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Insurers Bought Most Company Debt Since 2004 as Buffett Saw `Raining Gold’

by on March 19, 2010

By Sapna Maheshwari and Andrew Frye March 19 (Bloomberg) — U.S. insurers, holders of more than $2.2 trillion in corporate debt, bought the bonds at the fastest pace in five years in 2009, taking advantage of a market that Warren Buffett said was “raining gold.” Insurers’ net purchases of corporate bonds climbed to $153 billion in 2009, with the greatest portion coming in the first quarter when yields were at their highest of the year, according to Federal Reserve data released last week. That compares with outflows of $59 billion in 2008, and accounts for the biggest inflows for the industry since $172 billion in 2004. “It has paid off very nicely,” said Judy Greffin , chief investment officer for Allstate Corp. , whose corporate-debt holdings swelled by 20 percent last year to $33.1 billion. “With the benefit of hindsight, I would have loved to have bought more.” A corporate-debt rally helped insurers including MetLife Inc. and Prudential Financial Inc. to recover capital lost in the housing and stock market slumps of 2008 and early 2009. Life insurer inflows were more than eight times those of property- casualty companies in 2009. Buffett, the property-casualty industry’s most visible executive, lamented that he didn’t invest enough in the debt. Corporate and municipal bonds “were ridiculously cheap relative to U.S. Treasuries” in early 2009, Buffett, Berkshire Hathaway Inc.’s chief executive officer, said in an annual letter to investors on Feb. 27. “Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.” 2009’s Returns Returns on corporate debt including reinvested interest totaled 26 percent last year after an 11 percent loss in 2008, according to Merrill Lynch’s U.S. Corporate & High Yield Master index. Life insurers may spend as much as $100 billion on corporate debt in the next 18 months, Barclays Capital credit strategists Matthew Mish and Alex Gennis wrote in a March 12 report. Allstate, the biggest publicly traded U.S. home and auto insurer, cut back on commercial real estate and municipal bonds to buy corporate bonds. Of the $100 billion portfolio managed by Greffin, almost a third was corporate debt as of Dec. 31. “If you don’t like credit risk, you should not own our stock,” Tom Wilson , CEO of the Northbrook, Illinois-based company, said in an interview in August. Insurers were joined in the market by mutual funds, which had $144 billion in inflows last year. Households and nonprofit organizations had $149 billion in outflows, and foreign banking offices in the U.S. had $156.9 billion of outflows, according to the Fed’s report. The Fed data for corporate debt includes some asset-backed securities. MetLife MetLife acquired corporate debt last year even as it wrote down the value of existing holdings. Its $358 million in corporate-debt impairments in the first quarter of 2009 accounted for almost half of the firm’s total credit-related writedowns in the period. The New York-based company had net losses in the first three quarters last year, and after each period CIO Steven Kandarian reiterated to investors that he was buying more corporate debt. The extra yield investors demand to own U.S. corporate debt instead of Treasuries fell 520 basis points last year, a record rally in spreads, Merrill data show. Spreads were at 262 basis points as of yesterday, compared with 797 basis points a year earlier. Life insurers, which can hold policyholder premiums for decades before paying claims, need to earn returns on those funds to pay workers, remunerate investors and ultimately satisfy customers. Companies that were shut out of debt markets during the credit freeze returned to selling bonds in 2009 as demand strengthened. Firms issued $1.2 trillion of dollar-denominated bonds in 2009, according to data compiled by Bloomberg. That’s the most since at least 1999, and a 42 percent jump from 2008, when Lehman Brothers Holdings Inc.’s bankruptcy prompted investors to withhold debt financing. “This trend could continue as long as this asset class makes sense,” said Rajeev Sharma , who oversees $1.4 billion of investment-grade debt at First Investors Management Co. in New York. “So far, corporate credit is still the asset class of choice.” To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net ; Andrew Frye in New York at afrye@bloomberg.net .

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India Unexpectedly Raises Interest Rates After Inflation Hit 16-Month High

by on March 19, 2010

By Cherian Thomas March 19 (Bloomberg) — India’s central bank unexpectedly raised interest rates for the first time since July 2008 after inflation accelerated to a 16-month high. The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The surprise decision comes a month before the bank’s scheduled monetary policy meeting. India and China, the world’s fastest-growing major economies, are withdrawing stimulus steps as stronger consumer demand stokes inflation and asset bubbles. Governor Duvvuri Subbarao’s move came after Prime Minister Manmohan Singh ’s top economic advisers this week described the current inflation rate as “worrying” and “unacceptable.” “The growth trend has been persistently surprising on the upside,” Chetan Ahya , the Singapore-based regional economist at Morgan Stanley, said before the report. “We believe this quick pace of recovery has lifted capacity utilization rates closer to full – warranting quick action by the central bank.” Subbarao, who is scheduled to announce policy on April 20, moved today after India’s industrial production gained 6.7 percent in January following a 17.6 percent increase in December from a year earlier, the fastest pace since at least 1994, according to Bloomberg data. The benchmark wholesale-price inflation rate touched 9.89 percent in February, according to the commerce ministry. ‘Significantly Behind’ “The policy authorities have fallen significantly behind the curve and need to act much more aggressively than they have so far to clamp down on underlying inflation,” Robert Prior- Wandesforde , a Singapore-based economist at HSBC Holdings Plc. said before today’s announcement. “The Indian economy is further advanced in the economic cycle than most people believe.” India’s $1.2 trillion economy, the biggest after Japan and China, may expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the Finance Ministry said in February. Inflation has returned to Asia as growth accelerates amid the global economic recovery. Consumer prices in China rose to a 16-month high of 2.7 percent in February from a year earlier as industrial production grew 20.7 percent in the first two months of 2010, the most in more than five years. Factory output in Malaysia rose 12.7 percent in January. ‘Financial Imbalances’ Malaysia increased its overnight policy rate, saying it wants to avoid “financial imbalances.” China ordered banks to set aside more deposits as cash last month for a second time while India raised its cash reserve ratio to 5.75 percent from 5 percent in January. Consumer demand may strengthen further in Asia’s third- largest economy as Hewitt Associates Inc. expects salaries in India to grow at the fastest pace in Asia Pacific in 2010. Prospects of demand exceeding current capacity in India prompted Honda Motor Co., the world’s biggest motorcycle maker, to say this month that it will invest about 8.9 billion yen ($98 million) to build a second motorcycle plant in the country. To contact the reporter on this story: Cherian Thomas in Bangalore at Cthomas1@bloomberg.net

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India Unexpectedly Raises Interest Rates After Inflation Hit 16-Month High

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Bank of Japan’s Loan Program May Resound More With Government Than Economy

March 17, 2010

By Mayumi Otsuma and Aki Ito March 18 (Bloomberg) — The Bank of Japan’s decision to double the size of a liquidity program for banks may prove more effective in placating the government than stemming deflation. The bank yesterday increased its three-month lending facility for banks to 20 trillion yen ($221 billion), a “monetary easing” that may help reduce borrowing costs and bolster corporate sentiment, Governor Masaaki Shirakawa said at a Tokyo press briefing. There’s little sign that the initial effort helped the economy: bank lending has fallen for three straight months, prices tumbled by a record and wages dropped. Where the initiative did win plaudits is among politicians — Prime Minister Yukio Hatoyama , facing a July parliamentary upper house election as his poll numbers subside, welcomed the move. “You can provide liquidity to banks but they don’t have to lend,” Joseph Stiglitz , the Columbia University economist and Nobel laureate, said in an interview when asked whether the BOJ is doing enough to defeat deflation. Central banks in Japan and the U.S. “have to rethink the fundamentals” and work with governments to force banks to extend more credit, he said. Japan is in a type of “liquidity trap” where extra cash injections may not have much impact, according to Stiglitz, 67, a former White House Council of Economic Advisers chairman. Companies from Toshiba Corp. to Sony Corp. are refraining from boosting their capital spending even after Japan’s economy pulled out of its worst recession in the postwar era. Avoided ‘War’ The BOJ’s move is “a signal of cooperation, but it’s not effective expansionary monetary policy” because demand remains too low for companies to increase investment, said Martin Schulz , senior economist at Fujitsu Research Institute in Tokyo. Hatoyama “is under extreme pressure going into the election, and it would be a declaration of war toward the government” had the central bank done nothing, he said. The policy board also kept the benchmark overnight lending rate at 0.1 percent. The yen weakened after the decision and stocks climbed. Japan’s currency traded at 90.60 late yesterday in Tokyo from 90.37 before the announcement. The Nikkei 225 Stock Average rose 1.2 percent, taking its gains this month to 7.1 percent. The government may keep pressing the BOJ to do more, and next month offers a fresh opportunity to take additional steps. The bank will have updated economic projections and quarterly surveys of business and household confidence. Yesterday’s decision left monthly government bond purchases at 1.8 trillion yen, and the term of the loan program for banks at three months. Government Praise Hatoyama told reporters yesterday that he hopes the central bank will take action to defeat deflation, and that the BOJ’s step was in line with what the Cabinet anticipated. Finance Minister Naoto Kan said the decision shows the bank is “stepping up efforts to fight deflation.” Kan has been leading calls for monetary action as his ability to inject fiscal stimulus is constrained by record public debt . Shirakawa, for his part, said yesterday that “monetary policy alone can’t beat deflation.” “I wish there was a miracle, but all we can do is persist with our efforts” to reverse the drop in prices, which will “take time,” the governor said. Shirakawa’s next move may be to extend the period of the loans to six months or a year, said Yasunari Ueno , chief market economist at Mizuho Securities Co. in Tokyo. Other options include increasing the sovereign bond purchases, specifying conditions needed for ending the current monetary policy, and adopting an inflation target, a measure that Kan has been pushing for. ‘Trigger Point’ A price target would “put out a trigger point for inflation, and until we get there” the central bank should keep adding cash to the banking system, said Robert Feldman , head of economic research at Morgan Stanley in Tokyo. Board members Miyako Suda and Tadao Noda opposed yesterday’s credit expansion. Both said in the past month that they expect the economy to keep improving, and Noda said further monetary easing would have limited impact because short-term interest rates are already very low. Yields on three-month discount bills issued by the government were unchanged at 0.12 percent yesterday, according to Bloomberg data. Deflation persists even as the export-led recovery gains momentum. The gross domestic product deflator , a broad measure of prices, tumbled a record 2.8 percent in the fourth quarter. Consumer prices slid for 11 straight months to January, while factory output climbed in the same period — increases that haven’t been enough to prompt companies to expand . Toshiba, Sony Toshiba plans to slash capital spending by 41 percent this fiscal year, the company said in January. Sony said last month that capital investment for this fiscal year will probably be 34 percent less than a year earlier. Not all analysts say the bank’s action will be fruitless. “The headlines about further monetary easing might help to keep inflation expectations positive,” said Julian Jessop , chief international economist at Capital Economics Ltd. in London. The move “should also maintain the weaker bias in the yen, especially when other major central banks are perceived to be heading for the exit.” To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net ; Aki Ito in Tokyo at aito16@bloomberg.net

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For a Head Start on China’s GDP Growth, Study Power Output: Chart of Day

March 17, 2010

By Lars Paulsson March 17 (Bloomberg) — Investors looking for an early indication on expansion in China, the world’s third-biggest economy, can study the latest power production, which signals “robust growth,” Standard Bank Plc said. The CHART OF THE DAY shows quarterly growth in gross domestic product reaching a two-year high of 10.7 percent last quarter, tracking rising electricity output since the start of 2009 as Chinese power generation climbed to a record 349.8 billion kilowatt-hours in December, according to the National Bureau of Statistics. “You don’t need to wait three to four months before the actual GDP numbers come out,” Walter de Wet , a commodities analyst at the bank, said in a phone interview from London. “You can just look at electricity. It is certainly timely and an indication of what’s happening in the real economy.” January’s power output of 339.4 billion kilowatt-hours, near December’s record, signals continued strong economic growth in China, de Wet said. The decline in February was because of the Lunar New Year holidays when China’s factories shut for a week, curbing energy demand, he said. Still, it gained 10.1 percent from a year earlier, which was unaffected by the holiday shutdown as that fell in the last week of January. China’s economy is forecast to expand 9.6 percent this year, up from 8.7 percent in 2009, according to a survey of 22 economists by Bloomberg in January. (To save a copy of the chart, click here.) To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net

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Fed Will Keep Rate Low for `Extended Period’

March 16, 2010

By Craig Torres and Scott Lanman March 16 (Bloomberg) — Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month. While the economy has “continued to strengthen,” policy makers noted that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.” Treasuries and stocks extended gains as some traders trimmed bets the central bank will raise interest rates over the next 12 months. Fed Chairman Ben S. Bernanke is trying to determine how long to hold down borrowing costs to generate a self-sustaining recovery from the worst slump since the 1930s. “The recovery continues and remains on track to be subpar, at best,” said Diane Swonk , chief economist at Mesirow Financial in Chicago. “Businesses are finally stepping up to the plate and spending their cash flow, but the housing market and prospects for a broader-based recovery remain dim.” The yield on the 10-year note Treasury note fell five basis points, or 0.05 percentage point, to 3.65 percent at 3:44 p.m. in New York. The Standard & Poor’s 500 Index climbed 0.7 percent to 1,158.51. The June 2011 eurodollar contract rose three basis points to 98.475. An earlier report from the Commerce Department showed that housing starts fell 5.9 percent in February, hampered by snowstorms in some parts of the country, and Obama administration officials told a congressional hearing that unemployment is likely to “remain elevated for an extended period.” Growth Outlook The economy will probably grow by 2.8 percent in the first quarter of 2010, according to the median estimate of a Bloomberg News survey of economists this month, after a 5.9 percent pace of expansion in the fourth quarter of 2009 that got a boost from a slower pace of inventory reductions. Policy makers are “still a little concerned about the handoff from the swing in the inventory cycle and fiscal policy to private final demand,” said Michael Feroli , an economist at JPMorgan Chase & Co. in New York. Fed officials repeated that their program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability,” the FOMC statement said. Retail Sales Retail sales unexpectedly climbed in February, consumer borrowing rose in January for the first time in a year and commercial mortgage-backed bond returns are accelerating. Meanwhile, the Fed’s preferred gauge of inflation, which excludes food and energy, has stayed tame. Thomas Hoenig , president of the Kansas City Fed, dissented for the second straight meeting and said “that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability,” the statement said. The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then. Job Losses Economic growth is helping to stanch job losses. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October. The U.S. may add as many as 300,000 jobs this month, the most in four years, said David Greenlaw , chief fixed- income economist at Morgan Stanley in New York. The unemployment rate was unchanged at 9.7 percent in February. “Things are definitely getting better,” Jeffrey Immelt , chief executive officer of General Electric Co., said at a conference on March 11 in Washington. “The credit markets are much improved. Most indicators are firming or heading up.” “But there’s a long road ahead,” with high unemployment and “big structural issues” in the economy, said Immelt, who is also a member of the New York Fed board. Borrowers raised a record $1.24 trillion in the U.S. corporate bond market last year, according to data compiled by Bloomberg. While down from that pace, issuance this year remains elevated, with $248.3 billion raised. Extra Yield The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 267 basis points, or 2.67 percentage points, from the peak during the credit crisis of 888 basis points in December 2008, according to Bank of America Merrill Lynch indexes. The narrower spread represents annual interest savings of about $60 million for every $1 billion of bonds sold. Inflation is showing little sign of taking off. The Fed’s preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long- run range of 1.7 percent to 2 percent policy makers want for total inflation. Policy makers believe the risk of inflation is low, with some still worried about deflation. Inflation expectations have remained stable in recent months, even with the excess capacity in the economy. Readings on one year-ahead inflation expectations tracked by the Thomson Reuters University of Michigan Survey have averaged 2.7 percent for the past six months, compared with 2.8 percent for the prior six months. Labor Costs Officials may also be concerned about the falling cost of labor , said Marvin Goodfriend , a former research director at the Richmond Fed. Labor costs dropped at a 5.9 percent pace in the fourth quarter, according to a report earlier this month. “Today we cannot say we’re past the period of risk of deflation in unit labor costs,” said Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. In recent months, the scheduled end this month to Fed purchases of mortgage debt has prompted little change in mortgage rates. The rate for 30-year fixed mortgages fell to 4.95 percent for the week ended March 11 from 4.97 percent, compared with a record low of 4.71 percent in December. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, falling 7.2 percent to an annual pace of 5.05 million, the National Association of Realtors said Feb. 26. To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net ; Scott Lanman in Washington at slanman@bloomberg.net .

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China’s Unexpectedly High Inflation Hasn’t Altered Policy Plans, Zhou Says

March 14, 2010

By Bloomberg News March 14 (Bloomberg) — China’s higher-than-expected inflation data hasn’t altered the central bank’s policy plans, bank Governor Zhou Xiaochuan said today. The central bank’s interest rate stance is mainly based on the outlook for inflation and changes in the overall economy rather than published numbers, Zhou told reporters at a session of parliamentary meetings held in Beijing. He didn’t elaborate on details of his policy plans. Consumer prices jumped 2.7 percent in February from a year earlier, exports surged 46 percent and industrial output gained the most in more than five years, government data showed in the past week. Economists from Goldman Sachs Group Inc, Deutsche Bank AG and JPMorgan Chase & Co. said the risks of overheating are building in the world’s third-largest economy and the central bank should raise interest rates as early as this month. It’s “extremely difficult” to balance growth, inflation management and the need to reform economic models, Premier Wen Jiabao said at a news conference today. Inflation, income disparity and corruption combined could cause social unrest and political instability, Wen added. Economic data, including inflation, “are a bit higher than our forecasts, but not much higher, and we can still act according to our plans,” Zhou said. “Raising rates is connected to inflation figures, but from the central bank’s perspective, it’s not mainly based on data that have already come out.” Inflation Rate February’s inflation rate was in part caused by spending during the Lunar New Year holiday, and the year-on-year rate may slow this month, Ma Jiantang , head of the National Bureau of Statistics told reporters at the same meeting today. “It’s still hopeful” that the government can achieve its target to contain inflation to around 3 percent in 2010, Ma added. Zhou reiterated today that monetary policy must be “preemptive.” In drafting policies, “we need data forecast in advance, because monetary policy has a fairly long lag — it takes a time lag of a few months or even one year for money supply to work into the economy,” Zhou said. Policy makers “must practice utmost prudence and also exercise flexibility” in managing the economy this year, Wen said today at the end of the parliamentary meetings. To maintain “appropriate and sufficient liquidity,” to keep interest rates at “reasonable” levels and to effectively manage inflation expectations are key objectives of monetary policies, Wen added. Policy Stance While reaffirming a “moderately loose” monetary policy stance for 2010 to avoid any “setback” to the economic rebound, Wen said policies will be kept flexible “should circumstances change.” It is “essential” that the timing of any policy moves is appropriate, Wen added. China’s economic growth rate quickened to 10.7 percent last quarter, the fastest pace since 2007, driven by a record 9.59 trillion yuan ($1.4 trillion) of new loans last year and 4 trillion yuan, two-year stimulus spending on railways, airports and homes. Monthly inflation may climb to a peak of 4.4 percent during this year and the full-year rate will probably be at 3.4 percent, according to economists’ median forecast in a Bloomberg News survey last week. Policies to tackle the financial crisis will end “sooner or later,” Zhou said on March 6, adding that policy makers will be cautious on the timing. The central bank has asked lenders to set aside more money as reserves twice this year and aimed for lower loan growth of 7.5 trillion yuan in 2010. Bank loans slowed to 700 billion yuan last month, after lending surged in January more than the previous three months combined, central bank data showed. Growth of the broadest measure of money supply, or M2 , slowed for a third month to 25.5 percent in February from a 29.6 percent gain in November, the quickest pace in more than a decade, government data show. — Li Yanping , Zhang Dingmin . Editors: Malcolm Scott , Mike Millard. To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net Dingmin Zhang in Beijing at +86-10-6649-7576 or dzhang14@bloomberg.net

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U.S. Economy: Sales Rise as Buyers Overcome Snow, Job Concerns

