May 2010

Obama: Ongoing Oil Spill ‘Enraging,’ ‘Heartbreaking’

May 29, 2010

CHICAGO — President Barack Obama said Saturday that the failure of BP’s latest effort to stop the damaging flow of oil into the Gulf of Mexico is “as enraging as it is heartbreaking.” Obama commented after BP officials reached the disappointing conclusion that a dayslong effort to stop the flow of oil, known as a “top kill,” by packing the well with mud had failed. It was the latest in a series of failed attempts by BP to cut off the flow of oil. BP will now try anew by cutting the pipe that lies deep underwater and fitting a containment valve over the leak, an effort expected to take four to seven days. The disappointing news came a day after Obama interrupted a long holiday weekend at his home in Chicago to visit the Louisiana coast on Friday and show its angry residents that he is in command of the situation. “As I said yesterday, every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” Obama said. “It is as enraging as it is heartbreaking, and we will not relent until this leak is contained, until the waters and shores are cleaned up, and until the people unjustly victimized by this manmade disaster are made whole.” Obama said he discussed the situation Saturday with Coast Guard Adm. Thad Allen, who is overseeing the response to the spill, and Energy Secretary Steven Chu, Interior Secretary Ken Salazar, Environmental Protection Agency Administrator Lisa Jackson, and senior White House advisers John Brennan and Carol Browner. Obama said the approach BP plans to turn to next is risky and hasn’t been tried before at a depth of 5,000 feet. He said that while officials were hopeful the “top kill” procedure would succeed, “we were also mindful that there was a significant chance it would not.” Obama pledged anew to pursue “any and all responsible means” of stopping the leak until BP completes the drilling of a relief well. But while the relief well is permanent solution to the problem, BP says it won’t be ready until August. In the six weeks since the spill began, the government estimates that between 18 million and 40 million gallons of crude have poured into the Gulf, damaging beaches and wildlife and the local economy.

Read the full article →

States Passing Budget Cuts Onto Local Governments

May 29, 2010

JEFFERSON CITY, Mo. — Confronted with severe revenue shortfalls, some states have found a convenient way of softening painful cutbacks and avoiding statewide tax increases: They’ve passed the buck to their counterparts in cities and counties. Traditionally, many states help bear the cost of jailing inmates, paving roads, running libraries and providing other services in local areas. Now, states are paring back their payments, leaving local leaders to decide how to make up the difference. “They’re shafting counties big time,” complained Gene Oakley, the presiding commissioner of Carter County in rural southeast Missouri. Missouri has reduced its payments to counties for holding prisoners and given local police the responsibility for conducting stings on undercover drinking and smoking. Yet Missouri lawmakers have declined to change a law preventing counties from making their own midyear budget cuts. Similar cost-shifting is occurring across the nation, from Arizona to Maryland and Michigan to Mississippi. And more is likely to come. States already have closed more than $174 billion in budget gaps during the 2010 fiscal year, according to the National Conference of State Legislatures. The NCSL says three-fourths of states are projecting shortfalls next year totaling an additional $89 billion, a figure which has been rising. Local governments face many of the same economic problems as states, including declining sales or property tax revenues. And just as states depend heavily on federal money, many counties rely on state revenues to make their budgets. In a recent national survey, municipalities blamed reductions in state aid for a third of the more than $56 billion shortfall they face for 2010-2012. “In effect, we had to do double the cuts we normally would have had to make,” said Chris Bradley, a deputy budget director for Maricopa County, Ariz., the fourth-largest county in the U.S. “We had to cut to cover our own revenue shortfall, then we had to cut to cover for them.” State aid to Maryland counties has been cut to levels not seen since early 1980s, said Harford County Executive David Craig, president of the Maryland Association of Counties. Some local governments are considering tax hikes on cell phones, utilities and soft drinks to help cover the shortfall in state aid, Craig said. “The governor was talking about doing more with less. I said, `we’re doing less with less,’” Craig said. In Missouri, some sheriffs are concerned about a cost-saving move to merge the state water patrol into the state highway patrol. Camden County includes the most popular tourist lake in the state but the sheriff’s department doesn’t own a boat. State public safety officials say they don’t plan to stop handling emergencies. But “any agency that has a lake has got their fingers crossed,” said Camden County Sheriff’s Capt. Gary Bowling. He added: “We’re struggling to keep officers in cars on the roads. There’s no way we could start responding to waterborne emergencies at this point.” Because they are at the bottom of government flow charts, counties or cities typically cannot pass along the financial woes inherited from states. But some state officials say it’s appropriate for local governments to share the pain. “When revenues were good from the state, the counties shared in that wealth and they were quick to lobby for additional revenues,” said Missouri Senate President Pro Tem Charlie Shields. “So when times are tough, I probably would say the same thing is going to happen.” Some states are sharing larger portions of their financial distress than others. California this year borrowed about $2 billion from local governments’ property tax revenues, which will have to be repaid with interest in three years. It also took redevelopment money and transportation funding from local governments. Michigan has cut the money it shares with local governments by one-third over the past decade. Local governments have responded by closing parks and fire stations. Some Minnesota cities already had trimmed back on payroll, children’s library programs and public ice skating parks because of cuts in state aid. That was before Gov. Tim Pawlenty signed a plan in April cutting Minnesota’s projected $1 billion budget deficit by one-third, with the biggest slice coming from aid to cities and counties. Oakley, the top official in Missouri’s Carter County, said the county may have to consider laying off one of its two sheriffs’ deputies to help offset cuts in state aid. “I think it’s grossly unfair,” Oakley said. “They need to look for more ways to make government in (the state Capitol) lean before you get out her putting it on the backs of counties.”

Read the full article →

Frank Rich On Gulf Oil Spill: Obama’s Katrina, Or Worse?

May 29, 2010

For Barack Obama’s knee-jerk foes, of course it was his Katrina. But for the rest of us, there’s the nagging fear that the largest oil spill in our history could yet prove worse if it drags on much longer. It might not only wreck the ecology of a region but capsize the principal mission of the Obama presidency.

Read the full article →

Gretchen Morgenson: 3,000 Pages Of Financial Reform Still Not Enough

May 29, 2010

For decades, until Congress did away with it 11 years ago, a [34-page] Depression-era law known as Glass-Steagall ably protected bank customers, individual investors and the financial system as a whole from the kind of outright destruction we’ve witnessed over the last few years. … The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined. Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises.

Read the full article →

Gulf Oil Spill: Media Access ‘Slowly Being Strangled Off’

May 29, 2010

NEW ORLEANS — Media organizations say they are being allowed only limited access to areas impacted by the Gulf oil spill through restrictions on plane and boat traffic that are making it difficult to document the worst spill in U.S. history. The Associated Press, CBS and others have reported coverage problems because of the restrictions, which officials say are needed to protect wildlife and ensure safe air traffic. Ted Jackson, a photographer for The Times-Picayune newspaper in New Orleans, said Saturday that access to the spill “is slowly being strangled off.” A CBS news story said one of its reporting teams was threatened with arrest by the Coast Guard and turned back from an oiled beach at the mouth of the Mississippi River. The story said the reporters were told the denial was under “BP’s rules.” U.S. Coast Guard and Federal Aviation Administration officials said BP PLC, the company responsible for cleaning up the spill, was not controlling access. Coast Guard officials also said there was no intent to conceal the scope of the disaster. Rather, they said, the spill’s complexity had made it difficult to allow the open access sought by the media. Coast Guard Lt. Commander Rob Wyman said personnel involved in the CBS dispute said no one was threatened with arrest. Vessels responding to the spill are surrounded by a 500 yard “standoff area” with restricted access, he said. “If we see anybody impeding operations, we’re going to ask you to move. We’re going to ask you to back up and move away,” he said. BP contractors are operating alongside the FAA and Coast Guard at command centers that approve or deny flight requests. Charter pilots say they have been denied permission to fly below 3,000 feet when they have reporters or photographers aboard. Those special flight restrictions, imposed on May 12, cover thousands of square miles of the Gulf and a broad swath of Louisiana’s coast. Normally there are no restrictions on flying. The chief of the Coast Guard’s public affairs programs branch said access had been hampered by a cumbersome approval process that stretched all the way to the White House. Chief Warrant Officer Adam Wine said White House officials had to sign off on requests for tours of the spill zone before they could proceed. The Coast Guard is attempting to increase access through guided boat and aircraft tours, he said. Still, there is no plan to lift restrictions on flights or boat traffic into offshore areas – including some barrier islands. White House officials referred questions about their involvement to Wyman. He said Wine’s description of the chain of command was incorrect and that all requests from media were decided on by the command center in Robert, La. The Department of Homeland Security is notified, he said. Two weeks ago, oceanographer Jean-Michel Cousteau was turned away from waters near a wildlife sanctuary after the Coast Guard discovered a reporter and a photographer from The Associated Press were on board. Jackson, The Times-Picayune photographer, said he had been kept back from oil-covered beaches and denied a request to fly below 3,000 feet. “The oil spill from there is just a rumor,” he said. FAA spokeswoman Laura Brown said hundreds of flights related to the recovery effort go each day into the restricted airspace. She said aircraft from the oil industry and law enforcement also are allowed in those areas.

Read the full article →

Texas ERS Invests 200M In RE Funds

May 29, 2010

The Employees Retirement System of Texas has invested 100 million each in two nonlisted real estate funds

Read the full article →

U.S. Stocks Rise in Week as Dow Average Pares Worst May Loss Since 1940

May 29, 2010

By Whitney Kisling and Elizabeth Stanton May 29 (Bloomberg) — U.S. stocks rose this week, paring the biggest Dow Jones Industrial Average decline in May since 1940, after increasing consumer confidence and home sales as well as China’s commitment to maintain investments in Europe eased concern that a debt crisis is spreading. The Standard & Poor’s 500 Index pared its weekly gain yesterday after Spain lost its AAA debt grade at Fitch Ratings. Sprint Nextel Corp. led the S&P 500’s advance since May 21 after Goldman Sachs Group Inc. boosted the stock’s rating. Consumer companies and material producers increased more than 1 percent this week, while Apple Inc. surpassed Microsoft Corp. as the world’s most-valuable technology company at $233.7 billion. The S&P 500 rose 0.2 percent to 1,089.41 this week. The Dow retreated 56.76 points, or 0.6 percent, to 10,136.63 — dragged down by Microsoft — and dropped below 10,000 for the first time in three months. The indexes lost 8.2 percent and 7.9 percent in May, respectively, their worst months since February 2009. “The correction in the U.S. stock market is a little bit overdone,” said David Joy , chief market strategist at Columbia Management in Boston, which oversees $341 billion. “I’ve looked at this more or less as a buying opportunity.” The rise in confidence among U.S. consumers exceeded estimates, with the Conference Board’s index rising to 63.3, the highest level in two years. The median economist forecast was 58.5 in a Bloomberg survey. Sales of previously owned American homes increased last month to the highest level in five months, according to the National Association of Realtors. ‘More Skittish’ The S&P 500 had its second-biggest daily gain this month on May 27, the day China said its $300 billion sovereign wealth fund will maintain its investments in Europe. The country’s move gave investors confidence the European crisis will be contained to the area and won’t stall global growth. The U.S. stock benchmark slid the next day, plunging 1.2 percent as Fitch Ratings cut Spain’s credit grade to AA+ from AAA, saying the debt burden is likely to weigh on economic growth. “Spain’s downgrade just makes investors more skittish,” said Cliff Remily , a money manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees $57 billion. “There’s a risk of other countries being downgraded.” The S&P 500 has fallen 11 percent since April 23, paring its advance since sinking to a 12-year low on March 9, 2009, to 61 percent. The index fell below its average over the past 200 days earlier this month, a sign to technical analysts that selling may continue. Fewer Lost Customers Sprint climbed 16 percent to $5.13, the most in a week since November. Goldman Sachs raised the rating to “ buy” and projected fewer subscriber cancellations than in previous years for the third-largest U.S. mobile-phone carrier. Apple, the computer maker turned mobile gadgeteer , overtook Microsoft this week to become the most-valuable technology company in the world. While Apple may be able to keep adding customers for its iPhone, Macintosh computer and iPad, Goldman Sachs said investors should buy Microsoft shares because they fell too far in this month’s selloff. Apple rallied 6 percent to $256.88 this week, and Microsoft declined 3.9 percent to $25.80, pushing its monthly drop to 16 percent. Technology companies had the third- biggest weekly gain among 10 industry groups in the S&P 500. Companies that depend on discretionary spending by consumers rallied the most, with a 1.9 percent advance, led by Time Warner Cable Inc., the second- largest U.S. cable company, and Interpublic Group of Cos., which owns advertising companies. Time Warner Cable rallied 7.6 percent to $54.73, while Interpublic advanced 7.5 percent to $8.35 after repurchasing preferred stock. Drilling Restrictions Diamond Offshore Drilling Inc. , Baker Hughes Inc. and Schlumberger Ltd. fell more than 6.8 percent, posting three of the five biggest losses in the S&P 500 this week. U.S. President Barack Obama boosted hurdles to deep-water drilling by suspending some explorations and operations and canceling some pending leases ales. Moody’s Corp. lost 6.9 percent to $20.50. David Einhorn , said at a conference this week that he is still betting against the debt-rating company. He is the founder of hedge-fund operator Greenlight Capital Inc., which has about $6.8 billion in assets. The VIX ended the week below 40 — a level it’s closed above 3.1 percent of the time since 1990 — falling 20 percent to 32.07. The Chicago Board Options Exchange Volatility Index , as it’s officially called, jumped as high as 45.79 this month, more than double its level on April 30. Higher readings indicate investors are paying more for 30-day insurance against declines in the S&P 500. To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net ; Elizabeth Stanton in New York at estanton@bloomberg.net .

