U.S. to become top oil producer by 2015.... Start The Research Traders
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Which way is this market going..lol
BlackRock’s Birch Quits Gold Fund for Dairy Farming (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Chanyaporn Chanjaroen
Jan. 15 (Bloomberg) -- Graham Birch quit as manager of BlackRock Inc.’s BGF World Gold Fund, which outperformed its benchmark index in nine of the past 10 years, to run a dairy farm in southwest England.
Birch, head of BlackRock’s natural resources team, had been on sabbatical since March and was scheduled to return at the beginning of this year. The 49-year-old will now run his 2,300- acre farm in Dorset full time.
“I want to take a break from the City,” Birch said by phone today, referring to London’s financial district. Farming “takes up most of my time now,” he said from his holding, which produces milk and grains.
The World Gold Fund, co-managed by Evy Hambro, invests in natural resources equities and held almost $6.9 billion of assets at the end of last year, according to data compiled by Bloomberg. The Luxembourg-listed shares rose from $5.82 at the end of 2000 to $52.27 yesterday.
Birch also managed or co-managed BlackRock’s World Mining Trust, Agriculture Hedge Fund and Natural Resources Hedge Fund. He began his career as a mining equity analyst with Panmure Gordon in 1984, with similar roles at Kleinwort Benson Securities and Ord Minnett. He also worked for Mercury Asset Management and Merrill Lynch Investment Managers, which merged with BlackRock in 2006.
Morningstar Ratings
Hambro and Robin Batchelor will take over Birch’s responsibilities as head of BlackRock’s natural-resources equity team, according to Emma Phillips, a BlackRock spokeswoman. The team oversees $36.3 billion, she said.
Morningstar Inc., a Chicago-based investment research company, maintained its ratings on the BlackRock funds following Birch’s departure. “It was clear the team was already prepared for whatever decision Birch made,” Jackie Beard, head of U.K. fund research, wrote today in a note.
Morningstar maintained its top rating for BlackRock Gold & General, BGF World Gold and BGF World Mining. BGF World Energy and BGF New Energy are rated “superior,” the second-best rank.
Birch has a degree in mining geology from Imperial College and earned a doctorate there in the same subject in 1984.
His farm produces 3 million liters (792,000 gallons) of milk a year and supplies Dairy Crest Group Plc, the U.K.’s biggest milk and cheese producer.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
Last Updated: January 15, 2010 11:51 EST
Microsoft May Unveil New Mobile Windows in February (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Dina Bass
Jan. 15 (Bloomberg) -- Microsoft Corp. plans to unveil its new mobile-phone operating system next month, a bid to reverse market share losses to Google Inc. and Apple Inc., according to a person familiar with the matter.
The company may use the Mobile World Congress in Barcelona to demonstrate the new software, called Windows Mobile 7, said the person, who didn’t want to be identified because the plans are confidential. The decision isn’t final, the person said.
Microsoft is counting on the software to reignite enthusiasm for Windows Mobile among consumers and phone makers. The last update -- Windows Mobile 6.5, which came out in October -- didn’t do enough to advance the software, said Matt Rosoff, an analyst at Kirkland, Washington-based Directions on Microsoft.
“The sooner they show Windows Mobile 7, the better,” he said. “The longer Microsoft delays and the longer they are perceived as having a mobile operating system that just doesn’t look modern, the less consumer interest there will be and handset manufacturers will look at other options.”
Debbie Anderson, a spokeswoman for Redmond, Washington- based Microsoft, declined to comment on the timing of an announcement. “We’re always working on future versions and have nothing new to announce,” she said.
‘Almost Nothing’
Microsoft has said “almost nothing” about Windows Mobile 7, Rosoff said. Chief Executive Officer Steve Ballmer said a year ago that the program would come out in 2010. Microsoft doesn’t produce its own phone, just an operating system for partners to use.
Windows Mobile has lost market share to Apple’s iPhone, Research In Motion Ltd.’s BlackBerry and models that use Google’s Android software, according to Stamford, Connecticut- based Gartner Inc. Android is a freely available operating system used by Motorola Inc., HTC Corp. and other manufacturers. Google, based in Mountain View, California, introduced its own phone based on the software this month.
Android is “a particular threat” to win over handset makers looking to ditch the Windows software, Rosoff said.
Microsoft fell 10 cents to $30.86 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares climbed 57 percent last year.
Microsoft’s share of the smartphone operating-system market shrank to 7.9 percent in the third quarter, compared with 11 percent in the year-earlier period, according to Gartner.
Market Share
Research In Motion’s share rose to 21 percent from 16 percent, while Apple increased to 17 percent from 13 percent. Android had 3.5 percent of the market in the quarter, up from none a year earlier.
Microsoft’s next mobile operating system “really does move the bar forward, not in an evolutionary way from where we are today, but it’s something that feels, looks, acts and performs completely different,” Robbie Bach, a Microsoft president who oversees the mobile business, told analysts at the Consumer Electronics Show this month.
The company needs it, Rosoff said.
“Their lack of execution so far is very troubling,” he said. “It’s always possible to turn it around with a great product, particularly in the mobile space because people buy new handsets every two years. But nothing about their execution so far gives me any confidence that will happen.”
To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net
Last Updated: January 15, 2010 16:05 EST
Kraft’s Cadbury Bid Tests Chief Rosenfeld’s Persuasion Powers
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Susan Berfield and Michael Arndt
Jan. 15 (Bloomberg) -- Irene Rosenfeld hasn’t been around Kraft Foods Inc.’s suburban Chicago headquarters much lately. The door to her wood-paneled office is kept closed. Her desk is bare. Rosenfeld has grabbed her leather folders of meticulously compiled research and is traveling to London and around the U.S. in Kraft’s Gulfstream jet.
These trips weren’t supposed to be urgent or secretive. They’ve become both as Rosenfeld works to reassure shareholders that her about $17 billion hostile bid to buy U.K. candy maker Cadbury Plc will be good for them. She has until Jan. 19 to make a final offer, and until Feb. 2 to get a majority of acceptances from Cadbury shareholders. Rosenfeld, 56, has led Kraft since 2006 and has worked there for almost her entire professional career.
She can be pretty persuasive, John Bowlin, who ran Kraft North America in the mid-1990s, says in the Jan. 25 issue of Bloomberg BusinessWeek magazine. Early on in her career, she told her bosses that commercials for Kool-Aid should be aimed at kids, not mothers, and that Jell-O could be made modern with new flavors, according to Carol Herman, who worked on Kraft accounts at advertising firm Grey in the 1980s and 1990s and is a close friend of Rosenfeld’s. In the late 1990s, Rosenfeld turned around Kraft’s business in Canada; the first thing she had to do was to show skeptical colleagues that an American could understand Canadian consumers, Herman said.
“When she is trying to persuade you of something, she will be relentless in coming back with facts and showing you she has the support of other people,” Bowlin said. “She will be totally emotionally and intellectually committed to her idea.”
Powers of Persuasion
Rosenfeld must summon all of her powers of persuasion as she takes on her biggest marketing challenge yet: selling the Cadbury deal to shareholders. Her task is all the more difficult because she has alienated Northfield, Illinois-based Kraft’s biggest shareholder, billionaire investor Warren Buffett.
Rosenfeld told investors on Dec. 18 she planned to issue new stock to help pay for the purchase. Buffett, 79, objected to the plan in a Jan. 5 press release and urged Kraft not to overpay by using too many of its own shares. Rosenfeld and Buffett declined to comment through spokespeople.
Win or lose, the Cadbury affair “will be defining for her career,” says former Kraft Chief Executive Officer Robert S. Morrison.
Kraft is the world’s No. 2 food company after Nestle SA, selling $42 billion worth of Kraft Macaroni & Cheese, Oreos, Oscar Mayer cold cuts, and hundreds of other brands each year. It is the product of two decades of deal-making. Philip Morris International, seeking to broaden its reach beyond cigarettes, bought General Foods, the owner of Jell-O, Minute Rice, and Kool-Aid, in 1985, succeeded in a hostile takeover of Kraft in 1988, merged the companies by 1995, and bought Nabisco five years later.
General Foods
Rosenfeld got her start in market research at General Foods, which was based in Westchester County, New York, in 1981. She had spent most of the previous decade at Cornell University, completing an undergraduate degree in psychology, a master’s degree in business administration and a doctorate in marketing and statistics. Her thesis adviser, Vithala Rao, recalls that even though Rosenfeld was working and pregnant, she was determined to finish her dissertation on how consumers make decisions about purchases.
“She knew a Ph.D would give her an edge in the business world,” says Rao. “And her husband was getting one. They were a little competitive.”
When Rosenfeld presented her bosses at General Foods with research showing that Kool-Aid should be marketed directly to kids, the pitch won her a job working on the brand full-time.
First Meeting
After a presentation at one of her first meetings with Grey, Rosenfeld was so excited that she applauded. Back then, junior employees were expected to stay silent, according to Herman, the former Grey executive.
“We were all so shocked and amused by her reaction,” says Herman.
Rosenfeld came up through the ranks at General Foods and Kraft -- eventually overseeing the Nabisco integration and serving as president of Kraft North America. She would call people with ideas, however big or small, late into the night, according to Herman.
“I can’t tell you how many midnight talks we had about Minute Rice and Stove Top stuffing,” Herman says.
“Irene didn’t need a lot of advice. That’s why I liked her. She was giving me the right answers,” says James Kilts, a former Kraft president who later ran Gillette.
In 2001, Betsy Holden was appointed co-chief executive alongside Roger Deromedi. Rosenfeld stayed on almost two more years, then left to join Frito-Lay, a Kraft rival.
‘Fearless’ Executive
“Irene thought about the marketing agenda and innovation much more aggressively” than the company was used to, says Indra Nooyi, the CEO of Purchase, New York-based PepsiCo Inc., which owns Frito-Lay. “She was fearless in what she did.”
When Kraft asked Rosenfeld to return as CEO in June 2006, she agreed. Kraft was faltering amid high commodity prices, increasing competition from private labels, and its focus on cost-cutting. She told Kraft’s almost 100,000 employees that the company had lost its heart and soul and needed to “rewire for growth.”
In a speech at Cornell in 2007, Rosenfeld described her return to Kraft.
“The staff was tired, raw, disillusioned,” she told the audience. “My slogan was, ‘let’s get growing.’ It’s not a warm and fuzzy strategy.”
‘Should we?’
She replaced half of her executive team and half of those in the next two levels down. She reorganized the structure of the company, changed how people receive their bonuses, and told everyone “to stop apologizing for our categories and make them more relevant.” She concluded her talk: “Sometimes I lie awake thinking, ‘Should we?’ And then I think, ‘How can we not?’”
When billionaire investor Nelson Peltz pushed her to sell some brands, she did, unloading Veryfine fruit juice and Post cereals, according to reports at that time. When she asked him not to purchase more than 10 percent of the company, he agreed.
