swedish

Obama’s `Unprecedented’ Climate Accord Delays Solution for at Least a Year

December 19, 2009

By Jim Efstathiou Jr. and Jeremy van Loon Dec. 19 (Bloomberg) — U.S. President Barack Obama called a climate change agreement with China and about 25 other nations an “unprecedented” move to slow global warming. Environmental groups and at least five developing nations called it a failure. The accord, which pushes off signing a treaty for at least a year, is “a first step,” Obama said yesterday before leaving Copenhagen, where he spent 14 hours cobbling together the agreement in meetings with world leaders, and addressing 8,000 envoys from 193 nations. Delegates from those countries failed to reach consensus on the accord today after discussing it through the night, agreeing instead to “take note” of the document, or recognize that it exists. The agreement seeks cuts in greenhouse-gas emissions that scientists blame for global warming without binding countries to take action. “The meeting was a disaster,” Lars-Erik Liljelund, the director general of Swedish Prime Minister Fredrik Reinfeldt’s office, said in an interview today. “The process needs to be changed because if we continue like this, we won’t be any further a year from now.” Negotiators met in the Danish capital for two weeks of United Nations talks on curbing global warming. Debate stumbled on aid to developing countries facing damage from climate change, pollution-reduction goals and how to verify individual country’s pledges to cut harmful emissions. Environmentalists said the agreement that includes the U.S. and China — the world’s two biggest emitters of greenhouse gases — falls well short of what’s needed to deal with global warming. Bolivia, Sudan and Venezuela were among countries that spoke out against the accord, which will serve as a framework for continuing talks in 2010. ‘Backroom Deal’ “This is the United Nations and the nations here are not united on this secret backroom declaration,” Kate Horner, policy analyst for the London-based environmental group Friends of the Earth, said in statement. “Copenhagen has been an abject failure.” The proposal calls for voluntary steps to reduce emissions blamed for heating the atmosphere, melting icecaps and causing destructive weather patterns. For two years, nations from China to members of the 27-country European Union repeatedly called for a binding treaty to be signed in Copenhagen. “It will not be legally binding, but what it will do is allow for each country to show to the world what they are doing,” Obama told reporters in Copenhagen. “There will be a sense on the part of each country that we’re in this together and we’ll know who is meeting and who’s not meeting the mutual obligations that have been set forth.” Pledges? Rich countries offered to provide $100 billion a year by 2020 to help poor nations reduce carbon emissions, which is conditional on developing countries cutting gas discharges, according to the text. They may also pay out $30 billion in aid from next year through 2012. “In terms of finance, it is vague, it is a big soup,” Pa Ousman Jarju , a Gambian delegate, said in an interview in Copenhagen. “It’s well below what is required.” The agreement was reached after President Barack Obama had last-minute talks with Chinese Premier Wen Jiabao , Indian Prime Minister Manmohan Singh , Brazilian President Luiz Inacio Lula da Silva and South African President, Jacob Zuma in Copenhagen today. It was then taken to all nations and most backed it. “There emerged over time a real sense in the room that most countries wanted to move forward with some kind of decision,” said Ruben Kraiem , co-chair of the climate practice for attorneys Covington & Burling LLP in New York. ‘Well Short’ Nations should try to keep the global temperature increase before industrialization “below 2 degrees” Celsius (3.6 degrees Fahrenheit), according to the agreement. Envoys from the U.S., Europe and China have supported the 2 degrees target. Poorer nations and environmental groups wanted 1 or 1.5 degrees, fearing a higher increase will raise sea levels and make coastal cities and some island states uninhabitable. “As President Obama said, its well short of what’s ultimately needed,” Elliot Diringer , vice president for international strategies at Arlington, Virginia-based Pew Center on Global Climate Change, said in a statement. “But it would provide a reasonable basis for negotiating a fair and effective climate treaty.” Without emissions curbs, temperatures would rise by 6 degrees Celsius, an increase that “would lead almost certainly to massive climatic change,” the International Energy Agency, an advisor to 28 oil-consuming nations, said in a report. A more-than-2-degree warming will bring more intense flooding and drought and a faster sea-level increase, according to the UN. Hard to Define “This declaration or outcome or whatever you want to call it, is not a legally binding document,” Indian Environment Minister Ramesh said in an interview. “It’s a political statement.” For 20 years, scientists working for the United Nations have provided guidance for global climate talks. The result is the Kyoto Protocol, a 1997 accord that limits greenhouse-gas emissions among 37 industrialized nations. Those targets are set to expire in 2012, leaving the world without binding goals if Copenhagen doesn’t renew them. “The objective of these negotiations of securing the future of the planet definitely wasn’t achieved,” Melinda Kimble , the U.S. chief negotiator for the Kyoto Protocol and senior vice president at the United Nations Foundation said in an interview in Copenhagen. “It’s a limited outcome.” To contact the reporters on this story: Nicholas Johnston in Copenhagen at njohnston6@bloomberg.net and Jim Efstathiou Jr . in Copenhagen at jefstathiou@bloomberg.net .

Read the full article →

Dollar Reaches Three-Month High as Federal Reserve Says Economy Improved

December 19, 2009

By Ben Levisohn and Ye Xie Dec. 19 (Bloomberg) — The dollar touched a three-month high against the currencies of major U.S. trading partners as the Federal Reserve said the economy improved while reiterating it will keep borrowing costs low for an “extended period.” The euro dropped against the pound as Greece’s credit rating was cut by Standard & Poor’s and the European Central Bank raised its estimate for writedowns in nations using the single currency by 13 percent. The dollar posted its biggest weekly rally since June before an economic report next week forecast to show an advance in U.S. durable goods. “This positive outlook from the U.S., from the Fed and much better data we have been recently seeing are giving you the impetus to get the euro-dollar lower,” said Emma Lawson , a currency strategist at Morgan Stanley in London, in an interview on Bloomberg Television. The Dollar Index , which the ICE futures exchange uses to track the greenback against the euro, yen, pound, franc, Canadian dollar and Swedish krona, rose 1.5 percent to 77.721 this week, from 76.573 on Dec. 11, the biggest rally since the five days ended June 5. The index touched 78.141 yesterday, the highest level since Sept. 4. The gauge of the dollar has appreciated 4.8 percent from this year’s weakest level reached on Nov. 26 as government figures showed the U.S. unemployment rate fell last month to 10 percent and retail sales rose more than forecast. Before the payrolls report on Dec. 4, the greenback had fallen 20 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars. ‘Better Outlook’ “With that better economic data and better outlook, the U.S. dollar stops being the funding currency of choice as it was in 2009,” Lawson said. The dollar appreciated 1.9 percent to $1.4338 per euro, from $1.4615 last week. It strengthened yesterday beyond $1.43 for the first time since Sept. 4. The yen strengthened 0.4 percent to 129.75 per euro, from 130.24. The U.S. currency advanced 1.6 percent to 90.49 yen, from 89.10. The euro decreased 1.3 percent to 88.74 U.K. pence. Deterioration in the labor market is “abating,” and household spending is increasing, the Fed said in its statement at the conclusion of its two-day meeting on Dec. 16. Policy makers held the target rate for overnight lending between banks at zero to 0.25 percent. Orders for U.S. durable goods increased 0.5 percent in November after a 0.6 percent drop in the previous month, according to the median forecast of 59 economists in a Bloomberg survey. The report from the Commerce Department is due Dec. 24. Weaker Aussie The Australian dollar was the biggest loser this week against the greenback among major currencies tracked by Bloomberg, dropping 2.5 percent to 89.02 U.S. cents. Reserve Bank Deputy Governor Ric Battellino damped expectations for further rate boosts, saying this week monetary policy is back in “the normal range.” The bank raised borrowing costs for three straight months beginning in October. The yen fell against the dollar this week after the Bank of Japan said it won’t tolerate consumer price declines, spurring speculation the central bank will maintain a target lending rate of almost zero. BOJ Governor Masaaki Shirakawa and his colleagues refrained from announcing more policy actions, choosing instead to watch the effect of a 10 trillion yen ($111 billion) lending program adopted two weeks ago after the government urged them to do more to fight deflation. The bank kept the target lending rate at 0.1 percent, as forecast by all 19 economists in a Bloomberg survey. Euro Versus Franc The euro dropped 1.1 percent this week to 1.4950 Swiss francs as the Swiss National Bank refrained from selling the currency, pushing it beyond 1.50 yesterday for the first time since a rally in March that led to an intervention. The central bank changed its language on currency purchases at last week’s quarterly monetary-policy assessment, saying it will act to counter “any excessive” moves in the franc against the euro. At its September assessment, the bank said it would “continue to act decisively” to prevent “any” appreciation. “It looks like the SNB did change the policy approach in terms of intervention defending a specific level,” said Shaun Osborne , chief currency strategist at Toronto-Dominion Bank in Toronto. “The new policy is more geared toward smoothing out currency moves rather than defending a specific level.” The franc tumbled 3.3 percent against the euro on March 12, the largest drop since the common currency debuted in 1999, when the Swiss National Bank intervened to prevent a strengthening currency from undermining the economy. The euro weakened versus the dollar this week as the ECB said yesterday banks may have to write down an additional 187 billion euros ($268 billion) as loans to property companies and eastern European nations threaten the financial recovery. Greece’s credit rating was cut by Standard & Poor’s, and the company threatened to take further action unless Prime Minister George Papandreou tackles the European Union’s largest budget deficit. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net

Read the full article →

Spyker’s Chief Muller Says EIB Is Biggest Obstacle to Reaching Saab Deal

December 17, 2009

By Ola Kinnander Dec. 17 (Bloomberg) — Spyker Cars NV’s plan to buy General Motors Co.’s Saab unit hinges on the European Investment Bank approving a loan before the end of December, the Dutch luxury-car maker’s chief executive officer said. GM and Spyker are not the “potential problem for this transaction,” Victor Muller said in a phone interview from his home in Amsterdam today, adding that winning EIB support before year-end is the biggest obstacle. So far, the European Union’s lending arm has sent “neutral signals” on approving a 400 million-euro ($574 million) loan that is key to the sale and which the Swedish government must guarantee, said Muller. “It’s mainly now down to the government agencies,” Muller said. “That’s really the main issue. We’re getting lots of support from the Swedish government.” Spyker, the maker of $235,000 sports cars, emerged as the frontrunner to buy Saab this month after Koenigsegg Group abandoned its bid on Nov. 24. GM’s Chief Executive Officer Ed Whitacre said on Dec. 15 that the Detroit-based carmaker will shut the unit if it doesn’t reach a deal with Spyker by the end of this month. GM has separately agreed to sell some technologies for Saab’s 9-3 and 9-5 models to Beijing Automotive Industry Holding Co. The EIB was not immediately available for comment. Koenigsegg Canceled Deal Koenigsegg Group canceled its planned acquisition of Saab, saying it ran out of time because delays in closing the acquisition had “resulted in risks and uncertainties” that prevented it from implementing a new business plan for the Swedish carmaker. The EIB in August delayed a decision on whether to give Saab a loan, which it eventually granted the Trollhaettan, Sweden-based company on Oct. 21. While the EIB approved the loan to Saab, the bank must now re-evaluate the financing with Spyker as the new owner. The Dutch carmaker is using Koenigsegg’s business plan in its bid and plans to keep Saab’s management if it buys Saab, Muller said. “In October, the EIB approved the Koenigsegg deal, which was exactly the same deal — the same lender, same borrower and the same business plan,” Muller said. “The only thing changed is the shareholder, so they have to do due diligence on that.” According to Koenigsegg Group’s plan for Saab as of September, the automaker was to become profitable by 2012 with annual sales of at least 100,000 cars. No Signed Deal No deal will be signed with GM until the EIB has decided on whether Saab can get the loan with Spyker as the new owner, Muller said. Spyker is also waiting for the European Commission to decide whether potential Swedish loan guarantees for the EIB funding distorts competition and for the Swedish state to decide whether it will give Saab the guarantees, said Muller. “There is very little point in signing an agreement until the time that the governmental agencies have approved the transaction,” Muller said. “Everybody knows exactly what the deadline is. There is no misunderstanding about that,” he said, adding GM’s chief executive officer had been “blatantly clear” about a Dec. 31 deadline. Saab is likely to win European Commission approval for the EIB loan, Johnny Kjellstroem, who is negotiating the case with the European Union’s regulatory arm on behalf of the Swedish government, said last week. It’s possible that the European Commission will reach a decision this month, he said. The EIB gives funding to projects throughout the European Union and raises funds it then lends on under favorable terms, according to its Web site. Recent projects include funding for energy efficiency and urban regeneration in cities and financial support for small businesses as well loans to the European automotive industry. To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ;

Read the full article →

Spyker’s Chief Muller Says EIB Is `Biggest Problem’ to Reaching Saab Deal

December 17, 2009

By Ola Kinnander Dec. 17 (Bloomberg) — Spyker Cars NV’s plan to buy General Motors Co.’s Saab unit hinges on the European Investment Bank approving a loan before the end of December, the Dutch luxury-car maker’s chief executive officer said. GM and Spyker are not the “potential problem for this transaction,” Victor Muller said in a phone interview from his home in Amsterdam today, adding that winning EIB support before year-end is the biggest obstacle. So far, the European Union’s lending arm has sent “neutral signals” on approving a 400 million-euro ($574 million) loan that is key to the sale and which the Swedish government must guarantee, said Muller. “It’s mainly now down to the government agencies,” Muller said. “That’s really the main issue. We’re getting lots of support from the Swedish government.” Spyker, the maker of $235,000 sports cars, emerged as the frontrunner to buy Saab this month after Koenigsegg Group abandoned its bid on Nov. 24. GM’s Chief Executive Officer Ed Whitacre said on Dec. 15 that the Detroit-based carmaker will shut the unit if it doesn’t reach a deal with Spyker by the end of this month. GM has separately agreed to sell some technologies for Saab’s 9-3 and 9-5 models to Beijing Automotive Industry Holding Co. The EIB was not immediately available for comment. Koenigsegg Canceled Deal Koenigsegg Group canceled its planned acquisition of Saab, saying it ran out of time because delays in closing the acquisition had “resulted in risks and uncertainties” that prevented it from implementing a new business plan for the Swedish carmaker. The EIB in August delayed a decision on whether to give Saab a loan, which it eventually granted the Trollhaettan, Sweden-based company on Oct. 21. While the EIB approved the loan to Saab, the bank must now re-evaluate the financing with Spyker as the new owner. The Dutch carmaker is using Koenigsegg’s business plan in its bid and plans to keep Saab’s management if it buys Saab, Muller said. “In October, the EIB approved the Koenigsegg deal, which was exactly the same deal — the same lender, same borrower and the same business plan,” Muller said. “The only thing changed is the shareholder, so they have to do due diligence on that.” According to Koenigsegg Group’s plan for Saab as of September, the automaker was to become profitable by 2012 with annual sales of at least 100,000 cars. No Signed Deal No deal will be signed with GM until the EIB has decided on whether Saab can get the loan with Spyker as the new owner, Muller said. Spyker is also waiting for the European Commission to decide whether potential Swedish loan guarantees for the EIB funding distorts competition and for the Swedish state to decide whether it will give Saab the guarantees, said Muller. “There is very little point in signing an agreement until the time that the governmental agencies have approved the transaction,” Muller said. “Everybody knows exactly what the deadline is. There is no misunderstanding about that,” he said adding GM’s chief executive officer had been “blatantly clear” about a Dec. 31 deadline. Saab is likely to win European Commission approval for the EIB loan, Johnny Kjellstroem, who is negotiating the case with the European Union’s regulatory arm on behalf of the Swedish government, said last week. It’s possible that the European Commission will reach a decision this month, he said. The EIB gives funding to projects throughout the European Union and raises funds it then lends on under favorable terms, according to its Web site. Recent projects include funding for energy efficiency and urban regeneration in cities and financial support for small businesses as well loans to the European automotive industry. To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ;

Read the full article →

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

December 16, 2009

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

Read the full article →

GM Said to Push for Saab Sale; Spyker Is Frontrunner, Beijing Buys Assets

December 13, 2009

By Jeff Green, Ola Kinnander and Adam Ewing Dec. 14 (Bloomberg) — General Motors Co. has adjusted its plan for Saab to focus on selling the entire unit, with Spyker Cars NV emerging as a frontrunner, according to people familiar with the situation. Spyker, the Dutch maker of $235,000 sports cars, was negotiating details of an agreement with GM over the weekend in Zurich, said two people, who asked not to be identified because the talks are confidential. GM has separately reached a preliminary deal to sell some technologies for Saab’s 9-3 and 9-5 models to Beijing Automotive Industry Holding Co. , with an agreement likely to be announced soon, a person said. The Detroit automaker is trying to sell or wind down the Swedish unit after Koenigsegg Group AB backed out of a purchase agreement last month. A sale of Saab will also depend on Sweden’s guarantee and European Union’s approval for a 400 million-euro ($585 million) loan from the European Investment Bank, the people said. A sale to Spyker “would be a step in the right direction,” Mike Tyndall , an automotive analyst at Nomura Securities in London, said in a telephone interview. “I’m not sure if it will be viable in the long term given Saab’s small scale and weakened brand image.” Saab was among four U.S. brands GM planned to unload as part of its restructuring to focus on Chevrolet, Buick, GMC and Cadillac. GM dropped Pontiac, had the Saturn deal fail and agreed to sell the Hummer sport-utility vehicle brand to China’s Sichuan Tengzhong Heavy Industrial Machinery Co. GM said Dec. 1 it would review bids for Saab and decide by the end of this month whether to sell or shut the unit. Spyker’s Bid Gunilla Gustavs , a spokeswoman for Saab, and Mike Stainton, a spokesman for Spyker Cars, declined to comment. GM Europe’s Frank Klaas couldn’t be reached for comment. Beijing Auto plans to announce “new progress” on Saab “as soon as possible,” Zheng Gang , a company spokesman, said by telephone. The Chinese automaker, which was rebuffed by GM in July when it bid for Ruesselsheim, Germany-based Opel, has blamed the failed bid on disagreement over intellectual property rights to car designs and technology. Spyker is bidding for Saab in a partnership with Chairman Vladimir Antonov’s RMC Convers Group, Spyker Chief Executive Officer Victor Muller said in a Dec. 2 interview. While Spyker hasn’t made a profit since its initial public offering in 2004, the Zeewolde, Netherlands-based company is better positioned than rivals because it most resembles Koenigsegg, the Swedish maker of $1.2 million sports cars, said one of the people. Formula One Other bidders that have expressed interest in Saab since Koenigsegg’s pullout include Merbanco Inc., a Wyoming-based investor, and billionaire Ira Rennert’s Renco Group Inc., people familiar have said. Spyker divested its unprofitable Formula One racing team in 2007 and sold 12 vehicles in the third quarter. Its C8 Aileron, which accelerates to 60 miles per hour in 4.5 seconds, retails for at least $235,000 excluding taxes in the U.S., the company’s main market. Saab is retooling its plant in Trollhaettan to begin production of a 9-5 sedan, the company’s first new model in seven years. The carmaker reported a 59 percent slump in European sales and a 62 percent drop in the U.S. in the first 10 months of 2009. Saab is likely to win European Commission approval for the EIB loan, Johnny Kjellstroem, the Swedish official negotiating the case with the European Union’s regulatory arm, said last week. The loan was a key element of Koenigsegg’s plan. While GM’s deal with Koenigsegg has collapsed, the financing is still seen as crucial to any transaction aimed at saving the unit. To contact the reporters on this story: Jeff Green in Southfield, Michigan, at Jgreen16@bloomberg.net ; Ola Kinnander in Stockholm at okinnander@bloomberg.net ; Adam Ewing in Stockholm at aewing5@bloomberg.net

Read the full article →

Dollar Fear Trumps Dollar Greed in Rising Prices to Protect Against Rally

December 6, 2009

By Liz Capo McCormick Dec. 7 (Bloomberg) — Traders in the $3.2-trillion-a-day foreign exchange market are paying the highest prices in more than a year to protect against a sudden rebound in the dollar after its worst annual performance since 2003. That possibility may be less remote, according to Bill Gross , manager of the world’s biggest bond fund, who says a prolonged period of record-low interest rates may foster the “ systemic risk ” of new asset bubbles. Dubai’s effort to delay debt repayments reminded traders how the U.S. Dollar Index surged 16 percent in the two months after the September 2008 collapse of Lehman Brothers Holdings Inc. when investors sought a haven from the turmoil and poured money into U.S. assets. “American investors have a lot of exposure now to foreign markets,” said Mansoor Mohi-uddin , the chief currency strategist at Zurich-based UBS AG, the largest foreign-exchange trader behind Deutsche Bank AG as measured by Euromoney Institutional Investor Plc. “If investors become risk-averse again, which happened last year due to Lehman’s bankruptcy and could happen now for a whole host of reasons, they are likely to go into less risky assets like U.S. Treasuries, which would help the dollar.” While Intercontinental Exchange Inc.’s Dollar Index fell to a 16-month low last month, implied volatility on three-month call options granting the right to buy the greenback versus the euro exceeded that for options to sell it by 1.61 percentage points. The Dollar Index tracks the currency against the euro, yen, U.K. pound, Canada dollar, Swiss franc and Swedish krona. Risk-Reversal Rates The so-called 25-delta risk-reversal rate, which was flat as recently as October, hasn’t shown such high relative demand for dollar calls since hitting a record 2.595 percentage points in November 2008. When the implied volatility of dollar calls exceeds puts, like now, the gap is expressed as a negative number, which would be minus 2.595 percentage points. Investors are waiting for “the BOB event, a bolt out of the blue,” said John Alkire , the chief investment officer at Morgan Stanley Asset & Investment Trust Management in Tokyo. “The world had a mini-BOB,” when financial markets tumbled after Dubai announced plans to restructure some of its $59 billion in debt, said Alkire, who helps oversee $40 billion. The Dollar Index had its biggest two-day gain in a month on Nov. 26-27, rising 1 percent, as Dubai’s proposal to delay debt payments shook investor confidence by risking the biggest sovereign default since Argentina’s in 2001. It surged 1.54 percent on Dec. 4, the most since Jan. 20, after the Labor Department said employers cut the fewest jobs in November since the recession began. Double-Dip Besides the financial turmoil in the United Arab Emirates, investors are also wary of the global economy falling back into recession with U.S. unemployment above 10 percent for the first time since 1983, non-performing U.S. commercial mortgage loans as measured by Moody’s Investors Service rising to 8.3 percent and the potential for stocks to fall after the steepest rally in the Standard & Poor’s 500 Index since the 1930s. International Monetary Fund Managing Director Dominique Strauss-Kahn said on Nov. 23 that about half of bank losses from the global financial crisis have yet to be reported. The IMF said in September that banks, which have taken $1.72 trillion in losses and writedowns as measured by Bloomberg since the start of 2007, may have $1.5 trillion in toxic debt on their books. “When viewed from 30,000 feet, there is even a systemic risk that new asset bubbles are in the formative stage,” Gross, the co-chief investment officer of Pacific Investment Management Co., wrote in his December investment outlook posted on the Newport Beach, California-based company’s Web site Nov. 19. High Stakes It’s not only currency traders that are concerned about a reversal in markets. Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince equity traders that the S&P 500 will extend its rally. S&P 500 options to protect against declines in stocks over the next year cost 40 percent more than one-month contracts, the biggest premium since 1999, data compiled by Barclays Plc and Bloomberg show. Record-low interest rates in the U.S. have encouraged investors to borrow in U.S. dollars and reinvest the proceeds in countries with higher ones, such as Australia and New Zealand. The so-called carry trades, which contribute to weakness in the dollar, produced returns of about 50 percent over the past nine months, Bloomberg data show. U.S. mutual fund investors raised the percentage of foreign assets in their holdings to 25.9 percent in October, matching the peak reached in mid-2008, based on Investment Company Institute data tracked by UBS. During the financial crisis, the percentage fell to 23 percent, after more than doubling from 2002. Rising Volatility The dollar has depreciated 7.4 percent against the euro this year, 24 percent versus Australia’s currency and 21 percent versus the New Zealand dollar. Investors are buying options to protect their positions “given that recent moves in the exchange rate have been nasty on the downside,” said Neil Jones , head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “Investors bullish on the euro are prepared to pay a premium for the automatic stop-loss the options provide while also keeping their cash position in play.” JPMorgan Chase & Co.’s G7 Volatility Index rose to 14.43 last month from the low this year of 12.32 in September. The 10- year average before the 2008 credit crunch was 9.9 percent. Strategists are cutting their forecasts for the greenback. The dollar will depreciate to $1.55 against the euro by March from $1.49 last week, and to $1.62 by June, according to JPMorgan. Since September, the median June 2010 estimate for Australia’s dollar has risen to 94 U.S. cents from 85, and jumped to 74 U.S. cents from 67 for New Zealand’s currency. No Policy Changes Any flight to the dollar may prove short-lived, with the Federal Reserve signaling it will keep rates at a range of zero to 0.25 percent for an extended period, according to Axel Merk , president of Palo Alto, California-based Merk Investments LLC. “If Dubai signals one thing, it’s that the odds of the central bank policy makers around the world mopping up all the liquidity they’ve provided anytime soon may be rather low,” said Merk, who manages more than $550 million in mutual funds that specialize in currencies. Dollar bears also say the U.S. government shows little concern about the currency’s decline, paving the way for further depreciation. That’s because a weaker greenback has helped to bolster exporter earnings. U.S. exports increased for the last five months, the Commerce Department said Nov. 13. Undue Speculation The depreciating dollar is proving no deterrent to demand for U.S. financial assets . For every $1 of debt sold by the Treasury this year, investors put in bids for $2.59, up from $2.19 at this point in 2008. Traders pushed up the cost to protect against a rise in the dollar after Fed policy makers said last month that their decision to cut rates to zero may be fueling undue financial- market speculation. Its policy of keeping rates low might cause “excessive risk-taking” or an “unanchoring of inflation expectations,” according to minutes of the Nov. 3-4 Federal Open Market Committee meeting. The committee members also said the dollar’s decline has been “orderly.” Nouriel Roubini , the New York University professor who predicted the financial crisis, said last week that Dubai’s attempt to reschedule debt underscores the global economy’s vulnerability to a setback. ‘Vulnerabilities’ Remain “Although Dubai World’s financing issues are not a surprise and are relatively small given global credit losses, they are a reminder that the vulnerabilities and imbalances that contributed to the credit crunch have not disappeared,” Roubini said on his RGE Web site on Dec. 2. The three-month risk reversal rate for options on the Australia-U.S. dollar exchange rate reached minus 3.57 percent last week, the most since February. On the New Zealand-U.S. dollar exchange rate, it hit minus 3.92 percent on Nov. 27, the biggest negative since February. “People saved money in the past by not insuring themselves, which proved to not be a great trade,” said Nick Parsons , head of markets strategy in London at NabCapital, a unit of National Australia Bank Ltd., the country’s largest bank. “There is plenty of incentive and opportunity to hedge now. People are much more willing to buy insurance.” To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net .