March 12, 2010

By Bob Willis and Courtney Schlisserman March 12 (Bloomberg) — Americans braved blizzards and overcame job concerns to propel retail sales in February, pointing to a broadening in growth that will help sustain the expansion. Purchases unexpectedly climbed 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington. Another report showing consumer sentiment dropped in March for the second consecutive month represented a risk to the improvement in sales. “The spending numbers look pretty impressive, especially considering they must have been held down a little at least by the snowstorms,” said James O’Sullivan , global chief economist at MF Global Ltd. in New York. “It adds to evidence that the recovery is gathering pace.” Macy’s Inc. was among retailers that beat estimates last month as customers bought Valentine’s Day gifts and spring merchandise, indicating consumers will contribute more to the economy in coming months. The loss of 8.4 million jobs since the recession began in December 2007 and mounting foreclosures have shaken confidence, one reason some analysts anticipate households will not lead the economic rebound. The Reuters/University of Michigan preliminary report for March showed its index fell to 72.5 from a final reading of 73.6 in February. The index was forecast to rise to 74, according the median estimate in a Bloomberg News survey of 68 economists. Jobs, Spending “Spending will be holding up relatively well for the remainder of this year but it is not going to come roaring back until we get the jobs necessary to lower the unemployment rate,” said Ryan Sweet , an economist at Moody’s Economy.com in West Chester, Pennsylvania. Stocks fluctuated between gains and losses as the unexpected drop on confidence offset the gain in sales. The Standard & Poor’s 500 Index fell 0.1 percent to 1,148.80 at 12:34 p.m. in New York. The S&P Supercomposite Retailing Index climbed 0.3 percent. Retail sales were projected to fall 0.2 percent, according to the median estimate of 77 economists in a Bloomberg survey. Forecasts ranged from a decline of 1 percent to a 0.9 percent gain. The Commerce Department revised January data down to show a 0.1 percent increase compared with an originally reported 0.5 percent gain. Sales excluding autos rose 0.8 percent, exceeding all estimates of economists surveyed. Not ‘Disruptive’ “The storms were apparently not quite as disruptive as anticipated,” said Adam York , an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, whose forecast for a 0.6 percent gain excluding autos was the highest of those surveyed. “As we start adding jobs in the spring, employees will gain income and hours and retail sales should follow.” Inventories at U.S. businesses were little changed in January as sales climbed, signaling companies may need to increase orders to prevent shelves from emptying, other figures from the Commerce Department showed today. Excluding autos, gasoline and building materials — the retail group the government uses to calculate gross domestic product figures for consumer spending — sales increased 0.9 percent after a 0.6 percent gain, today’s sales report showed. The government uses data from other sources to calculate the contribution from the three categories excluded. Ten of 13 major categories showed increases in sales last month, led by electronics and appliances stores, and grocery stores. Receipts at bars and restaurants climbed 0.9 percent, the most since April 2008. Spending Broadens “Consumers are becoming comfortable with spending for what they want, not just what they need,” Christopher Low , chief economist at FTN Financial in New York, said in a note to clients. “This isn’t the bare bones spending on necessities we saw through much of last year.” TJX Corporation Inc ., an off-price apparel chain, last week reported a 16 percent sales increase in the four weeks ended Feb. 27 from a year earlier. “We achieved these sales despite the harsh snowstorms that affected many regions in the country,” said Sherry Lang , vice president for investors, in a teleconference on March 4. “The month ended on a stronger note than we had anticipated.” Auto sales weakened, dropping 2 percent after decreasing 1.5 percent in January. The storms that pushed seasonal snowfall totals to records in parts of the eastern U.S. made some dealers lots impenetrable, while a recall by Toyota Motor Corp . may have also hurt auto demand. Payroll Data Figures last week that showed the economy lost fewer jobs than anticipated last month signal employment is on the verge of accelerating, a development that would spur spending in coming months. The Labor Department reported March 5 the economy lost 36,000 jobs in February, including job losses caused by the blizzards. The unemployment rate held at 9.7 percent for a second month, indicating the labor market is stabilizing. The storms probably had less impact on sales than payrolls, economists said. The government sales figures represent data over the entire month while the employment figures are based on surveys that reflected employment during the week of one of the snowstorms. The sales figures are “a good reason to feel more confident that payrolls fell in February only because of the snowstorm,” said FTN’s Low. Economists at Morgan Stanley in New York are among those anticipating employment will jump by about 300,000 this month. To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net ; Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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Retail Sales in U.S. Unexpectedly Rose in February as Shoppers Braved Snow

March 12, 2010

By Bob Willis March 12 (Bloomberg) — Sales at U.S. retailers unexpectedly climbed in February as shoppers braved blizzards to get to the malls, signaling consumers will contribute more to economic growth. Purchases increased 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington. Figures for the prior two months were revised down, taking some of the shine off of today’s data. Sales excluding autos rose 0.8 percent, exceeding all estimates. A report last week showing the economy lost fewer jobs than anticipated in February signaled employment is on the verge of accelerating, a development that would spur spending in coming months. Macy’s Inc. was among retailers that beat estimates last month as customers overcame the weather to shop for Valentine’s Day gifts and spring merchandise, a sign the expansion is broadening beyond manufacturing. “The storms were apparently not quite as disruptive as anticipated,” said Adam York , an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, whose forecast for a 0.6 percent gain excluding autos was the highest of those surveyed. “As we start adding jobs in the spring, employees will gain income and hours and retail sales should follow.” Stocks reversed gains after a separate report showed consumer sentiment unexpectedly declined this month. The Standard & Poor’s 500 Index fell 0.2 percent to 1,148.19 at 10:12 a.m. in New York after rising as much as 0.3 percent. Consumer Sentiment The Reuters/University of Michigan preliminary index of consumer confidence fell to 72.5 in March from a final reading of 73.6 a month earlier. The index was forecast to rise to 74, according the median estimate in a Bloomberg News survey of 68 economists. Inventories at U.S. businesses were little changed in January as sales climbed, signaling companies may need to increase orders to prevent shelves from emptying, the Commerce Department reported today. Retail sales were projected to fall 0.2 percent, according to the median estimate of 77 economists in a Bloomberg survey. Forecasts ranged from a decline of 1 percent to a 0.9 percent gain. The Commerce Department revised January data down to show a 0.1 percent increase compared with an originally reported 0.5 percent gain. Purchases excluding autos were projected to increase 0.1 percent, according to the survey median. GDP Figures Excluding autos, gasoline and building materials — the retail group the government uses to calculate GDP figures for consumer spending — sales increased 0.9 percent after a 0.6 percent gain. The government uses data from other sources to calculate the contribution from the three categories excluded. Ten of 13 major categories showed increases in sales last month, led by electronics and appliances stores, and grocery stores. Purchases of electronics climbed 3.7 percent, the biggest gain since January 2009. Receipts at bars and restaurants climbed 0.9 percent, the most since April 2008. Auto sales dropped 2 percent after decreasing 1.5 percent in January. The storms that pushed seasonal snowfall totals to records in parts of the eastern U.S. made some dealers lots impenetrable, while a recall by Toyota Motor Corp . may have also hurt auto demand. Chain Stores Chain stores turned in a better-than-forecast performance last month, compared with a low point last year, industry figures showed last week. Macy’s Inc., Abercrombie & Fitch Co. and Gap Inc. beat analysts’ estimates in February as holiday sales tempted consumers to go shopping in a month of record snowfalls. February comparable-store sales climbed 4.1 percent, topping the Retail Metrics 3 percent estimate. It was the sixth straight monthly gain and the biggest in 27 months. Purchases fell 4.1 percent in February 2009, Ken Perkins , president of Swampscott, Massachusetts-based Retail Metrics, said last week. TJX Corporation Inc ., an off-price apparel chain, reported a 16 percent sales increase in the four weeks ended Feb. 27 from a year earlier. “We achieved these sales despite the harsh snowstorms that affected many regions in the country,” said Sherry Lang , vice president for investors, in a teleconference on March 4. “The month ended on a stronger note than we had anticipated.” Figures last week that showed the economy lost fewer jobs than anticipated last month signal employment is on the verge of accelerating, a development that would spur spending in coming months. Job Losses The Labor Department reported March 5 the economy lost 36,000 jobs in February, even accounting for job losses caused by the blizzards. The unemployment rate held at 9.7 percent for a second month, indicating the labor market is stabilizing. Consumer spending rose at a 1.7 percent annual pace in the first quarter, the government reported last month. Economists surveyed by Bloomberg last week forecast growth to average 2.25 percent in the first half, compared with the 3.3 percent average during the two decades through 2007. Households are still trying to overcome a record loss of wealth during the recession as home values and stock prices plunged, reasons why spending will be slow to recover. The economy grew at a 5.9 percent annual pace in the fourth quarter, the strongest showing in more than six years as companies tried to stabilize inventories, the government reported last month. Economists surveyed by Bloomberg this month forecast growth will slow to 2.8 percent in this quarter. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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BHP, Anglo, Xstrata Bypass Europe on 10,000-Mile Coal Route to China Ports

March 12, 2010

By Heather Walsh March 12 (Bloomberg) — BHP Billiton Plc , Anglo American Plc and Xstrata Plc are shipping coal 10,000 miles to China from their Cerrejon mine in Colombia for the first time this year because of surging demand and rising prices in Asia. Cerrejon, the world’s largest open-pit mine of coal for export, started sending coal shipments through the Panama Canal to China after prices became “much better” than those in Europe, Leon Teicher, the venture’s chief executive officer, said in an interview. Cerrejon may also make its first sales to India this year, he said. China’s accelerating economic growth is stoking demand for coal to fuel power plants and steel mills. Prices 45 percent higher than in Europe make it worthwhile to transport the fuel to ports that are twice as far as European harbors such as Rotterdam. China’s coal imports tripled last year to 126.6 million metric tons, according to the China General Administration of Customs. “There is a transition,” Teicher said in a March 10 interview in Bogota. “Prices in the Pacific are much higher than they have ever been relative to Europe.” Thermal coal used by power utilities climbed 22 percent over the 12 month through March 5 to $107.7 in Qinhuangdao, a port in northeastern China, from $88 a year earlier, according to data from McCloskey Group Ltd. The price was 45 percent higher than the $74.4 per ton for coal delivered to northwestern Europe. Chinese Growth China will be a net importer of coal this year even as its own production climbs, Teicher said. The Asian nation’s gross domestic product expanded 10.7 percent last quarter, the fastest since 2007. Last week, central bank Governor Zhou Xiaochuan said policies aimed at stimulating the economy must end “sooner or later.” “I don’t believe that China is a bubble,” Teicher said. “China has arrived.” Production at Cerrejon , located on the northeastern edge of Colombia, will rise to 31 million to 32 million tons of coal this year, after falling last year as demand waned in Europe, he said. BHP, Anglo American and Xstrata each own a third of the mine. Annual output capacity may be expanded to 40 million tons at a cost of $800 million to $1 billion once “the market will take that expansion,” Teicher said. “Right now is not yet the time.” Last year, Cerrejon sold most of its coal to Europe, the U.S. and Latin America. Demand in Asia will help maintain the price of the fuel and may lead to gains, he said. To contact the reporter on this story: Heather Walsh in Bogota at hlwalsh@bloomberg.net .

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Treasury Yield Curve Near Record Adds to Demand at Bond Auction

March 11, 2010

By Cordell Eddings and Susanne Walker March 11 (Bloomberg) — Treasury 30-year bonds gained as one of the biggest yield premiums over 2-year government securities on record bolstered demand at today’s U.S. auction of $13 billion in bonds. Most U.S. stocks fell as higher-than-estimated inflation in China spurred speculation the nation will be forced to raise interest rates while technology companies and banks rallied. The dollar was mixed against most major currencies as the U.S. trade deficit unexpectedly narrowed in January, raising concern that global growth may slow, diminishing the appeal of higher- yielding assets. Investors are seeking higher interest rates on long-term U.S. government debt as President Barack Obama borrows record amounts to sustain the recovery. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.89 at today’s bond sale, the highest level since September. “Insurers, pension funds and other investors continue to buy the 30-year because of its outright yield and it relative value attractive against the short-end given the inflation and economic pictures,” said Thomas Tucci, head of U.S. government bond trading in New York at the Royal Bank of Canada, one of the 18 primary dealers required to bid at Treasury auctions. “There is just little value in the front end versus the long bond.” The 30-year bond yield fell 2 basis points, 0.02 percentage point, to 4.67 percent at 1:54 p.m. in New York, according to data compiled by Bloomberg. The yield had climbed as high as 4.72 percent prior to the auction. The 4.625 percent security due February 2040 rose 10/32, or $3.13 per $1,000 face amount, to 99 8/32. Yield Curve Thirty-year bonds yield 3.76 percentage points more than two-year notes. The gap reached 3.85 percentage points on Feb. 17, the most since at least 1980, according to data compiled by Bloomberg. “People are looking at the spread,” said William Larkin, a fixed-income portfolio manager in Salem, Massachusetts at Cabot Money Management, which manages $500 million. “The spread is so narrow on a lot of issues. The safety makes a lot of sense if you believe inflation will stay flat.” Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. The trade gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April. Separate data showed initial claims for U.S. jobless benefits fell by 6,000 to 462,000 last week. Risk Currencies “If you look behind the trade numbers, exports and imports both fell,” said Kathy Lien, director of currency research, with online currency trader GFT Forex, in New York. “The contraction in imports and exports does not play into the growth story. That’s why risk currencies are selling off and the dollar is rising.” The New Zealand dollar slid 0.2 percent to 70.07 U.S. cents. The greenback weakened 0.1 percent to $1.3672 per euro, compared with $1.3657 yesterday. The dollar traded at 90.58 yen from 90.52. The S&P 500 fell 0.1 percent to 1,144.48, while the Dow Jones Industrial Average was little changed at 10,565.37. Chinese Inflation China’s consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said in Beijing, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Production rose 20.7 percent in the first two months of 2010, the most in more than five years. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of expectations for gains in consumer prices known as the breakeven rate, widened to 2.26 percentage points today, from 2.18 points a week ago. The average over the past five years is 2.16 percentage points. Germany’s 10-year breakeven rate is 1.83 percentage points. Today’s auction of 30-year debt followed a sale of $21 billion of 10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of three-year notes on March 9. The 30-year securities drew a yield of 4.679 percent, compared with an average forecast of 4.702 percent in a Bloomberg News survey of 9 of the Federal Reserve’s 18 primary dealers. Direct bidders, non-primary dealers that place their bids directly with the Treasury, bought 29.6 percent, the highest since at least February 2006. “The yield pick-up extending out the curve is attractive at these levels,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “Real money will go to work on the long end of the Treasury market. The range that has held on the long end is reflective of the benign inflation environment at the moment.” To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net ; Susanne Walker in New York at swalker33@bloomberg.net

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Inflation Eroding China’s Bank Deposits Signals Zhou Must Increase Rates

March 11, 2010

By Bloomberg News March 12 (Bloomberg) — China’s inflation rate outstripped returns on household savings for the first time in 16 months, making it harder for officials to damp rising expectations for price gains. Consumer prices rose a more-than-forecast 2.7 percent in February, the fastest pace in 16 months, the statistics bureau said in Beijing yesterday. The number, probably boosted by seasonal factors, compares with a benchmark one-year deposit rate of 2.25 percent. Chinese policy makers aim to prevent the world’s fastest- growing major economy from overheating after reports showed exports rebounded, industrial production accelerated and new loans exceeded forecasts. Central bank Governor Zhou Xiaochuan may raise interest rates as early as in the next three weeks, Standard Chartered Bank Plc, Nomura Holdings Inc. and Royal Bank of Canada said after this week’s data. February’s inflation number “will increase the social and political pressure for a rate hike in the near term,” said Ma Jun , chief China economist at Deutsche Bank AG in Hong Kong. “A growing number of households will now realize that their deposits in the banking system are losing purchasing power.” Since October, the government has highlighted the importance of managing inflation expectations as the nation rebounds from the global financial crisis and commodity costs rise. Eleven out of 15 economists surveyed yesterday said that interest rates may rise in March or April. Barclays Capital yesterday increased its projection for China’s inflation rate this year to 3.5 percent from a previous estimate of 3 percent. ‘Sooner or Later’ Premier Wen Jiabao aims to hold full-year inflation around 3 percent after banks flooded the financial system with money to drive an economic rebound. Gross domestic product grew 10.7 percent last quarter and Zhou said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” Inflation above deposit rates may encourage people to spend, fueling gains in consumer and asset prices, said Brian Jackson , an emerging-markets strategist at Royal Bank of Canada in Hong Kong. He said last month’s 35 percent gain in M1, the measure of money supply that includes demand deposits, signals households’ intentions to buy “big-ticket items,” property or stocks. Lu Ting , an economist at Bank of America-Merrill Lynch in Hong Kong, said that year-on-year inflation numbers may be misleadingly high because of low bases for comparison and seasonal distortions. He said month-on-month and quarter-on- quarter calculations would show milder price gains, with bank deposits still giving positive returns. Snow Storms Inflation may slow in March on improved weather after snow and storms pushed up food costs at the start of the year, statistics bureau spokesman Sheng Laiyune told reporters at a briefing in Beijing yesterday. Food prices rose 6.2 percent in February from a year earlier. The data released yesterday showed that China’s industrial output rose 20.7 percent in the first two months of 2010, the most in more than five years. Banks extended 700 billion yuan ($103 billion) of new loans in February, central bank said. That compared with 1.39 trillion yuan in the previous month and 1.07 trillion yuan a year earlier. The median estimate was 600 billion yuan. M2 , a broad measure of money supply, rose 25.5 percent, compared with a 26 percent gain in January. The government target is 17 percent growth this year. Retail sales rose 17.9 percent in the first two months from a year earlier, and urban fixed-asset investment gained 26.6 percent. Rebounding Exports Trade data on March 10 showed exports rebounding faster than economists forecast and a property-market report said prices climbed in February by the most in almost two years. Economists often look at January and February numbers together to eliminate distortions caused by a one-week Lunar New Year holiday. China’s 2010 data is also boosted by comparisons with year-earlier levels depressed by the financial crisis. Commodity costs, reforms of China’s energy and resource pricing, and the effects of last year’s expansion of credit may add to inflation pressures this year, China’s top planning agency told lawmakers last week. Baoshan Iron & Steel Co. and spirits manufacturer Kweichow Moutai Co. are among companies to have pushed up prices. Producer-price inflation climbed to 5.4 percent in February from 4.3 percent in January, the statistics bureau said yesterday. Pegged Currency The People’s Bank of China hasn’t raised benchmark interest rates since December 2007, before the financial crisis deepened. The one-year lending rate is 5.31 percent. China has also effectively pegged the yuan at about 6.83 per dollar since July 2008 to help exporters. Non-deliverable yuan forwards rose for a sixth day yesterday, indicating that traders expect that the peg will break and the currency will gain 2.9 percent in the next year. The central bank has twice raised lenders’ reserve requirements this year. Deputy Governor Su Ning said this week that those moves were to prevent monetary conditions becoming “excessively loose” as the government continues to implement what it describes as a “moderately loose” stance. Policy makers are targeting lending of 7.5 trillion yuan, 22 percent less than last year’s actual figure, and pledging to crack down on property speculation. The government has tightened second-home mortgages and banks have reduced discounts on home- loan rates. — Li Yanping , Kevin Hamlin , Zhang Dingmin . Editors: Paul Panckhurst , Chris Anstey . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Most U.S. Stocks Fall on China Inflation; Banks, Technology Companies Gain

March 11, 2010

By Rita Nazareth March 11 (Bloomberg) — Most U.S. stocks fell as higher- than-estimated inflation in China spurred speculation the nation will be forced to raise interest rates while technology companies and banks rallied. Deere & Co., AK Steel Holding Corp. and Caterpillar Inc. fell more than 0.8 percent on concern that demand from China will slow, curbing the global economic recovery. Google Inc. and International Business Machines Corp. advanced more than 1 percent. Citigroup Inc. climbed following a Financial Times report that Chief Executive Officer Vikram Pandit will say the bailed-out bank may earn $20 billion within a few years. More than three companies fell for every two that rose on U.S. stock exchanges. The Standard & Poor’s 500 Index lost 0.2 percent to 1,143.78 at 12:07 p.m. in New York. The Dow Jones Industrial Average slumped 8.31 points, or 0.1 percent, to 10,559.02. “It will be slower going into risk assets,” said Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York. “People are concerned about whether or not globally there’s a little bit of a moderation in the pace of gains that we’ve seen economically speaking..” The S&P 500 surged 69 percent through yesterday during the past year, recovering most of its losses from the decline between Jan. 19 and Feb. 8. The three-week retreat was driven by concern some European countries will fail to pay back debt and speculation the Fed will need to rein in emergency stimulus measures as the economy improves. 16-Month High China’s inflation reached a 16-month high, industrial output climbed and new loans exceeded forecasts, putting pressure on the government to cool economic growth. Consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said today, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Production rose 20.7 percent in the first two months of 2010, the most in more than five years. Premier Wen Jiabao aims to hold full-year inflation around 3 percent after banks flooded the financial system with money to drive a rebound from the global recession. Gross domestic product grew 10.7 percent last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” ‘Too Far, Too Fast’ “Obviously, inflation is a concern on a global basis,” said Tom Wirth , senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “That fear gets translated into stock prices. China has led us out of the global recession. If they raise rates too far, too fast, that’s going to slow the world down. I don’t think it’s a problem right now, but there’s always an overreaction from investors.” U.S. stocks extended losses today after the nation’s trade deficit unexpectedly narrowed in January as demand for foreign oil and automobiles dropped. The S&P 500 then rebounded as technology stocks and banks rallied. The trade gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April, on fewer shipments of commercial aircraft and autos. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .

