September 2009

Steve Parker: Two new books document American racing

September 28, 2009

One of the great enjoyments for car nuts, at least this one, are new and exhaustively detailed books on our favorite topic … with plenty of photos. When those books are about people and topics we know personally, that makes the books that much more interesting and exciting … and they better be correct! Recently I interviewed two authors for my Sunday evening www.TalkRadioOne.com show, World Racing Roundup, and their books are first-rate. And they’re both about topics I happen to know pretty well. Yeah, I even read the books, too (no Larry King am I). You can download the interviews free from the TalkRadioOne.com site. “Mickey Thompson – The Fast Life and Tragic Death of a Racing Legend” by Erik Arneson, published by MBI and Motorbooks This was a book just begging to be written since that awful day in 1988 when Mickey and his wife Trudy were, as the Los Angeles County Sheriff put it, “assassinated” in their driveway by thugs hired by a former business partner. That “partner” is now serving two life sentences in a California state prison; the actual hired shooters were never found. Thompson defined and often dominated American motorsports from the ’50s through the ’80s; he operated the first professional ¼-mile drag strip in America, Lions Associated Drag Strip in Los Angeles’ harbor area, set more land speed records than anyone else at the Bonneville Salt Flats, was so innovative at developing cars for the Indy 500 that many oldtimers shunned his efforts and, finally, brought the excitement of Baja-style off-road racing to major stadiums across the country. My connection? I knew Thompson well and worked for him between 1978 and 1980, during the time he staged the first major off-road race in the middle of an American city: 1979′s Off-Road Championship Grand Prix in the Los Angeles Coliseum. I know the title well because I actually named the event in an office contest — and got a $1,000 bonus from Mickey (or MT, as we all called him) for coming up with it … big money for a 25-year old kid back then! His natural enthusiasm, non-stop energy, impressive promotional abilities and some outrageous personal habits (such as setting his plane on ‘autopilot’ so he could take a nap, or eating his steak with an ice cream desert on the same plate) are all well-documented. MT’s dad was a big, tough Irish cop in southern California, where MT was born and raised and lived his life, and the kids in that family learned that running home to avoid a fight was much, much worse than actually getting your ass kicked by some bully. But MT was also a warm and caring person … something folks who didn’t know him well would never guess. Under the obvious gruffness and the anger which would often result in a fistfight between Mick and his latest enemy-of-the-moment, Thompson was a loyal friend, loving husband, son, father and grandfather and would hire people for more money than they ever made after talking with them for five minutes. He was a good boss, too. Mickey and Trudy Thompson Arneson, a former USA TODAY writer and now VP of media relations for SPEED television, wrote a book which covers the major sections of MT’s life from teenage street racing to the professional drag strip, Bonneville, Indy and Baja and the stadium racing series; it has many pages of photos to document all those efforts. There’s a lot of space devoted to the murders and the subsequent court cases; while this might be a bit dull to readers who don’t remember or know the story, the entire affair was so complicated, taking some 20 years from the murders until a conviction, that the details are welcomed to fill-in the blanks. If the book were fiction, it would be unbelievable. That one man could so dominate so many different aspects of one of the roughest sports in the world and for so many years is one of those stories “you couldn’t make up.” But Arneson didn’t have to make up any of it; MT did it all, and then some. “We Were the Ramchargers – Inside Drag Racing’s Legendary Team” by Dr. Dave Rockwell; published by the Society of Automotive Engineers/SAE International The 1950s through the ’70s were the glory days of drag racing in America. Not only were the amateur sportsman racers still considered an integral part of the sport by the nascent National Hot Rod Association (NHRA), but there were big, well-funded teams representing the Detroit Three … sometimes officially, sometimes not so officially … Dave Rockwell’s book is about the Ramchargers, the team centered around a small group of engineers who were the basis for the Chrysler/Dodge factory effort in both NHRA drag racing as well as NASCAR and other “circle track” events. I wasn’t hanging around drag strips in those days, but a few years ago I ghostwrote a book with Pontiac’s lead man in drag racing then, Jim Wangers (“Glory Days – When Horsepower and Passion Ruled Detroit”) and feel that I understand what it must have felt like to go to the races in the last ’50s and early ’60s and who the players were. Incidentally, both Wangers and Mickey Thompson get several mentions in Rockwell’s book. The “engineering” angle is what was unique about the Ramchargers; other pro racing teams from Detroit sometimes came from the “boardroom down” with marketing, PR and other executives putting together the engineers necessary to be the center of a race team. The Ramchargers started, literally, from the bottom up. Engineers and other related speed freak-types in the Dodge factory spent their evenings developing high-performance engines and cars not officially sanctioned by the boardroom. Like similar unofficial teams from Chevrolet, Pontiac and Ford, the Ramchargers would compete in the infamous “Stop Light Grand Prixs” held nightly on Detroit’s Woodward Avenue … until the cops came. What began as a secret after-hours club of engineers working with what they considered the “neglected potential” of speed and power around them finally turned into a factory-supported effort which broke the most time barriers in drag racing history and won the most NHRA Super Stock titles during the sport’s golden era of factory-vs-factory competition. The Ramchargers also went a long way towards establishing Chrysler and Dodge in the public mind as young, fun, hip and powerful, things the company had never been associated with in the past. With the demographic studies those days showing a coming “bubble” of young drivers and buyers, Chrysler, like Ford, Pontiac and Chevy, used NHRA drag racing to create the image they wanted. Dick Landy’s Dodge was the team’s lead car on the west coast for the Ramchargers The Ramchargers arguably developed the first Funny Car and perhaps most enduringly the powerful and bulletproof 426 Hemi which Chrysler sells to this day and is used in race cars and trucks around the world. These were the days when highly-funded secret engine programs were being run out of the suburban basements of engineers and drivers, racing parts from the factory would be “unofficially” delivered to certain buyers packed in a cardboard box and hidden in the car’s trunk when delivered and “cooperative” dealers like Royal Pontiac in Royal Oak, MI, one of the closest dealers to a Pontiac factory, would sell factory-made racing parts out their back doors to “club members” to avoid government and public complaints about the car-makers encouraging speeding. This 1970 Dodge Dart Swinger was helped in its development and sales by the factory drag racing team Rockwell’s book has plenty of photos, including two full-page color folio sections, and the author dedicated the tome, “To those who drive American.” Like Arneson’s book on Mickey Thompson, We Were the Ramchargers is full of interviews with many of the participants, and a goodly amount of technical information so those under 50 can understand where today’s high-performance engines came from, and those over 50 may very well remember from their own drag racing experience.

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Calm before storm of more bankruptcies

September 28, 2009

get their reserves in balance and they’re in a better position to take a writeoff.’ ‘The commercial real estate market is starting to fall apart now,’ Adelman added. In addition, media and auto-related companies are about four times more like to file for

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Dolphins Quarterback Chad Pennington to Miss Rest of NFL Season, ESPN Says

September 28, 2009

By Curtis Eichelberger Sept. 28 (Bloomberg) — Miami Dolphins quarterback Chad Pennington will miss the remainder of the National Football League season after injuring his throwing shoulder yesterday, ESPN said , citing people it didn’t name. Pennington, hurt in the third quarter during yesterday’s 23-13 loss at San Diego, was diagnosed with a torn capsule in his shoulder and will seek a second opinion from orthopedic specialist James Andrews, ESPN said. The 33-year-old Pennington had surgery on his right shoulder in 2004 and 2005 while playing for the New York Jets. Both operations were performed by Andrews. Pennington was replaced by Chad Henne, a second-round draft choice from Michigan in 2008 who completed 10 of 19 passes for 92 yards and one interception yesterday. Team spokesman Harvey Greene didn’t immediately respond to an e-mail. To contact the reporter on this story: Curtis Eichelberger in Washington at ceichelberge@bloomberg.net

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Obama to Make Personal Pitch for ’16 Olympics as Health-Care Plan Advances

September 28, 2009

By John McCormick Sept. 28 (Bloomberg) — President Barack Obama decided to personally lobby for Chicago’s Olympic bid in Copenhagen because the health-care debate is moving forward and getting the 2016 games will be a boon for the economy, the administration’s chief spokesman said. White House press secretary Robert Gibbs dismissed suggestions Obama was making the trip because it involves his adopted hometown. “I don’t think there is any doubt that the president is enormously proud of Chicago,” Gibbs said today. “If it had been Los Angeles, I think the notion that the president would have done less because it was a different U.S. city just doesn’t hold a lot of water.” Two weeks ago Obama said he was too occupied by the fight over revamping the U.S. health-care system, his top domestic priority, and would send first lady Michelle Obama to make the U.S. pitch before the International Olympic Committee . The administration announced this morning that the president will attend the Oct. 2 final presentation to the IOC. Chicago is competing against Madrid, Rio de Janeiro and Tokyo. Gibbs said that Obama decided to go, in part, because he now believes the health-care debate is “in a better place” than it was several weeks ago. He also said the games would provide the U.S. with a “big economic benefit” worthy of the president’s time. Strengthening Bid Valerie Jarrett , a senior presidential adviser, said in an interview today that having the president in Copenhagen could be essential to Chicago winning the games. “It strengthens our bid,” she said. “There is nothing like the president expressing what it means to him.” Brazilian President Luiz Inacio Lula da Silva, King Juan Carlos of Spain, and Spanish Prime Minister Jose Luis Rodriguez are also scheduled to be in Copenhagen. Tokyo is urging new Japanese Prime Minister Yukio Hatoyama to attend. Michelle Obama, in an interview today at the White House, said the U.S. “can’t take anything for granted” in making the case to win the Olympic Games. She and Jarrett, who has led the White House’s Olympics lobbying effort, are scheduled to arrive in Copenhagen on Sept. 30. Gibbs was asked about Chicago’s reputation as a city plagued by political scandal. “The onus is on the city to ensure that whatever money is used is spent wisely and efficiently,” he said in response to a question at the daily White House briefing. Obama’s decision to make the trip will add star power to a U.S. delegation that already includes the first lady, television host Oprah Winfrey , Transportation Secretary Ray LaHood and Education Secretary Arne Duncan . Chicago is bidding to bring the Summer Games to the U.S. for the first time since Atlanta in 1996. To contact the reporter on this story: John McCormick in Chicago at jmccormick16@bloomberg.net

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Yen More Likely to Weaken in Long Term, Former BOJ Director Hirano Says

September 28, 2009

By Mayumi Otsuma and Masahiro Hidaka Sept. 29 (Bloomberg) — The yen, trading near an eight- month high against the dollar, will weaken over time because of Japan’s aging population and weak growth prospects, a former Bank of Japan official said. “It’s favorable to have a stable and strong currency in the long term, but it’s more likely that the yen will weaken,” Eiji Hirano , a former executive director of the bank, said in an interview in Tokyo on Sept. 25. “If Japan fails to counter the problem of a shrinking and aging population, the economy may weaken and the currency may become cheaper.” The yen soared to the highest level since Jan. 23 this week after Finance Minister Hirohisa Fujii said he is against “easy intervention” and a weak yen. The Democratic Party of Japan-led government has said a stronger currency will boost household spending by making imported goods less expensive. “I don’t think Minister Fujii meant he has ruled out intervention completely,” said Hirano, who’s currently a director at Toyota Financial Services Corp., a financial unit of Toyota Motor Corp. “If the yen advances drastically and people panic, intervention can’t be ruled out.” Recent moves of the currency market don’t warrant action, he added. Hirano said he doesn’t think Fujii’s remarks indicate a change in the nation’s currency policy. Authorities may keep the option of stepping into the market, which they haven’t done since 2004, should currency movements become excessive, Hirano said. “If the currency advances while the economy remains weak, that would devastate exporters,” Hirano said. Over the long term, a strong yen will benefit the world’s second-largest economy because Japan has to import most of its energy and food and the currency’s strength makes imported goods cheaper, he said. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Merkel Dents Westerwelle’s Coalition Tax-Cut Plans as German Deficit Soars