Read the full article →

Steve Parker: GM – CEO Henderson out, Lutz still in

December 2, 2009

General Motors’ appearance as a confused corporation gained new steam Tuesday when Fritz Henderson was “resigned” from his CEO position after just eight months on the job. Frederick “Fritz” Henderson, 51, was “resigned” by the corporation’s board of directors that day, one day before his planned keynote opening address to the world automotive, environment and business media at the Los Angeles Auto Show. Apparently GM’s board was so tired of Henderson that they dealt with him before he addressed the press at the US’ first major auto show of the season. Fritz Henderson in happier times At that show, GM is presenting a near-production version of the Chevrolet Volt, giving show-goers their first look at what the car will look like. Now Henderson doesn’t even get his chance to front that car. Ed Whiteacre, 68, current board chairman, is taking over Henderson’s responsibilities while an international search begins for a new CEO — a search GM has acknowledged could take months. Whiteacre was formerly chief executive of AT&T and admitted when taking the GM position that he had little knowledge about the auto industry. But that seems to be what the board of directors wants, insiders saying that Henderson was moving too slowly and the corporation needed more changes happening faster than under Henderson. Henderson’s long history with GM and its staid, sometimes paranoid corporate culture, was certainly a large part of what was his own board’s decision. Henderson has overseen a series of failures at GM in recent weeks. These include: inability to find a buyer for Saturn, canceling the planned sale of Opel and, just in the past few days, the Swedish company Koenigsegg Automotive abruptly halted their efforts to buy Saab from GM. Soon before these failures, all three projects were considered sure bets by GM, Wall Street and the worldwide auto press and industry in general. GM’s board chairman Ed Whiteacre will take over Henderson’s duties while a worldwide search begins for a new CEO Henderson got the job when his mentor, Rick Wagoner, was fired last July from his position as GM CEO by the White House’s automotive overseers and GM’s board – groups made-up mostly of auto industry outsiders. Ironically, Henderson, with the corporation since 1984, mostly as a bean-counter, has met a very similar fate (though the White House says they were not involved – this time). There was a hastily called press conference at GM headquarters in Detroit on Tuesday, made even more unusual because it was taking place at 4:30pm (usually companies want to make news in the mornings to get coverage that day from TV, the Internet and newspapers). Whiteacre took to the podium, made a short statement, thanked Henderson for his service (still mandatory in US business) and refused to take questions, striding out of the room. The public can get their first in-person look at a close-to-production version of the Chevrolet Volt extended-range hybrid at the LA Auto Show later this week The Los Angeles Auto Show opens to the public this Friday, and Wednesday and Thursday the show is previewed for the media, where they attend press conferences at various manufacturers’ displays, eat and drink for free as much as possible and have to pay $12 each day to park at the Los Angeles Convention Center just like their readers, viewers and listeners. Wednesday morning’s keynote address, opening the show for the media, is a long-standing tradition. The speech is usually presented by an industry leader to an audience of press, which is in the midst of eating breakfast or slightly dozing in one of the convention center’s cavernous halls. So who did GM send at the last second to fill-in for Henderson? You might’ve guessed right – it was Bob Lutz, 77 year old vice chairman and workhorse of GM who announced his own retirement from GM last February, a retirement he said would begin April 1, 2009. However, with Wagoner’s fate then seriously in question and his forced retirement in March, 2009, Lutz found his career revived – he canceled his retirement – and was placed in charge of marketing, advertising and even design at the corporation. Also, some feel the White House auto task force, which had engineered Wagoner’s “resignation,” might have encouraged Lutz to stay on because of his long and usually successful career as a top executive at GM of Europe, Ford, BMW, Chrysler and battery-maker Exide, rejoining GM in 2002. Lutz has had his share of problems while back at GM. Both the “new” Pontiac GTO and Pontiac G8, based on cars built by GM’s Australian division, Holden, were sales disasters in the US. As recently as February, 2008, he said, “Global warming is a total crock of shit” and “Hybrids don’t make economic sense.” Yet, ever the adaptable warrior (he was a Navy fighter pilot), he has also been the driving force behind the Chevrolet Volt, an extended-range hybrid going on-sale in late 2010. Pontiac’s G8 sedan, made in Australia, was a sales failure for the corporation; the project was initiated and managed by vice-chairman Bob Lutz Lutz is also a lightning rod, loved by the media because he’s so quotable (best industry interview since Lee Iacocca) and certainly not afraid to speak his mind. Until his keynote yesterday at the LA Auto Show. Joking throughout his presentation of how he would not get into any details about Henderson’s “resignation,” he said he’d save that story for his next book, which, he said, “I’ll write when I retire.” True to his word, Lutz skipped that topic and would not answer any related questions from reporters after his speech. In his prepared remarks, according to the NY Times, “(Lutz) stressed that the industry was moving into the age of the electrification of the automobile and was poised at “a tipping point — as great as the one 100 years ago, when we transitioned from horses to horsepower.” Will Lutz wind up with the top job after all? So far, GM chairman Whiteacre hasn’t mentioned Lutz as a possible successor for Henderson and his age and many years with the corporation probably will work against him in that regard. Bob Lutz is a publicly emotional top executive, rare in the cold world of business However, to serve as an interim CEO? Lutz is only nine years older than Ed Whiteacre, who has taken that CEO position for himself. No one understands GM’s entrenched corporate culture yet has a proven ability to develop and support new ideas and welcomes press coverage more than Lutz – and maybe he should be involved in the headhunting for a new CEO while making some changes on his own, if the board sees fit.

Read the full article →

Henderson Is Said to Flunk Board’s 100-Day Review on Fixing General Motors

December 2, 2009

By Jeff Green, David Welch and Katie Merx Dec. 2 (Bloomberg) — General Motors Co. Chief Executive Officer Fritz Henderson resigned after eight months on the job as directors concluded he hadn’t done enough to fix GM’s finances and culture, people familiar with the matter said. The board gave Henderson, 51, a 100-day review yesterday on his performance since GM’s July 10 bankruptcy exit, said the people, who asked not to be identified because the discussions were private. Several directors also expressed the view that an outsider was needed to run the automaker, one person said. Henderson’s exit caps a tenure that included aborted deals to sell the Saturn, Saab and Opel units, a struggle to replace top managers such as Chief Financial Officer Ray Young , and U.S. market-share losses. Chairman Ed Whitacre took over on an interim basis, giving the former AT&T Inc. CEO and chairman a chance to help pick a successor and put his stamp on GM. “The next person will be the board’s person,” said Michael Robinet , an analyst at CSM Worldwide Inc. in Northville, Michigan. “They will have interviewed and vetted the person.” The search for a new CEO “begins immediately,” Whitacre said in a statement released by GM after the board met yesterday in Detroit, where the automaker is based. GM hadn’t started recruiting before that session, said one person briefed on the effort. The pace and scope of Henderson’s progress fell short of what the board wanted, said the people, who wouldn’t provide details. While the new directors have been on the job about 145 days since GM left Chapter 11, they referred to the evaluation as a 100-day review, the people said. Tom Wilkinson , a GM spokesman, declined to comment beyond the statement. ‘Accelerate Our Progress’ Whitacre, 68, was selected by the Treasury’s auto task force to lead the revamped board when GM left Chapter 11 with the government as the majority owner. He told reporters yesterday that “we need to accelerate our progress.” The comment echoed Whitacre’s remark in a Nov. 10 interview in which he said he was urging executives to “hurry” while saying the board was “fully behind Fritz.” Henderson, a 25- year GM employee, became CEO in March when the task force asked Rick Wagoner to leave as part of a U.S. rescue. Until midday, there was no sign at GM’s board meeting that Henderson’s job was in jeopardy, two people familiar with the session said. Directors approved GM’s 2010 business plan and a blueprint for restructuring the Opel unit in Europe before the talk turned to Henderson’s evaluation, the people said. Henderson was at today’s meeting, the people said. Conference Call GM management learned of the board’s decision about 2 p.m. Detroit time yesterday, when the eight-member executive committee and other senior leaders were summoned to a conference call on which Whitacre delivered the news of Henderson’s resignation, people familiar with the discussion said. Managers asked Whitacre whether he wanted their resignations, and he told them he had faith in their abilities and wanted them to stay, two people with knowledge of the conference call said. Henderson’s departure stunned executives, said one person close to the board’s discussion. GM had exceeded the financial targets in the viability plan crafted by management and the Treasury’s auto task force, the person said. The Treasury’s force told directors at an Aug. 3 meeting that Henderson had a 40 percent to 60 percent chance of fixing GM, a person familiar with the briefing said at the time. Task force advisers also urged GM to bring in outsiders to help shake up a hide-bound culture, that person said. The value of having an outsider as CEO resurfaced at yesterday’s meeting, said one person familiar with the session. Bankruptcy, Exit Henderson’s service as CEO was the shortest at GM since at least 1912, according to records compiled by trade publication Automotive News. His previous posts at GM included working as CFO and chief operating officer under Wagoner. As CEO, he presided over GM’s slide into bankruptcy on June 1 and emergence 40 days later backed by $50 billion in federal aid. Last month, Henderson surprised analysts as GM reported generating $3.3 billion in cash in the third quarter and said repayments would start early on $6.7 billion in federal loans. At the same time, he said GM lost $1.15 billion and would consume cash again this quarter. Whitacre also said last month he favored an initial public offering later than that originally discussed by Henderson. Board Disagreements “Whether it was the sale of Opel or the timing of a GM IPO, it had become clear in recent months that the board and the CEO were not always on the same page,” Himanshu Patel , a JPMorgan Chase & Co. analyst in New York, wrote in a report late yesterday. The disagreements were “useful in some cases, but probably unhealthy for any company longer term,” Patel wrote. Whitacre told reporters in Detroit that Henderson “has done a remarkable job leading the company through a time of challenge, and momentum has been building over the past several months, but we all agreed changes needed to be made.” He didn’t take questions or elaborate on the executive shake-up. With his new duties, Whitacre said he will be working at GM’s Renaissance Center headquarters in Detroit on a “daily basis.” The automaker notified U.S. officials about Whitacre’s ascent and Henderson’s departure, said Chris Preuss , a GM spokesman. GM’s board, not the Obama administration, made yesterday’s personnel decisions, a U.S. official said. Pressure on Henderson Henderson was under pressure to return GM to profit after more than $88 billion in losses since the end of 2004. GM’s 2009 U.S. sales through November tumbled 32 percent, and its market share was 19.8 percent, down from 22 percent a year earlier. GM is cutting its U.S. brands from eight to four, keeping the Chevrolet, Cadillac, Buick and GMC brands. In addition to ending its affiliation with Saab, GM is winding down Saturn and Pontiac and has a deal to sell Hummer to Chengdu, China-based Sichuan Tengzhong Heavy Industrial Machinery Co. Talks to sell Trollhaettan, Sweden-based Saab to investors led by Koenigsegg Group AB collapsed last week when Koenigsegg withdrew its bid. Parts of Saab may still be sold to Beijing Automotive Industry Holding Co., two people familiar with the talks said this week. Spyker Cars NV, Merbanco Inc. and Renco Group Inc. have also made approaches about the Swedish carmaker, people familiar with the matter have said. A search is also under way for a new CFO to replace Young, who will be reassigned as a lieutenant to Nick Reilly , the chief of GM’s international operations, people familiar with that search have said. Henderson’s successor will face challenges including the restructuring of Opel, the quest for profit in North America and the management of the remaining four U.S. brands, CSM’s Robinet said. “There are still a lot of balls in the air,” he said. To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; David Welch in Southfield, Michigan, at david_welch@businessweek.com ; Katie Merx in Los Angeles at kmerx@bloomberg.net

Read the full article →

GM CEO Fritz Henderson To Resign: AP Source (BREAKING)

December 1, 2009

DETROIT — General Motors Co. CEO Frederick “Fritz” Henderson stepped down Tuesday after the board determined that the company wasn’t changing quickly enough. Chairman Ed Whitacre Jr. said at a hastily called news conference that he will serve as interim CEO, and an international search for a new CEO and president is planned. Whitacre thanked Henderson for his work during a period of challenge and change, but said it is time to accelerate the pace of rebuilding the largest U.S. automaker. The resignation comes just eight months after Henderson, 51, replaced former chairman and CEO Rick Wagoner, who was ousted March 29 by the Obama administration’s government’s auto task force. Henderson has been with GM his entire career and was the government’s choice to run the beleaguered company after Wagoner left. Whitacre, picked by the government in June to be chairman of the new GM, is considered an industry outsider, having run AT&T Inc. for 17 years. Whitacre and the board have become increasingly active in the company’s decisions, at times challenging some of Henderson’s decisions. In November, the board voted to abandon plans to sell GM’s European Opel unit. That reversed an earlier option favored by Henderson to sell it to a consortium led by Canadian auto parts supplier Magna International Inc. “Based on the determination of the board and the pace of the change in the company, it was determined that it was best to initiate a change in direction,” spokesman Chris Preuss said. An Obama administration official said in a statement that “this decision was made by the Board of Directors alone. The Administration was not involved in the decision.” Henderson replaced Wagoner a few months before GM entered bankruptcy protection and led the company through a painful government-led and court-supervised reorganization. With the government’s help, the company emerged from court protection in just 40 days cleansed of massive debt and burdensome contracts that would have sunk it without federal loans. Henderson continued to downsize the automaker after its emergence from bankruptcy. He sought to scale down GM to just four core brands: Chevrolet, Cadillac, Buick and GMC. While he has largely succeeded in that goal, attempts to sell the company’s other brands have hit obstacles. Earlier this week, Swedish luxury sports car maker Koenigsegg Group AB backed out of a deal to buy GM’s Saab brand. GM said Tuesday it has some interested bidders but will wind down Saab if nothing materializes by the end of the year. GM also is winding down Pontiac and was successful in winning a tentative sale of Hummer to a Chinese construction machinery maker. However, Henderson’s bid to sell Saturn to race car mogul Roger Penske fell through and the brand is now liquidating. Henderson was scheduled to be the keynote speaker at the Los Angeles Auto Show on Wednesday. GM Vice Chairman Bob Lutz will now deliver the address. __ AP Auto Writer Dan Strumpf contributed to this report from New York.

Read the full article →

Beijing Auto, Merbanco, Renco Said to Make Approaches About GM’s Saab Unit

November 26, 2009

By Serena Saitto, Ola Kinnander and Jeff Green Nov. 27 (Bloomberg) — Beijing Automotive Industry Holding Co., Merbanco Inc. and Renco Group Inc. have made approaches about General Motors Co. ’s Saab unit after a sale to Koenigsegg Group collapsed, two people familiar with the situation said. No written proposals have been submitted and any new bids or other options for the Swedish unit will be reviewed by Detroit-based GM’s board at a meeting on Dec. 1, said one of the people, who asked not to be identified because the discussions are confidential. Koenigsegg said Nov. 24 it pulled out of talks to acquire Saab, saying it ran out of time to complete the transaction. Beijing Automotive was a partner in the investor group. While GM directors might opt to keep Saab, as they did with the Opel division this month, GM has a contingency plan that calls for winding down the brand, people familiar with the plan have said. “Saab’s future is uncertain,” said Koji Endo , managing director of Advanced Research Japan, a Tokyo-based equity research company. “It may remain if there are buyers or some kind of support from governments, or if GM keeps it. Otherwise, the brand will disappear.” Beijing Automotive said Nov. 25 it will “cautiously” reconsider plans to buy a stake in the unprofitable Swedish carmaker. A Beijing Auto spokesman couldn’t be reached for comment. Saab’s Survival Merbanco is a Wyoming-based investor group. President Christopher Johnston said in an interview yesterday that Merbanco would be willing to help Saab. When asked whether that could include acquiring a majority stake in the carmaker, he said: “that could be one way.” “I do not believe that the company should be closed,” Johnston said. “Whoever buys Saab, or if GM keeps Saab, there’s a lot of work ahead but I believe that the company should survive.” Renco spokesman John Dillard didn’t return a phone call. Chris Preuss , a GM spokesman, and Saab’s Eric Geers declined to comment. Koenigsegg’s pullout thrusts Saab in jeopardy again after the automaker sought protection from creditors in February following a decision by GM to cut it off by year-end. Saab, which exited reorganization in August, had expected the sale to be completed by the end of this month, allowing fresh funds to finance a ramp-up of production of older models and start production of new car types. Chinese Automakers The collapse marked another setback for Chinese automakers’ attempts to expand overseas by purchasing established brands. Beijing Auto was rebuffed by GM in July when it bid for GM’s Ruesselsheim, Germany-based Opel unit. SAIC Motor Corp., China’s biggest domestic automaker, bought control of South Korea’s Ssangyong Motor Co., only to have the unit go into receivership after sales plunged. Saab is retooling its Trollhaettan, Sweden plant to begin production of the 9-5 sedan, the company’s first new model in seven years, by the end of this year. The carmaker reported a 59 percent slump in European sales and a 62 percent drop in the U.S. in the first 10 months of 2009. The Swedish government has ruled out taking over Saab to keep the company and its suppliers afloat. Saab’s survival hinges on a new private buyer, Joeran Haegglund , state secretary at the Industry Ministry, said Nov. 24. Merbanco was among suitors that lost the bidding in June to Koenigsegg, a person familiar with the process said at the time. Renco, owned by billionaire Ira Rennert , had also expressed interest. Saab traces its roots to aircraft company Svenska Aeroplan AB, founded in 1937 to secure production of Swedish warplanes. The first car left the factory a decade later. GM bought half of Saab in 1990 and took full ownership a decade later. To contact the reporters on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ; Serena Saitto in New York at ssaitto@bloomberg.net ; Jeff Green in Southfield, Michigan, at Jgreen16@bloomberg.net

Read the full article →

Stocks, Commodities Gain, Dollar Falls on Optimism Recovery Strengthening

November 25, 2009

By Michael P. Regan and Mark Gilbert Nov. 25 (Bloomberg) — Stocks and commodities advanced, while the dollar approached a 14-year low against the yen, as reports on home sales, jobless claims and consumers spurred optimism that the economic recovery is strengthening. The Standard & Poor’s 500 Index added 0.3 percent to 1,109.02 at 11:14 a.m. in New York. Gold climbed to a record on demand for a store of value as the dollar weakened against 15 of 16 major currencies and broke 88 versus the yen for the first time since January, when it slid to the weakest since 1995. Treasuries were little changed before the government’s $32 billion auction of seven-year notes. U.S. reports today showed weekly jobless claims slid to the lowest level since September 2008, while home sales, consumer confidence and personal spending topped estimates. The Federal Reserve yesterday raised its forecast for 2010 U.S. growth to a range of 2.5 percent to 3.5 percent, from 2.1 percent to 3.3 percent, and signaled it will tolerate a weaker U.S. dollar. “The U.S. is our planet’s greatest consuming nation, so a healthy U.S. economy, a healthy U.S. consumer is a strong symptom of improving global demand,” said Lawrence Creatura , a Rochester, New York-based fund manager at Federated Investors Inc., which oversees $390 billion. “You’re seeing equity markets respond to that globally, as well as commodity markets.” Europe, Asia The Dow Jones Stoxx 600 Index of European shares added 0.3 percent as raw-material producers climbed with metals. BHP Billiton Ltd., the world’s largest mining company, advanced 3.2 percent in London. France Telecom SA gained 1.8 percent in Paris. Europe’s third-biggest phone company will merge its Orange Switzerland unit with TDC A/S’s Sunrise Communications SA division to expand in Switzerland and pay 1.5 billion euros ($2.25 billion) for a majority stake. Equities pared some of their gains after Dubai World, the government-owned holding company struggling with $59 billion of liabilities, said it is seeking to delay repayment on all of its debt, even after Abu Dhabi banks provided $5 billion for Dubai’s support fund. The Dow Jones Industrial Average climbed 24.19 points, or 0.2 percent, to a 13-month high of 10,457.9. Commerce Department reports showed consumer spending increased 0.7 percent last month, beating the median estimate of 0.5 percent from economists surveyed by Bloomberg News, and new home sales increased 6.2 percent. Jobless Claims, Consumers Separate data from the Labor Department showed that the number of Americans filing claims for unemployment benefits fell to 466,000 last week. The Reuters/University of Michigan final index of consumer sentiment was 67.4, higher than the 67 forecast by economists. The U.S. currency extended its drop versus the yen after breaking 88 for the first time in 10 months. The Swiss franc appreciated to parity versus the dollar for the first time since April 2008. Russia’s central bank plans to add Canadian dollars to its reserves to reduce a reliance on the greenback. The dollar dropped 0.9 percent to 87.68 yen after falling to 87.39, the lowest level since Jan. 21. On that day, it touched 87.13, the weakest since July 1995. The dollar depreciated 0.6 percent to $1.5064 per euro, from $1.4968 yesterday, after reaching $1.5096, the weakest level since August 2008. Currencies, Dollar South Africa’s rand gained 1.5 percent to 7.3507 versus the dollar and the Swedish krona appreciated 0.3 percent to 6.8887 on speculation investors will increase carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark lending rate of zero to 0.25 percent in the U.S. makes its currency popular for funding such transactions. Gold climbed to the highest price ever as the dollar’s slump deepened and following a report that India may buy more bullion for its central-bank reserves. Gold reached a record $1,184.70 an ounce and has rallied 12 percent since Nov. 2. “There is a lot of central-bank buying, hedge-fund buying and gold is obviously getting to $1,200 an ounce before the end of the year,” David Lee , a trader at Heraeus Precious Metals Management in New York, said in a telephone interview. The most-active gold contract rose for a ninth straight day, headed for the longest rally since August 1982. Gold is up 34 percent this year. The last time bullion gained more than that was in 1979. Vietnam Devalues Vietnam’s central bank devalued its currency and raised interest rates to rein in inflation and a widening trade deficit that’s eroding confidence in the dong. The State Bank of Vietnam lowered the reference rate 5.2 percent to 17,961 against the dollar, after the gap between spot and black-market rates widened to the most in a decade. Policy makers narrowed the dong’s daily trading band to 3 percent, from 5 percent, effective tomorrow. Emerging-market bond yields fell 6 basis points relative to U.S. Treasury notes, pushing JPMorgan Chase & Co.’s benchmark Emerging Markets Bond EMBI+ Index of total returns to a record high of 496.75. The index measures the average return on emerging-market international bonds since December 1993. Soybeans for January delivery climbed for a second day in Chicago, rising 0.8 percent to $10.54 a bushel, on speculation demand will increase in China, the world’s biggest oilseed importer. Wheat for March delivery climbed 11.75 cents, or 2.1 percent, to $5.65 a bushel, rebounding from a five-day, 7.2 percent retreat. To contact the reporter on this story: Michael Regan in New York at Mregan12@bloomberg.net .