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China Inflation Quickens as Industrial Output Climbs (Update1)

March 11, 2010

By Bloomberg News March 11 (Bloomberg) — China’s inflation reached a 16- month high, industrial output climbed and new loans exceeded forecasts, adding to the case for the government to pare back stimulus measures. Consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Seasonal factors stemming from a weeklong holiday may have boosted prices. Production rose 20.7 percent in the first two months of 2010, the most in more than five years. Premier Wen Jiabao aims to hold full-year inflation around 3 percent after banks flooded the financial system with money to drive a rebound from the global recession. Gross domestic product grew 10.7 percent last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” “Inflation may top the 3 percent policy target by April, which is bound to trigger further monetary tightening,” said Dariusz Kowalczyk , chief investment strategist at SJS Markets Ltd. in Hong Kong. He sees benchmark interest rates increasing as early as this month. South Korea, Australia Stocks across the region dropped, a reflection of the sensitivity of economic expansions from Australia to South Korea to any possible tightening and slowdown in China, the world’s fastest-growing major economy. The MSCI Asia Pacific Index later rebounded on speculation that Japan’s economy is recovering. Australia’s S&P/ASX 200 Index closed down 0.1 percent and the Kospi index fell 0.3 percent. The Shanghai Composite Index swung between gains and losses before closing 0.1 percent higher. Non-deliverable yuan forwards rose for a sixth day, climbing 0.1 percent to 6.6338 per dollar, indicating that traders expect the currency to rise 2.9 percent within 12 months. Banks extended 700 billion yuan ($103 billion) of new loans in February, central bank data showed today. That compared with 1.39 trillion yuan in the previous month and 1.07 trillion yuan a year earlier. The median estimate was 600 billion yuan. M2 , a measure of money supply, rose 25.5 percent, compared with a 26 percent gain in January. The government targets 17 percent M2 growth for this year. Retail Sales Retail sales rose 17.9 percent in the first two months from a year earlier, and urban fixed- asset investment gained 26.6 percent. Retail sales grew 22.1 percent in February, the bureau said. Economists often look at January and February numbers together to eliminate distortions caused by a one-week Lunar New Year holiday. China’s 2010 data is also boosted by comparisons with year-ago levels depressed by the financial crisis. Statistics bureau spokesman Sheng Laiyun told reporters that a low base last year boosted the output number and the government doesn’t see signs of economic overheating. Inflation may slow in March on improved weather after snow and storms pushed up food costs at the start of the year, he said. Food prices rose 6.2 percent in February from a year earlier. His comments contrasted with some economists’ concern after trade data yesterday showed exports rebounding faster than economists forecast and a property-market report said prices climbed in February by the most in almost two years. ‘Decisive’ Tightening “More decisive policy tightening measures than those implemented so far are needed to prevent the economy from overheating,” said Song Yu and Helen Qiao , Hong Kong-based economists with Goldman Sachs Group Inc. The government may increase interest rates and bank reserve requirements and control investment approvals and funding, they said. Barclays Capital increased today its projection for China’s inflation rate this year to 3.5 percent from a previous estimate of 3 percent. Commodity costs, reforms of China’s energy and resource pricing, and the effects of last year’s expansion of credit may add inflation pressures this year, China’s top planning agency told lawmakers last week. Baoshan Iron & Steel Co. and spirits manufacturer Kweichow Moutai Co. are among companies to have pushed up prices. Producer-price inflation climbed to 5.4 percent in February from 4.3 percent in January, the statistics bureau said today. Benchmark Rates The central bank hasn’t raised benchmark interest rates since December 2007, before the financial crisis deepened. The one-year lending rate is at 5.31 percent and deposit rate is at 2.25 percent. China has also effectively pegged the yuan at about 6.83 per dollar since July 2008 to help exporters. The central bank has twice raised lenders’ reserve requirements this year. Deputy Governor Su Ning said this week that those moves were to prevent monetary conditions becoming “excessively loose” as the government continues to implement what it describes as a “moderately loose” stance. Policy makers are targeting lending of 7.5 trillion yuan, 22 percent less than last year’s actual figure, and pledging to crack down on property speculation. The government has tightened second-home mortgages and banks have reduced discounts on home- loan rates. — Li Yanping , Kevin Hamlin , Zhang Dingmin . Editors: Paul Panckhurst , Chris Anstey . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Foreclosures in U.S. Rise at Slowest Pace in Four Years on Obama Efforts

March 11, 2010

By Dan Levy March 11 (Bloomberg) — U.S. foreclosure filings rose at the slowest pace in four years in February as the government sought to reduce record bank seizures, RealtyTrac Inc. said. A total of 308,524 properties received a notice of default, auction or seizure last month, or one in 418 households, the Irvine, California-based seller of default data said today in a statement. Filings rose 6 percent from a year earlier, the smallest increase since RealtyTrac began tracking annual changes in January 2006. They declined 2 percent from January. The Obama administration’s main effort to keep people in their homes resulted in more than 830,000 trial loan modifications for delinquent borrowers through January, according to the Treasury Department. Still, filings were up for the 50th straight month in February on an annual basis and topped 300,000 for the 12th consecutive month, RealtyTrac said. “This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity,” RealtyTrac Chief Executive Officer James J. Saccacio said in a statement. About 116,000 mortgages have been permanently modified under the government’s program, compared with as many as 4 million targeted by December 2012. New data will be released March 15, Meg Reilly , a Treasury spokeswoman, said in an e-mail. Bank Repossessions Bank seizures are increasing the number of homes for sale. Lenders took back 78,683 properties last month, up 6 percent from February 2009 and down 15 percent from a peak in December, RealtyTrac said. More than 2 million empty homes were on the market in the fourth quarter, according to the Census Bureau. “Government programs are helping to keep more supply from coming out,” Brian Bethune , chief financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. “We’ve got a disjointed market where most of the housing supply is coming from foreclosures rather than building new homes.” Bethune predicted a “high” rate of foreclosures for at least the next 12 months. RealtyTrac expects record bank seizures this year, said Rick Sharga, executive vice president for marketing. Default notices totaled 106,208 in February, down 3 percent from a year earlier and up 3 percent from January, RealtyTrac said. Defaults peaked at more than 142,000 in April. Scheduled auctions totaled 123,633 last month, up 16 percent from February 2009 and down 1 percent from January. The peak was more than 144,000 in August. Nevada, California Nevada had the highest foreclosure rate for the 38th straight month in February, with one in 102 households receiving a filing. Arizona and Florida tied for second at one in 163 households. California ranked fourth at one in 195 households, followed by Michigan at one in 226. Utah, Idaho, Illinois, Georgia and Maryland rounded out the 10 highest foreclosure rates. The most filings were in California , with 68,562, down 15 percent from a year earlier. Florida was second with 54,032, up 16 percent, and Michigan was third at 20,028, a 59 percent rise. Illinois had the fourth-highest total filings with 17,312, Arizona had 16,718 and Texas had 12,638. The six states accounted for 61 percent of the U.S. total, RealtyTrac said. Georgia, Ohio, Nevada and Maryland rounded out the top 10. New York Area Filings rose 14 percent from a year earlier to 3,750 in New Jersey. They climbed 3.3 percent to 2,294 in Connecticut, and dropped 20 percent to 3,237 in New York. Las Vegas had the highest foreclosure rate for cities with a population of more than 200,000. One in 90 households there got a filing. Cape Coral-Fort Myers, Florida, was second at one in 92. Six metro areas in California or Arizona had decreases in filings from January, with Phoenix showing the biggest drop at almost 18 percent. Port St. Lucie, Florida, showed a 66 percent increase, said RealtyTrac, which sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population. To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net .

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Trade Deficit in U.S. Unexpectedly Shrinks as Oil, Automobile Imports Drop

March 11, 2010

By Shobhana Chandra March 11 (Bloomberg) — The trade deficit in the U.S. unexpectedly narrowed in January as demand for foreign oil and automobiles dropped. The gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April, on fewer shipments of commercial aircraft and autos. Imports may rebound in coming months as oil prices climb, consumer spending improves and a growing economy prompts companies to replenish depleted inventories. By the same token, the recovery in global growth and a weaker dollar is projected to lift overseas sales at manufacturers including Cisco Systems Inc. , signaling factories will keep leading the U.S. expansion. “We are starting to see a gradual recovery in global trade,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected the gap would narrow. “Consumers and businesses are dipping their toes back into spending here and abroad.” Fewer Americans filed first-time claims for jobless benefits last week, a report from the Labor Department also showed. Initial applications dropped by 6,000 to 462,000 in the week ended March 6. The number of people receiving unemployment insurance increased, while those getting extended benefits fell. Stocks, Dollar Stock-index futures extended earlier losses and the dollar fell after the reports. The contract on the Standard & Poor’s 500 Index decreased 0.3 percent to 1,141.8 at 8:56 a.m. in New York. The dollar bought 90.53 yen, erasing earlier gains and little changed from late yesterday. The trade gap was projected to widen to $41 billion, from an initially reported $40.2 billion in December, according to the median forecast in a Bloomberg News survey of 73 economists. Projections ranged from deficits of $37 billion to $44 billion. Exports decreased by $500 million to $142.7 billion. Auto demand from abroad fell by $544 million, while shipments of commercial aircraft declined by $474 million. Fewer Planes Sales of American-made planes may have rebounded last month. Boeing Co. delivered 23 aircraft for overseas buyers in January, down from 38 the prior month, according to figures from the Chicago-based company. Foreign deliveries climbed to 28 in February. American-made goods have become more attractive for overseas buyers following a decline in the dollar last year. It has fallen about 11 percent against a trade-weighted basket of currencies from the U.S.’s biggest trading partners from a five- year high reached on March 9, 2009. “Rising exports will be an important driver for manufacturing,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. San Jose, California-based Cisco , the biggest maker of networking equipment, said it sees “underlying strength” in the economy and that customers are saying they need to spend more on technology. “We see very positive spending trends across all of our business segments” and across the world, Ned Hooper, who is in charge of Cisco’s consumer unit and mergers and acquisitions, said on March 3 at a conference in San Francisco. Imports Fall Imports fell 1.7 percent to $180 billion from $183.1 billion in December. The U.S. imported 245 million barrels of crude oil in January, the fewest since February 1999. The decrease swamped an increase in oil prices. Purchases of foreign-made automobiles and parts dropped by $1.48 billion, led by decreases in purchases of German and Japanese cars. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit shrank to $41 billion from $43.8 billion. The January figure was in line with the fourth-quarter average, indicating trade so far is not influencing growth estimates. The economy, emerging from the worst recession since the 1930s, expanded at a 5.9 percent annual pace in the fourth quarter, the most since 2003. Exports accounted for 2.32 percentage points of growth, the biggest contribution in 13 years. Focus on Exports President Barack Obama has said the U.S. needs to shift its growth toward expanding exports and investment rather than consumption as in the past. He plans to increase government- backed export financing for small businesses by 50 percent, to $6 billion a year. Stronger overseas sales were one reason Parker Hannifin Corp., the world’s largest manufacturer of hydraulic equipment, raised its 2010 earnings estimate in January. “We’re coming off the bottom,” Donald E. Washkewicz, chairman and chief executive officer of the Cleveland-based company, told analysts. “Asia is extremely strong.” The International Monetary Fund, in a January report, projected that emerging-market and developing economies will expand 6 percent as a group this year, compared with 2.1 percent for developed nations. Today’s report showed the trade gap with China was little changed at $18.3 billion from $18.1 billion in the prior month. China, the world’s biggest exporter, this week reported its trade surplus shrank to the lowest level in a year in February as exports surged 46 percent from a year earlier, while imports rose 45 percent. The nation has prevented any rise in the yuan against the dollar since July 2008 to aid exporters. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Trade Deficit in U.S. Unexpectedly Shrinks as Oil, Automobile Imports Drop

March 11, 2010

By Shobhana Chandra March 11 (Bloomberg) — The trade deficit in the U.S. unexpectedly narrowed in January as demand for foreign oil and automobiles dropped. The gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April, on fewer shipments of commercial aircraft and autos. Imports may rebound in coming months as oil prices climb, consumer spending improves and a growing economy prompts companies to replenish depleted inventories. By the same token, the recovery in global growth and a weaker dollar is projected to lift overseas sales at manufacturers including Cisco Systems Inc. , signaling factories will keep leading the U.S. expansion. “We are starting to see a gradual recovery in global trade,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected the gap would narrow. “Consumers and businesses are dipping their toes back into spending here and abroad.” Fewer Americans filed first-time claims for jobless benefits last week, a report from the Labor Department also showed. Initial applications dropped by 6,000 to 462,000 in the week ended March 6. The number of people receiving unemployment insurance increased, while those getting extended benefits fell. Stocks, Dollar Stock-index futures extended earlier losses and the dollar fell after the reports. The contract on the Standard & Poor’s 500 Index decreased 0.3 percent to 1,141.8 at 8:56 a.m. in New York. The dollar bought 90.53 yen, erasing earlier gains and little changed from late yesterday. The trade gap was projected to widen to $41 billion, from an initially reported $40.2 billion in December, according to the median forecast in a Bloomberg News survey of 73 economists. Projections ranged from deficits of $37 billion to $44 billion. Exports decreased by $500 million to $142.7 billion. Auto demand from abroad fell by $544 million, while shipments of commercial aircraft declined by $474 million. Fewer Planes Sales of American-made planes may have rebounded last month. Boeing Co. delivered 23 aircraft for overseas buyers in January, down from 38 the prior month, according to figures from the Chicago-based company. Foreign deliveries climbed to 28 in February. American-made goods have become more attractive for overseas buyers following a decline in the dollar last year. It has fallen about 11 percent against a trade-weighted basket of currencies from the U.S.’s biggest trading partners from a five- year high reached on March 9, 2009. “Rising exports will be an important driver for manufacturing,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. San Jose, California-based Cisco , the biggest maker of networking equipment, said it sees “underlying strength” in the economy and that customers are saying they need to spend more on technology. “We see very positive spending trends across all of our business segments” and across the world, Ned Hooper, who is in charge of Cisco’s consumer unit and mergers and acquisitions, said on March 3 at a conference in San Francisco. Imports Fall Imports fell 1.7 percent to $180 billion from $183.1 billion in December. The U.S. imported 245 million barrels of crude oil in January, the fewest since February 1999. The decrease swamped an increase in oil prices. Purchases of foreign-made automobiles and parts dropped by $1.48 billion, led by decreases in purchases of German and Japanese cars. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit shrank to $41 billion from $43.8 billion. The January figure was in line with the fourth-quarter average, indicating trade so far is not influencing growth estimates. The economy, emerging from the worst recession since the 1930s, expanded at a 5.9 percent annual pace in the fourth quarter, the most since 2003. Exports accounted for 2.32 percentage points of growth, the biggest contribution in 13 years. Focus on Exports President Barack Obama has said the U.S. needs to shift its growth toward expanding exports and investment rather than consumption as in the past. He plans to increase government- backed export financing for small businesses by 50 percent, to $6 billion a year. Stronger overseas sales were one reason Parker Hannifin Corp., the world’s largest manufacturer of hydraulic equipment, raised its 2010 earnings estimate in January. “We’re coming off the bottom,” Donald E. Washkewicz, chairman and chief executive officer of the Cleveland-based company, told analysts. “Asia is extremely strong.” The International Monetary Fund, in a January report, projected that emerging-market and developing economies will expand 6 percent as a group this year, compared with 2.1 percent for developed nations. Today’s report showed the trade gap with China was little changed at $18.3 billion from $18.1 billion in the prior month. China, the world’s biggest exporter, this week reported its trade surplus shrank to the lowest level in a year in February as exports surged 46 percent from a year earlier, while imports rose 45 percent. The nation has prevented any rise in the yuan against the dollar since July 2008 to aid exporters. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Australia Employment Rises Less-Than-Estimated; Jobless Rate Gains to 5.3%

March 10, 2010

By Jacob Greber March 11 (Bloomberg) — Australian employers added fewer workers in February than economists forecast, giving central bank Governor Glenn Stevens scope to slow the pace of future interest-rate increases. The number of people employed rose 400 from January, the smallest gain in six months, the statistics bureau said in Sydney today. The median estimate of 25 economists surveyed by Bloomberg was for an increase of 15,000. The jobless rate rose to 5.3 percent from a revised 5.2 percent. Weaker employment growth may prompt consumers to trim spending in coming months. Governor Stevens last week raised borrowing costs by a quarter point to 4 percent for the fourth time in five meetings, and signaled further moves as the nation’s economic growth accelerates. “We’ve had almost 200,000 new jobs created over the previous five months, so there was always going to be a pullback at some time,” Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney, who forecast employers would cut 15,000 jobs last month, said ahead of today’s decision. “Leading indicators are suggesting solid jobs growth” this year rather than an acceleration, he added. The number of full-time jobs gained 11,400 in February and part-time employment decreased 11,000, today’s report showed. Cadbury, Boeing Cadbury Plc, the U.K.-based confectioner, said last month it will fire 60 workers in Australia when it closes its Melbourne warehouse this year. Boeing Co. said last week it will shut its plant in Sydney in 2012 and consolidate its Australian aerospace manufacturing in Melbourne. The move may see 350 jobs lost in Sydney with 300 positions offered in Melbourne, the company said on March 4. Investors are betting there is a 26 percent chance of a quarter-point increase in the overnight cash rate target to 4.25 on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:56 a.m. The chance of a 25 basis point move by the end of next quarter stands at 100 percent. Stevens is the first Group of 20 central banker to raise borrowing costs in 2010 after leading the world in boosting benchmark rates three times last quarter amid mounting evidence Australia’s economy will strengthen after skirting the global recession in 2009. The moves have taken the Reserve Bank’s overnight cash rate target to 4 percent from a half-century low of 3 percent at the start of October. Inflation Threat “Australia starts the current expansion with considerably less spare capacity than earlier thought likely, and with less than at the starting point of previous expansions,” central bank Assistant Governor Philip Lowe said yesterday. “We will need to keep a strong focus on improving the supply side of the economy so that demand can grow solidly without putting upward pressure on inflation,” he said. Gross domestic product rose last quarter at the fastest pace in almost two years, climbing 0.9 percent from the three months through September as companies increased investment. Growth is also being stoked by Prime Minister Kevin Rudd ’s decision to spend A$22 billion ($20 billion) on roads, railways and schools. GDP is forecast by the central bank to climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009. Business investment is currently equivalent to around 16 percent of GDP, which is “not far below its peak level in the past four decades and is expected to rise a little further over the next couple of years,” Lowe said yesterday in Sydney. Job Advertisements Australian advertisements for job vacancies jumped 19.1 percent in February, the most in a decade, while consumer and business confidence advanced, reports showed this week. Increased spending on projects such as the Chevron Corp.- led A$43 billion Gorgon gas venture in Western Australia is worsening a skills shortage. Construction on the project began this year and will generate up to 10,000 jobs. Marius Kloppers , chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said on Feb. 10 that the skills shortage in Australia’s resources industry is emerging faster than expected. More than A$100 billion of resources projects in Western Australia are likely to generate about 40,000 construction jobs and 12,500 permanent positions, a state government report released last year shows. Population Growth Prior to today’s release, government reports showed Australian employers added 194,600 jobs in the five months through January, the biggest increase in more than three years. The nation’s unemployment rate has held below 5.9 percent since July 2003. “Employment is growing strongly, more than keeping pace with the fastest migration-fueled growth in population in decades,” Kieran Davies , chief economist at RBS Group Australia Ltd. in Sydney, said ahead of today’s report. In contrast, the unemployment rate in the U.S. was 9.7 percent in February, and 9.9 percent in January among European Union countries. Australia’s participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.2 percent in January from 65.3 percent, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Japan’s Economic Growth Revised Down to 3.8% as Business Spending Slumps

March 10, 2010

By Keiko Ujikane March 11 (Bloomberg) — Japan’s economy expanded less than initially estimated in the fourth quarter as companies slashed spending on plant and equipment and a measure of prices declined. Gross domestic product rose at an annual 3.8 percent pace, slower than the 4.6 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The median estimate of 29 economists surveyed by Bloomberg News was for 4 percent growth. The report suggests business spending remains the weak link of an economic recovery that has begun to spread from exporters to households. Renewed demand in Asia is helping Japanese companies such as Canon Inc. and Honda Motor Co. , which may minimize an economic slowdown in the coming months as government stimulus measures fade. “It’s unavoidable that Japan’s economy will lose momentum somewhat toward the second quarter of this year as the stimulus effects wane,” Hiroshi Shiraishi , an economist at BNP Paribas in Tokyo, said before the report. “But exports are likely to stay robust throughout the year,” which may prevent the economy from grinding to a halt, he said. The yen traded at 90.48 per dollar at 9:15 a.m. in Tokyo from 90.40 before the report. The Nikkei 225 Stock Average rose 0.7 percent. Sitting Idle About a third of factory capacity is sitting idle and falling prices are squeezing profit margins, prompting companies such as Sony Corp. to cut costs to protect their earnings. Sony last month narrowed its forecast for a net loss, saying it is approaching its target of trimming 330 billion yen ($3.7 billion) in costs by eliminating jobs and shutting factories. The economy expanded 0.9 percent in the fourth quarter from the previous three months, the Cabinet Office said, slower than the 1.1 percent first reported. Capital spending rose 0.9 percent in the three months through December from the previous quarter, compared with a 1 percent increase reported last month. Private inventory shaved 0.1 percentage point from growth, after the initial report showed it added 0.1 percentage point to GDP. “The adjustments in capital spending may have run their course,” said Norio Miyagawa , a senior economist at Shinko Research Institute in Tokyo. “Still, it may take a while until spending undergoes a sustainable recovery as companies are saddled with excess capacity and their growth expectations remain low.” Providing Incentives The government has been providing incentives to buy energy- sufficient cars and home appliances. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen stimulus package in December. Consumer spending, which makes up about 60 percent of the economy, climbed 0.7 percent, unchanged from the initial report, the government said today. An increase in household outlays may not last as government stimulus measures fade and a shortfall in demand keeps suppressing prices, said Hiroshi Watanabe , a senior economist at Daiwa Institute of Research in Tokyo. “The stimulus program gives a one-shot boost to the economy but it won’t substantially increase consumer spending,” he said. Finance Minister Naoto Kan last week renewed calls on the Bank of Japan to help arrest deflation last week, saying he hopes prices will rise this year. Bank of Japan Deputy Governor Hirohide Yamaguchi said last month that prices may not be improving as quickly as he had expected. The GDP deflator, the broadest measure of prices in the economy, fell 2.8 percent, compared with the record 3 percent initially reported. Rebounding Demand Still, some companies are benefiting from rebounding demand in Asia, particularly China, the world’s fastest-growing major economy and Japan’s biggest overseas market. Canon, the world’s biggest camera maker, forecasts sales volume will rise 10 percent in China this year, Masaya Maeda , director of the company, said this week. Honda Motor’s sales in China rose 40 percent in February from a year earlier. Exports increased 5 percent from the previous quarter, unchanged from the preliminary figures. Net exports, or shipments minus imports, added 0.5 percentage point to growth, the same as last month’s reading. Some reports for January indicate the export revival is filtering to workers. The unemployment rate dropped to a 10- month low of 4.9 percent and wages climbed for the first time in 20 months. “Recent data suggest Japan’s economy is on a steady recovery trend,” said Yoshiki Shinke , senior economist at Dai- Ichi Life Research Institute Inc. in Tokyo. “We are free from a risk of a double-dip recession and there probably won’t be a soft patch.” To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net ;

