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Video: Gross Says Inflation Matters More Than Bernanke Suggests

by on March 4, 2011

March 4 (Bloomberg) — Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., talks about U.S. inflation and labor market outlook. U.S. employers added 192,000 workers in February, and the unemployment rate unexpectedly declined to 8.9 percent, the lowest level since April 2009, Labor Department figures showed. Gross speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Surveillance.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Gross Says Inflation Matters More Than Bernanke Suggests

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Video: Gross Says Investors Should Focus on Emerging Markets

by on February 4, 2011

Feb. 4 (Bloomberg) — Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., talks about interest rates and investment strategy. Gross speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Surveillance.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: El-Erian Says Opportunities Still Exist in Bond Market

January 21, 2011

Jan. 21 (Bloomberg) — Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., talks about investment opportunities in the bond market. El-Erian, speaking with Tom Keene on Bloomberg Radio’s “Surveillance,” also discusses the outlook for the World Economic Forum in Davos, Switzerland, next week. (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Whitney Says Year-End Wall Street Bonuses to Disappoint: Video

September 30, 2010

Sept. 30 (Bloomberg) — Meredith Whitney, founder and chief executive officer of Meredith Whitney Advisory Group, talks about the outlook for Wall Street compensation and job cuts. Whitney speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance.” (This is an excerpt. Source: Bloomberg)

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Video: El-Erian Says Yen Intervention Unlikely to Succeed: Video

September 15, 2010

Sept. 15 (Bloomberg) — Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., talks about Japan’s intervention in the foreign-exchange market to weaken the yen. El-Erian, speaking with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance,” also discusses the ineffectiveness of economic policies. (This is an excerpt. Source: Bloomberg)

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Video: Levkovich Favors Stocks Over Bonds Right Now: Video

August 20, 2010

Aug. 20 (Bloomberg) — Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc., talks about his view of stocks versus bonds. Levkovich speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Pimco’s El-Erian Discusses Deflation, Fed, U.S. Economy: Video

August 13, 2010

Aug. 13 (Bloomberg) — Mohammed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., discusses Federal Reserve monetary policy. El-Erian, speaking with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance,” also discusses deflation and the outlook for the U.S. economy. (This report is an excerpt of the full interview. Source: Bloomberg)

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Video: Gross Sees Jobless Rate No Lower Than 7% in Long Term: Video

August 6, 2010

Aug. 6 (Bloomberg) — Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., talks about the outlook for the U.S. unemployment rate and the need for U.S. policy changes. Gross, speaking with Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance,” also discusses investment strategy. (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Mauboussin Discusses 401(k) Investment Strategy, Stocks: Video

July 21, 2010

July 21 (Bloomberg) — Michael Mauboussin, chief investment strategist at Legg Mason Capital Management, talks about investment strategy for 401(k) plans and the outlook for the U.S. equity market. Mauboussin talks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance.” (Source: Bloomberg)

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Video: Johnson Says Banks `Won Hands-Down’ in Rules Overhaul: Video

July 1, 2010

July 1 (Bloomberg) — Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management, talks about legislation overhauling financial regulation. He speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance.” (This is an excerpt of the interview. Source: Bloomberg)

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Video: RBC’s Jersey Says Inflation Won’t Be `Significant Issue’: Video

June 30, 2010

June 30 (Bloomberg) — Ira Jersey, an interest-rate strategist at RBC Capital Markets, talks about the outlook for the bond market and inflation. Jersey, speaking with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance,” also discusses the European Central Bank’s lending to banks. (Source: Bloomberg)

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Payrolls in U.S. Climb Less Than Estimated as Confidence in Recovery Wanes

June 4, 2010

By Shobhana Chandra June 4 (Bloomberg) — Employers in the U.S. hired fewer workers in May than forecast and Americans dropped out of the labor force, showing a lack of confidence in the recovery that may lead to slower economic growth. Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census, Labor Department figures in Washington showed today. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. Private payrolls rose a less-than-forecast 41,000. The jobless rate fell to 9.7 percent. Stock-index futures extended losses and Treasuries surged on expectations a slowing in the labor market will restrain consumer spending, the biggest part of the economy. Federal Reserve Chairman Ben S. Bernanke said yesterday that unemployment was exacting a heavy toll, showing why economists forecast interest rates will remain low. “Hiring looks soft,” said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. “It does raise some red flags that businesses are still pretty cautious.” The contract on the Standard & Poor’s 500 Index dropped 2 percent to 1,081.40 at 8:59 a.m. in New York. The 10-year Treasury note rose, pushing the yield down to 3.26 percent from 3.37 percent late yesterday. Payrolls Forecasts Payrolls estimates in the Bloomberg survey of 82 economists ranged from 220,000 to 750,000 after a gain of 290,000 jobs in April. Economists surveyed also forecast the jobless rate fell to 9.8 percent last month from 9.9 percent in April. Unemployment reached a 26-year high of 10.1 percent in October. The May figures showed the labor force shrank 322,000. Federal hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. The gain in private payrolls followed an increase of 218,000 in April that was revised from 231,000. Excluding all government jobs, employment climbed by 116,000 a month on average in the five years to December 2007, when the recession began. Factory Employment Manufacturing payrolls increased by 29,000 in May, a fifth straight gain and less than the survey median of a 33,000 increase. “Job growth is going to be anemic,” said Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California. “Remember, it requires 150,000 to 200,000 jobs in order to reduce that unemployment rate, which is a key focus for the administration,” he said in an interview with Bloomberg Radio’s Tom Keene on “Bloomberg on the Economy.” Employment at service-providers increased 427,000 after rising 228,000. Construction companies reduced payrolls by 35,000 after rising 41,000 in March and April combined. Bernanke yesterday said joblessness is among the “important concerns” for the recovery. ‘Heavy Costs’ “One particularly difficult issue is the continued high rate of unemployment,” Bernanke said at a forum at the Chicago Fed’s Detroit office. “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole.” Hewlett-Packard Co., the world’s largest personal-computer maker based in Palo Alto, California, this week said it’ll slash about 3,000 jobs over several years. Citigroup Inc. plans to close 376 branches and reduce as many as 720 jobs in the U.S. and Canada. Average hourly earnings rose to $22.57 in May from $22.50 in the prior month, today’s report showed. Government payrolls increased by 390,000. State and local governments reduced employment by 22,000, while the federal government added 412,000 jobs. The average work week for all workers rose to 34.2 hours in May from 34.1 hours the prior month. The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — decreased to 16.6 percent from 17.1 percent. The number of temporary workers increased 31,000. Payrolls at temporary-help agencies often picks up before companies take on permanent staff. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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`Value’ Stocks Novellus, Whiting Find Favor With Delphi’s Black Tom Keene

June 3, 2010

By Mary Childs and Tom Keene (Corrects name of company in seventh paragraph.) June 3 (Bloomberg) — Investors should focus on expanding companies that generate cash, with so-called value indexes outpacing growth stocks so far this year, according to Delphi Management’s Scott Black . Would-be value investors often fall prey to complex balance sheets or stagnating companies, Black, who oversees about $900 million as president of Boston-based Delphi, said in a Bloomberg Radio interview today with Tom Keene . “They look at something that’s ostensibly cheap that sells way below book or ostensibly a low PE that has absolutely no growth or has a bad balance sheet,” he said. “You have to make sure you’re buying a growth company at a value price. Make sure it is a solid balance sheet.” Value funds have outperformed their growth peers so far this year, with the Russell 2000 Value Index up 6.9 percent and the Russell 2500 Index up 5.8 percent, compared with the 5.4 percent of the Russell 2500 Growth Fund and a loss of 1 percent in the Standard & Poor’s 500 Index , the benchmark for U.S. stocks. “Value has done better this year,” Black said. “It’s not a run-away freight train since the pullback but it’s still done better than regular companies. When picking stocks, investors should consider a return on equity consistently above 15 percent, revenue and profit growth of as much as 10 percent over three to five years, generation of cash and a low price to earnings ratio, according to Black. Stock Picks Black named Novellus Systems Inc. as one of his top picks in the technology sector, saying it was “dirt cheap.” He also named oil and gas transmission companies Whiting Petroleum Corp. and Chinese copperclad wiring company Fushi Copperweld Inc. Ross Stores Inc. , which he recommended buying in February 2008, is still a good investment because it carefully applies its cash, buying back 300 million shares a year and maintaining zero debt, he said. The shares have more than doubled since he named the stock in 2008 interview, in which he also recommended Xilinx Inc., up 17 percent, and Arrow Electronics Inc., down 17 percent. “We like companies that judiciously use their cash,” he said. “What we don’t like is companies that go out and make stupid acquisitions.” He named Boardwalk Pipeline Partners LP as a good dividend play, saying “you get paid while you wait.” To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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Goldman’s O’Neill Says Financial Crisis Helped Curb Euro’s `Overvaluation’

May 19, 2010

By Simone Meier and Ken Prewitt May 19 (Bloomberg) — Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said that while Europe’s debt crisis has eased the euro’s “overvaluation,” policy makers may have to take coordinated steps to shore up the currency. “People need to remember that for the past couple of years the euro’s been very expensive,” O’Neill told Bloomberg Radio from London today. Still, the euro’s recent slide indicates expectations that monetary union could unravel, “so, there needs to be something done by European policy makers to stabilize the euro in the near future,” he said. The euro has shed 15 percent against the dollar this year on concern a Greek fiscal crisis will spread across the 16- member currency region. While European leaders last week pledged a rescue package worth almost $1 trillion and the European Central Bank started purchasing government bonds, investors remain concerned about nations’ ability to push down deficits. The euro remained near a four-year low against the dollar today, trading at $1.2292 at 1:45 p.m. in London. It dropped as low as $1.2144 today, the lowest level since April 17, 2006. Greece on May 18 received the first installment of a European Union aid package allowing it pay back 8.5 billion euros of bond maturing today and avoid default. The government pledged 30 billion euros of budget cuts to secure the aid and pledged to reduce the budget gap to 8.1 percent of gross domestic product this year from 13.6 percent in 2009. Greece cut the deficit 42 percent in the year’s first four months, Finance Minister George Papaconstantinou said yesterday. Spain and Portugal earlier this month announced additional spending cuts to trim their budget shortfalls. O’Neill said the European debt crisis is the “first serious test” for the currency region and that it’s “very early days to start worrying about” a breakup of the union. “Of course what’s happening in Greece is a warning to everybody,” he said. But the EU rescue measures “were actually impressive in terms of a coordinated European response.” To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net ; Ken Prewitt in New York at kprewitt@bloomberg.net

