favor.”

‘Tremendous Leverage’

Rio’s aluminum unit swung to a $111 million profit in underlying second-half earnings from a $689 million loss in the first half last year as the company saved $1 billion in costs and prices rose. The unit’s earnings may rise to $1.86 billion in 2012, according to Royal Bank of Scotland Plc estimates. Net income at Alcoa is forecast to more than double by 2012, while Rusal’s is tipped to advance 51 percent in the same period, according to Bloomberg earnings estimates.

“Aluminum, which accounts for about 50 percent of Rio’s net asset base but contributes about 7 percent of earnings before interest and tax, provides tremendous leverage when aluminum pricing eventually recovers,” JPMorgan Chase & Co. analyst David George said in a May 25 note.

While Lucas at Loeb Aron is predicting higher aluminum prices, he said Rio overpaid for Alcan and the purchase may take as long as 20 years to pay back.

The acquisition caused Rio’s debt to balloon 19-fold, forcing the sale of assets and shares and prompting an abortive $19.5 billion investment from Aluminum Corp. of China. The debt was also cited by BHP Billiton Ltd. as a factor for scrapping its hostile takeover proposal for Rio in 2008. This combination of events angered shareholders.

‘Too Much’

“They paid too much,” said Olivia Ker, a London-based analyst at UBS AG. “Longer term you can kind of build a positive story, but I think it’s more than 10 years away.”

To be sure, global aluminum inventories remain high and demand outside of China is weak, Standard & Poor’s said in a May 15 report. Prices may drop if there’s no easing of unfavorable economic conditions and high inventories levels, it said.

“We remain cautious towards the industry, largely as a result of new supply emerging in the Chinese market place,” said Neil Boyd-Clark, managing partner at Arnhem Investment Management Pty Ltd., which has about $4.2 billion under management.

Rio is among producers that will benefit most from rising aluminum prices, said Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd.

“Companies such as Rusal and Alcoa have good cost structures” and will get a “free ride” from their higher profit margins,” Lau said. Aluminum Corp. of China Ltd., or Chalco, the country’s largest producer, and Hindalco Industries Ltd., India’s largest producer, “will suffer as they are totally subject to rising coal costs,” she said.

Emirates Said to Boost A380 Fleet as Demand Returns

2010-06-07T21:53:00.000-07:00

Corrects to clarify in third paragraph that Emirates doesn’t fly to Pakistan or India with the A380 yet:
Emirates Airline, the biggest customer for the Airbus SAS A380 superjumbo, is poised to order more of the world’s largest passenger jet to expand Dubai as a global travel hub, two people with knowledge of the accord said.

The carrier will commit to more than 30 additional A380s, and the company will probably announce the agreement at the ILA Air Show in Berlin tomorrow, said one of the people, who declined to be identified because the two sides are still working on terms of the deal.

An order would mark a breakthrough for Airbus on the A380 after winning only one new customer for the 525-seat jet since commercial operations began in 2007. The A380, which Emirates will partly use to shuttle migrant workers between the Middle East and countries including Pakistan and India, will take years to become profitable after Airbus struggled with construction delays and slower-than-planned assembly of the jet.

Emirates previously ordered 58 of the plane, with 10 delivered by Airbus to date. The carrier was among the first to take delivery of the jet, which is also operated by Air France KLM Group, Singapore Airlines Ltd., Qantas Airways Ltd. and Deutsche Lufthansa AG.

Germany’s national soccer team took Lufthansa’s first A380 on its maiden commercial voyage to South Africa yesterday evening for the soccer World Cup.

New York Route

Emirates uses the A380 on routes to Bangkok, London, Paris and Sydney, and it flies the A380 in different configurations, depending on the length of the flight. The carrier will resume flights to New York from Dubai later this year after suspending the route earlier.

Emirates would also be interested in flying to destinations including Berlin and Stuttgart in Germany, though the German government has yet to give clearance for such a plan, Emirates President Tim Clark said in an interview in Berlin today. He declined to comment on A380 orders ahead of the ILA show.

Airbus markets the A380 as more efficient than smaller planes and the older Boeing Co. 747 jumbo, because the jet uses less fuel per passenger and can help cut through congested airports. Airlines tout the A380’s perks that include in-flight bars, hundreds of movie channels and enclosed cabins on some first-class configurations.

Reaching Hubs

The location of Dubai, from where Emirates operates, on the world map lets the airline access almost every global hub in non-stop flights. The order for additional A380s underscores an industry recovery from a slump following the economic recession.

The airline industry will post a $2.5 billion profit in 2010, reversing two years of losses, the International Air Transport Association said today, scrapping an estimate for a $2.8 billion deficit as the economy rebounds.

Airline executives meet this week in Berlin for IATA’s annual general meeting, followed by the ILA show, where manufacturers including Airbus will showcase some of their models. Emirates plans to have an A380 at the show, after taking delivery of the jet from Airbus’s Hamburg site last week.

Ben S. Bernanke's Comments make Euro Rises From 8-Year Low

2010-06-07T21:49:00.000-07:00

The euro rose from an eight-year low against the yen and commodity producers led Asian stocks higher after Federal Reserve Chairman Ben S. Bernanke said the U.S. economic recovery is intact. Gold traded near a record high.

The MSCI Asia Pacific Index rose 0.4 percent to 110.08 as of 12:25 p.m. in Tokyo. Standard & Poor’s 500 Index futures climbed 0.8 percent after the index declined 1.4 percent yesterday. Japan’s currency weakened to 109.67 per euro after touching 108.08 yesterday, the strongest since November 2001. Copper rose 0.8 percent to $6,150 a metric ton, advancing for the first time in seven days, and gold traded within 1.5 percent of its May 14 record of $1,249.40 an ounce.

The U.S. economic recovery is “moderate-paced,” Bernanke said yesterday, boosting investor confidence after concern over Europe’s debt crisis drove benchmark U.S. stock indexes to seven-month lows. The U.S. has supplanted China and Brazil as the most attractive market, with investors betting money on President Barack Obama’s stewardship of the U.S. economy, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers.

“Bernanke’s comments have had a soothing effect on markets after what’s been a pretty bleak few sessions,” said Tim Waterer, a foreign-exchange dealer with CMC Markets in Sydney. “The mood on Asian equities is a bit calmer and that’s allowed some of the currencies that have been heavily hit, like the euro and Aussie, to eke out gains.”

Nikkei, Kospi Gain

Japan’s Nikkei 225 Stock Average rose 0.4 percent and South Korea’s Kospi gained 1 percent. China’s Shanghai Composite Index added 0.3 percent. Australia’s S&P/ASX 200 Index advanced 1 percent.

Five stocks gained for every three that declined on the MSCI Asia. The measure has slumped 15 percent from its high this year on April 15, dragging the average price of its companies to 14.1 times estimated profit. That’s near the lowest level since January 2009.

A gauge of material producers in the MSCI Asia index climbed 0.7 percent, the most of 10 industry groups, amid speculation global growth will revive metals demand. Rio Tinto Group, the world’s third-largest mining company, gained 1.6 percent to A$66.62 in Sydney. BHP Billiton, the world’s largest mining company, gained 0.8 percent to A$36.82.

Newcrest Mining Ltd., Australia’s largest gold producer, jumped 3 percent after bullion advanced. Softbank Corp., the mobile-phone company with a monopoly on Japanese sales of Apple Inc.’s iPhone, climbed 2.5 percent after the U.S. company unveiled a new model yesterday.

Bernanke ‘Positive’

“Bernanke’s comment is positive for the stock market in that he is saying the economy is improving,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $94 billion. “I don’t think we have to worry about the U.S. economic recovery. It’s unlikely to go wrong.”

The euro traded at $1.1962 per dollar from $1.1923 in New York yesterday, when it sank as low as $1.1877, the weakest since March 2006.

The Australian dollar rose 1.3 percent to 74.98 yen and the New Zealand currency gained 1 percent to 60.77 yen, ending two days of losses, as Hungary eased concerns it faces a Greece-like debt crisis, reviving demand for higher-yielding assets.

The so-called Aussie strengthened against all of its 16 major counterparts as Hungary’s government pledged to control its budget deficit and make structural changes to overhaul the economy. The New Zealand dollar rallied amid speculation the nation’s central bank will raise interest rates from a record low on June 10.

Hungary ‘Excuse’

“Hungary was obviously used as an excuse,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “Short-term speculative players are moving quickly” to buy back the Aussie and kiwi. “That’s why we are seeing more volatility,” he said.

Oil for July delivery rose for the first day in three, gaining 0.3 percent to $71.64 a barrel in electronic trading on the New York Mercantile Exchange.

The cost of protecting Japanese and Australian corporate bonds from default fell. The Markit iTraxx Japan index of credit swaps dropped 1 basis point to 149 basis points, according to Morgan Stanley. The Markit iTraxx Australia index fell 1 basis point to 140, according to Nomura Holdings Inc.

Investors Pick U.S. Over BRICs in Bloomberg User Poll

2010-06-07T21:43:00.000-07:00

The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis.

Investors are putting their money on President Barack Obama’s stewardship of the U.S. economy even as his job-approval rating has declined, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers.

Almost 4 of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That’s more than double the portion who said so last October, when the U.S. was rated the market posing the greatest downside risk by a plurality of respondents.

Lawrence Summers, director of the White House National Economic Council, said this attests to Obama’s efforts at “restoring the United States to strong economic fundamentals.” He added that “while there remains much to do, the U.S. economy is growing.”

“We’ve seen the bottom; we’re firm, and the United States is slowly moving forward,” said Wayne Smith, 51, managing director of fixed-income trading at Uniondale, New York-based Northeast Securities, which manages $3.5 billion.

Following the U.S.’s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so- called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia.

In a poll taken in January, China was the favorite followed by Brazil. Respondents were allowed to pick multiple countries.

‘Least Dirty Shirt’

The U.S. is one of the few relative bright spots in a global market rattled by the Greek debt crisis. Bill Gross, co- chief investment officer of Pacific Investment Management Co. and manager of the world’s largest bond fund, called the U.S. “the least dirty shirt,” in a Bloomberg Radio interview.

Forty-two percent of investors now believe the world economy is deteriorating, double the 21 percent who thought so in January. U.S. investors were the most pessimistic about the global economy, with 58 percent saying it is getting worse versus 31 percent of Europeans and 35 percent of Asians. Europeans were the most pessimistic about their own region, with 40 percent viewing it as deteriorating; 21 percent of U.S. investors viewed their home region negatively, while 9 percent in Asia felt that way.

International views of the European Union have declined sharply. More than half of respondents believe the EU offers the worst investment opportunities, up from a third who said so in January, when Europe also ranked at the bottom.

Debt Crisis

The crisis in Greece, where soaring deficits have stirred fears of a government default, has rippled throughout Europe, with credit agencies downgrading sovereign debt in Portugal and Spain. On June 4, stocks slumped as a comment by a Hungarian official that his nation’s economy is in a “very grave situation” fanned concern the debt crisis will spread.

Hungary’s government yesterday pledged to control the budget deficit and make structural changes to overhaul the economy as it distanced itself from suggestions the country was facing a Greece-like crisis.

The turmoil has drawn a flood of international money into U.S. government debt, with yields on 10-year Treasury notes dropping from 3.99 percent on April 5 to 3.15 percent at 4:18 p.m., New York time yesterday. While the Standard & Poor’s 500 Index has declined more than 13 percent since its April 23 high, the benchmark U.S. stock index is up more than 30 percent since Obama took office.

Can’t Keep Up

“While American companies cut down the workforce at their plants as fast before as they are now hiring workers back, European companies were not able to respond in a similar way,” said poll respondent Ofir Navot, 35, of Tel Aviv, head of global investments for Ramco Mutual Funds, which manages about $400 million.

Investors’ rising confidence in the U.S. economy isn’t reflected in their appraisal of Obama: The poll shows his job- approval rating dropped to 51 percent from 60 percent in January.

Investors remain bullish on China’s long-term prospects. More than 6 of 10 believe China will replace the U.S. as the world’s largest economy within 20 years. Almost a quarter believe it will do so within a decade.

Respondents don’t share Treasury Secretary Timothy Geithner’s optimism that China will revalue its currency soon. A majority said it will be at least a year before the country does so.

Making Money

The quarterly Bloomberg Global Poll of investors, traders and analysts on six continents was conducted June 2-3 by Selzer & Co., a Des Moines, Iowa-based firm. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points.

Even with the pessimism over the global outlook, more investors see a chance to make money in this environment. Thirty-five percent said they are seeing opportunity and taking risks, up from 27 percent who said so in January. Asian investors were especially likely to see rewards ahead, with 48 percent saying they are taking more risks.

With poll respondents confident in U.S. growth prospects, the emerging doubts about a global economic recovery haven’t translated into major shifts in views toward asset classes. As in the January poll, stocks are considered the most attractive asset class for the coming year. While commodities were second, the portion of investors choosing them declined to 23 percent from 31 percent.

Bearish on Bonds

Bonds were chosen as the asset class likely to offer the worst returns, with 36 percent of respondents saying that. Real estate was rated next worst, chosen by 24 percent.

Investors in Asia, where there are fears that China’s property market is overheated, were the most pessimistic about real estate, rating it the worst asset to hold.

Poll respondents by an almost 2-to-1 margin expect to increase rather than decrease holdings of stocks during the next six months.

More than half of investors believe the S&P 500 index will be higher in six months, though sentiments are bearish on the Euro Stoxx 50 index and Britain’s FTSE index.

Investors are also bullish on crude oil prices, which usually rise along with economic activity. Forty-nine percent believe oil prices will be higher in six months compared with 24 percent who say they will be lower. The rest expect little change.

Gold Seen Rising

By a margin of 47 percent to 30 percent, respondents say they expect the price of gold, a traditional hedge against political and economic turmoil, to rise in six months. By a margin of 50 percent to 25 percent, they see yields on the 10- year Treasury note rising.

Fears of inflation are muted. Only a little more than a quarter consider it a major threat in “the next couple years.” The regions considered most at risk were China, cited by 19 percent of respondents, followed by the U.S., cited by 17 percent, and the Euro zone, picked by 10 percent.

To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story.

source:www.bloomberg.com

John Morschel Becomes ANZ Bank Chairman

2009-07-23T19:11:00.002-07:00

Australia & New Zealand Banking Group Ltd. said John Morschel will succeed Charles Goode as chairman after Rod Eddington withdrew from consideration.

Morschel, a former managing director at Lend Lease Corp. and director of Westpac Banking Corp., will take over in February 2010, Australia’s fourth-biggest bank said in a statement to the stock exchange. Eddington had informed the board that he wanted to withdraw his offer to succeed Goode, the release said.

Morschel will oversee ANZ Chief Executive Officer Michael Smith’s expansion in Asia as swelling bad loans at home squeeze profit. Smith, who previously headed HSBC Holdings Plc’s Asian division, is aiming to increase the proportion of income derived from the continent to 20 percent and is bidding for Royal Bank of Scotland Group Plc’s Asian assets.

“I am delighted to have John Morschel succeed me as Chairman with the unanimous support of the Board,” Goode said in the statement. “I look forward to continuing to work with the excellent management team led by Mike Smith in realizing our vision to build a super regional bank.”

Morschel is currently a non-executive director of Singapore Telecommunications Ltd. and Tenix Pty Ltd. He was previously chairman of Rinker Group, Leighton Holdings Ltd., CSR Ltd. and Comalco Ltd., and a non-executive director of Rio Tinto Group. Eddington is a director of companies including Rio and News Corp. and a former chief executive officer of British Airways Plc.

Asian Stocks tend to rise in South Korea

2009-07-23T19:11:00.001-07:00

Asian stocks rose for a ninth day, giving the MSCI Asia Pacific Index its longest winning streak since 2004, as sales of existing U.S. homes climbed and South Korea’s economy grew at the fastest pace in almost six years.

Rio Tinto Group gained 2 percent in Sydney as commodity prices rallied yesterday. Murchison Metals Ltd. surged 13 percent after saying Chinese groups are interested in helping develop an iron-ore project. Toyota Motor Corp., which gets more than a half its profit from North America, rose 1.9 percent as the yen depreciated against the dollar. Samsung Electro- Mechanics Co., a South Korean electronic-parts maker, advanced 1.8 percent after a brokerage raised its share-price target.

“Global market sentiment continues to rise,” said Ben Potter, an analyst at IG Markets in Melbourne. “The collapse of the housing market started this whole crisis and its recovery is certainly needed for any sustained economic improvement.”

The MSCI Asia Pacific Index added 0.7 percent to 107.78 as of 10:09 a.m. in Tokyo, with five stocks advancing for each one that declined. The gauge has gained 9.9 percent in the past nine days, the longest winning streak since August 2004.

Australia’s S&P/ASX 200 Index dipped 1.1 percent. New Zealand’s NZX 50 Index added 1.6 percent, while South Korea’s Kospi Index added 0.5 percent.

Futures on the Standard & Poor’s 500 Index lost 0.4 percent. The gauge climbed 2.3 percent yesterday, as EBay Inc. and Ford Motor Co. posted better-than-estimated results. Sales of existing U.S. homes advanced 3.6 percent last month from May, surpassing the 1.5 percent gain estimated by economists.

The increased sales fanned speculation demand for resources will recover, lifting prices for metals and oil. A gauge of six metals in London rose for a ninth day, the longest winning streak since December 2005. Crude oil in New York jumped 2.7 percent yesterday to a level not seen in three weeks.

South Korea’s gross domestic product rose 2.3 percent from the first quarter, when the nation skirted a recession by growing 0.1 percent, the central bank said today in Seoul.

That compared with the median estimate of 2.2 percent in a Bloomberg survey and was the fastest since a 2.6 percent expansion in the last quarter of 2003. From a year earlier, GDP shrank 2.5 percent.

Qatar Scores Coup at Porsche Riding Family Feud to 17% VW Stake

2009-07-23T19:09:00.001-07:00

Qatar’s ruling emir, who toppled his father in a bloodless coup in 1995, has come out on top of another power struggle thousands of miles away in Germany, where the Porsche dynasty is losing control of the sports-car maker.

Porsche SE yesterday agreed to combine with Volkswagen AG after a four-year attempt to take over the larger German rival left Porsche paralyzed with debt. Qatar will own 17 percent of VW with options accumulated from Porsche, making the Gulf kingdom the third-largest investor in Europe’s biggest carmaker.

Qatar used its $63 billion sovereign wealth fund to give the world’s second-richest country behind Liechtenstein investment clout, snapping up stakes in established brands or troubled companies in need of cash. Four years after its inception, the fund has become the biggest shareholder in Barclays Plc, J. Sainsbury Plc and Credit Suisse AG.

“There is an incentive to invest in these known, luxury- sort of top brands,” said Rachel Ziemba, a senior analyst at New York’s RGE Monitor, which researches sovereign wealth funds. “Rather than investing in a whole number of companies that might be harder to keep track of, Qatar’s investment strategy is more akin to a private equity model.”

Hailed by Germany’s Manager Magazin as “The Saviors from the Orient,” Qatar Emir Sheikh Hamad bin Khalifa Al-Thani has transformed his country of about 1 million citizens into a center of education and research that include the Arabic television network Al Jazeera and local campuses of six U.S. universities.

Sandhurst Education

Born in 1952 and a graduate of the Royal Military Academy in Sandhurst in the U.K., the emir has opened up his country to embrace freedom of press and improved education, and Qatar hosted municipal elections in which women and men participated.

The emir’s wife, Sheikha Mozah bint Nasser Al Missned, heads the Qatar Foundation that fosters education and research. Qatar’s interest in German engineering partly stems from her personal preference for Porsche cars, German newspapers Frankfurter Allgemeine Zeitung have reported.

The sheikha wants to use Porsche’s engineering expertise to complement a science technology center that she helps oversee as chairman of the Qatar Foundation, she told Germany’s Focus magazine in June. She recently toured European countries including Germany and France to deepen ties. Spokespeople for the emir and the Qatari Investment Fund declined to comment.

German Engineering

Porsche sales in Qatar have more than tripled in three years to more than 600 units in the last 12 months, according to the company. Porsches typically adorn the entrances of luxury hotels or cruise down the six-lane cornice along the crescent- shaped seafront of Doha, the Qatari capital.

“This also reflects our fantastic business development in the whole region over the last couple of years,” Porsche spokesman Michael Baumann said in an e-mail. Porsche Chairman Wolfgang Porsche told workers at a gathering in Stuttgart, Germany today that Porsche will seek to preserve its independence and that Porsche’s “myth will never die.”

Qatar emerged as an investor after the carmaker’s unsuccessful bid for Volkswagen created a rift between CEO Wendelin Wiedeking and Wolfgang Porsche on the one side, and Volkswagen Chairman Ferdinand Piech on the other.

Wiedeking agreed to step down yesterday, paving the way to integrate Porsche’s car manufacturing into Volkswagen alongside brands such as Audi and Bentley. The Porsche SE holding company will remain Volkswagen’s biggest shareholder with about 51 percent of the shares, while the federal state of Lower Saxony will own 20 percent. Michael Macht, Porsche’s head of production, will succeed Wiedeking.

British Protectorate

“Porsche appears to be now firmly stuck in the mud unable to have any control over its destiny,” said Howard Wheeldon, a senior strategist at BGC Partners LP in London.

When Porsche was established in the 1930s, Qatar was an isolated British protectorate, without schools or a fully functioning hospital. The country, once dependent on its pearl industry, began exporting oil after World War II.

By the 1960s, Qatar’s network of paved roads included one to the west coast oil fields and another south to Qatar’s Mesaieed industrial center, said Vahe Halajian, managing director of sign maker Qatar Neon Light Co.

“Anywhere else you wanted to go, you had to have four- wheel drive,” said Halajian, a U.S. citizen who first visited Qatar in 1963 when his father opened the sign business in Doha. “I wouldn’t recommend driving a Porsche on the Qatar roads in the 60s.”

