analysis

Zero Hedge: What Life Is Like For The Median Earner

April 13, 2010

Over at Zero Hedge, guest blogger Graham Summers of Phoenix Capital Research has laid out what life is like for Americans earning the “median” income ($50,300, based on available data from 2008) — and quickly discovers that, even under optimal circumstances and monastic spending habits, it’s terribly hard for ordinary Americans to simply “get by” in today’s economy. In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008. Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008. Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022. So, right off the bat, Joe’s monthly income is cut to $2,438. Summers proceeds from there, ticking off typical expenses related to food, utilities, transportation costs and health insurance. If you allow the median earner expenses related to cell phones, cable television and Internet service, Summers figures they are left with about “$100-200 discretionary income left at the end of the month.” One can quibble at the margins of this analysis, certainly. Available public transportation can eliminate the need to maintain an automobile, there are strategies for reducing the cost of food and no one really needs cable television if it means starving to death. But I’d point out that there are plenty of median earners in expensive rental markets, a family medical crisis could easily blow this budget to shreds and I don’t see any line items for childcare expenses (or, indeed, clothing, which last time I checked is a necessity). Oh, and maybe we should drop the curtain on the economic cheerleading? This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes). I’m reminded of Dale Maharidge, who told me that “we’re a nation of the working poor, and it’s something that people don’t want to acknowledge,” and that more journalists should get beyond the idea that economic realities can be adjudicated in a white paper or in a boardroom. Summers’s contribution is a rare one that works to reveal the nuts-and-bolts reality of what the average American is going through. And, naturally, that’s the median experience in America. There are people doing a lot worse. Many of 2008′s median earners, in fact, may be un- or underemployed in 2010. But, as David Brooks reminds us, these are all just losers who don’t work as hard as rich people , never mind them. MORE: It’s Impossible to “Get By” In the US [Zero Hedge] [h/t: CJR's The Audit ] [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Overhaul Gives Drugmakers, Insurers Millions of Customers, Stricter Rules

March 22, 2010

By Meg Tirrell March 22 (Bloomberg) — Drugmakers and health insurers will gain millions of customers under legislation overhauling the U.S. medical system. The industry also will pay new fees to the government, and face stricter rules that may narrow profit margins and fuel mergers. The bill that the House passed on a 220-211 vote yesterday expands coverage to 32 million uninsured Americans, according to Congressional number crunchers. That means more sales for Pfizer Inc. , the world’s largest drugmaker; UnitedHealth Group Inc. , the largest health insurer; and a cluster of companies led by Amerigroup Corp. that specialize in managing services through Medicaid, a program that will grow in the remake. The revamp will cost $940 billion over 10 years, with industry fees and taxes helping defray the cost of adding to the ranks of customers who can afford to pay their doctors, drugstores and hospitals. Because the legislation creates pressure to curb medical costs, companies may merge as a way to lower expenses, said Paul H. Keckley , executive director of the Deloitte Center for Health Solutions, a Washington-based research firm. “You have some that are able to manage more efficiently and strategically and some that can’t,” Keckley said by telephone March 19. “You’ll see an acceleration of acquisitions .” Fees, Rebates Drugmakers, who took part early in negotiations with the Senate Finance Committee and the White House, may have the most to gain. More health-care coverage “makes a difference in demand for drug products,” said John L. Sullivan , an analyst at Leerink Swann & Co. in Boston. People won’t have to skip doses of medicines as frequently to save money, he said. And while the industry pays $28 billion in fees over nine years to help the elderly afford drugs, it avoided requirements to have complicated pricing agreements with the government in Medicare, the program for the elderly and disabled, said Ramsey Baghdadi , a researcher at the analysis firm Prevision Policy LLC in Washington who specializes in pharmaceutical and biotechnology policy. Pfizer, based in New York, gained 6 cents to 12.59 euros at 10:11 a.m. in German trading. The Bloomberg Europe Pharmaceutical Index , which tracks 18 European drugmakers, fell 0.6 percent to 167.80. Subsidy Cuts For health insurers, the potential increase in customers will be tempered by subsidy cuts for custom Medicare Advantage plans offered to the elderly, and the prospect of new regulations. The industry, through its trade group America’s Health Insurance Plans, argued as recently as March 18 that the legislation won’t control costs and that people will still wait until they’re sick to buy coverage. UnitedHealth rose 10 cents to 25.52 euros in German trading , while Amerigroup rose 85 cents, or 3.4 percent, to 22.87 euros. Biotechnology companies , a group led by Amgen Inc. , based in Thousand Oaks, California, won 12 years of protection from generic medicines derived from proteins. The generics industry, led by Mylan Inc. , based in Canonsburg, Pennsylvania, and Teva Pharmaceutical Industries Ltd. , based in Petah Tikva, Israel, won a reprieve from a proposed ban on legal settlements in which the drugmakers are paid by brand-name manufacturers to delay introduction of the cheaper copies. Teva rose 1.5 shekels to 236.90 shekels in Tel Aviv trading. Amgen fell 6 cents to 43.82 euros in German trading. Hospitals, Devices Hospitals, a group led by Community Health Systems Inc. , of Franklin, Tennessee, will have more paying customers and less bad debt as a result. Still, that won’t happen until 2014, Keckley said, meaning hospitals will look for mergers. Makers of medical devices, Medtronic Inc. of Minneapolis among them, are likely to benefit the least, said Sullivan at Leerink Swann. The industry will pay a 2.3 percent excise tax on certain devices starting in 2013, and may not gain the same revenue boost as pharmaceutical companies, insurers and hospitals, he said in a telephone interview March 19. “The hospital industry is a winner,” Sullivan said. “The drug industry is probably a bit better off. The device industry could be a bit worse off. The biotech industry is relatively unscathed. And for managed care I think it’s a function of what happens with the individual mandate and how easy or hard it is to keep healthy people in the insurance pool.” No Republicans The Standard & Poor’s index of 51 health-care stocks has risen 5.1 percent from this year’s low on Feb. 8, the day President Barack Obama announced he was inviting Democratic and Republican lawmakers to the White House to discuss ways to get the overhaul through Congress. No Republicans voted for the measure yesterday. The measure is a modified form of legislation passed in December by the Senate, which takes up the revised bill as soon as this week under a procedure that keeps Republicans from mounting a filibuster. The 10-year bill would set in motion the biggest change in health care since the 1965 creation of Medicare. The legislation requires Americans to get insurance, offering government aid and new purchasing exchanges to help. Insurers such as Minnetonka, Minnesota-based UnitedHealth would get millions of new policyholders, while being required to accept all customers, even with pre-existing conditions. Pfizer and smaller drugmakers will benefit because broader access to insurance means more people can afford to keep taking their medicines, Sullivan said. ‘Doughnut Hole’ The bill also closes a coverage gap in Medicare payments known as the “doughnut hole,” which caused some patients to skip doses of medicines or switch to generics from brand-name products to cut costs, said Baghdadi at Prevision Policy. “The method of payment for closing the doughnut hole is a big win for pharma,” Baghdadi said in a March 18 research note. Drugmakers will pay about $3 billion a year for nine years to close the coverage gap rather than participate in a “rebate scheme on Medicare drugs,” he said. A rebate program exists in Medicaid, the state-federal program for the poor. “The industry did not want to sign on to that type of approach again,” Baghdadi said. He said it may be easier for the industry to fight expansions of fees “than try to unwind a rebate program.” Insurers may start to merge as well as they’re required to take on sicker patients in addition to healthy ones, Keckley at the Deloitte Center said. Risks Ahead To pay for the higher-cost patients with more medical needs, managed-care providers need large numbers of young, healthy people in their pool “to help spread the costs more effectively,” he said. For that reason, “consolidation in the insurance industry looks very inevitable,” he said. It won’t be easy sailing for the insurance industry, said Matthew Borsch , an analyst with Goldman Sachs Group Inc. in New York, in a research note March 18. The legislation “entails significant risks,” and the companies that sell Medicare Advantage policies face subsidy cuts. America’s Health Insurance Plans, the Washington-based trade group, says $200 billion will be carved from those plans. He recommends companies that will sell more insurance through exchanges or operate through Medicaid. That would include Amerigroup , based in Virginia Beach, Virginia. Also, the 2014 date for the insurance exchanges to start “leaves 3 ½ years to work through, and potentially modify, provisions that might undermine successful coverage expansion,” Borsch said. Carl McDonald at Oppenheimer & Co. in New York sees that period fraught with risk. “Much of what is included in the health reform bill is what is referred to as enabling legislation,” meaning the Health and Human Services secretary works out the details, he said in a note dated March 17. That is Kathleen Sebelius , who has “spent much of the past month trying to prove that managed care CEOs would deny a claim from their own mothers in order to improve their quarterly financial performance.” To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net .

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Lobbying Groups Target Undecideds in Final Hours of Health-Overhaul Debate

March 20, 2010

By Jonathan D. Salant March 20 (Bloomberg) — Groups on both sides of the health- care debate took to the airwaves, the phones and the streets to try to woo a small number of lawmakers in advance of tomorrow’s landmark vote in the U.S. House. Targeting the undecided lawmakers who will determine whether the legislation passes were organizations including the U.S. Chamber of Commerce , the Service Employees International Union and AARP, the biggest U.S. advocacy group for retirees. At stake was a 10-year, $940 billion measure that would make the biggest changes to the U.S. health-care system in more than four decades. “At this stage of the game, it’s down to a handful of members of Congress and everybody knows who they are,” said David Sloane , senior vice president for government relations at Washington-based AARP . The group endorsed the measure yesterday and its chief executive officer, Barry Rand , sent a letter to each House member urging a “yes” vote. AARP lobbyists and members are calling targeted lawmakers to make the case for the bill. Also announcing its support for the legislation yesterday was the doctors’ trade group, the Chicago-based American Medical Association . Abortion Issue Opponents of the measure include Americans United for Life Action , an anti-abortion group. The group spent $350,000 on newspaper ads directed at 14 House Democrats who supported an amendment by Representative Bart Stupak , a Michigan Democrat, added to the health bill the House passed in November that would block federal funding of abortion through federal health plans. The head of the United for Life group, Charmaine Yoest , spent yesterday calling Democrats who supported the Stupak amendment and telling them the anti-abortion provisions of the legislation now being considered were not strong enough. Through e-mails and text messages, abortion opponents were asked to deliver the same message to their local lawmakers’ offices. The group also asked abortion opponents to download and print copies of the newspaper ads, write a personal message and hand-deliver them to the representatives’ district offices. “If you take the time to personally print something out and make your voice heard, they will get that message,” said Matthew Faraci, a spokesman for the Washington-based group. Capitol Rally Between 2,000 to 3,000 opponents of the bill gathered today on a lawn in front of the U.S. Capitol. Speakers at the rally included actor Jon Voight , and some members of the crowd periodically chanted “kill the bill.” Some members of the crowd became unruly toward some black lawmakers, according to Representative James Clyburn , a South Carolina Democrat who serves as the House Majority Whip. “It was absolutely shocking to me,” said Clyburn, who is black. “I heard people saying things today I have not heard since March 15, 1960, when I was marching to try to get off the back of the bus — this was incredible.” Representative John Lewis , a Georgia Democrat who is black, was called a racial epithet, according to Kristie Greco , a spokeswoman for Clyburn. Representative Emanuel Cleaver , a Missouri Democrat who is black, was spat upon, Greco said. Neither Lewis nor Cleaver responded immediately to requests for comment. Phone Calls Congressional operators have been fielding 50,000 calls an hour for the past week, about 10 times the number that House members normally receive, said Jeff Ventura, a spokesman for Daniel Beard , the chamber’s chief administrative officer. As many as 50,000 additional calls an hour are getting a recording that says all circuits are busy, Ventura said. “We think this is breaking some records,” he said. “This is very obviously a big vote and there is a lot of interest around this.” The legislation, President Barack Obama ’s top domestic priority, requires Americans to get insurance and offers government aid and new purchasing exchanges to help in obtaining that coverage. The nonpartisan Congressional Budget Office said it would reduce the federal deficit by $138 billion in the first 10 years. Critics’ Contentions Opponents question those projections and say the bill will cause health costs to soar and amounts to a government takeover of the medical system. The Chamber began an ad campaign opposing the bill earlier this month and extended its effort through the weekend on national cable television and in 11 states with representatives who were among those whose votes on the legislation have been in doubt. Groups sending out letters urging “no” votes included the National Association of Manufacturers and the National Retail Federation. Another letter of opposition came from Peoria, Illinois- based Caterpillar Inc., which said the measure would drive up its costs by more than $100 million in the first year of implementation. Cleveland-based Eaton Corp . contacted lawmakers to express its opposition to the bill, which would add “more burden to those companies that provide the best health-care coverage to their employees,” said Kelly Jasko , a company spokeswoman. Union Efforts Among the legislation’s advocates, the 2.2-million member SEIU set up toll-free numbers for union members to use to contact lawmakers, bypassing the congressional switchboard. The union also used phone banks in the districts of some undecided lawmakers. “These members need to hear from the people who live in their hometowns,” said SEIU spokeswoman Lori Lodes . She also said that more than 60 supporters of the legislation rallied yesterday outside the Erie, Pennsylvania, office of Representative Kathy Dahlkemper , a Democrat who has been in the undecided column. Unions also indicated they might not support Democrats who voted against the bill. Seventeen union officials sent a letter yesterday to Representative Michael Arcuri , a New York Democrat who said he would oppose the legislation, telling him that voting no “would be a betrayal to our members who worked hard to help you win your office.” Members of Organizing for America , comprised of people who backed Obama in the 2008 campaign, were sent an e-mail yesterday by the group’s head, David Plouffe , urging them to contact lawmakers on behalf of the health-care bill. Plouffe served as Obama’s campaign manager. The legislation’s opponents, including the Chamber, are spending an average of $1.1 million a day this week on broadcast advertisements, according to Evan Tracey , president of Kantar Media’s Campaign Media Analysis Group in Arlington, Virginia. Supporters are averaging $244,000. To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net .

