January 2010

Positive Outlook for Retail Real Estate Tempered by Ongoing Market Correction

January 27, 2010

Reporting on the major trends that took place in retail real estate in 2009, and expectations for the coming year, CoStar Group recently provided clients with a detailed analysis on the retail real estate market in the latest in its series of quarterly…

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Avon North America Relocating to 777 Third Ave.

January 27, 2010

Avon Products is relocating its North America unit to 777 Third Ave. in Manhattan. The global beauty products company signed 15-year lease for 246,500 square feet. The 38-story, 525,000-square-foot office tower is in the Plaza District, near Dag Hammarskjold…

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North Korea Army Fires Artillery Salvo, Prompting Warning Shots From South

January 26, 2010

By Bomi Lim Jan. 27 (Bloomberg) — North Korea fired artillery off its west coast near the disputed maritime border with South Korea, prompting warning shots from the South. There were no casualties. North Korea fired about 30 shells between 9:05 a.m. and 10:16 a.m. local time that fell into waters north of the border, a South Korean Defense Ministry official said in Seoul today. South Korea responded with several rounds that weren’t aimed at any target, said the official, who declined to be named, citing ministry policy. North Korea plans to continue what it said was an annual exercise, the North’s Korea Central News Agency said. North Korea earlier banned ships from its west coast, indicating it may be planning military exercises. The totalitarian regime of Kim Jong Il fired missiles in October, the latest in a series of tests that included the May detonation of a second nuclear device. The North pulled out of six-nation talks on its atomic program in April and has said it won’t return to negotiations until the United Nations sanctions imposed for its nuclear tests are lifted. “North Korea is raising tension as a way of reminding others that there is always a possibility of war on the peninsula,” said Baek Seung Joo , an analyst at the Korea Institute of Defense Analyses. “The provocation is a message to dialogue partners, urging them to come up with concessions needed to bring it to the table.” Six-Party Talks North Korea resisted provocation that could have caused damage because it still wants to engage with other countries in the six-nation talks, Baek said. The six nations, including China, Japan, Russia, South Korea and the U.S., last met in December 2008. The exercise was held within the country’s territory so there were no grounds for any complaints, KCNA said, citing the General Staff of the North’s Korean People’s Army. The shipping ban was imposed Jan. 25 and is to last through March 29, South Korea’s Unification Ministry spokeswoman Lee Jong Joo said. South Korea called an emergency security meeting, a presidential official who declined to be identified said. “Our government is carefully studying military movements in North Korea, its intentions, and how we should respond,” Lee told reporters in Seoul. The benchmark Kospi index was 0.6 percent lower at 1,641.64 as of 2:49 p.m. in Seoul, having earlier dropped as much as 1 percent. YTN Television yesterday cited an unidentified military source as saying that the no-navigation zone covers an area 4 kilometers (2.5 miles) south of the Northern Limit Line, a border demarcated by the UN after the 1950-53 Korean War. North Korea doesn’t recognize the border, at the center of a dispute that caused bloody naval skirmishes in 1999 and 2002. Skirmish The two countries exchanged fire in November after a North Korean vessel ventured into waters claimed by South Korea. South and North Korea remain divided by an armed border after their conflict ended in a cease-fire, which was never replaced by a peace treaty. North Korea said on Jan. 11 that talks on a peace treaty should begin this year. South Korea this week proposed talks with North Korea on Feb. 8 about resuming tourist visits to the communist nation, a government spokesman said. The South also plans to send 10,000 tons of corn in food aid to the North. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Obama Speech Will Seek to Reset Message With Spending Freeze, Tax Relief

January 26, 2010

By Edwin Chen and Nicholas Johnston Jan. 27 (Bloomberg) — Barack Obama won the White House in part because he controlled the narrative of the campaign, a story line of change and possibility. As president, even supporters say he hasn’t projected a well-defined message, to his political cost. His first State of the Union address today is a chance for a rewrite. “He has to send a clear signal to the country, and to his own party, about what his top priorities are and what he is really prepared to fight for,” said Bill Galston , a scholar at the Washington-based Brookings Institution who was President Bill Clinton’s domestic-policy adviser. “The signals coming out of the White House have not been clear and to some extent they have been contradictory.” The president will try to add clarity in his speech, White House aides said. He will call for a freeze on federal discretionary spending, tax relief targeting middle-income Americans, regulating the financial-services industry and remaking the nation’s immigration laws. He may also help provide a way to move forward with the signature issue of his first year, an overhaul of the health- care system, which represents about 17 percent of the economy. White House aides said the administration hasn’t been successful in selling the U.S. public on the health-care plan, which is stalled in Congress. ‘Take Responsibility’ The effort “became a caricature of its component parts,” Robert Gibbs , the president’s spokesman, said yesterday. “To the degree that that’s a communications failing, I think people here at the White House and others would certainly take responsibility for that.” When Obama returns to the subject tonight, he is likely to push for enactment of a broad package rather than passing small measures in a piecemeal fashion, said House Majority Leader Steny Hoyer of Maryland. “It’s difficult to take small pieces and attain the objectives you want to accomplish,” Hoyer said. The State of the Union will give Obama an opportunity to “reset, recalibrate and demonstrate that he is as good at governing and leading America as he is at campaigning,” said Ken Duberstein , who served as chief of staff for President Ronald Reagan . The address “captures people’s attention,” he said. “You don’t need to talk about 10 priorities, you can talk about a couple of priorities.” Tampa Visit To amplify his message, Obama and Vice President Joe Biden are scheduled to appear together a town-hall meeting in Tampa, Florida, tomorrow to talk about the economy and ways to bring down the unemployment rate , which is at 10 percent. And on Jan. 29, the president is scheduled to address a gathering of House Republicans in Baltimore. In anticipation of tonight’s speech, Obama has already proposed a tax package aimed at appealing to middle-income Americans, including an increased tax credit for child care and an expansion of credits to match retirement savings. He also intends to call for a three-year freeze on some spending for domestic programs not related to national security, White House aides said. In addition, he will discuss his Jan. 21 proposal to reduce risk-taking by financial firms. Gibbs said yesterday the president would also call on Congress to move forward with an overhaul of the nation’s immigration laws. Deficit Commission Obama is also likely to announce an executive order to create a commission to find ways to reduce the federal budget deficit after the Senate rejected such a panel yesterday. In recent days, the president and his top advisers have signaled his intention to stay the course and keep taking on big issues such as health care, while rejecting “small-bore” measures that may more easily win congressional approval. “I am not backing off the need for us to tackle these big problems in a serious way,” Obama said in a Jan. 25 interview on ABC News. “I am going to keep on pushing.” As the president addresses the nation in prime time, his job-approval ratings have fallen below 50 percent and a majority of the public now wants a halt to the health-care overhaul. The percentage of people who disapprove of the job Obama is doing is at 50 percent, compared with 22 percent in February 2009, according to a CNN/Opinion Research poll conducted Jan. 22-24. Shared Values More Americans also now say Obama isn’t in general agreement with them on important issues or doesn’t share their values. More than half said he isn’t paying enough attention to the most important problems, up from about a third who said that in April. And 60 percent of the 1,009 adults surveyed said Obama has focused more on the problems of banks and other financial institutions than on middle-class Americans. The survey has a margin of error of plus or minus 3 percentage points. While the Obama administration can claim it averted an economic meltdown, the double-digit unemployment rate and the aftershocks from the rescue efforts continue to stir public anger at Washington. The highest-stake issue tonight may be the outcome of the health-care initiative, which is threatened by the Jan. 19 election of Republican Scott Brown to the Massachusetts Senate seat held for 47 years by the late Edward Kennedy , a Democratic icon. Brown will provide Senate Republicans their 41st vote, the threshold for blocking legislation. ‘Rhetorical Superstar’ Obama has often used speeches to overcome political obstacles, said Fred Greenstein , a presidential historian at Princeton University in New Jersey. The president, he said, “is capable of being a rhetorical superstar and typically comes through in the clutch.” Obama received national attention with an address to the 2004 Democratic National Convention . Since then, he has delivered a number of big speeches that further propelled him on the road to the White House, including an address in 2007 to party activists in Iowa and a speech on race in 2008 after some inflammatory remarks made by his former pastor came to light. During his first year in office, Obama turned to the media to get his message out far more often than his predecessors, giving 161 interviews, compared with about 50 each for Clinton and President George W. Bush during their first year in office, according to Martha Joynt Kumar , a political science professor at Towson University in Towson, Maryland. “Communications problems are most often policy problems,” she said. “The problem is not so much how much you’re communicating but what it is you’re communicating.” Since Brown’s election in Massachusetts, Obama has injected a populist tone into his speeches. During a Jan. 22 town-hall meeting in Elyria, Ohio, he used the word “fight” or “fighting” more than 20 times. Afterward, the president was still in a feisty mood as he toured a sporting-goods factory and was given a shiny football helmet. “I’ll need this during the State of the Union,” Obama said. “I can knock some heads with this.” To contact the reporters on this story: Edwin Chen in Washington at EChen32@bloomberg.net ; Nicholas Johnston in Washington at Njohnston3@bloomberg.net

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Toyota Halts U.S. Sale, Output of Camry, Corolla as Reputation `Tarnished’

January 26, 2010

By Alan Ohnsman Jan. 27 (Bloomberg) — Toyota Motor Corp. , racing to stem widening quality concerns, is halting production and U.S. sales of eight models including its top-selling Camry and Corolla cars because of a component that led to a 2.3-million vehicle recall. Dealers will also temporarily stop selling RAV4, Highlander and Sequoia sport-utility vehicles, Avalon and Matrix cars and Tundra pickups, Toyota, the world’s largest carmaker, said in a statement yesterday. Assembly lines at five North American plants will be idled the week starting Feb. 1. Mike Goss , a company spokesman, said he couldn’t immediately say how many units of production would be lost. “Toyota had a bulletproof reputation for quality, and now it’s been tarnished,” said Jim Hossack , an industry analyst at AutoPacific Inc. in Fountain Valley, California. “It’s a dramatic move, and an expensive move.” President Akio Toyoda is under pressure to restore Toyota’s reputation as competitors including South Korea’s Hyundai Motor Co. narrow the gap with the Japanese carmaker in U.S. sales and vehicle-quality surveys. Toyota fell in Tokyo trading, bringing its decline to 9.4 percent since the company said on Jan. 21 that it found a pedal flaw linked to unintended acceleration. Last week’s announcement followed a record 4.3 million vehicle recall, triggered by a 2009 U.S. safety review, which has prompted product-liability lawsuits against the company. Shares Fall Toyota dropped 1.9 percent to 3,795 yen as of the 11 a.m. trading break on the Tokyo Stock Exchange. Honda Motor Co., Japan’s second-biggest carmaker, gained 0.8 percent while Hyundai fell 0.9 percent in Seoul. Japan’s Nikkei 225 Stock Average advanced 0.3 percent. Toyota said last week it would recall vehicles in the U.S. and Canada because of a potential flaw in parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position.” In November, Toyota recalled a record 4.3 million vehicles to reshape accelerator pedals to prevent them from getting stuck by floor mats. About 1.7 million vehicles are affected by both recalls. Halting sales and production of some of Toyota’s best- selling U.S. models may mean hundreds of millions of dollars in lost revenue, said AutoPacific’s Hossack, a former engineer for Ford Motor Co., Chrysler Corp. and Mazda Motor Corp. “Toyota needed to send a clear message they care more about their customers than monthly profits,” said Jeremy Anwyl , chief executive of Edmunds.com, a Web-based auto data service in Santa Monica, California. “The company has to get ahead of the problem.” Production Halt The eight models involved accounted for 56 percent of Toyota’s U.S. sales last year, said Koji Endo , managing director of Advanced Research Japan in Tokyo. “On top of losing sales, stopping production means Toyota still has to deal with costs such as worker wages and depreciation,” Endo said. “The full extent of the damage depends on how long it will take.” The announcements have fueled concern that rapid expansion by the Toyota City, Japan-based company in the past decade led to production and design glitches, risking its reputation for quality. “Helping ensure the safety of our customers and restoring confidence in Toyota are very important to our company,” Bob Carter , group vice president of Toyota’s U.S. sales unit, said in the statement. “This action is necessary until a remedy is finalized.” Still Investigating Toyota is still investigating the cause of the pedal flaw and hasn’t determined a precise fix, said Brian Lyons , a company spokesman. Lyons and Toyota’s Goss said they couldn’t provide details of discussions with CTS or other suppliers. “They’ll have a real challenge getting resupplied with the right parts from the supplier or new suppliers,” said manufacturing analyst Laurie Harbour Felax , president of Harbour Results Inc. in Berkley, Michigan. “You’re not talking about something that can be fixed in a few days,” Harbour Felax said. “It’s going to require a lot of resources, a lot of engineering resources. It’s definitely going to have a significant impact on their fiscal earnings.” Toyota said yesterday it may extend recalls to Europe where models using similar pedal components have been sold. Workers at the five plants, including Toyota’s lines in Kentucky, Indiana, Texas and Ontario, and a factory operated by affiliate Fuji Heavy Industries Ltd.’s Subaru in Indiana that makes Camrys for Toyota, won’t be laid off as a result of the production halt, Goss said. Toyota’s U.S. sales headquarters are based in Torrance, California. To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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Roubini Most Pessimistic on Euro Region as Spain Poses Risk of `Disaster’

January 26, 2010

By Simon Kennedy and Thomas R. Keene Jan. 27 (Bloomberg) — New York University Professor Nouriel Roubini said he’s never been more pessimistic about the future of European monetary union, saying Spain poses a looming threat to the euro region holding together. “Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini said in a Bloomberg Radio interview from the World Economic Forum’s annual meeting in Davos, Switzerland. “It’s a rising risk.” Roubini’s concern contrasts with the view of European Central Bank President Jean-Claude Trichet who said it’s “absurd” to imagine that the 16-nation euro area could splinter. Speculation of a breakup has mounted in financial markets as Greece struggles to cut the continent’s biggest budget deficit and countries from Spain to Ireland face rising debt burdens. “The euro zone could drift essentially with a bifurcation, with a strong center and a weaker periphery and eventually some countries might exit the monetary union,” said Roubini, who predicted the recent financial crisis a year before it began. “This is the very first test” of the single currency bloc. Economies including Spain and Greece are threatened by fiscal imbalances and declining competitiveness, Roubini said. Membership in the euro means they can no longer devalue the currency to export their way out of recession, he said. Commission Deadline The Greek budget deficit ran more than four times the European Union limit of 3 percent of gross domestic product last year and Greece is one of 13 nations facing deadlines from the European Commission to cut its shortfall. The country’s debt is set to top 120 percent of GDP this year, the highest in the euro region and twice the limit for adopting the single currency. Trichet on Jan. 14 dismissed as an “absurd hypothesis” the argument that Greece could be forced to exit the euro area. The country should remain in the union where its problems “will be unequivocally easier to solve,” central bank governor George Provopoulos said in the Financial Times on Jan. 22. Roubini said for all the focus on Greece, Spain may eventually pose a bigger threat to the euro zone because it’s the region’s fourth-largest economy and has higher unemployment and weaker banks. Spain’s jobless rate is more than 19 percent, almost twice the EU average. “If Greece goes under that’s a problem for the euro zone,” he said. “If Spain goes under it’s a disaster.” Bond Vigilantes Roubini described rising sovereign risk as a “new phenomenon” for advanced economies that will complicate their recoveries from the worst global recession since World War II. So-called bond vigilantes, or investors who punish governments by dumping their debt, “have been asleep at the wheel,” outside of Europe, Roubini said. The risk premium investors demand to buy 10-year Greek debt over comparable German bonds rose to an 11-year high of 312 basis points on Jan. 22. “Eventually they could wake up” in Japan and the U.S. and sell off their bonds as they did with Greece. “We have a massive fiscal problems in most of the advanced economies, and we’re not really dealing with it,” he said. After Standard & Poor’s yesterday lowered its sovereign credit rating outlook on Japan, Roubini said he was “worried” about the world’s second-largest economy as its debt mounts, deflation returns and population ages. While it can currently finance itself thanks to domestic savers, at some point they may “flee the yen,” pushing up borrowing costs and crippling the economy, he said. To contact the reporter on this story: Simon Kennedy in Paris at kennedy4@bloomberg.net .