Petroleum Wealth

Gas exports have helped increase Qatar’s gross domestic product to $101 billion, or $101,000 for each of the about 1 million men, women and children on the thumb-shaped peninsula -- among the highest per-capita GDPs in the world.

The Gulf has become a key investor in the German car industry as cash dwindles amid the worst automotive market in decades. Abu Dhabi’s Aabar Investments PJSC bought 9.1 percent of Daimler AG for 1.95 billion euros in March to become the largest shareholder in the maker of Mercedes-Benz cars. Kuwait is its second-largest owner with 6.9 percent.

“Porsche has acquired the reputation of one of the most renowned and versatile providers of engineering services the world over,” Abdelali Haoudi, vice president of research for the Qatar Foundation, said in a July 21 e-mail. Porsche “is truly a remarkable and an outstanding piece of technology that Qatar as a whole can benefit from.”

‘Significant Role’

The sovereign wealth fund overseen by Prime Minister Sheikh Hamad bin Jassim bin Jaber Al-Thani was created in 2005 to spend Qatar’s surplus generated from petroleum exports. Smaller than neighboring Abu Dhabi’s $700 billion fund or Norway’s $350 billion oil fund, the Qatari fund’s strategy of taking large stakes may help the Gulf state become a more active shareholder.

“I see them as being investors that want to take a significant role in the management of the companies they are taking stakes in,” said Ziemba, the RGE Monitor analyst.

Qatar’s overtures haven’t always been welcome. In September 2007, the emirate bought 9.98 percent of Swedish stock-market operator OMX AB, threatening a bid by Nasdaq Stock Market Inc. and Borse Dubai for the exchange. OMX founder Olof Stenhammar said at the time that he didn’t know what Qatar wanted or understand its strategy. After forcing the other suitors to raise their price, Qatar left the battle and sold its holding.

Today, Qatar can rely on its status as the world’s biggest liquefied natural gas producer to fuel its investment ambitions, as other sovereign wealth funds retrench. Norway’s fund had its worst return in its 18-year history in the third quarter, and Abu Dhabi’s fund also lost in value, Ziemba estimates.

For Qatar, there’s no sign the development will slow, as the kingdom plans to more than double output of liquefied natural gas by the end of 2010.

Qatar has “a favorable cash flow position because of the development of the gas fields,” said Brad Setser, an economist at the New York-based Council on Foreign Relations, an independent institute that studies geopolitics. “It’s in a position to continue to invest where some other funds are not.”

Japanese export decreases sharply

2009-07-22T19:42:00.000-07:00

Japan’s exports fell in June at the slowest pace this year as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months and setting the stage for an economic recovery.

Shipments abroad declined 35.7 percent from a year earlier, after dropping 40.9 percent in May, the Finance Ministry said today in Tokyo. The surplus widened to 508 billion yen ($5.4 billion).

Faster growth in China is propping up sales for Japanese manufacturers including Komatsu Ltd. and Nissan Motor Co. The recovery in shipments from the record collapse spurred by the financial crisis probably helped the economy grow for the first time in more than a year last quarter.

“There’s no doubt China has been a driving force for Japan’s exports,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Manufacturers will probably continue to increase production amid the improvement in exports, and that’s good for the economic outlook.”

The Bank of Japan last week raised its assessment of the economy for a third month, citing rebounds in trade and factory production. “Economic conditions have stopped worsening,” the central bank said.

The yen traded at 93.69 per dollar at 10:08 a.m. in Tokyo from 93.59 before the report was published. The Nikkei 225 Stock Average fell 0.1 percent to 9,711.14.

Economists predicted exports would decrease 35.1 percent. From a month earlier, shipments rose 1.1 percent.

Economy Grows

Analysts surveyed by Bloomberg predict the world’s second- largest economy expanded an annualized 2.4 percent in the three months ended June 30, growing for the first time in five quarters. Gross domestic product shrank a record 14.2 percent in the previous three months.

Demand picked up in all regions. Exports to China fell 23.7 percent last month from a year earlier, the smallest drop since October. Shipments to the U.S. declined 37.6 percent, the least since December, and sales to Europe slid 41.4 percent, also the best this year.

The International Monetary Fund said this month the global economic rebound next year will be stronger than it predicted in April, raising its forecast for world growth to 2.5 percent for 2010 from an April estimate of 1.9 percent.

China, which grew 7.9 percent last quarter, has surpassed the U.S. as Japan’s biggest export customer. Government subsidies to encourage consumer spending and investment in building projects have benefited Japanese manufacturers.

Most Important

“The bottom line is that China’s strong growth will continue to drive Japan’s exports,” said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. “Exports are the single most important factor for the economic outlook.”

Tokyo-based Komatsu, the world’s second-biggest maker of earthmovers, said last month its sales in China probably beat expectations in the quarter ended June 30. The company expects the market to grow to about 15 percent of total sales this business year, compared with 10 percent in 2008.

Nissan, whose Chinese sales rose 18 percent in the first five months of the year, will have to increase shipments of engines and transmissions from Japan to feed higher output at its factories in Guangzhou and Hubei, according to Tokyo-based spokeswoman Pauline Kee.

Japan will still need demand to pick up from the U.S. and elsewhere because about half of Japan’s exports to China are parts and materials used to make products that are re-exported, according to Nikko Citigroup’s Murashima.

“About half of Japan’s export to China eventually go to other industrial countries after assembly,” Murashima said. “So we’re a bit cautious about connecting the strength in Japan’s exports to China to resilience in total exports and the overall economy.”

The central bank will release a report later today showing trade volumes on a month-on-month basis, data which correlates closely with the export component of GDP, according to London- based Capital Economics Ltd.

Bashir claims that the terror will not end up to Indonesia to respect the Shariah

2009-07-22T19:39:00.000-07:00

Indonesian police released sketches of the suspected suicide bombers who attacked two luxury hotels in Jakarta, as a radical Muslim cleric said terrorism won’t end until the government respects the supremacy of Islamic law.

Authorities are struggling to identify the bombers, six days after the attacks on the JW Marriott and Ritz Carlton and yesterday appealed to the public for help. Nine people were killed in the bombings.

The Marriot bombing suspect was described as a male aged between 16 and 17, while the man who attacked the Ritz was said to be between 20 and 40 years old. Police say the bombings may be linked to the Southeast Asian terrorist group Jemaah Islamiyah, which is blamed for killing more than 280 people in a six-year bombing campaign in Indonesia.

“The main cause of this disaster is the Indonesian government,” the Australian newspaper cited Abu Bakar Bashir, JI’s alleged spiritual leader, as saying yesterday. “This will not end until the government follows the right path.”

Bashir, who lives in the grounds of an Islamic school in Java, refused to condemn the attacks and said violence was justified in the fight against non-Muslims, the newspaper said.

He endorsed the work of Noordin Mohammad Top, a wanted terrorist allegedly linked to the bombings, saying he “fights to defend Islam,” according to the report.

Bashir denies being JI’s spiritual head and his conviction for involvement in the 2002 Bali bombings that left 202 people dead was overturned by the Supreme Court in 2006. He continues to call for jihad, or holy war, against the West.

Islamic Extremism

Some terrorism analysts say the government must crack down on Bashir and other clerics in order to uproot Islamic extremism in the nation of 248 million people, the world’s most populous Muslim country.

“If Indonesia is serious about fighting JI they must arrest and retry” Bashir for “preaching hatred,” Rohan Gunaratna, head of the Singapore-based International Centre for Political Violence and Terrorism Research, said this week.

Police carried out DNA tests on the remains of the hotel bombers in an effort to identify them, police spokesman Nanan Soekarna said yesterday. The results showed they didn’t belong to men called Nur Hasbi and Ibrahim, who were identified in local media reports as the suspected bombers.

Soekarna declined to comment on media reports that Noordin’s wife was arrested by counterterrorism police in Central Java.

Suspected Mastermind

Noordin is the suspected mastermind of the 2002 Bali attacks and was allegedly involved in the 2003 bombing at the same Marriott hotel in Jakarta that killed 12 people, a 2004 blast outside the Australian Embassy in Jakarta that killed at least nine, and another attack in Bali in 2005 when three suicide bombers killed themselves and 20 other people.

He leads a JI splinter organization, and after the Bali attack in 2005 identified himself as the head of a group called al-Qaeda for Southeast Asia, according to the Brussels-based International Crisis Group.

The U.S. State Department’s Rewards for Justice Program refers to Noordin as one of the most dangerous members of JI, saying he is “believed to be a top recruiter, strategist and fundraiser.”

The near-simultaneous bombings on the hotels were the first terrorist attacks in Indonesia in almost four years. The attackers killed themselves and wounded about 50. Three Australians, one New Zealander and one Indonesian were among the dead and police are carrying out tests to confirm a Dutch couple was killed.

Hong Kong Bank intends to Buy Back Lehman

2009-07-22T19:36:00.000-07:00

Hong Kong banks offered to pay at least 60 cents on the dollar to investors in notes linked to failed Lehman Brothers Holdings Inc., a move aimed at ending a 10-month dispute that sparked street protests across the city. Some investors said that’s not enough.

The total compensation, announced yesterday by the Hong Kong Monetary Authority and the Securities and Futures Commission at a televised press conference, would amount to about HK$6.3 billion ($813 million).

That’s “not reasonable,” Peter Chan, chairman of the Allied Victims of Lehman Products, said in a phone interview. “I can’t agree, and won’t accept the settlement plan as it’s not acceptable and fair to us. How can the SFC let the banks get away with it so easily?”

Banks that sold an estimated $1.8 billion of the so-called Lehman minibonds are seeking to end a controversy that led to protests outside lenders’ offices and forced them to change the way they sell investment products to individuals. Hong Kong’s government said the settlement is fair and pledged to strengthen investor protection.

“This is a reasonable compromise,” said Peter Yuen, a partner at law firm Freshfields in Hong Kong. “To go for 100 percent compensation will be a long fought battle and probably unlikely to beat the current offer.” Freshfields represented one of the banks in the dispute that it declined to identify.

Public Scolding

Hong Kong is an example of how the financial devastation resulting from Lehman’s Sept. 15 bankruptcy rippled across the globe. As the securities plunged and allegations of mis-selling mounted, citizens who lost their savings took to the streets and lawmakers scolded the heads of the city’s central bank and securities watchdog in public.

The minibond debacle “exposes the problems with both the regulations and banks’ selling methods,” Peter Wong, head of the Hong Kong unit of HSBC Holdings Plc, said in a July 13 interview. HSBC, the biggest bank in Hong Kong by branches, and its local subsidiary, Hang Seng Bank Ltd., didn’t sell the notes.

The banks will repurchase the notes in two stages, said Securities and Futures Commission Chief Executive Martin Wheatley.

Note buyers will receive at least 60 percent of the principal, Wheatley said. About 29,000 minibond investors are eligible for compensation. Banks’ losses related to the refunds are “difficult to estimate,” Choi said.

Recovering Funds

Beyond the 60 percent floor, refunds will depend on how much collateral banks can collect from Lehman’s liquidators. If banks recover the full collateral, minibond investors will be fully compensated. Banks will use fees earned from the note sales to fund the recovery effort.

“If the agreement is accepted, the vast majority of investors will be able to get back 70 percent or more of their original investments,” Hong Kong Financial Secretary John Tsang said in a statement. “The agreement will put an end to more than 10 months of distress for investors.”

Lehman’s bankruptcy caused the value of the notes to collapse, even though they were tied to the debt of other companies that remained viable. The minibonds were distributed by local brokerage Sun Hung Kai Financial Ltd. and sold by 19 Hong Kong banks.

The inquiry into the alleged mis-selling prompted the Hong Kong Monetary Authority to propose that banks physically separate deposit-taking and investment businesses at their branches and tape all conversations related to sales of investment products.

Elderly, Poorly Educated

The notes, guaranteed by Lehman and linked to the debt of major Hong Kong companies like Hutchison Whampoa Ltd. and Sun Hung Kai Properties Ltd., were sold to more than 40,000 investors. Among buyers were elderly and poorly educated people as well as mentally ill individuals, according to an investigation by the city’s central bank made public by lawmakers on April 28.

Buyers of the Lehman minibonds were required to invest at least $5,000, compared with $100,000 for most bonds sold to institutions, making them popular among retail investors.

Sun Hung Kai Financial in February agreed to fully repay minibond buyers, putting pressure on other sellers to follow suit. Sun Hung Kai paid about HK$86 million and KGI Asia Ltd., the local unit of the Taiwan-based brokerage, spent about HK$1.5 million to repurchase the notes.

Daily Protests

Backed by lawmakers and volunteer groups, investors have staged almost daily protests since October, demanding refunds.

At a July 1 march, about 2,000 protesters wore black T- shirts and carried placards accusing banks that distributed the products of fraud and betraying public trust. Some tried to cross a police barrier to break into the Bank of China building in the city’s Central business district.

The scandal touched some of the city’s most senior financial officials.

Joseph Yam, the outgoing head of the central bank, has testified six times in front of a special committee set up by the city’s parliament, and lawmakers accused his organization of negligence. Wheatley testified four times.

On July 3, local newspapers including Sing Tao Daily reported that 16 Hong Kong banks had sent a formal proposal to the SFC offering investors compensation of 60 percent to 70 percent of face value.

Quizzed by lawmakers about the proposals at the time, Wheatley said partial compensation could be unfair to some investors.

“When you have a negotiation, there’s bound to be posturing from both sides,” Regina Ip, an independent legislator who was involved in brokering the settlement, said in a July 16 interview. “At the end of the day if you want to get to yes, there has to be give and take.”

Medarex Sold for $2.4 Billion

2009-07-22T19:33:00.000-07:00

Bristol-Myers Squibb Co. agreed to buy the claim Medarex Inc. approximately $ 2.4 billion to increase investment in cancer care product.

Bristol will pay $16 a share, a 90 percent premium over today’s closing price of $8.40 a share for Princeton, New Jersey-based Medarex, the companies said today in a statement. Medarex has about $300 million in cash and securities that reduces the cost of the acquisition to about $2.1 billion, Bristol-Myers said. Both boards agreed to the deal unanimously, according to the statement.

Bristol-Myers Chief Executive Officer James M. Cornelius has been eliminating jobs and outsourcing to reduce costs by $2.5 billion in the next three years. The New York-based company has been making acquisitions and forming partnerships to help offset revenue Bristol-Myers will lose when generic copies of Plavix, its top-selling medicine, come on the market in 2012.

“Medarex’s technology platform, people and pipeline provide a strong component to our company’s biologics strategy, specifically immuno-oncology,” Cornelius said in the statement. “This acquisition is another important step in our biopharma transformation.”

JPMorgan Chase is advising Bristol-Myers, and Goldman Sachs is working with Medarex.

Medarex gained $6.75 to $15.15 after extending trading on the Nasdaq Stock Market resumed at 7:45 p.m. New York time.

Skin Cancer

Bristol-Myers will gain full ownership of ipilimumab, the experimental drug for metastatic melanoma that the companies were working on together. Ipilimumab is in the final of three stages of testing typically required for regulatory approval. The companies are also studying the drug in lung cancer and certain types of prostate cancer.

Last month, Medarex shares jumped 13 percent after the Mayo Clinic said three prostate cancer patients who received ipilimumab are now cancer-free. Doctors reported the drug, in combination with other treatments, helped kill prostate cancer cells and shrink the tumors in the patients, allowing surgery.

Bristol-Myers will gain rights to seven experimental antibodies owned by Medarex and stakes in three more drugs shared by the company, according to the statement. It will also acquire Medarex’s drug-development technology used to find new ways to treat cancer and immunology disorders.

EBay plans to Paypal business for greater profits

2009-07-22T19:26:00.000-07:00

EBay made his name as a shopping site on the web. But now, such as e-commerce business slows, he hopes to become the biggest online payment provider on the Web service through PayPal.

If John J. Donahoe, eBay’s chief executive, has his way, PayPal will soon become the way that people pay for everything they buy on the Web or on their mobile phones. On Thursday, eBay is scheduled to announce its plans to open the PayPal platform to developers who want to build applications that use PayPal’s technology.

EBay’s payments business, which consists of PayPal and Bill Me Later, has become the company’s growth engine as e-commerce sales decline.

On Wednesday, eBay reported that net income in the second quarter, ended June 30, fell 29 percent to $327 million, or 25 cents a share, from $460 million, or 35 cents a share, in the same period a year ago. Revenue fell 4 percent, to $2.1 billion from $2.2 billion.

But eBay’s online payments business posted $669 million in revenue, an 11 percent jump.

In an interview, Mr. Donahoe said that opening up PayPal platform could transform the online payments marketplace. “No other global payments platform, online or offline, has been able to open up to third-party developers. And the effect on PayPal will be very comparable to the effect on the iPhone — we’ll see the exponential innovation and growth that comes with it as you release the creativity of those developers.”

For example, Research in Motion, which has been testing the new offering during a pilot period, is using PayPal technology to collect payments from BlackBerry users who buy applications in its app store. And Twitpay, a start-up, uses PayPal’s technology to run its service that allows people to send money using Twitter.

Meanwhile, eBay’s traditional marketplace division continues to struggle. Shoppers have reduced spending during the recession, and eBay has been hurt as other e-commerce sites, notably Amazon, take market share. Revenue from the marketplaces segment, which includes the main eBay site and sites like Shopping.com, fell 14 percent, to $1.26 billion from $1.46 billion a year ago.

Still, analysts said there were signs that eBay’s marketplace business was stabilizing. The 10 percent decline in gross merchandise volume was an improvement from the 20 percent drop last quarter, and the number of items sold on eBay actually increased 3 percent.

Nasdaq up on Apple, Starbucks

2009-07-22T19:19:00.000-07:00

Nasdaq shares rose on Wednesday, a result of the benefits of Apple Inc and Starbucks, while the banks reap the bank is also disappointing that the weight of energy market.

The Dow Jones industrial average declined, halting a seven-day winning streak, as investors sold some of the market's recent winners to take profits, and the S&P 500 index ended near break-even.

Apple, up 3.5 percent at $156.74, gave the top boost to the Nasdaq a day after the iPod and iPhone maker reported a quarterly profit that beat forecasts. Starbucks, up 18.4 percent at $17.39, ranked as the Nasdaq's second-biggest gainer, after its quarterly profit also beat estimates.

Their advance helped extend the Nasdaq's winning streak -- now the longest such stretch since September 1996. Technology bellwether Apple and coffee chain Starbucks are among stocks that investors use as barometers of consumer spending trends.

After the bell, Internet auctioneer eBay Inc posted a quarterly profit and revenue that beat Wall Street's forecasts. Its stock shot up more than 3 percent in extended-hours trading from a Nasdaq close at $19.45.

"Today's action is a relative positive in that you had some earnings come out that were good, but we are actually near the top of the range," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati.

"There's a kind of a pause until we get more news on both the earnings and the economic front."

The Dow Jones industrial average shed 34.68 points, or 0.39 percent, to 8,881.26. The Standard & Poor's 500 Index dipped just 0.51 of a point, or 0.05 percent, to 954.07. But the Nasdaq Composite Index gained 10.18 points, or 0.53 percent, to 1,926.38.

The S&P 500 briefly hit a 2009 intraday high of 959.83.

For the year, the Nasdaq is up 22 percent.

WELLS FARGO OFF TRACK

But both the S&P and the Dow industrials were reined in by

disappointing results from banks, including Wells Fargo & Co slipped 0.2 percent.

Bank of New York Mellon slid 6.2 percent to $27.32 after the world's largest trust bank posted a 43 percent drop in second-quarter profit.

Profit-taking in some of the market's recent winners, including Coca-Cola Co, down 2.4 percent at $49.13, also dragged on the broader market.

VMWare shares corrected significant

2009-07-22T19:10:00.000-07:00

VMware Inc.'s second-quarter profit dropped 38% as sales of virtualization software to large corporate customers remained challenging.

Shares in VMware, which makes software designed to help customers improve computer efficiency by allowing multiple operating systems to work on the same processor, spiked Wednesday on relief that the company beat its quarterly guidance after a challenging first quarter.

By 7 p.m. EST, VMware shares were trading up almost 7% at $33.48, in the after market, after closing at $31.25.

Like many technology companies, VMware is shoring up earnings through cost management, despite falling or flat revenues.

But concerns remain that the Palo Alto, Calif.-based company, one of the investor darlings of 2008 after a stellar IPO in 2007, will have difficulty getting revenue growth back to the super-charged levels of previous years.

"It's not clear whether the market's got more saturated or whether big companies are simply taking a pause," Joel Fishbein, an analyst with Lazard Capital, said, but its clear that much of the "low hanging fruit" in the virtualization market has already been gathered. Fishbein believes the company's stock, which has rallied 15% since the end of June, is overvalued and he currently has a sell rating.

VMware dominates the market in virtualization technology, but growing competition from Microsoft Corp., Citrix Systems Inc. and the Linux community has remained a concern for VMware.

VMware, majority-owned by EMC Corp., reported earnings of $32.5 million, or 8 cents a share, down from $52.3 million, or 13 cents a share, a year ago. Excluding stock-based compensation and other items, earnings fell to 20 cents from 23 cents.

Revenue slid 0.1%, to $455.7 million, as U.S. revenue decreased 3% and international revenue grew 3%.

In April, the company said it expected revenue to be "flat or even down."

Wall Street was looking for per-share earnings of 19 cents on revenue of $452 million, or down 1%.

Analysts have been skeptical about the growth prospects offered by a flagship new product, VSphere. The launch and possible disruption to the sales channel were cited by the company when it gave revenue guidance for the second quarter that was lower than expectations.