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Feldstein Sees Greek Euro-Exit Pressure as Plan Fails

March 17, 2010

By Simon Kennedy March 17 (Bloomberg) — Harvard University Professor Martin Feldstein , who warned almost two decades ago that the euro would prove an “economic liability,” said Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis. Under pressure from investors and fellow policy makers, Prime Minister George Papandreou ’s government is striving to knock four percentage points off its budget gap this year from 12.7 percent of gross domestic product and has vowed to meet the EU’s 3 percent limit in 2012 for the first time since 2006. “The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan , said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.” His diagnosis clashes with that of European Central Bank President Jean-Claude Trichet , who calls Greece’s strategy “convincing” and rejects as “absurd” any speculation it might leave the euro zone. Investors nevertheless aren’t ruling out Feldstein’s analysis. Billionaire George Soros said last month that the euro “may not survive,” and credit default swaps indicate a 22 percent chance Greece will default within five years, up from 16 percent a year ago. Latest Broadside The judgment of Feldstein, 70, a former contender to chair the Federal Reserve, marks his latest broadside against the single currency five years after he said its rules generated a “very strong bias toward large chronic fiscal deficits” and more than a year since he first suggested the 16-nation bloc may splinter. He “has more reason to think he’s right than five years ago, and it’s natural to talk about limitations,” said Philip Lane , an economics professor at Trinity College Dublin. “But the euro area will absolutely not break up.” Greek workers disrupted transportation services and tried to storm parliament on March 5 as lawmakers passed 4.8 billion euros ($6.6 billion) of extra deficit reductions, including lower wages for public employees. Such cutbacks will continue to run into resistance as unemployment is propelled above December’s 10.2 percent and recent declines in the country’s bond yields are tied to cheerleading by European policy makers, Feldstein said. ‘Polite Way’ Greece’s 10-year bond yielded 6.12 percent at 12:25 p.m. in London today, more than a percentage point lower than Jan. 28 . The premium investors demand to hold the bonds over their German equivalents narrowed to 298 basis points from 396 basis points in the same period. Greece will ultimately need to mull alternative ways to tackle its crisis, possibly by finding a “polite way” to default, Feldstein said. That might include persuading investors to swap maturing bonds for longer-term assets at lower interest rates. Another option would be leaving the euro area to devalue and then returning once the fiscal weaknesses are solved. “I don’t know that there’s a good solution to this problem,” Feldstein said. Pulling out and re-entering is impractical and gives other countries an excuse not to restrain deficits and improve their competitiveness within the euro zone, said Charles Wyplosz , a former student of Feldstein’s and director of the International Center for Monetary and Banking Studies in Geneva. While leaving the bloc and devaluing its currency would likely enable Greece to boost exports , the so-called holiday strategy would also require spending cuts, lower real wages and tax increases, Feldstein said. Belt-Tightening “Put all that together, and it doesn’t look like countries are going to eagerly line up to do it,” he said. European governments this week laid the groundwork for a financial lifeline to Greece that would provide emergency loans if needed, breaking a taboo against aid to cash-strapped nations to avert a deeper crisis for the euro. Standard & Poor’s yesterday removed Greece from “creditwatch negative,” lowering the threat of a further credit-rating cut. Greece has a BBB+ rating after S&P downgraded it from A- in December. While a bailout would be a “relatively painless solution,” Feldstein said it would generate opposition among voters and risk other nations demanding similar assistance. Feldstein’s opinions command attention because of his career at the hearts of both academia and politics. This experience catapulted him to the brink of the Fed chairmanship five years ago before President George W. Bush picked Ben S. Bernanke . Counseled Presidents Feldstein received the John Bates Clark Medal in 1977 as the U.S. economist under the age of 40 who made the most significant contribution to economic thought and knowledge, then ran the National Bureau of Economic Research , arbiter of U.S. business cycles, for most of the next 30 years until 2008. He chaired Reagan’s Council of Economic Advisers , counseled Bush’s White House campaign and now sits on President Barack Obama ’s Economic Recovery Advisory Board . Among his former students are Lawrence Summers and Lawrence Lindsey , the current and former directors of the White House’s National Economic Council . “Marty’s a very important economist,” said Glenn Hubbard , dean of Columbia University’s Graduate School of Business in New York, who was also taught by Feldstein and chaired Bush’s Council of Economic Advisers. “He’s a great scholar, but what distinguishes him is that his ideas have practical impact, too.” ‘EMU and War’ As long ago as June 1992, Feldstein wrote in the Economist that “economic analysis” didn’t justify a single European currency. In his most-famous contribution to the debate, he wrote in Foreign Affairs in 1997 that “war within Europe itself would be abhorrent but not impossible” under the euro. Many economists read his comment ahead of the birth of Economic and Monetary Union as a forecast that war would break out. Feldstein denies that, saying an editor wrote the headline — “EMU and War” — and he was arguing that the euro wasn’t a guarantee against such a conflict and might fan cross-border political differences. While Feldstein says he likes Trichet “a lot and I think it’s mutual,” he notes the ECB president often points out that skeptics doubted the euro would exist or last. “You don’t find any of that in my writings,” he said. Even so, Lars Jonung, an adviser to the European Commission in Brussels and co-author of a January paper on how American economists viewed the euro through the 1990s, says Feldstein is a “consistent pessimist, and so far he’s been proved wrong.” Well-Established The currency is well-established and hasn’t sparked political turmoil, trade has increased and inflation differentials in the euro area are similar to those for U.S. states, Jonung said in his Econ Journal Watch study . Greece’s measures and the response of EU governments will eventually strengthen monetary union, he added. Feldstein counters that global growth during the currency’s first decade helped mask its flaws, such as the mismatch of spreading uniform interest and exchange rates over diverse economies that lack fiscal discipline. His criticism doesn’t stop him from predicting the euro will appreciate against the dollar as investors punish the U.S. trade imbalance. The euro has fallen about 4 percent against the U.S. currency this year and traded at $1.38 today. Feldstein turned his attention to the implications of the euro for budgets in 2005, when he said a decision by the euro’s members to ease fiscal curbs left the “way open to much larger sustained deficits.” By November 2008, he was writing that diverging bond yields within the region signaled investors “regard a breakup as a real possibility.” ‘Testing Time’ Two months later, as the euro marked its 10th anniversary, Feldstein told the American Economic Association the currency faced an “important testing time” and countries may ultimately leave it to regain control of their economies. “American economists such as Marty have been proved wrong for a decade and will be proved wrong for the next decade,” said Wyplosz, who predicts that a Greece exit would trigger a “total collapse of the Greek economy.” Feldstein stands by his analysis that it’s not “unthinkable” some countries may choose life outside the euro area. Leaving is “certainly possible, and in part it can happen even if all the economic advice to a government is, ‘You shouldn’t do this,’” he said. “Politicians don’t always listen to their economists.” To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

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EADS Says U.S. Air Force Tanker-Bid Retreat Final, Won’t Seek New Partner

March 9, 2010

By Andrea Rothman March 9 (Bloomberg) — European Aeronautics, Defense & Space Co. Chief Executive Officer Louis Gallois said his decision to abandon the $35 billion U.S. Air Force Tanker bid is final, as some European politicians suspected local favoritism. “I don’t see any opportunity to come back alone or with others,” Gallois told journalists at a press conference in Paris today, a day after partner Northrop Grumman Corp’s retreat from the process forced EADS to follow. “If Northrop makes the analysis that we cannot win, I don’t think we can say that we will do it alone.” EADS and Northrop won the order in 2008, only to see their victory unravel after Boeing Co. contested the process. The companies’ retreat likely leaves Boeing as the only bidder for the program unless another firm joins the contest. EADS had entered the competition with a variant of its Airbus SAS A330, which is larger and newer than the 767 model offered by Boeing. “It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type,” European Union Trade Commissioner Karel De Gucht said in a statement. “The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract.” The U.S. government gave Boeing a clear advantage, and competition shouldn’t be hindered in defense contracts, German Economics Minister Rainer Bruederle said in another release. No Cooperation Gallois said he won’t discuss the political ramifications of the tanker bid, and that the company would continue to do business in the U.S. with partners. Working with Boeing on the contract isn’t going to happen, the executive said. EADS is in talks with the U.S. governments to recoup some costs incurred with the bid, Chief Financial Officer Hans Peter Ring said. Northrop had about 180 people working on the project, while EADS had a smaller group engaged, he said. Airbus’s A330 planes, the basis for the tankers, are now assembled in Toulouse, France. Airbus would have built an assembly line in the U.S. to provide tankers to the Air Force, and had said it would also use that line to build A330 freighters. Putting more work in the U.S. would have provided a natural hedge for the dollar’s decline against the euro. Gallois said today that the U.S. assembly line is off the table for now. For Related News and Information: Top Stories: TOP Top European Aerospace Stories: TNI ETOP ARO For EADS Earnings: EAD FP TCNI ERN Top Transportation Stories: TRNT

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After the Near Collapse of Wall Street… What’s Next for the Real Estate Industry?

