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U.S. Consumer Confidence at Highest Level Since 2008, Michigan Index Shows

June 11, 2010

By Shobhana Chandra June 11 (Bloomberg) — Confidence among U.S. consumers rose in June to the highest level in more than two years, a private survey showed. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment increased to 75.5, the highest since January 2008, from 73.6 in May. The gauge was projected to rise to 74.5, according to the median forecast in a Bloomberg News survey of 65 economists. The figure shows the slump in stock prices sparked by Europe’s debt crisis is having limited effect on sentiment. Retail sales unexpectedly fell in May, according to another report today, indicating the gains in confidence will have trouble fueling purchases without stronger job growth. “The most important factor is the labor market, and that’s showing some improvement,” Ryan Wang , an economist at HSBC Securities USA Inc. in New York, said before the report. “The recent drop in gas prices, on the margin, is a help.” Sales at U.S. retailers fell 1.2 percent in May, the most since September 2009, the Commerce Department said earlier today. Retail purchases were projected to increase 0.2 percent, according to the median estimate of 76 economists in a Bloomberg survey. Estimates for the Thomson Reuters/University of Michigan measure ranged from 69.8 to 77.4, according to the Bloomberg survey. Current Conditions The gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, rose to 82.9 in June, the highest since March 2008, from 81 in May. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 70.7, the highest since September, from 68.8. Consumers in the survey said they expect an inflation rate of 2.7 percent over the next 12 months, compared with 3.2 percent in May. Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.8 percent rate of inflation, compared with 2.9 percent the prior month. Gains in confidence and spending in coming months depend on a sustained recovery in the job market. Private payrolls rose by 41,000 in May, fewer than forecast, while overall employment climbed to 431,000, boosted by government hiring of temporary workers for the census, Labor Department figures showed last week. The jobless rate fell to 9.7 percent as discouraged workers left the labor force. Unemployment Forecast A Bloomberg survey taken this month showed the unemployment rate will end the year at 9.5 percent, and average 9.1 percent next year, according to the median estimate. Stocks have fallen on concern the global economic rebound may falter as European governments struggle with swelling budget deficits. The Standard & Poor’s 500 Index has fallen 11 percent from a 19-month high on April 23 through yesterday. One source of relief for households is lower fuel prices. The cost of regular unleaded gasoline is down 7.4 percent since a 2010 peak reached on May 5, according to AAA, and declined to $2.71 a gallon at the pump yesterday. Shoppers are seeking more discounts, benefiting companies that offer cheaper merchandise. Discounters Target Corp. , Ross Stores Inc. and TJX Cos., the owner of the T.J. Maxx clothing chain, reported an increase in May sales at stores open at least a year compared with the same month in 2009. Sales also climbed at Costco Wholesale Corp. , the largest U.S. warehouse club. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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BP Oil Leak Estimate Is Doubled by U.S. Scientists to 40,000 Barrels a Day

June 11, 2010

By Jessica Resnick-Ault June 11 (Bloomberg) — BP Plc ’s damaged well in the Gulf of Mexico has been leaking twice as much oil as previously estimated, a team of government scientists said in its latest report on the size of the worst spill in U.S. history. The well is gushing 20,000 to 40,000 barrels of oil a day, according to an estimate released yesterday by the scientists, tasked by the government with calculating the flow. On May 27, the group pegged the rate at 12,000 to 19,000 barrels a day. The latest figure is for the size of the leak prior to June 3, when BP sawed off a bent riser pipe, potentially increasing the amount of crude escaping by as much as 20 percent. The scientists don’t have a projection for the current flow, Marcia McNutt , director of the U.S. Geological Survey, said in a news conference yesterday. “Our scientific analysis is still a work in progress, as you can tell from a range of estimates,” said McNutt, who is overseeing several independent flow-rate teams using different methods. Two offered revised flow models which were higher than those presented two weeks ago, she said. Another two are revising their data and will deliver their figures by the end of the month. Preliminary figures from a team of Woods Hole Oceanographic Institution scientists suggest the well could be leaking as much as 50,000 barrels a day, McNutt said. An accurate estimate of the volume is vital for those responding to the spill, according to U.S. Coast Guard Admiral Thad Allen . BP is capturing about half of the new estimated flow rate from the broken well, almost a mile down on the seabed of the Gulf of the Mexico, and siphoning it to ships on the surface. Bigger Than Valdez The “most credible estimate” for the size of the leak before the riser pipe was cut is 20,000 to 40,000 barrels a day, McNutt said. Her team hasn’t yet calculated the volume beyond June 3. Based on the midpoint of the latest approximation of 30,000 barrels, from April 22 when the Deepwater Horizon rig sank until June 3 the well gushed 1.26 million barrels of oil, or 52.9 billion gallons. The Exxon Valdez spilled an estimated 257,000 barrels in 1989. At a daily rate of 30,000 barrels, or 1.3 million gallons, the BP Macondo well disaster would generate that much every 8.5 days. On June 3, BP sawed off the riser pipe that had been kinked near the seafloor, constricting the flow of oil from the leak. The clean cut allowed the company to secure a containment cap to the pipe, capturing some of the escaping oil and funneling it to ships at the surface. Higher Flow Rate BP suggested that cutting the pipe may have increased the flow rate by 20 percent. McNutt said her teams of scientists are still trying to calculate how much the volume might have changed since that operation. BP collected 15,520 barrels of crude at the surface between noon on June 9 and noon on June 10, the last 24-hour period for which data is available. According to the midpoint of the latest estimates from the group of scientists, this would be about half of the oil being released each day. The first ship positioned to capture the oil is able to collect 18,000 barrels a day. By next week, BP will raise that capacity by 55 percent to 28,000 barrels in total, Allen said yesterday in a press conference. “We’re locked into a recovery mode that is way under capacity for what’s really coming out,” Ian MacDonald, an oceanographer at Florida State University in Tallahassee, said an interview after yesterday’s announcement. MacDonald has estimated the well to be leaking 26,500 to 30,000 barrels a day, six times more than the figure that BP and the government used from April 28 to May 27. 50,000 Barrels a Day? “A reasonable estimate is 22,000 barrels a day to 30,000 barrels a day,” said Tad Patzek , chair of petroleum and geosystems engineering at the University of Texas at Austin. “I don’t think 40,000 barrels a day. If BP starts recovering 28,000 barrels a day, then I will revise my estimate.” A spill rate of 50,000 barrels a day is supported by an April 27 BP memo made public on May 27 by Congressman Edward Markey , a Massachusetts Democrat, Florida State University’s MacDonald said. The memo included data on how BP had arrived at its high projection of 14,286 a day. BP assumed the oil was far thinner on the surface than it was, MacDonald said. “BP fully supported this effort to establish the new estimates,” Max McGahan, a spokesman for the London-based company, said in a telephone interview. BP provided the scientific team with data and video, he said. Each of the scientific methods being used has biases, which may shape the results they produce, McNutt said. After BP has captured all of the flow, scientists will be able to determine which methodologies were most accurate and what the biases were. “We will be able to do a much better job next time,” she said. To contact the reporter on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net

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Trichet Under Pressure as Clarity Sought on Bond Plan Dividing ECB Council

June 10, 2010

By Gabi Thesing June 10 (Bloomberg) — European Central Bank President Jean-Claude Trichet is under pressure to explain how far he’s prepared to wade into government bond markets as the ECB’s purchases split policy makers and borrowing costs in some countries continue to climb. Since the ECB announced its bond program on May 10 to restore “normal functioning” on markets, the extra yield that investors demand to hold Spanish and Italian debt has advanced to euro-era highs. Portuguese and Irish yields are also rising. Trichet holds a press conference at 2:30 p.m. in Frankfurt today after a policy meeting at which economists predict the ECB will leave its benchmark rate at a record low of 1 percent. “There are so many questions, and Trichet must answer them convincingly,” said Christoph Kind , head of asset allocation at Frankfurt Trust, which manages $17 billion. “As investors we need a predictable and credible ECB.” Trichet has so far given no information about how much the ECB plans to spend on government debt or which countries’ bonds the central bank is buying. Critics say the purchases amount to bailing out governments and could fuel inflation , breaching two of the ECB’s founding principles and undermining its credibility. The move divided Trichet’s 22-member Governing Council, with Bundesbank President Axel Weber and Executive Board member Juergen Stark openly voicing concern. Global Concern The sovereign debt crisis has also forced the ECB to reverse its withdrawal of emergency stimulus measures and prompted economists to push back forecasts for higher interest rates until the second quarter of next year. While the Bank of Canada this month became the first central bank in the Group of Seven to raise rates since 2008, it signaled the decision won’t necessarily be repeated soon, reflecting concern among policy makers worldwide that Europe’s debt burden poses a risk to the global economic recovery. The Federal Reserve will hold off raising borrowing costs until 2011, a survey of economists shows. The Bank of England will probably keep its benchmark rate at a record low of 0.5 percent today and maintain its bond holdings at 200 billion pounds ($290 billion) to nurture growth as Britain braces for public spending cuts, another survey shows. That decision is due at noon in London. German Strength Budget cuts may also curb growth in the 16-nation euro region, even as latest reports suggest expansion is gaining pace. In Germany, Europe’s largest economy, factories are stepping up production and adding workers to meet booming export orders. The ECB will publish its latest economic and inflation projections today. By purchasing government bonds, Trichet is trying to win time for governments to get on top of their finances and prevent Europe’s monetary union from tearing apart. It’s far from certain the plan will work. While the difference in yield, or spread, over benchmark German bonds was 556 basis points in Greece yesterday, down from 965 on May 7, the Spanish spread was 199 basis points, up from 164, and the Italian spread was 157 against 149. Ireland’s spread was 254 compared with 306 and Portugal’s was 271 versus 349. Trichet is unlikely to reveal more details on the purchase program today, said Julian Callow , chief European economist at Barclays Capital in London. ‘Very Stretched’ “The ECB appears very stretched at the moment and it doesn’t want to give speculators any ammunition, so they just hunker down and keep the information as vague as possible,” Callow said. “Policy makers are also hoping that the implementation of the European rescue fund will calm markets, allowing them to exit the program.” European finance ministers this week agreed on the structure of a 440 billion-euro ($530 billion) European Financial Stability Facility, the main part of the 750 billion- euro rescue package announced on May 10 to counter the crisis. The euro has continued to tumble since then, taking its decline against the dollar to more than 20 percent since late November, when concern about Greece’s ballooning budget deficit intensified. It traded at $1.2051 this morning. “It will take more confirmation on the ground that some of the austerity programs are starting to bite and fiscal ratios are looking more sustainable” to bring yields down, said Christoph Rieger , co-head of fixed income strategy Commerzbank AG in Frankfurt. “I cannot think of a single event that could help spreads to recover sharply.” Waning Resolve? The ECB’s purchases, which totaled 40.5 billion euros on June 4, have slowed since it bought 16.5 billion euros of bonds in the first week of its program. It spent 5.5 billion euros last week, down from 8.5 billion euros the week before and 10 billion euros the week before that. “It looks like the ECB’s resolve is waning,” said Juergen Michels , chief euro-area economist at Citigroup Inc in London. “It doesn’t really have the backing of the entire Governing Council.” The program entails “stability risks” and “must be precisely targeted and limited,” Weber said last week. Bank of Italy Governor Mario Draghi said the purchases “will have to be discontinued as quickly as possible” once bond markets normalize. By contrast Ireland’s Patrick Honohan welcomed the program as an “important” new weapon in the ECB’s armory, and said the decision “was exactly the right kind of prompt initiative needed.” The split on the council is unsettling for investors and Trichet must do his upmost to restore confidence in the single currency, Frankfurt Trust’s Kind said. “The euro area is divided enough as it is,” he said. “The ECB is normally the only organization which lives by consensus. To have a split over something so fundamental is extremely unhelpful.” To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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China Passing Growth Peak Insufficient to Tame Prices

June 9, 2010

By Bloomberg News June 9 (Bloomberg) — China’s policy makers may see evidence this week that economic growth peaked in the first quarter, strengthening their opposition to higher interest rates even as inflation accelerates. Consumer prices jumped 3 percent, hitting the government’s targeted full-year ceiling, after a 2.8 percent increase in April, according to the median of 32 estimates in a Bloomberg News survey before the June 11 release. In contrast, lending, investment and industrial output figures due this week may show a slower pace of gains, according to survey estimates. “We see some initial signs of cooling off, but the economy still has the risk of overheating and inflation is still a major risk,” said Qu Hongbin , chief China economist at HSBC Holdings Plc in Hong Kong. Slower growth is “exactly what China needs in order to prevent much higher inflation,” he said. China’s rebound from the global recession has stoked consumer prices, and this month’s pay increases at Foxconn Technology Group and Honda Motor Co. , along with higher minimum wages, mean the pressures may escalate. At the same time, Premier Wen Jiabao ’s government has pledged to keep its policy stimulus in place for now, with Europe’s debt crisis posing dangers to the world recovery. ‘Wait and See’ “Policy makers will likely take a ‘wait and see’ attitude,” Helen Qiao and Song Yu , Hong Kong based economists at Goldman Sachs Group Inc., wrote in a note this week. Officials are “unlikely to roll out further nationwide tightening measures in the near future.” The May inflation rate was 3.1 percent, Reuters reported, citing three sources who said a government official stated the figure at an investor conference they attended today. Exports rose a faster-than-forecast 50 percent from a year before and the 630 billion yuan of new loans also exceeded estimates, the news agency also reported. Stocks climbed today as the report indicated China’s economy may not be slowing as much as economists had estimated. The Shanghai Composite Index rose 2.8 percent. The economy still doesn’t have a “solid” recovery in domestic demand and must sustain consumer spending growth, the central bank said in a statement on its website yesterday. Growth will be affected by the sovereign-debt crisis and trade frictions, the People’s Bank of China said. Interest Rate Besides maintaining one-year benchmark interest rates at crisis levels of 5.31 percent for lending and 2.25 percent for deposits, China has kept the yuan pegged at about 6.83 per dollar since July 2008. Investors buying yuan forwards may begin betting on declines by the Chinese currency against the dollar over the next year as the euro tumbles, according to Royal Bank of Scotland Plc. The nation may remain in a “policy void” for the next two to three months as officials observe the sovereign-debt crisis and the effects of a crackdown on property speculation within China, Wang Qian , chief China economist at JPMorgan Chase & Co., said in Beijing yesterday. A moderation in economic growth from 11.9 percent in the first quarter may help to avert the risk of a boom in the world’s third-biggest economy being followed by a bust. Even with today’s advance, the Shanghai Composite Index is down 21 percent this year, partly on concern that the government will tighten policy excessively. ‘Bit Overheated’ Justin Lin , the World Bank’s chief economist, said June 4 that first-quarter growth was “a bit overheated” and a small slowing would be a good thing. He’s likely to get his wish, with state economist Zhang Liqun estimating in a June 7 interview in Beijing that this quarter’s expansion may be between 10 percent and 11 percent. HSBC’s estimate is 10.5 percent, followed by 9.5 percent in the third quarter and 9 percent in the fourth. Officials have already ordered banks to hold more of their assets in reserve, set a lower lending target for 2010, and drained liquidity through bill sales. Regulators have also restricted mortgage lending and raised down-payment requirements for home purchases. This week’s data may show the impact from such efforts. New lending may have totaled 600 billion yuan in May, down from 774 billion yuan in April, according to the median forecast. M2 , the broadest measure of money supply, may have expanded 21 percent from a year earlier, the least in 15 months. Property Prices Additionally, property-price gains may have slowed for the first time in almost a year. May’s increase was 12 percent, down from a record 12.8 percent in April, according to the median estimate in a separate survey. Industrial production may have climbed 17 percent in May from a year earlier, slipping from a 17.8 percent increase in April. Baosteel Group Corp., the nation’s second-biggest steelmaker, said yesterday that demand from the automotive and home-appliance industries is “weak” and mills face a difficult second half of the year. Urban fixed-asset investment may have gained 25.7 percent in the January-May period, compared with 26.1 percent in the first four months of the year, the survey showed. China’s trade data, likely to show exports rising for a sixth month, is due tomorrow. Overseas shipments may have climbed 32 percent from a year earlier, with imports rising 45 percent, leaving an $8.2 billion trade surplus . China’s inflation may peak at about 4.5 percent in the third quarter on food costs, economic growth and “excessive” credit, according to Qu. Morgan Stanley expects the high point to be about 4 percent, also next quarter. Government efforts to control inflation may be aided by sliding commodity and vegetable costs. Bank of America-Merrill Lynch said June 4 that producer-price inflation may be “near the peak.” In May, prices rose 6.8 percent from a year earlier, the same pace as in April, the median forecast in the survey showed. Retail-sales numbers will also be released on June 11. Economists’ median estimate is for an 18.5 percent increase in May, matching April’s gain. — Sophie Leung , Li Yanping . With assistance from Jay Wang . Editors: Chris Anstey , Paul Panckhurst . To contact the reporters on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net ; Yanping Li in Beijing at yli16@bloomberg.net

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Fed Rate Increase Pushed to 2011 as Inflation Ebbs, Bloomberg Survey Shows

June 9, 2010

By Shobhana Chandra and Alex Tanzi June 9 (Bloomberg) — Record-low inflation and prolonged unemployment mean the Federal Reserve will hold off raising interest rates until 2011, according to economists surveyed by Bloomberg News. The central bank’s preferred price gauge will rise 1.1 percent this year, the smallest gain in data going back to 1960, and the jobless rate will average more than 9 percent through next year, the median estimate of 65 economists surveyed from June 2 to June 8 showed. “The Fed won’t be in any rush to raise rates,” said Nariman Behravesh , chief economist at IHS Global Insight in Lexington, Massachusetts. “There is no worry about inflation, the situation in Europe suggests more fragility, and there are some concerns about the growth momentum in the U.S.” The prospect that consumers and businesses will pull back in reaction to the slump in stocks since the European debt crisis flared is one reason the Fed will delay action. Another is a lack of inflation as companies including Target Corp. and Wal-Mart Stores Inc. cut prices to overcome unemployment that is almost twice as high as central bankers’ long-term projection. The world’s largest economy will grow 3.2 percent this year, the same as forecast last month, according to the survey median. Economists marked down next year’s projected rate of expansion to 2.9 percent from 3.1 percent, indicating the effect of the turmoil in Europe will be limited. Investor Psychology “The broader recovery is still very much in place,” said Joseph LaVorgna , chief U.S. economist at Deutsche Bank Securities in New York. “I don’t think the sovereign debt crisis in Europe is going to hurt the U.S. noticeably in terms of growth. Where it’s playing out right now is investor psychology.” The Standard & Poor’s 500 Index has fallen 13 percent from a 19-month high on April 23, while the euro has dropped 11 percent as investors worry that some cash-strapped European nations may default on their debt. Unemployment will be elevated longer than economists had forecast last month, ending this year at 9.5 percent, according to the median estimate. It’ll average 9.1 percent in 2011, up from 8.9 percent in the prior survey. The jobless rate consistent with stable prices is in the range of 5 percent to 5.3 percent, according to central bankers’ long-term forecasts issued last month. Bernanke’s Outlook The “moderate” recovery signals “the unemployment rate is still going to be high for a while,” Fed Chairman Ben S. Bernanke said this week at the Woodrow Wilson International Center for Scholars in Washington. “That means that a lot of people are going to be under financial stress.” Bernanke is due to testify about the state of the economy before the House Budget Committee today. Companies expanded payrolls by 41,000 workers in May, fewer than anticipated and the smallest gain in four months, figures from the Labor Department showed last week. The report raised doubts about how fast the economy will recover the more than 8 million jobs lost since the recession began in December 2007, the worst employment slump since World War II. Discounters Target and TJX Cos. were among merchants that reported an increase in May sales, a sign consumers are looking for bargains. Wal-Mart, the world’s largest retailer, said gasoline prices and unemployment hurt traffic to its U.S. stores. “These external headwinds are real,” Eduardo Castro- Wright , vice chairman and U.S. stores chief, told shareholders on June 4 in Fayetteville, Arkansas. Competition from other retailers “is stiffer than ever.” Cutting Prices The goal of gaining market share prompted Royal Ahold NV, the Dutch owner of Stop & Shop supermarkets, to cut prices, increase promotions and offer cheaper private-label products at its U.S. stores, eroding first-quarter profit. “Consumers continue to be cautious,” John Rishton , chief executive officer at Royal Ahold, said on a conference call on June 3. Economists trimmed forecasts for the Fed’s preferred gauge of inflation, which tracks consumer spending and excludes food and fuel costs, from 1.2 percent in last month’s survey. “Low inflation and low job growth are really tied together,” said Ken Goldstein , an economist at the New York- based Conference Board. “This is one of the times when the best thing the Fed can do is to do nothing. They should observe the principle of do no harm.” December 2008 The benchmark interest rate on overnight loans between banks will rise to 0.5 percent in the first quarter of 2011, from the zero to 0.25 percent range that’s been in place since December 2008, economists predicted. IHS Global Insight’s Behravesh was among economists pushing back the first projected rate increase to early next year from the last three months of 2010 as he predicted in May, matching the change in the survey median. Bernanke said this week that officials don’t know when that process will start. The banking system isn’t fully healthy and lenders are “cautious” in providing credit, he said. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net ; Alex Tanzi in Washington at atanzi@bloomberg.net

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BP Seeks to Add Capacity to Recover Leaking Gulf Oil as Capture Rate Rises

June 8, 2010

By Jim Polson June 8 (Bloomberg) — BP Plc has proposed expanding its capacity to recover oil from the leaking Gulf of Mexico well, Coast Guard Admiral Thad Allen said. Adding two vessels to BP’s current plan would allow for redundancy should one of the two systems break down, Allen said today at a press conference in Washington. The company said yesterday it will add capacity of 5,000 barrels a day by mid- June by hooking up a drilling rig with separate lines. BP yesterday siphoned a record 14,842 barrels aboard the drillship Discoverer Enterprise, Allen said. BP has said the ship’s daily processing capacity is 15,000 barrels a day as oil and gas continues to leak into the Gulf. “It’s going to be a wave of oil that just keeps coming ashore until they collect it all,” Don Van Nieuwenhuise, director of professional geosciences at the University of Houston , said today in a telephone interview. “It’s really bad that any oil is getting into the Gulf of Mexico. Even 1,000 barrels a day is not fun.” Nieuwenhuise estimates BP yesterday captured about 74 percent of about 20,000 barrels gushing from the well. Tad Patzek , chairman of petroleum and geosystems engineering at the University of Texas at Austin, said he and several colleagues reached a similar conclusion after analyzing recent videos of the well head. ‘Choke,’ ‘Kill’ Lines BP needs to expand the recovery rate as soon as possible by connecting, as it plans, the drilling rig Q4000 through so- called “choke” and “kill” lines attached to the well head, Patzek said. “That could capture another 3,000 barrels to 7,000 barrels a day.” Allen said he’s ordered a government scientific panel to revise its estimate of the spill rate this week or next. The panel, led by Marcia McNutt, director of the U.S. Geological Survey , said May 27 its best estimate of the spill rate was 12,000 barrels to 19,000 barrels a day, based on separate analyses of the plume of oil from the well as shown on video and the extent of the slick on the surface of the Gulf. Scientists examining the plume estimated the leak may be 25,000 barrels a day, the panel said. To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net .

