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BL: Rice Slumps by Limit as Cambodia Lifts Ban on Overseas Sales
By Jae Hur and Luzi Ann Javier
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May 27 (Bloomberg) -- Rice futures tumbled by their daily limit for a second straight session as producers lifted or eased export bans, alleviating concerns that global supplies may not meet demand.
Cambodia will lift a ban on exports as the country has enough supplies to meet domestic demand, the Financial Times reported today, citing Prime Minister Hun Sen. Vietnam and India said earlier this month they may ease export curbs.
The staple for half the world, which reached a record $25.07 on the Chicago Board of Trade on April 24, fell as much 50 cents. The record prices, including palm oil and wheat, have stoked concern about shortages and caused riots from Haiti to Egypt.
``The Cambodian news has dampened market sentiment,'' Takaki Shigemoto, an analyst with Tokyo-based commodity broker Okachi & Co., said by phone today. ``With major producers in Southeast Asia braced for harvesting bumper crops in the next couple of months, the global market see more supplies.''
Rough rice for July delivery fell as much as 2.5 percent to $19.85 per 100 pounds, and traded at that level at 11:18 a.m. Singapore time. The price is still 88 percent higher than a year ago. The Chicago market, which fell 50 cents on May 23, was closed yesterday for a public holiday.
Cambodia has more than 1 million tons of rice available for sale overseas, the Financial Times said, citing the Cambodian premier. The ban on shipments of the crop overseas was put in place in March, the report said.
Global Forecast
Global output of milled rice in 2008 will be 445.3 million tons, up 2.3 percent from last year's record 435.2 million tons, the Food and Agriculture Organization of the United Nations said on May 22. Consumption will rise 2.4 percent, the agency said.
The Philippines, the world's largest rice importer, has failed this year, to fill state tenders for the grain, driving prices higher last month. The country imports about 2 million tons a year to plug a supply deficit.
A Philippine food company was the sole buyer today at a rice tender for private companies in Manila, the National Food Authority said. Uni-Agro Native Products Inc. was seeking 500 tons out of the total 141,440 tons of tariff-free imports on offer, Assistant Administrator Conrad Ibanez told reporters.
The Philippines may hold another government rice tender in December to make sure stockpiles in state-owned warehouses will not drop below the equivalent of 15 days' of consumption, Ibanez said. The Philippines consumes about 33,000 tons of rice a day.
`Soften Prices'
Cambodia's lifting of the nation's export ban ``will soften prices,'' Ibanez said. ``We'll import if September harvests are lower than last year.''
Vietnam, the world's second-largest rice exporter, said on May 21 that a ban on new overseas shipments may be lifted from July and the harvest in the north of the country is ``much better'' than previously expected.
Pakistan, the fifth-biggest exporter, will permit shipments of 1 million tons because local needs have been met, Mohammad Azhar Akhtar, chairman of the Rice Exporters Association of Pakistan, said on May 16.
Japan is in talks with the Philippines, the world's largest rice importer, about shipments from Japan's stockpiles of overseas rice, according to a government official, who declined to be identified in remarks reported May 12.
India, the world's second-biggest rice producer after China, may partly ease a ban on rice exports as the country is set to harvest a bumper crop, Commerce Secretary G.K. Pillai told reporters on May 9. Output in the year ending June may reach a record 95.68 million tons, the farm ministry said April 22. That compares with 93.35 million tons produced a year earlier.
To contact the reporters for this story: Jae Hur in Singapore at jhur1@bloomberg.net; Luzi Ann Javier in Manila ljavier@bloomberg.net
Last Updated: May 27, 2008 00:55 EDT
BL: Sun Hung Kai Chairman Walter Kwok Replaced by Mother (Update1)
By Kelvin Wong
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May 27 (Bloomberg) -- Sun Hung Kai Properties Ltd., Hong Kong's biggest developer, replaced Chairman Walter Kwok with his mother, seeking to end a family feud that has gripped the city.
``Walter has ceased to be the chairman and chief executive of the company and has been re-designated as a non-executive director'' today, the company said in a filing to Hong Kong's stock exchange. Kwong Siu-hing, 79, was appointed chairman, the company said. No chief executive officer was named.
Walter Kwok is battling with brothers Thomas and Raymond, whose combined wealth of $24 billion placed them second on Forbes Magazine's list of Hong Kong's richest. The court case has aired squabbles over the running of the family-controlled company, making headlines in the city's newspapers.
Sun Hung Kai, co-founded by the Kwoks' father Kwok Tak Sin, has dropped 7 percent on the Hong Kong stock exchange since Walter filed the injunction, wiping off more than $4 billion in market value.
``Investors were obviously concerned about who's going to be in charge,'' Wilson Hung, an analyst at Hong Kong-based brokerage Quam Ltd., said before today's announcement. ``They were worried that if this keeps dragging on it will ultimately impact the company's business.''
Listed on the Hong Kong stock exchange in 1972, Sun Hung Kai rode a three-decade surge in home prices to become the city's biggest developer. Since Walter Kwok took over the chairmanship in 1990 the company's market value has ballooned and the company now employs more than 27,000 people, according to its Web site.
Walter Kwok, 57, said in a court filing that his brothers tried to remove him because he was suffering from mental illness. He said he doesn't have any such disorder.
He has been on leave for personal reasons since Feb. 18.
Sun Hung Kai shares rose 1.3 percent to HK$127.30 at the 12:30 p.m. trading break in Hong Kong, before Kwok's departure as chairman was announced.
To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net
Last Updated: May 27, 2008 02:15 EDT
BL: Libor Cracks Widen as Bankers Struggle With Reforms (Update1)
By Gavin Finch and Ben Livesey
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May 27 (Bloomberg) -- Few companies have suffered from the subprime mortgage collapse more than UBS AG, which has taken $38 billion of writedowns and losses, replaced its chief executive officer and chairman and saw its stock tumble 60 percent.
Yet on 85 percent of the days between July and mid-April, the Zurich-based bank told the British Bankers' Association that it could borrow in the money markets at lower interest rates than its rivals. Not even the U.K.'s Lloyds TSB Group Plc, which only wrote down $1.4 billion, could obtain the rates UBS said it was able to get, according to data compiled by Bloomberg.
``Even when the market knew UBS was massively exposed and Lloyds wasn't, that was not reflected in Libor,'' said Antony Broadbent, an independent banking consultant and former analyst at Sanford C. Bernstein & Co. in London.
Such discrepancies are creating a crisis of confidence in the London interbank offered rate published daily by the London- based BBA and taken from the contributions of UBS, Lloyds TSB and 14 other banks. Rates on corporate bonds, leveraged buyouts loans, derivatives and even U.S. mortgages are pegged to Libor.
The criticism has prompted the BBA to accelerate a review of the 24-year-old system of setting rates. The findings, due May 30, may determine how fast the banking industry recovers from the credit crisis.
`People Get Hurt'
``You've got to fix Libor,'' said Tim Bond, head of asset allocation strategy in London at Barclays Capital, a unit of Barclays Plc, one of the banks that provide quotes to the BBA. ``You don't ever want to be in a situation like this again, where people can get away with quoting whatever rate they like. Real people get hurt like this.''
Libor is a benchmark for about $350 trillion of debt- related securities and derivatives, according to the Bank for International Settlements in Basel, Switzerland. The rate that San Antonio-based AT&T Inc., the biggest U.S. phone company, pays on $2 billion of notes it sold on March 27 floats at three- month Libor plus 0.45 percentage point.
``Libor is baked into the global financial system,'' analysts at JPMorgan Chase & Co. led by Terry Belton, global head of fixed-income and foreign-exchange research, wrote in a May 16 report. ``The question of whether a benchmark could be designed that is less flawed than Libor is debatable; whether such a benchmark could effectively replace Libor is not.''
Libor Exposed
Every morning the BBA, an unregulated trade group, asks member banks how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. It then calculates averages, throwing out the four highest and lowest quotes, and publishes them at about 11:30 a.m. in London. Three-month dollar Libor was set at 2.65 percent on May 23.
Libor was thrust into the spotlight in August as the subprime-mortgage contagion spread and banks were suddenly wary of lending to each other because of mounting losses that reached $383 billion as of last week, data compiled by Bloomberg show.
Three-month Libor soared to 2.40 percentage points above yields on Treasury bills on Aug. 20, the widest margin since December 1987 and up from 0.39 percentage point a month earlier. The figure was 80 basis points today as of 11:08 a.m. in Tokyo.
The credit crisis exposed Libor's flaws, according to Peter Hahn, a London-based research fellow for Cass Business School and a former managing director at Citigroup Inc. That's because the BBA publishes the names of contributors and their rates, giving lenders an incentive to underestimate borrowing costs to keep from appearing like they are in financial straits.
In the first four months of 2007, the difference between the highest and lowest rates for three-month Libor didn't exceed 0.02 percentage point, according to JPMorgan. In the same period this year, it was as wide as 0.17 percentage point.
Rates a `Lie'
The BIS said in a March report that some lenders may have ``manipulated'' rates. Strategists such as Bond at Barclays went as far as calling the reported rates a ``lie.''
The BBA said on April 16 that any member deliberately understating rates would be banned. The cost of borrowing in dollars for three months rose 0.18 percentage point to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze in August.
Lesley McLeod, a BBA spokeswoman in London, would only say the association's review is ``ongoing'' and a ``robust process.''
Libor would be more reliable if banks offered rates anonymously, removing the stigma of appearing like they are having trouble accessing capital, said Bond at Barclays.
For Brian Yelvington, a strategist at bond research firm CreditSights Inc. in New York, the solution is for the BBA to insist on proof that the rates quoted are based on real transactions. That way, there would be ``no way to hide since it goes from being a poll of sorts to a confirmed trade,'' he said.
More U.S. Banks
The discrepancies wouldn't have been so pronounced if Libor were set at 10 a.m. New York time, making it less skewed toward Europe, JPMorgan wrote May 16. Only three U.S. banks contribute rates to the BBA: Citigroup, Bank of America Corp. and JPMorgan.
Any changes may be little more than cosmetic as a wholesale restructuring would disrupt the global financial system, said Barry Moran, a money-market trader at Bank of Ireland in Dublin.
``But the last thing you want to be doing in the middle of a financial crisis is implementing massive changes in the way the world's benchmark rate is set,'' Moran said.
UBS, the world's biggest wealth manager, and Lloyds TSB, the U.K.'s largest provider of checking accounts, underscore the wide range in rates quoted to the BBA since July.
UBS's three-month offered rate in dollars averaged 1.3 basis points less than Libor from July through April 15. By contrast, Lloyds TSB quoted rates that were 0.04 basis point above Libor on average. A basis point is 0.01 percentage point.
HSBC, RBS
In that period UBS ousted Peter Wuffli, 50, as chief executive officer after subprime-related losses at a hedge fund run by the bank, and Chairman Marcel Ospel, 58, who helped form UBS through a merger a decade ago, stepped down. UBS has slumped to 28.96 Swiss francs in Zurich from last year's high of 77.05 francs on Feb. 9, 2007. Dominik von Arx, a UBS spokesman in London, declined to comment.
HSBC Holdings Plc, Europe's largest bank by market value, gave rates that averaged 1.4 basis points less than Libor. The London-based bank has taken $19.5 billion in writedowns and charges. Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank, submitted rates that averaged 0.9 basis point below Libor. It has reported $15.3 billion in losses and writedowns.
HSBC spokesman Patrick McGuinness in London and RBS spokeswoman Carolyn McAdam in Edinburgh declined to comment.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Ben Livesey in London blivesey@bloomberg.net.
Last Updated: May 26, 2008 22:34 EDT
BL: Auction Failure Damages Face Burden of Proof Eluding Lawyers
By Thom Weidlich
May 27 (Bloomberg) -- Lawyers who sued broker-dealers, including Citigroup Inc. and Morgan Stanley, for steering investors to the now-failing $330 billion market for auction-rate securities may be unable to prove their clients lost money or collect fees for themselves.
At least 24 proposed class actions have been filed since mid-March against brokerages over claims investors were told the securities were almost as liquid as cash. Auctions for the investments, typically municipal and student-loan-backed bonds and preferred shares, have been failing since mid-February, leaving investors unable to sell their securities.
Even so, investors continue to make money, corporate defense lawyers not involved in the cases point out. The interest --reset every 7 to 35 days at bidding managed by the dealers --gets raised to a higher penalty rate, sometimes as much as 20 percent, when auctions fail.
``I don't see how you get around the fact that, for the most part, the investors are doing better,'' said David Gourevitch, a former U.S. Securities and Exchange Commission lawyer now practicing in New York who isn't involved in the lawsuits.
The existence of the penalty reset rate proves investors knew the auctions might fail, said Daniel J. Tyukody, a partner at Orrick, Herrington & Sutcliffe in Los Angeles who isn't involved in the cases.
The investors' lawyers argue that clients were damaged because they couldn't use their money for other purposes.
John Coffee, a Columbia University securities law professor, said there are ``some problems'' with that claim. ``I don't know that you can easily measure the loss of liquidity,'' he said.
Lost Opportunities
Stephen N. Joffe, former chief executive officer of vision- correction company LCA-Vision Inc., says he can measure it -- in the problems it caused for the foundation he started to fund laser surgery for low income people and AIDs prevention. Last February, he learned from his UBS AG broker that $1.35 million that his charity had invested in auction-rate securities wasn't liquid and wouldn't be available for grants.
``I was pretty angry and upset,'' the 65-year-old Cincinnati ophthalmologist said. New York lawyer Jacob H. Zamansky representing Joffe said arbitration was more appropriate for the doctor because class actions take years.
Arguing investors lost chances to use their money might create an obstacle to winning class-action status. Each missing opportunity might present unique facts, while a class action, which would give investors settlement leverage and keep costs down, requires similar loss situations.