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Credit-Default Swaps Trading Surges on Engorged Deficits: Credit Markets

January 26, 2010

By Shannon D. Harrington and Abigail Moses Jan. 27 (Bloomberg) — Traders are buying protection against defaults on sovereign debt at more than five times the rate of company bonds as governments fund ballooning deficits. The net amount of credit-default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the jump, with the amount of protection on Portugal rising 23 percent, Spain 16 percent and Greece 5 percent. Rising use of derivatives to insure against defaults or speculate on government bond prices is spilling over into the corporate debt market, stemming a rally that drove yields to the lowest relative to sovereign benchmarks since December 2007, according to BNP Paribas. The global financial system remains “fragile,” with sovereign debt posing a risk to markets, the Washington-based International Monetary Fund said yesterday in its Global Financial Stability Report . The perception of rising risk “can puncture a country’s ability to access the capital markets,” said Scott MacDonald , head of credit and economics research at Stamford, Connecticut- based Aladdin Capital Management LLC, which oversees $11.9 billion. “Maybe it’s not an end-all be-all indicator. But when these countries get into a position where they need to raise capital, it becomes a confidence game.” Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of Treasuries held at 164 basis points, or 1.64 percentage points, yesterday, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed. The spread has widened from this year’s low of 160 basis points on Jan. 14. Losing Streak Spreads on high-yield securities increased for the sixth day yesterday, the longest period since August. The gap on junk bonds widened to an average of 644 basis points from 642 basis points on Jan. 25 and the low this year of 599 basis points on Jan. 11, according to the Bank of America U.S. High Yield Master II index. The market for mortgage-backed and asset-backed securities showed signs of improving. Lloyds Banking Group Plc is selling the first dollar-denominated mortgage-backed debt in Europe since credit markets began to seize up in 2007. Ford Motor Co.’s finance unit plans to offer $1 billion of bonds backed by auto leases, according to a person familiar with the offering who declined to be identified because the terms aren’t set. Yesterday, Discover Financial Services sold $750 million of bonds backed by credit-card payments, boosting the sale from $500 million. ‘Increase of Risk’ Unprecedented fiscal and monetary stimulus programs have “come at the cost of significant increase of risk to sovereign balance sheets and a consequent increase in sovereign debt burdens that raise risks for financial stability in the future,” the IMF said in the report. The cost to protect against a default by Greece has more than doubled to 325 basis points since Sept. 30 as the government struggles to reduce a budget deficit that’s 12.7 percent of gross domestic product, CMA DataVision prices show. Greece sold 8 billion euros ($11.3 billion) of bonds this week at a premium to yields on outstanding securities in the first issue since the debt was downgraded last month by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. The net notional amount of credit swaps on Greece has increased to $8.8 billion, according to DTCC data. Contracts on Portugal bonds have jumped to $9.6 billion since October 9, the data show, as the nation faces a budget shortfall that’s more than twice the European Union’s limit. The cost of protection on Portugal has more than doubled since September to 130 basis points, according to CMA. Italy, Spain Bets on Italy have jumped 13 percent to $25.4 billion, while the net amount of swaps on Spain climbed 16 percent to $15.2 billion. Traders “are not necessarily betting there’s a default,” said Brian Yelvington , head of fixed-income strategy at Greenwich, Connecticut-based broker-dealer Knight Libertas LLC. “But rather that the credit risk profiles differ enough that they certainly shouldn’t trade right on top of each other.” Credit swaps on Spain have jumped to 97 basis points more than Germany, from 31 basis points on Sept. 30, CMA data show. The surge in trading of sovereign debt swaps comes as the cost to protect against losses on government debt exceeds that of companies in some cases. Swaps on almost a third of the 125 companies in the benchmark Markit iTraxx Europe Index are trading for less than the governments of the countries where they’re based, BNP analyst Andrea Cicione in London said in a report last week. Lloyds MBS In the U.S., swaps on 8 companies in the Markit CDX North America Investment Grade Index were quoted for less than contracts on Treasuries, according to CMA data. Lloyds, the U.K.’s biggest provider of home loans, is offering the first dollar-denominated mortgage bonds backed by European assets since July 2007, Deutsche Bank AG data show. Britain’s mortgage-backed bond market shut in 2007 when securities linked to U.S. subprime loans slumped, causing investors to shun hard-to-value assets. The top-rated AAA rated notes with an average life of 2.95 years may yield about 115 basis points more than the London interbank offered rate, or Libor, said three people with knowledge of the deal who declined to be identified because the terms aren’t set. The bonds, backed by prime U.K. mortgages, will be issued by Lloyds’s Permanent Master Issuer Plc and include securities in euros and pounds. Rising Prices Lloyds, 43 percent-owned by U.K. taxpayers, is tapping dollar-based investors as prices on U.S. mortgage securities increase from record lows. The most-senior notes backed by U.S. option adjustable-rate mortgages traded last week at about 54 cents on the dollar from 33 cents in March, Barclays Capital Inc. data show. Ford’s sale of asset-backed bonds comes three weeks after the Dearborn, Michigan-based automaker’s finance unit issued $1.25 billion of so-called floorplan bonds, which are linked to loans that finance cars on dealer lots. Nissan Motor Co. plans to offer $500 million of bonds backed by payments from dealers, according to a person familiar with the offering. The top-rated debt is eligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility, said the person. U.S. junk bonds have returned 1.41 percent on average this month, compared with 1.79 percent for investment-grade company debt, Bank of America indexes show. Junk bonds are rated below Baa3 by Moody’s and less than BBB- by S&P. Fed Meets Junk bonds weakened yesterday even as reports in the U.S. showed home prices and consumer confidence both climbed. The S&P/Case-Shiller home-price index increased 0.2 percent in November and the Conference Board’s confidence gauge rose this month to the highest level in more than a year. The U.S. Federal Open Market Committee is likely to keep its target interest rate for lending between banks unchanged in a statement at about 2:15 p.m. today, after completing its two- day policy meeting. The Fed probably won’t raise rates from its range of zero to 0.25 percent target until November, according to the median of 51 forecasts in a Bloomberg survey of economists. To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net ; Abigail Moses in London at Amoses5@bloomberg.net

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Asian Stocks, Metals Decline on China Tightening; Australian Dollar Rises

January 26, 2010

By Linus Chua and Jonathan Burgos Jan. 27 (Bloomberg) — Shares of commodity producers fell for a ninth day and metals declined as China stepped up measures to curb economic growth. The Australian dollar strengthened after the government reported faster-than-expected inflation. The MSCI Asia Pacific Index measure tracking metal and mining companies fell 0.9 percent to 281.67 as of 12 p.m. in Tokyo, poised for its longest stretch of losses since July 2000. Copper slid for a second day and zinc lost 0.6 percent. Futures on the Standard & Poor’s 500 Index rose 0.3 percent after the U.S. stock benchmark fell yesterday on concern the Federal Reserve may signal plans to unwind stimulus measures. Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit and curb the expansion of the world’s fastest-growing major economy. Concerns over slower growth increased after the International Monetary Fund said yesterday the global financial system remains “fragile,” with sovereign debt posing a risk to markets. “Sentiment is reasonably weak at the moment due to concerns over the tightening in China,” said Mark Konyn , chief executive officer of Hong Kong-based RCM Asia Pacific Ltd., which oversees $12 billion. “We could see a long period of correction.” BHP Billiton Ltd., the world’s biggest mining company, sank 2.2 percent to A$40.35 and rival Rio Tinto Group slumped 4.5 percent to A$70.04. Mining and energy stocks are the worst performers on the MSCI Asia Pacific Index this year amid concern Chinese efforts to rein in growth will hurt demand for commodities. Copper, Zinc Copper, zinc and nickel fell on the London Metal Exchange. Copper for three-month delivery dropped 0.2 percent to $7,369 a metric ton, zinc lost $13.50 to $2,305 and nickel shed 0.8 percent to $18,050. Platinum for immediate delivery slid 0.4 percent to $1,530.25 an ounce while gold traded up 0.3 percent at $1,100.92 an ounce. The Australian dollar rose against all 16 of its most- traded counterparts after consumer prices gained more than forecast in the fourth quarter, increasing pressure on the central bank to raise interest rates. The yen traded near a nine-month high against the euro on concern the global economic recovery will slow, increasing demand for Japan’s currency as a refuge. Australia’s currency rose 0.6 percent to 90.39 U.S. cents from 89.86 in New York. It yesterday touched 89.38 cents, the lowest since Dec. 31. The yen traded at 126.27 per euro from 126.16 in New York, when it reached 125.68, the strongest level since April 28. The dollar fetched 89.61 yen from 89.65 yen. Australian consumer prices rose 0.5 percent in the fourth quarter, compared to the median estimate for a 0.4 percent gain in a Bloomberg News survey. ‘Robust Recovery’ “The Australian economy is on a very robust recovery path so we don’t really need to have rates as low as they are,” said Justin Smirk , chief economist at St. George Bank Ltd. in Sydney. “The Australia dollar will outperform most other commodity and risk-based currencies over the next 24 hours.” European Central Bank executive board member Juergen Stark said yesterday in Frankfurt the lender is concerned about ballooning budget deficits in the euro region. Greece still faces a credit downgrade risk even after the nation’s 8 billion- euro ($11.3 billion) debt sale earlier this week, Moody’s Investors Service said yesterday. South Korea’s won rose from the lowest this year, climbing 0.3 percent to 1,159.65 per dollar, after the central bank said the nation had a current-account surplus of $1.52 billion in December, the 11th in a row. The Malaysian ringgit climbed 0.2 percent to 3.4165 after Bank Negara Malaysia said that borrowing costs cannot be kept “too low” for too long. A slowdown in Chinese lending may help reduce risk and investors should still buy shares of the nation’s banks, investor Mark Mobius said. “I don’t see a slowdown in lending as a bad thing,” Mobius, who oversees $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd., said in an interview in Sydney today. “It moderates risk to some degree because people don’t go overboard.” To contact the reporter for this story: Linus Chua at lchua@bloomberg.net

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Fed May Take Chance End to Purchases of Mortgage Debt Won’t Hurt Housing

January 26, 2010

By Steve Matthews and Vivien Lou Chen Jan. 27 (Bloomberg) — The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March. Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1. The Fed will probably acknowledge growth accelerated last quarter while noting that tight credit and unemployment near a 26-year high still pose risks to the recovery. Officials are likely to maintain a pledge to keep interest rates low for “an extended period” as they look for evidence of a sustained expansion that will create jobs without raising inflation expectations, former Fed governor Lyle Gramley said. “The Fed wants to sit still until the smoke clears,” said Gramley, a senior economic adviser to Potomac Research Group. “To change the ‘extended period’ language would send a signal to markets that a tightening is not far off, and I don’t think the Fed wants to do that,” Gramley said. He doesn’t expect a rate increase for at least six months. The Federal Open Market Committee, gathering while Bernanke awaits a Senate vote on whether to confirm him for a second term, is scheduled to issue its statement at around 2:15 p.m. Regional Fed presidents have differed over whether to continue buying mortgage-backed securities after March 31, with James Bullard of St. Louis saying the central bank should create such an option and Philadelphia’s Charles Plosser saying the purchases should end as scheduled. Backed by Government The Fed plans to buy $1.25 trillion of mortgage-backed securities sold by government-backed, housing-finance firms Fannie Mae, Freddie Mac and federal agency Ginnie Mae, along with $175 billion of corporate debt issued by Fannie, Freddie and the government-chartered Federal Home Loan Banks. During the current meeting “the real discussion will be when they end the MBS program,” said former Atlanta Fed research director Robert Eisenbeis , using the acronym for mortgage-backed securities. “This raises a huge risk to the recovery,” said Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. “You don’t want to risk cutting off the recovery in housing by essentially pulling the rug from under it.” The Fed’s purchases have helped reduce mortgage rates by a range of a 25 basis points to 75 basis points, Boston Fed President Eric Rosengren said through Thomas Lavelle , a spokesman. A basis point is 0.01 percentage point. Large Portfolio Rates won’t increase by an equal amount after the end of purchases because the Fed will continue to hold a large portfolio of mortgage-backed securities, Rosengren said. Eisenbeis disagreed, saying mortgage rates could rise by 75 basis points to 100 basis points. The rate for 30-year fixed U.S. home loans, which reached a record low of 4.71 percent last month, was 4.99 percent in the week ended Jan. 21, according to mortgage finance company Freddie Mac. “Housing is so heavily dependent on the Fed right now,” said Sung Won Sohn , former chief economist at Wells Fargo & Co. and now an economics professor at California State University- Channel Islands in Camarillo, California. “The important thing for them is not to rock the boat and leave themselves plenty of flexibility so that in February and March they can alter their position if they need to,” he said. Home-Price Index The S&P/Case-Shiller home-price index increased 0.2 percent in November, the sixth consecutive gain, the group said yesterday in New York. The index was down 5.3 percent from November 2008, more than anticipated and the smallest year-over- year decline in two years. U.S. central bankers, after reducing the main interest rate to a range from zero to 0.25 percent, switched last year to asset purchases and credit programs as the primary policy tools. The Fed has expanded its balance sheet to $2.24 trillion at the end of 2009 from $879 billion at the start of 2007. Since March, the FOMC has said “exceptionally low” rates are likely warranted for “an extended period.” Bullard, who votes this year on policy, said in a speech in Shanghai this month the Fed should adjust asset purchases based on changes in the economy. Chicago Fed President Charles Evans told reporters Jan. 13 that the central bank would consider expanding purchases “if conditions were to deteriorate.” In contrast, Kansas City Fed President Thomas Hoenig , who also votes on policy this year, said in a Jan. 11 interview that “the private market now is healing” and the program should end. Richmond Fed President Jeffrey Lacker said last month, “I think we have to move over time away from channeling resources to the housing market.” Unexpected Loss Policy makers will likely note continued “slack” in labor markets following last month’s unexpected loss of 85,000 jobs. The FOMC projects the unemployment rate will be between 9.3 percent and 9.7 percent in the fourth quarter of this year, according to forecasts released after its November meeting. “It’s still too early to expect a dramatic announcement with regard to the Fed’s exit strategy because the economy is still finding its footing,” said Alan Skrainka , chief market strategist for Edward Jones & Co. in St. Louis, which oversees $500 billion in stocks, bonds, and mutual fund assets. “It’s a delicate balancing act,” he said. “If the Fed pulls back too soon, the economy falters. If the Fed waits too long, the inflation risk grows.” The central bank will probably continue to describe inflation as “subdued” and inflation expectations as “stable,” economists said. The Fed’s preferred price measure, which excludes food and fuel, climbed 1.4 percent in November from a year earlier. To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net ; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net .

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Geithner AIG Testimony: Treasury Secretary Says AIG Bailout Saved Economy, Not Individual Banks

January 26, 2010

Click here to read Geithner’s testimony about the New York Fed’s aid to AIG. Treasury Secretary Timothy F. Geithner said the government rescued American International Group Inc. to prevent a “catastrophic” blow to the U.S. economy, not to save any of AIG’s counterparties.

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North Korea Fires Artillery Near Maritime Border With South After Ship Ban

January 26, 2010

By Bomi Lim Jan. 27 (Bloomberg) — North Korea fired artillery off its west coast, near the maritime border with South Korea, two South Korean military officials said. There were no casualties. North Korea fired several shells around 9:05 a.m. local time that fell into waters north of the border, prompting three warnings from South Korea’s military, a Defense Ministry official said. He and an official at the Joint Chiefs of Staff, who both declined to be identified, couldn’t confirm a Yonhap News report that South Korea fired back. The incident came after North Korea banned ships from its western coast, indicating it may be preparing to fire missiles. The ban was imposed Jan. 25 and is set to last through March 29, South Korea’s Unification Ministry spokeswoman Lee Jong Joo said. South Korea called an emergency security meeting, according to a presidential official who declined to be identified. “Our government is carefully studying military movements in North Korea, its intentions, and how we should respond,” Lee told reporters in Seoul, without confirming the firing. The benchmark Kospi index was 0.1 percent lower at 1,635.68 as of 12:02 p.m. in Seoul, having earlier dropped as much as 1 percent. North Korea last fired missiles in October, the latest in a series of tests that included the May detonation of its second nuclear device. Kim Jong Il ’s regime pulled out of six-nation talks on its nuclear program in April and has said it won’t return to negotiations until the United Nations sanctions imposed for its nuclear tests were lifted. YTN Television yesterday said, citing an unidentified military source, that the no-navigation zone covers an area 4 kilometers (2.5 miles) south of the Northern Limit Line, a border demarcated by the UN after the 1950-53 Korean War. North Korea doesn’t recognize the border, at the center of a dispute that caused bloody naval skirmishes in 1999 and 2002. In November, the two countries exchanged fire after a North Korean vessel ventured into waters claimed by South Korea. South and North Korea remain divided by an armed border after their conflict ended in a cease-fire, which was never replaced by a peace treaty. North Korea said on Jan. 11 that talks on a peace treaty should begin this year. The six-nation nuclear talks also involve China, Japan, Russia, South Korea and the U.S. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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GM’s Whitacre Reaches Agreement on Saab, Advances Pledge of Loan Payback

January 26, 2010

By Katie Merx, Jeff Green and Ola Kinnander Jan. 27 (Bloomberg) — General Motors Co., by reaching a $500 million deal yesterday to sell its Saab division to Spyker Cars NV, has moved closer to fulfilling Chief Executive Officer Ed Whitacre’s pledge to pay back government loans by June. Saab may become the first brand GM sells since emerging from a U.S.-backed bankruptcy on July 10. Arrangements to sell its Opel and Saturn units fell through, as did earlier negotiations over the Swedish brand. A definitive agreement with Sichuan Tengzhong Heavy Industrial Machinery Co. to buy Hummer is pending regulatory approval. “It’s a big accomplishment for them to be able to sell the brand,” said Rebecca Lindland , director of automotive research at IHS Global Insight in Lexington, Massachusetts. “It’s symbolic from a standpoint of getting something accomplished, because the Saturn sale fell through, Koenigsegg walked away from Saab and they had to wind down Pontiac.” Whitacre, 68, had said since mid-December that GM was winding down Saab after earlier talks with Spyker, and before that Koenigsegg Group AB, ended. Now the CEO known for building AT&T Inc. with acquisitions, has sold the Swedish car brand for more than $400 million in cash and preferred stock, aiding his pledge to repay U.S. and Canadian taxpayers by June. The transaction is subject to a 400 million-euro ($563 million) European Investment Bank loan for Saab, GM and Spyker said yesterday. Spyker will pay $74 million in cash and $326 million in preferred shares in the new company that would emerge from the deal, called Saab Spyker Automobiles, the companies said. ‘Additional Consideration’ GM will receive some “additional consideration” from the deal, John Smith , GM vice president of planning and alliances, said on a conference call, declining to elaborate. The Detroit- based automaker will also keep $100 million of Saab’s existing liquidity, said one person familiar with the matter. Deutsche Bank advised GM on the transaction, the company said in an e-mail. The automaker’s effort to pay back $5.7 billion in remaining U.S. debt benefits more from avoiding wind-down expenses than from the cash proceeds, said a person familiar with the company’s aims, who asked not to be identified because the plans aren’t public. “A significant part of the government’s return will come when GM becomes a public company again and will depend on whether investors think GM is a strong company with a good return ahead of it,” said Tom Wilkinson , a company spokesman. “Finishing a successful sale of Saab is the most desirable way to wind down our relationship with Saab.” Spreads Costs “It helps spread the cost of components and vehicle development for GM,” said Joe Phillippi , president of AutoTrends Consulting in Short Hills, New Jersey. “And GM gets a nice chunk of cash for an asset that was not worth much at all.” GM bought 50 percent of Saab in 1990 for about $700 million and purchased the rest of the Trollhaettan, Sweden-based company for $125 million and assumed debt in 2000 from Sweden’s Wallenberg family. Whitacre, who said Jan. 25 he would end a search for a new CEO and keep the job himself, leads a board that includes three directors from the private-equity world. Daniel Akerson , David Bonderman and Stephen Girsky have helped Whitacre chart an activist course. Akerson and Bonderman were chosen in part for their deal- making skills and hardball management approach, a former task force member said. Girsky was appointed to represent a union retiree health-care trust and is a paid adviser to Whitacre. Opel Rejection The three were instrumental in rejecting the sale of Opel to a group led by Magna International Inc. , the Aurora, Ontario- based auto-parts maker, and Russian lender OAO Sberbank, people familiar with the deliberations said at the time. Under Whitacre and his board, GM would sell Saab to Spyker on the condition that Russian businessman Vladimir Antonov , the chairman and biggest investor in the Zeewolde, Netherlands-based sports-car maker, exit the company, a person familiar with the talks said this month. As part of yesterday’s agreement, Tenaci Capital BV, a company owned by Spyker CEO Victor Muller , will take over Antonov’s 4.6 million shares when the deal is completed. Antonov, Martins Bondars and Naglis Stancikas will step down as supervisory board members, Spyker said. Two Installments Spyker will pay the cash in two installments, $50 million on the day the transaction is completed, expected by Feb. 15, and $24 million by July 15. As backup financing, Spyker received a 150 million-euro credit facility from GEM Global Yield Fund Ltd. that can be repaid in Spyker shares. Swedish sports-car maker Koenigsegg, backed by Beijing Automotive Industry Holding Co., walked away from a deal to buy Saab in November. Beijing Auto later paid $200 million to buy some car technology from Saab to use in its own vehicles. “It’s been a long march,” GM’s Smith told reporters on the conference call. “As part of finding a sustainable solution for Saab, we’re happy with the structure Victor Muller has put in place.” GM will continue to provide powertrain components, finished vehicles in the form of 9-4x and some “transition-oriented engineering services” to Saab Spyker, Smith said. GM also may generate some goodwill among fans of the brand and other European buyers, said Phillippi, the consultant. “I would think there was a lot of pressure to get a deal done,” said Stephen Spivey , a senior auto analyst at Frost & Sullivan Inc. in San Antonio. “This has fallen apart once or twice already. I would be willing to bet that was a consideration in this deal, that they just can’t have another one fall apart.” A deal to sell Hummer to Chengdu, China-based Sichuan Tengzhong is pending Chinese regulatory approval. Tengzhong CEO Yang Yi told China Daily in October that he hoped to win approval for the deal by early 2010. That deal is worth about $150 million, people familiar with the deal said in October, about 70 percent less than GM valued it in court. To contact the reporters on this story: Katie Merx in Southfield, Michigan, at kmerx@bloomberg.net ; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; Ola Kinnander in Stockholm at okinnander@bloomberg.net

