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BL: Australia Will Probably Keep Key Rate at 12-Year High of 7.25%
By Jacob Greber
May 5 (Bloomberg) -- Australia's central bank probably will keep interest rates unchanged for a second month to gauge whether the highest borrowing costs in 12 years are slowing the nation's economy enough to cool the fastest inflation since 1991.
Governor Glenn Stevens will leave the overnight cash rate target at 7.25 percent tomorrow in Sydney, according to 24 of 25 economists surveyed by Bloomberg News. One forecasts a quarter- point increase.
The central bank raised interest rates in March for the fourth time in seven months after inflation surged above the 3 percent limit of its target range. Reports in the past month show consumer and business confidence have slumped, while retail sales and home building have slowed.
``Interest rates are at or near their peaks,'' said Craig James, chief equities economist at Commonwealth Bank of Australia Ltd. ``Higher-than-expected inflation figures justify another lift in rates, but there are a few more signs that recent rate hikes are working to slow the economy.''
Most economists surveyed by Bloomberg News say Stevens will leave the benchmark rate unchanged for the rest of this year as slower household and business spending bring annual inflation back within his target range of between 2 percent and 3 percent. He raised borrowing costs in March and February.
Stevens will announce the bank's decision at 2:30 p.m. in Sydney tomorrow.
Core Inflation
Surging gasoline, food and housing costs helped push core annual inflation to 4.4 percent in the first quarter, the highest rate in almost 17 years, a report showed on April 23.
Higher borrowing costs, as well as tighter credit standards for more risky borrowers, are working to ``foster the moderation in demand growth that was needed to ease the pressure on inflation,'' the central bank said on April 15.
The bank will lower its forecasts for economic growth and inflation when its quarterly policy statement is released on May 9, Stevens said at his half-yearly testimony to parliament's economics committee in Sydney on April 4.
``Higher interest rates and costs for staple items are forcing highly leveraged consumers to reorganize spending priorities,'' said Joshua Williamson, an economist at TD Securities Ltd. in Sydney. ``Despite the threat of high ongoing inflation,'' the chances of Stevens cutting rates ``shouldn't be underestimated,'' he said.
Losing Momentum
Recent reports suggest the $1 trillion economy's 17th year of expansion is losing momentum. March home-building approvals fell six times as much as economists forecast, sales of newly built houses dropped for a second month, consumer confidence plunged in April to the lowest since 1993, and companies remained pessimistic for a third month in March.
Gross domestic product slowed to 0.6 percent in the fourth quarter from the previous three months, when it expanded 1.1 percent.
Households, facing higher gasoline and food costs, have also been battered by extra increases in mortgage rates by commercial banks. The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points, or 0.9 percentage point, to home-loan interest rates this year. The Reserve Bank has added only 50 basis points in that time.
Retail sales excluding food slid 0.3 percent in March from February, according to Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney.
Global Rates
Australia's central bank has raised borrowing costs 12 times since May 2002, when the rate was 4.25 percent. By contrast, Federal Reserve Chairman Ben S. Bernanke lowered the benchmark U.S. interest rate by a quarter point to 2 percent last week, the seventh cut since September. The U.K. and Canada have also cut rates this year.
Concern that the lowest unemployment rate in 33 years is driving up wages was a key reason Australian policy makers raised borrowing costs in March.
The Reserve Bank forecast in March that inflation will remain above 3 percent until 2010 as Chinese demand for coal and iron ore prompts companies such as miner Rio Tinto Group to expand and hire more workers in Australia.
The jobless rate probably held at 4.1 percent in March after employers added 10,000 workers, according to a survey of 25 economists. The unemployment report will be released on May 8.
Bloomberg Survey
Following is a table of forecasts for the chance of an interest-rate increase tomorrow, the rate on June 3 and at the end of the third and fourth quarters:
Chance May 6 June 3 Q3 Q4
of move Rate Rate
-----------------------------------------------------------
Median 20% 7.25% 7.25% 7.25% 7.25%
High Forecast 55% 7.5% 7.5% 7.50% 7.50%
Low Forecast 5% 7.25% 7.25% 7% 6.75%
No. of replies 25 25 25 25 25
-----------------------------------------------------------
4Cast 20% 7.25% 7.25% 7.25% 7.25%
ABN Amro 20% 7.25% 7.25% 7.25% 7.25%
AMP Capital 30% 7.25% 7.25% 7.25% 7.25%
ANZ Bank 25% 7.25% 7.25% 7.25% 7.25%
Ausbil Dexia 30% 7.25% 7.25% 7.25% 7.25%
Barclays Capital 20% 7.25% 7.25% 7.25% 7.25%
BT Financial 12.5% 7.25% 7.25% 7.25% 7.25%
Bank of America 5% 7.25% 7.25% 7.5% 7.5%
Citigroup 25% 7.25% 7.25% 7.25% 7.25%
Commonwealth Bank 55% 7.5% 7.5% 7.5% 7.5%
Deutsche Bank 40% 7.25% 7.25% 7.5% 7.5%
Goldman Sachs 35% 7.25% 7.25% 7.25% 7.25%
ICAP Australia 33% 7.25% 7.25% 7.5% 7.5%
JPMorgan Chase 30% 7.25% 7.25% 7.25% 7.25%
Lehman Brothers 10% 7.25% 7.25% 7% 6.75%
Macquarie 15% 7.25% 7.25% 7.5% 7.5%
Merrill Lynch 25% 7.25% 7.25% 7.25% 7.25%
National Australia 15% 7.25% 7.25% 7.25% 7.25%
Nomura Australia 30% 7.25% 7.25% 7.5% 7.5%
RBC Capital 10% 7.25% 7.25% 7.25% 7.25%
St. George Bank 20% 7.25% 7.25% 7.25% 7.25%
Suncorp Banking 10% 7.25% 7.25% 7.25% 7.50%
TD Securities 30% 7.25% 7.25% 7.25% 7%
UBS Australia 20% 7.25% 7.25% 7.25% 7.25%
Westpac Bank 20% 7.25% 7.25% 7.25% 7.25%
===========================================================
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Last Updated: May 4, 2008 10:01 EDT
BL: Buffett Says Bond Insurers Don't Deserve AAA Rating (Update1)
By Erik Holm and Josh P. Hamilton
May 4 (Bloomberg) -- Billionaire Warren Buffett, whose Berkshire Hathaway Inc. has begun competing with MBIA Inc. and Ambac Financial Group Inc. to insure municipal bonds, said some rivals don't deserve their AAA credit ratings.
Credit-rating firms shouldn't be giving top grades to bond insurers that borrow money at 14 percent or whose stock has dropped 95 percent, Buffett said at a press conference today in Omaha, Nebraska, after Berkshire's annual meeting.
Berkshire, whose credit is also rated AAA, owns almost 20 percent of Moody's Corp., one of the biggest U.S. credit rating firms. That's attracted scrutiny from Connecticut Attorney General Richard Blumenthal, who said in an interview last week he's probing possible conflicts of interest between Berkshire's four-month-old bond insurer and the stake in Moody's. Buffett said yesterday he's never tried to influence the firm.
Buffett created the bond insurer in December after state regulators sought to help governments get coverage when losses jeopardized the AAA ratings of bond insurers MBIA and Ambac. States and municipalities buy bond insurance to raise the rating on their debt, lowering the interest rate and saving taxpayers money.
Ambac has dropped 94 percent in the past 12 months of New York Stock Exchange trading, and MBIA has tumbled 84 percent.
Berkshire's municipal bond unit is now licensed in 49 states and plans to write more insurance, Buffett said.
To contact the reporters on this story: Erik Holm in Omaha, Nebraska at eholm2@bloomberg.net; Josh P. Hamilton in Omaha at jphamilton@bloomberg.net
Last Updated: May 4, 2008 16:09 EDT
BL: Codelco Shuts El Teniente Again After Bus Attacks (Update1)
By Heather Walsh
May 4 (Bloomberg) -- Chile's state-run Codelco, the world's largest copper producer, said it halted production at its El Teniente mine after a one-day restart as striking contract workers attacked buses carrying company employees.
Production at the mine in central Chile may resume later today or tomorrow, a company official said today by telephone. The shutdown may last until May 6, Pablo Reyes, a union leader for mine employees, said in a telephone interview.
Codelco's production has been cut since employees of contractors at its mines went on strike on April 16 to demand bonuses and benefits. The supply disruption has led to losses of almost $100 million at Codelco, as of April 29, and contributed to a 26 percent gain in copper prices this year in New York.
The Confederation of Copper Workers, which organized the strike, is studying a government proposal to return to work and end the protests, a spokeswoman for the group, Dolores Cautivo, said. No accord will be reached today, she said in a telephone interview.
Codelco's smallest mine, El Salvador, remains shut today because striking workers are blocking roadways to the division. Andina, a mine in central Chile, resumed production this weekend for the first time since the strike began, Codelco said yesterday.
Contractors are hired by Codelco for construction, maintenance, cleaning industrial sites and running restaurants and providing other services. There are more than 30,000 contractor workers at Codelco's mines, while the company has 17,000 employees.
Codelco's mining employees aren't taking part in the contract workers' strike. At El Teniente, those unions said they stopped working out of safety concerns because strikers attacked buses carrying union employees to the division.
El Teniente produced almost a quarter of Codelco's copper last year, while El Salvador generated 3.8 percent.
To contact the reporter on this story: Heather Walsh in Santiago at hlwalsh@bloomberg.net
Last Updated: May 4, 2008 15:15 EDT
BL: Asian Ministers Agree to Pool About $80 Billion of Reserves
By Keiko Ujikane and Seyoon Kim
May 4 (Bloomberg) -- Finance ministers from 13 Asian nations agreed to create a pool at least $80 billion in foreign- exchange reserves to be tapped by nations in case they need to protect currencies.
The ministers agreed on the fund at their meeting in Madrid, according to a joint communiqué. Japan's Finance Minister Fukushiro Nukaga, China's Xie Xuren, South Korea's Kang Man Soo and finance ministers from Southeast Asia met at the annual meeting of the Asian Development Bank.
Asian governments are trying to avoid relying on international institutions like the International Monetary Fund, which forced them to adopt harsh economic policies in return for bailouts during the financial crisis a decade ago. The pooling of foreign reserves may help prevent a repeat of the region's financial turmoil.
Contributions from Japan, China and South Korea will total 80 percent of the pool, while the 10-member Association of Southeast Asian Nations will make up the rest, according to the statement. All 13 nations will contribute to the fund and they will still manage their own reserves under the arrangement. Exact contributions haven't been decided, the South Korean ministry said.
Ministers last year agreed to set aside part of their $3.4 trillion of foreign reserves for emergencies, without deciding the size of the pool and when they would start the fund. The nations decided to accelerate discussions on the details of borrowing conditions, the statement said.
Asean countries are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.netSeyoon Kim in Madrid at skim7@bloomberg.net
Last Updated: May 4, 2008 11:50 EDT
BL: Persian Gulf Shares Rise, Led by Emaar, Barwa Real Estate
By Zainab Fattah
May 4 (Bloomberg) -- Persian Gulf shares advanced, sending benchmark indexes in Dubai and Qatar higher for a second day, on speculation lower interest rates will increase earnings and boost the attractiveness of stocks.
Emaar Properties PJSC gained in Dubai after one of its units started a five-star hotel brand. Barwa Real Estate Co. rose to a record in Qatar after announcing a project in Sudan. Haj & Umrah Services Consortium Co. increased for a third day as it began selling shares to existing shareholders. Central banks in the region reduced interest rates starting May 1, following the U.S. Federal Reserve's move.
Lower rates ``will reduce borrowing costs and strengthen company earnings,'' said Amr Abol-Enein, head of Middle East and North Africa equity research at ING Groep NV, in a telephone interview from Dubai today. ``The cuts also lower the appeal of deposits and trigger investors to shift their money into the stock markets.''
The Dubai Financial Market General Index gained 0.5 percent to 5,842.87. Qatar's Doha Securities Market Index rose 0.5 percent. The Kuwait Stock Exchange Index added 1.1 percent to a record 14,923.2.
The United Arab Emirates, Qatar and Bahrain cut their interest rates a quarter point to 2 percent on May 1. Saudi Arabia lowered its rate yesterday. All for countries peg their currencies to the dollar. The Fed cut its rate 25 basis points to 2 percent on April 30.
Emaar added 0.9 percent to 11.75 dirhams. Emaar Hospitality Group LLC, the hospitality and leisure unit of the biggest publicly traded developer in the Middle East and Africa, started a brand of five-star lodgings called The Address Hotels & Resorts.
Sudan
Barwa gained 4.1 percent to 77 riyals. The Qatari developer plans to build homes, offices, shops, a school and a hotel in Khartoum to benefit from rising demand for property in Sudan.
Haj & Umrah climbed 2.8 percent to 740 fils. The Kuwait- based provider of accommodation to Muslims making the religious pilgrimage to Mecca started a rights offer to boost its capital by 25 percent. Haj & Umrah is offering shares for 450 fils ($1.69) each.
The Abu Dhabi Securities Market Index advanced 0.4 percent, while the Bahrain All Share Index lost 0.4 percent. Oman's Muscat Securities Market 30 Index declined 0.1 percent. In Saudi Arabia, the Tadawul All Share Index fell less than 0.1 percent.
Dana Gas PJSC added 2.9 percent to 2.11 dirhams. The U.A.E.-based natural gas producer and distributor was rated ``buy'' in new coverage at Global Investment House KSCC with a price estimate of 2.86 dirhams.
Agility, the Middle East's largest storage and logistics company, rose 1.8 percent to 1,120 fils. The Kuwait-based company's 2008 revenue may jump 11 percent to ``about $7 billion'' as Agility expands operations across the region, Chairman Tarek Sultan said.
Zamil Industrial Investment Co. climbed 6.9 percent to 97.25 riyals. The Saudi Arabian maker of products ranging from steel to insulation formed a joint venture with Hudson Product Corp. of Texas to build air conditioners.
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net.
Last Updated: May 4, 2008 09:28 EDT
BL: China's Zhou Says Yuan Gains Slowed on Lower Export Growth
By Belinda Cao
May 4 (Bloomberg) -- Chinese central bank governor Zhou Xiaochuan said the pace of the yuan's appreciation slowed as the nation's export growth decelerated.
There was a ``slowdown in export growth in February and March,'' Zhou told reporters today in Basel, Switzerland, where he is meeting Group of 10 central bankers. The yuan's exchange rate ``now depends on market supply and demand relationships,'' he said.
China is reconsidering its policy of allowing faster yuan gains to slow inflation because it fuels inflows of ``hot money,'' betts on further currency appreciation that helps fan inflation, while exporters are hurt, Market News International reported last week, citing unidentified government officials and economists. A stronger yuan helps to cool inflation by lowering the cost of imports and slowing exports.
China's exports expanded 21 percent to $306 billion in the first quarter, slowing from an increase of 28 percent a year earlier, according to customs bureau data.
China's trade surplus shrank for the first time in more than three years in the three months to March 31 from a year earlier, narrowing 11 percent to about $41.4 billion.
The government should stop allowing gains in the yuan in order to protect exporters, who are already suffering as the global economy slows, said Li Yang, a researcher who formerly sat on the central bank's monetary policy board, in a lecture April 30.
Since December, China had allowed its currency to rise faster to help reduce the trade surplus, which stoked inflation by flooding the financial system with cash earned from exports.
The People's Bank of China was favoring exchange-rate policy over raising interest rates, said Li, who heads the financial research institute of the state-funded Chinese Academy of Social Sciences, in February.
