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This week’s People of Note includes the following markets: Atlanta, Baltimore, New York City, Seattle, Portland, Phoenix, Tucson and Washington, DC. ATLANTA Perman Brings Medical Office Team to Grubb & Ellis Todd Perman (pictured, right), the founder and former head of Healthcare Real Estate Advisors in Atlanta, joined Grubb & Ellis Co. in Atlanta. He was appointed senior vice president in the office group to focus on medical buildings, and…

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CoStar’s People of Note (Jan. 30-Feb.5)

As Home Prices Drop, Economy Has ‘Serious Reasons To Worry’

December 29, 2010

Home prices have dropped across America more than expected, in a slide that has led some experts to predict that housing is headed for a double-dip. Yet. despite a glut of homes lingering in foreclosure proceedings, analysts say, that a recovery in the housing market will, in large part, depend on an overall economic recovery. Data released this week from the Standard & Poors/Case-Shiller index across 20 major U.S. cities fell 1.3% in October from September, the third straight national decline. Six cities — Atlanta, Miami, Seattle, Tampa, Charlotte, North Carolina, and Portland, Oregon — have hit new lows since the housing market began to struggle in 2006 and 2007. Atlanta showed the steepest decline, with prices falling 2.9 percent from the prior month. “If home prices continue on this pace down, I think the economy has serious reasons to worry,” Yale economist Robert J. Shiller — and co-creator of the Case-Shiller Index — told the Wall Street Journal in a recent interview. (SCROLL DOWN FOR VIDEO.) Bad news in the housing market could ripple through to consumer spending, which has recently shown heartening gains this holiday season. Consumer spending makes up about 70 percent of the economy. “Our concern on the double-dip is the consumer and the fate of the consumer,” said Allen Sinai, chief economist at Decision Economics, Inc. “I think the lack of stable prices is a negative consumer fundamental for spending.” With unemployment mired at 9.8 percent, the housing market is hinged upon the job market. “The economy has to recover for the housing market to recover, not the other way around,” said Patrick Newport, an economist with IHS Global Insight. Homes remain a major part of many Americans’ wealth — households held $6.4 trillion of home equity at the end of the third quarter, according to a Federal Reserve report. “It’s unfortunate because a lot of families have all their wealth in their house, all their savings,” said Sinai. “Household spending in general is hurt. There’s a restraint on consumer spending.” The latest data has led some to predict that home prices are headed for a double-dip. “The double-dip is almost here There is no good news in October’s report,” David M. Blitzer, the Chairman of the Index Committee at S&P said in a press release . “Home prices across the country continue to fall. The trends we have seen over the past few months have not changed.” A broad housing market decline, many experts say, could continue through 2011. “We expect house prices to decline again slightly in 2011. We’re projecting ultimately they’ll bottom in the third quarter of next year” said Alex Miron, an associate economist at Moody’s Analytics. “We’re expecting peak-to-trough decline of more than 30 percent.” But not everyone believes that a housing double-dip is inevitable. The 2010 numbers look particularly grim because of the expiration of the first-time home buyer credit in April, according to Stuart Hoffman, chief economist at PNC. “I think the bottom line is, the drop in the past couple of months is comparing [numbers] to a year ago, exaggerated by the supposed expiration of house credit, and the actual expiration,” said Hoffman. The drop in home prices was accompanied by an increase in the number of foreclosures in the third quarter. Newly initiated foreclosures went up to 382,000 in the third quarter, at 31.2 percent spike from the second quarter, according to a report by the Office of of the Comptroller of the Currency and the Office of Thrift Supervision . As a mass of foreclosed homes hits the market, home prices are likely to languish. “Until the market works through those [homes], the house prices are going to be flat [or] down,” said Miron. He pointed to the growing number of homes that are owned by a lender, but have gone through the default process and have failed to sell at auction. “These are the homes that are most likely to be sold at bargain basement prices,” he said. “There are almost 1 million, and the number has been rising for the past three years.” WATCH Robert Shiller’s interview with the WSJ below:

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iPhone Secrets Among Tips That Led To Arrests

December 16, 2010

NEW YORK — Federal prosecutors in Manhattan broadened their insider trading crackdown Thursday, arresting four people on charges alleging that so-called “expert consultants” revealed secrets about Apple Inc.’s iPhone and other technology products to hedge funds seeking a trading edge on quarterly earnings reports. The latest probe targeted Primary Global Research, a Mountain View, Calif.-based firm that offered consulting services to investors on industry trends, issues and regulations. Instead, prosecutors allege, firm executive James Fleishman used four consultants employed by publicly traded companies to create a corrupt clearinghouse for confidential information. Fleishman, 41, was charged with wire fraud and conspiracy. Three others, all outside “expert consultants” for Primary Global Research until earlier this year, were charged with wire fraud and conspiracy to commit securities fraud and wire fraud, according to papers filed in federal court in Manhattan. Fleishman helped arrange for Primary Global Research clients, including hedge funds, to speak with the consultants, the papers said. The clients were told about highly confidential Apple sales forecasts information, new product features for the iPhone and a top-secret project known internally at Apple as “K48,” which became the iPad, launched this year, the complaint said. The charges allege that a “corrupt network of insiders at some of the world’s leading technology companies served as so-called ‘consultants’ who sold out their employers by stealing and then peddling their valuable inside information,” U.S. Attorney Preet Bharara said in a statement. He said the allegations describe criminal conduct that went “well beyond any legitimate information-sharing or good faith business practice.” Primary Global Research paid four consultants more than $400,000 merely to participate in phone calls with their clients, “an indication of the value placed on the information,” said FBI Assistant Director Janice K. Fedarcyk. “This wasn’t market research. What the defendants did was purchase and sell insider information,” Fedarcyk said, adding: “Our investigation is most assuredly continuing.” The three consultants charged were Mark Anthony Longoria, 44, of Round Rock, Texas; Walter Shimoon, 39, of San Diego; and Manosha Karunatilaka, 37, of Marlborough, Mass. The prosecution is an offshoot of a probe of Galleon Funds founder Raj Rajaratnam and 22 others in which prosecutors made extensive use of wiretaps, which are more common in drug and organized crime investigations. Rajaratnam has pleaded not guilty and said he only traded with information available to the public. On wiretaps used to build evidence against those arrested Thursday, Fleishman and Longoria could be heard speaking about the Galleon probe, with Fleishman assuring Longoria that Galleon was not a client, according to court papers. The complaint said Longoria responded: “OK. Good. I wasn’t sure. I was, like, really getting nervous.” Richard Choo-Beng Lee, a former hedge fund co-manager who has pleaded guilty and is cooperating with the government, made some of the recordings, the complaint said. Investigators have learned from Lee that his hedge fund’s “practice was to have its employees call a firm consultant before the consultant’s employer was expected to release its quarterly earnings, in part to obtain inside information,” the complaint said. Longoria worked at Advanced Micro Devices Inc. as a supply chain manager, Shimoon worked at Flextronics International Limited as senior director of business development and Karunatilaka worked as an account manager at Taiwan Semiconductor Manufacturing Co. office in Burlington, Mass. The complaint said Shimoon illegally provided information about sales forecasts and new product features for Apple’s iPhone that had been given to employees of Flextronics, which worked with Apple on camera and charger components for the iPhone and iPod. It said he also spoke of the iPad project, saying on secretly recorded conversations with a government cooperating witness: “At Apple you can get fired for saying K48 … outside of a meeting that doesn’t have K48 people in it. That’s how crazy they are about it.” The complaint said Shimoon was also captured on wiretaps promising to get secrets about sales at Research In Motion Ltd., which makes Blackberrys. Shimoon has been terminated and Flextronics has clear policies prohibiting the release of confidential information about the company and its business partners, Flextronics said in a statement. It was not immediately clear who would represent Shimoon at an initial court appearance. For Karunatilaka, bail was set at $250,000 after an initial appearance in federal court in Boston. He was expected to be released Thursday. His lawyer, Brad Bailey, said he was reviewing the allegations against his client and would decide how to proceed. He said it was likely Karunatilaka would appear in Manhattan court sometime in January. Longoria appeared before U.S. Magistrate Judge Andrew W. Austin, Texas, who ordered him released on $50,000 unsecured bond and told him to surrender his expired passport. When asked if he was a flight risk, a tearful Longoria said no. “I’m not trying to fight this. I’m here to help. I’ve been cooperating on this from the beginning,” Longoria said. Longoria resigned Oct. 22 from AMD, where he had worked since 2007, said Mike Silverman, a company spokesman. “It appears that AMD is the victim of an insider trading scheme,” Silverman said. He added that AMD was cooperating with investigators. A lawyers for Fleishman did not return phone calls for comment. A fourth consultant for Primary Global Research, former Dell global supply manager Daniel Devore, pleaded guilty Dec. 10 to wire fraud and conspiracy charges in a cooperation deal that could win him leniency at sentencing, prosecutors also announced. His lawyer, John Sutton, declined to comment Thursday. In his plea, Devore told a judge that Primary Global Research paid him about $145,000 to share inside information with the firm’s clients and employees. “I knew that when I was misappropriating Dell’s confidential information and providing it to money managers, I was violating my duties of confidentiality and trust to Dell,” he said, according to a transcript. David Best, a Dell spokesman, said the company would cooperate with authorities. ___ Associated Press Writer Larry Neumeister in New York and AP Technology writers Jordan Robertson in San Francisco and Jessica Mintz in Seattle contributed to this report.

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Amazon Hiring Thousands To Help Fill Holiday Orders

November 12, 2010

NEW YORK — Amazon.com Inc. said Friday it is hiring more than 15,500 people to fill temporary holiday jobs at shipping centers around the country, more than it hired last year. The online retail giant said in news releases that it will hire more than 5,000 people in Phoenix and Goodyear, Ariz., and 4,000 in Pennsylvania at locations including Allentown, Hazleton and Lewisberry. In Indiana, it will hire more than 2,500 people in Whitestown and Plainfield, and it will hired more than 2,000 each in Hebron, Ky. and Fernley, Nev. The Seattle company said it is hiring more people this year than last but not how many more. Many retailers are increasing their hiring this season. Kohl’s Corp., Macy’s Inc., Toys R Us, Pier 1 Imports Inc., American Eagle Outfitters Inc. and others plan to hire more temporary holiday workers. Retailers will add between 550,000 and 650,000 jobs this holiday season, according to an updated forecast from the national outsourcing firm Challenger, Gray and Christmas. That’s significantly more than the 501,400 added last year. But it’s still well below the 720,800 added in 2007 as the recession began. About 10 percent of U.S. holiday sales are made online, but the sector is growing fast. Research firm comScore Inc. expects it to grow 7 to 9 percent compared with a year ago, when online holiday sales were 4 percent higher than the previous year. Earlier this month Amazon.com also announced thousands of temporary holiday jobs in Campbellsville and Lexington, Ky. and Las Vegas. The company has 31,200 permanent employees worldwide. Shares fell $4.55 or 2.7 percent to $165.82 on Friday.

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Brad Feld: Selecting Co-Founders

November 12, 2010

Having been involved directly or indirectly in hundreds of early stage software and Internet companies, I believe the optimal number of founders for a software / Internet startup is between two and four. Starting a company by yourself is incredibly difficult. It can be done, but it’s the exception not the rule. It’s rare that a startup follows a clean and predictable trajectory – if you are alone as a founder, you’ll need to navigate this yourself. That’s a lonely and thankless task. At the minimum, having other co-founders along for the journey will give you peers to talk to when you want to beat your head against the wall with frustration. Observing over 70 companies that have gone through the various TechStars programs in Boulder, Boston, and Seattle has resulted in another insight for me – the best founding teams are “product leaning” with at least 50% of the founders focused on the product This doesn’t necessarily mean that they are software developers, but it does mean that they spend all of their time thinking about, working on, and obsessing about the product. So – if you have two founders, at least one should be product obsessed. If three founders, then at least two should be product obsessed. For four co-founders, you can split it two and two but I always encourage three product obsessed founders in this case (two devs and one product person.) Being “obsessed with the product” doesn’t mean doing this in a vacuum. The best software / Internet companies follow a customer facing and rapid iteration model such as the Lean Startup Methodology popularized by Eric Ries and Steve Blank. In this context, being product obsessed means “in the context of the customer”, which requires the product leaning people to interact frequently with prospective customers and users early and continually in the product development process. In our book, Do More Faster (http://www.domorefasterbook.com), TechStars CEO David Cohen and I have an entire theme on “People”. One of our favorite chapters is by Dharmesh Shah, the co-founder and CTO of Hubspot, titled ” Avoid Co-founder Conflict.” In this chapter, Dhramesh describes a series of conflicts that often arise between co-founders and gives suggestions for resolving them One of the most common questions I hear is “how do I find a co-founder?” Ironically, you probably all ready know your co-founder – it’s either a friend, someone you work with, or a colleague of a friend. Aggressively use your network as a starting point as the chance of finding a fit through someone you are already connected with is much greater than trying to recruit, learn, and team up with someone you don’t yet know. Selecting co-founders and building a lasting and effective professional relationship is challenging. If you recognize this going in and invest real time up front in the partnership it will pay off many times over.

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Katie Corrigan: Think Flexibly/Act Locally: The National Dialogue on Workplace Flexibility Goes on the Road

October 28, 2010

A lot can happen in a year. Since 2009′s National Work and Family Month, we’ve come a very long way — and the stage is finally set for workplace flexibility as a national priority, in the year 2010 and beyond. In March, the President and First Lady summoned a group of nationally recognized leaders — including CEOs, academic researchers, advocates and union representatives — for a groundbreaking discussion on the need to increase flexibility in the American workplace. That day, President Obama shared his belief that workplace flexibility has become, “…an issue that affects the well-being of our families and the success of our businesses. It affects the strength of our economy — whether we’ll create the workplaces and jobs of the future that we need to compete in today’s global economy.” The president’s comments signaled a tremendous evolution in issues at the intersection of work and family. They indicated that it’s no longer good enough to let families muddle through this on their own. Indeed, addressing this issue has become a social and economic imperative. But to really understand the depth of this challenge and the need for flexibility, it’s critical that we understand what’s happening on the ground — in workplaces and communities large and small. For meaningful change to happen in the American workplace, we need the engagement and commitment of business and civic leaders and employees and employers from across the country. That on-the-ground engagement and commitment is building quickly. Last week, far from DC and in the heart of Texas, a group of small business owners, managers, and employees — as well as advocates, researchers and union leaders — gathered on the Dallas campus of Southern Methodist University to carry on the conversation that began at the White House. They were the first to participate in the “National Dialogue on Workplace Flexibility” series being organized and hosted by the Department of Labor in cities across the country. Labor Secretary Hilda Solis kicked off the event, expressing how critical these issues have become. As she said in her recent editorial, “June Cleaver, Meet Juana Solis,” “Workplace flexibility initiatives aren’t niceties; they’re necessities for working families. For employers, they aren’t just the right thing to do; they’re the smart thing to do.” And then the conversation really began. We heard the latest data on small business from the Families and Work Institute — and got to hear from local business leaders on why they use flexibility as a business strategy. Participants engaged each other on best practices for implementing innovative flexibility programs — particularly within a small business — and addressed the challenges that come with them. We heard participants asking and answering critical questions such as: What’s the best way to train managers so that they understand how flexibility can support their own objectives — and overall business success? How do you implement flexibility programs that meet the needs of all workers — particular those on the “front lines” that need be physically present during regular hours? How can businesses — particularly small businesses — contain costs while also trying to offer paid leave when employees need it? To each of these challenging questions, participants offered innovative ideas and potential solutions. And ultimately, participant’s experiences and stories revealed a truly remarkable theme. That is — both employers and employees are recognizing that the nature of work has changed irrevocably over the last several decades. And that flexibility can be a crucial tool in helping the American workplace catch up. Before the Dallas event, the Society for Human Resource Management, a leading business association, published an ad declaring that “a flexible workplace is the next business imperative.” At the same time, the National Partnership for Women and Families and Family Values @ Work released a report — “Dallas Workers Speak” — outlining how employees “satisfaction correlates with a positive workplace culture that embraces flexibility and fosters trust.” There’s no doubt we’ve reached a turning point this year. There is increasing agreement that flexibility can support working families and business’ bottom line at the same time. And indeed, there are many innovative, effective workplace flexibility practices being used right now that are benefiting both employees and employers. In our conversations around the country, we’ve heard about business innovation, new models of measuring success and achieving your bottom line, practical ways to make work work for a diverse workforce, and community efforts to promote flexibility as a tool to combat traffic congestion, stabilize the low wage workforce, allow for job training opportunities, and boost health and wellness. Sharing these stories — and spreading the word on innovative practices — is a key to creating meaningful change in the American workplace. Which is why it is so critical the Obama Administration has taken this national conversation on workplace flexibility on the road, and into local communities. The Department of Labor’s next stops are in Atlanta and Los Angeles — with more to come in Seattle, Chicago, Boston and cities in between. For more information on attending an upcoming event, visit the National Dialogue on Workplace Flexibility website. And if you can’t make it to an event, considering hosting your own through the White House Work-Flex Event Starter Kit. Local, on the ground knowledge will make all the difference in propelling this national conversation forward. Make your voice be heard!

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Emily Dubner: Baking For Good Founder: Talk To As Many People As You Can

October 16, 2010

When I first began developing the idea for Baking for Good , I figured the path to building my startup was simple. I’d quit my job, wrap myself in a little cocoon for a few months, toiling away and eating salad, and then emerge as a beautiful entrepreneurial butterfly, delivering brownies and cookies to friends and family in times of sadness or celebration. But that’s not how it worked out in the end. Early on, I ignored the advice of some older, wiser people who encouraged me to speak with as many people as I could. Instead, I dove in and started to develop the concept in relative isolation. I drafted business plans, sketched website frameworks, and edited recipes while planted in my seat on a 5-hour flight or alone at a hotel room desk late at night (at the time, I was traveling to Seattle every week for my consulting firm.) All of the decisions I made, I made independently. I decided it would be quickest and most cost- effective to outsource the web development to a firm in India. Ten minutes later, I submitted a request for proposals on the online freelancing website Elance.com and chose the lowest bidder ($400! To build my whole website! In 3 months!). I was a master at PowerPoint; all I had to do was set up the pages of the website in a PowerPoint template and email them to Partho, my friendly developer, who would then give the pages online functionality and even throw in his own design expertise. But it turned out Partho’s design expertise wasn’t exactly in line with the look I was going for. I tried to explain the concept of a bake sale to him. I even emailed him a link to Wikipedia’s entry on it. To this day, I have not shared with a single person the initial designs he came up with. The look was all wrong: lime green and bright purple with a giant grinning Barney-like dinosaur mascot. I wasn’t ready to give up on Partho just yet, and when he submitted a request for another $400 because the project was bigger than he had anticipated, I readily gave it to him. Much to my dismay, once the transaction cleared, I never heard from him again. In truth, Partho’s abandonment of my project was a blessing in disguise. Around this time I met with a friend who gave me the advice that you only get one shot to launch your website, and it’s worth making it look professional on the first go. I took this to heart, deactivated my Elance account, and started calling up designers and developers in NYC. My meetings were both invigorating and terrifying. Promises of awesome, beautiful websites and great support contrasted with price tags of tens of thousands of dollars and timelines of several months. So much for a $400, 3-month investment. I ultimately began working with Paperwhite Studios to brand the site and Crush + Lovely to develop it. Now I had a team that shared my vision of an online bake sale and had the skills to bring it to life. Not only that, but I could actually meet with them, stopping by for impromptu brainstorming sessions or picking up the phone to share a new thought. Each step took many more days or weeks than I wanted it to, and I had to adjust to letting others do some of the thought work. But the site was so much better for it, the business cards so much prettier for it. I was proud to show it off and get the input of others, whereas previously I had wanted to keep it all to myself until it was “ready.” There are downsides to talking to as many people as you can. Everyone’s got their opinions on what’s best for you, what changes you should make, what really awesome feature would make the site so sweet. I had to learn to take every comment as a suggestion, to use what I could and keep everything else in the back of my mind. Crush + Lovely helped me put this all in perspective. They encouraged me to keep things simple: make sure initial site visitors can grasp the whole concept easily, and build from there. This was not only the sensible solution, it was also a much more cost-effective one than building in all the possible functionality in the beginning (and then having to fix or tear things down if they didn’t work out). In September 2009 we launched a simple but elegant website. It was my company, but I didn’t go at it alone. Nor was I right to think that I could.