Read the full article →

Tom Doctoroff: China’s New Middle Class: Constants and Variables

May 29, 2010

China’s middle class, a modern force with timeless cultural imperatives, will reshape the world. To harness its spending power, marketers must realize that becoming modern and international is not tantamount to becoming “Western.” The following discussion outlines the core motivations and conflicts that drive middle class consumption in China. How would you define the Chinese Middle Class, who are they, where are they and when did they emerge? Nobody has yet to really come up with a suitable definition, but for our purposes, if we define the lower edges of the middle classes as households earning 5,000 RMB a month (around USD 1,400 on an adjusted Purchasing Power Parity (PPP) basis) and the core middle classes as those earning 20,000 RMB a month (about USD 5,700 on an adjusted PPP basis), then we see that this is a very penny pinched middle class. There are around 125 million people that probably fall within the category, basically, anyone that is not struggling for day to day survival. It is certainly a fallacy that this class exists in the primary cities only; they are to be found in every city across China, as can be seen in the growth of car ownership across all the cities. The question is, however, what proportion of them exist in each city? The middle classes as a demographic only really came about at the start of this decade. In 1992, Deng Xiaoping made his famous tour of the south, uttering his famous catchphrase “to get rich is glorious”, his economic reforms unleashed capital, but the impact on people’s lives was not really felt until the late 90′s, making the Chinese middle classes a very new phenomenon. The sheer scale and magnitude of this transformation and in the context of the Chinese world view, marks a spectacular inflection point for China and the world today. How is the Middle Class growing in China and where is growth strongest? We are seeing two different curves emerging here, growth in the primary cities, where a critical mass has been reached already and growth in lower tier cities, which has barely even begun, but where growth is by far the strongest due to targeted government policies. Every year more and more people will join the rank and file of the middle classes, being able to afford their lifestyles. It’s important to note, however, that China is still far away from being a middle class society. How do the Chinese Middle Classes view themselves ? As a quick aside, there is a bit of a labelling issue here as ‘middle class’ is not really a politically correct term, very few would want to classify themselves as middle class. But back to the question at hand, the Chinese middle classes believe that with the right competitive tools, an opportunity will come by which will allow them to transform their lives, in contrast to a blue-collar labourer, who will see his social and economic status as more or less fixed. The middle classes believe in social mobility, their environment can now offer them the chance to change and improve their lives. This is what being middle class is really all about, to transform lives and improve physical wellbeing, it’s a move beyond the already satisfied lower levels of Maslow’s hierarchy of needs of survival and physical safety requirements towards a need to satisfy social status requirements. The middle class engages with society to get recognition for their (financial) successes. It’s important to note though that this is not about arrival, it’s about being on the right journey, they see theirs as an arduous, perilous, continuous struggle upwards and there is an acute awareness of the precarious and unpredictable slipperiness of this journey, that all could be lost and taken away in the bat of an eyelid. There is a need to project how high you have climbed, but also to protect that ascent. Insecurity abounds. Insecurity based on cultural, economic and political factors. The Chinese have an understanding with their ruling classes that government must be responsive to people’s needs, the middle classes trust that their government will protect their interests, otherwise the contract they have with them will unravel. People are not protected by civic institutions, there is no political representation, and wealth is not protected institutionally. The middle classes are wracked with anxiety, it’s a very tough world out there and unless they carry on generating, it is all too easy to slip back to the bottom. What goes up can and often will come down. What are the challenges facing the Chinese Middle Classes? On an economic level, there is a sense that wealth is not protected and that individuals need to fend for themselves as they will not be provided for otherwise. More subtly, on an emotional level, there is a sense that there are certain, essential rites of passage to middle classdom, such as homes, diamond rings, education, car ownership and other expenditures that are needed in order to cross that threshold. But these items are expensive, incomes are limited and disposable incomes remain low, yet these are necessities and need to somehow be paid for, so what to buy? As we said earlier, this is a very penny pinched middle class, who do not have much flexibility on how they spend their money. There is a very rigid, set way of how you become middle class; you will be required to posses certain hallmarks, but which ones to choose as incomes are so limited? There is a lot of anxiety about how to make progress up the mountain, the question is, how to arrive at something more sustainable, particularly for men who carry a great burden as the person responsible for the family; men do not feel in control of their destiny, there is great anxiety, how do you defuse that sense of loss of control? In Confucian society the burden on men to be the providers is very absolute and very heavy, its not just a question of providing, society will judge you on whether you are an upstanding member of society by your ability to provide; your value is derived from whether you have lived up to your masculine obligations to provide and here, its not the individual who is the productive unit, but the clan and as a man, you are responsible for the overall wellbeing of your clan, this places an enormous burden on men. Individualism in the western sense, although aspired to, does not exist in China. In the west we admire those who have transgressed the constraints of societal norms and broken free of its shackles and rules, thriving beyond and independently of these, achieving success on ones own terms. In China, what is big are egos, it’s the opposite of western individualism that no longer cares about how they are judged by society, in China, individuals are incredibly conservative and conventional and derive all their value from how they are perceived by society. The individual is looking for society’s endorsement and qualified stamp of approval that they have mastered the rules and have been able to climb society’s predefined hierarchy. This yearning to be recognised as having conformed exactly to society’s expectations puts an enormous pressure on individuals. This stifling need to conform can be seen in how a child is raised, the education system and the relationship between teachers and parents. We see this all the time in advertising, we have to work so hard to get creativity and individualism, individual initiative is seen as a high risk threat and is discouraged here. Very tellingly, a westerner’s typical fantasy of escape is usually very horizontal, being on an island for example, whereas the Chinese transcendence is vertical, flying, or being on a mountain, being in total control of what is beneath you, i.e. the definition of success is to master your surroundings, or really, to master society’s rules and hierarchy. How are the Chinese Middle Classes evolving? Historically, the Chinese are incredibly price sensitive when it comes to products for the home, these items will not be seen by outside society and given the need for conspicuous consumption outside the home, cost savings for items within it are required, as the home is rarely visited by outsiders and is considered to be a private sanctuary. As incomes are increasing, this is changing, people do now place more value on quality and are prepared to pay a bit more for the home, but predominantly even these more expensive home items are still used as markers for success. Travel is now also a marker of success and is a new dimension of what it means to be middle class, showing that you are on the journey, literally and figuratively! The range of goods that will be consumed are changing as the middle class evolves. There is now much more of a need and a growing desire for self-expression and to liberate oneself, which is one reason why digital has become so fundamental, the new generation is using digital to have a more expressive life. These outlets, seeing the need for self-expression, will become more pervasive as time goes on. Individualism is eve’s apple, the allure is intoxicating, but if you bite into it you will be banished. Companies will need to decide how to play with the aspiration of individualism and the reality of social conformity. But, what is absolutely not happening, is the Chinese middle class becoming western, they are becoming modern, they are becoming internationalised, but they are not becoming western. The structure of Chinese society is very different than western society. There is one underlying truth in Chinese society that says the only absolute evil is chaos and the only absolute good is stability and order, this is a prerequisite for progress on a national and individual level and why the unit remains the clan and not the individual. Every strand of Chinese thinking reinforces the supremacy of stability and order, this is inculcated from a young age; China is unique for its conflict between ambition and conformity, from abiding to the hierarchy to pulling yourself up the hierarchy, this only exists in the Confucian footprint, in Japan this conflict is not nearly as severe, but in China this conflict defines the topography of the Chinese heart. What are the aspirations of the Chinese Middle Classes, what do they want? A key insight here is that Chinese people will say that all they want is to be happy and to be in control of their destiny, but actually, this ideal is not truly practical for them. People will talk about it, it’s an ambition, but it’s important not to oversimplify. The Chinese know how tough it is out there and they know that they will need to struggle to advance; therefore their practical goals are to keep on struggling up the hierarchy, the Chinese are not truly interested in taking it easy. ‘All I want is to be happy’, is a dreamt escapist desire, as opposed to a concrete aspiration. How does the State view the Middle Classes and how is the State providing for them, are they hindering or helping them? The Chinese have an extraordinary ambivalent relationship with the State; they see the central government as there for them to advance and to make order from chaos. They would never trade in the Chinese system for democracy. On the other hand there is a frustration with the slow pace of reform and evolution of the structure that should protect the interests of society. Everyone wants institutional reform, but no one wants rebellion, they want a continuation of the status quo, the State is the lynchpin that holds society together. People do expect that government will become more responsive to their needs and they also see the enormous progress that has been made and are content that things are getting better. Corruption, however, is a problem and is very dangerous for the government, people see corruption as the government not being responsive to their needs. But people need their strong government as they still have an underlying fear that things could fall apart at any moment. The Chinese culture increases tolerance for a government that has continued power to frame the current issues of the day and to issue top-down commands. Due to cultural imperatives, the tolerance is far greater than we would like to admit to in the west. The speed of reform compared to what people can tolerate is merely a question of degree. Because per capita incomes are still at such low levels and because urbanisation still has such a long way to go, it will be decades before the basic current structures of power become a critical contradiction. When China has moved from low level manufacturing to service based economic growth, if by that stage society does not advance, once there is a solid middle class base, then there might be problems, but this is still decades away from happening. How can companies reach out to the Chinese Middle Classes and connect with them? Examples of successes and failures? Success in China is rooted in having insights that uncover fundamental motivations and bringing your product in alignment with these. Every product that charges a premium needs to be a tool for social advancement. Examples of success would be De Beers diamonds, in ten years of entering the market, the penetration of diamond engagement rings has gone from 8% to 80%. They were able to do this by understanding the motivations; marriage in China is different then it is in the west, in the west we like to believe that passion and romance will last forever, in China, however, it is commitment that lasts forever, not love as such. De Beers sold themselves as giving the Chinese man a tool to demonstrate his reliability. Ford is another example that is doing better than everyone expected. It does not sell itself on how good it is to drive its cars, but by how they can transform people’s lives. Of course it depends on the model and which societal class you belong to, but fundamentally the allure is how the cars will help you to advance up the hierarchy in some shape or form, this in fact is why China has overtaken the US in the growth of automobile ownership, not because the Chinese need cars, but because it’s a threshold of middle classness – companies who want to succeed in China need to bring their products in line with the Chinese world view and structure of Chinese society. Rejoice Shampoo, from P&G, has also done a very good job at maintaining its position within the market, it has done this through its ‘confidence through softness’ advertising, i.e. that the beauty of your hair will be noticed by other people. Häagen-Dazs moved to outdoor consumption as they knew this was the only way to get people to pay the premium on their ice cream, it’s a great way for a boy to impress a girl by taking her to eat at such an exclusively expensive indulgent venue. Starbucks is doing much the same thing. In China the product is a means to an end, the message driver has to be that this product will make you noticed and help you on your journey upwards. The Chinese have no excuse to be buying luxury goods, given their level of income, but luxury is so externalised it enables inconspicuously conspicuous consumption, i.e. to show off without being seen to do so. There is a craftsmanship to selling products in China, it’s communicating how your product will help the owner solidify their status, but avoiding clichés. Is there a difference in how Middle Classes live at home and in Public and if so, why? Home is a retreat, your private castle; Chinese do not throw dinner parties, home is a private domain and needs to be respected as such. You will not see people spending money on expensive bedspreads. However, comfort is important and the willingness to indulge is growing, but not fast, foreign, premium priced items for the home are still going to struggle a lot more with their lower priced, domestic counterparts. Chinese consumers are becoming more educated about quality and are ruthless quality hunters; they are becoming much more demanding about quality, which is normal as the middle class evolves. The digital revolution is also becoming so fundamental to the way the Chinese express themselves and define their identity. In the west, digital is functional, we use it to make transactions and find things, in China it is much more emotional, they use it to chat and for entertainment. What products and services do the Middles Classes aspire to have? Growth in home ownership, DIY, car ownership etc Service industries will explode in China over the next few years, from Banking, to Investments, to Healthcare. There is a dearth of good service here, which is often very unpredictable. On the one hand the Chinese have been conditioned not to demand service, but needs are needs and they are now starting to demand better quality services. However, there seems to be an ever widening gap of what’s available and what is being demanded. The time is absolutely ripe for foreign companies, with more knowledge and experience than their domestic counterparts, to enter the market. The question is though, will the government recognise the need for foreign competition and that domestic companies are simply not equipped to meet expectations? Will they allow sectors to liberalise and open up? If not, resentment will surely grow and there could be a real struggle ahead. Originally published in Chamber Eye, the magazine of the British Chamber of Commerce of Guangzhou

Read the full article →

Oil Spill Taking Toll On BP’s, Government’s Credibility

May 29, 2010

WASHINGTON — A litany of half-truths, withholding crucial video, blocking media access to the site and a failure to share timely and complete information about efforts to contain the largest oil spill in U.S. history have created the widespread impression that BP is withholding information about the April 20 oilrig blowout in the Gulf of Mexico, if not misleading the public and the government. The government has been little better, for weeks blindly accepting BP’s estimates of the size of the spill, all but powerless to force the company to curb its use of toxic chemical dispersants and ignoring warnings from its own officials about possible worker safety violations. Most damning, say members of Congress, was BP’s failure to release video that would help measure how much oil is being released from the broken well — a number that will be key evidence when federal investigators and perhaps juries consider what damages BP should pay.

