May 2010

Andrew Cuomo Accepts Nomination by New York Democrats to Run for Governor

May 27, 2010
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BP Has Some Success in Bid to Halt Leak, U.S. Says

May 27, 2010
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Oil-Dispersant Maker Lobbies Congress to Keep Using Chemical on Gulf Spill

May 27, 2010

By Jim Snyder May 27 (Bloomberg) — Nalco Holding Co. ’s chief met with members of Congress yesterday to convince them that its chemical dispersant should continue to be used on BP Plc ’s oil spill in the Gulf of Mexico as the U.S. weighs restrictions. J. Erik Fyrwald , chief executive officer of the Naperville, Illinois-based company, sought to reassure lawmakers that the chemical, Corexit, is “safe and effective” after the Environmental Protection Agency demanded that BP curb its use to break up the spill, company spokesman Charlie Pajor said. “The decision to use it or any dispersant is made by the responders to a spill,” Pajor said in an e-mailed statement. “We are simply complying with their requests.” The EPA ordered BP to scale back the amount of Corexit used while the agency conducts independent tests and seeks a “better choice” of dispersant, Administrator Lisa Jackson told reporters on May 24. She said the chemical was being used at a “world record” rate and its effects on aquatic life were unknown. “We are still deeply concerned about the things we don’t know,” said Jackson. Nalco was already becoming more active in Washington when the Gulf spill occurred. It recently opened an office and hired Ramola Musante, a former EPA official, as its lobbyist. The company sold $40 million of Corexit for the Gulf cleanup through last week, Pajor said. Nalco, which provides water-treatment chemicals, reported $3.75 billion in revenue last year and net income of $60.5 million. Sales Small While Fyrwald has said Corexit sales are too small to affect the company’s financial results, Nalco climbed 5.9 percent in New York trading on May 3 after announcing BP was applying the product and fell 5.3 percent on May 20 after the EPA called for curbing its use. Nalco rose 92 cents, or 4.2 percent, to $22.79 at 12:51 p.m. in New York Stock Exchange composite trading after falling 14 percent this year through yesterday. The Gulf spill provides potential revenue for Nalco of $800,000 to $6.5 million a day, Laurence Alexander , an analyst in New York with Jeffries & Co. said in a note to investors on May 18. Corexit is approved for use in 30 countries, and “has been used successfully to treat oil spills globally for a number of years,” Pajor said. Nalco doesn’t make public the chemical composition of the dispersant, which acts like a detergent on oil so that it breaks up more quickly. Corexit is “a simple blend of six well-established, safe ingredients that biodegrade, do not bioaccumulate and are commonly found in popular household products,” the company said today in a statement. Risks, Consequences Representative Edward Markey , a Massachusetts Democrat and chairman of a House subcommittee on energy and the environment, wrote Jackson on May 17, saying he was concerned about the “risks and consequences” of dispersant use in the Gulf. Richard Denison, senior scientist in Washington for the Environmental Defense Fund, said EPA and the U.S. Coast Guard have done little testing on chemical dispersants used on oil spills. It’s not known whether the chemical may accumulate in marine tissue and kill fish, shrimp and other marine life or enter the food supply, he said. “Regulatory officials are making decisions on very incomplete information,” Denison said. — With assistance from Jack Kaskey in New York Editors: Larry Liebert , Steve Geimann To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

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BP to Resume Pumping Mud Soon as Part of `Top Kill’ Operation to Plug Well

May 27, 2010

By Nancy Moran May 27 (Bloomberg) — BP Plc will resume pumping mud into its Gulf of Mexico well “quite soon” as part of its so-called top kill operation after a suspension to check pressure and make some changes to the procedure, Doug Suttles, chief operating officer for exploration and production, said during a conference call. He added that no new leak sources are being detected.

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India Growth May Top 8% as Interest Rates Stay `Out of Line’ With Recovery

May 27, 2010

By Kartik Goyal May 28 (Bloomberg) — India’s economy probably grew at the quickest pace in more than two years, increasing pressure on the central bank to raise interest rates even as Europe’s sovereign- debt crunch threatens to undermine the global recovery. Gross domestic product rose 8.6 percent in the three months ended March 31 from a year earlier, the most since the December quarter of 2007, according to the median of 19 forecasts in a Bloomberg News survey. The Central Statistical Organisation is due to announce the data on May 31 at 11 a.m. in New Delhi. India and China, the world’s fastest-growing major economies, face the threat of the debt crisis cutting demand in the European Union, the market accounting for a fifth of their exports. India’s central bank said last week that it will raise rates only cautiously even though they are “out of line” with inflation, running close to 10 percent. “The Reserve Bank of India is likely to follow a measured approach as global factors contaminate the issues relating to monetary policy,” said Sailesh K. Jha , Singapore-based managing director for fixed-income strategy and sales at Jefferies & Co., a New York-based brokerage. “Inflation may further broaden.” India’s benchmark Sensitive Index has declined about 5 percent since April 30 on concern the debt crisis may weaken the global economy. The yield on the 10-year government bond fell 54 basis points to 7.52 percent during the period as the central bank signaled a slower pace of rate-increases. Rupee Declines The rupee dropped 6.2 percent against the U.S. dollar this month, making imports costlier and impeding central bank Governor Duvvuri Subbarao’s efforts to cool inflation. The Reserve Bank’s benchmark reverse repurchase rate is at 3.75 percent after two quarter percentage point increases since mid-March, while the wholesale-price inflation touched 9.59 percent in April. Growth in India’s $1.2 trillion economy, Asia’s largest after Japan and China, is accelerating as rising incomes boost demand for cars, mobile phones and air travel. Salaries in India may increase at the fastest pace in the Asia Pacific in 2010, according to Hewitt Associates Inc., the Lincolnshire, Illinois- based human resources adviser. The economy grew 6 percent in the quarter ended Dec. 31. Car sales by companies including Maruti Suzuki India Ltd. and Tata Motors Ltd. rose 39.5 percent in April from a year earlier, the biggest jump for the month since 1999, according to the Society of Indian Automobile Manufacturers. 3G Auction The government’s auction of high-speed wireless licenses this month highlights corporate enthusiasm for the nation’s prospects. Companies including Newbury, England-based Vodafone Group Plc, the world’s biggest mobile-phone operator by sales, took part and the sale raised 677.2 billion rupees ($14.3 billion), almost double the amount budgeted by Finance Minister Pranab Mukherjee . Services including air travel, which account for about 55 percent of India’s economy, expanded the most in 21 months in April, according to the Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics. In comparison, China’s $4.3 trillion economy grew 11.9 percent in the first quarter. The Organization for Economic Cooperation and Development said May 26 that China and India need “a much stronger tightening of monetary policy” to counter inflation and reduce the risk of asset bubbles. Economic Changes Some economists say Indian Prime Minister Manmohan Singh’s government has made slow progress in creating new capacity in infrastructure such as power, roads and ports, which is adding to inflation pressures and limiting economic expansion. “Unless infrastructure is addressed in a serious way in India, it will remain a drag on growth and inflation,” said N.R. Bhanumurthy , an economist at the New Delhi-based National Institute of Public Finance and Policy. Singh wants to boost growth to 10 percent pace, which he says is needed to pull the 828 million people living on less than $2 a day out of poverty. India, ranked below war-ravaged Ivory Coast and Sri Lanka for the quality of infrastructure, in March lowered its target for spending on roads and ports, after failing to complete planned projects. Projected investment in electricity, roads and wharves may reach 407 billion rupees in the five years to March 2012, half the original goal, according to the Planning Commission, a government office that sets investment targets. Bhanumurthy said companies’ costs rise as they invest in their own power generators to meet a shortage in supplies. The finance ministry estimates that India produces about 10 percent less electricity than it needs, and roads, which account for 65 percent of the nation’s cargo, are plagued by single lanes and irregular surfaces. “The key thing required in India, is a significant pick-up in infrastructure investments,” said Vetri Subramaniam , head of equity funds at Mumbai-based Religare Asset Management Co., which manages about $3 billion in assets. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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Billionaire Li Ka-shing Says Hong Kong Property Prices Remain `Reasonable’

May 27, 2010

By Kelvin Wong May 28 (Bloomberg) — Li Ka-shing , Hong Kong’s richest man, said he may buy shares in Agricultural Bank of China’s initial public offering and more land in the city, betting China will withstand the impact of Europe’s debt crisis. China’s economy is “looking good” and the Hong Kong property market is a safe long-term bet for homebuyers, the 81- year-old billionaire told reporters yesterday after the annual general meeting of Cheung Kong (Holdings) Ltd. Li, known as “Superman” in the Hong Kong media for his investment acumen, correctly forecast in 2007 that China’s stock-market bubble would burst and last year predicted the rally in Hong Kong home prices. Hong Kong-based Li said he may purchase more land in the city for new home construction and that he took part in Prudential Plc’s $21 billion rights offer. “His prediction on properties and the stock markets have always been quite accurate and this time it looks like he may be right again,” said Francis Lun , general manager of Hong Kong- based brokerage Fulbright Securities Ltd. “From what we see, many of our clients are sensing prices have reached the bottom and are ready to move in anytime.” Hong Kong’s benchmark Hang Seng Index has declined 13 percent since Li said on Jan. 7 that global stock gains in 2009 outstripped growth in economic fundamentals and investors should be cautious. Home prices in Hong Kong have risen 33 percent since March last year, when Li told investors to buy real estate. Not a Skeptic Concerns that Europe’s debt crisis may spread, and a report that North Korea’s military had been ordered to prepare for combat dragged Asian stocks to a 10-month low on May 25. The MSCI Asia Pacific Index dropped 13 percent from an April 15 peak. Still, “the U.S. economy is improving and China’s growth this year should be at least 8 percent so I won’t be too skeptical about the global economy,” said Li. Li’s comments echoed those of U.S. investor Barton Biggs, who runs New York-based hedge fund Traxis Partners LP and who said yesterday that U.S. stock markets are oversold and may rally strongly in the next few days. Agricultural Bank of China Ltd., the nation’s biggest lender by customers, is preparing for what may be the world’s largest IPO. The Beijing-based lender may sell as much as 18 percent of itself in Hong Kong and Shanghai, two people with knowledge the matter said May 4. Li said Cheung Kong and his foundation each invested about $100 million in Prudential’s rights offer as underwriters . London-based Prudential is raising money to fund the $35.5 billion takeover of American International Group Inc.’s main Asian unit. The billionaire also said he is considering listing the Asian units of Husky Energy Inc., the Canadian oil producer he controls, and Hong Kong could be used as a base. Land Auctions Cheung Kong is interested in the next two land auctions by the Hong Kong government, Li said. The government sold a plot of land in the Fanling area of the New Territories for HK$1.33 billion ($171 million), less than surveyors’ estimates, on May 24. The first auction of this fiscal year, for a site on Lantau Island, fetched HK$3.42 billion, a third less than estimated, on May 11. Prices at the land auctions were “reasonable,” Li said. “Sometimes surveyors’ estimates are too high,” he said. Cheung Kong is one of three developers which bid to build a residential and commercial project on top of a station run by MTR Corp., the city’s government-owned subway operator, Cheung Kong said on May 25. Rags-to-Riches Hong Kong’s government is trying to avert a real estate bubble and ease concerns that property has become unaffordable for many of the city’s residents after prices rose 39 percent since January 2009, driven by a supply shortage, buying from rich Chinese, and two-decade-low interest rates. Li said investors with excess cash should consider putting their money in the property market. “If you look at postwar Hong Kong, over the last 70 years if you buy property at a specified time” its value will always go up in the long run, said Li. Forbes magazine listed Li as the world’s 14th-richest person in March, compared with 16th a year earlier, after his wealth increased 30 percent to $21 billion. Born in Chaozhou in the southern Chinese province of Guangdong, Li turned the plastics company he opened in Hong Kong in 1950 into investments in retailing, real estate, ports and energy in 54 countries. “He’s a rags-to-riches story and he’s very property focused, so what he says tends to holds some weight,” said Andrew Sullivan , a sales trader at MainFirst Securities Hong Kong Ltd. “Developers often come out and make statements and at the end of the day they’re talking their own book up.” To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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Prudential Plc Is Said to Seek Renegotiated Price for AIG’s Main Asia Unit

May 27, 2010

By Jacqueline Simmons and Zachary R. Mider May 27 (Bloomberg) — Prudential Plc is seeking to negotiate a lower price on its $35.5 billion offer for American International Group Inc. ’s main Asian unit, according to two people with knowledge of the situation. Prudential Chief Executive Officer Tidjane Thiam was in New York today to make his case in person to AIG executives that the price should be cut, said one of the people, who declined to be identified because the meeting was private. AIG’s CEO, Robert Benmosche , had resisted past efforts by Thiam to open discussions about a reduction in the price, the person said. Prudential needs to win support from 75 percent of shareholders for the purchase of AIA Group Ltd. Institutional investors with more than 15 percent of Prudential stock and private shareholders owning almost 5 percent plan to oppose the AIA deal, Neptune Investment Management Ltd. said yesterday. BlackRock Inc., Fidelity Investments and Capital Group Cos. are among major shareholders that have voiced concern about the deal, the person said. Some major shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. Should Prudential succeed in lowering the price for AIA, it will be the second time the insurer has changed the terms of the deal. AIG agreed earlier this month to accept a greater portion of debt and less cash after the Financial Services Authority , the U.K. regulator, forced Prudential to increase its capital reserves once the acquisition is complete. Rights Offering A $21 billion rights offer to fund the purchase would be the biggest in U.K. corporate history and the largest share sale to fund an acquisition on record. Prudential’s market value is about 13.9 billion pounds ($20.3 billion). Prudential’s annual general meeting is scheduled for June 7. AIG, which is selling assets to repay a U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the U.S. Treasury Department’s chief restructuring officer, said yesterday in Washington. Mark Herr , a spokesman for AIG, and Prudential’s Ed Brewster declined to comment. Prudential shareholders are pushing for a price as low as $30 billion and the two insurers were in talks about the price, the Wall Street Journal reported earlier today. Stock Gain Prudential climbed 35 pence, or 6.8 percent, to 547.5 pence in London. The stock closed at 602.5 pence on Feb. 26, the last day’s trading before the deal was announced. AIG advanced $2.41, or 7.1 percent, to $36.46 in New York Stock Exchange composite trading. The Prudential deal was AIG’s largest since it agreed in 2008 to turn over a majority stake to the U.S. in exchange for a bailout that swelled to $182.3 billion. Completion of the AIA deal, and a separate agreement to sell American Life Insurance Co. to MetLife Inc., would enable AIG to pay down its Federal Reserve credit line, Benmosche said this week. AIG’s rescue includes the $60 billion credit line, as much as $69.8 billion in Treasury assistance and $52.5 billion to buy mortgage-related assets owned or backed by the company. To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net ; Zachary R. Mider in New York at zmider1@bloomberg.net ;