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

June 4, 2010

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

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P&ampG’s Consumer Changes to He From She With Men’s Thermal Scrubs

June 4, 2010

By Mark Clothier June 4 (Bloomberg) — After spending decades luring women with products such as Olay skin cream, Procter & Gamble Co. is about to tell men they need pampering too. P&G will introduce a pre-shave thermal scrub, which it likens to a hot towel at the barber shop, along with a cooling after-shave moisturizer next week. The four products, selling for $7 to $9, make up the first skin-care line aimed at men since P&G’s $61 billion acquisition of Gillette five years ago. P&G is seeking to persuade buyers of Gillette razors to take better care of their skin after the company’s sales fell 3.3 percent last year. It’s also a further push into higher- margin beauty products for the world’s largest consumer-products company, which makes Charmin toilet paper and moved into cosmetics in the 1980s. “We have an aspiration to be the biggest and best beauty and grooming company,” Chip Bergh , who heads P&G’s grooming unit, said in a telephone interview. “But we can’t get there unless we win with men.” Gillette’s new ProSeries line, including a face wash for sensitive skin and a moisturizer that protects against ultra- violet rays, will debut in North America June 6 and be available globally by the end of next year, Cincinnati-based P&G said. Trying It Chief Executive Officer Bob McDonald is tapping the men’s grooming market to help reach his goal of adding 1 billion new consumers by 2015. Worldwide sales of skin care, hair care, bath and shower products, and deodorant for men reached $26.6 billion last year, up 44 percent from 2004, according to research firm Euromonitor International Plc. “I expect this to be very profitable for them, but it’s going to require education to get people to try it and to get over the hump of the cost” of the products, said Matt McCormick , a portfolio manager at Cincinnati-based Bahl & Gaynor Inc., which has $2.8 billion under management, including P&G shares. Beauty products are among the more recession-resistant product categories, according to a Sanford C. Bernstein & Co. survey of U.S. consumers released in March. Consumers are less likely to buy a cheaper version of their favorite skin cream or perfume, than of detergent, batteries or diapers, the survey showed. P&G’s products will compete for customers with Beiersdorf AG’s Nivea for Men, L’Oreal SA ’s Men’s Expert and Unilever ’s Dove for Men skin-care lines. Gillette has an edge, because it’s a male brand that doesn’t need to make clear that it’s “for men,” said Bergh, the P&G executive. ‘Education and Marketing’ Getting U.S. men to pamper themselves will still be a hard sell, said Walter Todd , who helps manage $800 million at Greenwood Capital in Greenwood, South Carolina, including about 100,000 P&G shares as of March 31. “I don’t think the majority of men think about how soft their face is or how to care for it,” Todd said. “It’s not something that comes into my mind. Particularly, now with the economy, we’re still kind of watching how we spend our money and the last thing I’m going to go out and buy is some face cream.” Bergh, 52, said the market for men’s lotions can be similar to the last century’s evolution of women’s skin care, which for his mother’s generation consisted of cold cream. “That’s all been driven by education and marketing and the same will happen with guys,” he said. Marketing Campaign P&G, which started selling soap in 1837 and pioneered radio soap operas to promote them, will reach men through websites, blogs and online videos, and in stores, Bergh said. In the U.S., where P&G has about 68 percent of the blade and razor market, the company will include samples of the new products in cartridge refills for the Fusion and Mach3 razors, he said. The Gillette unit made up 9.5 percent of P&G’s $79 billion in sales in fiscal 2009. P&G has advanced 1.9 percent this year, compared with a 1.1 percent decline in the Standard & Poor’s 500 Index. The shares added 6 cents to $61.80 yesterday in New York Stock Exchange composite trading. Last June, the company acquired the Art of Shaving, a boutique chain that offers $100 chrome razors and $75 badger-fur shaving brushes, as well as Zirh, a premium skin-care brand. The brands joined P&G products including Old Spice deodorants and Braun electric shavers. Partnerships with Dolce & Gabbana and Hugo Boss could also be expanded beyond cologne, Bergh said. “We’ve got a portfolio of brands and the company’s support to win with him,” Bergh said of the male consumer. “We’ve got pretty strong plans to do just that.” To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net

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Payrolls Probably Rose for Fifth Straight Month, Led by U.S. Census Jobs

June 3, 2010

By Shobhana Chandra June 4 (Bloomberg) — Employers added jobs in May for the fifth consecutive month, providing U.S. households with the incomes needed to maintain spending and the economic recovery, economists said before a report today. Payrolls rose by 536,000, the most since 1983, according to the median forecast of 82 economists surveyed by Bloomberg News. The gain reflects a jump in government hiring of temporary help for the census and a 180,000 rise in private employment, the survey showed. Economists also project the jobless rate fell. Improving sales are prompting companies from Lowe’s Cos. to General Electric Co. to boost staff, starting a virtuous circle of hiring and spending that will keep the economy growing after government help wanes. Federal Reserve Chairman Ben S. Bernanke said yesterday that unemployment was exacting a heavy toll, showing why economists forecast interest rates will remain low. “As sales increase, there’s just no way companies can operate without adding workers after having cut payrolls so deeply last year,” said Chris Low , chief economist at FTN Financial in New York. “It means stronger consumer spending and stronger economic growth. The economy should be able to carry on its own without the stimulus.” The Labor Department’s report is due at 8:30 a.m. Washington time. Survey estimates for the gain in payrolls ranged from 220,000 to 750,000. The projected jump in employment would be the biggest since a 1.11 million surge in September 1983, which reflected the return of about 640,000 striking workers to AT&T Inc.’s payroll. Jobless Rate Economists surveyed also forecast the jobless rate fell to 9.8 percent last month from 9.9 percent in April. Unemployment, which reached a 26-year high of 10.1 percent in October, may take time to recede as the number of jobseekers reentering the labor force exceeds the number of positions available. Federal hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. Figures from the Labor Department show there were about 417,000 more census workers on government payrolls during the employment survey week, which includes the 12th of the month, than in the same period in April. The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. Private Payrolls The projected gain in private payrolls would follow an increase of 231,000 in April. Excluding government jobs, employment climbed by 116,000 a month on average in the five years to December 2007, when the recession began. Manufacturing payrolls increased by 33,000 in May, the survey showed, a fifth straight gain. Fairfield, Connecticut-based General Electric, the world’s largest maker of jet engines, power-generation equipment and locomotives, said last month it will increase the number of jobs it plans to add in Michigan to more than 1,300. The U.S. economy right now is “very good and improving,” GE’s Chief Executive Officer Jeffrey Immelt said in a May 24 interview. Europe’s debt crisis is “solvable” and will not slow the global economic recovery, he said. Automaker Chrysler Group LLC, controlled by Fiat SpA and based in Auburn Hills, Michigan, will hire 1,100 workers at a Detroit factory that produces Jeep Grand Cherokees and add a second shift. Reviving Sales The pickup in jobs is spreading beyond factories. Lowe’s, the second-largest U.S. home improvement retailer, is adding more than 1,400 positions for employees to visit customers’ homes to sell products such as windows and doors. Mooresville, North Carolina-based Lowe’s will fill the jobs internally and hire new workers to try to revive sales. Concern that the rebound will slow because of fallout from the turmoil in Europe and cooling growth in China has caused the Standard & Poor’s 500 Index to drop 9.4 percent from a 19-month high reached on April 23. Bernanke yesterday said joblessness is among the “important concerns” for the recovery. “One particularly difficult issue is the continued high rate of unemployment,” Bernanke said at a forum at the Chicago Fed’s Detroit office. “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole.” Some companies are still cutting back. Hewlett-Packard Co., the world’s largest personal-computer maker based in Palo Alto, California, this week said it’ll slash about 3,000 jobs over several years. Citigroup Inc. plans to close 376 branches and reduce as many as 720 jobs in the U.S. and Canada. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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BP’s Hayward Faces Ratings Downgrade, Investor Wrath as Spill May Cost Job

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward faces rising speculation that the worsening oil spill will cost him his job as he grapples with worried investors, rating downgrades, U.S. politicians and public anger over the company’s inability to control the crisis. Hayward will address London’s investors and analysts tomorrow, spokesman Mark Salt said by phone. Moody’s Investors Service and Fitch Ratings downgraded BP today because the costs from the accident will hurt finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to pay a dividend. Criticism of Hayward grew this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company may become a takeover target. Yesterday, he apologized for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividends. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP sheared away the riser from its leaking Gulf of Mexico well today, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. The 53-year-old was born in Slough, England, 25 miles west of London and studied in Birmingham and then in Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would raise production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP Chief to Address Investors Amid Speculation He May Be Forced to Resign

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a conference call with investors and analysts tomorrow, spokesman Mark Salt said in a telephone interview. Fitch Ratings downgraded BP to AA from AA+ today because the cost of dealing with the accident will hurt the company’s finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to make dividend payments. Criticism of Hayward has mounted this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company could become a takeover target. Yesterday, Hayward had to apologize for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividend payments. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. Hayward, 53, was born in Slough, England, 25 miles west of London. He studied in Birmingham and then Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would increase production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP Chief to Address Investors Amid Speculation He May Be Forced to Resign

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a conference call with investors and analysts tomorrow, spokesman Mark Salt said in a telephone interview. Fitch Ratings downgraded BP to AA from AA+ today because the cost of dealing with the accident will hurt the company’s finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to make dividend payments. Criticism of Hayward has mounted this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company could become a takeover target. Yesterday, Hayward had to apologize for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividend payments. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. Hayward, 53, was born in Slough, England, 25 miles west of London. He studied in Birmingham and then Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would increase production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP Chief to Address Investors Amid Speculation He May Be Forced to Resign

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a conference call with investors and analysts tomorrow, spokesman Mark Salt said in a telephone interview. Fitch Ratings downgraded BP to AA from AA+ today because the cost of dealing with the accident will hurt the company’s finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to make dividend payments. Criticism of Hayward has mounted this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company could become a takeover target. Yesterday, Hayward had to apologize for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividend payments. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. Hayward, 53, was born in Slough, England, 25 miles west of London. He studied in Birmingham and then Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would increase production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP’s Hayward Will Address Investors Amid Speculation He May Be Forced Out

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a call with investors and analysts tomorrow, spokesman Mark Salt said by phone. Moody’s Investors Service and Fitch Ratings downgraded BP today because the costs from the accident will hurt finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to pay a dividend. Criticism of Hayward grew this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company may become a takeover target. Yesterday, he apologized for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividends. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward’s Apology Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. The 53-year-old was born in Slough, England, 25 miles west of London and studied in Birmingham and then in Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would raise production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Stocks, U.S. Futures Rally on Economic Outlook Yen Weakens, Bonds Decline

June 3, 2010

By David Merritt June 3 (Bloomberg) — Stocks and commodities rallied and U.S. index futures advanced on speculation reports on jobs and factory orders will indicate the world’s biggest economy is gathering strength. The yen weakened and government bonds fell. The MSCI World Index , a gauge of equities in 24 developed nations, climbed 1.2 percent at 10:30 a.m. in London. Futures on the Standard & Poor’s 500 Index rose 0.6 percent. The S&P GSCI Total Return Index of 24 commodities gained 1.3 percent, the biggest increase in a week. The yen slipped against all 16 of its most-traded counterparts, and the dollar dropped versus 14. French 10-year notes led the decline in government bonds. The cost of protecting European corporate bonds from default sank the most in a week, traders of credit-default swaps said. U.S. service industries probably expanded in May at the fastest pace in four years while factory orders rose, firings eased and private payrolls advanced, according to Bloomberg surveys of economists, a day before the Labor Department’s monthly jobs report which is forecast to show payrolls climbed by the most since 1983. The predictions boosted confidence after the MSCI World fell 12 percent from its April high on concern the European sovereign debt crisis would hold back growth around the world. “The global economic recovery is continuing and most economic indicators are surprising to the upside,” said Tobias Merath , head of commodity research at Credit Suisse Group AG in Zurich. “The real economy is going rather well.” BP, Valeo More than 40 shares gained for each one that fell on the benchmark Stoxx Europe 600 Index , which rallied 1.9 percent, while the MSCI Emerging Markets Index advanced 2.2 percent. BP Plc, struggling to control its gushing oil well in the Gulf of Mexico, jumped 4.6 percent in London as investors speculated that the stock’s 30 percent plunge since April was overdone. The shares maintained gains even as Fitch Ratings cut its debt rating AA from AA+. BHP Billiton Ltd., the world’s biggest mining company, increased 2.2 percent. Valeo SA, France’s second-largest auto- parts supplier, rallied 7.7 percent in Paris after giving a sales forecast. The MSCI Asia Pacific Index gained 2.7 percent, the biggest gain in six months. Nissan Motor Co. climbed 4.8 percent in Tokyo after its U.S. sales surged 24 percent in May from a year earlier. Canon Inc., which gets 78 percent of its revenue outside Japan, rose 3.4 percent as a weaker yen boosted its earnings outlook. The gain in U.S. futures indicated the S&P may extend yesterday’s 2.6 percent rally. The Institute for Supply Management’s index of non-manufacturing businesses, which covers almost 90 percent of the economy, rose to 55.6 from 55.4 in April, according to the median forecast of 76 economists surveyed by Bloomberg News. The report is due at 10 a.m. in New York. Jobless Claims A report from ADP Employer Services due at 8:15 a.m. is forecast to show businesses added 70,000 jobs in May, the best performance since the recession began in December 2007, according to the survey median. Figures from the Labor Department at 8:30 a.m. may show the number of claims for jobless benefits fell for a second week, to 455,000, while a Commerce Department report at 10 a.m. may show factory orders rose 1.8 percent, according to the surveys. Tomorrow’s Labor Department jobs report will show the U.S. economy added 515,000 jobs in May, the fifth straight month of gains, according to the median of 81 economists’ forecasts. The jump probably reflected a surge in government hiring of temporary help to conduct the census and a 175,000 increase in private employment. Commodities Advance Crude oil for July delivery added 1.7 percent to $74.09 a barrel in New York. Commodities also advanced after General Motors Co. and Ford Motor Co. posted U.S. sales increases in May that topped analysts’ estimates. Copper for delivery in three months rose 1.3 percent to $6,757.25 a metric ton on the London Metal Exchange, the first gain in four days. Cars use as much as 62 pounds of copper, according to the Copper Development Association. Palladium, used in catalytic converters, rose 1.1 percent to $463.05 an ounce. The yen depreciated 0.5 percent to a two-week low against the dollar and lost 1.4 percent against the euro. So-called commodity currencies rose, with the Australian dollar advancing 1.1 percent against the U.S. currency. The euro strengthened for a second day against the dollar and the yen as rising stocks encouraged investors to reverse bets that the currency will decline. Government bonds slipped, with the yield on German bunds, the benchmark European debt security, rising four basis points to 2.70 percent. The yield on the French 10-year note advanced eight basis points to 3.05 percent. The 10-year U.S. Treasury yield rose four basis points to 3.38 percent. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 23.5 basis points to a two-week low of 552.5, the biggest decline since May 27, according to JPMorgan Chase & Co. The drop signals an improvement in investor perceptions of credit quality. To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net

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Grant Cardone: Writing a Best Selling Book

May 31, 2010

Getting a book published and then to hit the Best Sellers list takes a lot of guts, even more determination, tremendous amounts of creative networking and even more persistence. Have you ever wondered how to get your book to be a best seller? I have and now have a book #1 at Barnes and #1 Business Books at Amazon. This is my first published book, Wiley and by working closely with the publishing company, hammering social media and then inspiring my customers, friends and associates it looks like we will hit the NY Times Best Sellers List this upcoming week. Here is what I have learned: 1) Don’t believe anyone when they tell you it can not be done. 2) Remember it is best selling book, not best written. 3) It will require a lot of energy, effort and creativity. The first thing I did was decide that I could do it despite all the naysayers. The second thing, was write about a book that is personal to me and relevant to many. And then I did everything I could to make sure everyone knew about it. The book is about the importance of dominating in business and the idea that competition is NOT healthy. This was inspired as a result of the recent economic contraction. This contraction was so severe it terrified me into the reality that individuals and companies are only protected against economic uncertainty by being the dominant player in their market or sector! And don’t kid yourself the same thing holds true for book sales, dominant the charts or no one will know you exist! As we redefined our business over the last 18 months I started writing this most recent book about what I was learning as I recreated and rebuilt my business so that I could get it into a more dominant position with the hopes of being immune from economic conditions. The first title I had was, Screw The Economy, Create Your Own and then I changed it to, Don’t Be a Little Bitch but Wiley convinced me those titles might be too aggressive, even offensive to some, so we ended up with, If You Aren’t First, You’re Last. I don’t pretend to know the exact formula for getting your book to #1 but no one else seems to know the formula either. I can tell you, the most important thing is you have to get people to know about you and your book. Quality of content is critical but getting people to know about the book is senior! This is where a lot of writers seem to err, spending too much time on content and too little time on selling and promotion. In the real world, the quality of the product is meaningless if no one knows the product exist. The days of going on tour and promoting at book stores are over. The margins for the stores are so small that they can’t make sense of the energy it takes to put together book signings. I actually offered to do this at my own expense nationwide and there were no takers! It seems like TV is almost impossible to get without taking your clothes off, cheating on your spouse or overdosing. Today you must utilize social media, blogging and then inspire existing clients, friends and those that could benefit from getting your book sold. Two years ago I went to my first book fair and walked into McGraw Hill’s booth and introduced myself with the hopes of having them publish a book for me. I actually got them interested but because of other commitments to similar books they elected to pass. I went ahead and self-published my first book, Sell to Survive, which sold over 20,000 copies in two years. Only a small amount of these were sold on Amazon and only one book store, One Stoppe Shop in Clearwater carried the book. It’s interesting book stores don’t seem to like self published books even if they sell – no wonder traditional book stores are having problems. This book was successful because of the efforts of my company selling directly to our clients and at my seminars and then catching on by word of mouth. I later hooked up with a niche publishing company that focuses on business books. I ended the relationship before we went to press because it just didn’t feel right. Some thought I was crazy because I finally had a publishing deal but the same day I canceled our arrangement, Wiley Publications called me. They saw me there writing and liked was I was doing and asked me if I would be interested in them publishing my next book. We made a deal and I got busy selling books. Here are some things I learned that may help you get your book to be a best seller: 1) Go where bloggers go and write as many articles as you can about the topic of your book. 2) Survey other authors about what they have done successfully in hopes that you can get them to review, comment or involved with your book’s release. 3) Consider joint ventures where others promoting your book may benefit them. 4) Build your platform that you are going to sell the book to. Publishing companies want to see that you have a way of selling this book. 5) Build your social media and start talking about the books and then hammer it to levels others would consider unreasonable! In the three months before the book came out we added almost 10,000 fans to my Facebook page, 3000 or so on LinkedIn and Twitter and starting making entries to inspire this public about the concepts of the book. This was building our platform. The day of the book’s release I literally made entries sometimes every ten minutes for 18 hours of where the book was in the rankings as it fell from obscurity to 98,000, to 287 and then to #1 on Amazon Business and #1 overall at Barnes. This spurred more interest and had my clients and friends interested in helping the book move to #1. Understand that a few entries on social networks annoy people and seems self promoting. A consistent and unreasonable pounding of social media will get your audience intrigued and involved in moving your book to #1. Grant Cardone, Author and International Sales Expert

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Payrolls in U.S. May Have Increased for Fifth Month, Helping Boost Wages