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Blanchflower Says Mervin King May Not `Dance’ to Cameron’s Tune: Tom Keene

May 14, 2010

By Daniel Kruger and Thomas R. Keene May 14 (Bloomberg) — Austerity measures proposed by the U.K.’s new coalition government run the risk of reviving the recession unless Bank of England Governor Mervyn King loosens monetary policy, former BOE member David Blanchflower said. “The dance will be, we will be cutting but you need to be loosening, and will you dance to our tune,” Blanchflower said in a Bloomberg Radio interview today with Tom Keene . “I suspect Mervyn King will be Mervyn King and be independent. The worry will be that they generate a double dip.” The pound declined for a third day after the Bank of England said May 12 that there are “somewhat greater downside risks” to its forecast that growth will reach a 3.5 percent annual pace by 2012, while inflation is likely to be below its 2 percent target. The bank, which has kept the benchmark interest rate at a record low for the past year, hasn’t ruled out further asset purchases under a policy known as quantitative easing, King told reporters May 12. Prime Minister David Cameron ’s government plans measures within 50 days to cut spending by 6 billion pounds ($9 billion). “It looks from the forecast that they produced this week they should have been doing lots more QE and they’re not,” Blanchflower said. “If you cut you need the governor, or the Bank of England to be loosening monetary policy.” Blanchflower predicted that that government formed by Cameron’s Conservative Party and the Liberal Democrats will collapse by year-end as differences over policies become too great. ‘12-Hour Bounce’ The decline in the pound since the cuts were agreed to shows investors are concerned whether growth will slow, Blanchflower said. “They had about a 12-hour bounce in the exchange rate and then the pound started to tumble against the dollar ever since these things were announced,” he said. King compromised his independence by supporting the new government’s austerity package at a press conference to launch the Monetary Policy Committee’s inflation report, Blanchflower wrote in a column published today by Bloomberg News. “This clearly isn’t the MPC’s view, but simply his own, as there would have been no time to consult his colleagues on the committee,” Blanchflower wrote. “As a former MPC member, I recall King’s strict dictum that we shouldn’t speak on fiscal matters, which weren’t part of our purview.” The U.K. budget deficit was a record 166.5 billion pounds last year and was forecast to be 163 billion pounds, or 11.1 percent of gross domestic product, for the current fiscal year, according to the U.K. Treasury’s budget. The pound dropped 0.6 percent to $1.4521 at 11:26 a.m. in New York, from $1.4613 yesterday. It reached $1.5045 on May 12 after Conservatives and Liberal Democrats agreed to form a government. Sterling appreciated 0.6 percent to 85.23 pence per euro, from 85.78. To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net Thomas R. Keene in New York tkeene@bloomberg.net

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Now Isn’t a Good Time for Estonia to Join the Euro, Altman Says: Tom Keene

May 12, 2010

By Mary Childs and Tom Keene May 12 (Bloomberg) — European policymakers’ approval of Estonia to adopt the euro in 2011 is ill-timed, with governments in the region struggling to bring down deficits and halt a sovereign-debt crisis, according to Edward Altman , finance professor at New York University’s Stern School of Business. “Expansion at this time is not a good idea,” Altman said in a Bloomberg Radio interview today with Tom Keene . “There may have been internal political pressures that we don’t know about that caused this to happen or maybe it shows they are still a dynamic entity and want to show the world they’re not finished.” The European Commission said today that Estonia , a one-time Soviet satellite that joined the European Union in 2004, passes the economic tests to become the 17th nation to participate in the shared currency. European policy makers on May 10 unveiled an almost $1 trillion loan package and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro as Greece and other members such as Spain and Portugal struggled to meet the EU’s 3 percent deficit requirements. “I never thought that anybody was under 3 percent to start with,” Altman said. “Everybody’s fudging the data, has been for a long time. Now we’re starting to find some of the culprits.” Estonia’s deficit fell to 1.7 percent of gross domestic product in 2009, below the euro’s 3 percent limit. While it is likely to rise to 2.4 percent in 2010, it will remain the lowest in the 27-nation EU, the commission forecasts. Europe’s fiscal woes may continue as the private sector is not as robust as it should be, according to Altman, creator of the Z-Score that calculates bankruptcy probabilities. “The big difference between the U.S. and what’s going on in Europe is the private sector,” he said. “Our private sector is very healthy and they innovate and they change much better than anywhere else in the world.” To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net ; Tom Keene in New York at tkeene@bloomberg.net

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Consumer Spending Must Gain Before Small Businesses Hire, Trade Group Says

May 11, 2010

By Mary Childs and Tom Keene May 11 (Bloomberg) — Small businesses won’t begin hiring and spending again until consumers regain confidence in the economy, according to William Dunkelberg , chief economist at the National Federation of Independent Business. The NFIB’s optimism index rose to 90.6 from 86.8 in March, the Washington-based group said today. The index remains below levels associated with past economic recoveries, indicating the rebound in growth will take time to develop. The report showed the employment outlook was negative in April for the 17th time in the past 18 months. Tax cuts alone won’t help small businesses thrive, because small businesses will keep any cash saved on reserve if they don’t foresee sustainably improved conditions ahead for financing and for consumer demand, Dunkelberg said in a Bloomberg Radio interview today with Tom Keene . Instead, the Obama administration should ease taxes on consumers, he said. “Get consumer spending back, make them feel better,” Dunkelberg said. “If I don’t think I’m going to get customers, I’m not going to take that money and start a firm.” Proposals calling for a value-added tax, a consumption levy applied to each stage of production, “scare” small business owners because they come with compliance costs and consumers blame the businesses for price increases, Dunkelberg said. A value-added tax on top of current taxes would be “a disaster,” according to Dunkelberg. To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net ; Tom Keene in New York at tkeene@bloomberg.net

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Berner at Morgan Stanley Boosts U.S. Growth Forecast, Says Fed Will Wait

May 10, 2010

By Carlos Torres May 10 (Bloomberg) — The U.S. economy will expand more than previously estimated as jobs and rising incomes overcome any drag from the European debt crisis, according to economists at Morgan Stanley. Gross domestic product will rise 3.5 percent in the fourth quarter of 2010 compared with the same period last year, and increase 3 percent next year, according to revised forecasts issued today by the bank’s economists in New York, headed by Richard Berner and David Greenlaw . The projections were up from prior estimates of 3.2 percent and 2.5 percent respectively. The world’s largest economy is shifting “from reliance on the strength of global growth to domestic forces of output, employment and income gains that make recoveries self- sustaining,” the economists wrote in an e-mail to clients. If it weren’t for the European debt crisis, “we would likely make more significant upward revisions to our outlook.” Employers added 290,000 workers to payrolls in April, the most in four years, data from the Labor Department showed last week. Revised figures also showed the economy gained jobs in each of the first four months of the year. Stephen Roach , chairman of Morgan Stanley Asia Ltd., was less sanguine about the outlook. The fallout from the European debt crisis raises the risk of a “double dip” recession for the global economy, he said in an interview today on Bloomberg Radio with Tom Keene . “When you have a vulnerable post-crisis economic recovery and crises reverberating in the aftermath of that, you have some very serious risks to the global business cycle,” he said. Less Inflation One casualty of the mounting risk a European government defaults on its debt will be inflation, Berner and Greenlaw said, citing declining measure of price expectations . For that reason, the analysts projected Federal Reserve policy makers will now wait until early 2011 to start raising the benchmark interest rate, rather than in September as they previously estimated. “The threat of contagion from the sovereign credit crisis does pose a clear downside to our sustainable growth scenario, and with inflation low, gives the Fed ample reason to wait and make sure the risk is limited,” according to the e-mail. The yield on the 10-year Treasury note will end the year at 4.5 percent, down from a previous estimate of 5.5 percent, the economists said. The notes yielded 3.54 percent at 1:06 p.m. in New York today. The Morgan Stanley economists also predicted the spread between short- and long-term rates, known as the yield curve, will steepen this year as the former remain near zero and the latter climb. The curve will then see a “significant flattening” in 2011 as the Fed is forced to boost the target rate on overnight loans between banks to 2.5 percent by the end of the year, swamping their projected half percentage-point increase in the 10-year note yield to 5 percent. To contact the reporters on this story: Carlos Torres in Washington Ctorres2@bloomberg.net

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Europe’s Debt Crisis Increases Risk of `Double-Dip’ Recession, Roach Says

May 10, 2010

By Bob Willis and Thomas R. Keene May 10 (Bloomberg) — The fallout from the European debt crisis raises the risk of a “double dip” recession for the global economy, said Stephen Roach , chairman of Morgan Stanley Asia Ltd. “When you have a vulnerable post-crisis economic recovery and crises reverberating in the aftermath of that, you have some very serious risks to the global business cycle,” Roach said in an interview today on Bloomberg Radio with Tom Keene . “This concept of the global double dip which no one wants to talk about,” he said, “is alive and well.” Governments of the 16 euro nations agreed today to lend as much as 750 billion euros ($962 billion) to the most-indebted countries. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt. Stocks rallied around the world after the announcement, sending the MSCI World Index up the most in 13 months. Greek bonds soared and the euro strengthened. Concerns that the Greek financial crisis will spread wiped $3.7 trillion from the value of global stock markets last week. European efforts to stave off contagion will not be enough to prevent “significant” contractions in some of the affected countries, Roach said. Every “fix” is accompanied by “an adjustment in the real economy,” he said. “We saw that in Asia in the late ‘90’s, we saw that in the U.S. in ‘08, ‘09, and we’re going to see that in Europe, certainly in the peripheral countries, with significant multiyear contractions in the years ahead.” Roach said the slump will probably “spill over” into the larger European countries. To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net ; Thomas Keene in New York at tkeene@bloomberg.net