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China IPOs Post World’s Biggest Gains of 2010 as Stocks Suffer Bear Market

May 27, 2010

By Michael Tsang and Inyoung Hwang May 28 (Bloomberg) — China has the world’s worst performing equity market this year and the best returns on initial public offerings. While the Shanghai Composite Index has slid 19 percent for the steepest drop among the 10 largest stock markets, IPOs are beating the country’s benchmark equity indexes by 33 percentage points on average in their first month of trading, data compiled by Bloomberg show. Chinese individuals restricted from international investments have helped snap up $25 billion in IPOs this year, three times more than were sold in the U.S., as inflation erodes savings and the government clamps down on property speculation. The rally by newly listed companies has made their shares almost twice as expensive relative to profits as the broader stock market , a sign to firms from KBC-Goldstate Fund Management to hedge fund Platinum Partners that a bubble may be forming. “Most of the China IPOs are overvalued,” said Larry Wan , Shanghai-based deputy chief investment officer at KBC-Goldstate, which oversees about $583 million. “It’s difficult to believe they are going to be able to deliver the sort of exponential growth that the valuations imply.” The fastest expansion among the 20 biggest economies has helped spur the surge in China’s IPO market. The country’s gross domestic product grew 11.9 percent in the first quarter, the most in almost three years and about four times the U.S. GDP. World’s Biggest IPO The amount raised from Chinese IPOs may double after the sale by Beijing-based Agricultural Bank of China Ltd. The nation’s third-largest lender by assets will seek at least $30 billion in Shanghai and Hong Kong, according to the Beijing Times. That would be the world’s biggest initial offering, exceeding the $22 billion deal by Industrial & Commercial Bank of China Ltd. of Beijing in 2006. Chinese IPOs have advanced 32 percent on average in their first month of trading, while the Shanghai Composite Index and the Shenzhen composite declined, Bloomberg data show. The rally by newly listed companies has been primarily fueled by individual investors, even as concern that Europe’s debt crisis will hamper the global economic rebound spurred a selloff in equities around the world, according to Andy Xie , an independent economist in Shanghai. “Chinese investors have this traditional belief that you can’t lose money buying new stocks,” said Xie, formerly Morgan Stanley’s chief economist for the Asia-Pacific region. “This is not sustainable. China’s economy has big bubbles, so does the IPO market. Investors can’t be fooled forever.” Inflation, Property Market Local investors who have a total of 146 million brokerage accounts are seeing their investment choices outside of equities limited by inflation that’s eroding China’s $7.2 trillion of savings and government curbs on mortgage loans. Consumer prices climbed 2.8 percent last month, surpassing the one-year savings rate of 2.25 percent. The pace of inflation is forecast to rise 3.4 percent this year, the median estimate of 18 economists surveyed by Bloomberg shows. Citigroup Inc. of New York and Paris-based BNP Paribas SA project that home prices will drop 20 percent this year, after Chinese policy makers increased bank reserve requirements three times in the past three months to slow lending. Property prices surged the most on record in April, according to the National Development and Reform Commission. “Chinese investors can’t allocate their money off-shore,” said Lei Wang , who helps oversee $20.2 billion at the Santa Fe, New Mexico-based Thornburg International Value Fund . “Most of the money is locked up at the home market, so for some of those investors, IPOs are a good short-term profitable trade.” Relative Value Gains by Chinese IPOs have pushed valuations to an average 46 times estimated profits, Bloomberg data show. That’s almost three times as much as companies traded in Shanghai , valued at 16 times earnings, and about double the ratio for Shenzhen-listed stocks. Chongqing Water Group Co. is valued at 35.1 times its estimated profit after a 59 percent advance in its first month of trading. That’s more than double the average price-earnings ratio for companies in the Shanghai gauge, which fell 5.2 percent over the same period. The $511 million IPO in March gave the supplier of water to the southwestern municipality of Chongqing a market capitalization of $4.9 billion. ‘Rocket Shots’ Investors in East Money Information Co. , the Shanghai-based provider of online financial information, paid 56 times the company’s estimated profits in its IPO, or 117 percent more than the average company in the Shenzhen measure of equities, Bloomberg data show. The company gained 93 percent in its first month of trading, helping to push its valuation to 92 times earnings, or more than three times the broader market. The Shenzhen index rose 4.9 percent in the same span. “A lot of the ones trading were really rocket shots,” said Uri Landesman , president of New York-based hedge fund Platinum Partners, which oversees more than $500 million. “It definitely does look like there could be bubble-like tendencies in the Chinese IPO market.” To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Inyoung Hwang in New York at ihwang7@bloomberg.net .

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Ford Said to Plan End of Mercury Unit After Seven Decades as Sales Plunge

May 27, 2010

By Keith Naughton May 27 (Bloomberg) — Ford Motor Co. is preparing to wind down the Mercury line, created in 1939 by Edsel Ford , after sales plunged 74 percent since 2000, said two people familiar with the plan. The automaker’s top executives are preparing a proposal to kill Mercury to be presented to directors in July, said the people, who asked not to be indentified revealing internal discussions. Mercury, losing two of four models next year, will be starved of products and promotion, the people said. Chief Executive Officer Alan Mulally emphasized the automaker’s namesake brand as he revived the only major U.S. automaker to avoid bankruptcy. The timing of Mercury’s demise depends on how fast executives can convince the brand’s dealers, who also sell Lincoln models, to close or merge with Ford showrooms, they said. “Mercury is a forgotten brand,” said John Wolkonowicz , an auto analyst with IHS Global Insight in Lexington, Massachusetts. “Many Americans probably already think it has been discontinued. Mercury was too similar to Ford from the very beginning.” Mulally also is unloading Ford’s European luxury brands, after the automaker failed to achieve a goal to have them generate one-third of automotive profits. Ford in March agreed to sell Volvo to China’s Zhejiang Geely Holding Co. It sold off Jaguar, Land Rover and Aston Martin in the last three years. Detroit’s Departed Mercury would join Pontiac, Saturn, Oldsmobile and Plymouth among the departed Detroit brands of the 21st century. Sales will end within four years, one of the people estimated. General Motors Co., as part of its U.S.-backed reorganization last year, sold or closed four of its eight brands sold domestically. Edsel Ford, son of founder Henry Ford , established Mercury during the Great Depression as a mid-priced alternative to mainstream Ford and upscale Lincoln. Edsel’s great grand- daughter, Elena Ford , now the automaker’s director of global marketing, initially opposed discontinuing Mercury, which she was in charge of promoting prior to 2002, the people said. Doing away with Mercury is supported by Ford Executive Chairman Bill Ford and other members of the founding family, who have 40 percent voting control of the automaker through a special class of stock, the people said. With Mercury accounting for 1.9 percent of Ford’s global sales in the first quarter , the family has decided ending it is best for the business, the people said. ‘End of an Era’ “Edsel Ford is revered in the family and Mercury was his creation,” said Wolkonowicz, a former Ford product planner. “This is the end of an era.” “Our plans regarding Mercury have not changed,” said Mark Truby , a Ford spokesman. “Like any good business, we constantly assess our business portfolio. If things change, we will let you know.” Bill and Elena Ford declined to comment, Truby said. Mercury sales peaked in 1978 at 579,498, when it had the slogan “At the Sign of the Cat.” Deliveries fell 84 percent to 92,299 last year. As the U.S. auto market recovers, Mercury’s sales are up 23 percent this year through April, less than Ford Motor’s overall gain of 33 percent, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Mercury had 0.9 percent of the U.S. market through April, unchanged from 2009. Mulally, since arriving from Boeing Co. in September 2006, put a priority on improving quality and expanding the offerings of the Ford brand to lessen its dependence on pickups and sport- utility vehicles. He ended three years of losses at the Dearborn, Michigan-based automaker by earning $2.7 billion last year and has said 2010 will be “solidly profitable.” Ford rose 60 cents, or 5.3 percent, to $11.99 at 4 p.m. in composite trading on the New York Stock Exchange. The shares have risen 20 percent this year. Mercury Withered As Mulally focused on the namesake brand, Mercury withered, the people said. Ford’s ad spending on Mercury fell 88 percent from 2005 through 2009, according to researcher Kantar Media of New York. Last year, Ford stopped selling the Mercury Sable, a sibling to the Taurus. The Mountaineer, Mercury’s version of the Explorer, is to go away next year as Ford rolls out a new version of the SUV. Since Mulally’s arrival, Ford stopped giving Mercury exclusive features and technology, the people said. That made Mercury less distinctive than comparable Fords, which tend to be priced lower. ‘On the Cheap’ “The reason Mercury failed throughout its existence is because Ford never wanted to spend any money on it,” Wolkonowicz said. “Ford always wanted to do it on the cheap and the results were what you’d expect.” Mercury’s top-selling model is the Milan , a sibling of the Ford Fusion , with sales up 53 percent this year. Mercury also sells its own version of the Ford Escape SUV, known as the Mariner, which has had a 22 percent sales gain through April. Ford is scheduled to replace those models in 2012 and 2013 and could drop the Mercury versions, Wolkonowicz said. Mercury’s second best-selling model, the Grand Marquis, is being retired next year as Ford stops producing a trio of large, rear-wheel drive sedans that also includes the Lincoln Town Car and Ford Crown Victoria. Mulally has emphasized more fuel- efficient models, such as the Fiesta and Focus small cars Ford is introducing this year in the United States. Neither has a Mercury counterpart. Oldest Buyers “The Grand Marquis has the oldest buyer demographics in the industry with an average age of 70,” Wolkonowicz said. “There are still members of the Depression generation who will miss Mercury.” The brand’s cultural heyday came in the 1950s, when hot- rodders favored its engines, which were larger and faster than those found in Ford models, Wolkonowicz said. James Dean drove a Mercury in the 1955 movie “Rebel Without a Cause.” Along with Lincoln, Mercury sponsored “The Ed Sullivan Show” on CBS in the 1950s and 1960s. Detective Steve McGarrett, played by actor Jack Lord , drove a black Marquis in the “Hawaii Five-0” TV series on CBS in the 1970s. As Mercury’s sales plunged, so too have its profits, Wolkonowicz said. With one-quarter of the sales it had a decade ago, it’s hard to rationalize the line’s continued existence, he said. “I’m not surprised to see Mercury go because they don’t sell enough of them,” Wolkonowicz said. “It’s been a case of benign neglect for years.” To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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Pequot, CEO Samberg Will Pay $28 Million in SEC Insider-Trading Settlement

May 27, 2010

By David Scheer and Jesse Westbrook May 27 (Bloomberg) — Pequot Capital Management Inc. and the hedge-fund firm’s founder, Arthur Samberg , will pay almost $28 million to settle regulatory claims they illegally tapped information from a Microsoft Corp. employee to bet on the software maker’s stock in 2001. Samberg, who said last year he was winding down what was once the world’s biggest hedge fund, agreed to be barred from working as an investment adviser, the Securities and Exchange Commission said today in a statement announcing the case. The SEC also brought a civil claim against the former Microsoft worker, David Zilkha , saying he concealed his actions during an earlier probe. “The cases have two particularly troubling aspects — a hedge-fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation,” Robert Khuzami , the agency’s enforcement director, said in the statement. “Both are high-priority targets.” Senators including Iowa Republican Charles Grassley have criticized the SEC’s decision in 2006 to close an examination of Pequot’s trades, including scrutiny of Morgan Stanley Chairman John Mack . Interest was rekindled last year after investigators got copies of e-mails between Zilkha and a Microsoft colleague from a hard drive in possession of Zilkha’s ex-wife. ‘Unnecessary Delays’ “Federal regulators have finally followed the evidence to its logical conclusions after years of unnecessary delays and timidity,” Grassley said in a statement today. “There was clearly a case to be made against Pequot, and the SEC has finally admitted it.” Jonathan Gasthalter , a spokesman for Samberg, 69, and Wilton, Connecticut-based Pequot, declined to comment. Samberg and Pequot didn’t admit or deny wrongdoing when agreeing to settle. Zilkha’s attorney, Henry Putzel, didn’t return a phone call seeking comment. Microsoft spokesman Peter Wootton declined to comment. The Redmond, Washington-based company wasn’t accused of wrongdoing. In April 2001, Zilkha, now 41, was planning to leave Microsoft and join Pequot when Samberg e-mailed him, seeking information on whether the company would miss quarterly earnings estimates. “Any tidbits you might care to lob in would be appreciated,” Samberg wrote, according to the SEC’s claim. Microsoft Earnings Zilkha contacted colleagues, learned that earnings would meet or beat expectations, and advised Samberg to buy the stock, according to the agency’s complaints. Samberg invested in Microsoft stock options, helping Pequot funds generate $14.8 million in illegal profits, the SEC said. Afterward, he credited Zilkha for counteracting Pequot’s bearish view of personal computer sales, referring to the company by its ticker, MSFT. Samberg wrote in a message to Zilkha, “our tech group has a very dim view of pc demand, and consequently msft,” according to the SEC. “in fact, they are short the stock in one account, while it is my largest long. (I shouldn’t say this, but you have probably paid for yourself already!)” Regulators have examined Pequot’s trades since at least 2004, according to documents an SEC official gave lawmakers for a 2006 hearing. Initially, the agency also focused on whether Mack fed Pequot information about a General Electric Co. deal. The SEC closed the first inquiry in 2006, writing in an internal memo that it was “extremely unlikely” that Mack leaked information. A simultaneous probe of the Microsoft trades also found “insufficient evidence,” the memo said. Samberg told federal investigators in 2006 that he couldn’t remember why he made the Microsoft bets and downplayed Zilkha’s role, according to the memo. One tip Zilkha might have provided was “vague” and another was information that didn’t move Microsoft’s stock, investigators wrote in the memo. ‘Direct Evidence’ Some e-mails cited by the agency today were known to investigators at the time. Others surfaced in January 2009 during a legal fight between Zilkha and his ex-wife. Those were the first “direct evidence that Zilkha had material, nonpublic information about Microsoft,” the SEC wrote in today’s claim. In one message, Zilkha asked a colleague, “Have you heard whether we will miss estimates? Any other info?” The co-worker responded that “march was the best march of record,” and Microsoft was “on track for revised forecast.” Zilkha invoked the U.S. Constitution’s Fifth Amendment last year in declining to say why he hadn’t handed over those e-mails during the first SEC investigation, the agency said today. Gary Aguirre Grassley’s interest in the inquiry was fueled by former SEC attorney Gary Aguirre , who said agency supervisors stymied the investigation. Aguirre, who was fired by the SEC in 2005, said in an interview today that he would have obtained Zilkha’s e- mails and brought the case if not for the interference. In the second probe, “the SEC hung with it despite the fact that it was a chapter in their history they would probably rather forget, and they seemed to get a very tough insider- trading sanction,” said Bradley Bennett , a former SEC investigator who’s now a partner at Baker Botts in Washington. Samberg started Pequot Partners fund in 1986 while he was at Dawson-Samberg Capital Management Inc., a money-management firm based in Southport, Connecticut. He spun off Pequot Capital at the start of 1999, and by 2001 the firm had $15 billion in assets, making it the largest hedge fund in the world. In a May 2009 letter, Samberg told investors he planned to liquidate his main hedge funds after the new insider-trading investigation “cast a cloud” over the firm. Samberg and Pequot agreed to forfeit almost $18 million in profits and interest and pay $10 million in fines, the regulator said in its statement. The ban on his work as an investment adviser includes exceptions “aimed solely at winding down Pequot,” the SEC said. To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net ; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net .