May 29, 2010

By Shobhana Chandra May 30 (Bloomberg) — Employment probably grew in May for a fifth consecutive month, pointing to gains in wages that will help U.S. households ride out the turmoil in financial markets, economists said before reports this week. Payrolls may have climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. Other reports may show the economic rebound is broadening beyond manufacturing as service providers, including retailers and construction firms, see a pickup in demand. General Electric Co. is among companies hiring, saying the European debt crisis is unlikely to derail the recovery from the worst global recession in the post-World War II era. “The labor market is clearly improving,” said James O’Sullivan , global chief economist at MF Global Ltd. in New York. “At this point, there’s enough momentum in the economy to outweigh the drag from the turmoil in Europe.” The Labor Department’s jobs report is due June 4. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years. The bulk of the hiring probably took place last month. Census Effect Census employment may keep distorting the payroll figures for months as the government dismisses workers when the population count is done. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. The report will probably also show the unemployment rate fell to 9.8 percent last month, according to the survey median, from 9.9 percent. The rate, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs. Factory payrolls probably increased in May for the fifth consecutive month, according to the survey. “This is a point in time when the world needs the U.S. to be a beacon of stability, a beacon of reliability,” GE Chief Executive Officer Jeffrey Immelt said in an interview on May 6. Fairfield, Connecticut-based GE, the world’s largest maker of jet engines, power-generation equipment and locomotives, this month increased the number of jobs it plans to add in Michigan to more than 1,300. Adding a Shift Chrysler Group LLC, the automaker controlled by Fiat SpA and based in Auburn Hills, Michigan, said it will add a second shift to a Detroit factory that makes Jeep Grand Cherokees and hire 1,100 workers at the plant. On June 1, the Institute for Supply Management’s manufacturing index may show factories continued to expand this month after growing in April at the fastest pace since 2004, according to economists surveyed. Manufacturing accounts for about 11 percent of the economy. Two days later, Commerce Department figures may show orders placed with factories rose in April for the eighth consecutive month, according to the survey. The manufacturing rebound has helped underpin shares. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Corp. and Deere & Co., has increased 7 percent this year compared with a 2.3 percent decline in the broader S&P 500. Shares Retreat Since reaching a 19-month high on April 23, the S&P 500 Index has lost 11 percent on mounting concern efforts to trim government deficits in Europe will slow the global recovery. The gains in manufacturing are now being accompanied by a rebound among service industries, which make up about 90 percent of the economy. The Tempe, Arizona-based ISM’s index of non- manufacturing businesses, due on June 3, probably rose last month to the highest level in almost four years, economists surveyed projected. Housing is getting a boost from the extension of a buyer tax credit of as much as $8,000, figures may show on June 2. The National Association of Realtors’ index of signed purchase agreements, or pending home resales, rose in April for the third straight month, according to the Bloomberg survey. Construction spending, due from the Commerce Department on June 1, rose 0.1 percent in April after a gain of 0.2 percent, economists projected. A slump in commercial building is restraining in the industry. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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U.S. Economy: Spending Pauses as Households Save More

May 28, 2010

By Timothy R. Homan and Shobhana Chandra May 28 (Bloomberg) — Consumer spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month. More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 percent of the economy. Profits at retailers including Target Corp. are beating estimates, and General Electric Co. is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets. “We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros , a senior economist at RDQ Economics in New York. “There is a pickup in income growth which is reflective of the improved labor-market picture. That’s what’s required to sustain this moderate pace of spending.” Stocks fell, trimming this week’s gain. The Standard & Poor’s 500 Index fell 1.2 percent to close at 1,089.41 in New York. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.29 percent from 3.36 percent late yesterday. Gain Projected The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 percent gain in spending. Estimates ranged from a decline of 0.1 percent to a 0.6 percent increase. Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks hasn’t unnerved households. “Important fundamentals, like resumption of job growth and rising wealth, are helping consumers get back in the game,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the May index to rise to 73.8. Continued Expansion The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion. “Clearly the factory sector continues to move ahead at a very healthy clip though it’s slowed somewhat from the torrid April pace,” said DeKaser, who correctly forecast the decline. “We’re coming down to a more sustainable pace.” Rising sales and lean inventories are prompting companies to increase production and hiring, helping to broaden the economic recovery beyond manufacturing. Profits at retailers from Target to Gap Inc. are beating estimates as employment picks up. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. More Jobs Payrolls probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, the best performance since the first three months of 2007. Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” To contact the reporters on this story: Timothy R Homan in Washington at thoman1@bloomberg.net ; Shobhana Chandra in Washington at schandra1@bloomberg.net

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Consumer Spending Expansion in U.S. Pauses as Households Rebuild Savings

May 28, 2010

By Timothy R. Homan and Shobhana Chandra May 28 (Bloomberg) — Consumer spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month. More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 percent of the economy. Profits at retailers including Target Corp. are beating estimates, and General Electric Co. is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets. “We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros , a senior economist at RDQ Economics in New York. “There is a pickup in income growth which is reflective of the improved labor-market picture. That’s what’s required to sustain this moderate pace of spending.” Stocks fell, trimming this week’s gain. The Standard & Poor’s 500 Index fell 0.5 percent to 1,097.85 at 12:35 p.m. in New York. The S&P 500 Consumer Staples Index, which includes companies like Wal-Mart Stores Inc. and Procter & Gamble Co. climbed 0.2 percent on signs incomes were improving. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.31 percent from 3.36 percent late yesterday. Gain Projected The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 percent gain in spending. Estimates ranged from a decline of 0.1 percent to a 0.6 percent increase. Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks hasn’t unnerved households. “Important fundamentals, like resumption of job growth and rising wealth, are helping consumers get back in the game,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the May index to rise to 73.8. Continued Expansion The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion. “Clearly the factory sector continues to move ahead at a very healthy clip though it’s slowed somewhat from the torrid April pace,” said DeKaser, who correctly forecast the decline. “We’re coming down to a more sustainable pace.” Rising sales and lean inventories are prompting companies to increase production and hiring, helping to broaden the economic recovery beyond manufacturing. Profits at retailers from Target to Gap Inc. are beating estimates as employment picks up. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. More Jobs Payrolls probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, the best performance since the first three months of 2007. Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” To contact the reporters on this story: Timothy R Homan in Washington at thoman1@bloomberg.net ; Shobhana Chandra in Washington at schandra1@bloomberg.net

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U.S. Economy: Spending Pauses as Households Rebuild Savings

May 28, 2010

By Timothy R. Homan and Shobhana Chandra May 28 (Bloomberg) — Consumer spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month. More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 percent of the economy. Profits at retailers including Target Corp. are beating estimates, and General Electric Co. is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets. “We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros , a senior economist at RDQ Economics in New York. “There is a pickup in income growth which is reflective of the improved labor-market picture. That’s what’s required to sustain this moderate pace of spending.” Stocks fell, trimming this week’s gain. The Standard & Poor’s 500 Index fell 0.5 percent to 1,097.85 at 12:35 p.m. in New York. The S&P 500 Consumer Staples Index, which includes companies like Wal-Mart Stores Inc. and Procter & Gamble Co. climbed 0.2 percent on signs incomes were improving. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.31 percent from 3.36 percent late yesterday. Gain Projected The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 percent gain in spending. Estimates ranged from a decline of 0.1 percent to a 0.6 percent increase. Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks hasn’t unnerved households. “Important fundamentals, like resumption of job growth and rising wealth, are helping consumers get back in the game,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the May index to rise to 73.8. Continued Expansion The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion. “Clearly the factory sector continues to move ahead at a very healthy clip though it’s slowed somewhat from the torrid April pace,” said DeKaser, who correctly forecast the decline. “We’re coming down to a more sustainable pace.” Rising sales and lean inventories are prompting companies to increase production and hiring, helping to broaden the economic recovery beyond manufacturing. Profits at retailers from Target to Gap Inc. are beating estimates as employment picks up. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. More Jobs Payrolls probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, the best performance since the first three months of 2007. Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” To contact the reporters on this story: Timothy R Homan in Washington at thoman1@bloomberg.net ; Shobhana Chandra in Washington at schandra1@bloomberg.net

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Rep. Raúl M. Grijalva: Let’s Tell Big Oil: You Break It, You Buy It

May 28, 2010

In 1989, the Exxon Valdez tanker leaked 11 million gallons of oil into Alaskan waters. The spill took over the American imagination – no one thought a single accident would cause so much ecological damage. It was, for lack of a better term, our environmental Chernobyl. Arctic habitats for birds and marine life quickly became a wasteland. The lawsuits lasted for nearly two decades. Ultimately, the Supreme Court found a punitive damages judgment of $5 billion against Exxon excessive, and the company was asked to pay very little for the economic pain the spill had caused. Exxon recouped most of its cleanup and legal costs thanks to insurance policies. For the world’s oil companies it was a signal that if disaster strikes, toughing it out is preferable to paying your fair share. That cannot happen again with the BP Deepwater Horizon spill. It’s time we brought corporate liability law in line with the scope of this catastrophe. According to the U.S. Geological Survey, Horizon has already leaked between 17 and 39 million gallons. It has officially eclipsed the Exxon Valdez. This spill will impact the Gulf region, and the nation, for decades to come. There’s no question that BP is to blame. There’s also no question that when it comes to oil rig safety, we’ve lived in blissful ignorance long enough. Oil rigs can no longer be presumed safe and sound, either structurally or environmentally. Indeed, this spill is only a surprise to those who weren’t paying attention. On Feb. 24, before Horizon exploded, I wrote a letter to recently departed Minerals Management Service (MMS) Director Elizabeth Birnbaum calling for an MMS investigation of why BP was allegedly allowed to operate a separate rig known as Atlantis, also in the Gulf of Mexico, without 90 percent of its subsea construction documents approved by an engineer. A whistleblower brought his concerns to BP’s and MMS’ attention last year, but nothing was done. Why should it take an act of Congress and a major environmental emergency to get MMS to investigate credible allegations of mismanagement at one of the world’s largest oil rigs? This was not a one-time slipup – the entire MMS culture of cheerleading for the drilling industry has to be recognized for what it is, and it needs to end. MMS is currently conducting its investigation of Atlantis’ safety, but has recently said it will miss its original deadline of May 31 to issue its report. I eagerly await the agency’s findings. But whatever MMS concludes regarding Atlantis, we already know much of what we need to know: oil drilling is about large profits, and MMS allowed industry to pursue those profits at any cost. This is not just hyperbole. Eleven people died on Deepwater Horizon. We’re told that no one could have predicted this, and no one is to blame. I don’t believe that, and neither do the American people. Neither should Congress. BP will pay for the Gulf cleanup, which some experts estimate could cost as much as $14 billion. The effort will take years. But the damage done extends far beyond the environment. Fisherman cannot fish. Tourists are not visiting the hotels or beaches. Restaurants and other small businesses are losing customers left and right, and the tide of oil shows no signs of stopping. The economic life of the Gulf has been devastated. Yet the Oil Pollution Act of 1990 limits the liability of parties responsible for offshore oil spills to cleanup costs, plus $75 million in economic damages. $75 million will not even scratch the surface of the long-term economic damages that Horizon has wrought. That’s why, last week, I introduced HR 5355. The “no cap” bill would completely eliminate the arbitrary $75 million liability cap, because the best way to ensure responsible behavior is to make corporations responsible for their actions. They benefit when things are going well, so why should taxpayers take the hit when things go badly? A single dollar of public money spent to clean up after BP is one dollar too many. When the bottom line is at stake, industry will change its behavior for the better. Any cap we place on economic compensation is inherently arbitrary, so let’s not have one. Hundreds of millions, if not billions, of dollars in revenue will be lost as a result of BP’s careless actions. Livelihoods will be put on hold or simply destroyed. Under current law, BP will only have to pay for a fraction of the damage — yet the company is still blocking journalist access to affected beaches for fear of exposure. It’s time to demand greater responsibility and accountability from the oil industry. Only when these multi-billion dollar companies are forced to bear the full costs of their actions will they take safety seriously. Let’s send a simple, responsible message to Big Oil: “You break it, you buy it.”

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BP `Top Kill’ Operation Temporarily Stops Oil Flow, U.S. Coast Guard Says

May 27, 2010

By Jim Polson May 27 (Bloomberg) — BP Plc made progress toward plugging a leaking well that’s been spewing oil into the Gulf of Mexico for more than a month by temporarily stopping the flow, U.S. Coast Guard Commandant Thad Allen said. “They’ve had some success overnight,” Allen said today in an interview on WWL radio in New Orleans. “Everybody is cautiously optimistic but there’s no reason to declare victory yet.” The company began pumping mud-like drilling fluid into the well at 2 p.m. New York time yesterday in a procedure known as top kill. Robert Dudley , managing director for London-based BP, said on NBC’s “Today” show this morning it would require another 24 hours before the company can “be sure of success.” The effort is aimed at tamping down the gusher of oil and natural gas and then sealing the well with cement. It has halted the flow of oil and gas and BP now must drop the pressure in the well to zero for the cement seal, Allen said. BP jumped as much as 6.6 percent in London trading after the Los Angeles Times quoted Allen as saying that the top kill had succeeded. The Coast Guard issued a “technical clarification” saying the temporary halt in flow doesn’t mean the effort was successful. Success of top kill would bring to an end a leak that has poured millions of gallons of oil into the Gulf and soiled at least 70 miles (113 kilometers) of coast. BP rose 28.9 pence, or 5.9 percent, to 520.9 pence at 3:06 p.m. in London trading. BP may rise to 550 pence or higher should the company confirm top kill success, Jason Kenney , a London-based analyst for ING Commercial Banking, wrote today in a note to clients. ING rates the shares at “buy.” Lessening Cost “Any early cessation of the leak would only lessen the likely final cost of this episode for BP,” Kenney wrote. The well began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig. BP leased the rig from Geneva-based Transocean Ltd. , the largest deepwater driller. “A whole series of failures,” preceded the blowout, BP Chief Executive Tony Hayward said yesterday on CNN. “It will be Friday night or Saturday at the earliest before we know definitively that the well has been killed,” Robert MacKenzie , a Houston-based analyst for FBR Capital Markets, wrote today in a note to clients. “They are in the process of mixing more mud or perhaps even a junk shot to pump before they switch to cement to seal the well.” BP has said a “junk shot” injection of rubber scraps, may be used as needed to seal leaks in the well piping so that enough pressure can be exerted on the column of oil and gas. Obama Response President Barack Obama will announce today the extension of a moratorium that began after oil started to spill from BP’s well, a White House aide said. The president will also cancel a proposal to drill for oil off of the coast of Virginia and planned drilling by Royal Dutch Shell Plc of exploratory wells in the Arctic off Alaska. Obama will discuss the drilling delays at 12:45 p.m. local time today at the White House. The shift is the result of a 30- day safety review on offshore drilling the president ordered from Interior Secretary Ken Salazar , according to the aide, who spoke on condition of anonymity in advance of the official announcement. Chances of Success BP will need to monitor the well and conduct pressure tests to determine if the oil flow has been stopped, Doug Suttles , chief operating officer for exploration and production, said yesterday at a press conference in Robert, Louisiana. “We are taking great care to make sure we complete this job successfully.” Hayward put the chances of the plan working at 60 percent to 70 percent three days ago. The oil slick and areas that appear to have oil on the surface cover about 29,000 square miles, said John Amos, president of Shepherdstown, West Virginia-based SkyTruth, a non- profit organization that uses satellite imagery to measure the spill. That’s an area almost as large as South Carolina. About 100 miles of Louisiana coastline including marshes and beaches have been affected, Coast Guard Rear Admiral Mary Landry said at yesterday’s press conference in Robert. BP said May 22 that 5,000 barrels a day was the best estimate for the rate that oil is pouring from the well, a figure challenged by some independent scientists. The U.S. Geological Survey said today the flow rate was 12,000 barrels to 19,000 barrels a day. The amount of oil being spilled will help determine BP’s liability for the leak. BP’s Costs The spill has cost BP a total of $760 million, or about $22 million a day, the company said May 24. Average daily profit last year was $45 million a day, according to data compiled by Bloomberg . The federal government has spent more than $100 million responding to the spill and will be reimbursed by BP, Landry of the Coast Guard said. BP said yesterday in an e-mailed statement it has paid more than $36 million in damage claims and will appoint an independent mediator to review and assist claims. BP has said the well can be permanently sealed only by one of two relief wells it’s drilling, which won’t be complete before August. BP will clean up “every drop” of oil, Hayward said May 24. Other Alternatives If the top of the well can’t be plugged, the company plans to replace the damaged riser pipe at the well. That requires cutting away a kink in the existing pipe, at least temporarily increasing the size of the leak, BP Senior Vice President Kent Wells said May 25. Crews would then attach a rubber-sealed cap to the top of the blowout preventer, a series of valves designed to cut off flow from the well. That effort would attempt to divert more oil to the surface than BP has been able to manage with a small pipe inserted in the broken riser on May 16, according to Wells. The top kill “procedure has not been carried out in 5,000- feet (1,524-meter) water depth before and BP has stressed its success cannot be assured,” Andrew Whittock , an analyst in London at Oriel Securities Ltd., said in a note yesterday. “Many commentators believe the chance of success is less than 50 percent.” To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

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Durable-Goods Orders in U.S. Last Month Rose More Than Economists Forecast

May 26, 2010

By Courtney Schlisserman May 26 (Bloomberg) — Orders for durable goods rose in April for the fourth time in five months, pointing to strength in U.S. manufacturing at the start of the second quarter. The 2.9 percent increase in bookings for goods meant to last at least three years was the biggest in three months and followed little change in March, figures from the Commerce Department showed today in Washington. Orders excluding transportation unexpectedly fell coming off a revised March gain that was the biggest in almost five years. Rising exports and lean inventories are prompting companies to place more orders with factories, keeping factories at the forefront of the recovery from the worst recession since the 1930s. Corporate and consumer demand that stokes more job growth may help the expansion weather the European debt crisis. “Durable orders in general are holding up pretty solidly,” said Carl Riccadonna , senior U.S. economist at Deutsche Bank Securities Inc. in New York. “That speaks to both consumer and business demand and I think orders are going to hold up for a while longer.” Economists forecast durable goods would rise 1.3 percent after a previously reported 1.2 percent drop in March, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from a drop of 1 percent to a gain of 6.4 percent. Excluding Transportation Excluding transportation, orders fell 1 percent after surging a revised 4.8 percent in March, the biggest gain since August 2005. These bookings were forecast to rise 0.5 percent, according to the survey median. The gain in March was previously estimated at 3.7 percent. Stocks rose and Treasury securities fell after the report. The Standard & Poor’s 500 Index increased 0.8 percent to 1,082.17 at 9:33 a.m. in New York. The 10-year Treasury note declined, pushing up the yield to 3.21 percent from 3.16 percent late yesterday. The advance in total orders last month was paced by a jump in demand for aircraft and gains in communications gear an automobiles. Commercial aircraft orders, which are volatile, climbed 228 percent after dropping 71 percent in March. Boeing Co., the world’s second-biggest commercial-plane maker, said this month it received 34 aircraft orders in April, compared with 43 in March. Deliveries by the company fell to 38, from 43 a month earlier. Industry data often doesn’t correlate for the government statistics on a month-to-month basis. Business Equipment Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, decreased 2.4 percent in April after jumping 6.5 percent the prior month. Over the past three months, these orders climbed at a 22 percent annual pace, up from 15 percent in March, signaling companies are planning to invest in updating their plants. Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after increasing 2.3 percent in March. “We had an excellent report last month and this is a volatile report,” Michael Moran , chief economist at Daiwa Capital Markets America Inc. in New York, said before the figures. “The manufacturing sector is improving, it’s contributing importantly to the recovery.” Orders excluding defense equipment increased 3.4 percent and bookings for military gear fell 2.1 percent. Regional reports have shown manufacturing continuing to expand this month. The Federal Reserve Bank of Philadelphia ’s general economic index rose in May to a five-month high, while a New York Fed gauge showed manufacturing in the state expanded for a 10th straight month. Debt Crisis Factories now face the risk of slower export growth as the debt crisis threatens Europe’s economy. Stocks have plunged globally as concern grows over the European debt crisis. A stronger dollar along with the potential for slower demand from Europe may be a drag on U.S. export growth. Economists at Goldman Sachs Group Inc. estimated trade will reduce economic growth by 0.1 percent to 0.3 percent, according to a May 21 note to clients. General Electric Co. Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” Investment and Exports Meantime, U.S. companies continue to invest. Ford Motor Co., working to make a quarter of its vehicles run at least partly on electricity, said May 24 it plans to invest $135 million and add 220 jobs at three Michigan facilities to help it introduce five such models by 2012. Rising exports also have been a boon to production. Exports rose in March to the highest level since October 2008, the Commerce Department reported May 12. The biggest jump in consumer spending in three years and a 13 percent rise in business investment in new equipment helped the economy expand for a third straight quarter in the first three months of this year, Commerce Department data showed last month. Manufacturers make up 12 percent of the economy. To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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Dollar, Yen Rise as Tensions on Korean Peninsula Boost Demand for Safety

