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Kia Unit Plans Korea’s First Kimchi Bonds Since 2007 (Update3)
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By Seonjin Cha
Dec. 11 (Bloomberg) -- Kia Motors Corp.’s U.S. unit plans to raise $300 million from the first kimchi bond sale in more than two years as it seeks working capital for a new factory.
Kia Motors Manufacturing Georgia Inc.’s debt will be guaranteed by the South Korean parent company, spokeswoman Pamela Munoz said in a phone interview from Seoul today, declining to provide price information.
Kimchi bonds are foreign-currency notes sold in Korea by an overseas issuer. Kia’s sale would be the third after Bear Stearns Cos. opened the market in 2006 and SK Shipping Co.’s European unit raised $50 million in September 2007, according to data compiled by Bloomberg.
“For a little-known company like Kia’s U.S. unit it’d be easier to raise funds in the local market than in the U.S.,” said Ryu Seung Hwa, a credit analyst at Tong Yang Securities Inc. in Seoul. “It looks like a win-win deal as the debtor’s costs may be maintained at a certain level and investors could enjoy higher yield from exchanging currencies.”
Seoul-based Kia, South Korea’s second-biggest carmaker, began production of its Sorento sport-utility vehicle at a $1 billion West Point, Georgia factory last month. The plant, Kia’s first in the U.S., opened with initial annual capacity to make 130,000 units and aims to reach full capacity of 300,000 units a year by 2012, the company said.
U.S. Sales
Kia’s U.S. sales rose 7.8 percent to 279,015 vehicles in the year to Nov. 30, outpacing the 6.2 percent increase to 401,267 units at Hyundai Motor Co., the biggest Korean carmaker. Both companies bucked an industry-wide slump of 24 percent, helped by fuel-efficient small car models and as Japanese competitors Toyota Motor Corp. and Honda Motor Co. struggled with a stronger yen.
The won gained 8.2 percent against the dollar this year, becoming the second-best performer among 10 major Asian currencies tracked by Bloomberg, after declining 21 percent last year to become the worst performer in the group.
Asia’s fourth-biggest economy suffered from a lack of foreign currency amid the global credit crunch, prompting the central bank to guarantee as much as $100 billion of banks’ overseas debt and open a $30 billion currency swap line with the U.S. Federal Reserve. The swap agreement will run until Feb. 1 to ensure the “continuing stability of the foreign currency funding market and financial market in Korea,” the Bank of Korea said June 26.
Dollar Supply
“South Korea hasn’t had ample dollar supply so there hasn’t been much point in selling debt in this market,” said Choi Seok Won, head of fixed-income research at Samsung Securities Co. in Seoul. “For the overseas affiliates of Korean companies, kimchis may now be an option to raise funds since dollar liquidity has improved.”
Kia’s unit will sell three-year notes on Dec. 14 with help from Woori Investment & Securities Co., Daewoo Securities Co. and Shinyoung Securities Co., according to two people with direct knowledge of the matter, who asked not to be named as the plan is private.
The notes will be priced to yield 4.3 percentage points more than the six-month London interbank offered rate for dollars, the people said. The rate was last at 0.4576 percent, Bloomberg data show.
Kia rose 0.3 percent to close at 19,050 won in Seoul trading, in line with a 0.3 percent gain in the benchmark Kospi index. The stock has almost tripled this year.
Fitch Ratings on Dec. 9 upgraded Kia’s credit outlook to “positive” from ”negative,” citing sales growth and market share gains. The company is rated BB+ by Fitch, the risk assessor’s highest speculative-grade rating.
To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net
Last Updated: December 11, 2009 03:15 EST
Japanese Bonds Fall on Concern Supply Increases to Sap Demand
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By Theresa Barraclough
Dec. 12 (Bloomberg) -- Japan’s government bonds fell for a second day yesterday on speculation the government will step up debt issuance next year to finance economic stimulus packages.
Demand for debt waned as Prime Minister Yukio Hatoyama said it may not be possible to keep bond sales below his government’s target of 44 trillion yen ($498 billion) next fiscal year. The Ministry of Finance said on Oct. 30 that it will boost debt sales in the year ending March 31 by 2.1 trillion yen to 132.3 trillion yen. Still, government bonds completed a weekly gain before a report next week that may add to signs recovery may be stalling
“Depending on the fiscal budget and stimulus measures, there may be an increase in debt issuance,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at government debt sales. “Bonds will continue on a bearish note.”
The yield on the 1.3 percent bond due December 2019 rose 2.5 basis points yesterday to 1.275 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield declined one basis point this week.
Ten-year bond futures for March delivery dropped 0.23 yesterday to 139.50 at the Tokyo Stock Exchange. The contracts rose 0.05 on the week.
Ten-year yields are likely to climb to 1.35 percent by the end of the year, according to a Bloomberg survey of economists. The estimate puts a heavier weighting on more recent forecasts.
Should the predictions prove accurate, investors who bought the debt yesterday would make a 0.6 percent loss, according to Bloomberg data.
Annual Loss
Japanese government bonds due in more than 10 years have handed investors a loss of 1.4 percent this year as Hatoyama unveiled a 7.2 trillion yen stimulus package that included employment subsidies, loan guarantees and incentives to buy energy-efficient products.
Hatoyama said yesterday he hadn’t “given up” on the 44 trillion figure for bond sales in the year starting April 1.
“The job of the government is to protect the lives of its citizens,” the prime minister said yesterday in Tokyo. “It’s not a debate over whether to go over by 1 yen or not.”
Nikkei English News reported yesterday that Hatoyama said the number was a target, not a ceiling, for debt sales.
“The anxiety surrounding government finances is increasing,” said Masaru Hamasaki, chief strategist at Tokyo- based Toyota Asset Management Co., which oversees the equivalent of $14 billion. “Stocks have also stopped falling. There aren’t enough factors to continue buying bonds.”
The Nikkei 225 Stock Average gained 2.5 percent yesterday, snapping three days of losses.
BOJ’s Tankan
Government bonds still completed a weekly gain on speculation a Bank of Japan report next week will show a gauge of confidence rose the least since the economy emerged from its worst postwar recession.
The Tankan index of sentiment among large manufacturers will climb 6 points to minus 27 in December, according to the median forecast of economists surveyed by Bloomberg News before the Dec. 14 report. That would be the smallest improvement since the first quarter of this year. A negative number means pessimists outnumber optimists.
Sentiment has been tempered as the yen rallied 4.3 percent last month, eroding profits of exporters including Toyota Motor Corp. and Canon Inc. Japan’s currency reached 84.83 per dollar on Nov. 27, the strongest level since July 1995.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Last Updated: December 11, 2009 16:53 EST
Greek Finance Minister Promises to Speed Debt Cutting (Update1)
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By Natalie Weeks and Maria Petrakis
Dec. 12 (Bloomberg) -- Greek Finance Minister George Papaconstantinou promised to speed up fiscal and budget reforms to overhaul the economy, saying the country has no time to spare after investor concerns sent bonds and stocks tumbling.
“The biggest gamble the government has is how to regain credibility,” Papaconstantinou said in a speech in Athens today. “The initiatives will be faster and more dynamic. We don’t have the luxury to wait. We will speed up everything, we owe it to the citizens of Greece.”
Greek bonds plunged to their lowest in seven months on Dec. 9 and stocks slumped after Fitch Ratings cut Greece one step to BBB+, saying Prime Minister George Papandreou’s two-month-old Pasok government isn’t doing enough to tame a deficit of 12.7 percent of output, the highest in the European Union. A day earlier, Standard & Poor’s put its A- rating on watch for downgrade.
European Central Bank Vice President Lucas Papademos today characterized Greece’s fiscal situation as “extremely serious,” in comments to reporters in Berlin.
“Greece should take decisive action and in a timely manner,” Papademos said.
Papaconstantinou said the government will begin talks next week on crafting a new tax system that will be fairer and more effective. An audit of government spending will begin next year with the assistance of international companies, he said.
Debt
The year will close with 300 billion euros ($438.5 billion) in debt and “we must stop the rising dynamic of it,” Papaconstantinou said. The stability plan the government will submit in January needs to include a plan for the “gradual reduction” of Greece’s debt, he said.
Nobel laureate Robert Mundell said in an interview with Bloomberg Television in Berlin today that a debt default by Greeece “would send shockwaves through the system.” He predicted the country would “handle the problem by itself,” although neighboring economies may eventually provide resources.
“This is a good occasion to set up a fund which is available for bailout, a kind of security fund,” he said. “Even if it won’t be used, there might be other occasions to come up at some point in the future.”
ECB President Jean-Claude Trichet said yesterday that “courageous” action is needed to close the budget gap. Greece’s 2010 budget projects the deficit will be reduced to 9.1 percent of gross domestic product.
To contact the reporter on this story: Natalie Weeks in Athens nweeks2@bloomberg.net; Maria Petrakis in Athens on mpetrakis@bloomberg.net
Last Updated: December 12, 2009 13:57 EST
Papademos Says ECB to Help Revive Securitization (Update1)
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By Simon Kennedy and Esteban Duarte
Dec. 12 (Bloomberg) -- The European Central Bank plans to take steps to help revive the asset-backed bond market, Vice President Lucas Papademos said.
“The ECB will be taking some initiatives to help catalyze the re-launching of securitization on a sound basis in the context of its collateral framework policy related to the implementation of monetary policy,” Papademos said at a conference in Berlin today, without giving details.