September 28, 2009

By Tony Czuczka and Rainer Buergin Sept. 29 (Bloomberg) — German Chancellor Angela Merkel reined in Free Democratic Party leader Guido Westerwelle’s expectations of rapid tax cuts as they began negotiations to form Germany’s next government. Merkel, in an interview last night on ARD television after inviting Westerwelle for talks at the Chancellery in Berlin, said Germany’s soaring budget deficit limits the scope for tax relief. She reiterated there won’t be any tax cuts before 2011, a stance at odds with Westerwelle’s vow to push for more tax relief sooner. Merkel said yesterday she aims to forge a coalition agreement by Nov. 9, when Germany will mark 20 years since the fall of the Berlin Wall . Differences over taxes, labor- market deregulation and foreign policy aspects need to be bridged if the parties are to form a government within the six-week period. “You won’t see a lot of bickering on the surface,” Gary Smith , director of the American Academy in Berlin, a trans-Atlantic research institute, said in an interview. “But it’ll be there.” Merkel, 55, and Westerwelle, 47, held their first coalition talks in Berlin yesterday, the day after Merkel’s Christian Democrats won re-election with the lowest score since World War II. The Free Democrats recorded their best result in the 60-year history of modern Germany. Tackling the deficit and setting spending for 2010 will be a top priority of the new administration, Merkel said. Budget ‘Leeway’ “I expect we’ll agree very quickly on tax policy, especially when you look at the leeway we have with the budget,” she said. Germany’s deteriorating finances overshadow the coalition-building. Merkel’s administration will borrow a record 329 billion euros ($482 billion) in 2010 as it boosts spending to speed economic recovery. The borrowing forecast, made in June by Social Democratic Finance Minister Peer Steinbrueck , takes no account of 35 billion euros in tax cuts sought by the FDP. Merkel’s tax pledge amounts to 15 billion euros over her four-year term. Merkel told reporters that “naturally we’re not going to depart from” the CDU program. ‘Middle-Class Belly’ “For us the most important thing is to cut taxes in the area of what we call the middle-class belly,” Otto Fricke , the Free Democratic head of the budget committee in the outgoing parliament, said yesterday in an interview. “It’s the average Joe” who suffers most under the current tax system. Merkel “has to find solutions.” Merkel will also need to try to merge the platform of her bloc, which includes the Bavarian Christian Social Union, with demands by the FDP for a simpler income-tax system comprising just three brackets: 10 percent, 25 percent and 35 percent. “Merkel should be under no illusions: this alliance will only happen thanks to the FDP’s strong showing,” Tilman Mayer , head of Bonn-based Institute for Political Science, said in an interview. “Westerwelle will make his voice heard in coalition talks and demand a good deal of what the FDP’s been pushing for in the campaign.” Westerwelle told reporters yesterday that he’ll push “with full determination” for as much of his program as possible to be accepted. “It’s clear that our compass in these negotiations is our party program,” he said. Afghan Mission Afghanistan, where Germany has about 4,200 troops as part of NATO forces, is another point of potential friction. Westerwelle, the probable foreign minister replacing Frank- Walter Steinmeier , has accused Merkel’s former government with the Social Democrats of providing too few trainers for Afghan security forces. Westerwelle wants to end the mission “as quickly as possible,” Der Spiegel magazine cited him as saying in an interview last month. That’s a more urgent tone than Merkel, who said Sept. 8 that Afghan forces must make “enough progress in the next five years to allow international troops to steadily reduce their role.” Prospects for German defense suppliers such as Duesseldorf-based Rheinmetall AG “could be seen negatively” because “a strong FDP within the government may mean earlier-than-expected withdrawal of troops from Afghanistan,” UBS Investment Research analyst Sven Weier said in a note yesterday. Firing Rules The FDP’s campaign call to give German business more leeway to fire workers also goes further than Merkel’s party. Firing rules currently apply for companies with more than 10 employees and the FDP wants to raise the threshold to more than 20 employees. “That’s a highly contentious, highly emotive subject,” Holger Schmieding , chief European economist at Bank of America- Merrill Lynch in London, said in an interview. Merkel and the FDP will probably look for other ways to change labor laws, he said. Hans-Juergen Hoffmann , managing director of Berlin- based polling company Psephos , said Merkel “can’t expect her coalition partner to slot into its historic role as the junior mascot.” Westerwelle’s party “will have none of that,” he said in an interview. “It’s the kingmaker of Merkel’s new coalition.” To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net ; Rainer Buergin in Berlin at Rbuergin1@bloomberg.net .

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Philippines Flood Death Toll Climbs to 240, More Than 374,000 Evacuated

September 28, 2009

By Aaron Sheldrick and Francisco Alcuaz Jr. Sept. 29 (Bloomberg) — The death toll in the Philippines from Tropical Storm Ketsana almost doubled overnight to 240 people as the government said it will seek aid for hundreds of thousands of people in emergency shelters. The National Disaster Coordinating Council agency said at least 37 people are missing in a report issued at 6 a.m. today. At least 140 were confirmed dead, Defense Secretary Gilbert Teodoro told reporters in Manila yesterday. More than 374,800 people are in evacuation centers, the council said. The government declared “states of calamity” for the Manila metropolitan region and other parts of Luzon island as well as Mindoro island to the south. The storm and floods have “really overwhelmed our system,” Anthony Golez , the officer in charge of the Office of Civil Defense, said in a phone interview yesterday. Clean water, food, cooking gas and medicines are difficult to find, said Cora Guidote , a corporate executive helping in relief operations in Marikina, northern Manila. “The situation is pretty desperate,” she said. Business is “at a standstill because of mud and muck everywhere. People are tired of cleaning with very little sleep. Kids and old people are getting sick.” Ketsana, called Ondoy in the Philippines, was over the South China Sea heading toward Vietnam today, according to the U.S. Navy Joint Typhoon Warning center. The storm, now a typhoon with winds of 167 kilometers (101 miles) per hour, was 287 kilometers east of Hue at 1 a.m. Vietnamese time today. Ketsana is the deadliest storm to hit the Philippines since Typhoon Fengshen slammed into the eastern island of Samar in June last year, leaving 730 people dead and 637 missing. Ketsana dropped more than a month’s rain on northern Manila, the weather bureau said. About 411 millimeters (16 inches) fell there, exceeding the September monthly average of 391 millimeters and the bureau’s record for one day of 331 millimeters in 1967. To contact the reporters on this story: Aaron Sheldrick in Tokyo at asheldrick@bloomberg.net ; Francisco Alcuaz Jr . in Manila at falcuaz@bloomberg.net .

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S&P 500 Index Poised for Biggest Fourth-Quarter Rally in Decade, Wien Says

September 28, 2009

By Rita Nazareth Sept. 28 (Bloomberg) — The Standard & Poor’s 500 Index is poised for its biggest fourth-quarter rally in a decade as the economy recovers and earnings exceed analysts’ forecasts, according to Byron Wien , vice chairman of Blackstone Group LP. The benchmark gauge for U.S. stocks will rise to 1,200 by the end of the year, a 13 percent advance from today’s close of 1,062.96, Wien said in a telephone interview. The forecast is a reiteration of Wien’s prediction at the start of 2009 that the S&P 500 would climb 33 percent this year. “I’m not backing away from it,” said Wien, 76, the former chief market strategist for hedge fund Pequot Capital Management. “In March, that didn’t look too good and people wouldn’t make eye contact with me. But now, with three months to go, that looks like it may be realized. The economy will be stronger and corporate earnings both in the third and fourth quarters will be better than expected.” The S&P 500 has rebounded 57 percent from a 12-year low on March 9 amid signs the recession is easing as companies from Johnson & Johnson to Goldman Sachs Group Inc. posted earnings that beat analysts’ estimates. Combined earnings for S&P 500 companies will exceed $60 a share this year and $75 a share in 2010, Wien said. He’s more bullish than average of strategists surveyed by Bloomberg, which forecast S&P 500 earnings of $56.33 a share in 2009 and $69.44 next year. Wien was hired by Blackstone , the world’s biggest private equity firm, last month to advise the company and its clients on the economy and politics. Before Pequot, he was senior market strategist at Morgan Stanley. Pequot said in May it would shut down because of a federal insider-trading investigation. At the start of 2008, Wien’s predictions included a 10 percent decline for the S&P 500 and onset of the first U.S. recession since 2001. The main benchmark for American equities sank 38 percent, the most since 1937, as financial shares collapsed and energy and metal producers tumbled. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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China’s CICC Hires Former Brean Murray Analyst Hong as Equity Strategist

September 28, 2009
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Japan, Australia Stock Futures Rebound After Losing Streak; Nomura Gains

September 28, 2009

By Masaki Kondo Sept. 29 (Bloomberg) — Japanese and Australian stock futures rose after Asian equities posted their longest stretch of declines in almost three months and oil prices gained. U.S.-traded securities of Nomura Holdings Inc., Japan’s largest securities company and which announced a record share sale last week, added 2 percent from the Tokyo close after losing 21 percent in the past two days. Those of Honda Motor Co., which gets 47 percent of its sales in North America, advanced 2 percent even as the dollar remained weaker than 90 yen. New York-traded securities of BHP Billiton Ltd., the world’s biggest mining company, gained 1.5 percent from the Sydney close. “The drops in equities over the past two days are overdone,” said Fumiyuki Nakanishi , a strategist at Tokyo-based SMBC Friend Securities Co. In Japan, “an earnings recovery in the second half is becoming less likely because of the yen’s appreciation. I can’t stop myself getting nervous when looking at the FX market.” FX refers to foreign exchange. Futures on Japan’s Nikkei 225 Stock Average expiring in December finished at 10,205 in Chicago yesterday, 1.7 percent higher than the close in Osaka. Australia’s S&P/ASX 200 Index futures contract due in December rose 1.2 percent today. New Zealand’s NZX 50 Index added 0.6 percent in Wellington. The MSCI Asia Pacific Index fell for a third session yesterday, its longest stretch of declines since the six days ended July 8. Companies on the gauge traded at 23.1 times estimated net income for this year yesterday, the lowest level since July 14, according to data compiled by Bloomberg. Weaker Dollar The dollar depreciated versus the yen to as much as 88.24 yesterday, a level not seen since Jan. 23, and remained weaker than 90 today on speculation Japan won’t act to curb gains in the currency. A weaker dollar reduces the value of overseas sales at Japanese companies when converted into the yen. Crude oil rose 1.2 percent in New York yesterday. A gauge of six metals in London gained 0.3 percent, breaking a three-day losing streak. Thailand’s economy won’t shrink as much as earlier forecast this year, Somchai Sujjapongse, director-general of the Finance Ministry’s fiscal policy office, said in Bangkok yesterday. Gross domestic product may shrink 3 percent this year, Somchai said, compared with the ministry’s earlier projection of a 2.5 percent to 3.5 percent contraction. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Xerox to Buy Affiliated Computer Services for $5.8 Billion in Cash, Stock

September 28, 2009

By Katie Hoffmann Sept. 28 (Bloomberg) — Xerox Corp. agreed to buy Affiliated Computer Services Inc . in a deal valued at about $5.8 billion, making its biggest purchase to shift to technology services as sales of its printing equipment drop. The acquisition will help triple sales from services to about $10 billion, Xerox said today in a statement. The total price of the cash-and-stock deal was about 34 percent more than Dallas-based Affiliated Computer’s stock before today’s trading. Chief Executive Officer Ursula Burns , who took over in July, is increasing Xerox’s debt and more than doubling the workforce, sending the stock down and shaving about 10 percent off the purchase price. Her predecessor, Anne Mulcahy , helped Xerox avoid bankruptcy this decade by paring debt, exiting unprofitable businesses and shedding jobs . “It’s going to take a Herculean effort to integrate these two companies,” said Peter Falvey , a managing director at Revolution Partners LLC in Boston. “There is significant execution and integration risk. It’s a very bold bet.” Xerox, based in Norwalk, Connecticut, fell $1.30, or 14 percent, to $7.68 on the New York Stock Exchange at 4:15 p.m., bringing the per-share value of the transaction to about $56.50, compared with $63.11 before today’s trading. Affiliated Computer rose $6.61, or 14 percent, to $53.86, the biggest jump in 2 1/2 years. Affiliated Computer Chairman Darwin Deason , the company’s founder, will become one of Xerox’s largest shareholders. He will receive about $800 million for his stake, including cash, Xerox shares and about $300 million worth of convertible stock. Government Contracts The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000. “With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox and report to Burns, 51. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years. Credit-Rating Cut? Xerox will pay $18.60 a share in cash and 4.935 shares for every Affiliated Computer share, amounting to about $56.50, based on today’s closing prices. Xerox also will assume about $2 billion in debt. Xerox had $1.22 billion in cash and cash equivalents at the end of last quarter, and about $6.7 billion in long-term debt. Standard & Poor’s said today it may cut Xerox’s BBB credit rating , citing the increase in debt. The rating is two steps above junk. Mulcahy, who took over in 2001, had brought down the company’s debt from more than $18 billion the year before she took over. She cut at least 20,000 jobs to revive Xerox after the bursting of the technology bubble left Xerox with mounting borrowings and its first annual loss in five years. Under Mulcahy, Xerox stopped making personal copiers and started focusing on laser printers, as well as color printing. Earlier this month, Xerox said it would begin selling digital printers for packaging and labels, aiming to tap a new market. Services Acquisitions Deason said in the statement that he is “optimistic” about the combined company’s future and that he plans to remain a “long-term” investor. In 2007, Deason and Cerberus Capital Management LP failed in an attempt to buy Affiliated Computer for $6.2 billion. The company’s independent directors alleged that Deason hampered their attempts to find better offers, a squabble that resulted in them resigning. The recession may have hastened Xerox’s decision to expand in services as companies curbed spending for its equipment, said Falvey, whose investment bank worked with Xerox on a prior deal. This month, Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion to expand into computer services. Last year, Hewlett-Packard Co. bought Electronic Data Systems Corp. for $13.2 billion in a similar deal. ‘More Horizontal’ “There’s just no question that some of these big guys are looking to become more horizontal,” said Falvey. Computer Sciences Corp. and some Indian outsourcing companies may become targets, he said. Computer Sciences, the manager of networks for NASA and the U.S. Navy, rose $2.41, or 4.8 percent, to $53.20 on the New York Stock Exchange. Cognizant Technology Solutions Corp., another provider of consulting and computer services, gained 84 cents, or 2.2 percent, to 38.65 on the Nasdaq Stock Market. JPMorgan Chase & Co., Blackstone Group LP and Simpson Thacher & Bartlett LLP are advising Xerox on the transaction, and Citigroup Inc. and Cravath, Swaine & Moore LLP are working with Affiliated Computer. Evercore Partners Inc. and Ropes & Gray LLP are counseling a special committee of Affiliated Computer’s board. To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Xerox to Buy Affiliated Computer Services for $5.8 Billion in Cash, Stock