Peltz was also an investor in Cadbury Schweppes, and he persuaded the U.K. food company to sell its soft drink division in 2008 and focus on its candy business. That would set the stage for Rosenfeld’s takeover bid and provide Cadbury its defense: It didn’t want to lose its focus by becoming part of a large company.
Even though consumers ate at home more often during the global recession and ingredient prices fell, Kraft was forced to cut prices to compete with private label products.
Kraft Stock
Kraft stock, sold to the public at $31 a share in 2001, fell as low as $21 last March. It has traded at an average of almost $29 this year.
The company introduced items such as Bagel-fuls, bagels stuffed with Philadelphia cream cheese, and created premium toppings for Kraft’s DiGiorno frozen pizza.
Rosenfeld also began studying the possibility of buying Cadbury, which sells Trident gum and chocolate in 60 countries.
“She wanted to capture the imagination of the world about what Kraft could be,” says Shelly Lazarus, chairman of advertising agency Ogilvy & Mather Worldwide, which works with Kraft.
On Aug. 28 Rosenfeld met with Cadbury Chairman Roger Carr in London to lay out her plan.
‘Brisk, Efficient’
“She was brisk, efficient, delivered her proposal and left quite quickly,” says Carr. The two haven’t spoken since, he says.
They have exchanged a few letters. In the first, which Carr sent to Rosenfeld the next week, he called the offer “derisory.” On Sept. 7, Rosenfeld announced Kraft’s bid in a news release on the corporate Web site, to try to win over shareholders directly. She spoke to several U.K. newspapers about her admiration for Cadbury and the great promise of a merger.
“I am a heavy, heavy user of Trident gum and, on a seasonal basis, I love those Cadbury eggs,” she said in a video interview posted on the Kraft site.
Rosenfeld made a hostile bid on Nov. 9.
“Our proposal offers the best immediate and long-term value for Cadbury’s shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent,” she wrote in the formal offer.
Pizza Deal
She was also juggling another deal that would determine how much Kraft could spend for Cadbury. In early 2009, Vevey, Switzerland-based Nestle expressed interest in buying DiGiorno and the rest of Kraft’s pizza business, according to Michael Mitchell, a Kraft spokesman. Rosenfeld concluded that selling the unit made sense: Frozen pizza wouldn’t do well outside of North America, and within the company it was an isolated brand. Next, she had to persuade the board.
“It was a difficult decision. But once we got our heads around the strategic and financial rationale for the deal, it became clear,” says Perry Yeatman, a Kraft spokeswoman.
On Jan. 5, Kraft said it would sell the pizza business to Nestle for $3.7 billion. The deal would give Rosenfeld the cash she’d need to pursue Cadbury. There was another benefit: Nestle, Kraft’s main rival for Cadbury, said it wouldn’t bid.
Warren Buffett
On the same day, Buffett went public with his concerns, calling Rosenfeld’s proposal to issue more shares a “blank check.” He said that while the company had bought back shares at a price of $33 a piece in 2007, it would be selling the new shares for the Cadbury transaction for far less. He also said he would support an offer that “does not destroy value for Kraft shareholders.”
“What is she wasting our money for?” says John Kornitzer, founder of Kornitzer Capital Management in Shawnee Mission, Kansas. “To chase after these guys is ridiculous.”
Alice Schroeder, a former Wall Street analyst and author of a biography of Buffett who also writes a column for Bloomberg News, says that even if Rosenfeld had consulted with Buffett, it might serve his purposes to take a public stand. He can take credit for reining her in and defending shareholders, she says.
“No matter how this turns out, Warren looks great,” she says.
On Jan. 12, Carr released a “defense document” on Uxbridge, England-based Cadbury’s Web site, saying “the bid is even more unattractive today than it was when Kraft made its formal offer.” Kraft called the argument “underwhelming.”
Kraft Shareholders
“The clarity with which we reviewed Kraft’s own record must have been disturbing for them and illuminating for our shareholders.” Carr said.
Kraft shareholders will vote on whether to issue more stock on Feb. 1; the next day Cadbury stockholders will vote on the offer. Rosenfeld spent Jan. 12 with Cadbury investors in the U.S. before jetting to London to talk with Cadbury shareholders there. Some refused her visit, says Carr. While Rosenfeld remains determined to make Kraft bigger and more global, finding a price for Cadbury that works for everyone might be impossible.
“Rosenfeld has made it clear that she’s disciplined, that she won’t overpay,” says Donald Yacktman, president of Yacktman Asset Management, a longtime investor. “I guess we’ll find out how much she really means what she says.”
To contact the reporters on this story: Susan Berfield in New York at 212.512.3410 or susan_berfield@businessweek.com; Michael Arndt in Chicago at Michael_arndt@businessweek.com.
Last Updated: January 15, 2010 09:29 EST
Trading-Pit Glamour Dims as Computers Ascend in Film (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Tony C. Dreibus
Jan. 15 (Bloomberg) -- Doug Pringle saw punches thrown, blood spilled and fortunes lost during his 17-year career at the Chicago Board of Trade. He misses it, every day.
“The biting of the nose and the fights, sure, when you’re throwing around that kind of money, people tend to lose it sometimes,” said Pringle, 42, who traded corn, soybeans, 10- year Treasury notes and 30-year bonds. “I miss the excitement.”
Chicago’s open-outcry nostalgists can now watch their slow- motion obituary on film. “Floored,” a documentary that premieres in the city tonight, captures the fading swagger of its exchange pits as electronic trading takes over.
Traders and former traders in the film recount drug-fueled road trips with prostitutes, living in mansions, and a crash that included divorce and having to take a $400-a-week job.
The numbers in Chicago’s pits peaked in 1997, with about 10,000 traders flailing their arms with buy and sell signals in a daily scrum of sweating and shouting, said Steve Prosniewski, a trader who’s one of the film’s producers. Less than 10 percent of those remain, he said.
‘Alive and Kicking’
“You were jammed like sardines, but alive and kicking,” said Prosniewski, 43. “Sometimes you’d drop all your trading cards and your pen on the floor, and you’d leave them there till the end of the day because you’d get crushed trying to bend over and get them.”
Chris Felix left the floor several years ago after electronic trading became more common and open outcry started dying out. Felix said he still misses trading, and after watching the documentary on an advance DVD, he had a hard time sleeping.
“I was so wound up, I couldn’t sleep for five hours,” said Felix, 37, who went on to start the Web site gizmohealth.com. “It was more like a flashback. I don’t miss the floor I left, but I miss the way it was.”
CME Group Inc. allowed the filmmakers to shoot inside the Chicago Mercantile Exchange in 2007 and the CBOT in 2008. This month, it refused to let the film’s director return to the trading floor to be interviewed. Allan Schoenberg, a CME spokesman, declined to comment.
‘Unfortunate Realities’
James Allen Smith, the director, declined to speculate on why CME officials are no longer cooperating. Felix said he thinks it’s because “Floored” shows some “unfortunate realities of the business.”
“The exchange, because it’s a multinational corporation, wants a marketing piece and to grow the business,” Felix said. “It isn’t in the CME Group’s best interest to address” certain questions.
Another producer, Joe Gibbons, is also a trader and appears in the film. In an interview at the Gene Siskel Film Center, where “Floored” will be shown tonight, Gibbons recalled the mix of competition and camaraderie that marked life in the pits.
“They’d rip your heart out,” said Gibbons, 49, who traded from 1985 to 2004 in the stock-index futures pits and now trades electronically. “Afterwards, the guy who just ripped your heart would go, ‘Can you give me a ride home?’”
“Floored” documents the shift from open outcry to the electronic trading that has drained the pits of thousands of traders in the past decade. The CME doesn’t track the decline in how many people work on the floor, said Mary Haffenberg, a spokeswoman.
No Degree Required
Many pit traders who never went to college took pride in the fact that they could make more money than the guy next to them who had a business degree, Gibbons said. The electronic- trading firms are filled with engineers and computer scientists who anonymously trade with the click of a mouse, not off fear in the eyes of traders in the pits, he said.
Making the switch could be difficult for people who have spent their entire careers trading on the floor, said Wesley Harr, 30, who trades on his own behalf.
“For a lot of these guys, the transition from the pit to the computer screen is really a difficult hurdle to overcome,” Harr said by telephone from Philadelphia. “I was raised with a computer, so it’s not a big leap for me, but people who grew up doing it that way may have a harder time.”
Michael Krueger, an equity derivatives trader at Timber Hill LLC in Greenwich, Connecticut, still misses the 10 years he spent on the floor of the Chicago Mercantile Exchange.
“It was the greatest job you can hope to have,” said Krueger, who earned an advanced degree in computer science after leaving the pits. “I knew all types at the exchange who clawed and spit and bit their way to the top.”
The Siskel center will have special screenings at 4 p.m. on Jan. 19 and 21 for traders leaving the pits.
Smith, the director, made the movie to show future generations a disappearing world.
“I hope it can be sort of a time capsule,” he said. “People have been predicting the end of the floor for 20-plus years. I wanted to say ‘Let’s look at this before it’s gone.’”
To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.
Last Updated: January 15, 2010 10:44 EST
China’s Round-The-Clock Auto Factories Still Cannot Meet Demand
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Bloomberg News
Jan. 15 (Bloomberg) -- Nissan Motor Co.’s factory in central China is making cars almost 24 hours a day, yet Pan Xiaowei still waited three months for her new Tiida compact to arrive at the dealership.
“It wasn’t like this a couple of years ago,” said Pan, 34, whose husband runs a property development company in Shandong province. “We used to buy and get a car straight away, and now you have to pre-order and wait.”
China overtook the U.S. last year as the world’s largest automobile market with sales surging 46 percent to 13.6 million, according to the China Association of Automobile Manufacturers. Nissan, Ford Motor Co. and Honda Motor Co. are running their Chinese factories at full capacity, with overtime and weekend shifts, and still can’t deliver enough cars.
“Based on our current growth rate and planning assumptions, the capacity of our two facilities will not be able to accommodate the expected future demand for our products,” Nigel Harris, general manager of Ford’s venture with Chongqing Changan Automobile Co., said in an e-mail.
About 99.7 percent of cars made in China through November last year were sold, the association said. Foreign automakers are expanding assembly lines as buyers in secondary cities beyond Beijing and Shanghai benefit from government subsidies of at least 5 billion yuan ($732.5 million), a sales tax cut and 8.9 percent economic growth.
Rural Consumption
Car sales have been fueled by demand in rural areas where the growth rate exceeded that of urban regions last year for the first time, Trade Minister Chen Deming said in a Jan. 13 interview with state broadcaster CCTV.
“Spending power in the medium and small cities is rising, and demand there has surpassed those in bigger cities,” said Wei Tuo, a Henan province dealer for Nissan’s joint venture with Wuhan-based Dongfeng Motor Group Co. “Cars are no longer considered a luxury item but a standard consumer product.”
