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BL: SEC Seeks Customer Names in Auction-Rate Bond Inquiry (Update2)
By David Scheer and Jesse Westbrook
April 18 (Bloomberg) -- The U.S. Securities and Exchange Commission asked brokerages to hand over more details about auction-rate bond sales, as regulators examine whether firms improperly steered clients into securities they can't sell.
The SEC's inspections office sent letters to the biggest sellers of auction-rate securities this month seeking the names of customers who purchased the notes and the identities of brokers who sold them. Inspectors want lists of bonds that clients bought, showing their values on different dates, a copy of a letter obtained by Bloomberg News shows.
``We are looking at representations made to investors when they purchased auction-rate securities in coordination with Finra,'' Lori Richards, head of the SEC's Office of Compliance Inspections and Examinations, said in an interview, referring to the Financial Industry Regulatory Authority. She declined to discuss specific firms or investors.
The move comes as regulators expand investigations into the collapse of the $330 billion market for the notes. New York Attorney General Andrew Cuomo has subpoenaed 18 banks and securities firms, including UBS AG and Merrill Lynch & Co., in a probe that may result in criminal charges, a person familiar with the effort said yesterday.
Seeking Names
The SEC's ``granular'' request, seeking details on specific accounts, shows the agency is trying to ``find out what was said and what was not said,'' when brokers spoke with clients, said Brian Rubin, a partner at Sutherland Asbill & Brennan LLP in Washington who previously served as deputy chief counsel at Finra's predecessor, NASD.
The SEC asked the firms for spreadsheets that list auction- rate bond holdings for individual customers, including the assets' total values at the end of December and February. It also asks the companies to disclose the total value of the same securities in their own inventory, suggesting that the SEC is looking for discrepancies in valuations.
Finra, which oversees about 5,100 brokerages, has pressed firms about their marketing of auction-rate bonds to retail, wealthy and institutional investors, a person familiar with that review said on April 8. A questionnaire from the Washington-based regulator also asks how firms classified the investments.
Separately, nine state regulators have formed a task force to investigate whether brokers misrepresented the securities.
Firms including Merrill Lynch, UBS and Morgan Stanley face lawsuits brought by clients who say they were inappropriately sold auction-rate bonds and told they were as safe as cash.
Merrill and Morgan Stanley have denied the allegations. UBS spokesman Kristopher Kagel declined to comment.
Goldman's Disclosure
Goldman Sachs Group Inc., the biggest U.S. securities firm by market value, said April 9 it had received requests for information from ``various governmental agencies and self- regulatory organizations.'' The New York-based firm said it's cooperating.
Bond-auction failures occur when too few investors bid. More than 60 percent of public auctions held each day since Feb. 13 have failed, according to Bloomberg data. When auctions fail, investors who wanted to sell are left holding the securities, and rates are reset at a level spelled out in bond documents.
Investors have grown skittish in the past year about purchasing notes backed by insurers whose own creditworthiness is under pressure from subprime-mortgage losses. As buyers backed away, dealers who ran auctions refused to buy unwanted securities as they had in the past, resulting in thousands of failures since mid-February.
To contact the reporters on this story: David Scheer in Washington at dscheer@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: April 18, 2008 14:31 EDT
BL: AT&T Cuts 4,650 Jobs, Mostly Managers, Amid Line Loss (Update7)
By Crayton Harrison
Enlarge Image/Details
April 18 (Bloomberg) -- AT&T Inc. said it would fire about 4,650 workers, trimming the managerial ranks in its fading home- phone business after more than $100 billion in acquisitions.
The decision covers about 1.5 percent of the workforce, San Antonio-based AT&T said today in a regulatory filing. The dismissals at the largest U.S. phone company are in addition to the 10,000 announced with the $86 billion purchase of BellSouth Corp. in December 2006, spokesman Walt Sharp said.
Most of the reductions apply to the local-phone business, Sharp said. That unit lost 1.6 million residential lines last year as customers switched to cable and wireless phone service. AT&T has sought to reduce overlap in its operations since buying BellSouth and the former AT&T Corp., with plans to slash annual costs by about $7 billion by 2009.
``They're going to have to continuously downsize that business,'' said Craig Moffett, an analyst at Sanford C. Bernstein in New York. ``This isn't the first and won't be the last time.'' He expects the shares to perform in line with the rest of the market.
Economists predicted this month that the U.S. economy won't grow in the first half of the year, the weakest performance since the 2001 recession, as consumers grapple with falling home prices and increasing energy costs.
Service Shutdowns
AT&T plans to book a pretax cost of about $374 million for the job cuts in the first quarter. Before the announcement, analysts on average predicted AT&T would report net income of $3.95 billion for the period. The phone company had about 310,000 employees as of Jan. 31.
The company is scheduled to report first-quarter earnings on April 22. In the previous quarter, sales fell short of analysts' estimates after some customers failed to pay their bills, hurt by slowing economic growth.
AT&T fell 6 cents to $37.51 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped 9.7 percent this year, compared with a 16 percent decline in the Standard & Poor's 500 Telecommunication Services Index.
The company shut off service for about 100,000 non-paying customers in the fourth quarter, part of the 656,000 primary residential lines lost then. Stephenson told investors in January that shutdowns occurred mainly in the region around the Great Lakes.
Slowing Losses
To slow phone-customer losses, the company is spending $7 billion over five years to rewire parts of its network to offer faster Internet speeds and television service over its lines. AT&T has also fueled growth with its mobile-phone business and sales to large U.S. corporations with foreign operations. A minority of the employees affected by the reductions work in the unit that serves large corporate customers, Sharp said.
The cuts will occur in all parts of the U.S., he said. AT&T provides home-phone service in 22 states, including the nine- state territory acquired from BellSouth. Many of the firings come from the company's move to shift from five regional units to one division that covers the entire territory, eliminating some duplicate positions, AT&T spokesman Michael Coe said.
With new hires in other parts of the business, the company expects overall headcount to remain stable this year, according to the filing.
For related stories:
To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net
Last Updated: April 18, 2008 16:15 EDT
BL: Peltz's Trian Says Wendy's Spurned Acquisition Offers (Update5)
By Kevin Bell and Josh Fineman
April 18 (Bloomberg) -- Nelson Peltz's Trian Fund Management LP said Wendy's International Inc., the hamburger chain that put itself up for sale last year, rejected two acquisition bids from the investment firm.
Trian and its Triarc Cos. affiliate proposed to combine the Arby's restaurant chain with Wendy's, and separately offered to buy the company for $900 million in cash and the balance in stock, Trian President Peter May said in a letter to Wendy's Chairman James Pickett that was part of a regulatory filing today.
The bids were rejected because of their ``inadequacy,'' Pickett said in a separate response.
Trian, which controls a 9.8 percent stake, plans to contact shareholders to call a meeting on the future direction of the company after the board rejected the firms' proposals, May wrote in the letter dated today. Wendy's said April 3 that sales at stores open at least 15 months dropped for the second straight quarter as McDonald's Corp. and Burger King Holdings Inc. lured more customers.
``It is now time for Wendy's shareholders to decide the future of their company,'' May wrote. ``Our most recent proposals were summarily rejected in less than 24 hours.''
The offers were given appropriate consideration, Pickett said in a letter to May also dated today.
``The timing of the rejection of your latest proposals is attributable to their inadequacy,'' he wrote.
Wendy's Shares
Wendy's rose 28 cents, or 1.1 percent, to $25.38 by 4:03 p.m. in New York Stock Exchange composite trading. The chain has declined 22 percent since deciding to consider a sale, while McDonald's has climbed 20 percent.
``From a shareholder perspective, they're better off if Peltz goes away and let's them get on with running the business,'' said Malcolm Knapp, a New York-based restaurant consultant. Peltz has distracted Wendy's management from turning around the business while alienating franchisees, he said.
``Wendy's franchisees do not want anything to do with Peltz, and they view Arby's as a competitor,'' Knapp said. ``Peltz is going to do his thing and try to win, but there is not a lot of sentiment on his side.''
Peltz has pressured the chain to sell itself after it underperformed competitors. Wendy's board appointed a committee last April to explore a possible sale after the company spun off its Tim Hortons coffee-and-doughnut division, the biggest driver of its profit in recent years.
`Current Direction'
``Trian is very concerned about the current direction of Wendy's,'' May said in the letter. If the chain decides to consider an alternative to a sale, such as a sale of a minority stake, May urged that shareholders be allowed to vote on an agreement rather than leave it in the hands of the committee.
Triarc, the owner of the Arby's fast-food chain, offered to buy Wendy's last year. Triarc, based in Atlanta, said in November that it made an offer that was less than $3.2 billion.