Europe’s market for bonds backed by real estate, consumer debt and corporate loans totals more than $3 trillion. It was dormant for more than a year until September, when Volkswagen AG and Lloyds Banking Group Plc sold investors 1.7 billion euros ($2.5 billion) of the securities.
“Steps can be taken to re-launch securitization, but to re-launch it on a sound basis so as to facilitate the provision of credit to the economy and the better distribution of risk among market participants,” Papademos said.
The ECB can influence the asset-backed bond market because it accepts the securities as collateral for loans to banks. It said on Nov. 20 that from March, newly issued asset-backed securities it is presented as collateral must be graded AAA/Aaa from two ratings companies instead of just one.
Papademos said “to restore confidence” in the market it was important to improve the transparency and standards of securities.
Toxic Asset Rules
The central bank has looked into rules to force banks to give investors details of each loan packaged into the bonds, to limit the inclusion of toxic assets that contributed to the worst credit crisis for decades.
Papademos also said greater regulation of banks can help rather than hamper economies.
“Better regulation and improved macroprudential oversight will not hinder” financial innovation and efficiency, he said. “They will support economies’ long-run growth performance.”
Tougher oversight of banks is positive for markets because it limits the likelihood of financial turmoil even if banks are forced to hold more capital, Papademos said, citing recent research. The “crisis provides very convincing evidence that regulatory reform and macroprudential oversight will support sustainable growth,” he said.
Regulation Overhaul
The European Commission in September proposed a systemic- risk board as part of an overhaul of regulation following the worst financial crisis since the Great Depression.
Part of that proposal includes creating regulatory bodies for the banking, securities and insurance industries. EU finance ministers this month approved forming the three regulators, overcoming objections from the U.K.
Papademos, whose eight-year term ends May 31, said regulators must make sure they have the relevant data and tools to spot and counter system-wide risks.
To contact the reporters on this story: Simon Kennedy in Berlin at Skennedy4@bloomberg.netEsteban Duarte in Madrid at eduarterubia@bloomberg.net;
Last Updated: December 12, 2009 08:28 EST
Germany to Boost 2010 Bond Sales in ‘Worst’ Budget Since WWII
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By Brian Parkin
Dec. 13 (Bloomberg) -- Germany plans to sell a record amount of debt next year as weak tax revenue coupled with rising unemployment costs create what a government official said is the bleakest budget outlook since World War II.
Gross federal bond sales will rise to between 330 billion euros ($482 billion) and 350 billion euros in 2010 compared with about 329 billion euros this year, reflecting the lagging effect of the recession, said Deputy Finance Minister Steffen Kampeter.
“What we’re looking at frankly is the worst budget situation since the war,” Kampeter, a member of Chancellor Angela Merkel’s Christian Democratic Union, said in a WDR radio interview broadcast today. “The bill for unemployment and health costs, legacies of the crisis, will hit us with full force in 2010 before ebbing in 2011.”
Merkel’s draft budget, to be published on Dec. 16, will show net federal borrowing surging to 86 billion euros next year from 37 billion euros in 2009, government documents show. The difference comprises 23 billion euros in extra unemployment benefits, 10 billion euros in topping up the compulsory health- care program and a drop in tax revenue.
“The dramatic increase” in borrowing from this year to next “is a mirror of the financial and economic crisis,” the budget report distributed to reporters in Berlin shows.
Finance Minister Wolfgang Schaeuble said on Dec. 10 that Germany’s public-sector deficit at federal, state and municipal levels will grow to 6 percent of gross domestic product next year, the biggest since the inception of the euro in 1999. The deficit this year will be 3 percent, the European Union limit set to protect the single currency.
Soffin Fund
While the budget will show a precise gross borrowing target for 2010 when published on Dec. 16, the actual sales calendars, published quarterly, may show variance if lenders tap the Soffin bank-rescue fund, the officials said.
By Dec. 9, banks were supplied about 148 billion euros in aid from the 500 billion-euro fund this year, Soffin said. The less-than-anticipated aid helped the government cut planned bond sales in the fourth quarter by 22 percent to 59 billion euros.
Germany initially planned to issue a record 346 billion euros of debt this year, a 57 percent increase from 220 billion euros in 2008. The fourth-quarter reduction will lower this year’s total to 329 billion euros, still a record.
The Frankfurt-based Federal Finance Agency will release its provisional 2010 calendar of debt sales on Dec. 15 or Dec. 16 to coincide with the publication of the budget.
To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.
Last Updated: December 13, 2009 10:00 EST
Nakheel Possible Default to Affect $5.25 Billion Debt (Update2)
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By Haris Anwar
Dec. 13 (Bloomberg) -- Nakheel PJSC’s possible non-payment of its Islamic bond due tomorrow will trigger defaults on two other securities, bringing the total of affected securities to $5.25 billion, bond documents show.
Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said on Nov. 25 that state- run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit.
The default would be triggered by failure of Nakheel or the guarantor, Dubai World, to make payment at the end of a grace period, the documents said. Nakheel has two weeks to remedy a default and prevent bondholders from starting legal proceedings. Nakheel’s other two bonds are a 3.6 billion-dirham ($980 million) floating-rate note due in May and a 2.75 percent, $750 million sukuk maturing in January 2011.
“The chances of a full payment at this point are very slim,” said Nish Popat, head of fixed income at ING Investment Management Dubai Ltd. “There is a lack of clarity on how the standstill initiative is progressing. Investors are just waiting and speculating.”
Avoiding Default
Nakheel’s bond maturing tomorrow rose 1 percent to 53 cents on the dollar on Dec. 11, on speculation the developer may seek to avoid a default. The bond has dropped more than 50 percent since the Nov. 25 announcement. Dubai World began talks with banks this month to restructure $26 billion of debt.
Nakheel’s bond repayment is the biggest maturity for a Dubai entity since the global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings Inc.
The 2009 sukuk redeems at $115.52, increasing the Nakheel’s total payment to $4.1 billion. The amount includes a 6 percent premium to bondholders in case the developer is unable to do an initial public offer during the life of the bond, and the remaining part of the annual coupon.
Nakheel accumulated debt during a six-year real-estate boom in Dubai, when the sheikhdom borrowed $10 billion and its state- controlled companies $70 billion to help diversify its the economy.
BNP Paribas SA and EFG-Hermes Holding SAE analysts said last week Nakheel may repay bondholders as much as 70 cents on the dollar and issue new securities to restructure the remainder of the debt.
Debt Restructuring
“Such an outcome would be beneficial for both parties involved,” EFG’s Dubai-based strategist Fahd Iqbal wrote in a research report. “Creditors would receive a portion of their money back with a promise for the remainder to be delivered at a later stage while Dubai World, along with other government- related parties, would have continued access to capital markets.”
While Dubai’s government owns 100 percent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said on Nov. 30. Dubai World may need more than six months to complete its debt restructuring, Al Saleh told the Al Arabiya TV channel on Dec. 8.
Nakheel, the developer of palm-tree shaped islands off the Dubai coast, had a first-half loss of 13.4 billion dirhams as real-estate prices crashed in the Gulf business hub.
“Certain of the Nakheel Group’s financing arrangements may contain cross-default clauses whereby a default under one of the Nakheel Group’s financing arrangements may constitute an event of default under other” obligations, according to an offering circular for the Nakheel 2011 bonds on Bloomberg.
Nakheel’s 2.75 percent bonds due January 2011 were unchanged at 46.50 cents on the dollar Dec. 11. Prices for the $750 million notes have dropped from 88.37 cents on the dollar on Nov. 24.
To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net
Last Updated: December 13, 2009 06:35 EST
Junk-Grade Borrowers Cut Debt Costs Refinancing Loans (Update1)
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By Emre Peker
Dec. 11 (Bloomberg) -- Wm. Wrigley Jr. Co., the world’s largest chewing-gum maker, led speculative-grade companies refinancing high-yield, high-risk loans at lower costs this week as investors seek to deploy cash.
Cooper-Standard Holdings Inc., the bankrupt auto-parts maker co-owned by Goldman Sachs Group Inc., joined Wrigley in starting talks with lenders to cut expenses on a combined $3.68 billion of debt, according to people familiar with the talks. In the previous week, Nalco Holding Co., TRW Automotive Holdings Corp. and Landry’s Restaurants Inc. began similar discussions.
Investors injected $4.32 billion into the loan market this year, reversing two years of outflows as total returns on the S&P/LSTA U.S. Leveraged Loan 100 Index climbed to a record 48 percent, according to Lipper FMI data. The return of cash coupled with repayments from bond sales supported a price rally through the year, tightening yields and enabling companies to tap banks for cheaper loans.
“The run up in the secondary market is beginning to allow underwriters to expand their appetite to take on more risk as they become comfortable that the investor base is constructive on the new issue market,” Scott Baskind, who manages about $10 billion of bank loans at Invesco Ltd. in New York, said in an interview. “Companies that have the ability to approach the market are not only extending maturities, but also opportunistically looking to reduce their cost of capital.”
Tight Credit
The S&P/LSTA 100, which tracks the 100 largest dollar- denominated first-lien leveraged loans, climbed to a 10-week high of 85.95 cents on the dollar as of yesterday, from a record low of 59.2 cents on Dec. 17, 2008. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s.
As a result of the rally, the average spread to maturity narrowed to 5.12 percentage points more than the London interbank offered rate as of yesterday from a record 11.12 on Dec. 16, 2008, according to S&P’s Leveraged Commentary and Data. That means borrowers seeking a $1 billion loan now would pay about $60 million less in interest annually than last year.