Wei’s company has about 40 outlets in the central region selling several brands. About 55-60 percent of sales come from middle- and small-sized cities, he said.
Nissan is the No. 1 Japanese automaker in China, with last year’s sales rising 39 percent to 756,000, outselling Toyota Motor Corp. and Honda, according to the three companies. Nissan’s top seller is the Teana.
Running Almost 24 Hours
Nissan is spending 5 billion yuan to expand its Hubei province plant to build up to 600,000 vehicles annually from the current 430,000, spokeswoman Kana Minamidate said. That central China factory makes the Tiida compact and Livina series popular in secondary markets, she said.
“The plant was originally operating with two shifts but now we have three shifts to build cars almost 24 hours a day,” Minamidate said, adding that customers still wait for deliveries.
Nissan also is spending 1 billion yuan on a light- commercial vehicle factory in the eastern city of Zhengzhou that will open this year and build up to 120,000 vehicles annually.
China requires overseas carmakers to work with local partners, who must own at least 50 percent of joint ventures. These ventures produced eight of the 10 best-selling cars last year, according to automobile association data.
Changan Ford Mazda Automobile Co. has plants in Chongqing and Nanjing building cars “at maximum allowable overtime and weekends,” Harris said. The company will open a $490 million factory in Chongqing in 2012 making up to 150,000 vehicles a year, boosting overall capacity to 600,000.
‘More Traffic Jams’
Near-term growth will be concentrated in eastern and central regions, and cities outside Beijing, Guangzhou, Shanghai and Shenzhen, Harris said. The venture opened more than 65 percent of its new dealerships last year in smaller cities, and that proportion is expected to reach 75 percent in the next few years.
“There are more traffic jams in Chengdu than in Beijing,” said Zheng Minda, vice general manager of a Ford dealership in the Sichuan province city. “Demand is greater than supply.”
Customers wait at least a month for delivery, he said.
The government unveiled stimulus packages and new bank lending to spur domestic consumption after GDP growth slumped for eight straight quarters and exports declined for 14 months as the global recession took hold.
Still, automakers face possible overcapacity in China, according to Chen Bin, who oversees regulation of the country’s auto industry at the National Development and Reform Commission.
China has more than 100 automakers and they should “keep their heads cool” to prevent expanding production beyond demand, Chen said in September.
Income Gap
Urban residents earn about three times more than rural, who comprise more than half of China’s 1.3 billion people, according to government statistics.
Rural Chinese buying a new minivan or light truck can get a subsidy of 10 percent of the purchase price, up to 5,000 yuan. Those replacing light trucks can get another 5,000-18,000 yuan.
The government also reduced the sales tax on new vehicles with engines of 1.6 liters or smaller to 5 percent from 10 percent. It said Dec. 10 it was raising the rate to 7.5 percent.
Honda, which opened 55 dealerships mostly in small cities last year, is focusing expansion in suburbs and exurbs of major cities, said Masayuki Igarashi, general manager of its China operations office in Tokyo. Its best-selling model is the Accord.
Chief Financial Officer Yoichi Hojo said in November that the company, which makes about 550,000 cars a year in China, doesn’t have enough capacity. The Yokohama, Japan-based automaker plans to increase production at its Hubei province plant to 240,000 cars this year from 200,000.
The Wuhan factory runs at full capacity and built 210,000 units last year with overtime and weekend shifts, Honda spokesman Yoshiyuki Kuroda said. It makes CR-Vs, Civics and Accords, and wait times are at least a month, he said.
Pan, who lives between Beijing and Shanghai, said a lot of Chinese households now own two cars.
“It used to be that only company bosses could afford a car, but now teachers and office workers can also buy one,” she said.
--Stephanie Wong, Makiko Kitamura, Yuki Hagiwara. With assistance from Tian Ying in Beijing. Editors: Michael Tighe, Bret Okeson.
To contact the reporters on this story: Stephanie Wong in Shanghai at swong139@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net.
Last Updated: January 14, 2010 13:00 EST
Walgreen Plans to Offer Fresh Food, Prepared Meals (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Carol Wolf
Jan. 15 (Bloomberg) -- Walgreen Co. plans to offer fresh foods and prepared meals to draw “time-starved” shoppers to its more than 7,000 stores, taking on retailers such as Target Corp. and Kroger Co.
The drugstore chain has been talking with foodmakers including Unilever NV, Nestle SA and Sara Lee Corp. about creating private-label and branded products, said Bryan Pugh, vice president of merchandising.
“Everyone is time-starved and we have the most convenient 7,000 locations in the U.S.,” Pugh said in a Jan. 11 telephone interview. “They’re on-the-way-home destinations that are easy to get in and out of and will provide a good value.” He declined to say when the project will be implemented or how much it costs.
Walgreen, based in Deerfield, Illinois, must sort out supply and distribution issues and test in some markets before introducing freshly prepared foods such as salads, cut fruits, ready-to-bake pizzas and sandwiches into more stores, he said.
The goal of the program, along with the sale of beer and private-label wine, is to boost revenue, Pugh said. Same-store sales declined in November and December as 10 percent unemployment and falling home values blunted consumer spending.
“If they can get consumer acceptance, this would be good for sales,” said Andrew Wolf, a Richmond, Virginia-based analyst with BB&T Capital Markets, which recommends that investors buy the shares. “Consumers aren’t used to buying salads from a drugstore chain. That would have to change.”
One-Stop Shopping
The move will push Walgreen into competition with supermarket chains Kroger and Safeway Inc., membership warehouse clubs operated by Costco Wholesale Corp. and Wal-Mart Stores Inc., and retailers such as Target. Walmart’s supercenters sell prepared foods including ready-to-bake pizzas.
“You’ve also got convenience stores and gas stations trying to go in that direction,” said Bob Goldin, an executive vice president at Technomic Inc., a Chicago-based food industry consulting firm.
Walgreen “does have a lot of stores, but I don’t see it as being a venue of choice for consumers,” Goldin said. “It will be hard for them to establish credibility in freshness and variety. I don’t see it as being a big business driver.”
Target, the second-largest U.S. discount store, is expanding its food offerings in general merchandise stores under the name PFresh. PFresh stores will have fruit, ground meat and other fresh foods, as well as pre-made sandwiches, salads and other prepared meals in the store’s Food Avenue area, said Jana O’Leary, a spokeswoman.
Adding PFresh Stores
“Our customers asked for an expanded food section,” she said. “We want it to be a one-stop location for all their needs.”
Target has 108 PFresh stores and plans to have 350 by year’s end.
Walgreen hired a director of fresh foods, who will begin work in several weeks, Pugh said. He wouldn’t name the person.
“We won’t get our customer every day on the way home, but if we could get 50 percent of our customers one day a week on the way home, that would do wonders for our sales,” he said.
Pugh, 47, previously worked for Tesco Plc, the U.K.’s largest retailer, and helped design Tesco USA’s Fresh & Easy Neighborhood markets, which offered freshly prepared meals.
“Fresh & Easy conceptually was a home run, but it hasn’t worked out in the field,” BB&T’s Wolf said. “The stores lacked ambiance and were in low-rent, C locations. Walgreen’s has A locations. They really do have the best locations in the U.S.”
Private-Label Wines
Walgreen is selling private-label wines at about 1,500 locations. It sold more than 200,000 bottles, at $2.99 a bottle, since the line, which includes chardonnay, cabernet, zinfandel and merlot, was introduced in December under the Southern Point name, Pugh said. A $5.99 private label will be offered in April, he said.
Stores carrying beer and wine have higher average sales per person, he said. That purchase alone pushes up sales in a shopper’s grocery cart as much as 60 percent, he said.
“Beer and wine are proven winners for drugstores, but not proven fixers,” Wolf said. “What’s for dinner will be much trickier to pull off.” The challenge is attracting enough customers to keep the fresh food turning over and finding space for the new products in already crowded venues, he said.
Walgreen fell 51 cents to $36.60 at 4:15 p.m. in New York Stock Exchange composite trading. The shares rose 49 percent last year.
To contact the reporter on this story: Carol Wolf in Washington at cwolf@bloomberg.net.
Last Updated: January 15, 2010 16:53 EST
Chile’s ‘Pinera’ Stock Rally Is Over, Top Fund Says (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By James Attwood
Jan. 15 (Bloomberg) -- Chile’s region-beating equity rally fueled by prospects that billionaire investor Sebastian Pinera will become president is probably over, said the country’s best- performing fund manager in the last year.
Chile’s main stock index, the Ipsa, gained 9.5 percent and reached a record since Pinera won a first-round election on Dec. 13. The MSCI EM Latin America Index rose 0.2 percent. Even if Pinera wins this weekend’s runoff ballot against government candidate Senator Eduardo Frei investors may decide to sell stocks, Francisco Busquet, head of Latin American investments at Larrain Vial SA, said by telephone today.
“The typical ‘buy the rumor sell the fact’ exists here,” said Busquet, whose Multimercado mutual fund is the best- performing Chile-domiciled fund in the last year. “If he wins, it shouldn’t keep rising. It’s more likely to correct.”
Harvard University-educated Pinera vows to increase investment and create 1 million jobs by awarding concessions to build infrastructure such as schools, cutting taxes for small businesses and making government more efficient.
A victory by Christian Democrat Frei would give investors more reason to sell stocks and may spur a two- or three-day correction depending on global events next week, Busquet said.
The winner is unlikely to steer Latin America’s most stable economy away from the free-market policies that won it membership last month in the Paris-based Organization for Economic Cooperation and Development.
The underlying support for Chilean equities remains the economy’s nascent recovery from its deepest recession in a decade, Busquet said.
Larrain Vial added Chilean banking and retail stocks to its holdings in December amid signs of rebounding spending and construction, he said.
To contact the reporter on this story: James Attwood in Santiago at jattwood3@bloomberg.net
Last Updated: January 15, 2010 15:36 EST
Spyker Said to Be Lone Remaining Bidder for GM Unit (Update3)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Serena Saitto, Jeff Green and Ola Kinnander
Jan. 16 (Bloomberg) -- Dutch supercar maker Spyker Cars NV is the lone remaining bidder being considered for General Motors Co.’s Saab Automobile unit, said two people close to the situation.
GM will probably decide whether to continue sale talks or liquidate Saab by Jan. 18, said one of the people, who asked not to be identified because the details aren’t public.
Saab is among four brands, along with Pontiac, Saturn and Hummer, that the Detroit-based automaker is unloading to focus on Chevrolet, Buick, GMC and Cadillac in the U.S. after its bankruptcy exit on July 10.
Spyker has offered GM $75 million in cash and $325 million in preferred shares in the new company that would emerge from the transaction, said two people. GM would also keep $100 million of Saab’s existing liquidity, said the people. The details of the bid may change, two people said.
Spyker expects the purchase of Saab will be decided within a matter of days, Dutch newspaper AD reported, citing Chief Executive Officer Victor Muller.