May 23, 2010

By Yoshiaki Nohara and Ron Harui May 24 (Bloomberg) — The dollar and yen rose against higher-yielding currencies as political tension on the Korean peninsula boosted demand for safer assets. The dollar advanced to an eight-month high against the won after South Korea said it will halt trade with its northern neighbor and seek United Nations Security Council action over the sinking of a warship in March. The euro ended three days of gains versus the dollar amid concern Greece’s fiscal crisis will spread to other nations and hamper the region’s economic growth. Yuan forwards gained on speculation Chinese officials will indicate their intention to allow the currency to strengthen during talks with U.S. counterparts in the coming two days. “Geopolitical risk on the Korean peninsula appears to be mounting,” said Takashi Kudo , general manager of market information in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This will probably fuel risk aversion and buying of the yen and the dollar as ‘safe-haven’ currencies.” The dollar rose to $1.2501 per euro as of 12:09 p.m. in Tokyo from $1.2570 in New York on May 21. It strengthened 0.5 percent to 82.79 U.S. cents per Australian dollar and 0.7 percent to 67.40 cents per New Zealand dollar. The yen climbed to 112.69 per euro from 113.13 last week. It gained 0.4 percent to 74.63 versus Australia’s currency and 0.5 percent to 60.77 per New Zealand’s dollar. Japan’s currency was at 90.14 per U.S. dollar from 90.00. North, South Koreas North Korean shipping will be banned from the south’s waters, President Lee Myung Bak said in Seoul today. “If our territorial waters, airspace or territory are violated, we will immediately exercise our right of self- defense,” Lee said. North Korea last week threatened “all-out war” against any move to punish it, including any more UN sanctions. “Risk appetite is pretty weak,” said Gerrard Katz , head of foreign-exchange trading at Standard Chartered Plc in Hong Kong. The won fell 1.3 percent to 1,210.65 per dollar from 1,194.40 on May 20, after earlier reaching 1,220.75, the weakest since Sept. 15, according to Seoul Money Brokerage Services. South Korea’s markets were closed on May 21 for a public holiday. Europe’s common currency weakened versus 13 of its 16 major counterparts after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property loan defaults. The lender, based in the city of Cordoba, Spain, and controlled by the Roman Catholic Church, will be controlled by the government’s bank restructuring fund, the regulator said in an e-mailed statement. ‘Revive Concerns’ “Weekend revelations that the Bank of Spain has acted to support a regional lender is likely to weigh on the euro,” Gareth Berry , a currency strategist at UBS AG in Singapore, wrote in a note to clients. “This will probably revive concerns about the broader stability of the euro-zone banking system.” European Union finance ministers last week pledged to stiffen sanctions imposed on high-deficit countries and ruled out setting up a mechanism to manage state defaults. The euro has lost 6.1 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 9.2 percent, and the yen has advanced 13.1 percent. The fastest convergence in short-term interest rates in almost a year is making the euro a surprise addition to currencies used to finance investments in higher-yielding assets. “The hot guys are moving into using the euro as a funding currency,” said John Taylor , who helps oversee $7.5 billion as chairman of New York-based FX Concepts LLC, manager of the world’s largest foreign-exchange hedge fund. “It’s not quite as cheap as the yen but it’s a lot safer in a crisis, because the worse the world looks the worse the euro looks.” Borrowing in Euros Borrowing in euros to finance an investment in the Australian dollar, New Zealand dollar, Brazilian real and Norwegian krone returned 10 percent in the past 6 months, according to data compiled by Bloomberg. The same trade using the dollar instead of the 16-nation currency resulted in a 7.5 percent loss, and a 7.4 percent decline with the yen. Under the German-inspired Stability and Growth Pact, nations with deficits above 3 percent of gross domestic product face fines unless they get the budget back into compliance. No country has been fined during the euro’s 11-year lifespan. The Dollar Index rose for the first time in four days before U.S. reports that economists said will show the housing market is improving and consumers turned the most optimistic in 20 months. U.S. Recovery U.S. existing home sales rose to an annual rate of 5.65 million in April, from 5.35 million the previous month, according to a Bloomberg survey before the National Association of Realtors report today. The Conference Board’s confidence index climbed to 59 this month from 57.9 in April, according to another survey before tomorrow’s data. That would be the highest since September 2008. “The U.S. is experiencing a V-shaped recovery,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Against this backdrop, the greenback is likely to be supported.” The Dollar Index , which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, gained 0.5 percent to 85.757. Twelve-month non-deliverable yuan forwards climbed 0.2 percent to 6.7290 per dollar in Hong Kong, reflecting bets the currency will strengthen 1.5 percent from the spot rate of 6.8275, according to data compiled by Bloomberg. Chinese President Hu Jintao reiterated a pledge to steadily work toward reform of the yuan at the opening of China-U.S. talks in Beijing today. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger ties between the world’s largest and third-largest economies. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Dollar, Yen Rise as Tensions on Korean Peninsula Boost Demand for Safety

May 23, 2010

By Yoshiaki Nohara and Ron Harui May 24 (Bloomberg) — The dollar and yen rose against higher-yielding currencies as political tension on the Korean peninsula boosted demand for safer assets. The dollar advanced to an eight-month high against the won after South Korea said it will halt trade with its northern neighbor and seek United Nations Security Council action over the sinking of a warship in March. The euro ended three days of gains versus the dollar amid concern Greece’s fiscal crisis will spread to other nations and hamper the region’s economic growth. Yuan forwards gained on speculation Chinese officials will indicate their intention to allow the currency to strengthen during talks with U.S. counterparts in the coming two days. “Geopolitical risk on the Korean peninsula appears to be mounting,” said Takashi Kudo , general manager of market information in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This will probably fuel risk aversion and buying of the yen and the dollar as ‘safe-haven’ currencies.” The dollar rose to $1.2501 per euro as of 12:09 p.m. in Tokyo from $1.2570 in New York on May 21. It strengthened 0.5 percent to 82.79 U.S. cents per Australian dollar and 0.7 percent to 67.40 cents per New Zealand dollar. The yen climbed to 112.69 per euro from 113.13 last week. It gained 0.4 percent to 74.63 versus Australia’s currency and 0.5 percent to 60.77 per New Zealand’s dollar. Japan’s currency was at 90.14 per U.S. dollar from 90.00. North, South Koreas North Korean shipping will be banned from the south’s waters, President Lee Myung Bak said in Seoul today. “If our territorial waters, airspace or territory are violated, we will immediately exercise our right of self- defense,” Lee said. North Korea last week threatened “all-out war” against any move to punish it, including any more UN sanctions. “Risk appetite is pretty weak,” said Gerrard Katz , head of foreign-exchange trading at Standard Chartered Plc in Hong Kong. The won fell 1.3 percent to 1,210.65 per dollar from 1,194.40 on May 20, after earlier reaching 1,220.75, the weakest since Sept. 15, according to Seoul Money Brokerage Services. South Korea’s markets were closed on May 21 for a public holiday. Europe’s common currency weakened versus 13 of its 16 major counterparts after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property loan defaults. The lender, based in the city of Cordoba, Spain, and controlled by the Roman Catholic Church, will be controlled by the government’s bank restructuring fund, the regulator said in an e-mailed statement. ‘Revive Concerns’ “Weekend revelations that the Bank of Spain has acted to support a regional lender is likely to weigh on the euro,” Gareth Berry , a currency strategist at UBS AG in Singapore, wrote in a note to clients. “This will probably revive concerns about the broader stability of the euro-zone banking system.” European Union finance ministers last week pledged to stiffen sanctions imposed on high-deficit countries and ruled out setting up a mechanism to manage state defaults. The euro has lost 6.1 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 9.2 percent, and the yen has advanced 13.1 percent. The fastest convergence in short-term interest rates in almost a year is making the euro a surprise addition to currencies used to finance investments in higher-yielding assets. “The hot guys are moving into using the euro as a funding currency,” said John Taylor , who helps oversee $7.5 billion as chairman of New York-based FX Concepts LLC, manager of the world’s largest foreign-exchange hedge fund. “It’s not quite as cheap as the yen but it’s a lot safer in a crisis, because the worse the world looks the worse the euro looks.” Borrowing in Euros Borrowing in euros to finance an investment in the Australian dollar, New Zealand dollar, Brazilian real and Norwegian krone returned 10 percent in the past 6 months, according to data compiled by Bloomberg. The same trade using the dollar instead of the 16-nation currency resulted in a 7.5 percent loss, and a 7.4 percent decline with the yen. Under the German-inspired Stability and Growth Pact, nations with deficits above 3 percent of gross domestic product face fines unless they get the budget back into compliance. No country has been fined during the euro’s 11-year lifespan. The Dollar Index rose for the first time in four days before U.S. reports that economists said will show the housing market is improving and consumers turned the most optimistic in 20 months. U.S. Recovery U.S. existing home sales rose to an annual rate of 5.65 million in April, from 5.35 million the previous month, according to a Bloomberg survey before the National Association of Realtors report today. The Conference Board’s confidence index climbed to 59 this month from 57.9 in April, according to another survey before tomorrow’s data. That would be the highest since September 2008. “The U.S. is experiencing a V-shaped recovery,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Against this backdrop, the greenback is likely to be supported.” The Dollar Index , which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, gained 0.5 percent to 85.757. Twelve-month non-deliverable yuan forwards climbed 0.2 percent to 6.7290 per dollar in Hong Kong, reflecting bets the currency will strengthen 1.5 percent from the spot rate of 6.8275, according to data compiled by Bloomberg. Chinese President Hu Jintao reiterated a pledge to steadily work toward reform of the yuan at the opening of China-U.S. talks in Beijing today. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger ties between the world’s largest and third-largest economies. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Recovery in U.S. Probably Broadened Before Debt Crisis Sank Stock Markets

May 23, 2010

By Bob Willis May 23 (Bloomberg) — Orders for factory goods, sales of new and existing homes and consumer spending probably climbed in April, indicating the U.S. recovery was strengthening before the European debt crisis rattled global financial markets, economists said reports this week may show. Bookings for durable goods increased 1.5 percent, according to the median of 60 estimates in a Bloomberg News survey ahead of a Commerce Department report May 26. Combined sales of new and existing homes last month probably rose 5.5 percent to an annual rate of 6.08 million, while household purchases probably rose for a seventh month, other surveys showed. “We’re in the early stages of a lasting recovery,” said David Resler , chief economist at Nomura Securities International Inc. in New York. “We had been leaning toward raising our growth forecasts, but the financial turmoil has given us pause to delay any upgrade.” The plunge in shares may undermine confidence, limiting gains in exports and business spending that have propelled the biggest rebound in factory production in a decade. Housing, which has bounced back this quarter thanks to a government tax incentive and better weather, may also cool in the second half of the year as unemployment hovers around 10 percent. The projected rise in durable goods orders would follow a 1.2 percent decline in March that was driven by a 67 percent plunge in civilian aircraft orders. Boeing Co ., the world’s second-biggest commercial-plane maker, said it received 34 orders in April, down from 43 a month earlier. Exports, Inventories Rising exports, the need to replenish depleted inventories and spending on new equipment and software are generating production gains that are leading the economy out of its worst recession in seven decades. Factory production climbed 6 percent in the 12 months to April, the biggest over-over-year increase since April 2000. Government stimulus funding for energy efficiency and infrastructure projects is also spurring orders. Honeywell International Inc ., maker of the iconic “round thermostats,” expects more stimulus-related revenue this year at its Building Solutions unit as some of the almost $20 billion in government money earmarked for energy-efficiency projects becomes more accessible. Stimulus Funds Building Solutions has about $100 million in stimulus- financed orders scheduled for delivery in the next 24 months, unit president Paul Orzeske said in an interview this month. “We’ve got a lot in our funnel, in our pipeline of new business and projects,” and the portion of orders supported by federal stimulus money has increased “significantly,” he said. The rebound in manufacturing has helped shares of machinery makers outperform the broader market, even after the recent plunge on concerns the European debt crisis will slow growth. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Corp. and Briggs & Stratton Corp., has increased 5.7 percent this year compared with a 2.5 percent decline in the broader S&P 500. The 500 Index has lost 11 percent since reaching a 19-month high on April 23. “The continued sharp erosion in financial conditions has revived the very small chance of a very big disappointment for the path of economic recovery,” economists at Citigroup Global Markets Inc. in New York, headed by Robert DiClemente , wrote in a May 21 note to clients. “If not reversed, the recent setbacks in credit and equity markets would signal subpar growth and only limited gain in employment.” The recovery from the worst housing slump since the Great Depression has been more uneven and largely driven by the timing of a government homebuyer tax credit worth as much as $8,000. The program covers closings through June as long as contracts were signed by the end of April. Home Sales Sales of previously owned homes probably rose 5.6 percent in April to a 5.65 million-unit annual pace, according to the survey ahead of the National Association of Realtors’ report tomorrow. A report due two days later from the Commerce Department may show purchases of new houses rose 3.4 percent to a 425,000 rate last month, according to the survey median. Bolstered by an improving job market and tax refunds, consumers increased spending in April by 0.3 percent after a 0.6 percent gain the prior month, economists forecast the Commerce Department will report May 28. Personal income probably rose 0.4 percent after a 0.3 percent gain the prior month. Consumers probably became more optimistic in May as the outlook for employment improved after the economy generated 290,000 new jobs in April, the most in four years. The Conference Board’s confidence index probably rose to 59 this month, the highest level since September 2008, economists forecast before the May 25 report. Finally, the Commerce Department will probably report the economy grew at a 3.4 percent pace in the first quarter, more than the 3.2 percent rate it estimated last month in an advance report as consumer spending improved more than initially calculated. Those figures are due May 27. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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U.S. Stock Futures Maintain Advance on Housing Starts, Producer Price Data

May 18, 2010

By Daniela Silberstein May 18 (Bloomberg) — U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index may extend yesterday’s late rebound, as concern eased that the measures aimed at reducing fiscal deficits in Europe will hamper growth. Home Depot gained 1 percent in early New York trading after raising its annual profit forecast. Citigroup Inc. rose 2.1 percent. Alcoa Inc., the largest U.S. aluminum producer, and Exxon Mobil Corp. rose with higher metal and oil prices. Fidelity National Information Services Inc. tumbled 6.5 percent after takeover talks with private-equity firms fell apart, according to people familiar with the situation. Futures on the S&P 500 expiring in June gained 0.5 percent to 1,140 at 7:40 a.m. in New York. Dow Jones Industrial Average futures climbed 0.4 percent to 10,642 and Nasdaq-100 Index futures added 0.5 percent to 1,923.5. “There is hope that the waves from Europe will become smaller,” said Rudolf Buxtorf , who helps manage about $500 million at RBS Coutts Bank in Zurich. “At some point we have to assume that the worst is over and that there are still good opportunities in the market. U.S. economic numbers should also be supportive for the market.” The Dow erased a 184-point drop in the final hour of trading yesterday as the euro’s rebound from a four-year low bolstered optimism that the shared European currency will weather the region’s debt crisis. European finance ministers said today that Greece’s debt crisis won’t unleash a continent- wide austerity drive with the potential to tip the economy back into a recession. ‘Very Uniform Way’ “Not everyone will accelerate consolidation in a very uniform way,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after a meeting of ministers from the 16 euro countries. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.” The S&P 500 has lost 6.6 percent from its high for the year on April 23 as credit-ratings downgrades of Greece, Portugal and Spain added to concern that European governments will struggle to fund budget deficits. Builders probably broke ground in April on the most U.S. homes since 2008 as buyers took advantage of a tax credit before its expiration, economists said before Commerce Department figures due at 8:30 a.m. in Washington. Housing starts rose 3.8 percent to a 650,000 annual rate last month, according to the median forecast of 76 economists surveyed by Bloomberg News. The report may also show building permits, a sign of future construction, grew at a 680,000 annual rate, matching the pace in March that was the highest since October 2008, according to the survey median. A separate report may show producer prices rose 0.1 percent in April. Home Depot Home Depot climbed 1 percent to $35.95 in pre-market trading in New York. The largest U.S. home-improvement retailer raised its annual profit forecast after first-quarter profit exceeded analysts’ estimates on demand for seasonal merchandise Excluding some items, earnings were 45 cents a share. Analysts projected 40 cents, the average of 24 estimates compiled by Bloomberg. Home Depot raised its forecast for full-year profit to $1.88 a share from $1.79. Analysts estimate $1.87 on average. Citigroup, the bank 27 percent owned by the U.S. government, rose 2.1 percent to $3.94 in early New York trading. Copper Rebounds Alcoa gained 0.7 percent to $12.17. Copper rose in London, rebounding from the biggest two-day slump since December 2008, on a weaker dollar and on reduced concern that austerity measures may threaten Europe’s economic recovery. Aluminum, lead, zinc and nickel also climbed. Exxon , the biggest U.S. energy company, advanced 0.5 percent to $63.60 in New York. Crude oil rose after dipping below $70 a barrel to a five-month low in New York yesterday, on forecasts that demand is picking up in the U.S. Fidelity National fell 7.7 percent to $26.65 in New York, after a 7.5 percent drop in extended trading yesterday. Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital dropped a plan to bid for Fidelity National as the Jacksonville, Florida-based company sought a higher price than the firms were offering, scuttling what would have been the biggest leveraged buyout in almost three years. Blackstone dropped 2 percent to $11.84 in Germany. To contact the reporters on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net .

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Treasury Bears Retreat From Rate Rise Forecasts as Europe Demands Dollars

May 16, 2010

By Daniel Kruger and Cordell Eddings May 17 (Bloomberg) — Europe’s sovereign debt crisis is prompting some of the Treasury market’s biggest bears to reverse calls for Federal Reserve interest-rate increases this year. Morgan Stanley, Wrightson ICAP and Pierpont Securities LLC say the Fed will keep interest rates near zero percent after the European Union unveiled an almost $1 trillion loan package to halt a slide in the euro and local bonds that threatened to shatter the currency union. Futures show traders place a 40 percent likelihood that the central bank will raise borrowing costs by December, down from 73 percent a month ago. “This is a mea culpa from me on our rate call,” James Caron , global head of interest-rate strategy at Morgan Stanley, wrote at the start of a May 13 report. The New York-based firm, the most pessimistic among the Fed’s 18 primary dealers, reduced its year-end 10-year note yield forecast to 4.5 percent from 5.5 percent. “We did not appropriately discount the sovereign risk conditions which have contributed to keeping yields low.” Firms that started 2010 predicting a second consecutive year of losses in U.S. government debt are growing less pessimistic after the Fed opened currency swap lines last week to central banks to ensure European financial institutions have access to dollars, expanding the Fed’s balance sheet. Treasuries, the benchmark for everything from corporate bonds to mortgage rates, have returned 3.4 percent since December, including reinvested interest, the most at this point in a year since gaining 8.48 percent in 1995, according to Bank of America Merrill Lynch indexes. ‘Intense Focus’ While policy makers are putting plans in place to reduce reserves as a step toward bringing borrowing costs back into line after cutting the target for overnight loans between banks during the 2008 credit crunch, the swap lines put those efforts on hold, said Lou Crandall, the chief economist at Wrightson, a Jersey City, New Jersey-based unit of ICAP Plc that specializes in U.S. government finance research. The Fed’s balance sheet increased by $10 billion to almost record $2.34 trillion in the week ended May 12 as seven firms took advantage of the swap lines to arrange dollar loans through the European Central Bank. That’s up from less than $2 trillion as recently as August. “The fact that they felt they need to do this reflects the attitude that they’re not anywhere near considering a rate hike,” Crandall said in an interview May 11. It shows “their intense focus on rebuilding a damaged global financial system,” he said. Wrightson pushed back its forecast for a Fed increase to the first half of 2011 from November. Policy makers have kept their target rate in a range of zero to 0.25 percent since December 2008. Underpinning Bonds The yield on the two-year Treasury fell to 0.78 percent last week, the lowest since Feb. 8. The price of the 1 percent note due April 2012 rose 2/32, or 63 cents per $1,000 face amount, to 100 13/32 last week, according to BGCantor Market Data. Ten-year note yields rose 3 basis points to 3.45 percent. The median estimate of 72 economists surveyed by Bloomberg News from April 29 to May 10 is for the federal funds rate to rise to 0.5 percent by year-end. That’s down from 0.75 percent in the previous monthly poll. Federal Reserve Bank of Chicago President Charles Evans said “very accommodative” rates are appropriate, though they will have to rise over time. The Fed said last month the labor market was improving and household spending has picked up as it reiterated rates will stay near zero for an “extended period.” ‘More Uncertain’ “The risks, obviously, with the global situation make things a little bit more uncertain than we were expecting,” Evans told reporters May 14. “If anything, I’m even more comfortable with my assessment that accommodation continues to be appropriate.” Forecasters have been reluctant to lower their yield forecasts because of the improving economy. The two-year note yield may rise to 1.70 percent this year, according to the median estimate of 63 strategists and economists surveyed by Bloomberg. That would result in a loss of about 0.71 percent. The sovereign crisis sweeping Europe is unlikely to produce the fallout like the seizure in credit markets did, according to Michael Darda , the chief economist at MKM Partners LP in Greenwich, Connecticut. “It is probably going to be a mistake for investors to interpret this as a replay of 2007-2008,” Darda said. “Ultimately this is going to prove to be temporary. I don’t think this is a turning point.” Rates and Growth Analysts are paring interest-rate forecasts even as the economy accelerates. After contracting 2.4 percent in 2009, the U.S. will expand 3.2 percent this year and 3 percent in 2010, the median forecasts of 90 economists in a Bloomberg News survey. The reduction of forecasts is a function of the turmoil in Europe and concern financial institutions there may suffer losses. The euro zone economy is forecast to grow 1.05 percent this year and 1.45 percent in 2011, another survey shows. Demand for dollars and U.S. assets increasing, as is typical in times of stress, such as after Lehman Brothers Holdings Inc.’s collapse in September 2008. Foreign bank borrowing of dollars from their U.S. offices increased almost 50 percent to $353.3 billion in the three months ended May 5, Fed data tracked by Nomura Holdings Inc. shows. The jump is the largest quarterly percentage rise since 2007. Basis Swaps The rate on one-year cross-currency basis swaps between euros and dollars reached minus 58.75 basis points this month, the largest effective premium for dollar borrowing since February 2009. Basis swaps allow investors to borrow in one currency and simultaneously lend in another. While the EU shares a common monetary policy, members are responsible for their own fiscal decisions. That allowed Greece’s budget deficit to expand to almost 14 percent of its gross domestic product, exceeding the EU’s 3 percent limit without penalty. Germany’s is 3.2 percent of its GDP. “The issue with this big bailout package is it probably stabilizes things in the short run but doesn’t address the root causes of the problem,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. “These countries are going to have to get their fiscal houses in order, and if they don’t, given the mechanisms that have been put into place, it creates an unsustainable situation.” Stanley, the former chief economist at primary dealer RBS Securities, expects rates to remain unchanged this year, down from an earlier forecast for an increase to 1.5 percent. Fed Counterweight By implementing the currency swaps, Fed Chairman Ben S. Bernanke is positioning the Fed as a counterweight to the austerity plans in Europe that threaten the recovery in the U.S., Crandall said. Greek Prime Minister George Papandreou has said he would cap wages for some state workers and impose a partial hiring freeze in a first round of measures to reduce the nation’s deficit. On May 12 Spain’s Prime Minister, Jose Luis Rodriguez Zapatero , announced the biggest round of budget reductions in 30 years including a 5 percent cut in public wages. In Portugal, Finance Minister Fernando Teixeira dos Santos says he’s prepared for “social tension” after announcing additional cuts. “The prospect that fiscal policies around the world are going to be tightening sooner than thought because the bond vigilantes finally started riding is a reason to think the monetary policy will be slower to adjust,” Crandall said. If not for Europe’s sovereign debt crisis, Richard Schlanger would be selling Treasuries, instead of buying. ‘Not Completely Convinced’ “Based on domestic fundamentals you have to say that Treasuries are overbought,” said Schlanger, who helps invest $18 billion in fixed-income securities as vice president at Pioneer Investments in Boston. He added to his U.S. government debt holdings even though “things are improving domestically” because the threat to the U.S. economy and global financial markets makes holding safe assets necessary, he said. “They can stick their fingers in the dykes and it may prevent the initial leakage, but I’m not completely convinced that this is a panacea,” Schlanger said. “There going to be broader implications: slower growth, less inflation.” To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net ; Cordell Eddings in New York at ceddings@bloomberg.net .