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Video: Seattle Genetics’ Siegall `Excited’ by Cancer Drug Data: Video

October 11, 2010

Oct. 11 (Bloomberg) — Clay Siegall, chief executive officer of Seattle Genetics Inc., discusses the results from a clinical trial of its SGN-35 drug for treating anaplastic large cell lymphoma. The drug, also known as brentuximab vedotin, uses an antibody to home in on cancer cells. Siegall, speaking with Betty Liu and Adam Johnson on Bloomberg Television’s “In the Loop,” also discusses the prospects that his company may become a takeover target. (Source: Bloomberg)

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Phil Bronstein: ‘Billboard Family’ Puts Itself — Kids and All — On Sale

September 28, 2010

It’s no surprise that we’ve come to this: there’s a family for sale on the Internet . No, these aren’t hostages held by Somali pirates or advertised on a Craigslist adult S&M posting. I’m talking about a middle American family that may have willingly, enthusiastically crossed the line between personal brand management and indentured servitude. Anyone with a digital footprint is selling themselves these days. But in the spooky wasteland where product placement meets slavery, you will find the Martins. Not to diss entrepreneurial spirit in a down economy. Patriarch Carl Martin told me today that “overall, this has been the best decision we have ever made.” The Martins call themselves “The Billboard Family,” with what ad industry site Adrants says is “an offering that allows advertisers to own the Martin’s lives.” Yikes. Dad Carl, mom Amy and kids Layne and Kaitlyn have turned themselves into human signage. With a social media upsell. I know they’re serious but it’s a pretty funny pitch on their website. “We are a REAL family of 4 (with one on the way) who wears YOUR COMPANY SHIRTS all day long, taking loads of photos and videos. We then promote your company online on Facebook, Twitter, Flickr, YouTube, and our Website, as well as to all of the many people who ask us why we are all wearing the same shirts.” Uh, because you’re from St. Louis? Carl says “most of the companies we have already reached out to are ones whose products we use.” Their “main demographic is family oriented companies, being that we are a real family.” Still, “we are happy to advertise for any companies that do not violate our terms and conditions.” They may be an actual family, but potential sponsors usually like organic reality, as in real doctors who prescribe Nexium in their practice, not people just selling their endorsement. But on their video, the likable Martins even show a sonogram snap of their unborn child. Getting a t-shirt on a fetus might be tough. I was just about to ask the marketing department here about inking a deal for the Martins to wear Chronicle t-shirts — you have to send them the shirts; like Google, they don’t make products. Then I wondered just how many people might actually notice what the family is wearing. No worries there. The Martins “travel and take vacations frequently” from their Missouri home to places like Chicago, Seattle, and Walt Disney World (where at might be hard to stand out among people wearing black socks and bermudas). “We have plans to travel much more in the near future.” Don’t we all? They also have 2,700 followers on Twitter and 200 Facebook fans. (Over 2,500,” Carl says, if you include friends on personal pages.) Not exactly the makings of a viral stampede. “Many of our followers help spread the word,” according to Carl. “The potential to reach a large audience is there.” The “Billboard Family” also has two competitors: I Wear Your Shirt (Carl: “They are not family-centric”) and Girl In Your Shirt (doesn’t sound very family-centric). In their “About Us” section they have more personal stats for each of them than the average big league ball player: eye color, favorite color, height, weight and shoe size. How else would you ever know that four-year-old Layne wants a Power Wheels Cadillac Escalade? Carl’s dream job is to be a “professional t-shirt wearer”, which makes sense given this particular value-added business proposition. Carl, who has a computer sciences degree, was “inspired” in this new enterprise “by his desire to make a respectable living.” Well, who these days can really afford to make fun of that? Also, he said to me he “really wanted to teach our kids about self-reliance and business..They’re very young but they have been very involved..They also love the attention.” The Martin site is thick with optimism, including nifty separate sections for them to publish all their “National Press, “Local Press”, and “Other Media Outlets.” They’re all empty. I wonder where my blog post will go. They also have Yelp-like social media page for clients who write “a review of our services.” Empty. Also a place for Flickr photos and YouTube videos. Zip. Except a short about the Martins. To be fair, they only launched a few days ago. But in the “Only 84 Days left for sale!” calendar, 30 of them are filled with “SOLD” signs, all for around $550 per, calculated by their graduated pricing formula throughout the year (Would you rather have four people wearing your brand on their tees or buy an iPad?). So far one advertiser — “Studio-R” — has bought the Martins for a day, according to the calendar. And they boast that their October through November “Non-Profit slots [are] filled” by a children’s literacy program, “Everybody WINS!” Maybe they do. Here I am writing about them. Besides, it’s a buyer’s market out there and who’s to say the Martins aren’t the next big thing in digital marketing services?

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2 Plead Guilty In Seattle To Massive Tax Scheme

September 11, 2010

SEATTLE — Two Seattle-area men pleaded guilty Friday to federal charges stemming from an illegal tax shelter that enabled wealthy clients – including philanthropist Robert Wood Johnson IV and Hollywood mogul Haim Saban – to avoid paying taxes on $1.3 billion in capital gains. The men ran an investment firm called Quellos Group LLC. Jeffrey Greenstein, 48, of Mercer Island, was its chief executive and Charles H. Wilk, 51, of Seattle, was its tax attorney. Both pleaded guilty to charges of conspiracy to defraud the government and aiding in the filing of a false tax return, the U.S. attorney’s office said. They agreed to pay the Internal Revenue Service $7 million in penalties, pay $400,000 to cover the cost of their prosecution, and to give speeches at their graduate schools about business ethics. Wilk and Greenstein admitted that from 1999 to 2006, they purported to offset the tax liability of clients who expected large capital gains by using losses from the sale of depreciated stocks held in an offshore fund. The fund was a shell entity with nominee administrators and no assets or employees, and the losses Quellos created for its clients were fabricated, prosecutors said. Quellos’ clients did not know the tax shelter was fraudulent, prosecutors said, and they voluntarily paid the more than $240 million they owed in back taxes. The biggest among Quellos’ clients was Saban, who made a fortune by licensing the Power Rangers from Japan in the 1990s. He sold his half of the Fox Family Channel, which included the Power Rangers, to The Walt Disney Co. in 2001 in a $5.2 billion deal – and enlisted former Los Angeles lawyer Matthew Krane to handle taxes on the transaction. Krane hired Quellos to offset the capital gains in exchange for a $36 million kickback from the company. He pleaded guilty late last year to charges of tax evasion and false statements. The fictitious shelter enabled Saban to avoid paying nearly $140 million in taxes that year, and other complicated maneuvers later disallowed by the IRS saved him a roughly equal amount. He repaid the IRS in full, as did Quellos’ other clients. Greenstein and Wilk were scheduled to go to trial Oct. 12, following intensive pretrial litigation during which they tried unsuccessfully to block the government from taking the depositions of London-based witnesses who refused to travel to the U.S. Prosecutors were scheduled to visit London for a second round of depositions next month, accompanied by U.S. District Judge Ricardo S. Martinez, who is presiding over the case. The pair are scheduled to be sentenced in January. Under a plea deal, the government can recommend no more than six years in prison, and defense attorneys can recommend no less than two. Greenstein is expected to speak to students at the University of Washington business school, and Wilk is to speak at New York University’s. No dates have been scheduled. Robert Westinghouse, the criminal division chief of the U.S. attorney’s office in Seattle, said he’s looking forward to attending the speeches and making sure Wilk and Greenstein own up to their misdeeds. “Our goal is to cause students to think twice about their ethics,” he said.

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Case-Shiller Index: Home Prices Jump In 17 Cities In June, But Housing Outlook Is Grim

August 31, 2010

WASHINGTON — Home prices rose in June for a third straight month as now-expired tax credits inspired a burst of home-buying. But prices are expected to fall through the rest of the year now that demand has faded. The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago. Seventeen cities showed monthly price gains. Still, the gains were weaker from the previous month in several markets, including San Francisco, San Diego and Los Angeles. Home prices nationally were up 4.4 percent in the April-to-June quarter. That followed a decline of 2.8 percent in the January-to-March quarter. The jump was largely because buyers could take advantage of government tax credits of up to $8,000. Home sales have dropped sharply since those incentives expired. Lending standards remain tight, unemployment is stuck near double digits and foreclosures are expected to remain at extraordinary levels. “We do not take this report as a signal of future strength,” wrote BNP Paribas economist Yelena Shulyatyeva. She expects the Case-Shiller report to show price declines by August. Economists at IHS Global Insight project home prices will fall by up to 8 percent and hit the bottom sometime next year. The biggest monthly increases in June were in Chicago, Detroit and Minneapolis. Prices rose 2.5 percent in each of those cities. Prices in Seattle and Phoenix were flat. Home prices in Las Vegas fell 0.6 percent. Nationally, prices have risen 6 percent from their April 2009 bottom. But they remain 28 percent below their July 2006 peak. Prices are widely expected to fall in the second half of the year. Sales of previously occupied homes plunged in July to the lowest level in 15 years, despite the lowest mortgage rates in decades and bargain prices in many areas. The inventory of unsold homes on the market has grown. At the current sales pace, it would take more than a year to exhaust the inventory on the market nationwide, compared with a healthy level of about six months. When unsold homes sit on the market, sellers are forced to lower their asking prices. And homeowners looking to trade up may be forced to back out of purchases because they can’t sell their homes. Pam Geller and her husband have been trying to sell their two-bedroom condominium in Los Angeles so they can buy a house. It remains unsold after more than two months on the market, even after the couple lowered the price to $359,000 from $399,000. They’re close to completing the purchase of their next home. But the deal will collapse unless they find a buyer in two weeks. Geller said she’s unwilling to slash the price further. With home prices likely to fall, Geller wonders if it might be better to wait to buy another home. “What I see is houses still dropping” in value, she said. __ AP Real Estate Writer Alex Veiga contributed to this report from Los Angeles. (This version CORRECTS Corrects quarterly increase to 4.4 percent. )

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Matt Wilson: 10 Best Cities to Start a Business in as a Young Entrepreneur

August 4, 2010

Under30CEO.com recently asked its readers to vote on the best cities for young entrepreneurs . Considerations included the resources available, schools, events, social atmosphere, weather and the networking opportunities that young entrepreneurs look for. Take a look at the list below and let us know your thoughts, and while you’re at it, take a look at last year’s results as well. Top 10 cities list courtesy of Under30CEO.com the resource for young entrepreneurs 10. Seattle Squeezing into the top 10, Seattle makes its mark on the list. Seattle has always been driven by old industrial companies but more recently newer technology and internet companies have begun to call it home. Companies like Amazon and Starbucks call Seattle home with Microsoft, Boeing and Nintendo in nearby communities. Seattle’s climate, while mild year round, is still not ideal with lots of rainy and cloudy days. However, Seattle’s location in the Northwest gives it a huge advantage in outdoor activities with natural forests, lakes, oceans and mountains all nearby. 9. Washington DC DC is an obvious choice for the list with its ideal location to the political scene. Washington has a large number of attractions like the National Mall and countless museums. The area is also home to leading colleges like Georgetown, American and George Mason University. These schools bring a very active social scene to the city which makes it a great spot for young people along with providing numerous resources for start-ups. 8. Portland, OR Portland has been referred to as the “greenest” or most “environmental friendly” city in the US. Portland has also been growing faster then the average over the past decade showing the increased interest in the city. Portland is a great business location with lower energy costs then the bigger cities and also air, rail and shipping transportation available to any part of the world. As with the Northwest cities Portland has a temperate climate and all the outdoor activities one could dream up which makes it great for the upstart adventurer. 7. San Diego Making an appearance on the list this year in large part due to the climate. San Diego is warm, sunny and dry. The area is also known for its beaches which is a major plus for any young business person. The city is characterized as wealthy with a major tourism economy. Along with its population (8th largest in US) the city makes an ideal place to build a business. 6. Chicago Chicago is known as one of leading financial centers in the world making it a truly business minded community. The city is located on the shore of Lake Michigan giving it a unique blend of beaches and a downtown life. The city has an active social scene and streets like Michigan Ave will appeal to anyone’s recreation or shopping interests. 5. Denver “The Mile High City”. Denver is a bustling city at the base of the Rocky Mountains. The city has a lot to offer a young entrepreneur with its numerous professional sports teams to some of the best ski resorts in the country only a short drive away. The winters are cold but for the skier or snowboarder it becomes the perfect city to build a business and hit the slopes. 4. Boston Boston has a vibrant college community which has a major impact on the overall city. Colleges like Harvard, MIT, Boston College and others contribute countless jobs and revenue to the city. The schools have also attracted the high-tech industry to the city along with many major companies. The city is home to countless start-ups, incubators and resources to entrepreneurs as many college students take a stab at their own business. The cold winters and high cost of living possibly stop Boston from being at the top of the list. 3. Austin Austin has built a reputation on being the “live music capital of the world”. However Austin has also become a major tech hub with many start-ups and major corporations calling it home in recent years. Many people in Austin experienced the dot-com boom and bust in the late 90s. The city has a great climate and abundant resources as it continues to move forward as a technology hub with much lower costs of living then places like Silicon Valley. 2. San Francisco San Francisco is near Silicon Valley giving it no choice but to be a major hub for start-ups and high-tech companies. Start-ups like Twitter and Craigslist call San Francisco home along with countless numbers of small companies looking to make it big. The city is a big tourist destination giving the young community plenty to see and do along with many great west coast destinations only a short drive away. Because of the vibrant tech community networking events, conferences and meet-ups are being held consistently giving new companies a chance to network and learn with the best. 1. New York This year the #1 city for young entrepreneurs is New York City. New York is the largest city in the United States which gives it just about anything a business or young person would want. There is a major social scene in the city where it reigns with the most bars in the country and also countless festivals, meet-ups and social activities. The city is one of the leading business centers in the world where the New York Stock Exchange and the Nasdaq are housed. Despite the expensive cost of living, in recent years the city has become a thriving place for start-ups and young entrepreneurs. The city is often referred to as Silicon Alley and continues to push forward with its start-up community. This article originally appeared on Under30CEO

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America’s Best Rentals — How Far $3,000 Per Month Goes Across America (PHOTOS)

July 30, 2010

Times are tights and these rentals are bargains. Zillow, one of the web’s most trusted aggregators of real-estate information , scoured its listings and found rental properties that give tenants the biggest bang for their buck. From Boston to Seattle, you can find steals in housing markets across the nation, like one Seattle condo that not only overlooks Lake Washington, but also boasts an in-ground pool. Below, we’ve gather rentals priced around the $3,000 per month range in various large U.S. cities that offer significant bang for your buck. And for more real-estate bargains, check out Zillow .

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How Far $400,000 Goes In America’s Biggest Real Estate Markets: Trulia (PHOTOS)

July 24, 2010

We won’t bore you with that all-too familiar real estate cliche that begins with the word “location” — but suffice to say that home buyers across the nation face some very different options. A few examples: A home buyer in foreclosure-addled Florida can get a home with a price that’s advertised as being actually lower than 1999 levels . For the same price, the eager home shopper in New York City can get a studio apartment , albeit one in a building with a doorman, an art deco lobby and access to a roof terrace. In the interest of seeing just how far your real estate dime goes in different cities across the country, we decided to compare similarly-priced home listings in major cities like Chicago, San Francisco, Seattle and Baltimore. Not surprisingly, there was a huge variation. Courtesy of Trulia, one of the most comprehensive real estate sites one the web , below we’ve compiled some of the most appealing homes you can buy for $400,000 . Which city offers the best value? Check out the homes below. And visit Trulia for more information on these and other homes.

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Ellen Brown: Why the U.S. Need Not Fear a Sovereign Debt Crisis: Unlike Greece, It Is Actually Sovereign

July 23, 2010

Last week, a Chinese rating agency downgraded U.S. debt from triple A and number one globally, to “double A with a negative outlook” and only 13th worldwide. The downgrade renewed fears that the sovereign debt crisis that began in Greece will soon reach America. That is the concern, but the U.S. is distinguished from Greece in that its debt is denominated in its own currency, over which it has sovereign control. The government can simply print the money it needs or borrow from a central bank that prints it. We should not let deficit hawks and short sellers dissuade the government from pursuing that obvious expedient. We did not hear much about “sovereign debt” until early this year when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter: On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral. Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop. The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely! So said the media, but note that Greece and Portugal were doing remarkably well only three months earlier. Then, “suddenly and without warning,” global investors furiously dumped their bonds. Why? Weiss and other commentators blamed a sudden “contagion of fear about sovereign debt.” But as Bill Murphy, another prolific newsletter writer, reiterates, “Price action makes market commentary.” The pundits look at what just happened in the market and then dream up some plausible theory to explain it. What President Franklin Roosevelt said of politics, however, may also be true of markets: “Nothing happens by accident. If it happens, you can bet it was planned that way.” That the collapse of Greece’s sovereign debt may actually have been planned was suggested in a Wall Street Journal article in February, in which Susan Pullian and co-authors reported: Some heavyweight hedge funds have launched large bearish bets against the euro in moves that are reminiscent of the trading action at the height of the U.S. financial crisis. The big bets are emerging amid gatherings such as an exclusive ‘idea dinner’ earlier this month that included hedge-fund titans SAC Capital Advisors LP and Soros Fund Management LLC. There is nothing improper about hedge funds jumping on the same trade unless it is deemed by regulators to be collusion. Regulators haven’t suggested that any trading has been improper. Regulators hadn’t suggested it yet; but on the same day that the story was published, the antitrust division of the U.S. Justice Department sent letters to a number of hedge funds attending the dinner, warning them not to destroy any trading records involving market bets on the euro. Represented at the dinner was the hedge fund of George Soros, who was instrumental in collapsing the British pound in 1992 by heavy short-selling. Soros was quoted as warning that if the European Union did not fix its finances, “the euro may fall apart.” Was it really a warning? Or was it the sort of rumor designed to make the euro fall apart? A concerted attack on the euro, beginning with its weakest link, the Greek bond, could bring down that currency just as short selling had brought down the pound. These sorts of rumors have not been confined to the Greek bond and the euro. In The Financial Times , Niall Ferguson wrote an article titled “A Greek Crisis Is Coming to America,” in which he warned: It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. America, he maintained, would suffer a sovereign debt crisis as well, and this would happen sooner than expected. The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF. The catch is that the U.S. does not need to satisfy the IMF. “Sovereign debt” Is an Oxymoron America cannot actually suffer from a sovereign debt crisis. Why? Because it has no sovereign debt. As Wikipedia explains: A sovereign bond is a bond issued by a national government. The term usually refers to bonds issued in foreign currencies, while bonds issued by national governments in the country’s own currency are referred to as government bonds. The total amount owed to the holders of the sovereign bonds is called sovereign debt. Damon Vrabel , of the Council on Renewal in Seattle, concludes: The sovereign debt crisis… is a fabrication of the Ivy League, Wall Street and erudite periodicals like the Financial Times of London.. It seems ridiculous to point this out, but sovereign debt implies sovereignty. Right? Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions? How could they be so easily attacked by the likes of George Soros, JP Morgan Chase and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders? A true sovereign is in debt to nobody… Unlike Greece and other EU members, which are forbidden to issue their own currencies or borrow from their own central banks, the U.S. government can solve its debt crisis by the simple expedient of either printing the money it needs directly, or borrowing it from its own central bank which prints the money. The current term of art for this maneuver is “quantitative easing,” and Ferguson says it is what has so far “stood between the US and larger bond yields” — that, and China’s massive purchases of U.S. Treasuries. Both are winding down now, he warns, renewing the hazard of a sovereign debt crisis. “Explosions of public debt hurt economies…” Ferguson contends, “by raising fears of default and/or currency depreciation ahead of actual inflation, [pushing] up real interest rates.” Market jitters may be a hazard, but if the U.S. finds itself with government bonds and no buyers, it will no doubt resort to quantitative easing again, just as it has in the past — not necessarily overtly, but by buying bonds through offshore entities, swapping government debt for agency debt, and other sleights of hand. The mechanics may vary, but so long as “Helicopter Ben” is at the helm, dollars are liable to appear as needed. Hyperinflation: A Bogus Threat Today Proposals to solve government budget crises by simply issuing the necessary funds, whether as currency or as bonds, invariably meet with dire warnings that the result will be hyperinflation. But before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and today the world is struggling with deflation. The U.S. money supply has been shrinking at an unprecedented rate. In a May 26 article in The Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard observed: The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. So long as workers are out of work and resources are sitting idle, as they are today, money can be added to the money supply without driving prices up. Price inflation results when “demand” (money) increases faster than “supply” (goods and services). If the new money is used to create new goods and services, prices will remain stable. That is where “quantitative easing” has gone astray today: the money has not been directed into creating goods, services and jobs but has been steered into the coffers of the banks, cleaning up their balance sheets and providing them with cheap credit that they have not deigned to pass on to the productive economy. Our forefathers described the government they were creating as a “common wealth,” ensuring life, liberty and the pursuit of happiness for its people. Implied in that vision was an opportunity for employment for anyone wanting to work, as well as essential social services for the population. All of that can be provided by a government that claims sovereignty over its money supply. A true sovereign need not indebt itself to private banks but can simply issue the money it needs. That is what the American colonists did, in the innovative paper money system that allowed them to flourish for a century before King George forbade them to issue their own scrip prompting the American Revolution. It is also what Abraham Lincoln did, foiling the Wall Street bankers who would have trapped the North in debt slavery through the exigencies of war. And it is what China itself did successfully for decades, before it succumbed to globalization. China got the idea from Abraham Lincoln through his admirer Sun Yat-sen; and Lincoln took his cue from the American colonists, our forebears. We need to reclaim our sovereign right as a nation to fund the common wealth they envisioned without begging from foreign creditors or entangling the government in debt.