In February, Peltz said he plans to nominate six candidates to the company's board.
Pickett said Jan. 28 that the strategic review ``is in the final stages.'' Turmoil in the financial markets, resulting in tightening credit, delayed the sale process, he said.
In his letter today, Pickett questioned the value of the proposal to combine Wendy's and Arby's.
``The value you ascribed to Wendy's in such a proposal was significantly below a level we had previously told you very clearly would be unacceptable,'' Pickett wrote.
Acquisition `Unlikely'
The second proposal, to acquire Wendy's for cash and stock, may mean that ``outright acquisition is unlikely given the current financing environment,'' John Glass, an analyst with Morgan Stanley, said in a note today to clients. ``We can understand why a stock deal from such a small company would be viewed as inherently unattractive, as it is essentially Wendy's buying itself.''
Revenue slumped at Wendy's following the death of founder Dave Thomas in January 2002, with sales at older stores dropping six quarters in a row before former Chief Executive Officer Jack Schuessler resigned in April 2006. He was replaced by Kerrii Anderson.
Pickett said the committee's recommendation on Wendy's would come ``in the very near future.''
Wendy's expects to report first-quarter results on April 25.
To contact the reporter on this story: Kevin Bell in Toronto at kbell2@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net
Last Updated: April 18, 2008 16:12 EDT
BL: Google Earnings Gave Options Traders a 17,530% Gain (Update1)
By Michael Patterson and Jeff Kearns
April 18 (Bloomberg) -- Options traders who predicted Google Inc. would beat estimates earned as much as 17,530 percent on their investments today, the most-profitable bet among all U.S. equity derivatives.
Contracts giving the right to buy Google shares for $530 before the close of trading today jumped as high as $17.63 from their 10-cent closing price yesterday. That gain almost matched the 18,760 percent advance in the Dow Jones Industrial Average since the beginning of 1900, according to Bloomberg data.
``Today in Google you see the power of leverage in options, especially going into earnings,'' said Peter Bottini, executive vice president of trading at OptionsXpress Holdings Inc., a Chicago-based online brokerage. ``We were swamped with customers who were calling in at the open of the market.''
Google shares climbed 20 percent, the most since its initial public offering in 2004, to $539.41 after the owner of the most popular Internet search engine beat the average analyst profit estimate by 7.1 percent. Google had dropped 35 percent this year on concern the U.S. economic slump would hurt spending on online advertising.
Google call-option volume jumped to 311,139 contracts, the most since January 2006. Those contracts outnumbered trading in bearish bets, or puts, by 1.6-to-1. Call options give the right to buy a security for a certain amount, called the strike price, by a given date. Puts convey the right to sell.
`Playing Google'
``We expect our more active customers to come out of the woodwork and start playing Google again,'' Bottini said.
Today's share surge was more than triple what the options market was expecting as of yesterday, based on prices paid for April contracts with a strike price closest to yesterday's closing share price, Bloomberg data show.
Google closed yesterday at $449.54. At the same time, the price of $450 straddles, which combine a put and a call at that strike price, was $30. That indicates traders expected a move of at least that amount, or 6.7 percent, in order to break even on the position.
``The market viewed this as a long shot, but not an impossibility,'' said Chris Jacobson, a senior options strategist at Susquehanna Financial Group in Bala Cynwyd, Pennsylvania.
Google contracts were the fifth-most traded among U.S. stock options in the first quarter, according to Chicago-based Options Clearing Corp., which settles all trading of exchange-listed contracts. There were 7.69 million Google options traded during the first three months of the year.
To contact the reporters on this story: Michael Patterson in New York at mpatterson10@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: April 18, 2008 17:06 EDT
BL: Google Earnings Gave Options Traders a 17,530% Gain (Update1)
By Michael Patterson and Jeff Kearns
April 18 (Bloomberg) -- Options traders who predicted Google Inc. would beat estimates earned as much as 17,530 percent on their investments today, the most-profitable bet among all U.S. equity derivatives.
Contracts giving the right to buy Google shares for $530 before the close of trading today jumped as high as $17.63 from their 10-cent closing price yesterday. That gain almost matched the 18,760 percent advance in the Dow Jones Industrial Average since the beginning of 1900, according to Bloomberg data.
``Today in Google you see the power of leverage in options, especially going into earnings,'' said Peter Bottini, executive vice president of trading at OptionsXpress Holdings Inc., a Chicago-based online brokerage. ``We were swamped with customers who were calling in at the open of the market.''
Google shares climbed 20 percent, the most since its initial public offering in 2004, to $539.41 after the owner of the most popular Internet search engine beat the average analyst profit estimate by 7.1 percent. Google had dropped 35 percent this year on concern the U.S. economic slump would hurt spending on online advertising.
Google call-option volume jumped to 311,139 contracts, the most since January 2006. Those contracts outnumbered trading in bearish bets, or puts, by 1.6-to-1. Call options give the right to buy a security for a certain amount, called the strike price, by a given date. Puts convey the right to sell.
`Playing Google'
``We expect our more active customers to come out of the woodwork and start playing Google again,'' Bottini said.
Today's share surge was more than triple what the options market was expecting as of yesterday, based on prices paid for April contracts with a strike price closest to yesterday's closing share price, Bloomberg data show.
Google closed yesterday at $449.54. At the same time, the price of $450 straddles, which combine a put and a call at that strike price, was $30. That indicates traders expected a move of at least that amount, or 6.7 percent, in order to break even on the position.
``The market viewed this as a long shot, but not an impossibility,'' said Chris Jacobson, a senior options strategist at Susquehanna Financial Group in Bala Cynwyd, Pennsylvania.
Google contracts were the fifth-most traded among U.S. stock options in the first quarter, according to Chicago-based Options Clearing Corp., which settles all trading of exchange-listed contracts. There were 7.69 million Google options traded during the first three months of the year.
To contact the reporters on this story: Michael Patterson in New York at mpatterson10@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: April 18, 2008 17:06 EDT
BL: Testosterone May Drive Traders to Risks, Riches (Update1)
By Lisa Rapaport
April 14 (Bloomberg) -- Traders who start the morning with high levels of the hormone testosterone, produced in the testes, will probably make more money that day, a study found.
Testosterone creates feelings of confidence and encourages risk-taking that can lead to profit, while another hormone, cortisol, prompts risk aversion when markets are volatile, according to a two-week study of 17 London traders published today in the Proceedings of the National Academy of Sciences.
In traders on a winning streak, testosterone will keep rising until the hormone eventually causes manic, irrational behavior, turning the boom into a bust, said study author J.M. Coates, a derivatives trader at Deutsche Bank in New York from 1996 to 2001, during the dot-com bull market.
``I became curious about people's behavior during the dot- com bubble because I didn't think you could explain that market with standard economics,'' said Coates, now a professor at the Judge Business School at the University of Cambridge in England. ``It seemed like the effects of a drug, and women didn't seem to be affected by it.''
In today's volatile market, uncertainty will lead to a buildup of cortisol in traders, eventually causing them to perceive danger where none exists, Coates said.
``It's like when you watch a horror movie and the uncertainty about where you're going to see the alien on the ship is a lot scarier than when it actually pops up somewhere,'' Coates said, describing the impact of cortisol.
The hormonal impact on trading behavior may undercut monetary policies designed to curtail an outsized bull or bear market, Coates said. ``This study tells us we need to account for biology to take effective action.''
Risk-Taking and Riches
The study measured traders' hormone levels several times throughout every day for two weeks. Traders with the highest testosterone levels first thing in the morning had the greatest profits.
Traders hyped up on testosterone may take more risks without greater financial success, said Jay Shartsis, director of options trading at R.F. Lafferty & Co. in New York, in an interview about the study. ``Trading and investing are predicated on not taking large risks but doing it in measured stages.''
Risk and profit don't go necessarily hand in hand, said Randy Frederick, director of derivatives at Charles Schwab & Co. in Austin, Texas, in an interview. If testosterone leads to greater risk-taking, ``it means you make more when you win and lose more when you don't.''
``Testosterone I don't think is going to give you a sharpened intellect or better judgment, but if it gives you less inhibition so you can take bigger risks it will pay off nicely when things go well,'' Frederick said.
To contact the reporter on this story: Lisa Rapaport in New York at Lrapaport1@bloomberg.net
Last Updated: April 14, 2008 18:54 EDT
LOL. Just think, they get paid for doing what they do, while you don't get anything for giving the advice that you give. Something is backwards here...
Thanks for sharing your observations--much appreciated.