The yuan appreciated 0.35 percent against the dollar in April, slowing from gains of 4.2 percent in the first three months of this year. The currency climbed 7 percent in 2007.
Zhou also said China's inflation will be ``moderate'' in the second quarter because of ``seasonal adjustments'' after reaching an 11-year high in February, when ``consumers spent a lot of money'' for the Chinese New Year. For the full year, inflation is ``still uncertain'' owing to prices of grains and other commodities, he said.
To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net
Last Updated: May 4, 2008 11:18 EDT
BL: Chidambaram Says India May Suspend Some Food Futures (Update1)
By Cherian Thomas and Naga Munchetty
May 4 (Bloomberg) -- India may have to suspend trading in some food futures to arrest inflation if parliament calls for it, Finance Minister Palaniappan Chidambaram said.
``If rightly or wrongly people perceive that commodities- futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,'' Chidambaram said in an interview in Madrid.
Prime Minister Manmohan Singh's communist allies want to ban futures trading in cooking oil, sugar and other commodities, saying speculators are driving up prices and fanning inflation. The government halted futures trading in wheat and rice last year and lentils in 2006 to check a surge in domestic prices of the commodities.
``The pressure is to suspend a few more food articles,'' Chidambaram said without identifying the products. ``It may be politically wise to do that for a short period to see if it has any impact at all on inflation.''
A panel formed by the government under economist Abhijit Sen to study the impact of futures trading on prices of staple foods, this month suggested maintaining the ban on rice and wheat. It didn't recommend extending the ban to other commodities, saying there was no conclusive evidence to suggest futures trading contributed to price increases.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Online trading in commodity futures in India started in 2003.
`A Few More Weeks'
Domestic traders and producing and consuming companies are the main participants in India's commodity exchanges, compared with the 13 million individuals who invest in stocks. Overseas funds aren't allowed to trade in India's commodity futures.
Chidambaram said that India may have to live with ``the current level of inflation for a few more weeks.''
India's inflation accelerated to 7.57 percent in the week ended April 19, the fastest pace in more than three years as prices of food and manufactured products rose.
``If food prices continue to rise and demand is high, as it is in India today, then I am afraid we may have to live with the current level of inflation for a few more weeks,'' he said. ``We thought inflation had peaked at about 7.3 percent. We were surprised that it moved up to 7.57 percent.''
Singh, who lost ground in eight state elections since the beginning of January 2007, wants to cool inflation to bolster his Congress party's chances of retaining power in national elections scheduled before May 2009. Inflation erodes the spending power of people, particularly in a country like India where the World Bank estimates half the 1.1 billion population live on less than $2 a day.
Top Priority
Singh last week said reining in inflation was the government's top priority, informing business leaders not to expect an interest rate cut anytime soon.
The central bank unexpectedly ordered lenders to set aside more reserves on April 29, raising the cash reserve ratio to 8.25 percent from 8 percent, the highest since March 2001. While doing so, the bank also increased its inflation target to as much as 5.5 percent in the year to March 31, above its previous target of 5 percent.
Chidambaram, who says the ``tolerance'' level of inflation in India is 4 percent, has in the past two months banned export of edible oils, rice and wheat, and cut levies on imports of edible oils, joining China, Malaysia and Thailand in taking steps to secure food supplies.
Price Caps
India also capped retail fuel prices and last week scrapped import duties on steel products including pig iron, hot-rolled coils, ferrous alloys and zinc and imposed an export tax on other steel products to augment local stocks.
The combination of higher interest rates and slowing exports may curb India's growth to between 8 percent and 8.5 percent in the year to March 31, according to country's central bank. India's $912 billion economy, Asia's third biggest, has expanded at a record average pace of 8.7 percent since 2003.
``It's not the end of India's growth story,'' Chidambaram said. ``The moderation reflects world trend. It's simply a pause and then we will run.''
To contact the reporter on this story: Cherian Thomas in Madrid at cthomas1@bloomberg.net. Naga Munchetty in Madrid at nmunchetty@bloomberg.net.
Last Updated: May 4, 2008 10:01 EDT
SA: Talk of a Latin American 'Bubble' Gains Steam
by: Index Universe posted on: May 01, 2008 | about stocks: ECH / EWW / EWZ / ILF
By Murray Coleman
As the U.S. economy flirts with recession and the Federal Reserve's rate-cutting cycle winds down, the hottest stock market for exchange-traded funds faces its stiffest headwinds since late 2002.
That's when Latin America started soaring. A combination of massive price hikes in energy and commodities along with stricter fiscal controls by leading countries has transformed the region.
But for all its advances, Latin America still remains in the shadows of its bigger neighbor to the north. With debate raging about whether the U.S. is yet to reach recessionary levels, the Federal Reserve's move Wednesday to cut short-term interest rates by a quarter-point to 2% is adding fuel to the fire.
Normally, lower rates in the states would bolster prospects for foreign investment. Such moves tend to eat away at the U.S. dollar's value on world markets, which is good news for currencies like the real and peso.
This time, however, Fed policy makers say they're ready to turn their attention to fighting inflation. While their statement following the rate cut didn't go as far as some had hoped in spelling an end to rate cuts, the Fed did emphasize slowing commodities prices and other key inflationary measures as significant events to monitor.
"If the Fed's rate-cutting cycle is over for awhile, the dollar should get a short-term boost," said Joe Clark, managing partner at Financial Enhancement Group LLC. "At the same time, commodities and energy prices likely face stiffer headwinds. As a result, we're expecting Latin American stock ETFs to sell-off in the near-term."
Michael Pento, senior market strategist at Delta Global Advisors in Huntington Beach, Calif., acknowledges strong sentiment in some circles that Latin American stocks will be hurt by recent developments. But he remains optimistic about international stocks in general.
Pento says that the Fed action has already been priced into the market. Indeed, in recent weeks commodities and energy traders have been taking their lumps.
"Consumers and the economy as a whole are both even more leveraged now than when rate cuts began last year," he said. "So it's hard to believe the Fed's in any better position now to start raising rates back to the 5.25% range, which is where we'd probably need to get to see any real strengthening in the dollar."
If any sell-off in Latin American stocks takes place going forward, Pento believes it'll be extremely short-lived. "I'm telling my clients that the fundamentals remain largely in-place for investing in foreign stock markets," he said.
Sole Holdout
But talk of a bubble in Latin America is gaining steam. In the past five years, the average Latin American stock mutual fund has returned an average annualized 44%-plus, easily outdistancing 36 other fund categories tracked by Morningstar Inc. The next closest is Asia ex-Japan at more than 31% per year during the same period.
This year, almost every major region in the world is suffering from the weight of a worldwide credit tightening and slower economic growth in the U.S. The lone exception for stock fund investors has been Latin America, which is up slightly more than 1.6% so far. Among diversified categories, only bear market funds taking inverse positions are above water.
"In the past 15 weeks, about the only things in stocks that have worked to any extent for long investors have been Latin America's materials and energy-rich markets," said Clark, a demographics specialist who uses both technical and fundamental analysis in his independent research.
"For the short- to intermediate-term, though, we're bracing for a real sea change in sentiment by investors regarding the whole region," he added.
The advisor isn't selling his clients' positions of iShares S&P Latin America 40 Index (NYSE: ILF). "We see long-term strength in the region," Clark said. "To us, a downturn now provides us with an opportunity to buy more shares at much more attractive pricing. This is a part of the world we see as worthy of full marriage rather than a short-term fling."
But analysts warn that volatility could increase markedly in coming quarters. The International Monetary Fund has issued a report that finds a slowing U.S. economy is likely to prove a drag on many areas in Latin America. It's also cautioning of the likelihood for a slowing in commodities and raw materials prices, pointing to a possible decline in the next year.
The combination has led the IMF to predict that Latin America's domestic product growth rate will slow by 2% to 3.9% by the end of 2009.
Since those findings were released about two weeks ago, economic leaders across the region have refuted those forecasts. And at least one noted economist, Moody's Alfredo Coutino, has also taken exception to the IMF analysis.
"While certainly no country in the region is immune from what's going on in the U.S., the IMF's conclusions are drawn from historic factors," he said.
The last time a major global downturn hit Latin America was seven years ago. Since then, countries in the region have bolstered their reserves and built large fiscal surpluses, Coutino says.
Much of that has been due to profits in commodities and energy markets. But another major contributor that shouldn't be discounted, Coutino argues, is that Latin American policy makers have been very attentive in controlling debt and managing inflation.
In fact, the region now has become a net exporter, selling more of its goods and services to other parts of the world than it needs to import from outside markets, he points out. "While U.S. economic activity enters a recession, Latin America is moving in the opposite direction," Coutino said. "What we've really seen since the last financial crisis in the region is a decoupling of its economies from the U.S."
Misconceptions abound about the region, agrees Anthony Welch, a money manager and analyst at Sarasota Capital Strategies. "Some countries are shakier than others, but the region isn't as tied to the U.S. economy as a lot of people still believe," he said. "Considering that these are rapidly growing emerging countries and Latin America's abundance of materials and natural resources, I don't see how Latin America can be dragged down too much from a relatively mild downturn in the U.S."
How much Latin America is ready to stand on its own economic footing, Coutino adds, can be seen by market movements in the last half of 2007 and early this year.
In the past, a significant slowdown in the U.S. would start showing an impact in Latin America within three months. While some such as the IMF are expecting such signs to begin showing up in Latin America soon, Coutino observes that the region has maintained its momentum for much longer than during past U.S. slowdowns.
"The important factor is that Latin America's growth has continued for more than six months after signs of a recession showed up in the U.S.," he said.
Private consumption, investment spending both domestically and from foreign interests have continued to produce relatively strong growth numbers through the first quarter, Coutino says.
In the IMF research, Mexico was highlighted as the country most vulnerable to a deeper U.S. recession. The iShares MSCI Mexico Index (NYSE: EWW) is up more than 3% in 2008. "It's going to be impacted, just like everyone else in the region," Coutino said. "But there are two important factors that make it unlikely for Mexico to be as affected as the past."
Mixed Bag
For one, Mexico's fiscal and trade pictures remain quite strong. And also, the government is implementing fiscal stimulus to boost domestic consumption. "Since the beginning of the year, they implemented tax cuts, more subsidies and a huge program of investment in public and private infrastructure," Coutino said.
But he is forecasting moderating growth for Mexico, about flat with last year's 3% rate. "So it's going to be a very mild slowdown," he said.
Still, Latin America lags emerging Asia in terms of industrialization, Coutino says. In fact, if emerging markets are hit by a bigger slowdown in developed parts of the world, he agrees with other economists who are predicting that Latin America likely will suffer more than most of emerging Asia.
But he expects Brazil to remain the region's emerging star for some time. It has been expanding in the past five years with GDP growth averaging about 5% per year. He's forecasting around 4.9% this year compared with 5.4% in 2007.
The iShares MSCI Brazil Index (NYSE: EWZ) has gained around 4% in 2008.
"It has been opening the economy to foreign investment, which has diversified its base," Coutino said. "But it's still behind emerging Asia since there are still some sectors that remain closed. That has restricted the economy's capacity to grow."
Independent manager Welch, who's based outside Sarasota, Fla., has been invested in ILF since August 2006 and doesn't plan to sell any if short-term conditions deteriorate. On his watch list is the new iShares MSCI Chile Index (NYSE: ECH).
"Latin America can be very volatile, so we're staying with the more diversified ILF right now," Welch said. "But if we were just looking at getting into the region for the first time now, we'd probably go with a combination of ECH and EWZ."
Besides holding more than 60% in Brazil, ILF has about another quarter of its stocks in Mexico. That country is the ETF's second-biggest concentration. "We'd just as soon leave Mexico out of the equation right now in terms of investing in Latin America," Welch said.
Index Universe
This article has 5 comments:
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bluesmoke
May 01 01:51 PM
You've got major gas reserves offshore. You've got ethanol being produced from sugarcane, and being used to replace fossil fuels. You don't have an overbuilt real estate problem, a ballooning deficit, and no one down there is funding a crazy war. Yesterday S&P upgraded the region to investment grade. Looks to me like they're doing a lot of things RIGHT!!!
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buyitcheap
May 02 08:19 AM
Taking a contrarian view, could the S&P upgrade mean a top is in place? Given how good S&P is at evaluating the financial health of say, bond insurers? The contrarian in me says yes.
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CHARLIERAY
May 02 12:16 PM
Agree with Blue smoke, history have shown that if the US gets a cold Mexico gets neummonia, but this time Mexicans are showing the US they can take their recession with no problem, thay are still growing over 4% and they are the cheapest emmerging market.
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Wez
May 02 05:26 PM
44% average annual return over the last 5 years, that really does smack of a bubble....
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peoplsoft
May 03 02:00 PM
"But talk of a bubble in Latin America is gaining steam. In the past five years"
Yeah that's a stretch, something's been going up for 5 years and a bubble might be forming...
Bubble's don't form unless something does go up!
Holy cow, £5 a gallon?
Trader's Narative: Why Low Trading Volume Is Dangerous
Published April 28th, 2008 in Market Internals Tags: inflection point, market bottom, market top, moving average, NYSE, S&P 500 index, SPX, total volume, volume, volume analysis.
NOTE: Chart in article, click to view: http://www.tradersnarrative.com/why-low-trading-volume-is-dangerous-1656.html
As a technical analyst, I normally look at price action exclusively but volume is undeniably, another important element of the market. I’m a bit reluctant to delve into the concept of volume because a lot of what is already out there is bunk.
In any case, here is an interesting chart of the recent NYSE total volume (5 day simple moving average) and the S&P 500 Index (SPX). It shows that, usually, when trading volume dries up the market tops out.
spx total volume analysis
Although it isn’t marked on the graph, I’m sure you’ve already noticed that the opposite seems to also be true: when volume screams higher, propelled by frenzied trading, more than not, we have an important floor put under the market.
The recent market condition did provide us with such a spike high in total volume, but it was short of previous ones in January 2008 and October 2007. As well, I’m a bit concerned that volume has dropped to a fairly low level already. On its own this wouldn’t mean that much, but it is one more addition to the already growing list of indicators blinking a caution sign.
For obvious reasons, the time around the end of the calendar year and the start of the new year has to be excused from this analysis. Furthermore, since total volume drifts slowly higher, comparing a time horizon longer than a few years gives us problems. As well, this isn’t a 100% reciprocal relationship, the “?” points out an instance where price continued higher, even after a period of very low trading volume.
There are more advanced ways of looking at total volume that would mitigate such structural short comings (for example, using bands and seasonally adjusted data) but I simply wanted to introduce the concept. You can run with it and report back.
SA: How the Stock Market Is Like a Dog on a Leash
by: Babak posted on: May 03, 2008 | about stocks: DIA / QQQQ / SPY
NOTE: This article has a chart, so click below to see it:
http://seekingalpha.com/article/75494-how-the-stock-market-is-like-a-dog-on-a-leash
You know how, when you’re walking a dog, it pays no attention to the path or sidewalk and instead, driven by the instinct to collect and archive as many smells as possible, zig-zags to the left, then pulls to the right? It takes as much distance on the leash and as much of your patience as you allot it. Then you tug it back onto the path and the whole routine starts again.
Well, the market is a lot like that - a moving average being the leash, and price being the dog. Here’s a chart of the S&P 500 relative to its 50-day moving average - I haven’t included an actual price index but I’m sure you’ll have no trouble matching the inflection points to important market tops and bottoms:
The above graph can be misinterpreted. So let me clarify: Just because it peaks and turns down doesn’t mean that price has to. It may, or the average can rise/fall to close the gap and/or the S&P 500 can meander sideways.