Read the full article →

Saab Automobile Sale to Koenigsegg Falls Through; GM May Shut Swedish Unit

November 24, 2009

By Niklas Magnusson and Adam Ewing Nov. 24 (Bloomberg) — Koenigsegg Group AB canceled its planned acquisition of Saab Automobile AB, the Swedish carmaker General Motors Co. wants to sell, saying it ran out of time. “Time always played a critical factor in our strategy for reviving the company,” Christian von Koenigsegg , a member of the group the agreed to buy Saab, said in a statement today. “Unfortunately, delays in closing this acquisition have resulted in risks and uncertainties that prevent us from successfully implementing the new Saab business plan.” Saab had expected that the transaction would be closed at the end of this month. The deal was postponed after the European Investment Bank delayed a decision on granting Saab a 400 million-euro ($600 million) loan, which it eventually approved Oct. 21. “We believed in the plan, we were convinced that it would work,” Koenigsegg Chairman Augie Fabela said in a telephone interview today. “We came to the decision after deliberations over the past few days that time just ran out for us to make the deal happen. It’s up to GM now” To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Read the full article →

Woman Who Sank Galleon Was Beauty-Queen-Turned-Analyst Insider

November 23, 2009

By Anthony Effinger, Katherine Burton and Ian King Nov. 23 (Bloomberg) — Danielle Chiesi spent a lot of time in hotel ballrooms and bars during the past decade. As an analyst at New Castle Funds LLC, a New York hedge fund firm that manages about $1 billion, she was a regular at conferences on technology stocks, where she could get face time with executives and press them on how many microprocessors and how much software they were shipping that quarter. Chiesi wore short skirts and low-cut tops, according to people who saw her over the years. One ploy was to go barhopping with a group, and then peel someone off to talk to on the dance floor, says a person who attended conferences with her. A blond, blue-eyed former teenage beauty queen, Chiesi used her sexuality to build sources at male-dominated tech companies, says Deborah Stapleton , president of Stapleton Communications Inc., an investor relations company in Palo Alto, California. “It amazes me that grown, wealthy, successful, hardworking men fell for that,” Stapleton says. Chiesi was proud of her network, too. “She bragged about her contacts in public,” Stapleton says. “She was like a teenager who wanted everyone to know she knew some rock star.” U.S. authorities say Chiesi, 44, crossed the line in her pursuit of secrets. They charged her and 19 others with securities fraud in the largest insider-trading case prosecuted since the 1980s, when stock market arbitrager Ivan Boesky paid a $100 million fine and spent three years in prison. Sorority Sister Chiesi, they say, got tips from executives at technology companies and passed them along to other hedge fund managers, including Raj Rajaratnam , billionaire co-founder of New York- based Galleon Group LLC, who was also arrested in the case. Rajaratnam, who is liquidating his hedge funds, has denied wrongdoing. Chiesi’s lawyer, Alan Kaufman , says his client intends to plead innocent. The one-time sorority sister at the University of Colorado is a small fry compared with Rajaratnam, who managed $7 billion in 2008. Of all the alleged conspirators, though, she had the highest-placed sources. She was in regular contact with Hector Ruiz , Advanced Micro Devices Inc. ’s former chairman and chief executive officer, according to a person familiar with the investigation. Government prosecutors say she was friends with Robert Moffat , a senior vice president of International Business Machines Corp. , who was a candidate to succeed CEO Sam Palmisano . An unidentified family friend at Akamai Technologies Inc. allegedly gave her a tip so accurate that New Castle made more than $2.4 million in one week. Government Wiretaps The prosecution marks the first time the U.S. government has tapped phones to get evidence against hedge funds, the lightly regulated partnerships that control $1.4 trillion. After two rounds of arrests — one on Oct. 16 and another on Nov. 5 — Preet Bharara , U.S. attorney for the Southern District of New York, says he’s just getting started. “No one should assume that our aggressive policing of the hedge fund industry will stop at these two cases,” Bharara said at a press conference after the second roundup. Bharara’s promise of a wider crackdown has hedge fund managers thinking twice about picking up the phone, according to an executive at one multibillion-dollar fund. And everyone is wondering whose conversations will spill into the public domain next. Octopussy The ones released so far show that Chiesi may have been the most aggressive of those charged when it came to pursuing tips and tipsters. Her only competition is Zvi Goffer , 33, a former trader at Schottenfeld Group LLC in New York known to some members of the ring as Octopussy, a nod to the 1983 James Bond movie starring Roger Moore , “because he had arms in so many sources of inside information,” according to a Nov. 5 complaint filed by the Securities and Exchange Commission, which is also pursuing the case. While Chiesi may have had fewer sources, they were well placed, and she worked them hard. She made plans to meet with IBM’s Moffat at her mother’s house in Sherman , Connecticut, on a Sunday, government wiretaps show. She talked into the evening with Ruiz from AMD, and she sought to re-establish the trust of the family friend at Akamai so she could pump him for information. Chiesi, one of only two women charged — the other is cooperating with prosecutors — sparred with Rajaratnam over who had the best sources. “I must defer to you on IBM,” Rajaratnam told Chiesi on a call taped by the Federal Bureau of Investigation on Sept. 23, 2008. “And Akamai, too,” Chiesi said. “But AMD?” said Rajaratnam. “Bring it on, baby.” Bear Stearns Inquiry Chiesi’s comments on wiretaps read like dialogue from a Quentin Tarantino movie. “Unless you were on the phone with (the AMD executive) and had Moffat at your house last night, who the f–k would be buying it, honestly?” she asked Mark Kurland , her boss at New Castle, about AMD on Sept. 9, 2008. Chiesi may have been breaking the rules for years. Officials at Bear Stearns Cos., which owned New Castle until January 2009, investigated Chiesi for insider trading at least once in the past five years, according to people familiar with the probe. They suspected Chiesi received nonpublic financial information from an executive at AMD, the Sunnyvale, California- based chipmaker. The investigation was inconclusive, the people say. Fishnet Stockings Kurland, managing general partner at New Castle, encouraged Chiesi’s source building, according to government wiretaps. “This is what I think you should do more of, what you’re doing more of now,” Kurland, 60, who was also arrested, said on a phone call taped on Aug. 22, 2008. “You know, get more relationships. Why don’t you just worry about getting the information, and don’t worry about the numbers.” Kurland declined to comment. The source building paid off: New Castle made $3.8 million in six months, starting in July 2008, using information gathered by Chiesi, the government says. And that’s only on the trades detailed by the U.S. Department of Justice. For someone allegedly dealing in illegal secrets, Chiesi didn’t care much about her cover. At conferences, she would brag in a loud voice that she could get AMD’s Ruiz on the phone anytime, according to a person who heard her. Such brashness was nothing new. When she worked at New York brokerage Furman Selz LLC in the early 1990s, she would show up in a tight red suit with red fishnet stockings, says a person who worked there at the time. She dated a man on the trading desk and didn’t try to hide it, the person says. Peach Melba Chiesi, who grew up in Binghamton, New York, is the daughter of an insurance executive and the granddaughter of a restaurateur, according to an obituary of her father published by the University of Michigan, his alma mater, after he died in 2002 at 65. Her grandfather, Swiss-born Alex Chiesi, studied with French chef Auguste Escoffier, who invented the Peach Melba dessert while running the restaurant at the Savoy Hotel in London in 1893. Alex moved to the U.S., where he owned several restaurants, including the Hapsburg House on East 55th Street in New York, according to the obituary. In 1956, Alex took his family on vacation in Europe. On the way home, his son, Alex Chiesi Jr., met a 17-year-old Italian woman named Gloria who was scheduled to take the SS Andrea Doria to the U.S. By luck, she missed its departure, according to the obituary. The Andrea Doria collided with the Swedish liner Stockholm and sank off Nantucket that July, killing 46 on the Andrea Doria and five on the Stockholm. Miss Southern Tier Alex Jr. and Gloria married in 1963. He became an executive at Binghamton-based Security Mutual Life Insurance Co . of New York, according to the obituary. The couple raised three children in New York state’s Southern Tier, the area along the Pennsylvania border. Their middle child, Danielle, was named Miss Southern Tier Teenager in 1981 and appeared in the local paper wearing a tiara. She went west for college, enrolling at the University of Colorado at Boulder, where she rushed the Pi Beta Phi sorority. “Danielle was really social, gregarious and popular,” says Stacey Maggio, a sorority sister. “She was a knockout with a big heart.” Chiesi graduated in 1988 with a bachelor’s degree in economics. She moved to New York, where she took a job at Mabon, Nugent & Co., a small brokerage. There, she got to know Kurland, then an analyst following paper and packaging companies, according to a person who worked at Mabon at the time. ‘Lunch Money’ Chiesi bounced around after Mabon. Her first stop was Furman Selz, one of the first brokers to target hedge funds as clients. In 1994, she landed at securities firm Arnhold & S. Bleichroeder Advisers LLC , where hedge fund legend George Soros worked from 1963 to 1973. In 1996, she joined Kurland, who had started New Castle a year earlier with another Mabon alumnus. The same year she joined New Castle, Chiesi divorced her husband, Brian Feeney, after a 16-month marriage. Kurland was head of research at the brokerage division of Bear Stearns before starting New Castle. “He wasn’t much of a stock picker when I was there,” says Tad LaFountain, an analyst who worked for him at Bear Stearns from 1993 to 1995. “I only would have given Mark my lunch money to invest if I had wanted to lose weight,” says LaFountain, who left the industry four years ago and lives in Princeton, New Jersey. ‘Top Ticked’ LaFountain says Kurland once prodded him to raise his rating on Vishay Intertechnology Inc. , a publicly traded electronics maker, in response to pressure from Bear Stearns’s investment bankers. LaFountain refused, and Kurland switched coverage of Vishay to another analyst who raised the rating, LaFountain says. Vishay picked Bear to manage the sale of 5 million shares at a split-adjusted $19.23 a share in September 1995. Vishay stock tumbled after the offering, touching $11.63 a share three months later. “They damn near top ticked it,” LaFountain says. As a technology analyst at New Castle, Chiesi spent much of her time visiting companies and contacts on the West Coast, according to former Bear Stearns employees. One of those contacts, says a person familiar with the matter, was Ruiz, 63, the former CEO of AMD, Intel Corp. ’s smaller competitor in the microprocessor market. AMD’s Ruiz Ruiz, who hasn’t been charged with any wrong-doing and who declined to comment through a spokesman, isn’t a child of privilege like Chiesi. A Mexican immigrant, he walked 45 minutes each way to high school in the south Texas town of Eagle Pass and graduated as valedictorian. He went on to get a doctorate in engineering in 1973 from Rice University in Houston and worked at Motorola Inc. for 23 years. He joined AMD in 2000 and succeeded founder Jerry Sanders as CEO two years later. Where Sanders was flashy — he wore handtailored suits, one of which had his name sewn over and over in faint pinstripes — Ruiz was staid. “He’s the quintessential engineer,” says Robert Enderle , a technology analyst at Enderle Group in San Jose, California. “He’s very comfortable in a pocket protector, not so comfortable in an Armani suit.” It isn’t known when Ruiz and Chiesi met, when he started sharing information with her, or why. Chiesi’s contact with someone at AMD prompted the Bear Stearns investigation of her trading, according to the people familiar with the probe. They say they didn’t know the executive’s identity. Kurland, Moffat While the investigation turned up nothing untoward, it did anger Kurland, the people say. Kurland suspected someone on Bear Stearns’s trading desk, which bought and sold stocks for all of the internal funds, of raising concerns about Chiesi’s sources. He pushed even harder for his own trading desk, something that he had long wanted, the people say. He also tried to promote Chiesi to senior managing director several times in recent years, they say. Each time, Bear Stearns turned him down. Mary Sedarat , a spokeswoman for JPMorgan Chase & Co., which bought Bear Stearns last year, declined to comment. Moffat, Chiesi’s alleged source at Armonk, New York-based computer-services provider IBM, was almost as valuable as Ruiz in terms of his clout. The 53-year-old senior vice president ran the systems and technology group, which had sales of $19 billion in 2008. “He’s a huge coup for me, having him at IBM,” Chiesi said on a taped call with Rajaratnam in September 2008. Galleon Boat Ride Chiesi met Rajaratnam at a conference about five years ago, according to a person familiar with the matter. They enjoyed the bull market together. On a 2007 boat ride around Manhattan hosted by Galleon, Chiesi danced suggestively, according to an attendee. On another occasion, Rajaratnam hired country singer Kenny Rogers to perform at a party. Chiesi brought her mother and was more restrained, an attendee says. For a hedge fund analyst, Chiesi had some unusual money problems. In 2006, the board at her co-operative apartment building at 418 E. 59th St. in New York requested an eviction warrant for nonpayment of an $11,301 debt, according to court records. On Aug. 12, 2008, in the midst of the alleged insider- trading spree that earned New Castle almost $4 million, the Internal Revenue Service filed a lien against her apartment for $63,226 in unpaid taxes. In 2000, New York courts issued a warrant for possession of an apartment she lived in at 333 East 56th St. for nonpayment of $5,223. ‘Gonna Guide Down’ Prosecutors say they’ve been investigating the insider- trading case since at least November 2007. The FBI got permission from a judge to tap Rajaratnam’s mobile phone on March 7, 2008, according to the government’s complaint. Agents started listening in time to hear Chiesi and Kurland make what was allegedly their biggest killing. Chiesi’s contact at Akamai called her cell phone at 8:52 p.m. on July 24, a Thursday, and said the Cambridge, Massachusetts-based company, the largest supplier of software and services to make Web sites load faster, was going to lower its earnings forecast when it reported results the following Wednesday. Chiesi hung up and called Kurland. Then she called Rajaratnam. “Akamai,” she said. “I’m trading it tomorrow. They’re gonna guide down. I just got a call from my guy.” The next morning, she called Steven Fortuna , 47, co-founder of S2 Capital Management LP, a hedge fund firm with offices in New York and in Boston, near where Fortuna lives. Shorting Akamai New Castle, Galleon and S2 all sold short Akamai shares. In a short sale, a trader borrows shares from an investor and sells them, hoping to buy them back at a lower price later, return the shares and keep the profit. New Castle also bought put options, giving it the right to sell a fixed number of Akamai shares at a certain price. Like a short sale, a put option is a bet that prices will fall. On Wednesday, July 30, after the market closed, Akamai cut its profit forecast to a range of $1.63 to $1.69 a share from an earlier $1.68 to $1.71 a share. Akamai shares took their biggest-ever tumble the next day, dropping 25 percent. New Castle covered its short position and sold its put options, making about $2.4 million, according to the Justice Department. Galleon made $3.5 million, and S2 made $2.4 million. Fortuna pleaded guilty to securities fraud and is cooperating with the government. New Castle also traded on AMD and IBM tips, the government says. Chiesi spoke with Ruiz in August 2008 about AMD’s plan to spin off its manufacturing plants, a move she expected would boost the company’s stock. New Castle bought at least 327,000 shares of AMD during a six-week period starting on Aug. 15. AMD Spinoff At one point, Chiesi became nervous, according to transcripts of her calls. Talking by phone with an unnamed person about the AMD spinoff, she said: “I swear to you in front of god, you put me in jail if you talk. I’m dead if this leaks. I really am. And my career is over. I’ll be like Martha f—ing Stewart.” Stewart, the homemaking media mogul, served five months in prison after a jury convicted her of lying to investigators about her sale of ImClone Systems Inc. shares in December 2001. AMD announced the spinoff and a $1 billion investment from the government of Abu Dhabi on Oct. 7, 2008. The deal allowed AMD to shed $1.2 billion of debt. That day, shares of AMD rose 36 cents, or 8.5 percent, to $4.59. The bump wasn’t enough to erase a previous decline caused by the credit crisis. New Castle lost at least $270,000, according to calculations based on prices it paid and received for the shares. IBM, Sun New Castle made at least two more winning trades, on IBM and Sun Microsystems Inc. On Jan. 8, 2009, Chiesi got two calls from Moffat’s phone number, according to U.S. authorities. The next day, New Castle started buying IBM shares, amassing 222,500 from that day to Jan. 20, when IBM reported earnings that beat analysts’ forecasts. A day later, New Castle started dumping about half of its shares, making $500,000, the government says. Moffat, a 31-year IBM veteran, allegedly helped with the Sun trade, too. He was on a team doing due diligence on the Santa Clara, California-based server-computer maker, which was up for sale, according to the Justice Department. Talking about Sun with an unnamed associate on Jan. 26, Chiesi said, “My IBM guy said that he thinks they’re gonna beat the quarter.” New Castle bought more than 1 million Sun shares at $3.80 to $4.28 a share on Jan. 26 and 27, when Sun reported its earnings, which did exceed forecasts. The fund sold its Sun shares and reaped $900,000, the government says. ‘Hell on Earth’ Ten months later, Chiesi’s fortunes turned. In photographs taken outside FBI headquarters in Manhattan on Oct. 16, her blond hair is cut short, she’s wearing a baggy white sweater and she appears haggard. Prosecutors asked a judge to require Chiesi to undergo drug testing and treatment as a condition of bail. “It’s not an issue in the case,” Kaufman, Chiesi’s lawyer, says. Chiesi’s mother, Gloria, says her daughter is innocent. “She is the most honest person in the world,” she says. “She is beautiful inside and out.” Danielle’s situation is terrible, though, Gloria says. “This is hell on earth,” she says. It could become hell for more people if the government’s insider-trading investigation widens. If that happens, the probe is unlikely to turn up anyone who did the job with Chiesi’s enthusiasm. Unless they get swept up in the case, the men who sell silicon chips and software will miss the exuberant blonde who lit up the dance floor at those industry events. To contact the reporters on this story: Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net ; Ian King in San Francisco at ianking@bloomberg.net

Read the full article →

U.S. Industrial Output, Price Reports Show Fed Has Room to Keep Rates Low

November 17, 2009

By Bob Willis and Courtney Schlisserman Nov. 17 (Bloomberg) — Industrial production and wholesale prices in the U.S. rose less than forecast in October, giving the Federal Reserve more reason to keep interest rates near a record low for an “extended period.” Total output rose 0.1 percent, restrained by the first decrease in manufacturing in four months, a report from the Fed showed today in Washington. Prices paid to factories, farmers and other producers rose 0.3 percent after dropping 0.6 percent in September, the Labor Department reported. The reports show why Chairman Ben S. Bernanke and his colleagues at the Fed are focusing on unemployment and capacity use to determine when to remove the trillions of dollars pumped into the financial system. A jobless rate at a 26-year high and industries using 70.7 percent of potential, near June’s record low, will probably limit inflation and keep monetary policy unchanged well into 2010. “The recovery is still in the early stages and the data are going to be pretty choppy,” said Michelle Meyer , an economist at Barclays Capital Inc. in New York. “The Fed will most likely see this path as one of subdued inflation and will want to keep an emphasis on sustaining the recovery.” Most stocks fell, pulling benchmark indexes down from 13- month highs. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,107.16 at 1:38 p.m. in New York. Treasury two-year notes were little changed after touching the lowest levels since January yesterday. Less Than Forecast Production at factories, mines and utilities was forecast to increase 0.4 percent, according to the median estimate of 75 economists surveyed by Bloomberg News. Projections ranged from a gain of 1.2 percent to a drop of 0.3 percent. The Fed revised September’s gain down to 0.6 percent from a previously reported 0.7 percent increase. The gain in capacity use left operating rates near June’s 68.3 percent, which was the lowest since records began in 1967, and below the 81.1 percent average over the past four decades. Economists track capacity utilization to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher. The Labor Department’s report on producer prices was forecast to show a 0.5 percent increase, according to the median estimate of economists surveyed. Wholesale prices were down 1.9 percent from a year earlier. Excluding Food, Fuel Costs excluding food and fuel, known as the core index , unexpectedly fell 0.6 percent, the biggest drop since July 2006. Over the past 12 months core costs were up 0.7 percent, the smallest gain since 2004. Another report today showed homebuilder confidence in November was lower than anticipated as companies fretted over the possible expiration of a government tax credit. The National Association of Home Builders/Wells Fargo sentiment index held at 17 for a second month. A reading below 50 means most respondents view conditions as poor. The Fed’s report showed production at manufacturers declined 0.1 percent in October after a 0.8 percent increase. The decrease reflected a reduction in auto making as the effects of the government’s trade-in incentive dissipated and a decline in demand for business equipment, such as computers. Motor vehicle and parts production fell 1.7 percent following an 8.1 percent increase the prior month. Automobile production is moderating after surging in the three months through September as “cash-for-clunkers” incentives to buy cars expired in late August. Broad-Based Decline Excluding automobiles, manufacturing output decreased 0.1 percent. Manufacturing has stabilized since June as exports rose from a three-year low in April. Factories have been selling more equipment and consumer goods as demand improves in overseas economies from Asia to Europe. “Based on improving macroeconomic indicators and stabilization in our own demand trends, it appears we have reached the bottom of the cycle,” Keith Nosbusch , chief executive officer at Rockwell Automation Inc. , the Milwaukee- based maker of factory-automation software, said Nov. 9. “In this uncertain economic environment, I cannot predict the shape of the recovery, but I do not expect a sharp upturn.” Model Changeover A 1.6 percent gain in the cost of wholesale food and fuel was mostly offset by a 5.7 percent plunge in prices for light trucks, the biggest drop in three years, and a 0.5 percent decrease in autos. The declines reflected the switch to the 2010 model year, the Labor Department said. “Inflation seems likely to remain subdued for some time,” Bernanke said yesterday in a speech to the Economic Club of New York. He also said “significant economic challenges remain,” and he repeated the Fed’s Nov. 4 pledge to keep interest rates low for an “extended period.” Nonetheless, the dollar’s 15 percent drop since March 5 according to the index that IntercontinentalExchange Inc. uses to track the currency’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, and expanding global economies are forcing up commodity costs. The U.S. last week raised its forecast for crude-oil prices this year and next on speculation that demand will rise as the global economy improves. To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net ; Courtney Schlisserman at cschlisserma@bloomberg.net

Read the full article →

Dollar Trades at Almost 15-Month Low After Fed’s Bernanke Pledges Support

November 16, 2009

By Yoshiaki Nohara and Ye Xie Nov. 17 (Bloomberg) — The dollar traded near a 15-month low against the currencies of major U.S. trading partners as investors questioned Federal Reserve Chairman Ben S. Bernanke’s pledge of support for the greenback. The yen was poised to fall against its major counterparts before a report today forecast to show U.S. industrial production advanced last month for a fourth month, damping demand for Japan’s currency as a refuge. The euro was set to rise on speculation a rally in global equities will boost demand for higher-yielding assets. “The dollar will continue to be used as a funding currency amid rising risk appetite,” said Yoh Nihei , trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The mainstream trend remains intact. The Fed will keep low rates for a while.” The Dollar Index , which IntercontinentalExchange Inc. uses to track the greenback’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.6 percent to 74.894 in New York yesterday. It touched 74.679, the lowest level since August 2008. The dollar was at $1.4973 per euro at 8:16 a.m. in Tokyo from $1.4970 yesterday in New York. The euro traded at 133.25 yen from 133.33 yen. The dollar fetched 88.98 yen from 89.05 yen. Yesterday it touched 88.76, the lowest level since Oct. 9. Bernanke said yesterday in a New York speech that the Fed “will help ensure that the dollar is strong and a source of global financial stability.” Economic “headwinds” of weak lending and labor markets will probably restrain the pace of the U.S. economic recovery, warranting a continuation of low borrowing costs. Economists surveyed by Bloomberg News forecast factory output in the U.S. probably rose 0.4 percent in October after gaining 0.7 percent in September. The Federal Reserve’s report is due today. The Standard & Poor’s 500 Index rose 1.5 percent in New York yesterday, and the Dow Jones Industrial Average gained 1.3 percent. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net