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Stocks Rally, Euro Strengthens on China Commitment to European Investment

May 27, 2010

By Elizabeth Stanton and David Merritt May 27 (Bloomberg) — Stocks surged and the euro snapped a three-day decline against the dollar as China said it remains a long-term investor in Europe, easing concerns that the region’s debt crisis will worsen. Commodities jumped and Treasuries fell. The MSCI World Index , a gauge of equities in 24 developed nations, and the Standard & Poor’s 500 Index both jumped 3.3 percent for their biggest gains since May 10. The euro strengthened 1.5 percent to $1.2362, rebounding from near a four-year low, and rose 2.7 percent against the yen. Oil and copper advanced for a second day, sending the Reuters/Jefferies CRB Index of commodities to its biggest gain since March. Ten- year Treasury yields jumped 16 basis points to 3.35 percent. The Stoxx Europe 600 Index climbed to a one-week high and the Dow Jones Industrial Average rebounded above 10,000 after closing below for the first time since February. China’s foreign exchange regulator said reports it was reviewing euro holdings are “groundless,” boosting optimism the European debt crisis will stabilize. Italian Prime Minister Silvio Berlusconi plans $30.4 billion in budget cuts and Spain’s Jose Luis Rodriguez Zapatero won parliamentary approval for austerity measures. “There is a huge sigh of relief that we’re making progress on the European sovereign debt crisis through some of these budget-deficit-reduction announcements, and the announcement that big players like China are not going to back away from the market,” said Alan Gayle , senior investment strategist at RidgeWorth Investments in Richmond, Virginia. RidgeWorth manages $63 billion. GDP, Jobless Claims U.S. stocks rallied even after government data showed the economy grew at a slower pace than previously calculated in the first quarter and jobless claims fell less than economists estimated. The 3 percent increase at an annual rate in U.S. gross domestic product was less than the median estimate of economists surveyed by Bloomberg News and last month’s estimate of 3.2 percent, the Commerce Department said. Initial jobless claims fell 14,000 to 460,000 last week, the Labor Department said. Economists on average forecast a drop to 455,000. The Stoxx 600 gained 3 percent, extending yesterday’s 2.4 percent surge, while the MSCI Asia Pacific Index jumped 1.8 percent. Man Group Plc, the biggest publicly traded hedge fund firm, soared 11 percent in London after reporting earnings that topped analyst estimates. BHP Billiton Plc and Rio Tinto Plc advanced more than 4 percent each after the Australian newspaper said the Pacific nation may change the rate at which a proposed mining profit tax takes effect. BP Rallies BP Plc’s U.S. shares gained 7 percent, the most since November 2008, as the oil company continued work to plug the Gulf of Mexico leak that cut the stock’s price by a quarter. The company temporarily stopped the flow of oil, indicating progress on its plans to plug a well that’s been spewing oil for more than a month, U.S. Coast Guard Admiral Thad Allen said. The S&P 500 erased yesterday’s 0.6 percent decline and climbed to the highest since May 19. Benchmark U.S. indexes climbed in early trading yesterday after sales of new homes rose to the highest level in two years and growth in durable-goods orders topped economist estimates. The market erased gains in the final hour yesterday following reports that China was evaluating its European investments. China’s sovereign wealth fund later said it’s maintaining its European investments. China’s Investments “Europe has been, and will be one of the major markets for investing China’s exchange reserves,” the State Administration of Foreign Exchange said in a statement on its website today. The official Xinhua News Agency reported China Investment Corp. President Gao Xiqing said yesterday Europe’s turmoil “hasn’t had too big of an impact” on CIC’s investment decisions. The S&P 500 is down 7.1 percent in May, poised for its worst month since February 2009, after credit-ratings downgrades of Greece, Portugal and Spain heightened concern some European governments will struggle to fund deficits. Europe’s debt crisis is likely to be contained within the region as the recovery in the U.S. and Asia protects them from contagion, Federal Reserve Bank of St. Louis President James Bullard said. Former Bundesbank President Helmut Schlesinger said the euro’s slide hasn’t left it at an unnaturally low and the breakup of the 16-nation currency is out of the question. U.S. stock markets are oversold and may rally strongly in the next few days, said investor Barton Biggs , who runs New York-based hedge fund Traxis Partners LP. Rally Predicted “I think they’re going to stabilize in this general area, and then we’re going to have a significant move to the upside,” Biggs, whose flagship fund returned three times the industry average last year, said in a Bloomberg Television interview. The MSCI Emerging Markets Index advanced 2.8 percent, extending yesterday’s 3.2 percent rally to cap its biggest back- to-back gain in a year. Brazil’s Bovespa rallied 3.2 percent and benchmark indexes in China, South Korea and Hungary rose more than 1 percent today. Templeton Asset Management Ltd.’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and the slump in emerging markets is a “correction” in a bull market. “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so,” Mobius, who oversees about $34 billion in emerging markets as Templeton’s Singapore-based executive chairman, said in an interview yesterday in Cairo. “When the time comes, emerging markets will recover faster and in a big way.” Yen, Dollar The yen and the dollar declined as the gains in stocks damped demand for the currencies as a haven, encouraging traders to buy higher-yielding assets. The Japanese currency slid against all 16 of its most-traded counterparts while the dollar declined versus all but the yen. The South Korean won appreciated for the first time in three days after the central bank forecast a $2.5 billion current-account surplus for May. Crude oil for July delivery surged 4.3 percent to $74.55 a barrel in New York trading. Copper for July delivery jumped 2.5 percent to $3.1585 a pound in New York. Aluminum, nickel and zinc also gained in London. The Reuters/Jefferies CRB Index of commodities jumped 1.9 percent, the most since March 29. The drop in Treasuries pushed yields up from near one-year lows, as diminished concern that Europe’s sovereign debt crisis will worsen reduced the refuge appeal of $31 billion in seven- year notes sold at auction. The notes drew a yield of 2.815 percent, compared with a forecast of 2.802 percent in a Bloomberg News survey of seven of the Federal Reserve’s 18 primary dealers. The German 10-year bund yield rose six basis points to 2.7 percent. Default Swaps The cost of insuring against losses on European corporate bonds fell, with the Markit iTraxx Crossover Index of credit- default swaps on 50 mostly high-yield companies dropping about 40.42 basis points to a mid-price of 560.33, according to Markit Group Ltd. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark in North America, dropped the most in more than two weeks, losing 11.8 basis points to a mid- price of 115.08 basis points. Credit swaps tied to BP, Halliburton, Transocean Ltd. and Anadarko Petroleum Corp. dropped. To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net ; David Merritt in London on dmerritt1@bloomberg.net .

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Gary Wells Joins Swinerton Interiors

May 27, 2010

SAN FRANCISCO, CA–(Marketwire – May 27, 2010) –  Gary Wells has been tapped by Swinerton Interiors to lead their business development efforts in Northern California. In his new role as Director of Business Development, Wells will enhance Swinerton Interiors’ position within the real estate and design community, cultivate new business relationships and grow services aimed at the real estate brokerage, management and development communities.

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Gary Wells Joins Swinerton Interiors

May 27, 2010

SAN FRANCISCO, CA–(Marketwire – May 27, 2010) –  Gary Wells has been tapped by Swinerton Interiors to lead their business development efforts in Northern California. In his new role as Director of Business Development, Wells will enhance Swinerton Interiors’ position within the real estate and design community, cultivate new business relationships and grow services aimed at the real estate brokerage, management and development communities.

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Gary Wells Joins Swinerton Interiors

May 27, 2010

SAN FRANCISCO, CA–(Marketwire – May 27, 2010) –  Gary Wells has been tapped by Swinerton Interiors to lead their business development efforts in Northern California. In his new role as Director of Business Development, Wells will enhance Swinerton Interiors’ position within the real estate and design community, cultivate new business relationships and grow services aimed at the real estate brokerage, management and development communities.

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Mint.com Report: Coffee Spending On The Rise

May 27, 2010

It’s a habit that just won’t quit, and java fiends pushed away by pocketbook-unfriendly drink prices of 2009 are curbing their habit no more. As a new info-graphic from Mint.com shows based on their users’ data, those in need of a fix are back to it again at their resident caffeinated watering holes , which have mostly seen increases in sales. However, Mint.com claims one big exception: In early 2010, Starbucks hasn’t been able to keep up with its competitors, both in terms of the number of transactions and spending per user, and spend per each transaction. Perhaps coffee makers are getting more customers like this guy .

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Parsons Appoints Harvey as Executive Vice President and Global Business Development Manager of Its Commercial Technology Group

May 27, 2010

PASADENA, CA–(Marketwire – May 27, 2010) –  Parsons announces the appointment of Brent F. Harvey as Executive Vice President and Global Business Development Manager of Parsons Commercial Technology Group (PARCOMM), effective June 5. In his new role, Mr. Harvey will lead PARCOMM’s global sales and marketing program.

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Collective Brands’ Stockholders Pass Proposals at Corporation’s Annual Meeting

May 27, 2010

TOPEKA, KS–(Marketwire – May 27, 2010) –  Stockholders of Collective Brands, Inc. ( NYSE : PSS ) today approved all of management’s proposals at the Corporation’s annual meeting.

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Collective Brands’ Stockholders Pass Proposals at Corporation’s Annual Meeting

May 27, 2010

TOPEKA, KS–(Marketwire – May 27, 2010) –  Stockholders of Collective Brands, Inc. ( NYSE : PSS ) today approved all of management’s proposals at the Corporation’s annual meeting.

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theGrio: Tainted Meat Exposes US Consumers to HIV-like Virus

May 27, 2010

This post originally appeared at theGrio.com By Jennifer H. Cunningham Primate parts smuggled inside cases of fish. Suitcases stuffed with dried duiker antelope that’s later sold door to door. Smoked cane rat strapped under a smuggler’s clothes. These are the hallmarks of the unregulated, underground bushmeat trade in America. The high demand for this meat among certain African communities is jeopardizing public health here, destroying the lives of those who depend on the forest to survive, and endangering both the environment and an already vulnerable species, scientists and wildlife advocates say. “There is no doubt that thousands of pounds of bushmeat is coming into the country every month,” said Dr. Heather E. Eves, former director of the Bushmeat Crisis Task Force . Bushmeat, or meat from wild animals such as elephant, bat or chimpanzee, is a prized foodstuff in some African cultures — eaten on holidays and celebrations and believed to have medicinal benefits — according to according to Dr. Richard Ruggiero, branch chief of Near East, South Asia and Africa for the U.S. Fish and Wildlife Service Division of International Conservation. Some also believe consuming bushmeat will make them stronger, or even increase sexual prowess. Dr. Eves — now the visiting assistant professor at Virginia Tech’s Northern Virginia Natural Resources Program and professorial lecturer at Johns Hopkins School of Advanced International Studies — said bushmeat consumption is culturally significant, like the way turkey is for Americans on Thanksgiving. Dr. Ruggiero likened it to his family, who are from the Mediterranean, eating seafood for dinner on Christmas Eve. “You’re not doing it intending to be evil,” Dr. Ruggiero said. “You’re doing it because it’s your tradition. It’s understandable, and in some cases justifiable, but that doesn’t make it any better for the earth.” Bushmeat also serves as both a source of income and protein for those who harvest it, Dr. Eves said. Some types of bushmeat can be as expensive as filet mignon. “It’s a link to their culture,” Dr. Eves said. “That’s a very important piece. It can’t be replaced by any other types of food here.” But scientists believe bushmeat can harbor diseases that can spread from animal to human. The Centers for Disease Control, for example, says humans can contract a host of diseases from primates, including the Ebola virus, monkeypox, tuberculosis and yellow fever. Last month, the CDC and the Wildlife Conservation Society released preliminary test results that found primate bushmeat seized in New York City contained two strains of the simian foamy virus — a virus related to HIV — that can infect people. The related Simian Immunodeficiency Virus or SIV, has been found in bushmeat tested outside the country, and some believe that virus is responsible for the first HIV cases , according to the Wall Street Journal. “The movement and mixing of humans, wildlife, and domestic animals as part of the illegal global wildlife trade encourages transmission of disease and emergence of novel pathogens,” Dr. William Karesh, of the Wildlife Conservation Society’s Global Health Program, said in a statement. Nonetheless, the bushmeat trade is thriving in various U.S. locales, including Atlanta, Detroit, Washington, D.C. and New York. New Jersey is a particular hotspot for the trade, Dr. Eves said. “The availability of bushmeat in the U.S. is surprising,” she said. With expanded infrastructure into previously impenetrable forests, the process of transporting wild animals from the jungle to the dinner table takes only a few days. The hunter then prepares the meat for shipment, usually by charring off its fur, removing its organs and placing on a frame over an open fire to dry and smoke for a few days, Dr. Eves said. However, some meat is simply shipped raw. Dr. Eves recalled an airport in Central Africa where workers wrapped all suitcases in plastic after passengers complained their bags were getting blood on them. One problem in stemming the tons of bushmeat arriving in the U.S. every year is there aren’t enough inspectors to detect it. Bob Onda, supervisory inspector for the U.S. Fish and Wildlife Office of Law Enforcement, port of New York, is the first line of defense the U.S. has in keeping bushmeat out of the country. He and his staff of 12 investigators simply can’t inspect every parcel or person that arrives in New York. He said his team already inspects roughly 35,000 to 40,000 commercial shipments each year. Onda said the number of bushmeat seizures in the port of New York had declined, but said the bushmeat could be being smuggled in other ways, like in smaller shipments or to other cities. When caught, Onda said smugglers are “prosecuted to the fullest extent of the law.” Late last year, a New York Federal Court sentenced Mamie Manneh, a Liberian woman from Staten Island, to a three years probation for smuggling and selling smoked bushmeat, including primate parts. Next month, the Senate is expected to introduce the Global Conservation Act , which would create an international strategy to combat natural resource depletion worldwide, including the illegal bushmeat trade. Before globalized trade stretched to previously remote areas in Africa, those who lived there hunted bushmeat to eat and sell locally. But worldwide demand has created an insatiable and unsustainable need for bushmeat, leaving swathes of forest, or “bush,” bereft of wildlife and rendering many Africans unable to continue living a traditional lifestyle, Ruggiero said. Once the animals are gone, villagers who relied on bushmeat to survive are left virtually destitute and unable to maintain their way of life for themselves or for future generations. For example, some members of the Pygmy and Bantu tribes have been forced to work for the very logging camps that created the roads that brought the bushmeat hunters to their doorsteps, Ruggiero said. “They go down with the forest and the wildlife,” Ruggiero said. The bushmeat trade “is not just a biodiversity issue, it’s a human right’s issue.” He called on those in the U.S. to stop eating bushmeat, not only because of public health and environmental concerns, but because the trade destroying the lives of those who rely on the bush. “Understand that you are contributing to the compromise, death and destruction of the forest and the people who live in it,” he said. Related articles by Zemanta Ancient origin for monkey version of HIV (nature.com) Rare animals are being ‘eaten to extinction’ (telegraph.co.uk)