R: Brazil's oil snafu - much ado about something big
Tue Apr 15, 2008 1:33pm EDT
By Andrei Khalip - Analysis
RIO DE JANEIRO (Reuters) - Brazil's oil market regulator may have jumped the gun by providing a huge new oil reserve estimate with little data to back it up, but analysts have little doubt about the country's oil potential measured in billions of barrels.
Just how many billion remains to be seen, and the discovery in the subsalt cluster at great depths represents major technological and cost challenges, they said.
But in any case, a big new find under evaluation that follows last year's announcement of a giant subsalt field known as Tupi boosts Brazil's prospects as a major world oil province. It also reinforces arguments of those in the government calling for a higher take from oil projects.
The National Petroleum Agency has distanced itself from a statement made on Monday by its chief, Haroldo Lima, who put Carioca field reserves at 33 billion barrels of oil equivalent, citing data obtained informally from Brazil's state-run energy company Petrobras (PETR4.SA: Quote, Profile, Research)(PBR.N: Quote, Profile, Research).
The agency said the data was in the public domain after circulating in the media at least since February.
Petrobras, which operates the project shared with partners BG Group (BG.L: Quote, Profile, Research) and Repsol (REP.MC: Quote, Profile, Research), said more drilling and studies were needed to assess the find, but at no point did any of the companies deny the existence of similar estimates.
Stocks of the two foreign companies jumped on Tuesday despite the ANP's caveats. Petrobras, which soared more than 5 percent on Monday, added another 1 percent.
QUESTIONS REMAIN
Matthew Shaw, senior energy analyst for Latin America at Wood Mackenzie consultants in Scotland, urged caution. He said too many questions remained about Carioca, which he thinks is unlikely to contain that much crude.
But he said the industry was excited.
"There's obviously a multibillion-barrel potential here, which is very significant for Brazil and the world oil market. There is a great deal of excitement and interest, but there are also a lot of questions that need to be answered," he said.
Mauro Andrade, an oil analyst with Deloitte Touche Tohmatsu consultancy in Rio de Janeiro, said "there is no smoke without fire" and the Carioca find inspired a lot of optimism.
"There is one well drilled, another being spudded and plenty of seismic data which are now so more precise than a few years ago. I think they do have a preliminary evaluation, which may not be the best in the world, but it's there," he said.
"Somebody put Haroldo Lima there, there is certainly something behind it. We already had respected banks like UBS talking about that find, estimating that it's bigger than Tupi. BG, for example, has never denied those estimates," he added.
Analysts say the projection is most likely to be for possible or in-place reserves rather than recoverable, which may slash the recoverable number by two-thirds or so. That would still make Carioca what is called in the oil industry a "supergiant," with more than 5 billion barrels of crude.
OPTIMISM
Andrade said the find may stoke fire under an ongoing debate about boosting the government's take in oil projects and a possible change in the way Brazil offers oil exploration and production concessions. Brazil now auctions such licenses annually in an open, market-friendly process.
Some analysts suggested Lima's announcement may be part of a coordinated effort within the government's nationalist wing, which is pushing for faster changes to secure high-potential reserves for Brazil alone, limiting foreign participation.
"Lima defends changes in the legislation based on new discoveries. It's his line and there may be other forces working in the same direction," said Carlos Lopes, a political analyst with SantaFe Ideias in Brasilia.
He said there was "lots of optimism in the Brazilian political sector" with the oil prospects after the Tupi find last year, as the petroleum is likely to make South America's largest country and economy more than just a regional leader.
"It certainly would mean a change in references in the long run, giving Brazil more global scale and clout," he said.
Still, few believe Brazil will turn into a major oil exporter any time soon and Lopes said proposals like joining the OPEC cartel were not considered serious.
Added Wood Mackenzie's Shaw: "It is going to be a very challenging development. It is not a Saudi Arabia find where you just plug into it and start producing. It will be very expensive and it will take a long time. A lack of drilling rigs on the world market is only one of the challenges," he said.
(Additional reporting by Richard Valdmanis in New York, editing by Matthew Lewis)
R: Researchers charge Merck misrepresented Vioxx data
Tue Apr 15, 2008 5:45pm EDT
By Julie Steenhuysen
CHICAGO (Reuters) - Merck & Co Inc suppressed evidence that its withdrawn arthritis pill Vioxx could harm patients, U.S. researchers charged on Tuesday.
An analysis of court documents suggests Merck knew about the problems years before it acted, the researchers report in the Journal of the American Medical Association.
They charge that Merck failed to disclose an internal analysis that found Alzheimer's patients taking Vioxx had a three times greater risk of death than patients taking a placebo.
"This is a major, serious safety signal," said Dr. Bruce Psaty of the University of Washington in Seattle, whose study compared internal Merck documents with data submitted to the U.S. Food and Drug Administration and published research.
"If these findings had been reported publicly in April of 2001, it is likely that many fewer patients would have chosen to use Vioxx and probably many fewer would have been injured," Psaty said in a telephone interview.
A separate analysis suggests Merck recruited academic researchers to lend their names and credibility to company-written studies used to give evidence of the drug's safety and effectiveness.
"Generally, these allegations, we believe, are not true," said Kent Jarrell, a crisis management expert and spokesman for the law firm representing Merck in litigation over Vioxx, which Merck withdrew in 2004 after studies showed it doubled heart attack and stroke risks.
The studies, published along with a commentary by the journal's editors, call for sweeping changes that would curtail drugmakers' ability to influence medical research.
MEANT TO BE SAFER
Vioxx is a type of drug known as a COX-2 inhibitor. These drugs were designed to be safer alternatives to aspirin, ibuprofen and other pain relievers that can cause often deadly stomach bleeding.
Merck is in the midst of a $4.85 billion deal with plaintiffs attorneys to settle thousands of Vioxx claims and the company has also been hit by declining sales from its jointly marketed cholesterol pill Vytorin.
More than 20 million people in the United States took Vioxx before it was withdrawn.
Psaty said patients were harmed because of Merck's hesitation.
"In April 2001, Merck conducted high-quality analyses that identified a three-fold increase in the risk of death for patients taking Vioxx compared to placebo," Psaty said, noting that Merck did not disclose this data to the FDA until 2003.
Merck denied this.
"The allegation that Merck misrepresented mortality data from our Alzheimer's studies is just plain wrong," said Dr. Peter S. Kim, president of Merck Research Laboratories, in a statement.
The company said it provided complete mortality data from the Alzheimer's studies to the FDA.
An FDA spokeswoman said the agency did not have any specific comment but said it would evaluate the issues raised by the journal on Vioxx.
A second study in the medical journal, by Dr. Joseph Ross of Mount Sinai School of Medicine in New York, suggested that one of the central studies of Vioxx was designed and conducted in large part by scientists at Merck, but primary authorship was attributed to three academic researchers in addition to eight Merck scientists.
One of the researchers, Steve Ferris of New York University, denied this. "I think that JAMA got it wrong in using this as a particular example of guest authorship," Ferris said in a telephone interview.
But in a telephone interview, Ross said, "We don't think it is limited to Merck. We think this is a widespread problem."
Iowa Sen. Chuck Grassley, a Republican who chaired Senate Finance Committee hearings on Vioxx deaths, said he was asking Merck to explain what it knew and when.
"These reports reveal just how far a drug maker might go to market its product and try to bury information that might hurt sales even when that information directly affected the health and safety of the people taking their medicine," Grassley said in a statement.
"Revealing this kind of activity is very important in building pressure on the Food and Drug Administration to regulate, not accommodate drug makers."
(Editing by Maggie Fox and Cynthia Osterman)
BL: Japan's Stocks Climb on Intel Forecast, Toshiba Leads Gains
By Patrick Rial
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April 16 (Bloomberg) -- Japan's stocks advanced a second day, led by technology companies including Toshiba Corp., after Intel Corp. forecast sales that may top analyst estimates.
Toshiba Corp., the world's second-biggest maker of flash memory chips, rose the most in two weeks, while Elpida Memory Inc. jumped. Sumitomo Mitsui Financial Group Inc. climbed after earnings from U.S. regional banks exceeded forecasts and the head of Lehman Brothers Holdings Inc. said the worst of the credit- market contraction has passed.
The Nikkei 225 Stock Average gained 143.96, or 1.1 percent, to 13,134.54 as of 9:29 a.m. in Tokyo. The broader Topix index added 12.00, or 1 percent, to 1,267.97.
``Intel's after-hours report was extremely positive and provides a good reason for semiconductor-related companies to take off today,'' Hiroichi Nishi, a Tokyo-based equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television.