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Toyota Halts U.S. Sale, Output of Eight Models as Reputation `Tarnished’

January 26, 2010

By Alan Ohnsman Jan. 27 (Bloomberg) — Toyota Motor Corp. , racing to stem widening quality concerns, is halting production and U.S. sales of eight models including its top-selling Camry and Corolla cars because of a component that led to a 2.3-million vehicle recall. Dealers will also temporarily stop selling RAV4, Highlander and Sequoia sport-utility vehicles, Avalon and Matrix cars and Tundra pickups, Toyota, the world’s largest carmaker, said in a statement yesterday. Assembly lines at five North American plants will be idled the week starting Feb. 1. Mike Goss , a company spokesman, said he couldn’t immediately say how many units of production would be lost. “Toyota had a bulletproof reputation for quality, and now it’s been tarnished,” said Jim Hossack , an industry analyst at AutoPacific Inc. in Fountain Valley, California. “It’s a dramatic move, and an expensive move.” President Akio Toyoda is under pressure to restore Toyota’s reputation as competitors including South Korea’s Hyundai Motor Co. narrow the gap with the Japanese carmaker in U.S. sales and vehicle-quality surveys. Toyota fell in Tokyo trading, bringing its decline to 9.4 percent since the company said on Jan. 21 that it found a pedal flaw linked to unintended acceleration. Last week’s announcement followed a record 4.3 million vehicle recall, triggered by a 2009 U.S. safety review, which has prompted product-liability lawsuits against the company. Shares Fall Toyota dropped 1.9 percent to 3,795 yen as of the 11 a.m. trading break on the Tokyo Stock Exchange. Honda Motor Co., Japan’s second-biggest carmaker, gained 0.8 percent while Hyundai fell 0.9 percent in Seoul. Japan’s Nikkei 225 Stock Average advanced 0.3 percent. Toyota said last week it would recall vehicles in the U.S. and Canada because of a potential flaw in parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position.” In November, Toyota recalled a record 4.3 million vehicles to reshape accelerator pedals to prevent them from getting stuck by floor mats. About 1.7 million vehicles are affected by both recalls. Halting sales and production of some of Toyota’s best- selling U.S. models may mean hundreds of millions of dollars in lost revenue, said AutoPacific’s Hossack, a former engineer for Ford Motor Co., Chrysler Corp. and Mazda Motor Corp. “Toyota needed to send a clear message they care more about their customers than monthly profits,” said Jeremy Anwyl , chief executive of Edmunds.com, a Web-based auto data service in Santa Monica, California. “The company has to get ahead of the problem.” Production Halt The eight models involved accounted for 56 percent of Toyota’s U.S. sales last year, said Koji Endo , managing director of Advanced Research Japan in Tokyo. “On top of losing sales, stopping production means Toyota still has to deal with costs such as worker wages and depreciation,” Endo said. “The full extent of the damage depends on how long it will take.” The announcements have fueled concern that rapid expansion by the Toyota City, Japan-based company in the past decade led to production and design glitches, risking its reputation for quality. “Helping ensure the safety of our customers and restoring confidence in Toyota are very important to our company,” Bob Carter , group vice president of Toyota’s U.S. sales unit, said in the statement. “This action is necessary until a remedy is finalized.” Still Investigating Toyota is still investigating the cause of the pedal flaw and hasn’t determined a precise fix, said Brian Lyons , a company spokesman. Lyons and Toyota’s Goss said they couldn’t provide details of discussions with CTS or other suppliers. “They’ll have a real challenge getting resupplied with the right parts from the supplier or new suppliers,” said manufacturing analyst Laurie Harbour Felax , president of Harbour Results Inc. in Berkley, Michigan. “You’re not talking about something that can be fixed in a few days,” Harbour Felax said. “It’s going to require a lot of resources, a lot of engineering resources. It’s definitely going to have a significant impact on their fiscal earnings.” Toyota said yesterday it may extend recalls to Europe where models using similar pedal components have been sold. Workers at the five plants, including Toyota’s lines in Kentucky, Indiana, Texas and Ontario, and a factory operated by affiliate Fuji Heavy Industries Ltd.’s Subaru in Indiana that makes Camrys for Toyota, won’t be laid off as a result of the production halt, Goss said. Toyota’s U.S. sales headquarters are based in Torrance, California. To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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Rusal Shares Drop in Hong Kong’s First IPO in 2010 as Market Declines 12%

January 26, 2010

By Bloomberg News Jan. 27 (Bloomberg) — United Co. Rusal Ltd. , the world’s largest aluminum producer, fell in its Hong Kong trading debut as demand for new equity waned after the city’s benchmark index dropped 12 percent from a November high. The Moscow-based company declined 8 percent to HK$9.94 at 10:01 a.m., from the listing price of HK$10.80. Rusal, the first IPO in Hong Kong in 2010, will use net proceeds of HK$16.7 billion ($2.1 billion) to pay down $14.9 billion of debt. Rusal, barred from marketing to retail investors, found buyers for all the stock on offer after winning investments from Asian billionaire Li Ka-shing and New York hedge-fund manager Paulson & Co. The benchmark Hang Seng Index has dropped in the past five days as investors globally retreat from risk on concern lending curbs in China, and U.S. plans to rein in banks will stifle the global economic recovery. “The market sentiment is certainly not favorable to Rusal,” said Conita Hung , head of equity markets at Delta Asia Securities Ltd. in Hong Kong. “If short-term individual and hedge fund investors think it is not profitable, they may sell the stock.” The Hang Seng Index has fallen for five days, extending a decline from its Nov. 16 high of 22,943.98. Investors are concerned the Chinese government will rein in liquidity to contain asset bubbles after China posted the fastest economic growth since 2007 in the fourth quarter. Rusal, controlled by billionaire Oleg Deripaska , had its IPO delayed at least twice by regulators and restricted to wealthy and corporate investors on concern about its debt. Rich Friends The IPO was “moderately over-subscribed,” Moscow-based Rusal said in a Jan. 25 statement to the Hong Kong exchange. The stock will trade in blocks of 24,000 shares, or HK$259,200 at the listing price. Rusal reserved about 39.4 percent of the IPO shares for Malaysian billionaire Robert Kuok, hedge fund Paulson, NR Investments Ltd., the principal investment company of Nathaniel Rothschild of the banking family, and Russian state development bank Vnesheconombank , or VEB. The IPO price gives Rusal an enterprise value that is 11.7 times the 2010 earnings before interest, tax, depreciation and amortization, or Ebitda, people familiar with the sale said last week. The enterprise value is the sum of a company’s market value, equity and debt minus cash. Aluminum Corp. of China Ltd. , the nation’s largest producer of the metal, trades at an enterprise value 13.8 times its 2010 Ebitda, and Alcoa Inc., the biggest U.S. aluminum maker, at 7.5 times, according to data compiled by Bloomberg. Rusal’s IPO comes less than two months after it completed Russia’s biggest corporate debt restructuring. Profit Forecasts Rusal posted a loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Profit won’t be less than $434 million for the full year, it said in the IPO prospectus. Borrowings almost doubled after the company bought a quarter of OAO GMK Norilsk Nickel before commodity prices collapsed in 2008. The company cut debt to $14.9 billion, while extending repayments to as long as seven years, in the restructuring completed in December. Rusal’s debut may attract other Russian companies to Hong Kong. OAO Russian Railways, operator of the world’s longest rail network, said Jan. 21 it may consider the city for the proposed dual listings of two units. “Traditionally, after the fall of the Soviet Union, Russian companies have looked to London for finance,” said Eric Kraus , a strategist at Otkritie Financial Co. in Moscow. “But with large pools of capital in Greater China, particularly interested in resources companies, then the trend will move towards the East.” Aluminum Rises China, the world’s largest metal consumer, spurred price increases in raw materials last year as its $586 billion stimulus spending raised demand from builders and automakers. Aluminum futures gained 45 percent in London last year, and Alcoa said on Jan. 11 that global demand will increase 10 percent this year, led by China. Rusal is in a stable financial position, having cut costs, restructured debt and benefited from higher aluminum prices, Deputy Chief Executive Officer Artem Volynets said Jan. 11. BNP Paribas SA and Credit Suisse Group AG led banks including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale. — John Duce , Bei Hu , Marco Lui in Hong Kong, Xiao Yu in Beijing, Editors: Tan Hwee Ann , Keith Gosman . To contact the Bloomberg News Staff of this story: Xiao Yu in Beijing at yxiao@bloomberg.net ; John Duce in Hong Kong at Jduce1@bloomberg.net

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Commodities Stocks, Metal Prices Drop as China Curbs Growth; Aussie Gains

January 26, 2010

By Linus Chua and Jonathan Burgos Jan. 27 (Bloomberg) — Shares of commodity producers fell for a ninth day and metals declined as China stepped up measures to curb economic growth. The Australian dollar strengthened after the government reported faster-than-expected inflation. The MSCI Asia Pacific Index measure tracking metal and mining companies fell 0.9 percent to 281.67 as of 12 p.m. in Tokyo, poised for its longest stretch of losses since July 2000. Copper slid for a second day and zinc lost 0.6 percent. Futures on the Standard & Poor’s 500 Index rose 0.3 percent after the U.S. stock benchmark fell yesterday on concern the Federal Reserve may signal plans to unwind stimulus measures. Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit and curb the expansion of the world’s fastest-growing major economy. Concerns over slower growth increased after the International Monetary Fund said yesterday the global financial system remains “fragile,” with sovereign debt posing a risk to markets. “Sentiment is reasonably weak at the moment due to concerns over the tightening in China,” said Mark Konyn , chief executive officer of Hong Kong-based RCM Asia Pacific Ltd., which oversees $12 billion. “We could see a long period of correction.” BHP Billiton Ltd., the world’s biggest mining company, sank 2.2 percent to A$40.35 and rival Rio Tinto Group slumped 4.5 percent to A$70.04. Mining and energy stocks are the worst performers on the MSCI Asia Pacific Index this year amid concern Chinese efforts to rein in growth will hurt demand for commodities. Copper, Zinc Copper, zinc and nickel fell on the London Metal Exchange. Copper for three-month delivery dropped 0.2 percent to $7,369 a metric ton, zinc lost $13.50 to $2,305 and nickel shed 0.8 percent to $18,050. Platinum for immediate delivery slid 0.4 percent to $1,530.25 an ounce while gold traded up 0.3 percent at $1,100.92 an ounce. The Australian dollar rose against all 16 of its most- traded counterparts after consumer prices gained more than forecast in the fourth quarter, increasing pressure on the central bank to raise interest rates. The yen traded near a nine-month high against the euro on concern the global economic recovery will slow, increasing demand for Japan’s currency as a refuge. Australia’s currency rose 0.6 percent to 90.39 U.S. cents from 89.86 in New York. It yesterday touched 89.38 cents, the lowest since Dec. 31. The yen traded at 126.27 per euro from 126.16 in New York, when it reached 125.68, the strongest level since April 28. The dollar fetched 89.61 yen from 89.65 yen. Australian consumer prices rose 0.5 percent in the fourth quarter, compared to the median estimate for a 0.4 percent gain in a Bloomberg News survey. ‘Robust Recovery’ “The Australian economy is on a very robust recovery path so we don’t really need to have rates as low as they are,” said Justin Smirk , chief economist at St. George Bank Ltd. in Sydney. “The Australia dollar will outperform most other commodity and risk-based currencies over the next 24 hours.” European Central Bank executive board member Juergen Stark said yesterday in Frankfurt the lender is concerned about ballooning budget deficits in the euro region. Greece still faces a credit downgrade risk even after the nation’s 8 billion- euro ($11.3 billion) debt sale earlier this week, Moody’s Investors Service said yesterday. South Korea’s won rose from the lowest this year, climbing 0.3 percent to 1,159.65 per dollar, after the central bank said the nation had a current-account surplus of $1.52 billion in December, the 11th in a row. The Malaysian ringgit climbed 0.2 percent to 3.4165 after Bank Negara Malaysia said that borrowing costs cannot be kept “too low” for too long. A slowdown in Chinese lending may help reduce risk and investors should still buy shares of the nation’s banks, investor Mark Mobius said. “I don’t see a slowdown in lending as a bad thing,” Mobius, who oversees $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd., said in an interview in Sydney today. “It moderates risk to some degree because people don’t go overboard.” To contact the reporter for this story: Linus Chua at lchua@bloomberg.net

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AIG Bailout: 2 Fed Governors Warned Against ‘Gifts’ To Banks, Documents Show

January 26, 2010

Weeks after rescuing the American International Group with an $85 billion taxpayer loan in late 2008, Federal Reserve Board officials rejected a proposal that would have forced the insurer’s trading partners to return $30 billion in cash that they had received from A.I.G. in the preceding months.

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Lloyd Chapman: Obama State of the Union Address Will be More Rhetoric and No Substance for The Middle Class

January 26, 2010

I can already hear the empty pandering to the middle class in President Obama’s State of the Union speech. He will be reading one of the most well written speeches of his presidency since he and his handlers realize their reign in Washington could be on the ropes. President Obama has a documentable track record of broken campaign promises and policies that have virtually ignored the middle class. In my perfect world, every network carrying President Obama’s State of the Union address would be required to run a scrolling banner of my up to the minute commentary on the bottom of the screen. When President Obama starts to roll out his impassioned B.S. about his concern for small businesses and the middle class, I could throw-up some of the actual data on his policies to date. As people watch President Obama on the screen, I want them to see that small businesses in the middle class are responsible for over 97 percent of all net new jobs in America. To date, President Obama and the democratically controlled Congress have allocated approximately 2 percent of the stimulus funds to small businesses. When he starts to talk about small businesses, I would run some of the latest government data that shows every day of his administration, hundreds of millions in federal contracts that by law are earmarked for small business have been diverted to Fortune 500 firms. I would love to run the names across the bottom of the screen as he spoke of some of the firms the Obama Administration is currently giving small business contracts. I wonder how President Obama’s most ardent supporters would feel when they saw billions of dollars in federal small business contracts going to Bechtel, Boeing, Lockheed Martin, Raytheon, and Northrop Grumman. The largest recipient in the latest government small business data was Textron, a Fortune 500 corporation with 43,000 employees, and $14 billion in annual revenue. That’s a small business right? Textron received nearly $780 million in federal small business contracts in a single year. I wonder what affect it would have on his poll numbers if every American knew the Obama Administration was giving U.S. government small business funds to some of the largest corporations in England, France, Italy and even South Korea. After all the shocking statistics ran, I would run a statement President Obama released almost two years ago in February of 2008, “It is time to end the diversion if federal small business contracts to corporate giants.” ( http://www.barackobama.com/2008/02/26/the_american_small_business_le.php ) I think most people would be much more informed if they skipped President Obama’s State of the Union address and spent that time looking up some of the stories on what he has actually done instead. Google “Lloyd Chapman Barack Obama small business” [Do not search with the words in quotes] and see what you find. There is a staggering abyss between what Obama says and what Obama does. One of the best examples is President Obama’s campaign promise to enact a windfall profits tax on the oil and gas industry. On every campaign stop for two years, President Obama promised to enact a windfall profits tax on oil companies. If you want to find out how much you can trust what Barack Obama says, try and find his excuse for completely dropping the windfall profits tax. So when you watch the State of the Union address or any Obama speech, realize that the man gives $2 billion a week in federal small business funds to some of the largest companies in the world. Realize that his two top campaign contributors, Goldman Sachs and J.P. Morgan Chase are making record profits in the middle of the worst economic meltdown in 80 years, while bankruptcies for small businesses are up 44 percent over last year. People need to begin to realize that President Obama should have received an Oscar for best actor instead of the Nobel Peace Prize. Wednesday night he will read his lines with passion and conviction, but Thursday morning his policies will continue to ignore the middle class and the small businesses where most Americans work and that create over 97 percent of all net new jobs. The only change the middle class going to get from President Obama will be the pocket change that’s left in their bank accounts at the end of the month.

