March 2010

Home Prices in U.S. Probably Fell in January as Foreclosures Impair Market

March 29, 2010

By Shobhana Chandra March 30 (Bloomberg) — Home prices probably fell in January for the first time in eight months, one reason Americans are concerned about the state of the U.S. economy. The S&P/Case-Shiller index of property values in 20 cities dropped 0.3 percent in January from a month earlier on a seasonally adjusted basis, according to the median forecast of 18 economists surveyed by Bloomberg News. A gauge of consumer confidence this month recouped less than half of the 10.5-point drop in February, a report from the Conference Board may show. A decrease in prices underscores the threat a rising tide of foreclosures poses to the housing market, which helped trigger the worst recession since the 1930s. A real-estate relapse, combined with the loss of 8.4 million jobs since the economic slump began, would jolt sentiment and cut short an emerging recovery in household spending. “The worst outcome for the economy would be renewed declines in prices that really undercut the improvement in consumer confidence,” said Zach Pandl , an economist at Nomura Securities International Inc. in New York. “Part of what’s holding back consumer confidence is the only tepid recovery in the labor market.” The S&P/Case-Shiller figures are due at 9 a.m. New York time. Compared with January 2009, home prices fell 0.6 percent after a 3.1 percent year-over-year decline in December, according to the median estimate in a Bloomberg survey. The New York-based Conference Board’s sentiment report is due at 10 a.m. The survey median calls for the group’s index to climb to 51 in March from 46 last month. Estimates ranged from 46.6 to 59. The measure averaged 45 in 2009, and 97 during the expansion that ended in December 2007. February Slump Last month’s reading of 46 was the lowest since April of last year, signaling concern about jobs. The 10.5-point decline was the biggest since February 2009. The housing rebound last year, due in part to a tax credit for first-time buyer, has helped lift builder shares. The Standard & Poor’s Supercomposite Homebuilder Index has gained about 17 percent this year, outpacing a 5.2 percent rise in the broader S&P 500 Index. Some industry reports indicate renewed pressure. Twelve cities, including Boulder, Colorado, and Providence, Rhode Island, are showing extended declines in housing values, reversing signs of a recovery that began last year, according to Seattle-based Zillow.com , a real estate information provider. The number of markets in a “double dip” jumped in January from five a month earlier, said Zillow, which defines a double dip as five consecutive price drops after at least five straight monthly increases. The gains must have been preceded by a period where values fell in at least 10 of 12 months. Foreclosure Effect One reason home values are depressed is that foreclosed houses are adding to inventory of unsold homes, which compete with more expensive new housing. Foreclosures may climb to 4.5 million this year from 2.8 million in 2009, according to Irvine, California-based RealtyTrac Inc. The Obama administration last week announced plans to help Americans avoid foreclosure, including subsidies for borrowers who owe more than their home is worth. The plan expands Treasury Department and Federal Housing Administration efforts and uses funds from the $700 billion Troubled Asset Relief Program. Some builders are finding ways to protect earnings. Lennar Corp., the third-biggest U.S. homebuilder by revenue, reported its quarterly loss narrowed after it cut administrative costs and reduced incentives to buyers. Miami-based Lennar also benefited from selling in communities with less competition from foreclosures, said Chief Executive Officer Stuart Miller. “We are extremely well-positioned to navigate the rocky bottom and ultimate recovery that lies ahead,” Miller said on a March 24 conference call with investors. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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National Australia Shares Halted Pending Announcement on Axa Asia Pacific

March 29, 2010

By Angus Whitley March 30 (Bloomberg) — National Australia Bank Ltd. shares were halted from trading in Sydney ahead of an announcement on a plan to buy assets of Axa Asia Pacific Holdings Ltd. “NAB requests the trading halt in relation to an imminent announcement to the market regarding the status of contractual negotiations to acquire the Australian and New Zealand businesses of Axa Asia Pacific,” the lender said in a stock exchange statement today. An agreement would bring National Australia Bank closer to winning a three-month takeover battle against AMP Ltd. for a business that would help it close in on Commonwealth Bank of Australia in asset management. Chief Executive Officer Cameron Clyne still faces the prospect of a rejection by the Australian Competition & Consumer Commission , whose verdict is due in April. “You’ve still got the ACCC to get through, and you could get a leftfield result from that,” said Don Williams , chief investment officer at Platypus Asset Management Ltd., which manages A$1.8 billion. “Large mergers are tough things to integrate. It’s another reason not to own NAB.” National Australia Bank shares, which were halted from trading in Sydney today, have fallen 0.9 percent since the offer was announced on Dec. 17. Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. advanced 18 percent in the same period, and Commonwealth Bank gained 8 percent. Competition Rulings Axa SA , Europe’s second-biggest insurer, owns 54 percent of Axa Asia Pacific. Under National Australia Bank’s proposal, it would pay A$4.6 billion for Axa Asia Pacific assets in Australia and New Zealand assets and sell units in eight Asian nations to Axa SA. The offer values Axa Asia Pacific at A$13.3 billion. An agreement with Axa SA would cement a provisional accord between National Australia Bank and Axa Asia Pacific reached in December, when the Melbourne-based lender trumped AMP’s A$12.9 billion bid. Both offers were similarly structured, leaving the Asian assets to Axa SA. The French insurer began negotiating with National Australia Bank in February after an exclusivity agreement with AMP expired. The competition watchdog expects to rule on AMP’s offer, which was rejected by Axa Asia Pacific and lapsed in December, on April 1 and on National Australia Bank’s takeover on April 22, it said March 12. AMP has said it’s still interested in buying Axa Asia Pacific. The ACCC has said that National Australia Bank’s proposal raises a “higher level of concern” than AMP’s offer, and announced March 12 it needed more time to rule on the bids after asking for more information from the companies. Predator to Prey “It’s more likely than not it will get regulatory clearance,” Sean Fenton , who helps manage about A$850 million at Tribeca Investment Partners in Sydney, said about National Australia Bank’s offer. Fenton holds shares in both the lender and AMP. National Australia Bank has said it expects its proposal to pass competition tests. AMP CEO Craig Dunn has called the ACCC’s findings “a key factor” in whether he decides to make a counteroffer. Losing out to National Australia bank would “leave AMP in limbo and possibly vulnerable to a takeover,” Fenton said. National Australia Bank’s managed assets in Australia and New Zealand would swell to A$144.3 billion if the deal is completed. Axa SA would win full control of its business in Asia, where wealth is growing faster than in any other region according to Merrill Lynch & Co. and GapGemini SA. Return to Profit The acquisition would make National Australia Bank the country’s biggest manager of pension funds and money held by individual investors, according to the company. Commonwealth Bank ’s Colonial First state had A$149 billion under management as of Dec. 31. Axa Asia Pacific Holdings posted its biggest profit since 2003 last year amid a global market recovery and higher demand for wealth-management services. Net income was A$679 million, compared with a loss of A$279 million for 2008, the Melbourne- based company said in February. Australia is the fourth-largest pension-funds market in the world. Managed funds in the country rose 2.4 percent in the fourth quarter to A$1.34 trillion, the Australian Bureau of Statistics said in February. The biggest acquisition in the past 12 months is Prudential Plc’s March 1 agreement to buy an Asian life insurance unit from American International Group Inc. for $35.5 billion. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Hutchison Whampoa Profit Jumps 12% to $1.8 Billion; Europe 3G Loss Narrows

March 29, 2010

By Mark Lee March 30 (Bloomberg) — Hutchison Whampoa Ltd. , billionaire Li Ka-shing ’s biggest company, reported full-year profit that rose 12 percent as losses from its mobile-phone operations in Europe narrowed. Net income increased to HK$14.2 billion ($1.8 billion), or HK$3.32 a share, from a restated HK$12.7 billion, or HK$2.97, a year earlier, Hutchison said in a statement to the Hong Kong stock exchange today. That compares with the HK$14.6 billion median estimate of five analysts surveyed by Bloomberg News. Hutchison cut marketing spending and network costs at its wireless businesses in markets including the U.K. and Italy to weather a recession, the worst in Europe since World War II, which hampered Li’s plan to turn around the unprofitable operations. The Hong Kong parent may post higher earnings from its ports and property division this year as the global economy recovers. “The cost of acquiring customers has come down and they are operating their businesses more efficiently,” Gary Pinge , who rates Hutchison shares “buy” at Macquarie Group Ltd. in Hong Kong, said before the announcement. The mobile-phone operations will post “ongoing improvement,” while the ports and energy divisions are expected to rebound, Pinge said. Hutchison shares rose 0.4 percent to HK$58.50 at the midday break in Hong Kong trading before the earnings announcement. The stock has gained 9.6 percent this year, making it the eighth- best performer on the benchmark Hang Seng Index, after Li stepped up purchases of the shares to boost his holding. To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

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Asian Stocks, Won Gain on Improving Business Confidence; Bond Risk Drops

March 29, 2010

By Rocky Swift and Yasuhiko Seki March 30 (Bloomberg) — Asian stocks climbed toward a 10- week high, the South Korean won strengthened and bond risk in the region fell as improving business confidence encouraged investors to seek higher-yielding assets. The MSCI Asia Pacific Index rose 0.8 percent to 126.06 as of 12:35 p.m. in Tokyo, set for the highest close since Jan. 18. The won climbed against all 16 of its most-traded counterparts, and the cost of protecting corporate bonds from non-payment fell in Japan and Australia. Copper and oil pared recent gains. Consumer spending in the U.S. rose in February for a fifth straight month. A South Korean central bank survey said manufacturers are the most confident they’ve been in at least seven years, and a report showed European sentiment improved to the highest in almost two years. New Zealand said home-building approvals gained in February for the first time in three months. “With a slew of economic data signaling a steady economic recovery at home and abroad, risk-sentiment is also picking up,” said Masahide Tanaka , a senior strategist in Tokyo at Mizuho Trust & Banking Co. “And as risk-sentiment improves, riskier assets such as stocks and higher-yielding currencies are likely to draw stronger capital inflow going forward.” The MSCI Asia gauge headed for a 5 percent gain this quarter , a fourth-straight advance. On a monthly basis, the index is poised for a 6.6 percent increase in March, the most since July. Standard & Poor’s 500 Index futures were little changed after the U.S. benchmark climbed 0.6 percent yesterday. Korean Listings Japan’s Nikkei 225 Stock Average gained 0.6 percent, set for its highest close since October 2008, as a report from the statistics bureau showed the country’s jobless rate held in February at the lowest in about a year. Korea Exchange Inc. said today it expects the number of foreign listings to jump more than fivefold by 2012 as “ample” liquidity lures companies from China, the U.S. and Japan. Hynix Semiconductor Inc. , the world’s second-largest maker of computer memory, added 2.7 percent after it said chipmakers are meeting about 60 percent of demand after they scaled back investments. Nanya Technology Co. increased 1.6 percent as a newspaper reported that Taiwan’s largest memory chipmaker expects contract chip prices to rise 10 percent in April. Raw material producers posted the biggest gain among 10 industry groups in the MSCI Asia Pacific Index. Mitsubishi Corp., which gets about 40 percent of sales from commodities, leapt 3.6 percent to 2,456 yen. BHP Billiton Ltd., the world’s No. 1 mining company, jumped 1.7 percent to A$44.13. Canon, Konica Canon Inc. , the world’s largest camera maker, gained 1.7 percent to 4,290 yen in Tokyo. Konica Minolta Holdings Inc. , the Japanese maker of printers, scanners and film used in liquid- crystal displays, climbed 3.1 percent to 1,092 yen after Mitsubishi UFJ Securities upgraded the stock to “outperform” from “market perform.” The Bank of Korea said today its index of manufacturers’ expectations climbed to 105 in March, the highest since the fourth quarter of 2002, when the bank published its confidence survey on a quarterly basis. That followed a report yesterday from the European Commission that its index of executive and consumer sentiment rose to 97.7 in February, the highest since May 2008 and topping estimates. The won led gains among Asian currencies, climbing for a third day on speculation the nation’s improving economy will attract more funds from abroad. Foreign investors bought more Korean shares than they sold on all but one day since the end of February, and trade data this week is forecast to show exports climbed in March for the fifth month in a row. Risk Appetite “Risk appetite’s up and fundamentally the news in Asia is really positive,” said Mitul Kotecha , the Hong Kong-based head of global currency strategy at Credit Agricole CIB. “There’s evidence of strong flows coming into the region and that’s helping to boost Asian currencies as well. We’re still bullish on Asia for the rest of the year.” The won strengthened 0.4 percent to 1,130.97 per dollar in Seoul, according to data compiled by Bloomberg. The Bloomberg- JPMorgan Asia Dollar Index, which tracks the region’s 10 most- used currencies excluding the yen, was headed for its highest close since August 2008. Permits to build homes in New Zealand increased 5.9 percent in February, compared with economist estimates for a 2 percent advance, adding to signs construction will buoy economic growth and spur the nation’s central bank to raise interest rates. The MSCI Asia Pacific Index has climbed 10 percent from its lowest level in more than two months on Feb. 8 as improving U.S. jobs data, a Federal Reserve pledge to keep borrowing costs low and a Japanese bank-lending program eased concern that budget deficits in Europe will derail the global recovery. ‘On Track’ “The recovery is on track, but there still remains a number of structural issues that markets need to be wary of,” said Stephen Halmarick , Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which holds $135 billion. “Governments are very committed to keeping policies in place until they get the results they’re after.” The Markit iTraxx Japan Series 13 index decreased 3 basis points to 114 basis points, according to Morgan Stanley. That is the lowest since Sept. 25, a day after the Series 12 benchmark started trading, according to CMA DataVision prices. The Markit iTraxx Australia index fell 1.5 basis point to 84 basis points, according to Australia & New Zealand Banking Group Ltd. Crude oil pared gains in New York as a report showed Japan’s industrial output fell for the first time in a year, raising concern that fuel demand in developed nations will be slow to recover. Commodities Retreat Oil for May delivery was at $82.18 a barrel, up 1 cent, in electronic trading on the New York Mercantile Exchange. It earlier climbed as much as 0.4 percent to $82.50. Yesterday, the contract rose $2.17, or 2.7 percent, to $82.17, the highest settlement since March 18 and the biggest gain since Feb. 16. Copper for three-month delivery on the London Metal Exchange dropped as much as 0.8 percent to $7,711 a ton after gaining as much as 3.8 percent yesterday to $7,800, the highest in 19 months. The metal had gained as inventories declined and a sinking dollar made metals more appealing as an alternative investment. It traded at $7,725 a ton in Asia. To contact the reporters for this story: Rocky Swift in Tokyo at rswift5@bloomberg.net . Yasuhiko Seki in Tokyo at yseki5@bloomberg.net .