Read the full article →

Saab U.S. Dealerships Running Out of Cars as Factory Overhaul Cuts Output

November 16, 2009

By Niklas Magnusson and Ola Kinnander Nov. 16 (Bloomberg) — Saab Automobile AB dealers in the U.S. are running out of new cars after the Swedish carmaker cut production to conserve cash and prepare for its first new model in seven years. “We have about 10 Saabs left, and they won’t last long,” said Ivan Goodwin, sales manager at Jim Ellis Saab in Atlanta. “It’s going to be a big problem, but there is nothing we can do about it.” Saab, which General Motors Co. is selling to an investor group led by Swedish sports-car maker Koenigsegg Automotive AB, has slowed assembly to retool its Swedish factory to build the new 9-5 sedan starting next year, spokesman Eric Geers said. The company said last week it will eliminate more than a third of its U.S. dealers. Those that have received notice that they will remain open say they may be limited by a lack of inventory. The time it takes for Saab to deliver the new car and ramp up production of other models is crucial for dealers, whose sales have slumped since GM said in February it would cut ties by the end of 2009 and Saab filed for bankruptcy protection. Saab has also held back assembly as it waits for Koenigsegg to take over and a loan from the European Investment Bank to arrive. “Our stockpile isn’t very large anymore as we’ve worked hard during the reconstruction to reduce it,” Geers said by telephone from Budapest, where Saab is showing the new model. “When we close the deal and change owners we can start producing again for real as we then will have financing.” Sales Slump Saab is struggling in the U.S., which it has identified as one of its four most important markets, announcing last week plans to close 81 of 218 U.S. dealerships. Saab sold 21,368 cars in the U.S. in 2008, or 23 percent of deliveries. The carmaker has yet to identify which dealers will be shut, though the dealers have received letters letting them know their status. Saab’s 10-month sales slumped 62 percent to 7,441 cars in the U.S., the world’s largest auto market. The automaker sold just 513 cars in the U.S. last month. In Europe, Saab’s biggest market, 10-month sales plunged 59 percent to 23,590 vehicles, a steeper decline than for any other major carmaker. In October, Saab sold 1,753 cars in Europe, down 65 percent from last year, the Brussels-based European Automobile Manufacturers’ Association said today in a statement. ‘Failure to Deliver’ “One of the side effects with the transition from being a GM subsidiary to a Swedish group is that Saab has not been able to run the factory at a satisfactory level,” Stephen Pope , chief global market strategist at Cantor Fitzgerald in London, said. “They are disappointing buyers with extended waiting times or just failure to deliver.” Saab said it will start delivering the 9-5 in early 2010, probably first in Sweden, before shipments elsewhere. At Parkfield Saab in New Jersey, dealer Rick Wehle said he hopes the cars come fast enough. He has 30 new Saabs in stock and expects to run out of new cars within a couple of months. The dealership, which has been notified it will remain open, sold 10 Saabs last month. The carmaker told U.S. dealers on a Nov. 10 conference call that dealers would be able to place orders for the new model “soon,” Wehle said. “It looks to some of us we will not have 2010 models to sell until the spring,” Wehle said. “I sure hope production has started because our 2009s will be long gone by springtime.” Car Introductions The old 9-5 was first introduced in the late 1990s and is one of Saab’s three existing models. Carmakers typically replace a vehicle every five years or so. Saab has stepped up marketing of the new 9-5 , its first new car of any kind in seven years, after showing the sedan for the first time two months ago. “It looks as if it’s going to be a beautiful car and we should do very well with it,” said Tim Whalen, general manager of International Motors Ltd. , a Saab dealer in Falls Church, Virginia, that is staying open. “We obviously would like to have it as soon as possible. We’ll take as many as we can get.” While concern over access to new cars is most acute in the U.S., Swedish dealers are waiting too. Lars Kopp, who runs a dealership in southwest Sweden, said Saab has extended delivery times, with the longest wait being eight weeks, as Saab’s “stretched liquidity” means the carmaker cannot produce enough autos. He has 20 vehicles in stock and orders for 50 more. ‘Old and Stable’ “We’re not worried about our own liquidity, as we’re an old and stable company,” said Kopp, who has sold Saabs for more than two decades. “What is annoying and deplorable is that you don’t generate any money by just sitting here with orders.” Saab is unable to increase production until the sale to Koenigsegg, which it had expected to close last month, is complete and new financing arrives, Geers said. The deal was postponed after the European Investment Bank delayed a decision on granting Saab a 400 million-euro ($600 million) loan, which it eventually approved Oct. 21. The European Commission must still sign off on the funding, leaving dealers waiting. “We’ve been in limbo too long,” said Goodwin, the Atlanta dealer, which also received notice it will remain open. “But we’re optimistic. The new 9-5 has got more bells and whistles. It’s the best car they’ve ever made.” To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net Ola Kinnander in Stockholm at okinnander@bloomberg.net

Read the full article →

Highest P/Es Since 2002 Prompt Invesco to Buy Canada-France-Spain Bargain

November 16, 2009

By Jeff Kearns, Matt Walcoff and Rita Nazareth Nov. 16 (Bloomberg) — Canadian insurers, builders in Spain and Paris-based Vivendi SA are enticing investors in search of cheap stocks after the steepest equity market rally in 70 years. Shares of Manulife Financial Corp. have slipped in Toronto in 2009 even as profit at Canada’s biggest insurer is forecast to double. Obrascon Huarte Lain SA in Madrid is 28 percent below its average earnings multiple this decade, according to data compiled by Bloomberg. Vivendi, owner of the largest music company, trades at a 37 percent discount to global stocks after falling to the cheapest level in three years. Invesco Ltd., Delaware Investments and Delphi Management Inc., which manage a combined $553 billion, are being forced to look harder for bargains after gauges of global bank shares more than doubled in eight months and computer and software makers gained 73 percent. The MSCI World Index’s 68 percent surge since March pushed the measure of 23 developed countries to the highest price compared with reported earnings since 2002, data compiled by Bloomberg show. “A lot of the recovery in the market has been simply a recovery in risk appetite,” said Erik Granade , chief investment officer of global equity at Invesco Global Strategies, a unit of Invesco, which manages $417 billion. “Now that we’re back to more normal levels, it may be typical to see investor interest focusing on a wider area.” Sanofi-Aventis Granade bought shares of Sanofi-Aventis SA, the Paris- based supplier of vaccine for swine flu that is trading for 8.1 times analysts’ prediction for next year’s income, according to data compiled by Bloomberg. Sanofi has added 13 percent this year. Stock prices in Spain, France and Germany are the lowest relative to next year’s projected earnings among the 10 biggest developed nations by market value, with benchmark indexes trading below 12 times profits, according to data compiled by Bloomberg. That compares with 13.8 for the MSCI World and ratios of 19.4 in Japan, 15 in Hong Kong and 14 for the U.S. Overseas shares may be in even greater demand for U.S.- based managers because of the falling dollar, according to John Carey , a money manager at Pioneer Investments, which oversees more than $200 billion. Since March 5, the dollar has lost 15 percent against a basket of six currencies including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, according to data compiled by Bloomberg. That’s the biggest drop over the same number of days since 1986. Currency Translation “You have not only the movement on the shares, but also the currency translation,” Boston-based Carey said. “If the currency is rising versus the dollar, then you have that additional source of return when it’s translated back.” After slumping to a 15-year low of 9.2 in November 2008, the MSCI World’s valuation using reported profits tripled since March as the index climbed 68 percent, the steepest gain in its 39-year history. The Standard & Poor’s 500 Index surged 62 percent over the same period, pushing its ratio to earnings from 10 in March to 21.9, data compiled by Bloomberg show. The advance was the sharpest since the 1930s, data show. The MSCI World Index rose 0.4 percent at 8:16 a.m. in London after the Asia-Pacific Economic Cooperation forum pledged to maintain stimulus spending and Japan’s economy expanded more than forecast. Futures on the S&P 500 added 0.7 percent. Growth Estimates Investors looking for bargains are focusing on price- earnings ratios relative to next year’s analyst estimates, which call for average profit growth in the MSCI World index of 25 percent, data compiled by Bloomberg show. Companies in the measure will earn $67.27 a share in 2009 and $84.23 in 2010, the data show. “Earnings growth estimates are on the high side relative to history, therefore the bar has been raised and the risk of disappointment is now more prevalent,” said Jane Davies , a fund manager at HSBC Global Asset Management in London, which has $390 billion in assets. “The positive earning surprises seen this year have been driven more by cost cutting.” Manulife, the Toronto-based company trading for 9.5 times next year’s profit forecast, has dropped 3.5 percent in 2009 on concern it will be forced to add to reserves for annuities should stocks decline. North America’s largest insurer is projected to boost revenue by an annual rate of more than 8 percent through 2011, estimates compiled by Bloomberg show. “They’ve been hard done by, unfairly marked down,” said Gavin Graham , director of investments at Bank of Montreal Asset Management, which manages C$50 billion ($47 billion) including shares of Manulife, Sun Life Financial Inc. and Great-West Lifeco Inc. “What have equity markets done this year? They’re up 25, 35 percent. If you have exposure to equities, all other things being equal, wouldn’t that be a good thing?” Sun Life Sun Life, located in Toronto, trades for 9.3 times projected 2010 earnings based on its closing price last week of C$27.98, down 1.6 percent for the year. Winnipeg, Manitoba- based Great-West fetches 10.6 times forecast earnings. The stock added 15 percent in 2009 to C$23.81 on the Toronto Stock Exchange. J. Chahine Capital owns shares of Obrascon Huarte Lain, or OHL , according to Chairman Jacques Chahine , who oversees $374 million in Luxembourg. The Spanish builder that operates roads in Brazil trades for 9.2 times forecasts for 2010 profit of 1.95 euros ($2.91) a share, up 11 percent from this year’s income estimate. That compares with an average multiple of 12.7 since 2001, according to data compiled by Bloomberg. Obrascon has gained 80 percent this year. Good Value “Now you can buy on a more rational basis than at the March bottom,” Chahine said. “We bought OHL at the end of July. It’s a good example of value that is left. It is a good stock. We believe even buying a little late it is still a good value.” Delaware Investments added to its stake in Vivendi five months ago, when the media and telephone company’s price- earnings ratio using estimated 2010 income fell to 45 percent less than the MSCI World’s, according to Ned Gray , who helps manage $135 billion in Boston. That was the lowest level relative to the index based on projected earnings for the next calendar year since at least January 2006. Vivendi is forecast to post a fifth straight revenue increase this year. “The rally has left a lot of names that are far more defensive relatively weak in their stock price performance versus the more economically geared names,” said Gray. Vivendi provides “a good, consistent level of cash generation as well as a cheap valuation. They also provide a nice cushion if this economic recovery is to falter.” Vivendi, GE Vivendi’s dividend has increased every year since the payouts were reinstated in 2005. The company owns a 20 percent stake worth about $5 billion in NBC Universal, using the valuation Fairfield, Connecticut-based General Electric Co. and Comcast Corp. of Philadelphia have agreed upon, according to people familiar with the matter. Vivendi has an option to sell its stake every year from Nov. 15 to Dec. 10. Finding value in the stock market today means picking companies that “fell through the cracks” during the rally, said Scott Black , who oversees $900 million as president of Delphi Management in Boston. “Just sloshing money around isn’t very imaginative today at these multiples,” Black said. “That’s what the average idiot does. You have to look hard because the market is well picked over.” To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net ; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net ; Rita Nazareth at rnazareth@bloomberg.net .

Read the full article →

Dollar Decline Too Powerful for Brazil, Korea as Currency Reserves Mount

November 12, 2009

By Oliver Biggadike and Matthew Brown Nov. 13 (Bloomberg) — Brazil, South Korea, Russia and other developing nations are fighting a losing battle to mute gains in their currencies as a falling dollar and economic recovery create more demand for their assets than central banks can handle. South Korea Deputy Finance Minister Shin Je Yoon said yesterday the country will leave the level of its currency to market forces after adding about $63 billion to its foreign exchange reserves this year to slow the appreciation of the won. Chile Finance Minister Andres Velasco said the same day that lawmakers approved an increase in local debt sales to finance spending, a move that will allow the government to keep more of its dollar-based savings overseas and slow the peso’s rally. Governments are amassing record foreign exchange reserves as they direct central banks to buy dollars in an attempt to stem the greenback’s slide and keep their currencies from appreciating too fast and making their exports too expensive. Half of the 10-best performers in the currency market this year came from developing markets, gaining at least 14 percent on average, according to data compiled by Bloomberg. “It looked for a while like the Bank of Korea was trying to defend 1,200, but it looks like they’ve given up and are just trying to slow the advance,” said Collin Crownover , head of currency management in London at State Street Global Advisors, which has $1.7 trillion under management. The won, after falling 44 percent against the dollar in March 2009 from its 10-year high of 899.69 to the dollar in October 2007, is now headed for its biggest annual rally since a 15 percent gain in 2004. It closed yesterday at 1,157.50 in New York, up 8.5 percent since the end of December. ‘Suffered Tremendously’ Brazil’s real is up 1.78 percent this month, even after imposing a tax in October on foreign stock and bond investments and increasing foreign reserves by $9.5 billion in October in an effort to curb the currency’s appreciation. The real has risen 33 percent this year. “We have to be careful that our exchange rate doesn’t appreciate too much as to deindustrialize the country,” Marcos Verissimo , chief of staff at Brazil’s state development bank known as BNDES, said yesterday at a conference in Sao Paulo. “The capital goods industry has suffered tremendously.” Russia’s Bank Rossii increased its foreign reserves by 15 percent since March 13 as it sold rubles in an attempt to cap the currency’s gain. Even so, the surge in commodities prices this year means Russia’s steps to fight a stronger ruble may “not be productive,” the International Monetary Fund said yesterday. Energy, including oil and natural gas, accounted for 69.5 percent of exports to countries outside the former Soviet Union and the Baltic states in the first nine months, according the Federal Customs Service. Dollar Index “There are changes in the underlying factors that call for a more appreciated exchange rate,” Odd Per Brekk , the Washington-based IMF’s senior representative in Russia, told reporters. Intercontinental Exchange Inc.’s U.S. Dollar Index , which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, touched 74.774 on Nov. 11, the lowest level since August 2008 and down 16.6 percent from the high this year of 89.624 on March 4. Much of the greenback’s decline stems from investors borrowing funds in the U.S., where the target benchmark interest rate is between 0 and 0.25 percent. They then invest the proceeds in countries with higher rates and faster growing economies. International Investment An unprecedented net $47 billion flowed into equities in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand in the last three quarters, according to data compiled by Bloomberg. That eclipsed the previous full-year high of $33 billion in 2005, nine year of data show. “The dollar is weakening because the U.S. has the lowest short-term interest rates in the world will be the sell side of the carry trade as long as that remains true,” Chris Low, chief economist at FTN Financial in New York, wrote in a note to clients yesterday. Chile’s peso has strengthened 26 percent this year versus the dollar, the second-biggest gain among Latin American currencies after the 33 percent rise in the Brazilian real. South Korea’s economy expanded 6 percent in the nine months ended in September, the fastest rate since it grew 6.9 percent during the same period in 2002. The rebound came as companies such as Hyundai Motor Co. in Seoul and Samsung Electronics Co. in Suwon reported surging profits driven by exports. ‘Hard to Fight’ Brazil’s economy emerged from a recession in the second quarter, swinging to a 1.9 percent expansion after six months of contraction, a Sept. 11 report from the statistics agency showed. Six straight months of job growth, coupled with tax breaks and record low borrowing costs, pushed up consumer spending and helped Latin America’s largest economy rebound from the global financial crisis. “I hear a lot of noise reflecting the government’s discomfort with the exchange rate, but it is hard to fight this,” said Rodrigo Azevedo , the monetary policy director of Brazil’s central bank from 2004 to 2007. “There is very little Brazil can do,” said Azevedo, who runs $1.8 billion at JGP SA in Rio de Janeiro, in an Oct. 16 interview. To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net Matthew Brown in London at brown42@bloomberg.net

Read the full article →

Dollar Falls to 15-Month Low on Bets Fed Interest Rates to Stay Near Zero

November 11, 2009

By Anna Rascouet Nov. 11 (Bloomberg) — The dollar dropped to a 15-month low against the currencies of major U.S. trading partners as stocks rose worldwide and investors bet the Federal Reserve won’t raise its target lending rate any time soon. Iceland’s krona erased gains after Moody’s Investors Service lowered the nation’s credit rating by two notches to the lowest investment grade as its financial industry failure continues to hurt public finances. Sterling fell after Bank of England Governor Mervyn King said the decline in the pound will help in rebalancing the economy. “There are two factors for the dollar’s weakness, risk appetite and the market is expecting no imminent rate hike,” said Jane Foley , research director at the online currency trader Forex.com in London. “There is no element to suggest that this should reverse.” The Dollar Index , which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.2 percent to 74.889 at 7 a.m. in New York. It reached 74.774, the lowest level since August 2008. The gauge has fallen 7.9 percent in 2009. Iceland’s krona was little changed at 124.25 per dollar, compared with 124.20 yesterday, after rising 0.3 percent. Moody’s cut its rating on foreign and local currency bonds to Baa3 from Baa1, it said in a statement today. The government and the central bank are relying on a $2.1 billion International Monetary Fund loan to rebuild the economy, which suffered the worst decline in the Western world during the credit crisis. Stronger Real Brazil’s real gained 0.6 percent to 1.7008 per dollar and Norway’s krone appreciated 0.4 percent to 5.5645 on speculation investors will increase carry trades, in which they sell the currency of a nation with low borrowing costs and buy assets where returns are higher. The target lending rate of zero to 0.25 percent in the U.S. makes the dollar a favored target for investors seeking to fund carry trades. San Francisco Fed Bank President Janet Yellen raised the prospect of a “jobless recovery” in a speech yesterday in Phoenix, while Dennis Lockhart , who heads the Atlanta Fed, predicted a “relatively subdued pace of growth” this quarter and beyond. The comments are among the first on the economy since the Fed signaled last week that a return to growth alone won’t be enough to change its policy of keeping interest rates near zero for “an extended period.” Instead, the central bank said any change would depend on increases in employment and inflation. Dollar Versus Euro The dollar weakened 0.3 percent to $1.5033 per euro, from $1.4993 yesterday. The U.S. currency gained 0.2 percent to 89.97 yen, from 89.81. The euro strengthened 0.4 percent to 135.25 yen, from 134.65. The MSCI World Index of shares advanced 0.5 percent, and futures on the Standard & Poor’s 500 Index climbed 0.7 percent. Sterling slid 0.4 percent to $1.6671 and weakened 0.7 percent to 90.21 pence per euro. Bank of England Governor Mervyn King told reporters in London today that the pound’s 20 percent slide over the past two years will help “smooth” a rebalancing in the U.K. economy away from domestic spending and toward exports. Officials have an “open mind” on whether to keep buying bonds, said King, indicating the central bank isn’t ready to withdraw stimulus in the coming months. The bank said inflation will stay below its 2 percent target for most of the next three years before edging above that level. The forecasts are based on investor assumptions that the benchmark interest rate, currently at 0.5 percent, will rise to 1.1 percent in the third quarter. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net

Read the full article →

European Finance Ministers Commit to Start Curbing Budget Deficits by 2011

November 10, 2009

By Jennifer Ryan and Francois de Beaupuy Nov. 10 (Bloomberg) — European Union finance ministers committed to start reining in budget deficits by 2011 at the latest even as they said economic stimulus remains necessary to nurture the recovery from the deepest slump in six decades. “Restoring the public finances and tackling unemployment will be the priorities for the time to come,” Spanish Economy Minister Elena Salgado told a press conference in Brussels late yesterday after leading a meeting of euro-area finance chiefs. “Without doubt, public finances are on an unsustainable course,” said Swedish Finance Minister Anders Borg , whose government holds the EU’s rotating six-month presidency. European governments have put forward billions of euros in measures aimed at reviving growth and saving jobs. The average budget shortfall in the euro region will balloon to a record 6.9 percent of gross domestic product next year with all 16 euro nations breaching the EU limit of 3 percent of GDP, the European Commission forecasts. The jobless rate is projected to reach 10.9 percent in 2011, the most since at least 1995. The commission, the Brussels-based EU executive, tomorrow will issue reports assessing efforts by France, Spain, Ireland, Greece and the U.K., which isn’t in the euro area, to start to bring their deficits back into line with EU rules. Germany, Europe’s largest economy, and eight other countries will be given deadlines to correct their deficit overruns. “We have to orient ourselves toward the Stability and Growth Pact,” which sets out the rules for government debt and deficits, Austrian Finance Minister Josef Proell said in Brussels yesterday. “The goal to get below 3 percent of gross domestic product for the deficit and 60 percent for debt has to be kept in mind in the short and medium term.” Budget-Cutting Efforts Overall government debt for the 27 nations in the EU will reach 79 percent of GDP in 2010 and more than 83 percent the following year, the commission forecast last month. Without budget-cutting efforts, the debt-to-GDP ratio “could reach 100 percent as early as 2014 and keep on increasing,” according to a commission document discussed at yesterday’s meeting. The finance ministers last month agreed to wait until 2011 before cutting deficits to allow government spending to boost growth while the region recovers from the recession. EU Economic and Monetary Affairs Commissioner Joaquin Almunia affirmed that timeframe at a press conference following yesterday’s meeting. “If things go the way most central projections suggest, then 2011 would be the year to start consolidation and fiscal exit,” Dutch Finance Minister Wouter Bos said. “We shouldn’t stop stimulating too early.” Risks to Growth The euro-region economy will contract 4 percent this year before expanding 0.7 percent in 2010, according to the forecasts by the commission, the EU executive. European Central Bank President Jean-Claude Trichet said yesterday that while the recovery is taking hold a little faster than expected, risks to growth mean there is “no time for complacency.” Group of 20 governments meeting in St. Andrews, Scotland, on Nov. 7 pledged to keep interest rates low and maintain record budget deficits until recoveries take hold. Global stocks rallied yesterday and the dollar slid after the G-20 commitment to maintain stimulus efforts. Trichet said at the Bank for International Settlements in Basel, Switzerland, that central bankers agreed on the need for a “gradual and timely phasing out” of non-conventional policy measures without signaling that such a move was imminent. The U.K. last week gave more support to Royal Bank of Scotland Group Plc , making it the most expensive bank bailout ever. UBS AG, which amassed the biggest writedowns and losses from the credit crisis among European competitors, on Nov. 3 reported a loss that was bigger than analysts estimated. “We are not yet out of crisis, we have to count on a couple of setbacks in the coming quarters,” ECB Executive Board member Juergen Stark said in a speech tonight in Tuebingen, Germany. “We can’t speak of a self-sustaining recovery, it is mostly due to temporary factors.” The euro-area finance ministers will be joined today by the counterparts from the rest of the 27 EU nations. To contact the reporters on this story: Jennifer Ryan in Brussels at jryan13@bloomberg.net ; Jurjen van de Pol in Brussels at jvandepol@bloomberg.net .

Read the full article →

Tobacco Company Reynolds In Talks To Buy Company For Quitters

November 9, 2009

RICHMOND, Va. — Reynolds American Inc., maker of Camel cigarettes and Grizzly smokeless tobacco, is in talks to buy a Swedish company that helps people stop smoking, a tobacco expert who said he was briefed by people close to the talks told The Associated Press Monday. The second-largest U.S. tobacco company is eyeing Niconovum AB, which sells cigarette replacement products in gum, pouch and spray form outside the U.S., according to David Sweanor, a Canadian law professor and tobacco expert. The deal, which could be worth $44.5 million, could be imminent, he said. Sweanor said Reynolds’ interest in Niconovum may be focused on offering smoking alternatives rather than products meant to help people stop using nicotine and tobacco. “The market’s coming to understand that nicotine products exist on a very broad continuum of risk, and cigarettes are at the far risky end of that, and it’s possible to have far less hazardous products that would probably meet the needs for a very significant number of smokers,” Sweanor said. The possibility of a deal between Reynolds and Niconovum was first reported by the Wall Street Journal. Karl Olov Fagerstrom, an expert on smoking cessation and nicotine dependence, formed Niconovum in 2000, according to its Web site. Niconovum did not immediately return calls seeking comment. Reynolds American spokesman David Howard declined to comment. Reynolds, like all tobacco companies, is looking to cigarette alternatives such as smokeless tobacco for growth as demand for cigarettes has declined as taxes, health concerns, smoking bans and social stigma have increased. The company, based in Winston-Salem, N.C., has introduced Camel brand moist, smokeless tobacco and snus – small teabag-like pouches that users stick between the cheek and gum. It also has introduced dissolvable tobacco products – finely milled tobacco shaped into orbs, sticks and strips – in test markets.