“Despite the general improvement in financial conditions, credit remains tight for many borrowers,” Federal Reserve Chairman Ben S. Bernanke said this week in a speech to the Economic Club of Washington. The Fed is likely to keep interest rates, now near zero, low for an “extended period,” he said.
Record Sales
Even as banks are borrowing from the Fed at record low rates, lending to speculative-grade companies dropped 47 percent to $141.2 billion this year and is down 84 percent from the record $866.7 billion in 2007, when banks competed to finance the biggest buyouts, according to Bloomberg data.
Lenders increased interest rates on the bank debt of more than 200 U.S. companies this year as borrowers negotiated extensions and looser terms on their loans to prevent defaults amid the worst recession in seven decades, Bloomberg data shows.
Seeking to refinance debt and prevent covenant breaches, companies sold a record $149 billion of junk bonds as of yesterday, more than twice the amount sold in the same period last year, according to Bloomberg data.
“When the primary market reopened in the spring, companies took the opportunity to extend the maturity of their liabilities and rebalance their debt from loans to bonds,” Barclays Capital strategists led by Bradley Rogoff in New York wrote in the bank’s Global Credit Outlook 2010, released Dec. 4. Issuers used 75 percent of proceeds to refinance debt, they said.
Better Terms
Meanwhile, companies that tapped banks after credit markets froze following the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008, “had to pay for those borrowings and are now standing around saying, ‘hey, wait a minute, we’re a better credit than a lot of people getting far lower rates today,’” said Tony Lopez, a partner with the law firm Clifford Chance LLP in New York who focuses on corporate finance.
“It’s simply reached a point where the refinancing gates are open,” Lopez said in a telephone interview yesterday. “Terms that are available for any given credit are so much better than what people could get a year ago.”
Chicago-based Wrigley, purchased for $22.6 billion in October 2008 by Mars Inc. in a deal backed by billionaire Warren Buffett’s Berkshire Hathaway Inc., this week asked lenders to refinance as much as $3.5 billion of bank debt with new loans that would have interest rates as much as 3.75 percentage points less than what it now pays, according to a person familiar with the terms.
Low Libor
JPMorgan Chase & Co. is arranging a three-year, $1 billion term loan with a spread of 2.75 percentage points over Libor, said the person, who declined to be identified because the terms are private. An additional five-year, $1.1 billion term loan will pay an interest rate 3 percentage points more than Libor, the person said.
Three-month Libor, a borrowing benchmark, was set at 0.2536 percent today, a record low. Wrigley currently pays 3.5 percentage points over Libor, with a 3 percent Libor floor, on one term loan used to finance the leveraged buyout, the person familiar said. Lenders have until 5 p.m. in New York on Dec. 15 to submit commitments for the new loans, the person said.
Deutsche Bank AG is arranging the new debtor-in-possession loan for Novi, Michigan-based Cooper-Standard, said a person familiar with the matter, who also declined to be named because the talks aren’t public. The automaker is seeking to refinance the $175 million loan it’s using to fund operations during a bankruptcy restructuring, the person said.
The transaction, if approved, would reduce the minimum interest rate on Cooper-Standard’s DIP loan to 8.5 percent from 12.5 percent, Bloomberg data show.
‘Massive’ Moves
“After a period of deleveraging around the turn of the year and a sustained reduction of systemic risk, we see massive price moves,” Chris Taggert, a New York-based senior loan strategist at debt-research firm CreditSights Inc., said this week in an interview, citing better investor outlooks and continued capital flows into the loan market.
Lenders will remove capital from the loan market as they seek returns in other investments such as bonds if Libor remains low and credit agreements lack “significant Libor floors,” said Scott Page, who manages about $14 billion of loan funds at Eaton Vance Corp.
“It would be foolish for deal sponsors to ask for lower spreads,” he said in an e-mail. “They already have debt capital at a cost radically below anything they ever anticipated due to low Libor, and moves to reduce costs even more would succeed mainly in making capital for new deals more scarce.”
To contact the reporter on this story: Emre Peker in New York at epeker2@bloomberg.net.
Last Updated: December 11, 2009 12:08 EST
Morgan Stanley’s Roach Sees Risk in Fed Exit Strategy (Update2)
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By Simon Kennedy and Michel Doermer
Dec. 12 (Bloomberg) -- The Federal Reserve may cause another crisis by botching the withdrawal of liquidity from the U.S. economy, Morgan Stanley Asia Chairman Stephen Roach said.
The Fed is the “weak link” among central banks and may fail to tighten monetary policy in time to stop asset bubbles from forming, Roach said at a conference in Berlin today. The Fed helped trigger the boom and then bust of the subprime mortgage market by being “quick to slash, slow to normalize” interest rates, he said.
Fed Chairman Ben S. Bernanke said Dec. 3 he doesn’t rule out using monetary policy to prevent unfounded increases in asset prices, though he said financial regulation is a better approach. Bernanke said this week the U.S. economy continues to face “formidable headwinds,” signaling the Fed will keep its benchmark interest rate near zero for an extended period.
“They need to be very early in executing their exit strategies,” Roach, a former Fed economist, told Bloomberg Television. “I take Mr. Bernanke at his word that he’s looking for an extended period of monetary accommodation, which, quite frankly, I find very worrisome in assessing the prospects of a next bubble and the next crisis.”
‘Ludicrous’ View
The traditional view of central bankers that asset bubbles are hard to spot and deflate with rates is “ludicrous,” he said.
“This is a failed flaw in the intellectual construction of modern central banking that must be addressed,” said Roach. “If we don’t fix this problem we’re doomed to repeat the failed asymmetric policies of the past and set ourselves up” for another crisis.
Roach recommended the Fed be required to “hardwire” the goal of preserving financial stability into its mandate, alongside the pursuit of full employment and low inflation. Central banks should not be “allowed to outsource their responsibilities” to regulatory bodies, he said.
Nobel laureate Robert Mundell told the conference that the Fed mismanaged monetary policy by not raising interest rates fast enough in the last recovery when gold and commodity prices rose.
It was an “insane, stupid policy,” he said. “Where’s the mea culpa from the Fed?”
Asset Bubbles?
While no Fed official spoke at the Berlin event, European Central Bank Vice President Lucas Papademos told reporters that in the future “there may be scope for the use of monetary policy as an instrument to also contribute to financial stability” in harness with other tools such as supervision.
Asked if he was concerned that asset bubbles are now forming, Papademos said he “wouldn’t come to this conclusion” because even with recoveries in markets and at banks, the financial system “is still facing challenges.”
“Overall financial conditions have not reached a stage that are signaling risks to financial stability,” he said.
Papademos defended central banks as having “avoided the meltdown of the financial system and through a variety of measures we are contributing to the return of the financial system to conditions of normality.”
Bernanke said on Dec. 3 that “regulation of the financial system is the strongest, most effective” way to deal with bubbles. “I do not rule out using monetary policy if necessary, if that situation does become worrisome and threatening,” though there are no signs of “extreme misvaluations,” Bernanke told the Senate Banking Committee.
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
Last Updated: December 12, 2009 11:21 EST
Gensler Falls Short of Derivatives Goals in House Legislation
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By Tina Davis Seeley and Theo Francis
Dec. 12 (Bloomberg) -- Gary Gensler, who helped lead the Obama administration’s push to rein in the $605 trillion over- the-counter derivatives market, fell short of some of his goals with the legislation passed by the U.S. House yesterday.
The derivatives measure, part of a broader overhaul of financial industry rules, contains exemptions that have been opposed by Gensler, chairman of the Commodity Futures Trading Commission. He praised the passage of the bill yesterday, while indicating he will continue efforts to shape the legislation.
“The bill comprehensively regulates swap dealers and major swap participants and lays out the framework for the use of clearinghouses and transparent trading facilities,” Gensler said in an e-mailed statement. “I look forward to continuing to work with Congress on this critical issue as the bill moves to the Senate.”
The House approved in a 223-202 vote the broad legislation that imposes stricter trading provisions in response to last year’s upheaval of U.S. credit and mortgage markets. Derivatives are financial contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather.
The legislation incorporates exemptions opposed in the past by Gensler, who urged “narrow” exceptions and called for rules to cover the entire derivatives marketplace.
“Gensler’s gotten more of a double or a triple than a home run, which still isn’t bad for a day’s work,” said Gary DeWaal, group general counsel in New York for Paris-based Newedge Group, which calls itself the world’s largest futures broker.
Clearinghouses, Exchanges
Lawmakers on Dec. 10 voted down amendments to the bill that would have forced more company swaps transactions onto regulated trading systems, given the CFTC and other regulators authority to ban “abusive swaps,” and required corporate “end-users” to post margin or hold collateral against derivatives contracts.
The House legislation requires that standardized contracts be processed by clearinghouses and executed on regulated exchanges or swap execution systems. Clearinghouses impose capital and margin requirements for trading.
Commodity-based businesses such as manufacturers, airlines and energy producers that use derivatives would be exempt from the clearinghouse requirement if they can show they are using the contracts to hedge operational risk. Transactions by these end-users would, for the first time, have to be reported to regulators.
Gensler has repeatedly called for Congress to make derivatives regulations as tough as possible.
“We need to bring as many standard transactions to central clearinghouses as possible, regardless of what type of party stands on either side of the trade,” Gensler said in a Nov. 18 speech at the Exchequer Club of Washington.
Trading With Customers
The chairman said financial firms and hedge funds should be subject to clearing requirements even when trading with end- users that aren’t.