A good example of such an exception would be October 2006 when the market, by this measure at least, got really extended. But even so, it was able to grind higher, almost methodically, for another four months.
So to be clear, I’m not saying that the market is now definitely extended too much above its 50-day moving average. Potentially it still has room to go up. But at the moment, if it keeps up this pace, especially the tone set Thursday and into Friday, it won’t take too long for it to get there.
Just something to tuck under your hat. And by the way, this doesn’t necessarily eliminate the long-term bullish prospects for the market. This technical metric is useful in the medium term, which means that we can use it to watch for pauses or corrections within a much longer term bullish rally - similar to this other market breadth metric.
Babak
This article has 5 comments:
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BrucePile
May 03 03:08 PM
The dog-on-a-leash analogy is so right for the movement of a stock. The day to day moves are spastic random noise like the annoying dog. That's why moving averages are important guides - like the sidewalk.
The problem with using them to sell with is that in the very big moves, a stock will typically be at or outside a boundary it usually resides in all the way up a monster climb. And it's those big, unusual climbs that make for good performance in a portfolio - something to mix in with all the small scale gains and loses that average nothing.
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Fred S
May 03 03:26 PM
What's wrong with just showing the usual superimposed moving average, where we can see the distance between the price and the average? Your display removes the useful information about price movement. Bollinger bands give even more info. Sorry, but I see only disadvantages to this kind of display.
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locke
May 03 03:27 PM
Buy when we're x% below 50 day moving average. Sell when we are x% above. Easy, free money. It seems too good to be true. What's the catch?
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clark jackson
May 03 04:00 PM
locke, the catch is that it's a moving average - its not a flat line. The average may well have declined a good deal by the time the current price moves back to x% above it.
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locke
May 03 04:49 PM
I see it now. Well, at the very least, "buy when it's x% below the moving average" is still good advice when you've got new money to put in.
BL: Berkshire's Moody's Stake No Conflict, Buffett Says (Update3)
By Erik Holm and Betty Liu
May 3 (Bloomberg) -- Billionaire investor Warren Buffett said Berkshire Hathaway Inc.'s ownership of almost 20 percent of ratings firm Moody's Corp. poses no conflict with his company's municipal bond insurance business.
``It would be wrong if we tried to pressure Moody's but that's never happened,'' Buffett said today in an interview with Bloomberg Television in Omaha, Nebraska, where his Berkshire is based. ``I have no contact with the management of Moody's. I can't recall ever calling them in my life.''
Berkshire's relationship with Moody's drew scrutiny this week from Connecticut Attorney General Richard Blumenthal after Moody's gave four-month-old bond insurer Berkshire Hathaway Assurance Corp. its top rating. A favorable Moody's rating for Berkshire or a lower rating for a competitor could give Buffett's firm an advantage. The arrangement was a ``clear and direct conflict of interest,'' Blumenthal said.
Berkshire is ``a passive investor that has never contacted us regarding our ratings,'' said Tony Mirenda, a spokesman for Moody's, in an interview this week. ``We have a longstanding policy of not discussing our ratings with shareholders and non- employee members of the board of directors.''
Buffett and his insurance lieutenant, Ajit Jain, started the bond insurance company to compete with existing guarantors struggling to maintain their ratings. Standard & Poor's, a unit of McGraw-Hill Cos., also gave its highest grade to the Berkshire unit, which offers municipal bondholders protection from default by state and local governments.
Top Grades
``If Berkshire isn't triple A, I'm not sure which company would be,'' Buffett said. ``We are one of the ten or so largest companies in the United States. It would be kind of silly if they didn't rate us,'' he said of Moody's.
Berkshire hasn't received a subpoena from Blumenthal, he said.
The new bond insurance unit had about $400 million in first- quarter sales, probably more than any competitor in the same time period, Buffett said today during a question-and-answer session at Berkshire Hathaway's annual shareholder meeting.
``That was from a standing start,'' he said, crediting Jain for doing a ``remarkable job.''
The company has been involved in 278 transactions, Buffett said. Insurance for some securities backed by Berkshire, including bonds for the Arizona Sports and Tourism Authority and a Tennessee building authority, were rated only by Moody's through yesterday, according to Bloomberg data. Berkshire has held about 48 million shares of New York-based Moody's since at least 2002, Bloomberg data show.
MBIA, Ambac
Some state officials have questioned the need for the bond insurance that Berkshire has begun to sell. They've criticized Berkshire competitors MBIA Inc. and Ambac Financial Group Inc. for charging too much, and said Moody's and its competitors exaggerated the risk that government borrowers will be unable to meet their obligations. Buffett, who often scolds corporate America for putting profits ahead of ethics, hasn't been spared from the criticism.
``It's only natural that you comport yourself in a way that pleases your owners,'' Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, said of Berkshire's stake in Moody's. ``The perception, at the very least, is problematic. Are they going to rate municipal bonds fairly, or do it in a way that helps maximize income from Berkshire's bond insurance operation?''
State Regulators
Buffett, the chief executive officer of Berkshire, created the bond guarantor in December at the urging of insurance regulators, who were seeking to help governments find new places to buy the coverage when losses on mortgage-related securities jeopardized the AAA ratings at MBIA and Ambac.
In criticizing the bond insurers and rating companies, elected officials point to a study by Moody's that found only 41 defaults in 37 years.
Lockyer is leading more than a dozen state and local governments that say bond ratings exaggerate the risk of default, forcing them to buy the coverage.
``The aura that Berkshire enjoys, specifically through Warren Buffett, does make a lot of people look the other way toward any conflict of interest,'' said James Cox, a professor of corporate and securities law at Duke University. ``Maybe they shouldn't, but the whole financial industry has been characterized by conflicts of interest and it's still managed to bumble along.''
Moody's and Fitch Ratings have said they may offer municipal issuers ratings that can be directly compared with corporate debt. Such a move would lower demand for Berkshire's new insurer, Jain said in prepared testimony for a U.S. congressional hearing in March.
``It's just not part of Berkshire' modus operandi to exert undue influence,'' said Charles Hamilton, an insurance analyst at FTN Midwest Securities Corp. in Nashville, Tennessee. ``The way they invest, the way they do business, it's just not how they do things to try to be shady.''
To contact the reporters on this story: Erik Holm in Omaha, Nebraska at eholm2@bloomberg.net; Betty Liu in Omaha, Nebraska at bliu17@bloomberg.net.
Last Updated: May 3, 2008 17:23 EDT
BL: Palestinian Economy Could Expand 10%, Alwazir Says (Update2)
By Massoud A. Derhally
May 3 (Bloomberg) -- The Palestinian economy might grow as much as 10 percent a year if Israel removed roadblocks on the West Bank and Gaza Strip and eased security restrictions, Palestine Monetary Authority Governor Jihad Alwazir said.
``The Palestinian economy is very resilient, and if it's allowed to grow with freedom of movement and access to goods and services, you can easily achieve 9 to 10 percent annual growth,'' Alwazir said in an interview in Beirut today.
``You have a lot of pent up demand,'' Alwazir said. ``You can't continue to suffocate the Palestinian economy and still talk about peace. The two don't add up.''
The economies of the West Bank and Gaza Strip may expand 3 percent this year after zero growth in 2007 as foreign aid to the government of President Mahmoud Abbas has resumed, the World Bank said in an April 27 report.
``The contributing effects of closures and movement restrictions can't be overestimated,'' the World Bank said. ``Between 1995 and 2000, the Palestinian economy was growing at an average rate of 6 percent a year. If that trend had continued after 2000, when restrictions intensified, real GDP may have been more than double its current value.''
Israel and most donor countries banned aid or other money transfer to the Palestinian Authority after Hamas, a movement that the U.S. and European Union have designated a terrorist organization, won Palestinian legislative elections in January 2006. Hamas seized control of Gaza in a military takeover 10 months ago, prompting Abbas to form a separate government in the West Bank that has begun receiving aid again.
Peace Talks
U.S. Secretary of State Condoleezza Rice, traveling to the Middle East to continue peace talks with both sides, today said she will examine the results of Israel's agreement during her last visit in March to eliminate about 50 roadblocks. The plan was part of a series of measures to aid economic development in the donor-dependent West Bank.
The review follows criticism during meetings in London yesterday by nations involved in the peace process that Israel isn't holding up its end of the bargain made last year in Annapolis, Maryland. The U.S.-sponsored conference in November re-started talks aimed at reaching agreement by the end of this year on the establishment of a separate Palestinian state.
Donor Pledges
Donors pledged $7.7 billion over three years at a December conference in Paris and have transferred about $600 million since then, according to the World Bank.
``The economic impact of donor assistance is being severely constrained by Israeli actions on the ground,'' said Alwazir, who became governor of the Monetary Authority, the quasi-central bank of the Palestinian Authority, in January. ``For every dollar that is generated by removal of Israeli checkpoints to get the same multiplier effect, you need $6 from the donor community.''
Alwazir estimated current inflation in the Palestinian territories at 10 percent to 12 percent a year.
``We have been facing significant inflationary pressures like all Arab countries particularly because of the increase in fuel prices,'' he said. ``We have a triple jeopardy with inflation because we don't have our own currency.''
To contact the reporter on this story: Massoud A. Derhally in Beirut at mderhally@bloomberg.net
Last Updated: May 3, 2008 15:37 EDT
BL: Citigroup Clients Exit Old Lane Fund Pandit Founded (Update1)
By Bradley Keoun and Trista Kelley
May 3 (Bloomberg) -- Citigroup Inc. said virtually all the investors in its Old Lane hedge fund will withdraw their money, five months after its co-founder, Vikram Pandit, was named chief executive officer of the bank.
Investors will be allowed to exit the $4.5 billion investment pool by July 31, the New York-based bank said yesterday in a regulatory filing. Citigroup, the biggest U.S. bank by assets, said it's ``evaluating alternatives for the restructuring'' of the fund.
Old Lane's demise 10 months after Citigroup bought it for $800 million is at least the fourth fund failure this year in the company's hedge-fund management division amid a market contraction that has forced the world's biggest banks and brokerages to report more than $300 billion of writedowns and credit losses. Citigroup has committed $1.75 billion in financing and equity to bail out the funds and paid $250 million to compensate clients.
Citigroup Vice Chairman Lewis Kaden said last month in an interview with Fortune magazine that the July 2007 Old Lane purchase was a way for the bank to recruit Pandit as well as John Havens, who was promoted in March to head investment banking, trading and hedge funds, and Brian Leach, who became chief risk officer.
Pandit, Havens and Leach all worked at Morgan Stanley, the second-biggest U.S. securities firm by market value, before they co-founded Old Lane in 2006.
$202 Million Charge
Citigroup Chief Financial Officer Gary Crittenden said in a conference call with analysts last month that investors in the hedge fund would be allowed to pull their money because the three executives had taken other posts at the bank. Another former Morgan Stanley executive, Guru Ramakrishnan, is now CEO of Old Lane.
``In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem,'' Citigroup said in yesterday's filing. As a result, the bank took a first- quarter charge of $202 million to write down the value of its investment in Old Lane.
The writedown contributed to a net loss of $509 million in the hedge fund unit during the quarter. Overall, Citigroup reported a net loss of $5.1 billion, the second biggest in its 196-year history, because of writedowns on mortgage-related bonds and leveraged loans and an increase in consumer-debt delinquencies.
Pandit's Stake
Pandit, 51, was promoted to CEO in December following the ouster of former CEO Charles O. ``Chuck'' Prince. Pandit then promoted Havens to oversee the bank's institutional clients group and appointed Leach to replace Jorge Bermudez as chief risk officer.
In its filing yesterday, Citigroup didn't say how Pandit's own investment in Old Lane would be restructured.
In March, Citigroup disclosed that Pandit's share of the Old Lane sale was $165.2 million. Under the terms of the deal, he was required to invest $100.3 million of his after-tax proceeds in the fund. He's also required to forfeit ``a substantial portion'' of the investment if he quits or is fired within four years, the bank said in a March 13 filing.
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Trista Kelley in London at tkelley2@bloomberg.net
Last Updated: May 3, 2008 14:02 EDT
BL: Bush Says Americans Face a `Tough Economic Period' (Update1)
By Holly Rosenkrantz
May 3 (Bloomberg) -- President George W. Bush said Americans are ``facing a tough economic period'' after reports this week showed the economy lost jobs for a fourth straight month and economic growth was close to a standstill.
``My administration has been clear and candid on the state of the economy,'' Bush said today in his weekly radio address. ``We saw the economic slowdown coming, we were up front about these concerns with the American people, and we've been taking decisive action.''
Payrolls shrank by 20,000 workers last month, following a revised 81,000 drop in March, the Labor Department said yesterday. The same day, the Federal Reserve, seeking to prevent a deeper slowdown, announced fresh measures to coax banks into lending.
``I'm confident we can weather this rough period,'' Bush said. Tax rebates of $117 billion will have a ``positive effect on the economy in this quarter, and an even greater impact in the next.''
The rebates to 130 million households are part of a stimulus package approved earlier this year that also includes investment incentives for companies. Bush today urged Congress to boost the economy by passing energy, mortgage-overhaul and tax-reduction bills.
The loss of jobs in April was smaller than forecast by economists, suggesting that the economic slowdown may be milder than the 2001 recession. The jobless rate unexpectedly fell to 5 percent from 5.1 percent, reflecting a jump in part-time workers that may signal companies are still scaling back.
Fed Moves
The Fed yesterday boosted its biweekly sales of cash to banks, known as the Term Auction Facility, by half to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities.
Borrowing costs for banks have risen as much as 0.38 percentage point in the past six weeks, an increase that blunted the impact of the cash injections that began in December. The strains threatened to further impair mortgage markets, worsening an economy where growth has already stalled.
The decision came two days after the Fed's interest-rate setting Open Market Committee lowered its benchmark rate for a seventh time since September, while signaling it's ready to hold off on further cuts. The rate was cut by a quarter point to 2 percent.
The government this week reported the economy expanded at a 0.6 percent annual pace for the second straight quarter. A buildup of business inventories prevented the economy from shrinking.
To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net
Last Updated: May 3, 2008 12:07 EDT
BL: Buffett Says Credit Crisis Ebbs for Wall Street Firms (Update3)
By Josh P. Hamilton and Betty Liu
Enlarge Image/Details
May 3 (Bloomberg) -- Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the global credit crunch has eased for bankers and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns Cos.
``The worst of the crisis in Wall Street is over,'' Buffett said today on Bloomberg Television. ``In terms of people with individual mortgages, there's a lot of pain left to come.'' Buffett was interviewed before the Omaha, Nebraska-based company's annual meeting, attended by about 31,000 people.
Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it arranged a $2.4 billion bailout in March of New York-based Bear Stearns by JPMorgan Chase & Co. The billionaire said he turned down the opportunity because he lacked enough capital and time to grasp the situation. More failures and wider panic may have resulted if the regulators didn't halt the run on Bear Stearns, he said.
``The worry was that there would be contagion; it was a very real worry,'' Buffett said. ``If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.''
Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ``someone responsible'' and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said.
Too Big for Buffett
``As I understand it, Bear Stearns had $65 billion due on Monday and I didn't have $65 billion,'' Buffett said. ``I couldn't get my mind around that situation in the required time.'' New York-based JPMorgan was the right buyer for Bear Stearns, he added.
Berkshire had about $35 billion in cash as of March 31, according to a regulatory filing yesterday.
JPMorgan agreed in mid-March to acquire Bear Stearns, once the fifth-biggest U.S. securities firm, after customers grew concerned about the company's health and pulled out their money, leaving Bear Stearns short on cash. JPMorgan, which got financial support from the Federal Reserve, raised the purchase price a week later to $10 a share from $2 to mollify Bear Stearns shareholders who said they weren't getting enough.