Read the full article →

Obama Calls on Karzai to Deliver Results on Graft, Governance in New Term

November 3, 2009

By Roger Runningen and Nicholas Johnston Nov. 3 (Bloomberg) — President Barack Obama signaled Afghan leader Hamid Karzai must show real progress in his second term in tackling the corruption and lawlessness that have made Afghanistan a haven for al-Qaeda and Taliban extremists. “This has to be a point in time in which we begin to write a new chapter based on improved governance, a much more serious effort to eradicate corruption” and better security, Obama said he told Karzai yesterday when he called to congratulate him on his re-election. Karzai “assured me that he understood the importance of this moment. But as I indicated to him, proof is not going to be in words, it’s going to be in deeds.” Afghanistan’s election commission canceled a scheduled Nov. 7 runoff between Karzai and former Foreign Minister Abdullah Abdullah after Abdullah dropped out. The first round of voting in August was marred by fraud. Resolving the disputed election clears one obstacle to an Obama decision about U.S. strategy in Afghanistan. White House Chief of Staff Rahm Emanuel last month suggested the U.S. may hold off on a decision on sending more troops until a “legitimate and credible government” is in place. “Although the process was messy, I’m pleased to say that the final outcome was determined in accordance with Afghan law,” Obama told reporters after a White House meeting with the president of the European Union, Swedish Prime Minister Fredrik Reinfeldt , who is in Washington for a U.S.-EU summit today. White House press secretary Robert Gibbs earlier yesterday said Karzai is the “legitimate leader” of the country. The declaration of Karzai as victor has “defused much of the uncertainty” and “provides the international community with a partner to work with,” Jan Zalewski , a London-based Afghanistan analyst at political risk consultants IHS Global Insight, said in an e-mail. Credibility Concerns Administration officials have said the existence of a credible government in Afghanistan is crucial to the success of U.S. efforts to stabilize the country and defeat extremists. Gibbs said the president will make a decision in the “next few weeks” about the future course in Afghanistan, including whether to send more American troops to fight in the war, now in its eighth year. The U.S. has committed 68,000 troops to the Afghanistan conflict and Obama is weighing whether to send as many as 40,000 more. The administration also is pressing other members of the North Atlantic Treaty Organization to put more resources into the fight. Obama has been meeting with his top military and foreign policy advisers to discuss options for Afghanistan and a set of recommendations made by General Stanley McChrystal , the commander of U.S. and NATO forces there. Pressuring Karzai Obama said he emphasized to Karzai “that the American people and the international community as a whole want to continue to partner with him and his government.” Members of Congress joined Obama in ratcheting up the pressure on Karzai to improve his credibility. “It is an opportunity for the government of President Karzai to demonstrate genuine progress in combating corruption, establishing rule of law and bringing measurable improvement to peoples’ lives,” said Massachusetts Democrat John Kerry , chairman of the Senate Foreign Relations Committee. The solution in Afghanistan will require not only the security that the U.S. and its allies are providing and training Afghan security forces to maintain, but also a better connection between Karzai and his people, said Ike Skelton , chairman of the House Armed Services Committee. “He’s just going to have to set an example and insist on taking care of the people, and rid the government of corruption,” Skelton, a Missouri Democrat, said in a telephone interview. “He should realize this is his one chance.” Given the scale of the challenges, the probable weak structure of any Karzai administration, and the strain in ties between the Afghan leader and U.S. government in recent months “it remains rather unlikely that much headway will be made with regard to Afghanistan’s multiple problems,” Zalewski said. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net ; Nicholas Johnston in Washington at njohnston3@bloomberg.net

Read the full article →

Weak Dollar Is `Welcome Change’ for McDonald’s, PPG Fourth-Quarter Profit

October 29, 2009

By Thomas Black Oct. 29 (Bloomberg) — McDonald’s Corp. , United Technologies Corp. and PPG Industries Inc. are among the companies whose earnings may get a boost in the fourth quarter from a weak dollar because of foreign operations and exports. U.S. firms are benefiting when they convert revenue from Europe with the euro touching $1.50 this month and having climbed 16 percent from a year ago as of yesterday. United Technologies , the maker of Pratt & Whitney jet engines, adds $10 million in annual operating income for every penny the euro gains against the dollar, Chief Financial Officer Gregory Hayes said in an Oct. 20 conference call. “A cheaper dollar is unquestionably positive for U.S. corporate earnings,” Bankim Chadha , the New York-based chief U.S. equity strategist for Deutsche Bank AG. “The share of earnings coming from the rest of the world for the S&P 500 has been increasing steadily since the 1960s.” Companies faced what PPG CEO Charles Bunch called a currency “headwind” through the third quarter because the dollar, while declining, was still reducing earnings compared with a year earlier. The tables have now turned, Bunch said on an Oct. 15. conference call. In addition to getting a boost from currency translations, U.S. exporters such as Peoria, Illinois-based Caterpillar Inc. are helped by the weaker dollar because their goods become cheaper for consumers in Europe and most of Asia, said Alexander Blanton , an analyst with Ingalls & Snyder LLC in New York. ‘Competitive Pricing’ Caterpillar, the world’s largest maker of bulldozers and excavators, made 61 percent of its sales outside of North America last year, according to its 2008 annual report. “They benefit in terms of competitive pricing,” Blanton said. “When the dollar is weak people find it easier to buy their equipment versus the competition.” Analysts predict the euro will trade at $1.50 at the end of the fourth quarter as well as at the end of the first quarter of 2010, according to the median of 49 estimates compiled by Bloomberg. The average was $1.32 in the fourth quarter last year and $1.31 in the first quarter this year. PPG, the world’s second-biggest paint maker, made 55 percent of its 2008 revenue outside of the U.S. last year, up from 34 percent in 2002, according to company filings . Currency swings cut Pittsburgh-based PPG’s third-quarter earnings by $11 million from a year ago, or 4 cents a share, Bunch said. “Using today’s rates, currency would turn into a tailwind in the fourth quarter,” said Bunch. ‘Welcome Change’ The Dollar Index , used by InterContinental Exchange Inc. to measure the U.S. currency against the euro, pound, yen, Swedish krona, Canadian dollar and Swiss franc, has lost 6 percent this year. It rose 6 percent in 2008 as investors bought dollar assets such as Treasuries as a haven from the financial crisis. The weaker dollar is a “welcome change” after currency changes trimmed profit by 22 cents a share in the first nine months, Peter Bensen , chief financial officer of Oak Brook, Illinois-based McDonald’s, said on an Oct. 22 conference call. McDonald’s, which gets almost two-thirds of revenue from outside the U.S., said currency translation will add about 6 cents a share to fourth-quarter earnings. “The weaker dollar should certainly help them,” said Jack Russo , an analyst with Edward Jones & Co. in St. Louis, who recommends holding McDonald’s stock. “The reversal would be a nice cushion for them, especially since the fast-food environment is likely to be tough again next year.” Currency Tailwind Philip Morris International Inc. , the world’s largest publicly traded tobacco company whose brands include Marlboro, expects “a more favorable currency environment” this quarter, said Chief Financial Officer Hermann Waldemer . The New York-based company makes all of its sales outside the U.S. The currency impact, along with stronger sales, enabled it to raise its full-year earnings forecast to $3.20 to $3.25 a share, from an earlier projection of as much as $3.20. At current exchange rates, it will be a “tailwind” next year, Waldemer said in an Oct. 22 conference call. Foreign exchange, combined with a recovery in markets outside the U.S., will also help White Plains, New York-based Starwood Hotels and Resorts Worldwide Inc. , the owner of luxury brands including the St. Regis and W hotels, according to Vasant Prabhu , its chief financial officer. Currency changes will add 200 basis points to revenue per available room in dollars this quarter and into 2010, he said on an Oct. 22 conference call. Corporations won’t be the only ones to get a break from the weakening dollar. Tourism is getting some relief as well as foreign shoppers with stronger currencies travel to cities such as New York to seek bargains. New York Tourism “The weak dollar is an additional factor to why people are coming to New York City at this time, but it’s just one of the factors,” said George Fertitta , head of the city’s marketing and tourism organization. So far, the currency weakness hasn’t attracted as many bargain-seekers as in 2007, when the city took out advertisements in the U.K. that said “Shop While the Dollar Drops,” according to Fertitta. “If we see that sustained dip in the value of the dollar, we’ll be doing that as well,” he said in a telephone interview. The number of foreign visitors , excluding those from Canada and Mexico, rose to 25.3 million last year from 23.9 million a year earlier, according to the Washington-based U.S. Travel Association. McDonald’s fell 38 cents to $58.64 yesterday in New York Stock Exchange composite trading and has declined 5.7 percent this year. Caterpillar, up 22 percent this year, dropped $2.26 to $54.43, and Philip Morris , up 13 percent this year, rose 5 cents to $48.96. PPG fell $1.75 to $57.25 and has gained 35 percent this year. United Technologies, based in Hartford, Connecticut, up 17 percent this year, fell $1.48 to $62.61. U.S. Retailers The impact of a weaker dollar on U.S. retailers may be mitigated because they have long-term purchase contracts in dollars for the merchandise they import, said Colin McGranahan , a retail analyst with Sanford C. Bernstein & Co. in New York. “A weak dollar is modestly favorable in the near term because of the overseas operations,” he said. “The longer term repercussions are mixed because of sourcing product.” Energy and commodity companies benefit from the weakening dollar as oil, natural gas, copper and other commodity prices rise, said Chadha of Deutsche Bank. Crude oil in New York reached a one-year high of $81.37 on Oct. 21. Copper rose to a 13-month high on the same day. Any benefit can turn negative if the currency drops to the point of driving up U.S. gasoline prices, crimping spending and stalling a consumer recovery, Chadha said. Higher energy and commodity costs can also offset the gains on currency changes, said Hayes of United Technologies, which got more than 60 percent of its 2008 revenue outside the U.S. “The dollar weakness, although it’s good on the translation side, it doesn’t necessarily help on the cost input side,” Hayes said. “So I would just be cautious about taking all of this good news from currency to the bank for next year.” To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net ;

Read the full article →

Afghan Commission Invalidates Some Ballots, Leaving Karzai’s Win Uncertain

October 19, 2009

By James Rupert Oct. 19 (Bloomberg) — Afghan President Hamid Karzai may face a second round of voting after a UN-backed electoral commission said it invalidated an unspecified number of ballots in the Aug. 20 presidential election. The United Nations-backed Electoral Complaints Commission ordered the agency counting the vote, the Independent Election Commission , to adjust its official tally, the ECC said today on its Web site . While the ECC didn’t say how many votes it struck, it published fraud statistics that show Karzai will fall short of the 50-percent threshold needed to avoid a runoff, said a Washington-based monitoring group, Democracy International . Afghans must work out their election process in a way that’s seen as fair, White House spokesman Robert Gibbs said today at a briefing in Washington. “The onus is clearly on this to be legitimate in the eyes of the Afghan people,” Gibbs said. White House Chief of Staff Rahm Emanuel said yesterday that political “negotiations between the candidates” might be a way to resolve the election dispute. Eight weeks of uncertainty over the outcome has delayed President Barack Obama’s review of how the U.S. should fight the growing Taliban insurgency. Obama “will not be rushed to making a decision” on increasing U.S. troop levels in Afghanistan without assessing whether a “legitimate and credible government” is in place there, Emanuel said on CNN’s “State of the Union” program. Kerry’s Mission Senate Foreign Relations Committee Chairman John Kerry is in Kabul today trying to resolve the election impasse. Kerry is “involved in discussions with President Karzai, looking to find a way forward that would legitimize the election and empower effective government,” Frederick Jones , a spokesman for the Massachusetts Democrat, said. His visit was coordinated with Secretary of State Hillary Clinton , special envoy Richard Holbrooke and other State Department officials, Jones said. Kerry met with Pakistani officials in Islamabad earlier today after meeting several times in Kabul with Karzai over the weekend, including one-on-one for an hour and a half last night, Jones said. 48 Percent Democracy International said the ECC’s statistical data will reduce Karzai’s vote tally to 48 percent, from 55 percent reported in the preliminary vote count. Unidentified officials also said the ECC ruling reduced Karzai’s tally to below 50 percent, the British Broadcasting Corp. and New York Times reported. The Afghan president has said any fraud was too small-scale to impede his being declared the victor. His spokesmen didn’t answer telephone calls seeking comment today. In any runoff, Karzai would face former Foreign Minister Abdullah Abdullah , who got 28 percent of the vote in the preliminary count. Sweden, which holds the rotating presidency of the European Union, appealed to Afghans to respect the ECC’s ruling, Agence France-Presse reported. “If these results point towards the need for a second round, a second round must be held,” Swedish Foreign Minister Carl Bildt told reporters in Brussels. Bildt’s appeal was triggered by a report that Karzai might resist a runoff, AFP said citing an unidentified European diplomat. The decision by the UN-backed panel must by law be implemented by the Independent Election Commission, which Karzai appointed. Winter Coming As the Afghan winter approaches, early November would be the latest that a runoff could be held, though extreme cold would make a high turnout difficult, the Afghan ambassador to the U.S., Said Jawad , said at the U.S. Institute of Peace in Washington on Oct. 15. He said a delay until spring would be “a recipe for disaster” because the government would be “in limbo.” Karzai probably will try to organize a “national participation government,” Jawad said without giving details. A coalition government would create problems such as the requirement to dole out appointments based on loyalty rather than merit, Jawad said. Emanuel’s suggestion of a negotiated agreement among Afghan leaders might allow the next government to attain some of the political legitimacy the U.S. seeks. Karzai has lost much credibility with the Afghan public because of the vote fraud and corruption during his tenure, Kabul-based political analyst Haroun Mir said. ‘A Vacuum’ “The lack of a clear result and the evidence of fraud have worsened the problem of a vacuum” in political leadership “that is blocking every effort to improve governance and confront the Taliban,” Mir said in a telephone interview before the vote result was announced. A European Union monitoring team said Sept. 16 that more than a third of Karzai’s votes may have been faked. Obama’s advisers have said Afghanistan needs a legitimate, stable government to harness the support of the country’s people and security forces to marginalize extremists. The uncertainty surrounding the election was among the elements that prompted Obama to reconsider U.S. strategy and troop levels in the country. “None of this is going to work without credible partners,” Gibbs said today. Clinton said in a BBC interview Oct. 12 that if Karzai is eventually re-elected, “there must be a new relationship between him and the people of Afghanistan, between his government and governments which are supporting the efforts in Afghanistan to stabilize and secure the country.” To contact the reporter on this story: James Rupert in New Delhi at jrupert3@bloomberg.net .

Read the full article →

Dollar Losses Are S&P 500′s Gain as Correlation Nears Record: Chart of Day

October 13, 2009

By Jeff Kearns and Oliver Biggadike Oct. 13 (Bloomberg) — U.S. stocks and the dollar are moving in the opposite direction more than ever before as a weaker currency boosts the value of sales outside America. The CHART OF THE DAY shows that the so-called correlation coefficient using 120 days of data between the Dollar Index and the Standard & Poor’s 500 Index is minus 0.43, near the level of minus 0.45 reached on July 7. The reading three months ago was the lowest in the currency gauge’s 42-year history. “When the dollar drops, that’s good for companies that are making products in the U.S. and selling them abroad,” said Frederic Dickson , who manages $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “Investors are expecting U.S. multinational companies to have positive earnings surprises as a result of the dropping dollar.” Companies in the S&P 500 generated 47.9 percent of their revenue outside the U.S. in 2008, an increase from 43.6 percent in 2006, according to data compiled by S&P. The stock measure has surged 59 percent from a 12-year low on March 9. The Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 14 percent during the same period, including the steepest two- quarter drop since 1991. The correlation between stocks and the dollar turned positive in March 2008 and peaked at 0.46 a year ago as investors sold American stocks and the greenback on concern the credit crisis would sap returns on U.S. assets. That relationship deteriorated in September 2008 as investors parked assets in the dollar and Treasuries to weather the global recession. A correlation coefficient of minus 1 means two assets are moving exactly the same percent in opposite directions. The falling dollar also “helps stocks because you have gold, oil, copper and steel companies moving up as money flows and the commodity prices move up,” Dickson said. To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net ; Oliver Biggadike in New York at obiggadike@bloomberg.net .

Read the full article →

Caxton Joint Venture Lucidus Is Said to Start $500 Million High-Yield Fund

October 13, 2009

By Tom Cahill Oct. 13 (Bloomberg) — Lucidus Capital Partners LLP, a new joint-venture of hedge fund manager Bruce Kovner’s Caxton Associates LLC, has raised about $500 million for a high-yield debt hedge fund, three people familiar with the situation said. Darryl Green , chief executive officer of Caxton Europe Asset Management in London, will co-manage the fund with Geoffrey Sherry , a Caxton portfolio manager based in New York, said the people, who declined to be identified because the information is private. The pair will continue to run a $1 billion high-yield bond fund for Caxton, the people said. Caxton will have a 25 percent stake in the new firm with the balance held by Green, Sherry and other staff members, the people said. The fund will use Caxton’s infrastructure and controls to help attract institutional investors reluctant to put money into a startup fund firm. “Any trader worth his salt wants to have his own business,” said Saleem Siddiqi , a London-based partner at Tapestry Asset Management LLP , which creates customized hedge fund portfolios for institutional investors. “This is a way for Caxton to keep access to their knowledge, skills, and a part of the revenue stream.” A spokesman for Lucidus declined to comment. Green, 52, was chief investment officer for Donaldson Lufkin & Jenrette’s fixed income proprietary trading group before he founded high-yield bond investment firm Green T Asset Management Ltd. in 1998. The fund, which was one of Europe’s first high-yield funds, became part of Caxton in 2002, and has been closed to investors since 2003. Sherry was co-head of North American credit trading at JP Morgan before joining Caxton. ‘Volatile Markets’ The fund returned an annual average of 8.3 percent from 1999 to 2008, and 13.7 percent average annually in the past three years, according to documents seen by Bloomberg News. It rose 9.9 percent in 2008 when hedge funds fell 19 percent, according to Chicago-based Hedge Fund Research Inc. “The volatility we saw in markets last year is here to stay and will be a permanent feature of the landscape,” Christon Burrows , co-chief executive officer of Lucidus, said in an interview. “We’ve shown we can make money in volatile markets.” Neil Wilson , editorial director for industry publication EuroHedge, part of the Hedge Fund Intelligence group, said $500 million would be the most raised for a new hedge fund managed from the U.K. so far this year, and tie Swedish fund manager Brummer & Partners for Europe. To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Read the full article →

Stocks in U.S., Europe Advance on Earnings Outlook; Oil, Metal Prices Gain

October 12, 2009

By Sapna Maheshwari and Lynn Thomasson Oct. 12 (Bloomberg) — U.S. and European stocks rose, sending the MSCI World Index to near a one-year high, on speculation improving corporate earnings will extend a seven- month rally in equities. Oil advanced to a six-week high and metal prices gained as the dollar retreated. Black & Decker Corp. advanced the most since July after the maker of power tools raised its third-quarter earnings forecast. Freeport-McMoRan Copper & Gold Inc. added 1.9 percent as copper increased. Advanced Micro Devices Inc. rallied 6 percent as UBS AG recommended the shares. The Standard & Poor’s 500 Index rose for a sixth straight day, its longest streak since June 2007. “The market will continue with a positive bias,” said Stanley Nabi , New York-based vice chairman of Silvercrest Asset Management Group, which oversees $8 billion. “The profit reports that will begin to come out this week should be very solid and the economic data that’s coming out is quite encouraging.” The S&P 500 advanced 0.6 percent to 1,077.88 at 11:46 a.m. in New York, above its highest close since Oct. 3, 2008. The Dow Jones Industrial Average rose 43.23 points, or 0.4 percent, to 9,908.17. The MSCI World Index of 23 developed nations climbed 0.6 percent to above its highest close since Oct. 1, 2008. The S&P 500 last week jumped 4.5 percent, its best advance since July, as Alcoa Inc. started the third-quarter earnings season with an unexpected profit and economic data signaled the U.S. recession is ending. ‘Recovery Is Under Way’ “Last week’s earnings showed that analyst expectations can be surpassed and that not everything is priced in yet,” said Gregor Mast , an equity strategist at Clariden Leu AG in Zurich, which oversees about $88 billion. “We believe that the recession is over and the recovery is under way.” Companies from Intel Corp. to Goldman Sachs Group Inc. are scheduled to report earnings this week. S&P 500 companies will report a ninth straight quarter of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates compiled by Bloomberg show. Royal Philips Electronics NV helped lead Europe’s Stoxx 600 to a 0.9 percent gain after Europe’s biggest consumer- electronics maker said operating earnings at its consumer unit more than doubled. Black & Decker surged 6.6 percent to $50.36. The manufacturer of the Dewalt brand said net earnings will be about 91 cents a share in the third quarter because sales were higher than estimated. In July, it forecast earnings of 35 cents to 45 cents. Analysts projected 43 cents, the average of 10 estimates. Commodity Producers Freeport rose 1.9 percent to $75.78. Copper climbed on speculation demand for raw materials is increasing as the global economy recovers from its worst recession since World War II. Alcoa , the largest U.S. aluminum company, gained 1.2 percent to $14.41. Oil and gas producers rallied the most among the 10 main industries in the S&P 500, adding 1.8 percent as a group. Exxon Mobil Corp. , the largest U.S. energy company, climbed 1.5 percent to $70.30 for a sixth straight day of gains. Crude rose on the New York Mercantile Exchange for a third day, climbing 2.4 percent to $73.51 a barrel. The Dollar Index , which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, dropped 0.5 percent to 76.06. The S&P 500 and the dollar are moving in opposite directions by the most in at least four decades. The stock index has surged 59 percent since March 9. The Dollar Index fell 15 percent during the same period, including the steepest two-quarter drop since 1991. Dollar, Stocks Correlation Their so-called correlation coefficient using 120 days of data is minus 0.43. When it sank to minus 0.45 in July, it was the lowest in the history of the 42-year-old Dollar Index. Investors outside the U.S. are purchasing companies in the S&P 500 at the cheapest valuations on record, their buying power boosted by a seven-month decline in the dollar. The index is valued at the biggest discount to the MSCI World Index of 23 developed countries since May 2003, according to monthly data compiled by Bloomberg. AMD added 6 percent to $6.23. The second-largest maker of personal-computer processors was raised to “buy” from “neutral” at UBS, which said near-term growth will improve on increased computer sales. Visa Inc. and MasterCard Inc. advanced at least 1.3 percent. The world’s biggest card-payment networks were upgraded to “outperform” from “neutral” by Credit Suisse Group AG. The analysts said revenue will increase as the “shift from cash to plastic continues.” Google, Ford Rally Google Inc. climbed 1.6 percent to $524.65. Analysts at Goldman Sachs Group Inc. raised earnings estimates for the Internet search engine operator on speculation companies will spend more on advertising. Ford Motor Co. jumped 6.7 percent to $7.59. The only major U.S. carmaker not to seek bankruptcy protection said sales in Europe rose 12 percent in September as new versions of the Fiesta and Ka subcompacts attracted buyers. The S&P 500 didn’t update for almost an hour in early trading today after a computer malfunction at the Chicago Board Options Exchange prevented the dissemination of updates. To contact the reporters on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net ; Lynn Thomasson in New York at lthomasson@bloomberg.net .