Read the full article →

Gulf Oil Spill: Unanswered Questions

May 29, 2010

WASHINGTON — The impatient nation isn’t getting answers fast enough in the Gulf of Mexico oil spill disaster. What exactly went wrong? Who messed up? How much oil is pouring into the Gulf? Can the oil get to Florida and even up the Atlantic coast? What will the environmental and economic consequences be? Will the chemicals used to disperse the oil leave their own destructive legacy? As the oil spreads, people on the Gulf Coast, in Washington and elsewhere want answers in a New York minute. But these mysteries of the deep are not yielding easily. Over three weeks, more than a dozen congressional hearings and scores of hours of witness testimony did not get to the rupture’s cause or its full effects. Many more inquiries are ahead. But then such hearings, especially in an election year, are often designed more to give lawmakers a stage to rant against a politically safe target than to find facts. Vital clues, such as the burned-out behemoth of a rig and a safety device that was supposed to prevent such a blowout, rest under a mile of water accessible only by remote-controlled vessels. Some of the crewmen who manned the rig at the moment of crisis, including two responsible for shutting the oil flow, are dead. The murkiness isn’t just as the ocean bottom. It’s now acknowledged by the government that federal regulators were too close to the oil industry and, as a consequence, probably too lax in enforcing safety rules. But did that cronyism somehow contribute to the spill? President Barack Obama raised the possibility Thursday that the project might never have been approved if his administration had acted more aggressively to overhaul the Interior Department agency that oversees offshore drilling. If the changes taking place now “had been happening fast enough,” he said, “this might have been caught. Now, it’s possible that it might not have been caught.” A look at some knowns and unknowns as BP PLC, the well’s owner, carries out its risky “top kill” operation to seal the gaping wound a mile down: FALSE CONFIDENCE: BP and regulators widely believed that because there had never been such a catastrophic blowout in the Gulf, it would not happen – and that whatever accident occurred could be contained even in a mile of water. That bravado is reminiscent of another environmental crisis three decades ago, when the nuclear industry said a reactor meltdown could not happen. Then it did, Three Mile Island in Pennsylvania. In another age, they also said the Titanic was unsinkable. METHANE RUSH: Human error and mechanical failure probably both played a part in the accident. The crisis began late on the night of April 20 with an unexpectedly powerful rush of methane gas up the well pipe to the sea surface. The rush was so powerful that it shot heavy material – designed to keep downward pressure inside the pipe – to a nearby supply vessel. The state-of-the-art Deepwater Horizon drilling rig was consumed with such speed that, as Steve Newman, president of rig owner Transocean told senators, “the drill crew had very little, if any, time to react.” Eleven crew members died and 115 barely escaped. EARLY WARNING? The House Energy and Commerce Committee collected 100,000 pages of documents from BP, Transocean and others, and produced evidence that the crew had hints of a developing problem on the day of the explosion: worrisome pressure readings in the pipe, which was being sealed for future oil production. This could have been a tip-off to an intrusion of methane gas. But why? That’s still an unknown. Could the cement injected into the pipes have been deficient? Was it a mistake to replace some of the “mud” used to apply downward pressure in the pipes with lighter seawater before a final cement cap was applied? The seawater theory appeared to gain more credence this past week at a hearing in New Orleans. According to witness statements, senior managers worried BP was “taking shortcuts” by replacing heavy drilling fluid with saltwater in the well. Statements from oil rig workers and a congressional memo about a BP internal investigation of the blast indicated warning signs were ignored. Tests less than an hour before the blowout found a buildup of pressure indicating “a very large abnormality,” BP’s investigator said, according to the congressional memo. Still, the rig team was “satisfied” that another test was successful and resumed adding the sea water, said the memo by Reps. Henry Waxman, D-Calif., and Bart Stupak, D-Mich. Waxman is chairman of the Energy and Commerce Committee; Stupak heads the subcommittee on oversight and investigations. Also at the New Orleans hearing, Douglas Brown, the rig’s chief mechanic, testified about what he described as a “skirmish” between the “company man” – a BP official – and three rig employees during a meeting the day of the explosion. BP owns the well; Transocean was doing the drilling. “The driller outlined what would be taking place, but the company man stood up and said ‘We’ll be having some changes to that,’” Brown testified. He said the three other workers initially disagreed but “the company man said ‘This is how it’s going to be.’” FAIL-SAFE FAILURE? Mysteries persist about the blowout preventer, the now-crippled five-story structure sitting atop the well. It was supposed to seal the well pipe at the sea bottom in an eruption. While it didn’t close – or may have closed partially – hearings have produced no clear picture of why it didn’t plug the well. Documents emerged showing that a part of the device had a hydraulic leak, which would have reduced its effectiveness, and that a passive “deadman” trigger had a low, perhaps even dead, battery. Newman repeatedly told lawmakers there was no evidence that the device itself failed and suggested debris might have been forced into the device by the explosive force of the surging gas. HOW MUCH OIL? Not even the amount of oil gushing from the well has been pinpointed. On Thursday, officials upped their estimate, saying the well has been gushing between 504,000 and more than 1 million gallons a day into the Gulf. BP and the Coast Guard estimated soon after the explosion that about 210,000 gallons a day were leaking. WHERE WILL IT GO? There’s almost as much uncertainty about what is happening to the oil already in the water. Lawmakers got little explanation about what appears to be a large plume of oil moving beneath the water surface. Was it oil or a mixture of oil and chemicals? “Unknown,” said Jane Lubchenco, one of the government’s top marine scientists. How much oil will reach the ecologically precious coastal marshes is still uncertain. If oil gets into a fast-moving Gulf “loop’” current it could hit the coral reefs of the Florida Keys and even move around up the Atlantic Coast. Marine scientists say it’s not clear how much damage it will cause because the oil might by then may be significantly degraded. Even one of the bedrock tools for fighting the oil spill – chemicals that break up the oil so it degrades more easily – has raised more questions than answers. The chemicals are being used in amounts and at water depths never envisioned. “The long term-effects (of the dispersant chemicals) on aquatic life are still unknown,” said the head of the Environmental Protection Agency, Lisa Jackson. And this from Interior Secretary Ken Salazar: “There are many facts which are still unknown. I know enough to know there were a lot of problems here.” ___ Online: Live video of oil spill: http://tinyurl.com/2c8y3rj

Read the full article →

DK Matai: The Achilles Heel of Markets?

May 29, 2010

It has been the worst May for stocks since 1940. The last time May was this bad, neither had Pearl Harbour been bombed forcing the US to enter World War II, nor had the US recovered from The Great Depression. Although suppressed for much of the global markets recovery that began in March 2009, volatility has sprung back with a vengeance in May. On May 21st the “fear index” — the “volatility index” of the Chicago Board of Options Exchange, also known as VIX — rose to a 12 month high. May 6th, the day of the “flash crash,” saw the biggest intraday point drop ever in the Dow Jones Industrial Average. The last-hour market swings, as the European debt crisis injects more uncertainty, are also increasing with every passing day. This volatility reflects a lack of buying interest among long term investors and an intra-day focus for high-frequency traders in the absence of a clear market direction. High Frequency Trading Super Arbitrage The role of high-frequency trading is gathering pace, commanding a bigger and bigger share of financial markets’ activity worldwide in equities, bonds, commodities, futures and currencies. High-frequency traders are behaving like computer jockeys. They run complex trading algorithmic software on superfast computers and search the markets for tiny price differentials so that they can carry out super arbitrage. By trading hundreds of millions or even a billion units a day at lightning speed, high-frequency traders pick up fractional pennies each time. The more volatile the market, the easier it is for them to make money jumping in and out of assets across multiple exchanges. High-frequency traders are really just trying to skim the bid to offer spread on a trade. It may only be as low as $0.01 on many trades but, if one does it for 100,000,000 — 100 million — units that’s over one million dollars a day of profit! High-frequency trading firms rarely go home with a position if they can help it because they make money by maximising transactional volume and minimising risk. What Does Volatility Mean? Markets become volatile when liquidity dries up. This means people can’t trade stocks at a fair price, when they want. High-frequency traders thrive off volatility, because when liquidity is in short supply, it becomes very profitable for them to provide it. On days with big movements, in the realm of triple digits, high-frequency traders can make a lot of money via this super arbitrage. As a result, May has proved to be the biggest gold mine for high-frequency trading firms since the crash of late 2008 and early 2009. While many long-term investors lost their shirts during The Great Unwind (2007-?) and The Great Reset (2008-?), the high-frequency traders posted huge profits, as they are doing now. Shadow Markets In their defence, high-frequency traders say that because their intense trading provides liquidity, they help markets run smoothly, improving the environment for all investors. They say their actions make the markets more functional and fair to typical investors. Given that the high-frequency traders and broker dealers have a symbiotic relationship, they are both actively masquerading as liquidity providers when in fact they are normally liquidity takers, the knowledge transfer of the transactional information being all important. It is clear that high-frequency trading serves no larger purpose. It does not raise capital for companies, create jobs or stimulate innovations in the broader economy. The trades remain completely divorced from underlying economic fundamentals. The high-frequency traders know little or nothing about the companies their computers are feverishly buying and selling. If one combines the speed at which they operate, the outsourcing of decision making to computer algorithms, and an almost complete lack of regulation, this shadow market can fuel and exaggerate volatility. Anti-Value Investing High-frequency traders have been branded as the new “black hats” of high finance. Their computer-driven methods, which now account for upwards of two thirds of all US equity volume, are proliferating. To a large degree, fundamental investment strategies — such as buying and selling stocks based on a company’s long term performance — have taken a back seat to high-frequency trading algorithms hunting for inefficiencies in daily pricing and super arbitrage opportunities. Reach, Richness and Speed High-frequency trading has been spreading from the US and Canadian stock markets into new geographies — Europe, Asia and Latin America — and all asset classes including equities, bonds, commodities, futures and currencies. Assuming the new financial regulatory reform bill forces over-the-counter derivatives on to exchanges, high-frequency traders will no doubt trade them too. Every day, things are getting faster in the world of high finance and trading. Four years ago, executing a trade in a millisecond — one thousandth of a second — was considered fast; now the top high-frequency trading firms and broker dealers are trading in microseconds. That’s one millionth of a second. Conclusion Law-makers and regulators are right to get nervous. Senator Ted Kaufman — Democrat from Delaware — who understands the risk of high-frequency trading, or HFT, says, “I’m afraid that we’re sowing the seeds of the next financial crash.” He has called for the Securities and Exchange Commission (SEC) to investigate high-frequency traders and the impact they have had on the broad markets. In the aftermath of the May 6th “flash crash”, the Securities and Exchange Commission (SEC) has recently voted to propose rules that would give the agency and securities exchanges more timely information about high-frequency trades so that they can better oversee the markets. The proposal requires exchanges and broker dealers that trade on the exchanges to provide detailed information about quotes, orders and trades to what would be a newly created central repository. Whilst the creation of a central repository may be helpful, it is unclear how this could prevent a “flash crash” caused by high-frequency trades in the future. Human real time is measured and understood in minutes and seconds, whereas the machines are trading in millionths of seconds. In order to be able to understand what happens in a future “flash crash” the regulators would have to play the data from a central repository in slow motion over days or even weeks! What good is it to drive an open-top car at high speed with one’s eyes glued to the rear view mirror?

Read the full article →

BP Persists on &lsquoTop Kill,&rsquo Prepares Backup Plan to Stop Spill

May 29, 2010

By Jim Polson May 29 (Bloomberg) — BP Plc planned to continue working through the weekend to plug a leaking oil well in the Gulf of Mexico that has produced the largest spill in U.S. history. Since Wednesday, BP has been starting and stopping high- horsepower pumps that ram mixtures of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing from the well for more than five weeks. “We’ll continue this operation as long as necessary until we’re either successful with it or are convinced it won’t succeed,” Doug Suttles , the BP executive in charge of the spill response, said at an afternoon press conference in Robert, Louisiana. Yesterday, engineers suspended work on a “relief” well intended as a long-term back-up solution so that equipment it’s using can be available should the so-called “top kill” fail. President Barack Obama , in Louisiana, said Energy Secretary Steven Chu will work with BP to seek alternatives if the top- kill plan fails. “There are going to be a lot of judgment calls involved here,” Obama told reporters yesterday in Grand Isle, Louisiana. “There are not going to be silver bullets for the problems we face.” Obama met with Louisiana Governor Bobby Jindal , who said he’s frustrated at the reluctance of federal officials to allow dredging and filling of manmade islands to protect marshes. BP’s costs from the spill rose to $930 million, the London- based company, the largest producer of oil and gas from the Gulf of Mexico, said yesterday in a statement. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva- based Transocean Ltd. , the world’s largest deep-water driller. ‘Catastrophe’ BP has a 65 percent stake in the field, known as Macondo. Its partners in the project are Anadarko Petroleum Corp. and Japan’s Mitsui & Co. About 26,000 damage claims have been filed and 11,650 have already been paid, BP said yesterday. Chief Executive Tony Hayward called it an “environmental catastrophe,” a day after a government panel estimated the well has gushed 12,000 to 19,000 barrels of oil a day, making it the largest oil spill in U.S. history. Hearings are scheduled to continue today in Louisiana into the death of 11 workers killed in the April 20 drilling rig explosion that triggered it. Citing risk to workers and the environment raised by the spill, Obama on May 28 extended for six months a moratorium on deep-water drilling permits. Relief Well Stopped BP suspended drilling on the second of two relief wells intended to permanently seal the damaged well from the bottom, so that its blowout preventer will be available should the top kill fail, Suttles said. In that event, BP will saw off a section of crimped pipe from the top of the blowout preventer of the leaking well, install the second blowout preventer atop the first, and close its valves to halt the leak. That will take several days, and in the interim, engineers plan to cover the sawn-off pipe with a temporary cap designed to direct some of the oil to a ship on the surface, Suttles said. Halting work on the second relief well is not a sign that BP has concluded the top kill will fail, Suttles said. Mud Supplies The first phase of the top-kill effort used less than 15,000 barrels of drilling mud, Suttles said. BP had 50,000 barrels available and has made sure there are additional supplies of mud and rubber material, he said. The leaking well is 5,000 feet (1,524 meters) below the surface, forcing BP to rely on remote-operated vehicles rather than divers. “It’s not going well,” Tad Patzek , chairman of the Petroleum and Geosystems Engineering Department at the University of Texas at Austin, said yesterday after reviewing a live video of the leak. “You have more or less the equivalent of six fire hoses blasting oil and gas upwards and two fire hoses blasting mud down,” Patzek said. “They are losing the competition.” Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of “dissolved hydrocarbons” were 400 meters (1,312 feet) below the surface. To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