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Glencore Paid Executives 6.3% Less in 2009 After Profit Decline on Metals

March 10, 2010

By Jesse Riseborough March 10 (Bloomberg) — Glencore International AG, the world’s largest commodity trader, paid each of its top executives 6.3 percent less on average in 2009 after profit declined on lower metals and energy prices. Glencore paid 65 “key management personnel” $239 million, an average of $3.68 million each, according to a report sent to bondholders today, which was obtained by Bloomberg News. The 2008 average was $3.92 million for 66 workers. Pay averaged $10.3 million in 2007, according to a report last year. The Baar, Switzerland-based trader, which is owned by its employees, said trading is “meaningfully” ahead compared with a year earlier, after commodity prices rebounded in the second half of 2009. Glencore, led by Chief Executive Officer Ivan Glasenberg , said in December it’s studying an initial public offering after its first sale of convertible bonds. “Those executives are exceptionally wealthy given its private nature and especially given where commodity prices are at the moment,” said Jonathan Pitkanen , a credit analyst at Aviva Investors in London. “It is going to be quite hard to IPO this business because in the IPO process there is going to be an awful lot more disclosure coming out and I’m not sure they are all going to want that.” Net income contributing to shareholders’ so-called ordinary and hybrid profit participation fell to $475 million from $571 million, according to the report. The two types of profit participation are among four ways the employee-owned company compensates staff, not including salary. Glencore spokesman Marc Ocskay declined to comment. ‘Market Volatility’ “We believe that many of the factors which drove the recovery in demand and pricing in 2009 should continue in 2010,” Glencore said today in a statement on its Web site. “However, we are mindful of the ongoing reporting of mixed economic data and slower recoveries in certain parts of the world economy, which in all likelihood, will lead to continued market volatility.” Full-year net income excluding exceptional items fell 43 percent to $2.7 billion while sales declined 30 percent to $106.4 billion, the company said on its Web site. Shareholders’ funds rose 8.3 percent to $16.7 billion, while net debt dropped 11 percent to $10.2 billion. Lower Debt “We saw the results flip around in that the mining assets now account for a far greater percentage of the total revenue than the trading assets,” Pitkanen said. “We are back to the old normality before the financial crisis where commodity prices are responsible for the vast majority of the performance.” Glencore sold $2.2 billion of convertible bonds in December, saying the debt can be exchanged for shares should the company hold an IPO. The company may hold an offering in the fourth quarter, Liberum Capital Ltd. wrote in a note last week. An IPO by the company, which was renamed Glencore after management bought former fugitive U.S. financier Marc Rich’s interest in Marc Rich & Co. in 1994, would end more than three decades of operating as a closely held partnership. Glencore hired Credit Agricole CIB, Deutsche Bank AG, JPMorgan Chase & Co. and Societe Generale SA for the sale of bonds in euros, according to bankers involved in the transaction. The trader is seeking to sell at least $1 billion of assets in three to six months to help fund its repurchase of the Prodeco coal unit from Xstrata Plc . The trader is also in talks with “interested parties” on the sale of part or all of Prodeco, which produces coal in Colombia, it said last week. To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

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AOL Chief Armstrong Targets Web Ad Billions With Sales, Content Hirings

March 10, 2010

By Kristen Schweizer March 10 (Bloomberg) — AOL Inc. said it’s “laser focused” on getting a share of an estimated $20 billion gap in online advertising, as marketers race to catch up with consumers on the Internet. “Consumers have shifted faster than ad dollars,” Tim Armstrong , chief executive officer of the Internet company spun off from Time Warner Inc. , said in an interview today. “We’re building programs with both technology and design for advertising that are focused at closing that gap.” The company currently gets about 50 percent of revenue from ads and is “significantly” boosting sales staff, he said. AOL’s acquisitions strategy is focused on purchasing “technology tuck-ins” to help AOL build its platforms, Armstrong said in the interview in Abu Dhabi. It’s also targeting video and mobile-phone content and is hiring journalists to create quality content, Armstrong said. AOL, which runs MapQuest, PoliticsDaily and Lemondrop.com, will take a total charge of between $150 million and $200 million for a current program of job cuts and office closures, Armstrong said. AOL plans to re-enter some of the international markets it left in 2011 and 2012, he said. AOL , spun off last year, is cutting about a third of its workforce and halving its international offices to leave 20, Armstrong said. The New York-based company gets about 25 percent of revenue overseas, he said. Some international offices were very unprofitable and made acquisitions that didn’t fit with AOL’s strategy, he said. Asset Disposals “Each country had its own platform and even its own country strategy,” Armstrong said. “We’ve gone through and pulled back. We’ll scale the technology based on AOL ’s new business models, which will be customized locally, and we’ll structure hiring that will match our business strategy.” “International is a very critical part of AOL’s future and we’re pulling back to get our plumbing straightened out. We’ll come back with a content platform we believe works globally.” AOL plans to dispose of more assets in 2010, Armstrong said. He declined to say which companies may be sold. AOL last month said fourth-quarter net income was $1.4 million, compared with a loss of $1.96 billion a year earlier, when Time Warner wrote down the value of its Internet property. Revenue dropped 17 percent to $809.7 million. Time Warner spun off AOL in December, nine years after a $124 billion combination that triggered record losses . To contact the reporter on this story: Kristen Schweizer at kschweizer1@bloomberg.net

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Obama Proving Pessimists Wrong as Rebounding Economy Converges With Stocks

March 10, 2010

By Mike Dorning March 10 (Bloomberg) — The political consensus may be that President Barack Obama ’s handling of the economy has been weak. The judgment of money in all its forms has been overwhelmingly positive, and that may be the more lasting appraisal. One year after U.S stocks hit their post-financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen more than 68 percent, and it’s up more than 41 percent since Obama took office. Credit spreads have narrowed. Commodity prices have surged. Housing prices have stabilized. “We’ve had a phenomenal run in asset classes across the board,” said Dan Greenhaus , chief economic strategist for Miller Tabak & Co. in New York. “If he was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the president.” The economy has also strengthened beyond expectations at the time Obama took office. The gross domestic product grew at a 5.9 percent annual pace in the fourth quarter, compared with a median forecast of 2.0 percent in a Bloomberg survey of economists a week before Obama’s Jan. 20, 2009, inauguration. The median forecast for GDP growth this year is 3.0 percent, according to Bloomberg’s February survey of economists, versus 2.1 percent for 2010 in the survey taken 13 months earlier. “You have to give them — along with the Federal Reserve – - a lot of credit,” said Joseph Carson , director of economic research at AllianceBernstein LP in New York. “A year ago, there was panic, as well as concern. And a lot of the expectations were not only that we were going to have declines in activity but they would stretch all the way to 2010, if not 2011.” Job Losses Ease Since then, monthly job losses have abated, from 779,000 during the month Obama took office to 36,000 last month. Corporate profits have grown; among 491 companies in the S&P 500 that reported fourth-quarter earnings, profits rose 180 percent from a year ago, according to Bloomberg data. Durable goods orders in January were up 9.3 percent from a year earlier. Inflation is tame, and long-term interest rates remain low. Still, the economy has become a political burden for Obama. Voters give his administration little credit for its performance, while the unemployment rate remains high, at 9.7 percent in February. Public opinion of Obama’s handling of the economy has gone from 59 percent approval in February 2009 to 61 percent disapproval this February, according to Gallup polls. Critical of Deficit The budget deficits the administration has run up have stirred criticism from investment managers and economists, as well as voters. The Congressional Budget Office projects Obama’s spending proposals would produce a record $1.5 trillion budget deficit this year and a $1.3 trillion deficit in 2011. The investment returns and economic data don’t impress some Obama critics. “Coming off a level that was ridiculously low isn’t much to boast about,” said Dean Baker , co-director of the Washington-based Center for Economic and Policy Research. “What most people care about is the economy creating jobs. It’s still not.” Mark Zandi , chief economist at Moody’s Economy.com , said the public’s opinion of the economy is likely to improve as the gains companies have made begin to translate into more jobs and higher wages. “Businesses are doing very well but households have yet to benefit,” Zandi said. “Households will eventually benefit, but they’ll have to see it before they believe it.” 300,000 Jobs Seen The U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw , chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview. Zandi said the economic rebound is largely a result of the policies of the White House and Federal Reserve. He cited the bank bailout, the Fed’s low-interest-rate policy and support for credit markets, and the Obama administration’s stimulus plan, bank stress tests and backing of Fannie Mae and Freddie Mac. “When you take it all together, the response was massive and unprecedented and ultimately successful,” Zandi said. Phil Swagel , who was assistant Treasury secretary for economic policy in George W. Bush ’s administration, considers himself a critic of Obama, though he said the White House policies were crucial. “They could have done a better job, but their economic policies, including the stimulus, have helped move the economy in the right direction,” said Swagel, now an economics professor at Georgetown University’s McDonough School of Business. Productivity Gains While jobs have been slow to come back even as GDP is growing, the gains in productivity during the past year will strengthen the economy, said Greenhaus of Miller Tabak. Productivity grew at a 6.9 percent annual pace in the fourth quarter, capping the biggest one-year gain since 2002. While small businesses still have difficulty getting loans, credit markets have thawed. Spreads on investment-grade corporate bonds have narrowed from 5.13 percentage points on the day Obama took office to 1.63 percentage points on March 8, according to Barclays Capital. Rates on 30-year fixed mortgages have dropped from an average 5.20 percent on Inauguration Day to 5.03 percent on March 8, according to Bankrate.com . Housing prices, which dropped since 2007 and proved a drag on the economy, have firmed. The median sales price for existing homes in January was the same as a year earlier. International currency markets are bullish on the dollar, which has rallied more than 8 percent since Nov. 25, according to the Intercontinental Exchange’s Dollar Index. And commodity prices are up more than 32 percent since Obama took office, according to the UBS Bloomberg Commodity Index. “There’s definitely legs in this recovery,” said John Silvia , chief economist for Wells Fargo Securities. “There’s progress being made at the national level. But in their own situations, a lot of people are still struggling.” To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net .

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Bank of Korea’s Lee, Under Pressure at Final Meeting, May Keep Rate at 2%

March 9, 2010

By Saeromi Shin and Cesilia Han March 10 (Bloomberg) — Bank of Korea Governor Lee Seong Tae will probably keep interest rates unchanged at his final meeting as he faces “intense” political pressure to spur investment and cut unemployment. Lee will hold the seven-day repurchase rate at a record-low 2 percent when his board meets at 9 a.m. tomorrow in Seoul, 13 of 14 economists surveyed by Bloomberg News say. One expects a quarter-point increase. Finance Minister Yoon Jeung Hyun said this week now “is not the right time” to boost borrowing costs. The government wants Lee, whose term expires March 31, to hold down rates as the economy shows mixed signs: growth slowed in the fourth quarter and unemployment soared in January, while exports have risen for four months and manufacturers’ confidence is at a seven-year high. To reinforce its stance, the government has sent a vice finance minister to the past two policy meetings. “Political pressures remain intense,” said Kevin Grice , an economist at Capital Economics Ltd. in London. “While there is an outside chance that rates will move up, it is most likely” they will remain on hold, he said. Governor Lee’s successor and replacements for two other Monetary Policy Committee members “will probably be sympathetic to the government view” and the first rate increase is unlikely before the third quarter, Grice said. President Lee Myung Bak is considering five candidates to head the Bank of Korea, DongA Ilbo newspaper reported last month, citing unidentified central bank and government officials. Possible Successors These include Euh Yoon Dae , head of a presidential council set up to promote South Korea internationally; ex-Finance Minister Kang Man Soo ; Kim Jong Chang , head of the Financial Supervisory Service; Park Cheul , a former deputy governor of the central bank; and Kim Choong Soo, envoy to the Organization for Economic Cooperation and Development, according to the newspaper. The failure to announce Governor Lee’s replacement three weeks before his term expires hasn’t spooked the markets. The benchmark Kospi stock index has risen more than 5 percent in the past month and the won gained 2.6 percent over the same period. Finance Minister Yoon told reporters on March 8 that “it is the government’s firm belief that it is not the right time for rate hikes” as business investment is weak and prices are at manageable levels. Lee Sung Kwon , an economist at Shinhan Investment Corp. in Seoul, said policy makers may also hold off on a rate increase tomorrow as “concerns over tightening measures in China remain.” China Tightening China, South Korea’s biggest export market, in February ordered banks to set aside more deposits as reserves for the second time in a month to avert asset bubbles. In the fourth quarter, Chinese gross domestic product increased 10.7 percent from a year earlier, the fastest pace since 2007. In contrast, South Korea’s economy expanded 0.2 percent in the fourth quarter and unemployment surged to a 10-year high of 4.8 percent in January. President Lee has put unemployment at the top of the political agenda, vowing to cut the average jobless rate to about 3 percent this year. The government boosted this year’s budget by 3 percent to 292.8 trillion won ($258 billion) and will accelerate distribution of funds as it seeks to maintain the recovery. The central bank said the slowdown in growth in the fourth quarter was a temporary adjustment. In November, it widened the annual inflation target range to between 2 percent and 4 percent. Consumer prices increased 2.7 percent in February. Exports Surge Asia’s fourth-largest economy is showing signs of strengthening. Exports climbed 31 percent in February from a year earlier, the fourth monthly increase. Samsung Electronics Co. , the world’s second-largest mobile-phone maker, said its handset shipments may expand about a fifth this year, helped by demand for smartphones. Manufacturers’ confidence for March rose to the highest level since the fourth quarter of 2002, when the Bank of Korea published its confidence survey on a quarterly basis. The central bank’s failure to raise rates last year confounded analysts, who forecast it to be one of the first in Asia to move after the economy expanded 3.2 percent in the third quarter, the fastest pace in seven years. Since then, Australia, China, India and Vietnam have tightened monetary policy as Asia leads the recovery from the global recession. Tim Condon , head of Asia research at ING Groep NV in Singapore, says Governor Lee may use his last meeting to boost borrowing costs. “South Korea’s economy has staged a vigorous, self- sustaining recovery and the Bank of Korea can begin to normalize its policy rate,” said Condon, who forecasts a quarter-point increase tomorrow and expects the rate to rise to 3.25 percent by year’s end. “Rising property prices could become an issue if record-low financing conditions persist for too long.” To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net ; Cesilia Han in Seoul at chan4@bloomberg.net

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U.K. Housing Gauge Shows Fewer Price Increases Than Forecast in February

March 9, 2010

By Svenja O’Donnell March 9 (Bloomberg) — A U.K. house price gauge showed fewer increases in values last month than economists forecast as more people tried to sell their homes, a sign the property market may be running out of steam. The number of real-estate agents and surveyors saying prices rose exceeded those reporting declines by 17 percentage points, the Royal Institution of Chartered Surveyors said in an e-mailed report today. Economists predicted 30 points, according to the median of 13 forecasts in a Bloomberg News survey. “The magnitude of the gains going forward is likely to continue to ease, reflecting the fact that new supply coming onto the market is starting to outstrip fresh demand,” Jeremy Leaf , spokesman for RICS, said in a statement. Britain’s housing market recovery has lost momentum this year with the election looming, an increase in transaction tax and colder-than-average winter weather. Bank of England policy maker Kate Barker said yesterday that the economic recovery may be on track, though it might face a “bumpy” path. New instructions outpaced new buyer inquiries in February, with a balance of 15 percent more surveyors reporting an increase in homes for sale, RICS said. Banks’ reluctance to lend is making it difficult for many Britons to acquire property. Banks granted 48,198 loans to buy homes in January, the least in eight months, Bank of England data showed on March 1. First-Time Buyers The proportion of first-time buyers who expect to enter the property market in the next 12 months fell to 25.8 percent in the first three months of the year, the third quarterly drop in the measure, Rightmove Plc said in a separate report today. “First-time buyers play a crucial role in keeping the market moving by helping to complete chains and their continued absence delays any prospect of a meaningful market recovery,” Miles Shipside , Rightmove’s commercial director, said in a statement. Prime Minister Gordon Brown ’s Labour Party and the opposition Conservatives are battling to convince voters they can steer Britain’s economic recovery while cutting its budget deficit , the biggest since World War II. The Conservatives had a 5-point lead in a YouGov Plc poll for the Sunday Times published on March 7. Gross domestic product rose 0.3 percent in the final three months of 2009, ending the deepest recession on record. The economy will expand 1 percent this year and 2.5 percent in 2011, while extra tax increases or spending cuts of 20 billion pounds ($30 billion) are needed by 2013 to close Britain’s fiscal gap, PricewaterhouseCoopers LLC said in a separate report today. “There are grounds for optimism from recent data that the recovery is broadly on track,” Barker said in a speech yesterday. “I don’t think it is yet possible to be confident in the pace of recovery and still expect the path to be bumpy. But some of the severe downside risks have diminished.” Retail sales rose last month, with sales at stores open at least 12 months rising 2.2 percent from a year earlier, compared with a 1.8 percent drop in the same month last year, a British Retail Consortium survey released today showed. To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net .

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China’s Shrinking Trade Surplus May Ease Pressure for Yuan Appreciation

March 7, 2010

By Bloomberg News March 8 (Bloomberg) — Top Chinese officials said the nation’s trade surplus is shrinking and urged caution in exiting crisis policies, suggesting that the yuan may not appreciate soon against the dollar. The surplus slid 50.2 percent in January and February combined from a year earlier, Commerce Minister Chen Deming said at a press briefing in Beijing on March 6. “We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” central bank Governor Zhou Xiaochuan said, using another term for the Chinese currency. Premier Wen Jiabao last week pledged a moderately loose monetary stance and a “basically stable” yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The central bank has kept the yuan at about 6.8 per dollar since July 2008, aiding exporters and fueling tensions with trading partners. “You’re not going to see huge, one-off steps on the currency,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. Officials will “look at incoming data every month and see what the rest of the global economy is doing.” The figure disclosed by Chen suggests that February’s trade surplus was about $8 billion, compared with about $14 billion in January and about $44 billion in the two months a year earlier. It’s too early to say that China’s exports have recovered, Chen said, after the nation reported increases in December and January shipments from a year earlier. One-Off Appreciation Su Ning , a deputy central bank governor, said separately March 6 that gradual, long-term gains by the yuan were in China’s interests and a one-off appreciation wouldn’t eliminate the nation’s trade surplus. Zhou’s caution against altering policy too quickly when a global recovery “isn’t solid” contrasts with traders becoming more bullish on the yuan, betting that export gains and climbing prices will overcome vows to maintain a dollar peg. The premium charged for the right to buy yuan in three months over contracts to sell has more than tripled this year to the most among 44 currency options tracked by Bloomberg. The 2 percentage point difference is the most since China last ended a fixed-exchange rate in July 2005, so-called risk-reversal rates show. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand. ‘Sooner or Later’ The nation’s package of measures to respond to the global financial crisis included a 4 trillion yuan ($586 billion) stimulus package and the scrapping of quotas limiting bank lending. Zhou said that China is reforming its currency in the long term and current policies are short-term adjustments because of the crisis. China will exit its crisis stance “sooner or later,” the central banker said. Policies must stay flexible because it’s difficult to make accurate economic forecasts at the beginning of the year and balancing growth and inflation concerns is “complicated,” he said. He said that the International Monetary Fund is the key judge of currency policies and China has taken its views into account, adding that exchange-rate issues shouldn’t be politicized. In a statement before the briefing, the central bank said that it will promote a more diversified international currency system. That’s after Zhou last year urged moves to explore a new global currency to reduce reliance on the dollar. U.S. President Barack Obama said in a Feb. 9 interview with Bloomberg BusinessWeek that a stronger currency would help China to deal with “a bunch of bubbles” in its “potentially overheating” economy. IMF Managing Director Dominique Strauss-Kahn has repeatedly called the yuan “undervalued.” — Kevin Hamlin , Li Yanping, Belinda Cao, Chua Kong Ho, Judy Chen, Zhang Dingmin . Editors: Paul Panckhurst , John Liu . To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

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Yen Weakens Against Euro on Speculation Global Recovery Gaining Momentum