``If it's a lost opportunity, then it's an individual set of facts,'' Tyukody said.
Arbitration Preference
Zamansky, who has filed ``six or seven'' arbitration claims over auction-rate securities, also sees the hurdle.
``I don't think the class actions will succeed,'' he said. ``From the 50 or 60 investors I've spoken to, there are too many individual issues.''
UBS spokeswoman Karina Byrne said the bank wouldn't comment on the suits or arbitrations. ``We are working with clients, on a case-by-case basis, to address immediate liquidity needs, offering such solutions as loans of up to 100 percent of the par value of their auction rate securities holdings at preferred lending rates,'' she said in an e-mail.
Citigroup was sued in at least three cases and Morgan Stanley in two in New York federal court. Alex Samuelson, a spokesman for Citigroup didn't return a call for comment. When the first suits were filed, he said they were without merit. Morgan Stanley denies the claims and auction-rate ``challenges'' result from market conditions, said spokeswoman Christine Pollak.
Legal Gamble
Filing suits is a gamble for the plaintiffs' lawyers, who get paid only if they secure settlements or win damages at a trial. In the meantime, they have to spend time and money on the litigation. Such expenses can run into the millions.
William Lerach, former lead counsel for Enron Corp. investors, said in 2002 that his firm spent $3 million in expenses and $5 million in lawyer time before it secured its first settlement -- $40 million on a fraud claim. Eventually the firm won $7.2 billion in settlements. It is seeking $688 million in fees.
``We do not bring cases unless we think there is a very good basis,'' said Jerome Congress, a partner with Milberg LLP, a New York firm that filed a class action against Citigroup. Milberg was Lerach's firm when he filed the Enron suit.
Lawyers who have decided to take cases include Stephen A. Weiss of New York-based Seeger Weiss, who estimated damages are ``in the many billions of dollars.'' Weiss represents clients in 12 of the class actions.
Lower Return
Weiss said the investors received a lower return on their investment than they would have from fixed-rate bonds for the easier ability to sell them. Given the auctions' failures, the bonds should have paid a higher rate, he said.
Faced with the high penalty-rate interest, some issuers are buying back auction-rate securities. Municipal borrowers have refinanced, converted or indicated they will redeem at least $68 billion of auction bonds by July 7, according to data compiled by Bloomberg.
Some investors such as Bristol-Myers Squib Co. have written down auction-rate investments as required by U.S. accounting rules that could also enable them to reset the value higher if market conditions improve. Companies such as Google Inc. have written down more than $1.8 billion since the market collapse.
The Citigroup cases include LHB Insurance v. Citigroup, 08- cv-3095, and Swanson v. Citigroup, 08-cv-3139, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.
Last Updated: May 27, 2008 00:01 EDT
BL: Trichet's Inflation Aim Proves `Fiction' After Decade (Update1)
By Simon Kennedy
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May 27 (Bloomberg) -- Jean-Claude Trichet's European Central Bank hasn't had much success hitting its inflation target. The fault may lie with the goal itself.
``The ECB's keeping up a fiction,'' says Joachim Fels, co- chief economist at Morgan Stanley in London. ``The trade-off between growth and inflation has really changed. They should be as open as possible by adjusting the target.''
The Frankfurt-based central bank, marking its 10th anniversary June 1, has failed in each of the last eight years to achieve its aim of bringing inflation below 2 percent. The goal may become even more elusive as fast-growing eastern European countries adopt the euro and push up costs within the region at the same time it faces price jolts from emerging markets in Asia.
That forces an unpleasant choice on President Trichet and his colleagues: They can keep striving to force inflation lower by holding interest rates higher, at the cost of crippling faltering economies such as Italy's. Or they can yield to demands to set an easier target -- something Trichet says he won't consider ``for one second'' -- and risk letting inflation erode stronger economies such as Germany's.
Sticking with the current number may result in ``a pyrrhic victory by pushing inflation within target but having destroyed the real economy,'' says Thomas Mayer, chief European economist at Deutsche Bank AG in London.
Trichet's Defense
Trichet, 65, recently stepped up defense of his goal, arguing May 8 that a revision would ``unanchor'' inflation expectations. He maintains that investors ``have not lost faith'' in the ECB's ability to deliver price stability and that only temporary ``shocks'' have caused its ceiling to be breached. Support for his view came this month as an ECB survey of private forecasters showed they expect long-term inflation to slow to 1.9 percent.
The short term is a different story. Prices rose at an annual rate of 3.6 percent in March, the fastest pace in almost 16 years, and Barclay's Capital and Societe Generale SA say inflation has yet to peak.
Even the ECB's own economists, who have underestimated inflation every year since 2001, are predicting prices will rise at a 2.9 percent rate this year, the biggest increase since 1993. The outlook is forcing the ECB to hold its key interest rate at a six-year high of 4 percent, even as growth slows.
Investors' inflation expectations, as measured by French inflation-indexed 10-year bonds, rose as high as 2.38 percent last week from 2.07 percent in February.
Bernanke's Goal
Containing those expectations is one of the reasons for establishing a numerical inflation target, a strategy the Reserve Bank of New Zealand pioneered in 1990 and Ben S. Bernanke embraced as a goal before he became Federal Reserve chairman in 2006.
Bernanke, 54, and other supporters say that by setting a specific target, rather than simply pledging to hold inflation down, central banks can keep expectations of future inflation under control and provide more clarity about the direction of interest rates.
The ECB's governing council, which decided to establish a target during its first year of existence, isn't alone in shooting wide of its mark. Fels estimates that of the 24 major central banks with official targets, about 80 percent are missing them, including those in the U.K., New Zealand, India and Mexico.
Faced with opposition in Congress and the need to fight the credit crisis, Bernanke has been forced to scratch an explicit target off his ``to-do'' list, says David M. Jones, a former Fed economist who has written several books on the central bank.
`Given Up'
``Bernanke came into office determined to establish an official inflation target at the Fed, but he's completely given up on the idea,'' Jones says.
Nobel laureate economist Joseph Stiglitz dismisses targets as ``a fad.'' Central banks that cling to them are courting ``disaster,'' he said in a May 21 interview with Australian Broadcasting Corp. ``Countries that follow inflation-targeting are likely to get themselves into trouble.''
The ECB's efforts are being thrown off by forces over which it has little control. Manufacturers in emerging markets such as China are raising the prices of goods they export, while growing international demand is driving up costs of oil, metals, grains and other commodities.
European food prices rose 6 percent in April from a year ago, while energy costs jumped 10.8 percent. German import-price growth held close to its fastest pace in more than 1 1/2 years in March.
`Inflationary Pressures'
``Globalization might be a major driver of inflationary pressures,'' Bundesbank President Axel Weber said in a speech May 22.
Another inflationary force is right next door as poorer, faster-growing nations in eastern Europe begin to adopt the euro and their prices rise to catch up with those of the 15 current euro zone nations. Greg Fuzesi, an economist at JPMorgan Chase & Co. in London, says this will put ``significant upward pressure'' on the inflation rate for the entire euro area, adding as much as 0.3 percentage point a year.
The ECB's adherence to a target is already accentuating tensions as individual economies within the euro area diverge.
During the first quarter, Portugal's economy contracted, and Spain's growth was the slowest since the third quarter of 1995; Italy's economy grew at a year-over-year rate of just 0.2 percent in the first quarter. Meanwhile, expansion in Germany, Europe's largest economy, is the fastest in 12 years. Inflation in the region ranges from 1.7 percent in the Netherlands to 6.2 percent in Slovenia.
`Contentious' Choice
``Germany doesn't want inflation, and the weak countries don't want deflation,'' says Bernard Connolly, chief global strategist at American International Group's Banque AIG unit in London. ``The choice between the two alternatives is likely to prove contentious.''
The current inflation target is a relic of the past, when globalization and technology-enhanced productivity gains helped keep a lid on prices, says Charles Wyplosz, director of the International Centre for Monetary and Banking Studies in Geneva.
``The ECB was too ambitious and miserably failed its own criteria,'' Wyplosz says. ``They are losing credibility and will continue to do so until they change.''
Alternatives to the status quo include raising the target to 2.5 percent, as Morgan Stanley's Fels suggests, or emulating the Fed by focusing more on core prices, which exclude food and energy costs. French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi have also urged the ECB to follow the Fed by giving more weight to fostering growth.
The ECB may already pursue a more ``pragmatic approach'' than its mandate implies, says James Nixon, an economist at Societe Generale. Even with inflation accelerating, the global credit squeeze's threat to growth prompted the bank to shelve a planned rate increase last September.
Precedent for Change
In 2003, the ECB's governing council modified its inflation goal, providing some precedent for change. Before then, the bank targeted an inflation rate between zero and 2 percent. Now, it aims to have prices rise less than, but close to, an annual rate of 2 percent in the medium term.
If the ECB sticks with that mark, it may have no choice but to keep interest rates elevated as inflation proves more persistent. Gilles Moec, London-based senior economist at Bank of America Corp., estimates the ECB will tend to maintain its key rate about a percentage point above the 3.06 percent average since 1998.
``The ECB will have to be even more tough,'' says Lex Hoogduin, who advised former ECB President Wim Duisenberg and is now chief economist at Rotterdam-based Robeco NV. ``Keeping inflation on target will be more difficult than in the last 10 years.''
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
Last Updated: May 27, 2008 02:26 EDT
Thanks for that, it was a good read. I finally had time this weekend to read most of the articles you posted (only the ones posted during the weekend, not during the week)...I've been missing a lot.
I can...but let's see if I can get anything to grow first, lol.
The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices.
Wait...what?
Households will spend about $90 billion more this year on gasoline if fuel prices remain at current levels, according to a forecast by economists at Credit Suisse Holdings in New York. That will consume about 80 percent of the more than $110 billion in rebate checks the government is sending out.
80% on gas alone, not counting higher food prices. Great way to stimulate the economy.
The report's inflation figures may show prices outside of food and fuel remain tame. A gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, increased 0.1 percent in April after a 0.2 percent gain the prior month, the survey showed.
Good plan, it's not like food and fuel prices are important or anything. We won't be able to eat or drive to work, but otherwise we'll be OK!
Thanks for your insight on those two, keeping them on watch this week.
BL: Spending Probably Slowed, Confidence Sank: U.S. Economy Preview
By Courtney Schlisserman
May 25 (Bloomberg) -- The pace of consumer spending in the U.S. probably slowed as property values and confidence sank, economists said before reports this week.
Purchases were up 0.2 percent in April after increasing 0.4 percent the prior month, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department's May 30 report. Other figures may show home prices declined at a faster rate and consumers were the most pessimistic in at least 15 years.
The tax-rebate checks being sent by the government will only provide a temporary boost to spending as smaller wage gains, declining home equity and soaring fuel costs keep eroding Americans' buying power. Another report is projected to show that companies are also retrenching.
``We continue to expect sluggish growth through next year as the economy battles several shocks,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``Falling home prices, along with tight credit, rising energy prices and a weaker labor market should curb consumer spending.''
Households will spend about $90 billion more this year on gasoline if fuel prices remain at current levels, according to a forecast by economists at Credit Suisse Holdings in New York. That will consume about 80 percent of the more than $110 billion in rebate checks the government is sending out.
Incomes rose 0.2 percent in April, the smallest gain in six months, the Commerce data on spending may also show.
Ex-Food, Fuel
The report's inflation figures may show prices outside of food and fuel remain tame. A gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, increased 0.1 percent in April after a 0.2 percent gain the prior month, the survey showed.
``Costs are rising faster than we've seen in more than a dozen years,'' McDonald's Corp. Chief Operating Officer Ralph Alvarez told reporters May 22. ``In today's environment, we believe strongly that you cannot pass on all your costs.''
Still, the jump in fuel expenses is one reason consumers are becoming more pessimistic. The Conference Board's confidence measure fell to 60 this month, the lowest reading since August 1993, according to the survey median. A similar index from Reuters/University of Michigan, to be released May 30, may have decreased to the lowest level since June 1980.
Fed Forecasts
Federal Reserve officials last month projected the economy would grow about a percentage point less this year then they anticipated in January, according to minutes of their April meeting released last week. They also estimated a higher rate of inflation than previously thought.
Officials expected ``much weaker'' growth in 2008 than last year, ``owing primarily to a continued contraction of housing activity, a reduction in the availability of household and business credit and rising energy prices,'' the minutes said.
A glut of unsold properties is pushing prices lower. The S&P/Case-Shiller home-price index, scheduled for release May 27, may show prices in 20 U.S. metropolitan areas fell 14.2 percent in March from a year earlier. The decrease would be the biggest since the group started keeping year-over-year records in 2001.
Commerce's report on sales of new houses, due the same day, may show purchases fell to an almost 17-year low pace of 520,000 in April.
Home Sales
Sales of new homes are viewed as a leading indicator of the market because they are tabulated when a contract is signed. Existing-home sales reflect contract closings, which typically come a month or two later.
Growth in the first three months of the year may have been better than first estimated even as the economic outlook dims. The economy expanded at a 0.9 percent annual pace in the first quarter, up from the Commerce Department's 0.6 percent estimate issued last month, according to the survey median.
The improvement reflected a bigger narrowing of the trade deficit than initially projected. The government's update is due May 29.
``All told, the news will be one that shows an economy growing sluggishly, but not contracting,'' said Jonathan Basile, an economist at Credit Suisse. ``Exports have been a positive force for growth, but there's been a lot of drag coming from housing and now it looks like consumer spending and business spending is slowing.''
Orders for durable goods fell 1.5 percent in April, the third decline in four months, economists project figures from Commerce on May 28 may show. The drop signals that slowing demand and rising costs are prompting a pullback in business investment and manufacturing.