Read the full article →

Ostrom, Williamson Share Nobel Prize in Economics for Work on Governance

October 12, 2009

By Niklas Magnusson Oct. 12 (Bloomberg) — Elinor Ostrom and Oliver Williamson of the U.S. won the Nobel Economics Prize for their work on economic governance and the organization of cooperation. “Ostrom has demonstrated how common property can be successfully managed by user associations,” while Williamson “developed a theory where business firms serve as structures for conflict resolution,” the Royal Swedish Academy of Sciences, which selects the winner, said today in Stockholm. They will share 10 million Swedish kronor ($1.4 million) in prize money. “Over the last three decades these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention,” the academy said. Williamson, 77, is a professor emeritus at the University of California at Berkeley. Ostrom teaches at Indiana University in Bloomington. Alfred Nobel , the Swede who invented dynamite, established awards for achievements in physics, chemistry, medicine, peace and literature in his will in 1896. The economics prize was set up by Sweden’s central bank in 1968. Past winners include Milton Friedman , Amartya Sen and James Tobin . The award’s official name is “The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.” The money, a gold medal and a diploma will be handed out at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death. The economics prize last year was awarded to Paul Krugman , a professor at Princeton University and a columnist for The New York Times, for his theories on world trade. From 1969 to 2008, the Nobel Prize for economics was awarded to 42 Americans, eight Britons, three Norwegians and two Swedes. Economists from Germany, France, the Netherlands, India, Israel, Canada and the former Soviet Union each won once. To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Read the full article →

Americans Ostrom, Williamson Share Nobel Prize in Economics for Governance

October 12, 2009

By Niklas Magnusson Oct. 12 (Bloomberg) — Elinor Ostrom and Oliver Williamson of the U.S. won the Nobel Economics Prize for their work on economic governance and the organization of cooperation. “Ostrom has demonstrated how common property can be successfully managed by user associations,” while Williamson “developed a theory where business firms serve as structures for conflict resolution,” the Royal Swedish Academy of Sciences, which selects the winner, said today in Stockholm. They will share 10 million Swedish kronor ($1.4 million) in prize money. “Over the last three decades these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention,” the academy said. Williamson, 77, is a professor emeritus at the University of California at Berkeley. Ostrom teaches at Indiana University in Bloomington. Alfred Nobel , the Swede who invented dynamite, established awards for achievements in physics, chemistry, medicine, peace and literature in his will in 1896. The economics prize was set up by Sweden’s central bank in 1968. Past winners include Milton Friedman , Amartya Sen and James Tobin . The award’s official name is “The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.” The money, a gold medal and a diploma will be handed out at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death. The economics prize last year was awarded to Paul Krugman , a professor at Princeton University and a columnist for The New York Times, for his theories on world trade. From 1969 to 2008, the Nobel Prize for economics was awarded to 42 Americans, eight Britons, three Norwegians and two Swedes. Economists from Germany, France, the Netherlands, India, Israel, Canada and the former Soviet Union each won once. To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Read the full article →

Latvia Will Seek Last-Minute Deal on Budget Cuts to Appease Bailout Donors

October 12, 2009

By Ott Ummelas and Aaron Eglitis Oct. 12 (Bloomberg) — Latvia will seek to strike a last- minute agreement on budget cuts today to satisfy bailout terms in the latest round of brinkmanship that has tested the patience of the country’s international loan donors. Prime Minister Valdis Dombrovskis has signaled his Cabinet will agree on an additional 175 million lati ($362 million) in cuts at a meeting today to satisfy the International Monetary Fund, the European Union and Sweden. Coalition members are due to meet at 12 noon in Riga. European Union Monetary Affairs Commissioner Joaquin Almunia will visit Riga tomorrow. “They’re in the clear for the time being, but similar temporary disagreements will likely recur,” said Richard Segal , a fixed-income desk strategist at Knight Libertas U.K. “There is a history of Latvian politicians becoming complacent and trying to sneak in lower budget cuts, which the EU and IMF notice at the last minute. I wouldn’t rule this out in future.” The IMF, the EU and Sweden agreed to give Latvia a 7.5 billion-euro ($11 billion) loan in December and urged the government to adopt tougher austerity measures. Swedish Prime Minister Fredrik Reinfeldt , who holds the EU presidency, on Oct. 5 said Latvia “must correct” its deficit while Riksbank Governor Stefan Ingves has said the country risks being “left in the cold.” ‘Fruitful’ International admonitions grew more strident in tone after Latvia said it could achieve a targeted 8.5 percent deficit of gross domestic product in 2010 by cutting 325 million lati off the budget, 175 million lati less than the IMF, the EU and Sweden had demanded. Latvian coalition parties are ready to discuss a tax on real estate, which Parliament voted against sending to committee stage on Sept. 17, the Diena newspaper reported today. All coalition parties agreed to introduce the tax when they signed agreements with the EU and IMF. The IMF on Oct. 9 said it concluded a visit to Latvia that included “fruitful” discussions about the loan program. An IMF staff team visited Latvia as part of a technical mission in consultation with the European Commission and plans to return in November, together with the EU, for a review of the program, it said in a statement. Finance Minister Einars Repse said if the bailout program is suspended, Latvia will be forced to balance its budget next year and “live hand to mouth.” In the event of a suspension, Moody’s Investor’s Service will cut the Baltic country’s credit rating, and the country may have to repay part of its loan early, depleting its reserves, Repse said in an interview on national television broadcast last night. ‘Wrong Kind’ Billionaire George Soros called on the EU to ease its budget-cut demands to slash budget spending in an interview with Swedish public radio on Oct. 10. “The pressure for them to reduce government spending when the problem is in the private sector is a wrong kind of policy that ought to be avoided,” said Soros. “I think the European Union countries are in a position and ought to help Latvia more than they are currently doing,” he said. Soros said he had no currency positions in the Baltics. Less severe loan terms might have saved both sides some pain, Knight’s Segal said, adding that Latvia, which pegs the lats to the euro, and its creditors would benefit from making agreements more flexible, with policy requirements contingent on economic developments. Dombrovskis is trying to limit the pain the budget cuts are inflicting on the economy through legislative changes. The premier on Oct. 6 asked his civil servants to investigate the option of capping mortgage holders’ liability, a move perceived by some investors as a first step toward shielding the internal economy from a devaluation. Little Impact According to Segal, the proposal “would not have as much of an impact as a lot of people seem to think.” Swedish lenders would suffer the deepest blow from the plan, which would swell loan losses. The krona dropped as much as 1.5 percent against the euro on Oct. 7, after investors learned the news. Stockholm-based Swedbank AB, the region’s biggest bank, lost 2.4 percent the same day. Investors need to take loan losses at Swedbank and SEB AB, the second-biggest Baltic lender, into account when assessing the potential harm the mortgage proposal may inflict, Segal said. “The impact of any plan on the future value of the Swedish banks in Latvia has to be compared with what they have already written down and I think a lot of commentators have overlooked that,” he said. Swedbank’s gross provisions for Latvian loans were 4.5 billion kronor in the first half, or 12.77 percent of total lending, the bank said on July 17. SEB, which doesn’t provide country-specific figures for the region, said net credit losses in the Baltics for the same period were 4.93 percent. That compares with Swedbank’s 7.36 percent loss ratio for the region. ‘Bottom Occurred’ “Clearly the bottom of the economic cycle has occurred, we couldn’t have said this three or four months ago and therefore I’m pretty sure that a compromise will happen sooner or later,” Segal said. The $34 billion Latvian economy “probably bottomed out during the second and third quarter,” Dombrovskis said on Oct. 2, citing Economy Ministry forecasts. Fitch Ratings on Oct. 6 forecast a 4 percent output contraction next year after an 18 percent slump in 2009. Swedbank expects Latvia’s GDP to shrink 2 percent next year, it said on Sept. 29. To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

Read the full article →

Dollar Reaches Breaking Point at Banks Shifting Record Reserves Into Euro

October 11, 2009

By Ye Xie and Anchalee Worrachate Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades. Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase. World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991. “Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander , a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.” Sliding Share The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “ accelerated ” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification. America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30. Intercontinental Exchange Inc.’s Dollar Index , which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index is within six points of its record low reach in March 2008. Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness. Toyota’s ‘Pain’ Yukitoshi Funo , executive vice president of Toyota City, Japan-based Toyota Motor Corp. , the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier , chief operating officer of Toulouse, France-based Airbus SAS , the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.” The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank President Jean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.” “Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor. Dollar’s Weighting Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch. That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002. “The diversification out of the dollar will accelerate,” said Fabrizio Fiorini , a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.” Central banks’ moves away from the dollar is a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind , who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany. ‘Flush’ With Dollars “The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.” The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows. America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010. Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse AG. Morgan Stanley says the yen is 10 percent overvalued. Reminders of 1995 Sentiment toward the dollar reminds John Taylor , chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose. The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital. “People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.” Dollar Forecasts The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen from 89.8 last week. Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end. The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II. Lagging Behind Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index . Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar-denominated bonds, Merrill Lynch & Co. indexes show. The growth of global reserves is accelerating, with Taiwan’s and South Korea’s , the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India. China , which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report their allocations. “Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said. Follow the Money Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired. Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent. Bill Gross , who runs the $186 billion Pimco Total Return Fund , the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen. “The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.” To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net ; Anchalee Worrachate in London at aworrachate@bloomberg.net

Read the full article →

U.S. Stocks Climb, Pushing Dow Average to Highest 2009 Close; Alcoa Jumps

October 10, 2009

By Lynn Thomasson and Mary Childs Oct. 10 (Bloomberg) — U.S. stocks gained, sending the Dow Jones Industrial Average above its highest close in a year, after Alcoa Inc. unexpectedly reported a profit and economic data signaled the U.S. recession is ending. Alcoa jumped 11 percent, the most since June, after the largest U.S. aluminum producer cut jobs and raw-material costs faster than analysts projected. Newmont Mining Corp. and Freeport-McMoRan Copper & Gold Inc. rallied more than 10 percent on record gold prices. Macy’s Inc. , the second-biggest department-store chain, soared 10 percent as U.S. retailers said same-store sales rose for the first time in 13 months. “If we can get the retail numbers to keep going up, then the stock market will go up,” said Jerome Dodson, who oversees $2.5 billion at Parnassus Investments in San Francisco. “By the end of the year, I expect the market to be somewhat higher than we are today.” The Standard & Poor’s 500 Index climbed 4.5 percent to 1,071.49 for the biggest weekly advance in three months. The Dow average rose 377.27 points, or 4 percent, to 9,864.94. The Nasdaq Composite Index added 4.5 percent to 2,139.28. Equities advanced as economic data showed first-time jobless claims slid to the lowest level since January and the U.S. service industries grew after 11 months of contraction. The S&P 500, up 58 percent in the past seven months, posted the first five-day rally for a week since November 2006. Rising P/E’s The gains have driven the index’s valuation to 20.3 times reported operating income for its companies, the most since 2004. The VIX, as the Chicago Board Options Exchange Volatility Index is known, tumbled 19 percent to 23.12 for the steepest weekly decline since November. The index measures the cost of using options as insurance against S&P 500 declines. The number of Americans filing first-time claims for unemployment benefits slid to 521,000 in the week ended Oct. 3, Labor Department data showed. That was below the median estimate for 540,000 claims from a Bloomberg survey of economists. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, above the line between expansion and contraction. Alcoa rose to $14.24, the highest price since October. The company reported a profit of 4 cents a share, exceeding the average analysts’ estimate for a 9-cent loss. Newmont, the largest U.S. gold producer, advanced to $46.50. Freeport-McMoRan , which operates the world’s biggest gold mine, climbed 13 percent to $74.34. Gold Gain Gold, which has climbed for seven of the past eight weeks, reached a record $1,062.70 on Oct. 8. Australia’s monetary- policy makers unexpectedly raised borrowing costs this week, triggering a decline in the dollar and a rally in bullion prices. The Dollar Index , which tracks the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, slid 0.9 percent to 76.35 for the week. The Federal Reserve will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently,” Chairman Ben S. Bernanke said at a Board of Governors conference in Washington on Oct. 8. “Accommodative policies will likely be warranted for an extended period,” Bernanke said. “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem.” Macy’s rose to $19.15. Limited Brands Inc. , which owns the Victoria’s Secret stores, soared 13 percent to $18.26. Same Store Data from Retail Metrics Inc. showed sales at U.S. chain stores open at least a year climbed 1.1 percent last month as discounts drew shoppers. Seventy percent of retailers reported sales results that exceeded the average of estimates compiled by the Swampscott, Massachusetts-based research firm. “Even though the market has had a very big move off the bottom, there are still a lot of stocks out there that aren’t fully valued,” said Matthew Kaufler, who helps oversee $2 billion at Federated Clover Investment Advisors in Rochester, New York, in a Bloomberg Television interview. Johnson & Johnson, Goldman Sachs Group Inc. and Google Inc. are among the 31 companies in the S&P 500 scheduled to release quarterly results next week. The index is projected to post a ninth straight period of declining profits , the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates show. Retail sales in the U.S. probably fell in September as dealer showrooms emptied out following the expiration of “cash for clunkers,” economists said before a report next week. To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net ; Mary Childs in New York at mchilds4@bloomberg.net .

Read the full article →

Dollar Falls as Skeptics of `Strong’ U.S. Currency Shift to Euro, Aussie

October 10, 2009

By Oliver Biggadike and Ruby Madren-Britton Oct. 10 (Bloomberg) — The dollar fell for the first time in three weeks against the euro as calls for a “strong” U.S. currency failed to reassure investors concerned the government and Federal Reserve will accept declines in the greenback. Traders shifted funds to Australia’s dollar, making it the best performer this week among 16 major currencies. Lawrence Summers , head of President Barack Obama’s National Economic Council, said on Oct. 8 the U.S. is committed to a strong dollar, the same day European Central Bank President Jean-Claude Trichet said it’s “important” to keep supporting the policy. “Officially they have to say something like that,” said Hidetoshi Yanagihara , senior currency trader at Mizuho Corporate Bank in New York. “As long as the Fed keeps the current policy, too much excess money will push the dollar lower.” The dollar fell 1.1 percent to $1.4732 per euro yesterday in New York, from $1.4576 on Oct. 2, in the first weekly decline since its 1 percent slide in the five days ended Sept. 18. The U.S. currency was little changed at 89.78 yen, compared with 89.81, before the Bank of Japan’s meeting next week. The euro climbed 1 percent to 132.25 yen. Summers, the White House economic adviser, reiterated the administration’s commitment to a strong dollar this week, citing recent comments by U.S. Treasury Secretary Timothy Geithner . “He made it very clear that our commitment is to a strong dollar based on strong fundamentals,” Summers said on Oct. 8 at a forum in New York organized by Bloomberg LP, the parent of Bloomberg News. “Any idea that nations can devalue their way to prosperity is one that economic experience very much belies.” Geithner at G-7 Geithner said on Oct. 3 after a meeting of Group of Seven financial officials that “it is very important to the United States that we continue to have a strong dollar.” Trichet echoed Geithner in his Oct. 8 press conference following the decision to hold the ECB’s main refinancing rate at a record low of 1 percent, saying it’s “very important” for U.S. policy makers to support the dollar. The six-currency Dollar Index fell 0.85 percent to 76.35 this week, the lowest level since August 2008, on concern the Treasury and Fed may permit a gradual weakening of the U.S. currency to support the nation’s economic recovery. “Clearly the market is having some problems believing the U.S. authorities’ strong-dollar policy,” said Carl Hammer , a senior global analyst at SEB AB in Stockholm. “It’s obviously quite easy for the U.S. to be content with a weaker dollar in order to reflate the economy.” Aussie’s Gain The Australian dollar rose 4.4 percent to 90.36 U.S. cents in the biggest weekly gain since May after the Reserve Bank unexpectedly raised the overnight cash target by a quarter- percentage point to 3.25 percent on Oct. 6. A report two days later showed an unexpected drop in the unemployment rate in September, adding to speculation the central bank will widen the extra yield paid on short-term money market securities further. The premium of the three-month London interbank offered rate for the Australian dollar compared with the U.S. widened 25 basis points, or 0.25 percentage point, to 338 basis points this week, according to the British Bankers’ Association. The difference is within 10 basis points of the widest this year. An investor who borrowed dollars and then sold them to deposit the funds in Australia would have earned 4.4 percent this week, according to data compiled by Bloomberg. The number of Australians employed jumped by 40,600 from August, the biggest gain in almost two years, cutting the jobless rate to 5.7 percent from 5.8 percent, statistics bureau data showed. Dollar Pares Decline The dollar trimmed its weekly decline after Fed Chairman Ben S. Bernanke said on Oct. 8 that policy makers are ready to increase borrowing costs once the economy improves. The central bank probably “learned its lesson” from keeping interest rates low for too long in 2003 and 2004, said Richard Franulovich of Westpac Banking Corp. “They could, shockingly, go early,” said Franulovich, a senior currency strategist at Westpac in New York. “If they do, that’s great news for the dollar. The Fed’s been unfairly criticized as a source of dollar weakness.” The Dollar Index , which IntercontinentalExchange Inc. uses to track the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, rose 0.5 percent yesterday, erasing most of the previous day’s decline. Sterling was the only loser versus the dollar this week among the 16 most-traded currencies. It fell 0.7 percent to $1.5842 in a fourth weekly drop on speculation the economy remains too weak for the Bank of England to consider raising borrowing costs and stop asset purchases. The central bank maintained its main rate at a record low of 0.5 percent on Oct. 8 and said it would put its bond-purchase program under review. The Bank of Japan was forecast by all of the 20 economists in a Bloomberg survey to hold its target lending rate at 0.1 percent at its meeting next week. In September, policy makers described the economy as “showing signs of recovery,” an upgrade from the “stopped worsening” assessment in the prior month. To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net ; Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net

Read the full article →

Nobel Peace Prize Award to Obama Generates Surprised, Divided Reactions

October 9, 2009

By Jeff Bliss and Meera Bhatia Oct. 10 (Bloomberg) — The award of the 2009 Nobel Peace Prize to President Barack Obama caught the winner off guard, divided Washington along familiar partisan lines and left foreign-policy experts and some past recipients puzzling over the choice. “I am both surprised and deeply humbled,” Obama, 48, said in the White House Rose Garden yesterday. Summing up much of the worldwide reaction, he said, “I do not view it as a recognition of my own accomplishments, but rather as an affirmation of American leadership.” Democrats defended the prize as an endorsement of Obama’s diplomatic initiatives. Republicans, who oppose Obama’s domestic agenda and are urging him to grant U.S. military requests for as many as 40,000 additional troops in Afghanistan, said the choice was based more on popularity than accomplishment. “It is unfortunate that the president’s star power has outshined tireless advocates who have made real achievements working towards peace and human rights,” Republican National Committee Chairman Michael Steele said in a statement. Political analysts said the award may have been an attempt by the Nobel committee to underscore its opposition to the policies of former President George W. Bush . The selection also is a way for the committee to boost Obama’s initiatives on nuclear-weapons reduction and climate change. ‘New Climate” In announcing the prize, Thorbjoern Jagland , chairman of the five-member Nobel committee , said Obama “created a new climate in international politics.” The committee “in particular looked at Obama’s vision and work toward a world without atomic weapons,” Jagland said. Some foreign leaders praised the decision. “It sets the seal on America’s return to the heart of all the world’s peoples,” French President Nicholas Sarkozy wrote to Obama. “Very few leaders, if at all, were able to change the mood of the entire world in such a short while with such profound impact,” said Israeli President Shimon Peres , co-winner of the 1994 prize. None of the analysts who follow Nobel prizes predicted the choice of Obama, who is just nine months into his term and became the third U.S. president to receive the award while in office. Roosevelt, Wilson President Theodore Roosevelt won the prize in 1906 and Woodrow Wilson in 1919. Former President Jimmy Carter won in 2002 and former Vice President Al Gore received it in 2007. Supporters and critics alike of the committee’s decision agreed that it was based more on Obama’s aspirations than his achievements. “He hasn’t made such a contribution,” said Nobel laureate and former Polish President Lech Walesa . “He’s proposing things, getting started, but he still has to do something.” Obama said he saw the award as an opportunity to move forward on his agenda. “I do not feel that I deserve to be in the company of so many of the transformative figures” who have won previously, he said. “I will accept this award as a call to action, a call for all nations to confront the common challenges of the 21st century.” Money to Charity White House spokesman Bill Burton said Obama will donate the 10 million Swedish kronor ($1.4 million) in prize money to charity. Obama is presiding over two wars and met yesterday with U.S. generals and his foreign policy advisers yesterday for three hours to discuss troop levels in Afghanistan. His administration also is negotiating with Iran and North Korea to curtail their nuclear programs. He was elected last year on a platform that included extracting U.S. forces from Iraq and closing the terror detention center at Guantanamo Bay, Cuba. These and other positions contributed to changing the perception of the U.S. in much of the world. The Nobel committee alluded to the shift in tone. “Multilateral diplomacy is again central, with emphasis on the role the United Nations and other international institutions should play,” Jagland said. “Dialogue and negotiations are the preferred method to solve even the most difficult international conflicts.” Bush Critic The Nobel committee had been critical of the Bush administration. Upon awarding Carter the peace prize, Gunnar Berge , the Norwegian committee chairman, responded with “an unconditional yes” when asked if the award was meant as a rebuke of Bush. Bush declined to comment through his spokesman, David Sherzer. Obama moved quickly to fulfill his campaign pledge for greater U.S. support for the UN, a contrast with the Bush administration’s skeptical stance toward the organization. Last month, Obama became the first U.S. president to preside over a meeting of the UN Security Council, which unanimously adopted a U.S.-written resolution calling for progress toward his goal of nuclear-weapons disarmament. Obama’s administration also paid U.S. debts to the UN for the first time since 1999. Cairo Speech Obama has sought to improve U.S. relations with the Muslim world. In a June 4 speech at Cairo University, he pledged to “seek a new beginning” on this front that would end a “cycle of suspicion and discord.” Those questioning whether he deserved the prize included Fawzi Barhoum , a Hamas spokesman in the Gaza Strip. “There’s a lot more that Obama needs to achieve for peace and for the Palestinian people in order to receive this award,” Barhoum said in a telephone interview. The U.S., European Union and Israel brand Hamas, which controls Gaza, a terrorist organization. Other Arab politicians said they hoped the prize would strengthen Obama’s hand in Middle East peace negotiations. The award may “provide a stimulus for peace,” said Lebanon’s foreign minister, Fawzi Salloukh . The prize, along with honors for literature, physics, medicine and chemistry, was created by Swedish industrialist Alfred Nobel in his will and first awarded in 1901. Past laureates include Martin Luther King Jr ., Desmond Tutu , Mother Teresa and groups such as the International Committee of the Red Cross. Most Nominations There were 205 names submitted for this year’s prize, the highest number in the award’s history. The winner is selected by a committee of five people elected by the Norwegian parliament. The prizes for literature, chemistry, medicine and physics, are picked by the Stockholm-based Nobel Foundation . Obama said he learned of the award when White House spokesman Robert Gibbs woke him with the news at 6 a.m. yesterday. The president said that after he found out, his daughter, Malia, “walked in and said, ‘Daddy, you won the Nobel Peace Prize, and it is Bo’s birthday,’” a reference to the family dog. He said his other daughter, Sasha, added, “‘Plus, we have a three-day weekend coming up.’ So it’s good to have kids to keep things in perspective.” To contact the reporters on this story: Meera Bhatia in Oslo at mbhatia2@bloomberg.net ; Jeff Bliss in Washington at jbliss@bloomberg.net .