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Toyota Recall: NASA To Investigate Acceleration Problems

March 29, 2010

WASHINGTON — NASA and the National Academy of Sciences are joining the government’s effort to figure out what caused the sudden acceleration problems that led to Toyota’s massive recalls. NASA scientists with expertise in electronics will help the National Highway Traffic Safety Administration study potential electronic ties to unintended acceleration in Toyotas. NASA’s knowledge of electronics, computer hardware and software and hazard analysis will ensure a comprehensive review, Transportation Secretary Ray LaHood said Monday. In a separate study, the National Academy of Sciences will examine unwanted acceleration and electronic vehicle controls in cars from around the auto industry, LaHood said. The National Academy is an independent organization chartered by Congress. The academy study, expected to take 15 months, will review acceleration problems and recommend how the government can ensure the safety of vehicle electronic control systems. “We believe their outside expertise, fresh eyes and fresh research perhaps can tell us if electronics have played a role in these accelerations,” LaHood said. Toyota has recalled more than 8 million vehicles worldwide, including 6 million in the United States. Toyota said in a statement it was “confident in our vehicles and in our electronics” and would cooperate with the government review. “These studies are just the kind of science-based examination we have been calling for. Bringing some sunshine to this subject is bound to separate fact from fiction, which will be good for Toyota, the industry and the motoring public,” the company said. LaHood has told Congress the department will dig deeply into what has caused hundreds of complaints of unwanted acceleration in Toyotas. LaHood said he has asked the Transportation Department inspector general to review whether NHTSA’s Office of Defects Investigation has what it needs to identify and address safety defects. Some lawmakers have criticized NHTSA for failing to investigate Toyota complaints earlier and more thoroughly. “Carmakers have entered the electronics era, but NHTSA seems stuck in a mechanical mindset,” House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., said last month. “We need to make sure the federal safety agency has the tools and resources it needs to ensure the safety of the electronic controls and on-board computers that run today’s automobiles.” Toyota has attributed the problem to sticking gas pedals and accelerators that can become jammed in floor mats, and has cited no evidence of an electrical problem. The company has noted that other manufacturers also have had reports of cars surging forward. Consumer groups contend electronics could be the culprit, and dozens of Toyota owners who had their cars fixed in the recall have complained of more problems with their vehicles surging forward unexpectedly. Regulators have linked 52 deaths in Toyotas to crashes allegedly caused by accelerator problems. Reviews of some recent high-profile crashes have failed to find a mechanical or electronic problem. A police investigation of a March 9 accident in suburban New York involving a 2005 Prius found that the driver, not the car, was to blame. Tests following a March 8 incident in San Diego in which a driver reported the gas pedal on his 2008 Prius got stuck, leading to a 94 mph ride on a freeway, found that the hybrid’s gas pedal, backup safety system and electronics were working fine. NHTSA’s review of Toyota’s electronic throttle control systems is expected to be completed by late summer. The safety agency, with NASA’s help, is looking at electronic systems used in Toyotas and whether they have flaws that would warrant a defect investigation. The National Academy of Sciences’ National Research Council will review industry and government efforts to identify possible sources of unintended acceleration, including electronic vehicle controls, human error, mechanical failure and interference with accelerator systems. The experts will look at software, computer hardware design, electromagnetic compatibility and electromagnetic interference. They will make recommendations to NHTSA in mid-2011 on how the government agency’s rulemaking, research and defect investigations could help ensure the safety of vehicle electronic control systems. The two studies together will cost about $3 million, including the expense of buying cars that have allegedly had unintended acceleration. Both studies will be peer reviewed by scientific experts, the Transportation Department said. ____ National Highway Traffic Safety Administration: http://www.nhtsa.dot.gov/ National Academy of Sciences: http://www.nas.edu/

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Industrial Output in Japan Declines 0.9%, Snapping 11-Month Winning Streak

March 29, 2010
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Rudd Says China Missed Opportunity for Transparency With Closed Rio Trial

March 29, 2010

By Marion Rae March 30 (Bloomberg) — China “missed an opportunity” to be transparent by hearing charges of industrial espionage against four Rio Tinto Group executives in a closed court, Australian Prime Minister Kevin Rudd said. China had the chance “to demonstrate to the world at large transparency that would be consistent with its emerging global role,” Rudd said in Melbourne today. There are “serious unanswered questions” about the conviction of Stern Hu , the Australian executive who led Rio’s iron ore unit in China. Hu was sentenced yesterday to 10 years in prison by a court in Shanghai and colleagues Liu Caikui , Wang Yong and Ge Minqiang given prison terms of between seven and 14 years. They were found guilty of bribery and stealing commercial secrets after China’s anti-graft authorities vowed this year to crack down on corruption. Australian officials were present when the court heard evidence about bribery charges against the four, who were accused of accepting money in exchange for giving priority access to iron ore to steel mills. The trial on the second charge, of obtaining commercially sensitive information, was held in secret. “Australia condemns bribery where ever it occurs,” Rudd said. “Australia also however has reservations about the manner in which the second charge, contained within this particular court case has been handled.” The case frayed ties with Australia after Rio rejected a $19.5 billion investment from China last year. Rudd said he expects pacts with China will survive the Hu ruling. Rio Probe Rio, the world’s third-biggest mining company, said the four employees will be fired and it will hold a “far-reaching” investigation into its operations, according to a statement yesterday. The U.K.’s Serious Fraud Office said it is considering whether to begin a probe into the company. Australian Foreign Minister Stephen Smith said today he won’t refer Rio to regulators in the country. It is up to the Australian Securities and Investments Commission to make its own call on whether to investigate, Smith told Australian Broadcasting Corp. radio. “I’ve seen nothing come across my desk which would cause me to contemplate such a matter,” he said. China’s Interests The lack of transparency on the industrial espionage charges makes it “difficult” for companies to distinguish between “normally available commercial information in the marketplace” and something vital to China’s interests, Smith said. “It may be that some light is shed on it by the 71-page judgment” yet to be translated and scrutinized by Australian officials, he said. There was “more than sufficient evidence” to convict Hu on the bribery charges, which were heard in an open court, he said. The four executives, indicted Feb. 10, pleaded guilty to receiving 92.18 million yuan ($13.5 million) between them in bribes, China’s state news agency Xinhua said March 23, citing court documents. Some defendants contested the amounts cited by the prosecution, Tao Wuping, the lawyer for Liu said last week. Yesterday’s verdict against employees of a foreign business follows a spate of investigations into executives at state-run companies from China National Nuclear Corp. to China Petrochemical Corp. and China Mobile Ltd. To contact the reporter on this story: Marion Rae in Canberra at mrae3@bloomberg.net

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Toyota Sudden-Acceleration Cause to Be Probed by NASA, U.S. Science Group

March 29, 2010

By Angela Greiling Keane

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Vietnam First-Quarter Growth Almost Doubles to 5.8% on Investment, Exports

March 29, 2010

By Jason Folkmanis March 30 (Bloomberg) — Vietnam’s economic growth quickened to 5.83 percent in the first quarter from the same period last year, suggesting Asia may start to lead a revival in global expansion. The figure released by the General Statistics Office in Hanoi today was almost twice as fast as Vietnam’s 3.14 percent expansion in the same period last year. Growth accelerated throughout 2009, culminating in a 6.9 percent fourth-quarter pace that resulted in a 5.3 percent full-year expansion. The government is targeting 6.5 percent growth this year. Vietnam’s economic growth has been driven by foreign investment, a disciplined and literate labor force and low-cost exports , according to research published by Daiwa Capital Markets last week. In the past week, Malaysia raised its growth forecast, Japan reported the fastest export growth in 30 years, and Taiwan said industrial production rose for a sixth month. “We’re seeing a two-track recovery with Asia forging ahead of the rest of the world, and Vietnam has consistently been one of Asia’s fastest-growing economies, so one would expect it to recover more quickly,” said Matt Robinson , a Sydney-based economist for Moody’s Analytics Inc. “Vietnam’s growth model has been focused on low costs and abundant labor, and the evidence suggests that that model has been more resilient over the past 18 months, when many people put higher-end consumer discretionary expenditure on hold,” he said. Moody’s Analytics, a unit of New York-based Moody’s Corp. , focuses on economic research and analysis. Construction Demand Industry and construction, which accounted for 43 percent of the economy during the period, expanded 5.65 percent from a year earlier, with the sub-component including construction alone growing 7.13 percent. “We’re starting to see some increased demand in the construction industry now,” said Alan Young , Haiphong-based chief operating officer of Australian-listed steelmaker Vietnam Industrial Investments Ltd. An increase in credit growth to as much as 38 percent last year has had a “lagged effect” on the Vietnamese economy, according to Australia & New Zealand Banking Group Ltd . Services, which made up 42 percent of gross domestic product, expanded 6.64 percent from a year earlier. Hotels and restaurants grew 7.82 percent, while financial services grew 7.86 percent. Fishing, forestry and agriculture, which accounted for 15 percent of GDP, grew 3.45 percent. “Much of the growth was generated domestically, since exports were still contracting in the first quarter,” wrote Tai Hui , the Singapore-based head of Southeast Asian economic research at Standard Chartered Plc , citing strong retail sales. “The government’s 6.5 percent growth target is within reach, as exports are likely to improve gradually in 2010, becoming a more potent engine,” Hui said, in a note dated yesterday. To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net

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Japan’s February Industrial Production Declines More-Than-Estimated 0.9%

March 29, 2010

By Keiko Ujikane March 30 (Bloomberg) — Japan’s industrial production retreated in February, snapping an 11-month winning streak that helped to secure a recovery from the country’s worst postwar recession. Factory output declined 0.9 percent from January, when it rose 2.7 percent, the most in eight months, the Trade Ministry said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.5 percent drop. The slide is unlikely to last as Asian demand for the country’s electronics and machinery continues to fuel exports, Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo, said before the report was published. Factory output and exports have yet to return to their peak set two years ago, and the recovery remains plagued by deflation. “The decline is payback for the bigger-than-expected gain in January and we aren’t seeing production entering a downward trend,” Nishioka said. Manufacturing will stay on a recovery path even as the effect of stimulus spending on domestic demand begins to wear off, she said. Separate government reports today showed the unemployment rate stayed at a 10-month low of 4.9 percent in February, while household spending slipped 0.5 percent, the first decline in seven months. The ratio of jobs available to applicants improved for a second month. The yen traded at 92.41 per dollar at 9 a.m. in Tokyo from 92.52 before the reports were published. The Nikkei 225 Stock Average opened 0.3 percent higher. Lunar New Year Output also dropped because the Lunar New Year holiday took place in February this year, reducing the number of trading days with Asian markets, according to Yoshiki Shinke , a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The decline is a temporary move,” Shinke said, also speaking before the report. “There’s no change to the picture that production will continue to rebound, supported by gains in exports.” More than $2 trillion in stimulus spending worldwide helped Japanese exports surge the most in 30 years in February from a year earlier, when the country bore the brunt of a collapse in world commerce amid the financial crisis. Brighter global prospects are encouraging companies from Honda Motor Co. to Showa Denko K.K. to boost production. Showa Denko, the world’s second biggest hard-disk maker, will increase output of magnetic disks three months earlier than planned because of stronger-than-expected demand for personal computers in China and other emerging markets, Chief Financial Officer Ichiro Nomura said this month. Honda’s Output Honda, Japan’s second-largest carmaker, increased global output 49 percent in February from a year earlier as demand from Asia surged and the U.S. economy recovered. The Tokyo- based company raised domestic production 52 percent. Toyota Motor Corp. , the world’s biggest automaker, boosted manufacturing 83 percent, even as its American sales slumped because of millions of vehicle recalls for problems including unintended acceleration. “We need to be cautious about this issue for another couple of months, but we don’t need to be overly pessimistic about the impact from the Toyota recall problem on overall production,” said Susumu Kato , chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. The resurgence in exports is spurring profits, improving business sentiment. The Bank of Japan’s Tankan index of confidence among large manufacturers will climb 11 points in March to minus 14, according to the median forecast of 23 economists surveyed by Bloomberg ahead of a report due April 1. A negative number means pessimists still outnumber optimists. Retail Sales Government incentives to buy energy-efficient cars and electronics are aiding retailers. Retail sales climbed 4.2 percent in February from a year earlier, the fastest pace in more than 12 years, the Trade Ministry said yesterday. The rebound has yet to end Japan’s battle with deflation, with consumer prices excluding fresh food sliding for a 12th month. Prime Minister Yukio Hatoyama ’s government this month raised its assessment of the economy for the first time in eight months, saying the recovery is beginning to spur corporate earnings, home building and consumer spending. Some Bank of Japan board members said they had “shifted slightly upward” their view of the economy because of exports to Asia, February meeting minutes showed this month. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Asian Stocks Rise as U.S. Spending, Europe Confidence Fuel Growth Optimism