Ford Motor Co. on May 22 abandoned its target of turning a profit next year and said it is cutting North American vehicle production for the rest of 2008. U.S. sales at the company fell 9.8 percent this year through April and the outlook worsened in the first half of May, Chief Executive Officer Alan Mulally told analysts and investors.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Case Shiller Quarterly 5/27 1Q -8.9% -12.5%
Case Shiller Monthly YO 5/27 March -12.7% -14.2%
Consumer Conf Index 5/27 May 62.3 60.0
New Home Sales ,000's 5/27 April 526 520
New Home Sales MOM% 5/27 April -8.5% -1.1%
Durables Orders MOM% 5/28 April -0.3% -1.5%
Durables Ex-Trans MOM% 5/28 April 0.9% -0.5%
GDP Annual QOQ% 5/29 2Q P 0.6% 0.9%
Initial Claims ,000's 5/29 25-May 365 370
Cont. Claims ,000's 5/29 18-May 3073 3080
Pers Inc MOM% 5/30 April 0.3% 0.2%
Pers Spend MOM% 5/30 April 0.4% 0.2%
Core PCE Prices MOM% 5/30 April 0.2% 0.1%
Core PCE Prices YOY% 5/30 April 2.1% 2.1%
Chicago PM Index 5/30 May 48.3 48.5
U of Mich Conf. Index 5/30 May F 59.5 59.5
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To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
Last Updated: May 25, 2008 08:30 EDT
BL: World Bank to Raise $5.5 Billion for Climate Funds (Update2)
By Yuji Okada and Shigeru Sato
May 25 (Bloomberg) -- The World Bank will raise at least $5.5 billion with the U.S., U.K. and Japan this year for climate change funds that will help poor nations use clean technology and tackle global warming, its vice president said.
The bank will agree to set up the funds at its July board meeting and raise the money by autumn, Katherine Sierra said in an interview in the Japanese city of Kobe today where she is attending a meeting of the Group of Eight environment ministers.
``We are hoping that initially the clean technology fund may begin with $5 billion and the other one may be $500 million for climate resilience,'' Sierra said. A further announcement may be made at the G-8 summit in July, she said.
The three-day meeting in Kobe, a prelude to the summit in Japan's northern island of Hokkaido, is part of efforts to develop a successor to the Kyoto Protocol on global warming which expires in 2012. Japan wants the focus of the G-8 summit to be crafting a new accord.
Raising the global funds ``clearly is the important first step, but it isn't enough,'' said Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change. ``This is an initial initiative for the short term with a very clear indication that those funds will stop functioning in 2012 when a new climate-change regime comes into place.''
Australia, Brazil, China, India, Indonesia, Mexico, South Korea, South Africa and Antigua and Barbuda are also taking part in the Kobe meeting.
Multilateral Funds
The bank announced on May 23 that representatives of 40 developing and industrialized countries had agreed to create the two international investment funds. They will provide financing for developing countries to utilize clean technologies and for mitigating the impact of climate change.
``Furthering assistance to developing countries, Japan established the Cool Earth Partnership, pledging financial support amounting to the scale of $10 billion over the next five years,'' Environment Minister Ichiro Kamoshita said today in Kobe. ``Japan, together with the U.S. and the U.K., is soliciting other donors to join in establishing an additional multilateral fund.''
The bank and the three nations want to raise a total of $10 billion over three years. Daniel Price, an adviser on international economic affairs to President George W. Bush, said in March that $10 billion is not enough to meet the costs of developing new technology.
Yesterday, Kamoshita and U.S. Environment Protection Agency Administrator Stephen Johnson agreed to call on other G- 8 nations to back the funds.
The 1997 Kyoto Protocol requires its 37 signatory nations to cut emissions by a combined 5.2 percent from 1990 levels by 2012. China and the U.S., the two biggest emitters, aren't subject to any emissions targets. The U.S. rejected Kyoto as being unfair because it set no emission cuts for developing nations.
``Government assistance has its limitations,'' Kamoshita said. ``In order to upscale climate change actions in developing countries, private investments are indispensable.''
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Kobe City, Japan at yokada6@bloomberg.net.
Last Updated: May 25, 2008 06:05 EDT
BL: Japan Cross-Shareholdings Send Investor Losses to $3.2 Billion
By Patrick Rial
May 26 (Bloomberg) -- Japanese companies cost stockholders $3.2 billion with money-losing investments in each other's shares last fiscal year, according to Nomura Holdings Inc.
This year, 130 companies posted securities losses, up from 13 in the same period of 2007, after the Topix index fell 29 percent in the 12 months ended March 31, according to Tokyo Stock Exchange filings. Mitsui & Co., Japan's second-largest trading company, lost $354 million on stockholdings and missed its profit forecast. Mobile phone retailer Hikari Tsushin lost $220 million from a slump in its stake in consumer lender SFCG Co.
Cross-shareholding, which started in the 19th century with the zaibatsu holding groups, are used these days to cement strategic relationships and defend against hostile takeovers, according to Kengo Nishiyama, a strategist at Nomura in Tokyo who compiled the losses.
``Companies involved in long-term cross shareholdings are taking body blows,'' said Taku Yamamoto, who helps oversee about $107 billion in assets at the Pension Fund Association in Tokyo. ``We'd like companies to explain their intentions regarding cross holdings, and if there aren't any clear merits then we don't want such moves.''
Last fiscal year, 273 of the 1,722 companies on the first section of the Tokyo exchange fell more than 50 percent, and 947 stocks dropped by 30 percent or more, according to data compiled by Bloomberg. The Topix lost 12 percent in 2007 after four years of gains and is down 6.7 percent this year.
`Dark Ages'
Japanese companies are required by regulators to report losses when the shares they've bought drop by 50 percent from the average purchase price, or if they fall by 30 percent and the company holding the stock forecasts prices won't recover.
``Cross shareholding writedowns do hit the bottom line, so it's not something to be ignored,'' said John Vail, who helps oversee about $8.4 billion as head of global strategy at Nikko Asset Management Co. ``That's a trend that we thought was behind us, but there are a few companies in Japan that are looking back to the dark ages.''
Companies typically buy stock of one another on the open market or through new share issues, with an implied agreement not to use voting rights to oppose management.
Zaibatsu such as Mitsubishi, Mitsui and Sumitomo developed Japan's economy with subsidiary companies in the group owning stakes in each other while a bank stood at the center to provide financing.
Mitsui, which imports food and clothing and trades commodities, started acquiring a stake in Seven & I Holdings Co. in 2005 and now owns 1.7 percent of Japan's largest retailer, according to company filings. Tokyo-based Seven & I fell 23 percent in the last fiscal year.
Signal to Sell
Mitsui fell as much as 3.1 percent on May 2 after announcing full year earnings, including the loss on stocks. The Tokyo-based company missed its net income forecast by about 10 billion yen ($96 million) for the year.
Investors often take cross-shareholding announcements as a signal to sell the stock, Nomura's Nishiyama said. Yokohama Rubber Co. dropped 4.5 percent when Zeon Corp., a maker of synthetic rubber, said in February it raised its stake in the company.
``The irony is that companies do cross holdings to prevent takeovers, but as that can cause their stock prices to fall, it may make a buyout attempt more likely,'' Nishiyama said.
Tokyo-based Hikari Tsushin Inc. reported a loss March 31 on its 13 percent stake in SFCG, which tumbled 49 percent last fiscal year and lost as much as 90 percent of its value from a record high set in 1999. Hikari fell 4.5 percent the next day.
Sky Perfect JSAT Corp., a satellite television provider 6.1 percent-owned by Nippon Television Network Corp., with headquarters in Tokyo, slumped 40 percent between its listing in April 2007 and March 31. Nippon Television said on March 24 the company intended to write down its stake in the satellite television provider, helping send Nippon shares 1.8 percent lower the following day.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
Last Updated: May 25, 2008 11:01 EDT
BL: Vitec Group Sales Shift Snares Gates Foundation as Shareholder
By Kari Lundgren
May 25 (Bloomberg) -- Bill Gates's $37 billion foundation is buying shares of Vitec Group Plc, the U.K. broadcast-equipment maker helping NBC cover the Beijing Olympics, as the century-old company transforms itself from a tripod vendor to a one-stop shop for TV studios.
Four of Vitec's six biggest shareholders reported buying in February and March filings. The Microsoft Corp. founder and wife Melinda's foundation added 122,200 shares for a 2.1 percent stake, according to a regulatory filing.
The shares, down 18 percent since October, are ``significantly undervalued,'' said David Herro, who manages the $1 billion Oakmark International Small Cap Fund at Harris Associates LP in Chicago.
Nine acquisitions in three years expanded the Kingston upon Thames, England-based company's offerings to include wireless links for covering outdoor events and mini-studios that can be shipped by air. Sales growth may reach 10 percent a year even after a contract with Sprint Nextel Corp., the U.S. mobile-phone company, runs out in 2009, Chief Executive Officer Gareth Rhys Williams said in an interview.
``They have some structural wind at their back,'' said Herro.
Harris is Vitec's biggest investor with a 12.5 percent stake, according to regulatory filings, including the shares it bought on behalf of the Seattle-based Bill & Melinda Gates Foundation. ``As broadcasters switch to high definition, it has meant growth for the ancillary products such as support and lighting,'' Herro said.
Disk Recorders
Vitec trades at 9.8 times estimated 2008 earnings per share, 42 percent cheaper than Ougree, Belgium-based EVS Broadcast Equipment SA, the largest supplier of disk recorders for live broadcasts. Vitec, which closed at 500 pence in London trading May 23, may rise 37 percent to 685 pence, Arbuthnot Securities analyst Michael Blogg estimates.
Seven out of nine analysts in a Bloomberg survey say to buy the shares, one recommends holding and one says to sell.
Vitec's equipment ranges from robotic camera pedestals to wireless teleprompters and lighting. ITN News, a unit of ITV Plc, the U.K.'s largest commercial broadcaster, uses Vitec's robotic broadcast systems in its London studios, as well as the company's batteries to power outdoor broadcasts.
As broadcasters, including CNN and Fox News, switch to high- definition programming, they must upgrade to tripods that reduce vibration because picture quality is more sensitive to movements, Rhys Williams said.
``As folks replace their cameras, they replace all their studio gear, too,'' Rhys Williams, 44, said. ``That wave has quite a few years to go yet.''
Instant Replay
Vitec broadened its range of services with the $38.5 million acquisition of RF Systems in June. The unit's antennas, receivers and converters can transmit footage wirelessly from outdoor events to production centers. Vitec upgraded the National Football League's instant replay systems at 29 U.S. stadiums last year and will provide wireless helicopter links for news crews at the Olympics.
RF is participating in Overland Park, Kansas-based Sprint Nextel's $600 million project to provide antennas that will help move to a frequency spectrum that doesn't interfere with police and fire radio signals. RF's share of the three-year subcontracts may reach 35 percent, according to an estimate by Dresdner Kleinwort analyst Mike Costello.
Vitec's sales will decline 3.7 percent in 2010 as the Sprint deal runs out, analysts surveyed by Bloomberg forecast. Rhys Williams said revenue may actually return to its ``normal rate'' of 10 percent annual growth that year.
Half of Vitec's revenue comes from North America and the dollar's 13 percent fall against the pound since the beginning of 2006 has eroded the value of U.S. sales.
Total revenue may increase 11 percent in 2008, according to the survey, about half of last year's rate.
Dollar `Nightmare'
``The falling dollar is a nightmare,'' said Rhys Williams. ``There will come a time when the dollar starts appreciating again, in which case we will make a phenomenal amount of money.''
To increase sales outside the U.S., Vitec plans to expand the RF unit in Asia, Europe and South America and may buy distribution partners in Mexico, Canada, Korea, Russia and Spain, Rhys Williams said.
Founded in 1910 as a movie-camera maker, Vitec sells tripods and bags for photographers under brands including Manfrotto and National Geographic. Rhys Williams joined Vitec at the end of 2001 after four years of falling profit. He streamlined manufacturing, transferring production to China and Costa Rica.
`Better Organized'
``The current management team developed the group from one that was a bit of a mess to a group that was better organized,'' said Nick Evans, who manages the $247 million M&G Investment Trust, including 3.35 million shares, or an 8 percent stake.
Vitec has dropped 15 percent this year, compared with a 1.9 percent decline on London's Alternative Investment Market for smaller U.K. companies.
``The market has put a cyclical discount on them that is not born out by the reality,'' said M&G's Evans.
Michael Larson, who leads an investment team that manages the Bill & Melinda Gates Foundation's assets, didn't return an e- mail and phone calls seeking comment.
To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net
Last Updated: May 24, 2008 19:01 EDT
BL: Colombia's FARC Rebels Confirm Leader's Death, Name Replacement
By Joshua Goodman
May 25 (Bloomberg) -- Colombia's largest rebel group today confirmed the death of its leader, Manuel Marulanda, in a video released to Venezuelan television station Telesur.
In the video, Marulanda's lieutenant Timoleon Jimenez, better known by his alias Timocheko, said the 77-year-old leader of the Revolutionary Armed Forces of Colombia, or FARC, died of a heart attack two months ago. A guerrilla known by his alias Alfonso Cano was named Marulanda's replacement as head of the FARC's seven-member Secretariat, its central governing body, Timocheko said.
``Our commander blazed the trail and now it is with immense sorrow we inform he died March 26th in the arms of his companera and surrounded by his troops,'' Timocheko said in a reference to Marulanda's girlfriend.
Marulanda's death is the latest blow to FARC following the killings of two other Secretariat members since March 1. President Alvaro Uribe yesterday said some of the 9,000 members of FARC, which has waged a half-century insurgency, may now be ready to lay down their arms and give up hostages.
Defense Minister Juan Manuel Santos, in a nationally televised press conference today, presented recordings of intercepted communications in which a FARC commander known as Alberto Cancharima can be heard discussing Marulanda's death with a subordinate.