Read the full article →

South Korea Faces Skeptics at Home Over Evidence Linking North to Torpedo

May 29, 2010

By Ben Richardson and Saeromi Shin May 30 (Bloomberg) — South Korea’s government is trying to stem skepticism about an inquiry that blamed North Korea for the sinking of a warship, according to local media reports. Prime Minister Chung Un Chan ordered the government to find a way to stop groundless rumors spreading on the Cheonan’s sinking, the JoongAng Daily said yesterday. Prosecutors questioned a former member of the panel that probed the incident over his critical comments, the paper said. The Joint Chiefs of Staff sued a lawmaker for defamation after she said video footage of the ship splitting apart existed, a claim the military denies, Yonhap News reported. Almost one in four South Koreans say they don’t trust the findings of the multinational panel, according to a poll commissioned by Hankook Ilbo on May 24. North Korea’s state-run Korean Central News Agency yesterday accused the South’s “puppet military of trying to cover up the truth about the sinking” by seeking to silence opposition lawmakers with the lawsuit. The news agency yesterday released six English-language articles asserting that the country is innocent in the March 26 sinking and attacking the evidence presented by the inquiry. The denials come as Wen Jiabao , premier of North Korea’s main ally, China, is in South Korea for a three-way summit that includes Japan. South Korea and Japan made a joint stand yesterday blaming North Korea, and want China to also take a stance. Wen May 28 said that while China won’t protect anyone found guilty of causing the ship to sink, it is still assessing the evidence. China is North Korea’s largest trading partner and main political ally, having fought alongside the North and against the U.S. in the 1950-1953 Korean War . ‘Blinded With Ambition’ “The South Korean conservatives are now blinded with the wild ambition to invent a pretext for escalating the confrontation,” the North Korean news service said in one report yesterday. “It has become clearer that a nuclear war is bound to break out,” the report said, “as long as such traitors are allowed to be at large.” In another, the agency wrote: “The case of the warship sinking is a sheer fabrication made by the South Korean ruling forces, a hideous burlesque orchestrated by them.” Lee Jung Hee, a lawmaker with an opposition party, the Democratic Labor Party, was sued for defamation by seven people at South Korea’s Joint Chiefs of Staff, Yonhap News reported May 25. Lee said during a speech in parliament that while the Defense Ministry had said there was no feed from a thermal observation device showing the moment the warship’s stern and bow split apart, such a video did exist. Accident Claims Prosecutors May 28 questioned Shin Sang-cheol, who runs Seoprise , a Web-based political magazine, over his assertion that the Cheonan sank in an accident and that the evidence linking the North to the torpedo was tampered with, the JoonAng said. Shin served on the panel that probed the sinking. The magnified photograph of writing on the torpedo showed that the marking was written on top of a rusted surface, the newspaper cited Shin as saying. The Defense Ministry asked the National Assembly to eject Shin from the investigation for “arousing public mistrust,” the report said. South Korea intends to present its case against the North to the United Nations Security Council . The U.S., Japan, Australia and the U.K. have all accepted the findings of the panel. The commission included experts from Sweden, which has an embassy in Pyongyang and isn’t aligned with South Korea and the U.S. ‘Awkward Position’ North Korea warned the UN to be wary of evidence that it said falsely accuses the country of torpedoing the warship, likening the case to the claims of weapons of mass destruction that the U.S. used to justify its war against Iraq in 2003. The Security Council risks being “misused” by the U.S., the country’s foreign ministry said last night in a news agency statement. “The U.S. is seriously mistaken if it thinks it can occupy the Korean Peninsula just as it did Iraq with sheer lies,” the statement said. The U.S. is joining South Korea in blaming North Korea for the sinking to “put China into an awkward position and keep hold on Japan and South Korea as its servants,” KCNA said. North Korean Major General Pak Rim Su said in Pyongyang yesterday that the international investigation into the sinking was biased because it was supervised by the South Korean military and included the U.S., the Korean Central News Agency said. Pak said the North does not have the type of submarines that the South said carried out the attack, Agence France-Presse reported, citing North Korea’s Chungang TV. South Korea’s Yonhap News quoted South Korean officials as saying the North has about 10 of the Yeono class submarines, AFP said. Senior Colonel Ri Son Gwon also derided claims that writing on the torpedo was put there by North Korea, AFP reported. “When we put serial numbers on weapons, we engrave them with machines,” Ri said, according to AFP. Twenty-four percent of respondents said they didn’t trust the government’s evidence, with more skepticism among younger and better-educated people, the Hankook Ilbo poll found. Almost 90 percent of people over 60 trusted the findings, while only 70 percent of those in their 40s did. To contact the reporters on this story: Ben Richardson at brichardson8@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net

Read the full article →

Israel Won’t Join Nuclear-Free Mideast Talks, Calls UN Resolution `Flawed’

May 29, 2010

By Gwen Ackerman May 30 (Bloomberg) — Israel called “deeply flawed” and “hypocritical” a United Nations resolution ratified by 181 countries that calls for a 2012 conference on a nuclear-free Mideast, and said it would not take part in the talks. “Israel is not obligated by the decisions of this conference, which has no authority over Israel,” a statement from Prime Minister Benjamin Netanyahu ’s office distributed to press travelling with him in Toronto said. “It singles out Israel, the Middle East’s only true democracy and the only country threatened with annihilation,” the statement said. “It ignores the realities of the Middle East and the real threats facing the region and the entire world.” Agreement on the 2012 meeting helps the U.S. address a demand of Arab nations as President Barack Obama pressures Iran to halt the pursuit of nuclear technologies that might lead to development of an atomic weapon. Arab states have said Israel has a nuclear arsenal that must be part of the discussion. Israel, which hasn’t confirmed or denied it has nuclear weapons, hasn’t signed the non-proliferation treaty and didn’t attend the UN review conference. The declaration said Israel should ratify the treaty and allow inspection of nuclear facilities by the International Atomic Energy Agency. June 1 Meeting Netanyahu will discuss the resolution in a meeting scheduled with Obama on June 1, the statement said. “Regarding the practical consequences of this resolution for Israel, we take note of the important clarifications that have been made by the U.S. regarding its policy,” the statement added. Gary Samore , the White House coordinator for arms control, called the naming of Israel in the UN resolution’s text “a negative political symbol” that made it less likely that Israel will attend, or even that the meeting will take place. Obama, in a White House statement May 28, said the U.S. “welcomes the agreements” from the conference, yet will “strongly oppose efforts to single out Israel, and will oppose actions that jeopardize Israel’s national security.” The U.S. backing of the resolution, even after subsequent criticism of the singling out of Israel by the Obama administration, is likely to be detrimental to ties between the allies, said Gerald Steinberg , a political scientist at Bar Ilan University. U.S. Reliability “Clearly for Israel this is another sign that the U.S. is not reliable on key security issues,” Steinberg said by phone. The resolution will also not benefit the indirect Israeli- Palestinian peace talks launched earlier this month as it will make Israel more reluctant to take security risks, he said. Netanyahu canceled a planned trip to attend a nuclear summit in the U.S. in April when it became apparent that it was going to be used as a vehicle by some countries to attack Israel for not being a signatory to the Nuclear Non-Proliferation Treaty. The Nuclear Non-Proliferation Treaty is an agreement between the five original nuclear powers — the U.S., Britain, China, France and Russia — not to spread the weapons and eventually to disarm, in exchange for a pledge from other nations not to join the arms race. At the same time, the non- nuclear nations were accorded the right to develop peaceful programs. The proposal for Middle East talks in 2012 says all nations will meet “on the establishment” of a zone free of weapons of mass destruction “on the basis of arrangements freely arrived at” by them all. In the past two months, Obama has signed an arms-reduction treaty with Russia, pledged to limit the potential U.S. use of atomic weapons and won commitments from 46 nations to protect stockpiles of uranium and plutonium. To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net .

Read the full article →

British Airways Cabin Crew Resume Strike After Talks Fail on Pay, Staffing

May 29, 2010

By Steve Rothwell May 30 (Bloomberg) — British Airways Plc cabin crew resumed their strike following the failure of talks over pay and staffing levels, grounding flights for as many as 22,000 people today during one of the U.K.’s busiest weekends for air travel. Europe’s third-biggest carrier aims to operate at least 70 percent of long-haul services from its main base at London’s Heathrow airport, compared with 60 percent during last week’s walkout, plus 55 percent of European routes, up from 50 percent. British Airways is increasing services during the five-day stoppage after what it says is an increase in the number of flight attendants reporting for duty. The Unite union says the strike is “solid” and that members might be balloted on action beyond this week’s walkout and another scheduled for June 5. “It’s an uncomfortable and unsatisfactory situation,” said Jonathan Wober , an analyst at Societe Generale SA in London with a “hold” recommendation on the stock. “My guess is that having come this far BA will stick to their guns.” Talks between Chief Executive Officer Willie Walsh and the Unite leadership ended without an agreement, the Advisory, Conciliation and Arbitration Service said on May 28. Britain’s state mediator is speaking to both sides to arrange further negotiations to resolve the dispute, spokeswoman Clare Carter said in an interview yesterday. “While we are pressing for more talks to be held as urgently as possible, there are none yet scheduled,” Pauline Doyle , a spokeswoman for Unite, said in an e-mailed statement. No negotiations took place yesterday, Unite said. Cost Cuts The carrier is aiming to save as much as 160 million pounds ($231 million) a year within 10 years by hiring any new cabin crew on less generous wage deals, Chief Financial Officer Keith Williams told investors on May 21. British Airways fell 1.4 percent to 201.2 pence in London on May 28, valuing the company at 2.3 billion pounds ($3.3 billion). The stock has lost 4.5 percent since Feb. 22, when Unite said members had voted to strike, versus an 11 percent drop in the eight-member Bloomberg EMEA Airlines Index . The London-based carrier may add more flights to its already expanded schedule as more employees return to work, spokesman Tony Cane said on May 28. This weekend is one of the U.K.’s busiest for air travel, with millions of Britons taking a three-day break because of tomorrow’s national holiday. The two sides have been discussing changes to staffing levels and future pay grades for more than a year. The current dispute flared up in November, when Walsh cut crew numbers on long-haul flights without the union’s approval. Gatwick, London City Last week’s five-day stoppage forced British Airways to cancel flights for more than 25,000 people a day, according to the company. Of 333 services originally scheduled to operate on Friday, the carrier grounded 121, including 20 long-haul services to destinations, Unite said. The carrier said it operated a “a large majority” of flights yesterday, without giving numbers. Services from London Gatwick, the U.K.’s second-busiest airport and a hub for holiday flights, are operating as normal, with cabin crew having “ignored” the strike call, British Airways says. London City airport is also operating normally. Unite says it will halt the strike if Walsh restores travel perks to staff who walked out during two initial stoppages spanning seven days in March and agrees to discuss the suspension of workers during the action. Derek Simpson , the union’s joint general secretary, said in a May 26 interview that a ballot on continuing the strikes may be necessary to protect against British Airways using a legal loophole to fire workers. He predicted that Walsh will “break” before Unite does. To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net

Read the full article →

AIG Negotiates to Salvage AIA Deal as Prudential’s Thiam Seeks Lower Price

May 29, 2010

By Hugh Son May 30 (Bloomberg) — American International Group Inc. , the bailed-out insurer, remains in negotiations to salvage the sale of its main Asia unit after Prudential Plc requested a lower price to win shareholders’ approval. Prudential asked that the $35.5 billion price for AIA Group Ltd. be cut to about $29 billion to $30 billion, and New York-based AIG is seeking at least $32 billion, said a person with knowledge of the talks who declined to be identified because they are private. AIG was forced to reopen negotiations when some of London- based Prudential’s biggest shareholders said they may reject the transaction at a June 7 meeting. The Treasury Department, which helped rescue AIG in 2008, said it hadn’t considered alternatives to the original terms as of late May 28, and AIG signaled it has other options for AIA, according to a person briefed on the stance of management. “The deal’s not dead until it’s dead,” said Eamonn Flanagan , a Liverpool, England-based analyst at Shore Capital Group Plc. “Treasury could just be playing hardball here. There will be a lot of posturing from both sides.” He recommends buying Prudential shares. Andrew Williams , a spokesman for Treasury, said May 28 that the department hasn’t weighed alternatives to the $35.5 billion contract announced in March and that “AIA is a valuable business for which there is significant interest.” Joe Norton, a spokesman for AIG, and Prudential’s Edward Brewster didn’t immediately return calls seeking comment. Investor Opposition Prudential Chief Executive Officer Tidjane Thiam , 47, needs 75 percent of investors to support a rights offer at the insurer’s annual general meeting. Prudential investors including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said last week. The U.S. government, which took a stake of almost 80 percent in AIG after the 2008 rescue, is willing to allow the insurer to lower the price, people familiar with the matter said last week. The $35.5 billion deal announced in March included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s latest offer of about $30 billion mostly reduced the amount of securities AIG would receive, said a person with knowledge of the discussions. Under the original terms of the sale, the 162-year-old British insurer had to pull off a $21 billion rights offer, the biggest for an acquisition in history, at a time when Europe’s sovereign debt crisis was sidelining corporate fundraisings worldwide. ‘A Very Aggressive Price’ At least 19 companies have postponed or withdrawn $5 billion in U.S. debt sales since April 13, data compiled by Bloomberg show. Investment banking fees from acquisition advice, share and bond sales in Western Europe dropped 17 percent in the first four months of 2010 compared with the previous year, New York-based research firm Freeman & Co. said. AIG had negotiated “a very aggressive price” for AIA, CEO Robert Benmosche told the Congressional Oversight Panel on May 26 during a hearing into the company’s bailout. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done before the March announcement by Angelo Graci , managing director at Chapdelaine Credit Partners Selling AIA, which operates in 13 markets from China to Australia and has 23 million customers, would be AIG’s biggest step to repay U.S. taxpayers for loans within its $182.3 billion government bailout. If the Prudential deal fails, it could delay AIG’s effort to repay U.S. taxpayers. The insurer planned to use proceeds from the sale, and a separate deal to sell American Life Insurance Co. to MetLife Inc., to repay a Federal reserve credit line . The insurer could hold a public offering for AIA should the sale to Prudential fail, Jim Millstein , the Treasury’s chief restructuring officer, said May 26. AIG had previously planned on a public offering for AIA until Benmosche, 66, decided to accept Prudential’s offer. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Read the full article →

BP Abandons `Top Kill’ Approach, Will Switch Tactics to Stop Gulf Oil Leak

May 29, 2010

By David Wethe May 29 (Bloomberg) — BP Plc said it’s considering switching to a new strategy to cap a leaking oil well in the Gulf of Mexico because a three-day effort to stop the leak with a blast of pressurized fluids has so far been unsuccessful. Since Wednesday, BP has been starting and stopping high- horsepower pumps that ram mixtures of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing for more than five weeks, a process known as “top kill.” At a press conference today, Doug Suttles, the BP executive in charge of the spill response, said the top kill strategy so far has not worked and talked about the possibility of a new containment device known as a lower-marine riser package cap. “To date, it hasn’t yet stopped the flow,” he said. “As we speak, the team is assessing the results so far and trying to make a decision: should we continue with the operation, or actually should we move to the LMRP cap?” At the outset of the top kill effort, BP put the chances of it succeeding at 60 percent to 70 percent. “It’s not going well,” Tad Patzek , chairman of the Petroleum and Geosystems Engineering Department at the University of Texas at Austin, said yesterday after reviewing a live video of the leak. “You have more or less the equivalent of six fire hoses blasting oil and gas upwards and two fire hoses blasting mud down,” Patzek said. “They are losing the competition.” New Preventer Considered The cap would attach to the top of the well’s blowout preventer, a series of valves designed to cut off the flow from the well. It would then funnel oil and gas from the well to a pipe that extends to a ship on the surface, Jon Pack, a BP spokesman, said today in a telephone interview. If they choose to use it, the cap is ready now, Pack said. The next step after the attachment of the lower-marine riser package cap would be to install another blowout preventer on top of the existing one, Suttles said. BP would then use the valves on the new blowout preventer to shut off the flow. The cap would be an interim measure because it could take several days to install a second blowout preventer, Suttles said yesterday. Six state agencies in Louisiana said today they’ve asked BP for $300 million to lessen the impact from the oil spill on its communities. The well has gushed 12,000 to 19,000 barrels of oil a day, making it the largest oil spill in U.S. history, a government panel estimated May 27. Hearings wrapped up today in Louisiana into the death of 11 workers killed in the April 20 drilling rig explosion that triggered it. Deep Oil Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of “dissolved hydrocarbons” were 400 meters (1,312 feet) below the surface. BP’s costs from the spill rose to $940 million, the London- based company, the largest producer of oil and gas from the Gulf of Mexico, said today. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva-based Transocean Ltd. , the world’s largest deep-water driller. BP has a 65 percent stake in the field, known as Macondo. Its partners in the project are Anadarko Petroleum Corp. and Japan’s Mitsui & Co. About 26,000 damage claims have been filed and 11,650 have already been paid, BP said yesterday. To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net .