January 22, 2010

See more news releases in: Real Estate, Residential Real Estate, Real Estate Transactions, Domestic Policy, Economic News, Trends, Analysis 2nd Annual International Real Estate Capital Markets Conference NEW YORK, Jan. 22 /PRNewswire-USNewswire/ — In

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REITs Rev Up

January 9, 2010

Investment Analysis Amassing capital in a credit-restricted market topped real estate investment trusts 2009 priority list, with more than $14.4 billion raised in equity issuance and another $6.7 billion in debt, according to Fitch Ratings. For the

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Senate Poised to Pass $871 Billion Revamp of U.S. Health-Care System Today

December 24, 2009

By Catherine Dodge and Nicole Gaouette Dec. 24 (Bloomberg) — Landmark legislation that would make the broadest changes to the U.S. health-care system in decades is poised to pass the Senate today, putting President Barack Obama ’s top legislative priority a step closer to reality. Democrats yesterday united along with the two independents who caucus with them to vote 60-39 to end debate on the 10-year, $871 billion measure designed to cover 31 million uninsured Americans, curb medical expenditures and place new restrictions on insurers. All Republicans opposed the motion; its approval sets up today’s Christmas Eve vote scheduled for 7 a.m. Washington time. Democrats celebrated after the bill cleared yesterday’s final procedural hurdle, calling the vote a victory for families and small businesses. After today’s expected Senate passage, the measure will need to be combined with a $1 trillion bill the U.S. House passed on Nov. 7. “We stand on the doorstep of history,” Senate Majority Leader Harry Reid , a Nevada Democrat, said at a press conference yesterday. The Senate bill would cover 94 percent of eligible Americans under 65 years of age and reduce the federal budget deficit by $132 billion during its first decade, the Congressional Budget Office estimated. Obama’s Push Obama has been prodding Congress to produce a final bill that would represent the most sweeping revamp of the nation’s health-care system since the Medicare program for the elderly was started in 1965. Both House and Senate bills mandate that Americans get insurance or pay a penalty, while requiring insurance companies to accept all comers regardless of preexisting medical conditions. They also offer more government aid for the poor and set up online purchasing exchanges so the uninsured can shop for policies. “We can all be proud of what this bill accomplishes,” said Senator Max Baucus , a Montana Democrat who helped write his chamber’s legislation. “We can be proud that every American in every state will benefit from new consumer protections and a more stable, secure health-care system.” In another 60-39 vote yesterday, Democrats scuttled an objection raised by Nevada Republican John Ensign that requiring individuals to purchase health insurance was unconstitutional. Republican Opposition Republicans are united against the legislation, saying new rules and programs might crowd out private insurers, raise taxes and explode the federal budget deficit . They rejected attempts by Democrats to hold the vote on final passage before Christmas Eve so lawmakers would have an easier time traveling home for the holiday. Senator Judd Gregg of New Hampshire, the top Republican on the Budget Committee, told reporters the bill would fail to curb costs and ultimately hurt the deficit. “There is no fiscal responsibility here, there is massive fiscal irresponsibility here,” Gregg said. Republicans yesterday also seized on a letter from the Congressional Budget Office that challenged claims by overhaul proponents that Medicare savings in the Senate bill would help finance expanded coverage and postpone the program’s bankruptcy. The nonpartisan agency said the $246 billion it projected the legislation would save Medicare can’t both finance new programs and help pay future expenses for elderly covered under the federal program. Nor could those savings be used to extend the solvency of Medicare, set to run out of money in 2017, the budget office said in the letter to Senate Republicans. ‘Colossal Manipulation’ “What we’ve seen is a colossal manipulation” by Democrats “of the accounting scores of CBO” and the independent actuary of the Centers for Medicare & Medicaid Services, said Alabama Senator Jeff Sessions , the Republican who requested the analysis. A spokesman for Reid said the CBO letter doesn’t reflect on the overall health-care bill. The letter “deals explicitly with Medicare, not the overall short- and long-term budgetary impact of the legislation,” spokesman Jim Manley said in an e- mail. Reid deflected questions about the negotiations with the House to iron out differences in their bills. “I’m going to focus on this bill passing in the morning,” he said. “And for a few days after that, frankly, I am going to just sit back and watch my rabbits eat my cactus.” To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net ; Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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Forex Daily Technical Analysis – Dec 17

December 17, 2009

Forex Daily Technical Analysis – Dec 17

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`Oprah Effect’ Aids Copenhagen Counterattack as Tourists Head to Stockholm

December 16, 2009

By Janina Pfalzer Dec. 16 (Bloomberg) — Oprah is Copenhagen’s newest weapon in the battle to claw back tourists and conventions that have been lured away by Stockholm. After Oprah Winfrey , host of the highest-rated U.S. talk show, visited the city for the International Olympic Committee Congress in October, the local tourism agency put her itinerary on its Web site, making it easier for visitors to book a stay at the five-star Hotel D’Angleterre , where she slept, or sample the cakes she bought from chocolatier Kransekagehuset Summerbird . “We are very much looking forward to the Oprah effect,” said Ulrika Maartensson, a spokeswoman for Wonderful Copenhagen , the city’s tourist and conference agency. Clashes between Danes and Swedes, which have led to 12 wars since 1360, have moved from the battlefield to PowerPoint slides as Copenhagen retaliates after its sister city last year passed it as Scandinavia’s most popular conference venue. While the Danish capital won high-profile events like the IOC and this week’s United Nations climate conference this year, the city is in danger of falling behind Stockholm as a destination for foreign tourists. The number of international tourists traveling to Stockholm rose 3 percent to 2.9 million last year, according to the city’s Visitor’s Board . The Swedish capital narrowed the gap with Copenhagen, where the figure rose 1 percent to 3.15 million, according to Statistics Denmark . Airport Expansion That reverses the trend of the late 1990s, when Copenhagen surged ahead after moving more quickly than Stockholm to invest in projects such as expanding its airport and promoting the city’s shopping and culture offerings, according to an analysis by Wonderful Copenhagen. The two cities may have equal numbers of foreign visitors within four years, the study said. “The development shows investments in know-how and the events economy are needed to achieve growth because results won’t come by themselves,” the analysis said. In response, Copenhagen hotels and businesses have pledged 8.3 million kroner ($1.64 million) to the “Meet Denmark” project aimed at promoting the nation and its capital as the site of international conferences. The Rotterdam, Netherlands-based International Fiscal Association booked Copenhagen for its 2013 Annual Congress. The choice was based on the meeting facility, the number of four-and five-star hotels and fairness in relation to other cities, the group said. The 1990 conference was held in Stockholm. “Because the conference usually lasts a week, it’s important that it can be combined with leisure activities,” said Thea Van Dijk, manager of the IFA General Secretariat. Founded by Hippies Copenhagen cultivates a laid back image, inviting tourists to visit Christiania , a collectively run village founded by hippies in 1971, and the bars of Nyhavn, which sit beside a 17th century canal. For the more traditional, there are the Little Mermaid statue, inspired by Hans Christian Andersen’s fairy tale of the same name, and Kronborg castle, the setting for William Shakespeare’s “Hamlet” north of the city. The city promotes itself as Scandinavia’s gastronomic capital. Thirteen restaurants received a total of 14 stars in the 2009 Michelin Guide, including chef Rene Redzepi’s Noma, a two-star eatery that uses only Nordic produce. This week’s climate summit provides a welcome boost of guests for Copenhagen’s fancy restaurants. “We’re extremely busy through December because of the summit,” said Cecilie Meyer, spokeswoman from Era Ora, a waterside, Michelin-stared Italian restaurant where a seven- course meal with a “Limited Edition” wine menu costs 4,000 kroner ($790) per person. Something for Oprah Oprah’s visit may help Copenhagen sell the city to international tourists, said Kathleen Leuba, a vice president at New York-based conference marketer Mondotels Inc. “For Americans, Oprah Winfrey is an extremely trustworthy person,” Leuba said. “Oprah’s presence in the picture will make a big difference. It demonstrates to tourists traveling that this is something Oprah enjoyed.” Stockholm calls itself the capital of Scandinavia, highlighting its place as the region’s biggest metropolitan area and home of its largest financial market . The city boasts of its own culinary excellence, with nine Michelin-starred restaurants, including Restaurant Mathias Dahlgren and Edsbacka Krog, each of which has two stars. Absolut Ice Bar The city is built on 14 islands, giving it the nickname “Venice of the North.” Top attractions include the medieval Old Town city center, the Vasa Museum , which features the world’s only preserved 17th century warship, and the Absolut Ice Bar, made of ice. The European Society of Cardiology expects about 30,000 people to attend its 2010 conference in Stockholm, the fifth time since 1991 the city has hosted the event. Stockholm International Fairs is one of the few venues that can provide the necessary space and services, the society said. “Our congress venue requirements are enormous and our expectations hard to meet,” said Ben Hainsworth, director of the group’s congress and meetings division. Both cities have major meeting venues located about 10 minutes by train from downtown. Copenhagen’s Bella Center , established in 1964, is the bigger of the two, with 122,000 square meters (1.31 million square feet) of halls and conference rooms. The expansion of Stockholm International Fairs, which opened in 1971, will boost space to 70,000 square meters next year. More International Flights Copenhagen has one major advantage over Stockholm: more international flights. Copenhagen has 15 intercontinental routes, four more than Stockholm’s Arlanda Airport, according to data from the Official Airline Guide. The city offers 87 European routes, 28 more than Stockholm. “We are constantly working on getting more direct lines,” said Peter Lindqvist, chief executive officer of Stockholm Visitors Board. Copenhagen’s weakening position has had economic consequences. Income from visitors who spend at least one night in the city may fall by 6 percent this year from about 32 billion kroner in 2008, according to Wonderful Copenhagen’s estimates. Stockholm earned 22 billion kronor from its visitors in 2008, unchanged from the previous year, the Visitors Board said. Preliminary numbers point to Copenhagen regaining its spot as Scandinavia’s international meeting capital this year with a seven-event lead, according to data from the Stockholm Visitors Board and Wonderful Copenhagen. The Danish capital also leads in events scheduled for 2010, though many are only reported after they’ve occurred. Royal Wedding Competition will increase next year when both cities add new venues. The Tivoli Congress Center , within walking distance from Copenhagen’s Town Hall Square, will seat as many as 2,500 people. The new Stockholm Waterfront Congress Center will have space for as many as 3,000. Stockholm is betting on help from Crown Princess Victoria’s wedding to long-time boyfriend Daniel Westling , Lindqvist said. Stockholm will have two weeks of festivities leading up to the June 19 wedding. Should Oprah decide to visit Stockholm, however, she’s more than welcome, Lindqvist said. To contact the reporter on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net

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Crude Oil Tumbles for Longest Stretch in Six Years as Dollar Strengthens

December 11, 2009

By Mark Shenk Dec. 11 (Bloomberg) — Crude oil tumbled for an eighth day, the longest stretch in six years, as the dollar rose against the euro, curbing investor appetite for commodities. Oil fell to a two-month low after the greenback advanced on speculation the Federal Reserve will increase borrowing costs next year because of an improving economy. Prices have dropped 11 percent in eight days on the dollar’s strength and rising U.S. fuel inventories. “This move lower has been triggered by what’s happened in other markets,” said David Kirsch , an analyst with PFC Energy in Washington, an energy strategist to companies and governments. “Market sentiment has shifted, and is now focused on the weak fundamentals.” Crude oil for January delivery fell 46 cents, or 0.7 percent, to $70.08 a barrel at 12:12 p.m. on the New York Mercantile Exchange. Futures touched $69.46, the lowest since Oct. 8. Prices are up 57 percent this year. The dollar traded at $1.4597 per euro, up 0.9 percent from $1.4732 yesterday. The greenback touched $1.4586, the highest since Oct. 5. The common currency has dropped 2.6 percent against the dollar over the past month. “If the dollar continues to strengthen, we are going to see more of the financial interest leave commodities,” said Rick Mueller , a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Fuel supplies are very high in the U.S. and demand is weak.” Gasoline stockpiles climbed 2.25 million barrels to 216.3 million last week, the highest since April, an Energy Department report showed on Dec. 9. Supplies of distillate fuel , a category that includes heating oil and diesel, increased 1.62 million barrels to 167.3 million, leaving stockpiles 25 percent higher than the five-year average for the period. Trader Anxiety “For some traders there’s anxiety that distillate supplies won’t come down quickly, or at all,” Kirsch said. “There’s the possibility of a much stronger move downward in prices.” Crude oil stockpiles fell 3.82 million barrels to 336.1 million last week, the report showed. Inventories were 7.2 percent higher than the five-year average for the period. Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, surged 8 percent to 33.4 million. “The continuing builds at Cushing are definitely having an impact on prices,” Mueller said. “These builds aren’t a big concern outside of the U.S., so Brent isn’t taking the same hit.” Brent crude oil for January settlement on the London-based ICE Futures Europe exchange fell 60 cents, or 0.8 percent, to $71.26 a barrel. Futures touched $71.02, the lowest level since Oct. 13. OPEC Meeting The Organization of Petroleum Exporting Countries will discuss production quotas at a meeting on Dec. 22 in Luanda, Angola. Last week Kuwait, Algeria, Libya and Qatar said in Cairo that they want the group to maintain its output target of 24.845 million barrels a day for the 11 members with quotas. Iraq has no production limit. OPEC achieved 58 percent of its pledged oil production cuts in November, down from 60 percent the previous month, as countries including Angola and Nigeria exceeded output targets, according to an International Energy Agency report today. Supplies from the 11 OPEC nations subject to quotas rose by 90,000 barrels a day to 26.61 million. “I don’t think OPEC ministers are going to do very much when they meet on Dec. 22 in Angola,” said Tim Evans , an energy analyst at Citigroup Global Markets Inc. in New York. “The IEA said all 11 members with quotas were producing above quota, so I don’t expect there to be any lectures behind closed doors on compliance. Everyone is doing it.” Nigerian Recovery A recovery in Nigerian oil production to the highest level in 15 months accounted for 60 percent of the increase in OPEC’s output in November, according to the IEA estimates. The success of a ceasefire with militants allowed the country to pump 1.98 million barrels a day last month, compared with 1.9 million barrels in October, the IEA said. “I’m expecting energy to fall through the first quarter and the first half of the second quarter,” said Bill Adams , chief energy trader at Intermarkt Investment Strategists, a risk management company in Zurich. “Capacity hasn’t tapered off in any meaningful way, and if Nigeria comes back online, there’s even more” supply coming onto the market. Oil may decline next week on speculation fuel inventories are sufficient to meet demand, a Bloomberg News survey showed. Seventeen of 40 analysts, or 43 percent, said futures will drop through Dec. 18. Twelve respondents forecast that oil will increase and 11 said prices will be little changed. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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Japan Mask Wearing, Tamiflu Rush Beat Swine Flu Better Than U.S., Europe