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Gulf Oil Spill: Cleanup Has Cost Federal Taxpayers $87 Million So Far

May 27, 2010

Federal officials say cleaning up the massive oil spill in the Gulf of Mexico has already cost the government $87 million, making it the third-most expensive cleanup effort in the nation’s history. Coast Guard Rear Adm. Mary Landry has distributed that money to state and federal agencies directly involved in the cleanup. Those include the National Oceanic and Atmospheric Administration, which projects the oil slick’s trajectory, and the U.S. Fish and Wildlife Service, which rescues oil-soaked birds. A senior financial analyst at the National Pollution Funds Center says an additional $38 million in emergency money has been assigned to the Deepwater Horizon spill, but it has yet to be spent. The most expensive cleanup was the Exxon Valdez spill, which cost $121 million. The second was $89 million for cleaning up a 1994 oil spill off the coast of San Juan, Puerto Rico.

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Warren Buffet Lobbied Against His Own Advice On Derivatives: Rolfe Winkler

May 27, 2010

In the must-read letter obtained by Forbes, Buffett waxes philosophic on the dangers of derivatives. It’s spot on correct. The kind of sensible advice many might expect to hear from him today. But as has been clearly demonstrated over the past two years, Buffett is less concerned with sound public policy than with protecting his own interests.

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José Viñals: It’s Hip to Be Square — Why Good Financial Sector Supervision Is Important

May 27, 2010

Financial supervisors often get a raw deal. They are the stodgy “buttoned-up” guys who stand in the way of innovation, the died-in-the-wool bureaucrats who resist change and meddle with markets. On the list of thankless jobs they rank somewhere between traffic wardens and tax administrators. And yet, as the global financial crisis taught us, supervision is incredibly important. Countries with the same set of rules had very different experiences during the crisis. Why? There are clearly many reasons but one of them is “better supervision.” After all, rules are only as good as their implementation. In some countries, the financial supervisor became the unsung hero of the crisis. One might say “It’s hip to be square!” When you think about it, the role of the financial supervisor is pretty unique. They are there during the birth, life, and death of the institutions they supervise. The license them, monitor them, lay out the rules, guide them, penalize them, and step in when they fail. The supervisor acts as a midwife, parent, mentor, cop, judge, and undertaker–all rolled into one. These are hefty responsibilities. And unfortunately, supervision often comes up short. In an assessment of standards across countries since 2000, we found that while most countries have adequate legislation, regulation, and supervisory guidance, a significant chunk do not do as well when it comes to the actual nuts and bolts of supervision. Five key factors So what makes a good supervisor? A recent IMF Staff Position Note [located in full at the bottom of this post] identifies five factors–intrusive, proactive, comprehensive, adaptive, and conclusive. Intrusive means having an intimate knowledge of the supervised entity–in short, stick your nose in, and know what’s going on. To be proactive , a supervisor must first be skeptical. She must always question, even in good times, the industry’s direction or actions, not worrying about being the party-pooper. Supervision is most valuable when least valued. Good supervision is also comprehensive –that means leaving no stone unturned, and being especially vigilant about what’s going on the edge of the regulatory perimeter. To be adaptive , supervisors must keep their eyes on the ever-moving ball, keeping abreast of new products, new markets, new services, and new risks. And finally, supervision must be conclusive –don’t just identify problems, follow up too. Learning to say No How do we develop a good system of supervision? How do we learn to say “no”? There are really two pillars–the ability to act and the will to act. The ability to act depends on proper legal authority, adequate resources, a clear and well-defined strategy, a robust internal organization, and an effective working relationship with other agencies. Once all that is in place, we still need a willingness to fulfill the role of supervisor. This is often the hard part, and involves standing up to the “cool kids” and the vested interests. A number of factors can help here, including a clear and unambiguous mandate, operational independence that is free from political or industry interference, accountability, a skilled staff, a healthy arms-length relationship with the industry, and an effective partnership with boards of directors. Supervisors are the people who don’t get swayed by collective euphoria. They are the people who are not afraid to say no. In short, supervisors are cool. And they need all the support they can get–including from politicians. spn1008 This post originally appeared at iMFdirect

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Gilbert B. Kaplan: The Manufacturing Sector as Sacrificial Lamb

May 27, 2010

The outcome of today’s Security and Economic Dialogue (S & ED) talks in Beijing is discouraging for those of us who want to see an immediate effect on Main Street. No specific movement has taken place on currency issues. China’s President Hu says he will take action on currency, but he doesn’t say what action he will take or when he will take it. China’s currency is undervalued by about 40%. It is unlikely that anything he is even contemplating would close that gap. And while we wait for him to make up his mind, more jobs in the U. S. will be lost to China. The United States is playing defense everywhere in the world. Militarily we are losing influence and appear to be losing wars. Diplomatically our powers of persuasion are waning. And in international trade, jobs are moving off-shore, we have no sustained manufacturing policy, and the production sectors in other countries’ economies are growing faster than ours. There is certainly a great effort to solve the military and diplomatic problems, but what are we doing on trade? President Obama is aware of the issue, but the solutions are hard to find and are not being articulated. To me, a large part of the problem is that industrial growth in this country, indeed what used to be called industrial policy, takes a second chair to almost every other policy in Washington. The biggest example of that right now is this failure to address currency undervaluation in China, in a forthright and immediate fashion. It has now been years since the problem has been identified. When I served in the United States government, I heard regularly that we could never deal with the Japan trade issues aggressively because we needed our military bases in Japan in order to stand up to the then-Soviet Union. Now we hear we can’t stand up to China because we need their help on Iran and North Korea or on global warming issues. But we can’t keep paying for military and diplomatic victories–assuming we are even achieving these–by trading away our economic prowess. Put simply, the cost is too high and we don’t have enough chips left. As Clyde Prestowitz puts it in his new book, The Betrayal of American Prosperity , “the United States fell into the habit–and the addiction continues today–of making economic concessions in order to obtain geopolitical objectives.” He also notes that the blind adherence to laissez faire economics and trade policy was not the way we became a great power and world technology leader. Indeed, the time when America emerged as a world leader–broadly the beginning through the middle of the twentieth century–was when the U. S. government intervened in the economy and actively supported U. S. manufacturing. Why aren’t we able or willing to do that today? I think the biggest single reason is the failure of the policy community to come up with a sustained and powerful rationale for doing so. There are voices out there calling for this renaissance: Prestowitz, many elected representatives on Capital Hill, Leo Gerard and other union leaders. But for every one of these there are more on the other side, repeating stale mantras calling for more work on the Doha Round, saying we should only talk softly to China while they continue to engage in mercantilist policies, and standing up for a trading system that is not reciprocal. What we need is a renaissance of American production. We need to make things in this country and balance the terms of trade or our future, and even more our children’s future, will be very dim. As a country we will go further in debt and we will not have the productive capacity to work our way out of it. How do we create this renaissance? First, we need to create a sustained policy dialogue that will challenge the current assumptions and develop alternatives. To this end, I plan to sponsor a Conference calling for the revival of American manufacturing which will meet in early fall, bringing together the key players on the issue, companies in the U. S., trade associations concerned about this issue, labor leaders, and policy and legal thinkers. This will be under the rubric of the Committee to Support U. S. Trade Laws, an organization devoted to keeping American trade laws strong, of which I am the President. As part of this effort, we are coming up with new legislation which will strengthen the U. S. trade laws, particularly in the area of ending evasion and fraud. It is amazing that the U. S. has allowed foreign producers to take advantage of weaknesses in enforcement powers under these laws for so long. The conference and our policy analysis needs to lead into 2010 House and Senate elections, and make it clear that, quite simply, we are not going to take it any more. The loss of jobs and manufacturing needs to be an election issue. We cannot walk away from manufacturing and remain any kind of great power in the future. Candidates who support this goal of returning production to the U. S. should be supported by the American electorate. Those who soft pedal it should not. Indeed this was a key issue in the special election in Western Pennsylvania in which Mark Critz was elected to John Murtha’s seat, and where he stood up strongly against the off-shoring of U. S. jobs. Making manufacturing a sacrificial lamb has got to come to an end as part of the 2010 elections.

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Nelson Davis: Graduating to What

May 27, 2010

All over America, the cap and gown rental business is celebrating the best month of their year as high schools and colleges release a fresh crop of smiling graduates. Parents are in that pride parade, having demonstrated some level of parenting skills and/or sound money management. If you are a graduate, especially at the college and university level you may be filled with a mixture of pride and anxiety. There is a sense of pride at completing years of study and hopefully learning a lot, but with this also comes the anxiety of not being sure of what you are graduating to. Some good news is that this year’s college graduates face better job prospects than the disheartening job market encountered by last year’s grads. But that doesn’t mean the job market is in a happy place. Starting salaries are a bit lower and according to the National Association of Colleges and Employers, there will be only 5% more job offers to this group of graduates than the previous year. Last year job offers were off by 20% from 2008 levels. There is however a double opportunity in all of this for employers and job seekers. For small business owners, this job market offers the possibility of picking new employees from a broader and deeper pool of prospects. If you are looking for an opportunity, a smaller entrepreneurial company can offer a vibrant, growth oriented and probably grateful atmosphere. Since the seductive fragrance of easy money has at least temporarily evaporated from Wall Street, smart and eager young men and women are considering other paths. I’m not surprised that computer science and finance remain the hot fields according to recruiters. Sadly for me as I survey the scene, some of the graduates are so traumatized by the slim job pickings that they are opting for the academic default position which is to remain in school for advanced studies. If you are one of those people, I can almost hear the groans from your parents. My advice for graduates at any level is that you have to think like an entrepreneur or business owner because that is what you really are. You are the marketing manager, sales VP and fulfillment officer in a business of one, that enterprise being you! Even if you don’t have any current interest in starting an independent business of your own, you are functionally in business for yourself with the responsibility of creating a desirable personal brand and selling yourself into the right situation. If you have a clear feeling about the field you’d like to grow and prosper in, the rest is about strategies, tactics and persistence. If there is a magic bullet for navigating the success path, it is simply persistence and I don’t know if today’s graduates really know what that means. Ray Kroc, the man who launched McDonald’s into being a national franchise used to keep a plaque on his office wall inscribed with words from the 30th U.S. President Calvin Coolidge. “Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race.” So, couple that persistence with credentials, and connections and you have three of the most important tools to grow your personal brand and business of one. Hopefully you got the credentials in exchange for the thousands of dollars and hours that went into fulfilling your deal with the education system. As for connections, you must realize that you’ve been them since kindergarten. Establishing a great a network of acquaintances and friends is like creating a lush garden. If you nourish it, it will nourish you. There are two books on effective networking that I recommend to every young person who works with me. A foundational volume is “Dig Your Well before You’re Thirsty” by Harvey Mackay. The other book is by Keith Ferazzi and is titled “Never Eat Alone.” Mackay sums up the reason for developing his amazing networking habits by saying “other people know other things–and other people–that I don’t know.” I feel that our formal education system has become so heavy with administrators that it operates in a kind of slow motion, too often training people for opportunities that have sometimes passed them by. You want to be looking where the opportunities are going to be flourishing five or more years in the future. For example, it may be green technology or teaching people how to navigate the labyrinth of the health care system. Trying to see ahead is like an ability that great athletes such as hockey player Wayne Gretsky had. He didn’t make his moves based on where the puck actually was at the time–he skated to where he thought the puck was going. You might as well start thinking and behaving with an entrepreneurial attitude right now even if you don’t have a desire to own a business that employs others. I believe that our social, political and financial structures are changing in substantial ways and that entrepreneurial thinking will get you where you want to go. Sixty years ago, one working person could support a household of four or more people, politicians qualified as true leaders and investors could expect steady if modest returns on their capital. Today all of those expectations are suffering San Andreas Fault type shaking. The graduating class of 2010 has to learn a set of life’s fundamentals that were readily apparent to our ancestors regardless of their level of formal education. Having clear goals, focus and positive expectations are among those fundamentals. As my flight instructor said when I was granted my first pilot’s license many years ago, “Congratulations Nelson, you now have a license to learn.” After the proud graduation walk and the loving hugs of parents and friends, I hope you know that the freshly printed diploma offers no guarantees but it is a license to learn. The day may come when the signature on your paycheck is your own.