“Discussions between Spyker and GM are ongoing,” Spyker spokesman Mike Stainton said in an interview today. “I’m not aware that anything has changed in the last few days.”
GM is considering bids for Saab while “we continue to wind down the company,” Chris Preuss, a spokesman, said yesterday. He declined to comment on details of the bids, including how many were under consideration.
Genii Capital
Other bidders for Saab have included Genii Capital, the private-equity firm that teamed up with Formula One tycoon Bernie Ecclestone; a group headed by Jan Nygren, a former Swedish deputy prime minister; and a Wyoming-based investor group led by Merbanco Inc. President Chris Johnston.
Genii still expects to enter talks with GM next week, one of its partners said yesterday.
“Genii remains committed and is still financially strong and should be able to deliver an even stronger bid to GM, with even more cash up front,” Lars Carlstroem, the Swedish investor working with Luxembourg-based Genii, said by telephone today. “We expect a dialogue with GM early next week.”
GM would sell to Spyker only on the condition that Russian businessman Vladimir Antonov, the chairman and biggest investor in the Zeewolde, Netherlands-based sports-car maker, exit the company, said one of the people. The other outstanding issue GM is evaluating is whether Saab has a future as a stand-alone company with sales volume of about 100,000 vehicles a year, the person said. Spyker spokesman Stainton said Antonov wasn’t available for comment.
Board Disbanded
Saab began in 1938 by making warplanes before it turned to making cars after World War II. Saab Chief Executive Officer Jan-Aake Jonsson handed over power to liquidators on Jan. 12 and the board was disbanded. The Swedish Companies Registration Office named GM nominees AlixPartners LLP Managing Director Stephen Taylor and Peter Toerngren of Swedish law firm Toerngren Magnell, to supervise the wind-down.
Swedish sports-car maker Koenigsegg Group AB, backed by Beijing Automotive Industry Holding Co., walked away from a deal to buy Saab in November.
Beijing Auto later paid $200 million to buy some automotive technology from Saab to use in its own vehicles.
To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Ola Kinnander in Stockholm at okinnander@bloomberg.net.
Last Updated: January 16, 2010 11:29 EST
LSE Names Kevin Milne to Run Post-Trade Services (Correct)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Nandini Sukumar
(Corrects Milne’s comment on trading costs in seventh paragraph.)
Jan. 18 (Bloomberg) -- London Stock Exchange Group Plc, which has surrendered 40 percent of trading in FTSE 100 stocks, named Kevin Milne to lead its post-trade services business as it seeks to boost alternative streams of revenue.
Milne, 47, is the former chief executive officer of Euroclear SA’s Xtrakter business, the exchange said in a statement today. He will lead a unit that includes Cassa di Compensazione & Garanzia and Monte Titoli SpA, which LSE acquired with its 2007 purchase of Borsa Italiana SpA. Massimo Capuano, who previously oversaw post-trade, will continue to be deputy CEO of LSE, head of the Italian exchange and head of legal and regulatory strategy, LSE said.
“He’s a well connected, well respected, industry veteran,” said Herbie Skeete, London-based managing director of Mondo Visione Ltd., which advises exchanges, and who’s known Milne for 15 years. “He knows all the moving parts.”
LSE Chief Executive Officer Xavier Rolet took over from Clara Furse in May last year and has cut costs and staff, is changing trading tariffs, introducing hidden orders and making acquisitions including rival trading platform Turquoise. Rolet has said he wants to expand LSE’s post-trade services including clearing. LSE lags rival Deutsche Boerse AG in post-trade.
Post-Trade Competition
Traditional exchanges including LSE, Frankfurt-based Deutsche Boerse AG and NYSE Euronext have been losing market share to so-called multilateral trading facilities including Turquoise, Bats Europe and Chi-X Europe Ltd., all of which are backed by banks and brokers, the biggest exchange customers. The MTFs have driven down trading fees and also encouraged competition in post-trade.
Milne, who worked at the London Stock Exchange between 1986 and 1991, will report directly to Rolet, the exchange said today, adding the unit is one of its “three main business divisions and Kevin will be responsible for driving the growth and diversification of its services.”
“When I was here the first time round, one of the questions people kept asking is why it cost more to clear in Europe than in the U.S.,” Milne said in an interview today. “Now, because the cost of trading has reduced so quickly it probably costs less to trade a stock than to clear and settle it. Resolving that is one of the priorities. And we want to provide higher value services at a competitive price.”
LSE on Nov. 25 reported first-half revenues from post-trade activities rose to 59.3 million pounds ($96 million) from 51.1 million pounds in the comparable period a year ago as revenue from trading, where the LSE makes most of its money, fell 28 percent to 95.2 million pounds.
LSE shares added 9.5 pence, or 1.4 percent, to 694.5 pence at the close of trading in London.
To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net.
Last Updated: January 18, 2010 15:04 EST
* Business Exchange
* Twitter
* Delicious
* Digg
* Facebook
* LinkedIn
* Newsvine
* Propeller
* Yahoo! Buzz
Sakakibara Says Slower U.S. Recovery May Hurt Dollar (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Shigeki Nozawa
Jan. 18 (Bloomberg) -- Eisuke Sakakibara, formerly Japan’s top currency official, said the global economic recovery may slow in the second quarter, pushing Japan into a double-dip recession and weakening the dollar to 85 yen.
“Should the U.S. experience a relatively weak rebound from spring to summer there’s a high possibility the dollar will drop,” said Sakakibara in a Jan. 15 interview in Tokyo.
Japanese Finance Minister Naoto Kan and U.S. Treasury Secretary Timothy F. Geithner probably have an unwritten agreement to let the market set the dollar’s level, said Sakakibara, who became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the currency’s level through verbal and actual intervention in the markets. Kan and Geithner might change their approach should the dollar approach 80 yen, he said.
The yen has strengthened almost 3 percent since reaching its weakest level in four months on Jan. 8, the day after Kan said he would like the yen to weaken “a bit more,” indicating he’s more willing than his predecessor Hirohisa Fujii to sympathize with exporters’ concerns over a soaring currency. The yen rose to 84.83 per dollar on Nov. 27, the strongest since July 1995.
The yen traded at 90.76 per dollar as of 11:35 a.m. in Tokyo from 90.77 in New York on Jan. 15, when it advanced to 90.60, the strongest level since Dec. 21.
No Recent Intervention
Japan hasn’t sold its currency since March 16, 2004, when it was at about 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($163 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998 as the rate fell as low as 147.66.
Prime Minister Yukio Hatoyama’s government should compile a new supplementary budget because this fiscal year’s 7.2 trillion yen stimulus plan, which will be discussed in an ordinary Diet session today, won’t be enough to fuel economic growth, Sakakibara said.
“Even if the government issues 60 trillion to 70 trillion yen in new bonds, the market’s ability to absorb it is more than sufficient,” Sakakibara said. “The supplementary budget needs to be put together as soon as possible without excessive fear over increasing debt issuance.”
Japan’s government will sell 44.3 trillion yen of new debt next fiscal year to help fund a revenue shortfall as the national debt expands to an unprecedented 862 trillion yen, 181 percent of the nation’s gross domestic product.
“In order to boost tax revenue, we have to prioritize the recovery,” Sakakibara said. “Short-term fiscal stimulus is not a minus for the nation’s fiscal situation.”
The yield on the 1.3 percent bond due December 2019 fell one basis point to 1.31 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.088 yen to 99.912 yen.
To contact the reporters on this story: Shigeki Nozawa in Tokyo at Snozawa1@bloomberg.net
Last Updated: January 17, 2010 21:38 EST
Aozora Says Fixing Merger Disputes Trumps Deadline (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Finbarr Flynn and Takako Taniguchi
Jan. 18 (Bloomberg) -- Aozora Bank Ltd. Chief Executive Officer Brian Prince said “areas of disagreement” have arisen in merger talks with Shinsei Bank Ltd. and getting the right deal trumps an October deadline for completing the transaction.
“There are a number of issues we need to work through,” he said in an interview at the bank’s Tokyo headquarters on Jan. 15. “It is an important opportunity, and six months doesn’t make a difference. We’ve got to make it right.”
Prince, 45, agreed to merge with Shinsei in July after the banks posted a combined loss of $4.2 billion last fiscal year on soured investments in overseas bonds, hedge funds, and U.S. mortgage assets. Combining Aozora, controlled by Cerberus Capital Management LP, and Shinsei will create Japan’s sixth- largest listed lender with more than $190 billion in assets.
Aozora fell 5.5 percent in Tokyo trading, the biggest decline since Dec. 30, and Shinsei slipped 4.7 percent. The two companies were the largest decliners on the Topix Banks Index, which fell 1.4 percent.
Aozora, which had less than half the assets of Shinsei at the end of September, has risen 30 percent in the past year, making it the biggest gainer in the index of 84 publicly traded Japanese banks. The difference between the two banks’ share prices has narrowed to 2 yen from a high of 24 yen in August, according to Bloomberg data, indicating investors expect the deal to be completed.
1-to-1 Ratio
Each bank’s shareholders will own 50 percent of the combined lender after agreeing to a 1-for-1 common equity exchange ratio.
“Neither of them are winners in the game so they need help and are getting together, cutting costs and scaling down,” said Yuichi Chiguchi, who helps manage about 250 billion yen at Diam Co. in Tokyo.
Norito Ikeda, a former president of Japanese regional bank Ashikaga Bank Ltd., will become chief executive officer once the two banks merge.
“It is our intention to make the merger happen because we signed the agreement,” Prince said. “If it doesn’t happen we’ll deal with it.”
Aiful Loans
Prince, the fourth CEO to lead Aozora since 2007, was previously an executive with Shinsei and Lehman Brothers Holdings Inc. in Tokyo. He said no decision has been made on what role he may play after the merger.
At Shinsei, Prince led a drive to cut bad loans after the bank became the first Japanese lender to be acquired by foreign investors, including Ripplewood Holdings Inc., in 2000.
Aozora is the second-largest lender to Aiful Corp., the Japanese consumer lender that staved off bankruptcy last month after 65 creditors agreed to a delay in loan repayments. The bank had 37.9 billion yen in loans to Aiful, and 17.4 billion yen in loans to its Life Co. credit card unit, according to a financial presentation by Aozora in November.
Aozora is “overhedged” on the loans to Aiful, holding credit default swaps with a notional value in excess of about 37.9 billion yen, according to Chief Financial Officer Masaki Tanabe.
Aiful’s agreement with lenders to postpone repayments triggered a settlement auction of credit-default swaps. Aozora wants to collect “as much as possible without creating too much friction” on the derivatives, Prince said.
Aozora posted net income of 6.5 billion yen in the first half ended Sept. 30, compared with a loss of 28 billion yen a year earlier. Prince said he is sticking to the bank’s full-year profit forecast of 5 billion yen as the lender wants the opportunity to make sure its balance sheet is “clean.”