September 28, 2009

By Katie Hoffmann Sept. 28 (Bloomberg) — Xerox Corp. agreed to buy Affiliated Computer Services Inc . in a deal valued at about $5.8 billion, making its biggest purchase to shift to technology services as sales of its printing equipment drop. The acquisition will help triple sales from services to about $10 billion, Xerox said today in a statement. The total price of the cash-and-stock deal was about 34 percent more than Dallas-based Affiliated Computer’s stock before today’s trading. Chief Executive Officer Ursula Burns , who took over in July, is increasing Xerox’s debt and more than doubling the workforce, sending the stock down and shaving about 10 percent off the purchase price. Her predecessor, Anne Mulcahy , helped Xerox avoid bankruptcy this decade by paring debt, exiting unprofitable businesses and shedding jobs . “It’s going to take a Herculean effort to integrate these two companies,” said Peter Falvey , a managing director at Revolution Partners LLC in Boston. “There is significant execution and integration risk. It’s a very bold bet.” Xerox, based in Norwalk, Connecticut, fell $1.30, or 14 percent, to $7.68 on the New York Stock Exchange at 4:15 p.m., bringing the per-share value of the transaction to about $56.50, compared with $63.11 before today’s trading. Affiliated Computer rose $6.61, or 14 percent, to $53.86, the biggest jump in 2 1/2 years. Affiliated Computer Chairman Darwin Deason , the company’s founder, will become one of Xerox’s largest shareholders. He will receive about $800 million for his stake, including cash, Xerox shares and about $300 million worth of convertible stock. Government Contracts The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000. “With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox and report to Burns, 51. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years. Credit-Rating Cut? Xerox will pay $18.60 a share in cash and 4.935 shares for every Affiliated Computer share, amounting to about $56.50, based on today’s closing prices. Xerox also will assume about $2 billion in debt. Xerox had $1.22 billion in cash and cash equivalents at the end of last quarter, and about $6.7 billion in long-term debt. Standard & Poor’s said today it may cut Xerox’s BBB credit rating , citing the increase in debt. The rating is two steps above junk. Mulcahy, who took over in 2001, had brought down the company’s debt from more than $18 billion the year before she took over. She cut at least 20,000 jobs to revive Xerox after the bursting of the technology bubble left Xerox with mounting borrowings and its first annual loss in five years. Under Mulcahy, Xerox stopped making personal copiers and started focusing on laser printers, as well as color printing. Earlier this month, Xerox said it would begin selling digital printers for packaging and labels, aiming to tap a new market. Services Acquisitions Deason said in the statement that he is “optimistic” about the combined company’s future and that he plans to remain a “long-term” investor. In 2007, Deason and Cerberus Capital Management LP failed in an attempt to buy Affiliated Computer for $6.2 billion. The company’s independent directors alleged that Deason hampered their attempts to find better offers, a squabble that resulted in them resigning. The recession may have hastened Xerox’s decision to expand in services as companies curbed spending for its equipment, said Falvey, whose investment bank worked with Xerox on a prior deal. This month, Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion to expand into computer services. Last year, Hewlett-Packard Co. bought Electronic Data Systems Corp. for $13.2 billion in a similar deal. ‘More Horizontal’ “There’s just no question that some of these big guys are looking to become more horizontal,” said Falvey. Computer Sciences Corp. and some Indian outsourcing companies may become targets, he said. Computer Sciences, the manager of networks for NASA and the U.S. Navy, rose $2.41, or 4.8 percent, to $53.20 on the New York Stock Exchange. Cognizant Technology Solutions Corp., another provider of consulting and computer services, gained 84 cents, or 2.2 percent, to 38.65 on the Nasdaq Stock Market. JPMorgan Chase & Co., Blackstone Group LP and Simpson Thacher & Bartlett LLP are advising Xerox on the transaction, and Citigroup Inc. and Cravath, Swaine & Moore LLP are working with Affiliated Computer. Evercore Partners Inc. and Ropes & Gray LLP are counseling a special committee of Affiliated Computer’s board. To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Japan Consumer Prices Fall Record 2.4%; Deflation Return Threatens Economy

September 28, 2009

By Aki Ito Sept. 29 (Bloomberg) — Japan’s consumer prices slid in August. Prices excluding fresh food fell 2.4 percent from a year earlier, after tumbling 2.2 percent the previous month, the statistics bureau said today in Tokyo. To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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Japan Consumer Prices Fall Record 2.4%; Deflation Return Threatens Economy

September 28, 2009

By Aki Ito Sept. 29 (Bloomberg) — Japan’s consumer prices slid in August. Prices excluding fresh food fell 2.4 percent from a year earlier, after tumbling 2.2 percent the previous month, the statistics bureau said today in Tokyo. To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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Singapore’s GIC Says Investments Drop 20% on Stock Rout, Loss on UBS Stake

September 28, 2009

By Joyce Koh and Netty Ismail Sept. 29 (Bloomberg) — The Government of Singapore Investment Corp. said its investments fell by more than 20 percent in Singapore dollar terms in the year ended March 31, and it continues to have a loss on its UBS AG stake. The manager of more than $100 billion of the city’s foreign reserves said it will “seize good investment opportunities” after it recovered more than half of that loss as global stock markets surged. It warned of a greater risk of rising inflation from government efforts to pump money into economies, Chief Investment Officer Ng Kok Song said in GIC’s annual report today. Under Chairman Lee Kuan Yew , Singapore’s Minister Mentor and former prime minister, GIC has expanded through investments ranging from U.K. shopping malls to European and U.S. banks. Temasek Holdings Pte had a record drop in profit after selling its stakes in Bank of America Corp. and Barclays Plc at a loss. “The GIC presumably will seek to maintain a diversified portfolio, and perhaps is a little more inclined toward liquidity than before the financial turmoil,” said David Cohen , an economist at Action Economics in Singapore, before the annual report was released. “Nevertheless, they retain a long-term perspective, and recognize that they must assume some risk in pursuit of their long-term return.” GIC, established in 1981, said annual returns in the past 20 years averaged 5.7 percent in U.S. dollar terms, from 7.8 percent reported in the previous fiscal year. Its portfolio value had fallen about 25 percent between October 2007 and December 2008, Finance Minister Tharman Shanmugaratnam said in March, after GIC bought stakes in UBS and Citigroup Inc. during the credit crisis. Citigroup, UBS GIC last week pared its shareholdings in Citigroup to less than 5 percent from more than 9 percent, realizing a $1.6 billion profit on the investment. Its investment in UBS will “take longer to recover” and is still showing a loss, GIC said in the annual report. The company said both investments have recovered “significantly.” The company said last month it didn’t take part in the placement of 6 billion Swiss franc ($5.9 billion) of UBS shares sold by the Swiss government. “The investment thesis was to capitalize on the unique business franchises of UBS in global wealth management, and of Citigroup in global consumer and corporate banking, especially in the emerging economies,” said Ng, 61, in the annual report. “While both banks still face challenges in returning to profitability, we maintain our confidence in their long-term prospects.” GIC bought stakes in the two banks “too early,” the Straits Times reported on March 5, citing Minister Mentor Lee, 86. Unlike Temasek, GIC doesn’t publish a financial statement and doesn’t give a figure for the value of its assets. Investment Mix The subprime meltdown wiped 44 percent off the MSCI World Index , erasing about $24 trillion from the value of global equities in the 12 months to the end of March. Financial companies worldwide have recorded $1.6 trillion in writedowns and losses stemming from the collapse of the U.S. subprime mortgage market. The MSCI World Index has rallied 64 percent from this year’s low in March. The U.S. is home to as much as 38 percent of GIC’s assets, Ng said in its annual report. Europe accounts for as much as 29 percent and Japan as much as 11 percent, GIC said. In the fiscal year ended March 31, 2008, its U.S. investments were 34 percent, while European investments were 35 percent. GIC’s investments in stocks dropped to 38 percent, from 44 percent the previous fiscal year, according to the report. It increased its allocations to alternative investments, including private equity, real estate and hedge funds, to 30 percent from 23 percent in the year ended March 31, 2008. Its cash holding rose to 8 percent, from 7 percent. Bond investments fell to 24 percent of its portfolio, from 26 percent the previous year. The company said it cut public equities by over 10 percent between July 2007 and September 2008, helping it avert a larger loss. It bought back the equities at the start of the year to restore its portfolio’s public equities to its pre-crisis levels. To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net ; Netty Ismail in Singapore nismail3@bloomberg.net

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Singapore’s GIC Says Investments Drop 20% on Stock Rout, Loss on UBS Stake

September 28, 2009

By Joyce Koh and Netty Ismail Sept. 29 (Bloomberg) — The Government of Singapore Investment Corp. said its investments fell by more than 20 percent in Singapore dollar terms in the year ended March 31, and it continues to have a loss on its UBS AG stake. The manager of more than $100 billion of the city’s foreign reserves said it will “seize good investment opportunities” after it recovered more than half of that loss as global stock markets surged. It warned of a greater risk of rising inflation from government efforts to pump money into economies, Chief Investment Officer Ng Kok Song said in GIC’s annual report today. Under Chairman Lee Kuan Yew , Singapore’s Minister Mentor and former prime minister, GIC has expanded through investments ranging from U.K. shopping malls to European and U.S. banks. Temasek Holdings Pte had a record drop in profit after selling its stakes in Bank of America Corp. and Barclays Plc at a loss. “The GIC presumably will seek to maintain a diversified portfolio, and perhaps is a little more inclined toward liquidity than before the financial turmoil,” said David Cohen , an economist at Action Economics in Singapore, before the annual report was released. “Nevertheless, they retain a long-term perspective, and recognize that they must assume some risk in pursuit of their long-term return.” GIC, established in 1981, said annual returns in the past 20 years averaged 5.7 percent in U.S. dollar terms, from 7.8 percent reported in the previous fiscal year. Its portfolio value had fallen about 25 percent between October 2007 and December 2008, Finance Minister Tharman Shanmugaratnam said in March, after GIC bought stakes in UBS and Citigroup Inc. during the credit crisis. Citigroup, UBS GIC last week pared its shareholdings in Citigroup to less than 5 percent from more than 9 percent, realizing a $1.6 billion profit on the investment. Its investment in UBS will “take longer to recover” and is still showing a loss, GIC said in the annual report. The company said both investments have recovered “significantly.” The company said last month it didn’t take part in the placement of 6 billion Swiss franc ($5.9 billion) of UBS shares sold by the Swiss government. “The investment thesis was to capitalize on the unique business franchises of UBS in global wealth management, and of Citigroup in global consumer and corporate banking, especially in the emerging economies,” said Ng, 61, in the annual report. “While both banks still face challenges in returning to profitability, we maintain our confidence in their long-term prospects.” GIC bought stakes in the two banks “too early,” the Straits Times reported on March 5, citing Minister Mentor Lee, 86. Unlike Temasek, GIC doesn’t publish a financial statement and doesn’t give a figure for the value of its assets. Investment Mix The subprime meltdown wiped 44 percent off the MSCI World Index , erasing about $24 trillion from the value of global equities in the 12 months to the end of March. Financial companies worldwide have recorded $1.6 trillion in writedowns and losses stemming from the collapse of the U.S. subprime mortgage market. The MSCI World Index has rallied 64 percent from this year’s low in March. The U.S. is home to as much as 38 percent of GIC’s assets, Ng said in its annual report. Europe accounts for as much as 29 percent and Japan as much as 11 percent, GIC said. In the fiscal year ended March 31, 2008, its U.S. investments were 34 percent, while European investments were 35 percent. GIC’s investments in stocks dropped to 38 percent, from 44 percent the previous fiscal year, according to the report. It increased its allocations to alternative investments, including private equity, real estate and hedge funds, to 30 percent from 23 percent in the year ended March 31, 2008. Its cash holding rose to 8 percent, from 7 percent. Bond investments fell to 24 percent of its portfolio, from 26 percent the previous year. The company said it cut public equities by over 10 percent between July 2007 and September 2008, helping it avert a larger loss. It bought back the equities at the start of the year to restore its portfolio’s public equities to its pre-crisis levels. To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net ; Netty Ismail in Singapore nismail3@bloomberg.net

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Stocks in U.S. Rise Most in Five Weeks on Speculation Over Merger Activity