March 29, 2010

By Jonathan Burgos and Akiko Ikeda March 30 (Bloomberg) — Asian stocks rose, driving the MSCI Asia Pacific Index to its highest level in 10 weeks, after U.S. consumer spending increased for a fifth month and European confidence in the economic outlook improved. Canon Inc. and Samsung Electronics Co., which both get more than 20 percent of sales in the Americas, gained at least 1 percent. Mitsubishi Corp., Japan’s largest commodities trader, and BHP Billiton Ltd., the world’s No. 1 mining company, rose more than 1 percent after oil and metal prices climbed. Kobe Steel Ltd., a Japanese steelmaker, climbed 3.1 percent after narrowing its full-year loss forecast. The MSCI Asia Pacific Index increased 0.5 percent to 125.68 as of 9:33 a.m. in Tokyo, heading for its highest closing level since Jan. 18. The gauge has climbed 10 percent from its lowest level in more than two months on Feb. 8 as improving U.S. jobs data, a Federal Reserve pledge to keep borrowing costs low and a Japanese bank-lending program eased concern that budget deficits in Europe will derail the global recovery. “Investor sentiment is on a bullish trend,” said Fumiyuki Nakanishi , a strategist at Tokyo-based SMBC Friend Securities Co. Japan’s Nikkei 225 Stock Average gained 0.4 percent to 11,026.06. South Korea’s Kospi Index climbed 0.6 percent. Australia’s S&P/ASX 200 Index rose 0.2 percent. New Zealand’s NZX 50 Index increased 0.3 percent. Futures on the Standard & Poor’s 500 Index were little changed. The gauge rose 0.6 percent yesterday after the Commerce Department in Washington said U.S. consumer spending climbed 0.3 percent in February, following a 0.4 percent advance in January. In Europe, an index of executive and consumer sentiment in the 16 nations using the euro rose to the highest level in almost two years in March, the European Commission said yesterday. The MSCI Asia Pacific Index gained 3.8 percent this year through yesterday, compared with increases of 5.2 percent for the S&P 500 and 3.9 percent for the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 19.1 times estimated earnings, compared with 15 times for the S&P 500 and 13.2 times for the Stoxx 600. The London Metal Exchange Index of six metals including copper and zinc climbed 3 percent yesterday, the most since Feb. 16. Crude oil for May delivery jumped 2.7 percent to $82.17 a barrel in New York, the biggest gain in more than five weeks. To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net .; Jonathan Burgos in Singapore at jburgos4@bloomberg.net .

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David Isenberg: The Unknown Contractor

March 29, 2010

In my March 25 post I mentioned how difficult it still is, despite years of trying, to collect accurate data on basic private military and security contractor (PMSC) facts, such as how many are there, And I noted that to help increase oversight of activities supporting the Defense and State departments and USAID’s efforts in Iraq and Afghanistan, the three agencies designated the Synchronized Predeployment and Operational Tracker (SPOT) as their system for tracking the required information. That information, required for each contract that involves work performed in Iraq or Afghanistan for more than 14 days, includes: * a brief description of the contract, * its total value, and * whether it was awarded competitively; and * for contractor personnel working under contracts in Iraq or Afghanistan, * total number employed, * total number performing security functions, and * total number killed or wounded. Now, despite years of effort SPOT still has problems in terms of collecting and saving information. Some reasons are disappointing but understandable, given differing methodologies for collecting and saving information across different departments and agencies. But one truly disappointing thing it does not do well is to keep track of contractors who are killed or wounded. According to John Hutton, Director, Acquisition and Sourcing Management, U.S. Government Accountability Office, who on March 23 testified before the House Armed Services Subcommittee on Oversight and Investigations regarding ” Interagency Coordination of Grants and Contracts in Iraq and Afghanistan: Progress, Obstacles, and Plans “: In addition to agreeing to use SPOT to track contractor personnel numbers, the agencies agreed to use SPOT to track information on contractor personnel killed or wounded. Although SPOT was upgraded in January 2009 to track casualties, officials from the three agencies informed us they are not relying on the database for this information because contractors are generally not updating the status of their personnel to indicate whether any of their employees were killed, wounded, or are missing. In the absence of using SPOT to identify the number of contractor personnel killed or wounded in Iraq and Afghanistan, the agencies obtain these data from other sources. Specifically, in response to requests made as part of our ongoing review, State and USAID provided us with manually compiled lists of the number of personnel killed or wounded, whereas DOD provided us with casualty data for U.S citizens, but could not differentiate whether the individuals identified were DOD civilian employees or contractors. While contractors are not active duty military, although they may very well have been not that long ago, they don’t deserve to be treated like the Unknown Soldier either. Whether or not you like the idea of the government relying on PMSC the reality is that they make a significant contribution, just like regular military personnel. Contractors know going in that if they are killed their family members won’t get the same survivor benefits, except for what they get under the Defense Base Act, as a soldier or marine who is killed. They know no chaplain will arrive at the door of their home to comfort the grieving. So it is really too much to ask that at the very least the government could at least kept track of those who are wounded and killed? After all, one can find contractor casualty lists on Wikipedia . If websites like Icasualties.org could include contractor casualties, as it used to do, the U.S. government with vastly greater informational resources at its disposal should be able to do so as well, albeit in far more comprehensive fashion. Some contractors are extremely good about letting the world know when their people are killed. DynCorp, for example, has for years, put out a press release every time one of its contractors dies. Why other contractors “are generally not updating the status of their personnel to indicate whether any of their employees were killed, wounded, or are missing” is an interesting question that someone ought to ask. Perhaps the Commission on Wartime Contracting can do so the next time it holds a hearing. Needless to say, SPOT data, should include contractors of any and all nationalities working for a PMC, not just a citizen of the host country

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Diabetes Screening `Cost Effective’ When Patients Screening Begins at 30

March 29, 2010
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Japan Unemployment Rate Held Steady at 4.9% for Second Month in February

March 29, 2010
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GM’s Liddell Hires Ex-Morgan Stanley Banker Ammann as Treasurer Before IPO

March 29, 2010
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Odell May Leave Volvo After Geely Takes Over From Ford, Board Members Say

March 29, 2010
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Tesoro Said to Pick ConocoPhillips’ Gregory Goff as CEO to Succeed Smith

March 29, 2010
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U.S. Economy: Spending Increases, Incomes Stagnate

March 29, 2010
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Doctors Get Reprieve From 21% Medicare Reimbursement Cut Set for April 1

March 29, 2010

By Pat Wechsler March 29 (Bloomberg) — Doctors slated to have their Medicare reimbursements cut 21 percent on April 1 got a reprieve from the Centers for Medicare and Medicaid Services, which is delaying lowered payments until after Congress reconvenes. The agency, which administers the U.S. health program for people 65 years and older and the disabled, has ordered that claims submitted on or after April 1 be held for an added 10 days before being paid, said spokesman Peter Ashkenaz . That’s on top of the 14 days the Baltimore-based CMS usually holds claims. The decision delays scheduled reductions in Medicare payments until after Congress reconvenes April 12. Lawmakers have put off those cuts every year, except one, since they were introduced as part of the Balanced Budget Act in 1997. The American Medical Association says the reductions will make doctors less willing to accept Medicare patients and is pushing lawmakers to increase payments. “Physicians will be forced to limit the care they can provide to Medicare patients when payments fall steeply below the cost of providing care,” James Rohack , president of the Chicago-based medical association, said in a statement. About 68 percent of the group’s members plan to limit the number of Medicare patients they treat when the government payment reduction takes effect, according to an AMA survey. Colonoscopy Cost Unless Congress postpones or scraps the cuts, the average reimbursement for a colonoscopy would fall to $294.57, compared with the current national rate of $374.20, said Ellen Griffith , a CMS spokeswoman. For a typical visit to the doctor’s office, the reimbursement would fall to $51.70 from $65.67 for an established patient, she said. The House passed legislation in November that would replace the schedule of cuts with annual increases costing $210 billion. In 2010, the increase would be about 1.2 percent, reflecting the rise in the Medicare Economic Index, according to the Congressional Budget Office. The Senate never took up the legislation. Instead, it passed a bill that would delay a decision on the 21 percent cut until Oct. 1. Because the House and Senate didn’t pass the same legislation delaying or removing the reduction, the cuts are scheduled to take effect April 1. To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net

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Moscow Metro Attacks Saddle Medvedev With Putin’s War on Homegrown Terror

March 29, 2010

By Lucian Kim March 30 (Bloomberg) — The Moscow metro terror attacks that killed at least 38 people yesterday show Russian President Dmitry Medvedev is no closer to uprooting homegrown terrorism than his predecessor, Prime Minister Vladimir Putin . The dual bombings linked to Islamist terrorists in the North Caucasus region were the deadliest in the capital since 2004, when Russia grappled with the aftermath of two wars in Chechnya. “This is perhaps more serious for Putin than for Medvedev, as Putin gained popularity by fighting terrorism,” said Nikolai Petrov , an analyst at the Carnegie Moscow Center . “The terrorists understand that the closer we get to the 2014 winter Olympics, the more painful this is for the government.” Putin swept to the presidency 10 years ago after responding to a series of attacks on apartment blocks, including in Moscow, with a military campaign against Chechen separatists. Even as the situation in Chechnya stabilized under Kremlin-backed leader Ramzan Kadyrov , an Islamic insurgency spread to neighboring areas, fueled by poverty and heavy-handed security operations. Today’s “attacks are a sign that the political project of backing Kadyrov has failed,” said Stanislav Belkovsky , head of the Institute for National Strategy in Moscow. “The Kremlin isn’t aware of the danger. This isn’t viewed as a catastrophe for the state.” Medvedev called an emergency meeting of the country’s Security Council after the attack and appeared on television taking reports from ministers. Putin, who was traveling in Siberia, was later shown on TV holding a video conference with officials and doctors. Revenge The bombings were revenge for the killing of militant leader Alexander Tikhomirov , said Natalya Zubarevich, head of regional studies at Moscow’s Independent Institute for Social Policy . Tikhomirov, also known as Said Buryatsky, was accused of organizing the Nevsky Express blast that killed 28 people on a train between Moscow and St. Petersburg in November. “The biggest challenge for Russia is that things are falling apart,” said Zubarevich. “The North Caucasus is just a symptom.” Federal forces fought two wars against separatists in Chechnya after the collapse of the Soviet Union in 1991. Chechen militants were responsible for the worst act of terrorism in Russian history, the Beslan school hostage-taking in North Ossetia in September 2004, which left 350 people dead, half of them children. ‘Terrorist Scum’ Chechen insurgents also carried out the deadliest attack in Moscow, the Dubrovka theater hostage-taking in October 2002, which claimed 130 fatalities. The predominantly Muslim North Caucasus stretches from the Black Sea resort of Sochi, site of the winter Olympics , to the oil fields of Dagestan on the Caspian Sea. After insurgents killed more than 400 people in the region in a wave of attacks last summer, Medvedev called for a crackdown on “terrorist scum” and started a two-pronged campaign of targeting terrorist leaders and promoting economic development. Money alone can’t solve the region’s problems because the institutions don’t exist to distribute the aid fairly, according to Zubarevich. Medvedev’s January appointment of businessman Alexander Khloponin as Kremlin envoy to the newly formed North Caucasus Federal District is just “window dressing,” she said. The problems of the North Caucasus have built up over the past two decades and need long-term solutions, said Carnegie’s Petrov. “I’m afraid that to demonstrate stability before the Olympics, Moscow will opt for short-term tactics,” he said. “Medvedev may be tempted to show more toughness than Putin had to.” To contact the reporter on this story: Lucian Kim in Moscow at lkim3@bloomberg.net

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BHP Reaches Deal for Shorter Term Iron Ore Pricing With Asian Steel Mills