Tod Nielsen, VMware's Chief Operating Officer, said that larger customers were still spending money with VMware, but that there were fewer large deals than in previous quarters. Enterprise license deals -- large volume deals -- made up 15% of total bookings in the second quarter, compared with 20% in the comparable quarter.

Revenue from software license deals fell 20%, to $228 million, while revenue from services, which include subscriptions, consulting and information technology support, increased 32%, to $227.7 million. VMware's services segment has picked up a larger share of total revenue in recent quarters.

Operating margins slumped to 8.3% from 13.4%.

Looking ahead, the company projected third-quarter revenue of $465 million to $480 million. Analysts polled by Thomson Reuters expected $471 million. The company also expects full-year revenue to grow 1% to 3% from 2008, compared with analysts' view of $1.91 billion, or up 2%

OPEC Set to Maintain Oil Quotas in Bet That Demand Will Recover

2009-05-27T18:53:00.001-07:00

OPEC is likely to leave production quotas unchanged at today’s meeting in Vienna in a bet that demand will recover, pushing prices as high as $75 a barrel by year’s end, ministers said.

Officials from five of the 12 members of the Organization of Petroleum Exporting Countries said yesterday in Vienna they supported leaving targets unchanged, as the group did at its last meeting in March. They will push instead for better compliance with targets set late last year.

“There is no need to cut production,” Saudi Arabian Oil Minister Ali al-Naimi told reporters yesterday in Vienna. OPEC should “stay the course” because are there signs that fuel demand in rising in Asia, said al-Naimi, who represents OPEC’s biggest exporter and most influential member.

Crude oil for July delivery rose 1.6 percent to $63.43 a barrel at yesterday’s settlement on the New York Mercantile Exchange. Futures touched $63.82, the highest since Nov. 10, and prices are up 42 percent this year. Oil rose above its 200-day moving average for the first time since September, a signal that prices will rally further, according to technical traders.

Some members of OPEC, which produces about 40 percent of the world’s crude, are still wary of this year’s rebound in oil prices. Al-Naimi acknowledged that he has yet to see signs that demand for oil is increasing in Europe or the U.S., the world’s biggest oil consumer.

Oil prices are higher than fundamentals would indicate, Algerian Minister Chakib Khelil told reporters yesterday in Vienna. United Arab Emirates Oil Minister Mohamed al-Hamli, arriving for the OPEC meeting, said the market was “certainly” oversupplied.

Swollen Inventories

U.S. crude oil inventories rose to the highest level in two decades earlier this month, while the International Energy Agency says global demand is falling the most since 1981.

Even so, Iranian Oil Minister Gholamhossein Nozari, who represents the group’s second-biggest producer, said OPEC is unlikely to change its quota at today’s meeting.

OPEC members need to complete production cutbacks because oil prices haven’t yet reached the desired level of $70 to $75 a barrel, OPEC President Jose Maria Botelho de Vasconcelos said.

While price gains in recent days are “positive signs,” they don’t provide “absolute tranquility” for oil-producing nations, Botelho de Vasconcelos, who also is Angola’s oil minister, said from the airport yesterday.

Last Year’s Target

OPEC has yet to complete production cuts totaling 4.2 million barrels a day that the group agreed to late last year. The production ceiling is 24.845 million barrels a day for 11 of its members. Iraq has no quota.

Those 11 nations pumped 25.81 million barrels a day in April, an increase of about 225,000 from March and the first increase in nine months, according to OPEC’s latest monthly report. That means the group has completed 77 percent of its cuts, down from a revised 82 percent for March.

Venezuela is working to clarify its OPEC production quota after an audit of the country’s exports showed output is higher than the group estimated, Oil and Energy Minister Rafael Ramirez said yesterday in Vienna.

Saudi Arabia is the only member so far to have curbed production to below its national quota. Angola, Venezuela and some other OPEC members have complained that the group’s method of measuring cuts by using independent production estimates is inaccurate.

‘Stillborn’

“Lagging quota compliance by the non-Gulf Arab states -- hovering around 50 percent - has hamstrung any real discussion of a potential cut to accelerate the drawdown of the glut,” according to a PFC Energy report provided yesterday by analyst David Kirsch, who is in Vienna. “Purported requests by Angola to revise or suspend its quota, as well as moves by Venezuela to certify a higher production figure, leave any proposal for further output restraint effectively stillborn.”

Twenty five out of 27 analysts surveyed by Bloomberg last week said they expected OPEC to leave existing quotas unchanged at this week’s Vienna meeting. The Saudi minister said he doesn’t expect OPEC to hold another meeting before September.

Al-Naimi said he is “confident” oil prices will return to about $75 a barrel by this year’s third or fourth quarter. “If demand picks up, then why do anything?”

Oil is likely to rise to $80 as the growth trend in fuel demand outpaces supply, according to Paul Horsnell, head of Barclays Capital commodities research.

“It’s very tempting for it to be written that there was a commodities boom and now there’s a bust and now we’re back where we were,” he said yesterday in an interview. “We’re definitely not back to where we were.”

GM Bankruptcy ‘Inevitable’ as Bondholders Spurn Offer

2009-05-27T18:49:00.000-07:00

A General Motors Corp. bankruptcy filing became almost certain after the 100-year-old automaker failed to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt.

The debt-for-equity swap offer by GM, the world’s largest automaker until its 77-year reign ended last year, failed to win the required 90 percent approval of bondholders by the time it expired last night. The proposal was part of an effort by the Detroit-based company to cut its debt by $44 billion before a June 1 deadline in order to qualify for more bailout loans.

“The expiration of General Motors’ exchange offer makes a bankruptcy filing inevitable,” said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm that isn’t involved in the GM negotiations.

The formal decision on whether to file for bankruptcy protection is “up to the GM board to decide and that meeting is later in the week,” a GM spokeswoman, Julie Gibson, said today, declining to disclose the timing of the session.

GM, following Chrysler LLC into bankruptcy, has said it would use a court-protected reorganization to start a new company with just its viable assets, such as its Cadillac and Chevrolet brands.

The automaker, a victim of tumbling car sales and higher fuel prices, has said it will stop making Pontiac models and sell its Hummer and Saturn brands, while dropping as many as 2,400 U.S. dealers by the end of 2010. Its Saab Automobile unit is under the protection of a Swedish bankruptcy court, and its Opel unit in Germany is up for sale.

Bankruptcy Financing

The U.S. plans to fund GM’s trip through bankruptcy with financing expected to be closer to $30 billion than $50 billion, a person familiar with the negotiations said. The amount of so- called debtor-in-possession financing is a moving target, as are the equity stakes to be held by the U.S. and Canadian governments, the person said.

GM’s equity would be majority-owned by the U.S. Treasury once the automaker’s restructuring plan is in place, said another person familiar with the discussions, who wouldn’t estimate the government’s ownership percentage in the company.

The U.S. and Canadian governments may have equity ownership of as much as 69 percent. GM has proposed giving bondholders a 10 percent stake in the reorganized company and current shareholders 1 percent. GM also has agreed to provide as much as 20 percent of shares to a health-care trust fund for union retirees.

Billions in Loans

GM has taken $19.4 billion in U.S. Treasury loans and was seeking billions more. To qualify for the money, it had to meet government-imposed tests. It succeeded in reducing $20.4 billion owed to the union’s fund, which consented to take 17.5 percent of the new company’s shares, plus preferred stock and debt.

GM originally planned to give the trust as much as 39 percent of the new equity, with 50 percent going to the U.S., its largest lender, and 1 percent for existing shareholders.

The offer to bondholders, which would have given the investors 10 percent of the new company, was designed to meet a second U.S. government test for more bailout loans. The original government loan terms called for GM to get bondholders to give up two-thirds of their debt for new equity.

“It’s no surprise at all that a deal that was as unattractive as this one would be soundly rejected,” said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee.

‘Imminent’

Bankruptcy is “imminent,” said Hastings, who urged his clients to refuse the exchange offer.

President Barack Obama’s spokesman said the administration’s automotive task force will continue to press for an accord among GM stakeholders until the June 1 deadline to qualify for more bailout loans.

“The deadline is near but it’s not passed yet,” press secretary Robert Gibbs said. “The team continues to work on getting all the stakeholders involved.”

GM’s restructuring may be more difficult than Chrysler’s because GM has thousands of bondholders including individual retirees, while Chrysler was negotiating with a smaller group of institutional lenders, according to Christopher Garman, chief executive officer of debt research firm Garman Research LLC in Orinda, California. Chrysler listed more than 100 secured lenders in bankruptcy court documents.

‘More Complicated’

“GM is certainly more complicated,” Garman said. “In a debt restructuring, it’s a lot like herding cats and the more cats there are the more difficult it is. GM does have a lot of individual holders and traditionally the more concentrated holdings are, the easier it is to achieve some sort of agreed- upon plan.”

GM was founded in 1908 by William “Billy” Durant, who bought more than 20 car companies to create it. By 1962, the automaker accounted for 51 percent of the U.S. vehicle market, the peak of its dominance.

GM sold 8.35 million cars worldwide in 2008, losing its place as the No. 1 automaker to Toyota Motor Corp. as customers opted for the Japanese carmaker’s fuel-efficient Corolla and Camry brands instead of GM’s light trucks and Hummers.

North American sales were $86.2 billion in 2008, compared with $34.4 billion in Europe, $20.3 billion in Latin America, Africa and the Middle East, and $17.8 billion in the Asia Pacific region, according to a regulatory filing.

Dow Ouster

GM will be removed from the Dow Jones Industrial Average should it file for bankruptcy, according to John Prestbo, who helps oversee the stock-market measure. The effect will be minimal following GM’s 97 percent plunge on the New York Stock Exchange since October 2007.

The automaker represents 0.13 percent of the Dow, the least among 30 companies in the 113-year-old gauge. Based on yesterday’s close of 8,473.49 for the Dow, GM’s ouster would push it down by 11 points.

GM shares fell 29 cents to $1.15 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has lost 64 percent this year.

GM’s $3 billion of 8.375 percent bonds due July 2033 decline 0.63 cent, or 8 percent, to 7.13 cents on the dollar to yield 115 percent as of 3:14 p.m.

Any significant market impact from the filing, which is set to occur by June 1, is unlikely, said Hastings, the Morgan Keegan analyst.

“It’s largely baked in,” he said. “Long-term GM bonds are trading at pennies on the dollar in anticipation of the filing and have been there for a while. The broader market may react to the headline. It’s like watching a train wreck in a horror film: You see it coming down the tracks. There might be an initial negative reaction but it’s pretty well anticipated.”

TiVo Posts Loss as Its Growth Slows

2009-05-27T18:45:00.000-07:00

TiVo, the maker of digital video recorders, posted its second straight quarterly loss on Wednesday, but it was smaller than expected as the company reined in costs to offset sliding revenue and slowing user growth.

The company said it swung to a net loss of $4.1 million, or 4 cents a share, from a profit of $3.6 million, or 4 cents a share, a year earlier.

Revenue in the period, which ended April 30 and was the first quarter of TiVo’s fiscal year, fell 9 percent, to $54.9 million.

TiVo added 37,000 direct subscriptions in the quarter, down from 48,000 a year earlier.

Over all, direct subscriptions ended the quarter at 1.6 million, with total subscriptions of 3.2 million when those through other companies are included.

TiVo, based in Alviso, Calif., posted its results after the close of market trading. After hours, its stock fell 20 cents, to $6.78 a share.

Home Prices in U.S. Drop Most on Record in Quarter

2009-05-12T09:24:00.000-07:00

Home prices in the U.S. dropped the most on record in the first quarter from a year earlier as banks sold seized homes and foreclosures in California and Florida dominated sales.

The median price fell 14 percent to $169,000, the National Association of Realtors said today. Prices dropped in 134 of 152 metropolitan areas, with the deepest declines in Cape Coral-Ft. Myers, Florida, and the San Francisco and San Jose areas.

Distressed sales increased transactions in 17 states from the fourth quarter as speculators and first-time buyers purchased bank-owned properties. Such homes typically sold for 20 percent less than others, the NAR said today. The inventory of previously owned homes on the market dropped to 3.7 million in March from 3.8 million a month earlier, according to NAR data. The number of new homes for sale fell to 311,000, the lowest since January 2002, according to the Commerce Department.

“We are very much in a bifurcated market with sharp differences between foreclosures and short sales on one hand, and traditional homes on the other,” Lawrence Yun, the NAR’s chief economist, said in a statement.

Total existing home sales fell 6.8 percent from a year earlier to a seasonally adjusted annual rate of 4.59 million units, the group said. Sales were down 3.2 percent from the fourth quarter. The figures include single family homes and condominiums and co-ops.

‘Split Market’

Some areas showed “dramatic” drops in home prices, Yun said.

“In areas with the biggest price declines, we also see much higher levels of distressed sales which are distorting the data,” he said.

The steepest price decline was in Cape Coral-Fort Myers, down 59 percent from a year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next biggest decreases were Akron, Ohio, with a 48 percent decline, San Francisco, down 43 percent, and San Jose, California, with a 42 percent drop.

The largest sales gain from a year ago was in Nevada, up 117 percent, followed by California which rose 81 percent, Arizona, up 50 percent, and Florida with a 25 percent increase.

Those four states accounted for the 26 highest foreclosure rates in the first quarter among U.S. cities with a population of 200,000 or more, according to RealtyTrac Inc., an Irvine, California-based seller of real estate data.

Slowing Declines

While the quarterly drop in prices set a record, the declines slowed in each of the three months. The U.S. median home price dropped 12 percent in March compared with a year earlier, according to NAR. That was slower than the 14 percent decline in February and the 18 percent slide in January.

U.S. banks held $26.6 billion of repossessed real estate at the end of 2008, more than doubling from a year earlier, according to the Federal Deposit Insurance Corp. in Washington. The banking industry lost $26.2 billion in the fourth quarter, the largest loss in FDIC records.

The average U.S. rate for a 30-year fixed mortgage was 4.84 percent last week, down from 6.05 percent a year earlier, according to mortgage buyer Freddie Mac. The rate fell to a record low of 4.78 percent last month.

On an annual basis, the fixed rate will probably average 5 percent this year and 5.3 percent in 2010, according to a forecast posted on NAR’s Web site. Last year, the rate was 6.1 percent.

Sales of existing homes likely will reach 4.97 million in 2009, up from last 4.91 million year, according to the Realtors’ forecast.

Bank of America Said to Sell Stake in Chinese Bank

2009-05-12T07:29:00.000-07:00

The Bank of America Corporation, under pressure to raise additional cash, is selling a 5.8 percent stake in the China Construction Bank Corporation for about $7 billion, a person briefed on the sale said Tuesday.

The sale of the stake is Bank of America’s second as it tries to shore up its finances — it raised $2.83 billion in January by selling more than 5.62 billion Construction Bank shares.

The person briefed on the sale said the deal was almost complete but that some details remained to be finalized. The sale, the person said, is a private placement of about $7 billion, which is the amount of China Construction Bank that Bank of America became allowed to sell last week.

According to media reports, the buyers include a unit of China Life Insurance Company, the Singapore state investment group Temasek Holdings, and China’s Hopu Investment Management Company. A person briefed on the deal said, however, that the group of buyers remained fluid.

After the sale, Bank of America will still own a stake in the Chinese bank.

A Bank of America spokesman declined to comment, but in a statement, the bank said that it “intends to remain a long-term shareholder and strategic partner with China Construction Bank.” A Temasek representative said that “It is inappropriate for us to comment on unsourced reports.”

In the results of “stress tests” released by federal regulators last week, Bank of America was judged to be one of the weaker banks and ordered to raise an additional $34.9 billion. The stress tests were aimed at estimating how much each bank would lose if the economic downturn proved even deeper than expected. But regulators gave the banks a break by letting them bolster their capital with unusually strong first-quarter profits and also by letting them predict modest profits even if the economy again turns sour.

Bank of America is trying to fill its $34 billion hole by selling assets and by raising new common stock. On Friday, the bank started running a continuous stock sale, which will sell 1.25 billion shares over time. The bank’s stock has been trading around $13, and at that price, that number of shares would total to more than $16 billion.

The bank also believes it can raise $7 billion in capital simply from its own earnings in the next two quarters. And the bank may offer to exchange some publicly held preferred shares into common in late May.

At the root of the bank’s plan is a desire to avoid using money from the government to fill its capital hole. The bank has $45 billion in taxpayer funds, but it would like to return that money and not use it for the common stock because that would make the government a large shareholder.

“Our game plan is to get the government out of our bank as quickly as possible,” said Kenneth D. Lewis, the bank’s chief executive, in an investor call Mr. Lewis said he wanted to get away from “the threat of the government operating your company.”

Gold Stays Above $900 After Late Retreat

2009-05-05T19:17:00.000-07:00

Gold futures hit their highest level in more than a week, with initial weakness in the dollar and inflation expectations helping to lift prices.

Lightly traded gold for May delivery rose $2.10, or 0.2%, to $903.70 a troy ounce on the Comex division of the New York Mercantile Exchange, while most-active June rose $2.10 to $904.30.

Gold gave up more than $10 of its early gain on what Craig Ross, vice president with ApexFutures.com, described as late-day profit-taking. Lind-Waldock senior market strategist Daniel Pavilonis also pointed to a recovery in the dollar from several-week lows.

Earlier in the session, June gold hit its highest level since April 27. "The dollar is probably the prime reason," said Bart Melek, global commodity strategist with BMO Capital Markets.

Early in the session, the euro hit its strongest level against the dollar since April 6. But the greenback later recovered.

Jon Nadler, analyst with Kitco Bullion Dealers, tied some of gold's early gains to apprehension ahead of the planned Thursday release of stress-test results for big U.S. banks.

Analysts also cited anticipation of inflation, particularly due to improving U.S. economic data and the stock-market rally since early March. Any rising price pressures as the economy recovers may be exacerbated by government stimulus and central-bank monetary-policy moves to revive the economy, analysts said.

"When there is that much money out there, it has to cause inflation at some point," Mr. Pavilonis said.

Gold's ability to hold up as stocks rise may be due to inflation worries, some observers said. BMO's Mr. Melek said there hasn't been heavy liquidation of gold exchange-traded funds. As of Monday, SPDR Gold Shares reported holdings of 1,104.45 metric tons, higher than when the Dow industrials hit a 12-year closing low on March 9.

"Inflation isn't going to be here for at least another year, but markets are thinking about it," Mr. Melek said.

Energen subsidiary to buy Texas oil field in $182M deal

2009-05-05T19:15:00.000-07:00

Energen Corp. said Tuesday one of its subsidiaries plans to purchase a Texas oil field for $182 million.

Energen (NYSE: EGN) said in a news release its oil and gas exploration and production company, Energen Resources Corp., has signed an agreement to buy Range Resources Corp.’s interest in the Fuhrman-Mascho Field in Texas.

The deal is expected to close in June, subject to closing adjustments, said the release.

The oil field is located in the Permian Basin, where Energen Resources has existing operations and has a 70-year history of producing oil. The acquisition includes roughly 13,000 acres, 445 active producing oil wells and 54 active injector wells.

“Even though this acquisition should increase our total estimated 2009 production to more than 110 (billion cubic feet equivalent), we do not expect it to materially impact 2009 earnings,” said James McManus, Energen chairman and CEO. “We will be using our existing lines of credit to finance the acquisition and plan to repay this debt by year-end 2009 with internally generated cash. Once the debt is paid off, we expect this acquisition to have a positive impact on earnings beginning in 2010.”

Crude-oil futures fell Tuesday for the first session in five

2009-05-05T19:12:00.000-07:00

The Energy Information Administration is scheduled to release the latest U.S. petroleum inventories Wednesday. Analysts surveyed by Platts expect a buildup of 2.2 million barrels. Limiting crude's losses, Federal Reserve Chairman Ben Bernanke said the U.S. economy is bottoming out.

"While economic indicators are continuing to look less bad, oil fundamentals are still looking far from rosy," said Nimit Khamar, an analyst at Sucden Financial Research, in a note. "The fact remains there is still a large amount of crude inventories around and oil demand is continuing to fall."

Crude for June delivery ended down 63 cents, or 1.2%, at $53.84 a barrel on the New York Mercantile Exchange. Oil had closed at the highest level since Nov. 24 on Monday on economic recovery hopes.

"In the near term, we are very overbought in both oil and stocks and I'd expect a descent pull-back this month as the big money steps aside and looks to liquidate some long side profits," said Zachary Oxman, managing director at TrendMax Futures.
The EIA last week reported that crude inventories stood at 374.7 million barrels in the week ended April 24, the highest level since September 1990.

The agency also reported that U.S. refineries reduced their production in the face of weak demand.
For Wednesday's report, analysts surveyed by Platts also expect a buildup of 750,000 barrels in gasoline inventories and a 690,000 increase in distillate inventories, which include heating oil and diesel.

The U.S. economy will turn up later this year and inflation will remain low, Bernanke said in a testimony before Congress. He also said conditions in financial markets have improved and a gradual repair of the banking system is under way.
In other economic news, U.S. service-producing industries contracted again in April for the seventh straight month, but at a slower pace than in March, according to the Institute for Supply Management index released Tuesday.

Also helping crude move lower, U.S. officials are expected to direct about 10 of the 19 banks undergoing government stress tests to boost capital.

Few Match Google; Does That Make It a Monopoly?

2009-05-05T19:09:00.000-07:00

If there was any doubt about whether or not Google is under the antitrust microscope, it has been erased by news that antitrust regulators may try to break up interlocking directors at Google and Apple.

This is now the fourth real or threatened antitrust action against Google in just a year, suggesting that regulators are itching to pull the trigger. Last year, the Justice Department already had drafted a complaint and was minutes from filing suit when Google (wisely) dropped its plan to handle some of Yahoo's Internet ad placements. Google was finally allowed to acquire DoubleClick, the online-ad company, but only after extensive antitrust investigations both in the U.S. and Europe delayed the deal and allowed competitors to streak ahead. Today, Google remains a distant sixth in online display ads, behind Yahoo, Microsoft and even AOL, according to Internet-information provider ComScore. So much for market dominance.