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Gulf of Mexico Spill Is `Major Setback’ for Offshore Drilling, Yergin Says

May 3, 2010

By Mary Childs and Tom Keene May 3 (Bloomberg) — The BP Plc oil well that’s spilling thousands of barrels of crude a day into the Gulf of Mexico may delay plans for domestic offshore drilling, according to Daniel Yergin , chairman of IHS-Cambridge Energy Research Associates. Oil has been gushing from the damaged well at a rate of 5,000 barrels a day and it may rival the 1989 Exxon Valdez incident as the worst oil spill in U.S. history. The leak already has complicated President Barack Obama ’s proposal to allow more oil and gas exploration in the Gulf of Mexico and off portions of the U.S. East Coast as some Democratic lawmakers call for the administration to reverse course. “This is a really major setback both for climate and of course also on energy policy,” Yergin said in a Bloomberg Radio interview today with Tom Keene . “Everything now is obviously on hold.” Yergin is the author of a Pulitzer-Prize winning history of the oil industry. Obama called the leak a “massive and potentially unprecedented” disaster that could affect the region’s economy and the jobs of those who depend on the Gulf for their livelihood. “The first step is to get this leak under control. The second, almost simultaneously, is to understand what happened,” Yergin said. To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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Financial Overhaul May Still Get Bipartisan Support, Republican Gregg Says

April 20, 2010

By Jeff Bliss, Tom Keene and Ken Prewitt April 20 (Bloomberg) — The financial overhaul legislation, which has drawn the opposition of all 41 Republican senators, may still attract bipartisan support, said Senator Judd Gregg , a New Hampshire Republican and member of the Banking Committee. “I hope we’ll do a negotiated compromise because there’s not really a big partisan divide here,” Gregg told Bloomberg Radio’s “Bloomberg Surveillance” today. “It’s just a question of getting it right.” Gregg said he’s working with Senator Jack Reed , a Rhode Island Democrat, on a proposal to regulate the derivatives industry. He said lawmakers need to be guard against placing too many restrictions on derivatives and other parts of the financial industry. The Senate must be careful that “we don’t overreact in a way that forces assets off shore,” Gregg said. He also said developing regulations so that companies don’t grow “too big to fail” is important. Gregg said he found it “a little disconcerting” that the Securities and Exchange Commission in an April 16 lawsuit accused Goldman Sachs Group Inc. of misleading investors in 2007 as the Senate is scheduled to debate the financial measure. The SEC’s decision to move forward on a partisan 3-2 vote was “strange,” Gregg said. With such a close vote, “I was a little surprised there wasn’t a little more negotiation on how you resolve it prior to the action being brought,” he said. To contact the reporter on this story: Jeff Bliss in Washington jbliss@bloomberg.net .

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Greek Aid Package Will Do Little to Boost Economic Growth, Economists Say

April 12, 2010

By Jonathan Stearns April 12 (Bloomberg) — Greece’s rescue package from the European Union will do little to bolster economic growth even as it staves off the immediate risk of default, said economists at Goldman Sachs Group Inc., HSBC Holdings Plc and Morgan Stanley. Euro-region finance ministers yesterday offered Greece as much as 30 billion euros ($41 billion) in loans at a rate of around 5 percent as the government cuts wages and spending to tackle the EU’s largest budget deficit. Another 15 billion euros in aid would come from the International Monetary Fund. “The real issue will be whether Greece can regenerate growth while cutting the fiscal deficit,” Erik Nielsen , London- based chief European economist at Goldman, said in an e-mailed note. “Without growth, the debt is only sustainable if someone will finance them at much less than 5 percent” for at least the next decade. “The exact interest rate charged on the bailout package is a bit of a red herring.” The Greek economy, which contracted 2 percent in 2009, risks being dragged down by government austerity measures that have already sparked a wave of protests in Athens. Even after this year’s measures, which also include tax increases, Greece will have a budget gap of 8.7 percent of gross domestic product. The economy could contract as much as 4 percent this year, the most in more than three decades, Deutsche Bank AG estimates. Yesterday’s EU aid offer was meant as a reward for the austerity efforts and as a tool to enable Greece to keep selling bonds on the market after Greek borrowing costs surged to an 11-year high least week. Massive Fix “It may certainly reduce the possibility of default on a near-term basis,” said Morgan Stanley Asia Ltd. Chairman Stephen Roach in an interview on Bloomberg Radio today. “But you have to ask yourself: how the heck is Greece going to do the massive fiscal adjustment they have supposedly agreed to in a short period of time when they get these funds?” Greece last week raised its estimate of the 2009 deficit from 12.7 percent of GDP to 12.9 percent, the highest in the euro’s history and more than four times the EU’s 3 percent ceiling. While rules foresee fines for nations that exceed the limit, no penalty has ever been imposed. Greece’s goal of reducing the deficit by four percentage points this year is part of a plan to bring the budget gap within the EU limit by the end of 2012. ‘Much Tougher’ “Lowering the deficit towards 3 percent of GDP in the subsequent three years will be much tougher and the markets will require much more convincing along the way,” said Janet Henry , chief European economist at HSBC in London, in a research note. Greek bonds jumped today in response to the rescue package, pushing down the two-year yield to 5.807 percent from 7.158 percent on April 9. The 10-year yield dropped 55 basis points to 6.66 percent. The EU-IMF aid offer of as much as 45 billion euros is for 2010. The package, unprecedented in the 11-year history of European economic and monetary union, covers three years and leaves open the sums of possible aid in 2011 and 2012. Greek, EU and IMF officials were due to meet today to start working on details. Some economists said that the Greek rescue plan may encourage others to slow deficit-cutting plans. Paul Mortimer- Lee , head of market economics at BNP Paribas in London, said Europe was engaged in a “game of fiscal chicken” over Greece. ‘Tough Choices’ “It was the eurogroup who swerved to avoid the crash,” he said in an e-mailed note today. “The Greek decision has introduced, or increased, the incentive for governments to avoid tough choices and to let their finances drift or not to try hard enough to consolidate.” Mortimer-Lee pointed to the implications of the agreement for Portugal, which wants to cut its deficit from 9.3 percent of GDP last year to 2.8 percent in 2013. The EU should consider putting in place a “pre-emptive” aid package for Portugal, Simon Johnson , a former IMF chief economist, said in a Bloomberg Television interview today. For Johnson, who is now a professor of finance at MIT Sloan School of Management, the plan increases the risk of “moral hazard” in Europe. “This is not fixing the issue,” he said. “The Greeks could seize the opportunity. You have taken away their incentive to solve the problem.” Greece will probably have to tap the loan package to meet debt payments in May, said Goldman’s Nielsen and HSBC’s Henry. Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds. A total of 8.5 billion euros of Greek 10-year bonds matures on May 19. “The impending redemption hump on May 19 makes it extremely likely that Greece will also have to draw on EMU-IMF loans,” Henry said. Nielsen said: “We continue to think that such official money will indeed be needed to get them through May.” To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

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Stocks, Euro, Greek Bonds Advance on Speculation of Bailout

April 9, 2010

By Whitney Kisling and David Merritt April 9 (Bloomberg) — Stocks rose and Greek bonds rallied for the first time in two weeks on speculation Europe’s most indebted nation will get an international bailout to avert a default. The euro jumped 0.8 percent against the dollar. Stocks and the euro briefly trimmed their advance as Fitch Ratings cut Greece’s debt ratings to the lowest investment grade, before resuming gains that sent the MSCI World Index of 23 developed nations’ stocks to near its highest in 18 months and the euro to its strongest versus the dollar in almost a week. The Standard & Poor’s 500 Index rose 0.4 percent at 11:34 a.m. in New York. The premium investors demand to hold Greek ten-year notes instead of benchmark German debt narrowed 29 basis points as European officials said they’re ready to come to Greece’s rescue if needed. “They have to be given some help from Europe or the IMF at concessional rates,” billionaire investor George Soros said in an interview on Bloomberg Radio in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.” European Union officials are “ready to act” on financial assistance for Greece, European Commission spokeswoman Amelia Torres said in Brussels. U.S. stocks extended gains earlier as government data showed wholesale inventories rose more than forecast in February, a sign companies are increasing orders as sales climbed to the highest level in more than a year. Greek Yields Retreat Yields on Greek two-year notes fell 44 basis points to 6.93 percent after rising more than 200 basis points in the past three weeks. National Bank of Greece SA, the nation’s biggest lender, rallied 8.1 percent, snapping a three-day, 17 percent plunge. Energy and consumer shares led the gains in U.S. stocks, with Exxon Mobil Corp. rising 1.2 percent and Walt Disney Co. advancing 2.3 percent. Treasuries fell, paring weekly gains, as speculation Greece will avoid default reduced demand for the relative safety of U.S. government debt. The 10-year note’s yield rose 2 basis points, or 0.02 percentage point, to 3.91 percent. The Dollar Index, which tracks the currency against six major trading partners, slid 0.7 percent to 80.981. The New Zealand dollar, Danish krone and euro led gains against the dollar, rising at least 0.9 percent. Only the Canadian dollar fell against the U.S. currency among the 16 most active counterparts tracked by Bloomberg. Europe Rallies The Stoxx Europe 600 Index climbed 1.1 percent as banks and commodity producers led gains by all 19 industry groups. The benchmark gauge of equities in 18 western European nations headed for its sixth straight weekly gain, the longest winning streak in a year. Givaudan SA, the world’s biggest maker of flavors and fragrances, surged 5.1 percent in Zurich after saying sales advanced. The MSCI Asia Pacific Index rose 0.4 percent. Macarthur Coal Ltd. jumped 8.3 percent in Sydney after rejecting a A$3.64 billion ($3.4 billion) bid from New Hope Corp., which is vying with Peabody Energy Corp. and Noble Group Ltd. for control of the world’s biggest producer of pulverized coal. Xstrata Plc, the world’s fourth-largest copper producer, rose 2.5 percent in London after saying it approached Macarthur shareholders Posco and ArcelorMittal about a potential rival bid. Eastern Europe led a rebound in emerging-market stocks, with Hungary’s Budapest Stock Exchange Index gaining 1.5 percent and the Czech PX Index climbing 1.2 percent. The Micex Index in Russia advanced 1.4 percent while the ruble strengthened 0.9 percent against the dollar. Turkey’s lira added 0.6 percent. Copper for delivery in three months rose 0.6 percent to $7,940 a metric ton on the London Metal Exchange. Aluminum advanced to its highest level since October 2008. Gold for immediate delivery added 1 percent to $1,161.70 an ounce, for a fifth consecutive gain. Crude oil erased gains, slipping 0.5 percent to $84.97 a barrel in New York. To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net ; David Merritt in London on dmerritt1@bloomberg.net .