September 28, 2009

By Lynn Thomasson Sept. 28 (Bloomberg) — U.S. stocks rose, sending benchmark indexes up the most in five weeks, as takeovers in the drug and technology industries added to evidence that mergers and acquisitions are rebounding from the slowest pace in six years. Affiliated Computer Services Inc. jumped 14 percent after Xerox Corp. agreed to buy the company for $6.4 billion. Abbott Laboratories advanced 2.6 percent on plans to purchase Solvay SA’s pharmaceutical unit and gain control of the TriCor cholesterol drug. Cisco Systems Inc., the largest maker of networking equipment, gained the most since July as Barclays Plc predicted revenue will increase. The Standard & Poor’s 500 Index added 1.8 percent to 1,062.98 at 4:09 p.m. in New York, snapping a three-day losing streak. The Dow Jones Industrial Average gained 124.17 points, or 1.3 percent, to 9,789.36. About 979 million shares changed hands on the New York Stock Exchange, 21 percent fewer than the three-month average as trading slowed on the Yom Kippur holiday. “We’ve seen a pickup in acquisitions and it’s a very big plus,” said Hugh Johnson , who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. “It’s always good news when you see money come into the market.” Financial stocks climbed 3.4 percent collectively to lead gains in all 10 of the S&P 500’s main industries, trimming the decline in the index to 0.8 percent since it reached an almost one-year high on Sept. 22. The benchmark gauge for U.S. equities has climbed 57 percent from a 12-year low in March. Companies in the S&P 500 traded at 20.2 times reported profits from continuing operations on Sept. 22, data compiled by Bloomberg show, the highest valuation since 2004. M&A Mergers and acquisitions involving U.S. companies have totaled $49.1 billion in September, compared with $26.6 billion in August and $36.8 billion in July, based on Bloomberg data. Through the first three weeks of September, M&A dropped by about half in the U.S. to $492.5 billion this year, the slowest pace since 2003, Bloomberg data show. Xerox , the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer for $63.11 in cash and stock for each Affiliated Computer share, 34 percent more than the closing price on Sept. 25. The purchase will extend Xerox’s reach in the services market as sales of its traditional printing equipment decline. Affiliated Computer jumped 14 percent to $53.86 for the S&P 500’s biggest gain. Xerox posted the biggest loss in the index with a 14 percent slide to $7.68. Abbott added 2.6 percent to $48.58, its highest price since March. The company’s purchase of Solvay’s pharmaceutical unit will also give Abbott a bigger presence in emerging markets and lower its dependence on the arthritis drug Humira. Cash Flow As the economy emerges from the worst recession in seven decades, U.S. companies’ cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show. The previous high in 2005 preceded the two busiest years ever for takeovers. Europe’s Dow Jones Stoxx 600 Index jumped 1.8 percent. Germany’s DAX Index advanced 2.8 percent after Chancellor Angela Merkel won re-election with enough support to govern with the pro-business Free Democrats. The MSCI Asia Pacific Index fell 1.5 percent, led by Japanese exporters as the yen strengthened to an eight-month high. Cisco rose for the first time in five days, jumping 4.4 percent to $23.61. Barclays raised its recommendation on the company to “overweight” from “equal-weight.” Insurers Rally A gauge of insurers in the S&P 500 rallied 5 percent, with MBIA Inc. and Hartford Financial Services Group Inc. jumping more than 10 percent to lead gains in all 21 companies in the group. Insurance Services Offices Inc. said U.S. property and casualty insurers, a group including Allstate Corp. and Travelers Cos., returned to an underwriting profit in the second quarter, making more on premiums than they paid in expenses and claims. Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year. Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of S&P 500 companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent. MEMC, Gander Mountain MEMC Electronic Materials Inc. lost 3.1 percent to $16.75. The maker of silicon wafers for solar modules and semiconductors was cut to “hold” from “buy” at Citigroup Inc. Gander Mountain Co. surged 34 percent to $5.10. The sporting-goods retailer said it will go private, buying out stockholders who own fewer than 30,000 shares for $5.15 a share. GenTek Inc. jumped 40 percent to $37.67 for the second-biggest advance in Russell 2000 Index. The maker of valve-train equipment and chemicals used in water treatment agreed to be acquired by American Securities LLC for about $411 million, or $38 a share. Pomeroy IT Solutions Inc. added 11 percent to $6.47. The consultant and seller of business management software and services agreed to be bought by Platinum Equity LLC for $6.50 a share. Earnings season starts next week with Alcoa, the first Dow company to release results, scheduled to give third-quarter earnings on Oct. 7. Walgreen Co., Micron Technology Inc. and Constellation Brands Inc. are among the S&P 500 companies set to release reports this week. Wien Calls for Rally The S&P 500 is poised for its biggest fourth-quarter rally in a decade as the economy recovers and earnings exceed analysts’ forecasts, according to Byron Wien , vice chairman of Blackstone Group LP. The benchmark gauge for U.S. stocks will rise to 1,200 by the end of the year, a 13 percent advance from today’s close of 1,062.96, Wien said in a telephone interview. The forecast is a reiteration of Wien’s prediction at the start of 2009 that the S&P 500 would climb 33 percent this year. “I’m not backing away from it,” said Wien, 76, the former chief market strategist for hedge fund Pequot Capital Management. “In March, that didn’t look too good and people wouldn’t make eye contact with me. But now, with three months to go, that looks like it may be realized. The economy will be stronger and corporate earnings both in the third and fourth quarters will be better than expected.” To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .

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Stocks in U.S. Rise Most in Five Weeks on Speculation Over Merger Activity

September 28, 2009

By Lynn Thomasson Sept. 28 (Bloomberg) — U.S. stocks rose, sending benchmark indexes up the most in five weeks, as takeovers in the drug and technology industries added to evidence that mergers and acquisitions are rebounding from the slowest pace in six years. Affiliated Computer Services Inc. jumped 14 percent after Xerox Corp. agreed to buy the company for $6.4 billion. Abbott Laboratories advanced 2.6 percent on plans to purchase Solvay SA’s pharmaceutical unit and gain control of the TriCor cholesterol drug. Cisco Systems Inc., the largest maker of networking equipment, gained the most since July as Barclays Plc predicted revenue will increase. The Standard & Poor’s 500 Index added 1.8 percent to 1,062.98 at 4:09 p.m. in New York, snapping a three-day losing streak. The Dow Jones Industrial Average gained 124.17 points, or 1.3 percent, to 9,789.36. About 979 million shares changed hands on the New York Stock Exchange, 21 percent fewer than the three-month average as trading slowed on the Yom Kippur holiday. “We’ve seen a pickup in acquisitions and it’s a very big plus,” said Hugh Johnson , who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. “It’s always good news when you see money come into the market.” Financial stocks climbed 3.4 percent collectively to lead gains in all 10 of the S&P 500’s main industries, trimming the decline in the index to 0.8 percent since it reached an almost one-year high on Sept. 22. The benchmark gauge for U.S. equities has climbed 57 percent from a 12-year low in March. Companies in the S&P 500 traded at 20.2 times reported profits from continuing operations on Sept. 22, data compiled by Bloomberg show, the highest valuation since 2004. M&A Mergers and acquisitions involving U.S. companies have totaled $49.1 billion in September, compared with $26.6 billion in August and $36.8 billion in July, based on Bloomberg data. Through the first three weeks of September, M&A dropped by about half in the U.S. to $492.5 billion this year, the slowest pace since 2003, Bloomberg data show. Xerox , the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer for $63.11 in cash and stock for each Affiliated Computer share, 34 percent more than the closing price on Sept. 25. The purchase will extend Xerox’s reach in the services market as sales of its traditional printing equipment decline. Affiliated Computer jumped 14 percent to $53.86 for the S&P 500’s biggest gain. Xerox posted the biggest loss in the index with a 14 percent slide to $7.68. Abbott added 2.6 percent to $48.58, its highest price since March. The company’s purchase of Solvay’s pharmaceutical unit will also give Abbott a bigger presence in emerging markets and lower its dependence on the arthritis drug Humira. Cash Flow As the economy emerges from the worst recession in seven decades, U.S. companies’ cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show. The previous high in 2005 preceded the two busiest years ever for takeovers. Europe’s Dow Jones Stoxx 600 Index jumped 1.8 percent. Germany’s DAX Index advanced 2.8 percent after Chancellor Angela Merkel won re-election with enough support to govern with the pro-business Free Democrats. The MSCI Asia Pacific Index fell 1.5 percent, led by Japanese exporters as the yen strengthened to an eight-month high. Cisco rose for the first time in five days, jumping 4.4 percent to $23.61. Barclays raised its recommendation on the company to “overweight” from “equal-weight.” Insurers Rally A gauge of insurers in the S&P 500 rallied 5 percent, with MBIA Inc. and Hartford Financial Services Group Inc. jumping more than 10 percent to lead gains in all 21 companies in the group. Insurance Services Offices Inc. said U.S. property and casualty insurers, a group including Allstate Corp. and Travelers Cos., returned to an underwriting profit in the second quarter, making more on premiums than they paid in expenses and claims. Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year. Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of S&P 500 companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent. MEMC, Gander Mountain MEMC Electronic Materials Inc. lost 3.1 percent to $16.75. The maker of silicon wafers for solar modules and semiconductors was cut to “hold” from “buy” at Citigroup Inc. Gander Mountain Co. surged 34 percent to $5.10. The sporting-goods retailer said it will go private, buying out stockholders who own fewer than 30,000 shares for $5.15 a share. GenTek Inc. jumped 40 percent to $37.67 for the second-biggest advance in Russell 2000 Index. The maker of valve-train equipment and chemicals used in water treatment agreed to be acquired by American Securities LLC for about $411 million, or $38 a share. Pomeroy IT Solutions Inc. added 11 percent to $6.47. The consultant and seller of business management software and services agreed to be bought by Platinum Equity LLC for $6.50 a share. Earnings season starts next week with Alcoa, the first Dow company to release results, scheduled to give third-quarter earnings on Oct. 7. Walgreen Co., Micron Technology Inc. and Constellation Brands Inc. are among the S&P 500 companies set to release reports this week. Wien Calls for Rally The S&P 500 is poised for its biggest fourth-quarter rally in a decade as the economy recovers and earnings exceed analysts’ forecasts, according to Byron Wien , vice chairman of Blackstone Group LP. The benchmark gauge for U.S. stocks will rise to 1,200 by the end of the year, a 13 percent advance from today’s close of 1,062.96, Wien said in a telephone interview. The forecast is a reiteration of Wien’s prediction at the start of 2009 that the S&P 500 would climb 33 percent this year. “I’m not backing away from it,” said Wien, 76, the former chief market strategist for hedge fund Pequot Capital Management. “In March, that didn’t look too good and people wouldn’t make eye contact with me. But now, with three months to go, that looks like it may be realized. The economy will be stronger and corporate earnings both in the third and fourth quarters will be better than expected.” To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .

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Syracuse Finance Class: Decline in Real Estate Investment Trust …

September 28, 2009

Many investors are hoping to capitalize on forecasts that banks will sell commercial and real estate loans at distressed prices. However, the initial public offerings have hit numerous obstacles from too many deals in the market to …

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Dan Geldon: Don’t Believe the Hype! Credit Card Sharks Still Hate the Taste of Plain Vanilla

September 28, 2009

On Sept. 16, Bank of America joined an industry trend in announcing a new credit card that will have a one-page explanation of terms and conditions. Bank of America intends this new card to cater to consumer demand for simpler and more transparent credit products. At the same time, Bank of America has joined industry efforts to pour millions of dollars into lobbying Congress to kill the Consumer Financial Protection Agency — an agency that’s main mission would be to promote the use of simpler, clearer consumer credit contracts that people can actually read and compare (so-called “plain vanilla”). If you’re paying attention, you’re probably asking: huh? Let’s take a step back. Today, the market for consumer financial products is broken. Lenders compete over a few basic terms that consumers can compare — like the nominal interest rate — but they bury tricks and traps that consumers can’t compare in the fine print. This leads to a market that rewards the innovation of tricks and traps but doesn’t reward better features or lower costs. At the same time, the market encourages borrowers to over-consume through teaser rates or the functional equivalent of teaser rates (i.e. the tricks and traps), and it produces too much risk in the financial system. You may remember that extra risk as the main contributing factor to global financial meltdown and your dwindling 401k. The concept behind plain vanilla products is that it’s time to make banking simple again. Instead of allowing lenders to bury incomprehensible terms in paragraph after paragraph of legalese, plain vanilla means shorter, readable contracts. In a plain vanilla world, lenders would have to make the costs and risks of products clear upfront — and they would no longer be rewarded by the market for tricking and trapping their customers. While the apparent cost of credit may go up – remember, the tricks and traps would be gone so the number on the front of the envelope is real- plain vanilla will force competition around lower costs and friendly terms. This idea seems pretty simple — after all, not a lot of people oppose shorter contracts (even the American Enterprise Institute has designed a one-page mortgage ). And so the Obama Administration designed the CFPA to promote the use of plain vanilla products. The CFPA would safe harbor simple, comprehensible contracts but take a closer look at longer, incomprehensible ones. The idea? While we should expect personal responsibility when terms are transparent, regulators ought to take a closer look at opaque and indecipherable agreements. A few months ago, it seemed liked the industry had a hate-hate relationship with this simple idea. Industry groups alleged that plain vanilla is a fancy term for the government “choosing” products for customers. (Actually, plain vanilla would enable real consumer choice by reducing obfuscation.) They alleged that plain vanilla would destroy innovation. (Actually, plain vanilla would enable innovation around lower costs and friendly practices rather than around tricks and traps.) They alleged that plain vanilla would mean that customers would be thwarted from selecting more complex products that better fit their needs. (Actually, plain vanilla would still allow any product that can be explained in comprehensible ways, as well as products that can’t so long as they aren’t dangerous and abusive.) Today, it seems like the industry has a love-hate relationship with plain vanilla. It loves plain vanilla in that it is apparently embracing it, at least if you look at their marketing campaigns — that is, their marketing campaigns for plain vanilla products, not their marketing campaigns against plain vanilla products. (With all these marketing campaigns, it’s no wonder the $700 billion bailout hasn’t been paid back yet.) So, let’s jump back to the beginning: Huh? If you haven’t guessed it yet, there’s a pretty straightforward , two-part explanation for what’s really going on here. The first part is that the industry doesn’t love plain vanilla. In fact, they view it as a threat to monopoly-sized profits that are possible only in opaque, uncompetitive markets. The second part is that they’re lying. They’re pretending they love plain vanilla so that the perceived need for Congressional action fizzles, so that CFPA slowly fades away, and so that the public feels safe and protected by a working marketplace (consumer choice won in the end, we’ll all think!). And then the banks can scrap the whole idea of plain vanilla once and for all – or, at least until the next crisis. So by appearing to love plain vanilla, the banks are, paradoxically, seeking to kill plain vanilla. If you think this sounds far-fetched, just look to the industry’s history of appearing to embrace change under congressional scrutiny but returning to bad habits when the lights go dim and the cameras go off. The best example happened in 2007, when Citigroup pledged to eliminate “universal default” from its credit card contracts. Less than a year later, the company picked the practice back up again. The Fed and Congress ultimately acted to prohibit this practice, but the tactics of the industry succeeded in kicking the can down the road. If you’re like me, you’re wondering how such a simple idea for simpler products has turned out to be so complicated. Well, there’s a straightforward answer for that too: the financial industry has the world’s best innovators at making simple things seem complicated. If you don’t believe me, just look at your 30-page credit card contract. Cross-posted from New Deal 2.0.

