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U.S. Home Sales Increased in Fourth Quarter as Tax Credit Boosted Demand

by on February 11, 2010

By Kathleen M. Howley Feb. 11 (Bloomberg) — U.S. home sales increased 14 percent in the fourth quarter as a Federal Reserve program to purchase mortgage bonds and a tax credit for property buyers boosted demand for real estate. Sales of existing single-family homes, condominiums and cooperatively owned apartments rose to 6.03 million at an annualized, seasonally adjusted, rate from 5.29 million in the previous quarter, the National Association of Realtors said in a report today. The median price fell 4.1 percent from a year earlier, dropping in about half of U.S. cities, the Chicago- based trade group said. Government stimulus programs including the Fed’s effort to lower home-loan rates by purchasing mortgage bonds lifted the real estate market in the closing months of 2009, said Stan Humphries , chief economist at Zillow.com in Seattle. A “double dip” in home prices is possible after the Fed’s program ends in March and the tax credit expires at the end of April, he said. “What we’re seeing playing out in the marketplace is really a battle between market fundamentals on the one hand and market intervention, primarily in the form of federal policy support, on the other hand,” Humphries said. President Barack Obama in early November extended the tax credit beyond its original Nov. 30 deadline. The new version keeps the $8,000 first-time homebuyer benefit and makes a smaller credit available to some move-up buyers. To qualify, people must have a signed contract on a property by the end of April and purchase it before July 1. Record Mortgage Rates The Fed began purchasing $1.25 trillion of bonds backed by home loans last year in an effort to drive down fixed mortgage rates. The rate dropped to an all-time low of 4.71 percent during the first week of December, according to McLean, Virginia-based Freddie Mac. This week it is 4.97 percent. The Fed’s program is set to end this quarter. Home sales rose 4.9 percent last year to 5.16 million, the first annual gain since 2005, the National Association of Realtors said in a Jan. 25 report . In 2011, sales may increase 9.9 percent, the trade group said. U.S. home prices fell 12 percent in 2009 to a median of $173,500, a greater decline than 2008’s 9.5 percent drop. This year, prices may rise 3.7 percent, the first gain since 2006, according to a forecast on the trade group’s Web site. The U.S. median home price tumbled 28 percent over three years to a seven-year low of $164,800 in January 2009, the month before Congress passed the American Recovery and Reinvestment Act authorizing the tax credit, according to the NAR. The median had reached a record high of $230,300 in July 2006. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

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Skadden Is Top Deal Adviser in 2009 as M&A Lawyers Face a Slow Recovery

by on January 6, 2010

By Lindsay Fortado Jan. 6 (Bloomberg) — Skadden, Arps, Slate, Meagher & Flom LLP , the top-grossing U.S. law firm, overtook a U.K. competitor to advise on the highest amount of global mergers and acquisitions in 2009, the least-active deal market in six years. The New York-based firm unseated 2008 leader Linklaters LLP , which ranked fifth among legal advisers to buyers and sellers last year, according to data collected by Bloomberg. Total deal value fell about 32 percent to more than $1.7 trillion, the data show. That’s down from $2.5 trillion last year and a record $4 trillion in 2007. Deal amount increased 54 percent in the fourth quarter from the third, signaling a possible recovery in the market. Announced deals rose to $557.1 billion, led by Exxon Mobil Corp.’s pending $41.4 billion purchase of XTO Energy Inc., Berkshire Hathaway Inc.’s takeover of Burlington Northern Santa Fe Corp. for $35.8 billion and Kraft Foods Inc. ’s proposed hostile acquisition of Cadbury Plc. “Nobody’s viewing it as strong recovery, but it’s a recovery nonetheless,” said Scott Barshay , managing partner of the corporate department at Cravath, Swaine & Moore LLP in New York, who is advising Burlington Northern in the Berkshire Hathaway transaction. “In the second half of the year and particularly in the last quarter, you had a real increase in M&A that I think has a good chance of sustaining itself in 2010.” Sullivan & Cromwell LLP, which ranked first for four straight years through 2007 and was second last year, suffered the steepest fall from the top, dropping out of the top 20. M&A lawyers are “cautiously optimistic” that the worst is behind them, said Matthew Layton , global head of the corporate practice at Clifford Chance LLP in London, which ranked second in deals last year, according to the data. Private Equity Deal amounts reached a record high in 2007, boosted by private-equity firms and the availability of leveraged-buyout financing. Most came in the first half that year. After the subprime crisis and the credit crunch grew, the amount of deals fell in the fourth quarter. Lehman Brothers Holdings Inc. ’s collapse in September 2008 froze credit and debt markets, worsening the global economic crisis. All of the top five law firms advised on lower amounts of transactions in 2009 than a year earlier. Skadden advised on $212.4 billion of deals, 25 percent less than in 2008. The firm represented Schering-Plough Corp. in its $47.1 billion takeover by Merck & Co. , the second-largest deal of the year, and BlackRock Inc. in its purchase of Barclays Plc’s global investors unit for $12.5 billion. ‘Busy Year’ “It was still a busy year for us, though we all wish we were at a more robust level of activity,” said Stephen Arcano , head of M&A in Skadden’s New York office, who is advising XTO Energy in the Exxon Mobil deal, the fourth-largest of the year. Banks “are ready to write commitments, which they weren’t willing to do at the beginning of the year, other than for very highly rated borrowers,” Arcano said. Clifford Chance fared the best of the U.K. firms in the top 10, with only a 10 percent decline in volume of deals. “We’re still depressed and significantly down from the levels in 2006 and 2007,” Layton said. “It’s nowhere near the levels of the previous years, and we don’t see a very rapid return to significantly higher levels of M&A activity, but a general upward trend.” London-based Linklaters advised on an amount of deals that was 55 percent lower than in 2008. Freshfields Bruckhaus Deringer, also London-based, ranked third overall. Freshfields’ deal amount declined 44 percent. Largest Deals Cravath ranked fourth, up from 10th last year, after advising Pepsi Bottling Group Inc. on its acquisition by PepsiCo Inc. for $10 billion, and Affiliated Computer Services Inc. in its acquisition by Xerox Corp. for $7.9 billion. The firm is also representing Kraft in its bid for Cadbury. New York-based Wachtell, Lipton, Rosen & Katz and Simpson, Thacher & Bartlett LLP ranked sixth and seventh. Taipei-based Lee & Li Attorneys at Law came in eighth. Toronto-based Blake, Cassels & Graydon LLP was ninth, and Mallesons Stephen Jaques, based in Sydney, rounded out the top ten. Cleary, Gottlieb, Steen & Hamilton LLP, another New York law firm, fell to the 19th spot from ninth place. “You really had a tale of two six-month periods,” Barshay said of 2009. “The first six months of the year was very tough in M&A — you basically had the two pharma deals and not much else,” he said, referring to the year’s two largest deals: Pfizer Inc.’s acquisition of Wyeth for $64 billion and Merck’s takeover of Schering-Plough. Companies are increasingly considering deals now that the market is stabilizing, deal lawyers say. “We have a bit of a wind at our back,” Arcano said. “There is some pent-up demand from corporates that have been looking at deals in 2009 and believe that there is a strategic imperative to pursue targeted M&A activity.”