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Tracey Ann Foley, Accused Russian Spy, Was ‘Well-Liked’ And ‘Friendly,’ Her Boss Says

June 29, 2010

The boss of Massachusetts resident Tracey Ann Foley, who was arrested in connection with a massive Russian spy ring, has responded to the arrest on his company’s blog. (Hat tip to Portfolio .) Glenn Kelman , the CEO of the online real estate brokerage, Redfin , which is based in Seattle, wrote on his company’s blog that Foley was “well-liked” and “friendly.” He also defended his company’s hiring practices. Here’s Kelman : Before we hired Ms. Foley in February of this year, at least two Redfin employees interviewed her, using a template that focuses on character, specifically situations where the candidate has put customers’ interests ahead of her own, and where the candidate has worked on a team. She interviewed well. According to her application, she had worked since 2007 for the real estate brokerages Weichert and Channing Real Estate. As with every agent we hire, Redfin validated her social security number, her deal history and that her real estate license was in good standing; as with every agent we hire, we ran a criminal background check, which came up clean. The Washington Post referred to Foley, who lived in Cambridge, Massachusetts, as an “attractive, vaguely European blonde .” Foley lived with her husband, Donald Heathfield, in a $900,000 duplex near Harvard, the paper notes. Kelman added : We learned of her arrest by reading about it in the newspaper this afternoon, and haven’t communicated with her since. Because we don’t have a large human resources department to advise us on privacy matters, and since she has been accused of a grave crime, we have disclosed the facts of our relationship with Ms. Foley here, and would rather not venture opinions beyond that.

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Inflated Home Appraisals Key In Plaintiff’s Lawsuit Against Banks

June 19, 2010

Recent filings by two Federal Home Loan Banks — in San Francisco and Seattle — offer an intriguing way to clear this high hurdle. Lawyers representing the banks, which bought mortgage securities, combed through the loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors.

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Kennedy Had Death Threats After Assassination of Brothers, FBI Papers Show

June 14, 2010

By Justin Blum June 14 (Bloomberg) — Death threats were made against Senator Edward Kennedy in 1968, warning he would be the next member of his family to be assassinated, FBI documents show. An anonymous letter dated Oct. 21, 1968, to an office of the Federal Bureau of Investigation in Seattle said, “To whom it may concern, assassination for Kennedy number three within twentyfour hours of the day October twentyfifth nineteen sixtyeight. All Kennedy residents are in danger on that day.” The letter was among the files released today about the late Massachusetts Democrat in response to Freedom of Information Act requests, and includes death threats to the youngest Kennedy brother. President John F. Kennedy was assassinated in Dallas on Nov. 22, 1963, and Senator Robert F. Kennedy was killed in Los Angeles on June 6, 1968, on the night of California’s Democratic primary election. One document said that in 1977, a former California prison inmate told Arizona authorities that Sirhan Sirhan, the assassin of Robert Kennedy, offered him $1 million and a car to kill Edward Kennedy. The former inmate, who wasn’t identified, said he declined the offer. Sirhan told the inmate to contact Sirhan’s mother for details when he was released if he decided to carry out the killing, according to the document. The inmate said he was in the cell next to Sirhan’s at the Soledad prison in California for 18 months ending in January 1977. The files also contained documents related to the accidental drowning of Mary Jo Kopechne when Kennedy drove his car off a bridge on Chappaquiddick Island in 1969. Kennedy, who first won election to the Senate in 1962, died in August 2009 after a 15-month battle with brain cancer. To contact the reporter on this story: Justin Blum in Washington at jblum4@bloomberg.net

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Kennedy Had Death Threats After Assassination of Brothers, FBI Papers Show

June 14, 2010

By Justin Blum June 14 (Bloomberg) — Death threats were made against Senator Edward Kennedy in 1968, warning he would be the next member of his family to be assassinated, FBI documents show. An anonymous letter dated Oct. 21, 1968, to an office of the Federal Bureau of Investigation in Seattle said, “To whom it may concern, assassination for Kennedy number three within twentyfour hours of the day October twentyfifth nineteen sixtyeight. All Kennedy residents are in danger on that day.” The letter was among the files released today about the late Massachusetts Democrat in response to Freedom of Information Act requests, and includes death threats to the youngest Kennedy brother. President John F. Kennedy was assassinated in Dallas on Nov. 22, 1963, and Senator Robert F. Kennedy was killed in Los Angeles on June 6, 1968, on the night of California’s Democratic primary election. One document said that in 1977, a former California prison inmate told Arizona authorities that Sirhan Sirhan, the assassin of Robert Kennedy, offered him $1 million and a car to kill Edward Kennedy. The former inmate, who wasn’t identified, said he declined the offer. Sirhan told the inmate to contact Sirhan’s mother for details when he was released if he decided to carry out the killing, according to the document. The inmate said he was in the cell next to Sirhan’s at the Soledad prison in California for 18 months ending in January 1977. The files also contained documents related to the accidental drowning of Mary Jo Kopechne when Kennedy drove his car off a bridge on Chappaquiddick Island in 1969. Kennedy, who first won election to the Senate in 1962, died in August 2009 after a 15-month battle with brain cancer. To contact the reporter on this story: Justin Blum in Washington at jblum4@bloomberg.net

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Apple Under Pressure to Ease Software Limits as Jobs’s Influence Increases

June 14, 2010

By Dina Bass and Adam Satariano June 14 (Bloomberg) — Apple Inc. , under growing scrutiny from antitrust regulators, may have to loosen restrictions on software developers and music labels to avoid legal wrangling with the government and prevent damage to how its brand is perceived by the public, lawyers and analysts said. Federal Trade Commission officials are preparing to review allegations that Apple is trying to trammel rivalry in mobile advertising, people familiar with the matter said last week. Regulators were already weighing a probe of Apple’s treatment of Adobe Systems Inc., and the U.S. Justice Department has made preliminary inquiries into Apple’s behavior in the music market. The heightened scrutiny may prompt the company to give programmers more leeway in how they build applications for Apple products, said Andrew Gavil , who teaches antitrust law at Howard University in Washington. The inquiries indicate government concern that Chief Executive Officer Steve Jobs may be trying to exert too much control over industries as varied as digital music, software development and mobile advertising. “Apple needs to be prepared that all of their actions will be put under a microscope,” said Michael Gartenberg, a partner at the Altimeter Group in San Mateo, California. “They need to make sure they don’t cross the line.” Apple spokesman Steve Dowling didn’t respond to a request for comment. FTC spokesman Peter Kaplan declined to comment. Apple, based in Cupertino, California, gained $3 to $253.51 on the Nasdaq Stock Market on June 11, capping a year-to-date gain of 20 percent. Apple’s Advance As Apple enters new markets, it’s trying to maintain control not only over its products but also the applications made by third-party developers that run on those machines. For instance, it issues guidelines that limit the use of outside software in creating tools and games for its iPad tablet computer, or ads that appear in apps on the iPhone. While the company competes aggressively, it’s probably not violating antitrust laws, Gartenberg said. Still, problems arise if Apple gives the impression it’s trying to hamper competition, said Gavil at Howard University. The latest flap involves a set of instructions for developers building applications for use on Apple’s iPhone. Google Inc. unit AdMob said this week that the rules, if enforced, bar the use of Google and AdMob advertising software. The rules were proposed June 7. ‘Hamper Competition’ “It does really look like these agreements are designed to hamper competition,” Gavil said. “The question really becomes, do they have any legitimate business justifications for that? It’s not hard to see how that can disadvantage a rival.” Omar Hamoui , founder of Google’s newly acquired AdMob mobile-ad service, wrote in a June 9 blog posting that the prohibitions jeopardize the revenue AdMob gets from the iPhone and hurts software developers. Already, some programmers are shunning Google tools as they tailor apps for Apple products. Bill Predmore, president of POP , which builds mobile applications and ads for companies including Target Corp. and Microsoft Corp., said his company will avoid using AdMob until Google and Apple work out a solution. Antitrust enforcers in early May were said to be weighing an investigation of Apple after Adobe Systems Inc. complained that Apple is stifling competition by barring developers from using Adobe’s software to create applications for iPhones and iPads, people familiar with the matter said then. Three weeks later, the Justice Department was said to be looking at how Apple runs its iTunes digital music service. ‘Peek Under Hood’ The inquiries may not yield the kinds of lawsuits that plagued Microsoft Corp. in the 1990s because Apple’s share of markets is smaller, Gavil said. Yet, the deeper the government probes, the more leverage it gains in shaping Apple’s behavior, said analysts at Baltimore- based Stifel, Nicolaus & Co. in a June 11 research note. “Every time a company comes before DOJ or the FTC, staff get to peek under the hood and acquire information that they can later connect with additional information to develop a theory of harm,” wrote Rebecca Arbogast and George Askew. FTC officials can issue a so-called consent decree that details the behavior a company needs to avoid, Gavil said. In some instances, a company will change tack before the government forces its hand, said Jonathan Potter, an attorney and former executive director of the Digital Media Association . Apple is a board member of the trade group. ‘Lawyer Up’ Any investigation “will be of concern and will obligate one to lawyer up, as they say on the TV cop shows, in a very significant way, and will cause at least consideration of one’s business practices,” said Potter, who’s based in Washington. In mobile advertising, Gavil said Apple may have to soften the rules that developers say prevent applications for Apple devices from using Mountain View, California-based Google or its AdMob unit to track and display advertising. Apple is preparing to start showing ads from its rival iAd network in July. “I can’t live on iAd alone,” said Greg Woock, CEO of Pinger Inc. , a San Jose, California-based maker of a free texting app. “I need Google too.” He said his products generate 800 million ad views a month and only Google has enough ads available to fill that. Changes may also be in order in the way Apple operates in music, said Gregory Weston, founder of the Weston Firm , a San Diego-based law firm that represents small businesses. As the top music retailer, Apple can press music companies to agree to terms. Apple has told some labels if they promote an album through Amazon.com Inc.’s “Deal of the Day” it won’t market the music as prominently on iTunes, a music industry executive who declined to be identified said last month. Meanwhile, as regulatory actions concerning Apple mushroom, the company’s days as a scrappy upstart that can compete as it sees fit may be ending, Gartenberg said. “This is the end of the age of Apple’s innocence, it will be harder and harder for them to maintain that image of the underdog,” he said. “They have achieved a certain degree of success, and with that success comes scrutiny.” To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net ; Adam Satariano in San Francisco at asatariano1@bloomberg.net

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Nokia’s Delay on `Shiny Things’ Leaves It Last in Line for Apps Developers

June 14, 2010

By Diana ben-Aaron June 14 (Bloomberg) — As Nokia Oyj prepares to introduce its latest flagship smartphone, developer Jan Ole Suhr says he knows why the brains behind addictive applications are shunning the Finnish company. “It’s difficult for small developers to invest in the smartphone segment of Nokia when nobody knows its future,” said Suhr, creator of Twitter application “ Gravity ,” which was showcased by Nokia when it opened its Ovi applications store last year. “The new shiny things aren’t available and there’s only the old-fashioned stuff, where it takes a lot of work to make the software look good.” Nokia’s 41 percent share of the smartphone market, the fastest-growing piece of the mobile-phone industry, has failed to make it the platform of choice for software writers. It is instead at the bottom of the pile, behind Apple Inc. ’s iPhone and devices based on Google Inc. ’s Android. Developers of games, music, videos, media and other apps want to see if the N8, Nokia’s first device running the Symbian 3 system for touchscreen phones, delivers on promises of improved look and feel, an easier interface and operability across devices — in short, if it’s more like an iPhone. For many, the device scheduled to be released in the third quarter has been too slow in the making and may still disappoint. “Symbian needs a more competitive platform to attract users, early adopters who are the sort of people who download lots of apps,” said Gartner Inc. analyst Nick Jones . “We may have to wait until Symbian 4 to get a really compelling Symbian device, so that the ecosystem may not start to achieve its full potential until 2011.” ‘No Visibility’ The world’s largest mobile-phone maker’s failure to lure apps developers, whose products help sell iPhones and Android devices, adds to the perception that its devices are behind the times. With Apple last week unveiling iPhone 4, with a video- chat feature, and Android devices chalking up sales, the Espoo, Finland-based Nokia risks not being able to recoup lost ground. Nokia may post lower-than-expected second-quarter profit because of a weak product range and falling prices, Macquarie Group Ltd. analysts said last week. There’s “no visibility on the N8, continued heavy competition in handsets and softening demand,” Phil Cusick and colleagues wrote in a June 9 report. Chief Executive Officer Olli-Pekka Kallasvuo said in April he expects sales of handsets and associated services to be between 6.7 billion euros and 7.2 billion euros in the second quarter. He cut the company’s full-year margin forecast, citing the slow development of the N8. Apple Effect Nokia shares have plummeted 51 percent since Apple opened its App Store on July 11, 2008. Its market value has shrunk to 29 billion euros from 203 billion euros in 1999, when it was Europe’s most-valuable company. Nokia, which doesn’t disclose its catalog size, says it has 1.7 million downloads a day of apps including QuickOffice, Skype Internet calling service, Shazam music identifier, Spotify music, Snake games and Lonely Planet travel guides. The company’s secrecy about the number of apps is “probably because it’s still rather small,” said Gartner’s Jones. Its offerings lag behind Apple’s App Store, which has more than 225,000 apps. Android has more than 70,000 , according to Androlib.com, which tracks the platform’s apps. More than 5 billion programs have been downloaded from its store, Apple says. IPhone users spend more on apps than people with Android devices, who in turn spend more than users of Nokia handsets, developers say. That drives software efforts. ‘Six of Six’ Nokia opened the Ovi Store to offer developers a channel to the 68 million people a year who buy its smartphones. Developers spoiled by iPhone tools say they found Nokia’s software and storefront clunky. Many are turning to Android and Research In Motion’s BlackBerry. “The Ovi Store doesn’t have any traction in the U.S.,” said Ken Willner , CEO of Zumobi Inc. in Seattle “They’re probably number six of six,” behind Apple, Google, Palm Inc., RIM and Microsoft Corp. Willner’s company, whose applications present media content such as MSNBC and Parenting magazine on iPhones, chose Android- run devices as its second platform, bypassing Nokia. “Large numbers of developers see Nokia as less relevant for distributing apps,” said Martin Garner , a London-based analyst at CCS Insight. “They prefer to work with software that has obvious growth momentum in the market.” Shrinking Share The market share of Symbian, Nokia’s main smartphone operating system, fell to 44.3 percent in the first quarter from 48.8 percent a year ago, according to Gartner. Although mostly on Nokia phones, Symbian is also used by Samsung Electronics Co. and Sony Ericsson. iPhone’s share rose to 15.4 percent from 10.5 percent, while Android soared to 9.6 percent from 1.6 percent. Nokia says its new line of smartphones with Symbian 3 and Symbian 4 improves the user interface and carries a new version of tools for developers, making cross-device development easier. “You’ll see a big improvement in terms of the store experience with the introduction of the N8, as well as with subsequent devices,” said George Linardos , the Nokia vice president who runs the Ovi Store. He cautioned that there won’t be any “immaculate moment” when the store is perfect. “I look at this as the first innings of a very, very long game.” Switching to Android Many developers don’t want to wait, and say they can’t take the risk of developing for a yet-to-be-perfected platform. Even long-time Nokia software authors are looking elsewhere. Take Alan Masarek , chief executive officer of Quickoffice Inc. in Plano, Texas. Nokia helped his 150-person company become one of the biggest independent mobile apps developers with its stripped-down word processor and spreadsheet running on more than 240 million mobile devices worldwide. About 1 1/2 years ago Masarek, whose software is preloaded on all Nokia Symbian devices, began working on Android phones. “That in hindsight has proven to be a good move,” he said. “The numbers on Android are very ascendant right now. We’re on all these devices that just started shipping in meaningful volumes the last two quarters.” Android-based smartphones threaten to top the iPhone in 2013 in market share, according to Framingham, Massachusetts- based IDC. Shipments of Android devices may reach 68 million that year, making it the second-most popular operating system after Symbian, according to IDC. For Quickoffice, Apple and Android now each account for about 30 percent of shipments against 40 percent on Symbian. ‘No Comparison’ Some developers are shunning Symbian entirely so far. “Development on Symbian has historically been difficult and Google and Apple leapfrogged Nokia in terms of developer friendliness in the past two years,” said Phil Libin , chief executive officer of Mountain View, Calif.-based Evernote Corp. “There’s no comparison.” His 30-person company’s main product is a note-taking application that runs on desktop computers, iPhone, Android, BlackBerry, Palm ’s WebOS and Microsoft’s Windows Mobile — all except Nokia’s Symbian. Apple has a system in place that makes selling and buying apps easy and painless, said Joseph Darling , a long-time Nokia user in Sydney, Australia, who opted to develop his ParkWatch parking monitor application for Apple. “They have a payment system that was already popular for music and video,” he said. “That takes you from browsing to buying in a couple of clicks. They’ve brought that entire community over into apps. It’s hard for others to duplicate.” Gravity’s Suhr, who lives in Berlin, is one of the few developers to have worked on mastering the Nokia system, supporting himself by writing apps for it since 2002. His application, which lets users read and write Twitter messages on phones, was touted by Nokia at the launch of its N97 smartphone last year. Suhr says Gravity is “almost the only application that makes a Nokia device look like an iPhone.” “It should have been very easy to create Gravity-like applications to cover other functions,” he says. “And then I bet the whole reception of the platform and the phone would have been very different.” To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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Morgan Stanley Raises $4.7 Billion for Real Estate, Half Original Target