Read the full article →

Dollar Drops to Lowest in 14 Months Against Top Currencies on Risk Demand

October 8, 2009

By Oliver Biggadike and Matt Townsend Oct. 8 (Bloomberg) — The dollar fell to its lowest level against the currencies of six major U.S. trading partners in almost 14 months as signs of global economic recovery spurred demand for riskier assets. European Central Bank President Jean-Claude Trichet said the euro area’s economy is emerging from a period of “free fall.” The dollar dropped against all of its 16 most-traded counterparts tracked by Bloomberg led by the Australian currency as investors shifted funds to higher-yielding counterparts. “You have an increased capacity for risk,” said Thanos Papasavvas , who helps oversee $4 billion as head of currency management at Investec Asset Management Ltd. in London. “There is a move out of dollars into markets which offer better returns to the dollar.” The Dollar Index , which IntercontinentalExchange Inc. uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, dropped 0.9 percent to 75.832 at 1:04 p.m. in New York, after reaching 75.767, the weakest level since August 2008. The Frankfurt-based ECB left its main refinancing rate at a record low of 1 percent today. The decision matched the forecast of all 53 economists in a Bloomberg survey. “The euro-area economy is stabilizing and is expected to recover at a gradual pace,” Trichet told reporters in Venice, Italy, following the rate decision. “However, uncertainty remains high.” The dollar depreciated 0.7 percent to $1.4801 per euro, from $1.4691 yesterday. It earlier reached $1.4818, within a half-cent of $1.4844, a level touched on Sept. 23 and the weakest since September 2008. The euro rose 0.5 percent to 130.87 yen, from 130.18. The dollar decreased 0.3 percent to 88.32 yen, from 88.61. Calls for Strength The greenback extended its decline even as policy makers called for strength in the U.S. currency over the past week. Treasury Secretary Timothy Geithner said on Oct. 3 after a meeting of Group of Seven financial officials that “it is very important to the United States that we continue to have a strong dollar.” Trichet echoed Geithner at today’s press conference, saying it’s “very important” for U.S. policy makers to support the dollar. “Since the dollar has been weak and weakening for years, Geithner was using a code phrase, a carry-over from the Bush administration,” said David Malpass , president of the research firm Encima Global in New York. “It means that the U.S. approves of a constantly weakening dollar but doesn’t want a disruptive collapse,” said Malpass, former chief economist at Bear Stearns Cos. and deputy assistant Treasury secretary from 1986 to 1989. Aussie’s Gain The Aussie increased to a 14-month high against the U.S. currency on speculation an unexpected drop in Australia’s jobless rate will encourage its central bank to widen the extra yield earned on short-term money market securities. The premium of the three-month London interbank offered rate for the Australian dollar compared with the U.S. currency widened to 335.6 basis points today, according to the British Bankers’ Association. “You’re definitely seeing the rate differentials move in their favor even more,” said Brian Kim , a currency strategist at UBS AG in Stamford, Connecticut. “There’s risk seeking, and there’s data that’s supporting them.” The number of employed Australians rose by 40,600 from August, beating economist predictions for a decline of 10,000 jobs, according to the statistics bureau in Sydney. Australian Rate The central bank raised borrowing costs on Oct. 6 to 3.25 percent from 3 percent, saying the risk of a “serious” contraction has passed. Americans filing first-time claims for unemployment benefits decreased last week by 33,000 to 521,000, lower than forecast, in the week ended Oct. 3, from a revised 554,000 the week before, the Labor Department said today in Washington. German industrial output expanded 1.7 percent in August following a 0.9 percent drop in July, the Economy Ministry in Berlin said today. The median forecast of 36 economists in a Bloomberg survey was for a reading of 1.8. Central banks in Thailand and Russia stepped in to currency markets to support the dollar at the expense of their own currencies. Assistant Governor Suchada Kirakul at the Bank of Thailand told reporters today policy makers intervened after the baht appreciated “too fast” versus the greenback. The dollar fell 0.4 percent to 33.31 baht in September. Bank Rossii Bank Rossii, Russia’s central bank, bought more than $700 million as the currency strengthened above 36 against the bank’s target dollar-euro basket, said Sergey Romanchuk , head of foreign-currency and money markets at OAO AKB Metalinvest Bank, citing trading flows. The regulator bought about $1 billion today, according to Roman Pakhomenko , chief dealer at Lanta Bank in Moscow. The MSCI World Index climbed as much as 1 percent as every major stock market in Europe rose after New York-based Alcoa Inc., the largest U.S. aluminum producer, posted an adjusted profit of 4 cents a share from continuing operations, compared with an average estimate of a 9 cent loss in a Bloomberg survey. Gold climbed to a record level for a third straight day as the dollar slid. To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net ; Matt Townsend in New York at mtownsend9@bloomberg.net

Read the full article →

Nobel Prize in Literature Awarded to German Poet, Novelist Herta Mueller

October 8, 2009

By Patrick Donahue Oct. 8 (Bloomberg) — Herta Mueller , a Romanian-born writer who escaped Nicolae Ceausescu’s police state two years before the Berlin Wall fell and has become one of reunified Germany’s best known novelists, won the 2009 Nobel Prize in Literature. “With the concentration of poetry and the frankness of prose,” 56-year-old Mueller “depicts the landscape of the dispossessed,” the Swedish Academy said today on its Web site . Born into a German-speaking community in Romania, Mueller began dissident activity while studying German and Romanian literature at the University of Timisoara in the 1970s. She was fired from her post as a translator in a factory for declining to work for the Securitate secret police. “She’s not only a great artist with words, she really has something to tell,” Peter Englund, the academy’s permanent secretary, told reporters in Stockholm. “She was really happy to receive the call, but she said it felt almost unreal.” Her first work, “Lowlands” (Niederungen), which was published in censored form in Romania in 1982, details the brutally conformist life of rural Swabian Germans in Romania’s Banat region, where Mueller grew up. Complete versions had to be smuggled out of the country. Ceausescu’s Ban Her work was lauded in Germany, while in Romania she was pilloried by the national press and the Ceausescu government banned her from publishing. The writer left Romania for West Germany in 1987 with her husband, Richard Wagner, two years before Ceausescu’s regime was overthrown. In the last two decades Mueller has had lectureships at German universities and has continued writing. This year, she published “Atemschaukel,” a novel about a German-speaking Romanian youth at a deportation center at the end of World War II. The book, short-listed for the German Book Prize to be awarded Oct. 12, “succeeds in exposing the persecution of German-Romanians under Stalin through a highly individual story,” according to Mueller’s publisher, Carl Hanser Verlag in Munich. Mueller’s mother was deported to the Soviet Union after the war and spent five years in a Ukrainian work camp. Her father served during the war with the Nazis’ Waffen SS. She is the first German to win the prize since 1999, when it was awarded to Guenter Grass . Last year’s literature prize went to French novelist Jean Marie Gustave Le Clezio, who wrote about exotic and endangered cultures in some of the world’s most outlying regions. Winners in the last decade have included British writers Doris Lessing in 2007 and Harold Pinter in 2005 and J.M. Coetzee of South Africa in 2003. The 10 million-krona ($1.44 million) Nobel literature prize was created in the will of Alfred Nobel and first awarded in 1901. Nobel, a Swede who invented dynamite, also set up awards for achievements in medicine, physics, chemistry and peace. To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net .

Read the full article →

Ramakrishnan, Steitz, Yonath Win Nobel Chemistry Prize for DNA Translation

October 7, 2009

By Andrea Gerlin Oct. 7 (Bloomberg) — Two Americans and an Israeli won the Nobel Prize in Chemistry for their work on how the DNA code is translated into life, findings that have been used to fight infectious disease. Venkatraman Ramakrishnan , 57, who heads the Structural Studies Division at the MRC Laboratory of Molecular Biology in Cambridge, England; Thomas A. Steitz , 69, Sterling Professor of Molecular Biophysics and Biochemistry at Yale University in Connecticut, and Ada E. Yonath , a professor at the Weizmann Institute of Science in Rehovot, Israel, will share the 10 million-krona ($1.4 million) award, the Nobel Assembly said at a press conference in Stockholm today. Their work revealed what ribosomes, which produce proteins that control the chemistry in all living organisms, look like and how they function at the atomic level. The Laureates also created three-dimensional models that show how different antibiotics bind to the ribosome, research that has been used to develop new anti-infective medicines. Yonath is the first woman to win the chemistry accolade in 45 years. “An understanding of the ribosome’s innermost workings is important for a scientific understanding of life,” the Nobel committee said in a statement . “These models are now used by scientists to develop new antibiotics, directly assisting the saving of lives and decreasing humanity’s suffering.” Ramakrishnan, reached at his office five minutes after being told of his achievement, said he was happy and surprised to be chosen. The three winners know each other well though they work separately, he said. ‘Fundamental Biology’ “It must have been a difficult decision; it’s been the subject of study by many groups over 40 years,” he said in a phone interview. “It’s fundamental biology.” Ramakrishnan, a U.S. citizen, was born in India in 1952. His parents were also scientists. He holds a doctorate in physics from Ohio University and is a senior scientist at the MRC Laboratory of Molecular Biology, in Cambridge, England. Steitz, also an American, was born in 1940 in Milwaukee, Wisconsin. He has a doctorate in molecular biology and biochemistry from Harvard University and teaches molecular biophysics and biochemistry at Yale. His son Jon Steitz is a former pitcher for the Milwaukee Brewers baseball team. Yonath was born in 1939 in Jerusalem and holds a doctorate in X-ray crystallography from the Weizmann Institute of Science, where she now teaches and conducts research. “The research behind these prizes shows how the transforming power of chemistry can improve peoples’ lives,” said Thomas H. Lane, president of the American Chemical Society, in an e-mailed statement. Few Women Of the 153 previous winners of the chemistry prize, only three were women. Marie Curie was chosen in 1911; her daughter, Irene Joliot-Curie , shared the prize with her husband, Frederic Joliot, in 1935; and Dorothy Crowfoot Hodgkin won in 1964. Last year’s prize in chemistry went to Osamu Shimomura of Japan and Martin Chalfie and Roger Y. Tsien of the U.S. for research that has turned green fluorescent protein, a luminous substance first found in jellyfish, into one of the most important tools in bioscience. Their research enabled scientists to track proteins that regulate everything from hunger to sexual drive. Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel , the Swedish inventor of dynamite, who died in 1896. The Nobel Foundation was established in 1900 and the prizes were first handed out the following year. The first Nobel Prize in Chemistry was awarded to Jacobus H. van’t Hoff for his work on rates of reaction, chemical equilibrium and osmotic pressure. Yesterday, Charles K. Kao of the Chinese University in Hong Kong, 75, and Willard S. Boyle , 85, and George E. Smith, 79, of Bell Laboratories in Murray Hill, New Jersey, won the Nobel Prize in Physics for their work on fiber optics and digital imaging. On Oct. 5, Elizabeth Blackburn , 60, a professor at the University of California in San Francisco; Carol Greider , 48, a professor at Johns Hopkins University School of Medicine in Baltimore; and Jack Szostak , 56, a professor at Harvard Medical School in Boston, won the Nobel Prize in medicine for research on cell division and the “immortality enzyme” that can help them multiply without damage. To contact the reporter responsible for this story: Andrea Gerlin at agerlin@bloomberg.net

Read the full article →

Fiber Optics, Digital Imaging Pioneers Kao, Boyle, Smith Win Physics Nobel

October 6, 2009

By Trista Kelley Oct. 6 (Bloomberg) — Three scientists whose research helped speed up the transmission of information won the Nobel Prize in Physics. Charles K. Kao , who worked at Standard Telecommunications Laboratories in Harlow, U.K., and now teaches at the Chinese University in Hong Kong; Willard S. Boyle and George E. Smith of Bell Laboratories in Murray Hill, New Jersey, will share the 10 million-kronor ($1.4 million) prize, the Nobel Assembly said today in Stockholm. The research “helped to shape the foundation of today’s networked societies,” according to a statement. “They have created many practical innovations for everyday life and provided new tools for scientific exploration.” Kao’s research led to a breakthrough in fiber optics while Boyle and Smith invented the first successful imaging technology using a digital sensor. Last year’s physics prize went to Yoichiro Nambu of the U.S., and Makoto Kobayashi and Toshihide Maskawa of Japan for showing how subatomic particles that are supposed to act similarly sometimes don’t, leading to a better explanation of how the universe was formed. Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel , the Swedish inventor of dynamite, who died in 1896. The Nobel Foundation was established in 1900 and the prizes were first handed out the following year. In 1901 the first Nobel Prize in Physics was awarded to Wilhelm Röntgen for his discovery of X-rays. The physics prize has since been awarded for discoveries and inventions, according to the Nobel Prize Web site. Yesterday, Elizabeth Blackburn , 60, a professor at the University of California in San Francisco; Carol Greider , 48, a professor at Johns Hopkins University School of Medicine in Baltimore; and Jack Szostak, 56, a professor at Harvard Medical School in Boston, won the Nobel Prize in medicine for research on cell division and the “immortality enzyme” that can help them multiply without damage. To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net

Read the full article →

Swedish Government Seeks EU Approval for Saab Auto’s Sale Guarantee Terms

October 6, 2009

By Niklas Magnusson and Johan Carlstrom Oct. 6 (Bloomberg) — General Motors Co. ’s Saab Automobile division moved closer to receiving state backing for its sale to Koenigsegg Group after Sweden sought European Union approval for terms of a proposed loan guarantee. The government sent an application on Oct. 2 to the European Commission, the EU’s antitrust regulator, to gain an opinion before deciding whether to support the Saab transaction, Haakan Lind , a spokesman at the Stockholm-based Ministry of Enterprise, Energy and Communications, said today by phone. Saab’s sale to sports-car maker Koenigsegg Automotive AB and Beijing Automotive Industry Holding Co. depends in part on the division receiving a $600 million European Investment Bank loan backed by the government. Talks are continuing with the Swedish National Debt Office about the guarantee, Eric Geers , a spokesman at Trollhaettan, Sweden-based Saab, said yesterday. “This is an important milestone for us” now that Sweden has sought EU clearance for the borrowing plan, Geers said. “We are delivering step by step.” The European Commission oversees whether state aid that the EU’s 27 countries provide to companies distorts competition. The EIB, the EU’s lending arm, aims to discuss Saab’s loan application at a board meeting Oct. 21, Eva Srejber , a vice president at the Luxembourg-based bank, said two weeks ago. ‘Time Pressure’ “We want the commission to evaluate the conditions that we’re discussing,” ministry spokesman Lind said. “Everyone is aware that all this is happening under time pressure.” Jonathan Todd , a European Commission spokesman in Brussels, didn’t immediately reply to an e-mail and telephone call seeking comment today. Saab has been unprofitable for most of the 20 years it has been owned by Detroit-based GM. The division filed for bankruptcy protection in February after the U.S. carmaker , struggling with losses worldwide, said it would cut ties. Questions over Saab’s future contributed to its 58 percent sales plunge in Europe in the first half, the biggest decline among all automakers in the region, according to the European Automobile Manufacturers Association . Koenigsegg Group has also received private-financing pledges of 3 billion kronor ($428 million) for Saab’s takeover, helped by Beijing Automotive, China’s fastest-growing carmaker, joining the bidding partnership in early September. To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net ; Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net .

Read the full article →

Stocks in Europe Rise for First Time in Four Days; Telenor, Iberia Advance

October 5, 2009

By Adria Cimino Oct. 5 (Bloomberg) — European stocks gained as speculation a report will show U.S. service industries stabilized overshadowed Nouriel Roubini’s forecast that equity markets may drop in the coming months. Asian shares declined. Telenor ASA, the biggest Nordic phone company, surged 11 percent after ending a dispute over control of OAO VimpelCom, Russia’s second-largest mobile company. Iberia Lineas Aereas de Espana SA and Bouygues SA advanced after Bank of America Corp. recommended the shares. Swedbank AB and SEB AB, the biggest banks in the Baltic region, dropped after a report that Swedish Finance Minister Anders Borg warned Swedish lenders of an imminent political crisis in Latvia. Europe’s Dow Jones Stoxx 600 Index added 0.4 percent to 235.12 at 9:21 a.m. in London. Futures on the Standard & Poor’s 500 Index gained 0.6 percent before a report that may show services industries, the largest share of the U.S. economy, stabilized in September after contracting for almost a year. “I think there’s 20 to 30 percent upside in certain share prices,” Chris McGale , head of European equities at Pali International Ltd. in London, said in a Bloomberg Television interview. “You have to pick within sectors. From here, we have to look at balance sheets and earnings power.” The MSCI Asia Pacific Index slid 0.8 percent as New York University Professor Roubini, who predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors. ‘Too Much, Too Soon’ “Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.” The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which reflects almost 90 percent of the economy, rose to 50, according to the median of 64 forecasts in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction. Europe’s manufacturing and services industries expanded more than initially estimated in September. A composite index of both industries in the euro-area economy rose to 51.1 from 50.4 in August, London-based Markit Economics said today. Second Slump HSBC Holdings Plc Chief Executive Officer Michael Geoghegan said there may be a second global economic slump and as a result doesn’t want the bank to grow too fast, the Financial Times reported, citing an interview with him. Geoghegan said he wasn’t convinced that the worst was over and that the “reality is that profits will be quite reduced”, the FT reported. The S&P 500 and Europe’s Stoxx 600 have slumped for two straight weeks as data on U.S. unemployment, manufacturing and consumer confidence missed economists’ forecasts, fueling concern that the global economic recovery may not be robust. Alcoa Inc. kicks off the third-quarter earnings season in the U.S. this week, while investors will also watch quarterly reports in Europe at companies from Tesco Plc to Banco Espanol de Credito SA. Telenor surged 11 percent to 70.75 kroner. The Norwegian company will merge its stakes in OAO VimpelCom and ZAT Kyivstar with those of Russia’s Altimo, creating a new company, VimpelCom Ltd. Telenor and Altimo will suspend ongoing legal proceedings and withdraw or settle them before the transaction is concluded, they said. Swedish Banks Swedbank slid 4.5 percent to 59 kronor and SEB declined 2.7 percent to 43.80 kronor. Borg informed the banks that there is growing pressure from the International Monetary Fund to force Latvia to devalue its currency, Svenska Dagbladet reported on Oct. 3, without saying where it got the information. Iberia, Spain’s biggest airline, gained 1.8 percent to 2.17 euros. Bank of America raised its recommendation on the shares to “buy” from “ neutral .” Separately, the board of Iberia wants a decision on the merger with British Airways Plc, Europe’s third-largest airline, to be reached quickly, Cinco Dias reported. Bouygues advanced 3.2 percent to 34.87 euros after Bank of America upgraded the French builder and mobile-phone operator to “buy” from “underperform.” Wall Street projections for the fastest U.S. profit growth in two decades are putting some of the biggest equity investors at odds with Bill Gross . Money managers are betting that more than two years of declining earnings, the longest stretch since the Great Depression, will end in 2010 when net income rises 26 percent before expanding 22 percent in 2011, according to data compiled by Bloomberg. Gross, who oversees the world’s biggest bond fund at Pacific Investment Management Co., says the economy won’t grow fast enough to sustain the steepest rally since the 1930s and equity returns will be limited to 5 percent a year. To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net .

Read the full article →

Zoellick Says U.S. Can’t Take Dollar’s Reserve Currency Status for Granted

September 27, 2009

By Daniel Whitten Sept. 27 (Bloomberg) — World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency. In remarks set for delivery tomorrow, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence. “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” according to excerpts of his remarks released by the World Bank. Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves. Zoellick’s speech to the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University in Washington echoes his previous comments about the dollar’s standing. The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona. U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system, and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said at a press conference Sept. 24 in Pittsburgh, where leaders of the Group of 20 nations met. To contact the reporter on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net .

Read the full article →

Zoellick Says U.S. Can’t Take Dollar’s Reserve Currency Status for Granted

September 27, 2009

By Daniel Whitten Sept. 27 (Bloomberg) — World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency. In remarks set for delivery tomorrow, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence. “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” according to excerpts of his remarks released by the World Bank. Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves. Zoellick’s speech to the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University in Washington echoes his previous comments about the dollar’s standing. The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona. U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system, and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said at a press conference Sept. 24 in Pittsburgh, where leaders of the Group of 20 nations met. To contact the reporter on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net .

Read the full article →

Geithner Says G-20 Consensus Forming on Exports, U.S. Backs Strong Dollar

September 24, 2009

By Rebecca Christie Sept. 24 (Bloomberg) — Treasury Secretary Timothy Geithner said Group of 20 nations have a “strong consensus” to reduce reliance on exports, and said the U.S. has a “special responsibility” to support the dollar’s role as the world’s reserve currency. “A strong dollar is very important in the United States,” Geithner said in response to a question at a press conference today in Pittsburgh, where the Group of 20 nations started two days of talks. Geithner predicted a G-20 agreement around a U.S. proposal for nations to cut dependence on export-led growth to foster a more “balanced” global recovery. He said a higher U.S. savings rate this year is an “encouraging sign” and indicated the U.S. government’s interventions in markets will be withdrawn gradually. The Obama administration is trying to reach an accord among the biggest industrial and emerging economies to keep stimulus measures in place and lay the groundwork for a global economic rebound. Geithner said the U.S. will keep its assistance programs in place until “we are very confident” in the strength of the recovery. Investor concern about the budget deficit, which is forecast to rise to $1.6 trillion this year, has contributed to the weakness of the dollar. The trade-weighted Dollar Index has fallen 11 percent since Obama’s inauguration in January. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona. Dollar’s Role Geithner reiterated that the U.S. intends to take steps necessary to prevent the dollar’s role in the global economy from diminishing. “We have a special responsibility here in the United States to make sure we are doing the things in this country to preserve confidence in the U.S. financial system — confidence that’s very important to sustain the dollar’s role as the principle reserve currency in the international financial system,” Geithner said. “We expect, as I think countries expect around the world, the dollar to retain that position for a very long time.” Geithner also said signs are emerging of a global economic recovery and he indicated a “shared commitment” among G-20 nations to adopt measures aimed at preventing another financial crisis while continuing to bolster their economies as they emerge from the past year’s contraction. Growth Emerges “We’re beginning to see growth in the United States and around the world,” he said. “This is encouraging, but we have a ways to go. At this week’s meetings, the G-20 also is moving forward with efforts to overhaul financial regulation, rein in banker pay and require banks to hold more capital in reserve against potential losses. This week’s meetings should produce “more concrete timeframes” to put such changes in place, along with pledges that countries will act individually as well, the Treasury chief said. The U.S. wants to “lead by example” with changes to financial regulation, Geithner said, reiterating the administration’s desire to work with Congress to enact legislation this year. The U.S. also wants to keep pressing for reform of the International Monetary Fund and the World Bank to give a bigger voice to developing countries with fast-growing economies, he said. To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net .

Read the full article →

Stocks Advance as Dollar Declines on Outlook for Economy; Oil, Copper Gain

September 22, 2009

By Daniel Hauck Sept. 22 (Bloomberg) — Stocks rose for the first time in three days after higher economic growth forecasts from the Asian Development Bank provided further evidence the global recovery is accelerating. The dollar fell, while oil and copper advanced. The MSCI World Index of 23 developed nations added 0.8 percent at 10:10 a.m. in London, while futures on the Standard & Poor’s 500 Index gained 0.7 percent. Russia’s Micex Index climbed 2.2 percent after UBS AG and Goldman Sachs Group Inc. said higher earnings will boost equities. The dollar snapped two days of gains versus the euro. Oil rose for the first time in four days and copper increased for a second day. The ADB said Asia, excluding Japan, will grow 3.9 percent this year, better than its March estimate of 3.4 percent, as China, India and Indonesia expand. Government data showed net crude oil imports by China last month were the second-highest on record. Federal Reserve policy makers and leaders from the Group of 20 nations meet this week as governments grapple with scaling back economic stimulus measures as the rebound gathers momentum. “The resilience of the equity markets and hence the lack of support for the dollar is in part down to the steady stream of good news that underlines the positive growth outlook,” Derek Halpenny , European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a report. Computer Chips Basic-resource and oil producers led gains in the Dow Jones Stoxx 600 Index of European shares, which added 1 percent. A 55 percent increase since March 9 has driven valuations on the gauge to 47.4 times reported profit, the highest level since June 2003, weekly Bloomberg data show. Rio Tinto Group , the world’s third-largest mining company, added 2.7 percent in London. BP Plc, Europe’s second-biggest oil company, climbed 1.7 percent. STMicroelectronics NV , Europe’s largest semiconductor maker, gained 3.1 percent. The price of benchmark computer- memory chips climbed 1.1 percent yesterday to the highest level since Aug. 27, 2008, according to Dramexchange Technology Inc. The gain in U.S. futures indicated the S&P 500 may advance after its biggest decline in almost three weeks. The 57 percent rebound in the index from its 12-year low on March 9 has pushed valuations to almost 20 times the reported earnings from continuing operations of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg. ‘Cheap’ Russian Stocks Russia’s Micex climbed the most in a week. Profits may exceed analysts’ estimates by about 30 percent as companies cut costs and revenues rebound, UBS economist Clemens Grafe wrote in a note today. Investors should increase holdings of Russian shares because “cheap” valuations will help spur a rally of 25 percent, Goldman Sachs analyst Sergei Arsenyev wrote. “We’re now in this attractive phase of the cycle and a strong earnings recovery is on the way,” said Jonathan Garner , the London-based chief Asian and emerging-market strategist at Morgan Stanley. “Stock markets will continue to rise.” The ruble rose 0.6 percent to its strongest level against the dollar this year, while South Africa’s rand strengthened 1 percent for the first gain in four days. The nation’s central bank meets to set monetary policy today, after cutting its benchmark rate by half a point to 7 percent on Aug. 13. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the yen, euro, pound, Canadian dollar, Swedish krona and Swiss franc, snapped a two-day advance, falling as much as 0.8 percent. The U.S. currency declined most against high-yielding currencies, losing 2.1 percent versus the New Zealand dollar and 1.3 percent compared with the Australian dollar. Metals Rally Industrial metals rallied on the London Metal Exchange, paced by gains in lead and zinc. Three-month copper rose for a second day, advancing 1.2 percent to $6,265 a metric ton. Gold rose 1 percent to $1,014 an ounce in London trading, within 2 percent of an all-time high. Crude oil for October delivery, which expires today, rose 69 cents, or 1 percent, to $70.40 a barrel on the New York Mercantile Exchange. Net crude oil imports by China, Asia’s largest consumer, rose 18 percent in August to 17.92 million metric tons, the second highest on record, official data from the Beijing-based Customs General Administration showed. Treasuries were little changed as the U.S. prepares to sell $43 billion of two-year notes, the first of three auctions this week in which the government will offer $112 billion of debt, a record for that combination of securities. Fed on Hold The U.S. government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets. The Fed will keep its target rate for overnight bank loans at a record low of between zero and 0.25 percent following its two-day policy meeting starting today, according to all 93 economists a Bloomberg survey. The global economy has yet to feel the full benefit of government-led spending programs to stimulate demand, according to U.K. Prime Minister Gordon Brown. “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had,” Brown told reporters in London before his departure today for the Group of 20 meeting in Pittsburgh. “What we want to do is safeguard a recovery from a recession we feared would develop into a depression.” To contact the reporters on this story: Daniel Hauck in London at dhauck1@bloomberg.net .