March 7, 2010

By Yoshiaki Nohara March 8 (Bloomberg) — The yen fell to a two-week low against the euro as signs the global economic recovery remains on track boosted demand for higher-yielding assets. The yen weakened against 15 of its 16 major counterparts after Japanese exports grew in January for a second month and before data today that economists said will show German industrial output rose. Australia’s dollar touched the strongest in six weeks against the U.S. currency as risk sentiment improved after French President Nicolas Sarkozy said yesterday the euro region is ready to rescue Greece. “We are seeing a classic reversal of the yen, having been the preeminent safe-haven currency in recent weeks,” said Ray Attrill , global research director at Forecast Ltd. in Sydney. “The U.S. dollar is generally being sold off because of an improvement in risk appetite. The yen is being sold off even more.” Japan’s currency fell to 123.60 per euro as of 9:29 a.m. in Tokyo from 123.00 in New York on March 5. It earlier touched 123.69, the weakest since Feb. 23. The yen dropped to 90.48 per dollar from 90.28 after reaching 90.68, the lowest since Feb. 23. The euro rose to $1.3665 from $1.3626. Australia’s currency was at 90.94 U.S. cents from 90.77 cents after climbing to 91.06, the most since Jan. 21. The yen dropped against the dollar for a third day as Japan’s current-account surplus was 899.8 billion yen ($9.9 billion) from a year earlier, when it was in deficit, the Ministry of Finance said in Tokyo today. Exports surged 41 percent on an annual basis. ‘We Are Ready’ German industrial production rose 1 percent in January after falling 2.6 percent the previous month, according to a Bloomberg News survey before the Economy Ministry report today. The euro advanced against the dollar for a second day after Sarkozy voiced his support for Greece. “I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” he said in Paris after a meeting with Greek Prime Minister George Papandreou . “There can be no doubt in this regard.” While Greece doesn’t need assistance right now, “we have measures, we are ready, we are determined,” he said. Sarkozy’s comments are among the strongest by a European Union leader to signal the bloc would bail out Greece if necessary as officials strive to warn investors against making further bets against the euro and Greek bonds. Papandreou’s government last week passed a further round of austerity measures and sold 5 billion euros ($6.8 billion) in government debt. Futures traders decreased bets the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 66,770 on March 2, compared with net shorts of 71,623 a week earlier. To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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Roubini Says `Super Cautious’ China to Limit Yuan Gain to 4% in Token Move

March 7, 2010

By Ye Xie March 8 (Bloomberg) — China will limit the yuan’s appreciation to 4 percent over the next 12 months because of a “super cautious” outlook on the global economy, said New York University Professor Nouriel Roubini. The central bank may end a 20-month peg to the dollar as soon as the second quarter, allowing a 2 percent one- step gain, and then let the currency strengthen another 1 percent to 2 percent in 12 months, Roubini said in an interview in New York. The yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports during the global recession. Roubini’s forecast is less aggressive than the median estimate in a Bloomberg survey of 20 analysts for the yuan to rise 5 percent to 6.50 per dollar by March 31, 2011. Chinese central bank Governor Zhou Xiaochuan said on March 6 that the nation should be “very cautious” in exiting policies adopted during the global financial crisis, including the exchange-rate stance. “It will be less than what they did in 2005 when everything was going right,” Roubini, 51, who anticipated the global financial crisis, said in the March 4 interview. “They will move by a token amount. The world is much cloudier in every dimension. They are super cautious.” ‘Hard Landing’ Roubini, who chairs New York-based Roubini Global Economics LLC, has become famous for his pessimistic projections. In 2007, he correctly predicted a “hard landing” for the world economy. He said last year that the global economy would shrink through 2009, only for growth to resume in the middle of the year. Jim O’Neill , the chief Goldman Sachs Group Inc. economist who coined the term BRICs for Brazil, Russia, India and China in 2001, said last month that “something is brewing” on the yuan and predicted policy makers will allow a one-time 5 percent gain. Twelve-month non- deliverable forwards traded at 6.6505 per dollar, indicating bets the yuan will rise 2.6 percent from the spot rate of 6.8265. “We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” Zhou said at a press briefing in Beijing, using another term for the Chinese currency. A global recovery “isn’t solid,” he said. ‘Sooner or Later’ China will exit its crisis policies “sooner or later” as it balances growth and inflation concerns, Zhou said. Regulators ordered banks to set aside more cash as reserves and to curb lending after the economy grew 10.7 percent in the fourth quarter, the most in two years. Consumer prices probably climbed 2.5 percent in February from a year earlier, the biggest increase since October 2008, compared with 1.5 percent in January, according to the median estimate from 29 economists. A stronger currency would reduce import prices and may reduce the need to sell yuan for dollars to maintain the peg. “A bit of move in the currency might help,” Roubini said. “If they move it by 2-3 percent, it won’t make a huge difference to inflation pressure. They are always cautious and won’t bow to the pressure from the U.S.” While President Barack Obama has urged China to let the yuan climb to aid U.S. manufacturers, Chinese exporters say a gain of more than 2 percent may wipe out profits. Export Recovery China’s overseas shipments rose 21 percent in January from a year earlier, the fastest pace in 16 months. Fifteen U.S. senators called for stiffer tariffs on China’s imports last week, accusing the country of artificially keeping the yuan cheap. A stronger yuan would increase the purchasing power of Chinese residents and reduce the country’s reliance on exports . “Most people are concerned about inflation, I am worried about the export-led growth model,” said Roubini. “A weak currency and low interest rate is a massive transfer of wealth from household income to enterprises. It will take more than three, five years to change China’s model of growth.” Options traders are increasing their bets on the currency. Three-month implied volatility, a measure of expectations for yuan price movements, showed traders expected swings of 3.27 percent on March 4, a one-year high, up from 1.07 percent on Jan. 1. The next day the measure slumped to 2.8 percent as Premier Wen Jiabao said China plans to keep the currency “basically stable.” “The Chinese authorities will be in no rush to further strengthen their currency,” said Joe Craven , the Asia-Pacific head of currencies and fixed-income at UniCredit Markets & Investment Banking in Hong Kong. “I view options volatility as being currently too high, especially in the shorter-end of the curve.” To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net Judy Chen in Shanghai at Xchen45@bloomberg.net .

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Crude Oil Surges, Gasoline Rises to 17-Month High on U.S. Payrolls Report

March 5, 2010

By Mark Shenk March 5 (Bloomberg) — Crude oil surged to a seven-week high after U.S. employment declined less than forecast in February, bolstering optimism that fuel demand will climb in the world’s biggest energy-consuming country. Oil rose as much as 2.3 percent after the Labor Department reported that payrolls dropped 36,000 last month. The total was forecast to fall by 68,000, according to economists surveyed by Bloomberg News. U.S. fuel use, averaged over the past four weeks, was 19.3 million barrels, up 3 percent from a year earlier, an Energy Department report on March 3 showed. “The employment numbers were quite good relative to expectations, so I’m surprised the market isn’t responding more,” said Michael Fitzpatrick , vice president of energy at MF Global in New York. Crude oil for April delivery rose $1.78, or 2.2 percent, to $81.99 a barrel at 9:58 a.m. on the New York Mercantile Exchange. Futures reached $82.07, the highest level since Jan. 12. The contract is up 2.9 percent this week. Brent crude oil for April delivery climbed $1.79, or 2.3 percent, to $80.33 a barrel on the London-based ICE Futures Europe exchange. Futures touched $80.53, the highest level since Jan. 12. “We had a nice spike up on the jobless report,” said Addison Armstrong , director of market research at Tradition Energy in Stamford, Connecticut. “Whenever we get above $80 the bids seem to dry up. I will have to see us close above $80 for a few more days before I’m convinced we’re going to test $84.96.” The April oil contract surged to $84.96 a barrel on Jan. 11, the highest since October 2008. Unemployment Rate The U.S. jobless rate held at 9.7 percent in February, Labor Department figures showed. The unemployment rate was projected to increase to 9.8 percent, according to the median of 82 responses from economists surveyed by Bloomberg News. “The figures were better than expected, and that’s boosted oil prices,” said Mike Wittner , head of oil market research at Societe Generale SA in London. “Fewer job losses than forecast is positive in the short term for U.S. GDP, and therefore the outlook for oil demand.” The U.S. grew at a 5.9 percent annual rate in the last three months of 2009, the biggest gain in six years, according to data from the Commerce Department last week. “Everyone seems happy about today’s positive headlines,” said Adam Sieminski , chief energy economist at Deutsche Bank AG in Washington. “It will be interesting to see if this has any impact on what OPEC does on March 17. What King Abdullah thinks is the most important factor.” OPEC Meeting The Organization of Petroleum Exporting Countries is scheduled to meet in Vienna on March 17. Saudi Arabia’s King Abdullah has targeted $75 as a fair price for consumers and producers. The desert kingdom is the world’s biggest oil exporter and the most influential member of OPEC. OPEC will cut shipments 2.3 percent in the four weeks ending March 20, according to consultant Oil Movements. The group will reduce exports by sea in the period by 2.3 percent to 22.87 million barrels a day from 23.42 million in the month ended Feb. 20, the Halifax, England-based tanker-tracker said yesterday. The data exclude Ecuador and Angola. “There’s no shortage of oil,” Sieminski said. “Demand is still tepid and there is plenty of supply. I still think that some point between now and the middle of the year the market will hit some headwinds, which will deflate the price of oil.” U.S. inventories of crude oil climbed 4.03 million barrels to 341.6 million last week, the highest level since August and 5.7 percent above the five-year average for the week, according an Energy Department report on March 3. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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Pending U.S. Home Sales Decline in Sign Tax Credit Failing to Lure Buyers

March 4, 2010

By Courtney Schlisserman March 4 (Bloomberg) — The number of contracts to buy previously owned U.S. homes unexpectedly declined in January, showing the extension of a tax credit is sparking little interest. The index of purchase agreements, or pending home sales, fell 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. In November, the measure slumped a record 13.7 percent. Snowstorms in February probably limited contract signings and sales that month as well, the group said. The renewal of a government incentive to first-time buyers, originally due to expire at the end of November, and its expansion to include current owners has yet to lure buyers back into the market after helping boost sales last year. A lack of jobs and mounting foreclosures have depressed confidence, indicating housing will take time to rebound. The original deadline for the credit “clearly pulled demand forward and there has been a substantial payback,” said Mark Vitner , a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The housing recovery is going to be very, very slow.” Stocks fell after the report and separate figures that showed a pause in demand for business equipment. Factory orders rose 1.7 percent in January, boosted by a surge in commercial aircraft bookings, according to Commerce Department data that also showed less demand for computers and machinery. The Standard & Poor’s 500 Index declined 0.1 percent to 1,117.72 at 10:38 a.m. in New York. The yield on the 10-year Treasury note decreased two basis points to 3.6 percent. A basis point is 0.01 percentage point. Economists’ Forecasts Economists forecast the gauge would increase 1 percent in January after a previously reported 1 percent gain in December, according to the median of 40 projections in a Bloomberg News survey. Estimates ranged from a drop of 4.2 percent to an increase of 4 percent. “The abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” Lawrence Yun , the group’s chief economist, said in a statement. “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June.” Other reports earlier today showed initial jobless claims fell from a three-month high, while productivity increased in the fourth quarter. First-time claims for unemployment insurance dropped 29,000 last week to 469,000, the Labor Department said. Productivity Surge Productivity , a measure of employee output per hour, rose at a 6.9 percent annual rate in the final three months of last year, the Labor Department also said. Labor costs dropped 5.9 percent, more than anticipated. The Realtors’ report showed declines in pending sales in all four regions, led by a 13 percent slump in the West. Contract signings fell 8.9 percent in the Midwest, 8.7 percent in the Northeast and 2.1 percent in the South. Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The pending sales data go back to January 2001, and the group began publishing the index in March 2005. Reports last week showed the housing market may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decline a month earlier, according to Realtors group’s report Feb. 26. New-home sales slumped to an all-time low, the Commerce Department said Feb. 24. Credit Extension President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners. Even so, some economists said the original measure pulled sales forward, restraining demand in subsequent months. Among other concerns for the housing outlook, the Federal Reserve said it plans to end later this month a program to purchase mortgage-backed securities, which helped contain borrowing costs. The plan helped push the rate on a 30-year fixed mortgage down to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate has hovered around 5 percent since then. Foreclosures pose another threat. Foreclosure filings rose 15 percent in January compared with a year earlier and exceeded 300,000 for the 11th straight month, RealtyTrac Inc. said Feb. 11. 1980s and 1990s The housing market will “follow a similar pattern” to recovery as it did in the late 1980s and early 1990s, which both took “several years,” Toll Brothers Inc. Chief Executive Officer Robert Toll said in a statement Feb. 24. The company, the largest U.S. luxury-home builder, said its orders almost doubled in the first quarter compared with a year earlier. It projected it will sell between 2,100 and 2,750 homes in fiscal 2010 at an average price of $540,000 to $560,000 each. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Japan’s Fourth-Quarter Capital Spending Slides 18.5%, 11th Quarterly Drop

March 3, 2010

By Keiko Ujikane March 4 (Bloomberg) — Japanese businesses cut spending for an 11th quarter, signaling a revival in exports remains insufficient to prompt investment that would spur the recovery. Capital spending excluding software fell 18.5 percent in the three months ended Dec. 31 from a year earlier, after dropping a record 25.7 percent in the previous quarter, the Finance Ministry said today in Tokyo. Sales fell and profits doubled, the report showed. Sony Corp. and Panasonic Corp. are among companies cutting costs and restraining investment to protect earnings even as demand from abroad picks up. “Corporate spending may have nearly hit a bottom but it will take more time until it recovers,” Naoki Tsuchiyama , market economist at Mizuho Securities Co. in Tokyo, said before the report. “Companies will likely keep shedding costs and investment as they focus on restoring their profitability.” The yen traded at 88.59 per dollar at 9 a.m. in Tokyo from 88.52 before the report. The Nikkei 225 Stock Average fell 0.1 percent. The Cabinet Office will use today’s report to revise fourth-quarter gross domestic product figures on March 11. The economy grew at an annual 4.6 percent pace in the three months ended Dec. 31, preliminary figures showed last month. Companies’ sales slid 3.1 percent last quarter after tumbling 15.7 percent the previous three months, the Finance Ministry said. Profits surged 102.2 percent, compared with a 32.4 percent decline in the third quarter. Weak Link Capital spending remains the weak link of a recovery that’s being driven by exports and showing signs of improvement in the labor market . About a third of factory capacity is sitting idle in the wake of the nation’s worst postwar recession, discouraging companies from buying equipment. “Capital utilization is recovering but the level is still historically low,” Mizuho’s Tsuchiyama said. “That means companies try to use existing facilities and equipment rather than investing in new things.” Sony last month narrowed its forecast for a net loss, saying it is approaching its target of trimming 330 billion yen in costs by eliminating jobs and shutting factories. Capital spending for this fiscal year will probably total 220 billion, 34 percent less than a year earlier and lower than the 250 billion yen estimated in October, Sony said on Feb. 4. Panasonic last month raised its operating profit forecast, as cuts in fixed and material costs lead to a recovery in earnings from consumer electronics and appliances. Capital investment for the nine months ended Dec. 31 stood at 275.6 billion yen, 22 percent less than the same period a year earlier, according to a company statement. Slumping Prices Slumping prices also are squeezing profit margins. Consumer prices excluding food and energy dropped 1.2 percent in January, matching December’s record decline, the government said last week. Finance Minister Naoto Kan renewed calls on the Bank of Japan to help arrest deflation this week, saying he hopes prices will rise this year. The government has been encouraging spending by providing incentives to buy cars and consumer electronics. Those initiatives are becoming less effective, said Tetsufumi Yamakawa , chief Japan economist at Goldman Sachs Group Inc. “Not only is capital investment slack but the demand boost from policies to stimulate replacement purchase of energy-saving electrical goods and environment-friendly autos is fading,” Yamakawa said. Still, some companies are benefiting from rebounding demand in Asia, particularly China, the world’s fastest-growing major economy and Japan’s biggest overseas market. Hitachi Construction Hitachi Construction Machinery Co. , Asia’s second-largest excavator maker, may double sales in China this quarter, beating its forecast as the nation’s spending on railroads and mining fuels demand, Chief Executive Officer Michijiro Kikawa said in an interview on March 1. Japanese manufacturers increased output in January at the fastest pace since May and exports climbed the most in almost 30 years, government reports showed last month. The global economy is on a cyclical recovery as the U.S. economy is rebounding, in addition to stronger-than-expected growth in Asia, said Shunsuke Saito , an economist at Dai-Ichi Life Research in Tokyo. The U.S. economy expanded the most in six years last quarter. “The worst for capital spending may be over as corporate profits are recovering,” Saito said. “Even though the pace of growth may slow, Japan should avoid a standstill in the first half of this year as exports maintain high growth.” To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Australia’s Economic Growth Accelerates, Supporting Case for Higher Rates

March 2, 2010

By Jacob Greber March 3 (Bloomberg) — Australia’s economy grew in the fourth quarter at the fastest pace in almost two years, underscoring the central bank’s decision yesterday to boost borrowing costs for the fourth time in five meetings. Gross domestic product climbed 0.9 percent from the third quarter, when it gained a revised 0.3 percent, the Bureau of Statistics said in Sydney today. That matched the median estimate in a Bloomberg News survey of 18 economists. Governor Glenn Stevens , who yesterday became the first Group of 20 central banker to increase interest rates this year, says Australia’s economy is running at or near “trend” after skirting last year’s global recession. Growth may strengthen this year as China’s demand for resources stokes investment by companies including BHP Billiton Ltd. and Chevron Corp. “The Australian economy is running hot,” Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today’s report. Domestic demand remains “very healthy, and ultimately this is what matters for monetary policy,” he said. Machinery and equipment spending surged 10.9 percent in the quarter, adding 0.8 percentage points to GDP, today’s report said. Household spending rose 0.7 percent and government spending jumped 1.8 percent. The economy grew 2.7 percent from a year earlier, the report showed. Economists forecast a 2.4 percent expansion. Best Performer Signs that Australia’s economy outperformed other nations made its dollar the best performer among the most traded currencies in the past year. The currency has climbed 42 percent versus its U.S. counterpart since March 2009 and this week hit a 25-year high against Britain’s pound. Faster-than-anticipated growth was a key reason policy makers increased the overnight cash rate target to 4 percent yesterday from 3.75 percent and prompted Governor Stevens to say rates should be closer to “average,” which he last week signaled may be 75 basis points higher than they are now. Today’s report adds to global evidence of an economic rebound. U.S. GDP rose at a 5.9 percent annualized rate in the fourth quarter, according to a government report on Feb. 26, marking the best performance in the world’s biggest economy in more than six years. The economy of China, Australia’s largest trade partner, grew a faster-than-anticipated 10.7 percent in the fourth quarter from a year earlier. Fiscal Stimulus Australia’s expansion is being boosted by spending by Prime Minister Kevin Rudd ’s government, which is outlaying A$22 billion ($20 billion) on roads, railways, ports and schools. Business investment is also surging as resources companies expand capacity to meet Asia’s rising demand for iron ore, coal and energy. Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said this week in a report. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half the level in Europe and U.S. economies. ‘Very Strong’ “Labor-market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months,” Stevens said yesterday. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter, the Reserve Bank forecast last month. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark. The chain price index, a measure of retail prices, climbed 0.9 percent in the fourth quarter from a year earlier, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Toyota Gains as U.S. February Sales Fall Less Than Estimated Amid Recalls

March 2, 2010

By Alan Ohnsman March 3 (Bloomberg) — Toyota Motor Corp. ’s February U.S. sales fell less than analysts had estimated amid congressional scrutiny of the automaker, while Nissan Motor Co. led gains among the biggest Asia-based brands. Toyota sold 8.7 percent fewer vehicles than a year earlier, compared with increases of 29 percent for Nissan, 13 percent for Honda Motor Co. and 11 percent for Hyundai Motor Co. Toyota was expect to drop at least 10 percent by industry data provider Edmunds.com and 27 percent by pricing service TrueCar.com. “I thought Toyota would be off by double digits,” said Jack Nerad , executive market analyst at Kelley Blue Book, an auto pricing and data service in Irvine, California. “It seems to indicate there’s still a lot of residual support for the company.” The second consecutive monthly decline for Toyota, the world’s largest automaker, comes as it works to repair more than 8 million vehicles worldwide to correct defects linked to unintended acceleration. Toyota announced incentives in the U.S. yesterday to win back customers, including no-interest loans and discounted leases on top-selling models. Industrywide sales rose 13 percent in February, led by Ford Motor Co.’s 43 percent surge and a 12 percent increase for General Motors Co. Those gains and an increase of less than 1 percent for Chrysler Group LLC gave U.S.-based automakers a combined 46.6 percent market share for the month, more than the 44.8 percent for Asian competitors, according to Autodata Corp. Toyota Toyota said it sold 100,027 Toyota, Lexus and Scion vehicles last month, down from 109,583 a year earlier. The company on Jan. 26 had suspended sales of eight of its best- selling models, including the Camry sedan, to fix accelerator pedals at risk of sticking because of a flawed component. “The ‘stop-sale’ we had at the beginning of the month and continued coverage by the media on the recalls had an impact,” said Bob Carter , group vice president of the Toyota City, Japan- based company’s U.S. sales unit, in a conference call yesterday. Carter said that Toyota has repaired at least 1 million vehicles and doesn’t see a “major outflow” of its customers to competitors. Toyota is starting incentive campaign this month that is “unprecedented” for the company, after focusing on “taking care of customers” in February, he said. Toyota fell behind Ford and GM in market share last month at 12.8 percent, dropping from 15.9 percent a year earlier, said Woodcliff Lake, New Jersey-based Autodata, a provider of industry statistics. Honda Honda said it raised sales of its namesake and Acura vehicles to 80,671, from 71,575. The increase for Toyota’s closest Japanese rival was aided by a 25 percent jump in sales of midsize Accord cars, traditionally the main competitor to Toyota’s Camry. “Honda was certainly a beneficiary” of Toyota’s problems in February, said Nerad, the Kelley Blue Book analyst. “But so were Ford, GM and Hyundai.” Tokyo-based Honda, the second-largest Japanese automaker, also boosted sales of Civic small cars, Odyssey minivans and Acura MDX sport-utility vehicles. Even with its sales gain, Honda’s market share for the month slipped 0.1 point to 10.3 percent, according to Autodata. Nissan Nissan’s February sales rose to 70,189 Nissan and Infiniti vehicles, from 54,249 a year earlier. The Yokohama, Japan-based company benefited from increases for Cube wagons, Sentra and Versa small cars, Maxima sedans and Frontier pickups, said Al Castignetti , U.S. vice president of Nissan-brand sales. Toyota’s recall is having some effect on the market, Castignetti said in an interview yesterday. “I can’t really quantify the impact on us, but dealers are telling us that what’s happening to Toyota is affecting the entire industry,” he said. “In terms of customers moving from Toyota to Nissan, we’re actually seeing very little of that, though there have been some.” Nissan’s market share grew to 9 percent in February from 7.9 percent a year earlier Autodata said. Hyundai, South Korea’s largest automaker, raised sales to 34,004, from 30,621. The Seoul-based company benefited from a full month of sales of its revamped Tucson SUV and the start of sales of a redesigned Sonata sedan. Kia Motors Corp., a Hyundai affiliate, reported that February sales rose 9 percent 24,052 vehicles. To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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Ford Tops GM in Monthly Auto Sales for First Time Since 1998 Amid 43% Gain