December 10, 2009

By Kanoko Matsuyama and Jason Gale Dec. 11 (Bloomberg) — Eight hours after Tokyo office worker Shungo Yamamoto started feeling feverish and faint, he got a diagnosis of swine flu, received antiviral drugs and embarked on three days of self-imposed isolation last month. “I knew it was influenza immediately” because of the fever and joint pain, Yamamoto, 25, said. His doctor confirmed the diagnosis with a nose swab test and prescribed five days of Roche Holding AG’s antiviral drug Tamiflu. When he left the doctor’s office, Yamamoto put on a mask, bought a three-day supply of food, rented DVDs and headed home, where he stayed for the duration of his illness. Japan’s aggressiveness against H1N1 influenza, the result of hygiene standards, social etiquette and a willingness to test and medicate immediately, means the country has fared better than the U.S. or the U.K. in battling the first pandemic in 41 years. A World Health Organization report shows Japan’s mortality rate is 2 deaths for every 100,000 people. The rate is higher by 11 times in the U.K., 16 times in the U.S. and 43 times in Australia. “No doctor in Japan would tell a flu patient just to go home and sleep it off,” said Norio Sugaya , a pediatric specialist at Keiyu Hospital in Yokohama, a port city south of Tokyo. Sugaya sits on a committee that advises WHO, a Geneva- based arm of the United Nations, on managing swine flu patients. In the U.K., a study this month found patients typically waited three days to start taking Tamiflu, one of two medicines available to fight the new virus as well as seasonal influenza. Complication Risk The U.S. Centers for Disease Control and Prevention , based in Atlanta, recommends that antiflu drugs be given to hospitalized patients, pregnant women and others with increased risk of complications. In Japan, doctors are advised to administer the medicines to anyone suspected of having flu, even if a rapid diagnostic test is negative, according to the Japanese Association for Infectious Diseases , a Tokyo-based organization of specialist doctors that provides treatment recommendations. Japan accounted for three-quarters of the Tamiflu dispensed globally in the drug’s first five years of sale, Roche, based in Basel, Switzerland, said in a November 2005 filing to the U.S. Food and Drug Administration. Three years later, Japan’s government announced plans to stockpile enough antiflu medicines for 45 percent of its 128 million people. That may be triple the amount required to treat every swine flu patient. The proportion of people sickened by the pandemic virus ranges from 7 percent to 15 percent, depending on the country, according to WHO. Japanese Practices Japan’s status as one of the biggest users of antiviral medicines and its approach to treating seasonal and pandemic flu should be compared with practices elsewhere and the data should be published in English, said Lance Jennings , a clinical virologist with Canterbury Health Laboratories in Christchurch, New Zealand, who has studied flu for more than 30 years. “If you have better capacity to diagnose cases earlier and are treating appropriately and early, you’re more likely to reduce the number of patients who will go on to develop more- severe influenza,” Jennings said in an interview. While the majority of pandemic flu sufferers got over their illness within days without treatment, 1 percent to 10 percent needed hospitalization and as many as a quarter of those patients required intensive care, WHO said on Dec. 4 . Early Treatment Tamiflu and Relenza, an inhaled medicine made by London- based GlaxoSmithKline Plc , appear beneficial in fighting the H1N1 virus, especially if treatment begins within 48 hours of the onset of symptoms, researchers said in a study in the New England Journal of Medicine in November. A paper in the same journal in December reported reduced complications, including deaths, among hospitalized patients treated with the medications. A survey of Japanese patients in 2005 found 85 percent sought medical treatment for flu and 90 percent of consultations took place within 48 hours after the first symptoms appeared, according to David Reddy , who heads Roche’s influenza task force in Basel. “These people do not wait until it’s too late,” Reddy said in a telephone interview. “Japan has to be the gold standard of management of influenza. It’s almost a societal response in terms of the way people modify their behavior.” Japanese have become accustomed during the past decade to wearing masks in public to ward off allergic reactions to pollen from cedar trees throughout the country, said Masataka Yoshikawa , a researcher who tracks consumer behavior at Hakuhodo Institute of Life and Living, the research arm of a Tokyo-based advertising company. Japanese expect someone with a cold or flu to wear a mask to limit the spread of the virus, he said. Wash and Gargle “Hand-washing, gargling and wearing masks are three hygiene measures that are very well accepted in the community in Japan,” said Nikki Shindo , the Japanese doctor who is leading WHO’s investigation of swine flu patients. “People don’t really hesitate to wear masks in public places. Even the 24/7 convenience stores sell high-particulate respirators at a reasonable price.” Some researchers say they are skeptical that Tamiflu is effective and concerned that the virus will develop resistance to the drug because of misuse. An analysis of 20 studies published in the British Medical Journal on Dec. 8 showed Tamiflu offered mild benefits for healthy adults and found no proof it prevented lower respiratory tract infections or complications of flu. There is little evidence to show that otherwise healthy people should be given Tamiflu routinely, the researchers said. ‘No Doubt’ “Based on our analysis and other subsequent work, there is no doubt that the drug can reduce complications,” said Frederick Hayden , a professor of clinical virology at the University of Virginia School of Medicine in Charlottesville, who was one of the first doctors to study Tamiflu in patients. Missing doses or failing to complete a course of medicine increases the risk that a drug-evading strain will emerge, said William Aldis , an assistant professor of global health at Thammasat University in Bangkok and a former WHO representative to Thailand. In societies such as Japan, where treatment compliance is high, patients are less likely to contribute to drug resistance, he said. “So this is one more reason to think carefully before applying Japan’s approach elsewhere,” Aldis said. Japan, whose flu season typically peaks between January and March, may face more deaths from H1N1 if the infection trend follows that of seasonal flu, said Hitoshi Oshitani , a virology professor at Tohoku University in Sendai, in northern Japan. “Japan will enter its regular peak flu season from now, and we have to observe whether the pattern continues or not,” he said. Oshitani, who advises WHO on pandemic strategies for developing nations, also credits the country’s school-closure program for helping battle swine flu. To contact the reporters on this story: Kanoko Matsuyama in Tokyo at kmatsuyama2@bloomberg.net ; Jason Gale at j.gale@bloomberg.net .

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Currensee Announces Shaun Downey as Chief Market Analyst

December 1, 2009

Leading Forex Analyst and Trader to Provide Social Analysis & Industry Commentary

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Willem Buiter: Citigroup Critic Is Bank’s New Chief Economist

November 30, 2009

Outspoken economist Willem Buiter, a professor at the London School of Economics and consultant to Goldman Sachs, has accepted a position as Chief Economist at Citigroup , a bank he’s certainly had no qualms about criticizing. As recently as last April, on his blog at the Financial Times, Buiter has attacked Citi for being, “A conglomeration of worst practice from the across the financial spectrum.” Other criticisms Buiter has made about banks which bear no small resemblance his new employer include this monster : Citigroup suffers from, “[A] survival of the fattest syndrome … has turned banks and shadow-banking institutions into monsters of perverse incentives for excessive risk taking. Throughout the north-Atlantic region, concentration and monopoly power in the banking sector will be higher after the crisis than before it.” Which isn’t to say Buiter’s writings have escaped criticism. Fed Governor Frederic Mishkin has said that Buiter’s writings have fired, “a lot of unguided missiles,” and former Vice Chairman Alan Blinder “respectfully disagreed” with his analysis of the central bank’s crisis management. A staunch opponent of bailouts, Buiter opined: “I cannot think of a single financial institution that is too big to fail, in the sense that it would damage some systemically important social institution…. I recognize the upside of bail-outs for those who arrange them: they look like movers and shakers, making and shaping events. It’s heroic, in an industry where heroism can be rarely displayed. But in all of the examples mentioned above, the bail-out did more harm than good.” As Salon’s Andrew Leonard points out, there is definitely no shortage of irony here: Buiter will be taking a paycheck from one of the very biggest of the bailed-out too-big-to-fail institutions. Which means, whether he likes it or not, Buiter is being bankrolled with the support of the American taxpayer… and implicit backing of Larry Summers. If Citigroup hadn’t been bailed out, would Buiter have gotten this job? Or, as Felix Salmon put it , it may be better to have Buiter “inside the tent pissing out.” Get HuffPost Business On Facebook and Twitter !

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Dubai woes threaten U.S. property market

November 27, 2009

By Elinor Comlay and Jonathan Stempel – Analysis NEW YORK (Reuters) – Dubai’s debt woes could further unhinge an already fragile U.S. commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly

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Roberto Alomar, Larkin Among 15 New Players on Ballot for …

November 27, 2009

“ Distressed Debt ” via Industry-News.org in Google Reader : By Elinor Comlay and Jonathan Stempel – Analysis NEW YORK (Reuters) – Dubai’s debt woes could further unhinge an already fragile U.S. commercial real estate, as it illustrates …

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Dubai debt woes may hit U.S. property market

November 27, 2009

By Elinor Comlay and Jonathan Stempel – Analysis NEW YORK (Reuters) – Dubai’s debt woes could further unhinge an already fragile U.S. commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly

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T. Boone Pickens: Natural Gas Autos Can Help

November 10, 2009

It is refreshing to see in Washington, D.C., legislation boasting broad, bipartisan support. One such bill is the New Alternative Transportation to Give Americans Solutions Act — H.R. 1835 in the House and S. 1408 in the Senate. There is a finite amount of oil available in the world. It is about 85 million barrels a day. Americans use about a quarter of that oil every day. Oil dropped to about $35 per barrel when the world spun into the recession, but now it is back at about $80 per barrel. And as the economies of the European Union, China, India, Brazil, Russia, South Korea and the other industrialized nations emerge from the recession, the competition for that oil will intensify. As the Chinese understand, the way supply balances with demand is through price.The Chinese have locked up more than 5.2 billion barrels of oil for delivery over the next decade or so. They are buying that oil through their state-owned oil company, which is financed by their state-owned bank. In September 2009, we imported 357 million barrels of oil at a cost of $25 billion. That represented about 63 percent of the oil we consumed in September. At current prices, we will spend about a third of a trillion dollars on imported oil over a 12-month period. That is money circulating through the economies of Saudi Arabia, Nigeria and Venezuela instead of South Carolina, North Dakota and Virginia. About 70 percent of the oil we import is used as transportation fuel, refined into gasoline or diesel. We have about 250 million cars and light trucks in the national fleet. There are 6.5 million heavy-duty trucks and 18-wheelers moving goods around and across America. Batteries may be ready for major deployment within the next decade, hydrogen fuel cells perhaps a bit further out. A battery won’t push an 18-wheeler, and while we wait for fuel cells, we rely on oil from countries in unstable regions, which do not have our best interests at heart. The one resource that can substitute for diesel in heavy-duty trucks is natural gas, of which we have more than a 100-year supply. Recent advances in drilling techniques have made available the vast amounts of natural gas contained in the major shale deposits under Texas, Louisiana, Arkansas and Appalachia. The Potential Gas Committee study, in conjunction with the Colorado School of Mines, has estimated as much as 2,000 trillion cubic feet of technically recoverable natural gas available for commercial recovery. By my analysis, that represents more than twice the energy that there is in the oil reserves in Saudi Arabia. Natural gas vehicles are proven technology. There are 10 million NGVs in the world, but only 130,000 in the United States. The NAT GAS Act will help jump-start the NGV industry in America. It will grant tax credits to fleet owners to begin replacing their fleets with NGVs. Taxis and government vehicles, school and municipal buses, express delivery and utility trucks — in fact, any fleet that generally goes home to the “barn” each night — are candidates for moving away from burning imported gasoline or diesel to running on domestic natural gas. Natural gas is one of the most widely distributed natural resources in the country. Gas lines run up and down nearly every street in every community in America. Heavy-duty and fleet vehicles tend to run the same routes on a regular schedule. Drivers stop at the same places to eat, rest and refuel, so the infrastructure to service those vehicles is a relatively simple issue to solve. Natural gas produces about half the greenhouse gases as gasoline and emits almost no particulate matter in combustion. Anyone who has waited for the school bus with their child at the curb on a cold winter morning knows how diesel burns. Finally, depending upon foreign sources for so much of the oil we need is a security issue. Anyone old enough to remember the Arab oil embargo of the 1970s still shudders at the thought of even-odd license plates deciding which day you could buy gasoline. And in 1974, we imported less than a quarter of the oil we needed. Today it is nearly two-thirds. The shock to our economy, much less our culture, with a similar embargo would be, to put it mildly, dramatic. Strengthen national security. New jobs. Cleaner air. Better economy. That’s a lot from one bipartisan piece of legislation. H.R. 1835 and S. 1408 should come to a vote this fall so we can reduce our dependence on foreign oil.