The 24-company KBW Bank Index has advanced 14 percent since the Bear Stearns bailout was announced in March, and the 11- company Amex Securities Broker/Dealer Index has climbed 30 percent.
Credit Losses
The world's biggest banks and investment firms have recorded more than $300 billion of losses and writedowns tied to mortgages, bonds and loans.
Berkshire's own investment in derivative contracts recovered between $500 million and $600 million of lost value since the end of March, Buffett said. Berkshire said yesterday the value of the investments had declined by $1.7 billion in the first quarter. The entire company's quarterly profit plunged 64 percent to $940 million.
Buffett is scheduled to embark on a four-city European trip this month to scout potential acquisitions, including family- owned companies. He has been investing in China, Israel and the U.K. to spur profit growth after saying that U.S. investments meeting his criteria have become scarce.
``Over time we'd like to develop more international earnings,'' Buffett said. ``If it's a $2 billion deal, fine; if it's a $20 billion dollar deal, fine.''
Buffett, who made his first non-U.S. acquisition in 2006, paying $4 billion for 80 percent of Israel-based Iscar Metalworking Cos., said he can't predict the location of the next company Berkshire will acquire.
Radar Screen
``They can come from Europe, they can come from the United States, you just never know,'' he said. ``Somebody, someplace is going to have a situation where we fit. They're going to call me; I want to make sure I'm on their radar screen.''
Buffett is looking to acquire businesses as competition forces down insurance rates in the U.S. Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., typically gets about half its profit from insurance.
Berkshire has risen about 22 percent in New York Stock Exchange composite trading during the past 12 months and gained about 4,700 percent in 20 years through Dec. 31, about six times more than the Standard & Poor's 500 Index including dividends.
To contact the reporters on this story: Josh P. Hamilton in Omaha at jphamilton@bloomberg.net; Betty Liu in New York at Bliu17@bloomberg.net;
Last Updated: May 3, 2008 12:59 EDT
R: Southeast Asia says to cooperate over food security
By Gde Anugrah Arka and Ed Davies
NUSA DUA, Indonesia (Reuters) - Southeast Asia nations meeting in Bali agreed on Saturday to cooperate over the rice market, but stopped short of concrete measures to deal with rocketing prices of the region's staple in most meals.
The issue of food security has hijacked the weekend meeting of trade ministers of the 10-member Association of Southeast Asian Nations (ASEAN) on the Indonesian resort island.
"The ministers affirmed that access to adequate and reliable supply of rice and stable prices are fundamental to the region's economic and social well being," said an ASEAN statement.
To meet these ends, it said ministers recognized the need to improve productivity through technology transfers, research and development as well as making more land available for agriculture and lifting spending -- both public and private.
Indonesian Trade Minister Mari Pangestu told a news conference that while ASEAN had stopped short of "concrete actions", the group "did agree very strongly to communicate and cooperate among ourselves."
Asian rice prices have almost trebled this year.
The Asian Development Bank meeting in Madrid pledged financial aid, without giving details of how much might be on offer for loans, and called for action from global governments.
The African Development Bank offered $1 billion more in food aid and urged grain-exporting countries not to curb shipments.
Countries including India, Vietnam, Indonesia and Brazil have restricted food exports in a bid to secure domestic supplies and limit inflation. Guinea on Saturday announced it was setting up an emergency food stock, especially for rice.
Former U.N. chief Kofi Annan said on Friday that farmers in Africa could double food output in five to 10 years if rich countries partner them in a "Green Revolution" for a long-term solution to the continent's food crisis,
Annan, who led a meeting of agriculture experts in Salzburg, said in a teleconference call that major funding was required to offset the impact on the world's poorest continent of the sharp price hikes for essential food and fuel.
Humanitarian aid could only be the first step of a longer-term strategy which should seek "to enable African farmers to dramatically increase their output so that Africa can feed itself and not be dependent on food aid".
"MASSIVE VIOLATION" OF HUMAN RIGHTS
The World Food Program has described soaring food prices as a "silent tsunami" that threatens to plunge more than 100 million people into poverty.
The new U.N. food envoy on Friday sought a special meeting of the U.N. Human Rights Council this month to address a global food crisis he said was a "massive violation" of human rights.
Olivier De Schutter said he wanted the Geneva-based Human Rights Council to hold a special session around May 22 or 23 to complement efforts by other international agencies to tackle the crisis and to establish it as a human rights issue.
"If we had 100 million persons arrested in a dictatorial regime, if we had 100 million persons beaten up by police, of course we'd be marching in the streets and we'd be convening special sessions," De Schutter said at a news conference.
Protests, strikes and riots have erupted in developing countries around the world after dramatic rises in the prices of wheat, rice, corn, oils and other essential foods that have made it difficult for the poor to make ends meet.
U.S. President George W. Bush proposed this week $770 million in new U.S. food aid to stave off the crisis, pledging Washington would take the lead in combating global hunger.
Bush said on Friday food prices have been rising as a result of soaring energy prices but the use of corn-based ethanol is not the main driver behind rising prices at the supermarket.
WTO TALKS
Southeast Asian trade ministers repeated in their statement a commitment to conclude the long-delayed Doha round of global trade negotiations by the end of the year.
The food crisis should be a "big jolt" to concluding the global trade negotiations, said Australian Trade Minister Simon Crean, who was also attending the Bali meeting.
He said good progress had been made in the past few weeks but a possible May 19 date for a potentially key Geneva meeting of World Trade Organization ministers was looking unlikely.
"We're hopeful that a date very soon after that is."
The Doha negotiations were launched in 2001 to lower barriers to trade to give the world economy a lift and help the poorest countries to fight poverty by exporting more.
But negotiators say the talks risk more years of delay or outright collapse if there is not a breakthrough soon.
(Additional reporting by Kevin Yao in Bali, Jeremy Pelofsky in St. Louis, Claudia Parsons at the U.N., Pascal Fletcher in Dakar; Sebastian Tong and Andrew Hay in Madrid; Editing by Matthew Jones)
R: Iraq delegation says Iran backs militant crackdown
Sat May 3, 2008 4:40pm EDT
BAGHDAD (Reuters) - Iran supports the Iraqi government in its fight against militants, the head of a delegation from Iraq's ruling Shi'ite alliance said on Saturday after returning from a visit to Tehran.
Deputy parliamentary speaker Khalid al-Attiya, reading a brief statement on Iraq's al-Furat television, said the delegation had "important and constructive" talks with Iranian officials about the security situation in Iraq.
Members of the United Iraqi Alliance had said the delegation was sent to Tehran to tell Iran to stop backing Shi'ite militias fighting U.S. and Iraqi security forces, underscoring Iraq's unease over the influence of its powerful neighbor.
But Attiya made no mention of the accusations.
"The delegation saw a positive stance from the brothers in Iran to support the government's efforts in extending the sovereignty of the state and to fight the outlaws," Attiya said.
"The delegation hopes this visit is the basis for strengthening relations between the two neighboring states."
Members of the delegation, which included several influential officials including at least one close to Prime Minister Nuri al-Maliki, have not been reachable since they returned on Saturday from their trip, which lasted several days.
While the delegation was in Iran, members of the Alliance had said the team would present evidence that showed Iranian support for Shi'ite militias in Iraq.
Iraqi government spokesman Ali al-Dabbagh had said the delegation had taken questions to Tehran that needed answering.
Washington accuses Shi'ite Iran of arming, training and funding rogue elements of the Mehdi Army militia of anti-U.S. Shi'ite cleric Moqtada al-Sadr. Iran denies the charges.
The U.S. military said this week that "very, very significant" amounts of Iranian weaponry had been found in the southern city of Basra and also Baghdad during an offensive against militiamen in those cities that began in late March.
Some of those arms were made in 2008, the military says.
U.S. military officials had planned to put on display some of the recently captured weapons but decided to let the Iraqis make their own case to Iran first.
Iran and Iraq fought an eight-year war in the 1980s in which hundreds of thousands were killed. Ties have improved since Sunni Arab leader Saddam Hussein was ousted in the U.S.-led invasion and a Shi'ite-led government came to power in Baghdad.
(Writing by Dean Yates; Editing by Charles Dick)
R: U.S. company recalls about 286,000 pounds of meat
Sat May 3, 2008 12:24pm EDT
WASHINGTON (Reuters) - A New York company is voluntarily recalling about 286,000 pounds (129,700 kg) of fresh and frozen meat and poultry products that may be contaminated with bacteria, U.S. agriculture officials said on Saturday.
The products produced by Gourmet Boutique LLC of Jamaica, New York, were sent to food service and retail establishments nationwide, a U.S. Department of Agriculture statement said.
The meat may be contaminated with Listeria monocyotogenes bacteria, which can cause a rare but potentially fatal disease known as listeriosis, the USDA said. Infants, the elderly, people with HIV and patients undergoing chemotherapy are among those at risk for the disease.
Listeriosis also can cause miscarriages and stillbirths.
The USDA said it had received no reports of illnesses linked to the products that were being recalled.
More information about the recall can be found here
(Editing by Eric Walsh)
R: Small ethanol plants key to efficiency: Canada
Fri May 2, 2008 5:48pm EDT
By Randall Palmer
OTTAWA (Reuters) - Building more and smaller ethanol plants could help overcome concerns that production of the biofuel consumes more in energy than it provides, Canadian Agriculture Minister Gerry Ritz said on Friday.
One of the reasons so much energy is used to make ethanol is that trucks travel long distances carrying corn, chaff or other plant material to ethanol plants.
"Smaller and locally owned I think are the right way to go," Ritz said as he kicked off debate in the House of Commons on the final stage of a bill that would ensure that gasoline contains 5 percent ethanol by 2010.
Dennis Bevington of the opposition New Democratic Party said one study showed that ethanol made from Canadian corn would lead to a net reduction of only 21 percent in greenhouse gases compared with the use of gasoline.
If the corn actually had to be imported from the United States to make ethanol, it would actually lead to a net increase in emissions of the greenhouse gases blamed for climate change.
The Conservative government is proceeding with plans to mandate more ethanol use despite questions that have been raised both about ethanol's efficiency and about whether it would contribute to rising food costs.
The opposition Liberals and Bloc Quebecois both voted in favor of the government legislation at an intermediate stage on Thursday, leaving the smaller New Democratic Party as the only opponent.
Ritz said farmers were able to increase food production at the same time as boosting ethanol output.
"Due to the innovation and industriousness of Canadian agriculture and Canadian forestry, we have the capacity to do this and in no way affect our food lines," he said.
"A lot of people say we cannot do both. They say we cannot grow food for energy and for consumption. Nothing could be further from the truth. Anyone who has analyzed food production in this country knows that we are growing more, that it is better quality, and that it is safer."
He also said there were many factors behind higher food prices unrelated to the production of biofuels. Among them is the increased meat consumption by emerging middle classes in India and China, Ritz said.
The government's biofuel bill faces one more vote in the House. It will then move to the Senate, dominated by the Liberal Party, which has lent its support to the measure.
In addition to ethanol in gasoline, the bill will also provide for diesel to contain 2 percent renewable fuels by 2012.
(Editing by Rob Wilson)
I would imagine the shares would have to be in her will, or something like that. Otherwise, it might take a while to sort out what happens to them.
The gas tax holiday must be the only option that the oil companies have agreed to, then. It makes the politicians look good (to some people I guess), and it has no negative impact on the oil companies. Win-win!
BL: Buffett Plots Buying Spree as Crunch Diverts Bidders (Update1)
By Josh Hamilton
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May 2 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett, who has used dozens of acquisitions to beat every major U.S. stock index, is poised to extend his lead with more than $40 billion to spend as the credit crunch sidetracks other bidders.
With the U.S. on the brink of recession, investors expect Buffett to deploy Berkshire's cash to scoop up bargains. Berkshire rose 22 percent in New York trading in the past 12 months as the worst housing slump in a quarter century slowed the economy, led to record losses for banks and securities firms and caused the Standard & Poor's 500 Index to decline 6.8 percent. The shares gained at an annual rate of 19.5 percent during the past two decades, outpacing the S&P 500's 11 percent advance.
``Buffett has got the liquidity that others are lacking,'' said Mohnish Pabrai, founder of Irvine, California-based Pabrai Investment Funds, who manages $600 million and holds Berkshire shares. ``The disruptions work in his favor. This is a perfect market for Berkshire.''
The 77-year-old Buffett transformed Omaha, Nebraska-based Berkshire from a failing textile maker in the 1960s into a $200 billion company by taking insurance premiums and investing them in stocks and companies. He owns about 33 percent of Berkshire, making him the world's richest person ahead of Microsoft Corp. co-founder Bill Gates, Forbes magazine reported in March.
Berkshire probably will say later today that first-quarter earnings declined because of lower profits from underwriting insurance, according to two analysts who track the company. Berkshire relies on insurance units, including Geico Corp. and General Re Corp., for about half of its profit.
Trek to Omaha
Berkshire faces a probe by Connecticut Attorney General Richard Blumenthal for possible conflicts created by owning almost 20 percent of credit ratings company Moody's Corp. while also running a new municipal bond insurer. Buffett wasn't available to comment yesterday and Moody's said in a statement that Berkshire is ``a passive investor that has never contacted us regarding our ratings.''
Buffett holds his annual shareholders' meeting this weekend, with about 27,000 investors from every continent except Antarctica gathering in Omaha. They will pack the city's Qwest center to hear Buffett and Berkshire Vice Chairman Charles Munger, 84, answer questions and talk about their plans.
Companies that Buffett has been scooping up will add significantly to Berkshire's earnings, and aren't fully reflected in the share price, Pabrai said.
Wrigley Stake
On the day Buffett won control of Berkshire Hathaway in 1965, the stock closed at $18 a share. Berkshire's Class A shares closed yesterday at $133,900 in New York Stock Exchange composite trading. Buffett has never split the shares.
Buffett spent $4.5 billion last month for a 60 percent stake in the Pritzker family's Marmon Holdings Inc. He committed $6.5 billion this week to help finance Mars Inc.'s takeover of Wm. Wrigley Jr., the world's biggest maker of chewing gum. The deal includes $2.1 billion for a minority holding in Chicago-based Wrigley that Berkshire will get at an unspecified discount.
``This is his market,'' Pabrai said. ``We saw it with Wrigley,'' when no private-equity firms or banks stepped up to compete with Berkshire, he said.
The global value of announced mergers and acquisitions fell 36 percent so far in 2008 to $943.5 billion from a year earlier, according to data compiled by Bloomberg.
Family-Owned Companies
Wrigley and Marmon are controlled by their founding families, and that's a trait Buffett will seek when he goes hunting for acquisitions during a four-city tour of Europe. He starts May 19.
At the center of Buffett's European efforts is Angelo Moratti, scion of the founding family of Italian energy company Saras SpA. Moratti is organizing visits to Milan and Madrid. For the past seven years, Moratti traveled to Omaha at least four times a year to brief Buffett on companies and issues in Europe.
``Mr. Buffett's practices, which are based on trust of the human being and deep understanding of the business, are really not understood in Europe at this point,'' Moratti said. ``You tell a European entrepreneur that there is a man in Omaha that buys an Israeli company, and he buys the company without even going to see the company, and the European will say `this can't be right.'''
Moratti is referring to the 2006 acquisition of Iscar Metalworking Cos., Buffett's first outside the U.S.
``It took me a long time as a non-American to find out what Warren Buffett and Berkshire do differently for family businesses,'' said Eitan Wertheimer, whose family sold Iscar to Berkshire. Wertheimer is now helping organize Buffett's trip to Frankfurt, Lausanne, Madrid and Milan.