March 2, 2010

By Mike Ramsey and Keith Naughton March 2 (Bloomberg) — General Motors Co. posted a 12 percent increase in U.S. sales in February, trailing analysts’ estimates, as snowstorms curbed showroom traffic across much of the country. Deliveries rose to 141,951 from 127,296 a year earlier, Detroit-based GM said today. The biggest U.S. automaker had an easy comparison from February 2009, when it had the worst results in at least 15 years amid bankruptcy speculation and a deepening of the recession. GM’s total may signal a weakening of the industry ’s rebound from the 2009 slump that sent sales tumbling to the lowest levels in 27 years. Sales volumes faced pressure from record snowfalls blanketing some regions and the Toyota Motor Corp. recalls that temporarily halted sales of some models. “Possibly the entire market could be softer than what people thought,” said Michael Robinet , chief forecaster for CSM Worldwide Inc. in Northville, Michigan. “The weather may have had a deep impact. When you are buried in snow, buying a car is not top of mind.” The seasonally adjusted annual sales rate for cars and light trucks may have reached 10.3 million, the average of 8 estimates compiled by Bloomberg. That would be a fourth straight gain from a year earlier. The February 2009 pace was 9.1 million, the lowest since 1981. Manufacturers, dealers and investors use the annualized rate to compare monthly totals by taking into account seasonal buying patterns. February is typically among the lowest sales months of the year, while June is one of the highest. Annual U.S. sales averaged 16.8 million last decade through 2007. Analysts’ Estimates Analysts expected GM to say deliveries rose 20 percent last month, based on the average of 5 estimates compiled by Bloomberg. The results showed the effect of GM’s plans to sell or shut four U.S. brands — Saab, Hummer, Saturn and Pontiac — as part of its government-backed bankruptcy last year. Deliveries for those four vehicle lines plunged 86 percent to 3,102, GM said. GM said sales for the four brands it is keeping, Chevrolet, Cadillac, Buick and GMC, rose 32 percent from a year earlier. Volumes more than doubled for the Buick LaCrosse sedan and Chevrolet Equinox sport-utility vehicle. Fleet Sales Sales to businesses and government buyers drove GM’s growth. While Chevrolet posted a 32 percent increase, deliveries to dealerships were up only 1 percent, GM said. Chevrolet makes up 70 percent of the company’s U.S. volume. Ford Motor Co. , based in Dearborn, Michigan, may say sales rose 33 percent, while Auburn Hills, Michigan-based Chrysler Group LLC probably will post an 18 percent decline, according to the average estimates. Toyota’s sales may have fallen 10 percent, researcher Edmunds.com projected. Tokyo-based Honda Motor Co. may say deliveries rose 24 percent, while Nissan Motor Co. , based in Yokohama, Japan, may report a 38 percent gain, Edmunds.com said. Seoul-based Hyundai Motor Co. probably will show a 25 percent increase, according to Edmunds.com. A decline for Toyota would be the second in a row for the world’s largest automaker, which recalled about 8 million vehicles for flaws tied to unintended acceleration and suspended U.S. sales of 8 models, including Camry and Corolla sedans, starting Jan. 26. Dealers resumed sales once repairs were made. Toyota Fallout The U.S. troubles for Toyota City, Japan-based Toyota may have cut as many as 400,000 vehicles from the industry sales rate, Himanshu Patel , a JPMorgan Chase & Co. analyst in New York, wrote in a Feb. 24 note to investors. GM began March with its own quality questions, after saying late yesterday that it’s recalling 1.3 million Chevrolet and Pontiac models to fix power-steering systems. GM said U.S. regulators received more than 1,100 consumer complaints about failures. The models include the Chevrolet Cobalt small car. Snow in the eastern U.S. paralyzed car dealers and other businesses last month in cities such as Washington and Philadelphia, while Dallas had its biggest one-day accumulation in a storm that moved across Texas and the South. February economic data may be disrupted by the storms, making it difficult to gauge the extent of the U.S. recovery. The Conference Board’s consumer confidence index fell to the lowest level in 10 months in February, a sign that Americans may limit spending on concern that the job market remains weak. Shake-Up, Opel GM’s January and February gains marked the first time since 2004 that the automaker began the year with sales increases. A shake-up is on the way in GM’s sales operations, with Chief Executive Officer Ed Whitacre is planning the second personnel shuffle since December, three officials familiar with the plan said. Susan Docherty , vice president for sales, service and marketing, is poised to give up the sales and service portion of her portfolio and retain only marketing, said one of the officials, who asked not to be identified because details aren’t public. The moves would extend Whitacre’s push to overhaul GM since the company exited bankruptcy in July. GM said today its funding to reorganize the money-losing Opel unit in Germany will triple to 1.9 billion euros ($2.6 billion) as the automaker tries to persuade European governments to provide loans and guarantees. To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net ; Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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GM February U.S. Sales Gain of 12% Trails Estimates as Snow Deters Buyers

March 2, 2010

By Mike Ramsey and Keith Naughton March 2 (Bloomberg) — General Motors Co. posted a 12 percent increase in U.S. sales in February, trailing analysts’ estimates, as snowstorms curbed showroom traffic across much of the country. Deliveries rose to 141,951 from 127,296 a year earlier, Detroit-based GM said today. The biggest U.S. automaker had an easy comparison from February 2009, when it had the worst results in at least 15 years amid bankruptcy speculation and a deepening of the recession. GM’s total may signal a weakening of the auto market ’s rebound from the 2009 slump that sent sales tumbling to the lowest levels in 27 years. Industry volumes faced pressure from record snowfalls blanketing some regions and the Toyota Motor Corp. recalls that temporarily halted sales of some models. “Any bad news in a fragile environment like this will certainly hinder recovery,” said Jesse Toprak , chief forecaster for researcher TrueCar.com in Santa Monica, California. Weather and the recalls “messed up the momentum and trajectory of the industry,” Toprak said. The seasonally adjusted annual sales rate for cars and light trucks may have reached 10.3 million, the average of 8 estimates compiled by Bloomberg. That would be a fourth straight gain from a year earlier. The February 2009 pace was 9.1 million, the lowest since 1981. Manufacturers, dealers and investors use the annualized rate to compare monthly totals by taking into account seasonal buying patterns. February is typically among the lowest sales months of the year, while June is one of the highest. Annual U.S. sales averaged 16.8 million last decade through 2007. Analysts’ Estimates Analysts expected GM to say deliveries rose 20 percent last month, based on the average of 5 estimates compiled by Bloomberg. GM’s results included the four brands that the company is selling or closing: Saab, Hummer, Saturn and Pontiac. Ford Motor Co. , based in Dearborn, Michigan, may say sales rose 33 percent, while Auburn Hills, Michigan-based Chrysler Group LLC probably will post an 18 percent decline, according to the average estimates. Toyota’s sales may have fallen 10 percent, researcher Edmunds.com projected. Tokyo-based Honda Motor Co. may say deliveries rose 24 percent, while Nissan Motor Co. , based in Yokohama, Japan, may report a 38 percent gain, Edmunds.com said. Seoul-based Hyundai Motor Co. probably will show a 25 percent increase, according to Edmunds.com. Toyota’s Troubles A decline for Toyota would be the second in a row for the world’s largest automaker, which recalled about 8 million vehicles for flaws tied to unintended acceleration and suspended U.S. sales of 8 models, including Camry and Corolla sedans, starting Jan. 26. Dealers resumed sales once repairs were made. Increased purchases by business customers probably bolstered U.S. automakers last month, just as they did in January, Himanshu Patel , a JPMorgan Chase & Co. analyst in New York, wrote in a Feb. 24 note to investors. At the same time, the U.S. troubles for Toyota City, Japan- based Toyota may have cut as many as 400,000 vehicles from the industry sales rate, Patel wrote. Snow in the eastern U.S. paralyzed car dealers and other businesses last month in cities such as Washington and Philadelphia, while Dallas had its biggest one-day accumulation in a storm that moved across Texas and the South. February economic data may be disrupted by the storms, making it difficult to gauge the extent of the U.S. recovery. The Conference Board’s consumer confidence index fell to the lowest level in 10 months in February, a sign that Americans may limit spending on concern that the job market remains weak. To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net ; Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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European Inflation Slows as Weakening Recovery, Job Cuts Curtail Spending

March 2, 2010

By Simone Meier March 2 (Bloomberg) — European inflation slowed in February after rising unemployment and a weakening recovery prompted households to scale back spending. Consumer prices in the 16-nation euro region rose an estimated 0.9 percent from a year earlier after increasing 1 percent in January, the European Union statistics office in Luxembourg said today. Producer prices fell 1 percent in January from a year earlier, the smallest decline in a year, the statistics office said in a separate report. European companies may find it difficult to pass on higher costs after unemployment held at an 11-year high in January and the economic recovery slowed to a near-halt in the fourth quarter. The European Commission said last week that the euro region may fail to gather strength for most of 2010 and the European Central Bank forecasts “subdued” price pressures . “We see very few inflation threats ahead,” said Juergen Michels , chief euro-area economist at Citigroup Inc. in London. “The euro region maintains its bumpy recovery. I don’t expect the ECB to start raising borrowing costs before early 2011.” The euro was little changed against the dollar after the data, trading at $1.3492 at 10:01 a.m. in London, down 0.5 percent on the day. The yield on the German 10-year benchmark bond rose 0.1 basis point to 3.11 percent. Today’s inflation report was in line with economists’ forecast in a Bloomberg News survey. Producer prices rose 0.7 percent from December, when they increased 0.1 percent. Costs of energy in the manufacturing sector fell 1.7 percent in the year. Current Quarter Inflation will probably average 0.8 percent in the current quarter before accelerating to 1.3 percent in the three months through June, the commission forecast on Feb. 25. Gross domestic product may rise just 0.2 percent in both quarters, it said. Europe’s economy may struggle to gain momentum after expanding just 0.1 percent in the fourth quarter as a doubling in oil prices over the past year leaves companies and consumers with less money to spend. Euro-area unemployment remained at 9.9 percent in January, the highest since November 1998. European economic confidence unexpectedly declined in February. Volkswagen AG, Europe’s largest carmaker, said on Feb. 26 that profit dropped 80 percent last year as the global recession eroded deliveries of the Audi luxury brand. Club Mediterranee SA, Europe’s largest resort company, said last month that first- quarter sales declined as travelers cut their holiday budgets. The ECB on March 4 will probably keep its benchmark interest rate at a record low of 1 percent, according to a Bloomberg survey. The Frankfurt-based central bank also will publish updated inflation and growth forecasts. The statistics office will release a breakdown of February inflation on March 16. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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Only the Savviest Forecasters Win My DEFT Contest: John Dorfman

March 1, 2010

Commentary by John Dorfman March 1 (Bloomberg) — Very few people foresaw the Great Recession of 2007-2009. That’s really no surprise. Most economic forecasters fall on their faces at turning points. For example, in January 2008 only five of 62 economists surveyed by Bloomberg News predicted a recession. The consensus was that the chance of a recession developing within 12 months was 40 percent. In fact, it was already under way. Can you do any better than the experts? One way to find out is to enter my annual Derby of Economic Forecasting Talent (DEFT), which I am now reviving after a few years of dormancy. Some of the previous contests were won by financial professionals, including a Fed official in Richmond, Virginia, and money managers in Chicago and New Jersey. Other winners were amateurs. For example, the victor one year was a recent graduate of the University of New Mexico who hadn’t yet found her first job. (At least she was an economics student, not an English major.) So far, no economist has taken first place, though quite a few have entered. The number of entrants per year has ranged from about 40 to more than 100, including people in all walks of life from about a dozen countries. Pros and Amateurs Why can amateurs fare as well as they have in the contest? Experts in almost all fields make mistakes frequently. This is not because they are inept poseurs, but simply because forecasting complex systems is incredibly difficult. Researchers have studied cardiologists analyzing electrocardiograms, racetrack bettors handicapping thoroughbreds, and meteorologists forecasting storms. Their studies show it is often difficult even for knowledgeable people to outperform a simple computer model. The DEFT contest itself provides strong evidence of the challenges of forecasting. Contestants have often missed the boat whenever a key aspect of the economy veers from trend. For example, in 2003-2004 every single contestant underestimated the rise in the price of oil. Here are the six questions you must answer to enter the DEFT contest for 2010-2011. Question 1: Economic Growth. U.S. gross domestic product in the fourth quarter of 2009 was growing at an annualized rate of 5.7 percent. Growth was 2.2 percent in the third quarter, and had been negative in five of the six previous quarters. What will be the pace of economic growth in the fourth quarter of 2010? Question 2: Inflation. The U.S. consumer price index rose 2.6 percent in the year ended January 31, 2010. Twelve months before that it was flat. What will be the comparable figure as of January 31, 2011? Question 3: Interest rates. The interest rate on 10-year bonds issued by the U.S. Treasury stood at 3.58 percent at the end of January, up from 2.84 percent a year earlier. What rate of interest will 10-year Treasury bonds pay as of January 31, 2011? Question 4: Oil prices. A barrel of crude oil (West Texas intermediate, spot price) traded for $72.89 at the end of January, up from $41.68 a year earlier. What will be the price of a barrel of oil on January 31, 2011? Question 5: Retail sales. U.S. retail stores rang up $356 billion in sales in January, compared with $340 billion a year previously and $376 billion two years earlier. Rounded to the nearest billion, what will be the monthly total for retail sales in January 2011? Question 6: Unemployment. The U.S. unemployment number is crucial in affecting public mood, consumer confidence, political fortunes and quality of life for many Americans. As of January 31, the official unemployment rate was 9.7 percent. The comparable figures were 7.7 percent in January 2009 and 5 percent in January 2008. What will be the unemployment rate as of January 31, 2011? To enter, e-mail me at dorfman1@bloomberg.net , providing your answers to the six questions above, plus a phone number and e-mail address to allow me to contact you if you win. If you do not receive an acknowledgement of your e-mail entry within 72 hours, please re-send it. All entries must be time-stamped by midnight on March 15, 2010. The contestant with the most accurate answer to each question receives three points. Second place gets two points, third place one point. While the theoretical maximum is 18 points, a score of four to six points is often enough to win. The winner will receive a trophy from me, plus bragging rights at home and at work. Good luck. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com

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Greenwich’s `Move-Up’ Homes Linger on Market as New York Buyers Stay Put

March 1, 2010

By Oshrat Carmiel March 1 (Bloomberg) — Bryan Roddy says it seemed a smart investment in April 2007 when he and his partners bought a $1.2 million home in Greenwich, Connecticut, added two bedrooms and baths and priced it at $2.9 million to lure Manhattan buyers. They listed the Havemeyer Place property in October 2008, a month after Lehman Brothers Holdings Inc. went bankrupt and sent markets tumbling. The house is still for sale. The so-called move-up market in Greenwich, known as the hedge-fund capital of the U.S., has dried up as the lingering effects of the financial crisis strand potential buyers in their current homes. “There was no one in that price range looking,” said Roddy, 48, a principal of Roddy Construction LLC, a residential building and renovation firm in Norwalk, Connecticut. Greenwich home sales from $2 million to $2.99 million fell 45 percent last year, more than any other price category and the most since broker Russell Pruner began tracking the data in 1976. Fifty-two such properties in town changed hands, compared with 94 in 2008. “That’s in many cases a trade-up, or entry level,” said Pruner, also the owner of Shore & Country Properties in Riverside, Connecticut. Move-up sales are largely driven by locals looking for bigger homes and New York apartment owners seeking their first place in the suburbs, he said. Buyers who can afford to pay $2 million to $3 million still rely on mortgage financing, said Alan Rosenbaum, principal of GuardHill Financial Corp., a New York-based mortgage brokerage with Greenwich clients. Lenders have curbed financing at that level to between 50 percent and 70 percent of the purchase price, he said. Financing Obstacle At the same time, declining real estate prices mean people who need to sell their existing homes before buying another may have less cash for the purchase. “In the past, when you sold one home to buy another, you normally reaped a nice profit and you used that profit as a down payment for your new home,” Rosenbaum said. “Many people who are trading up from the smaller home don’t have enough equity.” Manhattan apartment prices fell 21 percent from their market peak in 2008, according to data from New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. The median price of co-operatives and condominiums slid 10 percent to $810,000 in the fourth quarter from a year earlier, the companies said in a Jan. 5 report. The median price hit $1.03 million at the top of the Manhattan market in the second quarter of 2008. Wall Street Cutbacks Wall Street firms paid about $20 billion in bonuses in 2009, down about a third from 2007, New York State Comptroller Thomas DiNapoli said Feb. 23. The average industry bonus was $123,000, excluding stock options or other deferred pay. The financial industry cut 26,300 jobs in New York last year, contributing to the decline in the Connecticut real estate market. The median price of a single-family home in Greenwich, which lies about 30 miles (48 kilometers) northeast of midtown Manhattan, dropped a record 18 percent to $1.6 million, according to Pruner. Sales fell 20 percent to 370, with declines in all price ranges of more than $1 million. Transactions of $3 million to $3.99 million dropped 30 percent to 37, according to Shore & Country data. There were 21 sales between $4 million and $4.99 million, a 16 percent decline. Forty-three properties changed hands for $5 million or more, a 19 percent decrease. Sternlicht Can’t Sell Real estate investor Barry Sternlicht , chairman and chief executive officer of Starwood Capital Group LLC., has been trying to sell his 5.8-acre Greenwich property since June 2008. The gated estate, with tennis and shuffleboard courts and a swimming pool, was on the market for $5.95 million. The listing is no longer active on the Greenwich Multiple Listing Service. Starwood is based in Greenwich, which is also home to about 100 hedge funds. Of 514 homes for sale in town at the beginning of February, 20 percent were priced between $2 million and $3 million, according to Shore & Country. Of 98 new listings between Jan. 10 and Feb. 10, more than half had previously failed to attract a buyer, according to data compiled by Jeanne Howell, a broker for Greenwich Fine Properties . The owners of 17 Tomac Avenue , in the waterfront neighborhood of Old Greenwich, are among those trying again. They have been seeking to sell the five-bedroom, five-bath, cul- de-sac property since 2008. Cutting the Price After attracting no buyers at $3.5 million, the property, which features a stone terrace and hand-painted wood floors, was relisted in October and is priced at $3.075 million, said Julianne C. Ward , the owners’ broker at Prudential Connecticut Realty in Greenwich. Gary Disher, a co-investor with Roddy on the Havemeyer Place home, was unable to sell it last year after reducing the price to $2.5 million, so he took it off the market in December. The house dates to 1911 and was gutted and renovated to include amenities such as centralized stereo and light controls. Disher, a broker with William Raveis in Greenwich, relisted the residence in January for $3 million in a bid to grab attention from buyers in a different price bracket, he said. “We wanted to make sure that we weren’t missing people that would be potential buyers in the $3 million-to-$4 million category,” he said. “We let it soak in that range so we could at least give it a shot and capture anyone who was there.” On Feb. 18, he dropped the price to $2.49 million. To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net .