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Pimco Says Government Bonds to Decline on Record Sales as Growth Falters

December 1, 2009

By Sarah McDonald Dec. 1 (Bloomberg) — Investors will cut government bond holdings as record state auctions damp prices, Pacific Investment Management Co. LLC said today, after boosting its own holdings in October to the most in five years. Demand is set to grow for higher-quality corporate debt as “excessive optimism” about a global recovery wanes, said John Wilson , head of Pimco’s Australian unit, in a statement today. Bill Gross , who runs the world’s biggest bond fund at Pimco, increased his holdings of government-related debt to 63 percent at Oct. 30, the highest proportion since July 2004, according to data on Pimco’s Web site. “A reduced allocation to government debt in portfolios reflects the likelihood of an underperforming government debt sector, due to the substantial government borrowings prompted by the global financial crisis,” John Wilson , head of Pimco’s Australian unit, said in a statement today. Investors will rely more heavily on cash for liquidity needs, he said. Sovereign bond sales surged over the past year as governments sought to fund stimulus projects to haul the world out of its worst recession since World War II. The U.S.’s debt increased by $1.15 trillion this year to $6.95 trillion in October. That helped push up the cost to hedge against rising yields on Treasuries to a record high last month, according to Barclays Plc data based on the so-called skew in options on interest-rate swaps. At more than 37 basis points, the measure was almost 40 times higher than the average before credit markets seized up in August 2007. Investors will focus on actively managed debt funds to seek stable returns, Wilson said. ‘Excessive Optimism’ “The level of current optimism in financial markets is excessive with many analysts extrapolating recent growth rates into the future without taking into account the effect of temporary factors, such as government stimulus,” Wilson said. “Pimco is concerned that the pace of global growth will falter as the temporary impact of inventory rebuild and government fiscal stimulus fades, and as leverage continues to be removed from the market.” Costs to safeguard against corporate defaults rose over the past week after Dubai World sought a standstill agreement from creditors. Dubai and its state-owned companies borrowed $80 billion in a four-year construction boom to transform its economy into a tourism and financial hub. Dubai World, one of those state-owned firms, said today it began “constructive” talks with banks to delay payments on $26 billion of debt. ‘New Normal’ Pimco’s prediction of a “new normal” investment climate includes lower and slower economic growth, higher risk premiums, volatility and a prolonged correction phase, according to today’s statement. “In the new unleveraged environment, global growth will average about 2.5 percent per annum, compared with previous nominal GDP growth of 6 percent to 7 percent,” Pimco said in the statement. Economic growth will slow in 2010, Pimco said. Gross boosted his $192.6 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other U.S. government-linked bonds from 48 percent of assets in September while reducing his position in mortgages to the smallest since May 2004, data on Pimco’s Web site show. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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Toll Brothers Shares Gain Most Since 1991 as Orders for Luxury Homes Surge