“While big Wall Street banks would be subject to the requirement when trading with each other, those same Wall Street banks would be exempt when trading with many of their customers,” Gensler said in a Dec. 3 speech at a Consumer Federation of America conference. “Exempting a large class of transactions, even those with hedgers or other end-users, would reduce the amount of information available to the public and market participants.”
House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat, said in a statement before the vote that the exemptions in the House-passed bill “will hold swap dealers like big banks accountable to new standards for capital, margin and business conduct requirements and will benefit end-users’ ability to continue to effectively hedge their price risk by not submitting them to onerous cash collateral requirements.”
Bank Limits
The end-user exemption and limits on which instruments must be cleared aren’t critical to the main goals of the new derivatives legislation, which are to improve regulators’ insights into the scope of the market and prevent systemic risk, said Joel Telpner, a New York-based partner in the derivatives and structured finance practice of the law firm Jones Day.
Letting end-users report trades, in lieu of forcing them to go through clearinghouses, “recognizes that you don’t have to clear it just to get transparency or adequate margin,” he said.
The measure approved yesterday also includes a 20 percent limit on the stake banks can hold in new companies that execute or guarantee trades in the market.
To contact the reporters on this story: Tina Seeley in Washington at tseeley@bloomberg.net; Theo Francis in Washington at tfrancis14@bloomberg.net.
Last Updated: December 12, 2009 00:00 EST
Treasury Yield Curve Steepens to Highest Since 1980 Amid Sales
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By Cordell Eddings
Dec. 12 (Bloomberg) -- Treasuries declined, with the yield gap between Treasury 2-year notes and 30-year bonds reaching the widest since at least 1980 amid lower-than-forecast demand for the $74 billion in notes and bonds auctioned in the week.
Treasury 10-year notes fell for a second consecutive week as reports showed consumer confidence and retail sales rose more than forecast. Federal Reserve Chairman Ben S. Bernanke said the U.S. economy faces “significant headwinds” and economists forecast policy makers will leave rates unchanged after next week’s Federal Open Market Committee meeting.
“We had sloppy 10- and 30-year auctions at time when there are less people in the market,” said Larry Milstein, managing director in New York of government and agency debt trading at RW Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The short end is locked in by the Fed and the long end is starting to see pressure from supply. Also, consumers are seeing some positive signs.”
The 10-year note yield climbed seven basis points on the week, or 0.07 percentage point, to 3.55 percent in New York, according to BGCantor Market Data. The 3.375 percent security due November 2019 fell 19/32, or $5.94 per $1,000 face amount, to 98 18/32.
Thirty-year bond yields rose 11 basis points on the week to 4/50 percent. The spread between 2- and 30-year Treasuries reached 374 basis points on Dec. 10, the most in 29 years, as the U.S. sold $13 billion of the so-called long bonds in the last of the week’s auctions.
‘Piling on out’
“The curve reflects the Fed taking short-term rates as low as it can go and the Treasury piling on out the curve,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York. Jefferies is one of 18 primary dealers required to bid at Treasury auctions. “The slope of the curve reflects the concession necessary to attract sufficient buyers to take the issue down.”
The bonds drew a yield of 4.52 percent at the auction, compared with a forecast of 4.483 percent in a Bloomberg News survey of five of the primary dealers. The $21 billion of 10- year notes sold on Dec. 9 yielded 3.448 percent, compared with a 3.421 percent average forecast.
U.S. marketable debt rose to a record $7.17 trillion in November as President Barack Obama borrows record amounts to fund spending programs.
Long-Term Target
Treasury officials on Nov. 4 announced a long-term target of six to seven years for the average maturity of Treasury debt and said the department wants to cut back on its issuance of bills and two- and three-year notes. The shift to longer- maturity debt has raised concern that investors will demand higher yields to offset the risk of inflation as government spending drives the deficit to a record $1.4 trillion.
“People are looking at what’s going on with deficits and that over time, the long end is going to be under pressure as fiscal policy has a question mark,” said Thomas Tucci, head of government bond trading at primary dealer RBC Capital Markets in New York.
Ten-year yields touched their highest levels since August yesterday as retail sales rose 1.3 percent in November, above the median forecast for an increase of 0.6 percent in a Bloomberg News survey, and the Reuters/University of Michigan preliminary index of consumer sentiment for December increased to 73.4, also higher than forecast.
‘So Far Points’
The U.S. “economic data so far points to a fairly robust recovery out of the recession,” strategists led by Mustafa Chowdhury, head of interest-rates research in New York at the securities unit of Deutsche Bank AG, wrote in a note. “The peaking of job losses could lead to a revival of consumption growth, such as inventories and government spending that have so far led this year.”
Treasury two-year notes gained for the week as Fed Chairman Ben S. Bernanke repeated in a speech Dec. 7 that the central bank expected an “extended period” of low rates.
Yields on two-year notes fell on Dec. 8 below levels seen on Dec. 3, a day before they surged the most since August after a report showed that the unemployment rate declined to 10 percent in November from a 26-year high of 10.2 percent the previous month.
‘Not Much’
“We still have a 10 percent jobless rate so what’s the Fed going to do?” said David Robin, an interest-rate strategist in New York at Newedge USA LLC, an institutional brokerage firm. “Not much. Bernanke told you that there’s a long way to go before sustainability and before there’s any comfort that what’s happening is going to give them reason to react from a rate standpoint.”
The Federal Open Market Committee will announce its rate decision at the end of a two-day meeting on Dec. 16. Fed funds futures contracts on the Chicago Board of Trade show a 100 percent change the central bank will keep its target rate near zero.
U.S. government debt lost investors 2.5 percent this year, according to Bank of America Corp.’s Merrill Lynch Treasury Master Index.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net.
Last Updated: December 12, 2009 00:01 EST
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Asustek, Changhuat, Filinvest: Asia Ex-Japan Equity Preview
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By Hanny Wan
Dec. 12 (Bloomberg) -- The following companies may have unusual price changes in Asia trading, excluding Japan. Stock symbols are in parentheses, and share prices are from the previous close, unless noted otherwise.
Asustek Computer Inc. (2357 TT): The supplier of the Eee PC low-cost laptop plans to spin off its Pegatron Technology Corp. unit, David Chang, chief financial officer of Taipei-based Asustek said at a press conference in Taipei Dec. 11. The stock added 1.3 percent to NT$64.40.
Changhuat Corp. (CCB MK): The Malaysian plastic products maker said it received a 170 million ringgit ($50 million) contract to provide a floating fuel storage facility for Nobel Clean Fuels Ltd. The facility will be at Port Tanjung Pelepas in the southern Johor state. Changhuat last traded at 1.48 ringgit on Dec. 10, up 5.7 percent.
Filinvest Land Inc. (FLI PM): The fourth-largest Philippine developer by market value said it plans to sell an additional 3 billion pesos ($65 million) of bonds in the first quarter to fund capital requirements. Manila-based Filinvest Land last month sold 5 billion pesos of bonds. The stock was unchanged at 90 centavos.
General Corp. (GCB MK): The Malaysian property group said its Low Keng Huat (Singapore) Ltd. unit agreed to form a joint venture to develop apartments, offices and a hotel in Front Beach, Vung Tau City, Vietnam. The joint venture’s investment capital is $48 million, the Malaysian company said in a statement. General Corp. gained 1 percent to 1.06 ringgit.
Ireka Corp. (IREKA MK): The Malaysian property group said it agreed to buy a parcel of land in Kuala Lumpur for 87.1 million ringgit. Ireka also agreed to form a joint venture with Aseana Properties Ltd. to develop a residential tower on the land which will generate a gross development value of 272 million ringgit, it said in a statement. Ireka rose 3.5 percent to 73.5 sen.
Ping An Insurance (Group) Co. (2318 HK): China’s second- biggest insurer said its life-insurance unit had 121.9 billion yuan ($17.9 billion) of premium income in the first 11 months of this year. The company didn’t give comparative figures. The stock dropped 0.6 percent to HK$69.95.
SIA Engineering Co. (SIE SP): The aircraft maintenance unit of Singapore Airlines Ltd. (SIA SP) said it will restore pay- cuts and discontinue a no-pay leave policy from Jan. 1. SIA Engineering was unchanged at S$3.15.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net
Last Updated: December 11, 2009 15:17 EST
Asian Stocks Drop This Week as Banks Fall; Chip Shares Climb
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By Shani Raja and Jonathan Burgos
Dec. 12 (Bloomberg) -- Asian stocks fell for the third week in four, led by Japanese banks, after the nation’s economy grew more slowly than estimated. Technology shares rose on optimism a U.S. economic recovery will bolster demand.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, sank 8.3 percent. Santos Ltd., Australia’s third-biggest oil and gas producer, fell 7.7 percent after saying output next year may drop. Elpida Memory Inc., a chipmaker, surged 9.8 percent in Tokyo as U.S. jobless claims fell to a one-year low. Maanshan Iron & Steel Co., the No. 2 Chinese mill listed in Hong Kong, climbed 9.8 percent after China’s industrial production increased.
“Emerging markets will continue to lead growth in the world economy next year, and companies that can make money in those markets will remain in the spotlight,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $96 billion.
The MSCI Asia Pacific Index fell 0.4 percent this week to 119.68. The gauge’s 5.5 percent gain the previous week was its steepest climb in seven months. Japan’s Nikkei 225 Stock Average added 0.9 percent this week, while South Korea’s Kospi Index climbed 2 percent.
Hong Kong’s Hang Seng Index fell 2.7 percent and the Shanghai Composite Index retreated 2.1 percent. Australia’s S&P/ASX 200 Index lost 1.4 percent, even after a government report showed the country’s jobless rate dropped.