Intel, the world's biggest chipmaker, said yesterday after the close of trading revenue will be as much as $9.6 billion this quarter, compared with an average estimate of $9.25 billion in a Bloomberg survey of analysts. It said gross margin will rise to 56 percent this quarter from 53.8 percent in the previous three months.
Toshiba advanced 3.9 percent to 819 yen, the steepest rally since April 3. Elpida, Japan's largest computer memory-chip maker, rose 3.1 percent to 3,670 yen. Tokyo Electron Ltd., the world's second-largest supplier of semiconductor-production equipment, surged 4.3 percent to 6,250 yen.
Banks Rise
Sumitomo Mitsui, Japan's second-largest bank by market value, gained 2.2 percent to 733,000 yen. Mitsubishi UFJ Financial Group Inc., the biggest, added 3 percent to 968.
Regions Financial Corp., the biggest bank in Alabama, and M&T Bank Corp., partially owned by Warren Buffett's Berkshire Hathaway Inc., rallied yesterday after reporting better-than- projected profits. Meanwhile, Lehman's Chief Executive Richard Fuld said ``the worst is behind us'' in credit markets.
Financial shares were also boosted after the Financial Times said Singapore's state-owned Temasek Holdings Pte invested an additional $600 million in Merrill Lynch & Co. in February.
Victor Co. of Japan jumped 5.3 percent to 218 yen after the Nikkei newspaper reported the company will end sales of flat- panel televisions in Japan this year to focus on the more profitable U.S. and European markets. Matsushita Electric Industrial Co., Sharp Corp., Sony Corp. and Toshiba, which dominate the domestic television market, all climbed.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
Last Updated: April 15, 2008 20:54 EDT
BL: Delta, Northwest Drop on Concern That Cuts Fall Short (Update4)
By Mary Jane Credeur and Mary Schlangenstein
More Photos/Details
April 15 (Bloomberg) -- Delta Air Lines Inc. and Northwest Airlines Corp. fell in New York trading as investors questioned whether the carriers' proposed merger would produce enough savings to overcome surging fuel bills.
Delta's purchase of Northwest for $3.63 billion in stock would create the world's largest airline and generate a total of $1 billion in new revenue and cost cuts, the companies said yesterday. Still, the airlines said they won't shut any hubs or expand previously planned reductions in domestic capacity.
``They need to raise fares, and to do that seats need to come out,'' Kevin Crissey, a UBS Securities LLC analyst in New York, said today in an interview. ``Delta and Northwest aren't doing that.'' He rates both airlines as ``neutral.''
Delta, the third-biggest U.S. airline by traffic, is betting that combining with Northwest, the fifth-largest, will help blunt a 77 percent jump in jet fuel over 12 months. Delta will control about 25 percent of the U.S. air-travel market.
``Given high fuel prices and going into a recession, it makes you wonder how things will improve,'' said George Hamlin, managing director of New York-based consulting firm ACA Associates. ``The assumptions are fairly optimistic.''
Shares Decline
Delta dropped $1.32, or 13 percent, to $9.16 at 4:01 p.m. in New York Stock Exchange composite trading, the most in a month. Northwest slid 94 cents, or 8.4 percent, to $10.28.
Each Northwest share will be exchanged for 1.25 Delta shares, giving Northwest investors $13.10, or 16.8 percent more than yesterday's price, the airlines said. With Delta's decline today, the deal's value slipped to $3.17 billion.
The airline will keep Delta's name, Atlanta headquarters and Chief Executive Officer Richard Anderson, 52, the carriers said yesterday in a statement. The tie-up will include one-time cash costs of $1 billion, the companies said. Delta has $7.35 billion in bonds and loans, according to Bloomberg data, while Eagan, Minnesota-based Northwest has $3.46 billion.
Northwest CEO Doug Steenland, 57, will join the new airline's board and Delta's Ed Bastian will keep his roles as president and chief financial officer. Steenland said today in an interview in New York that he plans to step down from daily operations when the deal closes.
Other Mergers?
The combination is likely to hasten merger talks among rivals including United Airlines, the world's second-largest carrier, and Continental Airlines Inc. to counter Delta's wider network.
Continental, No. 4 in the U.S. by traffic, said today it intends to redeem the so-called golden share that Northwest holds, freeing it to pursue a tie-up.
``Expect dominoes to fall,'' Bear Stearns & Co. analyst Frank Boroch in New York said today in a note to investors.
Delta and Northwest and their regional partners flew 176 million people last year. The combined carrier would vault past AMR Corp.'s American Airlines as the world's largest by traffic, and would have 800 aircraft and 75,000 employees.
Shareholders of Delta and Northwest will have to approve the transaction, which also would need clearance from federal antitrust regulators. While Delta pilots would get a 3.5 percent equity stake and a board seat under a new contract, Northwest's pilots said they would ``aggressively oppose'' the tie-up.
The merger comes on the eve of the first-quarter earnings reports starting tomorrow that may include losses at most major U.S. airlines. Four small carriers filed for bankruptcy in the past month: Frontier Airlines Holdings Inc., Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc.
Routes, Hubs
Delta's biggest contributions to the new carrier include trans-Atlantic routes to Europe and a network in Latin America, while Northwest has Pacific routes including access to the restricted Narita airport in Tokyo.
Delta has U.S. hubs at Atlanta, New York's Kennedy airport, Cincinnati and Salt Lake City. Northwest's are in Minneapolis, Detroit, and Memphis, Tennessee. Northwest also operates hubs in Amsterdam and Tokyo.
No new capacity reductions are planned, Anderson said yesterday on a conference call with reporters. Delta said in March it will cut 2,000 jobs and lower capacity by 10 percent, double its previous goal, and Northwest said it would halt hiring and pare capacity by 5 percent.
Delta's Comair regional carrier remains wholly owned, and the company has ``no immediate plans'' to sell it, Anderson said today in the New York interview.
Predecessor's Prediction
For Anderson, the accord fulfills the prediction made 13 months ago by predecessor Gerald Grinstein that Delta would become ``an acquirer'' after spurning a hostile takeover bid from US Airways Group Inc. before leaving bankruptcy in 2007.
Acquiring Northwest also puts Anderson back in charge of the airline he led as CEO from 2001 through 2004. His lieutenants at Northwest included Steenland.
Talks on the transaction stalled in February after pilots couldn't agree on how to mesh union seniority lists.
Delta and its 7,000 pilots broke the impasse in the past few days with a new labor agreement running through 2012 that includes the equity stake. Northwest's 5,000 pilots would be asked to join a unified contract before the deal closes.
Delta's financial advisers were Greenhill & Co. and Merrill Lynch & Co., and its legal advisers were Wachtell, Lipton, Rosen & Katz and Hunton & Williams.
Northwest's financial advisers were Morgan Stanley and JPMorgan Chase & Co., and the carrier's legal advisers were Simpson Thacher & Bartlett and O'Melveny & Myers.
Bond Covenants
The combined company plans to ask Minnesota officials to amend covenants in local bonds requiring Northwest to keep its Eagan headquarters, its Minneapolis hub and an unspecified number of jobs, Steenland said today on a conference call. The bonds total $245 million, he said.
``One option, and for the merged entity this is not the preferred option, would be to redeem the bonds, pay them off,'' Steenland said.
Moody's Investors Service placed Delta and Northwest debt under review for possible downgrade, while Standard & Poor's said it was reviewing Delta's rating with positive implications and Northwest's with negative implications. Fitch Ratings revised Delta's outlook to negative, from stable, citing fuel expenses and U.S. economic weakness.
Delta's 7.9 percent bond due November 2010 declined 3 cents to 93.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Agency. The yield climbed to 10.87 percent.
Northwest's 7 percent bond due April 2022 fell 2 cents to 97 cents on the dollar. The yield rose to 7.39 percent.
Credit-default swaps on Delta debt were unchanged at 1,183 basis points on April 9, the last day with such data, according to CMA Datavision in New York.
The contracts are designed to protect bondholders against default. A drop in price indicates an increase in the perception of a company's credit quality.
To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.
Last Updated: April 15, 2008 17:19 EDT
BL: Crude Oil Trades Above $113 as Investors Turn to Commodities
By Mark Shenk
April 16 (Bloomberg) -- Crude oil was little changed above $113 a barrel in New York after touching a record yesterday as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.
Oil climbed to $114.08 a barrel yesterday, the highest since futures began trading in 1983. Rising global demand for raw materials and a weakening dollar have led to record prices this year for commodities including corn, rice and gold. China said yesterday diesel imports surged 49 percent in March.