To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net
Last Updated: January 18, 2010 01:43 EST
Portugal Debates Razing Soccer Stadiums to Cut Public Costs
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Alex Duff
Jan. 18 (Bloomberg) -- Portuguese cities are under pressure to demolish stadiums built for the 2004 European soccer championships as the government prepares to rein in a widening deficit.
Portugal plans to announce a budget this week requiring extra cost-saving by towns, former economy minister Augusto Mateus said. The cities of Aveiro and Leiria want to cut monthly maintenance payments for public sports arenas of as much as 1.2 million euros ($1.7 million), officials said. Mateus, a former Socialist party minister, and Aveiro’s Social Democrat deputy Ulisses Pereira say they must consider demolition.
The debate comes as Poland and Ukraine spend billions to build stadiums, roads and other infrastructure for the 2012 soccer championship. Portugal, which used 600 million euros to build or fix several arenas, now finds them as much as three- quarters empty for league games. They are a symbol of wasteful spending, said Joao Cesar das Neves, an economics professor at Lisbon’s Catholic University.
Municipalities “should be open to demolishing” stadia to make way for a shopping mall or business center, Mateus said. “It’s very difficult to service debt on something that doesn’t create wealth or represent a public good.”
Second-division Beira Mar can’t afford the upkeep of a 30,000-seat, $94 million municipal stadium in Aveiro, while first-tier Uniao de Leiria doesn’t have enough revenue to maintain the city’s $120 million arena. On the south coast, lower-league teams Farense and Louletano rely on taxpayers’ money to bankroll the $61 million stadium they share.
Negative Rating
Portugal’s 2009 deficit overshot a government forecast of 5.9 percent of gross domestic product, according to Finance Minister Fernando Teixeira dos Santos. On Dec. 7, its credit- rating outlook was cut to negative from stable by Standard & Poor’s, which cited the widening deficits.
Portugal’s debt load will equal 85 percent of GDP this year, according to the European Commission. Portugal and Greece must implement “politically difficult fiscal retrenchment if they are to avoid an inexorable decline in their debt metrics,” Moody’s said Jan. 13.
The national government’s budget plan may favor a “soft” approach for 2010 with cuts of less than 5 percent and bigger sacrifices in following years, Mateus said.
“Everyone will have to make more with less,” Mateus said.
Razing the stadia is a “ridiculous” idea after so much was spent on building and renovation, said Joaquim Evangelista, president of the national soccer players’ union.
Family Events
“Soccer is very important in Portugal like it is in other European countries,” Evangelista said. “It’s possible to fill the stadia and encourage families to go along to matches.”
Portuguese soccer authorities should work to promote the game in smaller cities, Evangelista said. The 16-team first division is dominated by Porto and Lisbon’s Benfica and Sporting, which between them won all of the championships bar one since 1946.
In Poland, the government is financing a 55,000-seat stadium in Warsaw for the 2012 European Championship and helping municipalities pay for or renovate arenas in Wroclaw, Chorzow, Krakow, Gdansk and Poznan. Co-host Ukraine is spending 100 million euros on a Kiev stadium.
Poland, whose 40 million population is four times bigger than Portugal’s, may get a bigger return on stadium investment because its national league is still growing, Jacek Bochenek, a consultant at Deloitte & Touche LLP, said.
“It’s going to be something new, something that will definitely attract new fans,” Bochenek said. Even so, there are risks because top Polish clubs are not as “financially strong” as counterparts in Portugal, Bochenek added.
Politics
Calls to demolish the stadium are “a political game” to castigate the parties that sanctioned them, Das Neves said. Paulo Almeira, a spokesman for Aveiro’s local government, said it has no plans to demolish its stadium. Leiria city officials didn’t respond to calls and an e-mail seeking comment. Paulo Franco, a spokesman for local authorities that own the Faro- Loule stadium on the south coast, didn’t reply to e-mailed questions seeking comment.
Municipalities are finding other uses for stadia. The Leiria stadium, whose annual electricity bill this year will be about 111,000 euros according to published accounts, hosts corporate events. Rooms at the Faro-Loule stadium are being used for temporary classes as a local school is renovated. In Coimbra, the municipal stadium will stage a concert by rock band U2 in October.
Still, the situation is unsustainable, according to Pereira, the Aveiro deputy. He said the town should consider demolishing its stadium.
“It was a mistake building it in the first place,” Pereira said. “Now we have to do something about it.”
To contact the reporter on this story: Alex Duff in Madrid at aduff4@bloomberg.net.
Last Updated: January 18, 2010 05:25 EST
Vale to Grab Ore Share From BHP, Rio as Demand Surges (Update3)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Diana Kinch
Jan. 18 (Bloomberg) -- Vale SA, the world’s biggest iron- ore miner, may win back market share from rivals BHP Billiton Ltd. and Rio Tinto Group because it can boost exports faster as demand for the steelmaking raw material surges to a record.
Vale will likely take 28 percent of the iron-ore market this year, the most since 2007, when its stock rose 88 percent, according to Barclays Capital analyst Leonardo Correa. Output may rise 24 percent to 313 million tons as it expands existing mines and restarts shuttered plants, Credit Suisse said.
Rio de Janeiro-based Vale will benefit as higher steel output in China drives global iron-ore demand to a record 1 billion tons this year, Correa said in an interview. Higher sales and contract price gains of as much as 50 percent may boost the shares 11 percent, based on analysts’ forecasts.
“It’ll be a very positive year for the company,” Pedro Galdi, an analyst with SLW Corretora in Sao Paulo, said in a Jan. 12 telephone interview. “During the crisis, Vale carried on investing heavily to increase capacity.”
Vale will boost exports by more than BHP and Rio as it resumes output that it closed down because of the financial crisis and expands its Carajas iron-ore mine in Brazil, Credit Suisse analyst Ivan Fadel said. Carajas, location of the company’s highest-grade ore, will add about 10 million tons.
The company’s share of global iron-ore sales fell to 26 percent last year from 31 percent in 2007 as Australian and Indian producers benefited from cheaper transport costs because of their closer proximity to China and Vale’s traditional European customers scaled back purchases as demand slumped.
Record Demand
Vale shares will gain 11 percent, based on the average 12- month price target of 16 analysts compiled by Bloomberg. That compares with a 5.9 percent increase for Rio and 4.3 percent for BHP, according to estimates.
Vale depositary receipts fell 20 cents, or 1.1 percent, to 18.025 euros as of 10:04 a.m. in Frankfurt trading. The shares have climbed 75 percent in the past year in Sao Paulo, compared with a 76 percent gain for Brazil’s benchmark Bovespa index.
Rising demand may help Vale, Rio and BHP -- which control more than two-thirds of the seaborne iron-ore market -- win price increases of 50 percent in annual contract negotiations, following price reductions of as much as 33 percent in 2009 during the crisis, according to forecasts from Nomura Holdings Inc. and Bank of America Merrill Lynch.
‘Looking to Recover’
“Iron-ore producers will be looking to recover what they lost in 2009,” Credit Suisse’s Fadel said in a telephone interview from Sao Paulo.
A spokeswoman for Vale, who can’t be named because of company policy, declined to comment on market share.
Commodity producers are benefiting as China’s exports surged 17.7 percent in December and U.S. manufacturing expanded at the fastest pace in more than three years. The steel market will grow by 9.2 percent in 2010, on rising demand from the U.S., Japan and Europe, the World Steel Association has said.
This year, Vale will boost exports more than 20 percent to almost 280 million tons, Fadel said. Australian producers may increase exports 9 percent to 394 million tons this year, Canberra-based Australian Bureau of Agricultural and Resource Economics said in December. A new export tax may curtail shipments from India, the third-largest exporter.
Melbourne-based BHP will begin building the sixth stage of its Rapid Growth Project this year, boosting iron ore export capacity to 240 million tons, Port Hedland Port Authority Chief Executive Officer Andre Bush said on Jan. 6. BHP and Fortescue Metals Group ship iron ore through the port.
BHP is considering further expansion plans to 350 million tons a year, according to a presentation by the head of its iron ore unit Ian Ashby in August. BHP spokeswoman Samantha Evans declined to comment when contacted today.
Spending Plans
Rio has capacity of 220 million tons in Western Australia and is considering expanding that to 330 million tons, according to an investor briefing transcript on its Web site. BHP and Rio last year agreed to combine their Western Australian iron ore operations, in a move that will save the companies at least $10 billion. Rio spokesman Tony Shaffer declined to comment today.
Vale is spending a record $12.9 billion this year as it seeks to boost iron-ore output to 450 million tons a year by 2014, Chief Executive Officer Roger Agnelli said in October.
The company is operating at full capacity of about 310 million tons a year, after cutting 30 million tons from output during the financial crisis. The expansion at Carajas is set to start in the first half of 2010, Vale said Oct. 19.
Rising Market
BHP and Rio cut output less during the market downturn -- idling capacity of 5 million and 10 million tons respectively -- which has ready been brought back online, said Gilberto Cardoso, an analyst with Banif Securities in Rio de Janeiro.
“Vale will increase sales into a rising market more than the Australian miners,” Cardoso said in an interview on Jan. 12. “The global market is ready to absorb that capacity.”
The Bovespa fell 1.8 percent last week, led by Brasil Telecom SA, which declined 14 percent. MMX Mineracao & Metalicos SA rose the most, gaining 7.3 percent.
The yield on the government’s zero-coupon bonds due January 2011 rose 0.5 basis point, or 0.005 percentage point, to 10.32 percent, according to Bloomberg data. Brazil’s real weakened 2.7 percent to 1.7723 per U.S. dollar from 1.7263 on Jan. 8.
The following is a list of events in Brazil this week:
Event Date
Weekly Trade Balance Jan. 18
Tax Collections Jan. 18-22
CAGED Formal Job Creation Jan. 18-22
FGV Preview Inflation IGP-M Jan. 19
Current Account - December Jan. 20
Foreign Investment - December Jan. 20
Private Bank Lending - December Jan. 21
CNI Capacity Utilization - November Jan. 21
IBGE CPI IPCA-15 - MoM Jan. 22
To contact the reporter on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net
Last Updated: January 18, 2010 07:20 EST
Iceland Credit Risks Rise ‘Considerably,’ S&P Says (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Tasneem Brogger
Jan. 18 (Bloomberg) -- Iceland’s credit risk may rise “considerably” as the island faces the threat of a shelved emergency bailout and a government collapse, Standard & Poor’s said.
“The risk is there that the program will fall apart and with that, the downside risks would increase very considerably,” Moritz Kraemer, S&P’s managing director for Europe, the Middle East and Africa, said in a Jan. 15 telephone interview. If the outlook for the bailout program doesn’t improve, “it’s quite possible” the government will collapse.