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New Home Construction in U.S. Probably Climbed as Tax Credit Boosted Sales

May 16, 2010

By Shobhana Chandra May 16 (Bloomberg) — Home construction probably picked up in April, the growth outlook improved and the cost of living was little changed, showing the U.S. economy is expanding without stoking inflation, economists said before reports this week. Work began on 650,000 houses at an annual pace last month, the most since November 2008, according to the median forecast of 62 economists surveyed by Bloomberg News before Commerce Department figures on May 18. Other reports may show the index of leading indicators climbed for a 13th straight month, while consumer prices rose 0.1 percent. A government tax credit worth as much as $8,000 helped sales of new houses surge in March by the most in five decades, which may lead to a rebound in construction in coming months after builders trimmed inventories. Minutes of the Federal Reserve’s April meeting, also due this week, may shed more light on policy makers’ assessment of the economy. The tax incentive “gave a boost to developers too,” said Michael Englund , chief economist at Action Economics LLC in Boulder, Colorado. “The economy is growing at a modest pace, and in the short run, there’s no reason to worry about inflation.” The Conference Board’s measure of the economy’s outlook for the next three to six months climbed 0.2 percent last month, according to the survey median. The figures, due on May 20, would follow a 1.4 percent gain in March that was the most since a similar rise in May 2009. The Commerce Department’s housing report may show building permits , a sign of future construction, grew at a 680,000 rate, matching the pace of the prior month that was the highest since October 2008. Tax Credit The tax incentive for first-time homebuyers, which was extended in November to include some current owners, required contracts be signed by April 30 and settled by June 30. Sales of new homes surged in March by the most since 1963, and purchases of existing homes rose for the first time in four months as the deadline approached. The jump in sales in March brought the number of new houses on the market down to 228,000, the fewest since March 1971, one reason builders may keep taking on projects even as they compete with foreclosed homes coming back on the market. The rebound in demand also lifted builder confidence this month to the highest level since April 2008, a report may show tomorrow. The National Association of Home Builders/Wells Fargo’s index rose to 20 from 19 in April, according to the Bloomberg survey median. Even so, readings below 50 mean a majority of respondents said conditions remained poor. Foreclosure Filings 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 released last week. A sustained recovery in housing and the economy will depend on faster job creation. Employment increased in April by the most in four years, and the economy has added jobs for four consecutive months. At the same time, economists project the unemployment rate will end the year above 9 percent, according to a Bloomberg survey taken this month. Pulte Group Inc. , the largest U.S. homebuilder by revenue, is among companies waiting for signs the improvement in housing will last beyond the end of the government assistance. Bloomfield Hills, Michigan-based Pulte said its first-quarter net loss narrowed from a year earlier. The number of houses it sold fell even as it combined operations with rival Centex Corp. Bottom, Not Recovery “The U.S. housing industry is finding, and may have already found, a bottom, but that’s different from saying that a recovery is at hand,” Richard J. Dugas , Pulte’s chairman and chief executive officer, said on a conference call with analysts on May 5. “Any meaningful sustained improvement will require employment gains, and in turn, better consumer confidence.” The Standard & Poor’s Homebuilder Supercomposite Index has climbed 14 percent this year, compared with a 1.9 percent gain in the broader S&P 500. Price pressures are limited, a pair of reports from the Labor Department may show. The producer price index , due on May 18, rose 0.1 percent in April from the prior month, according to the Bloomberg survey median. Consumer costs are also forecast to rise 0.1 percent, the same as in March, economists projected. Excluding food and fuel, the so-called core rate probably also rose 0.1 percent. “Inflation is likely to be subdued for some time,” Fed policy makers said in a statement after their April 28 meeting, when they signaled the main interest rate will remain near zero for an “extended period.” Minutes of that gathering will be released on May 19. Regional Fed reports may show manufacturing kept driving the economy’s recovery from the worst recession since the 1930s. The Fed Bank of Philadelphia ’s general economic index, due on May 21, rose in May for the fourth straight month, while the Fed Bank of New York ’s gauge expanded for the 10th month, economists projected. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Retail Sales in U.S. Rise for Seventh Straight Month as Recovery Quickens

May 14, 2010

By Timothy R. Homan May 14 (Bloomberg) — Sales at U.S. retailers climbed in April for a seventh straight month, signaling consumers are helping to broaden the economic recovery. Purchases increased 0.4 percent last month, exceeding the median estimate of economists surveyed by Bloomberg News, after a 2.1 percent gain in March that was larger than previously estimated, Commerce Department figures showed today in Washington. The advance was led by automobile dealers and building-material stores. Further gains in consumer spending may give companies the confidence to keep hiring after payrolls climbed in April by the most in four years, helping households to continue shopping. More employment would ensure the recovery from the worst recession since the 1930s is sustained. “The consumer remains resilient,” said Tom Simon, an economist at Jefferies & Co. in New York, who accurately forecast the sales increase. “If employment continues to grow on the path that it has, it will certainly support sales.” Stock-index futures held earlier losses after the report on concern that Europe’s debt crisis will hurt economic growth. The contract on the Standard & Poor’s 500 Index fell 0.7 percent to 1,148.2 at 8:42 a.m. in New York. Treasury securities rose. Retail sales were projected to increase 0.2 percent, according to the median estimate of 83 economists in a Bloomberg survey. Forecasts ranged from a decline of 0.8 percent to a gain of 0.7 percent. Excluding Autos Purchases excluding autos were projected to increase 0.4 percent, according to the survey median. The gain in sales wasn’t as broad-based as in prior months, which may reflect the influence of an early Easter. More holiday-related shopping probably took place in March at the expense of April. After revisions, the March increase in purchases matched the increase last August as the biggest since January 2006. Six of 13 major categories showed increases in sales last month, led by a 6.9 percent advance at building-material stores such Home Depot Inc. Purchases of automobiles rose 0.5 percent, counter to industry figures which showed a drop. Spending at service stations, health care stores and restaurants also climbed. Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales decreased 0.2 percent, the first drop since July. Early Easter Chain stores reported the smallest increase in monthly sales since November, industry figures showed last week. Demand was dragged down by teen-clothing retailers Abercrombie & Fitch Co. and Aeropostale Inc., and the early Easter. Sales at electronics and appliance stores dropped even as Americans snapped up Apple Inc.’s iPad. Chief Executive Officer Steve Jobs of Cupertino, California-based Apple said last week the company sold its millionth iPad, a tablet computer, on April 30. Apple sold out of all three versions of the iPad 3g, which went on sale two weeks ago, at its stores in 13 U.S. cities. “Demand continues to exceed supply,” Natalie Kerris, a spokeswoman for Apple, said May 6. “We’re working hard” to provide iPads to additional customers, she said. Job Gains One reason Americans are spending may be that the labor- market recovery is accelerating. Payrolls increased by 290,000 in April, the most in four years, according to figures from the Labor Department last week. Unemployment climbed to 9.9 percent from 9.7 percent as thousands of jobseekers entered the workforce. Consumer spending has increased for six months through March, the government reported on May 3. Economists surveyed by Bloomberg this month forecast purchases to increase 2.6 percent in 2010. Purchases declined in 2009 and 2008, the first back- to-back decrease since the 1930s. Gross domestic product grew at a 3.2 percent annual rate in the first quarter after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed last month. Household spending last quarter climbed at the fastest pace in three years. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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New Roundtable Survey Finds Improved Sentiment Among CRE Execs

May 11, 2010

Chalk up another survey of commercial real estate executives turning from “gloom-and-doom” to the “increasingly optimistic” column. The latest quarterly survey of industry sentiments by Real Estate Roundtable reflects the growing belief among executives…

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Recovery in U.S. Gains Traction on Improved Outlook for Consumer Spending

May 11, 2010

By Bob Willis and Alex Tanzi May 11 (Bloomberg) — The U.S. economic recovery is taking on a life of its own as more jobs, rising wealth and easier credit give Americans the means to keep spending, according to economists surveyed by Bloomberg News. Consumer purchases will grow at a 3 percent annual pace in the second quarter, according to the median estimate of 61 economists surveyed from April 29 to May 10, up from the 2.5 percent clip projected last month. The economic growth outlook for the quarter and the rest of the year also brightened. The strongest employment gain in four years signals the world’s largest economy is evolving away from dependence on government stimulus toward an enduring rebound, making it more resilient to shocks like the European debt crisis. A lack of inflation and the risks to financial markets posed by growing government debt here and abroad means the Federal Reserve will be slower to raise interest rates than previously thought. “Everything is cranking up a notch,” said Nariman Behravesh , chief economist at IHS Global Insight in Lexington, Massachusetts, who raised forecasts for spending and growth. “Once recoveries build up a head of steam, they tend to become much more self-sustaining.” Payrolls climbed by 290,000 workers in April, the most in four years, and the unemployment rate unexpectedly rose to 9.9 percent as thousands of job seekers entered the labor force looking for work. Private payrolls rose by 231,000, and factory employment climbed by 44,000, the most since 1998. Unemployment Forecast Unemployment will end the year at 9.4 percent, according to the survey median, the same as forecast a month ago. Economists raised consumer spending forecasts for the entire survey horizon, spanning through 2012. Household purchases, which account for about 70 percent of the economy, will grow 2.6 percent this year, the most since 2007, the survey showed. Purchases dropped 0.6 percent in 2009 and 0.2 percent in 2008, the first back-to-back decline since the 1930s. “The consumer is back in the game and employment growth is going to be strong this year,” said Kurt Karl , chief U.S. economist at Swiss Reinsurance Co. in New York. The 71 percent rebound in the Standard & Poor’s 500 Index from a 12-year low reached in March 2009, and a firming in home values are helping improve the spending outlook, economists said. Also, 14 percent of banks surveyed last quarter said they were willing to extend consumer installment loans though instruments such as credit cards, according to a Fed data, the most in four years. MasterCard Inc., the world’s second-biggest electronic payments network, posted a first-quarter profit that beat most analysts’ estimates as it held down costs and spending rebounded. ‘Self-Sustaining’ “The global economy has reached a self-sustaining momentum,” Chief Executive Officer Robert W. Selander said last week in a conference call with analysts. Stocks rallied around the world yesterday, sending the MSCI World Index up the most in 13 months, after the 16 euro nations agreed to lend as much as 750 billion euros ($962 billion) to the most indebted countries to avert spillover from the Greek debt crisis. The Standard & Poor’s 500 Index surged 4.4 points, erasing almost two-thirds of last week’s 6.4 percent plunge. The improved outlook for consumers will probably boost growth. Economists raised their forecasts for the gain in gross domestic product this year to 3.2 percent from 3 percent a month ago. Preferred Gauge The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.2 percent this year, the smallest gain since 1962, according to this month’s survey median. The lack of inflation and the European crisis may spur the Fed to be more cautious in raising the target rate for overnight loans between banks from its current range of zero to 0.25 percent, economists said this month. The rate will rise to 0.5 percent by December, down from an earlier forecast of 0.75 percentage point, according to the survey median forecast. “The fiscal tightening implicit to the remedy for sovereign debt concerns ought to help keep inflation risks well contained and moderate the Fed’s early steps toward normalizing monetary policy,” said John Lonski , chief economist at Moody’s Capital Markets Group in New York, who was among those lowering Fed interest-rate forecasts. “It will help convince the Fed of the need to proceed more cautiously with rate hikes.” The recovery is “likely to be moderate for a time,” central bankers said in their latest policy statement on April 28 as they reiterated a commitment to keep the benchmark lending rate low “for an extended period.” To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net ; Alex Tanzi in Washington at atanzi@bloomberg.net

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Bank of England May Keep Emergency Stimulus as Election Deadlock Persists

May 9, 2010

By Jennifer Ryan May 10 (Bloomberg) — The Bank of England will probably maintain its emergency economic stimulus today as the post- election deadlock leaves officials in suspense on the scope of government spending cuts to curb the record budget deficit . The Monetary Policy Committee, led by Governor Mervyn King , will keep its bond holdings at 200 billion pounds ($297 billion) for a fourth month and maintain the benchmark interest rate at a record low of 0.5 percent, two surveys of economists by Bloomberg News showed. The bank will announce the outcome of its meeting at noon in London. Bank of England officials will discuss new forecasts after evidence that the economic recovery lost momentum, in a decision overshadowed by the power vacuum left by the May 6 election and the threat of contagion from Greece’s debt crisis. Conservative and Liberal Democrat negotiators held a third round of coalition talks yesterday as they struggled to form a government. “The bank will want the uncertainty over the fiscal outlook to be cleared up as soon as possible, and it’s not entirely clear what concerns on contagion from Greece should require them to do,” Jonathan Loynes , an economist at Capital Economics Ltd. in London, said in an interview yesterday. “It all suggests they’ll want to stand pat for now.” The Bank of England delayed its decision by four days to await the election outcome. All 36 economists in a Bloomberg News survey predicted no change in the bond plan, and all 57 in a separate survey forecast the bank rate to stay unchanged. The Conservatives, led by David Cameron , won 306 seats, not enough to command a majority in Parliament. Prime Minister Gordon Brown ’s Labour Party retained 258 seats, while Nick Clegg ’s Liberal Democrats held 57. Pound Drop The pound sank the most in 1 1/2 years against the euro and fell to a 13-month low against the dollar last week as the election failed to produce an outright winner. It was at $1.4780 and 85.98 pence per euro at the close on May 7. Coalition discussions between Clegg and Cameron have centered on tax and spending policies, and electoral reform. Clegg and Brown also held talks yesterday. Credit rating companies Standard & Poor’s and Moody’s Investors Service said on May 7 that the U.K.’s top AAA rating is safe while negotiations continue, though that’s contingent on a plan to trim the deficit from the record 12 percent of gross domestic product reached in the past fiscal year. “The difference in fiscal policies between the different parties could be substantial,” Philip Shaw , an economist at Investec Securities in London, said in an interview yesterday. “If the recovery were to proceed at a record pace that would support tightening policy toward the end of the summer, while you wouldn’t want to have tightened rates if we had an emergency budget in 50 days with hefty spending cuts.” Greek Crisis King and his officials will also consider the impact of the sovereign debt crisis engulfing the euro area. European Union finance ministers held an emergency summit in Brussels yesterday as they scrambled to prevent the panic spreading from Greece and shattering confidence in the common European currency. “The bank has concerns on what’s happening in southern Europe and that will weigh on their decision,” George Buckley , chief U.K. economist at Deutsche Bank AG in London, said in an interview yesterday. “They’ll be no change for the moment.” The British economy has also lost momentum, supporting the case for policy makers to keep up stimulus. GDP rose 0.2 percent in the first quarter, half the pace of the final three months of 2009 when the recession ended. Unemployment climbed to a 16-year high in the quarter through February. Factory Survey An index based on a survey of manufacturers by Markit Economics and the Chartered Institute of Purchasing and Suply still rose to the highest in 15 1/2 years in April. A measure of construction signaled the fastest pace of expansion in 2 1/2 years, and a gauge of services from banks to airlines showed growth for a 12th month, though less than economists forecast. Officials must also confront the risk of accelerating inflation . Consumer prices rose 3.4 percent in March from a year earlier, the second time this year the inflation rate breached the government’s 3 percent upper limit. Minutes of last month’s rate decision showed policy makers saw inflation risks from their “exceptional degree of monetary stimulus.” In the absence of evidence of a change in the economic outlook, policy makers will keep stimulus measures unchanged to avoid the appearance of delivering an assessment on the election outcome, Ross Walker , an economist at Royal Bank of Scotland Group Plc, said in an interview yesterday. “The economic data don’t seem to be any different from the last meeting, with the exception of inflation,” Walker said. “A change in policy would inevitably be read as a lack of confidence on the bank’s part that we would get sufficient fiscal action. The bank isn’t going to want to be seen to be doing that.” To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net .

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Retail Sales in U.S. Probably Rose in April for Seventh Consecutive Month

May 9, 2010

By Timothy R. Homan May 9 (Bloomberg) — Sales at U.S. retailers probably rose in April for a seventh straight month, pointing to a rebound in consumer spending that is broadening the recovery, economists said before reports this week. Purchases increased 0.2 percent in April, extending the most successive gains since 1999, according to the median estimate of 60 economists surveyed by Bloomberg News before Commerce Department figures on May 14. Other reports may show manufacturing picked up and the trade gap was little changed. The biggest increase in payrolls in four years may be a harbinger of additional gains as employers become more certain sales will grow, which in turn will lift wages and consumer spending further. Electronics stores may have led retailers last month as Apple Inc. sold at least 1 million iPads. “Retail sales are picking up because of income growth,” said Dean Maki , chief U.S. economist at Barclays Capital in New York. “Consumption is going to be growing at a firm pace through the end of the year. We are in a sustainable recovery now.” Cupertino, California-based Apple said it sold out of all three versions of the iPad 3g, which went on sale two weeks ago, at its retail stores in 13 U.S. cities. “Demand continues to exceed supply,” Natalie Kerris , a spokeswoman for Apple, said May 6. “We’re working hard” to provide iPads to additional customers, she said. Government Rebates A remnant of last year’s government stimulus package may have also propelled sales of appliances last month, said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. Almost two-thirds of the $300 million the government allotted for state rebates on purchases of energy efficient appliances became available last month, Feroli said in a May 3 note to clients. Florida’s rebate program ran out of funds in three days last month, while Texas and Illinois ran through the money in a day, he said. The incentives may boost core retail sales, which exclude items such as autos, building materials and gasoline, by 0.3 percentage point, according to Feroli. One reason Americans are spending may be that the employment outlook is brightening. Payrolls increased by 290,000 in April, the most in four years, according to figures from the Labor Department last week. Unemployment climbed to 9.9 percent from 9.7 percent as thousands of jobseekers entered the workforce. Less Broad-Based The increase in April sales may have been less broad-based than in prior months. Chain stores reported the smallest increase in monthly sales since November, industry figures showed last week. Demand was dragged down by teen-clothing retailers Abercrombie & Fitch Co. and Aeropostale Inc., and an early Easter, which boosted March sales at the expense of April. The debt crisis in Europe also raises the risk that tumbling stock prices may cause households to rein in spending. Shares have been pummeled the past two weeks, with the Standard & Poor’s 500 Index dropping 8.7 percent since April 23. “Clearly, a blossoming labor market recovery is a big positive,” economists Paul Ashworth and Paul Dales of Capital Economics Ltd. in Toronto, said in a note to clients last week. “But if equity and house prices continue to fall, households will ramp up their savings to compensate for the loss of wealth, perhaps undermining consumption.” For now, more jobs may trump the drop in stocks. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for May probably rose to 73.5 from 72.2 the prior month, according to the survey median. The figures are due May 14. Factory Gains Manufacturing, which accounts for about 12 percent of the economy, continues to expand. A Federal Reserve report May 14 may show production at factories, mines and utilities climbed 0.6 percent in April, the tenth straight gain, according to the survey median. The need to replenish depleted inventories, combined with rising business spending, is giving factories a lift. Stockpiles in the U.S. probably rose 0.4 percent in March, capping the first three-month gain since 2008, economists said ahead of a Commerce Department report on May 14. Finally, the trade deficit in March was probably little changed at $40 billion, compared with $39.7 billion the prior month, according to the survey median before a May 12 report from the Commerce Department. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Magda Abu-Fadil: Pan-Arab TV: Big on Audience, Lop-Sided on Advertising