``Developing countries are still growing, which is boosting demand for metals, grains and energy,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``It makes sense for investors and hedge funds to invest in these commodities with the weakness of other markets.''
Crude oil for May delivery fell 26 cents to $113.53 a barrel at 9:09 a.m. Sydney time in after-hours electronic trading on the New York Mercantile Exchange. Oil closed at a record $113.79 a barrel yesterday.
Gasoline for May delivery yesterday climbed 5.92 cents, or 2.1 percent, to settle at a record $2.881 a gallon in New York. Futures earlier touched $2.89, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.
U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.3 cents to a record $3.3386 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site.
U.S. Inventories
An Energy Department report today is forecast to show that U.S. gasoline inventories dropped 1.8 million barrels last week, according to the median of 16 responses in a Bloomberg News survey. Crude-oil supplies advanced 1.8 million barrels, the survey showed.
``This is where the funds want to be,'' said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. ``Rate cuts and a weak stock market make commodities very attractive.''
The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 0.9 percent to 1502.886 yesterday. It's up 35 percent from a year ago.
Oil in New York surged 79 percent over the past year as the Standard & Poor's 500 Index dropped 8.5 percent and the Dow Jones Industrial Average declined 2.3 percent.
``It doesn't look like there's anything to get in the way of the oil market,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``As long as the dollar goes lower, more money will go into commodities.''
Energy Stocks
Exxon Mobil Corp. and Chevron Corp. led energy shares to the highest level since January because of rising oil and gasoline prices. Exxon, the biggest U.S. oil company, climbed $1.10 to $90.80. Chevron, the country's second biggest, added 87 cents to $90.17.
The Organization of Petroleum Exporting Countries left its forecast for 2008 oil demand at 86.97 million barrels a day, a 1.2 million barrel-a-day gain over 2007, according to the group's monthly demand report yesterday. OPEC's 13 members produce more than 40 percent of the world's oil.
China, the world's second-largest energy consumer, increased diesel imports as state refiners China Petroleum & Chemical Corp. and PetroChina Co. bought more to ensure supplies for the spring planting season.
Chinese oil demand this year will rise 4.7 percent to 7.9 million barrels a day, the International Energy Agency said in a report on April 11. Demand in the U.S., the world's biggest- energy consumer, will contract 2 percent to 20.38 million barrels a day this year.
No Plans
OPEC has no plans to review output levels before a scheduled meeting in September, though ministers will have an opportunity to discuss the oil market with consuming nations at an International Energy Forum in Rome scheduled for April 20-22.
``We are not producing enough oil,'' U.K. Prime Minister Gordon Brown said yesterday on Sky News in London. ``We can take collective action to persuade OPEC and others to get the oil price down.''
Brent crude for May settlement rose $1.47, or 1.3 percent, to $111.31 a barrel on London's ICE Futures Europe exchange yesterday, a record close. The contract touched $112.08 a barrel, the highest intraday price since trading began in 1988.
Petroleos Mexicanos, the third-largest supplier of crude oil to the U.S., reopened three of its oil-export terminals on the Gulf of Mexico after closing them April 13 because of heavy winds and rain.
Pajaritos, Cayo Arcas
The terminals at the ports of Pajaritos and Cayo Arcas opened yesterday morning, said Martha Avelar, a spokeswoman for Mexico City-based Pemex, as the company is known. The terminal at the port of Dos Bocas reopened yesterday afternoon. The Pacific port of Salina Cruz is still closed, Avelar said.
U.S. supplies of distillate fuels, a category that includes heating oil and diesel, fell 1.65 million barrels last week, the Bloomberg News analyst survey showed.
Heating oil for May delivery rose 7.1 cents, or 2.2 percent, to settle at a record $3.2739 a gallon in New York yesterday. Futures touched an intraday record of $3.3204 a gallon on April 10.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Last Updated: April 15, 2008 19:22 EDT
BL: Intel Forecast Tops Analysts' Estimates; Shares Rise (Update3)
By Ian King
April 15 (Bloomberg) -- Intel Corp. posted first-quarter profit that met analysts' estimates and forecast sales that may top projections as demand holds up in the face of an economic slowdown in the U.S., sending the shares up 8 percent.
While some analysts predicted an industrywide slump, Intel's main business of selling computer processors is getting stronger, Chief Financial Officer Stacy Smith said today in an interview. Intel, the world's biggest chipmaker, said it expects $9 billion to $9.6 billion in revenue this quarter, compared with an average estimate of $9.25 billion in a Bloomberg survey.
Intel proved the analysts wrong by posting 17 percent growth in the Americas last quarter. The results eased concern among investors that Intel would be dragged down by price cuts in its memory business and a slowdown in computer orders after rival Advanced Micro Devices Inc.'s sales missed estimates last week.
``They certainly are weathering this very difficult environment,'' said Kevin Rendino, who runs the $6.5 billion BlackRock Basic Value Fund in Plainsboro, New Jersey, which owns Intel shares. ``A lot of people were worried.''
Intel, based in Santa Clara, California, rose $1.61 to $22.52 in extended trading after closing at $20.91 on the Nasdaq Stock Market. The stock has lost 22 percent this year.
Spinoff Expense
Held back by costs to spin off a unit, first-quarter net income declined 12 percent to $1.44 billion, or 25 cents a share, from $1.64 billion, or 28 cents, a year earlier, Intel said today in a statement. Sales gained 9.3 percent to $9.67 billion.
Intel spent $300 million in the period to shed a money- losing business, forming a joint venture called Numonyx with STMicroelectronics NV. The business sells Nor flash memory, chips used to store programs in mobile phones.
Analysts had predicted that Intel would report first-quarter net income of 25 cents a share on sales of $9.65 billion, according to the Bloomberg survey. The year-earlier results also included a tax benefit of $300 million, or 5 cents a share.
Intel, whose results serve as a bellwether for computer demand, kicked off earnings season for U.S. technology companies. International Business Machines Corp., the world's biggest computer-services company, will report its first-quarter results tomorrow, followed by Advanced Micro on April 17.
Lower Expectations
Analysts surveyed by Bloomberg have cut their projections for first-quarter earnings at S&P 500 companies every week since Jan. 4. They now predict a 12.3 percent drop, compared with an estimate for an increase of 4.7 percent at the start of 2008.
Analysts such as JPMorgan Chase & Co.'s Chris Danely were concerned that demand for PCs was falling and that chipmakers had produced too many chips. Danely lowered his estimates for Intel earnings this year to $1.36 a share on sales of $40.3 billion. He had predicted $1.44 a share on $40.7 billion in revenue.
Advanced Micro, based in Sunnyvale, California, said last week that its first-quarter sales were about $1.5 billion, missing its projections.
Intel said last month that a glut of flash memory, which stores data in mobile devices such as Apple Inc.'s iPhone, was hurting first-quarter profit. The company entered the market for so-called Nand flash after forming a joint venture with Micron Technology Inc. in 2005.
Intel forecast gross margin, the percentage of sales remaining after deducting the cost of production, of about 56 percent in the second quarter, up from 53.8 percent last quarter. Gross margin is the only profit measure that Intel forecasts.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
Last Updated: April 15, 2008 19:02 EDT
BL: U.S. Stocks Advance, Led by Shares of Banks, Energy Producers
By Elizabeth Stanton
April 15 (Bloomberg) -- U.S. stocks rose for the first time in three days, led by financial and energy shares, on better- than-forecast earnings at regional banks and record prices for oil and gasoline.
Regions Financial Corp. and M&T Bank Corp. rallied, leading financials to their first advance in a week, after profits were boosted by their sale of stakes in Visa Inc. as part of the credit-card company's initial public offering. Exxon Mobil Corp. and ConocoPhillips led energy producers to the highest level since January as crude climbed above $114 a barrel.
The Standard & Poor's 500 Index climbed 6.11 points, or 0.5 percent, to 1,334.43. The Dow Jones Industrial Average rose 60.41, or 0.5 percent, to 12,362.47. The Nasdaq Composite Index increased 10.22, or 0.5 percent, to 2,286.04. Almost two stocks rose for every one that fell on the New York Stock Exchange.
``Now is a good time to begin going into financials,'' Daniel Bandi, who manages about $2.5 billion as chief investment officer of Integrity Asset Management LLC in Independence, Ohio, said in a Bloomberg Television interview. ``You want to be there when the market senses that the end is coming, because that's going to be a pretty sharp rebound.''
Stocks also gained after the Federal Reserve Bank of New York's general economic index showed unexpected growth in manufacturing, overshadowing a gain in wholesale inflation that was almost twice economists' forecasts. The S&P 500 declined in four of the previous five trading sessions after Wachovia Corp. posted an unexpected loss and profits missed analysts' estimates at Alcoa Inc. and General Electric Co.