`Hidden Champions'
Buffett has said in recent years that investments meeting his criteria and big enough to make a difference to Berkshire have become scarce, prompting him to look abroad. He said at last year's annual meeting that he would welcome a $40 billion to $60 billion deal. Buffett also has said he expects the dollar to depreciate, making earnings in other currencies more important.
Berkshire may find candidates in Germany, said Hermann Simon, founder of Bonn-based management consulting firm Simon, Kucher & Partners.
Simon studied 1,300 mid-size and smaller companies in Germany, Switzerland and Austria from 1995 to 2005 for his 2007 book ``Hidden Champions of the 21st Century, Success Strategies of Unknown World Market Leaders.'' All were top-three in the world for their business.
The mostly private enterprises have many of the characteristics Buffett prizes, Simon said. They tend to have proprietary products and processes, long-tenured management, growing market share and consistent returns on equity above 40 percent. Simon declined to name specific companies that might interest Buffett.
To contact the reporter on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net.
Last Updated: May 2, 2008 05:10 EDT
BL: Clinton, McCain Push Gas Tax Break That May Help Oil Companies
By Alison Fitzgerald
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May 2 (Bloomberg) -- Hillary Clinton and John McCain are both pushing a ``gas-tax holiday'' to give consumers an 18.4- cent-a-gallon price break. Clinton says the plan will take excess profits from oil companies. McCain says it will help families buy school supplies.
Economists have a different take: They say the oil companies may end up the biggest beneficiaries, while the aid to families wouldn't be enough to buy a $35 backpack.
The trouble with the plan, they say, is that oil prices are rising because of low supplies, and companies will continue to charge the average $3.60 a gallon and just pocket the money that would have gone to federal taxes.
``That's $10 billion, and it's going into the pockets of oil refiners,'' said Leonard Burman of the Tax Policy Center in Washington. ``The last time I checked, they didn't need it.''
Supplies are ``being cleared at the current price,'' said Donald Parsons, an economics professor at George Washington University in Washington. ``If you take away the tax, you'll have the same number of consumers willing to buy the gas at the same total price.''
Senator Clinton, 60, a New York Democrat, embraced the proposal that McCain, 71, an Arizona Republican, floated in a speech on April 15. McCain's idea originated not with his economic advisers but with Republican pollster Bill McInturff.
``I don't know any prominent economist who favors this McCain-Clinton proposal,'' Greg Mankiw, former chairman of President George W. Bush's Council of Economic Advisers and author of a bestselling economics text, said on his blog.
Populist Appeal
Economists say that while the populist proposals appeal to consumers struggling to make ends meet, the voters will be disappointed when the moves don't work.
Senator Barack Obama, who's also running for the White House, has a proposal that would take money out of the pockets of oil companies and put it in the hands of the poor.
The Illinois Democrat has proposed a windfall-profits tax that could cost oil companies $15 billion a year at current profit levels, according to Jason Grumet, a campaign adviser. The plan, which would impose a tax on each barrel of oil over $80, could cost oil producers three times the $50 billion, 10- year windfall-profits tax Clinton has proposed.
Obama would use the money to help pay for a $1,000 tax cut for working families, expand the earned-income tax credit and aid people in paying their energy bills.
Still, it's the gas-tax holiday that's getting the most attention on the campaign trail.
$11 Billion Profit
A day after she was photographed filling up the tank of a steelworker's pickup truck in Pennsylvania, Clinton yesterday used the occasion of Exxon Mobil Corp. announcing an $11 billion quarterly profit to push the idea of a gas-tax break for the seventh day.
She said her proposal would save the average family $70 this summer, and that she would ensure the oil companies will pay through her windfall-profits tax.
Senator McCain said he wants to give consumers a little extra to spend. ``I'd like to see families in America have a relief from ever-increasing costs of gasoline so maybe at the end of the summer, after this tax holiday, they could buy school supplies for their children,'' McCain, the presumptive Republican presidential nominee, told reporters in Cleveland.
The savings might not cover many of those back-to-school expenses.
If the entire federal tax cut passed through to the price at the pump, the cost of filling up a 20-gallon tank would fall $3.68 to $68.72. Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc., said families would save only about $18 a month. Burman estimated the total savings from Memorial Day to Labor Day at $28.
`Chump Change'
``Even if it worked, it would be chump change,'' he said.
New York Mayor Michael Bloomberg said the proposal was ``about the dumbest thing I've heard in a long time from an economic point of view.''
``We're trying to discourage people from driving and we're trying to end our energy dependence,'' Bloomberg told reporters at City Hall in New York.
The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
Obama has refused to back the tax holiday proposal, saying it doesn't address the fundamental problems with U.S. energy policy.
``I think this time Obama had it right,'' Bloomberg said.
Lawmakers in Washington haven't embraced the idea either. House Speaker Nancy Pelosi yesterday said she won't support it.
And while Clinton and McCain spend their campaign time touting the plan to voters, neither has come back to Washington to introduce a bill that would implement it.
To contact the reporter on this story: Alison Fitzgerald e-mail Afitzgerald2@bloomberg.net.
Last Updated: May 2, 2008 00:01 EDT
BL: Viacom Profit Rises on Cable TV, `Rock Band' Sales (Update1)
By Andy Fixmer and Gillian Wee
May 2 (Bloomberg) -- Viacom Inc., the media company controlled by Sumner Redstone, said first-quarter profit rose 33 percent, beating analysts' estimates on sales of the video game ``Rock Band'' and higher ratings at its cable channels.
Profit increased to $270 million, or 42 cents a share, from $203 million, or 29 cents, a year earlier, New York-based Viacom said today in a statement. Sales gained 15 percent to $3.12 billion, exceeding the $2.96 billion average of 18 analysts' estimates compiled by Bloomberg. Excluding one-time items, profit of 44 cents a share topped a 41-cent estimate.
``Rock Band,'' the game where players emulate rock and rollers with toy instruments, drove a 16 percent increase in revenue at Viacom's media networks business. MTV and Nickelodeon shows attracted more advertising with improved ratings, while box-office receipts of ``Cloverfield'' and ``The Spiderwick Chronicles'' helped narrow losses at the film unit.
``The business trends are holding up extremely well for Viacom despite the economic slowdown,'' said Fred Moran, an analyst at the Stanford Group in Boca Raton, Florida. He suggests investors buy Viacom shares and doesn't own any.
Viacom Class B shares rose $1.30, or 3.4 percent, to $39.74 yesterday in New York Stock Exchange composite trading. They have dropped 9.5 percent this year.
Profit at the media networks unit rose 15 percent to $694 million on $2.02 billion in sales. The group benefited from audiences shifting to cable from broadcast networks during a 100-day writers strike that halted production and resulted in rerun-dominated schedules. The cable channels, which rely more on unscripted reality programs and animated programs, weren't as affected by the work stoppage.
`SpongeBob'
Nickelodeon's children's shows ``SpongeBob SquarePants'' and ``iCarly'' helped propel ratings gains. ``SpongeBob'' consistently ranked as one of the most-watched shows on cable during the period, according to Nielsen Media Research data.
``Cable is the main story with Viacom and the first quarter wasn't any different,'' Michael Morris, an analyst at UBS AG in New York, said in an interview before the results. He recommends investors buy Viacom shares and doesn't own any himself. ``Stronger ratings drove the core growth at Nickelodeon and MTV, fueled in part by higher programming investment.''
Operating losses at the entertainment division that includes the film studios Paramount Pictures and DreamWorks SKG narrowed to $63 million from $108 million the previous year. Sales at the film group increased 12 percent to $1.15 billion.
Paramount Films
Paramount is releasing ``Iron Man'' in U.S. theaters today and ``Indiana Jones and the Kingdom of the Crystal Skull'' on May 22. The movies may become some of the summer's best- performing titles at the box office, Gitesh Pandya, editor of BoxOfficeGuru.com, said in an interview.
```Iron Man,' if it opens up big, the stock could get a pop,'' Standard & Poor's analyst Tuna Amobi said in an interview on Bloomberg Television. Amobi, based in New York, has a ``hold'' rating on the shares and doesn't own any. ``The summer box office is going to be key.''
To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Gillian Wee in New York at gwee3@bloomberg.net.
Last Updated: May 2, 2008 08:12 EDT
BL: ResCap to Start Exchange Offer on $14 Billion of Debt (Update2)
By Andrew Reierson
May 2 (Bloomberg) -- Residential Capital LLC, the mortgage unit of GMAC LLC, is seeking to exchange the equivalent of $14 billion of bonds for longer-dated securities.
ResCap plans to begin offering a private exchange of debt early next week as well as cash tender offers, the company said in a statement today.
ResCap will offer new 8.5 percent senior secured guaranteed notes due 2010 for bonds maturing in 2008 and 2009. The company will issue new 9.625 percent junior secured notes due in 2015 for debt maturing in 2010 to 2015. Noteholders participating in the exchange will be able to choose cash instead of new notes in an auction process, ResCap said.
ResCap recorded a loss of $859 million in the first quarter from a $910 million loss a year earlier, Detroit-based GMAC said on April 29. Falling home prices and record U.S. foreclosures forced ResCap to cut 5,000 jobs, or a third of its staff, in 2007. The company's U.S. home loan business improved in the first quarter from a year earlier as lending to borrowers with the best credit increased 60 percent to $15.4 billion, GMAC said.
Sellers of credit-default swaps today demanded 50.25 percent upfront and 5 percent a year to protect ResCap bonds from default for five years, CMA Datavision prices show. That means it would cost $5.25 million upfront and $500,000 a year to protect $10 million in bonds sold by ResCap. It's up from an initial payment of $4.7 million and $500,000 a year yesterday.
ResCap's bond offers are conditional on the company agreeing with GMAC on a new first-lien senior secured credit facility of at least $3.5 billion, the company said.
General Motors Corp. sold 51 percent of GMAC in 2006 to a group of investors headed by Cerberus Capital Management LP as part of a plan to protect GMAC from the automaker's declining credit outlook. Since then, Moody's has cut GMAC's debt rating four times because of ResCap's losses on loans to subprime borrowers.
To contact the reporter on this story: Andrew Reierson at areierson1@bloomberg.net
Last Updated: May 2, 2008 08:03 EDT
BL: Yen Falls as Rally in Stocks Boosts Higher-Yielding Currencies
By Stanley White
May 2 (Bloomberg) -- The yen fell for a second day against the dollar and declined against the euro as gains in stocks encouraged investors to increase holdings of higher-yielding assets funded in Japan.
The currency fell the most against the South African rand and the British pound, two favorites of so-called carry trades, as Asian shares rallied on signs that credit-market turmoil is easing. The dollar headed for its first back-to-back weekly gain this year against the euro on speculation data will show U.S. companies are shedding workers at a slower pace, bolstering the case for the Federal Reserve to stop cutting interest rates.
``With stocks rising this much, it doesn't augur well for the yen,'' said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's second- biggest lender. ``Calm is returning to financial markets, and that allows currency traders to focus on rate differentials. The Fed may not have to cut rates much further, prompting a reversal in bets on dollar declines.''
The yen fell to 104.62 per dollar at 11:02 a.m. in Tokyo from 104.43 late yesterday in New York. It declined to 161.87 against the euro from 161.57. The dollar traded at $1.5474 per euro from $1.5474 yesterday, when it touched $1.5431, the highest since March 25. The pound bought $1.9780 from $1.9748. Japan's currency may weaken to 105 per dollar today, Sahara forecast.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net. Stanley White in Tokyo at swhite28@bloomberg.net
Last Updated: May 1, 2008 22:16 EDT
BL: Asian Stocks Advance, Led by Financial Companies; Toyota Gains
By Chen Shiyin and Hanny Wan
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May 2 (Bloomberg) -- Asian stocks rose, sending the region's benchmark index to its steepest gain in almost two weeks, on speculation that turmoil in global credit markets will ease and as sales of cars and chips increased.
Mizuho Financial Group Inc., Japan's third-biggest bank by market value, jumped after U.S. Treasury Secretary Henry Paulson said the credit crisis is probably more than half over. Toyota Motor Corp. climbed after reporting U.S. car sales increased for the first time in five months. Elpida Memory Inc. led an advance by chipmakers after an industry group said semiconductor sales rose in the first quarter.
``Definitely the worst of the credit crisis is behind us,'' said Ivan Leung, Hong Kong-based chief investment strategist at JPMorgan Private Bank, which oversees $400 billion in assets. ``Risk aversion has begun to fade away and we're back to a normal environment.''
The MSCI Asia Pacific Index advanced 1.1 percent to 151.05 as of 10:44 a.m. in Tokyo, the biggest gain since April 21. About six stocks climbed for each that retreated, with a measure of finance stocks advancing the most among the gauge's 10 industry groups.
Japan's Nikkei 225 Stock Average added 1.7 percent to 13,995.42. Sumitomo Realty & Development Co. jumped to a three- month high after the Nikkei newspaper said the property company will report its eighth-straight record profit. Benchmark indexes open for trading elsewhere advanced except Malaysia's.
U.S. stocks rose yesterday to the highest level since January, prompted by a rally in the dollar and better-than- estimated earnings at technology companies.
Paulson's comments were echoed by John Gieve, the Bank of England's deputy governor for financial stability, who said yesterday that appetite for risk assets will recover gradually in the coming months.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Hanny Wan in Hong Kong at hwan3@bloomberg.net
Last Updated: May 1, 2008 21:46 EDT
BL: Commodities Tumble Most in 6 Weeks as Dollar Gain Curbs Demand
By Millie Munshi
May 1 (Bloomberg) -- Commodities fell the most in six weeks as a rally in the dollar eroded demand for energy, metals, crops and livestock as alternative investments.
The UBS Bloomberg Constant Maturity Commodity Index fell 2 percent to 1,471.1 at 5 p.m. in New York, the biggest drop since March 19. Every contract in the index declined except corn. Gold slid to a four-month low, crude oil fell as much as $3.16 a barrel, and rice plunged the most in more than four years.
The U.S. Dollar Index, a gauge of six currencies, jumped to a seven-week high on speculation the Federal Reserve will halt its interest-rate cuts. The central bank lowered the benchmark rate to 2 percent yesterday and backed away from signaling a preference for more after seven cuts since Sept. 18. The dollar is up 3.5 percent from a record low $1.6019 per euro on April 22, cutting demand for raw materials traded in New York.
``The dollar is the key factor for commodities today,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. Commodities' dollar-tracked movements this year have been ``extreme,'' he said.
The UBS Bloomberg index fell 6.5 percent from a record 1,573.84 on Feb. 29. The gauge was up 23 percent on the year by then, while the Standard & Poor's 500 Index of equities had fallen 9.4 percent and the Dollar Index, which includes the euro, yen, and U.K. pound, had dropped 3.9 percent.
Investors ``can no longer reliably depend on ever-cheaper dollars to fuel speculative binges in commodities,'' Jon Nadler, a Kitco Minerals & Metals Inc. senior analyst in Montreal, said in a report today.
`Extreme Impact'
``The magnitude of the dollar's decline this year was severe, and has had an extreme impact on commodities,'' O'Neill of Logic Advisors said.
The UBS Bloomberg index still is up 15 percent this year and heading for a seventh straight annual gain. Crude oil, gold, copper and platinum have rallied to records this year, as did corn, wheat and soybeans. The cost of rice, a food staple for half the world's people, more than doubled in the past two years, sparking protests and riots in countries including Haiti, Indonesia, Mexico and Egypt.