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Dan Geldon: Don’t Believe the Hype! Credit Card Sharks Still Hate the Taste of Plain Vanilla

September 28, 2009

On Sept. 16, Bank of America joined an industry trend in announcing a new credit card that will have a one-page explanation of terms and conditions. Bank of America intends this new card to cater to consumer demand for simpler and more transparent credit products. At the same time, Bank of America has joined industry efforts to pour millions of dollars into lobbying Congress to kill the Consumer Financial Protection Agency — an agency that’s main mission would be to promote the use of simpler, clearer consumer credit contracts that people can actually read and compare (so-called “plain vanilla”). If you’re paying attention, you’re probably asking: huh? Let’s take a step back. Today, the market for consumer financial products is broken. Lenders compete over a few basic terms that consumers can compare — like the nominal interest rate — but they bury tricks and traps that consumers can’t compare in the fine print. This leads to a market that rewards the innovation of tricks and traps but doesn’t reward better features or lower costs. At the same time, the market encourages borrowers to over-consume through teaser rates or the functional equivalent of teaser rates (i.e. the tricks and traps), and it produces too much risk in the financial system. You may remember that extra risk as the main contributing factor to global financial meltdown and your dwindling 401k. The concept behind plain vanilla products is that it’s time to make banking simple again. Instead of allowing lenders to bury incomprehensible terms in paragraph after paragraph of legalese, plain vanilla means shorter, readable contracts. In a plain vanilla world, lenders would have to make the costs and risks of products clear upfront — and they would no longer be rewarded by the market for tricking and trapping their customers. While the apparent cost of credit may go up – remember, the tricks and traps would be gone so the number on the front of the envelope is real- plain vanilla will force competition around lower costs and friendly terms. This idea seems pretty simple — after all, not a lot of people oppose shorter contracts (even the American Enterprise Institute has designed a one-page mortgage ). And so the Obama Administration designed the CFPA to promote the use of plain vanilla products. The CFPA would safe harbor simple, comprehensible contracts but take a closer look at longer, incomprehensible ones. The idea? While we should expect personal responsibility when terms are transparent, regulators ought to take a closer look at opaque and indecipherable agreements. A few months ago, it seemed liked the industry had a hate-hate relationship with this simple idea. Industry groups alleged that plain vanilla is a fancy term for the government “choosing” products for customers. (Actually, plain vanilla would enable real consumer choice by reducing obfuscation.) They alleged that plain vanilla would destroy innovation. (Actually, plain vanilla would enable innovation around lower costs and friendly practices rather than around tricks and traps.) They alleged that plain vanilla would mean that customers would be thwarted from selecting more complex products that better fit their needs. (Actually, plain vanilla would still allow any product that can be explained in comprehensible ways, as well as products that can’t so long as they aren’t dangerous and abusive.) Today, it seems like the industry has a love-hate relationship with plain vanilla. It loves plain vanilla in that it is apparently embracing it, at least if you look at their marketing campaigns — that is, their marketing campaigns for plain vanilla products, not their marketing campaigns against plain vanilla products. (With all these marketing campaigns, it’s no wonder the $700 billion bailout hasn’t been paid back yet.) So, let’s jump back to the beginning: Huh? If you haven’t guessed it yet, there’s a pretty straightforward , two-part explanation for what’s really going on here. The first part is that the industry doesn’t love plain vanilla. In fact, they view it as a threat to monopoly-sized profits that are possible only in opaque, uncompetitive markets. The second part is that they’re lying. They’re pretending they love plain vanilla so that the perceived need for Congressional action fizzles, so that CFPA slowly fades away, and so that the public feels safe and protected by a working marketplace (consumer choice won in the end, we’ll all think!). And then the banks can scrap the whole idea of plain vanilla once and for all – or, at least until the next crisis. So by appearing to love plain vanilla, the banks are, paradoxically, seeking to kill plain vanilla. If you think this sounds far-fetched, just look to the industry’s history of appearing to embrace change under congressional scrutiny but returning to bad habits when the lights go dim and the cameras go off. The best example happened in 2007, when Citigroup pledged to eliminate “universal default” from its credit card contracts. Less than a year later, the company picked the practice back up again. The Fed and Congress ultimately acted to prohibit this practice, but the tactics of the industry succeeded in kicking the can down the road. If you’re like me, you’re wondering how such a simple idea for simpler products has turned out to be so complicated. Well, there’s a straightforward answer for that too: the financial industry has the world’s best innovators at making simple things seem complicated. If you don’t believe me, just look at your 30-page credit card contract. Cross-posted from New Deal 2.0.

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Pereira & O’Dell Appoints Kash Sree as Executive Creative Director

September 28, 2009

Award-Winning Agency Adds First East Coast-Based Talent

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Pereira & O’Dell Appoints Kash Sree as Executive Creative Director

September 28, 2009

Award-Winning Agency Adds First East Coast-Based Talent

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Andrew Ruben: Health Care’s True Cost to Small Business

September 28, 2009

Consistent with their mission and values, most socially conscious businesses try to treat their employees well. For me, this means offering health care to all full-time employees. We all know that the health care system needs reforming, but I was shocked to learn this year that our health care premiums went up almost 40%. Why? The addition of one healthy employee in her forties to a pool of employees under the age of thirty, combined with health care cost inflation. It should be clear that this rise in cost to the company is an unsustainable trend, but its consequences are equally strong arguments for reform that often escape the notice of political pundits: 1. If insuring older workers is so much more expensive, why would any small business hire them over younger workers? The status quo encourages discrimination in the hiring process. In the specific, this can ruin an older individual’s chance of finding work — and these people are more likely to have families to provide for. In the general, it encourages market inefficiencies, because the most qualified person might not be selected. 2. It advantages the largest businesses over small businesses, because large companies spread risk across a much greater number of employees. They also have the overall cash flow to absorb rises in health care costs. Not only can the larger competitor then achieve more favorable margins than a small business (and, perhaps, undercut its prices), but it can attract more qualified workers by offering better benefits. 3. It advantages small companies that do not offer health insurance over small companies that do. As my health care costs rise, those competitors’ constraints remain the same; their margins become even more favorable relative to mine. The competition’s competitive advantage is strengthened over time. 4. These huge, unanticipated rises in costs throw off any financial forecasting a small business does, leaving it subject to the whim of some insurance company’s (proprietary) algorithm. Accurate forecasts have always been important for managing a small business — for doing inventory, budgeting, and dealing with investors — but they’re even more necessary in this economic environment. 5. It pits employer against employee, and reduces the income of both. Even if a given business tries to absorb as much of the cost as possible, it likely will have to pass on some percentage to employees — and this amounts to a cut in wages. Reversing these perverse incentives in the system — a system which prevents small businesses, the backbone of our economy, from growing, providing jobs with health care, and creating wealth — is integral to any economic recovery. In many ways, with an employment-based health care system, the two issues are one and the same.

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Andrew Ruben: Health Care’s True Cost to Small Business

September 28, 2009

Consistent with their mission and values, most socially conscious businesses try to treat their employees well. For me, this means offering health care to all full-time employees. We all know that the health care system needs reforming, but I was shocked to learn this year that our health care premiums went up almost 40%. Why? The addition of one healthy employee in her forties to a pool of employees under the age of thirty, combined with health care cost inflation. It should be clear that this rise in cost to the company is an unsustainable trend, but its consequences are equally strong arguments for reform that often escape the notice of political pundits: 1. If insuring older workers is so much more expensive, why would any small business hire them over younger workers? The status quo encourages discrimination in the hiring process. In the specific, this can ruin an older individual’s chance of finding work — and these people are more likely to have families to provide for. In the general, it encourages market inefficiencies, because the most qualified person might not be selected. 2. It advantages the largest businesses over small businesses, because large companies spread risk across a much greater number of employees. They also have the overall cash flow to absorb rises in health care costs. Not only can the larger competitor then achieve more favorable margins than a small business (and, perhaps, undercut its prices), but it can attract more qualified workers by offering better benefits. 3. It advantages small companies that do not offer health insurance over small companies that do. As my health care costs rise, those competitors’ constraints remain the same; their margins become even more favorable relative to mine. The competition’s competitive advantage is strengthened over time. 4. These huge, unanticipated rises in costs throw off any financial forecasting a small business does, leaving it subject to the whim of some insurance company’s (proprietary) algorithm. Accurate forecasts have always been important for managing a small business — for doing inventory, budgeting, and dealing with investors — but they’re even more necessary in this economic environment. 5. It pits employer against employee, and reduces the income of both. Even if a given business tries to absorb as much of the cost as possible, it likely will have to pass on some percentage to employees — and this amounts to a cut in wages. Reversing these perverse incentives in the system — a system which prevents small businesses, the backbone of our economy, from growing, providing jobs with health care, and creating wealth — is integral to any economic recovery. In many ways, with an employment-based health care system, the two issues are one and the same.

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eSarcasm: Starbucks Meets the iPhone

September 28, 2009

Starbucks is getting into the smartphone game with two new iPhone apps unveiled this week. One gives coffee-craving customers the ability to find stores and discover new drinks, while the other, still in limited testing, lets you actually pay for your order using your phone. People seem pretty excited about these apps, but we think some important ones are missing — apps that reflect the true Starbucks experience. Here are 10 apps we’d build, if we knew jack about programming: 1. DeVentiLater Speak the name of the drink you want (“large coffee with skim milk”) and the app will translate into Starbucks’ patented MoronSpeak language (“venti nonfat caffe misto no whip for JR”). 2. MPSleaze If you love that drippy music Starbucks has been paid to promote in its stores, you’ll love MPSleaze. Just click a button on your iPhone and it will download whatever you’re listening to as a ringtone ($3.99). Songs from especially annoying artists (Jack Johnson, The Ting Tings) may incur additional charges. 3. CostlyCoffee A fun game for kids! See photos of different Starbucks drinks and try to guess how much dumb adults will actually pay for them. 4. Anti-Douchinator Find the nearest Starbucks that isn’t currently populated with 20-something douchebags wearing hoodies and knit caps, loudly watching videos on their laptops and commenting on how “tight” their Caramel Macchiatos are. 5. StarBust Use the iPhone’s touch technology to push the logo-bound mermaid’s locks aside and finally see that bodacious bosom. (FYI: They’re not real.) 6. BarNone Think you have what it takes to make it as a Starbucks barista? This interactive self assessment will let you know – and if you do well, automatically forward your resume to Starbucks’ Seattle HQ. Sample questions include: Am I unable to make change without a calculator? Do I have an attitude problem? Do I look like I care? 7. Fat Facts Nutritional information about Starbucks’ healthy transfat-free beverages , such as the venti Mint Chocolaty Chip Frappuccino Blended Creme with chocolate whipped cream: 680 calories, 21 grams of fat, 93 grams of sugar. Hey, it won’t clog your arteries (even if it does plump up your ass). 8. Gagger Counter Ever wonder what makes Starbucks’ baked goods so inedible? This Geiger-counter-style app gives you a readout of the radioactive isotopes, insect parts, and inert metals contained in every tasty morsel. You’ll never go there hungry again. 9. Locator/Creator Using the iPhone’s GPS, detect the nearest Starbucks location. If it’s more than 72 seconds away, a new one will be built right where you’re standing. Watch your head! 10. Motivate This, Asshole Generate your own lackluster motivational quote to be printed on your next Starbucks cup. Some suggestions, courtesy of the gang at Despair, Inc. : You can do anything you set your mind to when you have vision, determination, and an endless supply of expendable labor. There is no greater joy than soaring high on the wings of your dreams, except maybe the joy of watching a dreamer who has nowhere to land but in the ocean of reality. If a cute saying on a coffee cup is all it takes to motivate you, you probably have a very easy job. The kind that robots will be doing soon. For more Geek Humor Gone Wild, visit eSarcasm . You’ll be glad you did.