November 11, 2009

By Brian Louis and John Gittelsohn Nov. 11 (Bloomberg) — Toll Brothers Inc ., the largest U.S. luxury homebuilder, gained the most since 1991 in New York after orders surged 42 percent in the fiscal fourth quarter, cancellations slowed and revenue beat analysts’ estimates. “The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving,” Chairman and Chief Executive Officer Robert Toll said in a conference call. “We sense that it is, though slowly.” The builder focused on reducing unsold inventory and increasing cash to weather the housing recession. The median price for a new U.S. home was $204,800 in September after declining from a record high of $262,600 in March 2007, according to the Census Bureau. Toll Brothers had been raising prices until September. “Since Labor Day weekend up to the present, we do not think we have as much pricing power as we had,” Robert Toll said. The builder’s net contracts climbed to 765 in the three months through October from 539 a year earlier and the cancellation rate dropped to 6.9 percent from 30.2 percent, Horsham, Pennsylvania-based Toll said in a statement yesterday. The shares climbed $3.34, or 18 percent, to $21.73 at 3:21 p.m. in New York Stock Exchange composite trading. The Standard & Poor’s Supercomposite Homebuilding Index rose as much as 7.5 percent, the most since May. Upside Surprise “The surprise was more on the upside,” said David Goldberg , an analyst with UBS Securities LLC in New York. “They did better than we thought.” Toll stands to gain a bigger market share as smaller rivals struggle to secure financing for new construction, said Goldberg, who rates the shares “buy.” Robert Toll said the housing recovery “will come in fits and starts” and be “through choppy waters.” The gain in contracts signed surpassed the 17.5 percent increase projected by James McCanless , an analyst with FTN Equity Capital Markets Corp. in Nashville, Tennessee, who rates the shares “buy.” Increased orders and a “faster-than-expected reduction in speculative inventory” should boost gross profit margins this fiscal year if the cancellation rate stays near current levels, McCanless wrote in a report today. Revenue dropped to $486.6 million in the quarter from $698.9 million a year earlier, Toll said. Twelve analysts in a Bloomberg survey predicted an average of $373.5 million. Toll Brothers issued preliminary results yesterday and plans to release a full earnings report Dec. 3. To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net ; John Gittelsohn in New York at johngitt@bloomberg.net .

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Billionaire Fisher Says S&P 500 Index to Top 1,300 by February on Economy

November 10, 2009

By Rita Nazareth Nov. 10 (Bloomberg) — The Standard & Poor’s 500 Index will probably exceed 1,300 as early as February because the economy continues to rebound from the worst recession since the 1930s, billionaire Kenneth Fisher said. The benchmark index for U.S. stocks has surged 62 percent to 1,093.08 after sinking to a 12-year low in March. It will add up to 25 percent from last week’s close in the next three months, said Fisher, 58, who oversees $35 billion as chairman of Woodside, California-based Fisher Investments Inc. “It’s just a reversal of excessive pessimism,” Fisher, ranked by Forbes magazine as the 289th-richest person in the U.S., said in an interview yesterday. “We still have a lot more bull market to go because we had such a huge bear market.” Optimism the stock market will continue its surge helped drive the Chicago Board Options Exchange Volatility Index lower, keeping it below 50 since March. The VIX, as the measure is known, never exceeded that level before the credit crisis intensified after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in September 2008. It has retreated 53 percent during the S&P 500’s eight-month rally. The S&P 500 is recovering from a 57 percent plunge from a record high in October 2007 on signs the world’s largest economy is improving. U.S. gross domestic product grew at a 3.5 percent annual rate in the July-through-September period, exceeding the median economist estimate of 3.2 percent in a Bloomberg survey, after shrinking for four straight quarters. ‘Knocked the Socks Off’ “The economy is not recovering at a slow pace,” Fisher said. “America is faster than people think. Third-quarter GDP numbers knocked the socks off of expectations.” Global investors and analysts agree that the world economy is on the mend. Almost 75 percent of respondents in a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia described the global economy as stable or improving at the end of last month, up from just over 60 percent in July. Fisher proved too bullish two years ago. He told Bloomberg News at the end of March 2007 that he was “on the wildly optimistic side of things.” The S&P 500 then rose 10 percent in six months before peaking at an all-time high on Oct. 9. On Nov. 7, he said in an interview that stocks were still cheap given the level of interest rates. The equity index retreated 38 percent in 2008 for its worst performance since 1937. His Fisher Global Total Return fund gained 4.9 percent annually during the five years ended Sept. 30, according to Chicago-based Morningstar Inc. That compares with the 5.1 percent annualized advance including dividends by the MSCI All- Country World Index, according to data compiled by Bloomberg. The investor said yesterday that industries that are more sensitive to the economy should lead the market rally over the next three months. He cited raw-materials producers, consumer companies reliant on discretionary spending and industrial companies. Shares of technology companies and energy producers should also rise to a lesser extent, he said. Fisher also reiterated his view from an April 16 interview that investors should be “overweight” stocks in emerging markets. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .

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Billionaire Fisher Says S&P 500 Will Exceed 1,300 by February on Economy

November 10, 2009

By Rita Nazareth Nov. 10 (Bloomberg) — The Standard & Poor’s 500 Index will probably exceed 1,300 as early as February because the economy continues to rebound from the worst recession since the 1930s, billionaire Kenneth Fisher said. The benchmark index for U.S. stocks has surged 62 percent to 1,093.08 after sinking to a 12-year low in March. It will add up to 25 percent from last week’s close in the next three months, said Fisher, 58, who oversees $35 billion as chairman of Woodside, California-based Fisher Investments Inc. “It’s just a reversal of excessive pessimism,” Fisher, ranked by Forbes magazine as the 289th-richest person in the U.S., said in an interview yesterday. “We still have a lot more bull market to go because we had such a huge bear market.” Optimism the stock market will continue its surge helped drive the Chicago Board Options Exchange Volatility Index lower, keeping it below 50 since March. The VIX, as the measure is known, never exceeded that level before the credit crisis intensified after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in September 2008. It has retreated 53 percent during the S&P 500’s eight-month rally. The S&P 500 is recovering from a 57 percent plunge from a record high in October 2007 on signs the world’s largest economy is improving. U.S. gross domestic product grew at a 3.5 percent annual rate in the July-through-September period, exceeding the median economist estimate of 3.2 percent in a Bloomberg survey, after shrinking for four straight quarters. ‘Knocked the Socks Off’ “The economy is not recovering at a slow pace,” Fisher said. “America is faster than people think. Third-quarter GDP numbers knocked the socks off of expectations.” Global investors and analysts agree that the world economy is on the mend. Almost 75 percent of respondents in a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia described the global economy as stable or improving at the end of last month, up from just over 60 percent in July. Fisher proved too bullish two years ago. He told Bloomberg News at the end of March 2007 that he was “on the wildly optimistic side of things.” The S&P 500 then rose 10 percent in six months before peaking at an all-time high on Oct. 9. On Nov. 7, he said in an interview that stocks were still cheap given the level of interest rates. The equity index retreated 38 percent in 2008 for its worst performance since 1937. His Fisher Global Total Return fund gained 4.9 percent annually during the five years ended Sept. 30, according to Chicago-based Morningstar Inc. That compares with the 5.1 percent annualized advance including dividends by the MSCI All- Country World Index, according to data compiled by Bloomberg. The investor said yesterday that industries that are more sensitive to the economy should lead the market rally over the next three months. He cited raw-materials producers, consumer companies reliant on discretionary spending and industrial companies. Shares of technology companies and energy producers should also rise to a lesser extent, he said. Fisher also reiterated his view from an April 16 interview that investors should be “overweight” stocks in emerging markets. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .

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Gold rises to a record high, dollar’s weakness continues

October 7, 2009

Gold rises to a record high, dollar’s weakness continues

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Michael J. Panzner: More Dependent on the Consumer than Ever

October 4, 2009

America’s overreliance on consumer spending helped create the mess we are in. To finance our spendthrift ways, we borrowed more than we could afford. We also saved less than necessary and bet that rising home and stock prices would make up the difference. In addition, our willingness to consume more than we produce led to unhealthy imbalances with nations like China. Well, guess what. The latest data reveals that America is more dependent on the consumer than ever. Last Thursday, the Commerce Department’s Bureau of Economic Analysis (BEA) revealed that personal spending in August rose 0.9 percent, its biggest monthly jump since 2001. Reports suggest the increase stemmed from stepped-up purchases of durable goods like cars, aided by Washington’s cash-for-clunkers scheme, as well as aggressive back-to-school promotions by nervous retailers. The BEA also announced that personal income — the sum received from all sources, including wages, government transfer payments, and interest — rose a more subdued 0.2 percent. While the result beat Wall Street’s expectations, the gap between the two data points helped to highlight an unsettling development. More specifically, the relationship between the two has diverged to the point where personal spending is now at a record high relative to income, surpassing the level seen at the pre-financial crisis peak of housing bubble-induced euphoria. Other data paints a similarly troubling picture. Personal income relative to gross domestic product (GDP), the sum total of U.S.-produced goods and services, has also hit a record. Based on estimated data for third quarter GDP, the consumer now accounts for around 72 percent of output, a far cry from the 50-year median of 64.5 percent. That might not be so bad if the consumer was in better shape than he (or she) was in the past, but various data indicate that is not the case. For example, although household debt relative to net worth is marginally below the second quarter record of 26.9 percent, it is still two-thirds higher than its long-term average. Another series also shows that households remain stretched, despite some improvement from the record highs seen in the spring of 2008. According to the Federal Reserve, Americans devoted just over 18 percent of their monthly disposable personal income — the amount left over after income taxes — to debt, auto lease, rental, homeowners’ insurance, and property tax payments in the second quarter. Aside from the fact that the median average of the Financial Obligations Ratio (FOR) since 1980, when the Fed started keeping tabs on it, is 17.3 percent, the measure is still above the range that prevailed prior to the accelerated lift-off in housing prices following the 2001 recession. And while the personal savings rate is no longer scraping along at the unsustainably low levels we saw in the middle of the current decade, at 3 percent it is still less than half of its long-term median and well below the more “normal” levels of 8-10 percent that were commonplace in the years since the Great Depression. It doesn’t help, of course, that severe declines in stock prices and property values have undermined what economists refer to as “the wealth effect,” which helped power a measure of past spending. The fact that American’s net worth relative to GDP has fallen back to more normal levels while debt loads have remained high is not at all reassuring. This doesn’t even take account of other developments that suggest the health of the consumer is seriously at risk. Along with data released this past week, which revealed that a growing number of Americans are losing their jobs , being forced into foreclosure , and filing for bankruptcy , new research also highlights the fact that income inequality has hit an all-time high. In the end, none of this bodes well for an economy whose fortunes are (still) so closely tied to the spendthrit ways of the U.S. consumer. In fact, once the man in the street figures out that, despite the sorry state of his finances, he is the one that is being counted on to rescue the economy, that’s when the real trouble will begin.