Regions Financial, M&T
Regions Financial increased $1.56, or 8.4 percent, to $20.12 after saying first-quarter net income increased 1.1 percent to 48 cents a share. Excluding merger-related charges, Regions earned 55 cents a share, topping the 48-cent average of 19 analysts surveyed by Bloomberg. Regions had a gain of $91.2 million from the sale of shares in Visa and a reduction in previously reported litigation expenses tied to the bank's ownership in the card network.
M&T rallied $5.11, or 6.3 percent, to $85.86, the biggest gain in almost a month. The bank, which counts Warren Buffett's Berkshire Hathaway Inc. among its biggest shareholders, recorded a $29 million gain from its Visa stake.
Northern Trust Corp., a fund manager and custody bank, also reported a gain from selling shares in the credit-card company's $19 billion initial public offering in March. Northern Trust's first-quarter earnings more than doubled. Its shares rose $3.04, or 4.7 percent, to $68.04.
`Worst Is Behind'
Financial shares also advanced after Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., told shareholders at an annual meeting that ``the worst is behind us'' in the credit-market contraction that has cost the world's biggest banks and brokerages $245 billion so far.
The S&P 500 Financials Index climbed 1.1 percent, its first advance in six days and biggest in two weeks. Morgan Stanley, the second-biggest U.S. securities firm, added 55 cents to $43.52. Citigroup Inc., the country's largest bank by assets, increased 29 cents to $22.80.
Charles Schwab Corp. added $1.64, or 9 percent, to $19.95. The largest discount brokerage by customer assets said first- quarter profit rose 29 percent as clients opened the most accounts in almost seven years.
Energy Gains
Exxon Mobil Corp., the biggest U.S. oil company, climbed $1.10 to $90.80. Chevron Corp., the No. 2, added 87 cents to $90.17. Crude oil rose to $114.08 a barrel, while gasoline climbed to $2.881 a gallon in New York trading, both records.
BJ Services Co., the third-largest U.S. provider of pressure-pumping services for oil and gas wells, added $1.38 to $30.50. Range Resources Corp., an oil and natural gas producer, increased $2.22 to $69.07, an 18-year high.
Industrial shares in the S&P 500 climbed 0.4 percent as a group after the New York Fed's manufacturing index rose to 0.6 in April from a March reading of minus 22.2 that was the lowest on record. Readings below zero signal contraction. Economists in a Bloomberg survey had forecast a reading of minus 17.
Textron Inc., the world's biggest maker of business jets through its Cessna unit, added $1.56 to $59.80. United Technologies Corp., the maker of Otis elevators, climbed 85 cents to $70.84.
Compuware Corp. added 76 cents, or 11 percent, to $7.75 for the biggest gain in the S&P 500. The supplier of business software reported fourth-quarter sales and earnings that exceeded analysts' estimates.
Cognizant Technology Solutions Corp. added $2.35, or 8.7 percent, to $29.32. The provider of computer services in India rose the most in two months after rival Infosys Technologies Ltd. said U.S. clients may send more work overseas to cut costs.
'Bottoming Process'
About 1.2 billion shares changed hands on the New York Stock Exchange, the fourth lowest of the year. Trading over the past two weeks averaged 29 percent less than in the first quarter, when it was on pace for a record.
The decline may signal investors are done unloading shares after the S&P 500 posted its biggest loss in five years last quarter, said King Lip, who helps manage about $200 million at Baker Avenue Asset Management in San Francisco.
``Light volume is actually a good thing,'' Lip said. ``Market bottoms are formed not when everyone's emotional and throwing things out the door but when volume is low. From our perspectives, we think this is a bottoming process for the market.''
The number of shares traded daily on the NYSE has averaged 1.30 billion this month, compared with an average of 1.36 billion during the same period in the last nine years, according to data compiled by Bloomberg.
EMC Drops
EMC Corp., the world's largest maker of storage computers, slumped 47 cents, or 3.2 percent, to $14.17. Citigroup Inc. analyst Paul Mansky reduced his rating on the shares to ``hold'' from ``buy'' and cut his share-price forecast to $17 from $22, saying the ``economic crisis'' is hurting companies outside the financial services industry and countries other than the U.S.
``People have been nervous about technology earnings since the beginning of the year,'' said Mark Bronzo, portfolio manager at Security Global Investors in Irvington, New York, which manages $11 billion. With Intel Corp. reporting after the close of trading, ``we're getting the beginning of earnings season and people are nervous and it's very reasonable for them to be so.''
Some of those concerns were alleviated after financial markets closed when Intel, the world's biggest chipmaker, issued a sales forecast that may top analysts' estimates. Second-quarter revenue will be $9 billion to $9.6 billion, Intel said. Analysts surveyed by Bloomberg had estimated $9.25 billion. The shares, which gained 22 cents to $20.91 in the regular session, jumped 8 percent to $22.58 in after-hours trading.
Profit Watch
Profits at companies in the S&P 500 are expected to fall 12.3 percent in the first quarter, according to analyst estimates compiled by Bloomberg. Technology company earnings currently are forecast to grow 7.2 percent in the first quarter, down from projected growth of 22 percent at the beginning of the year, according to Bloomberg data.
Delta Air Lines Inc. and Northwest Airlines Corp. led a drop in airlines as investors questioned whether the savings from their merger would be enough to overcome surging fuel bills. Delta's purchase of Northwest for $3.63 billion in stock would create the world's largest airline and produce a total of $1 billion in new revenue and cost cuts, the companies said.
Delta fell $1.32 to $9.16. Northwest dropped 94 cents to $10.28.
Forest, Northrop
State Street Corp., the world's largest money manager for institutions, fell the most in five years on concern the company will be forced to bail out four mortgage-backed debt funds that are sitting on $1.49 billion of potential losses. The shares lost $7.63, or 10 percent, to $69.23, the steepest drop in the S&P 500.
Forest Laboratories Inc. fell $3.67, or 9.2 percent, to $36.13 for the second-biggest decline. The maker of the antidepressant Lexapro forecast sales and profit that missed analysts' estimates. Forest boosted spending to develop new products as Lexapro and the Alzheimer's drug Namenda, which together account for 80 percent of revenue, face patent expirations in 2012 and 2013.
Northrop Grumman Corp. lost $5.27, or 6.9 percent, to $71.57, its biggest drop in five years. The third-largest U.S. defense company said it will take a first-quarter charge of as much as $360 million because of delays on a new ship.
Manitowoc, Affymetrix
Manitowoc Co. fell $3.61 to $36.05. Bank of America Corp. and Sterne, Agee & Leach cut ratings on the biggest U.S. ice- machine maker a day after it purchased Enodis Plc to become the world's largest supplier of catering equipment. The acquisition ``could weigh on shares, given a mixed view to an expanded food- service component,'' Bank of America analyst Seth Weber wrote in a research note.
Affymetrix Inc. tumbled $5.38 to $10.95. The maker of tools used to analyze genes lowered its full-year revenue forecast, citing expectations for reduced research spending by pharmaceutical and industrial customers.
Crocs Inc. fell $7.68, or 43 percent, to $10.11. The maker of colorful clogs said it will fire its 600 Canadian plant workers after lowering annual earnings and sales forecasts as consumer spending slowed.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
Last Updated: April 15, 2008 19:01 EDT
SA: Stop the Rate Cuts!
by: Zubin Jelveh posted on: April 15, 2008
That's the plea from Harvard's Martin Feldstein, arguing that low rates would help food and energy prices rise even higher:
"Lower interest rates also add to the upward pressure on these commodity prices - by making it less costly for commodity investors and commodity speculators to hold larger inventories of oil and food grains.
Lower interest rates induce investors to add commodities to their portfolios. When rates are low, portfolio investors will bid up the prices of oil and other commodities to levels at which the expected future returns are in line with the lower rates.
An interest rate-induced rise in the price of oil also contributes indirectly to higher prices of food grains. It does so by making it profitable for farmers to devote more farm land to growing corn for ethanol. The resulting reduction in acreage devoted to producing food crops causes the supply of those commodities to decline and their prices to rise."
With food riots around the world in countires like Haiti and Egypt, and with already low rates having little impact on borrowing, Feldstein believes even lower rates will exacerbate problems abroad and hurt economic conditions at home.
Feldstein is no hawk -- he was among the most vocal economists calling for the Fed to move fast on cutting rates last year in response to the housing crisis.