Read the full article →

Sweden Predicts Lower Budget Deficits as Tax Cuts, Spending Revive Economy

September 20, 2009

By Johan Carlstrom and Niklas Magnusson Sept. 20 (Bloomberg) — Sweden’s budget deficits will be narrower than the government predicted earlier as the economy returns to growth and the country boosts spending and cuts taxes to support its export-dependent economy . The deficit of the Nordic region’s largest economy will be 2.2 percent of gross domestic product in 2009 and 3.4 percent in 2010, according to the 2010 budget presented by Swedish Finance Minister Anders Borg in Stockholm today. The deficit will shrink to 2.1 percent in 2011 and 1.1 percent in 2012, Borg said. “The public finances have developed somewhat better than forecast in the 2009 economic spring budget both because of higher income and lower expenses,” Borg said in the budget for 2010. “Expectations of stronger export orders, a more positive purchase managers index, further improvements on the financial markets and a stronger global cyclical recovery are factors that may make the recovery faster than expected.” Sweden has suffered a deeper economic decline than neighbors Norway and Denmark after a slump in global trade undermined demand for exports from companies like SKF AB , the world’s biggest bearings maker, and Volvo AB , the world’s second biggest producer of heavy trucks. Exports make up about half of Swedish economy. Elections Next Year The government last month forecast the deficit would amount to 2.4 percent of gross domestic product this year and 3.7 percent in 2010. Prices will rise 0.4 percent in 2010 after falling 0.4 percent this year, the government predicted today. Total government income next year will be 723 billion kronor ($105 billion), according to the budget. Prime Minister Fredrik Reinfeldt’s government plans to cut taxes and raise spending on schools, hospitals and measures to support the unemployed next year as it faces national elections in September. Earlier and new stimulus measures, which follow Sweden’s worst economic decline in at least 15 years in the first half of 2009, will contribute 1.7 percentage points to economic growth next year, according to the budget. Borg today reiterated forecasts from last month that the economy will return to growth of 0.6 percent in 2010 and 3.1 percent in 2011 after shrinking 5.2 percent this year. Unemployment will peak at 11.6 percent in 2011 from 8.8 percent this year. More Tax Cuts The government had prior to today announced plans to cut income taxes for a fourth time since coming to power in 2006 after 12 consecutive years of Social Democratic rule. In today’s budget, the government raised spending on new stimulus measures by 32 billion kronor for next year and by 24 billion kronor for 2011. Reinfeldt came to power in September 2006, pledging to increase employment by cutting taxes, lower benefits and making it cheaper for companies to hire staff. The government trails the three-party opposition bloc, which includes the Social Democrats, Left party and the Greens, by 3.4 percentage points, according to an opinion poll by Sifo Research International published this week. The Social Democratic party wants to raise income taxes and re-introduce the country’s wealth tax in a different shape to create more jobs and invest in hospitals and schools. The “most serious risk” to the government’s economic forecasts and budget stems from the Baltic countries of Estonia, Latvia and Lithuania, where Sweden’s Swedbank AB and SEB AB are the biggest lenders, Borg said. A deepening of the crisis in the Baltics will “affect the entire Nordic region,” he said. Estonia, Latvia and Lithuania, the European Union’s fastest-growing economies from 2004 through 2006, have since toppled into the bloc’s deepest recessions. Property-investment and spending booms, financed mainly by bank lending, turned to bust as inflation soared, cheap credit evaporated and demand for exports ebbed. To contact the reporters on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net Niklas Magnusson at nmagnusson1@bloomberg.net

Read the full article →

Yen Falls as Asia Stocks Extend Global Rally; China Reports to Show Growth

September 10, 2009

By Yoshiaki Nohara and Ron Harui Sept. 10 (Bloomberg) — The yen fell for a sixth day against the euro as gains in Asian stocks and reports forecast to show improving Chinese industrial production and exports damped demand for Japan’s currency as a refuge. The dollar traded near the lowest level since December against the euro on speculation two Federal Reserve officials will signal they plan to keep borrowing costs near zero, boosting demand for higher-yielding assets. The New Zealand dollar rose toward a one-year high against the U.S. currency after the South Pacific nation’s central bank indicated it was less likely to cut interest rates from a record low. “The rally in stocks and China’s data are proving a floor for risk appetite for the short term, weighing down on the yen,” said Satoshi Okagawa , head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “People are paying close attention to China.” The yen fell to 134.34 per euro as of 7:12 a.m. in London from 133.99 in New York yesterday, when it touched 134.41 yen, the lowest since Aug. 28. The dollar traded at $1.4579 per euro from $1.4557, after sinking to $1.4601 yesterday, the weakest level since Dec. 18. Japan’s currency was at 92.15 per dollar from 92.04 after hitting 91.61 yesterday, the highest since Feb. 17. New Zealand’s dollar gained to 69.84 U.S. cents from 69.59. It rose to 70.08 cents yesterday, the strongest since Aug. 29, 2008. The Australian dollar fell for the first time this week against the greenback after employers cut a greater-than- estimated 27,100 jobs last month, easing pressure on the central bank to raise interest rates. The currency fell 0.2 percent to 86.09 U.S. cents. China Data The MSCI Asia Pacific Index of regional shares gained 1.5 percent as profit from China Yurun Food Group and a higher forecast from Texas Instruments Inc. fueled confidence the global economy is recovering. The Nikkei 225 Stock Average advanced 2 percent, extending a global share rally that took the Standard & Poor’s 500 Index to an 11-month high yesterday. The yen weakened against 15 of its 16 major counterparts as economists surveyed by Bloomberg News forecast China’s August industrial production gained 11.8 percent from a year earlier. The Beijing-based statistics bureau is set to report the data at 11 a.m. Tokyo time tomorrow. China’s exports may have dropped 19 percent last month from a year earlier, according to another survey for data that is due tomorrow. That would be the slowest decline since March. The dollar fell for a fifth day against the euro, its longest stretch since May, before speeches by Atlanta Fed President Dennis Lockhart and Fed Vice Chairman Donald Kohn . Chicago Fed President Charles Evans said yesterday it’s too early for the Fed to tighten credit, suggesting interest rates in the world’s largest economy will remain near zero. Dallas Fed President Richard Fisher repeated his forecast for a “prolonged period of sluggish economic performance.” ‘Funding Currency’ “The market is working against the dollar, which is the favored funding currency when equities are rising and you want to buy risky assets,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “We anticipate potential further weakness of the U.S. dollar, and the euro is going to be higher.” Lockhart will speak on U.S. and global economic interactions in Jacksonville, Florida, and Kohn will deliver remarks on the unconventional U.S. monetary policy response to the financial crisis in Washington later today. In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates. Benchmark interest rates are as low as zero in the U.S. and 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive for investors seeking higher returns. New Zealand Dollar The Dollar Index , which IntercontinentalExchange Inc. uses to track the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 76.902 after dropping yesterday to as low as 76.803, the weakest level since Sept. 26, 2008. New Zealand’s currency strengthened against all 16 major counterparts after Reserve Bank Governor Alan Bollard left the official cash rate at a record low of 2.5 percent amid expectations the economy faces a slow recovery from the worst recession in three decades. Bollard moved away from considering rate cuts, compared with the previous monetary policy statement on July 30. Dollar Pessimism “New Zealand’s central bank wasn’t quite as aggressive as it might have been, switching away from the possibility of rate cuts to a commitment to keeping rates at a record low,” said Sean Callow , senior currency strategist at Westpac Banking Corp. in Sydney. “The kiwi is also benefiting from the current broad pessimism regarding the U.S. dollar.” New Zealand’s currency advanced for the first time in three days against Australia’s dollar as falling employment added to signs the latter’s economy may slow in coming months. Reports yesterday showed Australian retail sales unexpectedly fell in July and home-loan approvals ended a record nine-month run of gains as the effect of government stimulus spending wanes. The kiwi traded at NZ$1.2329 per Australian dollar, 0.5 percent stronger. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

Read the full article →

European Stocks, U.S. Index Futures Fluctuate; Euro Rises Against Dollar

September 9, 2009

By Daniel Hauck Sept. 9 (Bloomberg) — European stocks and U.S. index futures fluctuated as investors weighed evidence of an economic recovery with central bank preparations to start unwinding stimulus packages. The euro rose against the yen and dollar. The MSCI World Index of 23 developed markets slipped 0.2 percent at 11:34 a.m. in London after a six-month, 59 percent rally drove valuations to 25.4 times earnings, almost the most expensive level since 2003, according to weekly data compiled by Bloomberg. Futures on the Standard & Poor’s 500 Index slid less than 0.1 percent after falling as much as 0.6 percent. The euro strengthened against 14 of 16 major currencies. Investors are questioning the pace of the rebound from the first global recession since World War II after figures yesterday showed U.S. consumer credit plunged five times as much as forecast in July. The Federal Reserve publishes its Beige Book business survey today. European Central Bank President Jean-Claude Trichet said today that “it’s not time yet to say that the crisis is over,” though policy makers should be ready to respond to faster growth by curbing stimulus measures. “Outside of 1932-1933, this will be the first time we have seen a six-month period with a price move of greater than 50 percent,” wrote Jim Reid , a strategist at Deutsche Bank AG in London. “This rally leaves us historically on the expensive side.” Six-Month Surge The Dow Jones Stoxx 600 Index of European shares added 0.3 percent, erasing an earlier loss of 0.5 percent as automakers advanced. A 51 percent surge since March 9 has driven valuations on the regional gauge to 44.8 times profit, near the highest level since 2003, weekly Bloomberg data show. Renault SA, France’s second-largest carmaker, rallied 5.2 percent. Carlos Ghosn, chief executive officer of Renault and Nissan Motor Co., told Le Figaro in an interview that the worst of the financial crisis is over. Bayerische Motoren Werke AG rose 6 percent as the world’s biggest maker of luxury cars was raised to “overweight” from “underweight” at Morgan Stanley. The MSCI Asia Pacific Index fell 0.8 percent from a one- year high as Alibaba.com Ltd. Chairman Jack Ma sold a stake and shareholders of Lenovo Group Ltd., including TPG Inc., cut their holdings. Alibaba.com, owner of China’s biggest electronic- commerce Web site, dropped 6.7 percent in Hong Kong. Lenovo, China’s largest maker of personal computers, sank 5.7 percent. The drop in U.S. futures indicated that the S&P 500 may decline for the first time in four days. Directors of the Fed’s regional banks may add to recent comments from policy makers suggesting that inflation will remain subdued when the Beige Book is published. Fed Bank of Chicago President Charles Evans is scheduled to speak on inflation in New York. Fed Bank of Dallas President Richard Fisher is due to deliver a speech in Dallas on challenges to the economy. Poland Sells Debt The MSCI Emerging Markets Index dropped for the first time in five days, falling 0.4 percent. Poland is offering as much as 2 billion zloty ($703 million) in bonds maturing in April 2014, its first government debt sale since saying Sept. 4 that next year’s budget will almost double from 2009 and it will have to increase debt issuance and sell state assets to finance the gap. Treasuries rose, pushing the yield on the 10-year note down 1 basis point to 3.48 percent, even as the U.S. prepared to sell $20 billion of 10-year securities, part of an unprecedented borrowing plan designed to drag the economy out of the recession. German two-year government notes were little changed as the nation sold 5.7 billion euros ($8.3 billion) of new benchmark securities. Italy sold 6 billion euros of bonds due September 2040, according to a banker involved in the transaction. Libor Declines Government efforts to boost lending have helped thaw credit markets that froze two years ago and spurred the collapse of Lehman Brothers Holdings Inc. almost 12 months ago. The London interbank offered rate, or Libor, for three-month loans in dollars may fall for a 16th day today to 0.295 percent, according to Landesbank Baden-Wuerttemberg. The rate was 4.82 percent on Oct. 10 last year. Corporate bond sales in Europe extended their surge, driving this year’s issuance above a record $1.24 trillion compared with $1.1 trillion for the whole of 2008, according to data compiled by Bloomberg. Enel SpA, Italy’s biggest utility, is planning a benchmark issue of bonds in euros and pounds, according to a banker involved in the transaction. American Honda, a unit of Tokyo- based Honda Motor Co. Ltd., plans to sell 750 million euros of five-year notes. Alstom SA, the world’s biggest maker of coal- fired power plants, is planning a 500 million-euro sale of five- year notes, a banker involved in the sale said. Euro Gains The rebound in European equities helped push the euro up 0.4 percent against the yen. The dollar advanced against higher- yielding currencies, adding 0.2 percent versus the Australian dollar and 0.5 percent against the South African rand. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against the yen, euro, pound, Swiss franc, Swedish krona and Canadian dollar, was little changed at 77.322, snapping three days of declines to leave it 4.9 percent lower for the year. Copper dropped 0.3 percent to $6,455 a metric ton on the London Metal Exchange, its first decline in five days. Gold fell for the first time in seven days, slipping 0.2 percent to $993.22 an ounce in London. Silver dropped for the first time in nine days, losing 0.7 percent to $16.31. Silver will probably outperform gold because it’s more closely linked to a rebound in the industrial cycle, Citigroup Inc. said in a report today. Oil slipped 0.2 percent to $70.99 a barrel as ministers of the Organization of Petroleum Exporting Countries gathered in Vienna to decide on output levels. Members have said the group should keep its production target unchanged at 24.845 million barrels a day. All of the 26 analysts surveyed by Bloomberg News predicted the organization will keep quotas steady. To contact the reporters on this story: Daniel Hauck in London at dhauck1@bloomberg.net .

Read the full article →

Nobody Liking Dollar With U.S. Deficits Makes Rogoff Favorite for Traders

September 8, 2009

By Ye Xie and Bo Nielsen Sept. 8 (Bloomberg) — For the first time in at least two years, deficits are starting to matter to currency investors, and that may be bad news for the dollar . While the trade-weighted Dollar Index fell 2.2 percent in the past two years as capital markets froze, the budget gap reached $1 trillion and the economy sank into the deepest recession since the 1930s, traders are now banking on a longer- term decline. Forward contracts show the greenback weakening to $1.49 per euro in the next 10 years, compared with an average of $1.17 since the single European currency was introduced in 1999. The budget and current-account deficits are coming back into focus as President Barack Obama ’s stimulus measures revive the economy, reducing demand for the relative safety of U.S. assets. The JPMorgan G7 Volatility Index measuring perceptions of risk fell to the lowest level in a year. Morgan Stanley currency strategists said in a Sept. 3 report that “economic data releases are now more important for FX daily moves than in the past four years.” “As the normalization of the markets has taken place, the market starts to differentiate currencies,” said Paresh Upadhyaya , a senior vice president at Boston-based Putnam Investments who helps manage $21 billion. He turned bearish on the U.S. currency in April. “You have to be negative on the dollar.” Deficit Forecast Economists forecast the current-account deficit will rise to 3.2 percent of gross domestic product in 2010 and 3.5 percent in 2011 from 2.9 percent this year as consumer and business spending boost imports and oil prices increase, according to the median estimates in Bloomberg News surveys. Europe’s deficit will account for 1.2 percent of GDP, a separate poll shows. The budget deficit reached a record $1.27 trillion in the first 10 months of fiscal 2009 ending Sept. 30 as the recession curbed tax receipts and the Obama administration increased spending . The gap will grow to $1.6 trillion in fiscal 2010 before narrowing to $1.4 trillion the following year, according to the Congressional Budget Office. “We are at a cross-road,” Kenneth Rogoff , a Harvard University professor and former chief economist for the International Monetary Fund in Washington, said in an interview last week. “If the Obama Administration fails to rein in the long-term budget deficits, the dollar is set to decline for decades.” Trade Balance The Commerce Department will report the trade balance for July on Sept. 10. The median estimate of 62 economists surveyed by Bloomberg is for a deficit of $27.3 billion. While that improved from $64.9 billion a year earlier, it’s been little changed since February. Trade feeds into the broader current-account balance, which includes transfer payments and investment income and stood at a negative $101.5 billion in March. While the gap has narrowed from a record $214.8 billion in September 2006, it’s still above the average of $63.2 billion over the past 30 years and means the U.S. needs to attract about $1 billion a day in new foreign capital for the dollar to maintain its value. Dollar bears note net purchases of long-term U.S. securities by foreign investors fell below the trade deficit by $46 billion in the first half of the year, one of the only three occasions since 1994 there was a shortfall , according to Treasury Department data. ‘Huge Financing Need’ When that happened in the second half of 2007, the Intercontinental Exchange Inc.’s Dollar Index , which measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 6.38 percent. “The U.S. has such a huge financing need that you wonder what level of the dollar that will require,” said Emanuele Ravano , a managing director in London for Pacific Investment Management Co., which oversees more than $840 billion. “The dollar will need to weaken” to attract investment, he said. Pimco has been calling for a weaker dollar since before credit markets seized up in August 2007. Wagers by hedge funds and other large speculators against the dollar versus eight major currencies rose to 217,367 contracts on Aug. 25, the most since July 2008, figures from the Washington-based Commodity Futures Trading Commission show. As recently as April, traders were betting the dollar would gain. The Dollar Index fell at the start of the credit-market seizure two years ago, dropping 13 percent to a record low in April, 2008. It rebounded 25 percent by March as the collapse of Lehman Brothers Holdings Inc., the bailout of American International Group Inc. and the forced sale of Merrill Lynch & Co. sparked concern the global financial system was close to collapse, driving traders to the perceived safety of the U.S. currency and government debt. Pulling Back The index has since retreated 14 percent and closed Sept. 4 at 78.136 as financial markets stabilized and the Standard & Poor’s 500 Index surged 49 percent in the biggest rally since the 1930s. It’s down 3.9 percent this year. The dollar was little changed versus the euro last week, weakening 0.05 percent to $1.4297, while depreciating 0.63 percent against the yen to 93.01. Concerns about the dollar’s performance are overblown, said Christoph Kind , who manages $20 billion as head of asset allocation in Frankfurt at Frankfurt-Trust Investment GmbH. Savings Rate Increased savings will make the U.S. less dependent on foreign capital, he said. Americans saved 6 percent of their incomes in May, the highest level since 1998 and up from zero in April 2008. The rate fell to 4.2 percent in July, in line with the average over the past 20 years. “The U.S. is not going back to the old model of growth,” where Americans used borrowed money to buy foreign goods, said Kind. “The new growth model will be more export-led. From that point, the narrowing in the current-account deficit will begin, which is positive for the dollar.” King is “overweight” the dollar, meaning he owns a greater percentage of assets denominated in the currency than is contained in benchmark indexes. The median estimate of 33 strategists surveyed by Bloomberg is for the greenback to end 2010 at $1.40 per euro. Bond yields may also help the dollar. The 10-year U.S. Treasury note yielded an average 3.34 percentage points more than the Fed’s target rate for overnight loans between banks during the last three months. Whenever the gap approaches 4 percentage points, U.S. debt becomes “hugely” attractive to foreign investors, according to Alan Ruskin , head of currency strategy at RBS Securities Inc. in Stamford, Connecticut. Dollar and Spreads The Dollar Index gained 6.56 percent in 2001 as the spread reached about 3.65 percentage points. The 10-year yield will rise to 4.39 percent by the end of 2010, as the Fed’s target rate for overnight loans between banks increases to 1 percent, according to the median estimate of more than 45 economists and strategists surveyed by Bloomberg. “The combination of a large public sector deficit that pushes up market-determined real and nominal yields, with a relatively small external financing need, may well be associated with a reasonably strong currency,” Ruskin wrote in a research note to clients on Aug. 19. Harvard’s Rogoff and Maurice Obstfeld , a professor at the University of California Berkeley, predicted in November 2005 that the dollar would need to depreciate as much as 30 percent on a trade-weighted basis to close a current-account deficit totaling 6 percent of GDP. The Dollar Index is down about 15 percent since then. Emerging Markets Benefit Now, Rogoff says the dollar will decline against emerging market currencies by about 2 percent each year for the next 10 years as the developing world economies account for a larger share of global growth. To keep the dollar from depreciating, the U.S. current-account deficit should be no larger than 2 percent or 2.5 percent of GDP, he said. As Obama pushed the nation’s marketable debt to $6.78 trillion, the country became more reliant on foreign funding. Almost 50 percent of the debt is held outside the country, up from 35 percent in 2000, U.S. figures show. International investors have reduced purchases of long-term U.S. assets in recent months, according to the Treasury Department. Net inflows into Treasuries and stocks fell to $82.8 billion in the second quarter from $235 billion a year earlier, a 65 percent decline. The need for foreign investors may only increase in the final four months of 2009. After purchases by the Fed, the net supply of long-term U.S. government and agency debt has been about $50 billion a month this year, Dean Maki , head of U.S. economics research at Barclays Capital in New York, wrote in a Sept. 4 report. As the Fed slows its so-called quantitative easing program, net supply may reach $200 billion by year-end, he wrote. “In the broadest sense, the dollar tends to prosper when a unique U.S. asset attracts foreign buyers,” such as high real yields in the early 1980s and the Internet boom in early 2000s, Steven Englander , the chief currency strategist at Barclays, wrote in a research note on Aug. 27. “There is no asset class in which U.S. assets have a clear performance advantage” To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net ; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net .

Read the full article →

Ford Seeks More Europe `Clunkers’ Cash to Shun Sales Decline, Fleming Says

August 27, 2009

By Chris Reiter Aug. 27 (Bloomberg) — Ford Motor Co. is lobbying European governments to extend consumer sales incentives to avoid a new market collapse when the programs end, according to the U.S. automaker’s top executive in the region. Ford and the European Automobile Manufacturers’ Association trade group are “asking governments if they would be prepared to maintain scrappage or at the minimum do a slow phase-out,” John Fleming , Ford of Europe’s chief executive officer, said yesterday in an interview at the division’s headquarters in Cologne, Germany. European car sales rose in June for the first time in 14 months after governments offered incentives to help lift the industry out of its worst crisis since World War II. Dearborn, Michigan-based Ford estimates that Germany’s 5 billion-euro ($7.1 billion) scrapping program, one of Europe’s most successful, will run out of money next month. The end of support for drivers to trade in old cars for new models “is going to take us back down to much lower numbers,” because the economy probably hasn’t sufficiently recovered, Fleming said. Next year will probably be “difficult,” he added. The U.S. government’s “cash for clunkers” trade-in program, which offered discounts of as much as $4,500, produced almost 700,000 automobile sales, the Transportation Department said yesterday. The initiative helped restore demand for the slumping auto industry, prompting Ford, General Motors Co. and Chrysler Group LLC to boost production plans in the second half of this year. Operating Profit Ford posted a second-quarter operating profit of $138 million in Europe, compared with a $550 million loss in the first quarter, as it slashed vehicle inventories by 30 percent. The automaker, which has renewed its entire lineup since 2006, increased market share in the first half to 8.9 percent from 8.4 percent, making it the second-largest brand in the region after Volkswagen AG , according to data compiled by Brussels- based ACEA. Ford has reduced production by about 25 percent by cutting about 3,000 temporary employees, canceling shifts and decreasing work hours. If the market continues to fall, it may be more difficult for the company to react, Fleming said. “We probably don’t have as much flexibility as we had,” he said. “If we need to take another significant step, it will have a more dramatic effect on people.” Ford is reluctant to reduce the workforce, Fleming said, because the carmaker doesn’t want to impair its ability to respond to a recovery. Volvo Sale “At some point, this industry will come back,” said Fleming. “What we’re not sure of exactly is when.” Ford, which put its Volvo Cars unit up for sale in December, has no plan to keep a stake in the division and is aiming to sell the Swedish automaker by the end of the year, the executive said. Maintaining a holding in Volvo is “just not something that’s even being considered,” Fleming said. Ford has been unwinding integration with Volvo for more than a year and is in talks with “a number of parties” about a sale, he said, declining to identify them. Ford is seeking about $2 billion for Gothenburg, Sweden-based Volvo, less than a third of what it paid a decade ago, people with knowledge of the sale said in May. Chinese automakers Geely Holding Group Co. and Beijing Automotive Industry Holding Co. are among possible bidders, people familiar with the talks have said. The slump in global auto markets “isn’t putting pressure on us from a timing perspective,” said Fleming. “We’re looking to close it in the last quarter of this year, but that’s very loose.” Saab, Opel Volvo’s European auto sales fell 14 percent in June from a year earlier, resulting in a market share in Europe of 1.4 percent, according to ACEA. In the U.S., Volvo had 0.6 percent of the auto market in July. General Motors is also divesting divisions in Europe. The automaker has agreed to sell Saab Automobile to Koenigsegg Automotive AB, the Swedish maker of $1.2 million sports cars, and is considering bids for Opel including an offer that would have GM retain 35 percent ownership. To contact the reporter on this story: Chris Reiter in Cologne, Germany at creiter2@bloomberg.net .

Read the full article →

← Previous Entries

Next Entries →