Santos challenged the FARC to surrender Marulanda's body so an autopsy could be performed to back up its claim Marulanda died of natural causes and not from an intense bombing campaign by Colombia's U.S.-backed military.
``We had him located and isolated,'' Santos said.
Santos said he hoped Cano, an academic from Bogota whose middle class background differs from the FARC's peasant base, would lead the insurgency into peace talks with the government. Until that happens, he said military operations against the group would continue.
``We're finally seeing the light at the end of the tunnel of a conflict that has cost our country so much,'' Santos said.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net.
Last Updated: May 25, 2008 13:18 EDT
BL: Mexico to Eliminate Grain Taxes to Help Reduce Prices (Update1)
By Andres R. Martinez
May 25 (Bloomberg) -- Mexico will eliminate import tariffs on wheat, corn, rice and beans and cut in half a tariff on powdered milk to help lower food prices amid the highest inflation rate in more than three years.
The government will also eliminate import taxes on nitrogen-based fertilizer and provide farmers with credit for imports of the chemical, President Felipe Calderon said today during a news conference in Mexico City.
``The government is obligated to make sure that products get to the final consumer at the lowest price possible,'' Calderon said.
Consumer prices rose 4.83 percent in the first half of May as costs for cooking oils, rice and fuel soared. Mexico, which has the highest inflation rate since December 2004, will use some of its surplus funds to continue subsidizing energy costs.
The government will increase aid to the 5 million poorest families by 22 percent to 655 pesos a month, Calderon said. The government-run supermarkets that sell staples such as rice and corn flour to those families will also keep prices at current levels, he said.
Mexico will create a strategic corn reserve to store the grain, helping keep the cost down for the poorest Mexicans, Calderon said.
To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net and
Last Updated: May 25, 2008 13:52 EDT
BL: Lebanon Elects Suleiman President as Hezbollah Gains (Update2)
By Daniel Williams and Will McSheehy
May 25 (Bloomberg) -- Lebanon's parliament elected armed forces chief Michel Suleimanpresident, ending a power struggle in which Hezbollah, labeled a terrorist organization by the U.S., gained authority at the expense of Prime Minister Fouad Siniora's pro-Western government.
The result of the vote was carried by international broadcasters and was a foregone conclusion. Siniora's parliamentary bloc and the Hezbollah-led opposition on May 21 endorsed Suleiman, 59, as part of an Arab League-brokered deal struck in Qatar to end a political crisis that sparked the worst fighting since the 1975-1990 civil war. Suleiman was elected by 118 of the 127 lawmakers who voted, Agence France-Presse said.
Fighters allied with Hezbollah's political party stormed Beirut neighborhoods May 7 after Siniora threatened to shut an airport surveillance system and dismantle a once-secret telephone network operated by the Shiite Muslim group. During six days of talks last week Hezbollah and allies secured enough cabinet seats to ensure veto power in a new government, while refusing to discuss the disarmament sought by Siniora and his U.S. backers.
Suleiman is now supposed to oversee discussion of the future of Hezbollah's militia, which fought a 33-day war with Israel in 2006. Under two United Nations Security Council resolutions, passed in 2004 and 2006, Hezbollah is required to disarm. Hezbollah, an ally of Iran and Syria, says the militia is needed to protect Lebanon from Israel.
Bush Confidence
President George W. Bush congratulated Suleiman. ``I am confident that Lebanon has chosen a leader committed to protecting its sovereignty, extending the government's authority over all of Lebanon and upholding Lebanon's international obligations,'' he said in a statement. The new agreement should ``usher in an era of political reconciliation,'' Bush said.
Jose Manuel Barroso, president of the European Commission, offered his ``sincere wishes for the success of the mandate'' that has been entrusted to Suleiman. ``Let me take this opportunity to reiterate the European Commission's great satisfaction with the agreement reached by the Lebanese parties in Doha, which has made the election of a president possible,'' Barroso said in an e-mailed statement.
As the militia took over parts of Beirut earlier this month, Suleiman allowed the army to stand idly by and ignored orders from Siniora to clear the streets of gunmen. The passive response suggests he will not be tough on Hezbollah, predicts Eugene Sensenig-Dabbous, a political science professor at Beirut's Notre Dame University.
`Real Power'
``Hezbollah showed it was the real power in Lebanon,'' Sensenig-Dabbous said in an interview.
Under Lebanon's sectarian power-sharing arrangement, the country's president is Maronite Christian, the prime minister is Sunni Muslim and speaker of parliament is Shiite. Hezbollah withdrew from Siniora's cabinet in November 2006 after demanding veto power. A bloc holding a third of cabinet portfolios can obstruct decisions by the majority, and in Qatar Hezbollah and allies won 11 out of 30 ministries.
Sixteen seats will be divided among Sunnis, Christian and Druze members of Siniora's coalition. The opposition also includes the Shiite Amal party and a Christian party. The president will decide the distribution of the remaining three seats.
Suleiman becomes Lebanon's 14th president since independence from France in 1943. He replaces Syria-backed Emile Lahoud, who stepped down in November at the end of his term and who hadn't been replaced in 19 attempts to convene a parliamentary vote.
To contact the reporters on this story: Daniel Williams in Beirut at dwilliams41@bloomberg.netWill McSheehy in Dubai at wmcsheehy@bloomberg.net
Last Updated: May 25, 2008 14:24 EDT
R: March driving down for 1st time since 1979: government
Fri May 23, 2008 11:52am EDT
By Chris Baltimore
WASHINGTON (Reuters) - In a sign that Americans are curbing their driving in the face of record-high gasoline prices, data released on Friday showed highway miles driven in March fell 4.3 percent from a year earlier, the first March decline since the last major oil shock in the late 1970s.
According to the Department of Transportation, Americans drove 11 billion miles less in March 2008 than a year earlier, the first time estimated travel on public roads fell in March since 1979.
The data marks the sharpest year-on-year drop for any month in the history of the agency's reporting, which dates back to 1942.
U.S. average gasoline prices hit $3.79 a gallon over the past week, up 57 cents from a year ago, according to U.S. data.
Record-high oil prices above $135 a barrel are pushing average pump prices closer to the crucial $4 a gallon level. Pump prices in seven U.S. states, including California, Illinois and New York, already average above $4 a gallon.
Signs are mounting that U.S. consumers -- who use more oil than any other country -- are finally curbing their energy use in the face of a widening U.S. economic downturn.
The trend recalls the oil shocks of the 1970s, when oil prices doubled and Americans abandoned boxy, heavy automobiles in favor of smaller, more fuel-efficient models.
Since November 2006, vehicle miles traveled fell by a cumulative 17.3 billion miles, according to data from the Department of Transportation's Federal Highway Administration, which collects the information from 4,000 automatic traffic recorders operated round-the-clock by state highway agencies.
Travel over the upcoming Memorial Day holiday weekend will fall for the first time since 2002, auto and travel group AAA said this month.
Some 37.87 million Americans will travel 50 miles or more from home for the holiday, which falls this year on May 26. That would be down 0.9 percent from 38.23 million last year, according to AAA's survey, which was conducted among more than 2,000 Americans.
Crude oil prices -- which comprise more than 70 percent of the cost of gasoline -- have jumped about 30 percent since the start of 2008, driven by worries about tight stocks of refined products in the near term and mounting global demand over the longer term. Oil has risen sixfold since 2002.
Gasoline use already has slipped about 1 percent this year compared with last year, according to government and private reports. And the U.S. Energy Information Administration said last month it expected American gasoline demand to shrink this summer for first time since 1991.
(Editing by Walter Bagley)
R: Think oil prices hurt now? Just wait
Thu May 22, 2008 4:32pm EDT
By Nick Carey - Analysis
DALLAS, Texas (Reuters) - Sky-high oil prices are causing pain at the pump, but bills for air conditioning this summer and heating next winter -- combined with rising food costs -- promise to squeeze U.S. consumers even more.
With gas at $4.00 a gallon, households already have less to spend on a new grill at Home Depot; a vacation at Walt Disney's Disney World; a new TV from Best Buy Co; or a new "hog" from Harley-Davidson Co.
And there are no signs things will get better soon for the consumer, long the driving force of U.S. economic growth.
"For the areas of the economy that rely on heating oil, high fuel prices are going to be another blow to the consumer this winter," said Jack Kyser, chief economist at the LA County Economic Development Corp.
"The hotter states will feel the pinch during the summer months but in the mid-America states where you get hot summers and cold winters, it's going to be very uncomfortable," he said.
"This is going to eat into the disposable income of American consumers -- supposing they have any left."
Oil prices, now $130 a barrel, have risen six-fold since 2002. On Wednesday, heating oil reached a record high above $3.90 a gallon and the price is expected to stay high.
Heating oil, which cost $3.29 a gallon in January, will likely cost $3.83 in December, according to the government's Energy Information Administration.
Those costs come at a time of rising food prices, forcing people to spend more on basics as wages fail to keep up. The effects on the economy could be profound.
"The American consumer will continue to pay for fuel, food and heat," said University of Maryland economist Peter Morici.
"But they will give everything else up," he said. "That's going to make it harder to sell the average consumer a television, a suit, or even a meal at a restaurant."
HARD TIMES
This could become an especially depressing reality in July and August, when back-to-school shopping starts, and in November, when holiday shopping gets under way.
Without strong sales during both of those shopping seasons, retailers including Wal-Mart, Target, J.C. Penney and Sears could post bleak results for the last two quarters of 2008 and the first quarter of 2009.
For many years, the consumer has been the engine of U.S. growth, accounting for around 70 percent of the economy.
But much recent spending has been done on credit, leaving Americans with a negative savings rate.
Now that consumers have been hit by the double-whammy of a weak economy and higher costs, the question is how much damage the engine has sustained and how long it will take to fix it.
Peter Schiff, president of money manager Euro Pacific Capital, warns that after years of profligate spending, the "chickens are finally coming home to roost".
"Our whole phony standard of living is imploding," he said. "We have borrowed and spent ourselves into oblivion."
"It's amazing that people can't figure out that America is broke."
WINTER OF DISCONTENT
Diane Swonk, chief economist of Mesirow Financial, says one of her biggest concerns for the short term is that the Bush administration's tax rebates, which were designed to stimulate the economy, will be used by consumers to fill their tanks and use air conditioning as usual rather than cutting back.
Many retailers, like Wal-Mart and Sears and supermarkets Kroger and Supervalu, have offered customers incentives to spend their rebate checks with them.
President George W. Bush signed into law a $152 billion fiscal stimulus package earlier this year to provide tax rebates to 130 million Americans. Some $107 billion of the total was allocated for households.
"The tax rebate is going to be a double-edged sword for consumers," Swonk said. "When the heating bills start coming in the fall things will not look so good."
"That should contribute to a contraction in consumer spending in the fourth quarter," she added.
Swonk said that among the industries that will continue to feel the pinch is the auto industry, a major employer.
That likely means that Thursday's announcement by Ford Motor Co that it was abandoning its long-touted goal of returning to profitability by 2009 will be followed by more bad news from Detroit.
With Ford and General Motors shares getting a battering on Thursday, investors were asking if the long-term prognosis of the Detroit automakers was becoming even bleaker.
"The economic circumstances are not good for Ford and they are not good for any of the automakers really; this isn't anything that is a Ford exclusive," said Erich Merkle, director of forecasting for consulting firm IRN Inc.
Edward Leamer, head of the UCLA Anderson Forecast Center, said that thanks to the combination of high spending in recent years and rocketing fuel costs, the consumer-engine of U.S. economic growth is close to failing.
"The global markets are telling us we are not as wealthy as we think we are and that we have spent beyond our means," he said. But Leamer said while the engine may be broken, the U.S. economic model is not: it just needs a new engine.
Thanks to the "rosy spot" of exports helped by a weak dollar, plus strength in commodities like coal and grains, the UCLA Anderson Forecast Center predicts the U.S. economy will suffer only a mild recession this year.
But without that retail engine of growth, "our long-term prospect is for sluggish U.S. economic growth," Leamer said.
"Unfortunately, there is nothing on the horizon in the U.S. economy that will take over from the consumer."
(Additional reporting by David Bailey in Detroit and Tom Doggett in Washington, D.C.; Editing by Patrick Fitzgibbons and Ted Kerr)
R: Ripples from housing crisis slow senior living
Fri May 23, 2008 7:56pm EDT
By Kim Dixon
WASHINGTON (Reuters) - The free fall in U.S. home prices is forcing many elderly Americans to postpone plans to move into senior housing developments until they are able to sell their homes.
Occupancy rates have flattened in the estimated 2.1 million senior housing beds professionally managed by both companies and nonprofit organizations. The facilities are an alternative to nursing homes and range from housing that offers light housekeeping for independent residents to assisted living units providing health care for residents with some medical needs.
"We've felt the pinch," said David Freshwater, who three years ago sold his chain to Sunrise Senior Living, and now runs a group that invests in the sector. "People don't want to sell when they have a price in their mind and Millie down the block sold her house for that amount."
Assisted Living Concepts and Capital Senior Living are among the companies reporting weaker occupancy rates. Assisted Living's occupancy rate fell to 71.7 percent in the first quarter of 2008, down from 83.7 percent in the same period of 2007, while Capital had a more modest decline.
Brookdale Senior Living had a 1.5 percent decline in occupancy in the first quarter and said it expected "relatively flat" occupancy in the near-term due to the sagging housing market and the overall economic slowdown.
At the same time, share prices in the sector are down about 14 percent this year.
Overall, the outlook for senior housing companies remains bright. The number of Americans age 75 or older is set to jump about 20 percent in the next decade thanks to the baby boom that occurred immediately after World War II. That compares with about 14 percent growth for that age group this decade, according to Brookings Institution research.
But industry officials acknowledge the U.S. housing crisis has had an impact, especially in hard-hit markets such as south Florida, Las Vegas and some parts of California where foreclosures are skyrocketing and home values have fallen.