May 8, 2010

Arab TV viewers enjoy more free satellite channels than their counterparts in developed countries or emerging markets, and although 95% of TV households access free programs, only 70% of television revenues come from advertising. That, according to the “Arab Media Outlook 2009-2013″ survey, published by the Dubai Press Club . The study also found that while the top 15 pan-Arab channels claim 64% of audience share, they make up 80% of the nearly $900m pan-Arab advertising revenues. Translation: those leading channels with the highest audiences are able to command a premium on their advertising. “In turn, these channels are held by a few groups from the (Arab) Gulf, namely MBC, Rotana/LBC, Abu Dhabi Media Company, Dubai Media Inc., and Al Jazeera,” the report said. Leading pan-Arab TV channel groups Other media owners, like Egypt’s Melody and Dream TV channels, are within the top 10 media groups in the region in terms of advertising revenues, it added. The report explained that the relative importance of each pan-Arab channel varied across the region, given the distinctive features of the Arab Gulf states, the Levant countries of Lebanon, Syria, Palestine and Jordan, and, North Africa, respectively. The MBC group, with its bouquet of entertainment, sports and news channels like Al Arabiya, dominates Saudi Arabia and the Gulf countries, for example. Al Arabiya logo While the MBC Group offers only one pay-TV channel in its current bouquet, its FTA channels have historically acted in many ways like pay channels, the report said. This contrasts with Western markets where premium content, such as Hollywood movie regional premiers and premium sports, tend to be available only via subscription services. Moreover, industry experts suggest viewers in the Arab region are less sensitive to new releases than in other markets, according to the survey, with viewers less likely to pay a premium to access very recently released Hollywood movies. Instead, they wait for several months to watch the content for free, impacting the traditional business model of pay-TV operators, the survey found. “Thus, FTA players, such as MBC, are able to secure deals with Hollywood studios to acquire rights for movies that are three to five years old, which are very popular with viewers,” it explained. Other major broadcasting groups, including government-owned organizations, are also increasingly catching up in terms of quality and breadth of content, the report noted, leading to some market share being transferred their way. In Egypt and the rest of North Africa, national terrestrial channels and some satellites take precedence in viewership. North Africa’s TV landscape is no longer dominated by state-run channels, and markets have incrementally opened up to new private networks that now challenge historically dominant broadcasters. So the region is emerging as a key market in the free-to-air TV sector, the survey found. “Egypt’s Al Hayat TV, Melody TV and Dream TV are all success stories in their country, and even beyond,” it said. Dream TV logo Melody Arabia TV logo Tunisia’s Nessma TV and Morocco’s 2M further west are both popular channels that could potentially become significant pan- Arab players, at least in North Africa, the report said. These channels will make strides by investing further in content and generating interest from across the region, it added. Morocco’s 2M TV logo In Lebanon, and to some extent the surrounding Levant countries, Lebanese channels dominate. The most popular being the LBC Group and Future TV channels with their mix of very popular entertainment programs, local and imported soap operas, game shows and newscasts tailored to various segments of the viewing audience. LBC’s newscasts, for example, cater to a large Lebanese diaspora scattered across the globe, as well as a captive audience in the Gulf region and local viewers in Lebanon — resulting in clear segmentation based on regional preferences. Interestingly, the survey stressed that FTA channels suffered from low advertising revenues relative to the large audiences they served. It attributed it to factors finally being taken into account by regional TV executives, including pan-Arab audiences fragmented across nearly 600 channels: “This fragmentation limits the market both at the top and the bottom.” The top five FTA satellite channels make up 47% of total viewing share, leaving hundreds of other stations with extremely low viewing shares, thereby bringing their commercial viability into question, it said. Another key factor related to audience fragmentation is that not all channels in the region are run for purely commercial reasons, it explained. “This puts severe pressure on any channel, which is trying to operate commercially, since competition for content and, therefore, viewers is extremely stiff,” the report said. This unusual business model means there is little pressure from the industry to increase advertising prices when TV channels have other sources of funding, it added. Add to the mix the lack of accurate and widely accepted audience measurement systems in the Arab region, with broadcasters relying instead on consumer surveys carried out by market research firms with ties to the broadcasters themselves. A further stumbling block: pan-Arab satellite TV does not offer targeted advertising by country, so it ‘s difficult charging appropriately high rates for the size of the audience. “This challenge is compounded by the fact that the average demographic of the Arab audience is relatively low income, which has traditionally turned off global advertisers,” the study found, adding that the highest proportion of advertising on pan-Arab media came from hygiene and house care products.

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Companies in U.S. Added 32,000 Jobs in April, ADP Employer Services Says

May 5, 2010

By Timothy R. Homan May 5 (Bloomberg) — Companies in the U.S. added workers in April for a third month, according to data based on private payrolls. The 32,000 increase was the most since January 2008 and followed a revised 19,000 gain the prior month, data from ADP Employer Services showed today. Over the previous six months, ADP’s initial figures compared with the Labor Department’s first estimate of private payrolls have overstated losses by as much as 151,000 in November and underestimated gains by 146,000 in March. Companies from Caterpillar Inc. to Berkshire Hathaway Inc. are boosting staff to meet rising demand as consumers and businesses spend more. Economists surveyed by Bloomberg News project the government’s report May 7 will show payrolls increased in April, in part due to temporary hiring by the federal government to conduct the 2010 census. “Private employment will add jobs, but slowly,” Aaron Smith , a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Private hiring needs to accelerate to prevent a substantial softening in the labor market when census hiring ends this summer.” The ADP figures were forecast to show a gain of 30,000 jobs, according to the median estimate of 32 economists surveyed by Bloomberg. Projections ranged from no change to an 80,000 rise. Stocks, Greece Stock-index futures extended earlier losses after the report on growing concern the debt crisis affecting Greece will spread through the region. The contract on the Standard & Poor’s 500 Index fell 1 percent to 1,161.3 at 9:01 a.m. in New York. Treasury securities climbed and the euro dropped. “Employment has turned a corner,” Joel Prakken , chairman of Macroeconomic Advisers LLC in St. Louis, which produces the figures with ADP, said in a conference call with reporters after the report. “The gains so far remain muted, and we’re going to have to see stronger gains in employment for this recovery to take on a self-perpetuating aspect.” Job cuts announced by U.S. employers plunged in April to the lowest level since July 2006, a sign the labor market is on the mend as the world’s largest economy recovers, another report today showed. Planned firings dropped 71 percent to 38,326 from 132,590 in April 2009, according to figures from Chicago-based Challenger, Gray & Christmas Inc. The reading was the second- lowest since June 2000. Payroll Gains The Labor Department’s report in two days is forecast to show payrolls rose by 189,000 in April and the unemployment rate was 9.7 percent for a fourth consecutive month, according to the survey median. The jobless rate reached a 26-year high of 10.1 percent in October. The economy lost 8.4 million jobs during the recession that began in December 2007, the most of any downturn in the post- World War II era. In March, U.S. payrolls rose by 162,000. Today’s ADP report showed a decrease of 18,000 workers in goods-producing industries including manufacturers and construction companies. Service providers added 50,000 workers. Employment in construction fell by 49,000, while factories gained 29,000 jobs, ADP said. Companies employing more than 499 workers expanded their workforces by 14,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 17,000 jobs and small companies increased payrolls by 1,000, ADP said. Buffett Hiring Billionaire Warren Buffett , whose Berkshire Hathaway company cut more than 20,000 jobs last year, said his company is now adding staff as the economic recovery boosts demand at its industrial units. “We do hire people when we have something for them to do,” Buffett told investors last week in Omaha, Nebraska, where Berkshire held its annual shareholders’ meeting. “We are a net hirer now.” The ADP report is based on data from about 360,000 businesses with more than 22 million workers on payrolls. ADP began keeping records in January 2001 and started publishing its numbers in 2006. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Greenland Oil Rush Looms as Exxon Eyes Cairn’s $400 Million Arctic Wager

May 5, 2010

By Marianne Stigset May 5 (Bloomberg) — Cairn Energy Plc is betting $400 million this year on striking oil off Greenland, a campaign that will be closely watched by producers such as Exxon Mobil Corp. and Chevron Corp. that hold rights off the island. The potential rewards may justify the cost of Arctic drilling: Greenland’s waters could hold 50 billion barrels of crude and gas, the U.S. Geological Survey estimates, enough to meet Europe’s energy demand for almost two years. More companies are on the way. Royal Dutch Shell Plc and Statoil ASA were among bidders in this week’s auction of offshore drilling rights. After six failed attempts by explorers in Greenland over the past 30 years the rush is on as global warming eases Arctic exploration and because of dwindling resources in areas such as the North Sea. For Greenland’s 56,000 inhabitants, largely dependent on shrimp exports, petroleum may also bring wealth and allow more independence from Denmark, which has held sway over the world’s largest island since 1721. “It’s an enormous acreage area and you’ve got to have stamina to see this through properly,” Simon Thomson , legal and commercial director at Cairn, which holds eight Greenland licenses, said in an interview. “Obviously we’re hoping for success, but the blocks are 10,000 square kilometers each.” ‘Serious Threats’ The far north’s potential is spurring exploration from Russia to Alaska. The Arctic may hold 27 percent of the world’s undiscovered gas and 13 percent of the oil, the USGS said in 2008. Areas off Greenland, including some shared with Canada, may hold 17 billion barrels of oil, 148 trillion cubic feet of gas and 9.3 billion barrels of gas liquids, the USGS said. Highlighted by the unfolding disaster in the U.S. Gulf of Mexico from a BP Plc oil spill, exploring in untouched , environmentally fragile waters home to whales and walruses isn’t without risk. According to the WWF , development and transport are “already serious threats” to the Arctic and has met opposition and kept areas off limits from Alaska to Norway. “Oil exploration in Greenland is very closely tied to independence, so there’s enormous local support,” said Truls Gullowsen, head of Greenpeace in Norway. “The area of the 2010 licensing round is very complicated, it’s very far up north, there’s lots of ice, lots of natural resources and very far away from any form of support should things go wrong.” Fishing, Hunting Greenland will in August announce the winners of 14 blocks in a 150,000-square-kilometer area in Baffin Bay, more than doubling its available acreage after holding regular rounds since 2002. The areas are north of the 67th parallel, where oil has been seen seeping out of rocks along the shoreline. The government has financed seismic surveys to attract explorers. It has handed out 13 licenses since 2002 to Cairn, Exxon, Chevron, Encana Corp., Husky Energy Inc., Dong Energy A/S, PA Resources AB and Nunaoil A/S, the state-owned company. There was “fierce” competition in the latest round, Greenland’s Bureau of Minerals and Petroleum said in a statement on May 3. “We’re a fishing and hunting economy, just like Norway used to be,” Oil Minister Ove Karl Berthelsen said by phone from Nuuk, drawing a comparison with the world’s sixth-biggest crude exporter. “We want our industry to stand on several legs and oil is very important. The next 20 years will be vital.” Greenland gets about $600 million a year, or $10,700 a person, from Denmark. It was granted home rule in 1979 and increased local powers in 2009. The island’s $2 billion economy derives about half its exports from shrimp, according to Greenland’s statistics agency . With planned taxes and royalties, and the 12.5 percent stake held in each license by Nunaoil, the government will get about 59 percent of the revenue, according to Joern Skov Nielsen , head of the petroleum agency. Oil Seeps In November, seven companies including Chevron, Exxon and Dong Energy A/S formed the Greenland Oil Industry Association, to share data and hold talks with the local government on environmental and safety issues. For companies like Norwegian Energy Co., the licensing round this year and in 2012 may be the right time to get a share of the potential windfall, Chief Executive Officer Scott Kerr said in an interview. “A small company like us we need to go in now, because if someone goes in and a discovery is made, we immediately get priced out of the market If Cairn has success, there are going to be a lot of people looking at Greenland,” he said. Statoil Returns Spokespeople at Statoil, Shell, Norwegian Energy and Cairn confirmed that they had applied for licenses in this year’s round. Of companies with current licenses, Exxon and PA Resources decided not to bid, according to spokespeople. “We’re still considering other Greenland opportunities,” said Patrick McGinn , an Exxon spokesman. Spokespeople at Chevron, Dong, Husky and Encana weren’t immediately available for a comment. For Statoil it will be a comeback to Greenland after drilling a dry well off Nuuk in 2000, the first for any explorer since the late 1970s. “Arctic projects are very close to the capabilities of Statoil,” Helge Lund , chief executive of Norway’s largest oil company, said on April 26. “We are interested in Greenland and the prospects there.” Cairn, based in Edinburgh, is preparing to drill as many as four wells off Disko Island, a whaling and hunting community where icebergs and humpback whales can be spotted offshore. The company expects to invest $1 billion over three years. Cairn acquired “a large amount of seismic data” in the past two years and plans four more wells next year, Thomson said. Cairn is assuming a 10 percent chance of success. Investments Needed As many as 20 wells may be drilled in the next 10 years with potential production in a decade, said Skov Nielsen. Exxon, Chevron and Dong must decide on drilling in their licenses off Disko over the next four years. The costs per well is about $100 million and eventual production facilities may need investments of $5 billion to $6 billion, he said. “The first discovery has to be at least 250-300 million barrels but any subsequent discoveries could be smaller because then you have the infrastructure,” he said. Companies drilling in the area will be able to build upon experience from other Arctic exploration, said Cairn’s Thomson. Still, icebergs, water depths that reach 1,500 meters toward the sea border with Canada, and months of darkness are challenges, said Hans Kristian Olsen , chief executive at Nunaoil. The island will also need to build up the industry, said Olsen. “We are starting from scratch in terms of developing an exploration and production industry.” To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net .

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Greenland Oil Rush Looms as Exxon Eyes Cairn’s $400 Million Arctic Wager

May 5, 2010

By Marianne Stigset May 5 (Bloomberg) — Cairn Energy Plc is betting $400 million this year on striking oil off Greenland, a campaign that will be closely watched by producers such as Exxon Mobil Corp. and Chevron Corp. that hold rights off the island. The potential rewards may justify the cost of Arctic drilling: Greenland’s waters could hold 50 billion barrels of crude and gas, the U.S. Geological Survey estimates, enough to meet Europe’s energy demand for almost two years. More companies are on the way. Royal Dutch Shell Plc and Statoil ASA were among bidders in this week’s auction of offshore drilling rights. After six failed attempts by explorers in Greenland over the past 30 years the rush is on as global warming eases Arctic exploration and because of dwindling resources in areas such as the North Sea. For Greenland’s 56,000 inhabitants, largely dependent on shrimp exports, petroleum may also bring wealth and allow more independence from Denmark, which has held sway over the world’s largest island since 1721. “It’s an enormous acreage area and you’ve got to have stamina to see this through properly,” Simon Thomson , legal and commercial director at Cairn, which holds eight Greenland licenses, said in an interview. “Obviously we’re hoping for success, but the blocks are 10,000 square kilometers each.” ‘Serious Threats’ The far north’s potential is spurring exploration from Russia to Alaska. The Arctic may hold 27 percent of the world’s undiscovered gas and 13 percent of the oil, the USGS said in 2008. Areas off Greenland, including some shared with Canada, may hold 17 billion barrels of oil, 148 trillion cubic feet of gas and 9.3 billion barrels of gas liquids, the USGS said. Highlighted by the unfolding disaster in the U.S. Gulf of Mexico from a BP Plc oil spill, exploring in untouched , environmentally fragile waters home to whales and walruses isn’t without risk. According to the WWF , development and transport are “already serious threats” to the Arctic and has met opposition and kept areas off limits from Alaska to Norway. “Oil exploration in Greenland is very closely tied to independence, so there’s enormous local support,” said Truls Gullowsen, head of Greenpeace in Norway. “The area of the 2010 licensing round is very complicated, it’s very far up north, there’s lots of ice, lots of natural resources and very far away from any form of support should things go wrong.” Fishing, Hunting Greenland will in August announce the winners of 14 blocks in a 150,000-square-kilometer area in Baffin Bay, more than doubling its available acreage after holding regular rounds since 2002. The areas are north of the 67th parallel, where oil has been seen seeping out of rocks along the shoreline. The government has financed seismic surveys to attract explorers. It has handed out 13 licenses since 2002 to Cairn, Exxon, Chevron, Encana Corp., Husky Energy Inc., Dong Energy A/S, PA Resources AB and Nunaoil A/S, the state-owned company. There was “fierce” competition in the latest round, Greenland’s Bureau of Minerals and Petroleum said in a statement on May 3. “We’re a fishing and hunting economy, just like Norway used to be,” Oil Minister Ove Karl Berthelsen said by phone from Nuuk, drawing a comparison with the world’s sixth-biggest crude exporter. “We want our industry to stand on several legs and oil is very important. The next 20 years will be vital.” Greenland gets about $600 million a year, or $10,700 a person, from Denmark. It was granted home rule in 1979 and increased local powers in 2009. The island’s $2 billion economy derives about half its exports from shrimp, according to Greenland’s statistics agency . With planned taxes and royalties, and the 12.5 percent stake held in each license by Nunaoil, the government will get about 59 percent of the revenue, according to Joern Skov Nielsen , head of the petroleum agency. Oil Seeps In November, seven companies including Chevron, Exxon and Dong Energy A/S formed the Greenland Oil Industry Association, to share data and hold talks with the local government on environmental and safety issues. For companies like Norwegian Energy Co., the licensing round this year and in 2012 may be the right time to get a share of the potential windfall, Chief Executive Officer Scott Kerr said in an interview. “A small company like us we need to go in now, because if someone goes in and a discovery is made, we immediately get priced out of the market If Cairn has success, there are going to be a lot of people looking at Greenland,” he said. Statoil Returns Spokespeople at Statoil, Shell, Norwegian Energy and Cairn confirmed that they had applied for licenses in this year’s round. Of companies with current licenses, Exxon and PA Resources decided not to bid, according to spokespeople. “We’re still considering other Greenland opportunities,” said Patrick McGinn , an Exxon spokesman. Spokespeople at Chevron, Dong, Husky and Encana weren’t immediately available for a comment. For Statoil it will be a comeback to Greenland after drilling a dry well off Nuuk in 2000, the first for any explorer since the late 1970s. “Arctic projects are very close to the capabilities of Statoil,” Helge Lund , chief executive of Norway’s largest oil company, said on April 26. “We are interested in Greenland and the prospects there.” Cairn, based in Edinburgh, is preparing to drill as many as four wells off Disko Island, a whaling and hunting community where icebergs and humpback whales can be spotted offshore. The company expects to invest $1 billion over three years. Cairn acquired “a large amount of seismic data” in the past two years and plans four more wells next year, Thomson said. Cairn is assuming a 10 percent chance of success. Investments Needed As many as 20 wells may be drilled in the next 10 years with potential production in a decade, said Skov Nielsen. Exxon, Chevron and Dong must decide on drilling in their licenses off Disko over the next four years. The costs per well is about $100 million and eventual production facilities may need investments of $5 billion to $6 billion, he said. “The first discovery has to be at least 250-300 million barrels but any subsequent discoveries could be smaller because then you have the infrastructure,” he said. Companies drilling in the area will be able to build upon experience from other Arctic exploration, said Cairn’s Thomson. Still, icebergs, water depths that reach 1,500 meters toward the sea border with Canada, and months of darkness are challenges, said Hans Kristian Olsen , chief executive at Nunaoil. The island will also need to build up the industry, said Olsen. “We are starting from scratch in terms of developing an exploration and production industry.” To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net .