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Stocks, Euro, Greek Bonds Advance on Speculation of International Bailout

April 9, 2010

By Whitney Kisling and David Merritt April 9 (Bloomberg) — Stocks rose and Greek bonds rallied for the first time in two weeks on speculation Europe’s most indebted nation will get an international bailout to avert a default. The euro jumped 0.8 percent against the dollar. Stocks and the euro briefly trimmed their advance as Fitch Ratings cut Greece’s debt ratings to the lowest investment grade, before resuming gains that sent the MSCI World Index of 23 developed nations’ stocks to near its highest in 18 months and the euro to its strongest versus the dollar in almost a week. The Standard & Poor’s 500 Index rose 0.4 percent at 11:34 a.m. in New York. The premium investors demand to hold Greek ten-year notes instead of benchmark German debt narrowed 29 basis points as European officials said they’re ready to come to Greece’s rescue if needed. “They have to be given some help from Europe or the IMF at concessional rates,” billionaire investor George Soros said in an interview on Bloomberg Radio in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.” European Union officials are “ready to act” on financial assistance for Greece, European Commission spokeswoman Amelia Torres said in Brussels. U.S. stocks extended gains earlier as government data showed wholesale inventories rose more than forecast in February, a sign companies are increasing orders as sales climbed to the highest level in more than a year. Greek Yields Retreat Yields on Greek two-year notes fell 44 basis points to 6.93 percent after rising more than 200 basis points in the past three weeks. National Bank of Greece SA, the nation’s biggest lender, rallied 8.1 percent, snapping a three-day, 17 percent plunge. Energy and consumer shares led the gains in U.S. stocks, with Exxon Mobil Corp. rising 1.2 percent and Walt Disney Co. advancing 2.3 percent. Treasuries fell, paring weekly gains, as speculation Greece will avoid default reduced demand for the relative safety of U.S. government debt. The 10-year note’s yield rose 2 basis points, or 0.02 percentage point, to 3.91 percent. The Dollar Index, which tracks the currency against six major trading partners, slid 0.7 percent to 80.981. The New Zealand dollar, Danish krone and euro led gains against the dollar, rising at least 0.9 percent. Only the Canadian dollar fell against the U.S. currency among the 16 most active counterparts tracked by Bloomberg. Europe Rallies The Stoxx Europe 600 Index climbed 1.1 percent as banks and commodity producers led gains by all 19 industry groups. The benchmark gauge of equities in 18 western European nations headed for its sixth straight weekly gain, the longest winning streak in a year. Givaudan SA, the world’s biggest maker of flavors and fragrances, surged 5.1 percent in Zurich after saying sales advanced. The MSCI Asia Pacific Index rose 0.4 percent. Macarthur Coal Ltd. jumped 8.3 percent in Sydney after rejecting a A$3.64 billion ($3.4 billion) bid from New Hope Corp., which is vying with Peabody Energy Corp. and Noble Group Ltd. for control of the world’s biggest producer of pulverized coal. Xstrata Plc, the world’s fourth-largest copper producer, rose 2.5 percent in London after saying it approached Macarthur shareholders Posco and ArcelorMittal about a potential rival bid. Eastern Europe led a rebound in emerging-market stocks, with Hungary’s Budapest Stock Exchange Index gaining 1.5 percent and the Czech PX Index climbing 1.2 percent. The Micex Index in Russia advanced 1.4 percent while the ruble strengthened 0.9 percent against the dollar. Turkey’s lira added 0.6 percent. Copper for delivery in three months rose 0.6 percent to $7,940 a metric ton on the London Metal Exchange. Aluminum advanced to its highest level since October 2008. Gold for immediate delivery added 1 percent to $1,161.70 an ounce, for a fifth consecutive gain. Crude oil erased gains, slipping 0.5 percent to $84.97 a barrel in New York. To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net ; David Merritt in London on dmerritt1@bloomberg.net .

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Greece’s Dollar Bond Yield Unattractive Even Over 7%, Pimco’s Clarida Says

April 8, 2010

By Ben Levisohn April 8 (Bloomberg) — Greece’s dollar bonds would be unappealing even if they returned more than 7 percent, according to Richard Clarida , global strategic adviser at Pacific Investment Management Co. “I don’t think that it would be an attractive enough yield,” said Clarida today in a Bloomberg Radio interview with Tom Keene . Greece is “sort of like the Titanic. Eighteen things went wrong, and when they go wrong at once it’s problematic,” said Clarida, whose Newport Beach, California-based firm runs the world’s largest mutual fund. Greece plans to sell a global bond in dollars in the next two months as part of a plan to raise 11.6 billion euros ($15.4 billion) in funding by the end of May after investors lost money on its most recent sale. The nation needs to borrow a total of 32 billion euros this year, Petros Christodoulou , director general of the Public Debt Management Agency, said in a Bloomberg Television interview on March 31. He declined to say how big the dollar issue might be. “We’re talking now about what the market sees as a solvency issue,” Clarida said. Greece is struggling to cut its budget deficit, the largest in Europe, from 12.7 percent of gross domestic product, prompting investors to dump Greek assets. Finance Minister George Papaconstantinou told ANT1 television that Greece doesn’t need additional austerity measures after the European Union and the International Monetary Fund agreed to terms for an emergency support package. ‘Not a Lot’ “The size of the packages being discussed now, though big by IMF standards, may not be enough for Greek refinancing needs,” Clarida said. “Compared to the amount of debt Greece has to roll over, it’s not a lot of money.” The IMF may provide 15 billion to 20 billion euros, wrote Barclays Plc economists Christian Keller in London and Laurence Boone in Paris in a note to investors yesterday, citing the “recent pattern of IMF lending in European Union programs.” A joint rescue package for Greece by euro-region countries and the IMF may total at least 40 billion euros over three years, the Barclays economists wrote. The yield on the 10-year Greek bond increased 0.26 percentage point to 7.42 percent today, increasing the spread with benchmark German bunds to the widest since the euro’s debut in 1999. Greece’s ASE Index of stocks slid as much as 5.2 percent, the most in almost four months, and the cost of insuring against a default by the nation climbed to a record. To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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UBS Said to Generate $2.3 Billion of Fixed-Income Revenue in Rebuilt Unit

March 29, 2010

By Elena Logutenkova Jan. 25 (Bloomberg) — UBS AG , Switzerland’s biggest bank by assets, appointed Rajeev Misra and Dimitri Psyllidis as co- heads of fixed-income, currencies and commodities. Misra, 47, and Psyllidis, 43, take on the roles in addition to their responsibilities as global heads of credit and macro, respectively, the Zurich-based bank said in an e-mailed statement today. Carsten Kengeter , 42, the co-head of UBS’s investment bank, will relinquish his role as co-head of FICC with Jeffrey Mayer , 50, who will take on the new position of executive chairman of FICC, the bank said. UBS is shuffling leadership of the fixed- income unit at a time when the business may be facing lower revenue prospects, according to analysts. “We’re going to see 2010 fixed-income revenues about 30 percent below 2009 revenues” for investment banks, Dirk Hoffmann-Becking , a London-based analyst at Sanford C. Bernstein, said in a Bloomberg Radio interview. Increased competition from companies such as UBS will “drive down profitability in market-making and flow business dramatically.” UBS aims to generate about 40 percent of the investment bank’s total revenue from the fixed-income unit in three to five years, or at least 8 billion francs ($7.68 billion) annually. That would return fixed-income revenue to the levels achieved before the credit crisis led to record losses at the bank. Shear, Hoornweg UBS also said it hired Neal Shear , 55, as global head of securities, to be based in Stamford, Connecticut, and Roberto Hoornweg , 41, as the global head of securities distribution, to be based in London. Shear left Leon Black’s private-equity firm Apollo Management LP last year, and previously worked for Morgan Stanley in roles including co-head of sales and trading. Shear left New York-based Morgan Stanley in March 2008 after then Chief Executive Officer John Mack demoted him in November 2007 because of bad trades that resulted in the first quarterly loss as a publicly-traded company. Thomas Daula , the former chief risk officer at Morgan Stanley, who also left amid the management reshuffle, joined UBS in June 2008 to take that position at its investment bank. Hoornweg also worked previously at Morgan Stanley, most recently as head of global interest rates, credit and currencies. He left in July 2009, when the firm hired Jack DiMaio to replace him. ‘Central’ to Recovery Shear and Hoornweg will be responsible for aligning the equities and debt units and bringing their distribution teams more closely together, Kengeter and Alex Wilmot-Sitwell , who lead the investment bank, said in the statement. UBS aims to reach an annual pretax profit of 6 billion francs at the investment bank over the next three to five years, after losses since 2007. The debt division generated 8.3 billion francs of revenue in 2006, compared with a negative 1 billion francs in the first nine months of 2009. It was responsible for most of the $57.5 billion in writedowns and losses during the credit crisis, which forced the bank to take a 6 billion-franc lifeline from the Swiss government. A turnaround at the unit will be “central” to the bank’s goal of reaching an annual pretax profit of 15 billion francs in three to five years, UBS said in November. To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

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El-Erian Says IMF Will Assist Greece Following `Game of Chicken’ in Europe