Why would the U.S. government be so eager to punish the country's most successful and innovative start-up in recent memory?

Google is indisputably a victim of its own success. Its market share of Internet search has continued to rise steadily, encompassing roughly two-thirds of total searches. At 76%, its share of search advertising is even higher, thanks to Google's technological prowess at matching ads to people's search queries. Given the accompanying high profit margins on this lucrative business, Google displays the telltale characteristics of a monopolist: high, even dominant market share, with high profits and pricing power that are evidence of high barriers to entry for competitors.

Of course, this is exactly what makes Google so attractive to investors, and why I've been a shareholder since the public offering in 2004, when I participated successfully in the auction. I've continued to recommend it at times of weakness in its share price.

Google's continued gains in market share bear out my contention that Google is that rare breed: the natural monopoly. By natural, I also mean lawful, since the monopoly derives from Google's skill and qualities inherent in the business, not from anticompetitive behavior.

I sometimes get the sense that antitrust regulators, in their single-minded zeal to promote competition, ignore the fact that monopolies, in and of themselves, aren't illegal, or even necessarily bad. To quote jurist Learned Hand in the oft-cited Alcoa case, "A single producer may be the survivor out of a group of active competitors, merely by virtue of his superior skill, foresight, and industry. ... The successful competitor, having been urged to compete, must not be turned upon when he wins."

To me this fits Google precisely. Its search-market dominance is a function of its prowess in search and ad placement. I'm not an advertiser, so I can't speak to its effectiveness there, but as a frequent user of Google search, I continue to find it the most effective search engine by far. Google likes to say that its competition is "just a click away," so periodically I try the same search on some of those competitors. So far, none comes close to the effectiveness of Google (which isn't to say there isn't plenty of room for improvement). Apparently that's because Google created better algorithms, which it derived from a vastly larger database of search activity than its competitors. If that isn't the result of skill, foresight and industry, what is?

Google has been arguing that it isn't a monopolist because the market is much broader than search, or search advertising. (Pointing to a report by Cowen & Co. that says Google has just 3% of the global advertising market if you count things like billboards and radio, Google says it is only a bit player.) That strikes me as a stretch, but the government's apparent threat to separate two directors who sit on the boards of both Google and Apple seems to play right into Google's argument. If Google and Apple, which doesn't even have a search business, are competitors, then the relevant market is far bigger than even Google has argued.

I don't even need to make that argument. Given Google's original idealistic manifesto and subsequent innovations (many of which are losing money), Google strikes me as highly unlikely to abuse its market power. It knows as well as we do that its every move will be scrutinized. That doesn't mean antitrust regulators shouldn't be vigilant, but they should be just as careful not to punish competitive success. Given all the wrongdoing we have just witnessed in the financial crisis, I would think there would be plenty of more-pressing enforcement opportunities for regulators.

U.S. casino shares soar on hints of industry upturn

2009-05-05T19:07:00.000-07:00

Major casino operators posted lower first-quarter profits as the recession sapped demand for gambling and travel, but their shares soared amid indications that the companies will avoid bankruptcy.

From MGM Mirage (MGM.N) to Las Vegas Sands (LVS.N), gaming companies either saw earnings plummet or slide into the red, but executives cautiously forecast that a year-long travel and gambling slump may have bottomed.

Some analysts warned, however, that the market remained weak, and executives stopped short of predicting a full-fledged recovery.

MGM Mirage and Las Vegas Sands have come close to violating loan covenants dictating the level at which earnings as a ratio of debt must be maintained.

Wynn Resorts Ltd's (WYNN.O) balance sheet has been less of a question mark, but there is no doubt that it too has suffered as leisure and business travelers cut back on spending.

Still, shares of Wynn, which reported on Tuesday an adjusted quarterly loss of 27 cents a share, have gained 28 percent so far this week, while shares of MGM, which posted a 10-cent-per-share loss on Monday, are up 63 percent.

"MGM is trading on new confidence that the company is solvent," said Sanford Bernstein analyst Janet Brashear.

Chief Executive Jim Murren said the casino operator sees signs that business levels are stabilizing as it heads toward the completion and phased opening later this year of its $8.5 billion CityCenter joint venture on the Las Vegas Strip

18,000 Italian carmaker at risk

2009-05-05T19:05:00.000-07:00

Italian carmaker Fiat SpA (FIA.MI) would cut some 18,000 jobs and 10 assembly and component sites at a combined Fiat/Opel company including both Vauxhall plants in England and two Fiat factories in Italy, a German newspaper reported.

However, Fiat denied the report in the Frankfurter Allgemeine Zeitung, which said that all 10 would be shut down between 2011 and 2016, citing a 103-page internal Fiat strategy plan dated April 3.

The plan was written in English and dubbed "Project Football." The report is in an advance copy of the newspaper's Wednesday issue.

Fiat issued a statement saying the information in the report "does not come from Fiat and is not part of any plan prepared by the company."

The closures should eventually lead to additional free cash flow of about 4.3 billion euros ($5.76 billion) by 2015, the newspaper said.

Fiat Chief Executive Sergio Marchionne met German officials on Monday to discuss an offer for Opel, the German unit of General Motors Corp (GM.N). Italian Prime Minister Silvio Berlusconi said on Tuesday he was confident a deal with Opel would go ahead.

"All the information I have is that there is great interest in this operation, which would be almost a dream for all Italians," he said in a television interview.

Fiat would shut down Opel car manufacturing plants in Luton and Ellesmere Port in England, home of its sister brand Vauxhall, the newspaper report said. The plant at Antwerp, Belgium, would be the first to go in 2011.

Among Opel component sites, some or all of the engine and transmission production in Germany's Kaiserslautern, Ruesselsheim and Bochum plants would be closed. Austria's Aspern would also be shut down.

In Italy, Marchionne would shut Fiat's Pomigliano plant where most Alfa Romeos are built along with Termini Imerese in Sicily, which manufactures Lancia Ypsilons. Closing the five carmaking sites would cost upfront 1 billion euros ($1.34 billion) but reap 282 million euros in annual savings. The five component factories would bring in another 200 million euros in savings every year.

The paper reports Fiat wants to gain access on the cheap to GM's platforms on which it builds the Opel Corsa subcompact, the Astra compact and Insignia mid-size car.

A further key aspect of the plan is acquiring GM's Latin America operations.

According to sources on the Opel supervisory board, Marchionne also plans to put an end to GM's Saab brand and its own Lancia brand over the longer term.

Recession’s End Won’t Make Investing Easier

2009-05-05T19:02:00.000-07:00

After all the blood, tears and recriminations, is the Great Recession over?

“Not yet, but sooner than you think,” says economist Lakshman Achuthan, managing director of the Economic Cycle Research Institute in New York City. Only a small amount of government stimulus has reached the economy so far, but “the business cycle doesn’t wait for policy makers,” Achuthan says.

ECRI’s U.S. Long Leading and Weekly Leading indexes are up significantly from their December lows. In 16 of the past 17 downturns, this sequence of upturns has correctly forecast a recovery in about four months. (The exception: 1930, so there’s something in the record for pessimists, too.)

If growth does resume, you can thank the government’s massive policy response.

The Federal Reserve slashed the federal funds rate from 5.25 percent in August 2007 to 0.25 percent today. (That’s the rate banks charge for lending money to each other overnight.) The Treasury Department, for all the abuse it has taken in two administrations, saved the banking system from collapse. The stimulus package is boosting the natural, cyclical forces that bring recessions to an end.

These efforts in the U.S. have been mirrored everywhere in the industrial and developing world. No one is saying that the economy will return to robust health anytime soon. At the very least, however, businesses might begin to rebuild their depleted inventories. That would give manufacturing a better tone and, perhaps, create new jobs. Construction spending also starts up before a recession ends.

Alternatively, another financial accident might freeze credit again, and we would be back in the pits. Even a recovery might come too late for investors nearing retirement age whose investments are toast.

Impact on Investors

The big question about investors and consumers is whether the recession has marked them in any way. Was the suddenness of the global breakdown so shocking, and the consequences so painful, that Americans will change their saving and spending habits permanently? Or will they shake off their fright and return to life as it was B.C. (Before Collapse)?

At the moment, financial planners report that their clients -- young and old -- are behaving more conservatively. Families are curbing spending, paying down debt, increasing their savings and investing cautiously. Call this strategy Plan B, the place you retreat to in the face of uncertainty and loss.

Even among baby-boomer millionaires, 50 percent intend to hold more of their retirement portfolios in cash, according to a survey conducted by the Spectrem Group, a Chicago consulting firm. Whether that intention survives a new bull market remains to be seen. It probably should -- if not in cash, then certainly in bonds.

Big Equity Bet

Odds are that you’ve been over-invested in equities. At the end of 2007, almost one in four workers between the ages of 56 and 65 held more than 90 percent of their 401(k) in stock, according to the Employee Benefit Research Institute in Washington. More than two in five held more than 70 percent in stock. They will be well into Social Security before recovering their losses.

Maybe these 401(k) holders managed their risk by owning a bond portfolio on the side, but I doubt it. More likely, they’re investing aggressively, in hope of making up for the fact that they started serious saving late. They gambled and lost. The market is no respecter of your personal need to make money in a hurry.

Continued Contributions

On the other end of the investment spectrum, younger and lower-paid employees with 401(k)s are doing better than you might think. Accounts worth less than $10,000 grew an average of 40 percent in 2008, because workers continued making contributions. The new money they put into their plans more than covered the market loss.

If the recession is indeed near its end, stocks will continue trending up. But “the past may not be prologue,” says market analyst Steve Leuthold of the Leuthold Group in Minneapolis. Future returns may lag behind the market’s historical returns, he says, because of the mature state of the U.S. economy.

In general, growth in corporate earnings and gross domestic product are the primary factors driving a nation’s long-term stock market performance. Leuthold sees annual GDP rising in the 2 or 3 percent range, compared with 5 or 6 percent during America’s days of emerging growth and global leadership.

Mature or Developing

Western Europe is also mature and, arguably, so is Japan. That leaves the developing countries in Asia, Latin America and Eastern Europe. You might have sworn off them, after they got clobbered last year. But they remain the parts of the world with the highest potential for growth. A Plan B investor will own them in moderation, balanced with safer investments such as quality bonds, including inflation-protected Treasuries.

If you lost your job or saw your income chopped, Plan B is the only way to go. For those still standing, the message is the same. There’s a lot of struggle left in the economy and the global financial system. When we muddle out of this recession, the Fed will have to fight inflation, with unknowable results. The times call for more savings, less debt and a ready-for- anything investment mix.

Interest- rate cuts may becomes the focus of Australia’s Central bank

2009-05-05T18:59:00.000-07:00

Much of the effect on the economy of six interest-rate cuts and almost A$90 billion ($67 billion) in government spending on infrastructure, bond-market guarantees and cash handouts to consumers since September are “yet to be observed,” Stevens said yesterday, when he kept the benchmark rate at 3 percent.

While Australia has fallen into its first recession in two decades, Stevens signaled that he expects the stimulus, lower rates and a pickup in China to boost demand this year. A report two weeks ago showed core inflation held above the central bank’s target range of between 2 percent and 3 percent in the first quarter.

“For the longer-term sustainability of a recovery, it’s all about inflation,” said Adam Carr, senior economist at ICAP Australia Ltd. in Sydney. “And the best way to keep inflation in check is to withdraw stimulus before the recovery takes hold, at the fist signs of stabilization, which is what we’ve got.”

Stevens said yesterday that while inflation is likely to abate, “this is occurring only gradually so far as the effects of the decline in the exchange rates are pushing up some prices.”

The Australian dollar tumbled in the three months through March for a third straight quarter. The currency traded at 73.85 U.S. cents at 9:29 a.m. in Sydney, 25 percent below its 25-year high of 98.50 cents on July 15 last year.

Core Inflation

The weaker currency is keeping upward pressure on the cost of imported goods and services such as gasoline and cars, even though the economy is probably in its first recession since 1991.

Australia’s weighted median index, a gauge of core inflation published by the Reserve Bank of Australia on April 22, showed prices rose 4.4 percent in the first quarter from a year earlier.

By contrast, U.S. consumer prices posted their first annual decline since 1955, falling 0.4 percent in March from a year earlier. Japan’s prices dropped an annual 0.1 percent, the first decrease in more than a year.

“Core inflation is still above 4 percent, even though by all reports we’re in a recession,” said ICAP’s Carr. “That’s a problem.”

Unlike counterparts in the U.S., Canada and New Zealand, who signaled in recent weeks that borrowing costs will remain low for some time, Stevens made no specific reference yesterday to the timing of any future rate moves.

Global Rates

“In assessing whether further reductions in the cash rate are required over the period ahead, the Board will monitor how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity,” he said.

By contrast, New Zealand central bank Governor Alan Bollard said on April 30 that he won’t raise borrowing costs before late in 2010. Bank of Canada Governor Mark Carney said on April 28 he intends to keep his main interest rate at a record-low 0.25 percent until the end of June 2010.

The U.S. Federal Reserve said on April 29 that its benchmark rate, close to zero, will probably remain “exceptionally low” for an “extended period.”

Australia has reduced its benchmark lending rate by a record 4.25 percentage points since early September to spur an economy that unexpectedly shrank 0.5 percent in the fourth quarter, the first decline in eight years.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Stevens said yesterday.

Home Loans

“It’s hard to escape the conclusion that the Reserve Bank will be hiking interest rates through 2010,” Tim Toohey, chief economist at Goldman Sachs Group Inc. in Melbourne.

The tone of Stevens’ statement yesterday “suggests the Reserve Bank will be reluctant to deliver additional interest- rate cuts this year,” Toohey added. The bank “is emphasizing fewer downside risks and placing more weight on the idea of economic recovery through 2009.”

Recent reports support Stevens’ view that lower borrowing costs and government spending are already reviving the economy. Home-loan approvals rose for a fifth month in February and consumer confidence jumped in April by the most since August. Business sentiment gained in March for a second month.

Mortgage Savings

A separate report published yesterday by the Australian Industry Group showed the services industry shrank in April at a slower pace for a second month as companies reported an increase in sales, new orders and deliveries.

“Monetary policy has been eased significantly,” Stevens said. Market and mortgage interest rates “are at very low levels by historical standards, and business loan rates are below average, reducing debt-servicing burdens considerably.”

Households with an average-sized mortgage of A$250,000 are paying A$7,000 a year less than they were six months ago, which is equal to 8 percent of average family incomes, according to the Reserve Bank.

Stevens also said that while the near-term outlook for the global economy “remains weak,” there are further signs of stabilization in several countries.

“The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little,” he said. China is Australia’s largest trade partner.

Investors have trimmed bets on the size of future Reserve Bank rate cuts, according to a Credit Suisse Group index based on swaps trading. Traders predict the benchmark rate will be 10 basis points lower in 12 months, the index showed at 9:36 a.m. in Sydney, down from 28 basis points early yesterday, and 41 basis points on April 28.

Big Companies tha Avoid Taxes

2009-05-05T18:54:00.000-07:00

Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.

Seagate is just one of the companies that may be affected by President Barack Obama’s proposal yesterday to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35 percent, Seagate paid an effective tax rate of 5 percent in the year ended June 2008, according to data compiled by Bloomberg.

The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.

“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas.”

Largest Companies

One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.

As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.

One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world’s largest chipmaker.

Intel’s then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.

“Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation,” Perlman testified.

‘The Details’

Intel spokesman Chuck Mulloy said yesterday his company is reviewing the president’s speech on offshore tax havens. “We’re studying the Obama proposal,” Mulloy said. “Particularly with taxes, the devil’s in the details.”

Intel pays U.S. taxes on interest earned by its Cayman Island subsidiaries, Mulloy said.

Seagate spokesman Brian Ziel said yesterday that his company incorporated in the Caymans to reduce its taxes. “The competitive benefits relate both to taxes saved on certain income earned outside of the United States and the ability to efficiently deploy assets around the globe to remain competitive,” he said.

Eighty-five percent of Seagate’s employees work outside the U.S. and more than 70 percent of the company’s revenue comes from sales overseas, Ziel said.

“Officially, our administrative headquarters is in the Caymans,” Ziel said. “That’s how it’s listed in our annual report.”

18,857 Cayman Corporations

Altria spokesman Bill Phelps said his company is in the process of dissolving its Cayman subsidiary. Coke spokeswoman Kerry Kerr said, “We don’t comment on tax strategies, for competitive purposes.”

Tyco’s Paul Fitzhenry and Oracle spokeswoman Karen Tillman didn’t return calls requesting comment.

A five-story office building on South Church Street in the Caymans serves as the official address for 18,857 corporations. That building, called Ugland House, is listed in SEC filings as Seagate’s headquarters. About half those Cayman companies had billing addresses in the U.S., according to a 2008 GAO study.

President Obama referred to Ugland House yesterday.

“On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claim this building as their headquarters,” Obama said. “And I’ve said before, either this is the largest building in the world or the largest tax scam. And I think the American people know which it is: The kind of tax scam that we need to end.”

Maples and Calder, the law firm that occupies all of Ugland House in Grand Cayman, said Obama is mistaken.

No Financial Misconduct

“I’m sorry to disappoint anyone, but our office is neither the largest building in the world nor a center of financial misconduct,” said Charles Jennings, joint managing partner of Maples and Calder.

“Having a registered office address in the Cayman Islands is driven by commercial considerations, not by tax avoidance,” Jennings said. “It allows companies to raise capital and conduct global business.”

The firm, which provides services for the corporations that use its address, has incorporated more than 6,000 new companies over the past five years. Back in 2004, the building served as home to 12,748 companies using the same address in the Caymans, a British crown colony 150 miles south of Cuba.

Del Monte Fresh Produce Inc., whose corporate headquarters is in Coral Gables, Florida, lists another address -- Walker House on Mary Street in George Town, Grand Cayman -- in its SEC filings. That’s around the corner from Ugland House.

Del Monte’s effective tax rate for 2008 was 3 percent, up from 1 percent the year before. Del Monte spokeswoman Vidya Samsundar had no immediate comment on why the company is incorporated in the Caymans.

Euro against the dollar

2009-05-05T18:46:00.000-07:00

The dollar and the yen strengthened against the remainder of the world’s 17 most-used currencies as investors sought refuge before tomorrow’s release of Federal Reserve stress tests that may show U.S. banks need more capital. The Australian and New Zealand dollars slid versus the greenback as U.S. equities declined, damping demand for higher-yielding assets.

“The ECB will at least announce something unusual,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “In terms of policy measures, they’ll be discussing the types of measures that would potentially weaken the euro.”

The euro slid to $1.3287 as of 9:18 a.m. in Singapore from $1.3330 in New York yesterday. It weakened to 130.82 yen from 131.73 yen. The dollar bought 98.46 yen from 98.82 yen. It climbed to $1.5019 versus the pound from $1.5090 and advanced to 1.1358 Swiss francs from 1.1322 francs.

The volume of foreign-exchange trading will likely be less than normal because of Japan’s “Golden Week” holiday today, Callow said. The MSCI Asia-Pacific excluding Japan Index was little changed at 297.48, following a 0.4 percent decline in the Standard & Poor’s 500 Index.

ECB Meeting Tomorrow

The ECB will probably lower the benchmark rate by a quarter-percentage point to 1 percent tomorrow, according to a Bloomberg survey of economists. That would be the lowest level since the bank took charge of monetary policy in 1999.

“Our economics team expects them to cut rates 25 basis points to 1 percent and announce longer-term refinancing operations,” analysts led by Daniel Tenengauzer, New York-based head of global foreign-exchange strategy at Bank of America- Merrill Lynch, wrote in a research note yesterday. “We continue to expect the euro lower through the year.”

ECB council member Athanasios Orphanides said yesterday the financial crisis needs “drastic” measures. Orphanides and fellow member George Provopoulos from Greece have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy, which the European Commission this week forecast will shrink 4 percent this year.

Fed’s Stress Tests

The Japanese and U.S. currencies gained as the Fed plans to deliver results of stress tests on U.S. banks that may show about 10 of 19 banks reviewed need additional capital, people familiar with the matter said.

“Investors are likely to be risk averse ahead of the release of the results,” said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank. “We can’t rule out the possibility that the yen and the dollar will be bought” as a shelter from the crisis, he said.

Banks are formulating plans for filling their capital requirements, much of which would likely come from conversions of preferred shares, the people said. Many of the 19 lenders under review and the government are set to discuss publicly the examinations after markets close tomorrow, the people said.

The Dollar Index, used by the ICE to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was at 84.256 today from 84.157 yesterday.

Australia’s dollar fell to 73.79 U.S. cents from 74.26 cents and dropped to 72.63 yen from 73.38 yen in New York yesterday. New Zealand’s dollar slipped to 57.80 cents from 58.04 cents, and weakened to 56.89 yen from 57.34 yen.

The benchmark interest rate is 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and 2.5 percent in New Zealand.

Chrysler Studies Condition It's Sales Outlets

2009-05-05T18:41:00.000-07:00

Chrysler LLC told a select group of dealers that it is weighing the strengths and weaknesses of its roughly 3,200 dealerships, as it tries to prune several hundred of them from its sales network.

In a meeting with the company's national dealer council, which represents the dealerships, Chrysler executives said the auto maker is reviewing each dealership's location, the condition of its facility, finances and sales to determine which are the strongest and most desirable, according to dealers with knowledge of the meeting.

Tuesday's meeting came as a handful of creditors continued to oppose the planned sale of the auto maker's assets to Fiat SpA of Italy. In the court overseeing Chrysler's bankruptcy, a group of investment funds holding about $300 million of Chrysler's $6.9 billion in secured debt pressed its argument that the sale of Chrysler assets should be blocked.