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Australia Signals Higher Bar for Interest-Rate Rises After Leading World

May 4, 2010

By Jacob Greber and Daniel Petrie May 5 (Bloomberg) — The Reserve Bank of Australia signaled a higher bar for interest-rate increases after becoming the world’s first major central bank to withdraw “ emergency ” stimulus used during the global financial crisis. Governor Glenn Stevens raised the benchmark rate for a sixth time in seven meetings, to 4.5 percent, and said lending costs are back to “average” for most borrowers. The bank will hold off on a boost next month, according to all 24 economists surveyed by Bloomberg News after yesterday’s decision. Stevens’s job is now to decide whether surging investment in mines, along with a 20 percent jump in house prices and rising commodity costs, will push inflation above the bank’s 2 percent to 3 percent target range without further action. One keen observer: Prime Minister Kevin Rudd , who faces an election within a year and may be vulnerable should rates start to erode households’ purchasing power. “There is now a far stronger case for the Reserve Bank to pause, especially as it now believes borrowing costs are back to ‘normal’,” said Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “Until now, consumers have remained confident, but the rate hikes have made them reluctant to spend.” The central bank’s next steps will be “to move monetary policy to restrictive settings, designed to slow the economy down,” James said. ‘Significant Adjustment’ The Australian dollar, which has climbed 26 percent in the past 12 months, tumbled against the U.S. dollar by the most in a week after Stevens said yesterday that the bank’s increase in borrowing costs from a record-low 3 percent in early October was a “significant adjustment.” The local currency traded at 92.07 U.S. cents at 5:21 p.m. in Sydney yesterday from 92.45 before the decision was announced. Stevens, unlike counterparts in the U.S. and Europe, is under pressure to extend a world-leading round of rate increases as Australia’s economic expansion strengthens. Federal Reserve officials restated their intention on April 28 to keep the benchmark interest rate near zero for an “extended period.” The head of the European Central Bank, Jean-Claude Trichet , presiding over a record-low rate of 1 percent, this week diluted rules for the second time in a month to guarantee the bank will keep taking Greek government bonds as collateral for loans. Stevens said yesterday that inflation, which peaked at 5 percent in 2008, may not slow as much as earlier forecast and “now appears likely to be in the upper half of the target zone over the coming year.” New Forecasts By contrast, the governor predicted three months ago that inflation “would be in line” with its target range. The central bank will publish its latest forecasts for inflation and economic growth on May 7. “The RBA’s growth and inflation forecasts are clearly in the process of being changed,” said Stephen Roberts , a senior economist at Nomura Australia Ltd. in Sydney. Stevens “has only a relatively limited window to pause at average interest rates” and will resume increasing borrowing costs in the fourth quarter, taking the benchmark to 5.25 percent in early 2011, Roberts said. Continued rate increases may pose a danger for Rudd’s Labor Party, which has seen voter support slump to the lowest level since before taking power in 2007 and faces an election within the next year. Australian leaders are vulnerable to rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations. Variable Rates More than 90 percent of mortgages taken out last year, when the benchmark rate was slashed and Rudd’s government temporarily increased grants to first-time buyers of new dwellings to as much as A$21,000 ($19,300), were on variable rates. The central bank has boosted the benchmark rate by 150 basis points since October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage. Treasurer Wayne Swan said yesterday the central bank’s decision, while tough for families, means “rates are returning to more normal levels.” Australia’s four largest banks, Commonwealth Bank of Australia , National Australia Bank Ltd., Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd., yesterday boosted the rates on their variable home loans by 25 basis points to between 7.51 percent and 7.24 percent. Support for Rudd’s government has fallen behind the opposition Liberal-National coalition for the first time since 2006, according to a Newspoll published yesterday by the Australian newspaper. Voter Support The so-called two-party preferred vote for Labor dropped to 49 percent in the survey of 1,200 voters taken last weekend from 54 percent in mid April, and 52.7 percent when Rudd won in November 2007. The coalition’s support rose to 51 percent from 46 percent. The margin of error is plus or minus 3 percent. There are also signs that the bank’s previous moves are prompting consumers to pare spending. A measure of consumer confidence published on April 14 by Westpac Banking Corp. slipped 1 percent last month, and separate reports showed retail sales dropped 1.4 percent in February and home-building approvals slumped 3.3 percent. Woolworths Ltd., Australia’s biggest retailer, cut its annual sales growth forecast on April 30 in the absence of government cash handouts that stoked demand last year. “We don’t need a hyped up central bank goose stepping all over the economy like they did in early 2008,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “If the RBA does ease off a touch now, they may need to engage the odd 50-basis-point move down the track. That’s a small price to pay, though, to be more certain on the economy now.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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UAL Sends Airline Bond Yields to Two-Year Low Versus Junk: Credit Markets

May 3, 2010

By John Detrixhe May 3 (Bloomberg) — Airline bond yields are the lowest relative to the rest of the junk-bond market in more than two years as investors step up bets that a rebound in air traffic will make it easier for carriers to repay debt. The extra yield investors demand to own airline bonds instead of Treasuries fell to 6.04 percentage points as of April 30, according to Bank of America Merrill Lynch index data. That’s 0.43 percentage point wider than junk bonds on average, the tightest the spread has been since March 2008. Carriers are being helped as the return of business travelers and a rise in average ticket prices offsets a 64 percent jump in the average spot-market price for jet fuel from a year earlier. United Airlines parent UAL Corp., which agreed on May 2 to merge with Continental Airlines Inc., was put on review for a possible upgrade from Caa1 by Moody’s Investors Service and its B- rating was placed on CreditWatch with “positive” implications by Standard & Poor’s. “People view airline debt as less risky as the economy improves,” said Jeff Straebler , a fixed-income strategist at RBS Securities Inc. in Stamford, Connecticut. “With the economy slowly improving, and most people feel that it’s going to stay that way, really the big concern is simply oil.” Airline bonds have returned 9.35 percent this year through April 30, 2.19 percentage points more than high-yield bonds overall, Bank of America Merrill Lynch index data show. Spreads have narrowed 229 basis points, or 2.29 percentage points, compared with 78 basis points to 561 for all speculative-grade credit. Fed Survey, Hyundai Elsewhere in credit markets, a Federal Reserve survey found that most banks in the U.S. didn’t tighten lending standards in the first quarter, signaling a possible thaw in bank credit. Dave & Buster’s , the closely held operator of restaurant entertainment complexes, is seeking $200 million in loans to finance its leveraged buyout as credit for such acquisitions eases. Hyundai Motor Co. plans to issue $960.8 million of bonds backed by auto loans, according to a person familiar with the offering. The smallest proportion of banks in two years restricted standards on business lending, the Fed’s survey of senior loan officers released today showed. Also, more banks than in the previous quarterly survey expressed a greater willingness to make installment loans to consumers, the central bank said in Washington. “This is just one more feather in the cap of the recovery in the financial markets,” said Michael Darda , chief economist at MKM Partners LLC in Greenwich, Connecticut. “We’re going in the right direction.” Manufacturing Rises The shortage of credit, as banks tightened loan standards and many consumers and businesses paid off debt, has impeded the recovery. The central bank cited “tight credit” among the reasons for its April 28 decision to keep interest rates at zero to 0.25 percent for an “extended period.” Manufacturing in the U.S. expanded in April at the fastest pace since June 2004, indicating the world’s largest economy accelerated as it entered the second quarter. The Institute for Supply Management’s factory index rose to 60.4, exceeding the median forecast in a Bloomberg News survey of economists, from a March reading of 59.6. Dave & Buster’s plans to use a five-year, $50 million revolving credit line and a six-year, $150 million term loan B to finance its buyout, according to a person familiar with the transaction who declined to be identified because the terms are private. Hyundai Timing Oak Hill Capital Partners is buying the Dallas-based company from Wellspring Capital Management LLC for about $570 million, Dave & Buster’s said today in a statement. JPMorgan Chase & Co. and Jefferies Group Inc. committed to provide debt financing for the acquisition, according to the statement. Hyundai’s sale, through its finance arm, of bonds backed by auto loans may take place as soon as May 5, said the person familiar with the offering, who declined to be identified because terms aren’t public. Hyundai last issued similar debt in September, according to data compiled by Bloomberg. Plans for the offering emerged the same day the Commerce Department in Washington said Americans’ spending rose 0.6 percent in March, the most in five months. Incomes increased 0.3 percent, the first gain this year. Top-rated bonds backed by auto loans yield about 0.56 percentage point more than Treasuries, compared with 0.81 percentage point on Jan. 5, according to a Bank of America Merrill Lynch index. The debt was trading at a spread of about 3.16 percentage points a year ago, the data show. Credit Risk Falls About $21 billion in securities backed by auto loans have been sold in 2010, compared with $13.7 billion during the same period last year, Bloomberg data show. Credit-default swaps on the Markit CDX North America Investment Grade Index declined 1.6 basis point to 90.5 basis points as of 5:46 p.m. in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. The index dropped as manufacturing in the U.S. expanded in April at the fastest pace since June 2004, indicating the world’s largest economy accelerated as it entered the second quarter. The Institute for Supply Management’s factory index rose to 60.4, exceeding the median forecast in a Bloomberg News survey of economists, from a March reading of 59.6. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Emerging-Market Spreads In emerging markets, spreads widened 3 basis points to 261 basis points, according to JPMorgan Chase & Co.’s EMBI+ index. The difference in yields widened even as the European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market. Yields on Brazil’s interest-rate futures contracts jumped to the highest level in 14 months as faster-than-forecast inflation boosted speculation that benchmark rates will rise. The yield on the contract due January 2011, the most active in Sao Paulo trading, climbed 8 basis points, or 0.08 percentage point, to 11.2 percent at 4:03 p.m. New York time, its highest level since Feb. 25, 2009. UAL, based in Chicago, and Continental agreed to merge in a stock swap valued at more than $3 billion to create the world’s largest airline, reviving a deal that fell apart two years ago. Continental has its headquarters in Houston. Revenue Measure Rises “Consolidation is a positive,” Straebler said in a telephone interview. “If you have fewer large players, they are less likely to try and expand market share at the cost of profitability.” United’s yield, or average fare per mile, climbed 12 percent in the first quarter in the company’s main jet business. Revenue for each seat flown per mile, a measure of demand and ticket prices, jumped 19 percent while costs on the same basis rose 8.3 percent. Airlines issued $2.66 billion of high-yield notes last year, compared with no sales in 2008 and more than four times the amount of offerings in 2007, Bloomberg data show. United, the only airline to offer dollar-denominated junk bonds in 2010, sold $700 million of notes on Jan. 11, Bloomberg data show. The carrier’s $500 million of 9.875 percent senior secured debt due in August 2013 has risen about 6.7 cents from issue to 106 cents on the dollar, according to RW Pressprich & Co. United’s 12 percent secured notes have jumped 12.7 cents to 108 cents on the dollar. Access to Capital “Airlines look to be in good financial shape for 2010,” analysts at independent debt research firm CreditSights Inc. wrote in an April 20 report. Carriers’ “access to capital markets should allow financing of 2010 aircraft” capital expenditures and for refinancing of secured debt maturities, they wrote. Air carrier “credit quality has improved, but not to the same degree as spreads have tightened,” said Jonathan Root , an analyst at Moody’s in New York. Spreads are narrower than the underlying fundamental credit because of risks stemming from “fuel, labor, future capital investment requirements,” he said. Of the $3.36 billion of airline debt issued since the start of 2009, 91.1 percent has been secured by collateral, Bloomberg data show. “The investors have comfort with the higher risk because they have the airplanes as security,” Root said. To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Fed Says Most Banks Didn’t Tighten Lending Standards During First Quarter

May 3, 2010

By Joshua Zumbrun and Scott Lanman May 3 (Bloomberg) — Most banks in the U.S. didn’t tighten lending standards during the first quarter, according to a Federal Reserve survey that signals a possible thaw in bank credit. The smallest proportion of banks in two years restricted standards on business lending, the Fed’s survey of senior loan officers released today showed. Also, more banks than in the previous survey expressed a greater willingness to make installment loans to consumers, the central bank said in Washington. “This is just one more feather in the cap of the recovery in the financial markets,” said Michael Darda , chief economist at MKM Partners LLC in Greenwich, Connecticut. “We’re going in the right direction. The report is on an improving track which is consistent with improving spreads in the credit markets.” The shortage of credit, as banks tightened loan standards and many consumers and businesses paid off debt, has impeded the recovery. The central bank cited “tight credit” among the reasons for its April 28 decision to keep interest rates at zero to 0.25 percent for an “extended period.” “The April survey indicated that most banks kept their lending standards unchanged,” according to the Fed’s quarterly survey of senior loan officers. “The survey also indicated that loan demand generally weakened further.” Unidentified Respondents The survey of loan officers at 56 U.S. banks and 23 U.S. branches of foreign banks was conducted from March 30 to April 13, the Fed said. The report doesn’t identify respondents. The panel of 56 banks had about $6.6 trillion in assets, representing a little less than two-thirds of the assets of all domestically chartered, federally insured commercial banks. Since December 2008, commercial and industrial loans have dropped to $1.27 trillion from $1.62 trillion, while commercial real-estate loans have declined to $1.6 trillion from $1.73 trillion, according to a separate statistical release from the Fed for the week ending April 21. Standards for commercial and industrial lending were little changed in the survey, with 48 of 56 banks saying they had not changed standards for firms with more than $50 million in sales and 52 of 54 banks saying they had not changed standards for smaller firms. For the second quarter in a row, more banks eased standards than tightened standards. It was the first time since 2006 that standards eased for two consecutive quarters. Demand Declined For consumers, credit standards on prime residential mortgages were little changed, with six banks tightening standards, five banks easing standards and 42 banks leaving standards unchanged. Demand for mortgages declined on net, with 18 banks reporting weaker demand and 11 reporting stronger demand. Among 33 respondents, 23 banks said their standards were tighter on terms for small businesses’ credit-card accounts than long-trend levels, with some charging higher interest rates and annual fees and requiring higher credit scores over the past six months.     About equal numbers of banks said applications for new accounts or increases in credit lines had increased or decreased in the past six months, the Fed said. The interest-rate setting Federal Open Market Committee said in its April 28 statement that “tight credit” is constraining household spending. The Fed said that “while bank lending continues to contract, financial conditions remain supportive of economic growth.” Economy Grew The Commerce Department reported April 30 that the economy grew by 3.2 percent in the first quarter, after growing 5.6 percent in the fourth quarter of 2009. Banks continued to tighten standards for commercial real estate, according to the survey. Less banks tightened standards than in the previous survey which was released Feb. 1. Of 56 respondents, eight banks reported tightening standards and only one reported easing standards for commercial real estate loans. While the report showed the commercial real estate market may not have reversed its slide yet, the proportion of banks that tightened standards on such loans dropped to the lowest since 2006, the Fed said. The proportion of banks reporting weaker demand for such borrowing also shrank to the lowest in more than three years. To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net ;

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Hong Kong Air Pollution Worst on Record, Dissatisfaction Grows

May 3, 2010

By Debra Mao May 3 (Bloomberg) — Hong Kong’s air pollution was the worst on record during the past two quarters, sparking regular government health warnings and growing discontent among the city’s 7 million people. Roadside pollution was either “very high” or “severe” 13.6 percent of the time from January to March and 23.8 percent of the time in the October-December period last year, compared with a previous high of 13.4 percent in the fourth quarter of 2008, Environmental Protection Department data show. The oldest quarterly air pollution index figures showed it breaching “very high” levels 1.9 percent of the time in the third quarter of 1999. Then-Chief Executive Tung Chee-hwa declared in his 1999 policy address that fighting pollution would be a priority. Eleven years later, it has gotten worse, at times forcing schools to cancel sporting events and stirring concerns it could harm companies’ efforts to recruit overseas workers to the city. “There aren’t too many other financial hubs where you have to check the pollution index before deciding whether to run outside or on the treadmill,” said Ben Hoad , a sales trader from Australia who’s lived in Hong Kong for five years. Hong Kong’s Air Pollution Index reached a “very high” 102 today in Causeway Bay, a congested shopping area east of the main business district. Public Discontent Hong Kong people are the most dissatisfied in the world with their air quality, according to a Gallup survey of adults in 153 countries. Seventy percent of the city’s residents expressed the highest level of dissatisfaction with air quality. The next most disgruntled population was in Chad, where 59 percent of adults were highly dissatisfied with their air, as well as water and other basics, said Gallup research director Bob Tortora. Singapore had the lowest dissatisfaction with air quality, 3 percent, according to the survey released April 22, the 40th anniversary of Earth Day. Information Officer Y.F. Chau of the Environmental Protection Department acknowledged the recent rise in roadside air pollution. While Chau said he could not provide an immediate explanation for the increase, he said the government is taking measures to fight back including vehicle emission controls. Health Warnings The government classifies readings above 100 as “very high.” When it’s that level at general stations, the government discourages people with heart and respiratory diseases from outdoor activity and physical exercise. With readings above 100 at roadside stations, officials urge people with heart or respiratory diseases to avoid staying in heavy traffic areas. “Studies show that if you have long-term exposure to fine particulates generated from diesel engines, then your risk of death from a respiratory disease rises over 10 percent,” said Wong Tze Wai, a professor in public health at the Chinese University of Hong Kong. Wong has researched the health effects of air pollution for more than 20 years. At levels above 200, the pollution is called “severe” and the warnings apply to the general public. Pollution is often cited as an issue for people thinking of moving to Hong Kong. “It gets brought up in every conversation I have with people we try to bring out here,” said Yash Rana, a partner at law firm Goodwin Procter. Rana moved to Hong Kong a year and a half ago and installed an “industrial strength” air-filtering system in his home for his asthmatic daughter. Topping Pollution Index Hong Kong’s pollution index rose to the top reading of 500 at 10 of 14 monitoring stations on March 22 as winds from sandstorms in northern China carried particles to Hong Kong. Pollution had never been so high in the city. Alexis Lau, an assistant atmospheric math professor at the Hong Kong University of Science and Technology, said this year’s increased frequency of high roadside pollution had nothing to do with sandstorms. “It has to do with the high nitrogen dioxide ,” said Lau, referring to the light brown gas produced by vehicle engines. Lau periodically analyzes concentration levels published by the government. The Hong Kong and Guangdong province governments released a report April 29 on air quality of the Pearl River Delta in 2009, citing lower levels of sulphur dioxide, nitrogen dioxide and breathable suspended particles compared with previous years. Scrapping Old Buses “There is absolutely no reason to rejoice,” wrote Joanne Ooi , chief executive officer of independent advocacy group Clean Air Network , which sends e-mail alerts when the index rises above 100. “What matters is the level of pollution to which people are actually exposed to at street level,” Ooi wrote in response to the Hong Kong-Guangdong report. Since 1999, the Hong Kong government has implemented control measures to reduce vehicle emissions, Chau wrote in an e-mailed statement April 30. In March, Secretary for the Environment Edward Yau said Hong Kong may accelerate replacement of old buses, change transit routes and set up low-emission zones to cut pollution. Old buses are expected to be eliminated from city roads by 2019, according to Yau. In April, the department submitted a proposed law to Hong Kong’s Legislative Council requiring drivers to switch off their engines while their vehicles are idling. “Actions are in hand to promote the use of electric vehicles, ban idling vehicles with running engines and to implement a statutory specification for using biodiesel as motor vehicle fuel,” Chau wrote. Hong Kong lawmakers will debate a motion May 5 on improving air quality, urging the government to improve early-warning signals for heavy pollution and to make specific guidelines for closing schools and suspending outdoor work when it hits severe levels. Legislator Kam Nai-wai wants Hong Kong to adopt more stringent air-quality guidelines and to be more prompt about taking high-emission buses off the streets. “If it gets much worse, I think people will leave,” said Rana. “And you might have to pay more money to get people to come here and replace those people.” To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

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Payrolls in U.S. Probably Increased in April for Third Time in Four Months

May 1, 2010

By Timothy R. Homan May 2 (Bloomberg) — Employers in the U.S. probably added jobs in April for the third time in four months, pointing to a recovery that is both broadening and gaining momentum, economists said before a government report this week. Payrolls rose by 200,000, the most in three years, after increasing by 162,000 in March, according to the median forecast of 60 economists surveyed by Bloomberg News before the Labor Department’s May 7 report. Other figures may show consumer spending, home sales and manufacturing grew. Companies from Caterpillar Inc. to General Electric Co. are hiring as Americans spend more and businesses update equipment. Sustained job growth is required to propel consumer spending, which accounts for about 70 percent of the economy. “It’s really all about jobs,” said Omair Sharif, an economist at RBS Securities in Stamford, Connecticut. “Consumption has come back more robustly than most people had anticipated, including employers.” The April payroll figures may receive a boost from the hiring of temporary government workers to conduct the 2010 census, economists such as Sharif said. Even so, gains are projected in others areas like manufacturing. The Labor Department report will probably show the unemployment rate was 9.7 percent for a fourth straight month, according to the survey median. The jobless rate has not increased since October, when it reached a 26-year high of 10.1 percent. The economy lost 8.4 million jobs since the recession began in December 2007, the most of any downturn in the postwar era. Fed’s View Federal Reserve officials last week restated their intention to keep the benchmark interest rate near zero for an “extended period” and said the job market is strengthening. “The labor market is beginning to improve,” policy makers said in an April 28 statement. “Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit .” The Labor Department’s employment report may also show a 15,000 gain in factory payrolls , according to the median estimate. Hiring is picking up as companies ramp up orders. Manufacturing probably expanded in April at the fastest pace in more than five years, economists said before a May 3 report from the Institute for Supply Management. The Tempe, Arizona-based group’s factory index increased to 60, the highest level since June 2004, from 59.6, the survey showed. Index readings greater than 50 signal expansion. Broadening Expansion Service industries probably expanded in April at the fastest pace in four years, economists said before a separate report from the Institute for Supply Management on May 5. The index of non-manufacturing businesses, which account for almost 90 percent of the economy, rose to 56 from 55.4 the prior month, the survey showed. The U.S. economy grew in the first quarter at a 3.2 percent annual rate, led by consumer spending and business investment, figures from the Commerce Department last week showed. Household spending climbed at a 3.6 percent pace, the most in three years, compared with a 1.6 percent increase the previous three months. Optimism that the economy will keep growing has helped lift stocks. The Standard & Poor’s 500 Index has climbed 6.4 percent this year. Americans probably increased spending in March for a sixth straight month, a report tomorrow from the Commerce Department may show tomorrow. Purchases climbed 0.6 percent after a 0.3 percent gain the previous month, and incomes likely rose 0.3 percent after no change in February, the survey showed. Caterpillar Hiring Caterpillar, the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year- end because of higher production, including 600 in the U.S. The housing market, a weak spot for the economy in recent years, is showing signs of life, helped in part by government incentives. The number of Americans in March signing contracts to purchase previously owned homes probably rose 4 percent, economists said ahead of a May 4 report from the National Association of Realtors. Buyers may be aiming to take advantage of a tax credit that requires a contract be signed by the end of April, when the program expired. The index of purchase agreements, or pending home sales, rose 8.2 percent in February, the second-biggest gain on record and the largest since October 2001, according to the Washington-based Realtors group. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Consumer Sentiment Index for U.S. Drops to 72.2 After 73.6 March Reading