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Health-Care Public Option Skeptics Find Support in CBO Premium Estimates

November 3, 2009

By James Rowley Nov. 3 (Bloomberg) — Economists skeptical about a U.S. government-run health-insurance plan have new evidence to support their argument that it won’t force private insurers to cut premiums. The Congressional Budget Office says a version of the so- called public option backed by House Democrats would charge “somewhat higher” premiums than the average private insurance policy offered on a government-sponsored exchange to be set up to sell coverage to small businesses and individuals. That counters claims by President Barack Obama and House Speaker Nancy Pelosi that the public option would charge lower premiums to “keep insurers honest.” One reason premiums may be higher: Pelosi, seeking votes to pass a $1.055 trillion House health bill, decided against a “robust” public option, which would peg doctor reimbursements to Medicare rates to cut costs. Instead, she proposed that the new program negotiate fees it pays providers. “The robust option had a lot more power to buy services from providers at much lower rates than private insurers paid,” said Paul Ginsburg , an economist who heads the nonpartisan Center for Studying Health System Change in Washington. “That would have been a big deal.” Insurance Competition The House and Senate are considering legislation to expand health coverage to tens of millions of uninsured Americans and try to rein in costs. The public option is among the most contentious issues, opposed by every Republican and some Democrats, who say it would offer unfair competition to insurers such as Indianapolis-based WellPoint Inc. and Hartford, Connecticut-based Aetna Inc. House Democratic Leader Steny Hoyer told reporters today the House will start debating the measure later this week, with a vote on final passage possibly as early as Nov. 7 and no later than Nov. 10. The Congressional Budget Office yesterday also reported that health-care costs would eat up as much as 20 percent of income for some families, even those getting subsidies, under legislation being considered by the House. Families of four with annual incomes of $66,000 would be eligible for $10,500 in subsidies if they purchased insurance on health exchanges created in the bill and would still pay $10,000 to cover premiums, deductibles and co-payments, the CBO said. MIT Analysis Jonathan Gruber , an economist at the Massachusetts Institute of Technology in Cambridge, told reporters that his analysis of the House bill and CBO estimate suggests that families buying insurance on the non-group market would save $1,260 a year and individuals $470. Subsidies for low-income consumers would provide “better benefits at a lower price,” Gruber said. Since Massachusetts set up such exchanges in 2007, the average individual premium in the non-group market has fallen 40 percent, while rising 14 percent nationwide, he said. On the public option, the CBO said in an Oct. 29 letter to congressional leaders that rates paid by the program to doctors and hospitals would “on average, probably be comparable to those paid by private insurers” that sell on the exchange. The public option wouldn’t curb benefit payouts as much as private insurers by managing how people use health care, the CBO said. It would also incur higher costs because it would draw a “a less healthy pool of enrollees.” “Attracting sicker people” and doing less “utilization management than private plans” would “put the public plan in a weak competitive position,” Ginsburg said. Unfair Advantage? Some economists also say the public option would have the unfair advantage of not being taxed and, if it loses money, to ask Congress to make up the shortfall. “I am skeptical of the ability of the public plan to deliver meaningful competition while keeping within a break-even budget constraint,” said Leemore Dafny , a health economist at Northwestern University’s Kellogg School of Management in Evanston, Illinois. “Sure, it will inject competition if they don’t have to break even.” The CBO estimated the House public option would attract 6 million people. Some economists say that to dictate lower fees it pays to doctors and hospitals, the public option would need more enrollees. Hoyer, of Maryland, said the CBO’s estimate rebuts the Republican argument that the public plan would “drive the private-sector insurance companies out of business.” Curbing Costs The public option would be included on the new online exchanges intended to extend insurance to individuals and small business owners. Top House Democrats said the CBO estimates on premiums confirm that their bill will curb costs. “This underscores that this legislation will control health costs and lower health-care premiums for families and individuals,” Representatives Henry Waxman , Charles Rangel and George Miller said in a joint statement. Waxman, a California Democrat, is chairman of the Energy and Commerce Committee. Rangel, of New York, heads the Ways and Means panel. Miller, a California Democrat, runs the House Education and Labor Committee. The chairmen said under their bill premiums for a family making $102,100 would be $15,000 by 2016. “This is well below the $24,000 family premium expected if Congress fails to act and premiums grow as projected under current law,” they said. ‘A Risk’ Republican lawmakers, insurance industry officials and some economists contend that the advantage of government subsidies would eventually push private competitors out of the market, leaving only a government-sponsored health insurer. “It’s a risk,” said Maine Senator Olympia Snowe , the only Republican in Congress to show willingness to support a Democratic health plan. Snowe said she’s working with Democrats who oppose the public option, which is included in the proposal Democratic Leader Harry Reid says he will submit to the Senate for a vote. House Republicans, meanwhile, say they are moving to introduce alternative legislation that focuses more on curbing the cost of premiums and medical care than on the Democrats’ goal of achieving universal coverage. House Republican Leader John Boehner told reporters yesterday the legislation would allow small businesses to pool together to purchase group employee insurance at lower rates. It would also permit businesses and individuals to buy insurance across state lines to give consumers more choice. “If you drive down costs you are going to expand access” to care and health-insurance, Boehner said. The legislation will also end “junk lawsuits” against doctors, he said. Boehner said the legislation wouldn’t bar insurers from refusing to underwrite people with preexisting medical conditions, a centerpiece of the Democratic proposal. Instead, it would encourage the expansion of risk pools, now operated by 34 states, to help people to obtain insurance even if they were disqualified by private insurers, he said. To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

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Stocks in U.S., Commodities Advance as Dollar, Bonds Drop on Growth in GDP

October 29, 2009

By Rita Nazareth Oct. 29 (Bloomberg) — U.S. stocks rallied, snapping a four-day losing streak for the Standard & Poor’s 500 Index , after the economy returned to growth following the worst contraction in seven decades. Treasuries dropped and the dollar and yen weakened, while commodities rose. Caterpillar Inc. , Alcoa Inc. and American Express Co. jumped at least 4.1 percent after the Commerce Department said gross domestic product grew at a 3.5 percent pace from July through September after shrinking for four straight quarters. Motorola Inc. , Procter & Gamble Co. , Newmont Mining Corp. and Kellogg Co. climbed on better-than-estimated earnings . “The stock rally is not over yet,” said Jeffrey Kleintop , who helps oversee about $247 billion as chief market strategist at LPL Financial in Boston. “The stock market can celebrate. This news is an important confidence boost, in particular to individual investors.” The S&P 500 increased 1.9 percent to 1,062.89 at 1:41 p.m. in New York. The Dow Jones Industrial Average added 166.56 points, or 1.7 percent, to 9,929.25. The MSCI AC World Index , a measure of developed and emerging markets, rose 1.5 percent after seven straight losses. The VIX , the benchmark for U.S. stock options that is known as Wall Street’s “fear gauge,” tumbled 10 percent to 25.08 in its steepest slide since July amid reduced demand for protection against declines in equities. ‘Waterloo of the Bears’ The growth in GDP topped the median estimate of 3.2 percent in a Bloomberg survey of economists and eased concern that an almost eight-month rally in equities outpaced the prospects for recovery. U.S. stocks extended a global slump yesterday as an unexpected decline in new-home sales exacerbated those concerns. The S&P 500 has surged 56 percent from a 12-year low on March 9, yet slipped 3.7 percent from this year’s high on Oct. 19. “The fourth quarter will be the Waterloo of the bears,” said E. William Stone , who oversees $102 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “We are in economic recovery both in the U.S. and globally, so you will eventually see revenue growth because you are seeing the recovery hold.” The return to growth also fueled speculation that the Federal Reserve will begin to discuss lifting its benchmark interest rate from a record low range near 0 percent and further unwind other programs meant to stimulate the economy. European Central Bank council member Axel Weber signaled the bank may start to withdraw its emergency stimulus measures next year. The Fed has already announced a phase-out of some of its programs and will complete its $300 billion Treasury purchase program today. Norway and Australia have started to raise interest rates. ‘Tug-of-War’ Treasury Secretary Timothy Geithner told a congressional committee today that the recession remains “alive and acute” for struggling homeowners and the unemployed. “It’s a tug-of-war,” said Michael Binger , a Minneapolis- based fund manager at Thrivent Asset Management, which oversees about $60 billion. “We’ve had a stronger-than-expected GDP number and corporations are running more efficiently. But I don’t see the government reversing the stimulus measures or the Fed changing language or indicating higher interest rates any time soon. The unemployment rate is still very high.” Motorola gained 11 percent to $8.83. The biggest U.S. mobile-phone maker reported third-quarter profit excluding some costs of 2 cents, exceeding the average estimate for a breakeven quarter in a Bloomberg survey. Motorola cut jobs and production costs to offset slumping handset sales. Earnings Surprises Procter & Gamble added 4.2 percent to $59.61. The world’s largest consumer-products company reported first-quarter profit that topped the average analyst projection after price increases helped offset volume declines. Procter & Gamble also raised its full-year forecast for organic sales growth. Kellogg rose 1.8 percent to $50.89. The largest U.S. maker of breakfast cereal said it had third-quarter profit of 94 cents a share. The company was forecast by analysts to earn 85 cents, based on the average estimate from a Bloomberg survey. Symantec Corp. jumped 11 percent to $17.40. The biggest maker of security software reported second-quarter profit that topped analysts’ estimates after winning back customers from competitors and adding new business users. Genworth Financial Inc. jumped 15 percent and led insurance companies 4 percent higher, the biggest gain among 24 S&P 500 industries. The life insurer and mortgage guarantor was raised to “buy” from “neutral” by Bank of America Corp. MetLife Inc. , the biggest U.S. life insurer, gained 5.7 percent to $36.10 ahead of its earnings report . Lincoln National Corp. , the bailed-out insurer, climbed 15 percent to $25.58 after its first profit in a year topped estimates. Profit Analysis Earnings-per-share have exceeded the average analyst estimates at 81 percent of the companies in the S&P 500 that posted third-quarter results so far, which would be a record proportion for a full quarter, according to Bloomberg data going back to 1993. Still, profits have decreased 23 percent on average for the 295 companies that reported since Oct. 7. U.S. stocks also gained after the number of Americans collecting unemployment insurance fell more than forecast to the lowest level in seven months. The number of people receiving jobless benefits declined by 148,000 to 5.8 million in the week ended Oct. 17, the lowest since March 21 and biggest weekly drop since July, Labor Department figures showed. Indexes of raw-material producers and energy companies rose at least 2 percent as oil, gold and industrial metals gained after the GDP data. Commodities Gain Crude for December delivery gained as much as 3.9 percent to $80.24 a barrel. Gold rebounded from a three-week low, while copper climbed for the first time this week. Commodities prices also rose as the dollar declined 0.7 percent against an index of six major currencies, increasing demand for an alternative investment and inflation hedge. Treasuries extended losses after the U.S. sold a record $31 billion in seven-year notes, sending the 10-year yield up eight basis points to 3.497 percent. Newmont Mining added 4.2 percent to $43.23. The largest U.S. gold producer reported third-quarter profit of 79 cents a share on higher bullion prices and lower production costs. The results topped the 55-cent per-share average estimate of 17 analysts. Exxon Mobil Corp. had the second-biggest of only three declines in the Dow average, falling 0.6 percent to $73.42. The largest U.S. company reported third-quarter net income of 98 cents a share, 4 cents lower than the average of 15 analyst estimates compiled by Bloomberg. Demand slumped for fuels to run cars, trucks, factories and airplanes. First Solar Inc. tumbled 17 percent to $126.35. The world’s largest maker of thin-film solar power modules reported sales of $480.9 million in the third quarter, trailing the average analyst estimate by 9.3 percent, according to Bloomberg data. Bullishness Subsides The rally in global stocks has failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system. Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch. ‘Serious Bumps’ The U.S. economy faces “serious bumps” ahead that are likely to slow the pace of growth, Nobel prize-winning economist Joseph Stiglitz said. The economy won’t be expanding quickly enough to reduce unemployment, Stiglitz told a press conference in Beijing today. The economy will enter “a very gloomy period” of high unemployment, economist David Malpass , president of Encima Global in New York, told Bloomberg Radio. The U.S. unemployment rate reached a 26-year high of 9.8 percent in September. “GDP numbers were good and will stimulate more investor interest in stocks,” said Randy Bateman , who oversees $13 billion as chief investment officer at Huntington Asset Advisors in Columbus, Ohio. “We can’t declare victory yet. Maybe it was more pronounced because of the success of cash-for-clunkers program. I believe we are not going to double dip, but maybe we’ll see a lesser number in the fourth quarter.” To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .

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Video: Housing Outlook- Artificial Strengths Amid Tax Credit Impact

October 27, 2009

Housing Trick or Treat? – Analysis and Discussion with Ethan Harris of Bank of America-Merrill Lynch (Bloomberg News)

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Video: Energy Outlook – Oil Prices May Fall Just as Fast as Climb

October 26, 2009

China’s Oil Grab – Analysis and Discussion with Antoine Halff of Newedge USA (Bloomberg News)

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Video: Sector Focus – REITs

October 26, 2009

Real Estate Fundamentals – Analysis and Discussion with Paul Adornato of BMO Capital Markets (Bloomberg News)

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Video: In-Depth Look – Changes in Derivatives

October 23, 2009

Derivatives Clearing – Analysis and Discussion with Michael Wong of Morningstar (Bloomberg News)

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Video: International Perspective – Brown’s Political Setback

October 23, 2009

Britain Still in Recession as UK Economy Shrinks 0.4% – Analysis and Discussion with Robin Marshall of Smith & Williamson (InBusiness)

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Jeff Bocan: America’s Midwest: Cashless Chasm or the Valley of Opportunity?

October 21, 2009

I received a humbling and personally overwhelming response to my debut Huffington Post blog entry that described my recent decision to move myself and my family from Southern California to Michigan. Of the hundreds of emails, phone calls and letters, the vast majority were from Michiganders welcoming me to the state or thanking me for the vote of confidence in Michigan and for reigniting their hope for a better local economy — thanks for those! Some responses were a bit on the cynical side, these coming from both from in- and out-of-staters, questioning the quality, quantity or reality of the opportunities that I expressed. The feedback ranged from: “I don’t know what you see in this state, because I have been here XX years, and it is as bad as it has ever been — but I hope you are right!” to the more colorful: “I think you must have inhaled a bit too much of Santa Monica’s illegal herbs before buying those one-way tickets to Michigan — good luck and stay warm!” Though I did heed the warning to buy a quality pair of long-johns, rest assured no herbal influences were involved in my decision to come to Michigan. In future posts, I will get into more specific examples of the real entrepreneurial opportunities that lie ahead for the state. But in this post, I want to offer a macro-level view of the larger opportunity I see in both Michigan and the Midwest, as a venture capitalist looking for small businesses that have a chance to become much, much bigger businesses. Before coming to Michigan, I heard anecdotal stories about the untapped innovation and research of the Midwest. It makes sense, right? America’s heartland has the country’s largest universities, excellent research hospitals like Minnesota’s Mayo Clinic, and established industries with heavy R&D investments. Yet the vast majority of America’s venture capital investors reside on the coasts. Therefore, even a beach boy VC like me should be able to make something happen in this environment, or so the logic went … In digging around to qualify my thesis, I came upon a 2008 CNBC report that I believe demonstrates why the Midwest could be called the “Valley of Opportunity.” The report is a list that ranks states in a variety of categories, but those I found most interesting were “Technology and Innovation” and “Access to Capital” (Note: I only focused on states that ranked in the top 25 for Innovation — sorry Rhode Island!). Unsurprisingly, a quick analysis shows that access to capital is robust for states on the coasts, but not so much for states in the Midwest — America’s “Cashless Chasm.” And nowhere is the discrepancy more starkly negative, by a LONG SHOT, than in Michigan, the “King of the Cashless Chasm.” No other top 25 state for Innovation is even close: In an efficient marketplace, one would expect to see some parity in the relationship between rankings for “Technology & Innovation” and rankings for “Access to Capital” — and for the most part, except for the Midwest, there is. On the top end of the scale, states like California and Massachusetts are #1 and #4 respectively in Tech & Innovation, and #1 and #2 in Access to Capital. On the lower end, states like North Dakota and Wyoming are #47 and #48 in Tech & Innovation, and #46 and #47 in Access to Capital. However, as the tables above clearly demonstrate, those states with the greatest negative relationship are here in the Midwest. The comparison in the rankings paints an interesting geographic image: mountains of cash on the coasts, for the most part, keeping in line with opportunities that follow innovation; and deep valleys — capital voids — in the middle of the country where investors’ capital is not in sync with the local opportunities. Critics will point out that assumptions reliant on these rankings would not withstand rigorous statistical scrutiny. Certainly, the rankings are the quantification of a subjective classification, which inherently will have some flaws or room to quibble. But methodology quibbles aside, the clear big picture image of the Valley of Opportunity is undeniable: many Midwestern states — Great Lakes states, in particular — are home to strong technology and innovation, yet the local dollars for taking these advancements to the next level likely do not sufficiently match the scope of the opportunity (and venture capital dollars often do not travel far from the zip codes of VC partners, especially if the phrase “wind chill” is involved in the travel plans!). This analysis does not tell the whole the story, but it does provide some evidence of the opportunity for the VC who is willing to invest in a more robust winter wardrobe — notably a sweet pair of long johns …

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Distressed Debt Analysis with Stephen Moyer

October 19, 2009

Moyer—portfolio manager at PIMCO and author of Distressed Debt Analysis—taught a seminar at NYSSA on, you guessed it, distressed investing. Mr. Moyer’s aforementioned book is considered the bible of distressed investing by most …

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Galleon Insider-Trading Case Opens Window on Secret World of Hedge Funds

October 19, 2009

By John Helyar Oct. 19 (Bloomberg) — The U.S. government’s charging of billionaire Galleon Group founder Raj Rajaratnam last week provides rich insider details of usually secret hedge-fund operations, thanks to the use of wiretaps. The case, focusing on a slice of trades that produced $20 million in alleged profits, provides a snapshot of an alleged network of informants and traders, led by Rajaratnam, 52. His co-conspirators, according to prosecutors, included a McKinsey & Co. consultant, an Intel Corp. treasury manager and Danielle Chiesi , 43, a Bear Stearns Cos. veteran who used expletives as she worried about getting caught. With the alleged inside help from these people and others, Rajaratnam built a hedge fund that managed $7 billion at its peak before being reduced to $2.6 billion in assets as of March 31. That success was achieved more by guile than genius, said U.S. Securities and Exchange Commission enforcement chief Robert Khuzami , who sued Rajaratnam and the others last week. “He is not the astute student of company fundamentals or marketplace trends that he is widely thought to be,” Khuzami said at an Oct. 16 press conference. “He is not a master of the universe but rather a master of the Rolodex.” Rajaratnam’s defense attorney Jim Walden said last week that prosecutors are misconstruing the evidence against his client and that the case isn’t as strong as they allege. Galleon said it was cooperating with the government. Routine The wire transcripts laid out in criminal and civil complaints make it appear that trafficking in inside information was a routine way of business for Rajaratnam. The starting point for this case was a 2005 job interview at Manhattan-based Galleon, at which Rajaratnam asked the applicant to name companies where he had an “edge,” — access to inside information, prosecutors said. The applicant, who would became the government’s key confidential witness, mentioned Polycom Inc. The witness had gotten advance word from a friend there on the company’s quarterly earnings, according to prosecutors. The informant wasn’t hired by Galleon. Instead, the witness began feeding Rajaratnam inside information on Pleasanton, California-based Polycom and two other companies, Mountain View, California-based Google Inc. and McLean-based Hilton Hotels Corp. Galleon allegedly turned a $4 million profit on the tip about Blackstone Group LP’s $20 billion buyout of Hilton the day before the announcement. The informant in return received inside information from Rajaratnam on Intel and other companies, according to the complaint. Danielle Chiesi The unidentified informant, who has agreed to plead guilty and cooperate, began taping conversations with Rajaratnam, part of the government’s recording of private talks between the hedge-fund manager and his friends. One frequent caller in the group was Chiesi of New Castle Partners, once a Bear Stearns Cos. unit, according to the complaints. During an Aug. 22, 2008, call, her colleague, Mark Kurland , 60, advised Chiesi to leave the analysis to him and concentrate on gathering more inside intelligence, a transcript shows. “You know, get more relationships, like Microchip, Akamai,” he said, according to the transcript. “Why don’t you worry about getting the information, don’t worry about the numbers.” Microchip was a reference to chipmaker Advanced Micro Devices, based in Sunnyvale, California, according to the complaint. Chiesi had cultivated an executive there to provide inside information, prosecutors said. At Akamai Technologies Inc. , prosecutors said Chiesi had a family friend who leaked data on the provider of software to make Web sites load faster. Swapping A Sept. 9, 2008, call between Chiesi and her contact there illustrates the information-swapping process. After discussing whether Cambridge, Massachusetts-based Akamai would be buying back stock, Chiesi told her source, according to the transcript, “I want you to buy AMD … before the end of the month. Nothing’s gonna happen next week, but the week after … I think I’ve got a big deal.” The Akamai executive replied, “Okay, okay, good. I really appreciate that.” On Oct. 10, 2008, the tipster called Chiesi, saying, “I’m gonna come visit you in New York, and I’m gonna give you a present. But it has to be face to face.” She asked what he was talking about, and the Akamai executive replied, “Information.” Chiesi said, according to the transcript. “Well, that is a great present.” Chiesi both used her Akamai intelligence for New Castle’s trading and passed it on to Rajaratnam, prosecutors said. Sometimes they jousted and jested about who knew more. In a Sept. 23, 2008, call, Rajaratnam gave Chiesi word that he’d received on Advanced Micro Devices ’ revenue report for the quarter ending Sept. 30, which would be $1.6 billion. ‘I’m the Best’ “Tell me I’m the best in AMD,” he said, according to the transcripts. “You might know [the AMD executive] or whoever … I wanted to compete with on in your home yard, in your back yard … I must defer to you on IBM.” “And Akamai, too,” Chiesi said. “Akamai, too. But AMD? Bring it on, baby.” Chiesi’s remarks were often salty, according to the wiretaps. On an Aug. 15, 2008, call, she complained that in pursuit of insider tips she’d be meeting another of the accused, Robert Moffat , 53, an IBM Corp. senior vice president “on f—–g Sunday at my mom’s house.” Insider-Trading Scandals The wiretaps, which prosecutors said hadn’t previously been used to catch those dealing in inside information, showed Rajaratnam, unlike some others accused of that crime, preferred bartering for confidential intelligence to paying for it. A source at Market Street Partners, an investor-relations contractor for Google , told the government informant in July 2007 that Google’s second-quarter earnings, to be announced later that month, would disappoint Wall Street, according to the wiretaps. The informant relayed the tip to Rajaratnam, who, through a combination of buying Google put options and short- selling its stock, made an $8 million profit, prosecutors said. A put option is an agreement that gives the buyer the right to sell a specific quantity of a particular security by a specific date. A short sale involves a security that one does not own and has borrowed in anticipation of making a profit by paying for it after its price has fallen. The Market Street person stated that she wanted to be paid for future market-moving information. Rajaratnam declined and the source stopped talking, according to the court papers. Six months later, in a Jan. 14, 2008, phone conversation, Rajaratnam asked the go-between if he’d heard anything about Google. “I told you, that lady won’t speak to me,” the informant said. “Idiot,” Rajaratnam replied, the transcript shows. An Obsession Galleon’s chief wasn’t always brilliantly successful. An obsession with Advanced Micro Devices, which began with windfall hopes in June 2008, ended with losses in October 2008, court documents show. According to the complaints, Anil Kumar, 51, the McKinsey director and a Galleon investor, began consulting that month with AMD. It was considering spinning off its semiconductor operations into a joint venture with the Abu Dhabi government. That would bring a major investment from an Abu Dhabi sovereign wealth fund — and a likely increase in AMD’s stock price. On Friday, Aug. 15, the wiretaps show Kumar called to tell Rajaratnam that the parties had “shaken hands and said they’re going ahead with the deal,” which would involve a $6 billion to $8 billion investment. “I think that you can now just buy,” Kumar said. That day and the following Monday, Galleon bought 5.9 million shares of AMD, at prices from $5.55 per share to $5.75 a share, according to the complaints. Chiesi, Kurland, Moffett and Kumar all deny the charges, according to their lawyers. Reliance Rajaratnam relied on Chiesi of New Castle, which had purchased 199,400 AMD shares at $5.44 a share, to augment his own intelligence about whether the tentative deal was staying on track, the transcripts of their calls show. She had her source at AMD and Moffat at Armonk, New York-based IBM, which was reviewing the transaction because it would have to license its technology to the spinoff company. She told Rajaratnam, in a July 24 conversation, how she got the latest on Akamai. Chiesi was telling the Akamai executive: “You’re the only person in the family who helps me,” when he did so again, according to the complaint. “By the way, we’re gonna guide down on Wednesday,” he said. Chiesi brought Rajaratnam both her AMD intelligence and her fears that she would be found out as a tipster. “If it leaks, I think I’m out of business,” she told him during an Aug. 19 call. “Because who knows IBM? And who’s in bed with AMD? Put Danielle’s name on the f—-n’ ticket.” Fretted She fretted about their making too big a score on AMD inside information, wondering in an Aug. 27 conversation if regulators would notice her profits if the stock rose 30 percent after the Abu Dhabi deal was announced. Rajaratnam suggested covering her tracks by trading in and out of the stock while they awaited the deal’s completion. Galleon was continuing to add to its position in AMD, eventually reaching 8 million shares, the complaints state. “I think you should buy and sell, and buy and sell,” Rajaratnam said, according to the wiretap. He also advised: “Be radio silent. Like, you know, I get sh-t on lots of companies.” “I’m radio silent,” Chiesi said, the transcripts state. On Sept. 30, Rajaratnam called Chiesi to tell her the announcement was set. “The date is October 7,” he said, according to the complaint, and advised her to buy more AMD shares, then sell half before the announcement. ‘Nervous’ Chiesi said she was still “nervous” about being investigated, according to the transcript. “Glad that we talk on a secure line,” she said into the tapped phone. “I appreciate that.” “I never call you on my cell phone,” Rajaratnam replied, according to the complaint. AMD shares rose 25% Oct. 7, to $5.27 a share, increasing the value of Galleon’s shares by $9.5 million, according to the SEC suit. Rajaratnam sold 1.3 million shares that day, held the rest, and watched AMD’s stock fall to $3.50 by the end of the month. The general decline of the stock market, as the financial crisis was beginning, had negated his inside “edge.” That’s the last alleged insider transaction outlined by prosecutors, though not the last entry in the complaint. B.J. Kang, the investigating FBI agent, tells of getting a call from a colleague. In the course of another investigation, his pal had heard that Rajaratnam was suspicious that a former Galleon employee was wearing a “wire.” Kang also heard from a U.S. Customs and Border Protection official in the wee hours of Oct. 15 that Rajaratnam had bought a ticket to fly from JFK International Airport in New York to London the next day. Before he could, he was arrested that day at 6 a.m., at his Manhattan apartment. The cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-02307, U.S. District Court for the Southern District of New York (Manhattan). To contact the reporter on this story: John Helyar in Atlanta at jhelyar@bloomberg.net