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Japan’s Exports Rose 12.1% in December, First Advance Since September 2008

January 26, 2010

By Keiko Ujikane Jan. 27 (Bloomberg) — Japan’s exports rose for the first time since Lehman Brothers Holdings Inc. collapsed 15 months ago, adding to signs that the world’s second-largest economy is recovering from the global recession. Shipments abroad rose 12.1 percent in December from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg was for a 7.6 percent gain. Exports fell 6.3 percent in November. Japanese manufacturers from Honda Motor Co. to Fuji Xerox Co. are benefiting from renewed demand in emerging nations including China, where gross domestic product expanded at the fastest pace since 2007 last quarter. The booming economy in Japan’s largest overseas market may help offset weak demand at home weighed down by falling wages and deflation. “Shipments to Asia, especially China, have been growing a lot and these are strong results,” said Yoshiki Shinke , senior economist at Dai-Ichi Life Research Institute in Tokyo. “It’s safe to say that exports were strong” in the fourth quarter. The improvement in exports last month was partly due to a favorable year-on-year comparison. In December 2008, shipments abroad tumbled 35 percent as global trade froze in the aftermath of Lehman Brothers’ collapse in September. From a month earlier, exports rose a seasonally adjusted 2.5 percent in December, today’s report showed. Imports slid 5.5 percent in December from a year earlier, the smallest drop in 14 months. Japan posted a trade surplus for an 11th straight month, totaling 545.3 billion yen ($6.1 billion). The yen traded at 89.46 per dollar at 10:24 a.m. in Tokyo from 89.64 before the report. Weaker Currency While the currency is weaker than the 14-year high of 84.83 reached in November, it has advanced more than 3 percent this year, and is still stronger than the 92.93 that manufacturers expect the currency to average in the year ending March 31. Demand from Asia led the resurgence in trade. Shipments to Asia advanced 31.2 percent from a year earlier, the fastest pace since February 2000. Exports to China climbed 42.8 percent, the largest increase in almost three years, led by record demand for automobiles. Exports to the U.S. fell 7.6 percent, while shipments to Europe rose 1.4 percent, the first increase in 17 months. Asian economies are benefiting from a global trade rebound that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Fuji Xerox, Japan’s biggest maker of color copiers, expects sales to recover as early as September, helped by growth in China and increased demand for printers in the U.S., President Tadahito Yamamoto said on Jan. 15. China Plant Honda Motor’s venture with Dongfeng Motor Group Co. will invest 1.15 billion yuan to build a second plant in China as vehicle demand rises in the world’s largest car market. The plant, with an initial annual capacity of 60,000 vehicles, will start production in the second half of 2012, Honda said. “In coming months, the export recovery may lose some of its speed since the rally so far has been so fast, but on the whole, exports will keep growing,” Dai-Ichi’s Shinke said. “Asian economies, particularly China, will keep expanding, and Japan will benefit from that.” Still, the export-led recovery hasn’t been strong enough to spur spending by companies and consumers at home. Remain Reluctant Japanese machinery orders fell to a record low in November, signaling companies remain reluctant to increase capital spending, while household sentiment fell to a six-month low in December because of wage cuts and deflation, government reports showed this month. Bank of Japan Governor Masaaki Shirakawa said yesterday the economy is likely to lose momentum as global stimulus spending fades. His policy board left interest rates unchanged at 0.1 percent. Japan’s government may have limited scope to inject further stimulus spending after Standard and Poor’s cut its outlook for the nation’s sovereign debt rating yesterday. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen economic package and a record budget last month. “We have maintained that the economy will slow in the first half of 2010 due to weak domestic demand,” said Kyohei Morita , chief economist at Barclays Capital in Tokyo. “Evidence of deteriorating consumer confidence is consistent with this view.” In 2009, exports fell 33 percent, the biggest drop since comparable figures were made available in 1979. China surpassed the U.S. as Japan’s largest export market for the first time on an annual basis, the report showed. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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South Korea Opens Fire After North Korea Discharges Artillery, Yonhap Says

January 26, 2010

By Bomi Lim Jan. 27 (Bloomberg) — South Korea’s military opened fire after North Korea fired several artillery shells near the maritime border between the two nations, South Korea’s Yonhap News reported in a one-line dispatch. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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ICBC’s Profit Probably Climbed 15% in 2009 on Record Loans Fuel Recovery

January 26, 2010

By Bloomberg News Jan. 27 (Bloomberg) — Industrial & Commercial Bank of China Ltd. , the world’s largest lender by market value, said profit last year probably rose 15 percent as record credit fueled an economic recovery. The Beijing-based company didn’t provide a specific number in a statement late yesterday. ICBC is projected to post profit of 129.1 billion yuan ($18.9 billion), according to the average estimate by 12 analysts in a Bloomberg survey. Net income was 110.8 billion yuan in 2008, the company said yesterday. ICBC, already the world’s most profitable bank, joins smaller rivals including Shenzhen Development Bank Co. in forecasting profit gains after awarding record amounts of loans. The country’s banks last year doled out a combined 9.59 trillion yuan in new lending , almost double from a year earlier, helping China’s economy to expand 10.7 percent in the fourth quarter. China plans to cap new loans at 7.5 trillion yuan this year to avoid inflation and curb asset bubbles. Liu Mingkang , chairman of the China Banking Regulatory Commission, said last week that banks that failed to meet regulatory requirements were told to limit lending. The estimated rate for 15 percent profit growth is based on a preliminary estimate, according to the release. ICBC extended 1.01 trillion yuan of new credit in the first nine months of last year. Shenzhen Development Bank said yesterday 2009 profit may have jumped about eightfold to 5 billion yuan. Shares of ICBC climbed 58 percent in Hong Kong last year, outperforming the 52 percent increase in the benchmark Hang Seng Index. To contact the reporter on this story: Jun Luo in Shanghai at jluo6@bloomberg.net

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China’s Wealth Fund Weighs New Commodity Investments Following 2009 Gains

January 26, 2010

By Bloomberg News Jan. 27 (Bloomberg) — China’s $300 billion sovereign wealth fund is considering new investments in resource-related companies after bets on commodities producers from the U.S. to Kazakhstan paid off in 2009. China Investment Corp. increased spending on energy and minerals assets last year to profit as the global economy recovers. The Beijing-based fund avoided the worst of the credit crunch in its first full year in 2008 and may have had a return of more than 10 percent in 2009, said London-based Jan Randolph , director of sovereign risk, analysis and forecasting at IHS Global Insight. “They have timed the upside well both in market terms, but also to fit in with the longer-term diversification strategy,” Randolph said. CIC has had “early” talks for direct investments in Brazil, the world’s second-biggest iron-ore exporter, and Mexico, the No. 2 silver producer, CIC Chairman Lou Jiwei said at the Asian Financial Forum in Hong Kong on Jan. 20. Jiwei pumped about $10 billion into commodity-related companies in the second half of 2009, according to data compiled by Bloomberg. With China’s reserves at $2.4 trillion and swelling by an average of $37.8 billion a month last year, CIC has asked the government for another $200 billion, the Economic Observer reported Nov. 21, citing a person it didn’t identify. Teck Resources In July, CIC bought 17.2 percent of Teck Resources Ltd. , Canada’s largest base-metals producer, for $1.5 billion. It acquired an 11 percent stake in a unit of Kazakhstan’s state-run energy company in late September, two weeks before purchasing 45 percent of Nobel Oil Group of Russia. In November, it announced investments in U.S. power producer AES Corp. and GCL-Poly Energy Holdings Ltd., China’s biggest polysilicon producer. AES closed at $13.31 in New York trading Dec. 31, giving CIC a paper profit of 7 percent, while GCL-Poly shares had risen 30 percent from the fund’s HK$1.79 purchase price. CIC’s early investments also recovered some losses last year, with shares of Blackstone Group LP doubling and Morgan Stanley’s stock surging 85 percent. Those returns may encourage CIC to be “more aggressive,” according to Zhang Zhiming , director of asset allocation research at HSBC Holdings Plc in Hong Kong. “Most investors do momentum investing and CIC is no exception,” he said. “They are sticking to a double- diversification principle. First, buy a bit of everything and be geographically spread out. And timing-wise, to be also spread out to avoid major ups and downs.” ‘All Categories’ CIC likely will expand the scope of its investments this year into “all categories,” including U.S. and European markets that it largely shunned in 2009 during the crisis, Zhang said. The fund may invest in a U.S. infrastructure project, Lou said Jan. 20 at the conference in Hong Kong, without giving details. It may put money in U.S. high-speed railways, the Shanghai Securities News reported Jan. 13, citing a person it didn’t identify. CIC was created in September 2007, funded by a $200 billion chunk of the nation’s foreign reserves. The $2.4 trillion in reserves — equivalent to the annual output of India and Australia combined — have increased about 60 percent since CIC was founded, driven by current account surpluses and foreign direct investments. A CIC press official, who declined to be identified, said she was unaware of the request for $200 billion in extra funds reported by the Economic Observer. The company’s top executives weren’t available for interviews for this story. “CIC will soon become one of the top three sovereign wealth funds in the world with this extra capital, and one of the most aggressive in 2010 to 2015,” said IHS’s Randolph. Unwanted Barriers China, which cut Treasury holdings by the most in five months in November, may scale back purchases of U.S. debt on concern the dollar will decline, Liu Yuhui , an economist at the Chinese Academy of Social Sciences, said on Jan. 20. Increasing investments in resources may invite unwanted political barriers for a sovereign wealth fund like CIC, said Jing Xuecheng , a former CIC representative on the board of China Construction Bank Corp. “Whether that’s going to draw strong resistance deserves some attention,” he said in an interview. Potential political hurdles in the U.S. and Europe may see CIC target emerging markets, especially assets in cash-strapped Africa, said Shi Yan , an energy analyst at UOB-Kay Hian in Shanghai. In terms of asset classes, CIC may be looking more at resources like natural gas and uranium, which China needs to fuel its energy needs, from central Asia, Shi said. Lou has rejected perceptions that CIC is carrying out China’s national strategy of securing resources. “What national strategy? Our strategy is long-term risk-adjusted returns,” he said at a forum on Oct. 28 in Beijing. Morgan Stanley, Blackstone The biggest deal CIC announced last year — the $2.2 billion investment in Arlington, Virginia-based AES and its wind-generation business — compared with its initial $5.6 billion investment in Morgan Stanley on Dec. 19, 2007, and $3 billion in Blackstone , manager of the world’s biggest buyout fund, earlier that year. “To sustain China’s growth momentum, it needs to import raw/industrial commodities to feed its hungry industries at home,” said Song Seng-Wun , an economist at CIMB-GK Securities Pte in Singapore. “Over the coming years, China will continue to suck in these resources at a strong pace.” China’s gross domestic product rose 10.7 percent in the fourth quarter from a year earlier, according to government data on Jan. 21, the fastest pace since 2007. Indirect Investments CIC invests the $110 billion it has for overseas mainly in financial products, with only “small amounts” on direct investments, Lou has said. Aside from announced deals, a bigger part of investments were made through external managers and “didn’t need to be disclosed,” he said. Last year, CIC disclosed no new investment in financial companies except for an additional $1.2 billion in Morgan Stanley to reduce the average costs and “enlarge the room for profit,” it said in June. CIC posted a 2.1 percent loss in 2008. The company probably outperformed the average of sovereign wealth funds like Government of Singapore Investment Corp. and the Abu Dhabi Investment Authority last year, as it held onto earlier financial investments and boosted resource-related stocks, HSBC’s Zhang said. CIC made a 2.1 percent loss from its overseas holdings in 2008. Still, its return on equity amounted to 6.8 percent as the value of its stakes in China’s biggest banks rose. By contrast, the value of assets at GIC, manager of more than $100 billion of Singapore’s foreign reserves, fell more than 20 percent in the year to March 31, 2009, as the collapse in financial markets drove down the value of its stake in UBS AG. CIC’s “initial late 2007 investment ‘mistakes’ with Blackstone and Morgan Stanley served them very well because CIC kept most of their portfolio in cash throughout 2008,” said IHS’s Randolph. “This also meant that in 2009 they had the cash firepower to selectively buy into rising asset markets of their strategic choice when others were still rebuilding.” — Zhang Dingmin . Editors: Malcolm Scott , Andreea Papuc . To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net .

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Australian Consumer Prices Rise, Spurring Currency Gain on Rate Pressure

January 26, 2010

By Jacob Greber Jan. 27 (Bloomberg) — Australian consumer prices rose in the fourth quarter, driving the local currency higher as investors increased bets the central bank will raise interest rates as early as next week. The consumer price index climbed 0.5 percent from the third quarter, when it gained 1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.4 percent increase. Prices advanced 2.1 percent from a year earlier. Today’s report may increase pressure on central bank Governor Glenn Stevens to raise the benchmark lending rate this quarter after he became the only policy maker in the world to raise borrowing costs three times last year. Figures published this month show confidence is surging amid the biggest hiring boom in more than three years, stoking pressure on inflation, which the bank aims to keep between 2 percent to 3 percent. “It’s the outlook for inflation that counts,” Annette Beacher an economist at TD Securities Ltd. in Singapore, said ahead of today’s report. “Critically, the lack of spare capacity and rising terms of trade are likely to fuel inflation.” The Australian dollar climbed to 90.13 U.S. cents at 11:35 a.m. in Sydney from 89.96 cents before the report was released. Costs for domestic holidays and travel rose 6.6 percent in the fourth quarter and prices of food gained 1.4 percent. By contrast, health care costs fell 0.9 percent. Cash to Households Signs are mounting of a recovery in Australia’s economy, one of the few to skirt the global recession in 2009 after Prime Minister Kevin Rudd ’s government distributed A$20 billion ($18 billion) in cash to households and Asian demand for exports rebounded. Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 percent, a report showed Jan. 14. Consumer confidence jumped the most in January in six months, a survey by Westpac Banking Corp. showed last week. The International Monetary Fund said late yesterday that Australia’s gross domestic product will rise 2.5 percent this year and 3 percent in 2011. In October, it forecast 2 percent growth in 2010. An Australian index of leading economic indicators rose in November at an annualized rate of 7.6 percent, the fastest expansion in two years, a report published earlier today by Westpac Banking Corp. showed. Rate Increases The strengthening economy prompted Governor Stevens to become the only central banker in the world to raise borrowing costs three times since the height of the global financial crisis. While inflation may “moderate in the near term,” it probably won’t slow “as far as thought likely six months ago,” Stevens said last month, after boosting the benchmark rate to 3.75 percent. The consumer price index “will probably rise somewhat” this year, he added. Stevens’s concern that inflation may strengthen more than forecast last year contrasts with remarks from policy makers in other countries. The European Central Bank, which this month kept its benchmark rate at a record low of 1 percent, said Jan. 21 that inflation is “expected to remain moderate,” and Federal Reserve officials said last month that inflation will “remain subdued for some time.” The IMF said late yesterday that “subdued” inflation will allow the world’s central banks to keep interest rates low. Rate Bets Investors are betting there is a 56 percent chance of a quarter-point increase in Australia’s overnight cash rate target to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:33 a.m. Chances of a quarter-point move in March are at 100 percent. Rebounding economic growth may deepen a skills shortage and fan inflation as unions strike for pay increases of as much as 30 percent. Teachers, nurses, postal workers and even casino staff have threatened or gone on strike for higher wages in recent weeks. The maritime union began a campaign in November against shipping companies supplying oil and gas producers, the Australian Chamber of Commerce & Industry said on Jan. 11. The union has sought annual wage increases of between A$70,000 and A$100,000 for each employee, the group said. Growth Outlook “Growth is more likely to be better than expected, spare capacity is scarce and there is a rising risk that inflation expectations are drifting up,” Matthew Johnson , an interest rates strategist at UBS AG in Sydney, said ahead of today’s report. The central bank won’t “tolerate an increase in inflation.” The Reserve Bank’s core inflation measures, which exclude the largest price increases and declines, were also published today. The weighted-median gauge of inflation advanced 0.7 percent in the fourth quarter for an annual increase of 3.6 percent. Economists forecast gains of 0.6 percent and 3.5 percent respectively. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Rusal to Make Debut in Hong Kong’s First IPO for 2010 as Market Drops 12%

January 26, 2010

By Bloomberg News Jan. 27 (Bloomberg) — United Co. Rusal Ltd. will become the first Russian company to trade its shares in Hong Kong today, testing demand for new equity after the city’s benchmark index dropped 12 percent from a November high. The world’s largest aluminum producer booked net proceeds of HK$16.7 billion ($2.1 billion) selling shares at HK$10.80 each in Hong Kong’s first initial public offering of 2010. The IPO was delayed at least twice by regulators and restricted to wealthy and corporate investors on concern about its $14.9 billion of debt. Rusal, controlled by billionaire Oleg Deripaska , found buyers for all the stock on offer after winning investments from Asian billionaire Li Ka-shing and New York hedge-fund manager Paulson & Co. Retail demand for the shares may be muted as investors globally retreat from risk on concern lending curbs in China, and U.S. plans to rein in banks will stifle the global economic recovery. “It’s the big institutional investors which are involved here and they will try to support the share price, but I can’t see much interest coming from smaller investors,” Timothy Kwai , analyst at Quam Securities, said in Hong Kong. “They know that Rusal is heavily in debt.” Hong Kong’s benchmark Hang Seng Index has fallen for five days, extending a decline from its Nov. 16 high of 22,943.98. Investors are concerned the Chinese government will rein in liquidity to contain asset bubbles after China posted the fastest economic growth since 2007 in the fourth quarter. Rich Friends The IPO was “moderately over-subscribed,” Moscow-based Rusal said in a Jan. 25 statement to the Hong Kong exchange. The stock will trade in blocks of 24,000 shares, or HK$259,200 at the listing price. Rusal reserved about 39.4 percent of the IPO shares for Malaysian billionaire Robert Kuok, hedge fund Paulson, NR Investments Ltd., the principal investment company of Nathaniel Rothschild of the banking family, and Russian state development bank Vnesheconombank , or VEB. The IPO price gives Rusal an enterprise value that is 11.7 times the 2010 earnings before interest, tax, depreciation and amortization, or Ebitda, people familiar with the sale said last week. The enterprise value is a sum of a company’s market value, equity and debt minus cash. Aluminum Corp. of China Ltd. , the nation’s largest producer of the metal, trades at an enterprise value 13.8 times its 2010 Ebitda, and Alcoa Inc., the biggest U.S. aluminum maker, at 7.4 times, according to data compiled by Bloomberg. Rusal’s IPO comes less than two months after it completed Russia’s biggest corporate debt restructuring. Profit Forecasts Rusal posted a loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Profit won’t be less than $434 million for the full year, it said in the IPO prospectus. Borrowings almost doubled after the company bought a quarter of OAO GMK Norilsk Nickel before commodity prices collapsed in 2008. The company cut debt to $14.9 billion, while extending repayments to as long as seven years, in the restructuring completed in December. Rusal’s debut may attract other Russian companies to Hong Kong. OAO Russian Railways, operator of the world’s longest rail network, said Jan. 21 it may consider the city for the proposed dual listings of two units. “Traditionally, after the fall of the Soviet Union, Russian companies have looked to London for finance,” said Eric Kraus , a strategist at Otkritie Financial Co. in Moscow. “But with large pools of capital in Greater China, particularly interested in resources companies, then the trend will move towards the East.” Aluminum Rises China, the world’s largest metal consumer, spurred price increases in raw materials last year as its $586 billion stimulus spending raised demand from builders and automakers. Aluminum futures gained 45 percent in London last year, and Alcoa said on Jan. 11 that global demand will increase 10 percent this year, led by China. Rusal is in a stable financial position, having cut costs, restructured debt and benefited from higher aluminum prices, Deputy Chief Executive Officer Artem Volynets said Jan. 11. “There could be a downside if there’s news which might suggest lower future demand for aluminum, or maybe political upheavals in Russia,” said Ben Collett , head of equities at Louis Capital Markets HK Ltd. “These could affect the stock, but generally I think it should do pretty well.” The Guinean government has taken Rusal to a local court, alleging the Russian company owed it $860 million, Hong Kong’s South China Morning Post quoted Mahmoud Thiam , the minister of mines, energy and hydropower, as saying on Jan. 24. Rusal said a new Guinean administration was formed this month and Thiam no longer represents the nation. It also said it “has fully disclosed all relevant details regarding Guinea in its prospectus and has nothing new to add.” BNP Paribas SA and Credit Suisse Group AG led banks including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale. — John Duce , Bei Hu , Marco Lui in Hong Kong, Xiao Yu in Beijing, Editors: Tan Hwee Ann , Matthew Brooker . To contact the Bloomberg News Staff of this story: Xiao Yu in Beijing at yxiao@bloomberg.net ; John Duce in Hong Kong at Jduce1@bloomberg.net