But it doesn't look like traders are listening to this argument. Interest rate futures show that the majority of traders expect the Fed to lower rates this month from 2.25 percent to 2 percent:
BL: Oil Rises to Record on Nigeria, Mexico Losses, Chinese Demand
By Grant Smith and Christian Schmollinger
Enlarge Image/Details
April 15 (Bloomberg) -- Crude oil rose to a record in New York on supply disruptions in Nigeria and Mexico and rising fuel demand in China.
Oil climbed to $112.85 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. Mexico, the U.S.'s third-largest crude supplier, shut its fourth export terminal yesterday, while Eni SpA halted output in Nigeria. China said today diesel imports surged 49 percent in March.
``The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.
Crude oil for May traded at $112.79 a barrel, up $1.03, at 11:54 a.m. in London. Prices have gained 77 percent in a year. Futures yesterday rose $1.62, or 1.5 percent, to settle at $111.76 a barrel, the highest close.
Record oil prices are crimping profits at airlines, boosting food costs and contributing to rising inflation across the globe.
Eni's Nigerian venture halted production at some oil wells following explosions on April 12 near the Beniboye area in Delta state, the company said yesterday. The shutdown, blamed on ``sabotage,'' has cost Eni about 5,000 barrels a day in output, the Rome-based company said in a statement posted on its Web site.
Petroleos Mexicanos, the third-largest supplier of crude to the U.S., shut its crude oil export terminal on the Pacific coast yesterday, the fourth terminal to close since April 13.
Terminal Closure
The terminal at the port of Salina Cruz closed today, Mexico's Merchant Marine reported in a weather bulletin posted on its Web site. The three Gulf of Mexico terminals at the ports of Pajaritos, Dos Bocas and Cayo Arcas remain shut.
Brent crude for May settlement rose as much as $1.27, or 1.2 percent, to $111.11 a barrel, an all-time intraday high, on London's ICE Futures Europe exchange. It traded for that price at 11:56 a.m. local time. The contract yesterday gained $1.09, or 1 percent, to close at a record $109.84.
Oil has risen 37 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates Sept. 18. The euro traded at $1.5844 versus the dollar as of 11:23 a.m. in London from $1.5832 late in New York yesterday.
To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
Last Updated: April 15, 2008 06:59 EDT
BL: State Street Earnings Increase 69% on New Business (Update1)
By Christopher Condon
April 15 (Bloomberg) -- State Street Corp., the world's largest money manager for institutions, said first-quarter earnings rose 69 percent as it added new custody clients and rate cuts by the U.S. Federal Reserve increased lending fees.
Net income climbed to $530 million, or $1.35 a share, from $314 million, or 93 cents, a year earlier, the Boston-based company said today in a statement. Earnings included costs of 4 cents a share from its acquisition of Investors Financial Services Corp. Revenue increased 52 percent to $2.58 billion.
The bank raised its 2008 profit forecast in February, with Chief Executive Officer Ronald Logue saying growth would fall in the mid-range between 10 percent and 15 percent. He cited interest-rate cuts by the U.S. Federal Reserve that increased net interest margins for the company.
``The Fed easing rates in the short run is greater than the impact of equities being down,'' Rob Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York, said in an interview before the results were released.
Lee had estimated earnings of $1.25 a share, compared with the $1.30 average of 17 analysts surveyed by Bloomberg.
State Street makes more money when the difference between the short-term rates it pays on deposits and long-term rates it charges on loans widen. Margins grew as the Fed cut its overnight inter-bank rate three times this year to 2.25 percent.
Net interest revenue jumped 92 percent to $625 million. Revenue from securities lending more than tripled to $303 million. Trading services grew 66 percent to $366 million.
Asset-management fees rose 7 percent to $278 million.
Operating expenses climbed 46 percent to $1.77 billion. Compensation-related costs rose 44 percent to $1.06 billion.
Assets under custody rose 21 percent to $14.9 trillion. Assets under management increased 5.9 percent to $1.96 trillion.
State Street released results before the start of regular New York Stock Exchange composite trading. The stock has fallen 5.3 percent this year, compared with the 14 percent drop by the Standard & Poor's Supercomposite Asset Management and Custody Banks Index.
To contact the report on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Last Updated: April 15, 2008 07:49 EDT
BL: Tesco Profit Beats Estimates on Gains in Asia, Europe (Update6)
By Amy Wilson
Enlarge Image/Details
April 15 (Bloomberg) -- Tesco Plc, the U.K.'s biggest supermarket company, reported annual profit that beat analysts' estimates on higher revenue in Asia and eastern Europe, and said British sales growth has accelerated since February.
Net income climbed 12 percent to 2.1 billion pounds ($4.2 billion), or 26.61 pence a share, in the 12 months ended Feb. 23, Cheshunt, England-based Tesco said today. That exceeded the 2.05 billion-pound average of 13 estimates compiled by Bloomberg. Excluding sales tax, revenue rose 11 percent.
Tesco rose to a two-month high in London trading after saying U.K. revenue strengthened even as the worst housing slump since at least 1978 weighs on consumer confidence. Overseas sales increased 23 percent, the fastest pace in 4 years. The stock has still 14 percent in 2008 on concern about demand in both Britain and the U.S., where Tesco opened its first stores in November.
``Tesco has yet again confounded its doubters,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown stockbrokers in London in a note. ``International sales have again weighed in with another strong contribution. There are few signs of any erosion of Tesco's substantial market share.''
The 12 percent pace of full-year profit growth was still Tesco's slowest in eight years. Second-half net income was 1.19 billion pounds in the six months ended Feb. 23, up from 1.1 billion pounds a year earlier.
Tesco rose 22 pence, or 5.6 percent, to 413 pence at noon local time. Its market share in British groceries is 31 percent, almost the same as rivals Asda and J Sainsbury Plc combined.
`Strong Start'
Earnings had a ``strong start'' in the current year, Tesco said, with U.K. same-store sales rising 4 percent excluding fuel in the first five weeks, up from 3.5 percent a year earlier. Total sales rose 13 percent.
This will still be a ``tougher year'' for U.K. shoppers, Finance Director Andy Higginson said today by telephone. ``The business and supply chain are designed to cope with that,'' he said, adding that Tesco cuts costs by ``hundreds of millions of pounds'' a year. He advocated further interest-rate reductions by the Bank of England to support consumers.
Tesco cut prices on more than 12,500 products in Britain in 2008's first three months to retain customers. U.K. consumer confidence fell to the lowest in almost four years last month as living costs sapped incomes. A property-market slump has become the worst since records began in 1978 as mortgage lending dries up, according to the Royal Institution of Chartered Surveyors.
Music Downloads
Non-food sales in the U.K. grew more slowly than in previous years, Tesco said. Still, they gained 9 percent to 8.3 billion pounds, or 22 percent of total revenue in Britain, and Higginson said Tesco aims to double its non-food market share from its current 8 to 8.5 percent.
The company also announced a music-downloading service today, and said online sales rose 31 percent to 1.6 billion pounds last year.
Goods such as clothes and televisions are most at risk from lower spending, analysts including Societe Generale SA's Tom Gadsby have said. Electronics seller DSG International Plc last week cut its earnings forecasts for the second time this year.
In the U.S., sales at the Fresh & Easy chain are ``ahead of budget,'' Tesco said. It has sales of more than $20 per square foot in its best-performing stores, Higginson said, beating local rivals. The unit had a trading loss of 62 million pounds last year, which Tesco expects will increase to 100 million pounds this year and then start to fall as sales pick up.
Fresh & Easy
Tesco said in March it was putting the chain's expansion on hold for three months. The retailer has 60 U.S. stores, after opening the first in November, and said today it plans to open 150 stores in this fiscal year. Plans to open a second distribution center in northern California are under way.
Concerns about Tesco in the U.S. are ``overplayed a little bit,'' according to Jane Coffey of Royal London Asset Management, who said Tesco is the only retail stock she owns. ``It represents such a small amount of their business so far. They want to expand in the U.S., but they don't want to do it at the wrong time.''
Finance director Higginson said plans to raise 5 billion pounds through property sales are on track, and Tesco made 207 million pounds from selling land to insurance company Prudential Plc in February. The company said it's in talks with several companies about more sales.
In March, Goldman, Sachs & Co. analysts cut their rating on Tesco to ``sell'' on concern that higher food prices and slowing consumer spending will hurt earnings. Rising dairy and wheat costs have spurred food makers from Premier Foods Plc, the baker of Hovis bread, to Cadbury Schweppes Plc to raise prices.
Tesco said today inflation was ``modest'' at 1.2 percent, as the cost of non-food items declined and offset higher food costs. In the fourth quarter, inflation rose to 2 percent as commodity prices continued to increase.