Today, rough rice for July delivery fell $1.145, or 5.3 percent, to $20.635 per 100 pounds on the Chicago Board of Trade, the biggest drop for a most-active contract since Jan. 12, 2004. The decline was the sixth straight since rice reached $25.07 on April 24, the highest ever.
Gold, Oil Fall
Gold futures for June delivery fell $14.20, or 1.6 percent, to $850.90 an ounce on the Comex division of the New York Mercantile Exchange, the lowest close in four months. Earlier, the price touched $848.50, the lowest for a most-active contract since Jan. 2. Gold often moves inversely to the dollar.
Crude-oil futures for June delivery dropped 94 cents, or 0.8 percent, to $112.52 a barrel on the Nymex. On April 28, the price surged to a record $119.93.
Copper futures for July delivery fell 21 cents, or 5.4 percent, to $3.6945 a pound on the Comex. That's the biggest drop by a most-active contract since Nov. 19.
Still, today's declines may be a ``buying opportunity'' for most commodities, as robust global growth continues to boost demand for raw materials, said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California. Delta Global manages $1.5 billion.
``I'm not at all daunted by this pullback,'' Pento said. ``This offers an excellent opportunity for investors who had missed out on the commodity bull-run earlier this year to get on board the train as these prices move higher after a short correction.''
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
Last Updated: May 1, 2008 19:13 EDT
BL: Toyota, Honda Cars Help Asian Brands Defy U.S. Slump (Update2)
By Alan Ohnsman
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May 2 (Bloomberg) -- Sales gains for Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. led Asian automakers to record U.S. market share in April as rising gasoline prices stoked demand for the most fuel-efficient models.
Japanese and South Korean brands' sales grew at least 5 percent, giving them 44.7 percent of the U.S. new-vehicle market, according to Autodata Corp. Toyota had its first advance in five months, buoyed by Yaris small cars and Prius hybrids.
The results reflected U.S. consumers' shift away from less- efficient light trucks under the strain of a slowing economy and gasoline that averaged $3.62 a gallon. With car-dominated lineups, Asian brands are doing better than their U.S. rivals in meeting buyers' needs, Edmunds.com forecaster Jesse Toprak said.
``There's a preference for smaller vehicles beyond just gas prices,'' said Toprak, who is based in Santa Monica, California. ``Consumers are looking at overall cost of ownership -- payment on the loan, gas cost and maintenance cost.''
Industrywide sales fell 6.9 percent for a sixth straight monthly drop, paced by a 17 percent decline for General Motors Corp., Ford Motor Co. and Chrysler LLC, said Woodcliff, New Jersey-based Autodata. U.S. automakers depend more than their Asian counterparts on pickups and sport-utility vehicles.
Toyota reported a 3.4 percent sales increase, while Nissan rose 6.7 percent. Honda estimated its sales grew at least 6 percent, adding that a computer glitch delayed its final tally.
April market share for the Asian brands topped the previous mark of 44.6 percent set in July 2007.
Toyota
Toyota, the world's second-largest automaker behind GM, reclaimed the No. 2 spot in the U.S. for the year as its April gain returned Ford to third place.
Surges of 67 percent and 58 percent for the Prius and Yaris, respectively, paced the increases for Toyota City, Japan-based Toyota. The revamped Tundra pickup dropped 6 percent, the first such decline since the full-size truck went on sale early last year.
``We're seeing steady growth in the entry subcompact segment, as well as strengthening in the midsize and small SUV segment,'' Bob Carter, vice president and U.S. general manager of the Toyota brand, said in a conference call. ``Fuel efficiency will remain one of the top purchasing factors for consumers.''
Toyota said in March that it planned to reduce the daily output of the Tundra. Carter said the company had no further production-related announcements about the truck at this time.
``To no one's surprise, the segment is down,'' Carter said. Toyota's Tundra inventory is ``in the mid-80-day supply'' level, he said. Analysts generally consider 60 days to be typical.
Toyota's market share for the month was 17.5 percent, up from 15.7 percent a year ago, Autodata said.
Honda, Nissan
While a complete total was delayed, Honda sales totaled ``at least'' 134,000 vehicles, up from 126,419 a year earlier, spokesman Sage Marie said. Sales rose for the Fit and Civic small cars, midsize Accord and CR-V small SUV, he said.
Autodata estimated Tokyo-based Honda's market share was 10.8 percent, good enough for No. 5 in the U.S., up from 9.4 percent in 2007.
Nissan, based in Tokyo, boosted sales on demand for the Versa and Sentra compact cars, midsize Altima sedans and its new Rogue compact SUV.
The company's market share was 6.1 percent, up 0.8 point.
Hyundai Motor Co., South Korea's largest automaker, reported a 0.4 percent increase in April, while affiliate Kia Motors Corp. said sales advanced 16 percent.
Mazda Motor Corp., a Ford affiliate, reported a 13 percent gain on higher sales of Mazda3 small cars and Mazda5 compact minivans.
Shares Gain
Toyota rose 2.1 percent to 5,390 yen as of 10:18 a.m. on the Tokyo Stock Exchange. Honda jumped 3.6 percent to 3,420 yen. Nissan added 1.2 percent to 937 yen. Mazda gained 1.3 percent to 459 yen.
In Seoul, Hyundai added 1.8 percent to 86,100 won, and Kia advanced 0.4 percent to 13,400 won.
Fuji Heavy Industries Ltd., maker of Subaru brand autos and a Toyota affiliate, said sales rose 22 percent on a surge for the new Forester small SUV and Impreza sedans and wagons.
Mitsubishi Motors Corp.'s sales dropped 26 percent and Suzuki Motor Corp. reported a 5.3 percent increase. Japanese truckmaker Isuzu Motors Ltd., which will discontinue U.S. consumer vehicle sales next year, reported a 5.7 percent decline.
Consumer confidence plunged to a five-year low in April, the Conference Board reported this week, as mounting job losses and soaring food and fuel prices cause Americans to retrench. U.S. sales of pickups, minivans and SUVs this year fell 13 percent through April, and total vehicle sales slid 7.7 percent.
Sales reports by some automakers are adjusted to reflect two more selling days last month than in April 2007. Unadjusted comparisons used by Bloomberg are about 8 percentage points apart. Toyota, for example, expressed its 3.4 percent gain as a 4.5 percent adjusted decline.
To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net
Last Updated: May 1, 2008 21:36 EDT
BL: Dollar Trades Near Five-Week High Versus Euro Before Job Report
By Stanley White
May 2 (Bloomberg) -- The dollar traded near a five-week high against the euro before a government report forecast to show U.S. companies lost workers at a slower pace in April.
The currency headed for its first back-to-back weekly gain this year against the euro on speculation the Federal Reserve will stop cutting borrowing costs. The central bank on April 30 cut its target rate for overnight lending by a quarter- percentage point to 2 percent and said the ``substantial'' amount of easing since September would foster economic growth.
``Sentiment for the dollar is improving as worries about the economy recede,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``The Fed has hinted that it's ready for a pause. Unless the jobs data miss expectations significantly, the dollar is an easy buy.''
The dollar traded at $1.5474 per euro at 9:50 a.m. in Tokyo from $1.5474 yesterday, when it touched $1.5431, the highest since March 25. The U.S. currency traded little changed at 104.58 yen, following an increase of 0.5 percent yesterday. The pound bought $1.9780 from $1.9748. The euro was at 161.83 yen, following a drop of 0.5 percent. The dollar may rise to $1.5430 per euro today, Ishikawa forecast.
The dollar was on course for a 1 percent gain against the euro this week. The greenback, as the U.S. currency is known, headed for a weekly advance of 0.4 percent against the pound.
Since declining to the all-time low of $1.6018 per euro on April 22, the dollar has increased 3.5 percent on speculation the Fed will not add to this week's rate reduction and economic growth in Europe will start to slow.
Dollar Index
The U.S. Dollar Index, which measures the currency against six major counterparts, was at 73.207 after touching 73.393 yesterday, the highest level since March 11. The index fell to 70.698 on March 17, the lowest since its 1973 inception.
U.S. payrolls probably fell by 75,000 in April, less than the 80,000 decline in the previous month, according to the median forecast of 82 economists surveyed by Bloomberg News. The Labor Department is scheduled to release the report at 8:30 a.m. in Washington.
The dollar rose yesterday after a report from the Institute for Supply Management showed U.S. manufacturing contracted less than forecast in April.
Futures on the Chicago Board of Trade showed an 80 percent chance policy makers will keep the fed funds target unchanged when they next meet June 25. The balance of bets is for a cut of a quarter-percentage point.
Currency Support
``Unless tonight's key U.S. payrolls report shows a shockingly large fall in jobs, or jump in the unemployment rate, traders will continue to price an end to Fed rate cuts, supporting the dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.
The yield advantage of two-year German bunds over comparable-maturity U.S. Treasuries has narrowed to 1.40 percentage points from 1.85 percentage points at the end of March, making dollar-denominated assets more attractive.
The greenback headed for a weekly advance against 13 of the 16 most-active currencies as declines in commodities prices show investors have more confidence in the Fed, said Jim McCormick, head of global foreign exchange strategy in London at Lehman Brothers Holdings Inc.
Commodity Prices
The UBS Bloomberg Constant Maturity Commodity Index fell 2 percent to 1,471.1 yesterday, the biggest drop since March 19. Gold slid to a four-month low yesterday after reaching a record high on March 17. Crude oil fell 24 cents to $112.28 a barrel. It touched a record of $119.93 on April 28.
The dollar-yen's correlation with the Constant Maturity Commodity Index over the past year is negative 0.9, according to Bloomberg calculations. A reading of negative 1 means two variables move in the opposite direction.
``A rise in commodities and a fall in the dollar was a signal that the market was losing faith in the central bank,'' McCormick said in an interview with Bloomberg Radio. ``The fact that you're now starting to see commodities come off and the dollar up shows the central bank has moved some way back to gaining sentiment in financial markets.''
Bank of England
The pound headed for a third weekly gain against the euro, the longest rally since May 2006, as the Bank of England said in its twice-yearly financial stability report that ``risk appetite will return gradually'' in the coming months. Sterling traded at 78.23 pence per euro, after increasing yesterday as much as 0.8 percent to 78.02 pence, the highest since March 26. Sterling rose 0.6 percent against the common European currency this week.
``The pound's strength after the BOE report is manifesting itself in the sell-off of the euro against the pound,'' said Adam Cole, head of currency strategy at Royal Bank of Canada in London. ``This is dragging the euro down against the dollar.''
The U.S. currency has lost 10 percent against the euro since the Fed started to lower its target rate for overnight lending from 5.25 percent in September.
The ECB will cut its 4 percent main refinancing rate to 3.75 percent by the end of September and 3.50 percent by year- end, according to a survey of economists surveyed by Bloomberg.
``We are seeing selling pressure on the euro across the board,'' said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. ``The focus is shifting to Europe, with the belief that the worst is over here while Europe is slowing down.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
Last Updated: May 1, 2008 21:23 EDT
BL: Asian Ministers to Seek Ways to Fight Inflation, Cooling Growth
By Shamim Adam
May 2 (Bloomberg) -- Rising food and commodity prices that are stoking inflation will probably dominate a meeting of the Asian Development Bank as the region's finance ministers seek ways to shield their economies from higher costs.
Japan's Fukushiro Nukaga, China's Xie Xuren, South Korea's Kang Man Soo and Southeast Asian ministers are meeting at the sidelines of the Asian Development Bank's annual gathering in Madrid this weekend. Inflation in Asia is expected to reach a decade-high this year even as economic growth cools, ADB predicts.
Crude oil has risen 85 percent, and rice prices have more than doubled since Asian finance ministers met a year ago in Kyoto, Japan. The increases have stoked social tensions and led to wider fiscal deficits as governments subsidize food and energy costs for their people.
``Inflation will be pushed to the fore over global growth concerns,'' said Tetsuo Yoshikoshi, an analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``There's little Asia can do to avoid a global slowdown but cooperation to contain inflation, especially on food prices, is possible.''
Vietnam and other rice-producing nations have curtailed exports to maintain supplies and damp local inflation, pushing up prices for buyers such as the Philippines, the world's biggest importer of the grain. Corn, wheat and soybean prices have all reached records this year too.
``Several Southeast Asian countries are major rice producers and exporters and more can be done within the region to help each other out,'' said Joseph Tan, a strategist at Fortis Bank in Singapore. ``The question is whether there is the political will to do so.''
Slower Growth
Asian governments are predicting growth to be at the lower end of targets, or are reducing their forecasts even as they increase their estimates for inflation.
The U.S. economy grew 0.6 percent in the first quarter, matching the pace of the previous period, which was the slowest since 2002. The International Monetary Fund last month lowered its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.
The Bank of Japan on April 30 said the world's second- largest economy will probably expand at a slower pace this year than it had expected six months ago, while almost tripling its forecast for core consumer prices. Indonesia lowered its growth estimate on the same day, and South Korea has said its economy entered a ``downturn.''
Foreign Reserves
Finance ministers from China, South Korea and Japan will gather for a meeting on May 4, before getting together with their counterparts from the 10-member Association of Southeast Asian Nations. Besides inflation and the outlook of the region's economies, issues that will be discussed include the pooling of foreign-exchange reserves and the development of bond markets.
Officials last year agreed to set aside part of their $3.4 trillion of foreign reserves to be tapped by member nations when needed, an expansion of a current arrangement that only allows for bilateral currency swaps.
The pool may ensure central banks have enough to shield their currencies against any speculative attacks after the Asian financial crisis a decade ago depleted the reserves of some countries. The ministers are expected to discuss the size of the pool, estimated at between $80 billion and $100 billion, and when they would start the arrangement.
`Heal Wounds'
``The purpose of the fund would be to heal wounds when they are still small should liquidity or financing problems arise,'' Hiroshi Watanabe, Japan's former top currency official, said in an interview last month. ``It would be like a first-aid measure that would provide care before the International Monetary Fund gets involved.''
Officials will also participate in seminars organized by the Manila-based ADB at the Madrid meeting from May 3 to 6. The lender's governors, who include Japan's Nukaga and Indonesian Finance Minister Sri Indrawati Mulyani, will discuss the ADB's strategy to boost infrastructure development and partnerships between companies and governments.
At last year's meeting, the bank was rebuked by members on its long-term plan to focus on financing roads and ports instead of fighting poverty. The group is owned by 67 member countries, both from within and outside of the region.
The ADB was formed in 1966 to improve the welfare of people in the Asia and the Pacific. Two-thirds of the world's poor reside in the region, and about 600 million Asians survive on less than $1 a day.
The lender expects to disburse about $10 billion in loans in 2008, after lending $10.1 billion last year, ADB managing director Rajat Nag said in an interview in Singapore last week. It may issue between $9 billion and $10 billion in bonds this year, Nag said.
To contact the reporter on this story: Shamim Adam in Madrid sadam2@bloomberg.net
Last Updated: May 1, 2008 11:01 EDT
BL: Falling Rupee May Add to India's Inflation, Rates, ICICI Says
By Sam Nagarajan
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May 2 (Bloomberg) -- A weakening Indian rupee, Asia's second-worst performing currency this year, may quicken inflation and prompt the central bank to raise its benchmark interest rate, according to ICICI Securities Ltd.
The Reserve Bank of India may increase its repurchase rate by a quarter-percentage point for the first time in more than a year, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based unit of India's second-biggest bank by market value. The rupee has declined almost 3 percent this year as equity purchases by overseas funds slowed amid a global credit crisis and rising oil prices pushed import costs higher.