Global Recovery
The MSCI gauge has climbed about 34 percent this year, set for its biggest annual gain since 2003, on signs government spending and lower interest rates bolstered economies. Stocks in the benchmark trade at 22 times estimated earnings, compared with 18 times for the Standard and Poor’s 500 Index in the U.S. and 15 times for the Dow Jones Stoxx 600 Index in Europe.
The S&P 500 added 0.4 percent yesterday as the China industrial production report and better-than-estimated data on U.S. consumers bolstered optimism the global economic recovery is strengthening. U.S. retail sales rose 1.3 percent in November, the Commerce Department said, while the Reuters/University of Michigan index of consumer confidence climbed to 73.4.
Concerns about the health of the global economy had dragged on Asian stocks this week. Japan’s Cabinet Office said the economy expanded less than initially estimated in the third quarter. Downgrades to Greece’s credit rating exacerbated credit-market concerns sparked by Dubai World’s plan to reschedule its debt payments.
Growth Revision
Mitsubishi UFJ dropped 8.3 percent to 455 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank by value, lost 6.6 percent to 2,710 yen. Mizuho Financial Group Inc., the No. 3, sank 5.9 percent to 159 yen.
Japan’s gross domestic product rose at an annual pace of 1.3 percent, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said on Dec. 9. The revised figure was also lower than the predictions of all but one of the 17 economists surveyed by Bloomberg News.
Fitch cut Greece’s credit rating by one notch to BBB+, the third-lowest on the investment-grade scale, and said the outlook for the rating is negative. Standard & Poor’s put the country’s rating on watch for a downgrade.
In Hong Kong, Standard Chartered Plc declined 5.4 percent to HK$188.20. CLSA Asia-Pacific Markets cut its recommendation on the stock to “sell” from “underperform.” It was CLSA’s second downgrade of Standard Chartered in two weeks after Dubai World attempted to reschedule its debt.
Santos, Woodside
“People are becoming more sensitive to risks and they are reconsidering investments,” said Mitsushige Akino, who oversees the equivalent of $450 million at Tokyo-based Ichiyoshi Investment Management Co.
Santos plunged 7.7 percent to A$13.75 in Sydney. The energy company said output may slip next year and spending may rise by 75 percent as it develops liquefied-natural-gas projects in Australia and Papua New Guinea. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, sank 3.9 percent to A$47.18.
Newcrest Mining Ltd., the nation’s largest gold producer, fell 8.6 percent to A$35.02 as the metal’s price dropped for the second week. In Hong Kong trading, Zijin Mining Group Co., China’s largest gold producer, declined 5.8 percent to HK$8.24.
Elpida Memory, Japan’s biggest computer memory-chip maker, advanced 9.8 percent to 1,331 yen. A U.S. government report this week showed the four-week average number of Americans filing for jobless benefits declined to a one-year low.
Increased Appetite
Hitachi Kokusai Electric Inc. surged 16 percent to 779 yen, as Nomura Holdings Inc. also boosted its rating on Japan’s semiconductor-production-equipment industry to “bullish” from “neutral.” Samsung Electronics Co., the world’s largest maker of computer-memory chips, rose 3 percent to 785,000 won in Seoul.
“Exporters will benefit at the margin from a more robust U.S. economy and its perceived increased appetite for imports,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.
Maanshan Iron & Steel advanced 9.8 percent to HK$5.96 in Hong Kong. Angang Steel Co., China’s largest Hong Kong-listed steelmaker by market value, jumped 8.2 percent to HK$17.74.
China’s industrial production rose 19.2 percent in November from a year earlier, exceeding the 18.2 percent estimated by economists. New lending grew month-on-month, the People’s Bank of China said yesterday, while economists had forecast a decline.
To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.
Last Updated: December 11, 2009 22:13 EST
German Stocks Climb on U.S. Retail Sales, China Factory Output
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By Cornelius Rahn
Dec. 11 (Bloomberg) -- German stocks advanced for a second day, with the benchmark DAX Index trimming its weekly decline, after reports showed U.S. retail sales and China’s industrial output grew more than economists forecast.
Linde AG surged 3.9 percent after Morgan Stanley recommended the world’s second-biggest maker of industrial gases. BASF SE, the largest chemical maker, completed its longest stretch of weekly gains since 2008. Volkswagen AG rose 1.2 percent as the carmaker reported higher group sales.
The DAX added 0.8 percent to 5,756.29. The gauge posted a 1.1 percent drop this week after falling in the first three days on concern Fitch Rating’s state-debt downgrade on Greece and Standard & Poor’s negative outlook for Spain could herald further sovereign grade cuts. A first-half loss at Nakheel PJSC, the Dubai World-owned property developer seeking to renegotiate debt, also pulled equities lower. The broader HDAX Index also increased 0.8 percent today.
“Recent U.S. data have shown a stronger upswing than investors had anticipated,” said Matthias Jasper, head of equities at WGZ Bank in Duesseldorf. “If it goes on like this, interest-rate hikes may be on the table more quickly, too. For the rest of the year, there is room to the upside.”
Retail purchases in the U.S. increased 1.3 percent in November, surprising economists who had forecast a 0.6 percent gain, a Bloomberg News survey showed. Purchases excluding autos climbed 1.2 percent, also more than anticipated and the biggest gain since January.
Linde, BASF
China’s factory output surged 19.2 percent last month from a year earlier, the statistics bureau said in Beijing, exceeding the 18.2 percent median estimate in a Bloomberg News survey of 25 economists.
Linde jumped 3.9 percent to 85.60 euros, its biggest advance since April. The company was raised to “overweight” from “equal-weight” at Morgan Stanley, which said “consensus is failing to recognize the recovery potential in sales in the medium term.”
BASF advanced 1.9 percent to 43.04 euros, completing its sixth week of gains. Chief Executive Officer Juergen Hambrecht may avoid making the company’s first dividend cut for 16 years after an unexpected spurt in orders, analysts said. BASF is able to earn its cost of capital this year, Hambrecht’s prerequisite for maintaining investor payouts, according to WestLB AG’s Norbert Barth.
Bayer, Volkswagen
Bayer AG advanced 1.9 percent to 54.43 euros, climbing for a third straight day. Onyx Pharmaceuticals Inc. and Germany’s largest drugmaker said their Nexavar pill, used with the chemotherapy drug paclitaxel, delayed the growth of tumors that had spread or recurred, extending the lives of women with advanced breast cancer.
Volkswagen, Europe’s biggest automaker, added 1.2 percent to 81.67 euros, capping its first weekly gain in almost two months. The company said group deliveries increased 19 percent to 531,300 vehicles in November from a year earlier.
Allianz SE, Europe’s biggest insurer, rose 1.7 percent to 84.60 euros. The company is optimistic on the outlook for directors and officers insurance after claims peaked and prices began rising in some industries, Allianz executives said.
K+S AG, Europe’s biggest potash producer, advanced 1.6 percent to 42.25 euros. The company sold new shares valued at 689 million euros ($1.01 billion) to improve its balance sheet and secure an investment-grade rating.
RWE AG, Germany’s second-largest utility, posted a second weekly gain and climbed 1.3 percent to 64.39 euros today. The company will win back about 100,000 electricity clients this year, Chief Operating Officer Ulrich Jobs said.
The following stocks rose or fell in German markets. Symbols are in parentheses.
Carl Zeiss Meditec AG (AFX GY) surged 4.8 percent to 12.05 euros, its biggest jump in a month. The maker of medical lasers to correct vision defects was raised to “add” from “hold” at Commerzbank AG and to “buy” from “hold” at UniCredit Markets & Investment Banking.
Separately, the company appointed Christian Mueller to the management board and as chief financial officer, with effect from Dec. 15.
Drillisch AG (DRI GY) climbed 3.2 percent to 5.23 euros, snapping a four-day drop. The mobile-phone company said it had become the sole shareholder of MSP Holding GmbH after it bought United Internet AG’s stake in MSP.
ElringKlinger AG (ZIL2 GY) jumped 3 percent to 15.65 euros as the German automotive supplier was rated “buy” in new coverage at Close Brothers Group Plc.
Fraport AG (FRA GY) increased 1.3 percent to 34.93 euros after the operator of the Frankfurt airport was raised to “overweight” from “neutral” at HSBC Holdings Plc.
Q-Cells SE (QCE GY) slid 1.9 percent to 10.35 euros, a third straight decline. The solar-cell maker was rated “sell” in new coverage at Hapoalim Securities.
Stada Arzneimittel AG (SAZ GY) fell 1.8 percent to 25.89 euros, its biggest drop this month. The German generic-drug maker was cut to “neutral” from “buy” at BofA Merrill Lynch Global Research, which said “while our buy thesis was partly predicated on positive German healthcare reform proposals and cost savings, we now believe these are largely priced in.”
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
Last Updated: December 11, 2009 12:25 EST
U.K. Stocks Gain for Second Day; BHP Billiton, Xstrata Advance
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By Adria Cimino
Dec. 11 (Bloomberg) -- U.K. stocks advanced for a second day, trimming their weekly decline, as reports from China and the U.S. indicated the global economic recovery may be strengthening.
BHP Billiton Ltd., the world’s biggest mining company, and Xstrata Plc led basic-resources companies higher as metals prices rose. Mouchel Group Plc posted a record gain after the U.K road and infrastructure-maintenance company said it has made “good progress” this fiscal year.