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Home Prices in U.S. Increased 0.3% in July, Less Than Economists Estimated

September 22, 2009

By Kathleen M. Howley Sept. 22 (Bloomberg) — U.S. home prices rose 0.3 percent in July from the previous month, less than analysts’ estimates, in a sign that the housing recovery is tenuous. The house price index fell 4.2 percent for the 12 months ended in July, the smallest decline this year, the Federal Housing Finance Agency in Washington said today. The monthly gain was lower than the 0.5 percent increase forecast by 12 analysts in a Bloomberg survey. “The general economic recovery is weak for one reason: because the housing recovery is weak,” said David Crowe , chief economist of the National Association of Home Builders in Washington. The U.S. housing market is struggling to stabilize after a three-year slump slashed values 28 percent and led to record foreclosures . While a federal tax credit for first-time buyers and lower prices are bolstering demand, the unemployment rate at a 26-year high has kept many buyers out of the market. Employers have eliminated almost 7 million jobs since the recession started, the biggest drop of any post-World War II economic downturn. U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are considering whether to end support for the housing market that has been the source of the global financial crisis. ‘Encouraging’ Recovery Signs Treasury Secretary Timothy Geithner on Sept. 17 called signs of stabilization in the housing market “very encouraging” and said the Obama administration is studying whether to let the tax credit expire at the end of November. Five out of nine U.S. regions had price increases last month from June, led by a 1.6 percent gain in the area that includes California, the FHFA said today in the report. New York, New Jersey and Pennsylvania had the second-largest advance with a 1 percent increase. Eight out of nine saw prices decline from a year earlier, FHFA said. Homebuilding companies are seeing some signs that demand is improving. Lennar Corp., the third-largest U.S. builder, said yesterday it has started buying finished home sites in anticipation that buyers will return. The Standard & Poor’s Supercomposite Homebuilding Index of 12 companies has rallied 38 percent this year through yesterday on the prospect of a recovering market. U.S. home prices probably will fall 13 percent this year to a median of $172,600, larger than the 9.5 percent decline in 2008, according to a National Association of Realtors’ forecast . Home resales probably will rise 1.1 percent to 4.97 million after a 13 percent drop last year, the group said. Record Price Declines The U.S. median home price tumbled 28 percent over three years to $164,800 in January, the month before Congress passed the American Recovery and Reinvestment Act of 2009 granting the tax credit for first-time buyers, according NAR. It had reached a record high of $230,300 in July 2006. January’s median home price was the lowest in more than seven years. Lawrence Yun , chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit. First-time buyers have accounted for 43 percent of home sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

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Hermes CEO Sees No Light in `Tunnel’ This Year on Weak Japanese Recovery

September 22, 2009

By Armorel Kenna Sept. 22 (Bloomberg) — Hermes International SCA Chief Executive Officer Patrick Thomas said he isn’t optimistic about the next six months because of a delayed economic recovery in Japan, the French luxury-goods maker’s biggest market. “I’m not expecting to see the light of the tunnel before 2010,” Thomas said in a telephone interview yesterday from Milan, where he opened a flagship store for the Paris-based company. The global financial crisis has a “good year to go, maybe more,” and he was “not optimistic at all” about the world economy, he added. “The Japanese economy is not good and we all feel it.” While sales at Hermes’ own stores are “doing well,” department stores have cut orders to save cash, he said. Japan, where Hermes made 22 percent of last year’s 1.76 billion in sales, had 2.3 percent growth in the second quarter, less than initially estimated, and unemployment is at a record high. The maker of Birkin handbags is still outperforming rivals said Thomas, who repeated the company’s forecast for unchanged sales this year, excluding currency swings, with revenue growth in absolute terms between 6 percent and 8 percent. Hermes , one of the few luxury-goods stocks not to decline in 2008, is little changed in Paris trading this year. The company posted a 7 percent drop in first-half net income two months ago, missing analysts’ estimates, as profitability shrank. Thomas said Hermes will focus on expanding the size of its current stores to add goods such as home furnishings, rather than adding more outlets, he said. Hermes, which has 290 stores, would have a “sufficient” expansion with 320 outlets, Thomas said, without giving a time frame for that growth. Hermes will focus new stores on countries where it has a “limited” presence, such as China and the U.S., Thomas said. To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

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Japan’s Current-Account Surplus Narrowed 19% in July as Exports Declined