``The offset of a strong rupee isn't available to contain the pass-through of global prices. In such a scenario, we don't rule out a hike in the repo rate,'' Prasanna said in an interview yesterday. Further rupee weakness ``cannot be ruled out, adding to inflation risks.''
Central bank Governor Yaga Venugopal Reddy kept the benchmark rate unchanged at a six-year high on April 29. He instead told lenders for the second time in less than two weeks to set aside more cash as a proportion of their deposits to slow growth in money supply.
The rupee fell 0.8 percent the same day, the biggest decline in almost two months, after the bank said the current- account deficit will be ``marginally'' higher in the fiscal year through March and said prospects for growth stand ``trimmed.''
The local currency weakened 0.1 percent to 40.51 a dollar on April 30, according to data compiled by Bloomberg. Financial markets were closed yesterday for a holiday in Mumbai.
Oil, Deficits
An advance in crude oil prices to an all-time high of $119.93 a barrel this week spurred demand for dollars as refiners settled import bills, placing the rupee on course for its biggest weekly loss since the five-day period ended March 7.
India's trade deficit widened 45 percent in the year ended March 31 to $80.4 billion, the government said yesterday. The shortfall in the current account, a broad measure of trade and investment flows, widened 46 percent to $5.4 billion in the quarter through December from $3.7 billion a year earlier.
The rupee's 12.3 percent rally last year, the most in more than three decades helped cool inflation to a five-year low in October before flaring up to a 3 1/2-year high.
Slowing Growth
Asia's third-largest economy should be prepared to face ``potentially large'' outflows of capital as the global credit crisis, now in its 10th month, makes global investors more risk averse, the Reserve Bank said April 29.
Global funds, who bought a record $17.2 billion in Indian shares than they sold last year, have dumped a net $2.6 billion this year as the central bank expects economic expansion to slow to as low as 8 percent this fiscal year. Growth averaged a record 8.7 percent in the past five years.
``With inflows slowing down, higher outflows on the trade account are likely exerting pressure on the currency'' to weaken, Prasanna said. ``We attach a reasonable probability'' to an increase in the benchmark rate.
The currency may trade between 40 and 40.50 to the dollar in coming weeks, he said. The median forecast in a survey of 22 analysts compiled by Bloomberg is for the rupee to advance to 39.45 by year-end.
To contact the reporter on this story: Sam Nagarajan in New Delhi at samnagarajan@bloomberg.net
Last Updated: May 1, 2008 20:38 EDT
BL: Berkshire's Bond Insurer, Moody's Stake Face Probe (Update4)
By Erik Holm
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May 1 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. faces a probe by Connecticut's attorney general for possible conflicts created by owning almost 20 percent of credit ratings company Moody's Corp. while also running a new municipal bond insurer.
Connecticut is investigating the ``clear and direct conflict of interest for Moody's to rate a company owned by such a significant Moody's shareholder,'' Attorney General Richard Blumenthal said in an interview.
Moody's gave its top rating last week to Berkshire Hathaway Assurance Corp., created in December as existing bond insurers struggled to maintain their AAA ratings. A favorable rating for Berkshire by New York-based Moody's, or a lower rating for competitors including MBIA Inc. and Ambac Financial Group Inc., may give Buffett's company an advantage.
``We have been aware of this issue, and it has been very actively and immediately involved in our investigation,'' said Blumenthal yesterday, referring to a previously announced antitrust probe of ratings companies. ``This financial relationship is part and parcel of the issues.''
Buffett wasn't available to comment, according to an e-mailed message from Omaha, Nebraska-based Berkshire's spokeswoman, Jackie Wilson. Blumenthal said today on Bloomberg Television the companies are cooperating with his inquiry.
Moody's Policy
``We have a strict policy that's been in place since we've been a public company that allows us to manage any potential conflicts of interest,'' said Tony Mirenda, a spokesman for Moody's. ``We have a longstanding policy of not discussing our ratings with shareholders and non-employee members of the board of directors.'' Berkshire is ``a passive investor that has never contacted us regarding our ratings,'' he said.
Berkshire has held about 48 million shares of Moody's since at least 2002, data compiled by Bloomberg show.
Standard & Poor's, a unit of McGraw-Hill Cos., also gave its highest grade to Berkshire's four-month-old unit, which offers municipal bondholders protection from default by state and local governments.
Blumenthal wouldn't speculate today on consequences of his probe for Berkshire and Moody's, adding that a remedy ``may need to be broader than dealing with one company, or on the relationship between two companies.'' He declined to say if subpoenas were issued.
Possible Solutions
Blumenthal had earlier disclosed an antitrust investigation into whether the three largest credit-ratings companies rank debt against issuers' wishes, then demand payment. Connecticut is also probing whether the companies threaten to downgrade debt unless they're awarded business to rate all of an issuer's securities, and the practice of offering ratings discounts in return for exclusive contracts.
The conflict exists and Moody's should voluntarily recuse itself from ratings tied to Berkshire's unit, said John Coffee, professor of securities law at Columbia University in New York.
``I don't think this is a serious issue,'' said Monish Pabrai, managing director of Pabrai Investment Funds and a Berkshire stockholder, in a Bloomberg Radio interview. Berkshire could resolve the problem by reducing its stake in Moody's ``or they could work out an agreement where they would not have any voting rights.''
State Regulators
Buffett started the bond insurer in December at the urging of state insurance regulators, who were seeking ways to help governments find new places to buy the coverage when losses jeopardized the AAA ratings at MBIA, Ambac and other established companies. States and municipalities pay bond insurers to guarantee their debt, effectively putting the bond insurance companies' rating in place of their own to lower the interest rate they pay to borrow.
``It's only natural that you comport yourself in a way that pleases your owners,'' said Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, who has also been critical of Berkshire's venture into bond insurance. ``The perception, at the very least, is problematic. Are they going to rate municipal bonds fairly, or do it in a way that helps maximize income from Berkshire's bond insurance operation?''
Buffett, ranked the world's richest man by Forbes magazine, transformed Berkshire from a failing textile maker into an enterprise with businesses ranging from ice cream and underwear to corporate jet leasing.
Detroit Sale
Detroit planned to sell $385 million of bonds today carrying insurance from Berkshire Hathaway Assurance, marking the first foray by the guarantor into the primary market for U.S. municipal debt. Berkshire has insured at least 255 existing bonds totaling more than $2.3 billion, based on data compiled by Bloomberg.
Buffett earlier offered to shore up municipal bonds guaranteed by MBIA, Ambac and FGIC Corp. in a bid to gain 33 percent of the debt insurance market. The companies didn't accept.
The attorneys general offices in California, Florida, Massachusetts, Colorado, Georgia and Texas said they're not investigating. MBIA spokesman Jim McCarthy declined to comment.
``Our concern was and continues to be that municipal bond issuers have access to bond insurance should they need it,'' said Eric Dinallo, the New York State insurance superintendent who encouraged Berkshire to start its new unit. ``We have no comment on the Connecticut investigation.''
To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.
Last Updated: May 1, 2008 19:48 EDT
BL: U.S. Stocks Climb, Led by Shares of Banks, Technology Companies
By Eric Martin
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May 1 (Bloomberg) -- U.S. stocks rose to the highest level since January as a rally in the dollar and better-than-estimated technology earnings prompted investors to shun commodities and shift into shares of banks, retailers and computer companies.
Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. led financial stocks to a two-month high as the dollar advanced 1.1 percent against the euro on speculation the Federal Reserve is done cutting interest rates. Symantec Corp. surged the most in six years after the world's biggest maker of security software said fourth-quarter profit tripled, while Comcast Corp. posted its steepest rise since 2002 on new Internet-access subscribers.
The Standard & Poor's 500 Index jumped 23.75 points, or 1.7 percent, to 1,409.34, its first close above 1,400 since Jan. 14. The Dow Jones Industrial Average added 189.87, or 1.5 percent, to 13,010, the first close above 13,000 since Jan. 3. The Nasdaq Composite Index rose 67.91, or 2.8 percent, to 2,480.71. Three stocks rose for each that fell on the New York Stock Exchange.
``There's a lot of money in the short-dollar, long- commodity trade and it doesn't take much to whipsaw back,'' said Jon Fisher, a Minneapolis-based portfolio manager at Fifth Third Asset Management, which oversees about $22 billion. ``That money's got to rotate somewhere else, and today it's rotating into technology and financials, two laggard sectors this year.''
Dollar Rally
The dollar advanced to a five-week high against the euro and increased versus the Japanese, Swiss, British and other currencies a day after the Fed cut its benchmark rate by a quarter point to 2 percent and signaled that if may be finished reducing borrowing costs. All 10 industry groups in the S&P 500 rose today except for energy and commodity producers as a better-than-forecast report on manufacturing also lifted stocks.
The Dow average pared its yearly decline to 1.9 percent and the S&P 500 reduced its 2008 loss to 4 percent. The S&P 500 yesterday completed its biggest monthly gain sine 2003, climbing 4.8 percent in April, as results from Google Inc. to Intel Corp. to Boeing Co. and American Express Co. eased concern profits will deteriorate.
Financial shares climbed 3.9 percent as a group today, contributing the most out of 10 industry groups to the S&P 500's advance.
Bank of America, the second-biggest U.S. bank by assets, rallied $1.85 to $39.39. Citigroup, the largest, climbed $1.04, or 4.2 percent, to $25.99. JPMorgan Chase, the No. 3, added $1.60, or 3.4 percent, to $49.25.
Financials also got a boost after Kuwait's $250 billion sovereign wealth fund said it may increase its stakes in Merrill Lynch & Co. and Citigroup as it pursues investments in U.S. and European companies battered by subprime-mortgage related losses.
`A Lot of Opportunities'
``The valuation in the markets in the U.S. and Europe, we think, has created a lot of opportunities,'' Bader al-Saad, the Kuwait Investment Authority's managing director, said in an interview with Bloomberg Television. ``We have confidence in the management'' of Citigroup and Merrill, he said.
Merrill, the third-largest securities firm, rose $2.56, or 5.1 percent, to $52.39.
Companies in the S&P 500 trade for an average 15.3 times their estimated profit in the next 12 months.
MBIA Inc. posted the steepest advance in the S&P 500 after the world's largest bond insurer, which has lost 83 percent of its value in the past 12 months, said it has enough capital to retain its AAA rating. MBIA gained $1.34, or 13 percent, to $11.74.
Symantec, Comcast
Symantec had the second-steepest rise in the S&P 500, gaining $2.12, or 12 percent, to $19.34. The world's biggest maker of security software said quarterly profit tripled, beating analysts' estimates, after businesses and consumers renewed subscriptions and bought more programs to protect information.
Comcast rose $1.76, or 8.6 percent, to $22.31. The largest U.S. cable-television company said first-quarter sales rose 14 percent, more than analysts estimated, on new Internet-access subscribers. Profit fell 13 percent from a year earlier, when results were bolstered by a one-time gain.
The advance in technology companies was led by Symantec, Intel Corp. and SanDisk Corp.
Intel added $1.03, or 4.6 percent, to $23.29. The world's largest chipmaker is stepping up production to meet higher-than- expected demand for Atom, a new processor for low-cost portable computers. Intel Chief Executive Officer Paul Otellini is using the processors to attract consumers who want stripped-down computers for word processing and surfing the Internet.
SanDisk gained $1.94, or 7.2 percent, to $29.03. The biggest maker of memory for digital cameras expects a sales boost from U.S. consumers spending their federal tax rebate checks, Chief Executive Officer Eli Harari said.
`Pretty Stable'
Chipmakers also climbed after the Semiconductor Industry Association said global semiconductor sales rose 3.8 percent in the first quarter as consumers bought more electronic devices.
``It's reassurance for the market that sales did not fall off dramatically in the last quarter,'' said Michael Shinnick, manager of a $93 million mutual fund with the ability to bet against companies, at 1st Source Bank in South Bend, Indiana. The firm manages $3.5 billion. ``As an industry, things are still pretty stable.''
Profits at the 41 technology companies in the S&P 500 that have reported first-quarter earnings so far have been 6.9 percent higher than analysts estimated, trailing only companies that sell consumer-discretionary products, including clothing and electronics, in beating projections.
`Rising Tide'
``The technology names are one of those areas reporting fairly good earnings, and that's being reflected in the stock prices,'' said Randy Bateman, who oversees $15 billion as chief investment officer of Huntington Bancshares Inc. in Columbus, Ohio. The firm allocates 17 percent of its assets to technology stocks and owns shares of Oracle Corp., Microsoft Corp. and Cisco Systems Inc. ``It looks like it's not just centered in one name, but that the rising tide carries all boats.''
Energy shares fell the most in the S&P 500, dropping 2.2 percent as a group, following a third day of declining oil prices and lower-than-forecast earnings at Exxon Mobil Corp.
Exxon's first quarter net income rose to $10.9 billion, or $2.03 a share, from $9.28 billion, or $1.62, a year earlier, the company said. Per-share profit at the largest U.S. oil producer was 10 cents short of the average analyst estimate in a Bloomberg survey. Exxon tumbled $3.37, or 3.6 percent, to $89.70.
Oil Retreats
Oil retreated as the dollar rose. Crude for June delivery lost 94 cents, or 0.8 percent, to $112.52 a barrel. Chevron Corp., the second-biggest U.S. energy company, slipped $1.21 to $94.94.
Apache Corp., the Houston-based oil and natural-gas producer that operates on five continents, fell after reporting first-quarter profit of $2.99 a share, missing the $3.02 average estimate of analysts surveyed by Bloomberg. Apache lost $8.27, or 6.1 percent, to $126.41.
Raw-materials producers retreated as gold, silver and copper retreated. Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer of copper, lost $5.79, or 5.1 percent, to $107.96. Newmont Mining Corp., the world's third- largest gold producer, dropped 98 cents, or 2.2 percent, to $43.23.
Airlines Gain
An index of airlines advanced for a sixth day, the longest streak of consecutive gains in more than a year, after people familiar with the talks said American Airlines and British Airways Plc are in discussions to broaden their Oneworld alliance to add Continental Airlines Inc. and seek antitrust immunity to set prices and schedules.
AMR Corp., American's parent, gained $1.13, or 13 percent, to $9.90. Continental added $1.27, or 7.1 percent, to $19.25.
Home Depot Inc. gained the most in a month, rising $1.07, or 3.7 percent, to $29.87. The world's biggest home-improvement retailer will eliminate 1,300 jobs, close 15 stores and scrap plans for 50 as the company tries to catch up to Lowe's Cos. in customer service. The company said it will slow its expansion of floor space to 1.5 percent next year from 2.5 percent this year.
An index of retailers in the S&P 500 gained 3 percent on prospects a stronger dollar will boost consumer spending.
Target Corp., the second-largest U.S. discount chain, gained $1.11, or 2.1 percent, to $54.24.
Las Vegas Sands Corp. dropped $4.29, or 5.6 percent, to $71.93. The world's largest casino company by market value posted an unexpected first-quarter loss as revenue rose less than analysts estimated.
Economy Watch
Industrial shares climbed 1.5 percent as a group after the Institute for Supply Management said its manufacturing index was 48.6 in March, higher than the reading of 48 projected by economists. Honeywell International Inc., the world's largest maker of airplane instruments, rose $1.27, or 2.1 percent, to $60.67.
The Labor Department reported that first-time claims for unemployment insurance rose more than forecast last week, to 380,000, and the total number of Americans receiving benefits climbed to 3.019 million, the highest level since April 2004. The inflation measure tracked by the Federal Reserve, which strips out food and fuel prices, increased to 0.2 percent in March, twice the rate predicted by economists in a Bloomberg survey.