March 18, 2010

By Tom Keene and Cordell Eddings March 18 (Bloomberg) — The International Monetary Fund will come to the rescue of debt-strapped Greece after a “game of chicken,” according to Mohamed El-Erian , co-chief investment officer at Pacific Investment Management Co. “The IMF will come in, but it’s going to be a bumpy road,” said El-Erian, co-chief investment officer at Pacific Investment Management Co., in an interview on Bloomberg Radio’s “Bloomberg Surveillance.” “There is no immediate solution. Don’t underestimate the game of chicken between Greece, the EU and the IMF.” Greece’s Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package. Papandreou said he may turn to the IMF to overcome Greece’s debt crisis unless leaders agree to set up a lending facility at a summit March 25-26. The IMF option has been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy , who say it would show the EU can’t solve its own crises. The euro fell against the dollar for a second straight day after Michael Meister , the chief finance spokesman for German Chancellor Angela Merkel ’s Christian Democratic Union party, said yesterday in an interview that said Greece should turn to the IMF if it needs aid. Pimco’s Bill Gross , who runs the world’s biggest bond fund at Newport Beach, California-based Pimco, has increased holdings of bonds from non-U.S. developed nations for a fourth month, taking them to the highest level since May 2004. Gross raised the proportion of the securities in the Total Return Fund to 19 percent of assets in February from 18 percent in January, according to a report placed on the company’s Web site yesterday. He increased U.S. government debt to 35 percent from 31 percent, the first increase since October 2009, and lowered net cash to 2 percent from 9 percent. For Related News and Information: U.S. recession: STNI USRECESSION World inflation breakeven rates: ILBE Credit market watch: CMW Sovereign debt monitor: SOVR

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Nobel Laureate Spence Says U.S. Economic Recovery to Take `Several Years’

March 10, 2010

By Vincent Del Giudice and Thomas R. Keene March 10 (Bloomberg) — The U.S. faces an extended recovery from the recession even after the government infusion of cash into stimulus programs and the banking system, said Andrew Michael Spence , a Nobel laureate in economics. “Right now the expectations are that somehow the government can magically restore the economy to balance,” Spence said in an interview today on Bloomberg Radio. “A more realistic view is it’s going to take several years.” Federal Reserve Chairman Ben S. Bernanke said last month the economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus fades. Economists surveyed by Bloomberg News predict growth of 3 percent this year and next following a 2.4 percent contraction in 2009, which was the worst performance for a single year since 1946. “Diminished consumption” in the U.S. will be a drag on world growth, Spence said. “It’s very hard to progress on some global issues without a very strong America,” he said. The U.S. government should focus on support for the unemployed “over a more extended period” to bolster consumer confidence and spending, he said. Spence is joining the faculty of New York University Stern School of Business effective Sept. 1 after teaching at Stanford University in California. He shared the Nobel Memorial Prize for Economics in 2001 with George Akerlof of the University of California, Berkeley, and Joseph Stiglitz of Columbia University in New York, for their “analyses of markets with asymmetric information,” according to the Nobel Foundation. The U.S. economy has lost 8.4 million jobs since the recession started in December 2007, and the unemployment rate reached a 26-year high of 10.1 percent in October. The rate was down to 9.7 percent in February. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net ; Thomas R. Keene in New York tkeene@bloomberg.net .

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U.S. Unemployment Rate Peaked at 10.1% in October, Economist Achuthan Says

March 8, 2010

By Vincent Del Giudice and Thomas R. Keene March 8 (Bloomberg) — History indicates U.S. joblessness in coming months won’t exceed the quarter-century high reached in October, said Lakshman Achuthan , managing director at Economic Cycle Research Institute in New York. Unemployment unexpectedly held at 9.7 percent in February, figures from the Labor Department showed last week. The rate climbed to 10.1 percent in October, the highest level since 1983. “You have never had a four-tenths-of-a-point decline in the rate and then see it go up to a new peak” since the end of World War II, Achuthan said today in an interview on Bloomberg Radio. “The unemployment rate already peaked.” The reason the improvement does not “ring true” is that long-term unemployment remains high, Achuthan said. The skills of many unemployed Americans do not match the current demands of the workplace, he said. “The long-term unemployed, people who have been unemployed for more than six months, that’s 40 percent of the people out of work,” said Achuthan. Other workers have been more fortunate, as suggested by the decline in the unemployment rate and the slower pace of job cuts from a year earlier, he said. “The part you don’t see is that 60 percent of the unemployed, people who are shorter-duration unemployment, people who lost their job then in another month or two get another job, they’re seeing the jobless rate fall faster than the other two recoveries,” Achuthan said. Skill Sets The reason they are able to find work is “beyond just education,” he said. “Their skill sets fit what people want right now and the ones that are long-term unemployed are mismatched. They could be people who were associated with the bubbles, housing and credit, or they could be in manufacturing.” On March 5, the Labor Department also reported employment declined less than forecast as payrolls dropped by 36,000 workers. Employment fell in construction as blizzards crippled parts of the Atlantic seaboard. Temporary employment increased, as did manufacturing, according to the government statistics. Still, the underemployment rate , which includes part-time workers who’d prefer a full-time job, rose last month to 16.8 percent from 16.5 percent in January, the Labor Department reported. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net ; Thomas R. Keene in New York tkeene@bloomberg.net .

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Greece Passes $6.6 Billion More Deficit Cuts to Avert Fiscal `Catastrophe’

March 3, 2010

By Maria Petrakis and Natalie Weeks March 3 (Bloomberg) — Greek Prime Minister George Papandreou said his government is discovering “new holes” in the budget on a daily basis as it prepares to announce as much as 4.8 billion euros ($6.5 billion) in extra deficit cuts. Bowing to pressure from the European Union and investors to do more to tame the EU’s biggest budget gap, the steps to be unveiled today will include higher tobacco, alcohol and sales taxes and steeper reductions in public workers’ bonus payments, said a person familiar with the matter, who declined to be identified because the details aren’t yet public. Greece is signing up to even greater austerity measures two days before Papandreou meets Germany’s Angela Merkel, and the effort may help the chancellor justify aiding Greece to her taxpayers and political allies who say the country shouldn’t be bailed out after years of excess. Greek bonds advanced for a third day yesterday on the prospect that the deficit measures might ease the way for EU assistance. “We need the support of our partners,” Papandreou told his Pasok party in Athens yesterday. “To provide it they must convince their citizens, from whom they are also asking for sacrifices, that Greece is doing what must be done.” Bonds Gain Greek bonds gained for a fourth day today, with the yield on the benchmark 10-year bond falling 12 basis point to 6.03 percent, the lowest since Feb. 11. The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, fell 11 basis points to 2.93 percent. Concern about Greece’s ability to finance its debt pushed that premium to 396 basis points on Jan. 28, the highest since the start of the euro in 1999, making it more expensive for the country to sell new bonds. “If our country doesn’t manage to borrow with similar terms as is normal for a European Union country, then the consequences will be something more than catastrophic,” Papandreou said. “Our responsibility is to avoid this catastrophe.” In its original deficit-reduction plan presented to the European Commission on Jan. 15, the Greek government pledged to cut a deficit of 12.7 percent of gross domestic product to 8.7 percent this year. The EU has been pressuring Greece to adopt additional measures as a condition of possible aid partly because the original plan relied heavily on raising revenue rather than cutting spending to achieve the goal. Budget ‘Landmines’ The additional measures are also needed because every day “we discover new holes, new debts, new landmines in the Greek state’s budget,” Papandreou said, blaming the previous New Democracy government, which he defeated in October elections, for much of the country’s fiscal mess. Tensions between the two parties could complicate Papandreou’s ability to pass some of the austerity measures in parliament. Antonis Samaras , leader of New Democracy party, called Papandreou’s remarks “arrogant” and said, “shortly before he announces new austerity measures and visits important foreign leaders, he decided to demolish the domestic front, to acquit Pasok forever and to slander New Democracy for everything.” Papandreou acknowledged the measures will be “painful” and that raising taxes might hurt economic growth, though the “primary threat is not the recession, but something worse: finding ourselves unable to borrow,” he said. Strikes, Protests In a sign he will face domestic opposition, the main union for public workers announced plans for its third 24-hour strike of the year on March 16 to protest the austerity measures. Still, given the size of the public wage bill, civil servants may be forced to bear the brunt of the cuts. Retirees were also marching on the Finance Ministry in Athens today to protest planned changes to reduce the cost of the pension system. “When it comes to reducing primary expenditure, compensation of government employees represents an important area of potential savings,” Tullia Bucco , an economist at UniCredit Global Research wrote in a note to investors today. Compensation for civil servants reached 12 percent of GDP in 2008, up from 10 percent in 2000 and 2 percentage points more than the euro-zone average, she wrote. German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros in aid should the need arise. One option could involve using German state-owned lenders such as the KfW Group to buy its bonds . That would be enough to cover more than 20 billion euros of debt redemptions in April and May. Merkel Matters “The meeting with Mrs. Merkel is the one that matters,” Willem Buiter , chief economist at Citigroup Inc. in London, told Bloomberg Radio yesterday. “The Germans will have to come up with money. In order to do that they will have to be satisfied that sufficient additional fiscal pain has been inflicted on Greece.” Greece had planned to sell 5 billion euros of bonds as soon as this week. The country is under no pressure to sell more debt and will do so when market conditions are “favorable,” Petros Christodoulou , head of the country’s debt management agency, said in an interview yesterday. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net ; Natalie Weeks in Athens nweeks2@bloomberg.net .