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Japan Exports Rise for First Time in 15 Months, Beating Estimates on China

January 26, 2010

By Keiko Ujikane Jan. 27 (Bloomberg) — Japan’s exports rose for the first time since the collapse of Lehman Brothers Holdings Inc., adding to signs that the world’s second-largest economy is recovering from the global recession. Shipments abroad rose 12.1 percent in December from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg was for a 7.6 percent gain. Exports fell 6.3 percent in November. Japanese manufacturers from Honda Motor Co. to Fuji Xerox Co. are benefiting from renewed demand in emerging nations including China, where gross domestic product expanded at the fastest pace since 2007 last quarter. The booming economy in Japan’s largest overseas market may help offset weak demand at home weighed down by falling wages and deflation. “Exports are on a solid recovery trend, although the December increase was largely due to the base effect from last year’s slump,” Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo, said before the report was released. “The Chinese economy is more robust than expected, leading the global recovery.” The improvement in exports last month was partly due to a favorable year-on-year comparison. In December 2008, shipments abroad tumbled 35 percent as global trade froze in the aftermath of Lehman Brothers’ collapse three months earlier. From a month earlier, exports rose a seasonally adjusted 2.5 percent in December, today’s report showed. Trade Surplus Imports slid 5.5 percent in December from a year earlier, the smallest drop in 14 months. Japan posted a trade surplus for an 11th straight month, totaling 545.3 billion yen ($6.1 billion). The yen was little changed, trading at 89.63 per dollar at 9:13 a.m. in Tokyo from 89.64 before the report. While it’s weaker than the 14-year high of 84.83 reached in November, it has advanced more than 3 percent this year, threatening exporters. Demand from Asia led the resurgence in trade. Shipments to Asia advanced 31.2 percent from a year earlier. Exports to China climbed 42.8 percent, compared with a 7.8 percent gain the previous month. Exports to the U.S. fell 7.6 percent, while shipments to Europe rose 1.4 percent. There’s “a low chance that Japan will fall back into a double-dip recession” because the global economy is expanding and the yen has stabilized, said Mikihiro Matsuoka , chief economist at Deutsche Securities Inc. in Tokyo. Higher Forecasts Deutsche forecasts the economy grew an annualized 2.8 percent in the three months ended Dec. 31, which would be the third straight expansion. The World Bank last week raised its forecast for Japan to 1.3 percent for 2010, from 1 percent in June. Asian economies are benefiting from a global trade rebound that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Fuji Xerox, Japan’s biggest maker of color copiers, expects sales to recover as early as September, helped by growth in China and increased demand for printers in the U.S., President Tadahito Yamamoto said on Jan. 15. Honda Motor’s venture with Dongfeng Motor Group Co. will invest 1.15 billion yuan to build a second plant in China as vehicle demand rises in the world’s largest car market. The plant, with an initial annual capacity of 60,000 vehicles, will start production in the second half of 2012, Honda said. Still, the export-led recovery hasn’t been strong enough to spur spending by companies and consumers at home. Reluctant to Spend Japanese machinery orders fell to a record low in November, signaling companies remain reluctant to increase capital spending, while household sentiment fell to a six-month low in December because of wage cuts and deflation, government reports showed this month. Bank of Japan Governor Masaaki Shirakawa said yesterday the economy is likely to lose momentum as global stimulus spending fades. His policy board left interest rates unchanged at 0.1 percent. Japan’s government may have limited to inject further stimulus spending after Standard and Poor’s cut its outlook for the nation’s sovereign debt rating yesterday. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen economic package and a record budget last month. “We have maintained that the economy will slow in the first half of 2010 due to weak domestic demand,” said Kyohei Morita , chief economist at Barclays Capital in Tokyo. “Evidence of deteriorating consumer confidence is consistent with this view.” To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Asian Stocks Fall as Commodity Prices Decline; Toyota Slumps on Sales Halt

January 26, 2010

By Shani Raja Jan. 27 (Bloomberg) — Asian stocks fell, led by mining and consumer companies, after commodity prices dropped and Toyota Motor Corp. said it will halt U.S. sales of models involved in a recall. Utilities and health-care shares advanced. BHP Billiton Ltd., the world’s biggest mining company, sank 1.7 percent in Sydney. United Co. Rusal Ltd. may be active when it becomes the first Russian company to trade its shares in Hong Kong today. Toyota fell 2.3 percent in Tokyo. The MSCI Asia Pacific Index dropped 0.3 percent to 119.04 as of 10:15 a.m. in Tokyo. The index slumped 5.8 percent in the previous seven days as U.S. President Barack Obama proposed measures to limit risk taking at banks and concern grew that China will rein in growth. Japan’s Nikkei 225 Stock Average lost 0.1 percent even after a government report showed the country’s exports climbed 12.1 percent in December. Australia’s S&P/ASX 200 Index fell 1.6 percent. New Zealand’s NZX 50 Index declined 0.2 percent. South Korea’s Kospi Index dropped 0.7 percent, reversing early gains, after Yonhap News reported North Korea fired artillery toward an area off its west coast that it warned ships to avoid yesterday. Futures on the U.S. Standard & Poor’s 500 Index rose 0.3 percent. The gauge lost 0.4 percent yesterday as concern the Federal Reserve may signal more plans to unwind stimulus measures overshadowed higher-than-estimated earnings and consumer confidence. Signs of a global economic recovery have driven a stock rally since March, lifting the average price of companies on the MSCI Asia Pacific Index to 1.6 times book value, near the highest level since September 2008. Sluggish Recovery The International Monetary Fund raised its global economic growth forecast yesterday to 3.9 percent in 2010 from its October projection of 3.1 percent. The IMF said the recovery in industrial nations is expected to be “ sluggish ,” burdened by rising public debt and high unemployment rates. Investors shrugged off a downgrade of Japan’s sovereign credit rating yesterday by S&P, which cited a “slower pace of fiscal consolidation” than the company had expected. BHP sank 1.7 percent to A$40.56 and Rio Tinto Group, the world’s third-largest mining company, slumped 4 percent to A$70.38. Copper futures for March delivery dropped 1.6 percent in New York yesterday, while crude oil for March delivery slid 0.7 percent. Toyota dropped 2.3 percent to 3,780 yen. To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Bernanke Rounds Up Fed Chairman Confirmation Votes With Calls to Senators

January 26, 2010

By Scott Lanman and Alison Vekshin Jan. 26 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke juggled an interest-rate meeting with phone calls to senators as he rolled up more support for a confirmation vote Majority Leader Harry Reid said may take place Jan. 28 or 29. “He has the votes to be confirmed,” Senator Judd Gregg , a New Hampshire Republican, told reporters in Washington. “He is the right guy for the job.” Late today, Reid moved to limit debate and prevent senators from blocking a vote on confirmation. A procedural vote was set for Jan. 28. Senator Amy Klobuchar , a Minnesota Democrat, said she spoke with Bernanke today and would vote yes. Republican Bob Corker of Tennessee, who had been leaning in Bernanke’s favor, also spoke with the Fed chief and said he would back him unless “something drops out of the skies.” Forty-nine senators have said they would vote for the 56- year-old Fed chief or were inclined to support him, while 20 were opposed. Republicans were split 13-13 on a second term for Bernanke, while Democrats favored the Fed chief by a 35-6 margin, according to a count by Bloomberg News. Thirty-one senators were undecided or declined to comment. Reid late today set a vote for Jan. 28 on whether to limit debate on Bernanke’s nomination. The motion to end debate requires 60 votes and would clear the way for confirmation, which requires a majority of senators present and voting. Vice President Joseph Biden could break a tie if necessary. Yesterday, Senate Majority Whip Richard Durbin , an Illinois Democrat, said some Democrats who oppose Bernanke will vote to end debate. Help From Buffett The Fed chief got some assistance from Warren Buffett , the billionaire chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. Buffett told Nebraska Senator Ben Nelson , a Democrat, last week that Bernanke “had done a good job and should be retained,” Nelson told reporters today. “I looked back over the tenure,” Nelson said. “In the overall I felt that he had done a sufficient job to be reconfirmed.” The mounting support was a turnabout from Jan. 22, when Reid and Richard Durbin withheld their support for Bernanke and two Democratic senators, Russ Feingold of Wisconsin and Barbara Boxer of California, came out against him, helping drive the Standard & Poor’s 500 Index down 2.2 percent. Bernanke has drawn fire from some lawmakers for failing to curb the risky bank practices blamed for sparking the financial crisis and for the Fed’s role in the $182 billion bailout of New York-based insurer American International Group Inc. The Democratic Party’s loss of a seat in Massachusetts last week added to pressure on senators facing re-election. ‘Out of Proportion’ The controversy over Bernanke’s confirmation “was really blown out of proportion,” Bill Gross , who runs the world’s biggest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Television. “This country deserves and needs Ben Bernanke.” Bernanke and his Fed colleagues began their regularly scheduled interest-rate meeting at 2 p.m. today and will release a statement on the monetary-policy decision tomorrow afternoon. They are likely to maintain a pledge to keep interest rates low for an “extended period” as they seek to bring down an unemployment rate that’s close to a 26-year high. Bernanke, 56, is a Republican former Princeton University economist appointed by President George W. Bush for a term that began in February 2006. The term expires Jan. 31. Futures Contracts Traders on Intrade, an online exchange for futures contracts on political outcomes, placed 95 percent odds on Bernanke being confirmed. Senate Republican leader Mitch McConnell of Kentucky reiterated today that he expected Bernanke to be confirmed with bipartisan support. Other senators who said today they would probably vote for Bernanke include Democrats Frank Lautenberg of New Jersey, Mark Begich of Alaska and Mark Udall of Colorado, and Republican Olympia Snowe of Maine. Opponents include Democrats Tom Harkin of Iowa and Sheldon Whitehouse of Rhode Island, and Nevada Republican John Ensign . A second term isn’t assured yet. Bernanke and the Fed may be criticized by lawmakers during a hearing tomorrow by the House Oversight Committee, which obtained e-mails and other documents on the Fed’s role in the AIG bailout. California Representative Darrell Issa , the panel’s top Republican, cited an unidentified “whistleblower” as saying there are “troubling details” in other documents about Bernanke’s actions. Treasury Probe Neil Barofsky , the U.S. Treasury’s chief watchdog for the financial-rescue program, is investigating whether the New York Fed improperly limited disclosures tied to the AIG rescue, according to an excerpt of testimony prepared for the hearing. Senator Jim Bunning , a Kentucky Republican who opposes Bernanke, said yesterday that if every senator reviewed AIG- related Fed documents that had been provided to the banking committee, “then I’m sure he would be never confirmed.” Bernanke, in a letter to congressional auditors last week, invited a review of the Fed’s actions in the AIG bailout and pledged full cooperation. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net ; Alison Vekshin in Washington at avekshin@bloomberg.net .

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Toyota Suspends Sales Of 8 Vehicle Models (LIST)

January 26, 2010

WASHINGTON — Toyota suspended U.S. sales of some of its most popular vehicles – including the best-selling car in America, the Camry – to fix sticking gas pedals that could make the cars accelerate without warning. In another blow to the world’s No. 1 automaker, Toyota Motor Corp. said Tuesday it would halt some production at six assembly plants beginning the week of Feb. 1 “to assess and coordinate activities.” The company said it would stop selling eight models of cars and trucks, a significant portion of its fleet. The suspension comes after a recall of the same models last week involving 2.3 million vehicles. Toyota has said it was unaware of any accidents or injuries due to the pedal problems associated with the recall, but could not rule them out for sure. “This action is necessary until a remedy is finalized,” said Bob Carter, Toyota’s group vice president and general manager. The Japanese automaker said the sales suspension includes the following models: the 2009-2010 RAV4, the 2009-2010 Corolla, the 2007-2010 Camry, the 2009-2010 Matrix, the 2005-2010 Avalon, the 2010 Highlander, the 2007-2010 Tundra and the 2008-2010 Sequoia. Some dealers suggested taking vehicles to dealerships for inspections if people have safety concerns. Aaron Bragman, an auto analyst for the consulting firm IHS Global Insight in Troy, Mich., said Toyota typically sells about 65,000 Camrys and Corollas a month, and the frozen sales could strike at the company’s bottom line and reputation for quality. “That’s huge if they can’t sell these and they don’t have a fix identified. They need to go and get a solution to this fast,” Bragman said. Toyota sold more than 34,000 Camrys in December, making the midsize sedan America’s best-selling car. It commands 3.4 percent of the U.S. market and sales rose 38 percent from a year earlier. Sales of the Corolla and Matrix, a small sedan and a hatchback, totaled 34,220 last month, making up 3.3 percent of the market and sales up nearly 55 percent from December of 2008. Toyota spokesman Mike Michels said production would be suspended on the affected vehicle lines this week and it was unclear exactly when it would resume. In an e-mail to employees, company officials said, “we don’t know yet how long this pause will last but we will make every effort to resume production soon.” Michels said engineers were trying to develop a fix as quickly as possible but he did not have a firm timeline on when the vehicle sales could resume. Toyota shares were down 2.3 percent in early Tokyo trading at 3,780 yen. The automaker said the move would affect plants in Princeton, Ind., Lafayette, Ind., Georgetown, Ky., San Antonio, Texas, and Cambridge, Ontario, and Woodstock, Ontario, in Canada. Toyota spokesman Mike Goss said most workers were expected to be at their jobs during the assembly line shutdown. Workers will receive additional training or work on improvements to their assembly processes, but can also take vacation or unpaid leave, he said. About 300 workers who build V8 engines at a Toyota plant in Huntsville, Ala., will be affected, said Stephanie Deemer, a spokeswoman for the plant. Goss said the shutdowns will also affect engine plants in Georgetown, Ky., and Buffalo, W.Va. Toyota said no other North American Toyota facility would be affected by the decision. Toyota dealers said they were concerned the move would hamper sales and were hopeful parts to fix the problem could be distributed quickly. “They’re going the extra mile to reassure people that they really care about the customers,” said Earl Stewart, owner of a Toyota dealership in North Palm Beach, Fla. “It is something that’s going to be at least a short-term hardship on the dealers, and especially on Toyota.” The auto company said the sales suspension wouldn’t affect Lexus or Scion vehicles. Toyota said the Prius, Tacoma, Sienna, Venza, Solara, Yaris, 4Runner, FJ Cruiser, Land Cruiser and select Camry models, including all Camry hybrids, would remain for sale. The announcement follows a larger recall months earlier of 4.2 million vehicles because of problems with gas pedals becoming trapped under floor mats, causing sudden acceleration. That problem was the cause of several crashes, including some fatalities. About 1.7 million vehicles fall under both recalls. Owners with questions can call the Toyota Customer Experience Center at (800) 331-4331. ___ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Gregory Unruh: Davos: Copenhagen, Take 2

January 26, 2010

Maybe the World Economic Forum in Davos at the end of the month can provide an opportunity for the negotiations that didn’t happen in Copenhagen. Let’s face it; the world is very different from when the original Framework Convention on Climate Change was signed by George H.W. Bush in 1992. Back then the big negotiating players were the United States, Europe and Japan. In Copenhagen the players were the US, China, India, Brazil and South Africa. The international power shift is obvious. As new powers arise their concerns have to be accommodated. But outside the diplomatic world of nation-states, the hierarchy of economic influence looks far more stable. Exxon, Ford, GM, Chevron, Mobile, Texaco all made the top 10 of the Fortune 500 when Bush was negotiating in 1992. And even after the recent economic battering, they appeared in the top 10 again when Barack Obama was negotiating in Copenhagen last month. Ask any diplomat not from the US and they will tell you Copenhagen was a debacle. Copenhagen was solely a nation-state event, so businesses were not invited. They are, however, key players in any negotiated solution. No matter what the hardcore environmentalists envision, fossil fuels are not going to be phased out any time soon. The urgent need is to therefore ensure that a sustainable carbon economy is not an oxymoron. Those Fortune Top 10 companies in many cases own the technological capabilities that can make a sustainable carbon economy a reality. And, of course, they have the most to lose if we don’t. Just like the rise of new political powers, the roles of these companies needs to be accepted in climate deal making. That’s difficult to swallow for nation-states accustomed to having the sole say on international rules. It will also drive protectionist types out of their mind to let corporations have a say in international governance. And it will sorely test CEOs’ commitment to the new zeitgeist of socially responsible corporate behavior. But the truth is these companies already have this power and concomitant responsibilities. Thanks to the liberalization of trade, communications and financial markets, global corporations are major players in the structure and governance of the global economy. Policy decisions made in executive boardrooms can have far greater impact on countries’ economic development than most international aid programs. That’s a reality that climate policy needs to face. And the truth is that without the support of the companies economically dependent on fossil fuels, the climate problem can’t be solved fast enough to stave off unwanted disruptions. You can’t have these conversations at UN climate meetings. The role of corporate lobbyists here is backroom arm twisting. But one place where these types of conversations can be publically held is in Davos. The World Economic Forum has 1,000 corporate members and Davos is a place where they confab with their political counterparts. The conversations will be difficult. Politicians have to respond to their political constituencies (presumably voters) and Chief Executives have to respond to their financial constituencies (presumably shareholders). But both can gain by a deal. And so can the world. Gregory Unruh is Director of the Lincoln Center at Thunderbird School of Global Management and author of “Earth, Inc.” published by Harvard Business Press.