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Consumer Spending in U.S. Rises for Fourth Straight Month in Recovery Sign

March 1, 2010

By Timothy R. Homan March 1 (Bloomberg) — Spending by U.S. consumers increased in January for a fourth consecutive month, a sign that the biggest part of the economy may contribute more to growth in coming months. The 0.5 percent increase in purchases was more than anticipated and followed a 0.3 percent gain in December that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.1 percent, short of expectations and reflecting declines in dividends and interest. Retailers such as Home Depot Inc. and Macy’s Inc. are forecasting rising sales this year, even as they don’t foresee a robust economic recovery. An unemployment rate that’s projected to average 9.8 percent this year may restrain household purchases, which account for about 70 percent of the economy. “It’s a good start” for the year, said Brian Bethune , chief financial economist at IHS Global Insight in Lexington, Massachusetts, who correctly forecast the increase in purchases. Still, he said, “consumption is not going to be the driver” of economic growth. Stock-index futures maintained earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.4 percent to 1,107.7 at 9:05 a.m. in New York. Treasury securities were little changed. Exceeds Forecast The median estimate of 61 economists surveyed called for a 0.4 percent increase in spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent. The increase in incomes followed a 0.3 percent advance in December. The median forecast of economists surveyed anticipated a 0.4 percent gain. Wages and salaries climbed 0.4 percent in January, the most since April, after increasing 0.1 percent the prior month. Interest payments fell 0.3 percent while dividends declined 3 percent. Disposable income , or the money left over after taxes, dropped 0.4 percent, the largest decrease since July, reflecting an increase in federal non-withheld income taxes. Today’s report showed stable prices. The inflation gauge tied to spending patterns rose 2.1 percent from January 2009, less than the 2.2 percent survey median forecast. The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged in January from the previous month and was up 1.4 percent from a year earlier. Adjusted for inflation, spending climbed 0.3 percent following a 0.1 percent rise the prior month. Because the increase in spending was larger than the gain in incomes, the savings rate fell to 3.3 percent, the lowest level since October 2008, from 4.2 percent the prior month. Broad-Based Gains Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.7 percent in January after rising 0.6 percent the prior month. Purchases of non-durable goods increased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.1 percent. The economy grew at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.7 percent pace, from 2.8 percent the previous three months. Home Depot is among companies projecting stronger sales. “We recognize that we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market, so we’re not projecting robust growth,” Home Depot Chairman and Chief Executive Officer Frank Blake said on a Feb. 23 conference call with analysts. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Malaysia to Encourage State-Linked Companies, Tycoons to Invest at Home

February 28, 2010

By Barry Porter March 1 (Bloomberg) — Malaysia’s government-linked companies and businessmen are being pressed to boost spending at home amid concern that more money is being invested abroad than flowing into the country. Fresh ideas to stimulate investment may be included in the government’s so-called New Economic Model, International Trade and Industry Minister Mustapa Mohamed said in an interview on Feb. 27. Prime Minister Najib Razak will unveil the strategy in about a month’s time, Mustapa said. “In the past couple of years there’s been more outflows than inflows,” Mustapa said. “We are going to be more aggressive in promoting our people to invest in Malaysia. We have spoken to our GLCs, for example. They have got some plans, some of which have been presented to the government.” Malaysia reported a net outflow of 17.8 billion ringgit ($5.3 billion) in direct investment in the six months through September 2009, according to statistics department data. State- linked companies, including oil and gas producer Petroliam Nasional Bhd., mobile-phone operator Axiata Group Bhd . and palm- oil producer Sime Darby Bhd. , have invested abroad in recent years to expand their operations. The cumulative net outflow in investment overseas during the past three years was 40 billion ringgit, the Edge weekly newspaper reported on Feb. 27, citing central bank data. Investments abroad were mainly in oil and gas, financial services, communications and business services, the Edge said. “There was a phase in Malaysia’s history when we encouraged our companies to move abroad and there was a time when we received a lot of foreign direct investment inflows into the country,” Mustapa said. Spend at Home While the government won’t stop companies investing overseas, it will encourage them more “aggressively” to spend at home, Mustapa said. The minister didn’t specify what measures to stimulate domestic investment may be included in the New Economic Model, saying details are being ironed out and discussions are still under way. Property is one industry where government-linked companies can invest more locally, Mustapa said. “Some of the GLCs have huge land banks,” he said. “So this is time for them to think about putting more money into our system. We have been talking to our GLCs. We have been talking to our own people, our rich entrepreneurs who have done very well.” Malaysia eased rules governing foreign investors, initial public offerings and property purchases last year, peeling back decades of benefits to the ethnic-Malay majority as the nation slid into its first recession in a decade. Exports Improve Overseas companies investing in the Southeast Asian nation and locally listed businesses no longer need to set aside 30 percent of their equity for so-called Bumiputera investors, identified as Malays and some indigenous people. Overseas ownership thresholds in the fund management industry and at local stockbrokers were also raised. Malaysia emerged from its recession last quarter with gross domestic product rising 4.5 percent from a year earlier. Investment as measured by gross fixed capital formation jumped 8.2 percent, and the construction industry grew 9.2 percent, Malaysia’s central bank said on Feb. 24. Export data for January, due on March 5, could exceed expectations, Mustapa said, adding that the country has no need for further stimulus. Malaysia unveiled 67 billion ringgit of measures under two packages in 2008 and 2009 to help resuscitate growth. “What has happened in respect to Malaysia is a global phenomenon,” said Mustapa. “There has been a global contraction of foreign direct investments throughout the world.” Approved factory investment dropped by about half to 32.6 billion ringgit last year as companies delayed projects during the global economic slump, Mustapa said last month. The government aims to attract domestic investments to account for 60 percent of total investments by 2020 from about 32 percent in 2009, he said Feb. 23. To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

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Scorsese’s `Shutter Island’ Tops U.S. Box Office Sales for Second Weekend

February 28, 2010

By James Callan Feb. 28 (Bloomberg) — “Shutter Island,” the Martin Scorsese thriller about an insane asylum, was the top-grossing movie at U.S. and Canadian theaters for the second consecutive weekend with ticket sales of $22.2 million. “Cop Out,” an action-comedy starring Bruce Willis and Tracy Morgan , opened in second place with $18.6 million for Time Warner Inc.’s Warner Bros., Hollywood.com Box-Office said today in an e-mailed statement. “Shutter Island,” the first release this year from Viacom Inc.’s Paramount Pictures, stars Leonardo DiCaprio as a detective investigating a missing patient at the asylum. It has made $75.1 million in the past two weeks and had the biggest opening weekend ever for both Scorsese and DiCaprio. A lack of horror films lately has made the thriller more appealing, said Chad Hartigan , a box-office analyst at Exhibitor Relations. “There’s always the teen and the young-adult audience that gets into these films, and you couple that with the marquee value of Leonardo DiCaprio and the cache of Martin Scorsese,” Hartigan said in an interview. “It’s paying dividends.” “Cop Out,” from director Kevin Smith , tells the story of a pair of mismatched New York detectives who take on a Mexican drug dealer while searching for a valuable baseball card that’s been stolen. Appetite for Horror “The Crazies” made its debut in third place with $16.5 million for Overture Films. In the R-rated horror film, inhabitants of a small town mysteriously turn into homicidal zombies when exposed to a deadly virus. It stars Timothy Olyphant and Radha Mitchell. “Horror films are usually way more prominent in the early months of the year,” Los Angeles-based Hartigan said. “If ‘Shutter Island’ wasn’t out, ‘The Crazies’ would have done even better.” “Avatar,” James Cameron’s 3-D adventure, dropped to fourth place from third with $14 million in ticket sales. The sci-fi movie has made $706.9 million domestically for Twentieth Century Fox since its Dec. 18 release. It is the top-grossing film of all time. Fox’s “Percy Jackson & The Olympians: The Lightning Thief,” fell to fifth place from fourth with $9.8 million. Romance “Valentine’s Day,” featuring Julia Roberts , Ashton Kutcher and Jessica Alba , slipped to sixth place from second with sales of $9.51 million. The romantic comedy was released on Feb. 12, in time for the movie’s namesake holiday, and has taken in a total of $100.4 million. “Dear John” fell to seventh place from sixth with $5 million for Sony Corp. The movie, based on a Nicholas Sparks novel, is about a soldier on leave who falls in love with a college student. Sales for the top 12 films rose 24 percent to $108.1 million from $87.2 million a year earlier, Hollywood.com said. Year-to-date receipts total $1.81 billion, up 1.5 percent from a year earlier. Attendance is down less than 1 percent this year. The following table has figures provided by studios to Hollywood.com. The amounts are based on actual ticket sales from Feb. 26 and yesterday and estimates for today. Rev. Avg./ Pct. Total Movie (mln) Theaters Theater Chg. (mln) Wks ================================================================ 1 SHUTTER ISLAND $22.0 3,003 $7,393 -46 $75.1 2 2 COP OUT 18.6 3,150 5,894 — 18.6 1 3 THE CRAZIES 16.5 2,477 6,670 — 16.5 1 4 AVATAR 14.0 2,456 5,700 -14 706.9 11 5 PERCY JACKSON 9.8 3,302 2,698 -36 71.2 3 6 VALENTINE’S DAY 9.5 3,578 2,657 -43 100.3 3 7 DEAR JOHN 5.0 3,006 1,663 -30 72.6 4 8 THE WOLFMAN 4.1 3,043 1,355 -58 57.2 3 9 TOOTH FAIRY 3.5 2,249 1,534 -21 53.9 6 10 CRAZY HEART 2.5 1,148 2,213 -14 25.1 11 11 THE BLIND SIDE 1.3 945 1,370 -11 248.8 15 12 THE BOOK OF ELI 1.1 975 1,159 -40 92.5 7 Top 12 Films Grosses This Week Year Ago Pct. (mln) (mln) Chg. =================================== $108.1 $87.2 23.9 Year-to-date Revenue YTD YTD Pct. (bln) (bln) Chg. =================================== $1,805 $1,778 1.5 Year-to-date Attendance: 0.5% To contact the reporter on this story: James Callan in New York at jcallan2@bloomberg.net .

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Berkshire Profit Surges to $3.06 Billion as Buffett’s Derivatives Recover

February 27, 2010

By Andrew Frye and Jamie McGee Feb. 27 (Bloomberg) — Warren Buffett ’s Berkshire Hathaway Inc. said fourth-quarter profit jumped on improved investment results and the recovery of derivative bets tied to the world’s stock markets. Net income rose to $3.06 billion, or $1,969 a share, from $117 million, or $76, in the same period a year earlier, the Omaha, Nebraska-based company said today in its annual report . The profit increase, Berkshire’s third straight, helps rebuild a cash pile that diminished since 2007 as Buffett invested in financial firms bruised by the recession. Companies including Goldman Sachs Group Inc. that turned to Buffett for funding are now paying Berkshire interest of 10 percent or more. The shopping spree culminated with the November agreement to buy railroad Burlington Northern Santa Fe for $27 billion. “When the crisis hit full bore, he was the investor of last resort, so he got the terms he was looking for on the investments he made,” said Glenn Tongue , a partner at T2 Partners LLC, which owns Berkshire shares. Buffett is Berkshire’s chairman, chief executive officer and largest shareholder. Contracts linked to four equity indexes improved from the fourth quarter of 2008, when the global decline in stocks after the collapse of Lehman Brothers Holdings Inc . contributed to $4.61 billion in derivative losses at Berkshire. The losses reverse when the indexes, including the Standard & Poor’s 500 , climb closer to the levels they were at when Buffett made the deals near the market’s peak in 2006 and 2007. Stocks Soar Berkshire’s own stock has gained 52 percent in the past year as these so-called equity-index puts rebounded and the value of the firm’s top stocks rose. The Class A shares closed yesterday at $119,800, their highest since Oct. 21, 2008. The 20 largest holdings in its U.S. portfolio all increased in the past 12 months. Coca-Cola Co. , Berkshire’s top holding, climbed 29 percent. Wells Fargo & Co. doubled and American Express Co. tripled. The U.S. portfolio was valued at $57.9 billion at Dec. 31, a 12 percent rise from a year earlier. The surge helped increase Berkshire’s book value last year. Buffett typically highlights book value, the measure of assets minus liabilities, in the first sentence of his annual letter to shareholders. In his “ owner’s manual ” for Berkshire investors, Buffett says he considers the figure to be the best objective measure of a company’s success. Buffett added a $2.6 billion investment in Swiss Reinsurance Co., completed in March, to a portfolio of financing deals that he struck during the credit freeze as other investors were withholding funds. The Swiss Re transaction pays a 12 percent coupon, while Berkshire gets 10 percent annually on its $5 billion injection in Goldman Sachs and its $3 billion of preferred shares in General Electric Co . Railroad Replacement Berkshire joined the S&P this month after completing the takeover of Fort Worth, Texas-based Burlington Northern. The move prompted managers of funds that attempt to recreate the returns of the index to add Buffett’s company to their portfolios. Buffett cut jobs and reshuffled managers at Berkshire’s operating companies last year as retail and industrial demand suffered in the recession. He replaced the CEOs of NetJets, the money-losing luxury flight provider, and jeweler Helzberg Diamond Shops Inc. This month, Berkshire reported its workforce fell by 9.8 percent since the end of 2008 to 222,000 employees. Buffett was stripped of his final AAA credit grade from a major rating firm this month when Standard & Poor’s downgraded Berkshire. The cut, which followed reductions last year by Fitch Ratings and Moody’s Investors Service, came as Berkshire neared the completion of the Burlington Northern takeover. To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net ; Jamie McGee in New York at jmcgee8@bloomberg.net .

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Wen Says He’s `Confident’ Government Can Keep China Home Prices Affordable

February 27, 2010

Feb. 27 (Bloomberg) — China Premier Wen Jiabao said he’s “confident” he can manage the nation’s soaring property market and keep home prices at a reasonable level during his tenure. The government aims to boost the supply of affordable housing and will use “economic and legal measures” to curb home purchases for speculative purposes, Wen said during a Webcast today from Beijing. China’s policy makers aim to avert asset bubbles and restrain inflation after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending targets in January and property prices climbed the most in 21 months. China’s growth accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007. The central bank earlier this month ordered lenders to set aside more deposits as reserves for the second time in a month to cool the world’s fastest-growing economy. Wen said today that 2010 will be the most “complicated” year for the Chinese economy as the government needs to strike a balance among maintaining “stable and relatively fast” growth, adjust the nation’s growth model and manage inflation expectations. He reiterated that China will continue a “moderately loose” monetary policy this year. Consumer prices rose 1.5 percent from a year earlier in January, down from 1.9 percent in December, on smaller gains in food prices. Inflation will accelerate to 3.6 percent by the end of June, according to a Bloomberg News survey of economists. Property prices across 70 cities surged 9.5 percent in January from a year earlier, exports climbed and producer-price inflation accelerated. Trade Surplus Last year’s record lending of 9.59 trillion yuan and a 4 trillion yuan stimulus package have helped the nation to lead the recovery from the first global recession since World War II. The world may again count on China as the biggest engine of growth. The World Bank last month raised its forecast for the global expansion in 2010 to 2.7 percent from 2 percent in June, and predicted 9 percent growth in China, which is poised to overtake Japan as No. 2 in GDP rankings this year. Wen said the U.S. should ease restrictions on exports of technology products as a way to narrow China’s trade surplus. China and U.S. should settle trade friction through negotiations rather than sanctions, Wen said today, adding he hopes 2010 won’t be an “unpeaceful” year for the two nations. U.S. Senator Charles Schumer and 14 colleagues said this week Chinese exporters should be hit with stiffer U.S. tariffs to compensate for the unfair advantage they get from an undervalued yuan. China’s central bank buys dollars to keep the yuan from strengthening, purchases that helped drive China’s foreign- exchange reserves 23 percent higher to a record $2.4 trillion last year. Japan’s reserves are the world’s second largest at $1 trillion. — Luo Jun . Editors: Virginia Van Natta , Jim McDonald To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net To contact the editor responsible for this story: Mike Millard at +65-6212-1519 or mmillard@bloomberg.net

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Asian Currencies Advance as Reports Show Economic Recovery Is Gaining Pace

February 27, 2010

By David Yong Feb. 27 (Bloomberg) — Asian currencies strengthened this week, led by Singapore’s dollar and Malaysia’s ringgit, after government reports showed economic recoveries in the region are gathering pace. The MSCI Asia-Pacific Index of shares rallied 2.4 percent and bond yield premiums helped attract fixed-income investors as the Federal Reserve damped speculation U.S. interest rates will be raised. The Philippines predicts economic growth will exceed the government’s target this year, while Taiwan data showed export orders surged the most on record. “Recovery momentum in Asia is still intact and should continue to benefit from the uptick in the manufacturing cycle,” said Sim Moh Siong , a foreign-exchange strategist at Bank of Singapore Ltd. “The long-term picture should continue to favor Asian and emerging-market currencies.” Singapore’s dollar appreciated 0.7 percent to S$1.4058 against the U.S. currency, while the ringgit rose 0.3 percent to 3.4000, according to data compiled by Bloomberg. The peso advanced 0.3 percent to 46.135. South Korea’s won and Indonesian rupiah have led regional gains in the past 12 months, strengthening 31 percent and 28 percent, respectively. Interest rates of zero to 0.25 percent in the U.S. spurred so-called carry trades, in which investors borrow at low rates to purchase higher-yielding assets elsewhere. ‘Yield Hungry Investors’ Emerging-market bond funds received net inflows for a 16th week from “yield hungry investors,” according to a Feb. 25 statement from EPFR Global. Investors ploughed more than $3.5 billion into debt sold by developing nations this year, after investing a record $8 billion in 2009, said the Cambridge, Massachusetts-based research company that tracks $12 trillion of assets worldwide. Fed Chairman Ben S. Bernanke said this week that the U.S. economy is in a “nascent” recovery that still requires its target rate for overnight loans to be kept at near zero “for an extended period.” The Philippine peso is the best-performing currency in Asia this month on optimism money sent home by Filipinos working abroad will increase this year. Economic growth may exceed the government’s 3.6 percent target in 2010 compared with an annualized 0.9 percent expansion last year, central bank Deputy Governor Diwa Guinigundo said on Feb. 25. The 9 million Philippine nationals employed overseas repatriated a record $17.3 billion in 2009, up 5.6 percent from the previous year. Those remittances will rise 6 percent this year, according to official estimate. “Remittances are still a big story and prospects for growth are better,” said Lito Mercado , head of trading at Rizal Commercial Banking Corp. in Manila. “Growth in remittances could be closer to 10 percent this year.” Manufacturing Boost Singapore’s industrial production rose 39.4 percent in January from a year earlier, twice the pace estimated by economists in a Bloomberg survey, according to government figures published yesterday. Taiwan, Thailand and Malaysia this week released data showing their economies emerged from recessions in the final quarter of 2009, with all three reporting faster expansions than economists anticipated. “The Asia data flow remains fairly strong,” Sebastien Barbe , head of emerging-market research at Credit Agricole CIB in Hong Kong, wrote in a Feb. 26 research note. Improved Confidence South Korea’s won appreciated 0.1 percent this week to 1,159.85 per dollar in Seoul. It gained 0.3 percent yesterday, as the outlook for factory production brightened. An index measuring manufacturers’ expectations climbed to a seven-year high of 101, from 92 a month ago, the Bank of Korea said yesterday. “The manufacturing data helps the won,” said Thio Chin Loo , a senior currency strategist at BNP Paribas SA in Singapore. “There is some profit-taking in dollar positions before the weekend.” India’s rupee strengthened yesterday by the most in almost seven weeks on speculation sales of state assets will draw investment from abroad. The country plans to raise 400 billion rupees ($8.7 billion) selling stakes in state-owned companies in the year beginning April 1, versus about 250 billion rupees in the current fiscal year, Finance Minister Pranab Mukherjee said. The rupee climbed 0.6 percent to 46.126 in Mumbai yesterday, versus the greenback, giving a weekly advance of 0.4 percent, according to data compiled by Bloomberg. Gross domestic product rose 6 percent from a year earlier in the fourth quarter, after gaining 7.9 percent in the previous three months, and Mukherjee said growth may reach 8.5 percent in the coming fiscal year. Elsewhere, Taiwan’s dollar rose 0.1 percent for the week to NT$32.085 against its U.S. counterpart and the baht advanced 0.3 percent to 33.07. China’s yuan advanced 0.1 percent to 6.8260, from 6.8330 on Feb. 12, before the weeklong Lunar New Year holiday. To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net .

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Fannie Mae Posts 4Q Loss, Wants $15.3 Billion In Additional Government Aid

February 26, 2010

WASHINGTON — Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year. The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request means the total bill for the duo will top $126 billion. And the pain isn’t over. Fannie warned Friday that it will need even more money from the Treasury, as unemployment remains high and millions of Americans lose their homes through foreclosure. Fannie Mae reported Friday that it lost $74.4 billion, or $13.11 a share, last year, including $2.5 billion in dividends paid to the government. That compares with a loss of $59.8 billion, or $24 a share, a year earlier. Fannie Mae, which was seized by federal regulators in September 2008, has racked up losses totaling $136.8 billion over the past three year. Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie, lifting an earlier cap of $400 billion. Earlier in the week, Freddie reported a loss of almost $26 billion for last year. The company didn’t request any more money, but expect to do so later this year. Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages. “Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning,” the company’s chief executive, Mike Williams, said in a statement. The two companies, however, loosened their lending standards for borrowers during the real estate boom and are reeling from the consequences. At the end of last year, nearly 5.4 percent of Fannie Mae’s borrowers had missed at least one payment – dramatically higher than historic levels. During the most recent quarter, Washington-based Fannie suffered $11.9 billion in credit losses and a $5 billion write-down for low income tax credit investments. That led to a fourth-quarter loss of $16.3 billion, or $2.87 a share, including $1.2 billion in dividends paid to the Treasury Department. It compares with a loss of $25.2 billion, or $4.47 a share, in the year-ago period.