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Gulf Well May Have Spilled Twice as Much Oil as Exxon Valdez, Panel Finds

May 27, 2010

By Jim Polson and Jordan Burke May 27 (Bloomberg) — BP Plc ’s Gulf of Mexico oil well may have spilled more than twice the oil that the Exxon Valdez dumped, according to figures from a U.S. government panel. The BP well may have gushed 12,000 to 19,000 barrels a day, more than the company has estimated, Marcia McNutt, director of the U.S. Geological Survey and science adviser to Interior Secretary Ken Salazar , said today in a conference call. From April 22, when the Deepwater Horizon drilling rig sank, through yesterday, and based on the midpoint of McNutt’s calculations, the well may have leaked about 527,000 barrels, more than double the Exxon Valdez’s 257,000-barrel spill. “Now we know what we always knew — this spill is much larger than BP has claimed,” Congressman Edward Markey , a Massachusetts Democrat, said today in a statement. “What’s clear is that BP has had an interest in low-balling the size of their accident, since every barrel spilled increases how much they could be fined by the government.” The panel, or Flow Rate Technical Group, was appointed May 20 by U.S. Coast Guard Admiral Thad Allen , head of the federal spill response, after BP reported collecting oil at a rate of 5,000 barrels a day, matching its estimate of the spillage while undersea cameras showed more oil gushing into the Gulf. “The lower end of that range is certainly comparable with the volume from the Exxon Valdez, and the higher end of that range is well above it,” Stan Senner, former science adviser to trustees administering the Exxon Valdez settlement, said today in a telephone interview from Houma, Louisiana. “That’s the generally accepted figure. People will argue to this day that the size of the Exxon Valdez spill has been underestimated.” Damage Assessment An accurate, scientifically based estimate of the spill will be essential in assessing damage to natural resources such as marshes and fisheries from the spill, Allen said. Federal officials have closed about 22 percent of the Gulf to fishing, idling commercial and recreational vessels, and Louisiana Governor Bobby Jindal said yesterday oil has polluted 100 miles (161 kilometers) of his state’s coastline. BP had said 5,000 barrels of day is the best estimate, although subject to error because the flow can’t be measured directly. “We haven’t made any estimates of the flowrate from the well,” said David Nicholas , a BP spokesman in Houston. “What we’ve always said is that no matter what the estimates would be, our approach to this incident would be exactly the same. We’re trying to stop the flow of the well.” Explosion, Fire Academics who had disputed BP’s estimates were advisers to the group, U.S. Coast Guard Rear Admiral Mary Landry said last week. The well, about 40 miles off Louisiana’s coast, began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig. BP, based in London, leased the rig from Geneva-based Transocean Ltd. , the largest deepwater driller. “A whole series of failures,” preceded the blowout, BP Chief Executive Officer Tony Hayward said yesterday on CNN. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Jordan Burke in New York at jburke29@bloomberg.net .

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Gulf Well May Have Spilled Twice as Much Oil as Exxon Valdez, Panel Finds

May 27, 2010

By Jim Polson and Jordan Burke May 27 (Bloomberg) — BP Plc ’s Gulf of Mexico oil well may have spilled more than twice the oil that the Exxon Valdez dumped, according to figures from a U.S. government panel. The BP well may have gushed 12,000 to 19,000 barrels a day, more than the company has estimated, Marcia McNutt, director of the U.S. Geological Survey and science adviser to Interior Secretary Ken Salazar , said today in a conference call. From April 22, when the Deepwater Horizon drilling rig sank, through yesterday, and based on the midpoint of McNutt’s calculations, the well may have leaked about 527,000 barrels, more than double the Exxon Valdez’s 257,000-barrel spill. “Now we know what we always knew — this spill is much larger than BP has claimed,” Congressman Edward Markey , a Massachusetts Democrat, said today in a statement. “What’s clear is that BP has had an interest in low-balling the size of their accident, since every barrel spilled increases how much they could be fined by the government.” The panel, or Flow Rate Technical Group, was appointed May 20 by U.S. Coast Guard Admiral Thad Allen , head of the federal spill response, after BP reported collecting oil at a rate of 5,000 barrels a day, matching its estimate of the spillage while undersea cameras showed more oil gushing into the Gulf. “The lower end of that range is certainly comparable with the volume from the Exxon Valdez, and the higher end of that range is well above it,” Stan Senner, former science adviser to trustees administering the Exxon Valdez settlement, said today in a telephone interview from Houma, Louisiana. “That’s the generally accepted figure. People will argue to this day that the size of the Exxon Valdez spill has been underestimated.” Damage Assessment An accurate, scientifically based estimate of the spill will be essential in assessing damage to natural resources such as marshes and fisheries from the spill, Allen said. Federal officials have closed about 22 percent of the Gulf to fishing, idling commercial and recreational vessels, and Louisiana Governor Bobby Jindal said yesterday oil has polluted 100 miles (161 kilometers) of his state’s coastline. BP had said 5,000 barrels of day is the best estimate, although subject to error because the flow can’t be measured directly. “We haven’t made any estimates of the flowrate from the well,” said David Nicholas , a BP spokesman in Houston. “What we’ve always said is that no matter what the estimates would be, our approach to this incident would be exactly the same. We’re trying to stop the flow of the well.” Explosion, Fire Academics who had disputed BP’s estimates were advisers to the group, U.S. Coast Guard Rear Admiral Mary Landry said last week. The well, about 40 miles off Louisiana’s coast, began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig. BP, based in London, leased the rig from Geneva-based Transocean Ltd. , the largest deepwater driller. “A whole series of failures,” preceded the blowout, BP Chief Executive Officer Tony Hayward said yesterday on CNN. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Jordan Burke in New York at jburke29@bloomberg.net .

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Bond Distress Rises to Highest Since 2009 as Sales Vanish: Credit Markets

May 27, 2010

By Bryan Keogh and Kate Haywood May 27 (Bloomberg) — The percentage of corporate bonds considered in distress surged this week to the highest since 2009 as investors dumped debt of the neediest borrowers on concern Europe’s fiscal crisis will make it harder for them to refinance. More than 17 percent of junk bonds yield at least 10 percentage points over Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. Bonds of MGM Mirage and Freescale Semiconductor Inc. joined the list this month. U.S. distressed bonds have lost 10 percent in May, according to the indexes, as credit markets seize up amid speculation Greece and other nations in Europe with rising budget deficits won’t be able to meet their debt payments. Junk bond sales plunged this month to the lowest level since March 2009, data compiled by Bloomberg show. “It’s going to be really difficult for some of these companies to address their debt piles,” said Mark Dewar , a London-based senior managing director at FTI Consulting who advised lenders to Lehman Brothers after the U.S. bank filed for bankruptcy. “It becomes a downward spiral.” The 5.875 percent notes of Las Vegas casino operator MGM Mirage due in 2014 yield 11 percentage points more than Treasuries, becoming distressed on May 20 for the first time since December, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Freescale Spread The spread on the 9.125 percent notes due in 2014 issued by Austin, Texas-based Freescale Semiconductor , the computer chipmaker bought in 2006 by private-equity firms led by Blackstone Group LP, is 11.7 percentage points. That’s up from 7.95 percentage points on April 26, Trace data show. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of similar-maturity government debt fell 1 basis point to 195 basis points, or 1.95 percentage point, the first time spreads have narrowed since May 13, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 4.5 basis points to 4.042 percent yesterday. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, declined for a third day, falling 4.6 basis points to 42.64 basis points. The spread has widened from 9.63 basis points on March 24, the narrowest since 1993. Investor Confidence An indicator of U.S. corporate credit risk fell the most in about a week, paring the biggest monthly increase since November 2008. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 9.9 basis points to a mid-price of 117 basis points as of 12:35 p.m. in New York, according to Markit Group Ltd. It typically falls as investor confidence improves and rises as it deteriorates. Investor confidence was boosted in Europe after the Organization for Economic Cooperation and Development raised its global growth forecasts yesterday for this year and next and as China’s foreign exchange regulator said reports that it’s reviewing its euro holdings are “groundless.” European Risk Falls The Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 6.1 basis points to 117.1 as of 5:39 p.m. in London, according to Markit Group Ltd. The indexes typically rise as investor confidence deteriorates and decline as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The Province of Ontario sold 132.6 billion yen ($1.47 billion) of five- and 10-year bonds yesterday that were priced to yield 25 basis points and 35 basis points more than mid-swaps respectively, the top end of a range it gave investors, according to a person familiar with the transaction. The bonds’ spread is “attractive” compared with similarly rated issuers, Katsuyuki Tokushima , a fixed-income analyst at NLI Research Institute, a unit of Nippon Mutual Life Insurance Co., said in a phone interview from Tokyo. For any issuer to generate demand of more than 100 billion yen in “such volatile market circumstances is a surprise,” he said. Signs of Life Signs of life returned to Europe’s new issue bond market for the first time since the start of the region’s deficit crisis. Deutsche Bank AG , Europe’s biggest investment bank, started offering investors at least 250 million euros ($307 million) of March 2013 floating-rate notes today, adding to its existing issue, according to three people with knowledge of the sale. The additional securities may be priced at 70 basis points to 75 basis points more than interbank rates. Nestle SA , the world’s biggest foodmaker, plans to add at least $50 million to its outstanding 2.125 percent bonds due 2014, at a likely spread of 7 basis points less than swaps, a banker involved in the deal said today. McDonald’s Corp. , the world’s largest restaurant company, raised 250 million Swiss francs ($217 million) from its first sale in the currency in almost three years yesterday, according to data compiled by Bloomberg, as investors seek safer alternatives to weakened euro-denominated assets. NEC Bonds NEC Corp., Japan’s largest maker of personal computers, set coupons on 100 billion yen of three-, five- and seven-year bonds of 0.495 percent, 0.727 percent and 1.022 percent respectively, Bloomberg data show. Malaysia may price its first global Islamic bond in eight years today or tomorrow after receiving responses from Middle Eastern investors and as markets improved overnight, according to people familiar with the fundraising. Initial guidance suggested the benchmark-sized five-year sukuk note will be priced to yield about 200 basis points more than similar- maturity Treasuries, three people said, asking not to be identified. Benchmark sales are typically at least $500 million. A basis point is 0.01 percentage point. In emerging markets, bond yield premiums over Treasuries declined 16 basis points to 323, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Losing Favor The riskiest debt is losing favor with investors after returning about 70 percent from March 2009 through last month as credit markets and the economy recovered from the worst financial crisis since the 1930s. Junk bonds globally have lost 4.4 percent in May, on pace for the first monthly decline in 15 months and the biggest drop since November 2008, Bank of America Merrill Lynch indexes show. Investors pulled more than $1 billion from high-yield funds during the third week of May, after redeeming $2.1 billion the previous period, according to EPFR Global, a Cambridge, Massachusetts, research firm that tracks fund flows. Investors are unloading risky assets on concern European governments won’t be able to coordinate a response to surging levels of debt from Greece to the U.K. Spain became the focus of the crisis this week as four of its savings banks said they plan to combine to form the nation’s fifth-largest financial group, while the Washington-based International Monetary Fund said the country’s financial industry “remains under pressure.” “Debt restructuring may be needed for one or two fiscally weak euro members,” Nobel Prize-winning economist Robert Mundell said yesterday at a conference in Warsaw. Junk Spreads Widen The yield spread on junk bonds has widened 7 basis points this week to 727 basis points after surging to 743 on May 25, the highest level since Dec. 9, Bank of America Merrill Lynch index data show. Spreads have widened 173 basis points since reaching a 30-month low of 554 on April 26. High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. “The market will hit massive roadblocks when companies have big principal payments coming due and they don’t have the money to repay them,” said Stefan Benedetti , a partner at Dusseldorf-based restructuring specialist Nikolaus & Co LLP. “If the bond market isn’t open, shareholders will have to hand back the keys to the banks.” While spreads have widened, they remain below the record 21.9 percentage points reached on Dec. 15, 2008, when almost 90 percent of speculative-grade securities were considered distressed, Bank of America Merrill Lynch index data show. ‘Double-Dip’ Concerns “We haven’t seen any company reports which suggests they’re on the verge of blowing up,” said Alex Moss , a fund manager at Insight Investment Management in London. “There are concerns that contagion from Europe will lead to a double-dip recession, but company fundamentals aren’t showing this.” The market turmoil is curtailing companies’ efforts to borrow to help refinance $1.2 trillion of bonds and loans expected to come due through 2014, according to Bloomberg data. Speculative-grade companies have sold $7.55 billion of bonds globally this month, the least since March 2009, compared with $41.6 billion in April. Saudi Basic Industries Corp. , the world’s biggest petrochemicals maker, and Las Vegas-based Allegiant Travel Co. pulled bond deals this week, bringing the total to at least 21 borrowers that have postponed sales since April, Bloomberg data show. ‘Extreme Volatility’ “If financing markets stay closed for the next 12 months or longer, then there’s a problem,” said Andrew Wilmont , a London-based money manager with Axa Investment Managers U.K. Ltd. who helps oversee $5 billion of speculative-grade debt. “But right now, we’re talking about just a month’s worth of extreme volatility.” Corporate borrowers will struggle to adjust to the “powerful regime change” as a long-term process of companies and countries cutting debt damps global growth, Stephen Moyer and Michael Watchorn , money managers at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest bond fund, wrote in a report May 25. “We believe this distressed cycle will continue,” offering opportunities for investors to continue to pick up bargains, they wrote. “The end is not near.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Kate Haywood in London at khaywood@bloomberg.net

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Bond Distress Rises to Highest Since 2009 as Sales Vanish: Credit Markets