JDS Uniphase Corp. lost $2.31, or 16 percent, to $12, the sharpest retreat in the S&P 500. The maker of equipment for testing telecommunications networks forecast sales that missed analysts' estimates.
About 1.39 billion shares traded on the New York Stock Exchange, 7.5 percent less than the three-month daily average.
The Chicago Board Options Exchange Volatility Index, the benchmark for U.S. options prices, decreased 9.2 percent to 18.88. The so-called VIX gauges the cost of insuring against declines in the S&P 500.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, climbed 1.9 percent to 729.75. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.6 percent to 14,220.24. Based on its advance, the value of stocks increased by $286 billion.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: May 1, 2008 16:31 EDT
Fed cuts overnight rate to 2%
---Rate cut extravaganza!
Today 10:45pm
Fed reluctant to give signal on how much farther it will go - Gerard Barker in The London Times
- "The cautious language seems to reflect a fierce internal debate. Some members of the committee clearly want the Fed to say that it will not reduce rates further because of the risk of accelerating inflation. Two, Richard Fisher and Charles Plosser, dissented for the second straight meeting in protest at the over-aggressive policy. But other members, and especially the Fed’s own economists, continue to worry that deepening recession, not inflation, is the biggest threat."
- "These officials remember with some embarrassment that the Fed signalled once before, in October, that it believed there was no need for more cuts and was then forced to ease policy much more aggressively."
Today 10:39pm
(US) Former Fed officials Bill Poole and Susan Bies said that it would not be wise for policy makers to cut the US's benchmark rate below 2% - wires
Today 10:21pm
Fed outlook: Given that every piece of economic data has deteriorated since the last meeting, the omission of "downside risks to growth" is so bizarre that "we cannot understand what the Fed is trying to do" - Rob Carnell of ING Bank
- Related commentary: "Well, I imagine the Fed is trying to promote the notion that it is not entirely useless, that its actions do achieve a reaction. The change in the wording looks like pure spin to me," said Alan Kohler at The Business Spectator.
Today 10:17pm
Reaction to the FOMC: The changes to the inflation paragraph lack the force that I was expecting - Matthew Johnson at ICAP Australia
- "The top line reads ‘although readings on core inflation have improved somewhat, energy and other commodity prices have increased’. I suspect that this is a compromise between those who care mostly about core inflation (Mishkin, for example) and those (Fisher and Plosser) who are worried about headline inflation, and the impact of negative real rates and a falling USD on input costs and inflation expectations."
Collected from Trade the News .com
BL: U.S. Stocks Fall as Federal Reserve Says Economy Remains Weak
By Eric Martin
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April 30 (Bloomberg) -- U.S. stocks fell, paring the best monthly advance for the Standard & Poor's 500 Index since 2003, after the Federal Reserve cut interest rates for a seventh time and said the economy remains weak.
Citigroup Inc., Hewlett-Packard Co. and Home Depot Inc. led declines that erased a 178-point rally in the Dow Jones Industrial Average as the central bank said ``tight credit conditions and the deepening housing contraction are likely to weigh'' on growth.
``The great debate stops being the impact of the Fed's actions, but now shifts to how long the recession is likely to last,'' said Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages more than $470 billion. ``Will it be two quarters or 12 quarters?''
Investors were whipsawed by the Fed's statement after an earlier government report showed the economy grew more than forecast in the first quarter and General Motors Corp. reported a narrower-than-estimated loss. The Standard & Poor's 500 Index lost 5.35 points, or 0.4 percent, to 1,385.59. The Dow slipped 11.81, or 0.1 percent, to 12,820.13. The Nasdaq Composite Index decreased 13.3, or 0.6 percent, to 2,412.8. Six stocks fell for every five that rose on the New York Stock Exchange.
Stocks opened higher after the Commerce Department said gross domestic product advanced 0.6 percent in the first quarter in the first quarter, helped by an increase in inventories. The data helped counter yesterday's decline in consumer confidence and record tumble in U.S. home prices and last week's retreat in durable goods orders.
Monthly Rally
The S&P 500 climbed 4.8 percent this month as results from Google Inc., Intel Corp., Boeing Co. and American Express Co. eased concern profits will deteriorate. Earnings have topped estimates at 69 percent of the companies in the index that have posted first-quarter results so far, compared with 66 percent in the entire period last year, data compiled by Bloomberg show.
Banks fell, led by Citigroup and Bank of America Corp., on speculation today's Fed cut may bring to an end the most aggressive easing since the federal funds rate became an explicit target of policy in the late 1980s.
``The market's ready for the Fed to pause,'' said Bruce McCain, the Cleveland-based head of investment strategy at Key Private Bank, which manages $40 billion. ``The Fed's largely done its role putting in place the economic stimulus that will allow the economy to get back on track again and revive earnings this year and next.''
Citigroup, which also announced a plan to sell $4.5 billion in stock to increase capital depleted by mortgage losses, tumbled $1.05, or 4 percent, to $25.27. Bank of America retreated 32 cents to $37.54. Hewlett-Packard dropped $1.49 to $46.35. Home Depot Inc., the largest home-improvement retailer, fell 56 cents to $28.80.
GM Climbs
GM gained the most in the Dow average and S&P 500, rising $2, or 9.4 percent, to $23.20. The automaker said its first- quarter loss excluding some costs was 62 cents a share, narrower than the $1.52 a share forecast by analysts. GM had an $812 million pretax loss in North America, its largest region, while boosting profits in each of its other three regions.
Technology companies contributed the second-most among 10 industry groups to the S&P 500's decline, led by Hewlett-Packard and Oracle Corp., after Germany's SAP AG, the world's biggest maker of business-management software, reported its steepest quarterly profit decline in almost six years.
SAP's American depositary receipts retreated 4.2 percent to $50.23.
Unisys, P&G
Unisys Corp. lost 59 cents, or 12 percent, to $4.16, the steepest decline in the S&P 500. The manager of computer services for the U.S. Army and UBS AG posted a $23.4 million loss, missing analysts' estimates for profit, as customers cut spending and delayed contracts.
Procter & Gamble Co., the largest maker of consumer goods, rose $1.15, or 1.8 percent, to $67.05. Third-quarter profit increased 7.9 percent. Consumers in China, India and Latin America bought more shampoo and makeup as their standards of living improved, offsetting a drop in U.S. demand. The company raised prices to help meet higher commodity costs.
Stocks also rose earlier after ADP Employer Services said companies in the U.S. added 10,000 jobs this month, defying economists' average forecast for a decline of 60,000.
The 0.6 percent gain in gross domestic product, the sum of all goods and services produced in the U.S., was more than the 0.5 percent forecast by economists in a Bloomberg survey and matched the rate of growth in the previous three months.
Easing Campaign
Today's rate cut brought the Fed's benchmark rate to 2 percent, the lowest since 2004. Central bankers have reduced the interbank lending rate 3.25 percentage points since September with a series of aggressive rate actions. In addition, the Fed resorted to an emergency authority in March and opened a direct loan window for investment banks.
Cummins Inc. jumped $5.16, or 9 percent, to $62.65. The maker of more than a third of North America's heavy-duty truck engines beat analysts' estimates with first-quarter earnings that grew 33 percent on higher demand for motors and commercial generators.
Ingersoll-Rand Co. gained $1.82, or 4.3 percent, to $44.38. The refrigeration-equipment maker that's buying Trane Inc. said first-quarter profit rose 35 percent, topping analysts' estimates on overseas sales of chilled trucks and display cases.
Airlines Gain
Airline shares gained for a fifth day, matching the longest rally of the year, after British Airways Plc, Europe's third- biggest airline, said it may cooperate with American Airlines Inc. and Continental Airlines Inc.
AMR Corp., the parent of American, gained 24 cents, or 2.8 percent, to $8.77. Continental jumped 42 cents, or 2.4 percent, to $17.98.
European shares advanced today, while Asia's regional benchmark fell for the first time in four days.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, fell 0.4 percent to 716.18. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 0.3 percent to 13,991.12. Based on its retreat, the value of stocks decreased by $51.8 billion.
The Chicago Board Options Exchange Volatility Index, the benchmark for U.S. options prices, increased 2.7 percent to 20.79. The so-called VIX gauges the cost of insuring against declines in the S&P 500.
About 1.44 billion shares traded on the NYSE, 5.5 percent less than the daily average for the previous three months.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: April 30, 2008 16:40 EDT
BL: Accused Call-Girl Manager in Spitzer Probe Near Deal (Update2)
By David Glovin and Patricia Hurtado
April 30 (Bloomberg) -- The man accused of running the Emperors Club VIP, a prostitution ring at the center of a probe tied to the resignation of New York Governor Eliot Spitzer, is nearing a deal to plead guilty, his lawyer said.
Mark Brener is one of four people facing federal felony charges for organizing and managing the call-girl operation. Spitzer was a client of the ring, according to a law enforcement official familiar with the case. Spitzer, who quit last month, hasn't been charged with a crime or admitted wrongdoing.
``We're getting pretty close'' to a deal, Brener's lawyer, Murray Richman, said today in an interview, adding that his client will ``definitely not'' cooperate with a government probe.
Spitzer, 48, is under investigation for alleged money laundering related to payments made to the Emperors Club, the law enforcement official said last month. Spitzer's lawyers and the government began negotiations last month, according to the official. Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia, declined to comment.
In Manhattan federal court today, Assistant U.S. Attorney Telemachus Kasulis told a judge that prosecutors intended to file a criminal information, an accusatory instrument often used in plea deals, against Brener.
An Information
Kasulis said prosecutors would also file a criminal information against Brener co-defendant Temeka Lewis, who is alleged to have been a booking agent for the call-girl ring. Lewis's lawyer, Marc Agnifilo, didn't immediately return a call seeking comment.
Richman said he didn't know about the government filing. He added that the parties were ``still arguing terms'' of the plea deal, which will ``probably'' include prison time. He declined to discuss the terms any further or the charges to which Brener may plead guilty.
``We won't have it for at least a week,'' he said of the plea deal, noting that he was going on vacation shortly. ``Hopefully it's going to get done.''
In a criminal complaint against Brener, Lewis and two other people linked to the ring, prosecutors said on March 6 that an unidentified person known as Client 9 paid $4,300 for sex with a New York prostitute named ``Kristen'' at a Washington hotel in February. Front companies for the club accepted payments, according to the complaint.
Client 9 is Spitzer, the law enforcement official familiar with the matter said last month. In March, Spitzer's lawyers were seeking to negotiate a settlement of possible charges including violations of the Mann Act, which makes it a crime to transport someone across state lines for prostitution, and improper structuring of financial transactions, the official said.
The case is U.S. v. Brener, 08-mj-463, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net
Last Updated: April 30, 2008 18:56 EDT
BL: South Korean April Exports Rise 27%, Led by Middle East Demand
By Seyoon Kim
Enlarge Image/Details
May 1 (Bloomberg) -- South Korea's export growth accelerated in April, buoyed by sales to the Middle East, China and Latin America.
Overseas shipments jumped 27 percent from a year earlier, the Ministry of Knowledge Economy said in Gwacheon today. That exceeded a 21.6 percent increase in a median estimate of 17 economists surveyed by Bloomberg News. Imports gained 28.6 percent, leaving a trade deficit of $46 million.
Demand from China and other emerging markets is helping South Korean exporters withstand a slowdown in the U.S. The central bank said last week that while export growth may cool as the global economy slows, overseas shipments will still record ``double-digit'' increases for the rest of the year.
``Exports are the main pillar that helps Korea sustain the current pace of growth,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``South Korea's exporters are more competitive and they've diversified markets.''
Samsung Electronics Co., whose exports represent about 15 percent of South Korea's total, last week reported its biggest profit gain in two years as it shipped more liquid-crystal displays and mobile phones.
Hyundai Heavy Industries Co., the world's largest shipbuilder, said earlier this week first-quarter profit climbed almost a fifth as the company built more vessels to move fuel and consumer goods at record prices.
South Korean exporters have also benefited from a weaker currency, Vice Finance Minister Choi Joong Kyung said on SBS radio today in Seoul. The won has fallen 6.6 percent against the dollar and 13 percent versus the euro this year.
Exports make up about 40 percent of South Korea's gross domestic product and China is the nation's biggest market, followed by the U.S.
Exports to the Middle East surged 43.9 percent in the first 20 days of April, exports to Latin America rose 28.5 percent and those to China climbed 17.9 percent today's report showed. Shipments to the U.S. fell 0.9 percent in the 20-day period.
To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net
Last Updated: April 30, 2008 21:02 EDT
BL: Treasuries Little Changed Before Manufacturing, Jobs Reports
By Jake Lee and Sandra Hernandez
May 1 (Bloomberg) -- Treasuries were little changed, holding two-year yields near the lowest in more than a week, before reports on manufacturing and employment that may persuade the Federal Reserve to cut interest rates further this year.
The yield of the two-year securities fell 10 basis points yesterday, the most in almost three weeks, as the Fed cut its main lending rate by a quarter-percentage point and said the economy ``remains weak.'' Government debt has gained 2.6 percent this year, according to indexes compiled by Merrill Lynch & Co., the best start to a year since 2000, amid a housing slump.
``We are favoring short Treasuries,'' said James Platz, a portfolio manager in Mountain View, California, at American Century Investments, which manages about $20 billion in fixed income. ``The recession will be somewhat more protracted than others in the marketplace think.''
The two-year note's yield held at 2.26 percent at 9:49 a.m. in Tokyo, according to BGCantor Market Data. The price of the 2 1/8 percent security due in April 2010 was at 99 24/32. The 10- year note's rate was unchanged at 3.73 percent after a 9 basis points drop yesterday, the biggest tumble since April 4.
Trading may be less than normal today in Asia as financial markets including Hong Kong, Singapore, South Korea, China and Taiwan are closed for public holidays.
``The market doesn't think that easing is over,'' said Lou Brien, a strategist at Chicago-based DRW Trading Group, which uses its own capital to make markets on interest-rate derivatives. ``It seems that the Fed intends to pause but definitely has an easing bias.''
Fed Bets
Traders see a 21 percent chance the Fed will lower its benchmark rate to 1.75 percent by August, futures on the Chicago Board of Trade show. They see 98 percent odds of no change at the next meeting in June.
``Economic activity remains weak,'' the Fed said in a statement. ``The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time.''
U.S. stocks fell yesterday and Japan's bank stocks slipped today after the Bank of Japan cut its economic growth forecast and made no mention of raising interest rates.
``We have a persistence in fundamental weakness that Treasuries understand and see,'' said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York.
Jobs, Economy Data
The economy probably lost jobs in April for the fourth straight month, according to the median forecast in a Bloomberg News survey before the government releases the data tomorrow. The economy grew at a 0.6 percent pace in the first quarter, matching the final quarter of 2007, the government said yesterday. The last time the economy grew less was in 2002.
The Institute for Supply Management's factory index, due today, fell to 48 last month from 48.6 in March, a separate survey showed. A reading of 50 is the line between expansion and contraction.
Since last month, the two-year yield has climbed almost 1 percentage point from the lowest level since 2003 on speculation Fed actions, including its backing of the purchase of Bear Stearns Cos. by JPMorgan Chase & Co., will help end the credit crisis. Losses and writedowns at financial firms worldwide have climbed to $312 billion since the start of last year.
Treasuries have handed investors a loss of 1.7 percent last month, the first since June, indexes compiled by Merrill Lynch show. Philadelphia Fed President Charles Plosser said on April 18 the benchmark rate was already low enough to support growth and the U.S. shouldn't count on rate policy alone to revive the economy.
To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Jake Lee in Hong Kong at jlee127@bloomberg.net.
Last Updated: April 30, 2008 21:24 EDT