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Abby Cohen Sees S&P 500 Fair Value at 1,250 to 1,300 on Economic Recovery

February 17, 2010

By Rita Nazareth and Thomas R. Keene Feb. 17 (Bloomberg) — The Standard & Poor’s 500 Index may rise to between 1,250 and 1,300, said Abby Joseph Cohen , the Goldman Sachs Group Inc. strategist known for calling the bull market in the 1990s. The S&P 500 , which closed at 1,094.87 yesterday, would need to rise as much as 19 percent to reach the high end of Cohen’s prediction. The benchmark gauge for U.S. stocks has risen 62 percent from a 12-year low in March after governments around the world spent trillions of dollars to stimulate the economy. The index has retreated 4.8 percent from a 15-month high on Jan. 19 as widening fiscal gaps in Greece, Portugal and Spain spurred concern Europe faces another recession. “We do think the market overall is likely undervalued,” Cohen, 57, said on Bloomberg Radio. “The recession is over and has been over for several months. Not every sector recovers at the same pace. We’d be looking in some of those areas focusing on economic improvement.” Cohen said technology shares and commodities producers are attractive because of the prospects for revenue growth and improved demand. The industries have both gained 77 percent since the S&P 500 dropped to a 12-year low on March 9, 2009. The top-ranked strategist in Institutional Investor’s surveys in 1998 and 1999, Cohen stayed bullish on computer- related stocks for too long as the S&P 500 suffered a bear market from March 2000 to October 2002. She said in October 2000 that technology stocks would be a good investment in 2001. The S&P 500 Information Technology Index then tumbled 26 percent. Cohen, a senior investment strategist, was replaced by David Kostin as Goldman Sachs’s chief forecaster for the U.S. stock market in March 2008. She had been the second most-bullish Wall Street strategist at the start of that year, when the S&P 500 tumbled 38 percent, its worst annual loss in seven decades. Cohen told Bloomberg Radio on Aug. 17 that the U.S. economy was “on the mend” and predicted that profit growth would be more “substantial.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Thomas R. Keene in New York tkeene@bloomberg.net .

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Asian Stocks Rise as Growth Hopes Fuel Commodity Price Gains; Rio Advances

January 6, 2010

By Masaki Kondo and Kana Nishizawa Jan. 7 (Bloomberg) — Asian stocks rose, lifting the MSCI Asia Pacific Index for a fifth day, as the improved outlook for the global economy drove up commodity prices. Rio Tinto Group , the world’s third-largest mining company, added 0.9 percent in Sydney after metal prices in London gained the most in two months. Nippon Yusen K.K. jumped 4.6 percent after Morgan Stanley rated the stock “equal weight.” Samsung Electronics Co. , Asia’s biggest semiconductor maker, lost 1.1 percent even after the company swung to profit from a year- earlier loss in the fourth quarter. The MSCI Asia Pacific Index rose 0.5 percent to 124.72 as of 9:55 a.m. in Tokyo, with three stocks gaining for every two that declined. The gauge’s 4.1 percent advance in the past five trading days has driven its 14-day relative strength index to 69 today, nearing the 70 threshold some traders use as a sign to sell. “Commodities are continuing their climb as anticipation strengthens of growing demand from a global economic recovery,” said Mitsushige Akino , who manages the equivalent of $450 million at Tokyo-based Ichiyoshi Investment Management Co. “The market is overheating after the recent rally.” Japan’s Nikkei 225 Stock Average added 0.2 percent. The S&P/ASX 200 Index lost 0.1 percent in Sydney. New Zealand’s NZX 50 Index gained 0.3 percent as the country posted its smallest annual trade deficit since September 2002. The MSCI Asia Pacific Index climbed 34 percent last year, the biggest annual gain since 2003, driving down its dividend yield to 2.1 percent. A gap between that yield and returns on 10-year U.S. Treasuries widened to the most since June 2008, according to data compiled by Bloomberg. Futures on the Standard & Poor’s 500 Index were little changed. The gauge added 0.1 percent in New York yesterday. Some Federal Reserve officials last month debated an increase in asset purchases should the economy weaken and gave no sign they plan to lift interest rates anytime soon, according to minutes of their last meeting. The International Monetary Fund will probably raise its forecast for global growth later this month, John Lipsky , the IMF’s first deputy managing director, said in a Bloomberg Radio interview yesterday. The IMF forecast in October the global economy will expand 3.1 percent this year. The London Metal Exchange Index, a measure of six metals including copper and zinc, rose 3 percent yesterday to the highest level since August 2008. The advance was the most since Nov. 16. Crude oil for February delivery surged to a 14-month high yesterday in New York, rising 1.7 percent, and gold rose 1.6 percent on speculation that the dollar will slip, boosting the appeal of the commodities as an alternative asset. To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net ; Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net .

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Commercial Real Estate Poses a Risk to U.S. Economic Recovery, Ryding Says

January 4, 2010

By Vincent Del Giudice and Ken Prewitt Jan. 4 (Bloomberg) — The commercial real estate market poses a threat to the U.S. recovery, said John Ryding , chief economist at RDQ Economics in New York. “We have yet to see the full extent of those problems,” Ryding said today in an interview on Bloomberg Radio. The housing market, which plunged the economy into recession, also remains fragile, Ryding said. “Maybe housing credit has gotten ahead of itself,” he said. “I don’t think we’re out of the woods yet on the write- off situation.” Regarding the labor market, “our feeling is we will see a small positive number” in the government’s report on non-farm payrolls in December, Ryding said. He didn’t provide an estimate. Payrolls probably fell by 4,000 workers last month, the smallest drop since the recession began two years ago, according to the median of 66 economists surveyed by Bloomberg News ahead of a Jan. 8 Labor Department report. The unemployment rate may have climbed to 10.1 percent from 10 percent. Ryding also said the Federal Reserve’s “easy policy stance is going to boost inflation expectations.” The Fed has held its benchmark rate near zero since December 2008, and there is “no inclination to raise rates at all this year,” he said. In the bond market, the yield on the Treasury’s 10-year note will rise to 4.5 percent or 5 percent by the end of the year “partially as markets come to worry about inflation down the road,” Ryding said. Ten-year note yields were little changed at 3.83 percent at 11:39 a.m. in New York. They reached 3.90 percent earlier today, near the highest level since June. There is “no credible exit strategy” for record government budget deficits, Ryding said. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net ; Ken Prewitt in New York kprewitt@bloomberg.net

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`Substantial’ Bank Writedowns Needed to Spur Housing Rebound, Goodman Says

December 14, 2009

By Thomas R. Keene and Jody Shenn Dec. 14 (Bloomberg) — Banks will need to take “substantial” writedowns on home-equity loans to enable loan modifications that will allow the U.S. housing market to recover, according to Amherst Securities Group LP. The government’s mortgage-modification program will fail to avert many of the 9 million to 10 million looming foreclosures because it doesn’t reduce principal for borrowers, about a quarter of whom owe more than the current values of their houses, Laurie Goodman , a New York-based mortgage-bond analyst at Amherst, said today in a Bloomberg Radio interview. “It’s important to realize the largest second-lien holders are the largest banks, and there’s going to have to be some very substantial writedowns if you go to a principal-reduction program,” Goodman said. “And this is going to have to be addressed head-on.” Bond investors such as BlackRock Inc. and Fortress Investment Group LLC have criticized the treatment of home- equity loans under the Obama administration’s $75 billion Home Affordable program, citing in part the potential conflicts of interest that banks such as Wells Fargo & Co. and Bank of America Corp. have in acting as both first-mortgage servicers and owners of second-lien debt. Debt Forgiveness A program that uses debt forgiveness would be likelier to succeed in stemming property seizures than changes to borrower payments and would require banks to write off many of their second mortgages, she said in the interview. Goodman is the former head of fixed-income research at UBS Securities LLC, whose team there was top-ranked for non-agency mortgage debt in a 2008 poll by Institutional Investor magazine. She testified to lawmakers on mortgage modifications last week. On April 28, the Treasury announced provisions for an expansion of the U.S. modification plan that would require second mortgages be reworked to reduce or forgive payments or whenever first-lien debt is changed. Officials said then the second-lien program would be running in about a month. The government remains in “discussions with all the top servicers on the second-lien program,” Michael Barr , the assistant Treasury secretary for financial institutions, said on a Nov. 30 conference call with reporters. The administration is now focused on creating a “well-oiled machine,” with servicers, converting as many trial modifications as possible into permanent debt changes, he said. Permanent Modifications Through November, U.S. lenders permanently modified 31,382 of as many as 4 million mortgages targeted by the Home Affordable program, the Treasury said Dec. 10. As many as half of “at-risk” homeowners have second mortgages, the department said in April. U.S. banks held $855 billion of home-equity debt, including closed-end second mortgages and amounts drawn from revolving credit lines, as of Sept. 30, according to Federal Deposit Insurance Corp. data. The administration’s planned second-lien program, created in part to address complaints by mortgage-bond investors, falls short of what’s needed, Goodman said. Policy makers should consider making payments to banks to encourage them to forgive second mortgages, or allow them to take losses on the debt over several years, she said. To contact the reporters on this story: Thomas R. Keene in New York tkeene@bloomberg.net ; Jody Shenn in New York at jshenn@bloomberg.net

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Wilbur Ross Sees `Huge’ Commercial Property Crash Ahead for U.S. Assets

October 31, 2009

By John Gittelsohn and Thomas R. Keene Oct. 30 (Bloomberg) — Billionaire investor Wilbur L. Ross Jr ., said today the U.S. is in the beginning of a “huge crash in commercial real estate.” “All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.” U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19. Billionaire George Soros , speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate. “The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79. His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007. ‘Extreme Caution’ Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants. U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc. “I think it’s going to take quite a while to work itself out,” Ross said. As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions. Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview. Corus Investment WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad. In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages. Making Lists Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing. “Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today. “Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.” To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net ; Thomas R. Keene in New York at tkeene@bloomberg.net .