March 29, 2010

By Bloomberg News March 30 (Bloomberg) — BHP Billiton Ltd. , the world’s biggest mining company, reached agreements to sell the majority of its iron ore to Asian customers on shorter term contracts, ending a more than 40-year system of annual pricing. “The structural change that these settlements represent is consistent with BHP Billiton achieving market clearing prices,” Melbourne-based BHP said today in a statement. The annual system was broken after China, the biggest buyer, last year failed to reach a price settlement, Rio Tinto Group , the world’s second-largest supplier, said last week. Baosteel Group Corp ., representing Chinese steel mills in iron ore price talks, signaled last week it was willing to accept short term pricing. “The agreements reached represent the majority of BHP Billiton’s iron ore sales volume,” BHP said, without giving a price or identifying its customers. Vale SA , the largest iron ore exporter, is seeking shorter- term contracts that may boost prices 90 percent, Credit Suisse Group said this week. Baosteel “will probably settle quarterly contracts within the next few days/weeks,” UBS AG said in a March in a March 25 report. China’s steel production gained 14 percent to a record 568 million metric tons last year as the government’s stimulus spending boosted demand from automakers and builders. China last year increased imports by 42 percent to a record 628 million tons as its $586 billion stimulus spending spurred demand. Japanese Production Japanese steelmakers, including Nippon Steel Corp. and JFE Holdings Inc., are boosting exports to China and other emerging nations in Asia to counter waning local demand. Japanese steel production will probably increase for a fourth quarter in the January to March period because of demand in Asia, the trade ministry said Feb. 1, reversing its earlier forecast for a decline. Japan’s crude steel output rose 37 percent in January from a year earlier, the Japan Iron and Steel Federation said Feb. 18. Crude steel output in Japan may exceed 100 million metric tons in the year to March 31, 2011, Japan Iron and Steel Federation Chairman Shoji Muneoka said Jan. 27, an increase of more than 3 percent from predictions for the current year. — Andrew Hobbs , Helen Yuan . Editors: Keith Gosman , Rebecca Evans To contact the Bloomberg News Staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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Subprime-Mortgage Debt Rallies as Treasury Boosts Loan Aid: Credit Markets

March 29, 2010

By Jody Shenn March 29 (Bloomberg) — Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump. A Markit ABX index of credit-default swaps tied to 20 subprime-loan bonds rated AAA when created in the first half of 2006 climbed 3.2 percent last week to 49.1, the highest since January 2009, according to Markit Group Ltd. Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. The housing market will also be aided as the revised plan helps avert more foreclosures, Amherst Securities Group LP analyst Laurie Goodman said. The new U.S. policy “will dramatically improve the success rate on mortgage modifications,” Goodman, who is based in New York, wrote in a March 26 report. “This will, in turn, help cushion future home price depreciation and limit further housing market deterioration.” ABX-HE-AAA indexes tied to bonds from different periods also gained while remaining below levels reached in January. The gauges declined from 100 starting in 2007, suggesting similarly sized drops in the prices of the subprime securities. The ABX.HE.AAA 06-2 index rose today to 49.12. Treasury’s Program The Treasury announced March 26 the change to the federal Home Affordable program, which makes use of taxpayer subsidies and is aimed at helping as many as 4 million homeowners avert foreclosures through debt modifications. The initiative, which was announced 13 months ago, had focused on encouraging cuts to payments rather than balances. Elsewhere in credit markets, Ambac Financial Group Inc. may not make a payment to cover a cash shortage for bonds issued by Las Vegas Monorail Co. in July. Dubai World offered creditors a shortfall guarantee as part of a repayment plan and Deutsche Bank AG said asset-backed bond sales in Europe will outstrip the number of deals kept by banks this month for the first time since the start of the credit crisis in August 2007. The Las Vegas monorail, linking the city’s casinos, is seeking to reorganize under Chapter 11 bankruptcy and has minimal funds to cover its next scheduled debt payment of $9.6 million, Wells Fargo, the trustee for the bonds, said March 26. While insured by Ambac, the obligation has been transferred to a segregated account by Wisconsin insurance regulators, according to the filing. Dubai Guarantee If the sale of assets from Dubai World, the state-owned holding company seeking to restructure $14.2 billion of debt, doesn’t generate sufficient cash to repay loans, the government will make up the shortfall up to a certain level, said a person familiar with the matter who declined to be identified because the discussions are private. The guarantee clause wasn’t outlined in Dubai World’s press statement on March 25 when the restructuring plan was announced. About 3.5 billion euros ($4.7 billion) of notes backed by real estate, consumer debt or corporate loans were sold this month by banks in Europe, London-based Deutsche Bank analysts Conor O’Toole and Ivan Pahlson-Moller wrote in a report. A total 1.6 billion euros of notes were issued and retained. Banks kept the bonds as collateral for short-term loans from central banks when investors shunned asset-backed securities after the credit crunch took hold. As concerns eased, yield spreads on three-year prime residential mortgage-backed notes have dropped to 155 basis points more than benchmark rates from 350 basis points a year ago, Deutsche Bank data show. Commercial Mortgage Debt Investors should buy higher-yielding bonds backed by commercial mortgages as the economic recovery gains steam, according to JPMorgan. Yields on the safest debt backed by real estate loans have narrowed 1.3 percentage points to 3.7 percentage points more than benchmark swap rates this year, according to bank data. Buyers are seeking higher returns amid a lack of new bonds and will increasingly look for securities originally rated AAA that have less of a cushion insulating investors from losses, many of which have had ratings cuts, JPMorgan analysts led by Alan Todd wrote in a report. The cost to protect against defaults on corporate bonds fell, trading in benchmark credit derivatives indexes shows. The Markit CDX North America Investment Grade Index Series 14 declined 2 basis point to a mid-price of 85.2 basis points as of 5:02 p.m. in New York, according to Markit Group. Risk in Europe In London, the Markit iTraxx Europe Index, which investors use to speculate on creditworthiness or to hedge against losses on 125 investment-grade companies, fell 1.1 basis point to 77.5, Markit prices show. Credit-default swaps tied to Greece rose 23 basis points to 318 basis points, according to CMA DataVision. Greece, the European Union’s most indebted member, offered more than five times the yield premium of comparable Spanish debt to lure investors to its first bond sale since a bailout was agreed to for the nation. Greece priced the 5 billion euros of seven-year bonds to yield 310 basis points more than the benchmark mid-swap rate, according to a banker involved in the transaction, who declined to be identified before the sale is completed. The price of Greece’s credit swaps soared to as high as 428 basis points on Feb. 4 when it seemed likely Greece’s debt crisis would spread to its southern European neighbors. Home Affordable Program Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and equals $1,000 annually on a contract protecting $10 million of debt for five years. A decrease indicates improvement in the perception of credit quality; an increase, the opposite. Under revisions to the Treasury’s Home Affordable program scheduled to take effect this year, mortgage servicers must consider reducing amounts owed by delinquent borrowers if their loans exceed 115 percent of the current value of their homes. Borrowers who haven’t missed payments may also qualify. “Until now, foreclosure mitigation efforts focused on the ‘ability of borrowers’ to make their mortgage payments,” Morgan Stanley analysts Vishwanath Tirupattur and James Egan wrote in a report today. “However, they did not address the ‘willingness of borrowers’ to default on their mortgages in view of their underwater (negative equity) status,” with about 23 percent facing balances greater than their properties’ values. Performance of Indexes ABX indexes indicate prices for credit-default swaps linked to 20 bonds. The swaps offer protection if the securities aren’t repaid as expected, in return for regular insurance-like premiums. In 2007, the indexes tumbled from at or near 100 as investors bet correctly that defaults on home loans would rise, with the ABX.HE.AAA 06-2 falling as low as 28.72, indicating that a investor buying protection on $10 million of debt would pay $7.3 million upfront as well as $110,000 a year. About 46 percent of subprime mortgages underlying securities without government-backed guarantees are at least 30 days late, in foreclosure or have already turned into seized properties, according to data compiled by Bloomberg. The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report March 25. The Home Affordable program had initially sought to lower re-defaults by encouraging larger decreases in borrowers’ payments relative to incomes. ‘Moral Hazard’ Senior securities backed by mortgages will benefit in part from the new plan because principal reductions will wipe out junior classes sooner and afterward the deals won’t “leak any cash flow” to holders of that debt, according to a March 26 report by Barclays Capital. Some of the benefits from the Treasury changes will be offset by the program extending how long investors must wait to get principal returned and may be overrun “if moral hazard sets in” as more borrowers seek forgiveness, the analysts wrote. At the same time, some senior-ranked subprime securities will be hurt because they must share in principal payments with others after losses begin to be realized, JPMorgan said. The bank forecast overall loan losses will “not dramatically decline,” in part because many borrowers won’t qualify and coordination between holders of first and second mortgages will be difficult. Biggest Beneficiaries Generally, “securities with high defaults and a low dollar price will benefit the most,” wrote Amherst’s Goodman. “This includes pay option ARMs, sloppy senior Alt A hybrid floaters and senior last-cash-flow subprime securities.” Option ARMs, or option adjustable-rate mortgages, allow borrowers to pay less than the interest they owe by increasing their balances, resulting in potential jumps in payments later on. Alt-A loans fall between prime and subprime in terms of projected defaults, often because borrowers didn’t document their incomes or plan to live in properties. Excluding subprime debt, prices for senior home-loan securities without government-backed guarantees in the $1.5 trillion non-agency market are generally lower over the past three months, failing to match gains in other credit markets, according to Barclays Capital data. Typical prices for the most-senior securities backed by option ARMs were unchanged last week, and are down 1 cent on the dollar at 54 cents from three months ago, according to the data. That’s still up from a record low of 33 cents a year ago. “Winston Churchill said it best,” Goodman wrote in her report, saying as many 12 million borrowers will default in the next few years unless the government changes their loans successfully. “‘The United States invariably does the right thing after exhausting every other alternative.’” To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

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Japan Unemployment Rate Holds at 4.9% in February, in Line With Estimates

March 29, 2010

By Aki Ito March 30 (Bloomberg) — Japan’s jobless rate was unchanged at 4.9 percent in February, the statistics bureau said today in Tokyo. The median forecast of 23 economists surveyed by Bloomberg News was 4.9 percent. To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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UBS Said to Generate $2.3 Billion of Fixed-Income Revenue in Rebuilt Unit

March 29, 2010

By Elena Logutenkova Jan. 25 (Bloomberg) — UBS AG , Switzerland’s biggest bank by assets, appointed Rajeev Misra and Dimitri Psyllidis as co- heads of fixed-income, currencies and commodities. Misra, 47, and Psyllidis, 43, take on the roles in addition to their responsibilities as global heads of credit and macro, respectively, the Zurich-based bank said in an e-mailed statement today. Carsten Kengeter , 42, the co-head of UBS’s investment bank, will relinquish his role as co-head of FICC with Jeffrey Mayer , 50, who will take on the new position of executive chairman of FICC, the bank said. UBS is shuffling leadership of the fixed- income unit at a time when the business may be facing lower revenue prospects, according to analysts. “We’re going to see 2010 fixed-income revenues about 30 percent below 2009 revenues” for investment banks, Dirk Hoffmann-Becking , a London-based analyst at Sanford C. Bernstein, said in a Bloomberg Radio interview. Increased competition from companies such as UBS will “drive down profitability in market-making and flow business dramatically.” UBS aims to generate about 40 percent of the investment bank’s total revenue from the fixed-income unit in three to five years, or at least 8 billion francs ($7.68 billion) annually. That would return fixed-income revenue to the levels achieved before the credit crisis led to record losses at the bank. Shear, Hoornweg UBS also said it hired Neal Shear , 55, as global head of securities, to be based in Stamford, Connecticut, and Roberto Hoornweg , 41, as the global head of securities distribution, to be based in London. Shear left Leon Black’s private-equity firm Apollo Management LP last year, and previously worked for Morgan Stanley in roles including co-head of sales and trading. Shear left New York-based Morgan Stanley in March 2008 after then Chief Executive Officer John Mack demoted him in November 2007 because of bad trades that resulted in the first quarterly loss as a publicly-traded company. Thomas Daula , the former chief risk officer at Morgan Stanley, who also left amid the management reshuffle, joined UBS in June 2008 to take that position at its investment bank. Hoornweg also worked previously at Morgan Stanley, most recently as head of global interest rates, credit and currencies. He left in July 2009, when the firm hired Jack DiMaio to replace him. ‘Central’ to Recovery Shear and Hoornweg will be responsible for aligning the equities and debt units and bringing their distribution teams more closely together, Kengeter and Alex Wilmot-Sitwell , who lead the investment bank, said in the statement. UBS aims to reach an annual pretax profit of 6 billion francs at the investment bank over the next three to five years, after losses since 2007. The debt division generated 8.3 billion francs of revenue in 2006, compared with a negative 1 billion francs in the first nine months of 2009. It was responsible for most of the $57.5 billion in writedowns and losses during the credit crisis, which forced the bank to take a 6 billion-franc lifeline from the Swiss government. A turnaround at the unit will be “central” to the bank’s goal of reaching an annual pretax profit of 15 billion francs in three to five years, UBS said in November. To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

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Parvez Ahmed: The Current Economic Crisis – Is Islamic Finance a Solution?