May 27, 2010

By Bryan Keogh and Kate Haywood May 27 (Bloomberg) — The percentage of corporate bonds considered in distress surged this week to the highest since 2009 as investors dumped debt of the neediest borrowers on concern Europe’s fiscal crisis will make it harder for them to refinance. More than 17 percent of junk bonds yield at least 10 percentage points over Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. Bonds of MGM Mirage and Freescale Semiconductor Inc. joined the list this month. U.S. distressed bonds have lost 10 percent in May, according to the indexes, as credit markets seize up amid speculation Greece and other nations in Europe with rising budget deficits won’t be able to meet their debt payments. Junk bond sales plunged this month to the lowest level since March 2009, data compiled by Bloomberg show. “It’s going to be really difficult for some of these companies to address their debt piles,” said Mark Dewar , a London-based senior managing director at FTI Consulting who advised lenders to Lehman Brothers after the U.S. bank filed for bankruptcy. “It becomes a downward spiral.” The 5.875 percent notes of Las Vegas casino operator MGM Mirage due in 2014 yield 11 percentage points more than Treasuries, becoming distressed on May 20 for the first time since December, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Freescale Spread The spread on the 9.125 percent notes due in 2014 issued by Austin, Texas-based Freescale Semiconductor , the computer chipmaker bought in 2006 by private-equity firms led by Blackstone Group LP, is 11.7 percentage points. That’s up from 7.95 percentage points on April 26, Trace data show. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of similar-maturity government debt fell 1 basis point to 195 basis points, or 1.95 percentage point, the first time spreads have narrowed since May 13, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 4.5 basis points to 4.042 percent yesterday. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, declined for a third day, falling 4.6 basis points to 42.64 basis points. The spread has widened from 9.63 basis points on March 24, the narrowest since 1993. Investor Confidence An indicator of U.S. corporate credit risk fell the most in about a week, paring the biggest monthly increase since November 2008. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 9.9 basis points to a mid-price of 117 basis points as of 12:35 p.m. in New York, according to Markit Group Ltd. It typically falls as investor confidence improves and rises as it deteriorates. Investor confidence was boosted in Europe after the Organization for Economic Cooperation and Development raised its global growth forecasts yesterday for this year and next and as China’s foreign exchange regulator said reports that it’s reviewing its euro holdings are “groundless.” European Risk Falls The Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 6.1 basis points to 117.1 as of 5:39 p.m. in London, according to Markit Group Ltd. The indexes typically rise as investor confidence deteriorates and decline as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The Province of Ontario sold 132.6 billion yen ($1.47 billion) of five- and 10-year bonds yesterday that were priced to yield 25 basis points and 35 basis points more than mid-swaps respectively, the top end of a range it gave investors, according to a person familiar with the transaction. The bonds’ spread is “attractive” compared with similarly rated issuers, Katsuyuki Tokushima , a fixed-income analyst at NLI Research Institute, a unit of Nippon Mutual Life Insurance Co., said in a phone interview from Tokyo. For any issuer to generate demand of more than 100 billion yen in “such volatile market circumstances is a surprise,” he said. Signs of Life Signs of life returned to Europe’s new issue bond market for the first time since the start of the region’s deficit crisis. Deutsche Bank AG , Europe’s biggest investment bank, started offering investors at least 250 million euros ($307 million) of March 2013 floating-rate notes today, adding to its existing issue, according to three people with knowledge of the sale. The additional securities may be priced at 70 basis points to 75 basis points more than interbank rates. Nestle SA , the world’s biggest foodmaker, plans to add at least $50 million to its outstanding 2.125 percent bonds due 2014, at a likely spread of 7 basis points less than swaps, a banker involved in the deal said today. McDonald’s Corp. , the world’s largest restaurant company, raised 250 million Swiss francs ($217 million) from its first sale in the currency in almost three years yesterday, according to data compiled by Bloomberg, as investors seek safer alternatives to weakened euro-denominated assets. NEC Bonds NEC Corp., Japan’s largest maker of personal computers, set coupons on 100 billion yen of three-, five- and seven-year bonds of 0.495 percent, 0.727 percent and 1.022 percent respectively, Bloomberg data show. Malaysia may price its first global Islamic bond in eight years today or tomorrow after receiving responses from Middle Eastern investors and as markets improved overnight, according to people familiar with the fundraising. Initial guidance suggested the benchmark-sized five-year sukuk note will be priced to yield about 200 basis points more than similar- maturity Treasuries, three people said, asking not to be identified. Benchmark sales are typically at least $500 million. A basis point is 0.01 percentage point. In emerging markets, bond yield premiums over Treasuries declined 16 basis points to 323, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Losing Favor The riskiest debt is losing favor with investors after returning about 70 percent from March 2009 through last month as credit markets and the economy recovered from the worst financial crisis since the 1930s. Junk bonds globally have lost 4.4 percent in May, on pace for the first monthly decline in 15 months and the biggest drop since November 2008, Bank of America Merrill Lynch indexes show. Investors pulled more than $1 billion from high-yield funds during the third week of May, after redeeming $2.1 billion the previous period, according to EPFR Global, a Cambridge, Massachusetts, research firm that tracks fund flows. Investors are unloading risky assets on concern European governments won’t be able to coordinate a response to surging levels of debt from Greece to the U.K. Spain became the focus of the crisis this week as four of its savings banks said they plan to combine to form the nation’s fifth-largest financial group, while the Washington-based International Monetary Fund said the country’s financial industry “remains under pressure.” “Debt restructuring may be needed for one or two fiscally weak euro members,” Nobel Prize-winning economist Robert Mundell said yesterday at a conference in Warsaw. Junk Spreads Widen The yield spread on junk bonds has widened 7 basis points this week to 727 basis points after surging to 743 on May 25, the highest level since Dec. 9, Bank of America Merrill Lynch index data show. Spreads have widened 173 basis points since reaching a 30-month low of 554 on April 26. High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. “The market will hit massive roadblocks when companies have big principal payments coming due and they don’t have the money to repay them,” said Stefan Benedetti , a partner at Dusseldorf-based restructuring specialist Nikolaus & Co LLP. “If the bond market isn’t open, shareholders will have to hand back the keys to the banks.” While spreads have widened, they remain below the record 21.9 percentage points reached on Dec. 15, 2008, when almost 90 percent of speculative-grade securities were considered distressed, Bank of America Merrill Lynch index data show. ‘Double-Dip’ Concerns “We haven’t seen any company reports which suggests they’re on the verge of blowing up,” said Alex Moss , a fund manager at Insight Investment Management in London. “There are concerns that contagion from Europe will lead to a double-dip recession, but company fundamentals aren’t showing this.” The market turmoil is curtailing companies’ efforts to borrow to help refinance $1.2 trillion of bonds and loans expected to come due through 2014, according to Bloomberg data. Speculative-grade companies have sold $7.55 billion of bonds globally this month, the least since March 2009, compared with $41.6 billion in April. Saudi Basic Industries Corp. , the world’s biggest petrochemicals maker, and Las Vegas-based Allegiant Travel Co. pulled bond deals this week, bringing the total to at least 21 borrowers that have postponed sales since April, Bloomberg data show. ‘Extreme Volatility’ “If financing markets stay closed for the next 12 months or longer, then there’s a problem,” said Andrew Wilmont , a London-based money manager with Axa Investment Managers U.K. Ltd. who helps oversee $5 billion of speculative-grade debt. “But right now, we’re talking about just a month’s worth of extreme volatility.” Corporate borrowers will struggle to adjust to the “powerful regime change” as a long-term process of companies and countries cutting debt damps global growth, Stephen Moyer and Michael Watchorn , money managers at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest bond fund, wrote in a report May 25. “We believe this distressed cycle will continue,” offering opportunities for investors to continue to pick up bargains, they wrote. “The end is not near.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Kate Haywood in London at khaywood@bloomberg.net

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Commercial Paper Issued by Banks Outside U.S. Falls the Most in 10 Months

May 27, 2010

By Bryan Keogh and Christopher Condon May 27 (Bloomberg) — U.S. commercial paper outstanding sold by foreign financial companies and their domestic units fell the most in 10 months as fund managers trim holdings of the short-term debt issued by European banks. Total debt has dropped $18.6 billion, or 4.8 percent, in May to an eight-month low of $365 billion, the Federal Reserve said today on its website. The amount outstanding has declined for the past four weeks. Banco Bilbao Vizcaya Argentaria SA , Spain’s second-biggest bank, has been unable to renew about $1 billion of commercial paper this month, the Wall Street Journal reported yesterday, highlighting investor concerns that Europe’s sovereign debt crisis will saddle banks with losses. That reflects “how fearful” U.S. fund managers are of BBVA as a counterparty risk, compelling the bank to turn to cheaper regional financing, Andrew Lim , an analyst at Matrix Corporate Capital LLP in London, wrote today in a note to clients. “The funds are merely shortening maturities and letting paper roll off, rather than fleeing,” said Peter Crane , president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts. Yields on top-rated commercial paper due in 90 days sold by financial companies have doubled in the past six weeks to 0.55 percent, the highest since June 2009, from 0.16 percent in February, according to Federal Reserve data. Issuance of the IOUs due in less than 10 days is the most since February 2009. ‘Squeezing Out’ “We would not view this technically as a ‘squeezing out’ as such,” Lim wrote. “BBVA can indeed borrow in the U.S. commercial paper market, but now at much higher rates than it could do before.” BBVA posted first-quarter profit of 1.2 billion euros ($1.5 billion) last month as its bad loans stabilized. A spokesman for the lender, who asked not to be identified citing company policy, declined to comment. Credit-default swaps on BBVA were unchanged at 224 basis points after surging to an almost three-week high of 235.5 basis points on May 25, CMA DataVision prices show. Spanish banks increased borrowing from the European Central Bank for three months or more to 89.4 billion euros in April, the most in at least 1 1/2 years, according to data compiled by the Bank of Spain, as the country’s worst recession in 60 years drives up client defaults. Deborah Cunningham , head of taxable money-market funds at Pittsburgh-based Federated Investors Inc. , said her company had reduced the average maturity of European holdings in its funds while keeping steady its exposure in dollar terms. Short-Term Paper Federated’s money funds held $130.6 million in securities issued by BBVA and Spain’s biggest lender, Banco Santander SA , as of April 30, according to a statement posted on the company’s website. It held no other bank positions from Italy, Greece, Ireland or Portugal, all countries struggling with high levels of debt. “If you looked at our portfolio you wouldn’t see any visible change,” she said. “But are we feeling more comfortable in terms of headline risk in buying three-month paper rather than six-month? The answer is definitely, yes.” Federated managed $217.7 billion in money-market mutual funds as of April 30, according to Crane Data. Issuance of IOUs maturing in less than 10 days climbed to $82.9 billion, Fed data show. Daily sales of commercial paper due in more than 40 days is averaging $7.55 billion a day this week, down from $9.11 billion in the previous period. That’s the least in four weeks. New Rules Commercial paper typically matures in 270 days or less and is used to finance everyday activities such as payroll and rent. Companies are also issuing in shorter terms as money-market funds seek to comply with new rules set down by the U.S. Securities and Exchange Commission, according to David Glocke , head of taxable money-market investments at Vanguard Group Inc. in Valley Forge, Pennsylvania. “We’ve seen average maturities come way in” across the industry, Glocke said. The new requirements, which take effect May 28, force money funds to shorten the average maturity of holdings to 60 days from 90 days and keep 30 percent of their portfolios in cash or securities that can be liquidated within one week. Vanguard managed $166 billion in money funds as of April 30, according to Crane. To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Christopher Condon in Boston at ccondon4@bloomberg.net

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Commercial Paper Issued by Banks Outside U.S. Falls the Most in 10 Months

May 27, 2010

By Bryan Keogh and Christopher Condon May 27 (Bloomberg) — U.S. commercial paper outstanding sold by foreign financial companies and their domestic units fell the most in 10 months as fund managers trim holdings of the short-term debt issued by European banks. Total debt has dropped $18.6 billion, or 4.8 percent, in May to an eight-month low of $365 billion, the Federal Reserve said today on its website. The amount outstanding has declined for the past four weeks. Banco Bilbao Vizcaya Argentaria SA , Spain’s second-biggest bank, has been unable to renew about $1 billion of commercial paper this month, the Wall Street Journal reported yesterday, highlighting investor concerns that Europe’s sovereign debt crisis will saddle banks with losses. That reflects “how fearful” U.S. fund managers are of BBVA as a counterparty risk, compelling the bank to turn to cheaper regional financing, Andrew Lim , an analyst at Matrix Corporate Capital LLP in London, wrote today in a note to clients. “The funds are merely shortening maturities and letting paper roll off, rather than fleeing,” said Peter Crane , president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts. Yields on top-rated commercial paper due in 90 days sold by financial companies have doubled in the past six weeks to 0.55 percent, the highest since June 2009, from 0.16 percent in February, according to Federal Reserve data. Issuance of the IOUs due in less than 10 days is the most since February 2009. ‘Squeezing Out’ “We would not view this technically as a ‘squeezing out’ as such,” Lim wrote. “BBVA can indeed borrow in the U.S. commercial paper market, but now at much higher rates than it could do before.” BBVA posted first-quarter profit of 1.2 billion euros ($1.5 billion) last month as its bad loans stabilized. A spokesman for the lender, who asked not to be identified citing company policy, declined to comment. Credit-default swaps on BBVA were unchanged at 224 basis points after surging to an almost three-week high of 235.5 basis points on May 25, CMA DataVision prices show. Spanish banks increased borrowing from the European Central Bank for three months or more to 89.4 billion euros in April, the most in at least 1 1/2 years, according to data compiled by the Bank of Spain, as the country’s worst recession in 60 years drives up client defaults. Deborah Cunningham , head of taxable money-market funds at Pittsburgh-based Federated Investors Inc. , said her company had reduced the average maturity of European holdings in its funds while keeping steady its exposure in dollar terms. Short-Term Paper Federated’s money funds held $130.6 million in securities issued by BBVA and Spain’s biggest lender, Banco Santander SA , as of April 30, according to a statement posted on the company’s website. It held no other bank positions from Italy, Greece, Ireland or Portugal, all countries struggling with high levels of debt. “If you looked at our portfolio you wouldn’t see any visible change,” she said. “But are we feeling more comfortable in terms of headline risk in buying three-month paper rather than six-month? The answer is definitely, yes.” Federated managed $217.7 billion in money-market mutual funds as of April 30, according to Crane Data. Issuance of IOUs maturing in less than 10 days climbed to $82.9 billion, Fed data show. Daily sales of commercial paper due in more than 40 days is averaging $7.55 billion a day this week, down from $9.11 billion in the previous period. That’s the least in four weeks. New Rules Commercial paper typically matures in 270 days or less and is used to finance everyday activities such as payroll and rent. Companies are also issuing in shorter terms as money-market funds seek to comply with new rules set down by the U.S. Securities and Exchange Commission, according to David Glocke , head of taxable money-market investments at Vanguard Group Inc. in Valley Forge, Pennsylvania. “We’ve seen average maturities come way in” across the industry, Glocke said. The new requirements, which take effect May 28, force money funds to shorten the average maturity of holdings to 60 days from 90 days and keep 30 percent of their portfolios in cash or securities that can be liquidated within one week. Vanguard managed $166 billion in money funds as of April 30, according to Crane. To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Christopher Condon in Boston at ccondon4@bloomberg.net

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IRS Plans to Audit Up to Half of Build America Bond Deals, Official Says

May 27, 2010

By Dunstan McNichol May 27 (Bloomberg) — The U.S. Internal Revenue Service plans to examine as many as half of the 1,200 Build America Bond sales in connection with rules that limit how the subsidized issues can be used and how much they cost, according to an agency compliance manager. The reviews are a follow-up to a questionnaire the tax service began distributing to issuers in February, seeking information on record-keeping and the steps public borrowers have taken to ensure they get proper rates, Steven Chamberlin , compliance manager in the agency’s tax-exempt bond unit, said on a May 25 conference call. The call was set up by the National Association of Bond Lawyers in Chicago. “The second stage will be a follow-up, focused-examination project of potentially half of all Build America Bond transactions,” Chamberlin said on the call. “An examination is looking at a specific return and may involve looking at underlying documentation with respect to that specific return.” The agency yesterday posted on its website a revised questionnaire, for use starting next month. In an accompanying announcement , the service said it was changed to “ensure that the questions are clearly interpreted and to request expanded descriptions of the issuer’s compliance procedures and practices.” Since the program began in April, 2009, as part of the government’s economic stimulus efforts, Bloomberg data shows more than $107 billion in Build America Bonds have been issued, making them the fastest-growing part of the $2.8 trillion municipal market. The federal government rebates issuers 35 percent of their interest costs on the taxable bonds. — With assistance from Michael McDonald in Boston. Editors: Ted Bunker , Pete Young . To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net

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IRS Plans to Audit Up to Half of Build America Bond Deals, Official Says

May 27, 2010

By Dunstan McNichol May 27 (Bloomberg) — The U.S. Internal Revenue Service plans to examine as many as half of the 1,200 Build America Bond sales in connection with rules that limit how the subsidized issues can be used and how much they cost, according to an agency compliance manager. The reviews are a follow-up to a questionnaire the tax service began distributing to issuers in February, seeking information on record-keeping and the steps public borrowers have taken to ensure they get proper rates, Steven Chamberlin , compliance manager in the agency’s tax-exempt bond unit, said on a May 25 conference call. The call was set up by the National Association of Bond Lawyers in Chicago. “The second stage will be a follow-up, focused-examination project of potentially half of all Build America Bond transactions,” Chamberlin said on the call. “An examination is looking at a specific return and may involve looking at underlying documentation with respect to that specific return.” The agency yesterday posted on its website a revised questionnaire, for use starting next month. In an accompanying announcement , the service said it was changed to “ensure that the questions are clearly interpreted and to request expanded descriptions of the issuer’s compliance procedures and practices.” Since the program began in April, 2009, as part of the government’s economic stimulus efforts, Bloomberg data shows more than $107 billion in Build America Bonds have been issued, making them the fastest-growing part of the $2.8 trillion municipal market. The federal government rebates issuers 35 percent of their interest costs on the taxable bonds. — With assistance from Michael McDonald in Boston. Editors: Ted Bunker , Pete Young . To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net

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‘Dean Of CDOs’ Collects Hundreds Of Thousands Of Dollars Per Year — Just For Signing His Name

May 27, 2010

…CDOs have been very good to Donald Puglisi, a retired University of Delaware finance professor who remains fond of them. In fact, he and others are still making decent money from the bundled securities, even though Wall Street long ago stopped churning out new ones and most of the existing 2,000 odd deals have lost half their value.