June 11, 2010

By Michael J. Moore and Hui-yong Yu June 11 (Bloomberg) — Morgan Stanley , once the biggest property investor among Wall Street banks, raised $4.7 billion for a new global real estate fund, less than half its target before the financial crisis. Some of the New York-based firm’s largest institutional clients didn’t put money in the new fund after market losses. The Washington State Investment Board, which placed $880 million in two prior Morgan Stanley property funds, decided against committing new capital. “We will not be investing in the new fund because it is global including U.S. and we already have a large U.S. concentration,” Liz Mendizabal , spokeswoman for the Olympia- based pension board, said in an e-mail today. Many investors have shied away from real estate deals amid falling property values and scarcer debt financing. Morgan Stanley had hoped to raise $10 billion for the fund, according to minutes from a June 2008 meeting of the Contra Costa County Employees’ Retirement Association. Still, the fund is the largest to close since 2008. Morgan Stanley Real Estate Fund VII will invest in the U.S. and internationally, said company spokeswoman Alyson Barnes , noting that the firm supplied less than 10 percent of the capital. ‘Significant’ Opportunities The real estate fund will “take advantage of the significant investment opportunities this part of the real estate cycle presents to us,” Morgan Stanley said in a statement. Wall Street firms may be barred from owning and investing in hedge funds and private equity under the so-called Volcker rule, part of the Senate’s financial reform bill. Lawmakers from the House and Senate are merging bills passed by the two chambers into a single measure for President Barack Obama ’s signature. Morgan Stanley, which managed $46.4 billion of real estate assets for clients as of March 31, suffered losses in its last fund. The firm told investors this year that it expects to lose $5.4 billion of an $8.8 billion real estate fund from 2007, a person familiar with the situation said in April. Concord, California-based Contra Costa County Employees’ Retirement Association rescinded its decision to invest $75 million in the new fund in February 2009, citing market risk and staff departures at Morgan Stanley. New Jersey’s pension fund also decided not to pursue a $150 million potential investment. John Klopp To bolster its real estate effort, Morgan Stanley named John Klopp as head of investing in Americas real estate and global property debt in February, and its Alternative Investment Partners fund of funds business raised $370 million for a fund focused on private-equity real estate funds. Morgan Stanley recorded about $4.4 billion in real estate losses in 2008 and 2009. In April, the firm booked a $932 million loss on its investment in Revel Entertainment Group LLC, the developer of an unfinished casino resort in Atlantic City, New Jersey. In November, Morgan Stanley agreed to hand over Crescent Real Estate Equities to Barclays Capital, ending its obligation on a $2 billion loan. The firm sent a fourth-quarter update to clients of its Morgan Stanley Real Estate Fund VI International showing it was likely to recover $3.4 billion of its investments, the person said in April. The California State Teachers’ Retirement System’s $440 million investment in the fund has declined 86 percent as of Sept. 30, 2009, according to figures provided by spokeswoman Sherry Reser . To contact the reporters on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net ; Hui-Yong Yu in Seattle at hyu@bloomberg.net

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Morgan Stanley Raises $4.7 Billion for Real Estate, Half Original Target

June 11, 2010

By Michael J. Moore and Hui-yong Yu June 11 (Bloomberg) — Morgan Stanley , once the biggest property investor among Wall Street banks, raised $4.7 billion for a new global real estate fund, less than half its target before the financial crisis. Some of the New York-based firm’s largest institutional clients didn’t put money in the new fund after market losses. The Washington State Investment Board, which placed $880 million in two prior Morgan Stanley property funds, decided against committing new capital. “We will not be investing in the new fund because it is global including U.S. and we already have a large U.S. concentration,” Liz Mendizabal , spokeswoman for the Olympia- based pension board, said in an e-mail today. Many investors have shied away from real estate deals amid falling property values and scarcer debt financing. Morgan Stanley had hoped to raise $10 billion for the fund, according to minutes from a June 2008 meeting of the Contra Costa County Employees’ Retirement Association. Still, the fund is the largest to close since 2008. Morgan Stanley Real Estate Fund VII will invest in the U.S. and internationally, said company spokeswoman Alyson Barnes , noting that the firm supplied less than 10 percent of the capital. ‘Significant’ Opportunities The real estate fund will “take advantage of the significant investment opportunities this part of the real estate cycle presents to us,” Morgan Stanley said in a statement. Wall Street firms may be barred from owning and investing in hedge funds and private equity under the so-called Volcker rule, part of the Senate’s financial reform bill. Lawmakers from the House and Senate are merging bills passed by the two chambers into a single measure for President Barack Obama ’s signature. Morgan Stanley, which managed $46.4 billion of real estate assets for clients as of March 31, suffered losses in its last fund. The firm told investors this year that it expects to lose $5.4 billion of an $8.8 billion real estate fund from 2007, a person familiar with the situation said in April. Concord, California-based Contra Costa County Employees’ Retirement Association rescinded its decision to invest $75 million in the new fund in February 2009, citing market risk and staff departures at Morgan Stanley. New Jersey’s pension fund also decided not to pursue a $150 million potential investment. John Klopp To bolster its real estate effort, Morgan Stanley named John Klopp as head of investing in Americas real estate and global property debt in February, and its Alternative Investment Partners fund of funds business raised $370 million for a fund focused on private-equity real estate funds. Morgan Stanley recorded about $4.4 billion in real estate losses in 2008 and 2009. In April, the firm booked a $932 million loss on its investment in Revel Entertainment Group LLC, the developer of an unfinished casino resort in Atlantic City, New Jersey. In November, Morgan Stanley agreed to hand over Crescent Real Estate Equities to Barclays Capital, ending its obligation on a $2 billion loan. The firm sent a fourth-quarter update to clients of its Morgan Stanley Real Estate Fund VI International showing it was likely to recover $3.4 billion of its investments, the person said in April. The California State Teachers’ Retirement System’s $440 million investment in the fund has declined 86 percent as of Sept. 30, 2009, according to figures provided by spokeswoman Sherry Reser . To contact the reporters on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net ; Hui-Yong Yu in Seattle at hyu@bloomberg.net

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Bernanke Says Gold Sends Different Inflation Signal Than Oil, Food Prices

June 9, 2010

By Craig Torres and Pham-Duy Nguyen June 9 (Bloomberg) — U.S. Federal Reserve Chairman Ben S. Bernanke said gold prices, which surged to a record yesterday, are sending a different signal on inflation than raw materials. “Other commodity prices have fallen recently quite severely, including oil prices and food prices,” Bernanke said today in response to a question during testimony to a House Budget Committee hearing. “So gold is out there doing something different from the rest of the commodity group.” Gold futures for delivery in August fell $15.70, or 1.3 percent, to $1,229.90 an ounce on the Comex in New York today. Yesterday, the metal reached $1,254.50, an all-time high. The price climbed for nine straight years and is up 12 percent in 2010. “Bernanke is dispelling the argument that people are out there buying gold because of the threat of inflation,” said Matt Zeman , a metals trader at LaSalle Futures Group in Chicago. “Deflation is now more of a threat.” Consumer prices fell 0.1 percent in April, the first decrease since March 2009, according to figures from the Labor Department. In the 12 months ended April 30, the measure rose 2.2 percent following a 2.3 percent year-over-year gain in March. Commodity Slump The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of raw materials including steel, cattle hides, tallow and burlap plunged 57 percent in May, the most since October 2008. Crude-oil futures have dropped 6.3 percent this year, and corn prices are down 18 percent. Some investors buy gold to hedge against accelerating costs. This year, gold has rallied as Europe’s sovereign debt crisis spurred demand for an alternative currency. The euro is down 16 percent this year against the dollar. “There is a great deal of uncertainty and anxiety in the financial markets right now,” Bernanke said. “Some people believe that holding gold will be a hedge against the fact that they view many other investments being risky and hard to predict at this point.” Gold has outperformed stocks, bonds and other commodities this year. “When there’s nowhere else to turn, people turn to gold,” Zeman said. In testimony to the House committee, Bernanke said that the U.S. economic recovery, while being sustained by private demand, isn’t as strong as he prefers and faces risks from Europe’s debt crisis that may require further Fed action. To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net ; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .

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Apple IPad Outshines Mona Lisa at Louvre as Sales Start in Paris, Sydney

May 28, 2010

By Jonathan Browning and Matthew Campbell May 28 (Bloomberg) — In the basement of Paris’s Louvre museum, the early line for Apple Inc. ’s iPad far surpassed that for entry to see the Mona Lisa. Hundreds queued up at the Apple store in the Carrousel du Louvre shopping center in the museum complex, with staff cheering every purchase, as sales outside the U.S. of the tablet computer began today. In Sydney, fans braved the chill of the Southern Hemisphere autumn to be among the first to buy the device, while in Tokyo people waited for as long as 40 hours to make a purchase. “I tried to buy one in Seattle when I was there about 15 days ago, but they were sold out; so I decided to wait till it came to Europe,” said Julien Boidin, 28, who works for Microsoft Corp. in Paris and has an iPhone and a Macintosh computer. “I live in Normandy and commute for four hours a day. I needed something for the train ride.” Following the sale of one million of the devices in less than a month of its April 3 debut in the U.S., the iPad is now available in Australia, Canada, Japan and six European countries. The maker of the iPhone and iPod, which this week became the world’s most valuable technology company, has popularized a new category of computer between a smartphone and a laptop. Apple may sell 8 million iPads this year, according to Royal Bank of Canada. “The thing with Apple is it’s not just a piece of technology, it’s actually the whole experience,” said Rahul Koduri, 22, an engineering student in Sydney, who arrived at 2 a.m. yesterday to be first in line. “They just fit into your lifestyle so well. There’s no other product that does it.” Underestimated Demand The company, based in Cupertino, California, delayed the release of iPads outside the U.S. after underestimating demand at home. In Europe, the iPad will be available in Germany, France, Italy, Spain, Switzerland and the U.K. Apple is betting the iPad, which starts at 499 euros ($618) in continental Europe — more than the $499 it sells for in the U.S. to reflect higher value-added taxes — will entice enough consumers willing to pay a premium over low-cost notebooks. Rivals such as Microsoft have failed to turn tablet computers into popular consumer devices. “I don’t really need it, but I want it,” said Jake Lee, a 17-year-old student, who camped overnight outside the store on London’s Regent Street. “I wanted to be one of the first people to get the iPad in the U.K.” ‘Big Hit’ Countries outside the U.S. are likely to account for 43 percent, or 3.5 million units, of iPad shipments this year, Mike Abramsky , an analyst at RBC in Toronto, wrote in a May 20 report. The U.S. will probably be the biggest market with 4.7 million units, followed by France with 805,000 and the U.K, with 585,000, according to the report. The iPad has a 9.7-inch touch-screen display that lets users view books, magazines, video, play games and surf the Internet. “I’m going to use it for the Internet, e-mail, video, and controlling the other Macs at home,” said Andy Parkinson, a communications engineer, 51, who bought his iPad in London. “I think it is a big hit here. It already looks very good.” German companies such as Allianz SE , Europe’s biggest insurer, may equip thousands of sales reps with the devices as a way to improve consultations and speed contract signings, weekly magazine WirtschaftsWoche reported. ‘American Hype’ Apple Chief Executive Officer Steve Jobs said the company sold 1 million iPads in the first 28 days, compared with the 74 days the iPhone took to reach that mark. Apple said this month that demand continues to exceed supply. “I’m buying it for my friend in Malta because it’s not available there yet,” said Isma Lanani, standing in line at the Louvre. “He manages a hotel there, but this is for his personal use. He’s Apple crazy.” Some U.K. customers said they don’t expect such a huge rush for iPads as in the U.S. “Americans are very good at hyping these things up; perhaps British people are a bit more wary,” said Emily Dexter, 22, who works for a television production company. “I’m not going to buy one because I can’t afford it.” The iPad will spur a sixfold increase in industrywide shipments of tablet computers to 398 million by 2014, research firm IDC said this month. Shipments worldwide will rise to 46 million from 7.6 million this year, according to the Framingham, Massachusetts-based IDC. For All Generations On May 26, Apple became the most valuable technology firm in the world, after its market value hit $222.1 billion, higher than Microsoft’s $219.2 billion, on optimism it can keep adding customers for its iPhone, Macintosh computer and iPad. The shares gained 3.8 percent yesterday to $253.35 in Nasdaq Stock Market trading. Jobs last month said second-quarter profit almost doubled and sales soared 49 percent on demand for the iPhone. The results don’t yet include the iPad, which went on sale after the close of the period for the company. The iPad’s first wave of reviews praised its ability to deliver digital books and video quickly, saying it measures up well against other devices, including Amazon.com Inc. ’s Kindle e-book reader. “To all those people who don’t think they need one, I just want to say, ‘you just wait and see,’” said Toru Iijima, a 39- year-old information technology professional in Tokyo. “This is great for people who don’t like computers. I want to get one for my grandparents and my child.” To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net ; Jonathan Browning in London at jbrowning9@bloomberg.net

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Apple Passes Microsoft as Biggest U.S. Technology Company by Market Value

May 26, 2010

By Connie Guglielmo and Dina Bass May 26 (Bloomberg) — Apple Inc. , the computer maker turned mobile gadgeteer, overtook Microsoft Corp. to become the most valuable technology company on optimism the company will keep adding customers for its iPhone, Macintosh computer and iPad. Apple’s market value reached $222.1 billion, surpassing Microsoft’s $219.2 billion at 4 p.m. New York time in Nasdaq Stock Market trading. That makes Apple the most valuable technology firm in the world. It’s also the second-largest U.S. stock by market value, behind oil company Exxon Mobil Corp. , valued at $278.6 billion on the New York Stock Exchange. After a 16 percent gain this year, Apple’s stock climbed to a high of $252.13 in intraday trading today. Chief Executive Officer Steve Jobs last month said profit almost doubled and sales soared 49 percent on demand for the iPhone. The results don’t yet include the iPad, which went on sale after the close of the quarter for the Cupertino, California-based company. “Apple really checks all the boxes when you look at the tech sector,” said Ryan Jacob , a fund manager at Jacob Internet Fund in Los Angeles, which has Apple as its top holding. “Do they have the opportunity to gain share in their markets? What are the prospects for margins? It’s hard to find a company that you can have more confidence in than Apple.” The value shift underscores the changing fortunes of two technology industry pioneers. Microsoft, the world’s largest software maker, has had mixed success expanding beyond its mainstay Windows operating system business into new markets, including mobile phones, Web search and gaming consoles. Apple’s Revamp Apple, on the verge of bankruptcy when Jobs resumed leadership in 1997, has transformed itself from the maker of Macintosh personal computers into a consumer electronics trendsetter with the release of the iPod music player in 2001, the iPhone in 2007 and this year’s release of the iPad tablet. Redmond, Washington-based Microsoft slipped 4.1 percent to $25.01 in Nasdaq trading. That marked the seventh straight day of declines, the longest streak of losses since February 2007. In remarks to reporters in Singapore earlier, Microsoft Chief Executive Officer Steve Ballmer said European financial troubles “will not be isolated to Europe and have a ripple impact.” “Microsoft has been extremely weak over the last month, underperforming other technology stocks and that’s really what’s moved Apple into the leading position in terms of market cap,” Jacob said. IPad Demand Jobs, 55, said Apple sold more than 1 million tablets in the U.S. in the first 28 days after its April 3 debut and that demand is outpacing supply. The iPad goes on sale outside the U.S., including in the U.K., France, Germany, Canada and Japan, on May 28. Jobs, who will give the keynote speech at Apple’s Worldwide Developer’s Conference, is expected to introduce a new iPhone at the event, according to analysts. Microsoft said last month third-quarter sales rose 6.3 percent to $14.5 billion, below the most optimistic estimates. While both profit and sales exceeded the average estimate of analysts in a Bloomberg survey, some investors held out for larger gains, said Dave Stepherson , a fund manager at Hardesty Capital Management in Baltimore. Unearned revenue, a measure of multiyear contracts, also fell short of some estimates, a sign business demand for Microsoft products may not be picking up as quickly as some analysts had predicted. To contact the reporters on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net ; Dina Bass in Seattle at dbass2@bloomberg.net .

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Defaults on Apartment Building Mortgages Held by U.S. Banks Rise to Record

May 24, 2010

By Hui-yong Yu May 24 (Bloomberg) — Defaults on apartment-building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter, almost twice the year-earlier level, as more borrowers failed to repay debt approved near the market peak , said Real Capital Analytics Inc. in a report. Defaults on so-called multifamily mortgages rose from 4.4 percent in the fourth quarter and from 2.4 percent during the same period in 2009, the New York-based real estate research firm said today. Commercial-mortgage defaults also rose in the first quarter for loans against office, retail, hotel and industrial properties, Real Capital said. “Apartment defaults are leading other commercial real estate,” Sam Chandan , global chief economist at Real Capital, said in an interview. “Banks tended to make more aggressively underwritten apartment loans earlier during this last cycle. Credit and pricing reached their peaks for office properties and other commercial assets later.” The global recession cut demand for U.S. apartments, office space, retail shops, hotels and warehouses during the past two years as jobs disappeared and consumers cut spending. Defaults on apartment-building mortgages surpassed the previous record, set in 1993, for the past three consecutive quarters. The U.S. savings-and-loan crisis drove apartment-building defaults to 3.4 percent in 1993. Defaults on other types of commercial property debt peaked at 4.6 percent in 1992, according to Real Capital. The proportion of defaults on office, retail, hotel and industrial properties rose to 4.2 percent in the first quarter of this year, the company said. U.S. apartments may lead a rebound in commercial real estate as vacancies peak in 2010 and the economy adds jobs , property research firm Reis Inc. said May 19. Reis estimates apartment vacancies will peak at 8.2 percent in 2010, the highest level since the firm began tracking the number in 1980. The number should start to decline in 2011, Reis said. Real Capital bases its analysis on bank filings and data from the Federal Deposit Insurance Corp. To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

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Luxury Mall King Caruso Eludes Slump, Hunts for Fixable `Junk’ to Facelift