March 29, 2010

Throughout the current economic and financial crisis one contrarian statistic has stood out. Financial assets offered by the Islamic Financial Services Industry (IFSI) and generally classified as “Shariah-compliant,” were less affected by the crisis . Economist Loretta Napoleoni during a lecture at the University of New Mexico proclaimed, “Islamic finance … [a] system [that] could help us to get out of the current crisis.” Writing in the influential Turkish daily Today’s Zaman , columnist Ibrahim Ozturk declared, “Islamic finance has entered a bright new stage of development, emerging after the global financial crisis as a more equitable and efficient alternative to the Western approach.” The widely read Arabic daily Asharq Al Awsat opined, “Islamic banks are untouched by the current crisis due to the nature of Islamic banking especially that it does not deal in debt trading and distances itself from market speculation that takes place in European and American banks.” How do such claims stack up against reality? Is Islamic finance different enough from conventional finance to avoid its pitfalls? The IFSI, which has marketed itself as being an alternative to the conventional financial system, has come a long way from its rather modest and relatively recent beginnings . The IFSI was recently estimated by Moody’s to be worth $700 billion and projected by the Islamic Development Bank to be $2.8 trillion by 2015. By 2015, majority of the IFSI will be geographically centered in the Gulf Cooperation Council (GCC) region while the South Asian region will provide about 15 to 25 percent of the total services. The IFSI encompasses almost all of the institutional and architectural features of the conventional finance industry. However, it should be noted that the size of IFSI relative to the Conventional Finance Industry (CFI) is very small (about 2 percent). In other words the IFSI has not been sufficiently stress tested to proclaim its efficacy when applied to a broader set of economic situations. One distinguishing feature of IFSI has been its insistence that in complying with Shariah (the jurisprudence of Islam) it considers dealing with interest as totally unacceptable. The avoidance of interest reflects verses in the Holy Quran (3:130; 2:175; 4:161) which forbid riba, most often and commonly translated as interest rates. The IFSI contends that it has replaced interest rates with rate of profit on equity, profit sharing finance and markup transactions. In practice, the contracts of the IFSI fall short of the “interest-free” claims it makes. IFSI contracts do allow for presence of interest rates, mostly indirectly but sometimes directly, albeit in small measures. Islamic mutual funds for example allow investment in stocks of companies that use interest based debt (current practices allow 33 percent debt-ratios). Sukuks , described as Islamic bonds, guarantee a fixed rate of return, which to most financial observers look like interest. In murabaha , Islamic jurists opine that home buyer (mortgagor) is involved in credit sales and not a loan contract (as in traditional mortgages). Yet murabaha loan documents use the conventional terms like “note,” “loan,” and “interest” to describe its features much like any home mortgage contract. Moreover, the mark-up used in murabaha is usually benchmarked to a conventional interest rate. This has given rise to what Rice University’s Mahmoud El-Gamal pejoratively calls Shariah-arbitrage, defined as the practice of extracting premium rents from participants in a captive-market for products labeled and perceived to be Shariah compliant. The paradox is not merely of academic interest. Among the producers and users of Islamic financial products there is pervasive skepticism. A unique insight about this perception is gathered from a recent research on the attitude of customers and bankers using IFSI . A significant majority (6 in 10) believe that the development of Islamic banking has more to do with being faithful to Islam than any other criterion (although the proponents of Islamic finance often cite the superiority of IFSI is due to its purported commitment to social justice and welfare). Nearly 7 in 10 believe that the “rate of profit” or “markup profit” charged by Islamic banks do not differ much from interest based transactions offered by the CFI. Potential patrons (7 in 10) are unwilling to transact with the IFSI because they do not find much difference between the IFSI and the CFI. In discussing how bankruptcy courts are likely to rule on foreclosures under IFSI contracts like ijarah (lease-based transactions), murabaha (cost plus markup sale) and musharaka (partnership contract), legal experts observe, “We would not anticipate that this type of foreclosure would differ materially from that of a conventional mortgage foreclosure. … The ‘borrower’ holds all the benefits and risks of ownership in a Musharaka transaction as well.” As such in bankruptcy and foreclosure proceedings, IFSI providers have the same legal protections as those afforded to CFI institutions in debt based transactions. The current state of IFSI is prohibition driven primarily centered on taking existing CFI contracts and pronouncing the Islamicity or lack thereof for those contracts. The IFSI then proceeds to institute contractual changes that alter the structure of the contract to make them contractually Shariah-compliant without addressing any of their possibly inherent fault lines. This process is enabled by Shariah-boards, which pronounce the Islamicity of such contracts. The Shariah-boards are beset with agency problems (conflict of interest) as they are not subjected to disclosure rules equivalent in scale and scope to those for corporate boards, which many argue are in urgent need for more reform and transparency themselves! According to a recent study the top 5 Shariah-scholars makeup 15 percent of the entire universe of Shariah board positions. Only 180 scholars are involved in nearly 1000 Shariah board positions. This stifles innovations and fosters unhealthy imitations. One thing is clear, if Islamic Finance is to remain restricted to Muslims then not only will Islamic Finance not save the day but it will also pervert the mission of Prophet Muhammad, described in the Quran (21:07) as a mercy to all humanity (creation, to be precise). The emphasis on the prohibition based aspects of Shariah have led to missed opportunities to promote the maqasid or objectives of Shariah whose aims are not prohibition-driven but rather, inclusive and egalitarian. The maqasid or objectives of Shariah, is to protect and preserve life, mind, faith, property and offspring, which according to the noted Andalusian Islamic scholar Abu Ishaq al-Shatibi is a set of objectives that are common to all religions and must be the transcendent framework to evaluate all Islamic law, social obligations and contracts (financial or otherwise). The attainment of these goals require the development of a positive and inclusive vision, which can truly address the many shortcomings that plagues the world of finance — from bad regulation, to un-transparent contracts, to plain old greed. Islamic finance has a role to play in the world of finance. But to do so, the IFSI will have to de-emphasize its innovations based on Shariah-arbitrage and engage in developing a more holistic vision that will resonate with all people of conscience, not just Muslims. Islamic mutual funds, for instance, will have to beyond the negative screens it primarily imposes in selecting stocks to developing positive screens that steer investments towards those opportunities that can lead to sustainable development strategies. Islamic finance must also promote the highest ethical standards and the most transparent disclosure rules, enabling a healthy dose of sunshine into the complex world of financial engineering (responsible for the now infamous credit default swaps that produced the toxic home loans). Islamic banks must also provide a positive vision of efficient and effective distribution of zakat wealth. Islamic financial institutions must develop innovative programs to produce equity based partnerships with small and medium enterprises, which are often the forgotten sector in the world of high finance. The Islamic financial service industry can truly differentiate itself by adopting a more socially conscious role that will enable them to not only fulfill the objectives of Shariah but also inject an alternative vision into the world of global finance allowing a necessary paradigm shift if only to avoid another global economic crisis. Prof. Parvez Ahmed is a Fulbright Scholar and Associate Professor of Finance at the University of North Florida. With Seth Anderson he co-authored, ” Mutual Funds: Fifty Years of Research Findings .” He is also a frequent commentator on Islam and the American Muslim experience. His blog can be read at: http://drparvezahmed.blogspot.com /

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Daniel Altman: A New Market for "Patient Capital"

March 29, 2010

This article was inspired by The Economist ‘s “Ideas Economy” Conference, which took place at the Haas School of Business at Berkeley last week. “Patient capital” is a crucial ingredient for two components of global economic growth: innovation and the development of poor countries. The owners of patient capital have long time horizons, meaning that they can endure the uncertain early years of an investment to reap high returns in the long term. In today’s volatile markets, patient capital can be hard to find. A new, government-backed swaps market could change that. Investments in innovation can take decades to pay off, and the uncertainty inherent in the innovative process makes it difficult to pick winners. Government already invests in innovation by funding basic research and education, but there are other opportunities that arise in the business sector — opportunities that go unfunded because private sources of finance can’t bear the risk. Most private sources either aren’t big enough to be sufficiently diversified (they can’t take on hundreds of these investments at a time), or they aren’t patient enough (their backers demand a return within a few years). The same is true of investments in development. Emerging economies are often risky environments for investors, be they foreign or domestic. These economies’ political and business cycles may be too erratic to assure a steady return, and they may have frequent crises that threaten to wipe out young ventures. Even if the returns are high — as they often are in emerging economies — private sources of finance can’t bear the risk. Some governments offer foreign aid to the countries where these opportunities arise, but they rarely invest in specific commercial ventures. Yet successful investments in both innovation and development can have positive, global effects. Innovation is a public good; its benefits accrue not just to innovators but to society as a whole, which enjoys innovation’s end products and is inspired to push the innovation process further. Likewise, rising living standards in developing countries help people around the world; they tend to correspond to lower levels of conflict and disease, and higher levels of trade and the exchange of ideas. Because of these positive spillovers, society as a whole has an interest in providing the patient capital needed to realize investments in innovation and development. So far, governments have only done so indirectly, via domestic grant programs, tax credits, trade preferences, and foreign aid. Yet a new mechanism could offer a much more targeted and fruitful way of funding productive opportunities. First, consider what is special about governments. The stable ones can plan decades in advance, even when the political leadership changes along the way. This is a much longer time horizon than most venture capitalists and private equity funds can claim. Governments are also big; they can commit billions of dollars at the stroke of a pen, as long as the spending plan matches their priorities. So far, however, governments have not fully applied the benefits of their time horizons and size to the problem of patient capital. In a government-backed swaps market, they could — and the benefits would accrue not just to investors and recipients of financing, but also to taxpayers. A swaps market is exactly what it sounds like: a market where investors swap one kind of return for another. If you’re holding an asset slated to pay a high return but with significant risks attached, you might prefer to swap it for a more stable, if lower, return. For example, you might prefer to exchange the payments owed to you on a floating rate commercial loan for the payments from a fixed-rate government bond. Of course, you may have to pay someone to make this swap with you; that amount is the price of the swap in the market. Private swaps markets are huge, with billions of dollars changing hands every day as financial institutions and other companies try to balance the risks in their portfolios. But many investments in innovation and development aren’t in the swaps markets. In fact, they’re not in any market; no investor is patient enough, and no investor can diversify enough, to take them on. Governments can change that. By offering to swap the returns on these high-risk, high-payoff investments for more stable cash flows, governments could encourage private sources of finance to fund these investments for the first time. For instance, let’s say a cashew producer in Senegal needs $5 million to build a new processing plant. The plant would have equal chances of delivering an annual return of 20 percent or going bust. If the plant is successful, though, it would also creates hundreds of jobs and be an anchor for the development of its community. So far, no one wants to invest. But a venture capital firm might be willing to put up the $5 million if, instead of the 50-50 chance of a 20 percent return after a few years, it received 7 percent per year starting now. Who would make this swap? A foreign government interested in Senegal’s development might. With a big, diversified portfolio full of investments just like this one, that government could expect a 10 percent annual return, on average, after a few years. That’s not a very long time to wait, considering government’s time horizon; what’s a few years, when you’re worried about funding Social Security until 2075? Moreover, the investment would be a quadruple winner: the cashew producer would get its plant, Senegal would develop, the venture capitalist would get a good return, and taxpayers would get an even better one. The government would not be crowding private investors out of this market; rather, it would be facilitating a new market that otherwise would not exist, and then sharing in the gains from trade. There is plenty of precedent for government’s facilitation of markets, even in the United States. The Export-Import Bank finances exports of American merchandise to countries considered too risky by private credit markets. The Federal Reserve offers liquidity to banks and acts as a lender of last resort through its discount window. In both cases, a diversified portfolio and a long time horizon make the mechanism work. In fact, both of these mechanisms have made money for the American taxpayer. Swaps markets for innovation and development would make money, too — not because they were stealing business from the private sector, but because they were opening up a set of economic opportunities that no other mechanism could provide. They’re not just win-win; they’re win-win-win-win.

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Consumer Spending Up Again, But Incomes Stagnant In February

March 29, 2010

WASHINGTON — Confidence is growing that the economic recovery won’t fizzle out. Consumers kept cash registers humming last month at a decent pace, pointing to modest and steady economic gains ahead. The Commerce Department reported Monday that consumers boosted their spending by 0.3 percent in February, marking the fifth straight monthly gain. Nigel Gault, chief U.S. economist at IHS Global Insight, called it “an encouraging sign of consumer revival.” The pickup in spending was a tad slower than the 0.4 percent increase registered in January and marked the smallest increase since September. Nonetheless, the spending gain was considered decent, especially given the snowstorms that slammed the East Coast and kept some people away from the malls. “Households are starting to ease up on their tight grip on their wallets, though it would be nice if they had more money to spend,” observed Joel Naroff, president of Naroff Economic Advisors. Americans’ incomes didn’t budge. Incomes were stagnant in February, as the bad weather forced employers to trim workers’ hours. That followed a solid 0.3 percent gain in January and marked the weakest showing since July, when incomes actually shrank. Income growth is the fuel for future spending. February’s flat-line reading suggests shoppers will be cautious in coming months. Spending growth in February matched economists’ expectations. The reading on income was a bit weaker than forecast. Both the spending and income figures in Monday’s report point to a modest economic recovery. That cheered Wall Street investors. The Dow Jones industrial average gained 46 points to close at 10,896. The Dow hasn’t traded above that level since September 2008. Many analysts predict the economy slowed in the first three months of this year after logging a big growth spurt at the end of 2009. The economy will expand at a 2.5 percent to 3 percent pace in the January-to-March quarter, analysts predict. That’s roughly half the 5.6 percent pace seen in the final quarter of last year. In normal times, growth in the 3 percent range would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point. Unlike past recoveries, where consumer spending led the way, this one is hinging more on the spending of businesses and foreigners. High unemployment, sluggish wage gains, hard-to-get credit and record-high home foreclosures are all expected to deter consumers from going on a spending spree – one of the main reasons why the pace of the recovery will be more subdued than in the past. With spending outpacing income growth, Americans’ savings dipped in February. Americans saved 3.1 percent of their disposable income, down from 3.4 percent in January. It was the lowest reading on the savings rate since October 2008 and suggested that people have more of an appetite to spend. Consumers increased their spending on “nondurable” goods, such as food and clothing, by 0.7 percent in February. That was down from a 1.7 percent increase in January. They boosted spending on services by 0.3 percent, up from a 0.2 percent rise in January. But they cut spending on “durable” goods, such as cars and appliances, by 0.4 percent, not as deep as the 1.4 percent reduction in January. Consumer spending accounts for the single-biggest slice of overall economic activity. That’s why it is so closely watched by investors and economists. So far in the current quarter, consumer spending is shaping up to be better than it was at the end of last year. “U.S. consumers board recovery train,” said Sal Guatieri, economist at BMO Capital Markets Economics. For the entire January-to-March quarter, analysts think consumer spending will grow at a pace of around 3 percent. That would mark an improvement from the 1.6 percent growth rate logged in the final quarter of last year and would be the biggest increase in three years. Analysts are growing more confident that consumers will keep spending sufficiently into the coming months as the job market heals. Economists predict that employers added around 190,000 jobs in March, in what they hope will be the start of consistent payroll gains. If they are right, it would mark the biggest jobs gain in three years. The unemployment rate is expected to stay at 9.7 percent for the third straight month. The expected turnaround in job-creation would be welcome, but many economists say it will take at least until the middle of this decade for the situation to get back to normal, meaning a jobless rate of 5.5 percent to 6 percent. And, it will also take years for the economy to recover the 8.4 million jobs wiped out by the recession.