September 7, 2009

By Keiko Ujikane Sept. 8 (Bloomberg) — Japan’s current-account surplus narrowed in July as exports fell, an indication that the boost from global stimulus measures may be wearing off. The surplus declined to 1.27 trillion yen ($13.6 billion) from a year earlier, after widening in June for the first time since February 2008, the Ministry of Finance said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for the gap to shrink to 1.45 trillion yen. Manufacturers are still reeling from plunging sales of cars and electronics even as the economy emerges from its worst postwar recession. A government report last month showed declines in shipments accelerated in Asia, the U.S. and Europe. “Demand in industrialized nations remains dull,” said Junko Nishioka , a senior economist at RBS Securities Japan Ltd. in Tokyo. “We’ll probably see the global recovery, which has been supported by stimulus measures, start to slow down.” The yen traded at 92.76 per dollar at 10:59 a.m. in Tokyo from 92.97 before the report was published. Japan’s currency has gained 5 percent in the past month, eroding exporters’ profits earned abroad. Exports tumbled 37.6 percent in July from a year earlier, more than June’s 37 percent drop. Imports slid 41.2 percent, easing from 43.8 percent a month earlier. Regional Shipments Shipments to the U.S. slid 39.5 percent and those to Europe slumped 45.8 percent, a separate report showed last month. Exports to China fell 26.5 percent in July. Today’s figures don’t include regional breakdowns. “The export recovery is becoming sluggish,” said Susumu Kato , chief economist at Calyon Securities in Tokyo, adding that demand from Asia is waning. Finance ministers and central bank governors from the Group of 20 last week judged it premature to start unwinding record- low interest rates and more than $2 trillion in fiscal stimulus. Bank of Japan Governor Masaaki Shirakawa said at the gathering the global recovery will be “moderate.” Japan’s economy is showing signs of losing steam since expanding for the first time in more than a year last quarter. Industrial production rose at the slowest pace in four months in July, the unemployment rate soared to a record high of 5.7 percent, household spending fell and wages tumbled. Lending at Japanese banks rose 1.9 percent in August, the slowest pace in 11 months, a Bank of Japan report showed today. Toyota Motor Corp., Japan’s largest automaker, said last month it plans to reduce output by about 220,000 vehicles. The automaker cut domestic production by 29.5 percent in July. Interest Payments The current-account surplus also narrowed because Japanese investors received smaller amount of interest payments on bonds, today’s report showed. The coupon on U.S. 10-year Treasuries sold in July was 3.125 percent, declining from 4 percent on the securities sold in August last year. The income surplus, the difference between money earned abroad and payments made to foreign investors in Japan, fell 24.2 percent to 1.25 trillion yen in July, today’s report showed. On a seasonally adjusted basis , the current-account surplus narrowed to 1.159 trillion yen in July. Exports rose 1.4 percent from June, the slowest pace since February, and imports climbed 9.1 percent. The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared balance. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Dollar, Yen Gain as Stocks Fall, China Policy Concern Spurs Refuge Demand

August 26, 2009

By Yasuhiko Seki and Ron Harui Aug. 27 (Bloomberg) — The dollar advanced for a fourth day against the euro amid concern restrictions on Chinese production will stifle an economic recovery and as regional shares fell, sparking demand for safe-haven currencies. The yen rose versus all of its 16 most-active counterparts as risk appetite waned before reports this week forecast to show Japan’s unemployment rate matched a record high and the U.S. economy contracted at a faster pace than initially projected. The Australian dollar sank for a third day against the greenback after crude oil fell, undermining demand for the currencies of commodity producers. “Uncertainties about China’s policy action, aimed at tackling credit expansion, will continue to be a key driving force of the market,” said Toshiya Yamauchi , a Tokyo-based manager of the foreign-exchange margin trading department at Ueda Harlow Ltd. “Should the Chinese stock market struggle, the safe-haven currencies may strengthen.” The dollar traded at $1.4232 versus the euro at 9:38 a.m. in Tokyo from $1.4255 yesterday in New York. The yen was at 133.74 per euro from 134.36. The dollar weakened to 93.98 yen from 94.26 yesterday. The Australian currency was at 82.59 U.S. cents from 82.84 cents. Crude oil, the nation’s fourth-most valuable export, fell for a third day to $71.17 a barrel. Chinese Policy China’s cabinet said yesterday it’s studying restrictions on overcapacity in industries including steel and cement as policy makers seek to rein in investment growth fueled by a record credit expansion this year. “China is a key engine for Asia’s economies, so any curbs on investment would likely undermine a recovery in the region,” said Tsutomu Soma , a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk aversion will probably increase, leading to buying of the yen and the dollar.” The Chinese government will also increase “guidance” over parts of the coal, glass and power industries, the State Council said on its Web site yesterday. Controls on stock and bond sales by companies in targeted sectors will be strengthened, it said. The nation’s benchmark stock index has dropped 15 percent from its Aug. 4 high this year on concern banks may tighten credit after extending a record $1.1 trillion of loans in the first six months. The Nikkei 225 Stock Average fell 0.8 percent today and the MSCI Asia Pacific Index of regional shares lost 0.3 percent. Japanese Data The yen advanced for a third day against the euro as a Bloomberg News survey of economists showed the unemployment rate in Japan rose last month, sapping risk appetite. The rate is forecast to match a record high of 5.5 percent. Consumer prices excluding fresh food dropped an unprecedented 2.2 percent in July, according to a separate survey. Both reports are due tomorrow. Adding to concerns that a global recovery will be slow, the U.S. government’s revised figures for second-quarter gross domestic product, due today, may show the economy contracted at a 1.5 percent annual rate, compared with the preliminary showing of a 1 percent fall, according to a Bloomberg News survey. The pound extended its drop for seventh day versus the euro, the longest stretch of losses since January this year, before a report forecast to show U.K. house prices increased at a slower pace this month. The average cost of a home climbed 0.5 percent this month following a 1.3 percent rise in July, according to a Bloomberg News survey of economists before the Nationwide Building Society releases the data today. “Sell sterling,” Sophia Drossos , co-head for global foreign-exchange strategy at Morgan Stanley in New York, said in an interview on Bloomberg Radio. “The economy there is going to lag the rest of the world, so you should buy a currency of an economy that is showing growth and where the central bank is likely to tighten.” To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net