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eSarcasm: Starbucks Meets the iPhone

September 28, 2009

Starbucks is getting into the smartphone game with two new iPhone apps unveiled this week. One gives coffee-craving customers the ability to find stores and discover new drinks, while the other, still in limited testing, lets you actually pay for your order using your phone. People seem pretty excited about these apps, but we think some important ones are missing — apps that reflect the true Starbucks experience. Here are 10 apps we’d build, if we knew jack about programming: 1. DeVentiLater Speak the name of the drink you want (“large coffee with skim milk”) and the app will translate into Starbucks’ patented MoronSpeak language (“venti nonfat caffe misto no whip for JR”). 2. MPSleaze If you love that drippy music Starbucks has been paid to promote in its stores, you’ll love MPSleaze. Just click a button on your iPhone and it will download whatever you’re listening to as a ringtone ($3.99). Songs from especially annoying artists (Jack Johnson, The Ting Tings) may incur additional charges. 3. CostlyCoffee A fun game for kids! See photos of different Starbucks drinks and try to guess how much dumb adults will actually pay for them. 4. Anti-Douchinator Find the nearest Starbucks that isn’t currently populated with 20-something douchebags wearing hoodies and knit caps, loudly watching videos on their laptops and commenting on how “tight” their Caramel Macchiatos are. 5. StarBust Use the iPhone’s touch technology to push the logo-bound mermaid’s locks aside and finally see that bodacious bosom. (FYI: They’re not real.) 6. BarNone Think you have what it takes to make it as a Starbucks barista? This interactive self assessment will let you know – and if you do well, automatically forward your resume to Starbucks’ Seattle HQ. Sample questions include: Am I unable to make change without a calculator? Do I have an attitude problem? Do I look like I care? 7. Fat Facts Nutritional information about Starbucks’ healthy transfat-free beverages , such as the venti Mint Chocolaty Chip Frappuccino Blended Creme with chocolate whipped cream: 680 calories, 21 grams of fat, 93 grams of sugar. Hey, it won’t clog your arteries (even if it does plump up your ass). 8. Gagger Counter Ever wonder what makes Starbucks’ baked goods so inedible? This Geiger-counter-style app gives you a readout of the radioactive isotopes, insect parts, and inert metals contained in every tasty morsel. You’ll never go there hungry again. 9. Locator/Creator Using the iPhone’s GPS, detect the nearest Starbucks location. If it’s more than 72 seconds away, a new one will be built right where you’re standing. Watch your head! 10. Motivate This, Asshole Generate your own lackluster motivational quote to be printed on your next Starbucks cup. Some suggestions, courtesy of the gang at Despair, Inc. : You can do anything you set your mind to when you have vision, determination, and an endless supply of expendable labor. There is no greater joy than soaring high on the wings of your dreams, except maybe the joy of watching a dreamer who has nowhere to land but in the ocean of reality. If a cute saying on a coffee cup is all it takes to motivate you, you probably have a very easy job. The kind that robots will be doing soon. For more Geek Humor Gone Wild, visit eSarcasm . You’ll be glad you did.

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Derivatives: Bailed-Out Banks Still Making Billions Off Risky Bets

September 28, 2009

Derivatives is one of the dirty words of the financial crisis. Though these often-risky bets were blamed by many for helping fuel the credit crunch and the downfall of Lehman Brothers and AIG, it seems that Wall Street has yet to learn its lesson. U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter of 2009, a 225 percent increase from the same period last year, according to the Treasury Department. More than 1,100 banks now trade in derivatives, a 14 percent increase from last year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of America and Citibank account for 94 percent of the total derivatives reported to be held by U.S. commercial banks, according to national bank regulator the Office of the Comptroller of the Currency. The credit risk posed by derivatives in the banking system now stands at $555 billion, a 37 percent increase from 2008. “By any standard these [credit] exposures remain very high,” Kathryn E. Dick, the OCC’s deputy comptroller for credit and market risk, said in a statement . The complex financial instruments, which take the form of futures, forwards, options and swaps, derive their value from an underlying investment or commodity such as currency rates, oil futures and interest rates. They are designed to reduce the risk of loss for one party from the underlying asset. Trading in an unregulated $600 trillion market, they were partly blamed for igniting the financial crisis a year ago. The New York Times reported earlier this month: Derivatives drove the boom before 2008 by encouraging banks to make loans without adequate reserves. They also worsened the panic last fall because they inherently tie institutions together. Investors worried that the collapse of one bank would lead to big losses at others. The Obama administration has included oversight of derivatives as part of its overhaul of financial regulations. Wall Street is fighting back as it seems to have returned to its much-criticized practices . Last Thursday former Fed chairman Paul Volcker, who now heads the White House Economic Recovery Advisory Board, warned lawmakers about the danger lurking behind derivatives. Testifying on Capitol Hill, Volcker discussed how “opaque trading in complex derivatives [have] become so large relative to underlying assets” and how “more and more complex financial instruments limit the transparency of markets,” he said. “As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets,” he added. But the OCC argues that derivatives trading is not inherently risky, explaining that banks are trading these instruments every minute of every day with institutions more creditworthy than a typical borrower. “The system has always worked on derivatives,” said Kevin M. Mukri , an OCC spokesman. “You have higher-quality counterparties — higher quality than in any other line of business.” Furthermore, “the purpose of derivative trading to to mitigate risk — not increase risk,” he said. “Without derivatives it would be a very hectic marketplace.” Yet some well-respected investment banks seem to be exposed to significant risk, judging by their credit exposure from derivatives contracts. Goldman Sachs, formerly a pure investment bank, is now a bank-holding company regulated by the Federal Reserve. It owns Goldman Sachs Bank, an FDIC-insured depository. The bank has about $20 billion in total risk-based capital — in short, the money it has to cover creditors in case they go belly-up. But the bank has about $186 billion in total credit exposure from its derivatives contracts. Much of that $186 billion could be backed up by collateral — banks with at least $100 billion in assets held a combination of cash, bonds and securities against 63 percent of their total net credit exposure as of June 30. But the OCC doesn’t break that down by institution, and Goldman Sachs doesn’t disclose it either. Nonetheless, the bank’s exposure to derivatives losses is about nine times the amount of capital it has set aside. “It’s extraordinary for a commercial bank,” says Dean Baker , co-director of the Center for Economic and Policy Research , a Washington D.C.-based think tank. “And it really gets down to the central point with Glass-Steagall — what’s the separation here between government-insured deposits and speculative investment banking activity? You’d be very hard pressed to find out with Goldman right now.” Glass-Steagall, a Depression-era banking law that prohibited commercial banks from engaging in the investment business, was essentially repealed in 1999. Some economists have pointed to the repeal as the central cause behind the financial crisis. “Given Goldman Sachs’s history as a securities firm, as opposed to being… a traditional commercial bank, you would expect that our derivatives exposure is higher than our exposure to other assets,” says company spokesman Samuel Robinson. “It’s much higher [because] we don’t have a lot of these other assets.” Goldman Sachs announced that it would become a bank holding company last September, less than a week after Lehman Brothers declared bankruptcy. Coming under the Federal Reserve’s protective umbrella gave the firm “access to permanent liquidity and funding,” Lloyd C. Blankfein, chairman and CEO of Goldman Sachs, said at the time. Baker says that now that the firm is a bank holding company, the bank’s exposure to losses from derivatives contracts (compared to available capital) poses particular problems. Now, “the public is on the hook for that. If they run into trouble they could go to the Fed and borrow at the discount window [and] they have access to the FDIC’s special lending [program],” he explains. Goldman Sachs has issued about $25 billion in FDIC-backed debt as of June, according to regulatory filings . “You’re having the protections for what’s supposed to be relatively boring commercial banking applied to risky investment banking. It’s a real serious problem,” Baker says. Robinson says that the firm’s exposure to potential losses from its derivatives deals, as defined by the OCC, is misleading. “It includes a regulatory-defined measure … which in aggregate does not represent the firm’s … risk exposure,” he says. For example, it doesn’t factor in hedges against potential losses or collateral put up by counterparties. “You can have an exposure that’s fully hedged, but the hedging benefit does not appear anywhere in the [OCC's] analysis,” Robinson says. Last October Goldman received a $10 billion taxpayer bailout, which it repaid in June. The federal government earned $1.4 billion on its investment. JPMorgan Chase has about three times the amount of their capital exposed in derivatives deals; Citibank about double. For comparison’s sake, if all commercial and industrial loans held by U.S. banks went bust the banking system has just enough capital set aside to cover those losses. Not all banks are so heavily invested in derivatives. PNC’s exposure (relative to capital) is at 28 percent, and U.S. Bank, the country’s sixth-largest by deposits, comes in at seven percent. “It’s tough to think of the world without derivatives,” Mukri said “And it’s not a pleasant world either.” Get HuffPost Business On Facebook and Twitter !

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Derivatives: Bailed-Out Banks Still Making Billions Off Risky Bets

September 28, 2009

Derivatives is one of the dirty words of the financial crisis. Though these often-risky bets were blamed by many for helping fuel the credit crunch and the downfall of Lehman Brothers and AIG, it seems that Wall Street has yet to learn its lesson. U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter of 2009, a 225 percent increase from the same period last year, according to the Treasury Department. More than 1,100 banks now trade in derivatives, a 14 percent increase from last year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of America and Citibank account for 94 percent of the total derivatives reported to be held by U.S. commercial banks, according to national bank regulator the Office of the Comptroller of the Currency. The credit risk posed by derivatives in the banking system now stands at $555 billion, a 37 percent increase from 2008. “By any standard these [credit] exposures remain very high,” Kathryn E. Dick, the OCC’s deputy comptroller for credit and market risk, said in a statement . The complex financial instruments, which take the form of futures, forwards, options and swaps, derive their value from an underlying investment or commodity such as currency rates, oil futures and interest rates. They are designed to reduce the risk of loss for one party from the underlying asset. Trading in an unregulated $600 trillion market, they were partly blamed for igniting the financial crisis a year ago. The New York Times reported earlier this month: Derivatives drove the boom before 2008 by encouraging banks to make loans without adequate reserves. They also worsened the panic last fall because they inherently tie institutions together. Investors worried that the collapse of one bank would lead to big losses at others. The Obama administration has included oversight of derivatives as part of its overhaul of financial regulations. Wall Street is fighting back as it seems to have returned to its much-criticized practices . Last Thursday former Fed chairman Paul Volcker, who now heads the White House Economic Recovery Advisory Board, warned lawmakers about the danger lurking behind derivatives. Testifying on Capitol Hill, Volcker discussed how “opaque trading in complex derivatives [have] become so large relative to underlying assets” and how “more and more complex financial instruments limit the transparency of markets,” he said. “As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets,” he added. But the OCC argues that derivatives trading is not inherently risky, explaining that banks are trading these instruments every minute of every day with institutions more creditworthy than a typical borrower. “The system has always worked on derivatives,” said Kevin M. Mukri , an OCC spokesman. “You have higher-quality counterparties — higher quality than in any other line of business.” Furthermore, “the purpose of derivative trading to to mitigate risk — not increase risk,” he said. “Without derivatives it would be a very hectic marketplace.” Yet some well-respected investment banks seem to be exposed to significant risk, judging by their credit exposure from derivatives contracts. Goldman Sachs, formerly a pure investment bank, is now a bank-holding company regulated by the Federal Reserve. It owns Goldman Sachs Bank, an FDIC-insured depository. The bank has about $20 billion in total risk-based capital — in short, the money it has to cover creditors in case they go belly-up. But the bank has about $186 billion in total credit exposure from its derivatives contracts. Much of that $186 billion could be backed up by collateral — banks with at least $100 billion in assets held a combination of cash, bonds and securities against 63 percent of their total net credit exposure as of June 30. But the OCC doesn’t break that down by institution, and Goldman Sachs doesn’t disclose it either. Nonetheless, the bank’s exposure to derivatives losses is about nine times the amount of capital it has set aside. “It’s extraordinary for a commercial bank,” says Dean Baker , co-director of the Center for Economic and Policy Research , a Washington D.C.-based think tank. “And it really gets down to the central point with Glass-Steagall — what’s the separation here between government-insured deposits and speculative investment banking activity? You’d be very hard pressed to find out with Goldman right now.” Glass-Steagall, a Depression-era banking law that prohibited commercial banks from engaging in the investment business, was essentially repealed in 1999. Some economists have pointed to the repeal as the central cause behind the financial crisis. “Given Goldman Sachs’s history as a securities firm, as opposed to being… a traditional commercial bank, you would expect that our derivatives exposure is higher than our exposure to other assets,” says company spokesman Samuel Robinson. “It’s much higher [because] we don’t have a lot of these other assets.” Goldman Sachs announced that it would become a bank holding company last September, less than a week after Lehman Brothers declared bankruptcy. Coming under the Federal Reserve’s protective umbrella gave the firm “access to permanent liquidity and funding,” Lloyd C. Blankfein, chairman and CEO of Goldman Sachs, said at the time. Baker says that now that the firm is a bank holding company, the bank’s exposure to losses from derivatives contracts (compared to available capital) poses particular problems. Now, “the public is on the hook for that. If they run into trouble they could go to the Fed and borrow at the discount window [and] they have access to the FDIC’s special lending [program],” he explains. Goldman Sachs has issued about $25 billion in FDIC-backed debt as of June, according to regulatory filings . “You’re having the protections for what’s supposed to be relatively boring commercial banking applied to risky investment banking. It’s a real serious problem,” Baker says. Robinson says that the firm’s exposure to potential losses from its derivatives deals, as defined by the OCC, is misleading. “It includes a regulatory-defined measure … which in aggregate does not represent the firm’s … risk exposure,” he says. For example, it doesn’t factor in hedges against potential losses or collateral put up by counterparties. “You can have an exposure that’s fully hedged, but the hedging benefit does not appear anywhere in the [OCC's] analysis,” Robinson says. Last October Goldman received a $10 billion taxpayer bailout, which it repaid in June. The federal government earned $1.4 billion on its investment. JPMorgan Chase has about three times the amount of their capital exposed in derivatives deals; Citibank about double. For comparison’s sake, if all commercial and industrial loans held by U.S. banks went bust the banking system has just enough capital set aside to cover those losses. Not all banks are so heavily invested in derivatives. PNC’s exposure (relative to capital) is at 28 percent, and U.S. Bank, the country’s sixth-largest by deposits, comes in at seven percent. “It’s tough to think of the world without derivatives,” Mukri said “And it’s not a pleasant world either.” Get HuffPost Business On Facebook and Twitter !