The benchmark FTSE 100 Index rose 17.2, or 0.3 percent, to 5,261.57. The index has rebounded 50 percent since March and is heading for its biggest annual gain since 1997 as central banks cut interest rates to record lows and governments worldwide committed about $12 trillion to revive the economy. The FTSE All-Share Index increased 0.4 percent today and Ireland’s ISEQ Index added 1.8 percent.
“I believe in a year-end rally,” said Yves Marcais, a sales trader at Global Equities in Paris. “The economy is starting to improve. The market has found a bit of dynamism once again.”
China’s industrial production rose 19.2 percent in November from a year earlier, the statistics bureau said in Beijing, exceeding the 18.2 percent forecast by economists.
In the U.S., a Commerce Department report showed retail sales gained 1.3 percent in November and the Reuters/University of Michigan preliminary index of consumer sentiment climbed to 73.4 in December.
Weekly Decline
The FTSE 100 declined 1.1 percent this week after Standard & Poor’s Ratings Services cut its outlook for Spain and Fitch Ratings downgraded Greece’s sovereign debt rating and five of the nation’s banks.
“The market reaction was excessive,” Marcais said. “We knew certain countries had problems.”
Moody’s Investors Service said today it has no current plans to lower its top debt ratings on the U.S. and the U.K. after a report this week stated the sovereigns may “test the Aaa boundaries.”
BHP Billiton increased 1.4 percent to 1,875 pence and Xstrata, the world’s largest exporter of coal used by power stations, advanced 1.5 percent to 1,047 pence. Kazakhmys Plc, Kazakhstan’s biggest copper producer, rallied 2.2 percent to 1,253 pence. Copper, lead and nickel climbed in London.
Rio Tinto Group added 1.3 percent to 3,134 pence. The second-largest iron ore exporter appointed a new chief negotiator with Asian steelmakers after price talks failed with China this year, boosting prospects for the latest negotiations.
‘Sense of Normality’
“Some sense of normality has returned to the market, with the miners as ever helping to drag the index up,” David Jones, chief market strategist at IG Index, wrote in a note.
Mouchel surged 19 percent to 190 pence, the biggest gain since its 2002 initial public offering. The company said it has made “good progress” since the fiscal year ended on Aug. 1 and expects to deliver performance in line with management forecasts in the 12 months through July 2010.
Carillion Plc advanced 1.9 percent to 300.9 pence. Britain’s second-biggest construction company said it anticipates profit increasing “at least” 10 percent this year on “very good” Middle East sales and aims for “single-digit” profitability next year.
Dragon Oil Plc slipped 3.4 percent to 379.75 pence, dropping for a fifth day. The Dubai-based explorer operating in Turkmenistan said the resolution to become a wholly owned subsidiary of Emirates National Oil Co., Dubai’s government- owned refiner, was not passed by the required majority at a shareholders’ meeting today.
Producer Prices
U.K. producer prices rose at the fastest annual pace in nine months in November after raw material costs increased, a sign inflation pressures are building as the recession eases.
The prices of goods at factory gates climbed 2.9 percent from a year earlier, the Office for National Statistics said today. The result matched the median forecast of 16 economists in a Bloomberg News survey. From October, prices increased 0.2 percent, in the ninth consecutive monthly gain.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Last Updated: December 11, 2009 12:01 EST
Europe Stocks Fall on Sovereign Debt Concern; Greek Banks Slump
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By Julie Cruz
Dec. 11 (Bloomberg) -- European stocks posted a weekly decline as Fitch Ratings downgraded Greece and Standard & Poor’s Ratings Services cut its outlook for Spain, sparking concern there will be more debt-grade reductions to come.
National Bank of Greece SA and Piraeus Bank SA slumped more than 19 percent, pacing declines in European banking shares, as Fitch followed the reduction of Greece’s sovereign debt rating by downgrading five of the nation’s lenders. Telekom Austria AG tumbled 13 percent as the country’s former telephone monopoly said earnings will drop in 2010.
The Dow Jones Stoxx 600 Index lost 1.6 percent this week, the steepest drop since Nov. 20. The reliability of sovereign credit has come under increased scrutiny after Dubai World, a state-owned holding company, said Nov. 25 it would seek a standstill agreement on its debt. Spain had the outlook on its debt grade lowered to negative from stable by S&P on Dec. 9, a day after Fitch cut Greece’s rating to BBB+ from A-.
“Dubai was a fire drill,” said Philip Gijsels, a senior structured-equity strategist at Fortis Global Markets in Brussels. “Worse than Dubai is Greece and what it means for other countries. A failure of governments would be worse than banks’ bankruptcies because governments have acted as lenders of last resource in this crisis.”
National benchmark indexes fell in all western European countries, except Iceland and Luxembourg. Germany’s DAX, the U.K.’s FTSE 100 and France’s CAC 40 all slipped 1.1 percent. Greece’s ASE Index plummeted 9.4 percent, the most in more than a year, and Spain’s IBEX 35 retreated 3.5 percent.
Budget Deficit
Greece, the lowest-rated country in the euro region, may be the first major nation in the European Union to default on its debt since 1948, said Willem Buiter, the former Bank of England official who will join Citigroup Inc. as its chief economist next month. The nation is heading for a budget deficit of 12.7 percent of gross domestic product in 2009, the highest in the 27-nation bloc.
National Bank of Greece, the nation’s largest lender, sank 20 percent, the most since Oct. 2008. Piraeus Bank, the fourth- biggest, fell 19 percent and EFG Eurobank Ergasias SA, the second-largest, slumped 18 percent.
Banco Santander SA, Spain’s biggest bank, retreated 6.6 percent. Bank of Ireland Plc and Allied Irish Banks Plc, the nation’s two largest lenders, sank 13 percent and 16 percent, respectively. Banks lost 4.4 percent this week, the worst performance among the 19 industry groups in the Stoxx 600.
‘Intolerable’ Situation
Greece and Ireland are among countries in an “intolerable” economic situation, which may lead to bailouts or even an exit from the euro area by the end of next year, according to Steve Barrow, head of Group of 10 foreign-exchange strategy at Standard Bank Plc in London. “Countries like Ireland and Greece may not be able to grow out of the current crisis,” he wrote in a note.
Greek Prime Minister George Papandreou said his government is committed to taming the budget gap and Finance Minister George Papaconstantinou said there’s “absolutely” no risk it will default. EU rules are ambiguous on possible support for Greece. While the euro treaty bars governments from bailing out each other, another clause foresees financial assistance for countries in duress.
Fortis, the insurer that was once Belgium’s largest financial-services firm retreated 8.6 percent, after Fitch said it may downgrade its rating to reflect the increased risk of holding Greek government bonds.
Telekom Austria
Telekom Austria sank 13 percent. The company said earnings before interest, tax, depreciation and amortization in 2010 will fall 11 percent to 1.6 billion euros ($2.3 billion) from a forecast of 1.8 billion euros this year. S&P put Telekom Austria’s BBB+ long-term corporate credit rating on CreditWatch with negative implications.
European stocks trimmed their weekly decline today as China’s industrial output grew more than economists estimated and U.S. retail sales topped forecasts.
Stada Arzneimittel AG surged 8.6 percent, the biggest gain in the Stoxx 600, as analysts said bidding for Ratiopharm GmbH showed the German generic-drug maker’s shares may be worth more.
“Stada is likely to be the next takeover target for the bidders who do not get their chance with the sale of Ratiopharm,” Thomas Maul, an analyst at DZ Bank, wrote in a note to investors.
Stagecoach Group Plc, operator of the U.K.’s busiest commuter train service, advanced 6.8 percent after increasing its interim dividend and reporting higher first-half revenue.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net
Last Updated: December 11, 2009 13:20 EST
Egypt Shares Rise Most Since October 2008 on Orascom, Mobinil
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By Alaa Shahine
Dec. 13 (Bloomberg) -- Egyptian stocks surged the most in 14 months after France Telecom SA got regulatory approval to buy shares it doesn’t already own in the Egyptian Co. for Mobile Services and Orascom Telecom Holding SAE planned a share sale.
The EGX30 index rose 6.3 percent, the most since October 2008, to 6,580.44 at the close in Cairo. Egyptian Co. jumped 16 percent. Orascom Telecom, which owns a stake in Egyptian Co., also gained 16 percent, the most since May 2003, according to Bloomberg data.
“The market is in a frenzy due to the France Telecom offer,” Teymour El-Derini, head of Middle East and North Africa sales at Cairo-based Naeem Brokerage, wrote in an e-mail. Egypt’s Financial Supervisory Authority had rejected three previous bids from the French company.
Egyptian Co., the country’s biggest mobile-phone company, had been at the center of an ownership dispute between France Telecom and Orascom Telecom, the largest mobile-phone operator in the Middle East. France Telecom offered to pay 245 Egyptian pounds ($44.70) a share for Egypt Co., the regulator said Dec. 10 on its Web site.
Egyptian Co. surged the most since May 31 to 237.96 pounds. Orascom Telecom climbed to 31.39 pounds. France Telecom shares gained 0.4 percent to 17.25 euros on Dec. 11.
Share Sale
Orascom Telecom plans to raise $800 million in a rights share offer after a tax dispute with Algerian authorities. The size of the issue is as much as 5 billion pounds ($914 million) and the company plans to offer shareholders new shares for every existing share at 1 pound a share. The Cairo-based company will seek shareholders’ approval Dec. 27 for the stock sale.
Algeria’s tax authority ordered Orascom last month to pay a $596.6 million penalty. The company said the fine was based on the “unfounded and unacceptable allegation” that it didn’t keep proper accounts.