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Stocks in U.S. Advance as Business Gauge, Economic Expansion Top Estimates

February 26, 2010

By Elizabeth Stanton Feb. 26 (Bloomberg) — U.S. stocks advanced, trimming the weekly drop in the Standard & Poor’s 500 Index, as reports showing business activity expanded and gross domestic product topped estimates overshadowed American International Group Inc. ’s plunge and home sales that missed projections. JPMorgan Chase & Co. led bank stocks to the biggest advance among 10 industries groups in the S&P 500 after Barclays Plc recommended buying the shares. Merck & Co. and UnitedHealth Group Inc. rose at least 0.8 percent, leading gains in health- care companies. AIG, the insurer bailed out by the U.S. government, slumped 10 percent after reporting an $8.87 billion fourth-quarter loss. The S&P 500 rose 0.1 percent to 1,104.49 at 4 p.m. in New York. It dropped 0.4 percent this week and gained 2.9 percent in February. The Dow Jones Industrial Average gained 4.23 points today, or less than 0.1 percent, to 10,325.26. Trading volume on U.S. exchanges was 7.89 billion shares, 11 percent less than the 2010 average, amid a storm that dumped about 21 inches (53 centimeters) of snow in New York City. “It’s a very brittle recovery,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $2.8 billion. “Any sort of sustained growth in consumer spending is a ways off.” A decline in the Conference Board’s consumer confidence index to a 10-month low on Feb. 23 sent the S&P 500 to its biggest drop in more than two weeks. The University of Michigan today revised its gauge of consumer sentiment to 73.6 for February, from a preliminary reading of 73.9. Business Barometer The U.S. economy expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 62.6 from 61.5 last month, a bigger increase than economists forecast and the highest since 2005. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, eroding investor confidence in the sustainability of the recovery. Purchases fell 7.2 percent, the second-largest decline ever, to an annual pace of 5.05 million, the National Association of Realtors said. “At some point we have to turn consumer confidence around, and for that we need fundamental improvement in jobs and real estate, which are central to the problem,” said Eric Teal , who oversees $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. There is a “disconnect between the psychology of the market and the fundamentals of the market.” ‘Buying Opportunity’ JPMorgan rose 3.3 percent to $41.97 for the biggest gain in the Dow average. The second-largest U.S. bank by assets offers an “attractive buying opportunity” as the stock traded at about 6 to 7 times normalized earnings, compared with a multiple of 9 for its peers, Barclays said. Merck , the second-largest U.S. drugmaker, rose 0.9 percent to $36.88. UnitedHealth Group , the biggest U.S. health insurer by revenue, gained 1.2 percent to $33.86. President Barack Obama is seeking the biggest U.S. health-care overhaul in 45 years. Congressional Republicans oppose the plan, which would require Americans to get insurance, with new purchasing exchanges and government aid to help. Obama and Democratic leaders said a bipartisan agreement was unlikely yesterday in Washington. “Health care is doing well based upon the growing realization that what ultimately gets passed isn’t going to be nearly as onerous as had been feared,” Kaufler said. Biggest Loss Ever AIG fell 10 percent to $24.77 for the biggest loss in the S&P 500. The fourth-quarter net loss of $8.87 billion, or $65.51 a share, narrowed from $61.7 billion, or $458.99, a year earlier when AIG recorded the biggest loss in U.S. corporate history. The loss was wider than expected as the company set aside more reserves for insurance claims and paying down bailout debts. Fluor Corp., the largest publicly traded U.S. construction company, dropped 5 percent to $42.80. The company lowered its 2010 earnings forecast to $2.80 to $3.20, from an earlier forecast of $3.20 to $3.60. Gap Inc., the operator of the Old Navy and Banana Republic clothing chains, rose 5.4 percent to $21.50. Gap forecast full- year profit of $1.70 to $1.75 a share. Analysts surveyed by Bloomberg estimated $1.69 on average. Gap also said it plans to increase its annual dividend to 40 cents a share from 34 cents and will buy back an additional $1 billion in stock. Profit Data The combined per-share earnings for the S&P 500 are $17.53 based on fourth-quarter reports by 453 companies, according to Bloomberg data, compared with a loss of 9 cents a share in the year-earlier period, according to S&P. Per-share profit declined in each of the past nine quarters, a record slump. Earnings topped analysts’ average estimates at three-quarters of the 456 companies in the S&P 500 that have posted quarterly results since Jan. 11, according to Bloomberg data. Interpublic Group of Cos. had the biggest gain in the S&P 500, surging 11 percent to $7.50. The owner of advertising firms reported fourth-quarter revenue of $1.8 billion, beating the average analyst estimate in a Bloomberg survey by 3.5 percent. BancorpSouth Inc. slumped 14 percent, the most since December 2008, to $19.47. The holding company for BancorpSouth Bank said it will delay filing its 2009 financial results because it’s reviewing its asset quality. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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Colombia May Keep Interest Rate at 3.5% to Fuel Growth Amid Tame Inflation

February 26, 2010

By Helen Murphy Feb. 26 (Bloomberg) — Colombia’s central bank will probably keep its benchmark interest rate unchanged as policy makers judge the current level will help boost growth without risking inflationary pressure. The seven-member board , led by bank chief Jose Dario Uribe , will keep the interbank rate at 3.5 percent when it meets today, according to all 28 economists surveyed by Bloomberg. That would be the third straight pause after seven cuts in a year. Policy makers say the economy is beginning to recover from last year’s recession and consumer demand is improving as a record-low interest rate encourages Colombians to use credit to purchase big-ticket items such as cars and washing machines. An acceleration in inflation caused by dry weather from the El Nino weather effect — which reduces crop output — will be short- lived, Uribe has said. “The economy could do with an additional boost, but the bank isn’t too worried about inflation right now because the dry weather is transitory and it would be a mistake to throw in the towel on reactivating the economy,” said Alberto Bernal , an economist at Bulltick Capital in Miami. Policy makers estimate that the economy will expand 2 percent to 3 percent this year after little or no growth in 2009. Finance Minister Oscar Ivan Zuluaga , who sits on the central bank’s board, has said the government’s 55 trillion pesos ($28.3 billion) of infrastructure investment last year helped temper Colombia’s first recession in a decade. Rate, Growth Horizons Consumer prices rose 2 percent last year, the lowest rate in more than five decades, down from 7.67 percent in 2008, after the bank increased borrowing costs 16 times over 2 1/2 years. The board may not want to cut rates to stimulate the economy as policy makers anticipate a lower level would lead to a resurgence of inflation, said David Duarte , a Latin America economist at 4Cast Inc. in New York. The annual inflation rate may almost double by year-end from last year, according to a central bank survey. “If the speed of the recovery is slower than expected, it’s possible they won’t raise rates until 2011,” Duarte said. “The private sector economy remains anemic. It’s going to need at least another six months of low rates to make sure the recovery is well-rooted and sustainable.” Retail sales rose 2.7 percent in December, while industrial output climbed 2 percent. Tensions, Ties A diplomatic and trade spat between Colombia and Venezuela has led to a plunge in exports and prompted the central bank to consider the decline in trade revenue on the economy as it sets monetary policy, Uribe has said. Policy makers have also voiced concern that Venezuela’s deepening economic slump may undercut Colombia’s recovery. Venezuelan President Hugo Chavez , who devalued the bolivar in January, last year pledged to end imports from his Andean neighbor in response to an agreement to allow U.S. armed forces greater access to Colombian military bases. Exports to Venezuela may fall to $1.5 billion this year as its lingering recession and electricity crisis further suppress demand for Colombian goods, bank chief Uribe has said. That’s down from $6.1 billion in 2008, according to the national statistics agency. Colombia’s exports rose 7.6 percent in December from a year earlier to $3.2 billion. “Colombian manufacturers and exporters are now scrambling continuously to find new markets, and they’re beginning to find them,” Duarte said. Trade Partners, Power Chile, Peru and Central America are helping replace exports to Venezuela, Uribe has said. Colombian companies also are beginning to find domestic buyers for the surpluses created by the drop in trade with Venezuela, Duarte said. Colombia has offered to sell electricity to Venezuela. Chavez declared a national emergency in the electricity sector on Feb. 8. Water levels may fall below the level needed to run 6,300 megawatts worth of turbines if it doesn’t rain by June. “Chavez is going to have to eat his words and buy electricity from Colombia,” Bernal said. “If it doesn’t rain by June, it’s all over.” The peso fell 0.4 percent yesterday to 1942.67 per U.S. dollar. The currency has gained 5.2 percent against the dollar this year, the best performance among 26 emerging-market currencies tracked by Bloomberg. To contact the reporter on this story: Helen Murphy in Bogota at Hmurphy1@bloomberg.net ;

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U.K. House Prices Decline for First Time in 10 Months, Nationwide Reports

February 26, 2010

By Zijing Wu Feb. 26 (Bloomberg) — U.K. house prices fell in February for the first time in 10 months as winter weather and higher taxes on transactions deterred buyers, Nationwide Building Society said. The average cost of a home dropped 1 percent from the previous month to 161,320 pounds ($246,000), the mortgage lender said in an e-mailed statement today. Prices are now 9.2 percent higher than a year earlier and down 13 percent from the peak in October 2007. Bank of England policy maker Kate Barker said this week the U.K. housing market may face further “adjustments” as banks curb mortgage lending. Property prices rebounded in the past year, supported by a shortage of homes, after losing about a fifth of their value from the peak as the economy emerged from the longest recession on record. “The market may have lost momentum in early 2010 as the stamp-duty holiday ended and house hunters were obstructed by the icy weather,” Martin Gahbauer , chief economist at Nationwide, said in the statement. Even without those factors, “it would have been surprising to see house prices maintain the very strong upward momentum seen for most of 2009.” Consumer confidence still rose for a second month in February as Britons’ expectations for economic growth increased, GfK NOP said in a separate report today. Economists say that the economy probably grew 0.2 percent in the fourth quarter, the median of 27 forecasts in a Bloomberg News survey shows. That would be an upward revision from the previous estimate of 0.1 percent that showed the recession had ended. The data will be released at 9:30 a.m. in London. Winter Damage The Nationwide data add to evidence of damage to the economy from winter weather. Retail sales dropped in January by twice as much as economists forecast as the longest cold snap since 1981 snarled traffic and kept shoppers at home. The government’s partial holiday on stamp duty, a tax on home purchases, expired this year. Chancellor of the Exchequer Alistair Darling suspended the levy on home purchases of less than 175,000 pounds in September 2008. “I was rather surprised by the strength of prices in the housing market through last year,” Barker told lawmakers on Feb. 23. “It’s possible some people were delaying decisions to move or to put houses on the market, and in some sense that can’t continue.” Nationwide said there has been an increasing number of borrowers taking variable-rate mortgages rather than fixed-rate loans since the middle of 2009. This may be because they expect the central bank to keep its benchmark interest rate low for a longer period, Gahbauer said. The bank’s interest rate is currently at a record low of 0.5 percent and its next monetary policy decision will be on March 4. To contact the reporter on this story: Zijing Wu in London at zwu17@bloomberg.net

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Japan Consumer Prices Fall 1.3%, Adding to Pressure to Tackle Deflation

February 25, 2010

By Mayumi Otsuma (Corrects number of months prices fell in first paragraph.) Feb. 26 (Bloomberg) — Japan’s consumer prices fell for an 11th month in January, putting renewed pressure on policy makers to eradicate deflation that hampers the recovery. Prices excluding fresh food slid 1.3 percent from a year earlier, the same pace as December, the statistics bureau said today in Tokyo. The figure matched the median estimate of 29 economists surveyed by Bloomberg News. Bank of Japan Deputy Governor Hirohide Yamaguchi said this week that prices may not be improving as quickly as he had expected. Finance Minister Naoto Kan has urged the central bank to do more to beat deflation as the government’s ability to spur the economy is constrained by the world’s largest debt . “Prices won’t stop falling until the recovery spreads to households,” Hiroshi Watanabe , a senior economist at Daiwa Institute of Research, said before the report was published. “Japan’s deflation will continue through fiscal 2012,” beyond the BOJ’s projections, he said. The yen traded at 89.27 per dollar at 8:36 a.m. in Tokyo from 89.22 before the report. 　 Unemployment and falling wages are discouraging spending by households and prompting companies to make discounts. Daiei Inc. this month cut prices of clothing and household goods as much as 30 percent, including women’s suits and desks for children, to spur sales before Japan’s school year starts in April. Costlier Oil Price declines have eased since peaking at 2.4 percent last August, largely because of costlier crude oil. Excluding energy and food, prices slumped 1.2 percent in January from a year earlier, matching the previous month’s decline as the sharpest since records began in 1971. Yamaguchi said this week that the moderation of price declines “seems to have been somewhat slower” given improvements in the economy. He said the central bank is “always prepared to implement appropriate measures at an appropriate timing.” Kan repeated this week that he wants the central bank to work with the government to beat deflation and “do what it can.” The bank unveiled a 10 trillion yen ($112 billion) lending program for commercial banks in December after the yen surged to a 14-year high against the dollar and politicians including Kan urged action. BOJ Action “It’s highly probable that the BOJ will act to ease monetary policy further should financial markets turn volatile suddenly,” said Kenro Kawano , a debt strategist at Credit Suisse Group AG in Tokyo. Bank of Japan policy makers forecast last month that core prices will decline 0.5 percent in the year ending March 2011 and 0.2 percent in the following 12 months. They haven’t made forecasts beyond then. Exports and production, which have fueled Japan’s rebound, are “bound to slow down” and the economy’s momentum will temporarily decrease, Yamaguchi said on Feb. 24. Tokyo core consumer prices dropped 1.8 percent in February from a year earlier, today’s report showed. Figures for the capital city are released a month earlier than nationwide data, making them a harbinger of price trends. “Downward pressure on prices will persist” as supply continues to outstrip demand, said Yoshiki Shinke , a senior economist at Daiichi Life Research Institute in Tokyo. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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U.S. Home Prices Fell 1.2% in Fourth Quarter, Smallest Loss in Two Years

February 25, 2010

By Kathleen M. Howley Feb. 25 (Bloomberg) — U.S. home prices fell 1.2 percent in the fourth quarter from a year earlier, the smallest loss in two years, as a federal tax credit for homebuyers boosted demand. Prices were down 0.1 percent from the third quarter, the Federal Housing Finance Agency said today in a report . The year- over-year drop was the smallest since a 1.1 percent decline in 2007’s fourth quarter, the Washington-based agency said. Government stimulus programs including the homebuyer tax credit and a Federal Reserve program to buy mortgage-backed bonds lifted the real estate market in the closing months of 2009. A sustained recovery in housing faces hurdles that include mounting foreclosures and a weak labor market, said Thomas Lawler , a former economist with Fannie Mae who now is an independent housing consultant in Leesburg, Virginia. “The government programs have helped to stabilize housing, but the market is still unbelievably fragile,” Lawler said in an interview. “Nobody knows what’s going to happen to all those properties in the foreclosure process.” Prices in December slipped 1.5 percent from a year earlier. They rose 0.7 percent in the region that includes California, and 0.3 percent in the area of the country that includes Texas. Prices in New York, New Jersey and Pennsylvania fell 0.4 percent, while New England states had a 1 percent decline. Credit Extension Sales of existing homes jumped 14 percent in the fourth quarter to an annual rate of 6.03 million from 5.29 million in the previous three months, the National Association of Realtors said in a Feb. 11 report. The inventory of homes on the market dropped to 3.29 million in December, the lowest level in more than three years, according to the Chicago-based trade group. 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, buyers must have a signed contract on a property by the end of April and purchase it before July 1. The Fed began buying $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. The program ends next month. The U.S. economy grew at a 5.7 percent annual pace in the fourth quarter, the fastest in six years. Industrial production rose 0.9 percent in January as factories churned out more consumer goods and equipment, according to Fed data. The increase followed a 0.7 percent gain the prior month. ‘Quite Weak’ The jobless rate fell to 9.7 percent in January after reaching a 26-year high of 10.1 percent in October, according to the Bureau of Labor Statistics. It probably will average 9.8 percent in 2010, according to the median estimate of 66 economists surveyed by Bloomberg. That would be the highest yearly rate in government records dating to 1948. “The job market remains quite weak,” Federal Reserve Chairman Ben Bernanke said in Congressional testimony yesterday. More than 40 percent of the unemployed have been out of work for more than six months, double the year-earlier share, he said. Today’s report from the FHFA measures values using repeat data on individual properties without providing specific prices. The U.S. median home price was $172,900 in the fourth quarter, according to the National Association of Realtors. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

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Royal Bank of Scotland Net Loss Beats Estimates; Pay, Bonuses Increase 44%

February 25, 2010

By Andrew MacAskill and Jon Menon Feb. 25 (Bloomberg) — Royal Bank of Scotland Group Plc , Britain’s biggest government-controlled lender, reported a narrower-than-estimated full-year net loss, and increased its pay and bonuses for investment bankers by 44 percent. The loss narrowed to 3.6 billion pounds ($5.5 billion) from 24.3 billion pounds a year earlier, the Edinburgh-based lender said in a statement today. That beat the 6.01 billion-pound estimate of nine analysts surveyed by Bloomberg. RBS’s investment-banking unit swung into profit, and impairments “appear likely to have peaked,” the company said. The stock jumped as much as 8.6 percent. “We have a long and tough job ahead of us but we do believe that the worst is behind us,” Chief Executive Officer Stephen Hester said in a conference call with reporters today. There would be “difficult times ahead,” he said. RBS , which needed 45.5 billion pounds in taxpayer-funded support, is undergoing the most complicated restructuring of any company in history, Hester said last month. The bank’s 2009 loss is slightly more than the cost of Britain’s war in Afghanistan, which cost about 3.5 billion pounds in 2009, according to House of Commons Defence Committee figures last year. The bank will pay about 1.3 billion pounds or 27 percent of revenue, compared with about 900 million pounds for the previous year, said two people briefed on the discussions. Barclays Capital, the investment banking unit of Barclays Plc, paid 38 percent of revenue in remuneration, while Goldman Sachs Group Inc. paid 36 percent. Assets Decline RBS’s loss was reduced by a one-time 2.15 billion-pound gain from a reduction in the pension plan over the third and fourth quarters. The bank, which is 84 percent owned by the U.K., also benefitted from rising profit at its investment banking unit and slowing impairments in the second half. “The numbers are more positive than the bears would have had you believe beforehand,” said Julian Chillingworth , who helps manage $21 billion including RBS stock at Rathbone Brothers Plc. “People are more interested in how quickly Hester can get the stock back to health.” The RBS loan-to-deposit ratio declined to 135 percent, compared with 151 percent, indicating the bank is becoming less reliant on wholesale markets for funding. Total assets declined to 1.52 trillion pounds from 2.22 trillion pounds, the bank said. That’s still greater than British 2008 GDP of about 1.44 trillion pounds. Hester has pledged to cut the balance sheet. RBS rose 7.2 percent to 38.72 pence at 10:25 a.m. in London for a market value of 21.9 billion pounds. Likely 2010 Loss Hester told reporters the bank is likely to make a loss in 2010 and return to profit in 2011. Attracting and retaining staff because of restrictions on bonuses is the biggest business problem that the bank faces, he said. “The road to recovery will be long and difficult, there is no sign of a resumption of the dividend, and the stock overhang of the government stake will remain a millstone around its neck for some time to come,” said Richard Hunter , Head of UK Equities at Hargreaves Lansdown Stockbrokers. The investment bank had done better than rivals, while the retail and commercial units “had their worst year” because of the recession, Hester told reporters. RBS has cut almost 20,000 jobs since Hester was appointed CEO in November 2008, replacing Fred Goodwin . Operating profit at RBS’s investment bank was 6.35 billion pounds compared with a loss of 1.27 billion pounds last year, the bank said. For the fourth quarter, operating profit rose to 1 billion pounds, compared with a 2.8 billion-pound loss in the year-earlier period. Impairments Rise ‘Sharply’ Operating profit at its U.K. consumer banking unit fell 68 percent to 229 million pounds. Profit fell 37 percent at its British corporate lending division to 1.1 billion pounds. The bank took a 335 million pound charge for bodily injury claims and weather claims at its insurance division, where profit fell 90 percent to 58 million pounds. Impairments on bad debt rose “sharply” to 13.9 billion pounds, almost matching the median estimate of 14.17 billion pounds of four analysts surveyed by Bloomberg. Hester, 49, will waive his right to a bonus of 1.6 million pounds amid public anger over such payments after taxpayers bailed out the banking system. The bank said its CEO had “significantly outperformed” his 2009 targets and that he would be rewarded “fairly, appropriately and at market levels.” Executives at Barclays Plc and Lloyds Banking Group Plc are also forgoing bonuses. RBS has fallen 37 percent in London trading since the end of August to yesterday, making it the worst-performer in the five-member FTSE 350 Banks Index , which has fallen 2.8 percent. Barclays, Britain’s second-largest bank, more than doubled second-half profit to 7.5 billion pounds when it reported results. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, reports tomorrow and HSBC Holdings Plc on March 1. To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

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Japan’s Export Growth Accelerates to 40.9% as Asian Demand Drives Recovery

February 23, 2010

By Keiko Ujikane Feb. 24 (Bloomberg) — Japan’s exports climbed 40.9 percent in January from a year earlier, compared with a 12.1 percent increase in December, the Finance Ministry said today in Tokyo. The median estimate of 22 economists surveyed by Bloomberg was for a 39.5 percent gain. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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