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Video: More Perspective – GE 3Q Earnings Disappoint

October 16, 2009

An In-Depth Look – GE…What’s Next?, Featuring Further Analysis and Discussion with Joel Livingston of Brookfield Investment Management (Bloomberg News)

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Video: M&A Outlook – Are Big Buyouts Back?

October 16, 2009

Too Late for Big Buyouts? – Analysis and Discussion with Marco Boschetti of Towers Perrin (InBusiness)

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Video: M&A Outlook – Are Big Buyouts Back?

October 16, 2009

Too Late for Big Buyouts? – Analysis and Discussion with Marco Boschetti of Towers Perrin (InBusiness)

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Video: Sector Focus – Chemical Stocks

October 13, 2009

The Right Formula – Analysis and Discussion with Frank Mitsch of BB&T Capital Markets (Taking Stocks)

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Obamacare Tax Frays President’s Middle-Class Vow: Kevin Hassett

October 12, 2009

Commentary by Kevin Hassett Oct. 12 (Bloomberg) — The U.S. Senate’s version of Obamacare finally is emerging into broad daylight, and the more people see of it, the less popular it should be. For all the rhetoric, the plan is quite easy to sketch, thanks in part to an analysis by the congressional Joint Committee on Taxation . So here goes: Under the health-care plan advanced by Senate Finance Committee Chairman Max Baucus , lower- and middle-class people who have insurance today are going to be taxed and squeezed in order to cover people who don’t. The money to finance the new entitlement comes from two main sources, tax increases and Medicare cuts. Medicare cuts are mostly borne by elderly folks with modest means. That undoubtedly explains why seniors are so concerned. The tax cuts, by contrast, have received little attention. There has been almost no discussion of the simple question: who would pay the tab? Think about how unusual that is. It is a radical departure from past tax debates. When President George W. Bush was in office, every tax proposal, no matter how minor, seemed to be buried by a blizzard of detailed distributional analyses that went from think-tank Web sites to the front pages of your favorite newspaper instantaneously. In this debate, the distributional-industrial complex has remained silent. Such remarkable silence in the noisiest town on earth can only be caused by an uncomfortable truth. And the mother of all uncomfortable truths is lurking below the surface in the health debate. If you are a card-carrying member of the left-wing establishment, you can’t analyze the distributional consequences of the health bill, because if you do, you will catch President Barack Obama in a lie. Campaign Promise Think back to the 2008 election, when Obama promised again and again that he would not increase taxes on the middle class. “And if you’re a family making less than $250,000 a year, my plan won’t raise your taxes one penny — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes,” Obama told an audience in Orlando, Florida, in August 2008, something he repeated at almost every opportunity. In one way the statement is true. If your income is less than $250,000, Obama will not raise your taxes by just a penny. The hit will be much more painful than that. We know that now because Senator Orrin Hatch , Republican of Utah, asked the Joint Committee on Taxation to perform the distributional analysis nobody else would. The committee’s analysis was provided to him in a letter dated Sept. 17. I received a copy a week later. Tax on Plans The report focused on the main revenue-raising step of the Baucus plan, an excise tax on high-cost insurance plans. At the time of the analysis, the Baucus plan held that if you have an insurance plan with a high premium (exceeding $8,000 per individual or $21,000 per family), your insurance company would pay a tax of 35 cents for every dollar that your plan exceeds the threshold. The goal of the tax is to raise revenue to cover the uninsured and to discourage these so-called gold-plated plans, which some say encourage excessive medical care. Ostensibly the excise tax is a tax on insurers. But as with other excise taxes (gasoline, cigarettes), the cost would undoubtedly be passed on to the consumer, in the form of more expensive insurance. Or firms might stop offering generous plans and increase wages commensurately, which would also increase tax revenue. The analysis by the Joint Committee on Taxation concluded that tax payments would indeed rise. And it found that the middle class would be stuck with the tab. 87 Percent The report projected that the excise tax would raise about $52 billion in 2019. Of that, about $8.9 billion would come from taxpayers with incomes of less than $50,000; about $19.4 billion from taxpayers with incomes between $50,000 and $100,000; and about $17.4 billion from taxpayers with incomes between $100,000 and $200,000. Add those up, and you see that about 87 percent of the revenue in the original Baucus proposal to finance Obamacare would come from individuals with incomes of less than $200,000. Baucus and the Senate committee have since upped the proposed tax to 40 percent, and the trigger thresholds to $9,850 and $26,000, tweaks that shouldn’t change the basic thrust of the story. The Democrats’ plan is a moving target — and given who will pay the tab, that is probably on purpose. The remarkable thing is that this revenue comes from low- and middle-income people who already have insurance. Many members of organized labor have these “gold-plated” plans. And they would be worse off, not better, because of Obamacare. Democrats always seem to promise that they will finance their dreams by taxing the rich. And they always seem to increase taxes on everyone. There they go again. ( Kevin Hassett , director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.) To contact the writer of this column: Kevin Hassett at khassett@bloomberg.net

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Video: Inside Look – Canada Adds 31K Jobs

October 9, 2009

Canada Jobless Rate at 8.4% – Analysis and Discussion with Derek Holt of Scotia Capital (Bloomberg News)

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Video: Bond Outlook – We’ve Hit Absolute Level for the 30-Year

October 9, 2009

Investing in Fixed Income – Analysis and Discussion with Joseoh Balestrino of Federated Investors (Bloomberg News)

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Senate Panel Readies Vote on $829 Billion Health-Care Plan After CBO Boost

October 8, 2009

By Kristin Jensen and Brian Faler Oct. 8 (Bloomberg) — Legislation overhauling U.S. health care cleared its latest obstacle when the Congressional Budget Office said a Senate finance panel measure would reduce the budget deficit even as it insures millions more people. The $829 billion legislation would cut the deficit by $81 billion over 10 years, with new taxes and savings more than offsetting the cost, the CBO said in a preliminary analysis yesterday. That eases one of the major concerns about the bill. “The report is good news,” panel Chairman Max Baucus , a Montana Democrat, said after the release of the analysis of the measure, an amended version of a proposal he made last month. “Our balanced approach in the finance committee to health reform, I think, has paid off.” The CBO report was critical because President Barack Obama has pledged not to sign legislation that adds to the federal budget gap. The finance committee plan would continue to reduce the deficit in the subsequent decade, the CBO said, though the nonpartisan agency said it couldn’t give precise figures. Baucus told reporters yesterday he was contacting members of his committee, the last of five congressional panels to deal with the issue, to decide on a timeline for a vote. The panel’s legislation would require that millions of Americans purchase health coverage, impose new restrictions on insurers, and tax high-end insurance plans. Snowe Wants Time After the panel votes, Senate Majority Leader Harry Reid can focus on merging the plan with one passed by the health panel in July. He’ll have to mollify Democrats who are divided over issues such as whether to create a government-run insurance option and how to pay for the legislation. Maine Senator Olympia Snowe , a finance panel member and the Republican most likely to support the plan, said she wants to put off a vote until next week so she has time to examine the report. She called the agency’s conclusion on the deficit “important” while saying she still has “a lot to review.” “I would rather have the comfort level of having sufficient time to analyze it over the weekend,” Snowe told reporters. Lawmakers are attempting to extend coverage to millions of uninsured Americans and curb health-care costs , which account for a sixth of the economy. Reid, a Nevada Democrat, had planned to start debate as early as next week. House leaders are also combining versions of their plan. Republicans and some Democrats had voiced concern that the legislation would cost too much and widen the federal budget gap. The CBO said its estimate is preliminary because it hasn’t received the legislative text yet and there may be “significant changes.” ‘Right Direction’ Even so, the analysis shows the measure “is certainly moving in the right direction,” said Nebraska Senator Ben Nelson , a Democrat and potential swing vote. He said he’d examine the findings and see what the legislation looks like at the end of the full Senate debate before deciding how to vote. “Anytime the numbers improve on something, you feel real good about it,” Nelson said in an interview. North Dakota Senator Kent Conrad , a Democrat on the finance panel who’s worked closely with Baucus, told reporters the legislative process has a long way to go. “It will be months before this is concluded,” he said. Under the plan, about 94 percent of legal, non-elderly residents would have insurance coverage by 2019, up from 83 percent now, the CBO said. That means some 25 million people would still be uninsured, roughly a third of them illegal immigrants, the agency estimated. Industry Concerns That coverage level is lower than the 97 percent target set in a $155 billion deal the hospital industry made with Baucus and Obama in July, said Chip Kahn , president of the Federation of American Hospitals based in Washington. While the group isn’t walking away from its agreement to take cuts in government payments and contribute other savings, Kahn said it wants to see changes. The measure “does not meet the standard of coverage that our agreement is based on,” Kahn said in an interview. The insurance industry said a decision by Baucus’s panel to scale back penalties on people who fail to buy coverage will hurt the plan’s effectiveness. “For market reforms to work, you have to have a mandate,” said Karen Ignagni , president and chief executive officer of America’s Health Insurance Plans , a Washington trade group. More Hurdles There are other hurdles. House and Senate Democrats are divided over whether to create a government-run insurance option, whether to require that employers cover workers, and how to pay for the legislation. Party members will battle over the issues in the next few weeks as leaders combine plans and then prepare for the merging of House and Senate versions. Baucus, after negotiating for months with two other Democrats and three Republicans on his panel, opted against an employer mandate and the so-called public option. He also included $6 billion in federal seed money for nonprofit cooperatives to offer an alternative to private insurers. His bill calls for new taxes on so-called Cadillac insurance plans and fees on industries including drugmakers and medical device manufacturers. The House versions would institute surtaxes on the wealthiest Americans. All the versions have common ground. They require that Americans get insurance, with varying penalties for failing to do so. They also encourage greater use of preventive care, electronic records and research on the effectiveness of treatments. Under all the plans, insurers would have to accept new clients, regardless of preexisting conditions. To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net ; Brian Faler in Washington at bfaler@bloomberg.net