France Telecom won an arbitration ruling this year requiring Orascom Telecom to sell its stake in Mobinil Telecom, a holding company that owns 51 percent of Egyptian Co., for the equivalent of 273 Egyptian pounds a share. France Telecom hadn’t moved forward with the purchase because the regulator said it must also bid for the rest of Egyptian Co. shares at the price of the arbitration ruling or justify offering a lower price.
‘Hype’
The regulator said France Telecom’s justification of the price rested on “liquidity available at Mobinil Telecom” and the evaluation of financial resources for Mobinil Telecom’s shareholders as a result of management services for which Egyptian Co. “is obliged to pay 1.5 percent of its revenue.”
“There is a lot of uncertainty on what Orascom Telecom has to do regarding this offer, which is creating a lot of hype,” El-Derini of Naeem Brokerage said.
Orascom Telecom said today the Paris-based company hasn’t moved ahead with the purchase in the time set by the arbitration court and, therefore, was in violation of the ruling. “We don’t agree to this offer,” Chief Executive Officer Khaled Bichara said in an interview with Dubai-based Al-Arabiya television.
To contact the reporter on this story: Alaa Shahine in Cairo at asalha@bloomberg.net
Last Updated: December 13, 2009 08:06 EST
United Arab Emirates Shares Climb on Dubai World Debt Optimism
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By Vivian Salama
Dec. 13 (Bloomberg) -- Dubai shares posted the biggest two- day gain in more than a year and Abu Dhabi’s index added the most since March on bets Dubai World would make a last-minute move to avoid a default on its property unit.
Emaar Properties PJSC, the United Arab Emirates’ biggest property developer, jumped 6.8 percent, while National Bank of Abu Dhabi, the country’s second biggest lender by assets, increased the most in 10 months. The DFM General Index rose 3.3 percent to 1,695.35, bringing its two-day gain to 11 percent, the most since October 2008. Abu Dhabi’s measure added 4.5 percent, the biggest one-day jump since March 24.
Dubai’s index has tumbled 19 percent since Dubai World, the state-owned holding company, said on Nov. 25 it would seek a “standstill” agreement on its debt repayment, including for property unit Nakheel PJSC. The company’s $3.52 billion Islamic bond matures tomorrow. Dubai World began talks with banks two weeks ago to restructure $26 billion
“The market has come to a critical level and many investors believe the recent selloff was not justified,” said Vyas Jayabhanu, head of Al Dhafra Financial Brokerage LLC in Abu Dhabi. “We already know that there were meetings with the banks and there is a buzz that there might be agreements with the bondholders, so the market is remaining really hopeful.”
If there’s no news about the Nakheel bond tomorrow the markets could see another selloff, but not with the same momentum of the past few weeks, he said. Nakheel’s bond advanced to 53 cents on Dec. 11, the last time it traded. The debt, known as sukuk, has dropped by more than 50 percent since Dubai World said it would seek to delay debt payments. BNP Paribas SA and EFG-Hermes Holding SAE analysts said Nakheel may repay bondholders up to 70 cents on the dollar and issue new securities to restructure the remainder of the debt.
Nakheel Loss
Nakheel, the developer of palm-tree shaped islands off the Dubai coast, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as real-estate prices in the Gulf business hub crashed. While Dubai’s government owns 100 percent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman al Saleh, director general of Dubai’s Department of Finance, said Nov. 30.
Emaar climbed to 3.14 dirhams, the highest close in almost a week. The stock has soared 23 percent since it said on Dec. 9 it abandoned a merger with three real-estate units of Dubai Holding LLC. The transaction would have created a company with 13.4 billion dirhams ($3.7 billion) in debt obligations, Emaar said Dec. 9.
National Bank of Abu Dhabi gained 9.7 percent to 11.85 dirhams, the biggest increase since Feb. 5.
Qatar’s DSM 20 Index added 1 percent and the Kuwait Stock Exchange Index rose 1.3 percent. Oman’s MSM30 Index climbed 2.6, and Bahrain’s measure advanced 0.7 percent. Saudi Arabia’s Tadawul All Share Index closed little changed.
To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net
Last Updated: December 13, 2009 08:31 EST
‘Dogs of the Dow’ Strategy Failed to Beat Market, Bespoke Says
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By Nikolaj Gammeltoft
Dec. 12 (Bloomberg) -- The Dogs of the Dow strategy of buying the 10 Dow Jones Industrial Average stocks with the highest dividend yields has failed to deliver market-beating returns in 2009, according to Bespoke Investment Group LLC.
The 10 dogs have returned 11 percent on average, compared with the 29 percent profit from the other 20 Dow companies and 23 percent gain from the entire measure, Bespoke said in a report yesterdaytitled “Dogs Remain Dogs in 2009.” The Harrison, New York-based firm manages money for wealthy investors and provides research to professionals.
“The strategy has underperformed because it was heavily weighted with financial companies, which got hit by the crisis,” said Justin Walters, co-founder of Bespoke. “It has a good a chance of outperforming the market in 2010.”
The approach gained attention after Michael O’Higgins published “Beating the Dow” two decades ago. He wrote in the book that investors could make money buying the worst-performing stocks that pay above-average dividends. The strategy faltered in the late 1990s when technology-related companies soared. It also underperformed last year during the worst financial crisis since the 1930s.
None of the 10 Dow stocks that have risen the most in 2009 were identified as investment candidates by the dogs strategy. Dow companies with the highest yields at the end of 2008 included Fairfield, Connecticut-based General Electric Co. and AT&T Inc. of Dallas, which have posted the third- and fourth- biggest losses in the average this year.
To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
Last Updated: December 12, 2009 00:01 EST
Goldman Trades Shouldn’t Get U.S. Aid, Volcker Says (Update1)
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By Simon Kennedy and Christine Harper
Dec. 12 (Bloomberg) -- Goldman Sachs Group Inc., which took $10 billion in U.S. bailout funds last year, shouldn’t get taxpayer support if the firm focuses on trading over banking, according to former Federal Reserve Chairman Paul Volcker.
The “safety net” provided by the U.S. government “should not be extended beyond the core commercial-banking business,” Volcker, 82, said in an interview yesterday at Deutsche Bank AG’s Berlin office, where he was attending a conference. “They can do trading and do anything they want, but then they shouldn’t have access to the safety net.”
Goldman Sachs, the most profitable investment bank in Wall Street history, has reaped more than 90 percent of its pretax earnings this year from trading and so-called principal investments, which include market bets on securities and stakes in companies. The other 10 percent came from advising clients on takeovers and capital-raising and from asset management, which includes managing hedge funds and buyout funds.
When the collapse of smaller rival Lehman Brothers Holdings Inc. triggered a crisis of investor confidence last year, regulators allowed Goldman Sachs and Morgan Stanley, another competitor, to convert into bank holding companies. That put the New York-based firms under the Fed’s purview and gave them access to cheap funding.
The two firms received federal guarantees on new debt issues, as did commercial banks and some companies with financing businesses, such as General Electric Co.
Must ‘Be Sorted Out’
Goldman Sachs does “a lot of proprietary trading” and General Electric “does a lot of kind of complicated financial services,” said Volcker, an economic adviser to President Barack Obama. “This is one of those kind of things that have to be sorted out.”
In a speech today in Berlin, Volcker said the financial crisis was still continuing and the U.S. economy is “pretty dependent” on government support. The test for policymakers now is to time the exit from their emergency fiscal and monetary stimulus, he said.
“You’ve not got much room for exiting right now,” Volcker said. “The difficult thing is to be ready to take the action before it becomes obvious and that’s a challenge.”
Limiting Support
Since January, Volcker, who was Fed chairman from 1979 to 1987, has called for regulators to provide government support only to banks that provide essential services like deposit- taking and business payments. He has suggested prohibiting them from owning or sponsoring hedge funds, private-equity funds or from engaging in proprietary trading.
Goldman Sachs returned the $10 billion it received from the U.S. Treasury last year with interest. As of September, $20.85 billion of the firm’s $189.7 billion of unsecured long-term borrowing was guaranteed by the Federal Deposit Insurance Corp., according to a company filing.
Lucas van Praag, a spokesman for Goldman Sachs, said that the majority of the firm’s trading revenue comes from transactions with clients and not from proprietary trading, or bets with the firm’s own money.
“Proprietary trading accounted for less than 10 percent of revenues and earnings this year,” van Praag said. “Since 2003, proprietary trading has accounted for just 12 percent of net revenues.”
Goldman Sachs generated $203 billion net revenue from 2003 through September, meaning that about $24 billion was proprietary trading.
‘Own Two Feet’
David Viniar, Goldman Sachs’s chief financial officer, said in October that the firm doesn’t benefit from any implicit government guarantee.
“We operate as an independent financial institution that stands on our own two feet,” Viniar said in a conference call with reporters on Oct. 15.
Anne Eisele, a spokeswoman for Fairfield, Connecticut-based General Electric, declined to comment. By the end of 2009 about $59 billion of the debt of GE Capital, General Electric’s finance subsidiary, will still be guaranteed by the FDIC, according to a company presentation.
Volcker said there is a “temptation” at some banks to return to the risk-taking practices that enable them to pay large bonuses. “It’s natural, you like to return to normalcy, make some money and get on with it,” he said.
“I’m very interested in using this crisis as a way to avoid the next one,” Volcker said. “This isn’t any time to go back to business as usual.”
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.