May 21, 2010

By Daniel Taub and Nadja Brandt May 21 (Bloomberg) — Mall developer Rick Caruso plans to take his success in retail to distressed shopping centers, apartments, luxury hotels, airports and maybe a run for Los Angeles mayor. The Grove, Caruso’s town square-like shopping center in Los Angeles that attracts 17 million shoppers a year, had few vacancies through the recession, he said. Sales at the Americana at Brand, his first retail-residential complex, have grown since its 2008 opening. Caruso plans to use profits to buy distressed properties he can rehabilitate. Caruso’s Los Angeles-based company, closely held Caruso Affiliated, last month announced a $750 million debt-and-equity venture with TPG Capital, David Bonderman ’s buyout firm, to make retail and mixed-used purchases. The venture has looked at about 100 properties in cities including San Francisco, Seattle and Portland, Oregon, and intends to announce a retail acquisition in Orange County, California, within 30 days, he said. “There’s a lot of junk that we won’t touch, that I don’t think you can fix,” Caruso, 51, said in an interview at Bloomberg’s Los Angeles offices. While there’s “a ton of money on the sidelines” for properties worth saving, many buyers are passive investors while Caruso is interested in redevelopment, he said. Caruso is expanding beyond retail centers while considering a mayoral candidacy in cash-strapped Los Angeles. He is building luxury apartments outside Beverly Hills, planning a beach resort in Montecito, California, and seeking to develop stores and restaurants at Los Angeles International Airport. ‘Guest Experience’ “Why can’t the airport experience actually be pleasant?” Caruso said. LAX travelers should have a “guest experience” similar to the Grove, and to shopping choices at London’s Heathrow Airport, he said. “We’re going to come up with a pretty compelling proposal,” Caruso said, declining to discuss details. “Hopefully we start in L.A. and it will be the first of many.” Caruso hopes to open his first luxury resort, the redeveloped Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, by 2013. “I like beach resorts. I love the water,” Caruso said. “If you find a great property that’s tough to duplicate, you have inherent value.” Caruso faces a challenge making his entry into high-end lodging pay off. He purchased Miramar in 2007, the height of the commercial real estate market, for an undisclosed amount. Hurdles in getting entitlements to redevelop the planned 192- room hotel have delayed groundbreaking, and construction won’t start before next year. Hotel Comeback? Luxury hotels have been hurt by a decline in business and leisure travel during the U.S. recession. The average daily rate among hotel chains with the costliest rooms fell 16 percent in 2009 from a year earlier to $242.99, according to Smith Travel Research Inc. in Hendersonville, Tennessee. A recovery of the U.S. hotel industry isn’t likely until 2011 because room rates are down and commercial real estate values have plunged, Fitch Ratings Ltd. said in December. In California, hotel foreclosures climbed 27 percent in the first quarter. “It’ll prove to be a very good investment,” Caruso said. “Luxury hotels will come back.” Caruso, who has nine shopping centers in the Los Angeles area, has thrived in retail while other mall owners were hurt by the recession. Vacancies at the largest U.S. malls reached 8.9 percent in the first quarter, the highest rate since at least 2000, New York-based real estate research firm Reis Inc. said. Grove Shoppers At the 20-acre Grove , adjacent to Los Angeles’s historic Farmers Market, the average shopper spends $179, about triple the industry average, Caruso said. Net operating income has risen over the past 18 months, and the facility is “99 percent leased,” he said. Caruso said he adds touches to encourage shoppers to stay longer . The Grove has a free trolley, and the open-air Americana in Glendale has grassy slopes for relaxing. “Many of his projects are anything but plain vanilla,” said Jim Sullivan , managing director at real estate researcher Green Street Advisors in Newport Beach, California. “His projects are fun places to go.” Caruso has had his stumbles outside of retail. At the Americana, opened in 2008 during the housing-market collapse, he has struggled to sell its 100 condominiums. Buyers are being enticed with discounts and half-price association dues for two years. “It was a really tough time to come out,” Caruso said. While Caruso Affiliated is responsible for management and sales, the condos’ backer is Barrow Street Capital LLC. “We did not have anything at risk financially,” Caruso said. Nicholas Chermayeff , co-chief executive officer of Stamford, Connecticut-based Barrow Street, declined to comment. Mayoral Run? A Republican who has served as board president at the Los Angeles Department of Water and Power and the Los Angeles Police Commission, Caruso has flirted for years with a mayoral run. “I’m leaning towards it” when Mayor Antonio Villaraigosa is termed out in 2013, Caruso said. “I have to make a decision probably sometime next year.” The city needs to do a better job keeping and attracting businesses, rework its pension system and encourage development, he said. He also imagines a monorail along Interstate 10 from downtown Los Angeles to the coast going up faster than a planned “subway to the sea,” which could take decades to build. Caruso’s chances of winning would depend in part on the competition, said Sherry Bebitch Jeffe , a senior fellow at the school of policy, planning and development at the University of Southern California. “There is a long list of tested Latino leaders who probably will be looking at the office,” Jeffe said. Caruso, who is married with four children, said family and business obligations will factor in to the decision. He also will weigh the Los Angeles mayor’s limited powers. “I’ve got to get convinced that, if I did it, that I can actually make a meaningful difference,” Caruso said. “If the city is so structurally hamstrung that I’m going to go waste four years of my life, I don’t want to do it.” To contact the reporters on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net ; Nadja Brandt in Los Angeles at nbrandt@bloomberg.net .

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Mall Maestro Caruso Eludes Retail Slump, Ponders Run for Los Angeles Mayor

May 21, 2010

By Daniel Taub and Nadja Brandt May 21 (Bloomberg) — Mall developer Rick Caruso plans to take his success in retail to distressed shopping centers, apartments, luxury hotels, airports and maybe a run for Los Angeles mayor. The Grove, Caruso’s town square-like shopping center in Los Angeles that attracts 17 million shoppers a year, had few vacancies through the recession, he said. Sales at the Americana at Brand, his first retail-residential complex, have grown since its 2008 opening. Caruso plans to use profits to buy distressed properties he can rehabilitate. Caruso’s Los Angeles-based company, closely held Caruso Affiliated, last month announced a $750 million debt-and-equity venture with TPG Capital, David Bonderman ’s buyout firm, to make retail and mixed-used purchases. The venture has looked at about 100 properties in cities including San Francisco, Seattle and Portland, Oregon, and intends to announce a retail acquisition in Orange County, California, within 30 days, he said. “There’s a lot of junk that we won’t touch, that I don’t think you can fix,” Caruso, 51, said in an interview at Bloomberg’s Los Angeles offices. While there’s “a ton of money on the sidelines” for properties worth saving, many buyers are passive investors while Caruso is interested in redevelopment, he said. Caruso is expanding beyond retail centers while considering a mayoral candidacy in cash-strapped Los Angeles. He is building luxury apartments outside Beverly Hills, planning a beach resort in Montecito, California, and seeking to develop stores and restaurants at Los Angeles International Airport. ‘Guest Experience’ “Why can’t the airport experience actually be pleasant?” Caruso said. LAX travelers should have a “guest experience” similar to the Grove, and to shopping choices at London’s Heathrow Airport, he said. “We’re going to come up with a pretty compelling proposal,” Caruso said, declining to discuss details. “Hopefully we start in L.A. and it will be the first of many.” Caruso hopes to open his first luxury resort, the redeveloped Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, by 2013. “I like beach resorts. I love the water,” Caruso said. “If you find a great property that’s tough to duplicate, you have inherent value.” Caruso faces a challenge making his entry into high-end lodging pay off. He purchased Miramar in 2007, the height of the commercial real estate market, for an undisclosed amount. Hurdles in getting entitlements to redevelop the planned 192- room hotel have delayed groundbreaking, and construction won’t start before next year. Hotel Comeback? Luxury hotels have been hurt by a decline in business and leisure travel during the U.S. recession. The average daily rate among hotel chains with the costliest rooms fell 16 percent in 2009 from a year earlier to $242.99, according to Smith Travel Research Inc. in Hendersonville, Tennessee. A recovery of the U.S. hotel industry isn’t likely until 2011 because room rates are down and commercial real estate values have plunged, Fitch Ratings Ltd. said in December. In California, hotel foreclosures climbed 27 percent in the first quarter. “It’ll prove to be a very good investment,” Caruso said. “Luxury hotels will come back.” Caruso, who has nine shopping centers in the Los Angeles area, has thrived in retail while other mall owners were hurt by the recession. Vacancies at the largest U.S. malls reached 8.9 percent in the first quarter, the highest rate since at least 2000, New York-based real estate research firm Reis Inc. said. Grove Shoppers At the 20-acre Grove , adjacent to Los Angeles’s historic Farmers Market, the average shopper spends $179, about triple the industry average, Caruso said. Net operating income has risen over the past 18 months, and the facility is “99 percent leased,” he said. Caruso said he adds touches to encourage shoppers to stay longer . The Grove has a free trolley, and the open-air Americana in Glendale has grassy slopes for relaxing. “Many of his projects are anything but plain vanilla,” said Jim Sullivan , managing director at real estate researcher Green Street Advisors in Newport Beach, California. “His projects are fun places to go.” Caruso has had his stumbles outside of retail. At the Americana, opened in 2008 during the housing-market collapse, he has struggled to sell its 100 condominiums. Buyers are being enticed with discounts and half-price association dues for two years. “It was a really tough time to come out,” Caruso said. While Caruso Affiliated is responsible for management and sales, the condos’ backer is Barrow Street Capital LLC. “We did not have anything at risk financially,” Caruso said. Nicholas Chermayeff , co-chief executive officer of Stamford, Connecticut-based Barrow Street, declined to comment. Mayoral Run? A Republican who has served as board president at the Los Angeles Department of Water and Power and the Los Angeles Police Commission, Caruso has flirted for years with a mayoral run. “I’m leaning towards it” when Mayor Antonio Villaraigosa is termed out in 2013, Caruso said. “I have to make a decision probably sometime next year.” The city needs to do a better job keeping and attracting businesses, rework its pension system and encourage development, he said. He also imagines a monorail along Interstate 10 from downtown Los Angeles to the coast going up faster than a planned “subway to the sea,” which could take decades to build. Caruso’s chances of winning would depend in part on the competition, said Sherry Bebitch Jeffe , a senior fellow at the school of policy, planning and development at the University of Southern California. “There is a long list of tested Latino leaders who probably will be looking at the office,” Jeffe said. Caruso, who is married with four children, said family and business obligations will factor in to the decision. He also will weigh the Los Angeles mayor’s limited powers. “I’ve got to get convinced that, if I did it, that I can actually make a meaningful difference,” Caruso said. “If the city is so structurally hamstrung that I’m going to go waste four years of my life, I don’t want to do it.” To contact the reporters on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net ; Nadja Brandt in Los Angeles at nbrandt@bloomberg.net .

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Boeing Fails to Resolve 787 Parts Delays From Suppliers as Costs Escalate

May 20, 2010

By Susanna Ray May 20 (Bloomberg) — Boeing Co. , more than two years behind schedule on producing the 787 Dreamliner, said it’s still struggling with incomplete parts from suppliers, requiring the planemaker’s employees to do 10 times more work than planned. Suppliers Spirit AeroSystems Holdings Inc. and Mitsubishi Heavy Industries Ltd. will increase the work they complete to 100 percent of what was expected within the next 10 aircraft sections delivered, Pat Shanahan , the head of Boeing’s commercial jet programs, said today. The former Vought Aircraft plant in North Charleston, South Carolina, that Boeing bought last year is still “cleaning up” disruptions caused by parts shortages, he said. Boeing is using a new manufacturing system for the Dreamliner that relies on suppliers around the world to build completed sections of the plane, flying them in to be snapped together. “Our challenge is Charleston,” Shanahan told investors in remarks broadcast online from Philadelphia. “That’s why we’re there.” Boeing, whose only larger commercial rival is Airbus SAS, has tried to improve the construction of fuselage sections at Vought since identifying it as a “problem” partner in 2008 and bought the factory to gain more control. The company decided last year to build a second 787 assembly plant in the area to prevent disruptions in the event of a strike at its Seattle manufacturing hub. Flight Testing The next fuselage section sent to Boeing’s Everett, Washington, plant — after a monthlong delivery freeze implemented in April to let suppliers catch up — will be 70 percent more complete than the last unit sent in 2009, Shanahan said. Vendors are starting to see the learning curve they’d expected, he said. Boeing fell $2.03, or 3.1 percent, to $64.18 at 2:46 p.m. in New York Stock Exchange composite trading. The shares have gained 19 percent this year. Flight-testing of the plane has gone “remarkably well” since its maiden flight in December, said Jim Albaugh , head of the company’s commercial division. “We’ve not seen anything in flight test that bothers us,” Albaugh said. “Knock on wood, it’s almost flying too well.” No major redesigns have been required, Shanahan said, and “every change we’ve had, we’ve been able to correct within a week.” The fifth of six jets planned for the test fleet will be in the air “in a few weeks,” he said. The 787 — the first airliner built from carbon-fiber composites — is scheduled to be delivered to the initial customer by the end of this year, after five delays from the original May 2008 target. Better Tests While the first four planes haven’t flown as much as Boeing had planned, crews have been able to make up time with more efficient tests and better data, said Mike Carriker, the chief test pilot. Icing tests that had been planned to last a week were done in five days because the company’s meteorology department located icing conditions, he said. Engineers are “in full swing” on designing the 787-9 and will have a firm configuration ready by the middle of this year, with production set to begin in the first quarter of 2012, Shanahan said. Boeing is retaining greater design responsibility for the derivative and is embedding engineers at suppliers’ sites to avoid some of the challenges faced by the first model, the 787- 8, he said. To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net .

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Bill Gates’s Dad Says `Rich People Aren’t Paying Enough’ State Income Tax

May 20, 2010

By Peter Robison May 20 (Bloomberg) — Bill Gates ’s father wants the Microsoft Corp . co-founder to pay more in income taxes. Bill Gates Sr ., a retired Washington state lawyer, supports a proposed ballot initiative that would require the state’s highest earners including himself and his son to pay an income tax. Washington now collects no personal income taxes. “Poor people and middle-income people are paying too much to support the state and rich people aren’t paying enough,” Gates Sr. said in an interview yesterday in Seattle. “That’s the starting point for me.” The proposed tax on individuals earning more than $200,000 a year and couples earning more than $400,000 would raise $1 billion a year to fund education and health care. While targeting the highest earners, the measure would ease the burden on homeowners with a 20 percent reduction in state property taxes and eliminate the business-and-occupation tax for 80 percent of enterprises in the state, backers say. Proponents begin collecting signatures today to put proposed Initiative 1098 on the state’s November ballot, amid opposition from critics who say a new tax will discourage spending and investment. “The last thing our state needs is more job-killing taxes in the middle of a recession,” said Luke Esser , chairman of the state Republican Party. Flat-Rate Proposal Gates Sr., 84, turned to philanthropy and social causes after retiring from the Seattle law firm Preston Gates & Ellis LLP in 1998. He chaired a state panel that recommended introducing a flat-rate personal income tax in 2002 to reduce the state sales tax and eliminate property taxes, and advocated estate taxes in a book he co-authored, “Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes” (Beacon Press, 2003). People in the bottom fifth of the state’s tax brackets pay 16 percent of their income toward state and local taxes, while those in the top 1 percent pay only 2.5 percent, he said. “It’s just not fair,” he said. Education in the state is languishing, with spending per pupil ranking No. 46 in the country, Gates Sr. said. Money raised in the initiative would go into a trust fund to increase teacher salaries, pay for new buildings, support early learning and reverse cuts to state universities, Gates Sr. said. The proceeds also would fund public health and long-term care for seniors. Furniture Store Gates Sr.’s own father owned a furniture store in Bremerton, Washington, an hour’s ferry ride from Seattle. While his father was comfortable, “he was not making a lot of money and I think the credits we’ve provided in this initiative would have probably taken him out from under paying anything,” Gates Sr. said. His son, William H. Gates III, whose net worth was estimated at $53 billion by Forbes magazine in March, ranking him as the world’s second-richest person, hasn’t decided whether to support the initiative, the elder Gates said. “We’ve talked about it; he goes to the left and he goes to the right and I’m not too sure where he comes out,” Gates Sr. said. “He is the face and voice on quite a number of causes and has no anxiety to add another controversial cause to his list.” Individuals would pay a 5 percent tax on income over $200,000 and 9 percent over $500,000. Couples would pay 5 percent over $400,000 and 9 percent over $1 million. Expansion Concerns It’s only a matter of time before the income tax is expanded to other income brackets, the Seattle Times said in an April 24 editorial. It called the measure “the seed of a big, big thing” and advised: “Think twice before planting it in Washington.” The measure includes a provision that says the taxes can’t be changed without another vote, Gates Sr. said. Initiative 1098 was co-authored by the Economic Opportunity Institute , a non-profit group in Seattle, and has drawn funding from the Service Employees International Union, said Sandeep Kaushik, a spokesman for the I-1098 campaign. Gates Sr. agreed to serve as the public face, visiting business groups and unions to solicit support. “Anywhere there are more than three people who will sit and listen to me,” Gates Sr. said. To contact the writer on this story: Peter Robison in Seattle at robison@bloomberg.net .

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Home Repossessions in U.S. Rise to Record, Foreclosures Fall Amid Backlog

May 13, 2010

By Dan Levy May 13 (Bloomberg) — U.S. home repossessions rose to a record level in April while foreclosure filings dropped in a sign mortgage lenders are working off a backlog of seized properties, according to RealtyTrac Inc. data. “Right now it appears that the banks are focusing on processing the loans already in foreclosure, and slowing down the initiation of new foreclosure proceedings as a way of managing inventory levels,” Rick Sharga , RealtyTrac’s executive vice president, said in an e-mail. “We’ll probably see this trend continue for a while.” A record 92,432 bank repossessions were reported in April, up 45 percent from a year earlier and 1 percent from March, Irvine, California-based RealtyTrac said today in a statement. Foreclosure filings, including default and auction notices, were 333,837. One out of every 387 U.S. households got a filing. Unemployment of 9.9 percent and a rising percentage of U.S. homes worth less than the mortgages on them are combining to thwart a housing recovery, according to RealtyTrac. About 5 million delinquent loans will probably end up in the foreclosure process in addition to the 1.2 million homes already taken back by lenders, Sharga said. Foreclosure filings fell 2 percent from a year earlier, the first decline since the company began issuing annual reports in January 2006. Defaults may not peak until 2011 depending on how lenders process them, Sharga said. “The underlying conditions — mostly unemployment and millions of ‘underwater’ loans — haven’t improved,” he said. ‘Very High Level’ Monthly foreclosure filings will remain “at a very high level that will not drop off in the near future,” James J. Saccacio , RealtyTrac’s chief executive officer, said in the statement. April marked the 14th straight month that foreclosure filings exceeded 300,000. More than a fifth of U.S. mortgage holders owed more than their homes were worth in the first quarter, according to Zillow.com . The proportion rose to 23 percent from 21 percent in the previous quarter, the Seattle-based property service said this month. Home prices may fall as much as 5 percent through the first quarter of 2011, according to forecasts from IHS Global Insight of Lexington, Massachusetts. Still, economist Patrick Newport said foreclosures may not get much worse. “The key thing is fewer problem loans are going into the pipeline,” he said. Defaults Drop Default notices went to 103,762 properties, down 27 percent from April 2009 — the peak month with 142,000 — and down 12 percent from March, RealtyTrac said. The numbers show fewer properties entering the foreclosure process as those that fell into delinquency earlier in the housing crisis finished the legal cycle. Nevada had the highest foreclosure rate for the 40th straight month. One in every 69 households got a notice, more than five times the national average. Bank seizures rose 57 percent from a year earlier and filings were little changed, RealtyTrac said. Arizona had the second-highest rate, at one in 169 households, or more than twice the U.S. average. Filings fell 1 percent from a year earlier. Florida ranked third, with one in 182 households. Filings there dropped 25 percent. California had the fourth-highest rate, at one in 192 households, and Utah was fifth at one in 221, RealtyTrac said. Idaho, Michigan, Illinois, Georgia and Colorado also ranked among the 10 highest rates. Five States Five states accounted for more than half the total filings in the U.S., led by California’s 69,725. That was down 28 percent from a year earlier and 25 percent from March. Florida ranked second with 48,384 filings, down 25 percent from April 2009 and 18 percent from March. Michigan was third at 19,173, a 77 percent increase from a year earlier. Illinois had 18,870 filings and Nevada had 16,217. Arizona, Georgia, Texas, Ohio and Virginia rounded out the top 10, RealtyTrac said. The company sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population. —With assistance from Timothy R. Homan in Washington. Editors: Sharon L. Lynch , Josh Friedman To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net .