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Stocks in U.S. Slump, Sending S&P 500 to First Monthly Drop Since February

October 30, 2009

By Rita Nazareth Oct. 30 (Bloomberg) — U.S. stocks tumbled, ending a seven- month streak of gains for the Standard & Poor’s 500 Index, as declines in consumer confidence and spending and the threat of a CIT Group Inc. bankruptcy raised concern over the durability of the economic recovery. The dollar and Treasuries gained, while commodities retreated. CIT , the commercial lender, plunged 24 percent as investor Carl Icahn agreed to support its prepackaged bankruptcy plan. Citigroup Inc. tumbled 5.1 percent on a report that banking analyst Mike Mayo predicted a $10 billion writedown for this quarter. American Express Co. and Walt Disney Co. slid as Commerce Department data showed a drop in purchases and the Reuters/University of Michigan sentiment index weakened. MetLife Inc. lost 7.6 percent after a third straight quarterly loss. “I’m well-spooked for the Halloween weekend,” said James Paulsen , who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “We can talk about disappointing consumer confidence data. Bank charge- offs are still happening. There’s a growing sense on the Street that there’s got to be a pullback.” The Standard & Poor’s 500 Index sank 2.8 percent, the most since July, to 1,036.19 at 4:05 p.m. in New York and wiped out yesterday’s 2.3 percent surge triggered by government data showing the economy returned to growth following the worst slump in seven decades. The Dow Jones Industrial Average sank 249.85 points, or 2.5 percent, to 9,712.73. The S&P 500 fell 2 percent in October to cap its first monthly decline since February. The Dow was little changed on the month. Surge of Orders A surge of sell orders triggered computer problems at the open of trading on the New York Stock Exchange, causing quotes on the Big Board and the NYSE Amex to be briefly interrupted. About 12 billion shares changed hands on all U.S. exchanges, 26 percent more than the three-month average. The VIX, the benchmark for U.S. stock options that is known as Wall Street’s “fear gauge,” jumped the most in a year on demand for loss protection. The VIX added 24 percent to 20.75, the highest since July 8. Billionaire investor George Soros said the global economic recovery is “liable to run out of steam” and a “double dip” may follow in 2010 or 2011. He spoke in Budapest today, in a lecture organized by the Central European University. Investor Wilbur L. Ross Jr . told Bloomberg Radio the U.S. is in the beginning of a “huge crash in commercial real estate.” ‘Wrong Direction’ “All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.” The advance yesterday ended four sessions of losses spurred by growing concern that a rally of as much as 62 percent in the S&P 500 since March 9 had outpaced the outlook for earnings and economic growth. Today’s pullback came as the Commerce Department figures also showed incomes were unchanged in September. The report showed inflation was lower than the Federal Reserve’s long-term projection, indicating policy makers can keep rates low. Equities also fell today as the consumer confidence data signaled job losses may continue to restrain household spending. The final Michigan index of consumer sentiment decreased to 70.6 from 73.5 in September, which was the highest in more than a year. The index was forecast to fall to 70, the median in a Bloomberg survey of 60 economists. The dollar and yen rose against most major currencies on concern central banks around the world may be moving too fast to scale back measures designed to haul their economies out of the recession. Central banks are signaling they are ready to withdraw stimulus measures even as economic reports show the recovery from the worst global recession since World War II may be tepid. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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Malpass Says U.S. Economy Will Enter `Gloomy Period’ After Initial Rebound

October 29, 2009

By Vincent Del Giudice and Thomas R. Keene Oct. 29 (Bloomberg) — Economic growth in the U.S. will slow after the rebound in the third quarter and enter “a very gloomy period” of high unemployment, said economist David Malpass , president of Encima Global in New York. “We are moving into this very gloomy new normal” of 2 percent growth and a “very high unemployment rate,” Malpass said today in an interview on Bloomberg Radio. As a result, “Washington will reach around and thrust around desperately” for new programs to boost growth. Gross domestic product expanded at a 3.5 percent pace from July through September after contracting during the previous four quarters, Commerce Department reported today. In the fourth quarter, “you’re not going to have the consumption bump” fueled by the cash-for-clunkers auto-rebate program and other government stimulus efforts, Malpass said. “We’re getting a very weak recovery off the bottom,” he said. “I would call it a medium quality growth report,” said Malpass, formerly chief economist at the defunct investment firm Bear Stearns & Co. “It’s pent up demand.” A separate report today from the Labor Department showed 530,000 workers filed claims for jobless benefits last week, more than anticipated and signaling the job market is slow to heal even as growth picks up. The economy was forecast to grow at a 3.2 percent annual pace, according to the median estimate of 79 economists surveyed by Bloomberg News. Estimates ranged from gains of 2 percent to 4.8 percent. In September, the national unemployment rate reached 9.8 percent, the highest since 1983, and the economy lost 263,000 jobs, bringing the total number of jobs lost since the recession began in December 2007 to more than 7 million. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net ; Thomas R. Keene in New York tkeene@bloomberg.net .

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Treasuries Fall for Third Week on Speculation About Fed as Supply Looms

October 24, 2009

By Susanne Walker Oct. 24 (Bloomberg) — Treasury 10-year notes fell for a third week as investors speculated the Federal Reserve may begin to signal an increase in interest rates from historic lows and as the U.S. prepared to auction a record $123 billion of notes. The yield on the two-year security, most sensitive to monetary policy, yesterday rose above 1 percent for the first time this month as Fed Bank of Philadelphia President Charles Plosser on Oct. 22 told Bloomberg Radio his “instinct is the time for raising rates will be before many of my colleagues” think it is. The U.S. economy expanded in the third quarter for the first time since June 2008, a Commerce Department report will show next week as the Fed is scheduled to end its $300 billion Treasury purchase program. “There’s heightened uncertainty on the next move,” said George Goncalves , chief fixed-income rates strategist at Cantor Fitzgerald LP, one of the 18 primary dealers that trade directly with the Fed and are required to bid at Treasury auctions. “The front end of the curve is becoming more volatile. Supply next week will be a test of that.” The 10-year note yield rose eight basis points on the week, or 0.08 percentage point, to 3.49 percent, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 20/32, or $6.25 per $1,000 face amount, to 101 1/8. Record Supply The yield on the two-year note rose five basis points on the week to 1.01 percent. Investors have driven the difference between 2- and 10- year yields to 2.46 percentage points, widening the gap for a fourth week. The figure compares to an average spread of 88 basis points over the past five years. Gross domestic product grew 3.2 percent from July through September, according to the median estimate of 65 economists in a Bloomberg News survey. The economy contracted 0.7 percent in the previous quarter, less than anticipated. The U.S. will sell $7 billion in five-year Treasury Inflation Protected Securities on Oct. 26, $44 billion of two- year notes on Oct. 27, $41 billion of five-year notes on Oct. 28 and $31 billion of seven-year securities on Oct. 29. “The onslaught of new issue supply” is weighing on the Treasury market, Kevin Giddis , head of fixed-income sales, trading and research at the brokerage Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients yesterday. The previous record for notes sold in a week was $115 billion over the five days ended July 31, when the Treasury sold $6 billion in 20-year TIPS, $42 billion in 2-year notes, $39 billion in 5-year securities, and $28 billion in notes maturing in seven years. ‘Tools in Place’ The Treasury will also sell $30 billion in six-month bills and $29 in three-month bills on Oct. 26. The Fed is scheduled on Oct. 29 to complete the $300 billion Treasury purchase program it began in March, part of its effort to cap consumer borrowing costs. Ten-year note yields fell 47 basis points, the most since 1962, to 2.53 percent when the central bank announced the program on March 18. The yield since then rose as high as 4 percent, in June, amid concern Treasury supply would overwhelm demand as the economy showed signs of recovery, and touched as low as 3.10 percent in October as economic reports suggested the recovery would be slow. The central bank said in a statement on Oct. 19 it is working with counterparties to test a system to withdraw the unprecedented amount of cash injected into the financial system the last two years. “The Fed is making sure they have the tools in place when and if they go to implement the exit strategy, but it’s not a signal that it’s any time soon,” said Michael Pond , interest- rate strategist in New York at primary dealer Barclays Plc. ‘Very Creative’ Futures on the Chicago Board of Trade show a 58 percent chance the Fed will boost its target rate for overnight lending between banks by April, compared with 55 percent on Oct. 22. The Fed cut its benchmark rate to a range of zero to 0.25 percent at the end of 2008. “Speculation on a change in the Fed’s policy and if they will raise rates sooner is weighing on the front end,” said Christian Cooper , an interest-rate strategist at primary dealer RBC Capital Markets in New York. “The Fed is still nowhere near raising rates, though. The Fed was very creative when adding liquidity to the market and they will be just as creative drawing out the liquidity.” At their most recent meeting, on Sept. 23, members of the Fed’s policy-making Open Market Committee kept the benchmark rate in a range of zero to 0.25 percent. In a statement, they said economic conditions will warrant keeping the rate low “for an extended period.” The central bank said its 12 district banks saw “stabilization or modest improvements” in many areas of the economy, with “little or no ” price pressures. The comments came in its Beige Book survey published Oct. 21, two weeks before officials meet to set monetary policy. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net .

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Fed May Signal Economic Recovery Has Begun While Keeping Rate Near Zero