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Japan Emerges From Recession; Stocks Decline as Growth Misses Estimates

August 16, 2009

By Jason Clenfield and Tatsuo Ito Aug. 17 (Bloomberg) — Japan’s economy grew for the first time in five quarters as a revival in exports and consumer spending helped the country climb out of its worst postwar recession. Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following an 11.7 percent decline in the previous quarter, the Cabinet Office said today in Tokyo. The median estimate of 22 analysts surveyed by Bloomberg News was for 3.9 percent growth. The recovery may not be sustained once the $2 trillion in worldwide stimulus that propped up sales for exporters from Toyota Motor Corp. to Kubota Corp. runs out. Some 40 percent of factories still sit idle, forcing companies to cut costs and leaving the winner of an Aug. 30 election with the challenge of staving off unemployment that’s approaching a record high. “The growth we’re seeing is based on government spending and a rebound from the very low level in the previous quarter,” said Seiji Shiraishi , chief economist at HSBC Securities Japan Ltd. in Tokyo. “Companies are burdened with huge overcapacity in terms of equipment and people. It’s much worse than in previous recoveries.” The yen traded at 94.64 per dollar at 9:24 a.m. in Tokyo from 94.76 before the report. The Nikkei 225 Stock Average dropped 1.4 percent, paring its advance to 48 percent since it touched a 26-year low on March 10. The yield on the benchmark 10-year bond fell one basis point to 1.365 percent. Led by Exports From the previous quarter , the world’s second-largest economy grew 0.9 percent. Economists estimated 1 percent. Exports led the expansion, jumping 6.3 percent from the previous three months. Net exports, or overseas shipments minus imports, contributed 1.6 percentage points to quarter-on- quarter growth. Japan’s recovery hinges largely on its overseas markets, which are showing signs of stabilizing. A report last week showed the euro area contracted 0.1 percent last quarter, the region’s best performance in more than a year. The U.S. shrank at an annualized rate of 1 percent, the least in a year. China , Japan’s top overseas market, grew 7.9 percent from a year ago. Confidence in the world economy surged to a 22-month high in August, according to a Bloomberg survey of users on six continents. The resurgence in demand from abroad wasn’t enough to convince companies to spend more on plant and equipment. Business investment, which makes up about 15 percent of the economy, fell 4.3 percent last quarter, today’s report showed. Consumer Spending Consumer spending, which accounts for more than half of the economy, rose 0.8 percent, adding 0.5 percentage point to the expansion, the Cabinet Office said. Prime Minister Taro Aso’s 25 trillion yen ($263 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota is predicting its domestic sales will rise for the first time in five years. Aso’s ruling Liberal Democratic Party is likely to lose the lower house election to the opposition Democratic Party of Japan, which has never held power before. Some 43 percent of voters support the DPJ, almost double the 26 percent of those who support the LDP, a Nikkei Inc. and TV Tokyo Corp. poll released this month showed. Emergency spending by governments worldwide has buoyed sales makers of cars and electronics, and companies including Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Kubota is selling more farming equipment in China. Bank of Japan Bank of Japan Governor Masaaki Shirakawa said last week the recovery may not be strong and there’s no guarantee that demand for the country’s products and services will gain momentum. The central bank will keep the benchmark interest rate at 0.1 percent at least through 2010, according to economists surveyed by Bloomberg. Nippon Steel Corp. , the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity. Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off. Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen. To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Blackstone Debut Leads U.S. Corporate Bond Sales as Rally Starts to Abate