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Income Inequality Widens, Poor Take Big Hit During Recession

September 28, 2009

WASHINGTON — The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets. The wealthiest 10 percent of Americans – those making more than $138,000 each year – earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003. Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997. Poverty jumped sharply to 13.2 percent, an 11-year high. “No one should be surprised at the increased disparity,” said Richard Freeman, an economist at Harvard University. “Unemployment hurts normal workers who do not have the golden parachutes the folks at the top have.” Analysts attributed the widening gap to the wave of layoffs in the economic downturn that have devastated household budgets. They said while the richest Americans may be seeing reductions in executive pay, those at the bottom of the income ladder are often unemployed and struggling to get by. Large cities such as Atlanta, Washington, New York, San Francisco, Miami and Chicago had the most inequality, due largely to years of middle-class flight to the suburbs. Declining industrial cities with pockets of well-off neighborhoods, such as Pittsburgh, Cleveland and Buffalo, also had sharp disparities. Up-and-coming cities with growing middle-class populations, such as Mesa, Ariz., Riverside, Calif., Arlington, Texas, and Henderson, Nev., were among the areas showing the least income differences between rich and poor. It’s unclear whether income inequality will continue to worsen in major cities, said William H. Frey, a demographer at the Brookings Institution. Many Americans are staying put for now in traditional cities to look for jobs and because of frozen lines of credit. “During the years of the housing bubble, there was middle-class movement from unaffordable metros with high-income inequality,” Frey said. “Now that the bubble burst, more of the population may be headed back to the high-inequality areas, stemming their middle-class losses.” Among other findings: _Income at the top 5 percent of households – those making $180,000 or more – was 3.58 times the median income, the highest since 2006. _Between 2007 and 2008, income at the 50th percentile (median) and the 10th percentile fell by 3.6 percent and 3.7 percent, respectively, compared with a 2.1 percent decline at the 90th percentile. Between 1999 and 2008, income at the 50th and 10th percentiles decreased 4.3 percent and 9.0 percent, respectively, while income at the 90th percentile was statistically unchanged. _Plano, Texas, a Dallas suburb, had the highest median income among larger cities, earning $85,003. Cleveland ranked at the bottom, at $26,731. The findings come as the federal government considers new regulations to rein in executive pay at companies in which it has invested. President Barack Obama also typically cites the need for higher taxes on the wealthy to pay for health care overhaul and other measures, arguing that the wealthy have disproportionately benefited from tax cuts during the Bush administration. The 2008 figures come from the Current Population Survey and the American Community Survey, which gathers information from 3 million households. The government first began tracking household income in 1967. ___ Associated Press writer Frank Bass contributed to this report. ___ On the Net: Census Bureau: http://www.census.gov

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Income Inequality Widens, Poor Take Big Hit During Recession

September 28, 2009

WASHINGTON — The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets. The wealthiest 10 percent of Americans – those making more than $138,000 each year – earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003. Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997. Poverty jumped sharply to 13.2 percent, an 11-year high. “No one should be surprised at the increased disparity,” said Richard Freeman, an economist at Harvard University. “Unemployment hurts normal workers who do not have the golden parachutes the folks at the top have.” Analysts attributed the widening gap to the wave of layoffs in the economic downturn that have devastated household budgets. They said while the richest Americans may be seeing reductions in executive pay, those at the bottom of the income ladder are often unemployed and struggling to get by. Large cities such as Atlanta, Washington, New York, San Francisco, Miami and Chicago had the most inequality, due largely to years of middle-class flight to the suburbs. Declining industrial cities with pockets of well-off neighborhoods, such as Pittsburgh, Cleveland and Buffalo, also had sharp disparities. Up-and-coming cities with growing middle-class populations, such as Mesa, Ariz., Riverside, Calif., Arlington, Texas, and Henderson, Nev., were among the areas showing the least income differences between rich and poor. It’s unclear whether income inequality will continue to worsen in major cities, said William H. Frey, a demographer at the Brookings Institution. Many Americans are staying put for now in traditional cities to look for jobs and because of frozen lines of credit. “During the years of the housing bubble, there was middle-class movement from unaffordable metros with high-income inequality,” Frey said. “Now that the bubble burst, more of the population may be headed back to the high-inequality areas, stemming their middle-class losses.” Among other findings: _Income at the top 5 percent of households – those making $180,000 or more – was 3.58 times the median income, the highest since 2006. _Between 2007 and 2008, income at the 50th percentile (median) and the 10th percentile fell by 3.6 percent and 3.7 percent, respectively, compared with a 2.1 percent decline at the 90th percentile. Between 1999 and 2008, income at the 50th and 10th percentiles decreased 4.3 percent and 9.0 percent, respectively, while income at the 90th percentile was statistically unchanged. _Plano, Texas, a Dallas suburb, had the highest median income among larger cities, earning $85,003. Cleveland ranked at the bottom, at $26,731. The findings come as the federal government considers new regulations to rein in executive pay at companies in which it has invested. President Barack Obama also typically cites the need for higher taxes on the wealthy to pay for health care overhaul and other measures, arguing that the wealthy have disproportionately benefited from tax cuts during the Bush administration. The 2008 figures come from the Current Population Survey and the American Community Survey, which gathers information from 3 million households. The government first began tracking household income in 1967. ___ Associated Press writer Frank Bass contributed to this report. ___ On the Net: Census Bureau: http://www.census.gov

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Annual Bank Bonuses To Be Banned In U.K.

September 28, 2009

British Treasury chief Alistair Darling said Monday that annual bonuses for bank executives will be outlawed in an attempt to curb excessive risk-taking in the country’s huge financial sector. Darling told the governing Labour Party’s annual conference that new legislation to restrict how the payments are made will be introduced in Parliament within weeks.

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Annual Bank Bonuses To Be Banned In U.K.

September 28, 2009

British Treasury chief Alistair Darling said Monday that annual bonuses for bank executives will be outlawed in an attempt to curb excessive risk-taking in the country’s huge financial sector. Darling told the governing Labour Party’s annual conference that new legislation to restrict how the payments are made will be introduced in Parliament within weeks.

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Burlington Northern Santa Fe Corporation Elects Dr. Cynthia Ann Telles to Its Board

September 28, 2009

FORT WORTH, TX–(Marketwire – September 28, 2009) – The Board of Directors of Burlington Northern Santa Fe Corporation ( NYSE : BNI ) today announced the election of Dr. Cynthia Ann Telles to its Board. Dr. Telles is a professor in the UCLA School of Medicine and the Director of the Spanish Speaking Psychosocial Clinic of the UCLA Neuropsychiatric Institute and Hospital. The appointment is effective September 24, 2009. In making the announcement, Matthew K. Rose, BNSF chairman, president and chief executive officer, said, “We are delighted to welcome Dr. Telles to our Board. She adds a unique, new perspective to our Board with her distinguished 30-year career in medicine at UCLA as well as more than 25 years of experience in public service.”

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Burlington Northern Santa Fe Corporation Elects Dr. Cynthia Ann Telles to Its Board

September 28, 2009

FORT WORTH, TX–(Marketwire – September 28, 2009) – The Board of Directors of Burlington Northern Santa Fe Corporation ( NYSE : BNI ) today announced the election of Dr. Cynthia Ann Telles to its Board. Dr. Telles is a professor in the UCLA School of Medicine and the Director of the Spanish Speaking Psychosocial Clinic of the UCLA Neuropsychiatric Institute and Hospital. The appointment is effective September 24, 2009. In making the announcement, Matthew K. Rose, BNSF chairman, president and chief executive officer, said, “We are delighted to welcome Dr. Telles to our Board. She adds a unique, new perspective to our Board with her distinguished 30-year career in medicine at UCLA as well as more than 25 years of experience in public service.”

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Malaysia- Jamelah spearheading innovation at RHB

September 28, 2009

Malaysia- Jamelah spearheading innovation at RHB

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Uni-chem to buy Hynix plant for $50m

September 28, 2009

Uni-chem to buy Hynix plant for $50m

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Iran flexes muscle by test-firing missiles

September 28, 2009

Iran flexes muscle by test-firing missiles

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South Korea to invest $2.36b in green technology

September 28, 2009

South Korea to invest $2.36b in green technology

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China launches probe into U.S. chicken imports

September 28, 2009

China launches probe into U.S. chicken imports

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Adobe joins hands with McAfee in global alliance

September 28, 2009

Adobe joins hands with McAfee in global alliance

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Sinochem offers $2.4b for Australia’s Nufarm

September 28, 2009

Sinochem offers $2.4b for Australia’s Nufarm

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Tiger Woods Earned $10.5 Million in PGA Tour Tournament Purses This Season

September 28, 2009

By Vince Golle Sept. 28 (Bloomberg) — Tiger Woods earned $10.5 million in tournament purses on the U.S. PGA Tour this year, his third-best season since turning professional in 1996. Woods, who entered 2009 following reconstructive knee surgery, won six tournaments and finished in the top 10 in 14 of 17 events, including three of four in the FedEx Cup playoffs. He topped the PGA Tour money list for the ninth season, this time without winning one of golf’s four majors. “The whole year was an unknown,” Woods said yesterday after finishing second to Phil Mickelson at the Tour Championship in Atlanta. “I didn’t know how the knee would respond. To play as well as I have the entire year is something I’m very proud of.” The 33-year-old Woods has earned $92.9 million during his career and another $20 million in bonus money for twice winning the FedEx Cup. Yesterday’s second-place finish at the U.S. PGA Tour’s finale allowed him to win the FedEx Cup title for the second time in three years. Vijay Singh is second on the career earnings list with almost $62 million in prize money. He made a $10 million bonus in 2008 by winning the FedEx Cup when Woods cut his season short to have surgery on his knee. Mickelson is third in career earnings with $55.9 million. Woods won $10.9 million in purses in 2007 and $10.6 million in 2005. Following are the PGA Tour’s money leaders for 2009 through the Tour Championship. To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

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Corpses, Hungry Bears Embellish Lake Tahoe’s Non-Casino Pleasures: Travel

September 28, 2009

By Peter J. Brennan Sept. 28 (Bloomberg) — The big question at Lake Tahoe is whether to camp among scented pines and risk bear visits or bask in the blue-water view from a casino hotel’s 18th floor. For the past 30 years, I’ve visited the freshwater lake that straddles the California-Nevada border for winter skiing at world-class resorts like Heavenly. In August, I spent five days discovering it’s equally fun in the summertime with hiking trails, jet skis and sailing. I also learned about the problems with bears and doorknobs and what’s rumored to be at the bottom of the lake, 1,645 feet at its deepest point. “The world isn’t ready for what’s down there,” is the apocryphal quote attributed to the late marine explorer Jacques Yves Cousteau in the 1980s and repeated to us by our white-water rafting guide on the Truckee River. My family and I gave up camping in the Sierras in 2006 after watching a 300-pound bear just 10 feet away munch our food at 3 a.m. in Yosemite Valley. While black bears aren’t known to attack humans, the risk wasn’t worth it, particularly with a young daughter and grandparents trekking to bathrooms in the middle of the night. Lake Tahoe has hundreds of rental homes, which also aren’t safe from bears. The Bear League , a group of 200 volunteers who try to educate visitors about dealing with the bruins, received five to 20 complaints daily this past summer about these animals entering homes, said Ann Bryant, its executive director. “Bears learned to turn doorknobs about four years ago and test for windows that were open or unlocked, just like a human burglar,” Bryant said. “People come home and they’ll see the bears sitting in front of their refrigerators.” Sleeping Bears Sometimes people will hear snoring and discover bears sleeping under their homes, Bryant said. She says visitors shouldn’t be scared because this species hasn’t killed anyone. My wife and I felt confident that Harveys Lake Tahoe Casino , which is on the Nevada side of South Lake Tahoe, wasn’t going to permit bears on the 18th floor. The view was as splendid as a postcard and the price was a typical casino bargain: $100 a night. Insider tip: Make sure to book in the more modern Lake Tower rather than the older Mountain Tower. A two-hour drive around the 72-mile shoreline shows off plenty of places to visit. We liked the steak and halibut at Tahoe City’s Jake’s on the Lake, which sits adjacent to a harbor full of yachts. Shopping was surprisingly good as I snagged a $350 ski jacket for my daughter for $100. Hiking, Parasailing We enjoyed a six-mile hike alongside the picturesque alpine Lake Echo. A 20-minute trek to Emerald Bay ends at a classic lake beach. The trip back uphill to the parking lot is like 30 minutes on a Stairmaster . There are all types of craft plying the lake, from paddleboats to a speedboat promising 65 mph and one that offers parasailing more than 1,000 feet high. The lake rumor is that dozens if not hundreds of bodies, including Mafia victims, are perfectly preserved near the bottom. Our rafting guide theorized that bodies cannot float in such cold, fresh water and there aren’t enough bacteria at the bottom to dispose of the remains. Cousteau Society archivist Clark Lee Merriam said the organization has never had an expedition to the bottom of Lake Tahoe and the story is an urban legend repeated around the world at other lakes. Scott Cassell, who leads a separate group that in May dove to 500 feet in a submarine, said, “We didn’t see anything of the kind” involving corpses. Cassell said he’ll be diving to the deepest sections of the lake next year and is doubtful he’ll find bodies. Too Yummy to Last “I cannot believe that something as nutritious as a human body would be left intact,” he said. On the negative side, Cassell said his dives showed that “there’s a lot more volcanic activity than we thought.” Not to worry; no eruption is imminent, he said. Lake Tahoe is a year-round resort with the hot summers good for hiking and swimming, the snowy winters perfect for skiing. The best place for the money is the Lake Tower of Harveys Lake Tahoe. There are plenty of home rentals and resorts like Squaw Valley and Incline Village ( click here for bear lookout page). The nearest big airport is in Reno, Nevada, about 30-45 minutes away. To contact the reporter on this story: Peter J. Brennan in Los Angeles at pbrennan3@bloomberg.net .