September 22, 2009

By Steve Matthews and Vivien Lou Chen Sept. 23 (Bloomberg) — Federal Reserve officials may signal that the U.S. economy has started to recover while maintaining their pledge to keep the benchmark interest rate near a record low for an “extended period.” Policy makers meet as analysts project 2.9 percent growth in the quarter ending this month, compared with a 1 percent estimate in July. Officials will probably debate their purchases of $1.45 trillion in housing debt, including whether to extend the emergency program into 2010, analysts said. Chairman Ben S. Bernanke and his colleagues may seek to contain any investor expectations that they will begin raising interest rates as soon as this year by citing risks to the economic recovery. Today’s Fed statement may retain references from last month to rising unemployment and “tight” credit as constraints on consumer spending. “The Fed has to strike a delicate balance by saying that while economic prospects have brightened, the Fed will continue to provide a helping hand to ensure a bottom to markets and a durable recovery,” said Wan-Chong Kung , who helps oversee $85 billion in investments at U.S. Bancorp’s FAF Advisors in Minneapolis. The Federal Open Market Committee is scheduled to issue its statement at around 2:15 p.m. after the end of its two-day meeting. Signs of a recovery include a stabilization in the housing industry and gains in exports, retail sales and industrial production, said Mark Gertler , a professor of economics at New York University. ‘Very Early Stage’ “The bottom is no longer falling out, but the recovery is still at a very early stage,” said Gertler, who worked with research on the Great Depression with Bernanke before he became Fed chairman. “There is no need to expand the balance sheet now, but it is a bit too early to begin shrinking it.” The Fed has kept the benchmark lending rate at a range from zero to 0.25 percent since December and has adopted asset purchases as its main policy tool. In its August statement, the FOMC said “exceptionally low” rates are likely warranted for “an extended period.” Central bank officials may also discuss changing the size and duration of their plan to buy as much as $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of this year, said former Fed governor Laurence Meyer , now vice chairman of St. Louis-based Macroeconomic Advisers LLC. Three district bank presidents — Jeffrey Lacker of Richmond, James Bullard of St. Louis and Dennis Lockhart of Atlanta — raised the possibility that the Fed may not spend all the money authorized for the mortgage-backed debt. New York Fed President William Dudley, by contrast, stressed an exit would be “premature,” citing high unemployment and weak growth. Repurchase Agreements Fed officials have started talks with bond dealers to use so-called reverse repurchase agreements to drain some of the cash the central bank has pumped into the economy, according to people with knowledge of the discussions. There’s no sense that policy makers intend to withdraw funds anytime soon, said the people, who decline to be identified. Bernanke said last week the worst U.S. contraction since the 1930s has probably ended, while warning that unemployment will be “slow to come down.” “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said Sept. 15 following a speech in Washington. Case for an Increase A return to growth may bolster the case for an increase in the Fed’s target rate, Stanford University economist John Taylor said in a Sept. 11 Bloomberg Radio interview. The Fed may need to raise the rate in the first half of 2010 should inflation increase, said Taylor, who devised a guideline for setting the target interest rate based on growth and inflation. Most FOMC officials are worried expectations for a higher federal funds rate will push up yields on 10-year Treasury notes, increasing mortgage costs, said Michael Feroli , an economist at JPMorgan Chase & Co. in New York and a former member of the Fed’s research staff. “Probably two thirds of the committee is concerned that being too quick to embrace the stronger growth story could lead the market to price in sooner rate hikes and tighter financial conditions than they would like,” he said. The yield on the 10-year Treasury note fell to 3.45 percent yesterday from 3.72 percent on Aug. 12, the day of the last FOMC announcement. ‘Additional Comfort’ That “provides the committee with additional comfort that inflation expectations will remain well anchored,” Meyer said. The decline in bond yields has been partly driven by comments by Bernanke and other policy makers during the past month indicating the economy, while improving, remains weak. San Francisco Fed President Janet Yellen predicted a “tepid” recovery, while Lockhart cited a “lackluster outlook.” Unemployment is forecast to reach 9.8 to 10.1 in the fourth quarter, according to policy makers’ forecasts in June. The jobless rate rose last month to 9.7 percent, the highest since 1983. “Clearly, they need to remain more than humble when declaring victory in an economy that still faces headwinds,” said Diane Swonk , chief economist at Mesirow Financial Inc. in Chicago. Chief among the risks is “ongoing credit tightness, most notably in the commercial real-estate sector,” she said. Property Values Falling property values have impeded efforts by owners of commercial real estate to refinance $165 billion in mortgages this year. Also, total bank credit to the economy grew just 2 percent in August compared with the same month last year, according to Fed data. The central bank is likely to repeat its view that inflation will remain “subdued for some time” because of slack in the economy, analysts said. Consumer prices fell 1.5 percent in the year ended in August. “The Fed must keep an eye glued to whether inflation expectations have become unanchored,” said former Fed Governor Lyle Gramley . “As long as the dramatic moderation in wages persists, you don’t have to worry about inflation,” said Gramley, senior adviser to New York-based Soleil Securities. To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net ; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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Lazard, Goldman May Share in $91 Million of Fees From Kraft’s Cadbury Bid

September 9, 2009

By Ambereen Choudhury Sept. 9 (Bloomberg) — Bruce Wasserstein’s Lazard Ltd. and Goldman Sachs Group Inc. are among advisers that may earn a combined $91 million in fees should Kraft Foods Inc.’s hostile takeover bid for British chocolate maker Cadbury Plc succeed. Kraft may pay advisers Lazard, Centerview Partners, Citigroup Inc. and Deutsche Bank AG about $42 million in fees, according to estimates from New York-based research firm Freeman & Co. Cadbury may pay about $49 million to Goldman Sachs, UBS AG and Morgan Stanley, the analysts said. The 9.8 billion-pound ($16.2 billion) acquisition would be the biggest cross-border purchase this year and follows the $21 billion of European takeovers announced in August, according to data compiled by Bloomberg. The pace of takeovers has dropped 47 percent this year, cutting fees to investment banks. “I have never seen such pressure on fees in the M&A business in my entire career,” Ralph Silva , 49, research director at financial research firm Tower Group Plc said in a Bloomberg Radio interview. Kraft , the world’s second-largest food company, said on Sept. 7 it would pursue a takeover of Cadbury after the maker of Trident gum and Dairy Milk chocolate spurned its approach. Freeman’s figures exclude any fees from financing a bid. Citigroup and Deutsche Bank are trying to arrange about $8 billion in debt financing for Kraft’s offer, according to two people with knowledge of the matter. The Cadbury fee is “in line” with payments made to other banks on consumer deals over the past two years, Freeman said. It compares with the $97 million in fees paid to banks including Goldman and JPMorgan Chase & Co. on the $23 billion Mars Inc. purchase of Wm. Wrigley Jr. Co. in April 2008, Freeman added. To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net

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Birinyi Says U.S. Stock Market Rally Signals a `Stronger’ Economic Rebound

August 24, 2009

By Whitney Kisling and Thomas R. Keene Aug. 24 (Bloomberg) — The rally that pushed the Standard & Poor’s 500 Index to the highest level since October is signaling the rebound in the economy will be stronger than most forecasters expect, investor Laszlo Birinyi said. “The markets are suggesting that the economy has turned the corner and is going to do a lot better than most people anticipate,” Birinyi, the founder of Westport, Connecticut- based research and money-management firm Birinyi Associates Inc., said today in an interview broadcast on Bloomberg Radio and Television. “I’m still very optimistic.” Birinyi predicted on May 20 that the S&P 500 will climb to a record 1,700 in the next two or three years, a 66 percent gain from its current level. The index has rallied 14 percent since he made that forecast. The benchmark index for U.S. stocks may rise another 5.9 percent to 1,087 within the next three months “if it continues to progress at the rate it’s been progressing,” Biryini said. Birinyi, who spent a decade on the trading desk at Salomon Brothers Inc. and is known for pioneering money-flow analysis, said he bought General Electric Co. shares and recommended Google Inc., Apple Inc., as well as health-care and retail stocks. The S&P 500 has rallied 52 percent from a 12-year low on March 9 as 76 percent of companies in the benchmark reported better-than-estimated second-quarter results and economic reports showed improvement. To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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Scholes Says Banks Should Provide Fair-Value Data on Their Illiquid Assets

August 18, 2009

By Jeff Kearns Aug. 19 (Bloomberg) — Myron Scholes joined Robert Merton , with whom he shared the 1997 Nobel prize for economics, in calling for banks to give investors a clearer picture of their worth by providing better valuations for illiquid assets. Banks should value illiquid assets by expanding the use of mark-to-market accounting or listing them on public exchanges whenever possible, Scholes said in a Bloomberg Radio interview yesterday. Scholes, winner of the Nobel with Merton for helping invent a model for pricing options, said investors need better pricing data to accurately value the debt and equity securities of banks. “I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,” he said. Doing so would “allow for market discovery and market pricing as much as possible,” Scholes added. Banks that oppose new accounting standards on asset values want to conceal depressed prices, Merton wrote in the Financial Times yesterday. He composed the column with Robert Kaplan , a professor at the Harvard Business School along with Merton, and Scott Richard, who the newspaper identified as a professor at the University of Pennsylvania’s Wharton School. “This is not the way forward,” they wrote. “While regulators and legislators are keen to find simple solutions to complex problems, allowing financial institutions to ignore market transactions is a bad idea.” ‘Blow Up or Burn’ The Financial Accounting Standards Board said Aug. 13 that it will consider expanding fair-value rules to loans, a step that might accelerate banks’ recognition of losses and trigger lower earnings and book values. Accounting rules now let companies recognize most loan losses only when management judges them probable. Applying fair value to loans would require earlier recognition of losses. Regulators need to “blow up or burn” the private over- the-counter derivative markets to help solve the financial crisis, Scholes said on March 6. Because markets had frozen, investors weren’t getting timely prices to inform their decisions, he said then, speaking at New York University’s Stern School of Business. Scholes and Merton, together with the late Fischer Black , developed the Black-Scholes model of pricing options, or contracts that give the buyer the right to purchase a security or commodity at a later date for a specified price. Black died in 1995. Platinum Grove Asset Management LP, the Rye Brook, New York-based hedge fund where Scholes is chairman, was forced to freeze investor withdrawals in November after a surge in redemptions. He was a partner in Long-Term Capital Management LP, whose $4 billion loss in 1998 set off a near panic in financial markets and prompted the Federal Reserve to orchestrate a bailout by 14 lenders. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net .

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U.S. Economy Faces `Bumpy’ Recovery, Bank of America Economist Levy Says

August 18, 2009

By Vincent Del Giudice Aug. 18 (Bloomberg) — The U.S. economy faces an uneven recovery from the deepest recession since the Great Depression rather than a rapid rebound, said Mickey Levy , chief economist at Bank of America Corp. in New York. “My hunch is it’s going to be a bumpy recovery” because of temporary government efforts to boost growth, Levy said today in an interview on Bloomberg Radio. The “cash for clunkers” auto trade-in program, for example, is “borrowing from future auto sales” and “probably borrowing from current non-auto sales” as well, he said. In the past, the deeper drop in gross domestic product during a recession, “the sharper the bounce back,” Levy said. “If history holds, it’ll be a decent bounce back.” Labor markets may be steadying as well, and the unemployment rate may remain below 10 percent, he said. Residential real estate “is past its trough” and the inventory of new homes is “back to a normal level,” Levy said. As a result, home prices may be “closer to a trough,” he said. Levy said that by his estimates the housing collapse started in late 2005. Housing starts unexpectedly fell in July, pulled down by multifamily dwellings, while single-family starts that make up 75 percent of the industry rose to the highest level since October, a Commerce Department report showed today. The 1 percent decline in starts to an annual rate of 581,000 was the first drop in three months and followed a 587,000 rate in June. Construction of single-family houses rose 1.7 percent to a 490,000 rate. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net .

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