Read the full article →

Craig Medred: Gulf Oil Spill: The Technology Oil Executives Don’t Want to Talk About

May 29, 2010

Long before the Deepwater Horizon oil rig exploded in the Gulf of Mexico, caught fire, sank and loosed a gusher of oil that would flow into the biggest environmental disaster in U.S. history, the oil industry knew that — in the now famous words of the Apollo 13 astronauts — “Houston, we have a problem.” As oil drilling in the new millennium moved increasingly into deep waters off the North American and European coasts, oilfield workers recognized they were operating with less and less of a safety net. Shear ram technology needed to make blowout preventers into failsafe devices capable of preventing catastrophic blowouts was, they knew, lagging behind the rest of oilfield technology. A U.S. Minerals Management Service study had demonstrated as much in 2002. A more thorough study in 2004 had only served to underline the weaknesses. By 2005, Oklahoma City-based Devon Energy Corp. , then a force in offshore drilling, had begun working with Houston-based Cameron , the major producer of blowout preventers, to develop new and better shear and seal technology for wells. Why the technology never made it into the oil patch is unclear. Nobody in the industry wants to talk about it at this juncture, though development reportedly is continuing. What would come to be called the alternative well kill system — or AWKS — is now being spearheaded by Chevron in partnership with Cameron. Devon began phasing out of offshore drilling earlier this year. Ironically, it signed a $7 billion deal in March to sell its offshore assets in Brazil, Azerbaijan and the Gulf of Mexico to BP. Only about a month later BP was in charge of the Deepwater Horizon rig that blew up in the Gulf. London-based BP, the major player in the Alaska oil business, has ever since been battling to shut off an undersea volcano spewing beneath the sunken rig and deal with an oil slick that has grown to more than two times the size of the Exxon Valdez spill in Prince William Sound. Cleanup and containment costs, at last report from BP, were approaching $1 billion and are expected to grow to orders of magnitude beyond that. This might all have been avoided if there had been a working, failsafe blowout preventer a mile deep on the ocean beneath the Horizon. There was a blowout preventer. Why it didn’t work hasn’t been fully determined, but the reasons why it might not work were known well before the Horizon accident. Chevron noted in a presentation to the Norway Arctic Workshop in Tromso in January 2009 that existing BOPs have weaknesses. The company said in a PowerPoint presentation that it was working with Cameron on the AWKS to develop “simultaneous shear and seal capability on a broad range of tubulars — unlike current shear rams.” Everyone in attendance at the meeting knew what that last phrase meant. A mini-study done for the MMS in 2002 and a lengthy “Shear Ram Capabilities Study” completed two years later had concluded that some of the new higher-grade steel being used in drill pipe couldn’t be cut and sealed by existing rams . The study also noted the inability of existing rams to cut and seal pipe if there were tools inside, or slice through welded joints where sections of pipe were joined. These inherent weaknesses in existing BOPs were the reason many Arctic nations — although not the U.S. — required oil companies to keep a second drill rig on location when drilling in case a relief well was needed to seal a blowout. BP, it should be noted, did not have a second rig on site in the Gulf of Mexico. BP has one there now, drilling a relief well. Everyone involved with the Gulf spill says a relief well is the only sure way to cap BP’s undersea gusher. The relief well is expected to be completed in August. There is no telling how much crude could be washing around in the Gulf of Mexico by then — or making its way into the Gulf Stream with potential oil spill consequences for Florida and the entire U.S. East Coast. The reason BP failed to have a second drill rig standing by in the Gulf when the Deepwater Horizon was drilling is simple — money. A drill rig costs about a half million dollars per day, according to oil industry officials. These costs are the reason that, although Shell planned to drill in the Chukchi and Beaufort seas off Alaska this summer, none of the oil companies holding leases off the Arctic coast of Canada planned any drilling. Read more at Alaska Dispatch.

Read the full article →

Ellen Sterling: The Way We Watched Movies…Remember?

May 29, 2010

In the May 18 edition of the New York Observer Lee Siegel wrote an article titled Ciao to the Cineplex; I Miss Mass Culture! He noted that “The Federal Communications Commission has just decided to allow the Motion Picture Association of America to send recently released films directly to your television or computer before they are released on DVD or Blu-ray” and went on to explain the potential impact this will have on movie-going. Since I, personally, prefer seeing a film in a theater as a member of an audience, this is sad news, indeed. And, equally sadly, it’s already begun to change. Remember what it used to be like when you went to the movies? Did you ever tell your children what it was like when there were no commercials — only coming attractions — in the theater? Have you ever waxed nostalgic for the days when an film advertised to begin at 8 pm actually did began at 8 or, perhaps, a few minutes later, after the trailers? Well, my dear, those days are gone and are probably never going to be seen again. Now, I’m not talking about the 20 minutes of commercials for various products (lots of soft drinks) and TV shows shown before the advertised movie start time. We’re pretty used to this by now and know that if we get to the theater early we’ll be subjected to this. No, what I am talking about is totally different. First, let me explain that here in Las Vegas, movies open weeks — sometimes months — after they open in New York City or Los Angeles. This is true of many large cities — Chicago, Miami, Seattle among them. For example, Crazy Heart, was released in New York and LA on December 16 and in Las Vegas on February 5. After awhile you get used to that. Foreign films are often difficult to find in Las Vegas. Fortunately, the two theaters closest to my home, the Regal Village Square and the Century Theater in the Suncoast Hotel and Casino (Yes! But that’s another story.) are the only two here that regularly play foreign, independent and small films. It’s nice know that even if they arrive months after they play on a coast, they will play here. Eventually. So, that is the overall film-going picture here in Las Vegas. And that is what we expected when we went to the Regal Village Square Friday night to catch City Island before it leaves on Thursday. The showing was advertised at beginning at 6:30. We took our seats about 10 minutes before the show and got what we expected, the last 10 minutes of the series of commercials called “Regal First Look,” (Most likely it is so called in an attempt to make the audience stuck watching it believe it’s a special privilege to get a “first look.”) You know the drill: the 20 minutes of business, a couple of quick commercials (Fandango/Fathom Events) then the trailers for 10 minutes or so and, finally, the film you came to see. That’s what we know and that’s what we expect. Right? Wrong. When we went to buy the tickets we saw that the price had gone up 50¢. That might be understandable in a bad year for movie attendance but, when I reported on ShoWest, the annual convention of film exhibitors this year, I noted they reported that, despite “the number of US-produced films being down 12 percent, attendance was up 11 percent and the box office worldwide totaled a staggering $300 billion.” But, if Regal needed to raise its prices, I guess 50¢ isn’t too bad. So we paid and went in. The usual First Look ended and then we were treated to 26(!) minutes or so of more commercials for TV shows and products no one really needs to know about. There were even two ads for the same TV series on two different stations. Couldn’t both stations be listed in one ad? This ad marathon ended and there were about five minutes of previews. This included one for Princess Kaiulani . It ended with the words “Coming Soon” written in large white against a black screen. The only thing is, the film was showing in the theater already. In the end, we had to pay 50¢ more to have our time wasted. (And, by the way, we also paid for the privilege of sitting next to a man who loudly munched popcorn out of a huge trough and, that finished, started equally loudly on candy. But that’s another story.) We really enjoyed City Island and I wrote a very positive review for it. But that wasn’t the point. On the way out we asked the manager, who turned out to be a thoroughly dyspeptic, nasty woman, about the length and abundance of the ads. She explained as if she was talking to recalcitrant four year-olds, that we were wrong. “It’s always been like this. There are 15 minutes of ads and 15 minutes of coming attractions.” No, I responded, there are always a couple of minutes of ads after the First Look stuff, then the trailers for a few minutes and, finally, the film. She was insistent (and very rude). “It has always been like this. And blame CineMedia, not us. They place the ads.” she said, raising her voice. She then turned her back, walked into the box office from whence she’d come and slammed the door. It was charming. In researching the issue, I found a terrific website called CaptiveAudience. Browsing it I found Regal is apparently the worst offender. Some theaters do post actual film start times but they’re very difficult to find. I learned that a class action lawsuit had been filed in 2003 against Loew’s Cineplex Entertainment Group for showing ads. It was dismissed. The site quotes Raymond W. Syufy, CEO of Century Theaters. “If we start showing commercials and go that route, then we are blurring the line between the 500 cable channels at home and the experience we want people to have when they leave their homes.” Hooray for Mr. Syufy! So, with more and more time devoted to advertisements in movie theaters, what can we, the people who don’t want to witness the demise of the movie theater culture, do about it? Maybe we should sign the online petitions to end this practice and hope it works. If it doesn’t, I guess I’ll learn to love watching movies at home.

Read the full article →

Dennis Hopper, Hollywood’s Easy-Riding Counterculture Hero, Dies at 74

May 29, 2010

By Laurence Arnold May 29 (Bloomberg) — Dennis Hopper , who drew upon his own rough-edged lifestyle to create menacing villains and devil-may- care outlaws in movies including “Rebel Without a Cause,” “Easy Rider” and “Apocalypse Now,” has died. He was 74. Hopper died today at his home in Venice, California, the Associated Press reported, citing family friend Alex Hitz. Hopper disclosed last October that he had been diagnosed with prostate cancer. “ Easy Rider ” (1969) established him as a counterculture hero and a gifted actor recognized, if not fully embraced, by Hollywood. He was nominated for an Academy Award for co-writing the movie with Peter Fonda and Terry Southern. He also directed it and, with Fonda, co-starred as freedom-celebrating bikers roaming the American Southwest. The American Film Institute in 2007 included “Easy Rider” on its list of the top 100 U.S. movies. The film was a personal expression for Hopper, who had himself been immersed in the drug-fueled culture of beatniks and hippies throughout the 1960s. “I wanted it to be like a time capsule” of that period, Hopper said in a 2008 interview with Bloomberg Television. ‘Apocalypse Now’ After spending four-and-a-half weeks on the road filming the movie, “I came back to 60 hours of film, so it took me a year to edit it,” he recalled. “While I was editing I would listen to the radio and I would hear ‘Born to Be Wild,’ ‘Goddamn the Pusher Man,’ ‘If 6 Was 9’ by Jimi Hendrix , and I’d just start plopping them into the riding sequences. And it’s really the words of the songs that tell the story more than the screenplay.” Among his 150 film roles , he also played a teenage hoodlum to whom James Dean ’s impressionable character is drawn in “Rebel Without a Cause” (1955); a drug-crazed photojournalist in the Francis Ford Coppola-directed “ Apocalypse Now ” (1979); a bomb-loving terrorist in “Speed” (1994); and the leader of a marauding gang in “ Waterworld ” (1995). His own long struggle with drugs and alcohol, which lasted well into the 1980s, at times stalled his entertainment career. “Hollywood has never embraced me, despite the fact I went and lived there,” he told London’s Sunday Times in 2008. Political Conservative He earned his second Academy Award nomination, as best supporting actor, for his role in “ Hoosiers ” (1986) as a onetime-athlete-turned-alcoholic who is enlisted by his son’s coach to help the high-school basketball team. His return to sobriety around that time also coincided with his well-received role as a sadistic villain, Frank Booth, in David Lynch ’s “ Blue Velvet ” (1986). His villainous roles on television included one as a vengeful warlord in the first season of the Fox series “24.” Nike Inc. deployed his manic creepiness in a series of commercials in the 1990s in which he played an obsessed football fan. Unusual for a countercultural figure, Hopper was a political conservative for much of his life and moved left in his later years. “I was the first person in my family to have been Republican,” he told reporters shortly before the 2008 U.S. presidential election. He said he had supported Republicans George H.W. Bush and George W. Bush but was planning to vote for Democrat Barack Obama. Blackballed by Hollywood Hopper was married five times, including an eight-day union with singer Michelle Phillips of the Mamas & the Papas. An artist and art collector, Hopper exhibited his photographs and presented them in a book , “Photographs: 1961-1967.” Dennis Lee Hopper was born on May 17, 1936, in Dodge City, Kansas, where he lived until age 9 on his grandfather’s wheat farm. He became an avid moviegoer and fan of westerns and started acting after his family moved to San Diego when he was 13. During the shooting of “Rebel Without a Cause,” one of his first films, he had a romantic affair with co-star Natalie Wood. That movie was followed quickly by “Giant” (1956), which also starred Dean as well as Elizabeth Taylor and Rock Hudson . Working with Dean — who was killed in a 1955 automobile crash, while production of “Giant” was in progress — made a lasting impression. “I wouldn’t say I learned to be difficult, but I did learn there was another way of doing things,” Hopper told Australia’s Sunday Telegraph Magazine in 2009. He said Hollywood studios “blackballed” him for several years after he resisted the instructions of director Henry Hathaway while filming “ From Hell to Texas ” (1958). He moved to New York City to study for five years under acting teacher Lee Strasberg . Hopper had four children, including one with his fifth wife, actress Victoria Duffy, whom he married in 1996. He filed for divorce from Duffy in January 2010 while in the final stages of his battle with cancer. To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net