Last Updated: December 12, 2009 16:13 EST
SocGen Hires Dresdner Kleinwort’s Petermann as Senior Banker
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By Julie Cruz
Dec. 11 (Bloomberg) -- Societe Generale SA, France’s second-largest bank by market value, has hired Rolf Petermann as senior banker in its German and Austrian financial institutions team at the Corporate & Investment Banking unit.
Petermann joined from Dresdner Kleinwort, where he was managing director and co-head of the financial institutions group, according to an e-mailed statement from Societe Generale. The banker, who is based in London, also worked for Lehman Brothers Holdings Inc. previously, the French bank said.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.
Last Updated: December 11, 2009 09:32 EST
Boralex, Guardian Capital Group, West 49: Canada Equity Preview
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By Nikolaj Gammeltoft
Dec. 11 (Bloomberg) -- Shares of the following companies may have unusual moves in Canadian trading on Dec. 14. Stock symbols are in parentheses.
The Standard & Poor’s/TSX Composite Index fell 40.64 points, or 0.4 percent, to 11,423.93.
Boralex Inc. (BLX CN): The hydroelectric and thermal power producer said in a statement on PR Newswire it will reduce dividend to unit holders from 70 cents to 40 cents per trust unit on an annualized basis.
Guardian Capital Group Ltd. (GCG/A CN): The Toronto-based financial services company was downgraded to “sector perform” from “sector outperform” at Scotia Capital by equity analyst Phil Hardie. The price estimate is C$9.50 per share.
West 49 Inc. (WXX CN): The skateboarding, snowboarding and surfing apparel retailer was raised to “neutral” from “sell” at Versant Partners by equity analyst Neil Linsdell. The 12- month price estimate is 50 cents per share.
To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net
Last Updated: December 11, 2009 17:44 EST
BMC, MBIA, Mead Johnson, SanDisk, Visa: U.S. Equity Preview
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By Lu Wang
Dec. 12 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading on Dec. 14. Stock symbols are in parentheses.
The following companies will join the Standard & Poor’s 500 Index after the close of trading on Dec. 18:
-- Cliffs Natural Resources Inc. (CLF US), North America’s largest iron-ore producer
-- Mead Johnson Nutrition Co. (MJN US), maker of Enfamil baby formula
-- Ross Stores Inc. (ROST US), owner of the Ross Dress for Less discount chain
-- SAIC Inc. (SAI US), a defense contractor specializing in computer services
-- Visa Inc. (V US), the world’s biggest electronic payments network
The following stocks will be dropped from the S&P 500:
-- Ciena Corp. (CIEN US), a maker of networking gear
-- Convergys Corp. (CVG US), an operator of customer- service call centers
-- Dynegy Inc. (DYN US), a power producer
-- KB Home (KBH US), a homebuilder
-- MBIA Inc. (MBI US), the largest bond insurer
The following companies will join the Nasdaq-100 Index, which underlies the PowerShares QQQ (QQQQ US) exchange-traded fund, after the close of trading on Dec. 18:
-- BMC Software Inc. (BMC US), a maker of programs that manage mainframes and computer networks
-- Mattel Inc. (MAT US), the world’s biggest toymaker
-- Mylan Inc. (MYL US), a generic drugmaker
-- Qiagen NV (QGEN US), a Dutch biotechnology company
-- SanDisk Corp. (SNDK US), the biggest maker of flash- memory cards used in digital cameras
-- Virgin Media Inc. (VMED US), the U.K.’s second-largest pay-television company
-- Vodafone Group Plc (VOD US), the world’s largest mobile- phone company
GTx Inc. (GTXI US): The developer of a drug to prevent broken bones in prostate-cancer patients said it will cut 28 percent of its staff because of delays in introducing the treatment.
Hansen Medical Inc. (HNSN US): The maker of medical robotics settled litigation against Luna Innovations Inc. (LUNA US) under an agreement that will give Hansen Medical a 9.9 percent stake in Luna and rights to certain Luna technology.
Vail Resorts Inc. (MTN US): The Colorado-based ski resort operator expects more people at its resorts this ski season, Chief Executive Officer Robert Katz said in an interview on CNBC. Lift-ticket sales are up 10 percent, he said.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net.
U.S. Stocks Gain on Signs Economic Recovery Is Strengthening
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By Nick Baker and Mary Childs
Dec. 12 (Bloomberg) -- U.S. stocks advanced this week, overcoming concern that credit losses will rise, after data on jobless claims and retail sales signaled the economic recovery is strengthening.
Delta Air Lines Inc. and US Airways Group Inc. surged more than 9 percent after oil extended its decline to eight days, the longest losing streak in six years. Gannett Co. soared 28 percent, the most in the Standard & Poor’s 500 Index, after the newspaper publisher forecast more profit than analysts estimated. Alcoa Inc. jumped 12 percent as JPMorgan Chase & Co. boosted its earnings projections for the aluminum producer.
The S&P 500 added less than 0.1 percent to 1,106.41 after rising the final three days of the week. The Dow Jones Industrial Average rose 82.60 points, or 0.8 percent, to 10,471.50. The Nasdaq Composite Index fell 0.2 percent to 2,190.31.
“There is an underpinning of greater confidence than there has been for a long time,” said Matthew Kaufler, a Rochester, New York-based money manager at Federated Clover Investment Advisors, which oversees $392 billion.
The S&P 500 lost a total of 1.3 percent on Dec. 7 and Dec. 8 after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy faces “significant headwinds,” while a reduction in Greece’s debt rating and a $3.65 billion loss by a Dubai developer added to speculation that global credit markets are struggling to recover.
Spain Roils Markets
S&P’s shift to a negative outlook for Spain’s debt added to that concern on Dec. 9, roiling equity markets worldwide. The S&P 500 rebounded from a loss of as much as 0.6 percent that day to climb 0.4 percent at the 4 p.m. close of trading in New York, boosted by shares of 3M Co. and Sprint Nextel Corp.
The index then advanced 1 percent in the next two days after the four-week average of initial jobless claims slid to a one-year low of 473,750, retail sales climbed more than twice as fast as economists estimated and the Reuters/University of Michigan index of consumer confidence topped estimates.
“Clearly there was a scare that there was going to be some kind of domino effect, but after the initial knee-jerk reaction, some sanity was restored and the dominos didn’t begin to fall,” Kaufler said, referring to Dubai, Greece and Spain. “It tells me we’ve come a hell of a long way in 12 months, because 12 months ago if we’d caught similar news headlines, it would have been a down-3-percent day.”
$69.46 a Barrel
Delta, the world’s biggest airline, led the Amex Airline Index to its highest level since February, as analysts signaled optimism about travel demand and oil fell to two-month low of $69.46 a barrel in New York. Delta added 13 percent to $11.25 and US Airways climbed 9 percent to $4.83.
Gannett increased 28 percent to $13.16. Chief Financial Officer Gracia Martore said the USA Today publisher is likely to beat analysts’ average estimate for fourth-quarter earnings. Martore, speaking at the UBS AG Global Media and Communications Conference in New York on Dec. 9, said she was “comfortable” that the publisher would report earnings at the high end of the analysts’ range of 48 cents to 62 cents a share.
Alcoa rallied 12 percent to $14.61, the biggest weekly gain since June. JPMorgan said the company’s stock and per-share profit may rise more than previously projected next year as metal prices increase. Alcoa’s earnings will be $1.45 a share in 2010, compared with an earlier prediction of $1.15, according to JPMorgan.
Bearish Sign
Utilities rose 3.6 percent as a group, the most among 10 industries in the S&P 500, a bearish sign for some investors. FPL Group Inc., owner of Florida Power & Light Co., jumped 6.6 percent to $56.25 for the steepest advance.
The S&P 500 has rallied 64 percent from a 12-year low in March after a four-quarter economic contraction ended. The biggest equity market rally since the Great Depression may fade after the ratio between indexes tracking transportation and utility stocks generated a so-called triple top, according to David A. Rosenberg of Gluskin Sheff & Associates Inc.
The Dow Jones Transportation Average that follows airlines, railroads and trucking companies climbed to 10.75 times the level of the Dow Jones Utilities Average on Sept. 11, a multiple last seen in October 2008. The ratio failed to surpass that peak twice in the next two months, forming a triple top that some analysts say signals a slump.
Charles Dow
The utilities gauge surged 3.9 percent this week, while the transportation average slipped 0.2 percent, driving the ratio down to 10.1 from 10.5. Transportation stocks are trailing utilities when the multiple shrinks. Charles Dow, co-founder of the Wall Street Journal, created the shipping average in 1884 to help measure the health of the U.S. economy.
Former Federal Reserve Chairman Paul Volcker said imbalances in the structure of the U.S. economy pose a bigger challenge than the financial crisis and will impede economic growth for some time.
“We have another economic problem which is mixed up in this of too much consumption, too much spending relative to our capacity to invest and to export,” Volcker, an adviser to President Barack Obama, said Dec. 11 in Berlin. “It’s involved with the financial crisis but in a way it’s more difficult than the financial crisis because it reflects the basic structure of the economy.”
To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Mary Childs in New York at mchilds4@bloomberg.net.
Last Updated: December 12, 2009 08:00 EST
Bloomberg News Is Next...
100k in volume would be nice on the pps...:) Boomage materiel !
Next week looking to Rock on.. If we can get to .50 I want ask for no more until the following...lol..
CRWE Daily Chart. Up over 200 % in one week.....:) Low floater 22 million. Latest news below.
http://finance.yahoo.com/news/Crown-Equity-Holdings-pz-3573482271.html?x=0&.v=1
http://finance.yahoo.com/news/Crown-Equity-Holdings-Inc-prnews-2201756377.html?x=0&.v=1