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Dan Duncan Dead: Enterprise Products Co-Founder Dies At 77

March 29, 2010

Businessman Dan Duncan died last night at his home in Houston, Texas, at the age of 77. Duncan’s business Enterprise Products Partners LP, a natural gas and crude oil pipeline company, announced the news today in a statement. A cause of death was not listed. “The entire Enterprise family mourns the unexpected passing of Dan Duncan, who will truly be missed,” said Michael Creel, president and CEO of Enterprise Products. “Our thoughts and prayers are with his family.” Duncan is described by the Houston Business Journal as a “longtime oilman” and co-founder of Houston-based Enterprise in 1968. Forbes named Duncan named the richest person in the city of Houston in 2007 and the third richest person in Texas for the same year. More from the Associated Press: HOUSTON (AP) – Dan L. Duncan, a founder and the chairman of Enterprise Products Partners LP, died Sunday night at his home, the company said. Duncan was 77. Enterprise Products, Duncan Energy Partners LP and Enterprise GP Holdings LP issued a statement Monday saying Duncan would be missed. Duncan co-founded the company in 1968 and took it public 30 years later. The company said it did not plan to change ownership or management of the partnerships. Duncan is survived by his wife Jan, four children and four grandchildren.

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Ron Haskins: America Needs More Economic Mobility

March 29, 2010

Although the growth of income inequality has received lots of public attention in recent years, public policy should focus instead on expanding economic opportunity. Of the numerous advantages of concentrating on opportunity, two stand out. One is public support. Americans are less concerned about inequality than economic opportunity. The popular reading of the American Dream is not that America guarantees success to all, but that America tries to ensure equal opportunity so that hard work and initiative pay off. The second advantage is that new legislation will be more likely to win support if it is framed in a way that is popular with both political parties. In our new book, Creating an Opportunity Society, we lay out an agenda of policies aimed at improving education, encouraging work, and strengthening families. We argue that this opportunity-enhancing agenda is one that most people, regardless of political affiliation, can endorse. Some might think that America already presents people with lots of opportunity to get ahead. But it turns out that you need to pick your parents well. True, there is considerable mobility from one generation to the next, but the American economy tends to help those at the top stay there while making it difficult for those at the bottom to move up. Kids from families in the bottom 20 percent of the income distribution are nearly five times as likely to wind up in the bottom 20 percent as kids from families in the top 20 percent. Similarly, children from other advanced countries are less likely to be stuck at the bottom of the income distribution than children in the U.S. There is almost universal agreement that education is the key to economic success. Most people know that the family income of those who drop out of school falls far below the family income of those who complete college. Less well known is the fact that the income of those with less than a college degree has not increased for three decades or more. Promoting education is promoting opportunity. Our research shows that children whose parents were in the bottom 20 percent of earners tripled their odds of earning $85,000 or more per year by obtaining a four-year college degree. Yet kids from poor families are both less likely to enroll in and graduate from college as compared with kids from families with more income. What can we do to help more disadvantaged children get into college? The most important goal should be to improve their readiness for college coursework by improving their mastery of reading and math skills during the K-12 years. Because research shows that disadvantaged children fall behind in their intellectual development by age three, the focus on learning should begin in the preschool years. The results of a recent scientific evaluation of Head Start raise considerable doubt about whether it boosts school readiness. But the record of preschool programs funded and run by states seems much better than Head Start. Given their success, states should be given a bigger role in using Head Start funds. The nation has devoted great attention and funding over recent decades to improving K-12 education. The Obama administration is now proposing to amend the No Child Left Behind law, in part by broadening and strengthening its accountability system. The national standards in English and math recently recommended by governors and school superintendents are also a step in right direction. To help students meet these standards we need better teachers along with more orderly classrooms, goals that some charter schools have begun to achieve. The emphasis on accountability, higher standards, and better teachers has put us on the right track to increased school achievement and preparation for post-secondary education. The process of preparing for and applying for college is too complex. In 2009, about $170 billion in government and private funds were available to help students pay for college, with a considerable share – though not enough – of the money available to students from low-income and minority families. To inform parents while their children are still young that financial aid will be available when their children reach college age, the IRS, based on tax return data, should send annual letters to low-income parents informing them about the amount of money for which their children could qualify to help with college costs, In this way, both parents and children can begin early to prepare for college attendance. Schools should counsel students beginning in middle school about the courses they need to prepare for college and to help them select an appropriate school and apply for financial aid. The 127-question federal form students must complete to apply for financial aid is far too long and confusing. Research shows that applications by low-income youngsters increase when the burden of figuring out the complex application procedure is lifted. The form should be sliced to no more than one page The strength of these proposals is that nearly all of them are backed by strong research showing that they can individually have positive impacts on the education of disadvantaged kids. Taken together, they can be expected to move the nation closer toward fulfilling our commitment to providing a level playing field for all and substantially increasing opportunity in America.

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Peter Roberson, Bank Lobbyist Turned House Staffer, Is Heading Back To K Street

March 29, 2010

When the House worked on financial regulatory reform legislation last year, 16 of the Financial Services Committee staffers — 12 of them Democrats — assisting in that effort had previously worked as federally-registered lobbyists. One of them is now heading back to K Street. Peter Roberson helped write legislation intended to regulate credit-default swaps and other over-the-counter financial products, reported Bloomberg’s Matthew Leising in breaking the news of Roberson’s turn through the revolving door. He is now going to work for Intercontinental Exchange Inc. as a lobbyist. The company owns the world’s biggest CDS clearinghouse that will be regulated by the rules that Roberson had a major hand in writing. In December, HuffPost highlighted the trend of staffers going from the Hill to K Street and then back to the Hill, a reverse of the standard route typically traveled. “The door doesn’t just revolve once,” said Rep. Brad Miller (D-N.C.). “They tend to go out and come back and go out again. It really does create a set of financial incentives, whether conscious or not.” The allure of high-paying K Street gigs can have a subtle influence on committee staffers, creating an incentive to please those firms seen as future employers. The part of the bill that Roberson worked on — derivatives legislation — has been criticized as one of the weakest elements of the package. Since its passage, Frank has said that he would be pleased if the Senate is able to pass tighter derivatives regulation. Roberson’s first stint on K Street, according to the federal lobbyist database, lasted from 2000 to 2006, when he lobbied for the Bond Market Association. In 2006, BMA merged with the Securities Industry Association to form the powerhouse Securities Industry and Financial Markets Association. SIFMA is also home to former committee staffer Michael Paese — Chairman Barney Frank (D-Mass.) banned his staff from communicating with him for two years and has instituted a one-year ban on communication with Roberson. As soon as Roberson informed the committee in late January that he was in talks with the swaps brokers, Frank asked him to leave, said committee spokesman Steve Adamske. “The chairman wasn’t happy about it and he immediately asked Mr. Roberson to leave and to go on either administrative leave or go on some accrued vacation time,” he said. “And we will adhere to the absolute strictest interpretation of ethics laws and bar communication with him for a year or two years as we’re required.” His ID, key card and internal access were revoked. But the legislation had already been written. “It was always obvious he was playing for the other side,” said one Democratic staffer on the committee who dealt with Roberson who, he said, was one of two staffers excoriated by Frank during a fall committee staff meeting — an unusually public rebuke — for weakening legislation by conflated exchanges with clearing houses. The chairman could elect to extend the ban beyond the required time, Adamske noted. Roberson, however, is perfectly riding the legislative wave. He is not barred from lobbying the Senate, where the action is now taking place, with the reform bill approved by the House at the end of last year. A bill introduced by Sen. Michael Bennet (D-Colo.) would prevent that ethics arbitrage. Roberson follows the Treasury Department’s leading liaison to the Hill — Damon Munchus — out the revolving door. Munchus left for the Cypress Group, which lobbies on banking issues, consults clients on the status of legislation and invests its own money.

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Dean Baker: Will the Washington Crew Ever Notice the Housing Bubble?

March 29, 2010

Alan Greenspan, Ben Bernanke and the rest of the crew running economic policy somehow could not see the housing bubble as it grew to more than $8 trillion. It really should have been hard to miss. Nationwide house prices had just tracked overall inflation for 100 years from 1895 to 1995. Suddenly in 1995, coinciding with the stock bubble, house prices began to hugely outpace the overall rate of inflation. There was no explanation for this run-up in house prices on either the supply or demand side of the housing market. Furthermore, there was no unusual increase in rents, providing further confirmation that fundamentals were not behind the increase in house prices. Finally, in contrast to a story of housing shortages driving up house prices, vacancy rates were at record levels. But the super-sleuths at the Fed, Treasury and other centers of decision-making just could not see the bubble. They couldn’t even see the flood of bogus mortgages being spit out by the millions and packaged into mortgage-backed securities and more complex instruments. As a result of this astounding incompetence, we are now living through the worst downturn since the Great Depression. Because Greenspan and Bernanke and the rest messed up, tens of millions of workers are out of work. Close to one in four mortgages are underwater and the baby boom cohort has seen much of its wealth destroyed as they reach the edge of retirement. In short, as Joe Biden would say, this was a f***ing big mistake. Remarkably, the folks in charge seem to have learned zip. They still have no clue about the housing bubble. How else can anyone explain the Obama Administration’s latest proposal for helping out underwater homeowners? If the point is to help homeowners then there are two incredibly simple questions that must be asked: Are homeowners paying less under the plan than they would to rent the same place? Are homeowners going to end up with equity in their home? These are the key questions, because if we can’t answer “yes” to at least one of them, then we are not helping homeowners. If we can’t answer “yes” to at least one of these questions, then taxpayer dollars being put into the program are helping banks, not homeowners. Unfortunately, because it seems no one in the Obama Administration has yet been told about the housing bubble. There is no evidence that they ever considered these questions in designing the latest policy to “help” homeowners. The program will potentially pay banks and loan servicers up to $12 billion to write off principle on mortgages. In exchange, the government will guarantee new mortgages through the Federal Housing Authority (FHA). Those familiar with the housing market will note that house prices are still falling and must fall by close to 15 percent to get back to their long-term trend. If house prices continue to fall, then the vast majority of the homeowners that take part in this program are likely to never accrue any equity in their home. Furthermore, the FHA is likely to incur substantial losses on these loan guarantees, as homeowners will again find themselves underwater and many will be unable to pay off their mortgages when they sell their home. Because the FHA hugely expanded its role in the housing market in the last two years, without paying attention to falling prices, it now is below its minimum capital requirement. It will suffer additional losses and fall further below its capital requirements as a result of this program. By the way, the losses to the FHA and the taxpayers are money in the pockets of the banks, but no reason to mention that detail. For anyone who can see an $8 trillion housing bubble, this is all as clear as day. There is nothing complex about a story in which the government buys banks out of bad mortgages. But the Washington policymakers could not see an $8 trillion housing bubble before it wrecked the economy and apparently still haven’t noticed it even after the fact. It’s great to know that there are good-paying jobs for people with no discernible skills. But do those jobs have to involve running the economy? [originally printed in the Guardian ]

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Why ‘Buy & Hold’ Investing Is Dead And Recessions Are The New Normal: Lakshman Achuthan (VIDEO)

March 29, 2010

The classic “buy and hold” strategy for stocks is officially dead, according to Lakshman Achuthan, managing director of the Economic Cycle Research Institute, who sat down with Yahoo Tech Ticker recently. And, Achuthan said, investors should prepare themselves for even more frequent recessions. (We realize it’s great news.) Two big patterns moving like “big ol icebergs” will create more frequent recessions, Achuthan said. The first pattern, Achutan says, is the pace of each expansion after a recession actually gets weaker and weaker — and this effect applies to GDP, sales and income. “On every count, the strength [of growth] weaker and weaker with each expansion,” he added. The second pattern is that volatility will be a fact of life. “We’re going to see more boom and bust type cycles, I don’t think it’s going to be like the pre-Depression levels. It will be more like the cycles we saw in the 1970s, where we’re going to have an expansion for a few years then another recession.” “We’re going to have to reorient our thinking to maybe a little more whiplash,” Achuthan said Check out the interview here:

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Biogen, Merck, Bayer MS Drugs Targeted by Test Predicting Which Ones Work

March 29, 2010
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Birinyi Raises Full-Year SP 500 Forecast to 1,325 as GE, Citigroup Rally

March 29, 2010
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Greece to Sell 7-Year Bonds in 1st Issue Since Rescue

March 29, 2010
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Stocks, Commodities Gain as Yen, Dollar Weaken on Economy

March 29, 2010
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Paulsons $32 Billion Funds Prompt Too-Big Concerns

March 29, 2010
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South Korean Naval Divers Reach Sunken Patrol Boat; No Sign of 46 Missing

March 29, 2010

By Sangim Han and Bomi Lim March 29 (Bloomberg) — South Korean navy divers today reached a patrol boat that sank off the west coast three days ago near the nation’s disputed border with North Korea, with no sign of the 46 missing crew members When navy divers knocked on the ship’s stern with hammers, they didn’t hear any response, defense ministry spokesman Won Tae Jae said in a briefing. The 1,200-ton Cheonan sank within hours after an explosion on March 26 split the vessel in two. Rescue operations will continue until 8 p.m., Commodore Lee Ki Sik of the Joint Chiefs of Staff told reporters, as missing crew members may be trapped inside the sunken ship. Oxygen in the ship’s waterproof cabins would have enabled those trapped to survive for a maximum of 69 hours, Lee said. North Korea today warned the U.S. and South Korea not to “disturb the security and order” in the demilitarized zone. The statement by an unidentified Army spokesman, carried by the Korean Central News Agency, made no reference to the explosion. Korea’s benchmark Kospi stock index fell 0.3 percent to 1,691.99 in the first day of trading since the ship sank. The won gained 0.3 percent to 1,135.50 against the dollar. A U.S. Navy ship joined rescue efforts that have been hampered by choppy waters. U.S. and South Korean officials have said there were no indications of North Korea’s involvement. U.S. stocks pared gains on March 26 on concern North Korean military action might have caused the explosion. ‘No Special Movements’ The U.S. military said it has detected “no special movements” by North Korea, echoing comments by Lee’s office. “We continue to monitor the situation and remain prepared for any contingency,” General Walter Sharp , the senior U.S. commander in South Korea, said yesterday in a statement on the military’s Web site. Defense Minister Kim Tae Young played down the possibility of a South Korean mine causing the explosion, and said today one of thousands of North Korean sea mines placed during the 1950-53 war may have drifted into South Korean waters, according to South Korea’s Yonhap news agency. The Cheonan split in two and started sinking shortly after an explosion at the stern around 9 p.m., according to the ship’s captain, Choi Won Il, who was among 58 survivors. The parted stern sank immediately, and the other half floated four miles away from the explosion site before it was submerged around 1 a.m. on March 27, according to the Joint Chiefs of Staff in Seoul. Disputed Boundary The western sea border is at the center of a dispute between the two Koreas that caused skirmishes in 1999 and 2002. North Korea doesn’t recognize the maritime border demarcated by the United Nations and argues it needs to be drawn further south. In January, North Korea fired artillery in the area during military exercises, prompting warning shots by South Korea. Kim Jong Il ’s regime is under pressure to return to international talks on its nuclear weapons ambitions. Food shortages have worsened after the UN imposed tougher sanctions following North Korea’s second nuclear test in May 2009. To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

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`American Idol,’ Elvis Presley Rights Owner CKX Confirms Company for Sale

March 29, 2010

By Sarah Rabil March 29 (Bloomberg) — “American Idol” owner CKX Inc. confirmed it’s in discussions regarding a possible sale, after Chief Executive Officer Robert F.X. Sillerman said this month he was “extremely frustrated” with the company’s stock price. One Equity Partners, JPMorgan Chase & Co. ’s private equity arm, is near an agreement to take CKX private, a person with knowledge of the matter said March 26. There’s no assurance a transaction will take place and no guarantee it will be at the price and terms as speculated, CKX said in a statement today. Reports of a sale pushed CKX’s market value to about $558 million, or $6 a share, after the stock fell to an almost one- year low of $3.94 in February. Sillerman, 61, has pledged about 15.6 million CKX shares as collateral against a $50 million personal loan from Deutsche Bank AG , according to a Feb. 12 regulatory filing. A closing price below $3 on any day when the August 2011 loan is outstanding, or below $4 after April 26, may trigger default, the filing says. “Without giving a specific timeframe, I’m frustrated at the public valuation, and I couldn’t tell you how much longer that I can sit by,” Sillerman said on a March 16 earnings conference call. “I don’t know whether that’s an hour or whether that’s multiple years, but I can tell you that I am as frustrated or more frustrated than anybody.” Sillerman also said that if he thought default on his personal loan were likely because of CKX’s share price, “I would have to take that into consideration when I thought about what I wanted to do with the company.” Elvis Presley CKX owns the rights to Elvis Presley ’s name and image, and operates his Graceland mansion. The company also holds rights to boxer Muhammad Ali’s name and image. In 2005 it acquired the owner of “American Idol,” the most-watched U.S. television show for the past five seasons. CKX rose 4 cents to $6 at 11:28 a.m. in Nasdaq Stock Market trading. The shares jumped 8.8 percent March 26 when sale talks were first reported. One Equity is working with Sillerman, who would retain his 21 percent stake, the Wall Street Journal reported March 26. The buyers plan to pay about $6 a share, the Journal said, valuing CKX at about $558 million. Sillerman led a group that proposed a buyout of CKX in June 2007 for $13.75 a share, valuing the company at $1.3 billion. The group ended acquisition plans in November 2008, withdrawing a $12-a-share revised offer. X Factor CKX was formed in March 2005 when Sports Enterprises acquired Simon Fuller’s 19 Entertainment for about $161.3 million. Fuller, the founder of 19 Entertainment, created the “Idol” concept and imported it from the U.K. Simon Cowell is stepping down as a judge on “American Idol,” which airs on News Corp.’s Fox in the U.S., at the end of this season to host a U.S. version of “X Factor” on the network. Paula Abdul left the show last year. CKX owns the rights to “Idol” in more than 100 countries. To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

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Stocks, Commodities Gain as Yen, Dollar Fall on Signs of Economic Recovery

March 29, 2010

By Stuart Wallace March 29 (Bloomberg) — Stocks and commodities gained as the dollar and the yen fell against the euro after Greek deficit concern abated and signs of economic recovery sparked demand for higher-yielding assets. Oil jumped the most in almost six weeks. The Standard & Poor’s 500 Index rose 0.6 percent to 1,173.92 at 11:25 a.m. to extend its gain since Dec. 31 to 5.3 percent, poised for its best first quarter since 1998. The MSCI World Index of 23 developed nations’ stocks climbed for a third day, advancing 0.6 percent, and the MSCI Emerging Markets Index increased 1.1 percent. The S&P/GSCI Index of commodities rose 2.6 percent, the most since Feb. 16. Crude rallied 3.1 percent. Government data showed consumer spending in the U.S. rose in February for a fifth straight month and a jobs report on April 2 may show the largest increase in employment in three years. The European Union reported an improvement in business and consumer confidence . Greece plans to sell 5 billion euros of seven-year bonds, its first offering since European Union leaders and the International Monetary Fund pledged to help the nation finance its budget deficit. “Growth is starting to look more and more entrenched,” said Nader Naeimi , an investment strategist in Sydney at AMP Capital Investors, which oversees $90 billion. “Investors are looking for the recovery to turn into an outright expansion.” Energy and raw-materials producers led gains in the U.S., with Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. rising 1.2 percent and 4 percent respectively. Citigroup Inc. slipped 1.9 percent after the U.S. Treasury Department said it plans to sell the government’s 27 percent stake in the company this year in what could become the biggest profit for the bank bailout program. Stock Market ‘Acts Well’ Birinyi Associates Inc., the research and money-management firm founded by Laszlo Birinyi , raised its year-end forecast for the S&P 500 to 1,325. That level would mark a 14 percent rally from last week’s close. “Given our trading background and approaches, we are impressed with the resilience of the market which, in effect, is what trading desks mean when they say the market ‘acts well,’” according to the report Birinyi sent to clients today. “Large stocks are now likely to be contributors rather than detractors.” The S&P 500 is trading at the lowest valuation compared with junk bonds in two years, a sign the stock-market rally will continue, if two decades of history are any guide. Junk Bonds, Stocks The lowest-rated debt pays 3.22 percentage points more than the earnings yield on the S&P 500, the smallest gap since 2007 and a discount to the average 5.93 points of the past 22 years, data compiled by Bloomberg show. The measure of profits compared with share prices shows stocks may be undervalued next to the fixed-income investments most closely correlated with equities. The Stoxx Europe 600 Index drifted between gains and losses, climbing 0.1 percent in recent trading. BHP Billiton Ltd., the world’s largest mining company, surged as much as 2 percent. Bank of Ireland Plc and Allied Irish Banks Plc dropped more than 9 percent on concern the government will have to increase its stakes in the lenders as a so-called bad bank begins taking over toxic loans. The MSCI Asia Pacific Index rose 0.5 percent. The Shanghai Composite Index jumped 2.1 percent, the most in more than seven weeks, while Taiwan’s Taiex index climbed 0.9 percent. China Resources Land Ltd. and China Construction Bank Corp. advanced after reporting higher profits. Stocks rose even after Stern Hu , the Australian executive who headed Rio Tinto’s iron ore business in China, was sentenced to 10 years in jail by a court in Shanghai after being found guilty of taking bribes and infringing commercial secrets. Micex Rallies The Micex index climbed 1.7 percent for the biggest intraday gain since March 12 even after suicide bombers killed at least 38 people in the deadliest terrorist attacks in Moscow since 2004. Dubai shares fell the most in six weeks, with the DFM General Index sliding as much as 2.7 percent. Contracts to protect against a default by Dubai rose 15 basis points to 419, according to credit-default swap prices from CMA DataVision. Crude oil for May delivery rallied 3.1 percent to $82.51 a barrel in New York trading. Copper gained 3.3 percent $7,765 a metric ton and nickel increased 1.7 percent to $24,010 a ton in London, both advancing for a third day. Gold for immediate delivery rose 0.5 percent to $1,113.45 an ounce as investors bought the metal as a hedge against the weaker dollar. Silver and platinum also gained. Yen, Dollar, Treasuries The yen weakened 0.6 percent to 124.80 against the euro, with the dollar also depreciating 0.5 percent to $1.3472 per euro. The Dollar Index slid 0.5 percent to 81.302. Treasuries fell, with the yield on the 10-year note up 2 basis points to 3.87 percent, near the highest level since June. The 10-year German bund yield was at 3.13 percent, while the yield on the Greek 10-year bond rose 8 basis points to 6.28 percent. The extra yield investors demand to hold the Greek securities instead of bunds widened 11 basis points to 316 basis points. Greece is offering more than five times the yield premium of comparable Spanish debt as the European Union’s most indebted member seeks to lure investors to its first bond sale since a bailout was agreed for the nation. Greece will price the 5 billion euros ($6.7 billion) of seven-year bonds to yield 310 basis points more than the benchmark mid-swap rate, according to a banker involved in the transaction, who declined to be identified before the sale is completed. To contact the reporters on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net ; Stuart Wallace in London at swallace6@bloomberg.net .

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Obama’s Treatment of Netanyahu in Washington Wasn’t a Snub, Axelrod Says

March 29, 2010
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Euro Gains as Concerns Over Greece Ease; Copper, Stocks Advance

March 29, 2010
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Paulsons $32 Billion Funds Prompt Too-Big-to-Succeed Concerns

March 29, 2010
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Paulsons $32 Billion Funds Prompt Too-Big-to-Succeed Concerns

March 29, 2010
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Moscow Suicide Bombers Kill 38 in Two Subway Attacks, Deadliest Since 2004