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Home Repossessions in U.S. Rise to Record, Foreclosures Fall Amid Backlog

May 13, 2010

By Dan Levy May 13 (Bloomberg) — U.S. home repossessions rose to a record level in April while foreclosure filings dropped in a sign mortgage lenders are working off a backlog of seized properties, according to RealtyTrac Inc. data. “Right now it appears that the banks are focusing on processing the loans already in foreclosure, and slowing down the initiation of new foreclosure proceedings as a way of managing inventory levels,” Rick Sharga , RealtyTrac’s executive vice president, said in an e-mail. “We’ll probably see this trend continue for a while.” A record 92,432 bank repossessions were reported in April, up 45 percent from a year earlier and 1 percent from March, Irvine, California-based RealtyTrac said today in a statement. Foreclosure filings, including default and auction notices, were 333,837. One out of every 387 U.S. households got a filing. Unemployment of 9.9 percent and a rising percentage of U.S. homes worth less than the mortgages on them are combining to thwart a housing recovery, according to RealtyTrac. About 5 million delinquent loans will probably end up in the foreclosure process in addition to the 1.2 million homes already taken back by lenders, Sharga said. Foreclosure filings fell 2 percent from a year earlier, the first decline since the company began issuing annual reports in January 2006. Defaults may not peak until 2011 depending on how lenders process them, Sharga said. “The underlying conditions — mostly unemployment and millions of ‘underwater’ loans — haven’t improved,” he said. ‘Very High Level’ Monthly foreclosure filings will remain “at a very high level that will not drop off in the near future,” James J. Saccacio , RealtyTrac’s chief executive officer, said in the statement. April marked the 14th straight month that foreclosure filings exceeded 300,000. More than a fifth of U.S. mortgage holders owed more than their homes were worth in the first quarter, according to Zillow.com . The proportion rose to 23 percent from 21 percent in the previous quarter, the Seattle-based property service said this month. Home prices may fall as much as 5 percent through the first quarter of 2011, according to forecasts from IHS Global Insight of Lexington, Massachusetts. Still, economist Patrick Newport said foreclosures may not get much worse. “The key thing is fewer problem loans are going into the pipeline,” he said. Defaults Drop Default notices went to 103,762 properties, down 27 percent from April 2009 — the peak month with 142,000 — and down 12 percent from March, RealtyTrac said. The numbers show fewer properties entering the foreclosure process as those that fell into delinquency earlier in the housing crisis finished the legal cycle. Nevada had the highest foreclosure rate for the 40th straight month. One in every 69 households got a notice, more than five times the national average. Bank seizures rose 57 percent from a year earlier and filings were little changed, RealtyTrac said. Arizona had the second-highest rate, at one in 169 households, or more than twice the U.S. average. Filings fell 1 percent from a year earlier. Florida ranked third, with one in 182 households. Filings there dropped 25 percent. California had the fourth-highest rate, at one in 192 households, and Utah was fifth at one in 221, RealtyTrac said. Idaho, Michigan, Illinois, Georgia and Colorado also ranked among the 10 highest rates. Five States Five states accounted for more than half the total filings in the U.S., led by California’s 69,725. That was down 28 percent from a year earlier and 25 percent from March. Florida ranked second with 48,384 filings, down 25 percent from April 2009 and 18 percent from March. Michigan was third at 19,173, a 77 percent increase from a year earlier. Illinois had 18,870 filings and Nevada had 16,217. Arizona, Georgia, Texas, Ohio and Virginia rounded out the top 10, RealtyTrac said. The company sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population. —With assistance from Timothy R. Homan in Washington. Editors: Sharon L. Lynch , Josh Friedman To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net .

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HP Names Microsoft Veteran Veghte to Lead $3.6 Billion Software Division

May 5, 2010

By Connie Guglielmo and Dina Bass May 5 (Bloomberg) — Hewlett-Packard Co. named Microsoft Corp.’s former Windows marketing executive Bill Veghte to lead its $3.6 billion software division. Veghte, who left Microsoft in January, takes over from Tom Hogan , who was tapped last month to oversee sales, marketing and strategy for Hewlett-Packard’s enterprise business group, the company said today. Veghte, 42, starts May 17. A 20-year Microsoft veteran, Veghte had overseen marketing for the Windows operating system. He played a key role in convincing Chief Executive Officer Steve Ballmer to challenge Apple Inc. ’s Mac-versus-PC television ads in 2008, as Microsoft prepared to revive its flagship brand with Windows 7. At Hewlett-Packard, the world’s largest maker of personal computers and printers, Veghte will oversee a business that had the highest profit margin — 19 percent — of any division last quarter. Hogan, who was hired by CEO Mark Hurd in 2006 to expand software sales, helped with six software acquisitions that totaled more than $6 billion. “I’m a software guy,” Veghte said today in an interview. “I’ve spent a lot of time with customers. They’d like to see H-P do more.” Veghte, who lives in Washington state, said he will move to California, where he will report to Ann Livermore , executive vice president of the company’s enterprise business division. Hewlett-Packard, based in Palo Alto, California, rose 29 cents to $50.93 at 4 p.m. in New York Stock Exchange composite trading. The shares have lost 1.1 percent this year. To contact the reporters on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net ; Dina Bass in Seattle at dbass2@bloomberg.net

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U.S. Stocks Climb as Buffett Defends Goldman, Economic Data Signal Growth

May 3, 2010

By Rita Nazareth May 3 (Bloomberg) — U.S. stocks gained, rebounding from the biggest weekly drop since January, as Warren Buffett defended Goldman Sachs Group Inc. , manufacturing grew at the fastest pace since 2004 and personal income and spending rose. Goldman Sachs rallied 2.6 percent after Buffett said the bank shouldn’t be blamed for losses on mortgage bets at the center of a Securities and Exchange Commission fraud lawsuit. United Airlines parent UAL Corp. and Continental Airlines Inc. gained after agreeing to combine. Apple Inc. advanced 2 percent after saying it sold 1 million iPads in the first month of the tablet computer’s release. The Standard & Poor’s 500 Index rose 0.7 percent to 1,194.46 at 11:21 a.m. in New York. The Dow Jones Industrial Average climbed 85.87 points, or 0.8 percent, to 11,093.48. “The economy is showing improvement,” said Peter Jankovskis , who helps manage about $1.8 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “Investors are reacting well to the personal income numbers. And we continue to see mergers. Also Warren Buffett’s comments on Goldman Sachs show that he’s doing a very responsible thing by not piling on pre-judging the situation.” Industrial shares had the biggest gain in the S&P 500, rising 1.4 percent collectively, after a gauge of U.S. manufacturing grew at the fastest pace since 2004. The Institute for Supply Management’s index of manufacturing rose to 60.4 in April from 59.6 a month earlier, according to the Tempe, Arizona-based group. Economists had forecast the gauge would rise to 60, according to a Bloomberg News survey. Manufacturers Gain Caterpillar Inc. , General Electric Co. and Boeing Co. gained at least 1 percent. U.S. stocks last week broke the Dow’s longest weekly winning streak since 2004 after credit downgrades for Greece, Portugal and Spain spurred concern that global economic growth will slow and prosecutors considered opening a fraud investigation against Goldman Sachs. Gains in European stocks were limited today on concern a 110 billion-euro ($146 billion) rescue package for Greece will fail to contain the region’s debt crisis. Consumer spending in the U.S. rose in March by the most in five months, pointing to a recovery that may accelerate when the economy creates more jobs. The 0.6 percent increase in purchases matched the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed. Incomes climbed for the first time this year, rising 0.3 percent. ‘Good Direction’ “Investors see that the U.S. is going towards a very good direction right now and they make the decision to invest more in the region as there is a currency risk in Europe,” said Andreas Lipkow , an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt. About 78 percent of S&P 500 companies that have reported since first-quarter results have topped the average analyst estimate for net income, according to data compiled by Bloomberg. Goldman Sachs, Wall Street’s most profitable firm, rose 2.6 percent to $148.99. Buffett, who invested $5 billion in the bank in 2008, praised Goldman Sachs Chief Executive Officer Lloyd Blankfein . “He’s done a great job running that firm,” Buffett said in a Bloomberg Television interview before the annual shareholders meeting of his Berkshire Hathaway Inc. on May 1. “My choice would be to have Lloyd running it this year, next year and 10 years from now.” Berkshire Hathaway Class B shares were up 0.9 percent to $77.70. Airlines Gain The NYSE Arca Airline Index rose 1.3 percent. UAL and Continental said they see net annual synergies from their merger of $1 billion to $1.2 billion by 2013, “including between $800 million and $900 million of incremental annual revenues.” UAL rose 2.6 percent to $22.15. Continental Airlines gained 1.8 percent to $22.75. Alaska Air Group Inc. advanced 6.9 percent to $44.25. The airline may rise as much as 40 percent as the traffic around Seattle and Hawaii improves, and industry consolidation leaves fewer competitors, Barron’s reported. Apple gained 2 percent to $266.39. The company sold its millionth iPad on April 30 as customers lined up to buy the latest version of the tablet computer with access to AT&T Inc.’s wireless network. The iPad 3G went on sale at 5 p.m. on Friday, 28 days after the original model, which could only connect to the Web via Wi-Fi, was released. The touch-screen tablet computer is selling faster than the iPhone, Chief Executive Officer Steve Jobs said today in a statement. iPad Sales The iPad’s initial sales may be beating some analysts’ estimates . Customers probably bought about 300,000 iPad 3G’s this weekend, Piper Jaffray & Co. analyst Gene Munster said in a note yesterday. He said that means total iPad sales this quarter will likely exceed the 1.3 million he had predicted. Dr Pepper Snapple Group Inc gained 4.1 percent to $34.07. The beverage company was raised to “buy” from “hold” at Stifel Nicolaus by equity analyst Mark Swartzberg . The 12-month price estimate is $38 per share. Pozen Inc. surged 5 percent to $11.39. The Food and Drug Administration approved the medicine, called Vimovo, for use in arthritis patients who are at risk of developing gastric ulcers, the agency said today in an e-mail. Dollar Thrifty Automotive Group Inc. surged 14 percent to $50.07. Avis Budget Group Inc. said it would like to make a “substantially higher” counteroffer to Hertz Global Holdings Inc.’s bid to acquire the rental-car company. Hertz fell 4.8 percent to $13.76, while Avis declined 2.1 percent to $14.80. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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U.S. Economy Grew at a 3.2% Pace in First Quarter as Consumers Spent More

April 30, 2010

By Timothy R. Homan April 30 (Bloomberg) — The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as households spent more freely, setting the stage for gains in employment that may help the recovery broaden and accelerate. The increase in gross domestic product was in line with the median estimate of economists surveyed by Bloomberg News and capped the biggest six-month gain since 2003, figures from the Commerce Department showed today in Washington. Consumer spending rose by the most in three years. Consumers may play a more prominent role in the recovery, increasing the odds of a sustained rebound, as growing sales at companies from General Electric Co. to Caterpillar Inc. promote hiring. The Federal Reserve’s preferred measure of inflation climbed at the slowest pace on record, highlighting why policy makers are pledging to keep interest rates low. “It was a very strong quarter for the consumer,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who accurately forecast the gain in GDP. “The important thing in the coming months is seeing employment starting to come back to give some income support.” Stock-index futures were little changed after the report. The contract on the Standard & Poor’s 500 Index was at 1,205.5 at 8:50 a.m. in New York compared with 1,205.3 at yesterday’s close. Employment Costs Employment expenses rose 0.6 percent in the first quarter as benefit costs climbed by the most since 2007, figures from the Labor Department also showed today. The rise in the employment cost index followed a 0.4 percent gain in the final three months of 2009. The economy was forecast to grow at a 3.3 percent annual pace, according to the median estimate of 85 economists surveyed. Projections ranged from gains of 1.8 percent to 4.5 percent. Following the 5.6 percent pace of growth in the fourth quarter of last year, the back-to-back gains marked the economy’s best performance since the second half of 2003. Consumer spending , which accounts for about 70 percent of the economy, rose at a 3.6 percent pace last quarter, compared with the 3.3 percent rate forecast by economists and a 1.6 percent gain in the prior three months. The increase was the biggest since the first quarter of 2007. Consumer Spending Spending added 2.55 percentage points to GDP. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974. “We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead , chief financial officer of Starbucks Corp., said in a telephone interview after the Seattle-based company announced earnings on April 21. Starbucks, the world’s largest coffee-shop operator, raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates. Household spending has “picked up recently,” Fed policy said this week in their April 28 statement announcing the benchmark interest rate would remain near zero. The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.6 percent annual pace, the lowest level since records began in 1959 and down from a 1.8 percent increase the prior quarter, today’s report showed. Fed Action “Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” policy makers said in this week’s statement. Efforts to stabilize inventories helped boost growth again last quarter, contributing 1.6 percentage points to GDP, today’s report showed. Business spending on new equipment advanced at a 13 percent pace last quarter after advancing at a 19 percent rate the previous three months, the biggest gain since 1998. Spending on structures, including office buildings and factories, dropped at a 14 percent pace in the first quarter. Business investment rather than consumer spending will drive the U.S. economic recovery as profits climb, GE’s Chief Executive Officer Jeffrey Immelt said this week. Immelt’s View “The clouds are breaking and the forecast ahead of us is promising,” Immelt told shareholders at an April 28 meeting in Houston. The company sees growth coming from emerging markets such as China, where it garnered $6 billion in sales last year, including about 40 percent from goods exported from the U.S. Immelt said he plans to hire more workers in the U.S. this year. Payrolls in the U.S. jumped by 162,000 last month, the most in three years, the Labor Department said April 2. Employers probably increased payrolls again this month, and the unemployment rate likely held at 9.7 percent, according to the median estimates of economists surveyed before a Labor Department report due May 7. Not all areas of the economy grew last quarter. A 3.8 percent slump in spending by state and local governments, the biggest drop since 1981, restrained growth. Outlays by federal agencies rose 1.4 percent. Housing Drops Home construction dropped for the first time in three quarters, falling at an 11 percent rate. The panel responsible for deciding when U.S. recessions begin and end said this month it’s too soon to declare the slump that began in December 2007 over. “Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature,” the Business Cycle Dating Committee of the National Bureau of Economic Research said in an April 12 statement. “Many indicators are quite preliminary at this time and will be revised in coming months,” the panel said. Today’s GDP report is the first for the quarter and will be revised in May and June as more information becomes available to the government. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Dendreon Advances the Most in Year After Winning Approval for Cancer Drug

April 29, 2010

By Catherine Larkin April 29 (Bloomberg) — Dendreon Corp. won approval for its first product, a vaccine to fight prostate cancer, after a three-year battle with U.S. regulators. The Food and Drug Administration cleared sales of the medicine, called Provenge, Shelly Burgess, a spokeswoman for the agency, said today in a telephone interview. Dendreon, of Seattle, submitted its application with the FDA in November 2006 and, after winning the backing of an advisory panel in 2007, was required to conduct another study to prove the drug worked. Provenge will be the first medicine to train the body’s immune system to attack cancer cells like a virus. More than 27,000 men die of prostate cancer each year in the U.S., according to American Cancer Society . Provenge may bring in $4.3 billion in annual sales by 2020, according George Farmer , an analyst with Canaccord Adams Inc. in New York. “Demand will be very high given the simplicity and convenience of administration combined with the extremely benign safety profile,” Farmer said in a research report today before the FDA’s decision was announced. Katherine Stueland , a spokeswoman for Dendreon, didn’t immediately return a telephone call for comment. Dendreon gained $5.88, or 15 percent, to $45.50 in Nasdaq Stock Market composite trading before shares were halted. Before today, the shares had gained 51 percent so far this year as investors looked ahead to the FDA decision, scheduled for May 1. Stock Volatility The historic volatility of the stock attracts traders and short sellers who seek short-term profits. Hedge funds own 27 percent of Dendreon shares, according to data compiled by Bloomberg. Provenge helped men whose prostate cancer had spread to other organs live four months longer in the 512-patient study released by the company in April 2009. The company had initially applied for approval based on an earlier study of 127 men that showed the drug improved survival and a second study of 98 men that failed to show a statistically significant benefit. The therapy involves extracting white blood cells from a patient, mixing them with vaccine components and injecting the combination back into the person. It is designed to be given earlier in treatment of the cancer and pose fewer side effects than chemotherapy. The FDA’s refusal to approve the drug in May 2007 based on the original data — even after the agency’s outside advisers voted 13-4 that it was “substantially effective” — sparked protests by patients and threats of a congressional probe. Sales Plans Dendreon Chief Executive Officer Mitchell Gold said Feb. 9 that the company will have three plants to make Provenge by mid- 2011 and 125 sales representatives. Production will be at full capacity within one year of approval, he said. Questions about manufacturing logistics and Dendreon’s ability to meet demand for Provenge have resulted in varying estimates for potential sales of the product. The drug will generate $1.2 billion by 2014, according to the average estimate of four estimates surveyed by Bloomberg. That year, Farmer projected Provenge would cost about $94,000 for each patient treated with a full course of the medicine. Provenge can generate $3.1 billion in 2014, he said. At least a dozen additional products that harness the immune system to battle tumors are in late-stage development and Provenge approval “would be an important validation to the field,” said Janice Reichert , a senior research fellow at the Tufts Center for the Study of Drug Development in Boston. “Provenge will certainly be a pioneer in that area,” Reichert said in an April 21 phone interview. “The experience will definitely inform the clinical development programs of other companies and other products.” The most advanced of these vaccines include Stimuvax from Merck KGaA in Darmstadt, Germany, and Oncothyreon Inc. in Seattle; ipilimumab from Bristol-Myers Squibb Co. in New York; and TroVax from Oxford BioMedica Plc in Oxford, United Kingdom. To contact the reporter on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net .

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Consumer Confidence in U.S. Rises to Highest Level Since ’08 on Job Gains

April 27, 2010

By Courtney Schlisserman April 27 (Bloomberg) — Consumers in the U.S. turned more optimistic in April as the growing economy raised hopes jobs will become available. The Conference Board’s confidence index rose to 57.9, exceeding all forecasts of economists surveyed by Bloomberg News and the highest level since Lehman Brothers Inc. collapsed in September 2008, according to data from the New York-based private research group. The measure averaged 97 during the last expansion. Americans’ outlook for the next six months climbed to the highest level since October 2007, two months before the recession began, as almost one in every five people polled thought the world’s largest economy and employment would improve. Another report showed home prices in the 12 months to February rose less than forecast, showing the housing market recovery will take time to unfold. “The sentiment numbers tell us the labor market is improving, suggesting the consumer is going to continue to spend,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, whose confidence estimate of 57 matched the highest. “We still don’t have any firm, underlying housing recovery in place yet.” Stocks fell, sending the Standard & Poor’s 500 Index down for a second day, on growing concern over the European debt crisis. The S&P index dropped 1.5 percent to 1,194.38 at 11:43 a.m. in New York. Treasury securities rose, reflecting demand for the safest of government securities, sending the yield on the benchmark 10-year note down to 3.68 percent from 3.81 percent late yesterday. Exceeds Forecasts The median forecast of 78 economists surveyed by Bloomberg projected the confidence index would rise to 53.5. Estimates ranged from 48 to 57. The Conference Board revised the March figure to 52.3 from a previous estimate of 52.5. Pessimism is starting to abate after employers boosted payrolls in three of the past five months. More job growth will be needed to spark bigger gains in confidence, incomes and spending, which accounts for about 70 percent of the economy. The Conference Board’s report stood in contrast to a preliminary survey by Reuters/ University of Michigan issued earlier this month, which showed sentiment unexpectedly dropped as Americans fretted about jobs and health care. Another report showed home prices climbed less than forecast, a sign the housing recovery will take time to develop. The S&P/Case-Shiller index of property values in 20 cities rose 0.6 percent in February from the same month last year. The median forecast of economists surveyed by Bloomberg projected a 1.3 percent advance. More Foreclosures Home prices in February were 30 percent below the peak reached in July 2006, the report showed. Mounting foreclosures are likely to pressure prices for much of the year. “The big plunge is over, but significant strength is unlikely,” said Jim O’Sullivan , chief economist at MF Global Ltd. in New York. “There is still a huge excess of vacant houses.” The Conference Board’s confidence measure of present conditions rose this month to the highest level since May. The gauge of expectations for the next six months jumped to 77.4 from 70.4. The share of respondents expecting more jobs to become available rose to a seven-month high of 18 percent from 14.1 percent. Nonetheless, the proportion of people who expect their incomes to rise over the next six months dropped to 10.3 percent from 10.8 percent. Employment Gains The labor market is showing signs of improving. Employers in March added 162,000 jobs, the most in three years, Labor Department figures showed April 2. Joblessness may still be slow to decline as the improving economy entices more people to re-enter the labor force. Economists surveyed by Bloomberg earlier this month project the unemployment rate , at 9.7 percent in March, will end the year at 9.4 percent. Federal Reserve Chairman Ben S. Bernanke told Congress on April 14 that high unemployment and weak construction were among the “significant restraints” on the pace of growth. At their March 16 meeting, central bankers said economic conditions are likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” The policy making Federal Open Market Committee meets today and tomorrow to discuss the course of interest rates. Spending Improves Americans are beginning to spend more. Consumer purchases probably rose at a 3.1 percent annual rate in the first three months of this year, almost double the fourth-quarter pace and the most in three years, according to a Bloomberg survey ahead of an April 30 report. The Commerce Department’s advanced figures on first-quarter gross domestic product will probably also show the nation’s economy grew at a 3.3 percent annual rate, according to the median forecast in a Bloomberg survey. Starbucks Corp. , the world’s largest coffee-shop operator, raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates. “We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead , chief financial officer of Starbucks, said in a telephone interview after the Seattle-based company announced earnings on April 21. Whirlpool Corp. , the world’s largest appliance maker, yesterday boosted its forecast for the year and said sales for the first quarter were 20 percent higher than a year earlier. To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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Consumer Spending in U.S. Probably Stepped Up, Carrying Expansion in 2010