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Yankees Home Playoff Games Are Worth $6.7 Million Each to City Businesses

October 6, 2009

By Aaron Kuriloff and Erik Matuszewski Oct. 7 (Bloomberg) — Each home game the New York Yankees play in the 2009 Major League Baseball postseason is worth $6.7 million to city businesses, according to data from the Economic Development Corporation . That includes money spent by visiting fans, players and media members on hotels, retail, transportation and dining, assuming that 34,150 people attend the game who don’t live in the city, the analysis said. Indirect benefits to New York bring the total economic benefit of each game to $11.9 million. Payroll spending in the city will also rise by about $900,000 per game, including $260,000 for seasonal and contract employees at the stadium, the corporation said. The Yankees would play 11 home games if they advanced to the World Series and each of the three postseason series went the maximum. “Restaurants, hotels and transportation all benefit from this,” said Lonn Trost , Yankees chief operating officer, in an interview. “More employees work more days, not only the day of the game but in preparation and breakdown.” The Yankees tonight begin a best-of-five division series against the Minnesota Twins, who last night beat the Detroit Tigers 6-5 in 12 innings in a tiebreaker to determine the American League Central Division winner. After making the playoffs for 13 straight years with Joe Torre as manager, the Yankees failed to reach the postseason in 2008, their first year with Joe Girardi at the helm. They responded by luring free-agent pitchers CC Sabathia and A.J. Burnett with multiyear contracts worth a total of $243.5 million. New York also gave first baseman Mark Teixeira an eight-year contract worth $180 million. No. 1 Record The changes resulted in a 103-59 record this season, the best in baseball. Teixeira tied for the AL lead with 39 home runs and Sabathia’s 19 wins were tied for the most in baseball. Captain Derek Jeter batted .334, his best since 2000, with 18 home runs and 30 stolen bases. This is the first season for the team’s stadium in the Bronx, built across the street from its former home. The tax-exempt bonds that the Yankees sold in January through a city agency to complete the $1.5 billion stadium have rallied more than 17 percent as yield-hungry investors sought out lower-rated municipal bonds. Yankee Stadium LLC bonds due in 2049 were sold to a customer Sept. 9 in a $100,000 block at about 117.4 cents on the dollar to yield 4.7 percent versus 7 percent at issue, Municipal Securities Rulemaking Board trade data show. They are insured against default by Assured Guaranty and carry underlying ratings of Baa3 from Moody’s Investors Services and BBB- from Standard & Poor’s, the lowest investment grades. Cost of Stadium The team will cover the cost of the stadium by paying off the city-issued bonds instead of property taxes, and with $225 million of its own money. The city is also contributing $306 million in capital funding for new parks and recreational facilities, its share of the new commuter-rail station and pedestrian bridge near the stadium and other infrastructure upgrades, Andrew Brent , a spokesman for the Mayor Michael Bloomberg’s office, said in an e-mail. The state contributed $70 million to stadium parking facilities and its Metropolitan Transportation Authority added $52 million for the Metro North train station and bridge, according to Brent. Brodsky’s Opposition State Assemblyman Richard Brodsky said the stadium hasn’t created enough jobs or economic development to justify obtaining low-cost financing through tax-exempt bonds. The Westchester Democrat, who chairs a committee on public authorities, says the team and city have understated the cost to taxpayers. “‘This whole deal is a case history of how the Bloomberg administration has been giving away money to private parties without a public benefit,” Brodsky said. Andrew Zimbalist , a professor of economics at Smith College, said he thinks the team’s success will mean some economic benefit to the city from tourism or consumer purchasing. “There is a modicum of economic advantage,” he said. “The visiting teams travel with their press corps and entourage, some people will travel to New York, stay overnight and spend money on hotels and restaurants.” The Economic Development Corporation based its totals on about 6,000 spectators traveling to each game from outside the tri-state area, along with 27,500 fans from within the metropolitan region, 200 players and team officials and 300 out- of-town media. The analysis excluded spending from another 16,850 spectators, assuming them to be city residents. Indirect Impact The analysis also calculated $5.2 million in indirect economic impact from each postseason game, as workers, for example, spend money earned at the stadium. Trost said the team’s games would also focus attention on the city as people around the country tuned in. “We’re constantly rekindling the importance of the centrifuge of New York,” he said. “When you’re bringing in that many people for that many games, hotels are booked, your cab drivers and private cars are happy they’re working, Metro North is working,” Trost said. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP. To contact the reporter on this story: Aaron Kuriloff in New York at akuriloff@bloomberg.net ; Erik Matuszewski in New York at matuszewski@bloomberg.net

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Commercial Real Estate Day or Reckoning is Here :: The Market …

September 27, 2009

Commercial Real Estate Day or Reckoning is Here :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

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Video: More Perspective – Twitter Set to Raise $100 Million

September 25, 2009

Venture Capital and Twitter – Analysis and Discussion with David Menlow of IPOFinancial.com (Bloomberg News)

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Video: More Perspective – Regulating Wall Street

September 25, 2009

From Financial Crisis to Reform – Analysis and Discussion with University of San Diego Law Professor Frank Partnoy (Bloomberg News)

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Using a Formula to Focus on Owner Distress and Building Distress

September 20, 2009

… on Owner Distress and Building Distress Every real estate syndicator who I speak with recognizes that … analysis is very simple. I look for distressed assets – properties that have problems that …

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Video: Economic Expectations -

September 18, 2009

Dow 10K? – Analysis and Discussion with John Hermann of Hermann Forecasting (Bloomberg News)

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Video: Currency Outlook – Is Dollar Losing Reserve Currency Status?

September 18, 2009

G-20 Currency Role – Analysis and Discussion with Brian Dolan of GAIN Capital Group (Bloomberg News)

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India’s Jet Airways to Resume Full Operations Today as Pilots End Strike

September 13, 2009

By Vipin V. Nair Sept. 13 (Bloomberg) — Jet Airways (India) Ltd., the nation’s largest carrier by market value, said it will resume full operations today after reaching an agreement with some of its pilots who had been on strike for the past five days. The airline reinstated the four pilots it fired and formed a consultative group for talks, Vice President K.G. Vishwanath told reporters today in Mumbai, where Jet Airways is based. More than 1,000 flights were scrapped during the strike, leading to daily revenue losses of about $2.2 million, he said. The strike forced Jet Airways to cancel about 800 flights since Sept. 8, stranding more than 13,000 passengers, according to government estimates. The airline scrapped flights after pilots belonging to the newly formed National Aviators Guild called in sick, refusing to work until the carrier recalled the four pilots dismissed for initiating steps to form the union. Jet Airways spokeswoman Ragini Chopra and union president Girish Kaushik didn’t answer calls to their mobile phones. “A potential challenge in the form of labor unrest is something that the industry will now be concerned about,” said Binit Somaia , South Asia director at the Centre for Asia Pacific Aviation. “Labor unrest is not something the India’s private airlines had to deal with in the past. Now most carriers will be concerned.” Domestic bookings slumped 39 percent to 14,000 a day since the strike began, Sudheer Raghavan , chief commercial officer, said Sept. 9. International reservations were down 9.5 percent to 9,500 a day. Double Rates Rival carriers began to charge fares at almost double the usual rates after the strike hampered Jet Airways’ operations, the Daily News & Analysis newspaper reported Sept. 11, without saying where it got the information. India’s Directorate General of Civil Aviation asked airlines to charge fares at rates that prevailed in the week ended Sept. 6, according to a statement from the Press Information Bureau. As many as 400 captains and first officers protested the firing of their colleagues, said Sam Thomas, general secretary of the guild. The airline then asked a court to force the striking pilots to return to work. Shares of Jet Airways rose 2 percent to 258.55 rupees in Mumbai on Sept. 11. The stock has gained 27 percent this year. Jet Airways posted a first-quarter loss of 2.25 billion rupees ($46 million) as slowing economic growth damped travel demand. The airline may post its worst annual loss in a decade in the year ending in March, according to data compiled by Bloomberg. The airline slashed flights to the U.S. and other long-haul destinations to save as much as $600 million this year. Airline losses globally may total $9 billion this year, according to the International Air Transport Association, almost double the group’s previous forecast. To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net .

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Video: Commodities Outlook – China’s Role in Buying Base Metals

September 11, 2009

Investing in Base Metals – Analysis and Discussion with Edward Meir of MF Global (Bloomberg News)

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Video: More Perspective – Morgan Stanley’s Future

September 11, 2009

Mack the Strife – Analysis and Discussion with Joshua Rosner of Graham Fisher (Bloomberg News)

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Video: Employment Outlook – Job Figures "Humbling"

September 4, 2009

Inside the Jobs Report – Analysis and Discussion with Roger Kubarych of U.S. Council on Foreign Relations (Bloomberg News)

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Video: Inside Look – Hotel Boom in Nation’s Capital

August 28, 2009

Washington Hotels Defy U.S. Travel Slump – Analysis and Discussion with PKF Consulting VP Kannan Sankaran (Bloomberg News)

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Video: Market Outlook – "The Demi-Ashton Ratio"

August 28, 2009

A Bullish Global Perspective – Analysis and Discussion with Ajay Kapur of Mirae Asset Securities (Bloomberg News)

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Alan Schram: Too Soon to Call a Housing Bottom

August 23, 2009

Consensus seems to be that the housing market bottomed. The statistics on national home sales and prices are the key to consumer recovery, so it is hugely important. But I have my doubts. According to the analysis of Mark Hanson from the Field Check Group, 2009 existing home sales exceeded 2008 by 45,000 units for June and July. With expectations very low, this was taken as reason for great optimism, even though January to May 2009 were the weakest first five months in many years. But in order to get this small improvement, herculean efforts were needed: a trillion dollars to keep rates down, and hundreds of billions in massive tax credits, mortgage modifications and foreclosure moratoriums, inter alia. In addition, conditions this year were ideal: prices were low as some cities suffered a decline of 50% to 70%, mortgage rates are at rock bottom and there is plenty of supply. And yet only an additional 45,000 out 2.8 million housing units sold so far year. Is that a good reason to deduce that housing has bottomed? Now, the low cost supply of foreclosure has dried up, as banks are postponing them as much as possible. With so many people believing the worst is behind us, a miss next month could disappoint and deliver a body blow to the cheery consensus. If you look at historical prices, the housing bubble started in 1997, when housing diverged from a historical range of average price of 12 to 14 times prevailing rents, dating back to 1953. It was 15.2 times by the end of the tech bubble in March 2000. After the Fed’s reaction to the events of Sept. 11, 2001, the price to rent multiple of U.S. homes climbed to an unprecedented peak of 25.6 times at the end of 2005. To revert back to the mean and work off the housing glut, prices will need to fall back to the historical range. We are not there yet. Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.

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