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Citigroup, Microsoft Said to Form Venture to Challenge to Intuit, Mint.com

September 28, 2009

By Bradley Keoun Sept. 25 (Bloomberg) — Citigroup Inc. has formed a venture with Microsoft Corp. to compete with Mint.com, the personal- finance Web site that Intuit Inc. agreed to buy last week for $170 million, people familiar with the matter said. Citigroup and Microsoft have spent about $5 million on the project since it was started earlier this year, one of the people said. The venture, tentatively named Bundle, is led by Jaidev Shergill , an executive vice president at Citigroup’s Growth Ventures and Innovation unit, its in-house incubator of start-up businesses. Like Mint, the venture would let users monitor accounts at multiple banks and brokerages. Vikram Pandit , Citigroup’s chief executive officer, wants to restore his bank’s reputation as an innovator, burnished in the 1970s when it pioneered automated teller machines . After last year’s $45 billion bailout, Pandit may have to justify the cost of each project, said Thomas Noyes , who until 2007 headed Citigroup’s international Internet and mobile-banking businesses. “A key question to be asked on any investment is what value this is bringing to Citi’s current customers or its current lines of business,” said Noyes, now managing partner of Starpoint LLP , a bank consulting company in Charlotte, North Carolina. A Citigroup spokesman, Steve Silverman , declined to comment, as did Lisa Gurry , a spokeswoman for Microsoft, based in Redmond, Washington. Last week, Citigroup said Microsoft helped design Citibank Direct BE, an online-banking program designed for corporate treasurers and financial officers. MSN Money, Citi Online Microsoft runs MSN Money , a Web site that displays stock quotes, offers tools for tracking bank accounts and publishes articles and columns on investments, personal budgeting and credit repair. Citigroup’s U.S. consumer site, Citibank Online , allows customers to see accounts, make payments, transfer money and set up alerts to warn when balances fall too low. Mint , based in Mountain View, California, offers a free Web site that consumers use to track spending alongside account balances. The company makes money by charging financial institutions fees for steering customers their way. Founded in 2006 , Mint had received more than $31 million in venture funding, according to an Aug. 12 press release. Intuit, whose TurboTax software siphoned tax-preparation customers away from H&R Block Inc. branches, said it wants the Mint purchase to “connect customers across desktop, online and mobile.” ‘Real Power’ The Citigroup-Microsoft venture aims to develop its own site during the next one to two years, one of the people said. Both companies want to assure Intuit doesn’t get too far ahead in a business they believe has prospects to grow, the people said. One limitation of Mint is that it allows customers to monitor accounts, not transact with them, consultant Javelin Strategy & Research wrote in a product review on its Web site in June. The “real power” of personal-finance Web sites will be “unleashed when banks and credit unions tie these tools into their online-banking platforms,” Pleasanton, California-based Javelin wrote. Earlier this year Citigroup folded its year-old “myFi” personal-finance Web site into the company’s U.S. consumer- banking operations. MyFi offered features of Mint, such as aggregating account balances from multiple banks and brokerage firms, while also allowing customers to transact. R&D Lab Citigroup executives have explored ways to morph their U.S. consumer business into a “Bank of the Future” driven by improved Web and mobile access alongside branches. In a Sept. 16 presentation, Pandit, 52, told analysts that Citigroup was “once a leader in consumer-banking technology,” and “it is our aim to make sure we regain that edge.” The bank’s growth ventures unit is led by Jeff Semenchuk , 49, who during the dot-com frenzy in the early 2000s started a software company to teach children how to manage their finances. The venture with Microsoft has recruited Dan Ariely , a behavioral economics professor at Duke University in Durham, North Carolina, to be an adviser, Ariely said in an interview. “I’m doing research about how people think about money, and what kind of mistakes people make when they think about money,” Ariely, 42, said in a telephone interview. “The question is, can we use software to help people reason better about what they’re doing, give them better information and make sure that the decisions they’re making are the right ones?” To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net

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Northeast U.S. May Experience Coldest Winter in a Decade, Forecaster Says

September 28, 2009

By Todd Zeranski and Erik Schatzker Sept. 28 (Bloomberg) — The U.S. Northeast may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers , a forecaster at Commodity Weather Group. “Weak El Ninos are notorious for cold and snowy weather on the Eastern seaboard,” Rogers said in a Bloomberg Television interview from Washington. “About 70 percent to 75 percent of the time a weak El Nino will deliver the goods in terms of above-normal heating demand and cold weather. It’s pretty good odds.” Warming in the Pacific often means fewer Atlantic hurricanes and higher temperatures in the U.S. Northeast during January, February and March, according to the National Weather Service. El Nino occurs every two to five years, on average, and lasts about 12 months, according to the service. Hedge-fund managers and other large speculators increased their net-long positions, or bets prices will rise, in New York heating oil futures in the week ended Sep. 22, according to U.S. Commodity Futures Trading Commission data Sept. 25. “It could be one of the coldest winters, or the coldest, winter of the decade,” Rogers said. U.S. inventories of distillate fuels, which include heating oil, are at their highest since January 1983, the U.S. Energy Department said Sept. 23. Stockpiles of 170.8 million barrels in the week ended Sept. 18 are 28 percent above the five-year average. To contact the reporter on this story: Todd Zeranski in New York at tzeranski@bloomberg.net ; Erik Schatzker in New York at eschatzker@bloomberg.net

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SEC Sues Detroit Broker for Alleged Fraud in $250 Million Investment Scam

September 28, 2009

By Joshua Gallu and David Scheer Sept. 28 (Bloomberg) — The U.S. Securities and Exchange Commission sued a Detroit-area broker for allegedly defrauding elderly investors by selling interests in a firm that claimed it had telecommunications deals with hotels and truck stops. Frank Bluestein, 59, reaped at least $3.8 million for himself and his company, Fast Frank Inc., by encouraging investors to refinance their homes to participate in a $250 million Ponzi scheme run by Edward May and his company, E-M Management Co. LLC, the SEC said. Bluestein raised $74 million and the SEC said he was the most successful salesperson for May, who was sued in 2007 for running the scam. Bluestein falsely told investors he conducted due diligence in E-M, which claimed to have contracts to install and service telecommunications equipment with hotels and casinos in Las Vegas, the SEC said in a complaint filed at federal court in Michigan. Most, if not all, of the purported contracts didn’t exist, the agency said. Bluestein didn’t know about the scam, has been cooperating for more than a year and provided documents to the agency, said his attorney, David Foster. The regulator didn’t claim in its complaint that Bluestein signed checks, received bank statements or that his name was mentioned in offering documents “that would show he had any actual knowledge that this was an alleged Ponzi scheme,” Foster said. “His lies, false assurances, and unscrupulous tactics put many investors at risk of losing not only their life savings, but also their homes,” said Merri Jo Gillette , director of the SEC’s regional office in Chicago. Several of Bluestein’s 800 clients in Michigan and California used home-equity lines of credit to borrow $100,000 or more, and he encouraged one investor to borrow $1 million on her home to buy interests in the Ed May projects, the SEC said. May had 1,200 clients. May and E-M Management partially settled the SEC’s lawsuit in December 2007 without admitting or denying wrongdoing, according to a judge’s order at the time. They agreed to an injunction, barring them from similar conduct in the future. A judge hasn’t yet determined what profits they must forfeit and what fine, if any, will be imposed, court records show. A hearing is set for Oct. 15. Harold Gurewitz, an attorney for May and E-M Management, didn’t respond to a message seeking comment. To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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New York, New Jersey May Lag Behind National Recovery, Fed Economists Say

September 28, 2009

By Michael McKee and Vivien Lou Chen Sept. 28 (Bloomberg) — New York Federal Reserve Bank economists said that while the worst of the recession in New York and New Jersey may be over, a recovery in the region’s economy will probably lag the national trend. “A downsizing of the area’s critical financial sector could pose a major risk to the economic outlook going forward, particularly for New York City,” the economists said in a paper posted on the New York Fed’s Web site. Consolidation and restructuring among financial firms, along with possible regulatory changes that could limit the size of firms, their business lines and pay structure, “have the potential to dramatically reshape this sector” and slow a recovery, the district bank economists said. The bank’s regional studies group constructed a coincident economic indicator comprising payrolls, unemployment, earnings and hours worked to calculate the impact of the recession on New York City, New York state and New Jersey. “The worst of the region’s economic troubles may be over,” the group wrote in a paper, noting the recession in the area “eased considerably” early this year and stabilized in July. At the same time, there has been no letup in financial industry job losses, they said. New York and New Jersey entered recession after the national downturn began in December 2007, the economists said. During the prior two recessions, economic activity in the two states peaked before the country as a whole. ‘Near Collapse’ Once the regional economy began to decline, the near collapse of the financial system had a “severe” effect, the economists found. In New York City, the economy contracted 4.9 percent in the twelve months to June. In New York state, the contraction was 5.7 percent, and in New Jersey, 5 percent. Financial services account for about 12 percent of New York City’s employment, and as much as 30 percent of total wages, the bank said. Each Wall Street job is estimated to generate two additional jobs in the city supporting the industry, including advertising, restaurants or real estate. The economists count a total of 42,000 financial jobs lost in New York City from early 2008 to July 2009. New Jersey has lost 25,000 jobs in the financial industry since September 2005. “Job losses in the city’s securities industry have a disproportionate impact on the region’s total activity,” the economists’ report said. The industry is also an important source of tax revenue in all three areas, the report said. As payrolls fell, tax collections dropped, leading to cuts in municipal and state services. “Such declines are likely to continue,” the economists wrote. The New York Fed paper was written by senior economist Jason Bram , assistant economist Joseph Song and assistant vice presidents James Orr , Robert Rich and Rae Rosen . To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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Pimco Adviser Clarida Says U.S. Savings Rate May Exceed 8%, Slowing Growth

September 28, 2009

By Thomas Keene and Susanne Walker Sept. 28 (Bloomberg) — Pacific Investment Management Co. strategic adviser Richard Clarida said the U.S. savings rate may exceed 8 percent, hurting consumer spending and weighing on the economic recovery. “I’m in the glass is half empty camp,” Clarida said during an interview in New York on Bloomberg radio. “Traditionally the consumer comes to the rescue of economic recoveries. We’ll see a more subdued consumer.” Americans took on less debt to repair tattered balance sheets, pushing the savings rate up to 6 percent of disposable income in May, the highest level since 1998. It last exceeded 8 percent in December 1992. Consumer spending accounts for more than 70 percent of U.S. economic activity. Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed Sept. 17. More than three in four adults said they reduced spending in the past year, the poll showed. Officials at Newport Beach, California-based Pimco, the world’s largest bond fund manager, have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth. Slower Growth “Economic growth will be choppy,” Clarida said. “We see the economy recovering. There will be some quarters above two percent, and others below.” The world’s largest economy shrank at a 1.2 percent annual rate from April to June, more than the originally reported 1 percent contraction, according to a Bloomberg News survey before the Commerce Department’s Sept. 30 report. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2. “At some point as unemployment declines, the Fed will need to renormalize rates,” Clarida said. “It’s too soon to tell the pace at which they will renormalize. I don’t think there will be a Fed hike until late 2010 or 2011.” The Fed cut its target for overnight lending between banks to a record-low range of zero to 0.25 percent in December. Traders bet there’s a 72 percent chance the central bank will raise its target rate by April, based on futures data compiled by Bloomberg. To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

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