"Some of the operators are starting to see that even people that have moved in recently are moving out" because they are unable to sell their homes, said Derrick Dagnan, an analyst at Avondale Partners.
CONFLUENCE OF EVENTS
Elderly Americans on fixed incomes are fighting many foes at once.
Among those 65 years and older, nearly a third are postponing retirement due to stock market losses, according to a recent survey by elderly advocacy group AARP, formerly known as the American Association of Retired Persons.
"Many are seeing their income decrease, because their annuities are tied to the prime rate. It's a whole confluence of really bad things happening at the same time," said Jim Dau, a spokesman for AARP.
A fast-growing industry segment called continuing care retirement communities will be hit first, experts said. The campus-style housing has varying levels of care up to skilled nursing, and usually residents live out their lives there.
Continuing care units typically require a down payment or "entrance fee," of $50,000 to $1 million. Most such properties are not-for-profit, but public companies have started to move in, including Sunrise and Brookdale.
"Those most impacted are those middle-class people who are looking to sell a house and move into a planned retirement community," said Larry Minnix, chief executive of the American Association of Homes and Services for the Aging, which represents the nonprofit segment of the industry. "Our members and other owners have to just bide their time."
Unlike senior housing developments, nursing homes which treat the sickest elderly depend largely on the government's Medicare and Medicaid programs to pay the average cost of around $189 per day or $69,000 for a semi-private room, according to a MetLife 2007 survey.
The popularity of nursing homes has fallen in recent years as seniors flock to more flexible new models, like independent and assisted living.
These options are generally not covered by government insurance but are cheaper. For example, the average annual cost for assisted living is about half of nursing homes -- about $36,000, according to the MetLife survey.
Least impacted by the economy are independent living facilities, mostly because they do not provide medical care and are more a "lifestyle choice," according to Avondale's Dagnan.
NOT LIKE A SUN ROOM
At Goodwin House, a continuing care facility with locations in the Virginia suburbs outside Washington, there is a three-year waiting list for some properties, according to spokeswoman Colleen Mallon.
But the environment there is also more challenging as would-be applicants have trouble selling their homes.
"We have (potential residents) say we're not going to even try -- there are already four houses on the market on our block," Mallon said.
To be sure, senior housing is not like most consumer goods.
"There is a need; it can be as simple as 'I can't do these stairs any longer,'" said Robert Kramer, president of the National Investment Center for Seniors Housing and Care Industry, a research group whose members include companies and investors in the sector. "It's not like the decision to add a sun room to your house."
So the key factor is waiting for housing prices to stabilize.
"You can get rid of a house... it's what you want to get for it," said Frank Morgan, a Jefferies & Co. analyst. "Tell me what your view on the housing market is and I'll tell you how long it will take for these occupancies to come back up."
(Editing by Derek Caney)
BL: China Tells Telecom Companies to Merge in Industry Overhaul
By Janet Ong
May 24 (Bloomberg) -- China told its six telecommunications companies to merge their assets, allowing fixed-line carriers to expand into wireless services and creating three operators that will offer phone and Internet connections to 1.3 billion people.
Under the plan, the parent of China Telecom Corp. will buy a mobile-phone network from China Unicom Ltd.'s parent, which in turn will merge with the company that controls China Netcom Group Corp., the Ministry of Industry and Information said in a statement today. China will issue three third-generation wireless licenses after the overhaul is completed, it said.
The revamp will help China Telecom and Netcom expand their operations to compete against China Mobile Ltd. in the world's biggest wireless and Internet market by users. The $105 billion industry has room to expand because six out of 10 people still don't own mobile phones and 84 percent of the population lacks Web connections.
``Everyone has been waiting for it for over three years and now it is here,'' said Kelvin Ho, a Hong Kong-based analyst at Nomura International Ltd., referring to the reorganization plan. ``Creating three full-service phone companies offering both fixed and mobile services will help the fixed-line phone companies.''
The reorganization is designed to foster ``healthy market competition and prevent a monopoly,'' according to the statement, which didn't give a timeframe for the plan or financial details.
Jacky Yung, a spokesman at China Telecom, said the company may issue a statement tomorrow or May 26. Officials at China Unicom, China Mobile and China Netcom either declined to comment or weren't immediately available.
$12.8 Billion Evaporates
China Mobile, the world's largest phone company by users, fell the most in two months in Hong Kong trading yesterday after a report from the official Xinhua News Agency triggered speculation that China was poised to announce its overhaul plans for the industry. The drop wiped out $12.8 billion in market value on concern the company would face increased competition.
China Mobile Communications Corp., the state-owned parent, will take control of fixed-line operator China Tietong Telecommunications Corp., Xinhua reported yesterday. Executives at the country's largest carriers will be reshuffled, it said.
Shares of China Unicom, China Telecom and China Netcom surged in Hong Kong before trading was halted. The three companies requested a suspension of their stock, pending ``price- sensitive'' information. The shares will probably be suspended until more financial details are disclosed, according to Wendy Liu, a Hong Kong-based analyst at ABN Amro Holding NV.
China Telecom, the nation's biggest fixed-line company, will acquire Unicom's smaller mobile-phone network, which provides services to 43 million customers based on the code-division multiple access technology used in Japan and South Korea, according to the statement. China Telecom will also get China Satellite Communications Corp.'s phone assets, the statement said.
$16 Billion Network
Unicom's CDMA network and its subscribers are worth about 111 billion yuan ($16 billion), according to Goldman, Sachs & Co. estimates in March. CDMA is the smaller of Unicom's two wireless networks.
China Network Communications Group Corp., Netcom's parent, will merge with Unicom's parent to offer fixed-line and mobile- phone services based on the global system for mobile communications technology that's used in most of the world, according to the statement.
Unicom had 125.4 million GSM customers as of the end of April, according to the company. Netcom, the nation's second- largest fixed-line company, had 108.7 million phone users.
China Mobile will take control of unlisted Tietong, the statement said, confirming yesterday's Xinhua report. Tietong, which means ``railway'' in Chinese, had assets of 55.3 billion yuan as of the end of 2006, according to the company's Web site.
China Mobile, with 399.6 million customers as of April 30, posted profit of 87.1 billion yuan last year, more than double the combined total at the nation's three other phone operators.
Bigger Than Microsoft
The company's dominance of China's wireless market helped its stock triple in the past two years, overtaking General Electric Co. and Microsoft Corp. to become the world's fourth- largest company, with a market value of $321 billion.
Chinese regulators aim to boost competitiveness at fixed- line operators and provide capital resources to the reorganized companies as the nation prepares to roll out 3G high-speed wireless services, which will require billions of dollars in investments for network equipment. The government has said it plans to offer 3G services during the Olympic Games in August.
China had 583.5 million mobile-phone subscribers at the end of April, exceeding the combined populations of the U.S. and Japan.
``The industry restructuring is not a choice, it must be carried out,'' said Chen Haofei, an analyst at China International Capital Corp. in Beijing. ``After this is completed, the phone companies have more freedom to focus on the future.''
To contact the reporter on this story: Janet Ong in Beijing at jong3@bloomberg.net
Last Updated: May 24, 2008 11:51 EDT
BL: U.S. Stocks Fall the Most in Four Months, Led by Financials
By Lynn Thomasson
May 24 (Bloomberg) -- U.S. stocks had the biggest weekly drop in almost four months on concern the economy will weaken as banks and brokerages face deeper losses and record energy costs depress consumer spending.
Lehman Brothers Holdings Inc., Morgan Stanley and Merrill Lynch & Co. led losses among financial companies after analysts lowered profit estimates and the Federal Reserve signaled it will stop cutting interest rates. Oil surpassed $130 a barrel and sales of previously owned homes matched a record low in April, sending consumer stocks to the second-biggest weekly drop this year.
``We keep getting little surprises in the financials that make people uneasy,'' said Jason Pride, who oversees $6 billion as director of research at Haverford Trust in Radnor, Pennsylvania. ``Market participants have to get away from the idea that everything is going to rebound immediately.''
The S&P 500 fell 3.5 percent, the steepest decline since the first week of February, to 1,375.93. The Dow Jones Industrial Average dropped 3.9 percent to 12,479.63. The Nasdaq Composite Index slid 3.3 percent to 2,444.67. The Russell 2000 Index of small-cap stocks lost 2.3 percent to 724.10.
All 10 industries in the S&P 500 declined, bringing the U.S. stock benchmark to lowest since the week ended April 11. The slump steepened the S&P 500's decline for 2008 to 6.3 percent.
``You basically don't want to be in this market,'' Quincy Krosby, chief investment strategist at the Hartford in Hartford, Connecticut, which manages $360 billion, said in a Bloomberg Radio interview. ``We'll probably pull back a bit more.''
Financials Slide
S&P 500 financial stocks dropped 6.1 percent, falling to the lowest level since the week of March 14. Citigroup Inc. analyst Prashant Bhatia said Goldman Sachs Group Inc., Lehman and Morgan Stanley are in a ``tough operating environment,'' while Oppenheimer & Co. analyst Meredith Whitney predicted more than $170 billion in writeoffs by the end of 2009. Financial companies worldwide have already recorded more than $380 billion of losses tied to mortgage-related assets.
Lehman lost 17 percent, the most since the week of March 28, to $36.11. Morgan Stanley dropped 11 percent to $41.83. Merrill Lynch declined 11 percent to $43.36. Citigroup fell 8.7 percent to $21.12.
Minutes from the Fed's April meeting suggested record energy costs and rising public expectations for inflation make it unlikely policymakers will continue rates. Fed officials also lowered economic growth projections for 2008 by almost a full percentage point and raised inflation forecasts amid curtailed bank lending and oil prices that have doubled over the past year.
Oil Surge
Crude oil increased 4.9 percent for the week, reaching as high as $135.09 a barrel. The S&P 500 Consumer Discretionary Index lost 5.3 percent, the second-steepest decline among industry groups in the equity benchmark, as oil's rise spurred concern that rising fuel bills will leave consumers with less money to spend elsewhere.
Ford Motor Co. lost 15 percent, the most since July 2002, to $6.87. The second-biggest U.S. automaker abandoned a target of returning to profit next year because of rising steel and gasoline costs. Larger rival General Motors Corp. fell 15 percent to $17.60.
Moody's Corp. tumbled the most in the S&P 500, losing 24 percent to $34.16. The second-largest credit-rating company started a probe into whether executives covered up a computer error that gave top rankings to securities that didn't deserve them.
KB Home and Centex Corp. led an S&P group of the five largest U.S. homebuilders to a 17 percent loss, the biggest decline since September 2001. The supply of unsold properties reached a record in April, the National Association of Realtors said. KB Home, the fifth-largest U.S. homebuilder by revenue, tumbled 20 percent to $20.52. Centex, the biggest U.S. homebuilder, dropped 19 percent to $19.05.
New-home sales in the U.S. probably fell to a 17-year low and consumer confidence sank, signs the housing slump is dragging down the economy, economists said before next week's reports.
Sears Holding Corp., Dell Inc. and Costco Wholesale Corp. are among the S&P 500 stocks scheduled to release quarterly earnings next week.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Last Updated: May 24, 2008 08:00 EDT
BL: Anheuser-Busch's Changes Lowered Defenses Against Bid (Update1)
By Mark Clothier
May 24 (Bloomberg) -- Anheuser-Busch Cos., the largest U.S. brewer, made its board easier to replace and abandoned its so- called poison pill earlier this decade, moves that will make it harder to fend off a takeover attempt by InBev NV.
InBev, based in Leuven, Belgium, is putting together a bid for the St. Louis-based beermaker, the Wall Street Journal and Financial Times' Alphaville blog reported yesterday, citing unidentified executives and bankers. A deal would combine InBev, the world's largest brewer, with the maker of Budweiser beer.
Anheuser-Busch lowered defenses against a hostile bid when it decided in 2006 to stop putting a third of its directors up for re-election each year, and didn't renew its poison-pill provision two years before that, said Patrick McGurn, a senior counsel at proxy adviser Institutional Shareholder Services.
The brewer has one class of stock, a relatively small family ownership and the ability for shareholders to call special meetings, McGurn, whose group is a unit of New York-based RiskMetrics Group Inc., said in a May 23 interview.
``That leaves the determination as to whether to sell a company with shareholders, where it belongs, rather than in the hands of a potentially entrenched management or boardroom team,'' McGurn said.
Anheuser-Busch dropped the defense three years after investors unsuccessfully tried to remove the provision through a shareholder vote. A poison pill allows stockholders to buy new stock at a discount, and makes a takeover more expensive for the acquirer.
Once a Year
Starting in 2009, all of Anheuser-Busch's directors will stand for reelection each year, making it easier for a suitor to nominate a slate of candidates to replace the entire board at one meeting of shareholders.
InBev may approach Anheuser-Busch Chief Executive Officer August Busch IV with a $46 billion offer, and it may make a subsequent appeal to the U.S. company's board, the Financial Times blog said. InBev might go directly to shareholders should management and directors reject the $65-a-share bid.
Investors can call a special stockholders' meeting if they have the support of shareholders holding 25 percent of the stock.
Anheuser-Busch rose $4.03, or 7.7 percent, to a record $56.61 yesterday in New York Stock Exchange composite trading, the biggest gain in eight years. The shares declined 1.4 percent in the five years ended April 30, compared with a 51 percent increase in the Standard & Poor's 500 Index and 48 percent gain for the S&P 500 Consumer Staples group
InBev Acquisitions
InBev, which overtook Anheuser-Busch as the world's largest brewer in 2006, has risen 164 percent in the same period, helped by sales of Stella Artois, Beck's and Hoegaarden. It bought control of Brazil's Cia. de Bebidas das Americas, or AmBev, in 2004 for $11.2 billion, Bass Brewing Ltd. of the U.K. for $3.5 billion in 2000 and Canada's Labatt Brewing Co. for $2.9 billion in 1995.