August 14, 2009

By John Detrixhe and Megan Johnston Aug. 14 (Bloomberg) — Blackstone Group LP , the world’s largest buyout company, and brokerage Raymond James Financial Inc. offered corporate debt for the first time this week as the credit rally shows signs of abating. Sales of $26.3 billion this week compare with $24.8 billion last week, according to data compiled by Bloomberg. Blackstone Holdings Finance Co., a unit of the private equity firm, sold $600 million of bonds, and St. Petersburg, Florida-based Raymond James issued $300 million, Bloomberg data show. Investors are seeking out riskier assets such as financial company debt and lower-rated credits to earn higher yields, said Christian Hviid , director of asset allocation for Encino, California-based Genworth Financial Asset Management. Corporate- credit spreads, or yields relative to benchmark Treasury rates, began widening this week after reaching the tightest level since June 19, 2008, according to Merrill Lynch & Co.’s U.S. Corporate Master & High Yield index. “There’s obviously been a lot of spread contraction from investors moving into risk,” Hviid said in a telephone interview. “The easy money is done and over with. Now you really have to dig deep and do some homework.” Blackstone sold 10-year, 6.625 percent bonds that priced at 99.25 cents on the dollar to yield 6.73 percent, or a spread of 312.5 basis points, Bloomberg data show. The debt is likely to be rated A by Standard & Poor’s, the data show. A basis point is 0.01 percentage point. ‘Smart Play’ “When they came into the equity market, looking back it basically indicated the top of the market,” said Rich Lee , managing director of fixed-income at Wall Street Access, a broker-dealer in New York. “They must feel the same thing about spread product, and I think coming now is a pretty smart play.” Blackstone went public on June 21, 2007, just three months before the stock market began its historic collapse. The Standard & Poor’s 500 Index reached a record high on Oct. 9, 2007, before plummeting 38 percent in 2008, its steepest decline since 1937. Financial companies worldwide have written down $1.6 trillion since the third quarter of 2007, Bloomberg data show. The extra yield, or spread, investors demand to own investment-grade debt instead of Treasuries tightened 1 basis point this week to 253 basis points as of yesterday, according to Merrill Lynch’s U.S. Corporate Master index. Yields fell 24 basis points to 5.41 percent. A basis point is 0.01 percentage point. Risk Reach “Investors have increasingly come to a view that higher- quality paper has tightened as much as it’s going to,” said James Merli , head of U.S. fixed-income syndicate at Barclays Capital in New York. “Their risk appetite is increasing and they’re reaching for incremental spread, going into BBBs and in some cases further down in the capital structure.” Investment-grade companies sold at least $18 billion of debt this week, compared with $23 billion issued the week before, Bloomberg data show. Including high-yield, high-risk or junk debt, companies have borrowed $865 billion in bonds this year, a 36 percent increase from 2008. High-yield bonds are rated below BBB- by S&P and less than Baa3 by Moody’s Investors Service. Sales at U.S. retailers fell in July even as the federal government’s cash-for-clunkers plan helped boost auto purchases, raising the risk that consumers will keep cutting back as job losses mount and temper a recovery from the worst recession since the 1930s. A separate government report yesterday showed more Americans than forecast filed claims for unemployment insurance last week, underscoring the threat to spending from the continued deterioration in the job market. The “catastrophic” retail sales and weaker-than-expected employment data was a “reality check” for investors, said Hviid, who helps manage $7 billion of assets at Genworth. Safety Margin “At this juncture people are really scrutinizing the fundamentals,” Hviid said. “A lot of trading is much more discriminating.” Raymond James, the biggest U.S. regional brokerage, sold $300 million of 10-year, 8.6 percent bonds at 99.983 cents on the dollar to yield 8.6 percent, or a spread of 500 basis points more than similar-maturity Treasuries, Bloomberg data show. “The reason for adding more working capital, if we’re wrong on the immediate economic outlook and indeed we do have a ‘W-shaped’ bottom here, this would just provide an extra margin of safety,” Thomas James , chief executive officer of Raymond James, said in an Aug. 13 telephone interview. Junk-bond spreads widened this week for the first time in five weeks, rising 34 basis points relative to Treasuries to 891 basis points as of yesterday, according to the Merrill Lynch High-Yield Master II index. Recovery Optimism Yields relative to Treasuries are widening as investors realize that the economy isn’t as robust as spreads imply, said Kingman Penniman , president of high-yield research firm KDP Investment Advisors in Montpelier, Vermont. Junk-bond sales of $8.3 billion compare with $1.81 billion last week, Bloomberg data show. “The market is a little ahead of itself on optimism on credit trends and an economic recovery,” Penniman said. “At some point spreads can’t continue to tighten given the reality of fundamentals that are out there.” In the high-yield market, Sprint Nextel Corp. sold $1.3 billion of 8.375 percent notes due in 2017 that priced to yield 506 basis points more than similar-maturity Treasuries, or a yield of 8.625 percent, according to data compiled by Bloomberg. Sprint initially planned to sell $500 million of the debt, according to a person familiar with the offering who declined to be identified. Among borrowers seeking to issue debt is NewPage Corp. , the producer of coated paper used in magazines, catalogs and commercial printing, which plans to sell $595 million through a sale of senior secured notes due in 2014. NewPage is marketing the notes simultaneously with an offer to buy back outstanding debt maturing in 2012 and 2013, the Miamisburg, Ohio-based company said in a statement distributed July 15 by PR Newswire. To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net ; Megan Johnston in New York at mjohnston17@bloomberg.net .

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Mortgage stress surges as clients struggle to pay

August 3, 2009

has jumped to a record high in the first half of the year, according to the Alliance Groups Distressed Asset Index. The index covers homeowners who are at least two months behind in monthly payments. Alliance Group chief executive Rael Levitt said there

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Global Economy At Risk From Oil Price Rise: Financial Times

August 3, 2009

The world economy cannot sustain any further rise in the oil price, the International Energy Agency’s chief economist warned as oil prices rose toward a record high for the year. Fatih Birol told the Financial Times that prices higher than about $70 could dampen a world economic recovery.

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Cleantech set for record investment

June 3, 2009

The number of private equity funds starting to invest in the clean technology sector is expected to reach a record high this year, as firms seek to capitalise on growing investor and consumer awareness of climate change issues.

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