Read the full article →

China, South Korea Agree to Deepen Links as North Denies Torpedo Charges

May 29, 2010

By Bomi Lim May 29 (Bloomberg) — China agreed to deepen ties with South Korea and Japan at an annual summit overshadowed by accusations that its ally North Korea sank one of the South’s warships. The North rejected the charges as “sheer fabrication” to justify a “a war of aggression against it.” Chinese Premier Wen Jiabao has steered clear of public discussion of North Korea’s role in the sinking since he arrived in South Korea yesterday. In contrast, Japanese Prime Minister Yukio Hatoyama today paid his respects at a cemetery where the 46 sailors who died in the sinking are buried, before flying to the resort island of Jeju for the two-day summit. There he said he would back any South Korean move to take the case to the United Nations Security Council . The three countries agreed to set up a permanent liaison office in South Korea in 2011 and to pursue a free-trade agreement, the South’s presidential office said today in a statement. The leaders also agreed to cooperate more closely on regional security issues, including getting North Korea to abandon its nuclear weapons, the statement said. South Korea is “focusing all our efforts on holding North Korea responsible,” presidential spokesman Park Sun Kyoo told reporters yesterday in Seoul, adding that this would be a key aim at the summit also. Today’s trilateral summit mostly focused on economic issues, and other regional issues including North Korea’s recent attack will likely be discussed tomorrow, Kazuo Kodama , press secretary for Japan’s Ministry of Foreign Affairs, told foreign media reporters. Security Council South Korea wants China to accept findings that the North fired a torpedo that sank the 1,200-ton Cheonan on March 26. China holds veto powers in the Security Council, so its acquiescence is needed to win a resolution condemning the North. Wen yesterday said that while China won’t protect anyone found guilty of the attack, it is still assessing the evidence. China is North Korea’s largest trading partner and main political ally, having fought alongside the North and against the U.S. in the 1950-1953 Korean War . “The case of the warship sinking is a sheer fabrication made by the South Korean ruling forces, a hideous burlesque” intended “to stir up the atmosphere of escalated confrontation,” state-run Korean Central News Agency said. At the three-way summit, President Lee Myung Bak stressed the need to enhance economic cooperation between the three countries and work toward integrating their economies, Lee’s spokeswoman Kim Eun Hye told reporters. Silence for Dead Hatoyama proposed a silent prayer for the dead at the start of the meeting, after pledging “active support” for South Korea’s push for UN action over the deadliest attack blamed on the North Korean regime in more than two decades. North Korea warned the UN to be wary of evidence that it said falsely accuses the country of torpedoing the warship, likening the case to the claims of weapons of mass destruction that the U.S. used to justify its war against Iraq in 2003. The Security Council risks being “misused” by the U.S., the country’s foreign ministry said last night in a statement carried by KCNA. “The U.S. is seriously mistaken if it thinks it can occupy the Korean Peninsula just as it did Iraq with sheer lies,” the statement said. The U.S. is joining South Korea in blaming North Korea for the sinking to “put China into an awkward position and keep hold on Japan and South Korea as its servants,” KCNA said. China proposed to the U.S. a joint investigation with North and South Korea into the sinking, the Seoul-based Hankyoreh newspaper reported, citing a diplomat it didn’t name. Russia plans to send its own team to South Korea for an independent assessment of the incident. A South Korea-led team involving experts from the U.S., U.K., Australia and Sweden blamed North Korea for the sinking in a May 20 announcement in Seoul. Russia also has veto power in the Security Council and participates in the stalled six-party talks on North Korea’s nuclear weapons program that are hosted by China. The U.S., Japan and South Korea also take part. North Korean Major General Pak Rim Su said in Pyongyang yesterday that the international investigation into the March 26 sinking was biased because it was supervised by the South Korean military and included the U.S., KCNA said. Pak said the North does not have type of submarines that the South said carried out the attack, Agence France-Presse reported, citing North Korea’s Chungang TV. South Korea’s Yonhap News quoted South Korean officials as saying the North has about 10 of the Yeono class submarines, AFP said. Senior Colonel Ri Son Gwon also derided claims that writing on the torpedo was put there by North Korea, AFP reported. “When we put serial numbers on weapons, we engrave them with machines,” Ri said, according to AFP. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net ;

Read the full article →

BP Says `Top Kill’ Hasn’t Stopped Oil-Well Leak, Explores Other Options

May 29, 2010

By David Wethe May 29 (Bloomberg) — BP Plc said it’s considering switching to a new strategy to cap a leaking oil well in the Gulf of Mexico after a three-day effort to stop the leak with a blast of pressurized fluids has so far been unsuccessful. Since Wednesday, BP has been starting and stopping high- horsepower pumps that ram mixtures of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing for more than five weeks, a process known as “top kill.” At a press conference today, Doug Suttles , the BP executive in charge of the spill response, said the top kill strategy so far has not worked and talked about the possibility of a new containment device known as a lower-marine riser package cap. “To date, it hasn’t yet stopped the flow,” he said. “As we speak, the team is assessing the results so far and trying to make a decision: should we continue with the operation, or actually should we move to the LMRP cap?” The cap would attach to the top of the well’s blowout preventer and essentially funnel oil and gas from the well to a pipe that extends up to a ship on the surface, Jon Pack, a BP spokesman, said today in a telephone interview. The next step after the lower-marine riser package cap would be to install another blowout preventer on top of the existing one, Suttles said. “It’s not going well,” Tad Patzek , chairman of the Petroleum and Geosystems Engineering Department at the University of Texas at Austin, said yesterday after reviewing a live video of the leak. “You have more or less the equivalent of six fire hoses blasting oil and gas upwards and two fire hoses blasting mud down,” Patzek said. “They are losing the competition.” Six state agencies in Louisiana said today they’ve asked BP for $300 million to lessen the impact from the oil spill on its communities. To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net .

Read the full article →

Euro Falls, Heads For Monthly Loss, on Concerns About European Debt Crisis

May 29, 2010

By Mary Childs and Ben Levisohn May 29 (Bloomberg) — The euro declined, headed for a sixth monthly loss against the dollar, amid concerns European measures to reduce fiscal deficits and contain the region’s sovereign debt crisis will undermine the global recovery. The 16-nation currency erased last week’s gain against the greenback as Fitch Ratings yesterday stripped Spain of its AAA credit grade, saying the nation’s debt burden is likely to weigh on economic growth. European leaders announced on May 10 an almost $1 trillion package to backstop the region’s debt crisis. The dollar gained against the yen before a report next week forecast to show the U.S. economy added 508,000 jobs in May. “The crux, core problem is incredible indebtedness in the peripheral countries” of Europe, said Win Thin , senior currency strategist at Brown Brothers Harriman & Co. in New York. The European aid package “just kicks the can down the road. Any rally we’ve seen in the euro has been short term. We’re in a multi-year bear market.” The euro declined 2.4 percent this week to $1.2273 from $1.2570 on May 21, after gaining 1.7 percent. The common currency has declined 7.7 percent in May, and is on track for the longest monthly losing streak since April 2000. It fell 1.2 percent over the past five days to 111.77 yen, from 113.13. The dollar gained 1.2 percent against the yen to 91.93, from 90. Fitch cut Spain’s grade one step to AA+ and assigned it a “stable” outlook, according to a statement from London. Spain has held the top rating since 2003. Budget Cuts The downgrade “reflects Fitch’s assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium term,” according to the rating company. Spain’s parliament on May 27 approved the country’s deepest budget cuts in 30 years by a single vote, casting doubt on the future of the government as Prime Minister Jose Luis Rodriguez Zapatero seeks to garner support for his 2011 budget. Spain has the third-largest budget deficit in the euro region. Greek unions called strikes earlier this month to protest against austerity measures agreed to by Prime Minister George Papandreou in return for the bailout from the euro region and the International Monetary Fund. “People are still fundamentally bearish longer term on the euro,” said Carl Forcheski , a director on the corporate currency sales desk at Societe Generale SA in New York. “The market has not been thrilled with how the crisis has been handled. There is still a threat that the economic recovery could be derailed.” Naked Short-Selling The Australian dollar declined 11.1 percent in May to 77.17 yen and Mexico’s peso fell 7.8 percent to 7.027 yen as concerns that global growth was slowing spurred investors to reduce carry trades, in which they borrow money in countries with low interest rates to invest in higher-yielding assets. Japan’s benchmark lending rate of 0.1 percent makes the yen a popular choice for funding such trades. In an effort to calm the region’s financial markets, German regulator BaFin issued a ban against naked short-selling and speculation on euro-area government debt with credit default swaps that took effect on May 19 and lasts until March 31, 2011. Germany has been unable to persuade other nations to follow its prohibition, which also applies to shares of 10 banks and insurers. The euro slid that day to a four-year low of $1.2144. ‘The European Situation’ “One factor weighing on the euro is a lack of coordination between its members,” said Lee Hardman , a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The markets are losing confidence in euro zone leaders and their ability to navigate their way through the crisis.” Group of 20 finance ministers may discuss the effect of the European sovereign debt crisis on currencies at next week’s meeting in South Korea, Japanese Finance Minister Naoto Kan said. “Some nations may have an interest in discussing currencies,” Kan said at a news conference in Tokyo yesterday. “Discussion of the impact of the European situation on currencies will be on the main agenda,” as well as financial regulation and developments in the global economy, he said. Europe’s currency has slumped 8 percent this year against its major counterparts, according to Bloomberg Correlation- Weighted Currency Indices, weakening on concern rising government budget deficits will lead to defaults and an eventual breakup of the euro region. The dollar has appreciated 9.31 percent, while the yen advanced 12.1 percent. Morgan Stanley on May 27 lowered its year-end forecast for the euro to $1.16 from $1.24 on concern the sovereign-debt crisis in Greece is now a European one. “The initial fiscal problem in the periphery (Greece) has now become a fiscal problem for core Europe,” Morgan Stanley’s Stephen Hull in London wrote in a report. “More importantly for the euro, it has also undermined the credibility” of the European Central Bank. The ECB said on May 10 it would start buying public- and private-sector debt as part of a bid to halt the fiscal crisis and rescue the euro, an action that it had previously said it wasn’t considering. To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net Ben Levisohn in New York at blevisohn@bloomberg.net .

Read the full article →

Stan Sorscher: Why Is "Free Trade" Conventional Wisdom?

May 29, 2010

Trade is good; all trade is good; more trade is better than less trade; maximum possible trade. This rhetorical progression has propelled policy discussion about US trade policy for at least two decades. Ian Fletcher’s new book takes a step back and asks an important question. Why have we chosen the freest possible trade as our policy goal? Surely, we should be more interested in the promised outcomes of free trade: mutual gain and improved standard of living for communities in America and abroad. In remarkably readable prose, caustically funny in places, Fletcher challenges the prevailing wisdom that additional free trade agreements and greater global economic integration are inevitable and desirable. He starts by carefully cataloging the highly idealized conditions that must apply before the benefits promised by free trade will accrue. As he rigorously demonstrates, free trade theory is a very poor description of global commerce as it is practiced today. Policymakers in China, Japan, Europe and elsewhere, who are not bound by free trade orthodoxy, can choose policy options that take advantage of our ideological blind spots. Our policy weaknesses thus become their opportunities. Free trade remains our conventional wisdom, in spite of its weak foundations. If free trade economics were moved from the economics departments in universities to mathematics departments, it would be discredited on logical grounds some time during the first day. Similarly, its half-life in a physics, astronomy, or chemistry department would be a week or two–the time it would take to send graduates students to the lab to collect data. It is worth noting that conventional free trade theory is considered largely irrelevant in business schools, where students learn the practice of moving capital and production around the world. Free trade theory sustains itself, not because of academic rigor, but because of strong political and economic interests it its favor. Fletcher acknowledges this reality, and he warns of the risks we run when we allow political and financial interests to distort policies in their favor. Economists are careful to qualify some of their conclusions, which should give policy-makers fair warning. Trade theory acknowledges that inequality is likely to widen as barriers are removed. Millions of workers will suffer loss, while a small fraction of the population will gain. Economists predict gain overall, but their analysis is indifferent to how gains are distributed. Equity and fairness are concerns for policy-makers, so economists deny responsibility for failures in that area. Free trade theory is also blind to the dynamics that are reshaping the economies of rich and poor countries. This may be Fletcher’s strongest criticism of free trade policy. As we lose our electronics industry, China gains the advantage in developing solar panels, flat screen TVs and cell phone technology. We send aircraft manufacturing to China, and they build their own aerospace industry, using our capital, our technology and our expertise. Trade theory accepts that outcome in the name of efficiency, without assigning a value to future competitive advantage. Free trade advocates accept closing a factory in Indiana, saying the closure frees up resources to invest in something better. We can innovate our way to prosperity through education and productivity improvements, and move up the value chain. In a perfect world, that would be so. In fact, as Fletcher notes, “America’s share of ‘sunrise’ industries continues to drop.” While free trade advocates imagine that freed up resources could be invested in Indiana, the industrialists who closed the factory are more likely to create the new jobs in Shanghai or Honduras. Nothing in trade theory requires the freed resources to be invested in Indiana. Rather, global mobility of capital makes that outcome unlikely. It is worth pausing from time to time to recognize a simple observation. No country in the world is pure free trade or pure protectionism. Every country finds its own balance point. Fletcher observes that China, Japan, Korea, England and America all enjoyed strong growth under protectionist policies. No country can show comparably strong growth under free trade policies. America’s history is instructive in this respect. When America industrialized, we structured our domestic economy under policies that expressed our democratic values and goals. We established the Environmental Protection Agency, we insist on clean air and clean water, we have strong child labor laws, workplace protections, minimum wage, subsidized public education, unemployment insurance, deposit insurance for banks, and other policies that helped build a strong middle class. We take pride in our own strong civil society. For some reason, when we design rules for global commerce, we choose free trade policies that place highest priority on investor rights, and push the interests of civil society into the shadows. History and analysis show instead that better results come from a combination of industrial policy and protectionism. Said differently, the “sweet spot” in trade, where the promise of mutual gain is actually realized, probably comes at a level of trade that is less than what we have now. Our pursuit of maximum possible trade seems to have taken us past the optimal level of trade. We can trade less and do better. Other countries have done better with a combination of industrial policies and protectionism. In our history, we have, too. Once we are released from free trade ideology, we can see industrial policy as a desirable strategic tool. Free market advocates raise a fundamental objection to industrial policy that can be stated in various ways. Markets are more efficient; special interests will distort outcomes; industrial policies will cling to dying industries; and government should not pick winners and losers. Fletcher’s response is also fundamental. “There is no such option as ‘not having’ an industrial policy. There is only good and bad industrial policy.” Fletcher cites James C. Miller, Federal Trade Commission Chairman under Ronal Reagan: “Any discussion of industrial policy should begin with the recognition that we have one. The issue is what type.” The cornerstone of Fletcher’s proposal is a flat tariff in the range of 30%. This is close to historic levels of tariffs, and comparable in scale to the Value Added Tax used in Europe. The flat tariff would be combined with other public investments and industrial policies. A flat tariff is a compromise that recognizes political and practical realities, while approximating conditions needed for better economic performance. Fletcher builds a case to rehabilitate use of tariffs. He considers objections, consequences and alternatives in some detail. He argues that the prospect of trade war is overstated. The starting point in favor of the tariff is that we consume more than we sell abroad. Net exporting countries do not want or need a tariff. Our trading partners have more to lose than gain in a trade war. Furthermore, one premise of Fletcher’s proposal is that the optimal level of trade will be lower than it is, now. His goal is not maximum possible trade. We are looking for the optimal level of trade for growth, mutual gain, and prosperity. Ian Fletcher’s book serves two important functions. It breaks free trade’s stranglehold on public discussion about trade and industrial policy. Secondly, it presents a strong argument for an alternative policy direction. We are facing the failure of neo-liberal policies. Fletcher’s book is a starting point for refocusing our goals and designing new trade and industrial policies that move us toward economic strength and long-term growth. It is one of the most user-friendly introductions to this vital emerging controversy.