April 24, 2010

By Timothy R. Homan April 25 (Bloomberg) — Consumer spending probably accelerated in the first quarter, shepherding the U.S. expansion into 2010, economists project a report this week will show. Gross domestic product grew at a 3.4 percent annual pace after increasing at a 5.6 percent rate in the last three months of 2009, according to the median estimate of 67 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years. “Jobs are the critical component of the entire scenario,” said Russell Price , a senior economist at Ameriprise Financial Inc. in Detroit. “The signs do point to impending employment gains.” Improving demand boosts the odds the recovery will be self- sustaining, benefiting companies such as Starbucks Corp. , as rising sales lead to additional hiring, which in turn fosters even more spending. A lack of inflation gives Federal Reserve policy makers the green light to keep interest rates low when they meet this week to ensure the world’s largest economy continues to grow. Central bankers will keep the target for the benchmark borrowing cost on overnight loans between banks near zero at the conclusion of their two-day meeting on April 28, economists surveyed forecast. Fed Chairman Ben S. Bernanke told Congress on April 14 that high unemployment and weak construction were among the “significant restraints” on the pace of growth. At their March 16 meeting, central bankers said economic conditions are likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” GDP Report The Commerce Department’s advance estimate of first-quarter GDP is due April 30. The world’s largest economy grew at the fastest pace in six years during the last three months of 2009 after expanding at a 2.2 percent rate in the third quarter. For all of 2009, the economy shrank 2.4 percent in 2009, the worst single-year performance since 1946. Consumer spending probably increased at a 3.1 percent annual rate last quarter, almost double the 1.6 percent pace of the previous three months, the GDP report is also projected to show. Households led the expansion last quarter, taking the baton from gains in production that reflected efforts to stabilize stockpiles. A swing to smaller inventory reductions accounted for 3.8 percentage points of growth in the fourth quarter. Inventory Boost That contribution, while diminished, probably continued last quarter as companies boosted stockpiles for the first time in two years, according to economists such as economist Aaron Smith of Moody’s Economy.com. Inventories climbed 0.5 percent in February, the fourth gain in five months, according to Commerce Department data. Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, is among those saying more jobs are a necessary component of a sustained recovery. Payrolls rose by 162,000 in March, the most in three years, the Labor Department reported April 2. The unemployment rate was 9.7 percent for a third month and has not increased since reaching a 26-year high of 10.1 percent in October. Stocks gained in the first quarter of the year on mounting signs the economic recovery was taking hold. The Standard & Poor’s 500 Index climbed 4.9 percent from January through March, and has increased 9.2 percent so far this month. Households may become more optimistic as the labor market improves. A Conference Board report on April 27 may show its measure of consumer confidence rose this month to 53.5 from 52.5, according to the survey median. The gauge averaged 45 in 2009, and 98 during the economic expansion that ended in December 2007. ‘Little Bit Better’ “We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead , chief financial officer of Starbucks, said in a telephone interview after the Seattle-based company announced earnings on April 21. Starbucks , the world’s largest coffee-shop operator, raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates. The chain’s sales at stores open at least a year advanced 7 percent in the U.S., driven by a 3 percent increase in the number of customer visits and a 5 percent jump in the amount of the average sale. Confidence measures may give conflicting signals this month. The Reuters/University of Michigan index of consumer sentiment for April probably fell to 71 from 73.6 the prior month, according to the survey median. The figures are due April 30. A preliminary reading earlier this month came in at 69.5. Signs of stabilization in the housing market may also help shore up confidence. A report from S&P/Case-Shiller, due April 27, may show home prices in 20 U.S. metropolitan areas increased 1.3 percent in February from a year earlier, the first year- over-year rise since December 2006, according to the survey median. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Amazon.com Second-Quarter Earnings Forecast Misses Estimates; Shares Fall

April 22, 2010

By Joseph Galante April 22 (Bloomberg) — Amazon.com Inc. predicted second- quarter earnings that missed analysts’ estimates, signaling the Web retailer isn’t benefiting from a rebounding economy as much as some investors had expected as competition intensifies. The stock fell as much as 7.1 percent in late trading after Amazon.com today said operating income will be $220 million to $320 million. Analysts in a Bloomberg survey predicted $322.2 million on average.      Strong earnings reports from competitors including Best Buy Co. and Apple Inc. had led investors to expect that Amazon.com would predict higher earnings, said Colin Gillis , an analyst at BGC Financial LP. The company is struggling to extract favorable pricing from its suppliers who, with improving demand, don’t have to offer it as many discounts, he said.     “The stock was priced for perfection, for a major earnings upside surprise,” said New York-based Gillis, who recommends selling the shares and said he doesn’t own any. Amazon.com, based in Seattle, dropped as much as $10.59 to $139.50 in late trading after closing at $150.09 on the Nasdaq Stock Market. The stock has climbed 90 percent in the past year, double the gain by the Standard & Poor’s 500 Index. First-quarter net income rose to $299 million, or 66 cents a share, from $177 million, or 41 cents, a year earlier. Analysts in a Bloomberg survey estimated 61 cents on average. Sales increased to $7.13 billion. Kindle Competition Revenue this quarter will be $6.1 billion to $6.7 billion, Amazon.com said. Analysts had predicted $6.84 billion on average for the first quarter and $6.4 billion for the second quarter. Amazon.com, which started about 15 years ago as an online book retailer, is facing tougher competition from rivals such as Apple as consumers shift to digital music and books as well as downloadable movies. “Amazon is not likely to experience the same profitability and leadership position in digital media that it enjoys selling physical books, movies and music,” Gillis said before the earnings report. Amazon.com began selling its Kindle digital reader in about 100 Target Corp. stores this week to fend off rival products from Apple and Sony Corp. Apple’s iPad, introduced this month, lets users browse the Web, watch videos and read e-books. Sony also makes e-readers, which consumers can buy at 10,000 U.S. retail stores including Target, Staples Inc. and Costco Wholesale Corp. International Sales Amazon.com introduced the Kindle in 2007 and gained dominance of the market for electronic books amid a dearth of competing devices. The iPad, which lets users buy books from Apple’s online store, sold more than 500,000 devices in the first week after its U.S. debut, exceeding Apple’s expectations. Amazon.com controls about 90 percent of e-book sales, according to estimates by Credit Suisse Group AG. The iPad and other devices will cut its share to about 72 percent this year, Credit Suisse said. Amazon.com said sales in North America increased 47 percent to $3.78 billion last quarter. Sales from international operations , including those in the U.K., Germany, Japan, France and China, rose 45 percent to $3.35 billion. Global media sales, which includes books and digital music, advanced 26 percent to $3.43 billion. To spur sales of other merchandise, Amazon.com has expanded membership in Amazon Prime, which lets consumers get expedited shipping on items for $79 a year. The program is an important growth driver for the company, according to Jim Friedland , an analyst at Cowen & Co. The retailer has also added Lucky Brand, Levi’s and 7 For All Mankind jeans to the site. “It was a strong quarter but expectations were fairly high for Amazon,” said Aaron Kessler , an analyst for Kaufman Bros. in San Francisco. He recommends buying the stock and said he doesn’t own it. To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

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Microsoft Sales Miss Some Estimates in Sign Companies Delaying PC Spending

April 22, 2010

By Dina Bass April 22 (Bloomberg) — Microsoft Corp., the world’s largest software maker, reported third-quarter revenue that missed analysts’ most optimistic predictions, a sign that corporate customers may be putting off computer buying. Sales rose 6.3 percent to $14.5 billion, compared with analysts’ estimates that were as high as $14.8 billion for the quarter that ended March 31. Shares fell in late trading. While Microsoft’s Windows business has benefited from increased consumer demand for personal computers, corporations have hung back, avoiding purchases of new machines and long-term contracts. Investors held out for added evidence of a spending resurgence after chipmaker Intel Corp. last week forecast rising sales this quarter and record profit margins for 2010. “Expectations were for more, given the strength we’ve seen in PC sales,” Brendan Barnicle , an analyst at Pacific Crest Securities, said in an interview from Portland, Oregon. He rates the shares “outperform” and said he doesn’t own them. Microsoft fell $1.02, or 3.3 percent, to $30.37 in extended trading after the report. The shares had risen 6 cents to $31.39 at 4 p.m. New York time on the Nasdaq Stock Market . The stock fell 3.9 percent last quarter, while the Standard and Poor’s 500 Index rose 4.9 percent. Third-quarter net income rose 35 percent to $4.01 billion, or 45 cents a share, beating the average forecast of 42 cents in a Bloomberg survey of analysts. Sales exceeded the $14.4 billion average in the survey, reflecting rising demand for Windows 7, the latest version of Microsoft’s flagship operating system. Putting Off Orders Still, some companies are reluctant to place orders that stretch over years. Unearned revenue, a measure of multiyear contracts, was $12.3 billion. Analysts’ average estimate was $12.8 billion, according to Katherine Egbert , an analyst at Jefferies & Co. In January, Microsoft reported second-quarter profit that beat analysts’ estimates by 15 cents. “The deferred revenue was lower than expected, suggesting that enterprise spending is still just beginning to recover,” said Sarah Friar , a San Francisco-based analyst for Goldman Sachs Group who has a “buy” rating on Microsoft. “Enterprise spending is still making its way out of the downturn.” Microsoft said operating expenses for the year ending June 30 will be $26.1 billion to $26.3 billion, compared with a January prediction of $26.2 billion to $26.5 billion. Microsoft no longer provides forecasts for sales and profit. Mixed Bag “Consumer demand is still strong, but we also saw for the first time growth in business hardware spending,” said Peter Klein , Microsoft’s chief financial officer, in an interview. Yet, it’s still taking longer to close multiyear deals. The company did have growth in billings for multiyear agreements, he said. “We are starting to fill that pipeline,” he said. “I think it will resolve itself over time.” In the third quarter a year ago, net income was $2.98 billion, or 33 cents a share, on sales of $13.6 billion. Technology bellwethers reporting earnings in recent weeks have given a mixed picture of the rebound in technology spending. Oracle Corp., the second-biggest software maker behind Microsoft, last month forecast the fastest sales growth for new software licenses since mid-2008. Intel , the world’s biggest chipmaker, last week indicated that recovery may be gathering steam with a forecast for rising sales this quarter. “People had thought there would be closer correlation between what Intel said about PC demand and PC outlook” and Microsoft’s results, said Sasa Zorovic , a Boston-based analyst with Janney Montgomery Scott LLC. “That doesn’t seem to be the case.” He rates the shares “neutral.” Office Still, International Business Machines Corp. reported a drop in services signings, showing corporate spending on larger technology projects hasn’t picked up yet. Microsoft Business Division revenue, mostly from Office productivity software, fell 5.9 percent to $4.24 billion as some customers held off purchases before Microsoft begins rolling out a new version next month. Server software sales were $3.58 billion, missing estimates from Goldman Sachs and UBS AG. While sales of server computers have started to recover, it will take longer for sales of Microsoft’s related software to come back, Microsoft’s Klein said. Information-technology spending will climb 1.7 percent in 2010, after dropping 3.1 percent last year, according to an estimate from Morgan Stanley. Personal-computer shipments rose 27 percent last quarter, according to Gartner Inc. The PC market bounced back from the year-earlier period, when the recession dragged down shipments almost 7 percent — the worst performance since 2001, according to market research firm IDC. Business, Bing Revenue in Microsoft’s Business Division was reduced as the company deferred some sales to a future quarter. The company gave customers who have purchased older versions of Office the right to upgrade to the new version, Office 2010, which is available to businesses next month. It hits stores in June. Online advertising revenue rose 19 percent as search and graphical display ad markets recovered, Klein said. Sales in the company’s online business rose 11.6 percent to $566 million. Microsoft’s Bing search engine has increased the company’s share of searches by 3.7 percentage points since Microsoft overhauled the product in June, according to research firm ComScore Inc. Microsoft had 11.7 percent of the U.S. search market in March, compared with 65.1 percent for Google Inc. and 16.9 percent for Yahoo! Inc., according to ComScore. To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

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Microsoft’s Profit Gains 35% as Companies Buy Machines With Latest Windows

April 22, 2010

By Dina Bass April 22 (Bloomberg) — Microsoft Corp., the world’s largest software maker, said third-quarter profit rose 35 percent as companies stepped up spending on computers running the new version of the Windows operating system. Third-quarter net income rose to $4.01 billion, or 45 cents a share, beating the 42 cent average estimate of analysts surveyed by Bloomberg. Revenue increased 6.3 percent to $14.5 billion, the company said today in a statement. Business customers bought machines sporting Windows 7, validating remarks in March by Microsoft Chief Financial Officer Peter Klein , who said the fiscal second half would mark the start of “a return to growth” in corporate spending on software and computers. Personal-computer shipments rose 27 percent last quarter, according to Gartner Inc. “PC sales have been fairly strong — pretty much better than expected,” said Sid Parakh , an analyst at McAdams Wright Ragen in Seattle, who recommends buying Microsoft shares. “A lot of it has been driven by consumers but at the same time there have been indications some businesses are going out and refreshing their PCs.” Microsoft, based in Redmond, Washington, said operating expenses for the year ending June 30 will be $26.1 billion to $26.3 billion, compared with a January prediction of $26.2 billion to $26.5 billion. Microsoft no longer provides forecasts for sales and profit. Revenue Deferred revenue, a measure of multi-year contracts, was $12.3 billion, below some analysts’ predictions. Analysts had projected total sales of $14.4 billion for the last quarter, which ended March 31. A year earlier, net income was $2.98 billion, or 33 cents a share, on sales of $13.6 billion. Net income in that period included severance costs and impairments to investments. Microsoft rose 6 cents to $31.39 at 4 p.m. New York time on the Nasdaq Stock Market. The stock fell 3.9 percent last quarter, while the Standard and Poor’s 500 Index rose 4.9 percent. In the second quarter, Microsoft beat analysts’ estimates for profit by 15 cents a year. Yet the company raised investors’ concerns by saying that gains were fueled by consumer demand as business demand remained sluggish. Shares fell the day after the report. Technology bellwethers reporting earnings in recent weeks have given a mixed picture of the rebound in technology spending. Intel Corp., the world’s biggest chipmaker, last week indicated that recovery may be gathering steam with a forecast for rising sales this quarter. Intel’s View Intel Chief Executive Officer Paul Otellini told analysts corporate executives are starting to replace aging machines. Oracle Corp., the second-biggest software maker behind Microsoft, last month forecast the fastest sales growth for new software licenses since mid-2008. Still, International Business Machines Corp. shares dropped yesterday after the company reported a drop in services signings, showing corporate spending on larger technology projects hasn’t picked up yet. Information-technology spending will climb 1.7 percent in 2010, after dropping 3.1 percent last year, according to an estimate from Morgan Stanley. “It will be a gradual business cycle — it’s not something that happens in a single quarter,” Parakh said. “It will be something that that goes on for a year or two, but it’s important because Microsoft gets significant uplift from the business versions of Windows.” PC Shipments The first-quarter 27 percent jump in PC shipments topped Gartner’s prediction of a 22 percent rise. The PC market bounced back from the year-earlier period, when the recession dragged down shipments almost 7 percent — the worst performance since 2001, according to market research firm IDC. Revenue in Microsoft’s Business Division was reduced as the company deferred some sales to a future quarter. The company gave customers who have purchased older versions of Office the right to upgrade to the new version, Office 2010, which is available to businesses next month. It hits stores in June. Microsoft’s Bing search engine has increased the company’s share of searches by 3.7 percentage points since Microsoft overhauled the product in June, according to research firm ComScore Inc. Microsoft had 11.7 percent of the U.S. search market in March, compared with 65.1 percent for Google Inc. and 16.9 percent for Yahoo! Inc., according to ComScore. To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

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Blackstone Said to Weigh Restructuring $4.9 Billion of Equity Office Debt

April 22, 2010

By Sarah Mulholland and Hui-yong Yu April 22 (Bloomberg) — Blackstone Group LP may ask creditors to restructure $4.94 billion of debt remaining from its 2007 purchase of Sam Zell’s Equity Office Properties Trust, according to two people familiar with the discussions. Blackstone would consider paying down about 5 percent of the balance and agreeing to a slightly higher interest rate in exchange for extending the maturity, according to the people, who declined to be identified because the talks are private. The debt, which was packaged and sold as a commercial mortgage- backed bond in June 2007, matures in 2012, according to data compiled by Bloomberg. While U.S. commercial property values have fallen almost 42 percent since 2007 , the Blackstone properties are generating enough cash to pay the mortgages, according to the data. The private equity firm led by Chairman and Chief Executive Officer Stephen Schwarzman acquired the real estate in 2007 in a $39 billion leveraged buyout, the biggest to date at that time, and immediately started selling buildings to other investors. “By today’s standards, they overpaid,” said Tom Craig , founder of the commercial property brokerage TSC Real Estate in Seattle. “Even though Blackstone was able to dispose of a good number of those assets, there are still some they didn’t sell.” A restructuring would require transferring the loan, comprised of debt on 145 U.S. properties, to a special servicer Bank of America Corp. to negotiate changes, the people said. Blackstone spokesman Peter Rose yesterday declined to comment. Verizon Building A mortgage on the Verizon Building in Manhattan makes up the biggest single piece of the EOP bond, accounting for $266.67 million of the issue. Other buildings tied to the offering include 500 Boylston St. and 60 State St. in Boston. Properties in Chicago; Santa Monica, California; and Stamford, Connecticut, are also included, according to Bloomberg data. Blackstone, based in New York, took control of more than 540 Equity Office properties from New York to Los Angeles near the peak of the U.S. commercial property market. It began to dismantle the holdings immediately, arranging at least $21 billion of sales within a month as it raised cash to reduce debt taken on for the buyout. Some investors who bought from Blackstone lost money when the credit crisis prevented them from refinancing. New York developer Harry Macklowe turned seven Manhattan office buildings over to lender Deutsche Bank AG because he couldn’t get new mortgages to replace the $7 billion in short- term loans used to acquire the properties. Flipping Properties The same month Blackstone bought EOP, Maguire Properties Inc. agreed to pay about $2.88 billion for Zell’s Southern California buildings. In November of 2009, Bank of America sued Maguire, the largest office landlord in downtown Los Angeles, seeking to foreclose on one of the buildings after the company missed $1.68 million in payments, according to the complaint. Morgan Stanley bought seven office buildings and a development parcel in San Francisco from Blackstone for more than $2.43 billion in April of 2007. In 2009, Morgan Stanley agreed to give five of those office buildings to the lender. Blackstone also sold EOP real estate Seattle, including 17 office buildings to Boston-based Beacon Capital Partners in 2007. Additional EOP sales were made in Diego and Portland, Oregon. Blackstone, the world’s biggest private-equity company, today reported a first-quarter profit of $360.4 million as the value of its private-equity investments rose and deal-making accelerated. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net ; Hui-yong Yu in Seattle at hyu@bloomberg.net

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Boeing Profit Drops 15% on Lost Health-Care Tax Benefit, Fewer Deliveries

April 21, 2010

By Susanna Ray April 21 (Bloomberg) — Boeing Co. ’s first-quarter profit declined 15 percent after the world’s largest aerospace and defense company lost a health-care tax benefit and delivered fewer aircraft. Net income fell to $519 million, or 70 cents a share, from $610 million, or 86 cents, in the year-earlier quarter, Chicago- based Boeing said in a statement today. The results beat the 64- cent average estimate of 20 analysts surveyed by Bloomberg. Sales declined 7.8 percent to $15.2 billion. Chief Financial Officer James Bell said in January that the first quarter of 2010 would be the year’s weakest. Deliveries dropped by 11 percent to 108 after Boeing stopped shipping jumbo jets while building a new 747 variant and some planes were delayed because of defective seats from a supplier. A $150 million charge reduced earnings by 20 cents a share after Boeing lost a tax benefit under the new U.S. health-care reform law. “We believe that Boeing is benefiting from a multi-year economic recovery in demand for aircraft and that it is also making steady progress towards retiring risks in its new development programs,” Joseph Campbell , a Barclays Capital analyst, said in an April 16 note.     The health-care charge has reduced the company’s earnings forecast for the year to $3.50 to $3.80 a share, Boeing said today. The previous forecast, on Jan. 27, was for profit of $3.70 to $4 a share, up from $1.84 in 2009. Bell said at the time that the first quarter would make up 15 to 20 percent of full-year earnings. Orders Outlook Boeing rose 9 cents to $71.50 at 7:50 a.m., before the regular open of New York Stock Exchange composite trading . The shares have surged 95 percent in the past year. Orders may benefit from airline passenger traffic growth, which will be at the upper end of a forecast of 3 percent to 5 percent this year, Randy Tinseth , the company’s marketing chief, said in an interview last week. Boeing said today that revenue will grow next year, from an expected $64 billion to $66 billion in 2010. Last year’s 142 net orders were a 15-year-low. The company plans to restore production next year after cutting it this year because of a drop in air travel during the recession. To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net .