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‘Dean Of CDOs’ Collects Hundreds Of Thousands Of Dollars Per Year — Just For Signing His Name

May 27, 2010

…CDOs have been very good to Donald Puglisi, a retired University of Delaware finance professor who remains fond of them. In fact, he and others are still making decent money from the bundled securities, even though Wall Street long ago stopped churning out new ones and most of the existing 2,000 odd deals have lost half their value.

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‘Dean Of CDOs’ Collects Hundreds Of Thousands Of Dollars Per Year — Just For Signing His Name

May 27, 2010

…CDOs have been very good to Donald Puglisi, a retired University of Delaware finance professor who remains fond of them. In fact, he and others are still making decent money from the bundled securities, even though Wall Street long ago stopped churning out new ones and most of the existing 2,000 odd deals have lost half their value.

Read the full article →

‘Dean Of CDOs’ Collects Hundreds Of Thousands Of Dollars Per Year — Just For Signing His Name

May 27, 2010

…CDOs have been very good to Donald Puglisi, a retired University of Delaware finance professor who remains fond of them. In fact, he and others are still making decent money from the bundled securities, even though Wall Street long ago stopped churning out new ones and most of the existing 2,000 odd deals have lost half their value.

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Goldman Sachs May Spend $621 Million to Settle SEC Fraud Case, Hintz Says

May 27, 2010

By Nikolaj Gammeltoft May 27 (Bloomberg) — Goldman Sachs Group Inc. may spend $621 million to settle the Securities and Exchange Commission’s fraud suit that triggered a 13 percent one-day drop in the firm’s stock, analyst Brad Hintz said. Negotiations between the SEC and Wall Street’s most profitable investment bank may end with Goldman Sachs paying a fine of about $250 million, plus $371 million to reimburse investors in the disputed trades, Hintz, an analyst at Sanford C. Bernstein & Co. , wrote in a note to clients today. “While this would be painful to Goldman, we believe it would allow both Goldman Sachs and the SEC to walk away declaring ‘victory’,” said Hintz, who has had an “outperform” rating on the stock since June 2009. “Certainly Goldman wants this case settled. Its management has stated that it wants a ’normal’ relationship with its regulators.” The amount could reduce the New York-based firm’s earnings per share by $1.05, or 5.4 percent of 2010 earnings, which are estimated to be $19.55, according to the average estimate of analysts in a Bloomberg survey . Goldman Sachs slumped on April 16 when the SEC accused Goldman Sachs of defrauding investors in a collateralized debt obligation linked to home loans. The firm concealed the fact that Paulson & Co., a New York-based hedge fund, picked components of the CDO and bet it would collapse, the agency said. The bank, led by Chief Executive Officer Lloyd Blankfein , 55, has denied wrongdoing. SEC spokesman John Nester and Goldman Sachs spokesman Michael Duvally declined to comment. To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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Goldman Sachs May Spend $621 Million to Settle SEC Fraud Case, Hintz Says

May 27, 2010

By Nikolaj Gammeltoft May 27 (Bloomberg) — Goldman Sachs Group Inc. may spend $621 million to settle the Securities and Exchange Commission’s fraud suit that triggered a 13 percent one-day drop in the firm’s stock, analyst Brad Hintz said. Negotiations between the SEC and Wall Street’s most profitable investment bank may end with Goldman Sachs paying a fine of about $250 million, plus $371 million to reimburse investors in the disputed trades, Hintz, an analyst at Sanford C. Bernstein & Co. , wrote in a note to clients today. “While this would be painful to Goldman, we believe it would allow both Goldman Sachs and the SEC to walk away declaring ‘victory’,” said Hintz, who has had an “outperform” rating on the stock since June 2009. “Certainly Goldman wants this case settled. Its management has stated that it wants a ’normal’ relationship with its regulators.” The amount could reduce the New York-based firm’s earnings per share by $1.05, or 5.4 percent of 2010 earnings, which are estimated to be $19.55, according to the average estimate of analysts in a Bloomberg survey . Goldman Sachs slumped on April 16 when the SEC accused Goldman Sachs of defrauding investors in a collateralized debt obligation linked to home loans. The firm concealed the fact that Paulson & Co., a New York-based hedge fund, picked components of the CDO and bet it would collapse, the agency said. The bank, led by Chief Executive Officer Lloyd Blankfein , 55, has denied wrongdoing. SEC spokesman John Nester and Goldman Sachs spokesman Michael Duvally declined to comment. To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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Investor Steve Eisman RAILS On For-Profit Colleges

May 27, 2010

Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation. In a speech titled “Subprime Goes to College,” delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades.

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Investor Steve Eisman RAILS On For-Profit Colleges

May 27, 2010

Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation. In a speech titled “Subprime Goes to College,” delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades.

Read the full article →

Investor Steve Eisman RAILS On For-Profit Colleges

May 27, 2010

Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation. In a speech titled “Subprime Goes to College,” delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades.

Read the full article →

Investor Steve Eisman RAILS On For-Profit Colleges

May 27, 2010

Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation. In a speech titled “Subprime Goes to College,” delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades.

Read the full article →

Eric Schurenberg: Would You Let Goldman Sachs Manage Your 401(k)?

May 27, 2010

Goldman Sachs wants to run your 401(k). Having allegedly helped a German and Dutch bank manage their CDO investments into oblivion, the most controversial firm on Wall Street now wants to help you do the same with your nest egg. Think about it: This could be your first opportunity to trust your life savings to a company that at this very moment is fighting an SEC fraud lawsuit , that has little experience in the 401(k) market and that has no demonstrable skill in investing other people’s money. Chances like that don’t come along every day. In the story reported by Bloomberg’s Amy Feldman, Goldman has brought in a new executive, Bill McDermott, to help expand the company’s so-far minor presence in 401(k)s. McDermott believes that Goldman could distinguish itself by offering hedge-fund like ” absolute return funds ” and by creating target-date funds that allow investors to turn their accumulated savings into an annuity at retirement. Based on Goldman’s record so far with similar funds, there’s no need to get too excited. Absolute return is the latest buzzword for Wall Street’s version of cold fusion: ie, return without risk. Using “sophisticated” techniques borrowed from hedge funds, these portfolios aim to give you a steady rate of return above and beyond what you could get in safe investments, like Treasuries, regardless of how the markets perform. This is exactly the self-contradictory, if not fraudulent, claim that was made for CDOs during the mortgage bubble. Most of those triple-A-rated investments are now worthless. Similarly, many so-called absolute return funds lost their shirts in the credit crisis. Could Goldman’s funds be different? Goldman has some of the best computers on Wall Street, after all, and its people are paid so well they must be geniuses. CBS MoneyWatch investing columnist Larry Swedroe isn’t impressed. You cannot have return without risk, he says. It’s illogical. “Anyone selling absolute return funds should be forced to wear a shirt printed with the words, ‘I don’t know what I’m talking about.’” But you don’t have to take Swedroe’s word for it. You can observe the real-life return of a hedge-fundish Goldman Sachs offering, a mutual fund called Goldman Sachs Absolute Return Tracker (GJRTX). The fund aims to track the return of a basket of absolute-return hedge funds. It does so only too well, and that’s the problem. Since most absolute return funds in the index fail to provide steady, risk-free growth, so does the Goldman fund that tracks them. The Morningstar analysis of GJRTX concludes: “The fund successfully replicates the average hedge fund, but investors may not want to own it.” How about those Goldman target-date funds? There the company also has a public track record-unfortunately for Bob McDermott. Of the five target funds in the Goldman stable, all lag the average in their category since inception. (Morningstar’s chart of the 2020 fund is below.) Goldman’s 2020 fund hasn’t kept pace with its peers. The problem may be partly that the constituent parts of the Goldman target funds-like Goldman Sachs Large Cap Value and Growth funds ( GCVIX and GCGIX )-are mediocre. Goldman may be perfect trading for its own account, but it’s not so good with other people’s money. Seven of Goldman’s nine “recommended top trades for 2010 ” have also lost money this year, As with the Absolute Return Tracker, if the underlying investments are subpar…well, they don’t get better by being put together in the same portfolio. Goldman should have learned that with its CDOs. The investors who bought them from Goldman certainly did. More on MoneyWatch: How to Buy a Target-Date Fund Navigating the Flaws of Target Date Funds Absolute Funds: More of the Same

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Eric Schurenberg: Would You Let Goldman Sachs Manage Your 401(k)?

May 27, 2010

Goldman Sachs wants to run your 401(k). Having allegedly helped a German and Dutch bank manage their CDO investments into oblivion, the most controversial firm on Wall Street now wants to help you do the same with your nest egg. Think about it: This could be your first opportunity to trust your life savings to a company that at this very moment is fighting an SEC fraud lawsuit , that has little experience in the 401(k) market and that has no demonstrable skill in investing other people’s money. Chances like that don’t come along every day. In the story reported by Bloomberg’s Amy Feldman, Goldman has brought in a new executive, Bill McDermott, to help expand the company’s so-far minor presence in 401(k)s. McDermott believes that Goldman could distinguish itself by offering hedge-fund like ” absolute return funds ” and by creating target-date funds that allow investors to turn their accumulated savings into an annuity at retirement. Based on Goldman’s record so far with similar funds, there’s no need to get too excited. Absolute return is the latest buzzword for Wall Street’s version of cold fusion: ie, return without risk. Using “sophisticated” techniques borrowed from hedge funds, these portfolios aim to give you a steady rate of return above and beyond what you could get in safe investments, like Treasuries, regardless of how the markets perform. This is exactly the self-contradictory, if not fraudulent, claim that was made for CDOs during the mortgage bubble. Most of those triple-A-rated investments are now worthless. Similarly, many so-called absolute return funds lost their shirts in the credit crisis. Could Goldman’s funds be different? Goldman has some of the best computers on Wall Street, after all, and its people are paid so well they must be geniuses. CBS MoneyWatch investing columnist Larry Swedroe isn’t impressed. You cannot have return without risk, he says. It’s illogical. “Anyone selling absolute return funds should be forced to wear a shirt printed with the words, ‘I don’t know what I’m talking about.’” But you don’t have to take Swedroe’s word for it. You can observe the real-life return of a hedge-fundish Goldman Sachs offering, a mutual fund called Goldman Sachs Absolute Return Tracker (GJRTX). The fund aims to track the return of a basket of absolute-return hedge funds. It does so only too well, and that’s the problem. Since most absolute return funds in the index fail to provide steady, risk-free growth, so does the Goldman fund that tracks them. The Morningstar analysis of GJRTX concludes: “The fund successfully replicates the average hedge fund, but investors may not want to own it.” How about those Goldman target-date funds? There the company also has a public track record-unfortunately for Bob McDermott. Of the five target funds in the Goldman stable, all lag the average in their category since inception. (Morningstar’s chart of the 2020 fund is below.) Goldman’s 2020 fund hasn’t kept pace with its peers. The problem may be partly that the constituent parts of the Goldman target funds-like Goldman Sachs Large Cap Value and Growth funds ( GCVIX and GCGIX )-are mediocre. Goldman may be perfect trading for its own account, but it’s not so good with other people’s money. Seven of Goldman’s nine “recommended top trades for 2010 ” have also lost money this year, As with the Absolute Return Tracker, if the underlying investments are subpar…well, they don’t get better by being put together in the same portfolio. Goldman should have learned that with its CDOs. The investors who bought them from Goldman certainly did. More on MoneyWatch: How to Buy a Target-Date Fund Navigating the Flaws of Target Date Funds Absolute Funds: More of the Same

Read the full article →

Eric Schurenberg: Would You Let Goldman Sachs Manage Your 401(k)?