Forecast: the U.S. recession will give way this year to a slow recovery

2009-05-05T18:21:00.000-07:00

“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” Bernanke said today in testimony to the congressional Joint Economic Committee. He highlighted that the economic contraction may be slowing and that the housing market has “shown some signs of bottoming” after a three-year slump.

The Fed chief gave no indication the Fed intends to retreat from its unprecedented policy of keeping the main interest rate near zero and boosting credit through emergency-loan programs and asset purchases. His remarks echo last week’s Fed statement that, while the outlook has “improved modestly” since March, the economy may “remain weak for a time.”

Bernanke also said the Fed will soon provide on its Web site more information on its lending programs. That includes the number of borrowers, concentration of credit among borrowers, ratings of collateral and some details on contracts with private firms. The central bank will “continue to expand the range of information” it publishes, he said.

ISM Report

The chairman spoke as a private survey reinforced evidence the recession is easing. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 43.7, the highest level since October. Readings below 50 signal contraction.

Stocks declined after rising yesterday. The Standard & Poor’s 500 Index was down 0.38 percent at 903.8 in New York. Treasuries were little changed, with the benchmark 10-year note yields at 3.16 percent compared with 3.15 percent yesterday.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said today. “Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

After the testimony, Bernanke met with the Senate Republican Policy Committee. Bernanke told the senators that the economy could grow around 2 percent next year and 4 percent in 2011, John Ensign of Nevada, who chairs the committee, said in a Bloomberg Television interview.

‘Exactly Right’

“But as Fed chairmen always say, there are a lot of underlying conditions that have to be exactly right,” Ensign said. “One of them is that we don’t have more problems in the financial markets, especially with the banks, and that’s a big assumption, and he actually said that’s a big assumption.”

Bernanke, who spoke two days before the planned release by the Fed and other U.S. regulators of the results from stress tests on the country’s 19 largest banks, gave little hint of the results to members of Congress. He said in Washington that banks “will be required to develop comprehensive capital plans” and that funds from the government “will be available as needed.”

Fed officials are “now satisfied” that the data accurately reflect banks’ financial conditions after discussions with the firms to review and “not negotiate” initial results, he said.

The lenders get their assessments from officials today, according to people familiar with the matter. About 10 of the banks will need additional capital to protect against a deeper recession, they said. Bank of America Corp. and Citigroup Inc. are among those requiring a bigger buffer, people familiar with the issue have said.

‘Government Capital’

The issue is to “find ways to get firms out of a situation where they’re dependent on government capital, and we are hopeful that that can be done over the next few years,” Bernanke said in response to questions from Representative Elijah Cummings, a Maryland Democrat.

“Readings from the credit default swap market and other indicators show that substantial concerns about the banking industry remain,” Bernanke said.

Economic figures in the past two weeks have shown smaller declines in house prices and stabilization in sales, a jump in consumer confidence and the smallest contraction in manufacturing in seven months.

Still, economists anticipate the job market will keep deteriorating after the sharpest contraction in gross domestic product in half a century. Employers probably eliminated 610,000 jobs last month, with the unemployment rate rising to 8.9 percent, based on the median estimates in Bloomberg News surveys. The Labor Department’s report is scheduled for May 8.

Job Losses

“The most recent information on the labor market -- the number of new and continuing claims for unemployment insurance through late April -- suggests that we are likely to see further sizable job losses and increased unemployment in coming months,” Bernanke said today.

The housing market is showing signs of improvement after the Fed’s purchases of mortgage securities helped drive down home-loan rates to the lowest level in decades.

Bernanke and his colleagues moved in March to double purchases of housing debt to $1.45 trillion, and also to start buying $300 billion of long-term Treasuries.

“The supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises,” Bernanke said.

Libor Rate

Financial markets have also recovered in recent weeks. The Standard & Poor’s 500 Stock Index climbed to its highest level in four months yesterday. The London interbank offered rate that banks charge for three-month dollar loans today fell below 1 percent for the first time. The Libor-OIS spread, a gauge of banks’ reluctance to lend, reached its narrowest since Sept. 1.

The Fed’s effort at greater transparency in its emergency lending programs is a response to an April 2 nonbinding budget amendment sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and the panel’s ranking Republican, Alabama Senator Richard Shelby, Bernanke said. That proposal passed 96-2.

The Fed chief did not mention a tougher measure, also nonbinding, sponsored by Vermont Senator Bernard Sanders, an independent, that called on the Fed to identify borrowers. The measure passed 59-39 on the same day.

Sanders, in a statement after the hearing, threatened to pass the measure again “in a stronger form” if Bernanke failed to accept it. Bernanke told Sanders in February that identifying borrowers would be “counterproductive” and result in “severe adverse consequences for the economy.”

“Mr. Bernanke should not pick and choose which amendments he wants to respond to,” Sanders said. “My bipartisan amendment passed the Senate by 20 votes, and we expect him to respect it.”

No charges likely over interrogation memos

2009-05-05T18:07:00.000-07:00

Bush administration lawyers who approved harsh interrogation techniques of terror suspects should not face criminal charges, Justice Department investigators say in a draft report that recommends two of the three attorneys face possible professional sanctions.

The recommendations come after an Obama administration decision last month to make public legal memos authorizing the use of harsh interrogation methods but not to prosecute CIA interrogators who followed advice outlined in the memos.

That decision angered conservatives who accused President Barack Obama of selling out the CIA for releasing the memos, and liberals who thought he was being too forgiving of practices they — and Obama — call torture. The president's rhetoric, if not actual policy, shifted on the matter as the political fallout intensified.

Officials conducting the internal Justice Department inquiry into the lawyers who wrote those memos have recommended referring two of the three lawyers — John Yoo and Jay Bybee — to state bar associations for possible disciplinary action, according to a person familiar with the inquiry. The person, who spoke on condition of anonymity, was not authorized to discuss the inquiry.

The person noted that the investigative report was still in draft form and subject to revisions. Attorney General Eric Holder also may make his own determination about what steps to take once the report has been finalized.

The inquiry has become a politically loaded guessing game, with some advocating criminal charges against the lawyers and others urging that the matter be dropped.

In a letter to two senators, the Justice Department said a key deadline in the inquiry expired Monday, signaling that most of the work on the matter was completed. The letter does not mention the possibility of criminal charges, nor does it name the lawyers under scrutiny.

The letter did not indicate what the findings of the final report would be. Bybee, Yoo and Steven Bradbury worked in the Justice Department's Office of Legal Counsel and played key roles in crafting the legal justification for techniques critics call torture.

The memos were written as the Bush administration grappled with the fear and uncertainty following the Sept. 11, 2001, terror attacks. Over the years that followed, lawyers re-examined and rewrote much of the legal advice.

Last month, the Obama administration released four of the long-secret memos about treatment of terror suspects in which lawyers authorized methods including waterboarding, throwing subjects against a wall and forced nudity.

In releasing the documents, Obama declared CIA interrogators who followed the memos would not be prosecuted. Obama left it to Holder to decide whether those who authorized or approved the methods should face charges.

When that inquiry neared completion last year, investigators recommended seeking professional sanctions against Bybee and Yoo, but not Bradbury, according to the person familiar with the matter. Those would come in the form of recommendations to state bar associations, where the most severe possible punishment is disbarment.

Vincent Warren, executive director of the Center for Constitutional Rights, called the decision not to seek criminal charges "inconceivable, given all that we know about the twisted logic of these memos."

Warren argued the only reason for such a decision "is to provide political cover for people inside the Obama White House so they don't have to pursue what needs to be done."

Bybee is now a judge on the 9th U.S. Circuit Court of Appeals. Yoo is a professor at the University of California-Berkeley. Bradbury returned to private practice when he left the government at the end of President George W. Bush's term in the White House.

Asked for comment, Yoo's lawyer, Miguel Estrada, said he signed an agreement with the Justice Department not to discuss the draft report. Lawyer Maureen Mahoney, who is representing Bybee, also declined to comment.

"The former employees have until May 4, 2009 to provide their comments on the draft report," states the letter from Assistant Attorney General Ronald Weich to Sens. Sheldon Whitehouse, D-R.I., and Dick Durbin, D-Ill.

Whitehouse has scheduled a hearing on the issue next week.

Now that the deadline has passed, there is little more for officials to do but make revisions to it based on the responses they've received, and decide how much, if any, of the findings should be made public.

Both Whitehouse and Durbin have pressed the Justice Department for more information about the progress of the investigation by the Office of Professional Responsibility.

The office examines possible ethics violations by Justice Department employees. On rare occasions, those inquiries become full-blown criminal investigations.

The language of the letter, dated Monday, indicates the inquiry will result in a final report.

The letter notes that Holder and his top deputy will have access to any information they need "to evaluate the final report and make determinations about appropriate next steps."

The results of the investigation were delayed late last year, when then-Attorney General Michael Mukasey and his deputy asked investigators to allow the lawyers a chance to respond to their findings, as is typically done for those who still work for the Justice Department.

Investigators also shared a draft copy with the CIA to review whether the findings contained any classified information. According to the letter, the CIA then requested to comment on the report.

U.S. Economy: Manufacturing Slumps by Most in Decades

2008-10-16T19:10:00.000-07:00

The U.S. economic downturn deepened in September and October as the credit crisis intensified, reports showed today.

Industrial output fell 6 percent in the third quarter, the most since 1991, and a factory index for the Philadelphia region hit an 18-year low this month, Federal Reserve figures showed today. The Labor Department reported that for the first time in two years consumer prices didn't increase for two straight months.

Today's numbers give the Fed scope to lower interest rates again this month. Interest-rate futures showed rising expectations of a half-point cut in the Fed's benchmark to 1 percent by policy makers' next meeting on Oct. 29.

``The credit crunch is intensifying, and enough damage has been done to ensure the next couple of quarters will be much weaker,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``The pendulum has swung sharply to the downside risks to growth rather than inflation.''

Shutdowns caused by hurricanes and a Boeing Co. strike caused production at U.S. factories, mines and utilities last month to decline 2.8 percent, the most since 1974, after a 1 percent drop. The median forecast of 73 economists surveyed by Bloomberg News was for a 0.8 percent fall

The Standard & Poor's 500 Stock Index recouped earlier losses to close up 4.2 percent at 946.43. The gauge is down 18 percent so far this month. Treasuries pared losses and benchmark 10-year note yields were little changed at 3.96 percent at 4:11 p.m. in New York.

Philadelphia Plunges

The Fed Bank of Philadelphia's general economic index plunged to minus 37.5 this month, worse than forecast and the lowest reading since October 1990, from 3.8 in September, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.

Homebuilder confidence slid this month to the lowest level since record-keeping began in 1985, a sign the crisis in credit markets may deepen the worst housing recession in a generation. The National Association of Home Builders/Wells Fargo index of builder sentiment decreased to 14, less than forecast, from 17 in September, the Washington-based association said today.

Separately, the Labor Department said initial jobless claims fell last week as job losses related to the Gulf Coast hurricanes subsided, while total benefit rolls rose to the highest level in five years. First-time applications declined by 16,000 to 461,000 in the week that ended Oct. 11.

Prices Unchanged

Consumer prices were restrained by declines in fuel costs, automobile prices and airline fares, Labor Department figures showed. The consumer price index was unchanged after a 0.1 percent drop in August. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.

``It'll give the Fed a little bit of cover to cut rates when they meet next,'' on Oct. 28-29, John Ryding, chief economist at RDQ Economics in New York, said in an interview with Bloomberg Television.

Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 75 economists in a Bloomberg News survey. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed.

Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month.

Fuel Prices

Energy expenses dropped 1.9 percent, led by the biggest decrease in the cost of natural gas on record. Gasoline prices fell 0.6 percent. Food prices, which account for about a fifth of the CPI, rose 0.6 percent for a second month.

New-vehicle prices dropped 0.7 percent, the most since August 2005, and air fares fell 1.7 percent, the biggest decline since November 2006.

Today's figures also showed wages were unchanged last month, after adjusting for inflation, following an increase of 0.6 percent in August. They were down 2.5 percent over the 12 months to September. The decline in purchasing power is contributing to the slowdown in consumer spending.

The Commerce Department said yesterday retail sales dropped in September by the most in three years.

Hurricanes' Influence

Last month's hurricanes accounted for 2.25 percentage points of the decline in industrial production, and a strike at Boeing accounted for most of the rest of the drop, the Fed said. Frozen credit markets and higher borrowing costs will force consumers and companies to further trim purchases of expensive items such as cars and machinery.

United Technologies Corp., maker of Pratt & Whitney jet engines and Hamilton Sundstrand aerospace equipment, said the Boeing strike is costing it $5 million to $10 million in pretax profit a month.

Production of consumer durable goods, including furniture and electronics, fell 0.7 percent.

Auto industry figures earlier this month showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. General Motors Corp. this week said it will close a Wisconsin SUV factory on Dec. 23, two years earlier than planned.

Some companies are cutting prices to entice cash-strapped consumers who are limiting purchases to essential items such as food and fuel.

Mattel Inc., the world's largest toymaker, said this month that most of its holiday toys will cost less than $20 to help lure shoppers who are cutting back on spending.

source:bloomberg.com

The Presure Hits Dollar

2008-10-16T18:58:00.000-07:00

The dollar fell against the euro, headed for its first weekly decline this month, before U.S. reports that will probably show a deepening housing slowdown eroded consumer confidence.

The U.S. currency also fell against the British pound and the Swiss franc on prospects the credit crisis will hurt growth in the world's largest economy, prompting traders to add to bets on a Federal Reserve interest-rate reduction.

``The reports may reinforce worries that the U.S. is in a recession and concerns linger over its financial markets,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``The dollar is still a sell.''

The dollar dropped to $1.3501 per euro at 9:35 a.m. in Tokyo from $1.3456 late in New York yesterday and from $1.3408 on Oct. 10. It traded at 101.60 yen from 101.57 yen yesterday and 100.67 a week ago. Against the euro, the yen was at 137.14 from 136.73.

The U.S. currency weakened to 1.1334 versus the Swiss franc from 1.1379 and declined to $1.7348 against the British pound from $1.7304.

The dollar headed for weekly losses against 9 of the 16 most-active currencies as U.S. housing starts declined to an annual rate of 870,000 homes in September, the fewest since January 1991, from 895,000 in August, according to a Bloomberg News survey of economists. The Commerce Department will issue the report at 8:30 a.m. in Washington.

Investors `Worried'

The Reuters/University of Michigan preliminary index of consumer sentiment, due at 10 a.m., likely decreased to 65.0 in October from 70.3 in September, a separate survey showed.

Futures traded on the Chicago Board of Trade show a 46 percent chance the Fed will lower its 1.5 percent target rate for overnight bank loans by a half-percentage point to 1 percent at its Oct. 29 meeting. Traders saw no chance of a cut of that magnitude a week ago. The odds of a quarter-point cut are 54 percent.

source:bloomberg.com

Asian stocks rose after governments are succeeding to unlock credit markets.

2008-10-16T18:46:00.000-07:00

Asian stocks rose after governments are succeeding to unlock credit markets, and this progress leading by Westfield Group the world's largest shopping-center owner.Westfield Groupgained 3.3 percent in Sydney and Toyota Motor Corp. added 3.9 percent in Tokyo after money market rates dropped and corporate bond risk fell. Singapore and Malaysian governments said yesterday they will guarantee bank deposits, following Hong Kong and three other Asian countries, to shore up confidence in the financial industry.

MSCI Asia added 1.1 percent to 87.85 as of 10:10 a.m. in Tokyo, rebounding from an 8.6 percent plunge yesterday that was the worst decline since the gauge was created in 1987. The index is set for a 2 percent gain this week, snapping a six-week, 31 percent plunge.

Shares on MSCI's Asian index traded at 9.76 times earnings yesterday, near a record low reached last week.

Japan's Nikkei 225 Stock Average climbed 1.3 percent to 8,565.40. All other benchmark indexes in the region advanced apart from South Korea and Taiwan. Standard & Poor's 500 Index futures gained 0.6 percent.

U.S. stocks rose yesterday, with the S&P 500 advancing 4.3 percent after swinging between gains and losses throughout the day. Speculation bond insurers will receive a bailout and a retreat in oil prices fueled gains.

``So are we near the bottom?'' Garry Evans, chief Asian equity strategist at HSBC Holdings Plc wrote in a note to clients. ``Certainly, some of the conditions are in place'' such as low earnings multiples and high dividend yields.

Asian Money Market Rates Decline as Japan, Australia Add Cash

2008-10-15T19:52:00.000-07:00

Asian money market rates fell as the central banks of Japan and Australia injected funds into the financial system and European lenders were yesterday offered unlimited U.S. currency.

The rate Australian banks charge each other for three-month loans fell to 5.695 percent, compared with 7.49 percent on Sept. 19, four days after Lehman Brothers Holding Inc. filed for bankruptcy. Japanese overnight commercial borrowing rates fell to a one-week low.

The success of Australia, Hong Kong and Japan in thawing frozen interbank markets by providing cash and guaranteeing lending, may push regional governments including South Korea to follow suit. South Korean borrowing costs may rise today to a record as Standard & Poor's considers cutting the credit ratings of lenders including Kookmin Bank.

``Lending rates between banks are generally coming down albeit slowly,'' said Su-Lin Ong, a senior economist at RBC Capital Markets Ltd. in Sydney. ``The system's been through incredible stress in the last month, so it's not going to snap in overnight.''

Europe and the U.S. are making more than $2 trillion available to bolster banks, helping free up money markets. The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans dropped for a third day yesterday, its longest sequence of declines in seven weeks, according to the British Bankers' Association. It slid 9 basis points, or 0.09 percentage point, to 4.55 percent.

Interbank lending rates jumped in the past month after Lehman Brothers Holdings Inc. went bankrupt. Libor is still 305 basis points more than the Fed's target rate.

The Korea three-month interbank offered rate advanced 2 basis points yesterday to 6.01 percent, the highest since it was first compiled in August 2004.

Australian Rates

National Australia Bank Ltd., the nation's biggest lender by assets, said funding costs dropped this week following the government's decision to guarantee bank deposits.

Australia's four largest banks cut interest rates for fixed home loans this week after the central bank reduced its benchmark lending rate by the biggest amount since a recession in 1992.

The Bank of Japan and the Reserve Bank of Australia added $7.8 billion to financial systems today after the European Central Bank, Bank of England and Swiss National Bank offered lenders unlimited dollars for the first time yesterday.

The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 76.5 basis points, or 0.765 percentage point at 1:15 p.m. in Sydney, heading for the least since Oct. 3, from 95.50 yesterday. The gap has averaged 47 points this year.

Japan's overnight call loan rate traded at 0.51 percent after the operation at 9:20 a.m. in Tokyo, from 0.53 percent before the injection, according to Tokyo Tanshi Co. Japanese overnight commercial paper yields stood at 0.7 percent, down 2.5 basis points to the lowest since Oct. 8, according to brokerage Tokyo Tanshi Co.

The BOJ injections are ``necessary but not sufficient,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. ``It helps to keep the day to day money markets moving, but it doesn't change the fundamentals of slowing economic growth and balance sheet de-leveraging.''

source:bloomberg.com

Dow Jones can't make any Progress

2008-10-15T19:47:00.000-07:00

Dire economic data knocked stocks sharply lower Wednesday, with the S&P 500 posting its worst single-day percentage decline since Black Monday 1987, as investors braced themselves for an ugly recession.

The session's drop rekindled debate on Wall Street about whether last week's lows will hold up. Increasingly, it seems the record 936-point gain registered by the Dow Jones Industrial Average Monday wasn't enough to put the market on sure footing.

"I don't just think we're going to test the lows. I think we're going to violate them and break lower in a big way," said Kent Engelke, managing director at the brokerage Capitol Securities Management, in Richmond, Va. Referring to the possible fallout in the broader economy from the credit crisis, he added: "We don't yet know what that is, because this situation is so unprecedented. Every road sign has been obliterated."

The Dow's losses accelerated as the closing bell approached, leaving the blue-chip measure down 733.08 points for the day, off 7.9%, at 8577.91, hurt by losses in twenty-nine of its 30 components. The only exception was Coca-Cola, which climbed 1.1% after posting a strong profit report. The Dow has retraced more than half of its point gain between Friday's low and Monday's close. The decline Wednesday was the worst on a percentage basis since Oct. 26, 1987.

Citigroup and American Express each fell about 13%. The Dow's energy and raw-materials names were also at the forefront of the selloff amid fears that a U.S. slowdown will hurt the global economy and, in turn, lead to lower demand for an array of commodities. Alcoa was off 12.8%. Chevron and Exxon Mobil each fell more than 12% as oil prices hit their low for 2008, settling below $75 a barrel. Other commodities suffered on worry about falling industrial demand. The Dow Jones-AIG Commodity Index fell 4.3%.

Markets were hit with a stampede of selling during the final hour. Traders said some fund managers are unloading stocks to raise money for redemptions from investors burned in the recent selloff.

"We continue to see a vortex of selling, led by a levered, scared hedge fund community stepping on each other trying to get in front of the other guy to liquidate, based upon the real investment losses that they've experienced, coupled with the threat of year-end redemptions," said Doug Kass, president of Seabreeze Partners.

The S&P 500 plunged 9% -- its worst percentage slide since the 20.47% plunge recorded on Black Monday -- to 907.84. Basic materials, energy, and consumer discretionary dropped sharply. The Nasdaq Composite Index declined 8.5% to 1628.33. The tech-rich benchmark has lost more than a quarter of its value over the past 14 days. The small-stock Russell 2000 was off 9.5% at 502.11, for the largest one-day drop in its history.