InBev fell 2.9 percent to 48.88 euros in Brussels yesterday. It trades at about 14 times earnings before interest, tax, depreciation and amortization, compared with Anheuser-Busch's multiple of 18.6 times earnings.
Anheuser-Busch's largest investor is Barclays Plc with 43.7 million shares, or 6.1 percent, followed by Warren Buffett's Berkshire Hathaway Inc. with 35.6 million, or 5 percent.
Directors and executives owned 33.7 million shares, or about 4.5 percent of the company, as of Jan. 31, the brewer said in a March 10 regulatory filing. Former Chairman August A. Busch III controlled a 1.3 percent stake. Busch IV became chief in December 2006, the sixth family member to lead the 148-year-old company.
Hostile Bids
The ability of companies in the Standard & Poor's 500 to defend against hostile bids fell 12 percent last year compared with 2005, as U.S. managements eliminated poison pills and staggered-board elections, according to SharkRepellent.net, a unit of FactSet Research Systems Inc. that provides data to investment managers and banks. At Anheuser-Busch, that ability has declined 71 percent, the firm said.
Anheuser-Busch, which controls about half of the U.S. beer market, faces heightened competition in the country after rivals SABMiller Plc and Molson Coors Brewing Co. said they would merge their U.S. operations, putting two of North America's biggest beer brands under the same management.
Combining InBev and Anheuser-Busch might lead to a 15 percent cut in the U.S. company's $3 billion in annual marketing, distribution and administrative costs, said Carlos Laboy, an analyst at Credit Suisse.
`Black Hole'
InBev and Anheuser-Busch ``would represent an excellent geographic fit,'' Wim Hoste, an analyst at KBC Securities in Brussels, said in a telephone interview. ``The black hole for InBev is the U.S.''
More boards are starting to adopt poison-pills as a reaction to a hostile bid, John Laide, a FactSet analyst, wrote in a Jan. 7 research report.
Anheuser-Busch itself can still reverse course and restore its poison pill anytime the board decides it needs to, said Nell Minow, editor of the Corporate Library, a Portland, Maine-based corporate-governance research firm. Anheuser-Busch wouldn't need the approval of shareholders for 12 months after that.
``It seems to me that they're adequately protected,'' Minow said. ``They're not in a bad situation to bargain. They're not going to be pressured into anything.''
To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net
Last Updated: May 24, 2008 05:24 EDT
BL: Harry Macklowe to Sell GM Tower to Boston Properties (Update3)
By David M. Levitt
May 24 (Bloomberg) -- New York developer Harry Macklowe agreed to sell the General Motors Building and three other Manhattan skyscrapers to Boston Properties Inc. for $3.95 billion in cash and debt, to pay off delinquent loans.
Boston Properties will pay $1.47 billion in cash, assume about $2.47 billion of fixed-rate debt and issue $10 million in units of limited partnership interest, the company said in a statement. Goldman Sachs Group Inc. and Morgan Stanley are contributing an unspecified amount, the statement said.
The deal will retire the $1.4 billion Macklowe owes to Fortress Investment Group LLC, which made a $1.2 billion loan to him last year as part of his $7 billion acquisition of seven New York towers from Equity Office Properties Trust, said real estate broker Darcy Stacom. Macklowe had pledged the GM Building as collateral for that debt, which matured in February.
``In these capital markets, that is an extraordinary feat,'' she said in a telephone interview.
The transaction values the GM Building at almost $3 billion, making it the most expensive office building in the world, said Stacom, an investment sales broker for CB Richard Ellis Group Inc.
`A Great Address'
William Macklowe, Harry Macklowe's son and Macklowe Properties Inc. president, referred questions on the sale to Stacom. She represented the Macklowes on the GM Building, while Citigroup handled the negotiations on the other three.
``It's a great address to put on your letterhead,'' Lawrence Longua, director of the real estate investment trust center at the New York University Real Estate Institute, said in an interview yesterday. ``It's a special location -- across from the Plaza Hotel, Central Park.''
In 2006, Harry Macklowe lured Apple Inc. to open a store beneath the building plaza with a glass cube entranceway. Until then, the underground space had been difficult to lease.
Macklowe, who has been investing in New York real estate since the 1960s, used short-term debt that came due this year to buy the seven Equity Office buildings last year, at the peak of the market. All but $50 million of the $7 billion was borrowed.
Close Next Month
He was unable to refinance after access to bank financing dried up amid writedowns and losses by financial institutions worldwide of more than $300 billion in mortgage-related assets. He bought the towers the same day that Blackstone Group LP acquired Equity Office, the biggest U.S. real estate investment trust, for $39 billion, including debt.
The purchase of the GM building is expected to close next month, with the other buildings at 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower coming after that, Boston Properties said.
The sale of these four towers will leave Macklowe Properties a leaner company, positioned to grow, Stacom said.
``There's a ton of money coming in from offshore right now, but it doesn't have an operating base,'' Stacom said. ``You have the team that created the GM Building sitting with real capacity now.''
Boston Properties, chaired by New York Daily News owner Mortimer Zuckerman, has deposited a letter of credit for $165 million. Goldman Sachs and Morgan Stanley are advising Boston Properties and the other investors, along with Lehman Brothers Holdings Inc. and Deutsche Bank AG.
$150 a Square Foot
The GM building has about 2 million square feet (185,806 square meters) of rentable space, Boston Properties said. Office rents there are among the highest in the city, exceeding $150 a square foot. Tenants include investor Carl Icahn, the law firm Weil Gotshal & Manges LLP and the cosmetics maker Estee Lauder Cos.
Boston Properties, the biggest U.S. office REIT, will add about 3.5 million square feet to its 5.6 million square feet of Midtown properties, making it the biggest by size of the five markets in which it operates-- New York, Boston, San Francisco, Washington and the Princeton area of New Jersey.
Its New York skyscrapers include Citigroup Center, the city's sixth-tallest completed building, and 399 Park Ave., which is Citigroup's headquarters.
Deutsche Bank, Macklowe's senior lender, has taken control of his seven Equity Office acquisitions and has put them on the market.
They also include 1301 Avenue of the Americas, home of Dresdner Kleinwort New York, and Worldwide Plaza on Eighth Avenue, whose tenants include the law firm Cravath Swaine & Moore LLP.
To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net
Last Updated: May 24, 2008 17:20 EDT
BL: Bharti Scraps MTN Bid After Differences Over Control (Update2)
By Archana Chaudhary and Harichandan Arakali
May 24 (Bloomberg) -- Bharti Airtel Ltd., India's biggest mobile-phone company, abandoned plans to acquire MTN Group Ltd. after differences with the South African company over control.
Bharti and MTN, Africa's largest mobile-phone company, reached a preliminary agreement on May 16, New Delhi-based Bharti said in an e-mailed statement today. The proposal was submitted to Johannesburg-based MTN's board on May 21, it said.
``MTN has now presented a completely different structure, from what was agreed,'' Bharti said in the statement. ``Bharti has decided to disengage from the ongoing talks and has conveyed the same to MTN.''
The collapse of the talks ends Bharti Chairman Sunil Mittal's plans to unite two companies with a combined market value of more than $70 billion that would offer mobile-phone services to 1.7 billion people stretching from the Cape of Good Hope to the Himalayas. Bharti's departure may open the door for potential bidders such as Emirates Telecommunications Corp.
``This is final, it's over,'' said Senjam Raj Sekhar, a Bharti spokesman. The company isn't open to further negotiations with MTN, he said. Pearl Majola, a spokeswoman for MTN in Johannesburg, said the company will update shareholders on the latest developments ``as the market opens'' on May 26.
MTN spokeswoman Nozipho January Bardill said Chief Executive Phutuma Nhleko has said before that MTN is open to talks with other companies and that this continues to be the case.
New Structure
Bharti said it ended the talks late yesterday after MTN presented a new structure in which Bharti Airtel would become a subsidiary of the South African company. The Bharti family and Singapore Telecommunications Ltd. would have had to exchange their majority stake in Bharti Airtel for a controlling stake in MTN, according to the structure, Bharti said.
MTN shares have risen 4.7 percent and Bharti has fallen 6.3 percent since May 5 when the two companies first publicly disclosed that they were in preliminary discussions. MTN was unchanged at 157 rand in Johannesburg trading yesterday, valuing the company at 292.9 billion rand ($38 billion).
``This is probably good for Bharti,'' said Jitender Kumar who helps manage an equivalent of $93 million in Indian equities at Taurus Asset Management Ltd. in New Delhi. ``I never thought it was that simple, especially if you looked at the price that Bharti may have had to pay.''
The Indian operator said it had tied up $60 billion from banks in the U.S. and Europe to fund the deal.
Indian Focus
Dropping the bid will allow Bharti to focus its investments on maintaining dominance in India's market and fend off competition from Reliance Communications Ltd. and Vodafone Group Plc. Mumbai-based Reliance, India's second-largest operator, is rolling out a second network this year.
Bharti rose 2.4 percent to 837.65 rupees in Mumbai yesterday, valuing the company at 1.59 trillion rupees ($37 billion). The stock has declined 16 percent this year.
For MTN, the end of the Bharti bid ``will be perceived as bad news and the share price will initially come under pressure,'' said Wayne McCurrie, who helps manage the equivalent of $12 billion at Momentum Group Ltd. in Johannesburg. ``It does, however, open up an opportunity for other possible bidders.''
Deutsche Telekom AG and Russia's OAO VimpelCom are considering whether to bid for MTN, India's Business Standard reported on May 21, citing unidentified bankers. Spokesmen at Bonn-based Deutsche Telekom and Moscow-based VimpelCom declined to comment that day.
Etisalat, Reliance
Reliance Communications, the company of Indian billionaire Anil Ambani, is in talks again to acquire a stake in MTN, Business Standard reported today. Calls to the cellphone of Mumbai-based Reliance spokesman Gaurav Wahi weren't answered today.
Emirates Telecommunications, or Etisalat, the United Arab Emirates's biggest phone company, said this month it's evaluating MTN. Vodafone Group Plc, the world's largest mobile-phone company, said May 12 it wouldn't bid for MTN.
Ahmed bin Ali, a spokesman for Etisalat in Abu Dhabi, said the company had no comment on the end of Bharti's negotiations or how that may affect its assessment of MTN.
MTN chief executive Nhleko has driven expansion northward into 21 countries throughout Africa and the Middle East, covering a region with a combined population of more than 500 million people. MTN expects its number of subscribers to rise 36 percent to about 83.4 million this year, helped by gains in Nigeria and Iran.
Beyond Africa
MTN is also looking for acquisitions beyond Africa and the Middle East even as it struggles to match demand for mobile phones in Africa, where the global commodities boom is boosting economies and raising demand for the handsets. Only about 3 in every 10 people in Africa have mobile phones, according to Middle East & Africa Wireless Analyst.
Bharti added more customers last year than Reliance and Vodafone Essar Ltd., the Indian unit of Vodafone Group. Bharti's market share is about 24 percent in India, which surpassed the U.S. this year as the largest mobile phone market after China.
Mittal has streamlined his business by awarding contracts to providers including International Business Machines Corp., Ericsson AB and Nokia Oyj to manage Bharti's global system for mobile communication, or GSM, networks. He is spending more than $3 billion this year to expand into rural India.
Bharti's adviser has been Standard Chartered Plc, while Merrill Lynch & Co. is advising MTN. Goldman Sachs Group Inc. advises SingTel, Southeast Asia's largest telephone company, which owns 30.5 percent of Bharti.
To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net; Harichandan Arakali in Bangalore at harakali@bloomberg.net;
Last Updated: May 24, 2008 10:42 EDT
Dealers say they heard the mint had run out of planchets -- round metal disks ready to be struck into coins.
The old silver shortage theory, hmmm...I don't buy it.
I went to a nursery here a couple days ago (actually just the garden section of OSH), but they didn't have organic soil, so I went to another nursery yesterday where they did have some, and I bought a big bag of it. I couldn't find organic seeds at either nursery, so I've ordered some from seedsofchange.com (the website you gave me a while ago). I'm deviating from the plan a little and only growing carrots (http://www.seedsofchange.com/garden_center/product_details.asp?item_no=S10908), small peppers (http://www.seedsofchange.com/garden_center/product_details.asp?item_no=S10793), and basil (http://www.seedsofchange.com/garden_center/product_details.asp?item_no=S10690), because I figured trying to grow too much at first might be a bad idea. I was going to get snap peas instead of the peppers, but they're out of stock. In the meantime I've been reading about how you go about planting and watering, so whenever the seeds get here I should be ready to go!
IVAN O/S: 244,873,349
Most Active 2PM
SPAB, MRGE holding gains. RSF upticking here. WH. FMX upticking a bit.
Most Actives 12:40-12:50
Not much has changed, but VVUS running again today! But look at the daily chart...it may end the day significantly lower than it is now. Also, VVUS L2 ask has shorts all over it...beware.
Most Actives 11:30-11:40
BPG multi-day runner, GGR on day 2 and looking strong here, FL up on Q1 report but shorters on ask, XJT bouncing from big drop yesterday but shorters on ask, BUD in play on Inbev buyout rumour, SPAB, MRGE, and DESC all on day 2 of runs.
MRGE was in play yesterday, and so was DESC fwiw.
BL: Senate Overrides Bush Veto of $289 Billion Farm Bill (Update1)
By Alan Bjerga
May 22 (Bloomberg) -- The Senate voted 82-13 to override President George W. Bush's veto of a five-year $289 billion farm bill, ignoring objections by some House members who say the measure is not the same one Congress approved a week ago.