President Olafur R. Grimsson’s Jan. 5 decision to block a U.K. and Dutch depositor accord called into question the continued disbursement of a $4.6 billion loan from the International Monetary Fund and the Nordic countries that Iceland needs to avert default. Fitch Ratings cut the island’s credit grade to junk the same day and S&P said it may lower its BBB- rating to non-investment grade within a month if the rejection halts bailout flows.
“We were not encouraged by the statement of the president because it also made it clear that predictability of policy implementation in Iceland is not what we thought it would be,” Kraemer said. “The political process has turned out to be even more cumbersome than we had anticipated.”
The cost of protecting Iceland’s sovereign bonds from non- payment increased last week, according to CMA DataVision prices in New York. Credit-default swaps on the nation’s debt rose 37 basis points last week to 543.58 basis points. A basis point is 0.01 percentage point.
Government Collapse?
“The increasing sovereign risk in countries such as Iceland and Greece in Europe will very likely impact the European-based lenders and I could also see it having a spillover effect on some of the U.S. banks,” said Brayan Lai, a Hong Kong-based credit analyst at Calyon. “If that’s the case, the recovery phase is going to be more protracted than people initially thought.”
The so-called Icesave bill, which allows the government to guarantee a $5.5 billion loan from the U.K. and Netherlands to repay depositor claims, is due to be put to a referendum by March 6. Most polls since Jan. 5 show Icelanders will reject the legislation, which lawmakers passed 33 to 30 on Dec. 30.
The political strain of any failure of the accord with the U.K. and Dutch may be too much for the government to survive, Kraemer said.
‘Centrifugal Powers’
“The cohesion in the coalition is superficial in the sense that it’s forced upon the coalition because they have so few options,” Kraemer said. “But the centrifugal powers may just get the upper hand here.”
Some members of the Left Greens, the junior coalition partner, don’t want Iceland to continue its cooperation with the IMF. Members of the Left Green’s ruling committee on Jan. 15 put forward a motion to drop the IMF-led bailout, though the party rejected the call in a vote the next day, state broadcaster RUV reported.
The Left Green Party, headed by Finance Minister Steingrimur Sigfusson, is also opposed to European Union membership. Prime Minister Johanna Sigurdardottir has said Iceland needs to join the EU, with euro adoption an ultimate goal, to avoid a repeat of its financial collapse.
No Cross-Border Deal
Grimsson’s decision has interrupted government efforts to resurrect the economy, which buckled in October 2008 under the $80 billion debt burden amassed by its three biggest banks. Sigurdardottir’s coalition of Social Democrats and Left Greens has spent almost a year trying to settle creditor claims and rebuild Iceland’s banking system. A U.K. and Dutch depositor settlement was the final milestone needed to normalize Iceland’s international relations.
Grimsson said in a Jan. 14 interview that his decision to block the bill will leave the economy unscathed, because an earlier accord will take effect. That bill, which he signed in September, was rejected by the U.K. and Netherlands.
“There is no cross-border agreement” if the current bill is voted down in a referendum, Kraemer said. “The external financing complementing the IMF stand-by agreement may not be in place, because the Nordic governments had made future disbursements contingent on the resolution of Icesave. That’s where it all ends. Basically if the program were to collapse because there’s no resolution, then the external financing conditions for Iceland could become quite precarious.”
Nordic ‘Common View’
The “common view” of Sweden, Norway, Finland and Denmark on the status of their $2.5 billion loan after Grimsson’s de facto veto of the Icesave bill is that continued disbursement of the loan “would require that Iceland complies with its deposit guarantee scheme obligations,” Dorte Drange, a spokeswoman at Norway’s Finance Ministry said in an e-mailed response to questions.
“If the Nordic governments were to conclude that the June legislation does not satisfy their expectations because of its unilateral nature, the IMF loan would have to be renegotiated,” Kraemer said. “That creates a huge amount of uncertainty. The surprising non-signature of President Grimsson gives the indication that one should possibly expect the unexpected.”
To contact the reporter responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
Last Updated: January 18, 2010 05:59 EST
Nestle Targets Malnutrition to Fight Danone’s Gains (Update3)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Tom Mulier
Jan. 18 (Bloomberg) -- Nestle SA will begin selling drinks to fight malnutrition among the elderly in an effort to revive its nutrition business, which has trailed sales and profit forecasts every year since they were set in 2006.
Resource SeniorActiv supplements will go on sale in Switzerland this year, the company’s nutrition unit said in an e-mailed statement today. The product includes protein, calcium and vitamin D to promote muscle strength and prevent bone fractures, the world’s largest food company said.
The Vevey, Switzerland-based maker of Kit Kat bars and Nescafe coffee is struggling to keep pace with smaller rival Danone SA in health and medical nutrition, a market that Sanford C. Bernstein & Co. says is growing at 9 percent a year. Nestle’s nutrition sales rose 2 percent in the first nine months of 2009, short of the 11 percent growth in Danone’s medical nutrition unit and a fifth of the Swiss company’s long-term goal.
Nutrition is “clearly undershooting targets and they cannot carry on like that,” said Stephen Pope, chief global equity strategist at Cantor Fitzgerald Europe in London, who has covered Nestle for about six years. “Overall to the company, nutrition is a very important division and it’s an area where they’re trying to push.”
Nestle spokeswoman Nina Backes declined to comment on the nutrition unit’s performance missing analysts’ expectations.
‘Too Big’
Chief Executive Officer Paul Bulcke, who in 2008 pledged to make Nestle into the world’s biggest healthy eating company, is under fire after indicating the Swiss company would probably miss its sales growth target in 2009. This month, he decided to buy Tombstone and DiGiorno frozen pizza from Kraft Foods Inc. for $3.7 billion in a move that will accelerate revenue growth yet adds pizzas with as much as 70 percent of the daily recommended amount of saturated fat.
Nestle Nutrition includes some businesses such as the Jenny Craig weight-loss programs, which has faced client departures due to the recession in the U.S., while Danone’s nutrition business is focused on higher-margin products, according to Standard & Poor’s equity analyst Carl Short.
“Danone will do better just because the entire company is now really nutrition-oriented,” said Jean-Marie L’Home, an analyst at Paris-based brokerage Aurel-Leven SA. “Nestle is too big to concentrate only on nutrition.” Nestle’s sales are about four times Danone’s.
Profitability
Nestle said it plans to expand Resource SeniorActiv in other European countries, because as many as 40 percent of hospitalized patients are malnourished. About 90 percent of the elderly are deficient in vitamin D, and half don’t get enough protein or calcium, the company said. The product also includes ingredients that promote digestive health, according to Nestle.
“Typically these products start modestly,” said Richard Laube, head of Nestle Nutrition, at a press conference in Zurich. “They can have the potential of several hundred millions of Swiss francs in sales, but this will take years.”
A new Nestle baby food product line has failed to win over Europeans, and the company hasn’t invested enough in emerging markets, where nutrition sales growth is fastest, according to Patrik Schwendimann, an analyst at Zuercher Kantonalbank. Nutrition marketing campaigns and costs related to the new baby food cut Nestle’s total operating margin by 1.1 percentage points in the first half, to 17.4 percent.
In 2006, Nestle Nutrition CEO Laube set a goal of 10 percent sales growth and a 20 percent operating margin, without setting a time frame. Profitability of sports nutrition is as little as 10 percent, while Jenny Craig’s is about 12 percent, Bank Vontobel estimates. Danone’s medical nutrition operating margin was 21 percent in the first half, while its baby food profitability was 19 percent.
Gold, Promil
To boost growth, Nestle should use some of the $28.1 billion it raised by selling a stake in Alcon Inc. this month to fund nutrition purchases, Vontobel analyst Claudia Lenz said.
Nestle could make a joint bid for Mead Johnson Co. with H.J. Heinz Co. to obtain its business outside the U.S., ING Wholesale Banking analyst Marco Gulpers said. Nestle would have U.S. antitrust issues bidding alone for the company, valued at about $9.4 billion, he said. Mead’s Enfamil is the world’s largest formula brand, and Mead Johnson gets more than half its sales in Asia and Latin America.
Chris Perille, a spokesman for Mead Johnson, declined to comment, as did Pfizer spokesman Raymond Kerins and Heinz’s Michael Mullen. Nestle spokesman Robin Tickle wouldn’t comment on future purchases.
‘Going Well’
The Swiss company could also buy Pfizer Inc.’s infant nutrition business or Fresenius Group’s Kabi intravenous food unit, Lenz said. Pfizer has infant nutrition brands such as Gold and Promil and ranks as the No. 1 maker of infant formula in the U.K., Philippines and Australia, according to Lenz. Fresenius Kabi would allow Nestle to enter the market of food administered intravenously, adding a new product segment, she said.
Danone sold a cookie unit in 2007 to focus on healthier foods such as digestion-enhancing Activia yogurt. The sale also helped fund the purchase of baby-food maker Royal Numico NV, which boosted Danone’s sales growth in that business to 8.1 percent in the first nine months of 2009. Nestle has lost 3 percentage points of market share in western European baby food since that acquisition, according to Bernstein data.
Nestle hasn’t been able to grow quickly enough organically in baby food. Its most recent major nutrition addition, NaturNes, has gone “horribly wrong,” said Gulpers, because the company didn’t create a wide enough range. Nestle introduced plastic-packaged NaturNes to replace jarred weaning foods.
NaturNes is “going well,” and Nestle has introduced the product in five new markets after starting out in France and Spain, spokeswoman Backes said, without giving figures.
‘Focus on Nutrition’
A day before announcing the pizza purchase, Chief Executive Officer Paul Bulcke said the sale of the Alcon stake would help the company “concentrate on accelerating the development of Nestle’s position as the world’s leading nutrition, health and wellness company.”
Nestle shares dropped 5 percent in the three days after the pizza purchase, the biggest in more than four months, on investor disappointment that the first acquisition with the Alcon cash wasn’t in nutrition, analysts said. The shares gained 34 centimes to 49.46 Swiss francs in Zurich trading today. It has gained 21 percent in the past year.
Nestle risks becoming “just another” food company if it buys more businesses outside of nutrition, according to Andrew Wood, an analyst at Sanford C. Bernstein in New York. The total market for nutritional products, including ones to improve skin and hair, is worth more than $174 billion, the analyst said.
Kraft Pizza
“The acquisition of the Kraft pizza business is not a signal we are moving away from our focus on nutrition,” Nestle Chief Financial Officer Jim Singh said Jan. 7, adding that the company will lower saturated fat and salt content in the pizzas.
The Haagen Dazs maker will continue seeking “bolt-on” deals and has accelerated its search for “small” acquisitions in emerging markets, Singh said. The CFO said Aug. 12 that an analyst consensus of 2009 so-called organic sales growth of 4.1 percent would be a “good interpretation” of its annual outlook. Nestle targets gains of 5 percent to 6 percent a year.
“Nutrition needs to start going faster,” said Vontobel’s Lenz. “They have the firepower, so they should look at the possibilities.”
To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.