Read the full article →

Robert L. Cavnar: Top Kill Likely a Failure

May 29, 2010

It’s become obvious from BP’s doublespeak and moving of the goalposts that the “top kill” hasn’t worked. I’m beginning to believe exactly that; that BP knows the top kill has failed, but that they are continuing to pump mud out on the ocean floor rather than admit it. Typically, you know pretty quickly if a top kill works. BP has been pumping the kill since Wednesday, trying a number of tactics, including junk shots. Their announcement last night that it would be at least through the weekend before they know the results of the kill doesn’t ring true to me. Certainly they know a lot more than what they are saying. Recall that a top kill will work only if enough back pressure can be generated in the leaking wellhead to allow the pumped mud to overcome the pressure from the well, turn the flow around, and then build enough hydrostatic head to overcome the formation pressure. The junk shot was designed to do just that, but apparently BP had decided to try just mud for the first effort. I believe that the high rate that BP pumped the mud washed out the cracks in the riser, actually reducing back pressure. The cracks in the riser are where you saw the mud flowing if you watched the live feed of the top kill the last couple of days. As a side note, I do find it interesting that the BP feed no longer includes the bent riser view of the last couple of days,and now looks like the end of the riser where the riser insertion tool had been used previously. The because of the washed out riser cracks, the bridging material pumped in for the junk shot probably can’t clog up the riser and BOP enough to overcome the flowing pressure and allow mud to go down the well, so the mud they are pumping is likely just going into the kill and chokes valves and coming out the top of the BOP. That’s not all bad, of course, if the pressure of the mud is at least restricting the flow of oil from the well, but it is certainly not a long term solution, and they are risking washing out the riser even further. I’m now hearing that BP determined the top kill failure sometime in the last 24 hours, but rather than announce it, have decided to just keep pumping until the next alternative is decided, either the LMRP (lower marine riser cap) cap to bring flow to the surface, or removing the LMRP and landing a new BOP on top of the failed one. I’ll continue to monitor this recent development, but I’m not expecting good news in the near term.

Read the full article →

China, South Korea to Deepen Ties Amid North Tension

May 29, 2010

By Bomi Lim May 29 (Bloomberg) — China agreed to deepen ties with South Korea and Japan at an annual summit overshadowed by accusations that its ally North Korea sank one of the South’s warships. The North rejected the charges as “sheer fabrication” to justify a “a war of aggression against it.” Chinese Premier Wen Jiabao has steered clear of public discussion of North Korea’s role in the sinking since he arrived in South Korea yesterday. In contrast, Japanese Prime Minister Yukio Hatoyama today paid his respects at a cemetery where the 46 sailors who died in the sinking are buried, before flying to the resort island of Jeju for the two-day summit. There he said he would back any South Korean move to take the case to the United Nations Security Council . The three countries agreed to set up a permanent liaison office in South Korea in 2011 and to pursue a free-trade agreement, the South’s presidential office said today in a statement. The leaders also agreed to cooperate more closely on regional security issues, including getting North Korea to abandon its nuclear weapons, the statement said. South Korea is “focusing all our efforts on holding North Korea responsible,” presidential spokesman Park Sun Kyoo told reporters yesterday in Seoul, adding that this would be a key aim at the summit also. Today’s trilateral summit mostly focused on economic issues, and other regional issues including North Korea’s recent attack will likely be discussed tomorrow, Kazuo Kodama , press secretary for Japan’s Ministry of Foreign Affairs, told foreign media reporters. Security Council South Korea wants China to accept findings that the North fired a torpedo that sank the 1,200-ton Cheonan on March 26. China holds veto powers in the Security Council, so its acquiescence is needed to win a resolution condemning the North. Wen yesterday said that while China won’t protect anyone found guilty of the attack, it is still assessing the evidence. China is North Korea’s largest trading partner and main political ally, having fought alongside the North and against the U.S. in the 1950-1953 Korean War . “The case of the warship sinking is a sheer fabrication made by the South Korean ruling forces, a hideous burlesque” intended “to stir up the atmosphere of escalated confrontation,” state-run Korean Central News Agency said. At the three-way summit, President Lee Myung Bak stressed the need to enhance economic cooperation between the three countries and work toward integrating their economies, Lee’s spokeswoman Kim Eun Hye told reporters. Silence for Dead Hatoyama proposed a silent prayer for the dead at the start of the meeting, after pledging “active support” for South Korea’s push for UN action over the deadliest attack blamed on the North Korean regime in more than two decades. North Korea warned the UN to be wary of evidence that it said falsely accuses the country of torpedoing the warship, likening the case to the claims of weapons of mass destruction that the U.S. used to justify its war against Iraq in 2003. The Security Council risks being “misused” by the U.S., the country’s foreign ministry said last night in a statement carried by KCNA. “The U.S. is seriously mistaken if it thinks it can occupy the Korean Peninsula just as it did Iraq with sheer lies,” the statement said. The U.S. is joining South Korea in blaming North Korea for the sinking to “put China into an awkward position and keep hold on Japan and South Korea as its servants,” KCNA said. China proposed to the U.S. a joint investigation with North and South Korea into the sinking, the Seoul-based Hankyoreh newspaper reported, citing a diplomat it didn’t name. Russia plans to send its own team to South Korea for an independent assessment of the incident. A South Korea-led team involving experts from the U.S., U.K., Australia and Sweden blamed North Korea for the sinking in a May 20 announcement in Seoul. Russia also has veto power in the Security Council and participates in the stalled six-party talks on North Korea’s nuclear weapons program that are hosted by China. The U.S., Japan and South Korea also take part. North Korean Major General Pak Rim Su said in Pyongyang yesterday that the international investigation into the March 26 sinking was biased because it was supervised by the South Korean military and included the U.S., KCNA said. Pak said the North does not have type of submarines that the South said carried out the attack, Agence France-Presse reported, citing North Korea’s Chungang TV. South Korea’s Yonhap News quoted South Korean officials as saying the North has about 10 of the Yeono class submarines, AFP said. Senior Colonel Ri Son Gwon also derided claims that writing on the torpedo was put there by North Korea, AFP reported. “When we put serial numbers on weapons, we engrave them with machines,” Ri said, according to AFP. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net ;

Read the full article →

BP Persists With `Top Kill’ Strategy, Prepares Backup Plan to Stop Spill

May 29, 2010

By Jim Polson May 29 (Bloomberg) — BP Plc planned to continue working through the weekend to plug a leaking oil well in the Gulf of Mexico that has produced the largest spill in U.S. history. Since Wednesday, BP has been starting and stopping high- horsepower pumps that ram mixtures of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing from the well for more than five weeks. “We’ll continue this operation as long as necessary until we’re either successful with it or are convinced it won’t succeed,” Doug Suttles , the BP executive in charge of the spill response, said at an afternoon press conference in Robert, Louisiana. Yesterday, engineers suspended work on a “relief” well intended as a long-term back-up solution so that equipment it’s using can be available should the so-called “top kill” fail. President Barack Obama , in Louisiana, said Energy Secretary Steven Chu will work with BP to seek alternatives if the top- kill plan fails. “There are going to be a lot of judgment calls involved here,” Obama told reporters yesterday in Grand Isle, Louisiana. “There are not going to be silver bullets for the problems we face.” Obama met with Louisiana Governor Bobby Jindal , who said he’s frustrated at the reluctance of federal officials to allow dredging and filling of manmade islands to protect marshes. BP’s costs from the spill rose to $930 million, the London- based company, the largest producer of oil and gas from the Gulf of Mexico, said yesterday in a statement. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva- based Transocean Ltd. , the world’s largest deep-water driller. ‘Catastrophe’ BP has a 65 percent stake in the field, known as Macondo. Its partners in the project are Anadarko Petroleum Corp. and Japan’s Mitsui & Co. About 26,000 damage claims have been filed and 11,650 have already been paid, BP said yesterday. Chief Executive Tony Hayward called it an “environmental catastrophe,” a day after a government panel estimated the well has gushed 12,000 to 19,000 barrels of oil a day, making it the largest oil spill in U.S. history. Hearings are scheduled to continue today in Louisiana into the death of 11 workers killed in the April 20 drilling rig explosion that triggered it. Citing risk to workers and the environment raised by the spill, Obama on May 28 extended for six months a moratorium on deep-water drilling permits. Relief Well Stopped BP suspended drilling on the second of two relief wells intended to permanently seal the damaged well from the bottom, so that its blowout preventer will be available should the top kill fail, Suttles said. In that event, BP will saw off a section of crimped pipe from the top of the blowout preventer of the leaking well, install the second blowout preventer atop the first, and close its valves to halt the leak. That will take several days, and in the interim, engineers plan to cover the sawn-off pipe with a temporary cap designed to direct some of the oil to a ship on the surface, Suttles said. Halting work on the second relief well is not a sign that BP has concluded the top kill will fail, Suttles said. Mud Supplies The first phase of the top-kill effort used less than 15,000 barrels of drilling mud, Suttles said. BP had 50,000 barrels available and has made sure there are additional supplies of mud and rubber material, he said. The leaking well is 5,000 feet (1,524 meters) below the surface, forcing BP to rely on remote-operated vehicles rather than divers. “It’s not going well,” Tad Patzek , chairman of the Petroleum and Geosystems Engineering Department at the University of Texas at Austin, said yesterday after reviewing a live video of the leak. “You have more or less the equivalent of six fire hoses blasting oil and gas upwards and two fire hoses blasting mud down,” Patzek said. “They are losing the competition.” Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of “dissolved hydrocarbons” were 400 meters (1,312 feet) below the surface. To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

Read the full article →

Bank of Florida’s Lenders Closed as U.S. Bank Failures Reach 78 for 2010

May 29, 2010

By Dakin Campbell May 28 (Bloomberg) — Bank of Florida Corp. ’s three lenders were closed by regulators today who sold about $1.2 billion in deposits to EverBank Financial Corp., the closely held firm that specializes in online banking, as the latest round of bank failures sent the 2010 toll to 78. EverBank purchased the three banks from the Federal Deposit Insurance Corp., which was named receiver, according to statements on the agency’s website. Lenders in California and Nevada were also closed, with City National Corp. buying Las Vegas-based Sun West Bank. The failures cost the FDIC’s deposit- insurance fund $317 million. “We look forward to welcoming our new customers on Tuesday morning when the former Bank of Florida locations open as branches of EverBank,” Chief Executive Officer Rob Clements said in a statement. The acquisition will allow EverBank to move into wealth management and private banking, the company said. U.S. banks are collapsing amid losses on residential and commercial real estate loans, and the FDIC’s list of “problem” lenders is the longest since 1992. FDIC Chairman Sheila Bair said this month the agency’s confidential list of “problem” banks grew to 775 banks in the first quarter. EverBank, based in Jacksonville, Florida, will hold about $11.5 billion in assets after the pickup, according to the company’s statement. The bank had $7.4 billion in deposits at the end of the first quarter. ‘Prompt Corrective Action’ The three lenders run by Bank of Florida all received “prompt corrective action” notices from the FDIC in March requiring them to raise capital within 30 days. The parent company was looking to sell shares and raise capital, and reported a revised first-quarter loss of $48.2 million this month, according to a statement. Los Angeles-based City National paid a premium of 0.67 percent to the FDIC to assume the $353.9 million in deposits at Sun West Bank. Chico, California-based Tri Counties Bank bought the assets and deposits of Granite Community Bank N.A., of Granite Bay, California, which was closed by the Office of the Comptroller of the Currency. Granite’s branches will reopen June 1 as part of the 58-branch network of Tri Counties, according to a company statement. Thirteen banks in Florida, six in California and two in Nevada have now been closed by regulators since the beginning of the year, the FDIC said. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net .

Read the full article →

European Stocks Advance From Eight-Month Low, Paced by Miners; BP Declines

May 29, 2010

By Maud van Gaal May 29 (Bloomberg) — European stocks posted a weekly gain as the Stoxx Europe 600 Index rebounded from an eight-month low on speculation the economy is strong enough to weather the region’s government-debt crisis. Basic-resources stocks led the gains, paced by BHP Billiton Ltd. and Rio Tinto Group. Portugal Telecom SGPS SA jumped 14 percent as Telefonica SA threatened to bid for the Portuguese company after it rejected an offer for its stake in their Brazilian joint venture. BP Plc fell for a sixth straight week as efforts to halt an oil leak in the Gulf of Mexico continued. The Stoxx Europe 600 Index rose 2.9 percent to 244.01 this past week as all 19 industry groups advanced, recovering from a plunge to an eight-month low on May 25. The measure has slumped 6.1 percent so far this month, on course for the biggest drop since February 2009, on concern that European nations will have difficulty taming their budget deficits without harming the economic recovery. “We don’t think we’ll sink into another recession just like that,” Hans Rademaker , a board member at Robeco Groep NV, which oversees about $170 billion, told reporters in Amsterdam yesterday. “Temporary corrections of equity markets in between recessionary periods are pretty normal. A rise never happens in a straight line, you’ll always have bumpy patches along the way.” The 10 percent decline since this year’s high on April 15 has left the Stoxx 600 trading at less than 15 times the reported earnings of its companies, near the cheapest valuation since 2008, according to Bloomberg data. Benchmark Indexes National benchmark indexes rose in 16 of the 18 western European markets this week. Germany’s DAX gained 2 percent while France’s CAC 40 and the U.K.’s FTSE 100 advanced 2.5 percent. The Organization for Economic Cooperation and Development on May 26 said the economy of its 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, as emerging economies such as China outpace debt- burdened developed countries to drive the global expansion. A report in the U.S. on the same day showed orders for durable goods rose in April for the fourth time in five months. “The growth momentum of the global economy is strong, and we expect this momentum to decline only little in the course of this year,” Deutsche Bank AG strategists including London-based Joelle Anamootoo wrote in a report, adding that “risks to the outlook are skewed to the downside.” Chinese Support Gains in European equities were supported by comments from China’s foreign exchange regulator, which declared reports that it was reviewing its euro holdings were “groundless.” China is a responsible long-term investor and Europe has been and will be a major investment market, the State Administration of Foreign Exchange said in a statement on May 27. Mining stocks were the biggest gainers among the 19 industry groups in the Stoxx 600. BHP Billiton, the world’s largest mining company, surged 5.3 percent. Xstrata Plc increased 6.9 percent and Rio Tinto added 9.6 percent. Copper, zinc and lead advanced on the London Metal Exchange. Portugal Telecom climbed 14 percent. Telefonica threatened to bid for the Portuguese company after Portugal Telecom rejected a 5.7 billion-euro ($7 billion) offer for its stake in the Vivo Participacoes SA joint venture in Brazil. Banco Espirito Santo SA, Portugal Telecom’s second-biggest shareholder said the Portuguese company is in talks with investors from the Middle East and Asia as it weighs a possible counter offer for Telefonica’s stake in the venture. Telefonica shares rose 0.8 percent. BP Retreats BP dropped 2.4 percent, extending the longest stretch of weekly declines since February 2007. The oil company began pumping mud-like drilling fluid into the leaking well on May 26 in a procedure known as top kill. The effort is aimed at tamping down the gusher of oil and natural gas and then sealing the well with cement. The cost of the operation has risen to $930 million, the company said. Ageas, the insurer formerly known as Fortis, gained 8.7 percent after cutting its holdings of southern European government bonds. The company sold 4.8 billion euros of southern European government bonds, reducing the concentration of the region in its investment holding. Prudential Plc jumped 4.7 percent after the U.K. insurer seeking to buy American International Group Inc.’s Asian unit in a $35.5 billion acquisition said it’s talking with AIG about changing the terms of the deal. Chief Executive Officer Tidjane Thiam was in New York this week to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Homeserve, Clariant Homeserve Plc rallied 12 percent, the biggest weekly gain in a year. The U.K.-based emergency-repair service provider with more than 10 million policies worldwide posted a full-year profit as it added customers overseas. Clariant AG , the world’s biggest maker of printing-ink chemicals, increased 4.4 percent. The shares were raised to “buy” from “hold” at Societe Generale SA, which said a 12 percent decline since April 16 is “an opportunity to capture exposure to a self-help story.” To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