The bill Bush vetoed, and the one approved today by the Senate, had been mistakenly sent to the White House without a section, or title, on trade policy. Agriculture Committee Chairman Tom Harkin said the original legislation does not have to be re-approved and re-submitted to the White House, as some House members argue, and that most of the bill is now law.
``I don't want there to be any doubt in anyone's mind,'' the Iowa Democrat said after the vote. ``Fourteen of the 15 titles of this bill are now the law of the land.''
The Senate vote was more than the two-thirds majority needed to overturn Bush's veto. The House, which yesterday voted 316-108 to override, earlier today re-approved the original bill, which sets U.S. agriculture policy and farm spending for the next five years. Harkin said the Senate may do the same in the next two weeks to resolve the dispute over the trade provisions.
`One More Chance'
Before the Senate vote, White House spokesman Dana Perino said Congress should rethink its position on the farm bill.
The clerical mistake ``gives them one more chance to take a look and think about how much they're asking taxpayers to spend at a time of record farm income,'' she told reporters.
The bill boosts food aid to the poor by more than $1 billion a year while keeping largely intact subsidy programs for growers of corn, soybeans and other crops that Bush said are too costly and distort trade.
The farm bill is politically popular because of its support for farmers and food aid. Assistance to poor families takes up about 74 percent of the spending authorized under the measure, according to House Agriculture Committee Chairman Collin Peterson. Crop subsidies account for about 16 percent, he said.
Senator Judd Gregg, a Republican of New Hampshire, acknowledged that the bill offered too many attractive programs for many lawmakers to say no.
``The ag bill remains, in my humble opinion, a serious issue, but it obviously has the votes to go through here,'' Gregg told reporters before the vote.
Farm bills, passed about every five years, include guidelines for subsidy payments to farmers, conservation programs and food stamps for the poor.
Ethanol Credits
The bill reduces a tax credit for blenders of ethanol into gasoline from 51 cents to 45 cents a gallon. A surge in demand for ethanol made from corn has contributed to record prices for the grain.
Reducing the tax credit was favored by companies such as Pilgrim's Pride Corp., the largest U.S. poultry producer, and Tyson Foods Inc., the world's biggest meatpacker, which say subsidies for crop-based fuels push up the price of corn used primarily to feed livestock. The bill also extends a 54-cent-a- gallon tariff on imports of biofuels until 2012, including sugar-based ethanol from Brazil.
The plan lowers taxes for companies including Weyerhaeuser Co., North America's largest timber producer. It reauthorizes the Commodity Futures Trading Commission, ending the so-called ``Enron loophole'' by extending regulatory power over electronic trading on energy markets.
It also requires that beef, lamb, pork, chicken and goat meat, along with fruits and vegetables, peanuts and macadamia nuts, be labeled by country of origin.
Only one of Bush's 10 vetoes had been overridden before today. That was a water-resources bill in November.
To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net.
Last Updated: May 22, 2008 16:54 EDT
BL: BCE LBO Failure Would Remove Largest Slice of Backlog (Update3)
By Pierre Paulden
May 22 (Bloomberg) -- The potential cancellation of BCE Inc.'s C$52 billion ($52.9 billion) leveraged buyout may help loan prices recover by removing the largest portion of high- yield, high-risk debt banks need to sell from last year's deals.
``If BCE is canceled it reduces the amount of debt on bank balance sheets substantially,'' Chris Taggert, an analyst at fixed income research firm CreditSights Inc. in New York said in a telephone interview. ``It's the largest piece of the pipeline out there and would be a boost to the market.''
Loan prices have climbed as banks this year found a way to reduce their pipeline of loans promised last year to private- equity firms to $81.6 billion from $156 billion, according to Standard & Poor's. Loans backing the acquisition of Montreal- based BCE, Canada's biggest telephone company, comprise $16.8 billion, or 20.6 percent of the backlog.
Prices are up to an average 91.86 cents on the dollar, from a record low of 86.3 cents in February, according to S&P. Private-equity firms including Blackstone Group LP and Apollo Management LP have bought loans from banks, and the risk of financial institutions failing has subsided.
``There's been capital coming into the space and systemic risk has declined,'' Taggert said.
BCE plunged the most in at least 25 years in Toronto Stock Exchange trading as investors bet the buyout may collapse after bondholders unexpectedly won a court ruling yesterday letting them challenge the deal. BCE dropped C$4.50, or 12 percent, to C$32.62.
Bond Trading
BCE agreed to a C$42.75-a-share offer from a group led by the Ontario Teachers' Pension Plan in June. The bondholders, among them CIBC Global Asset Management Inc., say the acquisition would load BCE with debt, increasing the risk of a default.
BCE's C$150 million of 10 percent bonds due in 2054 have tumbled about 38 cents to 129.3 cents on the dollar since March 2007, when reports of a buyout emerged. The yield has risen to 7.7 percent from 5.8 percent, Bloomberg data show.
Toronto-Dominion Bank, Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland promised to provide $34.3 billion of financing including high-yield bonds, according to SEC filings.
``This is good news for'' Toronto-Dominion, Desjardins Securities analyst Michael Goldberg wrote in a note to investors today. ``A new deal or no deal would mean that TD would not experience losses on the syndication of its financing.''
The bank has probably marked down its BCE financing commitment by about C$150 million, mostly in the past two quarters, Goldberg said. The bank has said it agreed to finance about 10 percent of the equity portion of the BCE purchase, or about C$3.3 billion.
Banks still must find a way to sell debt backing the Clear Channel Communications Inc. and Penn National Gaming Inc. takeovers. Fortress Investment Group LLC and Centerbridge Partners LP agreed in June to buy Wyomissing, Pennsylvania-based Penn National, the owner of 19 casinos and racetracks, for $6.1 billion.
To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net
Last Updated: May 22, 2008 16:51 EDT
BL: Oil Declines More Than $2 a Barrel on Signs Rally Unjustified
By Mark Shenk
Enlarge Image/Details
May 22 (Bloomberg) -- Crude oil fell more than $2 a barrel on signs that a 15 percent increase in prices this month isn't justified by stockpiles and demand.
Consumption averaged 20.3 million barrels a day in the past four weeks, down 1.3 percent from a year earlier, the Energy Department said yesterday. Prices climbed above $135 a barrel today as OPEC ministers said they could do nothing to prevent higher prices because they are pumping at capacity.
``The fundamentals justify a price between $80 and $100,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``The run-up in prices has more to do with institutional investors coming into the market. There's nothing to discourage them from doing so because the returns have been so high.''
Crude oil for July delivery fell $2.36, or 1.8 percent, to settle at $130.81 a barrel at 2:46 p.m. on the New York Mercantile Exchange after reaching a record $135.09. It was the biggest one-day drop in three weeks. Prices have more than doubled over the past year.
``Even a bull market has to consolidate at some point and it looks like that's what's happening today,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut.
Brent crude oil for July settlement declined $2.19, or 1.7 percent, to settle at $130.51 a barrel on London's ICE Futures Europe exchange. The contract touched a record $135.14 today.
`You have to be bullish until we see a much bigger pullback than is occurring today, and when that happens we will be looking for a correction, nothing more,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis.
Higher Returns
Investors looking for higher returns moved to commodity markets over the past year because they outperformed stocks. The Standard & Poor's 500 Index declined 8.6 percent from a year ago to 1,393.59. The Dow Jones Industrial Average dropped 6.7 percent to 12,630.83 during the same period.
``The recent surge is a function of short covering in the market,'' Wittenauer said. ``We are giving back some of this gain, but it's too early to call a top to the market.''
Traders who are ``short'' are betting on a decline. They need to purchase contracts to close out their short positions.
``We are not in charge anymore,'' Shokri Ghanem, Libya's top oil official, told Bloomberg Television today.
The Organization of Petroleum Exporting Countries has ``no magic solution'' to high prices, Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said today in a phone interview from Doha.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Last Updated: May 22, 2008 16:31 EDT
BL: Moody's Commercial Paper Rating May Be Cut by Standard & Poor's
By Alan Goldstein
May 22 (Bloomberg) -- Moody's Corp., owner of the second- largest credit-rating company, may have its A-1 commercial paper ranking cut by Standard & Poor's.
The move follows ``press reports regarding potential problems with analytical models and methodologies used in Moody's process for rating European constant-proportion debt obligations,'' New York-based S&P said today in a statement.
To contact the reporter on this story: Alan Goldstein in New York at agoldstein5@bloomberg.net
Last Updated: May 22, 2008 16:53 EDT
BL: Merrill Shifts Mallach to Lead Firm's Purge of Troubled Assets
By Bradley Keoun
May 22 (Bloomberg) -- Merrill Lynch & Co. is shifting Doug Mallach, its top U.S. fixed-income sales executive, to a new role overseeing the firm's push to get rid of assets spoiled by the subprime mortgage crisis.
Mallach, 39, will lead a team Merrill created to sell assets including collateralized debt obligations, the mortgage- related securities that caused most of the New York-based firm's $37 billion of writedowns over the past nine months, a person briefed on the matter said.
The team, called FICC Asset Management and carved out of the fixed-income sales force that Mallach previously oversaw, reflects Chief Executive Officer John Thain's focus on eradicating money-losing mortgage-related bonds accumulated under his ousted predecessor, Stan O'Neal. The mortgage market has been frozen since last year, thwarting a pledge Thain made in January to liquidate the assets.
Mallach's appointment is ``part of our ongoing effort to optimize our asset and risk profile,'' David Sobotka, who oversees Merrill's Fixed Income, Currencies and Commodities division, wrote in a May 21 memo that was confirmed by spokeswoman Danielle Robinson.
Merrill, the third-largest U.S. securities firm, had about $26 billion of senior collateralized debt obligations -- securities formed by pooling mortgage bonds and other forms of debt -- as of March 28. Investors are wary of assets linked to mortgages because of the U.S. housing market's decline, and Merrill has had to write down its CDOs to about 32 percent of their original value, based on an April 17 estimate by Oppenheimer & Co. analyst Meredith Whitney.
`Good Value'
In January, Thain said the firm had discounted its CDOs so much that they ``are either saleable or represent good value.'' Last month, after writing the CDOs down by an additional $1.5 billion, he acknowledged the securities had scarcely traded because hedge funds and other potential buyers were ``probably waiting to see'' if prices would fall further.
Merrill's push recalls Citigroup Inc.'s formation last December of the Sub-Prime Portfolio Group to manage most of its $43 billion of subprime mortgage assets.
A 17-year Merrill veteran, Mallach will work initially with Jeff Kronthal, a former Merrill executive who was recruited by President Greg Fleming last December to be a consultant on the disposition of assets. Kronthal will remain until the end of July, when he will return to KLS Diversified Asset Management LP, the hedge fund he's starting with two partners, Harry Lengsfield and John Steinhardt.
Fewer Reports
Mallach's new team will consist of a handful of assistants, contrasting with his prior role managing several hundred fixed- income sales people in the U.S., the person familiar with the matter said. He will report to Sobotka.
The sales managers who had been his deputies will now report directly to Sobotka.
Mallach was one of only a handful of survivors from the management team installed in August 2006 by Osman Semerci, then head of FICC. Semerci and Dale Lattanzio, who oversaw trading in the Americas, were both fired in October 2007. Dimitrios Psyllidis, Theo Constantinidis and Michael Blum have since departed. Sobotka, who previously oversaw Merrill's commodities business in Houston, was promoted into Semerci's post.
Thain last month said that overhauling management of Merrill's trading businesses was one of his top priorities in the U.S. On April 28, he announced the hiring of Thomas Montag, a former Goldman Sachs Group Inc. executive, to join Merrill as head of sales and trading starting Aug. 4.
Merrill owns a passive 20 percent stake in Bloomberg LP, the parent of Bloomberg News.
To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.
Last Updated: May 22, 2008 10:48 EDT
BL: U.S. Stocks Advance on Drop in Jobless Claims, Oil's Retreat
By Eric Martin
May 22 (Bloomberg) -- U.S. stocks advanced for the first time in three days after an unexpected drop in jobless claims and the first retreat in oil prices in five days spurred optimism that the economy can avoid a recession.
Citigroup Inc. and International Business Machines Corp. helped lead the Dow Jones Industrial Average higher after the government said first-time unemployment claims decreased by 9,000 last week. Limited Brands Inc. rallied after the operator of the Victoria's Secret lingerie chain posted earnings that topped analysts' estimates. Seven of 10 industry groups in the Standard & Poor's 500 Index advanced as the benchmark for U.S. equities rebounded from its biggest two-day tumble since March.
The S&P 500 added 3.64 points, or 0.3 percent, to 1,394.35. The Dow increased 24.43, or 0.2 percent, to 12,625.62. The Nasdaq Composite Index jumped 16.31, or 0.7 percent, to 2,464.58. More than three stocks climbed for every two that fell on the New York Stock Exchange.
``Employment is clearly staying more solid than a recession would indicate,'' said Michael Vogelzang, who oversees $2 billion as president and chief investment officer at Boston Advisors LLC in Boston. ``The long-term view for the market is pretty good.''
Stocks gained as the decrease in jobless claims signaled that companies are responding to the current economic slowdown by cutting back on hiring rather than letting go of more staff, in contrast to previous economic slumps. Treasuries, which had fallen before the report, extended their declines after the figures.
Citigroup, the largest U.S. bank by assets, climbed 3.1 percent to $21.72. IBM, the largest computer-services company, added 0.9 percent to $124.70.
Limited Rallies
Limited Brands added 3 percent to $18.85. Profit excluding items was 11 cents a share, 3 cents above the average estimate of analysts surveyed by Bloomberg. The company also forecast higher annual earnings than it previously projected.
Wal-Mart Stores Inc., the world's largest retailer, added 1.5 percent to $56.05, leading companies that sell household products to consumers to the steepest gain among 10 S&P 500 industries.