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Adele Scheele: The Interview’s Password to their Private Club

January 26, 2010

The real question that most interviewers yearn to ask is off-limits. They want to know if you are enough like them to admit you to their very private and exclusive club. The process is like rushing for a fraternity or sorority; the admissions committee has a radar selector for who can join. Those who are rejected never learn exactly why. Too bad we can’t witness this acceptance and rejection process to see for ourselves who wins and the reasons why. Obviously, interviewers can’t ask you if you really fit into their club, so they substitute questions which they hope will reveal whether or not you belong. And your answer to their masked questions has to be “Yes, I am just like you! Let me tell you how.” And then you choose from your life story only that which is a good match for them. I know you are thinking No! In the workplace we need a variety of talents and a diversity of personalities. Take note: there is always a company culture. And you need to fit in to be accepted. The following Questions and Tips (Q/T) show how you might go about gaining admission: Q. Tell us about yourself. T. You could start chronologically, from when you were the youngest, dumbest and least experienced and work up to the present. But first impressions count. Don’t overlook that. Mentally arrange your work history into meaningful categories that match what you know about your potential employers. If they value team spirit, then you might lead with your group activities, projects, or prior experiences from work or school. Be willing to adopt their interests. If you know the organization contributes heavily to United Way, don’t argue that another charity is the better way. If they have a company softball game, now is not the time to announce your sports-aversion. Does this sound too much like kissing up? Well, if they speak French, and you do too, wouldn’t you reference France or make a nice turn of phrase, n’est-ce pas? You’d be a saboteur if you didn’t. C’est la vie! Q. Why do you want to work here? T. You cannot say you need the money; your spouse is unemployed; your mortgage is worth more than your house; the company is so close by. Not a one. Even if all these reasons are true, you can’t mention any one of them. Even your skills at face value aren’t enough. You must demonstrate how they would add value specifically to the employer. Hint: If you were in the employer’s shoes with a roomful of candidates, would you want to hire someone who just wants to be paid, someone for whom it is merely convenient, someone who is biding time until a better offer comes along, someone desperate who may not even care about the work itself? Nope. You’d hire the one who can not only improve the organization but also has the enthusiasm to actually do so just the way you’d like it done. So, are you like them enough for them to want you? Even if you don’t think you are, it doesn’t really matter. You need to present yourself as if you do. No, I’m not advocating that you should become a clone, just a whole lot more politically savvy if you want to get hired. Make your luck happen! Dr Adele DrAdele.com

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J&J Heated Catheter Better Than Drugs for Irregular Heartbeats, Study Says

January 26, 2010

By Nicole Ostrow Jan. 26 (Bloomberg) — Johnson & Johnson’s Navistar ThermoCool catheter worked better than medicine to control irregular heartbeats in people who didn’t respond previously to at least one drug, a study found. Sixty-six percent of patients who underwent the procedure known as catheter ablation , which used the J&J device, were free of recurring irregular beats compared with 16 percent of those treated with medicines, researchers said today in the Journal of the American Medical Association . The heated catheter burns away heart tissue to block the electrical pulses that cause the arrhythmic beats. New Brunswick, New Jersey-based Johnson & Johnson won U.S. approval last year to sell the first devices, NaviStar ThermoCool and EZ Steer ThermoCool Nav, to ablate, or kill, the cells that trigger irregular heartbeats, or atrial fibrillation . The condition affects more than 2 million Americans and can cause blood clots and strokes, according to the American Heart Association . Today’s findings show that catheter ablation is the best alternative for people who tried drug therapy that didn’t stop their symptoms from returning, lead author David Wilber said. “It argues for much earlier use of catheter ablation in treating patients who don’t respond to the initial attempts at drug therapy,” said Wilber, director of the Cardiovascular Institute at Loyola University Chicago’s Stritch School of Medicine, in a Jan. 25 telephone interview. “To continue to search for different drugs may not be helpful. They’ll have far better quality of life if they have catheter ablation instead.” Competing Companies J&J, the world’s largest health products company, is vying with Medtronic Inc. , Boston Scientific Corp . and St. Jude Medical Inc. for the treatment of atrial fibrillation by burning, freezing, or otherwise destroying the malfunctioning heart cells that cause the condition. Minneapolis-based Medtronic expects to bring its catheter to the U.S. market in the second half of this year if it wins Food and Drug Administration approval, said spokeswoman Catherine Peloquin. The device is approved outside the U.S. St. Jude has FDA permission to begin enrollment in a medical trial of the safety and effectiveness of the company’s catheter ablation system for atrial fibrillation, Marisa Bluestone, a spokeswoman for St. Paul, Minnesota-based St. Jude, said today. Paul Donovan , a spokesman for Natick, Massachusetts- based Boston Scientific, said the company doesn’t have catheters indicated for treatment of atrial fibrillation in the U.S. Electrical Signals In atrial fibrillation, the electrical signals that regulate the heartbeat become irregular. Instead of beating regularly, the upper chambers of the heart quiver and don’t let all the blood pump out. People with atrial fibrillation have fatigue, loss of the ability to tolerate exercise, chest discomfort and heart flutters, Wilber said. People diagnosed with the condition are generally given medicines that may affect other organs and have side effects that mimic the symptoms of the disease, he said. The effectiveness of drugs to control the heart’s rhythm is “inconsistent” and the likelihood that arrhythmic beats will recur within 12 months is about 50 percent with most drugs, the study authors wrote. The researchers studied 167 patients with irregular heartbeats who had failed treatment with at least one drug. Of those, 106 received catheter ablation, while 61 were given a different medicine than they had previously taken. The two most common drugs given in the study were the generic antiarrhythmic medicines flecainide and propafenone. Quality of Life Those who were given the ablation treatment had immediate improvements in their quality of life, while those who received drug therapy didn’t report any significant improvements, the researchers said. The study also measured whether patients felt any symptoms of irregular heartbeats and found 70 percent of those treated by ablation remained free of symptoms compared with 19 percent of those who took the medicines. J&J’s Biosense Webster Unit, which provided the catheters used, funded the study. Biosense Webster developed NaviStar ThermoCool. Wilber reported in the paper that he has received grants and consulting fees from Biosense Webster. The results of the study were part of the submission to the FDA for approval of the catheter in the U.S., said Marcia Yaross, vice president of clinical, regulatory and health economics at Diamond Bar, California-based Biosense Webster. A larger study is under way to determine if atrial fibrillation patients who receive ablation live longer than those taking medicine. Wilber, who is a researcher on that study, said the results probably won’t be available for five or six years. To contact the reporter on this story: Nicole Ostrow in New York at nostrow1@bloomberg.net .

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Sun’s Schwartz, McNealy Said to Be Planning to Leave After Oracle Buyout

January 26, 2010

By Connie Guglielmo and Rochelle Garner Jan. 26 (Bloomberg) — Sun Microsystems Inc. ’s top executives, including Chief Executive Officer Jonathan Schwartz and Chairman Scott McNealy , will leave after the $7.4 billion buyout by Oracle Corp., people familiar with the matter said. Schwartz, McNealy, Chief Financial Officer Mike Lehman and other members of the executive team won’t be offered positions at Oracle, said the people, who declined to be identified because the plans aren’t public. The executives won’t resign because they would forfeit severance packages that are triggered by the sale, one person said. Oracle, which has made about 60 acquisitions since January 2005, hasn’t retained the CEOs of large companies it has bought. Those include the $10.3 billion takeover of PeopleSoft Inc., the $5.85 billion acquisition of Siebel Systems Inc. and the $8.5 billion purchase of BEA Systems Inc. Schwartz was set to receive $12 million as part of his severance package, McNealy would get $9.53 million, and Lehman is due $4.03 million, Sun said in a June 8 regulatory filing . Those sums didn’t include performance-based restricted stock, which Santa Clara, California-based Sun said it wasn’t able to value at the time. Schwartz, 44, took over the CEO job from co-founder McNealy in April 2006, a time when Sun was trying to recover from five years of losses. Schwartz and McNealy, 55, didn’t respond to e-mails seeking comment. Deborah Hellinger , a spokeswoman for Oracle, also didn’t respond to an e-mail. Hardware Push Sun, the fourth-biggest maker of server computers, is Oracle’s first purchase outside of the software market. Earlier this month, a Sun executive sent an e-mail to the company’s employees saying that Oracle will “rely heavily” on Sun’s workforce. Last week, Schwartz wrote a memo urging employees moving to Oracle to help the company expand. He told workers who may not be given jobs at Oracle that “Sun is a great brand on your resume.” Sun had almost 27,600 employees in September. Oracle CEO Larry Ellison is scheduled to host an event tomorrow at the company’s headquarters in Redwood City, California, to lay out plans to integrate Sun’s products. The purchase received European Union approval last week, which was among the last hurdles before the transaction is completed. The planned departure of Sun’s executives was reported yesterday by the All Things Digital blog. Sun rose 1 cent to $9.49 at 4 p.m. New York time in Nasdaq Stock Market trading. Oracle declined 15 cents to $23.88. To contact the reporters on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net ; Rochelle Garner in San Francisco at rgarner4@bloomberg.net

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Hoyer Sees Obama Pushing for Broad Health-Care Bill in State of the Union

January 26, 2010

By James Rowley and Kristin Jensen Jan. 26 (Bloomberg) — House Majority Leader Steny Hoyer said he expects President Barack Obama to push for a broad health-care overhaul in his nationally televised address to the nation tomorrow, and he cast doubt on the idea of passing smaller measures instead. “It is difficult to take small pieces and attain the objectives you want to accomplish,” Hoyer of Maryland, the No. 2 Democrat in the House, said today at the National Press Club in Washington. Lawmakers are looking to Obama for direction after a loss by Democrats in a special Senate election in Massachusetts last week derailed their original plans for passing health-care legislation. The Democratic president will give his State of the Union address before Congress tomorrow night. Obama has vowed to press on in the fight to cover tens of millions of uninsured Americans and curb rising medical costs . Still, he hasn’t given Congress a specific plan for how to do it and said he made a “mistake” in letting much of the negotiations over the past year take place behind closed doors. “The health-care debate as it unfolded, legitimately raised concerns,” Obama said in an ABC News interview yesterday. “It’s an ugly process, and it looks like there are a bunch of backroom deals.” Bill in Peril The bill is in peril because the Jan. 19 special election deprived Democrats of the 60th vote they need in the Senate to defeat Republican delaying tactics. That means the original option of passing a House-Senate compromise on party-line votes in each chamber is dead. House Speaker Nancy Pelosi , a California Democrat, last week said she didn’t have the votes for the quickest fix — approval by her chamber of the Senate version of the measure, which would send it to Obama for his signature into law. Hoyer today said one idea would be for the House to approve the Senate measure and for both chambers to pass another bill to “bridge the differences” between the original measures on issues such as affordability of insurance and how to pay for the legislation. Senate Democrats including Thomas Carper of Delaware back that idea. Carper said he would support passing a “very, very narrow” bill to make changes after House passage of the Senate measure. One change that’s at the top of the list for House Democrats is altering a planned excise tax on high-end, or so- called Cadillac, health benefits so the levy affects fewer people. “If we have to massage that a little bit, I’m OK with that,” Carper said in an interview today. Lincoln Opposes The most likely scenario for a second bill would be to use a budget process known as reconciliation that would allow Democrats to pass the fixes with just 51 votes. That idea drew criticism today from Senator Blanche Lincoln , an Arkansas Democrat who faces re-election this year. “I am opposed to, and will fight against, any attempts to push through changes to the Senate health-insurance reform legislation by using budge-reconciliation tactics,” she said in a statement. In a later interview, Lincoln said she believes the current Senate measure is “a good bill.” “It’s time for us to come to common ground,” she said. “Reconciliation is a process that loses us the common ground.” Senator Evan Bayh , an Indiana Democrat, has also voiced concern about that process. “Just ramming it through on a solely partisan basis, particularly if you’re using reconciliation, well, I think that would be very difficult,” Bayh said in a Jan. 22 interview with Bloomberg Television’s “Political Capital With Al Hunt .” ‘Lines in the Sand’ Today, Bayh said there was little discussion of health care at his party’s weekly caucus meeting. Democratic leaders are “still trying to figure it out, and people should not draw lines in the sand until they do,” he said. After House Democrats met on Jan. 21, several said a consensus was emerging to break into smaller measures elements contained in the House and Senate health-care bills. A group of 25 House Democrats led by New Jersey Representative William Pascrell said they were pushing for measures to address rising medical costs, insurance practices and medical malpractice. That might raise the ire of labor unions, a key constituency for Democrats as they face the November elections. “The only path forward is to do something comprehensive,” said Andy Stern , president of the Service Employees International Union, at a jobs forum in Washington today. “Take the Senate bill and fix it through reconciliation.” Logistical Issues A package of bills also raises logistical problems, because so many provisions in the current legislation are intertwined. “Much of the bill is an integrated whole,” Hoyer said. “To accomplish the objectives, you both need to include many more people in coverage, spread the risk, bring costs down for individuals at the same time that you effect reforms.” Hoyer later told reporters he expects Obama tomorrow night to “point out to the American people the importance of the comprehensiveness” of the bill. White House Press Secretary Robert Gibbs told reporters that Obama would speak about health care, without giving details. The American Medical Association urged Obama and Congress in a letter to keep working toward “meaningful health system reform this year.” Lawmakers are still meeting with administration officials, trying to figure out the path forward. “They’re waiting for direction from above,” said Ira Loss , a senior health policy analyst at Washington Analysis. “They’re all trying to catch their breath and figure out how they lost control of all this.” To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net ; James Rowley in Washington at jarowley@bloomberg.net

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Electronic Arts, Ngmoco Say Apple’s Tablet May Become Video-Game Platform

January 26, 2010

By Adam Satariano Jan. 26 (Bloomberg) — Publishers of “Pac-Man,” “Tiger Woods PGA Tour” and “Brick Breaker” say Apple Inc. ’s new tablet has the potential to become a video-game platform and are already considering titles for it. “If it’s got a great screen, some buttons, you can turn it on and it connects to the Internet, it’s got the ability to be a games machine,” said Peter Moore , president of sports games at Electronic Arts Inc. , the second-largest game publisher. The multimedia product may build on Apple’s success with iPhone and iPod Touch games and extend the industry’s expansion beyond consoles made by Microsoft Corp. , Nintendo Co. and Sony Corp. Apple’s App Store has sold more than 3 billion applications. In the store yesterday, the five bestsellers were games ranging from $2.99 to $9.99. U.S. sales of console games fell 9.8 percent in 2009, according to researcher NPD Group Inc. Moore said what he knows about the device is from media reports. In addition to Redwood City, California-based Electronic Arts, Namco Bandai Holdings Inc. and smaller companies such as Digital Chocolate and Ngmoco are trying to gauge the opportunities as they wait for the device. “The center of gravity in gaming is moving away from the console to these other devices,” said Bart Decrem, chief executive officer of Palo Alto, California-based Tapulous , the maker of iPhone and iPod Touch games that have been downloaded more than 20 million times. “We’re going to wake up a year from now and see that this is a very important part of gaming.” Apple plans to unveil the device tomorrow, a person with knowledge of the situation said this month. The person declined to be identified because the details are private. More Gaming Fun The tablet may improve on iPhone and iPod Touch games by providing a bigger screen, more processing power and better Internet connectivity that makes it easier to play with others, said Jon Kromrey, general manager of the Apple games group at Namco Networks America Inc. , the Tokyo-based company’s U.S. unit. Namco, maker of “Pac-Man,” has had more than 23 million downloads from the App store. “I’m having fun thinking about all the wonderful things we can do with the device when it’s announced,” said Kromrey, who was a designer for Apple until last year. As a game platform, the tablet will compete against Nintendo’s DS and Sony’s PlayStation Portable. Apple, based in Cupertino, California, rose $2.87 to $205.94 at 4:30 p.m. in Nasdaq Stock Market trading . The shares more than doubled last year. Electronic Arts fell 9 cents to $16.74 after gaining 11 percent in 2009. Mobile Game Growth The tablet will build on a market for portable and mobile games that’s expected to grow to $11.7 billion by 2014 from $9.7 billion in 2009, according to researcher DFC Intelligence in San Diego. Sales of games for Nintendo’s DS and the Sony PSP will fall while those for Apple will rise, said David Cole , a DFC analyst. Even before reports of the tablet, DFC predicted the iPhone and iPod Touch would rise to 24 percent of portable game software. The market for games on social networks including Facebook and News Corp.’s MySpace is projected to triple to $2 billion by 2012 from 2009, according to Atul Bagga , a San Francisco-based analyst with ThinkEquity LLC, an investment bank. Apple’s device has an opportunity to take players from the Xbox 360, Wii and PlayStation 3 because it’s likely to be used a lot in homes, said Simon Jeffery , chief publishing officer for Ngmoco, a maker of iPhone and iPod Touch games backed by Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. Games will have to be more complex and visually sophisticated than those for Apple’s smaller devices, he said. “The game play needs to be more satisfactory and engaging,” said Jeffery, the former president of Sega America . Non-console play is growing because people have less time and a $60 disc is increasingly difficult for some to justify, Moore said. An iPhone version of Electronic Arts’ “Tiger Woods PGA Tour” costs $4.99 and the company is introducing a browser- based version. To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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Pimco’s Gross Says U.S. `Needs’ Bernanke for Second Term as Fed Chairman

January 26, 2010

By Eric Martin Jan. 26 (Bloomberg) — Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said Federal Reserve Chairman Ben S. Bernanke deserves a second term. “The furor over the past seven days, fourteen days was really blown out of proportion and was really a political statement on the part of some that is trying to influence the future regulatory environment as opposed to the election of Ben Bernanke,” Gross said in an interview with Bloomberg Television. “This country deserves and needs Ben Bernanke in the future periods.”