The Chicago Board Options Exchange Volatility Index, a popular fear gauge for the stock market, surged 26% to 69.25.

A cluster of disappointing economic reports set a downbeat tone for the market. Retail sales fell 1.2% last month, the worst slide in three years. A report on New York factory activity was bleak, and core wholesale prices surged, suggesting earnings could be pressured by still-high expenses and declining demand. The Federal Reserve's beige book of regional economic indicators showed the job market and business activity weakening throughout the U.S.

In a speech to the Economic Club of New York, Fed Chairman Ben Bernanke said recent efforts by the central bank and other government agencies represent "powerful steps" to resolve Wall Street's crisis. Mr. Bernanke said that policy makers have avoided the "critical errors" made by their counterparts during the Great Depression.

Peter Cardillo, chief market economist at Avalon Partners in New York, fretted at the comparison of the current crisis to the Depression. Many commentators have drawn such comparisons recently, but for the Fed chairman himself to do so struck Mr. Cardillo as worrisome.

Traders on the New York Stock Exchange's floor said that the market's losses seemed to feed on themselves late in the day. As hedge funds and other players racked up losses, their brokers issued margin calls. That sparked more selling to raise cash -- a pattern that has played out on other days lately when the market has suffered steep drops.

"Yesterday, that [type of selling] was starting to dissipate -- a small sign of hope," said Andrew Frankel, co-president of Stuart Frankel & Co., a New York floor brokerage. "But today we've seen a return."

There were lingering signs of upset in the credit markets. Libor rates continued to ease, but risk premiums on agency debt widened sharply. Treasurys moved higher, in a hint that many investors remain in a defensive mood amid the bleak backdrop. Three-month Treasury yields hovered near 0.2%, down from more than 0.3% late Tuesday.

Underlining the general sense of malaise, gold prices rose. Gold futures were up $8.20 at $847.70 per ounce in New York.

The dollar was mixed against major rivals. One euro cost $1.3495, down from $1.3654. A dollar bought 100.12 Japanese yen, down from 102.04 yen.

The Fluctuation on Asian Stocks

2008-10-14T20:56:00.000-07:00

Asian stocks declined, a day after the region's benchmark index rallied the most in a decade, as concern earnings will deteriorate overshadowed a $2 trillion global bank rescue.

Posco, Asia's third-largest steelmaker, plunged 8.4 percent in Seoul after saying demand will decline this quarter, while BHP Billiton Ltd. lost almost 4 percent as oil dropped. Kawasaki Kisen Kaisha Ltd., Japan's third-biggest shipping line operator by sales, tumbled 8.8 percent after marine transport rates slumped to a three-year low. China Construction Bank Corp. fell 4.8 percent after Citigroup Inc. said Chinese lenders' profits may fall in 2009 as bad loans rise.

``Markets are still on a downward phase,'' Masahiko Ejiri, who helps manage about $30 billion at Mizuho Asset Management Co., said in Tokyo. ``We have to have some kind of evidence that the financial rescue plan is working. Many are anticipating weaknesses in economies.''

The MSCI Asia Pacific Index declined 1.9 percent to 94.81 as of 11:51 a.m. in Tokyo, led by producers of commodities and consumer discretionary goods. The index has dropped 40 percent this year on concern frozen credit markets will trigger a global recession.

Japan's Nikkei 225 Stock Average lost 1.4 percent to 9,311.22, led by Yamaha Motor Co. after saying it will halt some production. Hong Kong's Hang Seng Index dropped 1.9 percent. All other benchmark indexes in the region fell apart from Indonesia.

Standard & Poor's 500 Index futures slid 1.4 percent. The S&P fell 0.5 percent to 998.01 yesterday, after gaining the most since the 1930s the previous day.

Steel Demand

Posco, Asia's third-largest steelmaker, slumped 8.4 percent to 355,000 won in Seoul, as investors shrugged off a 40 percent gain in third-quarter profit. The last three months of the year will be ``very difficult,'' Chief Financial Officer Lee Dong Hee said yesterday. JPMorgan Chase & Co. cut its recommendation on the stock to ``neutral'' from ``overweight,'' citing the weakening outlook for demand.

Nippon Steel Corp., the world's second-largest mill, lost 12 percent to 323 yen in Tokyo. JFE Holdings Inc., the second biggest in Japan, retreated 7.5 percent to 2,330 yen.

BHP, Australia's largest oil producer, slipped 3.6 percent, to A$29.89. Woodside Petroleum Ltd., the second biggest, dropped 2.7 percent to A$39.33.

Crude oil lost 3.2 percent to $78.63 a barrel yesterday in New York amid skepticism that plans for rescuing banks will be enough to boost economic growth and fuel demand. The contract fell to $78.53 in after-hours trading.

Yamaha, Mazda

A U.S. plan to inject $250 billion into financial institutions followed an announcement that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

Shipping companies, among the most sensitive to the economic outlook, plunged throughout the region as freight rates slumped. The Baltic Dry Index, a measure of commodity-shipping costs, lost 8.5 percent yesterday, a seventh consecutive drop and the lowest level since August 2005.

Kawasaki Kisen tumbled 8.8 percent to 454 yen. Cosco Corp. Singapore Ltd., the shipbuilding and repair unit of China's biggest shipping company, fell 13 percent to 87.5 cents. Citigroup Inc. cut its ratings on Cosco to ``hold'' from ``buy,'' saying the credit crisis will hurt project financing.

Hanjin Shipping Co., South Korea's biggest shipping line, declined 5.2 percent to 22,900.

``This isn't a situation where we can be at all optimistic about the world economy,'' said Hisakazu Amano, head of fund management at T&D Asset Management Co., which oversees the equivalent of $39 billion in Tokyo.

Yamaha, Mazda

Yamaha Motor slumped 11 percent to 1,100 yen. The world's second-largest motorcycle maker will halt production at its plant in Manaus, Brazil, for 10 days as the global credit crisis crimps demand, while Nikko Citigroup Ltd. lowered the shares to ``sell,'' citing the stronger yen and outlook for falling sales.

Mazda Motor Corp., 33 percent owned by Ford Motor Co., slumped 9.6 percent to 284 yen after the Nikkei newspaper said the company has suspended plans to build a factory in conjunction with the U.S. automaker.

Telecom Corp., New Zealand's largest telephone company, dropped 5.8 percent to NZ$2.43 after cutting its earnings forecast as much as 8 percent due to capital spending costs.

China Construction Bank, the nation's second-biggest lender, fell 4.8 percent to HK$4.14. Industrial and Commercial Bank of China Ltd., which more than doubled its profit since 2005, lost 2.5 percent to HK$4.30. Bank of Communications Ltd., China's fifth largest, slumped 4 percent to HK$6.19.

Citigroup analyst Simon Ho and Franco Lam cut their earnings estimates for domestic banks by an average 20 percent for 2009 and 26 percent for 2010. The non-performing loan ratio of the nation's six largest publicly traded banks is likely to rise to 3 percent, they said in a note.

Bank of East Asia Ltd., which became the first Hong Kong bank to have a run on it in more than a decade, jumped 1.8 percent to HK$22.50 after the city's government said yesterday it will guarantee bank deposits.

The Policy from The Treasury Department

2008-10-14T20:52:00.000-07:00

The Treasury Department will make substantial profits on its investments in banks under the bailout program announced Tuesday — if the banks return to health within a few years. If not, the government could end up breaking even, or perhaps even lose money.

In a number of ways, Washington’s proposal comes with fewer strings attached than the rescue plans in European countries. That would seem to place the American government at a disadvantage, but Washington could benefit if that relative leniency helps banks recover quickly and provides a big profit on the equity stake it is receiving.

Whereas some European plans barred banks from paying dividends on common stock until the government got its money back and demanded promises that the banks would keep loans flowing to businesses and individuals, Washington allowed the banks that it invests in to continue paying dividends on existing common and preferred shares.

In addition, while European banks are being required in some cases to put government representatives on their boards, the American government will not receive board seats or have voting power.

Those differences were reflected in stock market reactions on Tuesday. Shares in the British banks that are being partially nationalized fell, as investors adjusted to the fact that it could be years before dividend payments are resumed. Share prices in American banks generally continued to rise as details of the Treasury’s plan became known.

Under the American plan, the government is guaranteeing new loans to banks — and planning to collect a fee for doing so — and it is planning to invest $250 billion by buying preferred stock from banks. That stock will come with warrants that give the government a chance to earn big profits if share prices recover.

The American plan provides both a carrot and a stick to encourage banks to repay the government as soon as possible with money they raised by selling shares to private investors.

The carrot allows banks to cut in half the number of common shares the government will eventually be able to purchase. That can be done if a bank sells stock by the end of 2009, and raises at least as much cash as the government is investing.

“If they can replace government capital with private capital, there will be much less dilution to existing shareholders,” said Robert Barbera, the chief economist of ITG. “That is important to current shareholders.”

Meeting that 2009 deadline may be a challenge. Economies in the United States, Europe and Japan appear to be in recession, and many economists think the declines will continue well into 2009. The extent to which banks will be able to regain investor confidence before the economy recovers — reducing the number of loans that are not being paid — is open to question.

The stick comes from the terms of the preferred stock. For the first five years, the Treasury will receive 5 percent interest, a rate not too far above what the government itself was paying to borrow a few months ago before financial panic caused investors to gobble up Treasuries as a way to avoid risk.

After five years, if a bank has not been able to repay the government, that interest rate will leap to 9 percent, and stay there until the money is paid back. There is no deadline for the repayment, but the government may sell its stake to private investors, assuming there are any who wish to buy it.

One important determinant of how well the American government does financially will be whether it makes wise choices regarding which banks to invest in. It has not promised to let all banks into the program, and it has not announced the criteria it will use.

Should banks fail despite the capital injection, the Treasury would be likely to lose most, if not all, of its investment. The government would be treated the same as other preferred stockholders, who generally suffer major losses in bank failures.

Another possible break for the banks is that the exercise price for the warrants will be the average common share price for the 20 days before the government makes its investment. That means that the price will reflect investor knowledge of the plan. If it continues to be favorably received by investors, that could mean the banks get higher prices for their shares than they would if the price were fixed today.

One index of regional bank stocks has risen 10 percent this week, with some banks that had been deemed among the most vulnerable doing even better.

The Speculation on U.S. Treasury Forced The yen fell

2008-10-13T18:22:00.000-07:00

The yen fell for a second day on speculation the U.S. Treasury will stabilize the financial system by investing $125 billion in U.S. banks, spurring investors to buy high-yielding assets funded in Japan's currency.

The yen also weakened against the Australian and New Zealand dollars, two favorites of so-called carry trades, after U.S. stocks yesterday gained the most in seven decades. European countries committed $1.8 trillion to guarantee bank loans and the Federal Reserve led efforts to flood money markets with dollars yesterday to prevent a financial system collapse.

``Policy makers are gradually restoring confidence in banks and credit markets,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``This promotes risk-taking activity that is likely to weaken the yen.''

The yen fell to 139.51 per euro at 8:36 a.m. in Tokyo from 138.57 late yesterday in New York. Japan's currency touched 132.24 on Oct. 10, the strongest since June 2005. Against the dollar, it was at 102.36 from 102.01. It advanced to 97.92 on Oct. 10, the strongest since March 19. The euro bought $1.3626 from $1.3581. The yen may fall to 139.60 per euro and 102.60 versus the dollar today, Ishikawa forecast.

Against the Australian dollar, the yen declined to 72.11 from 67.57 late yesterday in Asia. Japan's currency fell 3.9 percent versus the New Zealand dollar to 63.32.

Stock Rally

The Standard & Poor's 500 Index rose 11.6 percent yesterday, encouraging investors to sell the Japanese currency to buy high- yielding assets in carry trades. Japan's 0.5 percent benchmark interest rate is the lowest among developed nations.

Japan's currency has gained 17 percent versus the Australian dollar and 12 percent against the New Zealand dollar this month as credit-market losses prompted investors to reduce carry trades.

``The yen is probably getting near an end of its strong run that we've seen recently,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, in an interview on Bloomberg Television. ``It's a case where everyone goes all out to do whatever they can. As we get to some successful resolution, we'll see some weakness in the yen.''

The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.

The banks are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., said the people. One of the people also said Merrill Lynch & Co. will receive an investment.

U.S. Plan

The move by policy makers ``is not going to avoid a sharp global recession, but it's averting something a lot worse,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Risky assets are performing well today. I won't fight it.''

Losses in the dollar accelerated after the Fed said yesterday the European Central Bank, the Bank of England and the Swiss National Bank will offer financial institutions unlimited funds in the U.S. currency, providing easier access to dollars in response to demand for loans.

``This decision is a further step toward alleviating dollar funding pressures outside the U.S., which may have played a key role in creating substantial U.S. dollar upside pressure in foreign-exchange markets,'' Thomas Stolper, an economist at Goldman Sachs Group Inc. in London, wrote in a research note yesterday.

`Significant Downturn'

Non-U.S. banks have about $12 trillion in dollar- denominated liabilities, Stolper wrote, citing data from the Bank for International Settlements.

``The net impact of this banking crisis is likely to be a significant downturn in global growth, but it is not entirely clear who will emerge from this as a longer-term winner,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``The dollar is overbought in the short-term. Europe certainly has its own challenges.''

source:bloomberg.com

The Actions to get more Gain on Bank Bailouts of Asian Stocks

2008-10-13T18:18:00.000-07:00

Asian Market shows an agresive reaction after the U.S. and European governments agreed to buy stakes in banks to unlock credit markets.

National Australia Bank Ltd., Woori Finance Holdings Co. and and Woodside Petroleum Ltd. all jumped more than 9 percent. Mitsubishi UFJ Financial Group Inc. was poised to advance after sealing its $9 billion investment in Morgan Stanley. Japan's Nikkei 225 Stock Average jumped 11.4 percent to 9,208.20. The country's markets were shut for a holiday yesterday.

The MSCI Asia Pacific Index rose 2.6 percent to 90.94 as of 9:30 a.m. in Tokyo. Financial stocks accounted for a third of the advance.

``Confidence is returning preemptively,'' said Will Seddon, who helps oversee about $500 million at White Funds Management in Sydney. ``People don't want to be left out if and when there's a rally on the back of these initiatives by governments.''

Australia's S&P/ASX 200 gained 5.9 percent, its biggest advance since October 1997, and extending yesterday's 5.5 percent climb. South Korea's Kospi Index jumped 5.6 percent, bringing its two-day gain to 9.5 percent.

U.S. stocks staged the largest rally yesterday in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939. S&P 500 futures gained 1.9 percent today.

The U.S. government plans to buy stakes in nine major banks, according to people briefed on the matter. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.

Norway Offers $55.4 Billion Liquidity Boost to Commercial Banks

2008-10-12T21:10:00.000-07:00

Norway offered to swap as much as $55.4 billion in government bonds for commercial banks' mortgage debt, tracking government efforts worldwide to boost liquidity.

Banks will be able to use the notes as collateral to borrow funds, the government said in a statement yesterday. The program will be worth as much as 350 billion kroner and collateral requirements will be eased, it said.

Norway is ``prepared to implement necessary measures to maintain confidence in the banking system,'' the government said. ``Norwegian banks are affected by the turmoil in the international financial markets. Even if the Norwegian banks are fundamentally strong, their funding situation has deteriorated significantly.''

Governments and central banks are struggling to ease the crippling effects of the freeze in credit markets on financial systems and economies. Leaders of the 15 euro countries agreed last evening to guarantee bank borrowing and use government money to prevent big lenders from going under and stave off a recession.

The U.K. has said it will invest as much as 50 billion pounds ($87 billion) in struggling banks and the Bank of England will provide at least 200 billion pounds of loans.

U.S. Treasury Secretary Henry Paulson is also planning government investment in banks and is recruiting asset managers and other staff to carry out a $700 billion rescue plan.

Norway Sell-Off

The lack of a coordinated response in Europe last week contributed to the region's worst stock sell-off in two decades.

Norway's OBX Index, which comprises the largest companies traded in Oslo, declined on Oct. 10 to the lowest in more than three years, falling 8 percent. The index slumped 22 percent last week, the worst weekly drop since at least 2001.

Norwegians with investments in equity funds have lost as much as 100 billion kroner ($15.8 billion) since the end of June, Oslo- based Dagens Naeringsliv reported on Oct. 11, citing Nordea Bank AB Chief Economist Steinar Juel.

Domestic investors are taking their money out of banks or considering sending it abroad amid concern over the safety of deposits, the same paper reported on Oct. 9.

Nordic neighbor Iceland has been hardest hit in the region. The government last week seized control of Kaupthing Bank hf, the nation's biggest bank, completing the takeover of a financial industry that collapsed under the weight of foreign debt.

Central Bank Actions

Glitnir Bank hf, Landsbanki Island hf and Kaupthing are unable to finance about $61 billion of debt, 12 times the size of the economy, according to data compiled by Bloomberg. The local currency plunged in value even after central bank efforts to peg its value to the euro and government is seeking a loan from Russia and may ask for aid from the International Monetary Fund.

Norway's government said the local branch of Kaupthing Bank hf would be placed under public administration, Agence France- Presse reported last night, citing the Finance Ministry.

Central banks have also been acting to counter the impact of the crisis. Norways's central bank last week brought forward an interest rate meeting to Oct. 15 after the U.S. Federal Reserve, the European Central Bank, Sweden's Riksbank and three other banks lowered interest rates last week in an unprecedented coordinated effort to support the global economy. Norway has kept its benchmark rate at a five-and-a-half year high of 5.75 percent since June to limit inflation amid a labor shortage.

The central bank will also issue a fixed-rate loan with a two-year maturity in an effort to help smaller banks, according to the government statement.

The Norwegian krone on Oct. 10 fell to 6.2851 per dollar, from 6.0300 a week earlier, and to 8.4873 per euro, from 8.3030.

Nordic government bonds soared last week as investors sought the safest assets. The yield on Norway's 6 percent security maturing in May 2011 was at 4.12 percent from 4.48 percent at the end of last week, according to Danske Bank A/S prices. Yields move inversely to bond prices.

source:bloomberg.com

Governments Pledge Support makes an effect on Oil Price Rises

2008-10-12T21:05:00.000-07:00

Oil gained for the first time in four days after the 15 nations using the euro agreed to shore up their banks, and Richard W. Fisher, president of the Dallas Fed bank, said the U.S. Federal Reserve will do everything necessary to stabilize financial markets.

``Everybody is waiting to see evidence that these government interventions are having a positive influence, or are at least dampening the global panic,'' said Toby Hassall, a research analyst with Commodity Warrants Australia Pty in Sydney. ``The sentiment in the market is still very poor.''

Crude oil for November delivery rose as much as $3.37, or 4.3 percent, to $81.07 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $80.34 a barrel at 11:07 a.m. in Singapore.

The contract fell $8.89, or 10 percent, to $77.70 a barrel on Oct. 10, the lowest settlement since Sept. 10, 2007. Prices rallied post-settlement as U.S. equity prices climbed from five-year lows late in the session.

New York oil futures dropped 17 percent last week, the biggest one-week decline since the U.S.-led invasion of Iraq in March 2003. Copper, nickel and aluminum also dropped as world equity markets plunged and the International Monetary Fund warned the world was on the cusp of recession.

`Reasonably Priced'

Oil ``looks pretty fair and reasonably priced at the moment,'' Commodity Warrants' Hassall said. ``Markets are pricing in a global slowdown, if not a full-blown recession.''

Brent crude oil for November settlement rose as much as $2.91, or 3.9 percent, to $77 a barrel on London's ICE Futures Europe Exchange, and traded at $76.27 at 11:01 a.m. Singapore time. The contract slumped $8.57, or 10 percent, to $74.09 on Oct. 10, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent last week.

The International Energy Agency, an adviser to 28 nations, on Oct. 10 cut its forecast for global oil demand for 2008 to 0.5 percent, the lowest since 1993. Demand next year will rise by 700,000 barrels a day to 87.2 million, 440,000 barrels fewer than the Paris-based agency projected a month earlier.

Oil fell from a record $147.27 in New York in July as demand expectations deteriorated and the weaker outlook in Europe and Asia lifted the dollar, reducing the appeal of commodities priced in the U.S. currency.

Goldman Slashes Forecast

Goldman Sachs Group Inc. lowered its crude oil price forecasts for a second time this year after the global financial crisis deepened.

Goldman reduced its estimate for the U.S. benchmark West Texas Intermediate crude for the fourth quarter to $75 a barrel from $110, and cut its year-end target to $70 a barrel from $115, Goldman's research analysts led by Jeffrey Currie and Giovanni Serio said in a report today.

``We clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand,'' the analysts wrote in the report.

Goldman lowered their forecasts for 2009, with the average for the year reduced to $86 a barrel from $123. The bank's end- 2009 target was cut to $107 a barrel from $125.

Euro Gains

The euro jumped the most in three weeks against the dollar today on the region's bank rescue plan and was another support for oil, Hassall said. Investors would now be looking for signs that confidence is returning to global markets, he said.

``We'll need a little bit of clear evidence that the falls in equity markets are finished before we'll see any real strong bounce in commodity prices,'' Hassall said.

S&P 500 futures expiring in December added 37.40 points, or 4.2 percent, to 928.40 as of 9 a.m. in Tokyo after the index slid 18 percent last week, its worst drop since 1933. Australia's S&P/ASX 200 Index rose 5.5 percent to 4,180.10 after dropping 16 percent last week.

Asian stocks rises After Australia guaranteed bank deposits and European leaders agreed to support lenders

2008-10-12T21:01:00.000-07:00

Asian stocks rises After Australia guaranteed bank deposits and European leaders agreed to support lenders. They do this as global effort to end the credit crisis. U.S. index futures gained.