April 30, 2010

By Bob Willis April 30 (Bloomberg) — Confidence among U.S. consumers declined in April from the previous month, according to a Reuters/University of Michigan report. The final index of consumer sentiment dropped to 72.2, higher than forecast, from a reading of 73.6 in March. The gauge was projected to fall to 71 from a month earlier, according to the median forecast in a Bloomberg News survey of 66 economists. The figure stands in contrast to a Conference Board survey that showed Americans’ sentiment in April increased to the highest level since September 2008 as respondents anticipated greater job availability. Americans’ spending , which accounts for about 70 percent of the economy, rose in the first quarter at the fastest pace in three years, the Commerce Department said today. “Consumer confidence is recovering very, very gradually,” Julia Coronado , a senior U.S. economist at BNP Paribas in New York, said before the report. “There is a lot of bouncing around, but we are on an upward trend. Consumers are starting to feel a little more optimistic and we’re seeing that the spending backdrop is a little better.” Business activity in the U.S. expanded in April at the fastest pace in five years, indicating the manufacturing rebound accelerated entering the second quarter. The Institute for Supply Management-Chicago said today that its business barometer rose to 63.8, the highest level since April 2005, from 58.8 in March. Readings greater than 50 signal expansion. Stocks fell on concern over the federal investigation of Goldman Sachs Group Inc. The Standard & Poor’s 500 Index dropped 0.7 percent to 1,198.13 at 10:17 a.m. in New York. Estimates for the Reuters/University of Michigan measure in April ranged from 68 to 75 after a preliminary reading of 69.5, according to the Bloomberg survey. Current Conditions The gauge of current conditions , which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, fell to 81 from 82.4 the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 66.5 from 67.9. Consumers in the survey said they expect an inflation rate of 2.9 percent over the next 12 months, compared with 2.7 percent in the March report. Inflation Expectations Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.7 percent rate of inflation, the same as the prior month. Household purchases increased at a better-than-forecast 3.6 percent annual rate in the first quarter, the Commerce Department said earlier today in its initial estimate of gross domestic product. The economy expanded at a 3.2 percent pace from January through March after growing 5.6 percent in the final three months of 2009. Sales at U.S. retailers climbed 1.6 percent in March, the most in four months, the Commerce Department reported April 14, as companies from Target Corp . to Saks Inc benefited from a pickup in hiring, an early Easter and better weather. “What we see here is when things improve, that discretionary spending is coming back,” American Express Co.’s Chief Financial Officer Daniel Henry said this week in a conference call, referring to the credit-card company’s high-end client base. U.S. billings at American Express climbed 11 percent in the first quarter from a year earlier. The hotel and travel industries are also recovering. Wyndham Worldwide Corp., the franchiser of Days Inn hotels and Super 8 motels, this week said first-quarter profit rose 11 percent as revenue from its vacation rental business increased. Federal Reserve policy makers this week said in their statement after leaving the benchmark interest rate near zero that “economic activity has continued to strengthen.” While the labor market was improving and consumer purchases picking up, spending is constrained in part by high unemployment, the central bankers said. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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U.S. Economy Probably Grew as Consumer Spending Rose Most in Three Years

April 30, 2010

By Timothy R. Homan April 30 (Bloomberg) — The U.S. economy probably expanded in the first quarter, capping the biggest six-month gain since 2003, as consumers spent more freely, economists said before a government report today. Gross domestic product grew at a 3.3 percent annual pace from January through March, according to the median estimate of 85 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years. Consumers may play a more active role in the recovery, increasing the likelihood the rebound will be sustained, as growing sales at companies from General Electric Co. to Caterpillar Inc. promote hiring. The report may also show prices increased at the slowest pace on record, highlighting why Federal Reserve policy makers are pledging to keep interest rates low. “The economy is still on a moderate-recovery track, and inflation pressures are easing,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The economy gained momentum as the first quarter progressed, so the second quarter should see stronger growth.” The Commerce Department’s report on economic growth is due at 8:30 a.m. in Washington. Bloomberg survey estimates spanned from 1.8 percent to 4.5 percent. Following a 5.6 percent pace of growth in the last three months of 2009, the back-to-back readings mark the strongest performance since the last half of 2003. Spending Pickup Consumer spending , which accounts for about 70 percent of the economy, probably rose at a 3.3 percent annual rate last quarter, the fastest pace since the first three months of 2007, the report may also show. Fed policy makers this week acknowledged the improvement, saying household spending had “picked up recently,” according to their April 28 statement announcing the benchmark interest rate would remain near zero. Today’s GDP report may also show the Fed’s preferred inflation gauge , which is tied to consumer spending and strips out food and fuel costs, climbed at a 0.5 percent annual rate at the start of the year, according to the survey median. The gain would be the smallest since record-keeping began in 1959. “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. Labor Costs Another report today may show labor costs are contained. The employment cost index rose 0.5 percent in the first quarter after increasing 0.4 percent in the prior three months, the survey showed before Labor Department figures at 8:30 a.m. Expenses were up 1.5 percent in the 12 months through December, matching the smallest increase since records began in 2001. Also today, figures from Reuters/University of Michigan may show measures of consumer confidence diverged this month. The group’s sentiment gauge probably fell to 71 from 73.6 in March, according to a survey median. A similar report this week from the Conference Board, a New York research group, showed confidence climbed to the highest level since September 2008. An improving job market is one reason why households are more willing to spend. Payrolls probably rose again in April following a 162,000 gain in March that was the biggest in three years, according to the median estimate of economists surveyed before the Labor Department’s monthly employment report on May 7. The jobless rate was at 9.7 percent for a fourth month, the survey also showed. Stocks Rise 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 3.2 percent in April. Caterpillar, the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year- end because of higher production, including 600 in the U.S. 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. “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. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Obama’s Rebounding Economy Reflected in Junk Bond Market’s Dividend Deals

April 30, 2010

By Caroline Salas and John Detrixhe April 30 (Bloomberg) — Buyers of high-yield, high-risk debt are betting that President Barack Obama is leading the U.S. economy to an enduring recovery. Investors have gobbled up $99.6 billion of junk-bond sales in 2010, a record for the first four months of the year, including the most bonds to fund dividends for private-equity firms since before the credit crisis began in August 2007, according to data compiled by Bloomberg and Standard & Poor’s LCD. Prices for the average speculative-grade security climbed to 99.7 cents on the dollar this week, the highest since June 2007, up from 54.8 cents in December 2008, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. The return of an appetite for risk shows growing confidence that the U.S. will avoid a double-dip recession, said John Lonski , chief economist at Moody’s Capital Markets Group. Profits for companies in the Standard & Poor’s 500 Index surged 176 percent in the final three months of 2009, and the U.S. economy grew at a 3.3 percent annual pace in first quarter, according to the median forecast of 85 economists surveyed by Bloomberg News, after expanding 5.6 percent in the fourth quarter. The junk-bond rally demonstrates “a sense that the worst is over for the U.S. economy and that a self-sustaining recovery could materialize by the summer,” Lonski said in an interview from his New York office. High-yield, or junk, bonds are those rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. Neediest Companies The reopening in the high-yield market helps the neediest companies avoid bankruptcy because they can refinance their debt, said Daniel Janis , a money manager at MFC Global Investment Management in Boston. The high-yield default rate fell to 9.9 percent in the first quarter from 13 percent at the end of 2009, according to Moody’s. The measure will decline to 2.8 percent by year-end, the lowest in two years, Moody’s predicts. The access to financing also helps spur economic growth because companies can fund business investments, Janis said. Forty-seven percent of corporate executives plan to spend more during the next six months, while only 7 percent plan to reduce expenditures, according to the Business Roundtable’s CEO Economic Outlook Survey released April 7. The balance anticipated no change. “Now you have companies that have the ability to borrow,” said Janis, who oversees $4.2 billion in fixed-income assets. “As you refinance, then their business plans and capital- expenditures stuff gets funded. Before, they were shut out.” Pay Dividends The rally has given businesses on the brink of default, such as Harrah’s Entertainment Inc. , access to capital and allowed leveraged-buyout firms to sell more debt to pay themselves dividends than at any point since before the credit markets seized up. High-yield companies controlled by private- equity groups have sold $3.1 billion of bonds so far this year to fund payouts, compared with $600 million in all of 2009, according to Standard & Poor’s LCD data. Maxim Crane Works LP , based in Bridgeville, Pennsylvania, and owned by Platinum Equity Capital, sold $250 million of 12.25 percent notes on March 31 to finance a dividend. The debt is rated Caa1 by Moody’s and B by S&P. “There is a bit of a feeding frenzy going on,” said Bruce Monrad , money manager at Northeast Investment Management Inc., who co-manages the $709 million Northeast Investors Trust high- yield fund in Boston. “A lot of the doomsday scenarios have abated.” Potential Default Las Vegas-based Harrah’s, the world’s biggest casino operator, averted a potential default in 2008 and 2009 by shaving $4.2 billion of debt when some creditors agreed to swap their holdings at a discount for new bonds. This month, the casino company was able to sell $750 million of 12.75 percent notes due in 2018 that were rated Ca by Moody’s, two levels above default. Harrah’s was acquired by private equity firms Apollo Management LP and TPG in January 2008. While investors have been rewarded with a record 68.7 percent return in junk bonds since 2008, the overall economic recovery hasn’t generated enough jobs or inflation to prompt the Federal Reserve to budge from near-zero interest rates. Unemployment has persisted above 9 percent since May 2009, and policy makers’ preferred inflation gauge, the personal consumption expenditures price index minus food and energy, declined to a 1.3 percent annual rate in February from 1.5 percent in January. Inflation Expectations Economic conditions, including “subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Federal Open Market Committee in Washington said in an April 28 statement. The Fed said it has seen some signs of life in the job market, which means the economy is strengthening. U.S. employers added 162,000 jobs in March, the third gain in five months and the most in three years. Consumers in the U.S. also turned more optimistic this month. 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 Holdings Inc. collapsed in September 2008, according to data from the New York-based private research group. Corporate-bond buyers have been emboldened by company profits and the improvement in gross domestic product, according to Lonski of Moody’s. The fourth-quarter expansion was the most in six years. Extra Yield The extra yield, or spread, investors demand to own speculative-grade securities instead of similar-maturity Treasuries shrank to 5.42 percentage points on April 26, the narrowest since June 17, 2008, and down from the record 13.2 percentage points in December 2008, Bank of America Merrill Lynch data show. The spread was 5.54 percentage points on April 29. “It’s difficult to become especially concerned about credit when you have earnings growing at a rate that is a magnitude of the growth of debt,” Lonski said. Profits at U.S. nonfinancial companies grew by 11.5 percent in the fourth quarter, compared with a 1.5 percent expansion by corporate debt in the same period, according to data compiled by Moody’s based on information from the Federal Reserve and Commerce Department. Ford Motor Co. , the only major U.S. automaker to avoid bankruptcy in 2009, reported first-quarter earnings of $2.1 billion this week, and Chief Executive Officer Alan Mulally forecast a “solid” 2010 profit. The Dearborn, Michigan-based company had a fourth straight quarter of net income, its longest streak since 2005. Ford Bonds Ford’s $1.8 billion of 7.45 percent bonds due in 2031 have climbed to 93.25 cents on the dollar from 15 cents in November 2008, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Ford, the second-largest U.S. car company, has benefited from a recovering auto market as Americans begin to spend more. Consumer purchases probably rose at a 3.3 percent annual rate in the first three months of this year, more than double the fourth-quarter pace and the most in three years, according to a Bloomberg survey . Data will be released today. “Some of the indicators have shown that things are a little bit better,” MFC Global’s Janis said. “The economy, I feel, is fine. I’m saying ‘We have no double dip.’” To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Number of U.S. Unemployment Claims Declines to the Lowest Level in a Month

April 29, 2010

By Shobhana Chandra April 29 (Bloomberg) — Fewer Americans filed claims for unemployment benefits last week, a sign the economic rebound is lifting the labor market. Initial jobless claims fell by 11,000 to 448,000 in the week ended April 24, in line with the median forecast of economists surveyed by Bloomberg News and the lowest level in a month, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance and those getting extended payments decreased. Firings are easing, and companies such as Caterpillar Inc. are adding staff, as sales improve from the U.S. to China. Gains in employment, by supporting consumer spending , make it more likely the economic expansion that began in the middle of last year will be sustained. “The labor market continues to heal slowly,” said Sal Guatieri , a senior economist at BMO Capital Markets in Toronto, who had forecast claims would fall to 445,000. “We should see another gain in private-sector payrolls for April. Renewed hiring will help sustain consumer spending this year.” Stocks climbed as better-than-estimated earnings at companies from Motorola Inc. to Baidu Inc. showed the economic recovery was strengthening. The Standard & Poor’s 500 Index rose 0.9 percent to 1,201.68 at 9:46 a.m. in New York Median Forecast Jobless claims were projected to drop to 445,000 from 456,000 initially reported for the prior week, according to the median forecast of 47 economists in a Bloomberg News survey. Estimates ranged from 430,000 to 460,000. The four-week moving average of initial claims, a less volatile measure than the weekly figures, rose to 462,500 last week from 461,000. The inability of claims to drop much more is disappointing some economists projecting payrolls in world’s largest economy will accelerate. “We ultimately need to see claims break 400,000 to the downside to be comfortable that the large job gains we are forecasting are sustainable,” Joseph LaVorgna , chief U.S. economist at Deutsche Bank Securities in New York, said in an e- mail to clients. The number of people continuing to receive jobless benefits dropped by 18,000 in the week ended April 17 to 4.65 million. They were forecast to drop to 4.62 million. Benefit Rolls The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by 91,000 to 5.4 million in the week ended April 10. The unemployment rate among people eligible for benefits, which tends to track the jobless rate , held at 3.6 percent in the week ended April 17. Ten states and territories reported an increase in claims, while 43 reported a decrease, led by New York and California, which reported fewer firings among service industries. These data are reported with a one-week lag. Initial jobless claims reflect weekly firings and tend to fall as job growth — measured by the monthly non-farm payrolls report — accelerates. Federal Reserve officials yesterday restated their intention to keep the benchmark interest rate near zero for an “extended period” and saw signs of life in the labor market. Fed Statement “The labor market is beginning to improve,” policy makers said in a statement. “Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.” Factory managers foresee payrolls increasing 5.2 percent for the rest of the year, more than previously estimated, according to the Institute for Supply Management’s semiannual survey issued this week. Services providers, which account for almost 90 percent of the economy, project a 0.1 percent reduction in staff. Payrolls probably rose again in April following a gain of 162,000 in March that was the biggest in three years, according to the Bloomberg survey median. The unemployment rate held at 9.7 percent for a fourth month, economists in the survey projected. The Labor Department figures are due May 7. Caterpillar, the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year- end because of higher production, including 600 in the U.S. “We enjoy hiring people and growing our business, and we’re delighted to see that opportunity coming back,” Chief Executive Officer Jim Owens said in a Bloomberg Television interview on April 26. To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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Singapore to License Bigger Hedge-Funds as Scrutiny Increases After Crisis

April 27, 2010

By Netty Ismail April 28 (Bloomberg) — Hedge-fund firms in Singapore that manage more than S$250 million ($183 million) will need to be licensed under regulator proposals to increase oversight of the investment-management industry. Hedge-fund managers are currently exempt from holding a capital-markets services license provided they manage funds on behalf of 30 or fewer of what the Monetary Authority of Singapore describes as “qualified” investors. Under the proposals, managers with less than S$250 million won’t need a license, though they will have to maintain a base capital of at least S$250,000. The review is the most sweeping of the fund-management industry since the city-state introduced incentives to lure alternative asset managers in 2002, and comes as hedge funds and private-equity firms are under scrutiny from regulators and lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation. Singapore’s hedge-fund industry has grown into Asia’s second biggest behind Hong Kong. “They’ve done a neat job of keeping the exempt regime which is probably the most sophisticated hedge-fund regulatory regime in any jurisdiction, but also being seen to have a regime for more substantial managers, which is much more homogenous with regulatory regimes elsewhere,” said Peter Douglas , the principal of GFIA, a Singapore-based hedge-fund consultancy firm that also runs a wealth management business. As fund-management firms expand their businesses and their assets under management grow, “they will require closer supervision in view of their greater market impact,” the MAS said in an e-mailed statement yesterday. Public Consultation The regulator is seeking comments from the public till May 31 on the proposed changes “to raise the quality and standard of players” and sustain the industry’s growth, it said. Fund-management firms that oversee S$250 million or less and serve not more than 30 qualified investors, of which 15 or fewer are funds, will need to maintain a base capital of at least S$250,000, the MAS said. These managers will be called “notified fund management companies,” according to the proposed changes. “While the authority recognizes the usefulness of the exempt fund-manager regime in facilitating the growth of the fund-management industry in Singapore, a review of the regime is timely given recent developments in the global regulatory landscape,” the MAS said. While the regulator said it understands the industry’s concern over increases in start-up costs, especially for smaller managers, maintaining a minimum base capital “improves the viability of new fund-management companies by acting as a buffer for unexpected costs, especially during adverse market conditions.” Capital Requirements The MAS also plans to introduce a new set of rules for licensed fund-management firms that serve “accredited” and institutional investors, it said. Hedge-fund managers with more than S$250 million in assets can apply for a license under this category. Fund-management firms that serve retail investors will need to be licensed, the MAS said. All fund managers will need to meet capital requirements and “business conduct,” including maintaining clients’ assets with independent custodians as well as segregating the duties between fund management and administration, the regulator said. The MAS “remains committed to building Singapore as a fund-management and alternative investment hub,” it said. The regulator, also Singapore’s central bank, in 2002 eased rules that limited investments in hedge funds to make it easier for them to set up in Singapore than in other Asian cities such as Hong Kong and Tokyo, helping fuel the industry’s growth in recent years. Expansion Singapore now has 138 single-strategy hedge-fund managers employing more than 800 professionals from near zero in 1997, according to a survey by the local chapter of the Alternative Investment Management Association. The industry oversees at least $34.9 billion, excluding assets managed by several of the large global firms, the survey said, making it Asia’s second biggest. The island-state’s “lighter regulatory touch” has enabled hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator, according to an overview of the industry published by AIMA. The authority recognizes that the ease of setting up a fund-management business in Singapore and compliance costs are important to industry participants and has taken these factors into consideration, the MAS said in yesterday’s statement. World leaders, including the Group of 20 countries that make up most of the world’s economy, have called for stricter oversight of the pools of private capital in the wake of the global financial crisis. The size of Singapore’s asset management industry shrank about 26 percent to S$864 billion ($630 billion) in 2008 from a year earlier because of the global financial crisis, the authority said in its latest survey released in September. To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net

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Resistance to Boosting BOJ Stimulus Said to Rise on Japan Recovery Signs

April 27, 2010

By Masahiro Hidaka and Mayumi Otsuma      April 28 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa may find resistance among board members to expanding an emergency loan program after economic reports indicated the recovery is strengthening.     More members may oppose boosting the fund after two voted against doubling it to 20 trillion yen ($214 billion) last month, a person familiar with the matter said. The bank has yet to fully judge the impact of that step, said a second person informed of the matter. They spoke on condition of anonymity because the talks before the April 30 BOJ meeting were private.     The potential split reflects signs of a rebound — including unemployment at an 11-month low and the highest household confidence level since 2007 — with a lingering threat of deflation. Some board members may argue that enlarging the bank-loan program would help assure consumer prices rise, said economist Hiroaki Muto .      “We can’t completely rule out the chance that the BOJ will take more action this week, as the end of deflation is still far away,” said Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “But more board members will oppose easing amid improving signs for prices and economic growth.”      The central bank may upgrade its twice-yearly outlook for gross domestic product and prices at the meeting. Policy makers will predict an inflation rate of at least zero for the year ending March 2012, up from the current estimate for a 0.2 percent drop, according to 14 of 16 economists surveyed by Bloomberg News. Fall Short The projections are likely to fall short of the 1 percent rate that the central bank regards as meeting price stability, according to the median estimate of board members. The International Monetary Fund said last week that the BOJ must remain open to widening monetary easing to beat deflation. Prime Minister Yukio Hatoyama’s government wants even higher inflation, with Finance Minister Naoto Kan last week calling for price gains of as much as 2 percent and the ruling Democratic Party of Japan saying it may include a target in its platform for a July election. “The government and the ruling party won’t stop urging more easing unless a recovery is perceived more widely and solid price increases are achieved,” said Jun Ishii , chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The government may intensify pressure in June, when it reveals economic growth strategies and fiscal reform plans.” Rate on Hold Shirakawa and his seven colleagues will keep the benchmark interest rate at 0.1 percent at the meeting, according to all 16 economists. Thirteen expect the bank to refrain from adding funds. The board’s policy decision and economic forecasts are scheduled to come hours after the government publishes data for March that may point to a sustained recovery, along with persistent deflation. Industrial production climbed 0.8 percent from the previous month, the jobless rate held at 4.9 percent and household spending rebounded, according to the median estimates of economists. Meanwhile consumer prices excluding fresh food, the bank’s preferred gauge, likely slid 1.2 percent from a year earlier, the survey of analysts showed. Japan’s rebound from its worst postwar recession is spreading from exporters as wage declines ease and job prospects brighten. Seven & I Holdings Co. and Fast Retailing Co., the nation’s biggest retailers by market value, this month raised their profit forecasts on increased demand. Stocks Rally Rising corporate earnings have started to stoke stocks, with the benchmark Nikkei 225 Stock Average rising 0.4 percent yesterday to 11,212.66 after Fanuc Ltd., IHI Corp. and Konica Minolta Holdings Ltd. reported their results. Governor Shirakawa has repeatedly said this month that the risk of another downturn has “pretty much gone.” Some policy makers have indicated they are open to more action to cement the recovery, while others say it’s not needed. Deputy Governor Kiyohiko Nishimura and board member Ryuzo Miyao have said over the past month that the effect of monetary easing may be more pronounced when the economy is picking up. By contrast, Miyako Suda and Tadao Noda opposed the doubling of the lending program in March, saying it wasn’t justified because of the economy’s improvement. The IMF cited a stronger yen as one risk for Japan’s recovery this year, given the economy’s reliance on exports rather than domestic demand. A surge in the currency to a 14- year high in November prompted the BOJ to introduce the bank- loan program, which offers funds to lenders at the 0.1 percent overnight rate, for three months. Any further monetary easing would focus on expanding the loan facility rather than “monetizing” the nation’s record debt by increasing its monthly purchases of government bonds, Sumitomo Mitsui’s Muto said. The central bank currently purchases 1.8 trillion yen of sovereign debt each month. “The BOJ will try to avert political calls for drastic monetization measures,” Muto said. “But the problem is, the bank can’t depend on this tool limitlessly as there isn’t much room left to beef it up.” To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net ; Masahiro Hidaka in Tokyo at mhidaka@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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