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Japan Rating-Outlook Cut Escalates Pressure on Hatoyama to Stem Debt Rise

January 26, 2010

By Aki Ito and Mayumi Otsuma Jan. 27 (Bloomberg) — The cut to Japan’s debt rating outlook by Standard & Poor’s escalated pressure on Prime Minister Yukio Hatoyama to rein in spending and consider raising taxes to reduce the nation’s borrowing. S&P yesterday lowered the outlook on Japan’s AA sovereign credit rating to “negative” because of diminishing “flexibility” to cope with the world’s largest public debt and concern about the lack of a plan to rein in budget deficits. The move highlights concern that the shrinking Japanese population and stagnating economy will erode a savings pool that has kept yields on benchmark 10-year bonds below 2 percent for 11 years. At the same time, because domestic investors hold more than 90 percent of Japan’s debt, there may be little risk of an immediate increase in borrowing costs that would force Hatoyama and Finance Minister Naoto Kan to act more quickly. “There is no way Japan can keep bleeding deficits like this without drawing a roadmap to restore its fiscal health,” said Shuichi Obata , senior economist at Nomura Securities Co. in Tokyo. “Japan’s already a lit bomb, but no one knows the length of the fuse. The key is to defuse the bomb at some point before it explodes.” Ten-year bond yields fell 1.5 basis points to 1.32 percent yesterday, while credit-default swaps showed an increase in Japanese bond risk. The cost of protecting the debt from default for five years gained 6 basis points to 90 basis points and traded at 88 basis points late yesterday. ‘Wake-Up Call’ National Strategy Minister Yoshito Sengoku said the government needs to consider S&P’s warning as a “wake-up call.” Kan said it’s “extremely important to maintain fiscal discipline and pursue fiscal health.” The two ministers are working to formulate a “medium-term fiscal framework” by June. Sengoku chairs a panel that first met this week to begin drafting the plan. Kan has been asking the central bank to support the economy, saying in parliament yesterday that it has more options available to fight deflation. Hours later, the Bank of Japan left its policy unchanged and kept benchmark interest rates at 0.1 percent. Since their Democratic Party of Japan took power in September, Hatoyama and Kan have argued that stimulus to support households is needed to cement the recovery from Japan’s worst postwar recession. The premier has deferred debate on reducing the public debt as his approval ratings tumble ahead of an upper house election scheduled for July. Election Looms S&P wouldn’t have issued its debt warning “if Japan’s government had published its mid-term fiscal consolidation plan earlier,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “As a national election approaches, the government will stick to the economic policy of providing aid for households and assisting employment .” Parliamentary committees devoted to deliberating Hatoyama’s 7.2 trillion yen ($80 billion) stimulus plan have been overtaken by questions about political donations he received from his mother and the arrest of aides to Ichiro Ozawa , the DPJ’s No. 2 official. Hatoyama’s approval rating fell to 45 percent from 56 percent earlier this month, according to a Yomiuri newspaper survey published on Jan. 18. Kaoru Yosano , who was finance minister in the previous administration, said last week that Japan is on the verge of an “uncontrollable rise” in bond yields as the difference between public debt and net household savings narrows. The DPJ “doesn’t have a sense of crisis about this,” he said in an interview on Jan. 22. Household Savings Japanese have funded state spending through their more than 1,400 trillion yen in savings. The outlook downgrade came a day after the government said public debt will probably spiral to 973 trillion yen in the year starting April 1, almost double gross domestic product and the equivalent of 7.7 million yen for each citizen. “The government needs to act now; Japan’s fiscal health is in a very dangerous situation,” said Masamichi Adachi , senior economist at JPMorgan Chase & Co. in Tokyo, who used to work at the Bank of Japan. “We need reforms the size of the Meiji Restoration.” Hatoyama has been forced to break campaign promises to secure revenue. He kept a gasoline tax that he had pledged to abolish after the Finance Ministry projected that tax revenue will fall below bond sales for the first time in 63 years. Other promises remain intact. Hatoyama said this month that the country’s sales tax won’t be raised from the current 5 percent for four years. Cutting Costs Kan repeated yesterday that cutting costs remains the government’s top priority, and he won’t debate changes to the tax code until all “wasteful” spending has been eliminated. “There will come a time when we need to discuss reforming the tax structure,” Kan told lawmakers in parliament. “But it is only after we make a strident effort to eliminate wasteful and inappropriate spending that we can start to do that.” Adachi at JPMorgan said there’s no room for delaying an increase in the sales tax and the current government is “way too populist” to commit to restoring Japan’s fiscal health. “The sooner Japan takes on the pain, the better.” To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net ; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Yahoo’s Sales Exceed Estimates as Online Ad Market Shows Signs of Rebound

January 26, 2010

By Brian Womack Jan. 26 (Bloomberg) — Yahoo! Inc. , owner of the second- most-used Internet search engine in the U.S., reported fourth- quarter sales that topped analysts’ estimates as the online advertising market showed signs of recovery. Excluding revenue passed on to partner sites, sales totaled $1.26 billion, topping an average estimate of $1.23 billion in a Bloomberg survey of analysts. Net income attributable to Yahoo was $153 million, or 11 cents a share, compared with a loss of $303.4 million, or 22 cents, a year earlier, the company said today in a statement. “We had a very solid quarter of results,” Chief Financial Officer Tim Morse said in an interview. “We definitely feel the business is gaining momentum.” After cutting costs last year, Yahoo is benefiting from a surge in online spending. Large companies in particular increased their Internet ad purchases, which likely boosted the prices for space, said Scott Kessler , an equity analyst at Standard & Poor’s in New York. “Yahoo’s Q4 results probably benefited from greater demand from larger advertisers in light of a healthier-than-expected holiday shopping season,” Kessler said. “Overall they’re spending more on the Internet.” Kessler has a “strong buy” rating on the stock and doesn’t own it. Company Forecast The Sunnyvale, California-based company forecast gross sales of $1.58 billion to $1.68 billion in the current quarter. That compares with an estimate of $1.55 billion by Gene Munster , an analyst at Piper Jaffray & Co. in Minneapolis. The U.S. online display ad market will rebound this year, growing 10 percent after a decline of 2 percent in 2009, he said in a research note. “While competition is increasing for display dollars from social networks and targeted portals, we believe Yahoo! remains a major element to most online media plans, given the site’s market leading reach,” he said. Yahoo shares rose 38 cents to $16.37 in extended trading after increasing 13 cents to $15.99 in Nasdaq Stock Market trading. The shares climbed 38 percent last year. Aaron Kessler , an analyst with Kaufman Brothers LP, said the company did well in display ad sales though failed to keep pace with Google Inc. in search ads. “It was a mixed quarter,” said Kessler, who has a “buy” rating on the stock and doesn’t own it. “There’s nothing to get too excited about.” Excluding some expenses, profit was 15 cents a share. Analysts had predicted 17 cents, according to the Bloomberg survey. Cost Cutting Under Carol Bartz , who took over as chief executive officer about a year ago, Yahoo has buoyed its profit by cutting costs, including closing underperforming businesses and reducing staff. Last year, Yahoo shut the Web-hosting unit GeoCities and an online storage site called Briefcase. Earlier this month, Yahoo said it would sell its Zimbra e-mail and collaboration software to VMware Inc. for an undisclosed price. The companies expect to complete the sale this quarter. Yahoo bought Zimbra in 2007 for $350 million. Yahoo also is looking to reduce costs associated with its search business, such as engineering. Yahoo struck a deal with Microsoft Corp. that’s expected to close early this year. Under the partnership, Yahoo will put Microsoft’s Bing search engine on its Web sites, and the two companies will split the related advertising revenue. Google Competition The partnership may help both companies compete better with Google , which claimed 65.7 percent of Internet searches in the U.S. last month, according to ComScore Inc. in Reston, Virginia. Microsoft’s share increased to 10.7 percent last month from 8 percent in May, before the June debut of Bing. Yahoo’s share declined to 17.3 percent from 20.1 percent over the same period. The pending partnership has hampered Yahoo’s ability to compete in the search market, Scott Kessler said. Once the deal is completed, Yahoo can design the search feature that users see on its pages, he said. “They can’t really do the kind of implementations and improvements they want to do until things have changed over,” he said. To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net .

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Berkshire’s B Stock Will Join S&P 500 in Place of Burlington; Shares Surge

January 26, 2010

By Nick Baker Jan. 26 (Bloomberg) — Berkshire Hathaway Inc., Warren Buffett’s insurance and investment company, will join the Standard & Poor’s 500 Index. Berkshire Hathaway’s Class B shares will replace Burlington Northern Santa Fe Corp. after buying the railroad, S&P said in a statement on its Web site.

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Tishman Speyer Sends Break Up Letter To Stuyvesant Town, Peter Cooper Village Residents (PHOTO)

January 26, 2010

Tishman Speyer wasted no time in getting the message out on their massive default of the Stuyvesant Town and Peter Cooper Village properties. The real estate company delivered letters to all 11,000 apartments today, although the epistles were relatively slim on content. There is still no word on who will be taking over the buildings and when. Full text of the letter below:

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Jim Cramer, Meet Crazy Cash Ron (VIDEO)

January 26, 2010

He’s bald, fired up, and brimming with financial advice. Ron Frye’s here for all your stock market questions. With his giant staff (way to go, Todd!) and high production value, Ron will be your guide as you debate whether or not to sell that stock in Continental Airlines. His take: “If you want to fly you should’ve been born a bird…I like the ground, not the air.” Not so far fetched, actually. We’d take his advice over Cramer’s any day. (Thanks for the tip, Lucas!) WATCH:

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Ian Gary: Gas Money: Where is it Really Going?

January 26, 2010

When you stand at the gas pump and watch the numbers tick away, do you ever wonder where the money goes ? While we feel the pinch in our pockets, citizens of oil-producing countries are often not seeing any benefits. Oil companies collect large profits, despite the social and environmental impacts of their operations in developing countries. Imagine if a company paid the government to mine for gold or drill for oil in your backyard — but didn’t ask for your permission, pay you, or give you important information about the project. Right now, oil, gas, and mining companies are doing this around the world, often in the poorest countries. Oxfam America has launched a campaign calling on major oil, gas, and mining companies to respect people’s ” right to know ” all the facts about how oil, gas, and mining projects affect their communities. More often than not, oil, gas and mining contracts and payments from companies to host governments are kept secret. This lack of accountability facilitates embezzlement, corruption, and revenue mismanagement, and has contributed to the industry’s frequent failure to contribute to poverty reduction in countries where it does business. Both companies and government have a role to play in promoting transparency and accountability. It is wrong, for example, that companies are allowed to negotiate secret contracts with governments for the right to extract resources. Companies should support the disclosure of legitimate payments to host governments, and governments of developing countries should reform laws to increase transparency and accountability and strengthen the right of communities to decide what kinds of development are most appropriate for them. If they are consulted in advance, local people can decide whether they want companies to begin or expand operations on their land. And if they know how much companies are paying their government for their natural resources, they can call for a fair share of the profits to go to community needs like education, health care, and jobs. So what can we do? We can make a difference by supporting the passage of legislation called the Energy Security Through Transparency Act , which would require all oil, gas, and mining companies registered with the US Security and Exchange Commission to publicly disclose payments made to foreign governments. The Energy Security Through Transparency Act was introduced by a bipartisan group of Senators — led by Senators Lugar and Cardin — in September 2009. A companion bill is expected to be introduced in the House of Representatives in the coming weeks. With enough attention and support, this legislation could become law and represent a landmark victory for communities around the world clamoring for more information on how their vital natural resources — and the money generated — is being used. With more than half of the world’s poorest people living in countries rich in natural resources, this legislation would provide citizens with vital information to hold their governments accountable for how the money they make from mining and drilling is used. Check out this short animation that shows where the money actually goes, and how you can let your representatives know that you support the passage of this important bill.

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Meritage Homes Reports Fourth Quarter and Full Year 2009 Results

January 26, 2010

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Billionaires Make More From Ideas Than Bubbles: William Pesek

January 26, 2010

Commentary by William Pesek Jan. 27 (Bloomberg) — All the buzz about losers if Google Inc. leaves China ignores a potential winner: India. In any China-versus-India contest, 2009 belonged to China. Its 10.7 percent growth in the fourth quarter blew the doors off the 6.5 percent India may have experienced. It will be the toast of the town in Davos, Switzerland, this week at the annual meeting of the World Economic Forum. China’s “old economy” is clearly booming , and investors haven’t made a lot of money betting against it. Why, then, would China’s leaders imperil their future prospects as 2010 gets under way? That’s what they may do by letting Google, the Information Age’s biggest name, walk away. “I would look going forward for new investment increasingly to go somewhere else — probably India, Brazil and other big markets,” William Reinsch , president of the National Foreign Trade Council in Washington, said on Jan. 21. Google’s announcement this month that it is considering leaving China amid misgivings about censoring the Internet won’t change everything on its own. China’s top-down economy is thriving, while India’s is bureaucratic, inefficient and notoriously corrupt. Yet India has a track record of innovation and a stable of internationally competitive companies that China doesn’t. India also has far superior laws on intellectual property and corporate governance. And China’s willingness to blow off Google plays to India’s relative advantage in these areas. Bypassing China China should be concerned about the most influential Internet tool bypassing its $4.3 trillion economy and 1.3 billion people — and the specter of other Silicon Valley giants following suit. Executives at multinational companies who dragged their feet on diversifying investments away from China may now expedite the process. At issue is the next phase of China’s development. Too much attention is on ideas of the last century: keeping labor cheap, holding down the currency, picking and subsidizing national champions and favoring exports for growth. China’s spat with Google underlines how the Communist Party relies on the strategies of yesterday, not tomorrow. It’s really a proxy for how the past and future are colliding. Who knows, perhaps China’s mix of free-market policies and limits on free speech is a viable new model. It’s possible that China can thrive while censoring cyberspace and the media. Perhaps China will prove that it can leapfrog over years of domestic company building — as with Lenovo Group Ltd.’s purchase of International Business Machines Corp.’s personal- computer business. China does, after all, have $2.4 trillion of currency reserves to deploy around the globe. Ideas, Not Sweat The odds don’t favor it, though. Letting Google leave may dull the long-term benefits of the trillions of yuan that China is throwing at the economy. It limits the participation of entrepreneurs in an age where ideas and impulses mean more than sweat on factory floors. It also makes it less likely that massive stimulus efforts lead to the kind of self-sustaining, indigenous economy that China needs. The question is where China wants to be in five or 10 years. The world is now driven by knowledge flows, making it vital to stay attuned to the latest developments in any field. Only then can innovators ride the latest waves in international business and finance and create the hundreds of millions of jobs needed to raise living standards. India’s Billionaires Here, my thoughts are with India’s billionaires. They must be rubbing their hands together in glee as China’s leaders make an expensive miscalculation. According to a 2008 Forbes magazine poll, India may have the most billionaires by 2017. China’s ultra-wealthy are growing in numbers. It’s better, though, for one’s billions to come from new ideas than from bubbles in the Chinese stock market , which rose 80 percent last year. What China lacks is a growing roster of homegrown knowledge-based and technology outfits creating jobs, pushing the country up the value chain and inspiring young people to become the next Bill Gates . Nandan Nilekani , the co-founder of Bangalore-based Infosys Technologies Ltd., is often called India’s answer to Microsoft Corp.’s co-founder. When asked about the secret of India’s success in technology, Nilekani points to a free press and a rabid embrace of information flows. In other words, if India censored cyberspace, companies such as Infosys or Wipro Ltd. wouldn’t be what they are today. Benefits of Growth India’s challenges are overwhelming. It scores low on global efficiency scales, infrastructure is dodgy and bottlenecks to investment are many. India lags far behind China in reducing poverty. That’s where billionaires such as Nilekani re-enter our story. Millions of rural poor people claim that corrupt officials steal their paltry wages, withdrawing money from post-office accounts without providing proof of identity. India turned to Infosys to devise a fraud-proof deterrent. A year from now, Nilekani will roll out the world’s biggest biometric database to enable India’s 1.2 billion people, half of whom lack access to financial services, to open an ICICI Bank Ltd . account or sign up for a Vodafone Group Plc mobile phone. It’s not the Three Gorges Dam or the Shanghai skyline, yet India’s technology billionaires are helping the government devise new strategies and spread the benefits of growth. China, for all its advantages, could use more of that dynamic. Waving goodbye to Google won’t help. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Brazil Trading at 25% Discount to Global Equities Becomes Mobius Favorite

January 26, 2010

By Michael Patterson and Tal Barak Harif Jan. 26 (Bloomberg) — The biggest decline in the Bovespa index in three months has turned Brazilian stocks into Latin America’s best bargain, according to Templeton Asset Management and Emerging Markets Management LLC. The Bovespa retreated 6.4 percent from a 19-month high on Jan. 6, the most since an 11 percent decline in the second half of October. The 63-company gauge trades for 20.5 times reported earnings over the past 12 months, a 25 percent discount to the 27.5 times for the MSCI AC World Index of emerging- and developed-nation shares, according to Bloomberg data. “The most attractive market in Latin America is Brazil,” Mark Mobius , who oversees about $34 billion of developing-nation assets as chairman of Templeton Asset Management, said in an interview in Bangkok yesterday. “Its valuation is not excessive.” Brazilian stocks have surged 178 percent in the past five years, more than 20 times the 7.2 percent gain in the MSCI AC World. The Bovespa sank this month as steps by China to curb growth in the world’s fastest-expanding major economy spurred concern that demand for Brazilian exports will weaken. Mobius, whose Templeton Emerging Markets Investment Trust beat its benchmark by 21 percentage points the past 12 months, said Chinese consumption of iron ore and oil produced by Brazil’s Vale SA and Petroleo Brasileiro SA will increase. Valuations “It’s a buying opportunity,” John Ditieri , who helps oversee about $13.5 billion in emerging market equities at Arlington, Virginia-based Emerging Markets Management, said in an interview. “You want to be in emerging markets and especially in Brazil.” The Bovespa trades for 13.2 times analysts’ 2010 earnings estimates, compared with 14.9 times for Mexico’s Bolsa and 17.4 times for Chile’s Ipsa. The IGBC Index in Colombia is valued at 19.8 times profit estimates , Bloomberg data show. The Bovespa Index fell 1.5 percent to 65,257.35 as of 12:13 p.m. in New York. The MSCI AC World Index lost 0.3 percent amid concern Chinese curbs on bank lending will curtail global growth. Bill Gross , who runs the world’s biggest mutual fund at Pacific Investment Management Co., said investors should seek “less levered” countries like China, India and Brazil that are “less easily prone to bubbling.” Investors should look for “a savings-oriented economy, which would gradually evolve into a consumer-focused economy,” Gross wrote in a monthly investment outlook published on Newport Beach, California-based Pimco’s Web site. Analysts’ Projections Stock analysts expect an average 24 percent gain for shares in the Bovespa during the next 12 months, according to 696 price estimates compiled by Bloomberg. That’s almost double the 14 percent projected advance for MSCI AC World companies. Vale, the world’s largest iron-ore producer, may climb 23 percent and Petrobras, as the nation’s state-controlled oil company is known, may advance 36 percent, according to analysts’ projections for the Rio de Janeiro-based companies. Equities in the MSCI World Index for advanced nations, which trades at 28.6 times reported profits, are projected to gain 13 percent on average, according to analysts. The Brazilian benchmark index sank to a one-month low of 66,220.04 on Jan. 22. Petrobras, Latin America’s largest company by market value and the 13th-biggest in the world, has contributed the most to the gauge’s drop since Jan. 6 as crude prices fell more than 10 percent through last week on speculation fuel demand from China will weaken. Brazilian exchanges were closed yesterday for a Sao Paulo holiday. Preferred shares of Petrobras lost 7.3 percent since Jan. 6, while Vale declined 2.8 percent. The MSCI AC World index retreated 4.8 percent. Inflation China moved to cool its economy this month after gross domestic product climbed 10.7 percent in the fourth quarter, the fastest pace since 2007 and more than the median forecast of 10.5 percent in a Bloomberg News survey. China allowed yields on three-month bills to increase and raised the proportion of deposits that lenders must set aside as reserves in an effort to remove funds from the banking system. “If China is really slamming the brakes, that’s not good for Brazil,” said Uri Landesman , who helps oversee about $3 billion at ING Investment Management in New York. “We’ll need to see renewed appetite for risk or Brazil could fall another 8 percent short term.” Investors in Latin American stocks should reduce their holdings in Brazil to a “neutral” position relative to benchmark indexes because shares tied to consumer demand are “over-owned” and vulnerable to rising interest rates, JPMorgan Chase & Co. strategists wrote in a research note yesterday. Lending Rate Brazil’s central bank President Henrique Meirelles may act to stem price increases, according to a survey of economists published yesterday by the bank. Brazil’s inflation will exceed the target of policy makers this year, while the benchmark lending rate will rise to 11.25 percent by year-end from a record low 8.75 percent, according to the survey. Brazil implemented a 2 percent tax on the purchases of equity and fixed-income assets by overseas investors in October. The government’s success curbing a rally in the nation’s currency is a “scary” and “dangerous” precedent that may encourage officials to adopt more measures to stem the real’s appreciation, according to Citigroup Inc.’s New York-based equity strategist Geoffrey Dennis . Surging demand from Brazilian consumers is driving the country’s economic growth along with commodity exports, said Federated Investors Inc.’s Audrey Kaplan . Brazil’s retail sales jumped in November at the fastest pace since October 2008, climbing 8.7 percent from a year earlier. “We do still find Brazil equities attractive,” said Kaplan, who helps manage about $392 billion as the co-head of international equities at Federated in New York. “It’s not only about higher commodities. Domestic consumption seems to be recovering much stronger than its peers.” To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net ; Tal Barak Harif in New York at tbarak@bloomberg.net .