Last Updated: January 18, 2010 12:08 EST
NATO to Rebuff Russian Bid for Separate Treaty, Officials Say
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By James G. Neuger
Jan. 18 (Bloomberg) -- NATO is likely to rebuff a Russian proposal for a bilateral security treaty, seeing it as a ploy to regain lost influence over eastern Europe, four allied officials said.
Russia’s proposed treaty, limited to the trans-Atlantic alliance’s 28 members, would require them to “perform defense planning in a way that it does not threaten the security of other parties,” according to a three-page draft obtained by Bloomberg News.
The initiative marks a Russian bid to assert its primacy over countries that were once part of the Soviet Union and to halt the Brussels-based North Atlantic Treaty Organization’s expansion. The proposal, made last month, would have effectively given Russia a veto over allied military planning, especially in eastern Europe, said the officials, who declined to be named because the alliance hasn’t issued a formal response.
“It’s a way of trying to put into treaty an acceptance of a Russian sphere of influence,” said Kurt Volker, a former U.S. ambassador to NATO who is now managing director of Johns Hopkins University’s trans-Atlantic relations center in Washington. “It essentially gives Russia a veto over countries that are not yet members of NATO.”
Russian Foreign Minister Sergei Lavrov handed the proposed “Agreement on Basic Principles Governing Relations Among NATO- Russia Council Member States in Security Sphere” in Russian and English versions to allied officials without publicity at a NATO-Russia meeting in Brussels Dec. 4
NATO-Russia Cooperation
While NATO aims to boost cooperation with Russia on the war in Afghanistan, fighting piracy and stemming nuclear proliferation, there is little appetite for a new treaty, said the four NATO officials.
“The allies and Russia have just started a period of intensive debate on the future of the NATO-Russia Council and many ideas are going to be voiced,” said Carmen Romero, a NATO spokeswoman. “Minister Lavrov shared some ideas in December.”
Asked if NATO-Russia ties need a new legal basis, the alliance’s supreme military commander, U.S. Admiral James Stavridis, said his focus is on practical steps such as expanding the supply lines through Russia for the 100,000-plus western troops in Afghanistan.
“I can see a variety of zones of cooperation -- military to military -- and of course we’re waiting for political signals and guidance from the secretary general before we pursue that, but overall I think we’re on an upward trend in our relations with Russia,” Stavridis said in a Jan. 13 interview.
Obama ‘Reset’
The Lavrov paper, coming as President Barack Obama seeks to “reset” relations with the Kremlin, is distinct from a wider East-West security treaty also floated last year by Russian President Dmitry Medvedev.
Western governments have been cool to the Medvedev initiative, a product of the Kremlin’s desire to overhaul European security arrangements after NATO’s eastward enlargement put western troops on Russia’s borders.
“There can be no doubt whatsoever that NATO will remain our framework for Euro-Atlantic security,” Secretary General Anders Fogh Rasmussen said last month.
NATO absorbed former Soviet allies starting in 1999, when a Russia shorn of its Cold War satellites was struggling to regain its economic footing after defaulting on $40 billion of debt.
Under Vladimir Putin since 2000, energy-rich Russia has seized on an oil price that peaked at $147 per barrel in July 2008 to revive its economy and gain leverage over oil- and gas- importing states in Europe.
Russia pushed back against further NATO enlargement by invading western-leaning Georgia in August 2008 and trying to reassert control over Ukraine, which held the first round of presidential elections yesterday.
No Choice
Russia’s neighbors, including Georgia and Ukraine, would be left out of the bilateral treaty, which omits language from prior post-Cold War accords that all countries are entitled to choose their alliances.
Putin has accused NATO of violating a 1998 pledge not to permanently station “substantial combat forces” on former Warsaw Pact territory. The new treaty would potentially allow Russia to weigh in on NATO defense policies such as the air policing mission over the three Baltic republics, once part of the Soviet Union.
NATO has pointed to the 56-nation Organization for Security and Cooperation in Europe, an East-West forum created in 1975, as the best arena for discussing Russia’s security concerns.
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net
Last Updated: January 17, 2010 18:01 EST
Yen Carry Trade’s Appeal Shows Japan Is Losing Mojo (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Matthew Brown
Jan. 18 (Bloomberg) -- Currency strategists are more in sync than any time since the depths of the financial crisis, increasing incentives to bet against the yen after the carry trade lost money in December for the first time in 10 months.
Forecasts for the euro, yen and Swiss franc from 61 Bloomberg survey contributors are within 9 cents of the mean on average, down from 11 cents a year ago. They haven’t been so unified since Lehman Brothers Holdings Inc.’s 2008 bankruptcy. The predictions’ so-called standard deviation fell 16 percent last quarter, the biggest drop in at least two years, after jumping 48 percent in the three months after Lehman’s demise.
The growing consensus signals that foreign-exchange swings will decline, luring investors to sell currencies from countries with lower interest rates to buy higher-yielding ones. That may weaken the yen and franc, and rein in the resurgent dollar. Japan’s currency, which fell 6.6 percent since its 14-year high of 84.83 per dollar on Nov. 27, may be the biggest loser as Prime Minister Yukio Hatoyama fights deflation and a recession.
Declining volatility and the rising U.S. currency means “people are thinking about alternatives to the dollar as a funding vehicle, and the yen is the obvious candidate,” said Richard Franulovich, a strategist in New York at Westpac Banking Corp., Australia’s second biggest bank. “Not only do they already have low rates, the authorities are talking about a new quantitative-easing program. There’s a big fiscal expansion playing out under the new government, and the currency had a big rally last year.”
Carry Returns
Westpac was one of 2009’s 10 best yen forecasters, data compiled by Bloomberg show. Selling yen to buy Australian and New Zealand dollars, Norwegian krone and Brazilian reais returned 33 percent last year. Using the dollar earned 31 percent.
Funding the carry trade with the greenback lost money in December for the first time since February as the U.S. currency gained 4.8 percent against the euro amid growing confidence in the U.S. economy and expectations that the Federal Reserve will raise borrowing costs by June. Futures trading on Dec. 31 suggested a 62 percent chance the Fed would increase its benchmark to at least 0.5 percent by mid-year from a range of zero to 0.25 percent, up from 30 percent in November, Bloomberg data show. The Bank of Japan’s target rate is 0.1 percent.
Buying and selling high- and low-yielding currencies to take maximum advantage of global rate moves gained 19 percent from February to November, the carry trade’s best nine months since 2003, a Royal Bank of Scotland Plc index shows. The index fell 0.9 percent in December.
‘U-Turn’
“The U-turn in the dollar led to a reverse carry trade in December where people were selling the commodity currencies,” said Theodore Chen, a quantitative analyst at RBS in London who oversees the index.
Rapid exchange-rates swings tend to erode the carry trade’s profits. Greater certainty about the direction of currencies this year may help damp volatility, reducing the chances of a repeat of December’s turnabout.
Risk returns have shifted in favor of the yen since late last year, as measured by the Sharpe ratio, a gauge of gains that takes volatility into account. In the year ending Nov. 30, selling the dollar versus the currencies of Australia, New Zealand, Norway and Brazil had a risk-premium ratio of 2.31, compared with 1.24 for the yen. Since then, the ratios are 2.71 for the yen and less than zero for the dollar.
‘Faster Pace’
“Yen volatility can come down at a faster pace than dollar or Swiss crosses, making it more useful as a funding source going forward,” said Paul Mackel, the director of currency strategy at HSBC Holdings Plc in London. “There’s going to be a reflating of the yen carry trade.”
Analyst forecasts on the yen against the dollar varied from the mean by 9 cents at the end of last week, compared with 10 cents at the end of 2008, Bloomberg data show. Dollar forecasts against the euro also had a standard deviation of 9 cents last week, down from 12 cents. For the Swiss franc, the figure fell to 8 cents, from 11 cents. The Swiss National Bank’s key rate is 0.25 percent.
JPMorgan Chase & Co.’s index of volatility in the Group of Seven currencies has fallen 12 percent this year, the most since the two weeks beginning March 27, 2009.
Yen Forecasts
Carry-trade returns will benefit this year from the yen weakening 7.2 percent to 98 per dollar from 90.93 today, according to the median forecasts in Bloomberg surveys. The franc is predicted to weaken 4.8 percent to 1.08 per dollar.
The dollar has the least bearish outlook -- a 1 percent decline to $1.45 per euro, from $1.4362. Bets on gains for the IntercontinentalExchange Inc.’s Dollar Index -- a gauge against the euro, yen, pound, Canadian dollar, franc and Swedish krona - - outnumber bearish wagers by 6 to 1, the most since March.
Even assuming stable currencies, buying 12-month bills in reais, kronor, Australian and New Zealand dollars with Japanese yen will return 5.2 percent more than holding equivalent- maturity Japanese bills, compared with 5 percent for the same trade with the dollars.
‘Disastrous Strategy’
Selling the yen against that basket of currencies lost investors 34 percent in 2008 as volatility on the Japanese currency against the dollar rose to 26 percent in December, the most since at least 1991. Using the dollar as the funding currency lost 17 percent.
“The carry trade works under conditions of low volatility, which is why it was the most disastrous strategy in 2008,” said Stuart Thomson, a Glasgow-based fund manager at Ignis Asset Management, which oversees $100 billion.
Yen volatility is likely to decline as the Bank of Japan keeps its benchmark rate on hold through next year as it battles deflation, according to median forecast of 28 economists.
Japanese consumer prices are forecast to fall 1.3 percent in 2009, by the same amount in 2010 and a further 0.3 percent in 2011, according to median economist forecasts in Bloomberg surveys. The country’s economy will expand 1.4 percent in 2010, after contracting 5.3 percent last year, the estimates show.
In Switzerland, inflation will hold at 0.6 percent through 2010, the Bloomberg survey shows. In the U.S., there is an 80 percent chance the Fed will raise its key rate to at least 0.5 percent by the end of the year, futures trading shows. The U.S. economy will grow 2.7 percent this year, according to the median of 57 economists’ forecasts compiled by Bloomberg.
Brazil, Norway
In Brazil, the central bank will increase its rate to 10.5 percent from 8.75 percent as growth accelerates to 4.75 percent from 0.2 percent in 2009, according to Bloomberg surveys. Norway will lift its rate to 3 percent from 1.75 percent, and Australia’s will rise to 5 percent from 3.75, the polls show.
Japanese Finance Minister Naoto Kan said Jan. 14 there are “still various policy measures that can be taken,” signaling the Bank of Japan will take further action to aid the economy. Morgan Stanley, Goldman Sachs Group Inc. and Pacific Investment Management Co. analysts said this month the central bank may increase the amount of money it adds into the economy through purchases of government bonds to combat deflation.
The Democratic Party of Japan’s popularity has slid since it came to power for the first time four months ago promising to end 20 years of economic stagnation. Prime Minister Hatoyama’s approval rating was at 56 percent this month, compared with 75 percent when he took office, the Yomiuri newspaper said Jan. 11, without giving a margin of error.