National Australia Bank Ltd., the country's largest, surged 8.9 percent and Woori Finance Holdings Co. jumped 5.4 percent after Australian funding costs and Asia-Pacific bond risk eased. Leaders of the 15 countries using the euro pledged over the weekend to guarantee bank borrowing. Cheung Kong Holdings Ltd. paced gains in Hong Kong after the government said the city may use its foreign reserves to stabilize financial markets. BHP Billiton Ltd. climbed 5.9 percent after crude oil surged.

The MSCI Asia Pacific excluding Japan Index added 1.6 percent to 258 at 10:37 a.m. in Hong Kong. The index tumbled 20 percent last week. Financial stocks accounted for more than half of today's gain. Japan is shut for a holiday. Standard & Poor's 500 Index futures advanced 4 percent.

``The measures are improving sentiment,'' said Hugh Dive, Who helps manage about $3 billion at Sydney-based Investors Mutual Ltd. ``It may prevent a depression, but a lot of companies are facing tough times, so you're unlikely to see them reporting stronger outlooks and earnings. The economy is still slowing.''

Treasury futures fell for the fourth time in five days, while the euro rose the most in three weeks against the dollar and the yen.

Australia's S&P/ASX 200 gained 3.7 percent, led by National Australia Bank. South Korea's Kospi added 1.1 percent. Hong Kong's Hang Seng Index advanced 0.6 percent.

Market Rout

World leaders are working to support financial systems to unlock credit markets and stop the rout in global stock markets. About $25 trillion in value has been erased in value this year on concern that frozen credit markets will trigger a global recession. The world's financial firms have reported almost $600 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

In the U.S., Dallas Federal Reserve President Richard W. Fisher said the Fed will ``consider every option'' to restore confidence.

U.S. stocks fell on Oct. 10 in volatile trading, with the Dow Jones Industrial Average swinging the most in its history. The S&P 500 lost 18 percent last week, its worst drop since 1933.

National Australia Bank, the country's largest lender, added 8.9 percent to A$22.66 after Prime Minister Kevin Rudd said the government will guarantee all bank deposits for the next three years.

Money Injection

Funding costs fell. The premium charged to exchange floating- for fixed-rate interest payments in Australia for a period of one year shrank to 75 basis points, or 0.75 percentage point, as of 11:56 a.m. in Sydney, from 157 on Oct. 10, the biggest decline since 2000.

A gauge of funding availability also eased as the central bank added A$2.85 billion ($1.9 billion) to the financial system.

Woori Finance climbed 5.4 percent to 10,850 won after the cost of protecting corporate and government bonds in Asia and the Pacific from default dropped.

The Asia index of 50 investment-grade borrowers outside Japan plunged 55 basis points to 295. Declines indicate perceptions of creditworthiness are improving.

Cheung Kong, Hong Kong's second-largest developer, rose 3 percent to HK$69.55.

Hong Kong may use all of its foreign reserves to support its financial markets, Julia Leung, under secretary for financial services, said in an interview with Hong Kong Commercial Broadcasting. China will boost domestic demand to sustain the nation's ``fast and stable'' economic growth, central bank Deputy Governor Yi Gang said.

BHP Billiton, Australia's biggest oil producer, advanced 5.8 percent to A$29.35. SK Energy Co., South Korea's largest oil refiner, rose 4.8 percent to 70,200 won.

Crude oil rose 3.7 percent to $80.60 a barrel today in after-hours trading, on speculation the actions to support the financial system will ease the credit turmoil that threatened global growth and demand for resources. The contract plunged 10 percent to $77.70 on Oct. 10 in New York.

$2.5 billion to Buy Sovereign Bancorp

2008-10-12T20:45:00.000-07:00

Banco Santander of Spain is in advanced talks to acquire Sovereign Bancorp for about $2.5 billion, people briefed on the matter said, as another frantic weekend of talks heralded the next wave of banking consolidation.

Santander, which would gain a larger American presence with the deal, will probably pay around $3.81 a share, or where Sovereign’s shares closed Friday. Sovereign, a savings and loan, has been hobbled by bad mortgages during the housing slump.

As banks brace to report a new wave of losses in the third quarter, they are finding it very hard to raise money from private investors. Even stronger institutions, like Bank of America, have struggled to raise new funds.

Treasury Department officials are weighing plans to make direct investments in banks to help them weather the current storm. But weaker ones have already begun reaching out to potential acquirers. The National City Corporation, for example, put itself up for sale last week, people briefed on the situation said.

The talks at Sovereign, whose shares have plunged 77 percent over the last year, may be the latest sign of shotgun consolidation that is even bringing the thinning ranks of healthier European and Asian banks to the negotiating table.

Santander has been considered a logical white knight for Sovereign ever since it took a nearly 25 percent stake in the bank three years ago and filled three seats on its board.

By buying the remaining shares, Banco Santander would be able to put Sovereign on stronger financial footing. It also would reduce the chance that its original stake would be wiped out if Sovereign faltered.

While other Spanish banks are deluged by losses, Banco Santander has been one of the more robust players to emerge from the credit crisis. It steered clear of many of the problems tied to American subprime mortgages and other complex investments, and it is now seizing opportunities on the global stage. On Friday, it completed a purchase of Alliance & Leicester of Britain at a bargain-basement price of 1.3 billion pounds ($2.2 billion). It was also among the early bidders for Washington Mutual and Wachovia in the United States.

Sovereign, a Northeast regional bank based outside Philadelphia, has been battered during the housing crisis. After barreling into new markets in the southeastern and southwestern United States, it became swamped with mortgage and home-equity losses as home values in those regions collapsed.

Along with Banco Bilbao Vizcaya Argentaria, Banco Santander has been seeking a bigger foothold in fast-growing American markets like Florida, Texas and Arizona, which have strong ties to Latin America, where the bank also has expanded.

A marriage between Banco Santander and Banco Hispano in 1999 gave rise to the bank in its current form and gave it a large presence in Europe and Latin America. In 2004, Santander bought Abbey National of Britain for $15.6 billion.

Sovereign has also been hit hard by a large auto loan portfolio and big holdings of Fannie Mae and Freddie Mac preferred stock, which were effectively wiped out when the government placed the companies in receivership. As a result, it has sharply pulled back from making new loans.

Japan financial sector Got Crisis

2008-10-09T23:36:00.000-07:00

The global economic crisis claimed its first Japanese financial institution on Friday and the government looked to prop up smaller banks, as Tokyo shares flirted with their biggest one-day fall since the 1987 market crash.

Escalating bankruptcies in the property sector and among small businesses, along with fears of a global recession, have dragged Japan's export-dependent economy into the crisis, sending blue chip shares sliding by a quarter so far this week.

"This is panic. New York, the currencies -- there's nothing left for us to trust," said Takashi Ushio, head of investment strategy at Marusan Securities, as the Nikkei share average slid more than 10 percent, following sharp falls on Wall Steet.

"Investors are scurrying to convert to cash. A lack of confidence is coupling with panic."

As unlisted Yamato Life Insurance Co failed, the government said that to help hard-hit smaller lenders it may revive a bank rescue law from the 1990s Japanese banking crisis. One newspaper report suggested Tokyo may set up a $100 billion fund.

Fearful selling also sent Hong Kong and South Korean shares down 7 percent while Singapore declared its first recession in six years as the U.S. stock plunge heaped pressure on economic powers to halt a global spiral of financial distress and slowing growth.

Financial policy makers from the Group of Seven major industrial nations, including Japan, are to meet in Washington later on Friday to consider what to do next, as bank bailouts, liquidity injections and interest rate cuts across the world have failed to quell investor anxiety.

After arguing for months that Japan had avoided the worst of the global financial crisis, its leaders acknowledged they were increasingly worried about the stock falls.

"(Share prices) have fallen to the level where they can hurt firms' funding. So I have instructed the ruling coalition to come up with steps," Prime Minister Taro Aso told reporters.

The yen soared as investors fled riskier investments elsewhere, while Japanese government bonds were crunched as bond dealers sought cash.

"No one is buying. Fundamentals don't matter anymore and there's no explanation for such a plunge," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.

LIFE INSURER FAILS

Yamato Life, an unlisted insurer, failed with $2.7 billion in debt, although government ministers and analysts were quick to play down the risk of contagion.

"It is the smallest company in our nation's insurance sector," Economics Minister Kaoru Yosano told reporters. "The incident is a failure of a company that had a unique business model."

Yamato said it had actively pursued investments such as hedge funds and real estate investment trusts to boost returns.

"The news of Yamato Life was totally unexpected, sending shivers through the spine of many of us," said Hideki Amikura, deputy general manager of the forex section at Nomura Trust and Banking. "It will prompt fund managers to further trim risky assets. That is likely to boost the yen."

"On top of a tumble in U.S. stocks, we have domestic credit fears today. The news about Yamato Life came as rather a surprise and that is fuelling more fear," said Tsuyoshi Segawa, equity strategist at Shinko Securities.

Increasing problems for small businesses as Japan heads into recession and a particular squeeze in the property sector, after building regulations were tightened, have hurt banks with loans in these sectors.

With several property companies folding, some regional banks have been forced to raise reserves against bad loans and lower their earnings forecasts.

Finance Minister Shoichi Nakagawa, in Washington for the G7 and IMF meetings, said he had ordered Japan's financial regulator to investigate reviving a bank rescue law last used in the 1990s, when the bursting of a property and stocks bubble crippled Japan's banking sector.

Lawmakers from the ruling parties were also looking into the issue, Nakagawa said.

The Nikkei business daily said the resurrected law, which only expired in March, might be used to create a 10 trillion yen fund to help regional banks.

The ruling parties hoped to include this in a second economic package they aim to issue later this month, the paper said.

The government has already prepared an $18 billion stimulus package and Aso has called for another one.

The Nikkei share average tumbled 11 percent before it found its feet, with a surging yen added to fears for Japan's big exporters.

Trading in key stock futures was briefly halted, as the Nikkei took its losses for this year to 46 percent.

The euro sank to a three-year low against the safe-haven yen while the dollar hit a six-month low of 97.91 yen, as the panic gripping investors deepened on fears that the global financial system is faltering.

Even government bonds, which usually do well when investors flee risk, suffered a steep sell-off as bond dealers scrambled for cash after activity in a key repurchase market froze.

Trading in Japanese government bond futures was halted after the sell-off, which drove the benchmark 10-year yield up 11.5 basis points to 1.570 percent.

17% Doesn Enough for Russia's Micex Index

2008-10-09T23:26:00.001-07:00

Russia's Micex Index rallied as much as 17 percent and emerging market stocks rose the most in three weeks as coordinated central bank rate cuts spurred investors to start buying shares at the cheapest valuations in a decade.
Russia's Micex Stock Exchange recovered from a 14 percent drop yesterday that reduced the value of companies to 3.9 times annual earnings, the lowest level of any European market tracked by Bloomberg. The MSCI Emerging Markets Index rose 2.8 percent to 622.86, after losing 23 percent this month.

South Korea, Taiwan and Hong Kong today joined the Federal Reserve, European Central Bank and China in an emergency bid to stem the worst financial meltdown since the Great Depression through a sudden reduction in interest rates. Emerging markets shares have lost half their value this year, the biggest annual slump recorded in more than two decades by the MSCI index.

``There are bargains on almost every single market around the world,'' Mark Mobius, who manages $30 billion as executive chairman of Templeton Asset Management Ltd., said in a Bloomberg television interview today. Mobius, 72, said he's looking to buy stocks in the markets that fell the most, including Russia, China, Brazil, Turkey, South Africa and India.

Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data. The Micex Index dropped as much as 50 percent.

``Investors were skinned alive,'' said James Fenkner, managing director at Red Star Asset Management LP in Moscow. ``The extreme pessimism has lifted,'' though it may be months before confidence is fully restored.

Cash for Banks

Russian President Dmitry Medvedev said on Oct. 7 that the government will channel a further 950 billion rubles ($36 billion) into the country's biggest banks. Some of the money will come from currency reserves, the world's third largest, and add to $150 billion in loans, cash auctions and tax cuts to counter the credit squeeze.

The government will start delivering cash to banks in ``the next few days'' to ``calm the markets,'' Medvedev's senior economic aide, Arkady Dvorkovich, said in a Bloomberg Television interview in Moscow today.

The ruble strengthened to its highest level in four days against the dollar, rising 0.3 percent to 26.0422. Russia's central bank supported the currency with as much as $12.8 billion this week and about $5.7 billion last week, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow.

Oil Producers

OAO Rosneft, Russia's biggest oil company, was 16 percent higher at 4 p.m. in Moscow, having gained as much as 25 percent, while the Micex was up 13 percent. Crude oil for November delivery climbed as much as 87 cents to $89.82 a barrel in electronic trading on the New York Mercantile Exchange.

OAO Sberbank, Russia's largest lender, rose 4.1 percent after earlier jumping as much as 14 percent.

The cost of protecting Russian government debt against nonpayment using credit-default swaps fell from the highest in more than four years to 325 basis points from 348. Contracts on OAO Gazprom, Russia's biggest company, declined 9 basis from a record 527, according to CMA Datavision prices.

The MSCI Emerging Markets Index declined 18 percent last month, valuing the 789 constituent companies at 8.7 times their average annual earnings, the cheapest since 1998, according to data compiled by Bloomberg.

Romania to Oman

Oman's Muscat Securities Market Index rose 8.3 percent today, the biggest one-day gain since 1997. Lithuania's OMX Vilnius Index jumped 11.6 percent, heading for its biggest one- day gain since the index began in 2000. Egypt's Hermes Index rose 4.4 percent today, after falling by a record 22 percent in the last two days.

Romania's leu climbed as much as 2.5 percent against the euro today to 3.8069, the best performer among European currencies, recovering from an almost four-year low after dropping 7.7 percent against the euro in the past month.

China's CSI 300 Index of shares fell 1.4 percent after earlier rising as much as 2 percent. South Korea's Kospi Index advanced 0.6 percent. Indonesia's exchange remained closed for a second day after stocks plummeted yesterday.

Bond prices fell as the extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 12 basis points to 5.27 percentage points, the highest spread since May 2004, according to JPMorgan Chase & Co.'s EMBI+ index.

Credit-default swaps on Ukraine climbed 42 basis points to 1075, the highest in Europe, after President Viktor Yuschenko called an early parliamentary election.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's or a country's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Investors pulled a record $52.1 billion from U.S.-managed stock

2008-10-09T23:23:00.000-07:00

Investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds in the past week, seeking the safety of government-insured bank deposits as the financial crisis worsened.

Shareholders took $43.3 billion from stock funds and $8.8 billion from bond funds in the week ended Oct. 8, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus followed $72.3 billion of outflows in September, the most in a single month. Investors deposited $185.5 billion into bank accounts last month through Sept. 22, TrimTabs said, citing U.S. Federal Reserve data.

``People are scared,'' Conrad Gann, TrimTabs' chief operating officer, said in an interview. ``This market is different from what we've seen before.''

The five largest diversified U.S. stock fund managers, including Fidelity Investments and Vanguard Group Inc., posted an average 28 percent loss this year through Oct. 6, about 2 percentage points worse than the Standard & Poor's 500 Index, according to Morningstar Inc. Investors mostly switched into fixed-income through August, putting $97 billion into bond funds while withdrawing $74 billion from stock funds, TrimTabs said.

``A lot of our favorite stock funds had financial bets that hurt heavily,'' said John Coumarianos, a stock analyst with Chicago-based Morningstar. ``Others were heavily weighted in international stocks to boost returns, a move that backfired.''

1987 Comparison

Stock-fund withdrawals represented 1.3 percent of equity assets, said Brian Reid, chief economist at Investment Company Institute, a Washington, D.C.-based mutual-fund industry organization. During the market crash of 1987, stock fund outflows were 3 percent of assets, the ICI said.

Mutual funds held a total of $11.6 trillion on Aug. 31, including $5.6 trillion in stock investments, $1.8 trillion in bonds and about $4.2 trillion in money-market assets, according to ICI data.

Boston-based Fidelity's U.S. stock funds lost an average of 32 percent, the most among the group, Morningstar said. The $29 billion Magellan Fund has plunged 44 percent this year through yesterday, the worst performer among actively managed U.S. stock funds with assets of more than $20 billion, according to Bloomberg data.

American Funds, Vanguard

``Nine months is a short time to assess properly a fund's performance,'' Fidelity spokeswoman Sophie Launay said in an e- mail. ``This is even more relevant in the type of market environment we have seen so far this year, when the market's higher volatility may cause some long-term investors overwrought with fear to make rash decisions that alter a well diversified portfolio.''

At American Funds, run by Los Angeles-based Capital Group, the average U.S. stock fund declined 28 percent this year. Growth Fund of America, the largest U.S. mutual fund with $179 billion in assets on Aug. 31, fell 33 percent, lagging behind 63 percent of its peers, Bloomberg data show.

Stock funds managed by Vanguard, based in Valley Forge, Pennsylvania, and Baltimore's T. Rowe Price Group Inc. fell an average of 27 percent. At Franklin Resources Inc. in San Mateo, California, stock funds dropped 28 percent.

The S&P 500 fell 8.9 percent in September including reinvested dividends, the worst one-month performance in six years. The index has fallen 37 percent this year, and today slipped to its lowest level since April 2003.

Bond mutual funds have fallen 4.5 percent this year, Morningstar data show, as investors have shunned all but the safest government-backed debt.

Credit Crisis

The credit crisis that began last year with the collapse of the subprime-mortgage market drove companies such as Lehman Brothers Holdings Inc. into bankruptcy in September and led the U.S. government to enact a $700 billion financial rescue plan.

The Reserve Primary Fund last month became the first money- market fund in 14 years to fall below $1 a share, known as breaking the buck. The decline resulted from losses on short- term debt issued by Lehman and triggered a run on money funds.

The Treasury has started an insurance program that protects investors against losses on money deposited with participating funds. Investment companies with more than 95 percent of money- market fund assets have signed up.

Investors put $49.4 billion into money-market mutual funds in the week ended Oct. 7, according to data compiled by IMoneyNet Inc., of Westborough, Massachusetts.

Vanguard spokeswoman Rebecca Cohen said some investors moved money from stock and bond funds into the firm's money- market funds, though she called it only a ``modest portion of our investor base.''

Investors might have been driven toward banks by an extra measure of protection from the Federal Deposit Insurance Corporation, which announced last month that it would raise its bank deposit insurance to $250,000 from $100,000.

Gold prices jump above $900 after Fed cuts rates

2008-10-09T23:19:00.000-07:00

Gold prices shot up above $900 an ounce Wednesday after the Federal Reserve slashed its key interest rate, undercutting the dollar and boosting demand for hard assets as an inflation hedge. Silver also rose.

In a coordinated effort with central banks around the globe, the Fed lowered its benchmark federal funds rate from 2 percent to 1.5 percent. The Bank of England and the European Central Bank also lower their key rates, as did central banks in China, Canada, Sweden and Switzerland as part of an emergency effort to unclog world credit markets and prevent a global economic collapse.

Lower interest rates can boost the economy by making credit cheaper, but they also tend to depress the dollar. That encourages investors to shift money into commodities like gold and silver, which are known for holding their value during times of rising inflation.

Gold for December delivery jumped $24.50 to settle at $906.50 an ounce on the New York Mercantile Exchange, after earlier rising as high as $924.90.

Gold has jumped $104 — or 13 percent — in the past month as a widening financial crisis batters stock markets across the globe, spurring investors to buy the safe-haven metal.

Still, Jon Nadler, analyst with Kitco Bullion Dealers Montreal, said gold should be trading higher "in the wake of these apparently desperate attempts by officialdom to keep the fabric of the markets from ripping apart."

"Today would be the ideal day to really make a stab at much higher values," Nadler said in a note.

Other precious metals traded mixed.

December silver surged 39.2 cents to settle at $11.772 an ounce, while December copper fell 17.95 cents to settle at $2.355 a pound — after earlier tumbling to a 19-month low of $2.285.

In energy markets, oil prices closed down Wednesday after touching their lowest level this year, pressured by a huge jump in U.S. crude inventories and more signs of dwindling demand.

Light, sweet crude for November delivery fell $1.11 to settle at $88.95 on the Nymex. Oil at one point fell to $86.05 — the lowest price since Dec. 6, 2007.

In other Nymex trading, heating oil futures fell 1.12 cents to settle at $2.4945 a gallon, while gasoline futures fell 3.3 cents to settle at $2.0298 a gallon after earlier falling to a one-year low.

In agriculture trading, grain prices rose on the Chicago Board of Trade.

Wheat for December delivery rose 4.75 cents to settle at $6.08 a bushel, while December corn added 10.5 cents to settle at $4.275 a bushel. November soybeans rose 38 cents to settle at $9.64 a bushel.

The Injections of more than $32 billion makes Market Rates Rises

2008-10-09T23:15:00.000-07:00

Asian money-market rates climbed as injections of more than $32 billion by Japan and Australia and a round of global interest-rate cuts failed to unlock credit.

The three-month interbank offered rate in Tokyo, known as Tibor, was fixed at 0.878 percent, the highest since March 1998. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate gained to 108 basis points in Sydney, from 89 yesterday.

``You just don't know whether the person you're lending to is going to be the guy that has the weak balance sheet and is going to fall over,'' said Sally Auld, interest-rate strategist at JP Morgan Securities Australia Ltd. in Sydney. ``What markets are telling you is that it doesn't matter what central banks and governments do.''

The Bank of Japan added 3 trillion yen ($30.3 billion) to the banking system and the Reserve Bank of Australia pumped in A$2.63 billion ($1.8 billion) after the cost of borrowing in dollars for three months in London soared to the highest level this year.

Hong Kong's three-month interbank offered rate climbed 1 basis point to 4.41 percent, the highest since Oct. 31 last year. Singapore's three-month dollar loan rate increased for a fourth day, rising 23 basis points to 4.74 percent, according to the 11 a.m. fixing by the Association of Banks in Singapore. The cost is at the highest this year.