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Senate Rejects Conrad Plan for Commission on Cutting U.S. Budget Deficit

January 26, 2010

By Brian Faler Jan. 26 (Bloomberg) — The Senate rejected a proposed bipartisan commission to recommend ways to reduce the U.S. government deficit as a report projected this year’s shortfall will reach $1.35 trillion, the second-biggest since World War II. The vote was 53-46, falling seven short of the 60 needed for passage. The legislation would have required that the panel’s recommendations be voted on by Congress without being amended. Its chief sponsors, Budget Committee Chairman Kent Conrad and ranking Republican Judd Gregg , had said they were short of the votes for approval. Conrad, of North Dakota, and Gregg, of New Hampshire, said Congress has proven it is incapable of making the difficult decisions needed to reduce the deficit. Congress must send “a message to the American people and the markets all across the world that the United States is prepared to stand up and deal with this debt threat,” Conrad said. “Our nation is on a path that is absolutely unsustainable,” Gregg said. For future generations, paying the national debt will “take away the resources they would have used to buy a house, send their kids to college or get a new car,” he said. The plan ran into opposition from the left and right, with the Washington-based anti-tax group Americans for Tax Reform saying it would result in tax increases while the AFL-CIO and NAACP opposed it because it could mean cuts in government programs such as Social Security and Medicare. Some lawmakers opposed creating the commission because they would not be able to amend its recommendations. ‘House in Order’ “There is no doubt that we have to get our fiscal house in order,” said Senate Finance Committee Chairman Max Baucus of Montana. “The question is what’s the best way to do it?” The vote came during debate on a proposal to increase the federal debt limit by $1.9 trillion to $14.3 trillion. The Congressional Budget Office said today the federal deficit will amount to $1.35 trillion or about 9.2 percent of the economy. Last year’s deficit was $1.4 trillion. The CBO said the deficit in 2020 would be about the same size it is today if Congress extends the George W. Bush administration’s tax cuts, continues indexing the alternative minimum tax for inflation and increases discretionary spending at the same rate as the economy. The debt would rise to nearly 100 percent of the economy, up from the current 60 percent, the report said. ‘Poised to Skyrocket’ The agency warned that interest payments on the debt are “poised to skyrocket” as the economy strengthens and investors demand larger returns from Treasury bonds. By 2020, annual interest payments on the debt will triple to $723 billion, the report said. As an alternative to the commission rejected today, President Barack Obama is likely to propose creating a debt commission instead through an executive order. Because Congress could ignore recommendations by such a panel, Conrad and others are negotiating for an agreement to ensure its proposals would receive votes in both chambers. Conrad said yesterday an agreement hadn’t been reached. To contact the reporter on this story: Brian Faler  in Washington at bfaler@bloomberg.net

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Higher-End Home Prices Rose in 12 U.S. Cities in November, Including Miami

January 26, 2010

By Prashant Gopal Jan. 26 (Bloomberg) — Prices for the most expensive U.S. homes rose in 12 of 17 cities tracked by S&P/Case-Shiller indexes in November, indicating efforts to help first-time homebuyers are also leading to move-up purchases. Miami, Boston, Phoenix and San Francisco all registered gains at the top end of their markets, according to seasonally adjusted data from S&P Case-Shiller, which produces so-called tiered indexes for 17 cities that divide the housing market into thirds according to price. The bottom third, with the biggest share of first-time buyers and foreclosure purchases, also increased in 12 metro areas. “It does indicate that this is real demand and not just a statistical aberration,” said Karl Case , a co-creator of the indexes. “The ones coming in and buying are very optimistic about this being a good time to buy.” A government tax credit for first-time home buyers due to expire in November helped boost home sales in November, contributing to higher prices in some markets. Foreclosed homes are selling at an average discount of 28 percent compared with similar properties that haven’t been seized by banks, according to Seattle-based real estate data provider Zillow.com, which studied 16 U.S. metropolitan areas. High-end home prices increased in Atlanta, Boston, Cleveland, Denver, Los Angeles, Miami, Phoenix, Portland, San Diego, San Francisco, Seattle and Washington. The dividing lines between the three segments vary according to the market. For example, in Los Angeles, the top third starts at $495,996. Those houses have gained for six consecutive months, according to S&P/Case-Shiller. Phoenix high-end homes, defined as above $182,934, have risen for six straight months, and in Miami, prices for homes above $267,424 have climbed for five of the last six months. The composite index , which combines all three segments, gained in all 20 cities followed on a seasonally adjusted basis. To contact the reporter on this story: Prashant Gopal in New York at Pgopal2@bloomberg.net

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Verizon Will Cut 13,000 Jobs in Fixed-Line Unit After Sales Miss Estimates

January 26, 2010

By Amy Thomson Jan. 26 (Bloomberg) — Verizon Communications Inc. , the second-largest U.S. phone company, plans to cut more than 10,000 jobs at its fixed-line unit this year after posting fourth- quarter sales that missed analysts’ estimates. The company plans to keep cuts at the same level as last year, when it reduced 13,000 positions, or about 9 percent of the unit’s workforce, Chief Financial Officer John Killian said on a conference call today. The business had about 117,000 workers at year-end. Sales rose 9.9 percent to $27.1 billion, missing the $27.3 billion average of estimates compiled by Bloomberg. Revenue at Verizon’s fixed-line service dropped 3.9 percent, muting mobile- customer gains that beat some analysts’ projections. High unemployment hurt sales to companies and damped growth at Verizon’s FiOS Internet and TV service, said Christopher King , an analyst at Stifel Nicolaus & Co. “The economy, first and foremost, we really see no signs of improvement there,” said Baltimore-based King, who advises investors to buy the shares and doesn’t own any. “I would have expected to see a little bit more signs of stabilization in the fourth quarter.” Verizon fell 18 cents to $30.50 at 9:32 a.m. in New York Stock Exchange composite trading . The stock declined 2.3 percent last year. The company had a net loss of $653 million, or 23 cents a share, compared with a profit of $1.24 billion, or 43 cents, a year earlier. It had a pretax expense of $3 billion related to workforce reductions. Excluding some costs , profit fell to 54 cents a share, matching analysts’ projections. Fixed-Line Slump Sales to global enterprises declined 4.5 percent from a year earlier. The company has said that its fixed-line unit will recover alongside the unemployment rate , which reached a 26-year high in October, according to U.S. Labor Department data. Consumers also appeared to cut back. Verizon added 153,000 subscribers each to its FiOS Internet and TV services, missing the 225,000 forecast by Todd Rethemeier , a New York-based analyst at Hudson Square Research. Earlier this month, Verizon said 2009 earnings per share fell as much as 15 cents, signaling that fourth-quarter profit missed analysts’ original estimates. The company coped with a higher pension expense and subsidized phones for new customers. “It could be a while before there’s any uptick in the trend in enterprise, and we’re starting the year with a price cut in wireless,” said Craig Moffett , an analyst at Sanford C. Bernstein & Co. in New York, who rates Verizon “underperform” and doesn’t own the shares. “2010 looks like it’s going to be another tough year.” Wireless Growth Verizon Wireless, which the company co-owns with U.K.-based Vodafone Group Plc, added 1.2 million retail subscribers , beating its own goal. Brett Feldman , an analyst at Deutsche Bank Securities in New York, estimated 1 million contract-customer additions for the quarter. Verizon is focused on building up the wireless business, which accounts for more than half of revenue . The company is adding new devices and cutting prices for some of its plans to encourage customers to buy subscriptions for data use. Verizon is the largest U.S. wireless-phone carrier and is second to Dallas-based AT&T Inc. in total phone customers. To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

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Stocks in U.S. Climb on Earnings as Emerging Markets, Commodities Retreat

January 26, 2010

By Michael P. Regan Jan. 26 (Bloomberg) — U.S. stocks gained on higher-than- estimated consumer confidence and earnings, while commodities fell and Asian equities extended their longest slump in two years on concern lending restrictions in China will curb growth. The Standard & Poor’s 500 Index rose 0.2 percent to 1,099.21 at 2:41 p.m. in New York. Oil, copper, silver and lead retreated as the dollar strengthened, while the MSCI Asia- Pacific Index sank 1.7 percent for a seventh straight day of losses. Europe’s Dow Jones Stoxx 600 Index recovered from earlier declines and added 0.5 percent. Treasury two-year note yields traded near the lowest levels this year after the U.S. sold $44 billion of the securities. The Conference Board’s confidence index increased to 55.9 this month, higher than the median estimate in a Bloomberg survey, as the job market improved and Americans became more upbeat about the immediate future. Apple Inc. and Travelers Cos. gained at least 3.2 percent and DuPont Co. climbed 0.5 percent as quarterly profits topped estimates, bolstering optimism that improving earnings will justify a 10-month rally in equities. “The consumer confidence rebound is great news for the stock market,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “The consumer is key for the economy. On top of that, the latest earnings numbers are very supportive. However, concern about a Chinese cool-down is still out there. China is one of the engines of the global economy.” The S&P 500 tumbled 5.1 percent in the final three days of last week, its biggest slide since sinking to a 12-year low in March, after President Barack Obama proposed reining in risk- taking at banks and concern grew over China’s measures to cool growth. Earnings Season A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the fourth quarter with a 73 percent increase in profits. More than 130 companies in the index are scheduled to release results this week. Asian shares slid as Bank of China Ltd. and China Construction Bank Corp. were told to restrict new loans, according to people familiar with the matter, potentially slowing expansion in the world’s fastest-growing major economy. Record government borrowing is troubling investors even as economies rebound. Credit-default swaps on Chinese government debt hit a two- month high, according to CMA DataVision. Standard & Poor’s cut its outlook on Japan’s AA sovereign credit rating to “negative,” citing diminishing flexibility to cope with debt. ‘Looming Risk’ “There’s a looming risk of governments making decisions that adversely affect the economy, and that’s materializing in China,” said Tim Brunne , a credit strategist at UniCredit SpA in Munich. “We’ve had a huge amount of fresh credit from banks supporting the Chinese economy and the question has always been if the money flooding into the economy was really helpful or driving asset bubbles.” While German business confidence rose more than economists forecast to an 18-month high, Fitch Ratings said European governments will need to borrow 2.2 trillion euros ($3.1 trillion) from capital markets in 2010. That amounts to 19 percent of GDP. The U.K. economy resumed growth at a slower pace than economists forecast in the fourth quarter. Service industries and manufacturing expanded just enough to pull Britain out of its longest recession on record. Growth Forecasts Raised The International Monetary Fund raised its forecast for global economic growth this year, to 3.9 percent from a 3.1 percent projection in October. The Washington-based lender predicted a 2.7 percent expansion in the U.S. and 10 percent in China. Still, high unemployment and rising public debt will restrain growth and contain inflation, the IMF said. The MSCI World Index trimmed losses as U.S. shares extended gains, leaving it little changed after four straight declines. The Dubai Financial Market General Index sank 3.6 percent, the biggest loss among benchmark indexes. The MSCI Emerging Markets Index fell 1.9 percent as JPMorgan Chase & Co. downgraded Brazil’s stocks to “neutral,” sending the benchmark Bovespa index down 1.3 percent. Taiwan’s Taiex lost 3.5 percent and Russia’s Micex Index dropped 2.2 percent as oil prices slumped. Thirteen of 16 major currency tracked by Bloomberg weakened against the dollar, led by a 1.1 percent decline in South Korea’s won after that nation’s economic growth slowed more than estimated in the fourth quarter. The two-year Treasuries auctioned today drew a yield of 0.88 percent, the second-lowest cost to the government on record. The yield on the current two-year note touched 0.778 percent earlier today, the lowest level since Dec. 18. Dollar Gains The Dollar Index , which tracks the U.S. currency against of those of six major trading partners, snapped three days of declines to advance 0.3 percent. The cost to protect against defaults on U.S. corporate bonds fell for a second day. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, dropped 3 basis points to 92.25 basis points as of 12:02 p.m. in New York, according to CMA DataVision prices. A drop in the index signals a rise in investor confidence. Crude oil for March delivery retreated 0.8 percent to $74.66 a barrel in New York. Copper for delivery in three months fell 1.4 percent to $3.345 a pound in New York, helping to lead a decline in industrial metals. China is the world’s second- biggest oil consumer and the biggest user of copper. Palladium for immediate delivery declined 2.9 percent and platinum dropped 0.9 percent. To contact the reporter on this story: Michael P. Regan at mregan12@bloomberg.net .

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Home Prices, U.S. Confidence Climb Further From Abyss as Economy Rebounds

January 26, 2010

By Bob Willis and Courtney Schlisserman Jan. 26 (Bloomberg) — Home prices and consumer confidence in the U.S. climbed further from the depths of the recession, indicating the economy is taking more steps toward recovery. The S&P/Case-Shiller home-price index increased 0.2 percent in November, the sixth consecutive gain, the group said today in New York. The Conference Board’s confidence gauge rose this month to the highest level in more than a year. Home values since May have regained about a 10th of the record 32 percent plunge over the past three years, showing the industry that precipitated the worst economic slump since the 1930s has much ground to make up. A 10 percent jobless rate means Americans will be slow to regain the comfort needed to restore spending to levels seen during the last expansion. “We are starting to come back, but it’s going to be slow,” said Stephen Stanley , chief economist at RBS Securities Inc. in Stamford, Connecticut. “The labor situation is the linchpin for practically everything.” Stocks rose for a second day as the gain in consumer confidence topped the median estimate of economists surveyed by Bloomberg News. The Standard & Poor’s 500 Index was up 0.4 percent to 1,100.95 at 12:18 p.m. in New York. Treasury securities were little changed. The S&P/Case-Shiller index was down 5.3 percent from November 2008, more than anticipated and the smallest year-over- year decline in two years. A government tax credit for first-time home buyers due to expire in November helped boost home sales, contributing to higher prices in some markets. A projected increase in foreclosures this year as unemployment is slow to drop is a reminder that property values may not firm much more. ‘Bottoming Out’ “We’re seeing what looks to be a bottoming out in prices,” said Michelle Meyer , an economist at Barclays Capital Inc. in New York. “There is a risk we see further downside, given the large amount of foreclosures set to enter the market and the uncertainty of the effects of the homebuyer tax credit on prices.” Economists surveyed anticipated prices would drop 5 percent in the 12 months to November, based on the median estimate of 27 projections. Estimates ranged from declines of 4.5 percent to 6 percent. From the April 2006 peak, the 20-city index adjusted for seasonal variations was down 29 percent. Compared with the prior month, 14 of the 20 areas covered showed an increase on a seasonally adjusted basis while six had a decline. The biggest month-to-month gain was in Phoenix, which increased 1.6 percent. New York showed the biggest drop at 0.9 percent. Broad Improvement All of the 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year decline in November. Four cities posted year-over-year gains in prices, led by Dallas, which saw a 1.4 percent rise from November 2008. San Francisco, Denver and San Diego rounded out the gainers. A report today from the Federal Housing Finance Agency showed home prices rose 0.7 percent nationally in November from the prior month. The index tracks only loans that conform to Fannie Mae and Freddie Mac limits. The Conference Board’s confidence index increased to 55.9, higher than the median estimate of economists surveyed, from a revised 53.6 in December, the New York-based private research group said today. The figure reached a record low of 25.3 in February of last year and averaged 97.1 during the six-year expansion that ended in December 2007. Confidence, Jobs “It’s a slight improvement, and given where consumer confidence has been the last four, five months, a slight improvement is a nice takeaway,” said Mark Vitner , a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It appears labor-market conditions are not getting any worse, and that’s a plus.” Economists forecast confidence would rise to 53.5 from a previously reported 52.9 for December, according to the median of 67 projections in a Bloomberg survey. The figures come as Federal Reserve officials meet today and tomorrow to discuss interest-rate policy. Fed Chairman Ben S. Bernanke and fellow central bankers will keep the target rate for overnight bank lending from zero to 0.25 percent to help nurture the recovery, according to the median estimate in a Bloomberg survey. The U.S. lost 85,000 jobs last month after a revised 4,000 gain in November that was the first increase since the recession began in December 2007, according to Labor Department data released earlier this month. Credit Card Use American Express Co. , the biggest U.S. credit-card issuer by purchases, said Jan. 21 that fourth-quarter profit more than doubled as consumer spending increased. “We still face the challenge of high unemployment levels, depressed real estate values and shrunken household balance sheets, but the overall economy and our company are in stronger shape than they were a year ago,” Kenneth I. Chenault , chief executive officer of New York-based AmEx, said in a news release. “While the economic recovery now under way is likely to be modest, we expect it to continue,” Chenault said. To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net ; Courtney Schlisserman in Washington cschlisserman@bloomberg.net

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Delta, American, United Rescind This Year’s First Fare-Increase Attempt

January 26, 2010

By Mary Schlangenstein Jan. 25 (Bloomberg) — Delta Air Lines Inc. , American Airlines and United Airlines said they dropped a U.S. fare boost that would have been the first broad increase this year. Delta, the world’s largest carrier, rescinded the higher prices “to remain competitive,” said Susan Elliott , a spokeswoman. Tim Smith , a spokesman for Fort Worth, Texas-based American, the second biggest, said it rolled back the fares after Delta. Elliott declined to say whether Delta acted first. UAL Corp.’s United, based in Chicago, also “rolled it back to keep our fares competitive,” said Robin Urbanski , a spokeswoman. Continental Airlines Inc. rescinded the increase for the same reason, said Julie King , a spokeswoman for the Houston-based company. The carriers starting last week had added between $6 and $16 round trip on most domestic routes, depending on distance, said Rick Seaney , chief executive officer of Dallas-based FareCompare.com. The attempt followed 4 successful increases last year and 15 in 2008, according to FareCompare. Atlanta-based Delta led the rollback yesterday, Seaney said. Airlines generally drop increases others don’t adopt to avoid having higher prices. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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