May 27, 2010

Goldman Sachs wants to run your 401(k). Having allegedly helped a German and Dutch bank manage their CDO investments into oblivion, the most controversial firm on Wall Street now wants to help you do the same with your nest egg. Think about it: This could be your first opportunity to trust your life savings to a company that at this very moment is fighting an SEC fraud lawsuit , that has little experience in the 401(k) market and that has no demonstrable skill in investing other people’s money. Chances like that don’t come along every day. In the story reported by Bloomberg’s Amy Feldman, Goldman has brought in a new executive, Bill McDermott, to help expand the company’s so-far minor presence in 401(k)s. McDermott believes that Goldman could distinguish itself by offering hedge-fund like ” absolute return funds ” and by creating target-date funds that allow investors to turn their accumulated savings into an annuity at retirement. Based on Goldman’s record so far with similar funds, there’s no need to get too excited. Absolute return is the latest buzzword for Wall Street’s version of cold fusion: ie, return without risk. Using “sophisticated” techniques borrowed from hedge funds, these portfolios aim to give you a steady rate of return above and beyond what you could get in safe investments, like Treasuries, regardless of how the markets perform. This is exactly the self-contradictory, if not fraudulent, claim that was made for CDOs during the mortgage bubble. Most of those triple-A-rated investments are now worthless. Similarly, many so-called absolute return funds lost their shirts in the credit crisis. Could Goldman’s funds be different? Goldman has some of the best computers on Wall Street, after all, and its people are paid so well they must be geniuses. CBS MoneyWatch investing columnist Larry Swedroe isn’t impressed. You cannot have return without risk, he says. It’s illogical. “Anyone selling absolute return funds should be forced to wear a shirt printed with the words, ‘I don’t know what I’m talking about.’” But you don’t have to take Swedroe’s word for it. You can observe the real-life return of a hedge-fundish Goldman Sachs offering, a mutual fund called Goldman Sachs Absolute Return Tracker (GJRTX). The fund aims to track the return of a basket of absolute-return hedge funds. It does so only too well, and that’s the problem. Since most absolute return funds in the index fail to provide steady, risk-free growth, so does the Goldman fund that tracks them. The Morningstar analysis of GJRTX concludes: “The fund successfully replicates the average hedge fund, but investors may not want to own it.” How about those Goldman target-date funds? There the company also has a public track record-unfortunately for Bob McDermott. Of the five target funds in the Goldman stable, all lag the average in their category since inception. (Morningstar’s chart of the 2020 fund is below.) Goldman’s 2020 fund hasn’t kept pace with its peers. The problem may be partly that the constituent parts of the Goldman target funds-like Goldman Sachs Large Cap Value and Growth funds ( GCVIX and GCGIX )-are mediocre. Goldman may be perfect trading for its own account, but it’s not so good with other people’s money. Seven of Goldman’s nine “recommended top trades for 2010 ” have also lost money this year, As with the Absolute Return Tracker, if the underlying investments are subpar…well, they don’t get better by being put together in the same portfolio. Goldman should have learned that with its CDOs. The investors who bought them from Goldman certainly did. More on MoneyWatch: How to Buy a Target-Date Fund Navigating the Flaws of Target Date Funds Absolute Funds: More of the Same

Read the full article →

Eric Schurenberg: Would You Let Goldman Sachs Manage Your 401(k)?

May 27, 2010

Goldman Sachs wants to run your 401(k). Having allegedly helped a German and Dutch bank manage their CDO investments into oblivion, the most controversial firm on Wall Street now wants to help you do the same with your nest egg. Think about it: This could be your first opportunity to trust your life savings to a company that at this very moment is fighting an SEC fraud lawsuit , that has little experience in the 401(k) market and that has no demonstrable skill in investing other people’s money. Chances like that don’t come along every day. In the story reported by Bloomberg’s Amy Feldman, Goldman has brought in a new executive, Bill McDermott, to help expand the company’s so-far minor presence in 401(k)s. McDermott believes that Goldman could distinguish itself by offering hedge-fund like ” absolute return funds ” and by creating target-date funds that allow investors to turn their accumulated savings into an annuity at retirement. Based on Goldman’s record so far with similar funds, there’s no need to get too excited. Absolute return is the latest buzzword for Wall Street’s version of cold fusion: ie, return without risk. Using “sophisticated” techniques borrowed from hedge funds, these portfolios aim to give you a steady rate of return above and beyond what you could get in safe investments, like Treasuries, regardless of how the markets perform. This is exactly the self-contradictory, if not fraudulent, claim that was made for CDOs during the mortgage bubble. Most of those triple-A-rated investments are now worthless. Similarly, many so-called absolute return funds lost their shirts in the credit crisis. Could Goldman’s funds be different? Goldman has some of the best computers on Wall Street, after all, and its people are paid so well they must be geniuses. CBS MoneyWatch investing columnist Larry Swedroe isn’t impressed. You cannot have return without risk, he says. It’s illogical. “Anyone selling absolute return funds should be forced to wear a shirt printed with the words, ‘I don’t know what I’m talking about.’” But you don’t have to take Swedroe’s word for it. You can observe the real-life return of a hedge-fundish Goldman Sachs offering, a mutual fund called Goldman Sachs Absolute Return Tracker (GJRTX). The fund aims to track the return of a basket of absolute-return hedge funds. It does so only too well, and that’s the problem. Since most absolute return funds in the index fail to provide steady, risk-free growth, so does the Goldman fund that tracks them. The Morningstar analysis of GJRTX concludes: “The fund successfully replicates the average hedge fund, but investors may not want to own it.” How about those Goldman target-date funds? There the company also has a public track record-unfortunately for Bob McDermott. Of the five target funds in the Goldman stable, all lag the average in their category since inception. (Morningstar’s chart of the 2020 fund is below.) Goldman’s 2020 fund hasn’t kept pace with its peers. The problem may be partly that the constituent parts of the Goldman target funds-like Goldman Sachs Large Cap Value and Growth funds ( GCVIX and GCGIX )-are mediocre. Goldman may be perfect trading for its own account, but it’s not so good with other people’s money. Seven of Goldman’s nine “recommended top trades for 2010 ” have also lost money this year, As with the Absolute Return Tracker, if the underlying investments are subpar…well, they don’t get better by being put together in the same portfolio. Goldman should have learned that with its CDOs. The investors who bought them from Goldman certainly did. More on MoneyWatch: How to Buy a Target-Date Fund Navigating the Flaws of Target Date Funds Absolute Funds: More of the Same

Read the full article →

Tier 5: Pelosi Says No To More Weeks Of Unemployment Benefits

May 27, 2010

House Speaker Nancy Pelosi said Thursday that Congress will not take up any measure to give the long-term jobless more weeks of unemployment benefits beyond the 99 weeks available in some states. Congress is currently locked in an epic battle just to preserve the 99 weeks for the rest of the year. In a seemingly futile effort to appease deficit hawks, Dem leadership already weakened its “extenders bill,” formally known as the American Jobs and Closing Loopholes Act, by shortening the unemployment extension through November instead of December. Hundreds of thousands of people, however, have already exhausted 99 weeks of benefits with no jobs in sight. Thousands signed a petition to demand Congress add a “Tier V” to the four tiers of benefits that currently make up the 99 weeks. A reporter asked Pelosi at her weekly press conference if there were any plans to help the 99ers. “No. This bill will go until the end of November, at that time we’ll take up something, but not between now and then,” said Pelosi (D-Calif.). “The situation I see is that members who are from low unemployment areas are very concerned about the deficit. Members who are from high unemployment areas are very concerned about jobs. So we have to come to a compromise as to how to move forward, and we did with this bill going to November.” But come November, if Congress takes up anything related to unemployment, it will most likely be another temporary extension of existing benefits. The extension under consideration this week is the fourth in the last six months. And while a handful of senators have pledged to constituents that they will fight for more weeks of benefits, Senate Finance Committee chairman Max Baucus (D-Mont.) has said that “99 weeks is sufficient.” HuffPost asked Senate Budget Committee chairman Kent Conrad on Thursday (D-N.D.) if Congress will take up another extension in November or if it might not bother even with that. “It’s so hard to know what the economic conditions will be at that point,” he said. Andrew Stettner, deputy director of the National Employment Law Project, which has been lobbying for Congress to extend benefits through the end of the year and beyond, said midterm elections will make things more tricky politically in November. NELP’s goal is for Congress to reauthorize 99 weeks of benefits for the next two years if necessary. “As an advocate, I’m a little worried about what happens at November 30th,” said Stettner. “It’s not a great time to get something done in a thoughtful way.” Stettner added that he does expect Congress to continue to extend enhanced benefits, though perhaps with fewer weeks in certain states. “Nobody’s expecting that there will be no extension next year,” he said. “There have to be extensions given the job hole that we’re in.”

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Tier 5: Pelosi Says No To More Weeks Of Unemployment Benefits

May 27, 2010

House Speaker Nancy Pelosi said Thursday that Congress will not take up any measure to give the long-term jobless more weeks of unemployment benefits beyond the 99 weeks available in some states. Congress is currently locked in an epic battle just to preserve the 99 weeks for the rest of the year. In a seemingly futile effort to appease deficit hawks, Dem leadership already weakened its “extenders bill,” formally known as the American Jobs and Closing Loopholes Act, by shortening the unemployment extension through November instead of December. Hundreds of thousands of people, however, have already exhausted 99 weeks of benefits with no jobs in sight. Thousands signed a petition to demand Congress add a “Tier V” to the four tiers of benefits that currently make up the 99 weeks. A reporter asked Pelosi at her weekly press conference if there were any plans to help the 99ers. “No. This bill will go until the end of November, at that time we’ll take up something, but not between now and then,” said Pelosi (D-Calif.). “The situation I see is that members who are from low unemployment areas are very concerned about the deficit. Members who are from high unemployment areas are very concerned about jobs. So we have to come to a compromise as to how to move forward, and we did with this bill going to November.” But come November, if Congress takes up anything related to unemployment, it will most likely be another temporary extension of existing benefits. The extension under consideration this week is the fourth in the last six months. And while a handful of senators have pledged to constituents that they will fight for more weeks of benefits, Senate Finance Committee chairman Max Baucus (D-Mont.) has said that “99 weeks is sufficient.” HuffPost asked Senate Budget Committee chairman Kent Conrad on Thursday (D-N.D.) if Congress will take up another extension in November or if it might not bother even with that. “It’s so hard to know what the economic conditions will be at that point,” he said. Andrew Stettner, deputy director of the National Employment Law Project, which has been lobbying for Congress to extend benefits through the end of the year and beyond, said midterm elections will make things more tricky politically in November. NELP’s goal is for Congress to reauthorize 99 weeks of benefits for the next two years if necessary. “As an advocate, I’m a little worried about what happens at November 30th,” said Stettner. “It’s not a great time to get something done in a thoughtful way.” Stettner added that he does expect Congress to continue to extend enhanced benefits, though perhaps with fewer weeks in certain states. “Nobody’s expecting that there will be no extension next year,” he said. “There have to be extensions given the job hole that we’re in.”

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Tier 5: Pelosi Says No To More Weeks Of Unemployment Benefits

May 27, 2010

House Speaker Nancy Pelosi said Thursday that Congress will not take up any measure to give the long-term jobless more weeks of unemployment benefits beyond the 99 weeks available in some states. Congress is currently locked in an epic battle just to preserve the 99 weeks for the rest of the year. In a seemingly futile effort to appease deficit hawks, Dem leadership already weakened its “extenders bill,” formally known as the American Jobs and Closing Loopholes Act, by shortening the unemployment extension through November instead of December. Hundreds of thousands of people, however, have already exhausted 99 weeks of benefits with no jobs in sight. Thousands signed a petition to demand Congress add a “Tier V” to the four tiers of benefits that currently make up the 99 weeks. A reporter asked Pelosi at her weekly press conference if there were any plans to help the 99ers. “No. This bill will go until the end of November, at that time we’ll take up something, but not between now and then,” said Pelosi (D-Calif.). “The situation I see is that members who are from low unemployment areas are very concerned about the deficit. Members who are from high unemployment areas are very concerned about jobs. So we have to come to a compromise as to how to move forward, and we did with this bill going to November.” But come November, if Congress takes up anything related to unemployment, it will most likely be another temporary extension of existing benefits. The extension under consideration this week is the fourth in the last six months. And while a handful of senators have pledged to constituents that they will fight for more weeks of benefits, Senate Finance Committee chairman Max Baucus (D-Mont.) has said that “99 weeks is sufficient.” HuffPost asked Senate Budget Committee chairman Kent Conrad on Thursday (D-N.D.) if Congress will take up another extension in November or if it might not bother even with that. “It’s so hard to know what the economic conditions will be at that point,” he said. Andrew Stettner, deputy director of the National Employment Law Project, which has been lobbying for Congress to extend benefits through the end of the year and beyond, said midterm elections will make things more tricky politically in November. NELP’s goal is for Congress to reauthorize 99 weeks of benefits for the next two years if necessary. “As an advocate, I’m a little worried about what happens at November 30th,” said Stettner. “It’s not a great time to get something done in a thoughtful way.” Stettner added that he does expect Congress to continue to extend enhanced benefits, though perhaps with fewer weeks in certain states. “Nobody’s expecting that there will be no extension next year,” he said. “There have to be extensions given the job hole that we’re in.”

Read the full article →

Tier 5: Pelosi Says No To More Weeks Of Unemployment Benefits

May 27, 2010

House Speaker Nancy Pelosi said Thursday that Congress will not take up any measure to give the long-term jobless more weeks of unemployment benefits beyond the 99 weeks available in some states. Congress is currently locked in an epic battle just to preserve the 99 weeks for the rest of the year. In a seemingly futile effort to appease deficit hawks, Dem leadership already weakened its “extenders bill,” formally known as the American Jobs and Closing Loopholes Act, by shortening the unemployment extension through November instead of December. Hundreds of thousands of people, however, have already exhausted 99 weeks of benefits with no jobs in sight. Thousands signed a petition to demand Congress add a “Tier V” to the four tiers of benefits that currently make up the 99 weeks. A reporter asked Pelosi at her weekly press conference if there were any plans to help the 99ers. “No. This bill will go until the end of November, at that time we’ll take up something, but not between now and then,” said Pelosi (D-Calif.). “The situation I see is that members who are from low unemployment areas are very concerned about the deficit. Members who are from high unemployment areas are very concerned about jobs. So we have to come to a compromise as to how to move forward, and we did with this bill going to November.” But come November, if Congress takes up anything related to unemployment, it will most likely be another temporary extension of existing benefits. The extension under consideration this week is the fourth in the last six months. And while a handful of senators have pledged to constituents that they will fight for more weeks of benefits, Senate Finance Committee chairman Max Baucus (D-Mont.) has said that “99 weeks is sufficient.” HuffPost asked Senate Budget Committee chairman Kent Conrad on Thursday (D-N.D.) if Congress will take up another extension in November or if it might not bother even with that. “It’s so hard to know what the economic conditions will be at that point,” he said. Andrew Stettner, deputy director of the National Employment Law Project, which has been lobbying for Congress to extend benefits through the end of the year and beyond, said midterm elections will make things more tricky politically in November. NELP’s goal is for Congress to reauthorize 99 weeks of benefits for the next two years if necessary. “As an advocate, I’m a little worried about what happens at November 30th,” said Stettner. “It’s not a great time to get something done in a thoughtful way.” Stettner added that he does expect Congress to continue to extend enhanced benefits, though perhaps with fewer weeks in certain states. “Nobody’s expecting that there will be no extension next year,” he said. “There have to be extensions given the job hole that we’re in.”

Read the full article →

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