Read the full article →

U.A.E. Economy to Expand 3.2% With Oil at $85 a Barrel, Al-Mansouri Says

May 29, 2010
Read the full article →

Treasury Signals Commitment to $35.5 Billion AIA Deal

May 29, 2010

By Hugh Son May 29 (Bloomberg) — The U.S. Treasury Department and American International Group Inc. , asked by  Prudential Plc to lower the $35.5 billion price for the bailed-out insurer’s main Asia unit, signaled they are committed to the original terms. “Treasury has not considered any alternative other than the existing contract,” said  Andrew Williams , spokesman for the department, in an e-mailed statement late yesterday. The insurer won’t be hurried into accepting less than what company executives think AIA Group Ltd. is worth, according to a person briefed on the stance of New York-based AIG’s management. The person declined to be identified because the negotiations are private. The insurers are discussing the terms of the deal in the last weeks before a Prudential shareholder vote on the transaction set for June 7. Prudential said yesterday it had asked AIG to change the terms. Investors in the London-based insurer including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said this week. Edward Brewster , a spokesman for Prudential, declined to comment today. ‘Playing Hardball’ “The deal’s not dead until it’s dead,” said Eamonn Flanagan , a Liverpool, England-based analyst at Shore Capital Group Plc. “The Treasury could just be playing hardball here. There will be a lot of posturing from both sides.” He recommends buying Prudential shares. In March, AIG announced that Prudential agreed to pay $35.5 billion, about 70 percent in cash, for AIA, which operates in 13 markets from China to Australia. The deal would be AIG’s biggest step to repay U.S. taxpayers for its $182.3 billion government bailout. AIG could hold a public offering for AIA should the sale to Prudential fail, Jim Millstein , the Treasury’s chief restructuring officer, said this week. AIG had been planning such an offering for the unit before striking the Prudential deal. Robert Benmosche , chief executive officer of AIG, told the Congressional Oversight Panel in Washington this week that he had negotiated “a very aggressive price” for AIA. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done by Angelo Graci , managing director at Chapdelaine Credit Partners in New York, before the March deal announcement. AIG executives believe $30 billion would be too low a price for AIA, said the person familiar with the managers’ thinking. AIG, once the world’s largest insurer, is divesting assets after soured housing bets pushed the firm to the brink of collapse in September 2008. A week after announcing the sale of AIA, the company said that MetLife Inc. agreed to pay about $15.5 billion for another non-U.S. unit, American Life Insurance Co. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Read the full article →

Shell Said to Operate 5 of 33 Gulf Rigs Affected by Obama Deep-Water Pause

May 29, 2010

By Jeff Plungis May 29 (Bloomberg) — Royal Dutch Shell Plc operates 5 of the 33 deep-water drilling rigs in the Gulf of Mexico that must halt operations under the Obama administration’s moratorium, an official of the Minerals Management Service said. Shell, Europe’s largest energy producer, operates more of the exploratory wells that any other company, the official, who asked not to be identified discussing the specific companies, said yesterday in an e-mail. Three companies with three rigs apiece are Eni SpA, Marathon Oil Corp. and Anadarko Petroleum Corp. MMS is part of the U.S. Interior Department. President Barack Obama extended a moratorium May 27 on deepwater offshore oil drilling permits, delayed planned exploration in the Arctic off Alaska and canceled a plan to search for oil and gas off the Virginia coast in response to the spill from a BP Plc well in the Gulf. BP, Chevron Corp. and Statoil ASA each operate two floating rigs affected by the policy, the official said. Three other companies also have two: Noble Corp., Devon Energy Corp. and BHP Billiton Ltd. Each of seven companies have one affected rig. The administration is “pausing” deepwater drilling “to ensure this type of disaster doesn’t happen again,” Interior Secretary Ken Salazar said on a call with reporters May 27. The government will be cautious about further development of the outer continental shelf, he said. Operations in waters in depths of less than 500 feet are exempt from the moratorium. The 33 deep-water wells are in various stages of drilling, and those begun will be allowed to continue operations until it’s safe to stop, Salazar said. If drilling hasn’t begun, the companies won’t be allowed to drill, he said. “They need to get to a safe horizon in the geology to secure the well,” Salazar said. “The activity will proceed to the point that the wells themselves can be secured.” A list of 33 deep-water Gulf of Mexico floating rigs affected by the Obama administration’s drilling moratorium as of May 26, according to an official with the Minerals Management Service: To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net .

Read the full article →

Fifth Third Names Former FDIC Leader William Isaac Chairman of Ohio Bank

May 29, 2010

By Nikolaj Gammeltoft May 29 (Bloomberg) — Fifth Third Bancorp named William Isaac as chairman, putting the former Federal Deposit Insurance Corp. leader in charge of the board after Ohio’s largest bank posted its third straight quarterly loss. Isaac, 66, the FDIC chairman from 1981 to 1985, takes over from Kevin T. Kabat , 53, who will continue as president and chief executive officer, the Cincinnati-based bank said yesterday in a statement. Isaac, an Ohio native, has been a banking-industry consultant and a participant in at least one group of private investors trying to buy distressed lenders. “Bringing Bill on board as non-executive chairman improves our already strong corporate governance practices and provides support to Kevin and his leadership team in the ever-changing financial landscape,” said lead director James P. Hackett in the statement. Fifth Third posted a $10 million first-quarter loss , with Kabat predicting credit would improve in the second quarter and that write-offs for the full year would be “significantly below” 2009 levels. The bank took $3.4 billion from the U.S. Treasury Department’s Troubled Asset Relief Program, and hasn’t yet repaid the funds. The decision to split the chairman and CEO jobs is “about corporate governance,” Fifth Third spokeswoman Debra Decourcy said. “It’s not about performance.” Moffett Departs Separately, David Moffett , head of an investment group including Isaac that aimed to buy failed banks, is leaving his post and the venture may disband after raising about a third of its $1 billion goal, according to two people with direct knowledge of the matter. Moffett was CEO of BSE Management LLC, where Isaac is chairman. No decisions on the future of the group have been made, according to the people, who declined to be identified because the discussions are private. BSE was one of at least a dozen investment groups hoping to buy lenders as banks close at the fastest pace since 1992. Fifth Third fell 26 cents, or 2 percent, to $13 in Nasdaq Stock Market trading. The shares gained 33 percent this year. For Related News and Information: Top finance stories: FTOP Stories on the banking industry: NI BNK Stories on the Troubled Asset Relief Program: NI TARP Stories about the credit crunch: NI CRUNCH Writedowns and credit losses v. capital raised: WDCI

Read the full article →

London Luxury-Home Prices Increase for Seventh Month on Russian Purchases

May 29, 2010

By Simon Packard May 29 (Bloomberg) — London luxury-home prices climbed in May for the seventh straight month as the pound’s weakness attracted buyers from abroad, Knight Frank LLP said. Houses and apartments costing more than 1 million pounds ($1.4 million) gained 20 percent from a year earlier, the London-based property broker said in a statement today. Prices increased 1.4 percent during the month. They’re still down 6.4 percent from the market’s peak in March 2008. “Overseas buyers view London as offering good value,” Liam Bailey, Knight Frank’s head of residential research, said in the statement. In dollar terms, values are 34 percent less than the peak. A lack of homes offered for sale helped prices recover on a monthly basis from a low in March last year. The pound’s decline sparked demand from wealthy overseas buyers for properties in neighborhoods such as Chelsea, Mayfair and Kensington, Knight Frank said. The number of Russians seeking property through Knight Frank has more than doubled in the past two months, and they now account for almost 8 percent of all purchases of more than 2 million pounds, Bailey said. Russians are targeting London after the ruble appreciated 10 percent against the pound in the last 12 months, said Elena Norton, who heads Knight Frank’s sales team for Russia and the Commonwealth of Independent States. ‘Safe’ Investment Growing interest in refurbishments and development opportunities that add longer-term value “proves Russian buyers consider London a safe and attractive investment,” she said. Properties worth more than 5 million pounds “have come back quite strongly on demand from Russian and Middle East buyers,” said Robert Bailey, whose firm advises and acts for wealthy individuals buying London properties. The euro region’s debt crisis fueled demand from buyers in those countries, particularly for homes worth less than 2 million pounds, he said. For U.K. investors, “we are entering a period of uncertainty” as the government suggests it may lift taxes on capital gains from home sales and given prospects that the economy may slow, Bailey said. The Conservative-Liberal Democrat coalition has indicated it may increase the capital gains tax, currently at 18 percent, to bring it in line with income tax for non-business investments. The top rate for income tax is 50 percent. Chancellor of the Exchequer George Osborne is scheduled to present an emergency budget on June 22 that may include the change. ‘Scaremongering’ “There’s a lot of scaremongering and a lot of people are deeply worried,” Robert Bailey said. His company, Robert Bailey Property, advised on three purchases, including a 7 million- pound home in Knightsbridge, during the past six weeks. Knight Frank compiles its luxury-homes index from estimated values of properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net .

Read the full article →

Philip N. Cohen: Behind the Gendered Workplace

May 29, 2010

In a law review call and response, a law professor and a sociologist take on the issue of how to address gender discrimination legally. Duke Law professor Katharine Bartlett argues in the Virginia Law Review that strengthening options for suing employers is not the answer to gender discrimination. Instead, the good intentions of employers and managers should be supported, through strong, unambiguous norms, trust, teamwork, leadership, positive example, and opportunities to grow and advance. [On the other hand...] Excessive legal control and pressure undermine people’s sense of autonomy, competence, and relatedness and thus their commitment to nondiscrimination norms. In other words, we need more carrot and less stick to combat gender discrimination. In response, sociologist William Bielby , who has worked on behalf of the Wal-mart women’s  class-action suit , counters that, even if crude overt discrimination has diminished, not all the remaining gender inequality is caused by unconscious bias. He warns that, since the ” ‘cognitive turn’ in workplace bias discourse”: …scholars, litigators, human resource professionals, and diversity consultants have become so enamored with the notion of ubiquitous unconscious, implicit, or hidden bias that they are quick to attribute systemic workplace racial and gender inequality to what is going on in people’s heads. Instead, it is vital to consider what is built into organizational structures, processes, and routines. As it happens, this is the 20th anniversary of the classic article by Joan Acker, ” Hierarchies, Jobs, Bodies: A Theory of Gendered Organizations ” (now the second-most cited article in the history of the journal Gender & Society ). In the Spring newsletter for the ASA’s OOW section (don’t ask), Acker has a brief essay in which she reiterates the premise of her original article: “The worker” under capitalism is implicitly defined as unencumbered by any obligations other than those to the job, and work is usually organized on the basis of this assumption. Historically, women have been seen as encumbered wives and mothers and thus not real workers and not entitled to the rewards and rights of real workers. She and her colleagues have completed a study of welfare reform — Stretched Thin: Poor Families, Welfare Work, and Welfare Reform . Now she sees welfare reform as “part of the redefinition of most women in neoliberal society.” Equality may be defined now as the transformation of women into neoliberal gender-neutral unencumbered workers whose main efforts go to the job. This path to gender equality is impossible for many women, and some men, for whom it constitutes a fundamental contradiction: work expectations and family needs do not mesh. Acker’s article was important for establishing the gendered nature of workplace “structures, processes and routines” that Bielby is talking about — and wrote about in the Wal-mart case. Built-in assumptions are related to ways of thinking, but they are more than that — they become established ways of doing business, imprinting organizations with patterns of inequality — especially having to do with job segregation. My own research with Matt Huffman has helped establish that women in management positions reduce gender inequality at work (a paper forthcoming in Administrative Science Quarterly takes this further). We can’t say, however, if that’s because they have different assumptions about men and women, less motivation (and incentive) to discriminate, or more commitment to changing the established ways of doing things. Cross posted from the Family Inequality blog.

Read the full article →

RIM to launch $100m fund in China

May 29, 2010

RIM to launch $100m fund in China

Read the full article →

Brazil’s unemployment falls to 7.3% in April

May 29, 2010

Brazil’s unemployment falls to 7.3% in April

Read the full article →

Hong Kong imports, exports surge in April

May 29, 2010

Hong Kong imports, exports surge in April

Read the full article →

Swedish economy expands 3% in Q1

May 29, 2010

Swedish economy expands 3% in Q1

Read the full article →

Samsung launches Galaxy S mobile

May 29, 2010

Samsung launches Galaxy S mobile

Read the full article →

Mulk Holdings, DACS Systems to invest Dh400m in Sri Lanka venture

May 29, 2010

Mulk Holdings, DACS Systems to invest Dh400m in Sri Lanka venture

Read the full article →

Fifth Third Names Former FDIC Head William Isaac as Ohio Bank’s Chairman

May 29, 2010
Read the full article →

← Previous Entries

Next Entries →