Loan Growth

The BOJ has pumped more than 25 trillion yen into the system over the past three weeks, the most in at least six years, after lending growth at Japanese banks slowed in September for the first time in nine months as companies cut earnings forecasts. Loans, excluding those by credit associations, rose 1.8 percent in September from a year earlier, after increasing 2 percent in August, the Bank of Japan said today.

Japan's overnight call rate climbed as much as 18 basis points, or 0.18 percentage point, to 0.72 percent, before falling back to 0.5 percent following a second injection of cash, according to brokerage Tokyo Tanshi Co.

The Reserve Bank of Australia added cash through so-called repurchase agreements after estimating money markets would have a deficit of A$1.84 billion in funds today. Australian banks reduced deposits held at the central bank by A$1.37 billion to A$8.36 billion yesterday, after those holdings reached a record A$11.04 billion on Sept. 30, the RBA said today on its Web site.

The Statement Of IMF on Global Situation

2008-10-09T23:13:00.000-07:00

The International Monetary Fund said on Thursday it was ready to lend to countries hit by the global credit crunch and had activated an emergency financing mechanism first used in the 1990s Asian crisis.

The Fund already sent a mission to Iceland, where the government has seized control of its largest bank, and has warned that the worst financial crisis since the 1930s Great Depression could inflict lasting economic harm on the world.

"Yesterday I activated emergency procedures of the IMF to respond quickly," IMF Managing Director Dominique Strauss-Kahn told a news conference. "We are ready to answer any demand by countries facing problems," he said, adding that no country is immune from the crisis.

The IMF chief said the IMF was willing to provide financial assistance not only to emerging and developing nations, but also to Western countries.

"Nobody knows if some ... advanced economies will not also be in need of some help by the IMF," he said, adding that countries needing to borrow will face more streamlined conditionality than normal and funding will be made available quickly. "Very quickly means two weeks at most," he added.

After several years of no major crises in emerging economies, the move puts the IMF's board of member countries and staff on alert that the Fund will have to respond quickly if a country needs financial help.

It also puts the global financial firefighter more at the forefront of the current financial crisis following months of being on the sidelines.

Panic over toxic, illiquid U.S. mortgage loans has sapped confidence in financial institutions, forced governments to pledge hundreds of billions of dollars of taxpayer money and pushed Western and other central banks to deliver their first coordinated interest rate cut.

Speaking ahead of IMF and World Bank meetings of world finance leaders in Washington this weekend, Strauss-Kahn said the main task for policy-makers was to restore confidence and calm global markets.

Group of Seven finance ministers and central bank chiefs also meet in Washington on Friday to consider their options.

The IMF's emergency facility was created in 1995 as a way of speeding up the approval of loans to countries in peril.

It was first used in 1997 to help the Philippines, Thailand, Indonesia and South Korea end crushing runs on their currencies during the Asian financial crisis.

The IMF, which played a central role in the bailouts of countries in Asia and Latin America in the 1990s, relied on lending to fund its operations. But with fewer crises over the years, it had faced a growing income deficit, prompting an agreement in April to sell some of its gold stocks and invest profits in government and corporate bonds.

The IMF has about $200 billion immediately available to lend to countries in need but can tap other sources. This is small compared to the trillions of dollars central banks and governments have poured into the financial system over the past few weeks.

UNDER PRESSURE

Emerging markets are under pressure again after strains in the United States and Europe spread. Investors are fleeing their securities for safer assets, foreign banks are cutting lending and the countries' exporters are braced for weaker demand from Western consumers.

Strauss-Kahn renewed calls for more coordinated steps to calm panicky markets beyond the unprecedented simultaneous action of central banks on Wednesday to cut interest rates.

He said the global economy was on the cusp of recession but with quick and forceful action, the spreading crisis could be contained.

"All kinds of cooperation has to be recommended. All lonely acts have to be avoided, if not condemned," he said.

His calls for more coordination were backed by World Bank President Robert Zoellick who said he hoped a meeting of Group of Seven industrial nations on Friday will indicate they "are getting ahead of the curve."

He said while countries will take different actions, tailored for their own circumstances, they should coordinate beyond just the G7 members to target the same basic problems.

"The actions need to be coherent and reinforcing," he said, referring to Wednesday's simultaneous rate cut by central banks.

Philippines Market panics, closes 8.3% lower

2008-10-09T23:08:00.000-07:00

Stocks closed sharply down by 190.64 points or 8.33% to 2097.8 as panic in Asian markets spread following a Wall St. meltdown.

The Nikkei headed for its biggest one day fall since the 1987 market crash, spooking all markets in the region.

Indonesia kept its market closed for the third consecutive day.

Singapore admitted its economy had entered into a recession, its first in six years. It also eased its monetary policy, another first more than four months.

Losers swamped gainers 135 to 7, while 12 stocks remained unchanged.

A total of 2,740.65 million shares were traded, valued at P3.03 million.

All stock indices closed lower, with the property sector closing 9.57% down.

International news wires reported the Dow Jones industrial average tumbled 679 points -- more than 7.0 percent -- to its lowest level in five years.

US stocks took a nosedive after a major credit-rating agency said it might cut its rating on General Motors and Ford, further unnerving investors already fretting over the impact of tight credit on the economy.

The Surprise on Asian credit

2008-10-09T23:00:00.000-07:00

The cost of protection against defaults in Asian's sovereign and corporate debt soared to record highs on Friday amid fears the financial crisis could soon spread to the region, traders said.

The widening spreads in regional credit default swaps comes as stock markets worldwide continued to tumble as investors fear a deep global recession, despite government efforts to revive frozen credit markets.

"There's a general consensus that Asia is in better shape. But that doesn't mean it won't be affected. Clearly once American consumers start to scale back and then in Europe, that's going to affect Asia," said Adil Chaudhry, head of regional credit markets for Scotiabank in Singapore.

"Even though the banks are not as extended and haven't made as many structured and other types of investments as their peers in Europe and North America, they still will obviously be affected by this," he added.

The iTRAXX Asia ex-Japan high-yield index a key measure of risk aversion for the region's "junk"-rated credit, soared by about 90 basis points to a record 890/940 bps.

The equivalent investment-grade index widened by 40-50 basis points to 318/338.

Asian CDS spreads have now widened beyond benchmark levels in Europe and the United States. In large measure analysts attributed the discrepancy to the lower liquidity in the region, which tends to magnify volatility.

Investors are also concerned about worsening finances in some countries in the region as well as instability in their financial sectors. South Korea's five-year CDS widened by 30-40 basis points to about 345 basis points, continuing to trade at record levels.

That means an investor would need to pay $345,000 annually to insure against a default in $10 million of the country's underlying debt. At the end of 2007, the cost was only $40,000.

South Korea has been particularly punished amid worries about its current account deficit and the reliance of its banks and corporate sectors on short-term external financing at a time when obtaining credit comes at a steep premium.

Risk aversion in Asia has also been particularly high due to geopolitical concerns, and to some degree, due to a lack of confidence about policy responses a decade after a financial crisis dented economies in the region, analyst said.

To some, Indonesia, hard-hit by the Asian financial crisis, is a good example.

Southeast Asia's top economy has been battered by fears that it faces a a widespread financial crisis involving both its currency and equities, a well as reduced exports of commodities such as palm oil.

"People just want to get their money out of Indonesia," said a Singapore-based fund manager. "We haven't forgotten what happened 10 years ago."

The Market more Stabile After Global Rate Cuts

2008-10-09T22:57:00.000-07:00

Different from what happened in US, Stock markets in Asia stabilized Thursday, as interest-rate cuts across the region helped ease investor fear.
Europe was also trading higher early in the day but retrenched in the afternoon with most of the indexes showing declines by the end of the day.

Following an orchestrated rate cut in the United States and Europe, the central banks of China, South Korea, Taiwan and Hong Kong all reduced the cost of borrowed money. China lowered its one-year rate Wednesday night, while South Korea, Taiwan and Hong Kong all acted Thursday morning.

The effect on stock markets in Asia was to replace a five-day downward spiral of panic, fear and fast-disappearing wealth with a relatively quiet day of relief.

Japan's benchmark Nikkei average, which plunged nearly 10 percent on Wednesday, ended the day off by 0.5 percent, as political officials debated whether they should pursue new public spending projects to stimulate an economy buffeted by the drop in world auto sales.

Elsewhere in the region, Hong Kong's Hang Seng index gained 3.31 percent, while South Korea's Kospi Index rose 0.6 percent.

South Korea's currency has lost a third of its value against the dollar this year, prompting President Lee Myung-bak to warn Wednesday that currency speculators must stop "greedily pursuing private interests" when their nation is in trouble.

While the Nikkei ended slightly down overall, some buyers were attracted into the market by the low prices for blue-chip stocks. Nippon Steel, Japan's largest steel company, was up more than 6 percent, after falling 12 percent Wednesday. Shares in Toyota Motor also rebounded, but not very much. They were up about 1 percent, after falling 11 percent the day before.

Fear and a worsening economic outlook had pushed indexes from Mumbai to Saudi Arabia to London down sharply Wednesday before central banks around the world orchestrated the interest-rate cut. European markets rebounded slightly later in the day before falling again.

Regulators in Indonesia and Russia halted trading Wednesday after declines of more than 10 percent. Mumbai's Sensex index plunged nearly 6 percent when markets opened, then staged a partial recovery. Markets also fell in Persian Gulf countries, frustrating banking officials there who said economic indicators in the region remain solid.

But Thursday, European markets were higher by between 1 and 2 percent, early in the day. They fell as the day wore on, however, to register losses of between 1 and 3 percent.

The Decission of Indonesia stocks on its stock market

2008-10-09T22:52:00.000-07:00

Indonesia Stocks Decides to reopen its stock market on Friday after suspending trade for two days and after policy makers unveiled new measures aimed at calming fears that Southeast Asia's top economy faces a new crisis.
But with new steep losses on Wall Street on Thursday and fresh plunges on Asian markets on Friday traders expect the market to drop.
"I think the index will drop by another 100-plus points this morning, maybe slide by around 10 percent again," John Teja, head of equities sales at Ciptadana Securities said.

"The bloodbath continues. This is one of the worst that I have ever seen," he added.
Following some other countries, Indonesia eased on Thursday accounting rules on the fair value of assets, or mark-to-market. It has also eased reserve requirements for commercial banks as well as made it easier for listed firms to conduct share buybacks.

Finance Minister Sri Mulyani Indrawati said after announcing the new measures she expected them to "lead to a more conducive and calm situation not only in the stock exchange but also in our banking sector and the money market."
The central bank, Bank Indonesia, also said it now saw more room to cut interest rates. This followed it stating that inflation was its main concern, having on Tuesday hiked its overnight policy rate by 25 basis points to 9.50 percent.
But Sarah-Jane Wagg, president director of UBS Securities Indonesia, said she expected more falls in Jakarta stocks after fresh global market turmoil, although also saw it as a chance for bargain hunters.

"Had we not had that disastrous fall in the U.S. last night, I would expect the market would have fallen sharply and bounced up and probably ended up on the day but given the mood last night I think that's going to be tough to achieve," she said.
"But I think we are going to see some good bargains today, I have been recommending clients to put the toe in the water," she added.
Indonesia's benchmark composite index <.JKSE> lost more than a fifth this week. The stock exchange suspended trading on Wednesday and Thursday, the first time the exchange has voluntarily halted trade.

Along with a plunge in the stock market, which has fallen 47 percent this year, the rupiah currency is also trading near its lowest in about three years, although has held up much better than other regional currencies such as the Korean won.
Indonesia was the country hardest hit by the Asian financial crisis a decade ago, due in part to large corporate foreign debt and a weak banking system. Political upheaval also meant it took longer for the country to recover.

Dow Jones "hit and hit again" of the last closing

2008-10-09T22:43:00.000-07:00

Dow Jones industrial average closing down 679 points on the last closing.Until 3 p.m. on Thursday, it seemed as if the stock market might escape another dark day. This closing (679 point) or 7.3 percent, leaving it below 9,000 for the first time in five years.

nicky investors dumped stocks en masse. Almost no corner of the market was spared, with 1,754 stocks falling and just 87 rising on the Big Board.

Despite unprecedented steps by policy makers around the world to defuse the financial crisis, fear is spreading that a deep global recession is at hand. The credit markets, the heart of the financial system, remained in near paralysis.

“There is a downward spiral of fear,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.

The plunge came in a stomach-churning 90 minutes. The Dow was down just 140 points at 2:30 p.m., and 200 points at 3. But then, wave after wave of selling began to roll through the market. By 3:20, the index was down 380 points. Ten minutes later, it was down 390 points. By 3:45, it was down 660. After staging a brief rally, it fell again.

In the last six trading days — starting last Thursday — the Dow has plummeted 2,251.8 points, or 20.8 percent, a decline big enough, on its own, to mark the start of a bear market. It also is similar to the drop in the Dow on Black Monday, Oct. 19, 1987, when it fell 22.6 percent.

Big oil companies like Exxon Mobil and Chevron pulled the Dow lower, falling by roughly 12 percent each.

General Motors, the embattled automaker, fell $2.15, to $4.76. As a group, financial shares were hit the hardest, falling nearly 12 percent.

At current prices, analysts say, the market is suggesting that investors fear the kind of severe and long recession the country has not had since at least the early 1970s.

Reflecting concerns about the economy, crude oil prices fell 2.7 percent, to $86.59 a barrel. OPEC, the oil-producing cartel, on Thursday called an emergency meeting for Nov. 18 to consider cutting an output in an attempt to arrest the 41 percent drop in oil prices in the last three months.

Asian markets also reacted strongly to the turmoil. In Japan, the Nikkei 225 index was down 10 percent on Friday morning, after having plunged 9 percent on Wednesday. The Hang Seng index in Hong Kong fell 7 percent and the market in Singapore was down 6.8 percent.

What has prompted the late-day sell-offs recently is a subject of intense debate and conjecture, even among market professionals, who also have been unnerved by the free fall of the week.

Some attribute it to mutual funds’ waiting until midafternoon to execute sell orders from a growing number of investors who are cutting their exposure or bailing out of the market altogether. Others say that hedge funds, which have leveraged returns in recent years by using borrowed money, are having to sell holdings to raise collateral against their borrowings.

Still others say computerized trading, which has grown significantly in recent years, often kicks in later in the day, when certain thresholds are breached.

But whatever the reasons for the late-day plunges, what is driving the market down is a lack of confidence by investors, who are skeptical that the many measures taken by the government to rescue the financial system will work. Moreover, they worry that the government’s trotting out a new initiative every day or two is a sign that maybe the situation is worse than many thought.

Some who have held on until now are starting to sell. Since the start of the year, investors have removed more than $81 billion from stock mutual funds, with nearly 40 percent of that coming in the last six weeks, according to AMG Data Services.

Trevor Callan, a financial planner in La Jolla, Calif., said he has been bombarded by calls since Wednesday from nearly every one of his clients.

“The bottom line here is we’re witnessing complete panic,” Mr. Callan said. “There are certainly periods of time where rationality is thrown out the window, and this is one of them.”

The staggering decline in stocks has some investors questioning when the markets will stabilize. In fact, some pros believe that stocks bottom when many average investors pull out on a day of heavy selling — also known as capitulation.

Michael Cerenzie, a film producer, said he had been selling out of his million-dollar position in banking stocks and was looking to invest in companies specializing in natural gas and energy.

“This isn’t going to come back,” he said of the recent stock market losses. “This is going to be a long one. We are not going to see returns like we did in the past.”

Individuals are not the only ones bailing out. Market professionals are also selling, often even when they do not want to.

Many hedge funds have been forced to sell stocks and bonds this week because their lenders, big banks like Goldman Sachs and Morgan Stanley, demanded that they put up more capital against their positions and pay down margin loans.

Waiting for an Action to Global Crisis

2008-10-09T21:29:00.000-07:00

The United States and Britain appear to be converging on a similar blueprint for stemming the financial chaos sweeping the world, one day before a crucial meeting of leaders begins in Washington that the White House hopes will result in a more coordinated response.
The British and American plans, though far from identical, have two common elements according to officials: injection of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans.

Both remedies will be center stage on Saturday, when President Bush meets with finance ministers from the world’s richest countries at an unusual White House meeting to swap ideas.

Mr. Bush’s invitation to finance ministers from Britain, Italy, Germany, France, Canada and Japan came on a day of phone calls and letters between European leaders and with Washington.

Adding to the urgency, the Japanese stock market plunged more than 10 percent Friday morning, after having dropped 9 percent on Wednesday.

Government officials struggled to fashion a coordinated response to the ailing global banking system before going to Washington for annual meetings of the International Monetary Fund and World Bank.

“As this thing has spread, the opportunities for cooperation have risen,” David H. McCormick, the under secretary of the Treasury for international affairs, said. “We need to promote and highlight these common areas.”

With credit markets still frozen and stock markets around the world in a deep swoon, there is a growing consensus that the crisis is now so fast-moving and harmful to the global economy that it demands an unprecedented degree of worldwide coordination.

The Treasury’s openness to direct infusions of cash is a remarkable change in tone from a few weeks ago, when the Treasury secretary, Henry M. Paulson Jr., and the Federal Reserve chairman, Ben S. Bernanke, discouraged such actions in testimony before Congress. “Putting capital in institutions is about failure,” Mr. Paulson declared on Sept. 23. “This is about success.”

Treasury officials, however, said the emphasis changed in the last week, largely because stock markets kept spiraling down.

Prime Minister Gordon Brown of Britain made the case, in a letter to President Nicolas Sarkozy of France, for another option gaining favor among economists — guaranteeing short- and medium-term loans between banks. By persuading banks to resume lending to each other, the plan aims to shake loose the paralyzed credit market. “This is an area where a concerted international approach could have a very powerful effect,” Mr. Brown said Thursday in the two-page letter.

Administration officials are discussing aspects of the British proposal but said different economies have different rules that complicate a single joint action.

One senior administration official argued that expecting an agreement on proposals like Mr. Brown’s would be “irrationally raising expectations.”

Still, recapitalizing the banks and jump-starting their lending are at the top of the list of remedies that many economists are now suggesting. By acting in concert, countries can maximize the punch of their actions, these experts said, while avoiding distortions that occur when countries go different ways.

“At a minimum, you want to curtail damage,” said Carmen M. Reinhart, a professor of economics at the University of Maryland. “You don’t want the beggar-thy-neighbor policies that characterized the Great Depression.”

“At a maximum,” she continued, “you can get general principles — the need for a swift recapitalization of the banks, the need for liquidity — so we don’t get an even bigger credit crunch.”

Dominique Strauss-Kahn, managing director of the International Monetary Fund, warned countries against taking actions that could destabilize the financial systems of their neighbors. Unilateral acts, he said, “have to be avoided, if not condemned.”

Mr. Strauss-Kahn announced that the fund had activated an emergency financing mechanism, which would allow it to lend money more quickly to countries facing financial problems, as a result of the crisis.

The White House confirmed that the Treasury Department was considering taking ownership positions in banks as part of its $700 billion rescue package. But officials said the idea was less developed than the plan to buy distressed assets from banks through “reverse auctions.”

The goal, Treasury officials said, is a plan that would be broadly available to all banks, rather than through specific rescue packages negotiated on a case-by-case basis. That makes it likely that the government could afford to take only a small stake in any single institution.

The direct injections of cash would be for comparatively healthy banks. If a bank is failing and needs to be rescued or shut down, the Federal Deposit Insurance Corporation would handle it through its own procedures.

Wasn't that too low? ImClone Said

2008-08-04T18:57:00.000-07:00

Bristol-Myers offered last week to acquire the ImClone shares it does not already own in a deal that values the company at $5.2 billion.

Activist investor Carl Icahn, who is chairman of ImClone and a large shareholder of the company, told its board that he opposed Bristol-Myers' offer because he believes it "greatly undervalues the company."

"We all expected Carl would come back and say the initial offer was inadequate," said Cowen & Co analyst Eric Schmidt. "There has been posturing on both sides."

ImClone shares fell 1.1 percent to $64.60 in morning trading on Monday. Analysts said last week that ImClone could fetch much more than what Bristol-Myers had offered.

ImClone said its board had been discussing the possibility of splitting the company in two, separating its Erbitux cancer treatment and its drug-development pipeline businesses.

Erbitux is approved for colorectal and head and neck cancer in the United States, and Canada, while a recent approval for the drug in Japan and new lung cancer data are expected to drive sales.

ImClone said it believed the pipeline business "may be extremely valuable and significantly increase stockholder value as a separate business.

Yahoo Inc. shareholder has asked for an examination

2008-08-04T18:46:00.000-07:00

Capital Research Global Investors has asked independent vote counter Broadridge Financial Solutions to look into the results of the closely watched election, the newspaper said, citing unnamed people it said were familiar with the matter.

Capital Research and a related fund called Capital World Investors together own or control roughly 17% of Yahoo's stock. The firm had advised its funds to withhold votes for the re-election of Yang to the board of directors, the Journal explained.
Yahoo said Friday that Yang received support from 85% of shares voted in the election, a higher share than seems likely if all votes had been cast as recommended, the newspaper said.

Broadridge could not be reached for comment, the Journal said.
Yang has been criticized by some shareholders for the way he handled negotiations over Microsoft Corp's.

"The independent inspector of elections certified the results of the election and Yahoo accurately announced those results," Yahoo told the Journal in a statement. "Yahoo did not participate in the execution of the votes and was not a party to any errors which may have been made either by a voting institution or a proxy processing intermediary acting on behalf of banks, brokers and institutions."

Broadridge could have made a mistake -- but if so, the impact on the total vote would have been relatively minor, the newspaper added, citing an unidentified source it said was familiar with the matter.