Japanese Exporters
A weaker yen will benefit Japanese exporters, including Toyota Motor Corp., the world’s largest manufacturer of automobiles, and Sony Corp., which is forecasting a second annual loss. Japan exports more than it imports, giving it a current-account surplus every year since at least 1986, when Bloomberg began collecting the data. Exports accounted for 14 percent of Japanese gross domestic product in the third quarter, compared with 11 percent in the U.S.
The policies of the government and central bank are “a signal to the market, saying ‘Hey, use the yen as a carry trade because we’ll be back into the market printing lots of yen to push the currency lower,” said Axel Merk, president of Merk Investments LLC in Palo Alto, California, and manager of the $477 million Merk Hard Currency Fund.
Some analysts predict the yen will rise against the dollar as the U.S. currency suffers more from a global slowdown. Eisuke Sakakibara, formerly Japan’s top currency official, said the global recovery may slow in the second quarter, pushing Japan into a double-dip recession and weakening the dollar to 85 yen from 90.85 today.
“Should the U.S. experience a relatively weak rebound from spring to summer there’s a high possibility the dollar will drop,” said Sakakibara in a Jan. 15 interview in Tokyo.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net.
Last Updated: January 18, 2010 04:05 EST
Henry Ford Raising Wage May Give China Tip on Worker Prosperity
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Bloomberg News
Jan. 19 (Bloomberg) -- “Little” Xie says he wants to own one of the autos he helps build at Ford Motor Co.’s assembly plant in the Yangtze River city of Chongqing. With his mortgage payment taking about 60 percent of his 2,000 yuan monthly pay, that won’t happen soon.
“It isn’t even worth talking about company incentives to help buy a car, since I can’t afford one in the first place,” said Xie, 28, a six-year Ford employee, as he approached the factory gates for his night shift. Xie, whose nickname comes from his youthful age, asked that his full name not be used.
Higher wages for people like Xie would help resolve China’s biggest economic challenge: shifting away from growth fueled by exports and investment and moving toward an economy driven more by domestic consumers. China’s communist leaders might learn a lesson about how to create a more prosperous working class from American industrialist Henry Ford.
The founder of the auto manufacturer that bears his name generated headlines around the world in January 1914 by doubling the average autoworker’s pay to $5 a day. The move made Ford’s Model T more affordable, created a more stable workforce and helped stoke the growth of the U.S. middle class, according to Bob Kreipke, the historian for the Dearborn, Michigan-based company.
“This allowed people to increase their buying power and, at the same time, they produced a better product,” Kreipke said.
Consumer Culture
Low wages in the world’s third-largest economy are slowing the rise of a consumer culture that Premier Wen Jiabao and President Hu Jintao have said China needs to maintain expansion at the 8 percent a year that will generate jobs for its 1.3 billion people. The current growth pattern is “unsustainable,” Wen said Dec. 27.
That hasn’t stopped China’s auto industry from booming, with sales last year of 13.6 million vehicles, eclipsing the U.S. as the world’s top market for the first time, according to figures from the China Association of Automobile Manufacturers in Beijing. The surge in purchases was spurred partly by government subsidies to help farmers buy autos.
Encouraging higher pay might help sustain the boom and boost consumption, which currently accounts for about 35 percent of China’s gross domestic product, compared with 70 percent in the U.S. It would also help ease income gaps between the rich and poor, which are higher than those in South Korea and Taiwan at similar stages of development and have led to riots and other labor unrest.
Buying Power
Ford’s $5 daily pay allowed an employee to buy a Model T that cost $440 with the equivalent of about four months’ wages. Chinese factory workers averaged 24,192 yuan ($3,544) a year in 2008, according to figures from the National Bureau of Statistics in Beijing, so it would take more than three years worth of wages for them to afford the cheapest car advertised on the company’s Chinese-language Web site: a four-door hatchback with a 1.3 liter engine listed for 78,900 yuan.
While the auto company declined to comment on worker pay, Ellen Hughes-Cromwick, Ford’s chief economist, said Ford projects growth 10 years into the future for the countries where it operates, and it sees China’s economy in a period of expansion characterized by rapid rises in employee compensation similar to South Korea’s economy starting in the 1960s.
“We are at a situation where wages are moving up and doubling in a very short period of time,” Hughes-Cromwick said in a telephone interview from Dearborn. “We do expect takeoff to generate pretty substantial wage gains.”
Boost Pay
One way China’s government might help boost pay would be to raise the value of the yuan, said Nicholas Lardy, who studies the Chinese economy as a senior fellow at the Peterson Institute for International Economics in Washington.
U.S. and European officials have said China keeps the yuan artificially low to boost sales in foreign markets. An undervalued currency encourages manufactured exports at the expense of developing the more labor-intensive service sector, depressing job growth and keeping wages low, Lardy said.
“Appreciation would lead to more rapid growth in the demand for labor and thus to more employment growth and more wage growth,” he said.
China should also spend more on education for peasants and migrants to raise their skill levels and employment prospects, said Xiao Geng, director of the Brookings-Tsinghua Center for Public Policy in Beijing.
Rural Migrants
Henry Ford employed some of the millions of eastern European immigrants who poured into the U.S. a century ago, as well as migrants from the South and Midwest lured by high wages. China’s leaders must deal with hundreds of millions of rural laborers coming to cities, who put downward pressure on salaries.
“Unskilled workers are condemned for generations to low wages,” Xiao said.
Even a skilled worker like Gong -- who also asked that his full name not be used -- said he makes only 6 yuan ($0.88) an hour as a welder at Ford’s Chongqing plant, 9 yuan an hour for overtime.
“I have a dream of someday buying a car,” said Gong, 29, as he walked home in the rain after a 10-hour shift. “I guess it will take six years of saving.”
For Related News and Information: China economic-data watch indexes: ESNP CH <GO> News about China: NI CHINA <GO> Stories on Ford in China: F <Equity> TCNI CHINA <GO> News about the auto industry: NI AUT <GO> Average wages in China: CHAWAVGE <Index> GP <GO>
Last Updated: January 18, 2010 13:22 EST
Bloomberg News Is Next
Dow Jones Daily Chart...Did we have stock market crash last year..lol....It hard to believe how the markets rebound so quickly. Thanks to the billions & billions of dollars our government handed out to save our markets....Thanks Congressmen if was not for you we would be setting at 3,000 or maybe lower right now...:)
Dow Jones Daily Chart...Did we have stock market crash last year..lol....It hard to believe how the markets rebound so quickly. Thanks to the billions & billions of dollars our government handed out to save our markets....Thanks Congressmen if was not for you we would be setting at 3,000 or maybe lower right now...:)
RVBF up 22% now...
RVBF up 22% now....
CRWE News Out...Crown Equity Holdings, Inc. Releases Letter to Shareholders
marketwire
*
Companies:
o Crown Equity Holdings, Inc.
Press Release Source: Crown Equity Holdings, Inc. On Thursday December 31, 2009, 5:00 am EST
LAS VEGAS, NV--(Marketwire - 12/31/09) - With the growth activities we had this year, I am very excited and pleased about the future of Crown Equity Holdings, Inc. (OTC.BB:CRWE - News) as we approach the New Year.
To name a few of our accomplishments, since January 1, 2009, the organization has added 13 additional contractors, (a 225% increase) and started maintaining its own servers to provide better service and opportunities for our clients. Our company has entered into letters of intent to enter into a business combination with DJ Toys Enterprise Corporation and Yana Venture Philanthropy Group, both of which are Taiwan corporations.
From a company standpoint, the acquisition of DJ Toys and Yana will result in our shareholders having stakes in additional profitable operating companies.
We also had the pleasure of relocating our operations this month into a larger office facility.
In addition to our people staying focused in generating the best results for our clients and shareholders, I know we will continue to increase our client base, as well as maintain a close working relationship with each of our present clients during the New Year.
Sincerely,
?
Kenneth Bosket, President
Crown Equity Holdings, Inc.
ken@crownequityholdings.com
About Crown Equity Holdings, Inc.
Crown Equity Holdings, Inc. (OTC.BB:CRWE - News) has established itself as a consulting firm which continues to provide and assist small business owners with the knowledge required in taking their company public. The company has re-focused its primary vision to that of an online media advertising/awareness publisher, as well as being dedicated to the distribution of quality branding information.
For further details, please visit the Company's website at http://crownequityholdings.com
Forward-Looking Statements: This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements and/or Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Risks and uncertainties applicable to the company and its business could cause the company's actual results to differ materially from those indicated in any forward-looking statements.
Contact:
Contact:
Kenneth Bosket
President
Crown Equity Holdings, Inc.
Email Contact
CRWE News Out...Crown Equity Holdings, Inc. Releases Letter to Shareholders
marketwire
*
Companies:
o Crown Equity Holdings, Inc.
Press Release Source: Crown Equity Holdings, Inc. On Thursday December 31, 2009, 5:00 am EST
LAS VEGAS, NV--(Marketwire - 12/31/09) - With the growth activities we had this year, I am very excited and pleased about the future of Crown Equity Holdings, Inc. (OTC.BB:CRWE - News) as we approach the New Year.
To name a few of our accomplishments, since January 1, 2009, the organization has added 13 additional contractors, (a 225% increase) and started maintaining its own servers to provide better service and opportunities for our clients. Our company has entered into letters of intent to enter into a business combination with DJ Toys Enterprise Corporation and Yana Venture Philanthropy Group, both of which are Taiwan corporations.
From a company standpoint, the acquisition of DJ Toys and Yana will result in our shareholders having stakes in additional profitable operating companies.
We also had the pleasure of relocating our operations this month into a larger office facility.
In addition to our people staying focused in generating the best results for our clients and shareholders, I know we will continue to increase our client base, as well as maintain a close working relationship with each of our present clients during the New Year.
Sincerely,
?
Kenneth Bosket, President
Crown Equity Holdings, Inc.
ken@crownequityholdings.com
About Crown Equity Holdings, Inc.
Crown Equity Holdings, Inc. (OTC.BB:CRWE - News) has established itself as a consulting firm which continues to provide and assist small business owners with the knowledge required in taking their company public. The company has re-focused its primary vision to that of an online media advertising/awareness publisher, as well as being dedicated to the distribution of quality branding information.
For further details, please visit the Company's website at http://crownequityholdings.com
Forward-Looking Statements: This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements and/or Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Risks and uncertainties applicable to the company and its business could cause the company's actual results to differ materially from those indicated in any forward-looking statements.
Contact:
Contact:
Kenneth Bosket
President
Crown Equity Holdings, Inc.
Email Contact
MDFI 1 left @ 0042.....
MDFI 1 left @ 0042.....
RVBF up 12%....:)
RVBF up 12%....:)
MDFI...up 28%....looking good here folks !!!
MDFI...up 28%....looking good here folks !!!
MDFI...1 MM left .0034....:)