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Morgan Stanley Said to Have Lost 61% of $8.8 Billion Global Property Fund

April 14, 2010

By Hui-yong Yu April 14 (Bloomberg) — Morgan Stanley , which once ran the biggest property-investment arm among Wall Street banks, expects to lose $5.4 billion, or 61 percent, of its $8.8 billion global fund from 2007, said a person familiar with the situation. The firm sent a fourth-quarter update to investors in recent weeks showing the fund was likely to recover $3.4 billion of the investment, said the person, who declined to be identified because the information wasn’t public. A spokesman for New York-based Morgan Stanley declined to comment. Morgan Stanley raised the fund, Morgan Stanley Real Estate Fund VI International, toward the end of the property surge when market prices were at or near the peak . At the time, it was the largest private fund ever raised targeting high-return real estate investments. The expected loss was reported yesterday by the Wall Street Journal. Morgan Stanley invested its 2007 fund around the world, including Asia and Europe. In the U.S., the firm defaulted last year on a $2 billion loan to buy Crescent Real Estate Equities Co. in 2007 and handed over 17 million square feet of office buildings to lender Barclays Capital. Morgan Stanley agreed in 2009 to relinquish five San Francisco office buildings to its lender, two years after buying them from Blackstone Group LP . Once the second-largest U.S. securities firm, Morgan Stanley converted to a bank holding company in September 2008 and accepted $10 billion of government bailout funds to survive the credit crisis. To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

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WaMu Executives Knew Of Rampant Mortgage Fraud And Failed To Act

April 12, 2010

One of the central unanswered questions of the financial crisis is whether bank executives knew fraud was rampant within their mortgage loans. A Senate committee tomorrow will present evidence that in the case of Washington Mutual Bank, the largest bank failure in history, executives knew about the fraud – and in some cases failed to take much corrective action. By doing nothing, the bank could report higher profits and employees could earn higher bonuses. So far no criminal charges have been brought against any senior executives as a direct result of the subprime meltdown. And today Sen. Carl Levin, the Michigan Democrat who will chair the hearing, sidestepped questions about whether Washington Mutual executives broke criminal laws. But Levin’s committee has unearthed documents that show that in 2005, WaMu’s own internal investigation of two top-producing offices making subprime loans in southern California found that fraud was out of control. At one office in Downey, Calif., 58 percent of mortgages were found to be fraudulent. At an office in Montebello, Calif., the rate was even higher: 83 percent. Yet “no steps were taken to address the problems, and no investors who purchased loans originated by those offices were notified in 2005 of the loan problems,” Levin’s Permanent Subcommittee on Investigations stated in a report released in advance of the hearing. (A summary of the committee’s findings are here) Some problems persisted two years later. A follow-up internal review of the bank’s Montebello operation, in 2007, still found a fraud rate of 62 percent. The results of WaMu’s 2005 internal investigation were sent directly to David Schneider, president of Home Loans. A committee aide said it was also shared with Kerry Killinger, Washington Mutual’s president, chief executive officer and chairman at the time. Examples of fraud found included phony identifications for borrowers, buyers who acted as fronts for real buyers and phony credit histories. An internal report concluded, “Throughout the process, red flags were over-looked, process requirements were waived, and exceptions to policy were granted.” A report by the Huffington Post Investigative Fund found similar problems, including reports that supervisors approved loans even after staff tried to raise red flags. The story detailed how management practices at Washington Mutual became an invitation for fraud. Within Long Beach Mortgage, former employees described how some sales people taught brokers how to break the rules, including using fake and forged documents. The committee found evidence in one Long Beach Mortgage office that sales people sometimes cut and pasted borrowers’ names on false bank statements. As a result of shoddy lending practices, Washington Mutual had default rates on loans it sold to Wall Street as high as 57 percent on a subprime security it sold in 2007, the committee found. Killinger and Schneider, as well as former president and chief operating officer Stephen Rotella, are scheduled to testify tomorrow. They are expected to say that they took steps to try to correct problems with their subprime loans. Killinger is also expected to say that his bank was on the mend and could have survived had regulators not shut it down in the midst of a run on deposit in September 2008. In September 2008, Washington Mutual assets were sold to JP Morgan Chase for a pittance — $1.9 billion for a $300 billion company. But WaMu had $188 billion in assets and regulators risked wiping out the FDIC’s $45 billion insurance pool it they hadn’t stepped in, a committee aide said. Levin said Washington Mutual’s failure was caused by greed. “They decided they would make more profits if they went for the high-risk loans,” Levin said. “We all paid the price.” In a memo, Levin described Washington Mutual’s story as “emblematic” of practices common to mortgage lenders from 2004 to 2008. For most of its history, Washington Mutual had a reputation as a conservative Seattle-based thrift. Its homey motto was, “Friend of the Family.” But as the Huffington Post Investigative Fund and the Seattle Times reported last year, Killinger made a radical shift in business strategy in 2003, when rising interest rates killed the market for plain-vanilla 30-year fixed-rate loans. He decided to forego marginally profitable conventional loans and aggressively sell high-risk exotic loans, such as subprime, home-equity and Option ARM mortgages. According to a slide given later at a board meeting, WaMu management showed the bank could make nearly eight times the profit on a subprime loan than on a conventional mortgage. Killinger promoted the so-called “Option ARM” loan to its flagship product, because it was so profitable. This prime loan offered a low teaser rate but most borrowers fell further into debt with each payment, because one option was to pay even less than the interest charge. A focus group convened by Washington Mutual in 2003 showed that people who had Option ARMs didn’t understand them. The committee found evidence that sales people were trained to convince borrowers that they could simple refinance if they ran into trouble, because housing prices were soaring. To sell these high-risk loans, Washington Mutual paid huge commissions to mortgage brokers and loan officers. The worst the terms of the loan for the borrower, the better the commission. Washington Mutual also loosened its lending standards, allowing borrowers who couldn’t repay a loan to get one and offering loans to people with no need to prove their income. These mortgages, common in the industry, were dubbed “liar’s loans.” WaMu’s worst problems were in its subprime unit, Long Beach Mortgage, which it acquired in 1999. Long Beach Mortgage had among the worst default rates on loans in the industry, so bad that AIG at one point refused to insure their mortgage-backed securities. In 2003, Washington Mutual halted the sale of Long Beach Mortgage loans to Wall Street in 2003 and sent in a legal team for three months to try to fix problems. In a 2006 email, Rotello said of the unit, “We are cleaning up a mess.” Yet sales of subprime mortgages soared in those years. In 2002, Washington Mutual sold $3.6 billion in subprime loans to Wall Street. By 2006, sales hit $29 billion. Its most popular subprime loans used low “teaser” rates for the first two or three years, but those rates shot up dramatically when the teaser expired. Many borrowers were caught in loans on which they couldn’t make the monthly payment, unless they refinanced into another teaser rate. By 2007, bank regulators offered a non-binding guidance to stop this practice. When Washington Mutual ran the numbers, according to a March 2007 email, it found that it would lose 33 percent of its business if it went along with the regulators’ guidance. A committee aide said that the Office of Thrift Supervision allowed Washington Mutual to delay implementing the new rules for a year. Justice Department sources say they have been investigating Washington Mutual for months. But fraud cases against senior management are difficult to prove. Evidence to be presented at the hearing will show that Washington Mutual took steps to suggest they were trying to fix problems. But the fixes didn’t work. As one committee aide said, “If they really intended to clean it up, why couldn’t they get it done?” People selling the mortgage were getting huge bonuses and free trips to Hawaii for high volume lending. Washington Mutual’s chief risk officer – who was supposed to control risk – had 35 percent of her paid tied to growth and only 25 percent tied to risk management. And Killinger himself made more than $103 million from 2003 to 2008, making $25 million alone the year his bank died. Levin said a decision will be made after four hearings on Washington Mutual in the next two weeks as to whether to make a criminal referral to the Justice Department. Follow the Huffington Post Investigative Fund on Twitter or fan us on Facebook . Do you have information about this story? Send us a tip or submit a correction . REPUBLISH THIS STORY FOR FREE: The Huffington Post Investigative Fund licenses its content through Creative Commons. We encourage you to republish our stories in full with proper attribution.

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Leo W. Gerard: Wrongful Fatalities, Failed Worker Protections

April 9, 2010

In both cases – the five fatalities in a Washington oil refinery last Friday and the 25 deaths (and four still missing as of writing) in a West Virginia coal mine the following Monday – news reports described the explosions that killed workers as industrial “accidents.” When an explosion occurs at a refinery or mine that has been repeatedly fined for heath and safety violations, one question that ought to be asked is just how unexpected was the event. Answering this question is essential because: less time plus less money spent on safety measures equals more profit for owners. America must introduce new factors into that computation to protect the lives and limbs of workers who produce the energy on which this country depends. One factor is larger safety violation penalties – fines and shutdowns costly enough to outstrip profitability. And when corporations consider fines just another cost of doing business, another crucial factor is the ability to charge CEOs with criminal negligence when their corporations flagrantly violate safety regulations – an ability that other countries have written into law. As it stands now, corporations have discovered that they can continue profiting even after unconscionable disasters. Take BP for example. In 2005, a massive blast at the BP Texas City refinery killed 15 and injured 180. Business Week noted that BP continued to turn a profit every year after the Texas catastrophe, even though it paid more than $2 billion for legal costs and fines and for remediation programs at its U.S. refineries. Regulatory agencies have repeatedly cited and fined both Tesoro, which operates the Anacortes, Wash. refinery where an explosion killed five workers and severely burned two last week, and Massey Energy Co., which owns the Upper Big Branch mine in Montcoal, W.Va., where 25 miners are dead and four missing. Since 2005, regulators cited Massey’s Upper Big Branch Mine 1,342 times for safety infractions and charged Massey $1.89 million in fines , $1.3 million of which Massey is contesting. Of the violations, 86 were for failing to obey a ventilation plan to control explosive methane gas and coal dust. These are the very factors suspected in Monday’s deadly blast. Regulators issued 12 of those citations in the past month, and miners told the New York Times that dangerous gas accumulation forced evacuations of the mine several times in recent weeks. Regulators found two violations on Monday , before the explosion. In January, agencies imposed the largest fines in the mine’s history for two violations, including one case in which a mine foreman admitted he’d known of a ventilation problem for three weeks. In 2008, Massey paid what federal prosecutors said was the largest settlement in the history of the coal industry — $4.2 million in criminal fines and civil penalties — after a subsidiary pleaded guilty to criminal mine safety violations for a January, 2006 fire that killed two workers in Massey’s Aracoma Alma No. 1 Mine. In addition those deaths at a Massey mine and the 25 killed Monday at Upper Big Branch, three other miners died at the Upper Big Branch mine since 1998. The Charleston Gazette reported : “In seven of the last 10 years, the mine has recorded a non-fatal injury rate worse than the national average for similar operations, according to MSHA statistics.” Serious safety concerns prompted federal investigators to temporarily halt work in portions of the Upper Big Branch mine more than 60 times since the start of 2009, the Pittsburgh Post-Gazette reported after reviewing U.S. Mine Safety and Health Administration records. Safety was such a crisis at the Upper Big Branch mine that MSHA sent Massey a letter on Dec. 6, 2007 warning that its serious violations over the previous two years were so far above average that the mine could be designated as a pattern violator and subjected to stricter federal oversight, the New York Times reported . The letter noted that in 2006 and 2007 MSHA had found nearly twice the national average of serious violations at the mine. Within three months, the mine reduced the number by a third, escaping the extra scrutiny. Still, the total remained above the national average. The citations and fines do not seem to faze Massey CEO Don Blankenship. He told a radio station: “Violations are unfortunately a normal part of the mining process.” He also previously told Forbes: “We don’t pay much attention to the violation count.” Despite the deaths, all of the violations and the fines, the Massey Energy web site defends the company safety record, contending that 2009 was the 17th year out of 20 that the company scored above the industry average for safety — this assertion although the number of safety violations in 2009 doubled from the previous year, totaled 458 and included 50 citations for breaches Massey, the nation’s fourth largest coal company, knew existed but failed to correct. Just like Massey, Tesoro claims that its safety record has improved – despite citations and fines and five deaths Friday. In the company fact sheet, Tesoro said its recordable injury rates have declined by 30 percent over three years. The Washington state Department of Labor and Industry fined Tesoro $85,700 a year ago for 17 serious health and safety violations. These are violations with the potential to cause serious injury or death. In addition, the department found 150 safety deficiencies at the Anacortes, Wash., refinery. Tesoro appealed and got all but three of the most serious violations thrown out and the fine reduced to $12,500. The settlement required Tesoro to hire a safety consultant to examine the refinery. That consultant began work at the plant last month. Immediately after the five refinery workers died, the American Petroleum Institute and the National Petrochemical and Refiners Association jumped to defend refining safety . Before funerals were held and with two workers still hospitalized with life-threatening burns, the Petroleum Institute complained that the industry wasn’t getting credit for health and safety improvements. And the National Petrochemical and Refiners Association contended that the industry has lower injury rates than manufacturing generally. The problem with their numbers is that they mingle deaths with OSHA counts of slips and falls – taking the focus off incidents like the fire ball that killed the five Tesoro workers, or the blast that killed 15 at Texas City, or the explosion at another refinery in Anacortes in 1998 that killed six workers. Also, they don’t want to count injuries to or deaths of subcontractors who refineries often hire to perform dangerous maintenance work . At Tesoro , a contractor was crushed to death in 2002 and three contract workers were hospitalized in 2006 for exposure to naphtha. In addition, the OSHA numbers used by the refining industry associations exclude explosions and fires at refineries that had the potential to maim and kill both workers and community members but, instead, miraculously resulted only in “close calls.” OSHA Assistant Secretary David Michaels contradicted the refining industry association safety assertions, saying: “The petroleum industry has a long way to go before we can feel comfortable that workers there are adequately protected.” Similarly, Daniel Horowitz, a Chemical Safety Board spokesman, told the Seattle Times , a disproportionate number of incidents occurred at the 150 refineries in the U.S., compared with infractions at tens of thousands of chemical plants handling other hazardous materials. Of the 18 cases the Chemical Safety Board is investigating, seven involve oil refineries. Republicans and Tea Partiers are running around like Chicken Little screaming that government is too big. Thirty workers killed in explosions in four days is what happens when government is too small, when right-wing strategists like Grover Norquist have gotten their way and shrunk regulatory agencies to a size where they can be drowned in a bathtub. Like the Wall Street CEOs who recklessly speculated with America’s economy for their personal profit, industrial CEOs have carelessly gambled with worker’s lives for personal gain. The “free market” doesn’t control that immoral behavior. Government must do it. And when it does, it must have the power to impose fines or workplace shut downs that will damage the bottom lines of CEOs who care about nothing else. And it must have the power to criminally charge and potentially imprison CEOs, treating them the same as drunk drivers who risk other peoples’ lives. In 1946, a group of miners from Illinois wrote their governor seeking his help in enforcing regulations against dangerous coal dust accumulation in a Centralia Coal Co. mine. They wrote: “In fact, Governor Green, this is a plea to you, to please save our lives.” The Centralia Coal Co., despite being cited for violations, didn’t acknowledge a problem. On March 25, 1947, a coal dust explosion killed 111 Centralia miners, including three of the four who sent the letter. Woody Guthrie wrote the song, “The Dying Miner” after the Centralia explosion, including these lyrics: “I can hear the moans and groans, More than a hundred good men. Just work and fight and try to see, That this never happens again.” More than a half century later, the protections and enforcement for miners, steelworkers, refinery workers, paper workers and others remain inadequate. The proof is that the explosions and deaths continue to occur over and over again. The slaughter must stop now. Workers go to jobs to earn their daily bread. They don’t go to die.

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Gold Surges to Four-Month High on Demand for Hedge Against Currency Risk

April 9, 2010

By Pham-Duy Nguyen April 9 (Bloomberg) — Gold climbed to a 12-week high in New York, set for the biggest weekly gain since February, as investors sought a hedge against holding cash. The dollar fell as much as 0.6 percent against a basket of six major currencies. The euro headed for a weekly loss against the greenback on mounting speculation that Greece will default on its debt. Gold priced in euros and Swiss francs reached records. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, climbed to a record. “When people are uncertain about their domestic currencies, they buy precious metals as a safe haven,” said Stephen Platt , an Archer Financial Services commodity analyst in Chicago. “Gold’s gains reflect a global flow out of paper assets. This is a major force in the gold market.” Gold futures for June delivery rose $6.60, or 0.6 percent, to $1,159.50 an ounce at 10:55 a.m. on the Comex in New York, up 3 percent this week, the most since Feb. 12. Earlier, the most- active contract touched $1,160.70, the highest price since Jan. 11. Holdings in the SPDR Gold Trust, the largest ETF backed by the metal, rose 9.7 metric tons to 1,140.43 tons yesterday, according to the company’s Web site. The fund’s net asset value was $42.09 billion as of yesterday, its Web site showed. Concerns over Greece’s budget deficit pulled the euro down 6.7 percent this year against the dollar, before today. Gold reached a record 865.024 euros today and climbed to an all-time high of 1,243.378 Swiss francs. Easy Money Gold rose 24 percent in 2009 as the Federal Reserve kept interest rates close to zero to revive the U.S. economy. The European Central Bank’s benchmark rate has remained at 1 percent since May, helping push the euro up 2.5 percent against the dollar last year. Gold reached a record $1,227.50 on Dec. 3. Gold has decoupled from the dollar since at least the end of March, according to analysts at Deutsche Bank AG. Usually, gold falls when the dollar gains against the European currency. If the correlation re-establishes itself before July, either the dollar must continue to decline or investment into bullion-backed funds must pick up, the Deutsche Bank said. Also in New York, silver futures for May delivery rose 27.3 cents, or 1.5 percent, to $18.40 an ounce on the Comex. The metal is headed for a 2.9 percent gain for the week. Platinum futures for July delivery climbed $8.40, or 0.5 percent, to $1,725.50 an ounce on the New York Mercantile Exchange, heading for a 3 percent weekly increase. June palladium futures jumped $7.10, or 1.4 percent, to $510.60 an ounce on the Nymex. A close at that price would put the metal up 3.9 percent for the week. To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .

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