March 29, 2010

By Lyubov Pronina and Lucian Kim March 29 (Bloomberg) — Suicide bombers killed at least 36 people in two attacks on Moscow subway stations, including one near the headquarters of the successor to the Soviet-era KGB, in the deadliest terrorist assaults on the capital in six years. The remains of two female suicide bombers from the North Caucasus region were found at the blast sites, Federal Security Service Director Alexander Bortnikov told President Dmitry Medvedev at an emergency meeting in the Kremlin today. The two bombs went off within in an hour of each other during the morning rush hour, killing 36 people and injuring 37, Bortnikov said. The blasts are the deadliest since 2004, when bombs detonated by suicide attackers exploded in the metro on two separate occasions. Authorities boosted security at airports across the country, according to Sergei Izvolsky, a spokesman for Russia’s air-transport agency. “Russia will fight terrorism without hesitation and to the end,” Medvedev told the country’s Security Council. The president has increased efforts to root out Islamist rebels in the North Caucasus by killing their leaders and promoting economic development in the impoverished region. Prime Minister Vladimir Putin , in Siberia on a working visit, is being kept abreast of events, state television reported. ‘More’ Attacks “It does look like we’re set to see more of these kinds of attacks in Moscow, perhaps St. Petersburg,” Carlo Gallo , Russia analyst at Control Risks, said in interview with Bloomberg Television. One bomber blew herself up at the Lubyanka station, less than a kilometer from Red Square , at 7:56 a.m. local time. The second detonated her device at 8:37 a.m. at Park Kultury station on the Garden Ring Road, according to the Emergency Situations Ministry, which puts today’s death toll at 37, with 65 wounded. “The train was totally crowded. I heard the bang and saw the flash,” an eyewitness, who declined to be identified, said outside Park Kultury station. “People started screaming. Everybody started moving up the stairs.” The ruble depreciated as much as 1.1 percent against the euro, the biggest intraday drop since Jan. 25, and was 0.8 percent weaker at 39.8733 per euro by 1:32 p.m. in Moscow. It weakened as much as 0.6 percent to 29.7300 per dollar, a three- week low, before trading 0.1 percent lower at 29.5917. ‘Terrorist Scum’ The benchmark Micex Index of 30 stocks fell 0.3 percent to 1,411.91 at the open and was 1 percent higher at 1,430.25. The dollar-denominated RTS Index dropped 0.4 percent before rising 1.1 percent to 1,537.74. Medvedev last June called for a crackdown on “terrorist scum,” amid a spate of attacks in the mainly Muslim North Caucasus region. Medvedev ordered security increased again in August, after a suicide truck bombing killed two dozen people in Ingushetia, which borders Chechnya. “It’s tricky because in the past, the attacks perpetrated by Islamist terrorists have boosted support for Putin when he was president,” Gallo said. “But now, after so many years of ongoing efforts, this may actually dent his authority.” Federal forces fought two wars against separatists in Chechnya after the collapse of the Soviet Union in 1991. Chechen militants were responsible for the worst act of terrorism in Russian history, the Beslan school hostage-taking in North Ossetia in September 2004, which left 350 people dead, half of them children. Chechen insurgents also carried out the deadliest attack ever in Moscow, the Dubrovka theater hostage-taking in October 2002 that left 130 people dead. To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net ; Lucian Kim in Moscow at lkim3@bloomberg.net

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Moscow Suicide Bombers Kill 38 in Two Subway Attacks, Deadliest Since 2004

March 29, 2010

By Lyubov Pronina and Lucian Kim March 29 (Bloomberg) — Suicide bombers killed at least 36 people in two attacks on Moscow subway stations, including one near the headquarters of the successor to the Soviet-era KGB, in the deadliest terrorist assaults on the capital in six years. The remains of two female suicide bombers from the North Caucasus region were found at the blast sites, Federal Security Service Director Alexander Bortnikov told President Dmitry Medvedev at an emergency meeting in the Kremlin today. The two bombs went off within in an hour of each other during the morning rush hour, killing 36 people and injuring 37, Bortnikov said. The blasts are the deadliest since 2004, when bombs detonated by suicide attackers exploded in the metro on two separate occasions. Authorities boosted security at airports across the country, according to Sergei Izvolsky, a spokesman for Russia’s air-transport agency. “Russia will fight terrorism without hesitation and to the end,” Medvedev told the country’s Security Council. The president has increased efforts to root out Islamist rebels in the North Caucasus by killing their leaders and promoting economic development in the impoverished region. Prime Minister Vladimir Putin , in Siberia on a working visit, is being kept abreast of events, state television reported. ‘More’ Attacks “It does look like we’re set to see more of these kinds of attacks in Moscow, perhaps St. Petersburg,” Carlo Gallo , Russia analyst at Control Risks, said in interview with Bloomberg Television. One bomber blew herself up at the Lubyanka station, less than a kilometer from Red Square , at 7:56 a.m. local time. The second detonated her device at 8:37 a.m. at Park Kultury station on the Garden Ring Road, according to the Emergency Situations Ministry, which puts today’s death toll at 37, with 65 wounded. “The train was totally crowded. I heard the bang and saw the flash,” an eyewitness, who declined to be identified, said outside Park Kultury station. “People started screaming. Everybody started moving up the stairs.” The ruble depreciated as much as 1.1 percent against the euro, the biggest intraday drop since Jan. 25, and was 0.8 percent weaker at 39.8733 per euro by 1:32 p.m. in Moscow. It weakened as much as 0.6 percent to 29.7300 per dollar, a three- week low, before trading 0.1 percent lower at 29.5917. ‘Terrorist Scum’ The benchmark Micex Index of 30 stocks fell 0.3 percent to 1,411.91 at the open and was 1 percent higher at 1,430.25. The dollar-denominated RTS Index dropped 0.4 percent before rising 1.1 percent to 1,537.74. Medvedev last June called for a crackdown on “terrorist scum,” amid a spate of attacks in the mainly Muslim North Caucasus region. Medvedev ordered security increased again in August, after a suicide truck bombing killed two dozen people in Ingushetia, which borders Chechnya. “It’s tricky because in the past, the attacks perpetrated by Islamist terrorists have boosted support for Putin when he was president,” Gallo said. “But now, after so many years of ongoing efforts, this may actually dent his authority.” Federal forces fought two wars against separatists in Chechnya after the collapse of the Soviet Union in 1991. Chechen militants were responsible for the worst act of terrorism in Russian history, the Beslan school hostage-taking in North Ossetia in September 2004, which left 350 people dead, half of them children. Chechen insurgents also carried out the deadliest attack ever in Moscow, the Dubrovka theater hostage-taking in October 2002 that left 130 people dead. To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net ; Lucian Kim in Moscow at lkim3@bloomberg.net

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Citigroup Stake Totaling 7.7 Billion Shares Will Be Sold by U.S. This Year

March 29, 2010

By Rebecca Christie March 29 (Bloomberg) — The U.S. Treasury Department today announced its plan to sell the government’s 7.7 billion common shares in Citigroup Inc. this year. “Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion,” the Treasury said in a statement in Washington today. “The manner, amount and timing of the sales under the plan is dependent upon a number of factors.” Morgan Stanley is advising the Treasury on the sale, the department said. The disposition will be “subject to market conditions” and spread out “over the course of 2010,” the department said. The Treasury acquired its stake of common shares in Citigroup as part of the $700 billion Troubled Asset Relief Program. The New York-based bank received $45 billion in multiple rounds of TARP assistance, and the Treasury said the common-stock sale plan does not affect the government’s holdings of trust preferred securities or stock warrants. To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net ;

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Citigroup Stake Totaling 7.7 Billion Shares Will Be Sold by U.S. This Year

March 29, 2010

By Rebecca Christie March 29 (Bloomberg) — The U.S. Treasury Department today announced its plan to sell the government’s 7.7 billion common shares in Citigroup Inc. this year. “Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion,” the Treasury said in a statement in Washington today. “The manner, amount and timing of the sales under the plan is dependent upon a number of factors.” Morgan Stanley is advising the Treasury on the sale, the department said. The disposition will be “subject to market conditions” and spread out “over the course of 2010,” the department said. The Treasury acquired its stake of common shares in Citigroup as part of the $700 billion Troubled Asset Relief Program. The New York-based bank received $45 billion in multiple rounds of TARP assistance, and the Treasury said the common-stock sale plan does not affect the government’s holdings of trust preferred securities or stock warrants. To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net ;

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U.S. Consumer Spending Climbs a Fifth Straight Month as Recovery Quickens

March 29, 2010

By Timothy R. Homan March 29 (Bloomberg) — Consumer spending in the U.S. rose in February for a fifth consecutive month, a rebound that may accelerate when employment strengthens. The 0.3 percent increase in purchases matched the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent gain in January, Commerce Department figures showed today in Washington. Incomes were unchanged, short of expectations and reflecting the lack of jobs. Growing demand means retailers such as Best Buy Co. may be able to sustain gains in profits even as Americans face rising foreclosures and a jobless rate that economists anticipate will be slow to retreat from the 26-year high reached last year. Household spending, which accounts for about 70 percent of the economy, may contribute more to the expansion in coming months. “The consumer is still making traction with the overall recovery,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in spending. “Factors are falling into place for the recovery to be sustained.” Stock-index futures held earlier gains following the report and Treasury securities remained lower. The contract on the Standard & Poor’s 500 Index rose 0.4 percent to 1,167.6 at 8:42 a.m. in New York. The yield on the benchmark 10-year note was 3.87 percent, up from 3.85 late on March 26. Survey Median The median estimate of 70 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to a 0.6 percent advance. The little change in incomes followed a 0.3 percent increase in January. The median estimate of economists surveyed called for a 0.1 percent advance. Wages and salaries were also little changed last month after climbing 0.4 percent in January. Today’s report showed prices cooled. The inflation gauge tied to spending patterns rose 1.8 percent from February 2009, down from a 2.1 percent increase in the 12 months ended in January. The Fed’s preferred price measure, which excludes food and fuel, was unchanged in February for a second month and was up 1.3 percent from a year earlier. Spending Climbs Adjusted for inflation, spending also climbed 0.3 percent, the best performance since November, following a 0.2 percent rise the prior month. Because spending rose and incomes were unchanged the savings rate fell to 3.1 percent, the lowest level since October 2008. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 0.2 percent in February. Purchases of non-durable goods increased 0.9 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.3 percent. The economy grew at a 5.6 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.6 percent pace from 2.8 percent the previous three months. Retailer Profits At the same time, gains in purchases so far this quarter are contributing to stronger sales at some companies, helping to boost profits. Nike Inc., the world’s largest maker of athletic shoes, said this month that third-quarter profit more than doubled, beating analysts’ estimates, as North America posted a sales increase for the first time in a year. Auto dealers are among retailers that may see a pickup in demand this month, said industry analysts such as J.D. Power & Associates and Edmunds.com. Cars and light trucks will sell at a 12 million unit annual pace in March, up from a 10.4 million pace in February, according to a Bloomberg survey. Other retailers are already seeing sales improve. Best Buy, the largest U.S. electronics retailer, last week reported fourth-quarter profit that exceeded analysts’ estimates as the Richfield, Minnesota-based company boosted sales by cutting prices on flat-panel TVs and offering discounts during the holidays. The labor market remains an obstacle and is putting pressure on lawmakers in Washington to implement policies that support job growth. The jobless rate is projected to end the year at 9.5 percent, according to this month’s survey. Unemployment reached 10.1 percent in October, the highest level since 1983. Payrolls fell by 36,000 workers in February, the Labor Department said this month. Economists anticipate the government’s employment report on Aril 2 will show the economy created 200,000 this month, according to the survey median. To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net

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U.S. Consumer Spending Climbs a Fifth Straight Month as Recovery Quickens

March 29, 2010

By Timothy R. Homan March 29 (Bloomberg) — Consumer spending in the U.S. rose in February for a fifth consecutive month, a rebound that may accelerate when employment strengthens. The 0.3 percent increase in purchases matched the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent gain in January, Commerce Department figures showed today in Washington. Incomes were unchanged, short of expectations and reflecting the lack of jobs. Growing demand means retailers such as Best Buy Co. may be able to sustain gains in profits even as Americans face rising foreclosures and a jobless rate that economists anticipate will be slow to retreat from the 26-year high reached last year. Household spending, which accounts for about 70 percent of the economy, may contribute more to the expansion in coming months. “The consumer is still making traction with the overall recovery,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in spending. “Factors are falling into place for the recovery to be sustained.” Stock-index futures held earlier gains following the report and Treasury securities remained lower. The contract on the Standard & Poor’s 500 Index rose 0.4 percent to 1,167.6 at 8:42 a.m. in New York. The yield on the benchmark 10-year note was 3.87 percent, up from 3.85 late on March 26. Survey Median The median estimate of 70 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to a 0.6 percent advance. The little change in incomes followed a 0.3 percent increase in January. The median estimate of economists surveyed called for a 0.1 percent advance. Wages and salaries were also little changed last month after climbing 0.4 percent in January. Today’s report showed prices cooled. The inflation gauge tied to spending patterns rose 1.8 percent from February 2009, down from a 2.1 percent increase in the 12 months ended in January. The Fed’s preferred price measure, which excludes food and fuel, was unchanged in February for a second month and was up 1.3 percent from a year earlier. Spending Climbs Adjusted for inflation, spending also climbed 0.3 percent, the best performance since November, following a 0.2 percent rise the prior month. Because spending rose and incomes were unchanged the savings rate fell to 3.1 percent, the lowest level since October 2008. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 0.2 percent in February. Purchases of non-durable goods increased 0.9 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.3 percent. The economy grew at a 5.6 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.6 percent pace from 2.8 percent the previous three months. Retailer Profits At the same time, gains in purchases so far this quarter are contributing to stronger sales at some companies, helping to boost profits. Nike Inc., the world’s largest maker of athletic shoes, said this month that third-quarter profit more than doubled, beating analysts’ estimates, as North America posted a sales increase for the first time in a year. Auto dealers are among retailers that may see a pickup in demand this month, said industry analysts such as J.D. Power & Associates and Edmunds.com. Cars and light trucks will sell at a 12 million unit annual pace in March, up from a 10.4 million pace in February, according to a Bloomberg survey. Other retailers are already seeing sales improve. Best Buy, the largest U.S. electronics retailer, last week reported fourth-quarter profit that exceeded analysts’ estimates as the Richfield, Minnesota-based company boosted sales by cutting prices on flat-panel TVs and offering discounts during the holidays. The labor market remains an obstacle and is putting pressure on lawmakers in Washington to implement policies that support job growth. The jobless rate is projected to end the year at 9.5 percent, according to this month’s survey. Unemployment reached 10.1 percent in October, the highest level since 1983. Payrolls fell by 36,000 workers in February, the Labor Department said this month. Economists anticipate the government’s employment report on Aril 2 will show the economy created 200,000 this month, according to the survey median. To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net

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