Financial stocks in the S&P 500 rose 0.9 percent as a group, breaking a four-day slump, after a report showed home prices fell less than forecast in the first quarter and investors speculated the buyout of BCE Inc. will collapse, freeing banks of the obligation to finance the $52.9 billion takeover.
Home Prices dropped 0.2 percent from the previous quarter, according to the Office of Federal Housing Enterprise Oversight, less than the 1.3 percent estimate of economists surveyed by Bloomberg.
JPMorgan Chase & Co., the third-largest U.S. bank, gained 1.5 percent to $43.05.
Utilities Advance
Utility companies rose after NRG Energy Inc. made an unsolicited offer to buy Calpine Corp. for $9.6 billion in stock. NRG, the second-biggest power producer in Texas, offered 0.534 share for every Calpine share, or 6.7 percent above yesterday's closing price, as it seeks to become the largest independent power company in the U.S. NRG lost 5.1 percent to $40.35. Calpine jumped 8.1 percent to $23.
Dynegy Inc., the owner of power plants in 12 U.S. states, gained for the eighth day, rising 0.6 percent to $9.64.
Wendy's International Inc. jumped 6 percent to $29.73. The third-biggest U.S. hamburger chain could increase its value as much as 50 percent by selling stores and real estate, William Ackman, whose hedge fund is the company's largest shareholder, said yesterday at a conference in New York.
Sovereign Jumps
Sovereign Bancorp Inc. gained the most in the S&P 500, rising 8.4 percent to $8.78. Michael Price, the billionaire value manager and president of MFP Investors LLC, said he's ``long'' on the second-largest U.S. savings and loan.
Level 3 Communications Inc. gained the most in the Nasdaq- 100 Index, rising 11 percent to $3.50. The unprofitable operator of fiber-optic phone networks was raised to ``market perform'' from ``underperform'' by analyst Jennifer Fritzsche at Wachovia Capital Markets LLC. Level 3 may reach its 2008 forecast for earnings before interest, taxes, depreciation and amortization because of improving cost controls, she said.
Energy companies fell 1.1 percent, the steepest decline among 10 S&P 500 industries. Exxon Mobil Corp., the largest U.S. energy producer, slipped $1.16 to $92.51. Chevron, the second- biggest, fell $1.11 to $101.91. Crude slid more than $2 a barrel on signs that a 16 percent run-up in prices this month isn't justified by stockpiles and demand. Prices had climbed above $135 a barrel earlier as OPEC ministers said they could do nothing to prevent higher prices.
`Thinner and Thinner'
Raw-materials producers fell as copper retreated and the dollar rose, sending gold down from a one-month high. Barrick Gold Corp., the world's largest gold producer, lost 13 cents to $42.56, snapping a five-day rally.
``It's hard to keep your attention away from commodities and energy,'' Jeffrey Davis, who helps manage about $4.8 billion as chief investment officer at Lee Munder Capital Group in Boston, told Bloomberg Television. ``The reasoning and rationale for the rise are getting thinner and thinner. You can't avoid the fact that it's driving the markets right now.''
BCE fell the most since at least 1980, plunging 13 percent to $33.10 in U.S. trading. Investors bet the Canadian phone company's record C$52 billion ($52.9 billion) leveraged buyout may collapse or be renegotiated at a lower price. Bondholders won an unexpected court ruling yesterday, allowing investors to challenge the LBO because BCE didn't take their interests into account. A collapse would make it the largest leveraged buyout ever to fail.
Abandoned Buyouts
BCE would top the list of 62 LBOs worth a combined $174 billion announced last year that have been abandoned, according to data compiled by Bloomberg. Banks and buyout firms sought to scrap or renegotiate LBOs of companies, including SLM Corp. and Clear Channel Communications Inc. since the credit crunch.
The potential cancellation of the buyout may help loan prices recover by removing the largest portion of high-yield, high-risk debt banks need to sell from last year's deals.
Ford Motor Co. lost the most in almost four weeks, falling 64 cents, or 8.2 percent, to $7.16. The second-biggest U.S. automaker said it won't meet Chief Executive Officer Alan Mulally's goal of returning to profit next year because higher costs for steel and gasoline will hurt earnings.
Larger rival General Motors Corp. slid 69 cents, or 3.6 percent, to $18.43, extending its three-day slide to 12 percent.
GameStop, Moody's
GameStop Corp. lost $1.99, or 3.9 percent, to $48.85 after the world's largest video-game retailer said sales growth this year may slow.
Moody's Corp. slid for a third day, losing 6.5 percent to $34.51 and bringing its decline over the period to 25 percent. The owner of the second-largest credit-rating company faces increased government scrutiny after starting an internal probe into whether a computer error gave top rankings to securities that didn't deserve them.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, climbed 0.8 percent to 733.01. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.3 percent to 14,127.12. Based on its advance, the value of stocks increased by $53.6 billion.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: May 22, 2008 16:35 EDT
BL: Ford Chief Abandons 2009 Profit Goal on Rising Costs (Update2)
By Bill Koenig and Jeff Green
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May 22 (Bloomberg) -- Ford Motor Co. abandoned a target of returning to profit next year because of rising costs for steel and gasoline, a month after Chief Executive Officer Alan Mulally said the second-largest U.S. automaker expected to meet its goal.
Ford fell the most in almost a month on the New York Stock Exchange. North American vehicle production will be cut for the rest of this year, the Dearborn, Michigan-based company said today. Mulally told analysts and reporters on a conference call that the sales outlook darkened in May's first half.
The CEO declined to say whether he expects a profit in 2010 and said Ford, which lost $15.3 billion in the past two years, would know more when it reports second-quarter results in July. U.S. sales at the maker of F-Series pickups and Explorer sport- utility vehicles fell 9.8 percent this year through April as gasoline prices approached $4 a gallon.
``It's a stumble,'' said Bernie McGinn, president of McGinn Investment Management Inc. in Alexandria, Virginia, which owns 300,000 Ford shares and bought more this morning. ``It's a punch in the gut to people in Detroit, but the long-term story is still intact. This is still a two- or three-year play.''
Ford will pare North American production 15 percent from a year earlier this quarter, from a previous 12 percent cut. It plans to reduce output in the region as much as 20 percent in the third quarter and up to 8 percent in the fourth quarter.
The company also expects to write down the value of North American auto assets, according to a U.S. regulatory filing. Ford said it can't specify the amount yet.
Ford fell 64 cents, or 8.2 percent, to $7.16 at 4:15 p.m. in NYSE composite trading, the biggest decline since April 25. The shares have risen 6.4 percent this year. The company's bonds fell and its credit-default swaps rose, an indication investors think Ford is less creditworthy.
Kerkorian Offer
Ford's board also took a neutral stance on billionaire Kirk Kerkorian's offer to buy 20 million shares, in addition to the 100 million he already owns.
Kerkorian, 90, disclosed in April that he held a 4.6 percent stake and on May 9 began a tender offer to buy the additional shares at $8.50 each, which would raise his stake to 5.5 percent.
The investor has a history as an activist shareholder at Chrysler Corp. and General Motors Corp. His Tracinda Corp. made a hostile bid for Chrysler in 1995 and pressed for major changes at GM a decade later. Tracinda has said it invested in Ford because Mulally was turning around the automaker.
The Ford offer runs through June 9, unless it's extended. Tom Johnson, a Tracinda spokesman, declined to comment today.
``We welcome Tracinda and thank them for their confidence in our plan,'' Chairman William Clay Ford Jr. said at the automaker's May 8 shareholders meeting. Mulally today declined to comment beyond the company's statements.
`Tipping Point'
The revised outlook by Ford is a setback for Mulally, 62, who was recruited to the company in 2006 and had pledged to return it to profitability next year. Ford cited ``the rapidly changing business environment in the U.S.''
Sales of pickup trucks, vans and sport-utility vehicles deteriorated further in May's first half because of rising fuel prices, Mulally said today on the conference call. ``It seemed like we reached a tipping point.''
The light trucks were 65 percent of Ford sales through April, making the company more vulnerable than Asia-based rivals such as Toyota Motor Corp. and Honda Motor Co. as gasoline prices have pushed consumers to cars, typically more fuel-efficient.
More Cuts Ahead
Ford will ``take decisive action'' to regain profitability, which ``will take longer than we originally thought,'' he said on the call. The company expects to eliminate more production and salaried jobs, Mulally said, without elaborating. Ford will announce more cost cuts by its July earnings release, he said.
The company already has proposed buyouts at plants in Chicago and Louisville, Kentucky. Those offers may be extended to other U.S. factories, Mulally said, without elaborating.
Ford notified 430 workers at its Windsor, Ontario, engine plant that they may be laid off within 8 weeks, spokesman Mark Truby said today. The factory makes V-8s for the company's large trucks. The exact number of layoffs will ``become clearer as we work through our production volumes,'' Truby said.
The new round of job cuts will be finished by Aug. 1, Mulally said in a memo to employees that the Detroit Free Press put on its Web site. ``We want to do what is right for the future of our business and also respect the fact these actions will personally affect our team and their families,'' the memo said.
Unexpected Profit
The automaker had affirmed the 2009 profit target April 24 when it reported a first-quarter net income of $100 million, after analysts had estimated a loss. Ford never specified a figure for the forecast, which excludes what the company considers one-time costs and gains.
Analysts had expected a 2009 profit of 53 cents a share, the average of 13 estimates compiled by Bloomberg.
``It's hard to say if Ford is doing enough,'' George Magliano, auto research director at Global Insight Inc., told Bloomberg Television. ``We are looking at a recession extending well into 2009.''
Ford said it expects to use $14 billion to $16 billion in cash from 2007 through 2009. The company said that's up from its previous projection, which it didn't specify, while lower than its initial $17 billion forecast. Ford said it had access to $40.6 billion in funds as of March 31, including credit lines.
The company has been unable to meet many of its profit targets set during this decade. Bill Ford, then the chief executive, in 2002 set a 2006 target of $7 billion in pretax profit. That was withdrawn in April 2005.
Start of Losses
Ford began posting losses in the second half of 2005 as sales of sport-utility vehicles and large pickup trucks, its main source of profit in the 1990s, faltered. Ford in early 2006 first set a target for its North American auto unit, the main source of losses, to be profitable this year.
The company said Sept. 15, 2006, that the target was delayed to 2009. The revision came two weeks after Mulally joined Ford from Boeing Co., where he led the commercial aircraft business.
The automaker's cutbacks come as wholesale and raw-material costs climb, while a weakening economy has hampered companies from passing the expenses on to consumers.
Steel prices surged to a record $850 a ton last month, 47 percent higher than in January, according to an April 30 report from Purchasing Magazine.
Ford's 7.45 percent note due July 2031 fell 2.06 cents to 71.44 cents on the dollar, according to Trace, the price- reporting system of the Financial Industry Regulatory Authority. The yield increased to 10.84 percent.
Credit-default swaps on Ford debt gained 76 basis points to 977 basis points, according to CMA Datavision in London. The contracts are designed to protect bondholders against default. A rise in the price indicates a decline in the perception of a company's credit quality.
Standard & Poor's changed its outlook on Ford debt to ``negative,'' meaning the rating may be lowered. S&P kept its rating of B, five levels below investment grade. Moody's Investors Service affirmed Ford at B3, six levels into junk.
To contact the reporters on this story: Bill Koenig in Southfield, Michigan at wkoenig@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net.
Last Updated: May 22, 2008 16:21 EDT
R: FACTBOX: Why oil prices are at a record high
Wed May 21, 2008 9:41am EDT
(Reuters) - U.S. crude oil hit an all-time high of $130.47 a barrel.
Robust demand for crude and a weak dollar have fuelled the rally from a dip below $50 at the start of 2007.
Adjusted for inflation, oil is now above the $101.70 peak hit in April 1980, according to the International Energy Agency, a year after the Iranian revolution.
DOLLAR WEAKNESS
The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap.
It has also reduced the purchasing power of OPEC's revenues and increased the purchasing power of some non-dollar consumers.
OPEC oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.
Some analysts say investors have been using oil as a hedge against the weaker dollar.
FUNDS
Since the Federal Reserve cut U.S. interest rates in mid-August last year and central banks pumped billions of dollars into financial markets to ease a credit crunch, oil and gold have risen.
Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, the credit crunch has brought some other markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill.
Some of that money has found its way into energy and commodities, analysts say.
DEMAND
While previous price spikes have been triggered by supply disruptions, demand from top consumers the United States and China is a main driver of the current rally.
Global demand growth has slowed after a surge in 2004 but is still rising and higher prices have so far had a limited effect on economic growth.
Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they have been until recently lower than during previous price spikes and some economies have become less energy intensive.
OPEC SUPPLY RESTRAINT
The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices.
Fewer OPEC barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged OPEC to pump more oil.
At its meetings since December, OPEC has agreed to leave output unchanged, saying there is enough crude in the market. It next meets formally on September 9.
Few in the group believe there is much it can do to tame a market it says defies logic.
NIGERIA
Supply of crude from Nigeria, the world's eighth-largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.
Oil companies and trading sources have detailed 559,000 bpd of shut Nigerian production due to militant attacks and sabotage.
IRAN
Oil consumers are concerned about supply disruption from Iran, the world's fourth-biggest exporter, which is locked in a dispute with the West over its nuclear program.
Western governments suspect Iran is using its civilian nuclear program as a cover to develop nuclear weapons. Iran denies this, saying it wants nuclear power to make electricity.
IRAQ
Iraq is struggling to get its oil industry back on its feet after decades of wars, sanctions and underinvestment.
Exports of Kirkuk crude from the country's north are stabilizing as the system recovers from technical problems that had mostly idled the pipeline since the U.S.-led invasion of Iraq in March 2003.
REFINERY BOTTLENECKS
Refiners in the United States, the world's top gas guzzler, struggled with unexpected outages which have drained inventories.
Congrats to all in SINO! And remember to take profits if you got em.