Chief Executive Officer Terry Leahy said today he expects commodity costs to decline, according to a Sky News interview.
To contact the reporter on this story: Amy Wilson in London at awilson23@bloomberg.net.
Last Updated: April 15, 2008 07:20 EDT
BL: U.S. Foreclosures Jump 57% as Homeowners Walk Away (Update1)
By Dan Levy
April 15 (Bloomberg) -- U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders.
More than 234,000 properties were in some stage of foreclosure, or one in every 538 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of default data, said today in a statement. Nevada, California and Florida had the highest foreclosure rates. Filings rose 5 percent from February.
About $460 billion of adjustable-rate loans are scheduled to reset this year, according to New York-based analysts at Citigroup Inc. Auction notices rose 32 percent from a year ago, a sign that more defaulting homeowners are ``simply walking away and deeding their properties back to the foreclosing lender'' rather than letting the home be auctioned, RealtyTrac Chief Executive Officer James Saccacio said in the statement.
``We're not near the bottom of this at all,'' said Kenneth Rosen, chairman of Rosen Real Estate Securities LLC, a hedge fund in Berkeley, California and chairman of the Fisher Center for Real Estate at the University of California at Berkeley. ``The foreclosure process will accelerate throughout the year.''
Rising foreclosures will add more inventory to an already glutted market, keep home prices down through at least next year and thwart efforts by Congress and President George W. Bush to help homeowners avoid default, Rosen said in an interview.
`Drag' on Prices
About 2.5 million foreclosed properties will be on the market this year and in 2009, Lehman Brothers Holdings Inc. analysts led by Michelle Meyer said in an April 10 report. U.S. home price declines will probably double to a national average of 20 percent by next year, with lower values most likely in metropolitan areas in California, Florida, Arizona and Nevada, mortgage insurer PMI Group Inc. said last week in a report.
Borrowers who owe more on their mortgages than their homes are worth may be buffeted by increasing job losses in a ``very substantial recession,'' Rosen said. About 8.8 million borrowers had home mortgages that exceeded the value of their property, Moody's Economy.com said last week.
``At least 2 million jobs will be lost because of this recession, so we'll get a cumulative negative spiral,'' Rosen said. ``A normal recession is 10 months. We think this one may be twice as long.''
Bank seizures climbed 129 percent from a year earlier, according to RealtyTrac, which has a database of more than 1 million properties and monitors foreclosure filings including defaults notices, auction sale notices and bank repossessions. March was the 27th consecutive month of year-on-year monthly foreclosure increases. In February, foreclosure filings rose 60 percent.
Nevada Leads
A surge in defaults among subprime borrowers, those with poor or limited credit, spurred the collapse of the U.S. home loan market and has led more than 100 mortgage companies to stop lending, close or sell themselves. As the value of securities tied to mortgages plummeted, lenders and securities firms have reported writedowns and credit losses of at least $245 billion since the beginning of 2007, according to data compiled by Bloomberg.
Nevada had the highest U.S. foreclosure rate in March at one for every 139 households, almost four times the national rate, RealtyTrac said. Filings there increased almost 62 percent from a year earlier to 7,659.
California had the second-highest rate at one filing for every 204 households, and the most filings for the 15th consecutive month at 64,711. Foreclosure filings more than doubled from a year earlier and were up about 21 percent from February.
Florida, Ohio
Florida had the third-highest rate, one filing for every 282 households, and ranked second in total filings at 30,254. Foreclosures increased 112 percent from a year earlier and decreased almost 7 percent from February, RealtyTrac said.
Ohio ranked third in filings at 11,273 and had the seventh- highest foreclosure rate, one for every 448 households. Georgia, Texas, Michigan, Arizona, Illinois, Nevada and Colorado also ranked among the top 10 states with the most filings, RealtyTrac said.
``The continued increase in new foreclosures implies an even larger drag on prices in 2008,'' Goldman Sachs Chief U.S. Economist Jan Hatzius wrote April 8. Home prices fell 8.9 percent in the fourth quarter, the biggest decline in 20 years as measured by the S&P/Case-Shiller home price index.
Some borrowers are ``hanging on at the margins'' in the face of resets, said Mark Goldman, a loan officer at Windsor Capital Mortgage Corp. in San Diego.
Goldman said one of his clients is a self-employed contractor whose adjustable-rate mortgage rose by two percentage points two months ago. His mortgage payment has increased to $7,200 from $4,900.
``I've had people sitting in my office in tears because there are no loans available,'' said Goldman. ``There are no loans for someone who's upside down on their house.''
To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net.
Last Updated: April 15, 2008 05:25 EDT
BL: German Investor Confidence Falls; French Inflation Accelerates
By Francois de Beaupuy and Gabi Thesing
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April 15 (Bloomberg) -- German investor confidence unexpectedly fell in April and France's inflation rate rose to the highest in at least 12 years as European Central Bank officials repeated their refusal to lower interest rates.
The ZEW Center for European Economic Research said its index of German investor and analyst expectations dropped to minus 40.7 from minus 32 in March. Economists forecast a gain, a Bloomberg News survey showed. In France, consumer prices increased an annual 3.5 percent in March, based on European Union-harmonized methods, Insee, the national statistics bureau, said today in Paris.
Signs of slowing economic growth and rising prices underscore the central bank's dilemma. ECB policy makers including Yves Mersch and Juergen Stark have refused to follow U.S. Federal Reserve and the Bank of England in lowering rates to cushion a slowdown, saying they need to contain inflation. The ECB last week left its main rate at a six-year high of 4 percent.
``It's obvious that if we have inflation at 3.5 percent in Europe we have to be worried,'' ECB policy maker Miguel Angel Fernandez Ordonez told reporters in Madrid. ``That's what has caused us since June not to lower interest rates when other banks have been doing so.''
Ordonez said policy makers are ``always more worried about inflation'' than economic growth.
The drop in the ZEW gauge stemmed partly from ``the extraordinarily high price pressure in Germany,'' Wolfgang Franz, head of the Mannheim-based institute, told reporters. He recommended that central bankers don't cut rates.
Rate Futures
Investors raised bets that the ECB would stand pat through 2008. The yield on December interest-rate futures rose to 4.18 percent from 4.14 percent yesterday. The euro was little changed today, paring a gain after the ZEW report and trading at $1.5833 at 1:04 p.m. in Frankfurt, up 17 percent in the past year.
The IMF last week cut its prediction for German economic growth this year to 1.4 percent from 1.6 percent. The fund said the European Central Bank has room to lower interest rates.
Stark, an ECB executive board member, said today that the bank can't be sure its benchmark interest rate is high enough to contain inflation.
Even though the governing council ``believes'' current interest rates will keep a lid on inflation, ``we cannot be sure,'' Stark said in Brussels. ``Inflationary pressures have increased in the short term.''
French Prices
In France, prices increased 0.8 percent from February, the biggest monthly gain on record.
``We have an inflationary shock coming from abroad with energy, and a shock on food costs in the past three months, which are negatively affecting household income,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``We had expected a rate cut in June, but now it's more likely in September.''
Inflation has hurt the popularity of French President Nicolas Sarkozy, who made purchasing power the core of his 2007 campaign. Consumer confidence fell to a record low last month.
Economists estimated prices had risen 0.6 percent on the month and 3.3 percent from a year earlier, according to the median forecast of 21 economists surveyed by Bloomberg News. In non-EU terms, prices climbed 3.2 percent in March from a year earlier, the highest rate since November 1991, Insee said.
French energy prices increased 12.7 percent from a year earlier. Food costs rose 5.3 percent, today's report showed.
Crude oil rose to a record $112.87 a barrel today, up 78 percent in the past year.
To contact the reporters on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net; Gabi Thesing in Brussels at gthesing@bloomberg.net.
Last Updated: April 15, 2008 07:30 EDT
BL: U.S. Stock-Index Futures Rise on State Street, Regions Earnings
By Elizabeth Stanton
April 15 (Bloomberg) -- U.S. stock-index futures advanced, erasing earlier declines, after State Street Corp. and Regions Financial Corp. posted earnings that topped analysts' estimates.
State Street, the world's largest money manager for institutions, said first-quarter earnings rose 69 percent on increases in assets under custody and lending revenue. Regions Financial, Alabama's biggest bank, said net income increased 1.1 percent.
Standard & Poor's 500 Index futures expiring in June rose 0.7 point, or 0.1 percent, to 1,332 at 7:45 a.m. in New York after earlier dropping as much as 0.4 percent. Dow Jones Industrial Average futures climbed 6 to 12,322 and Nasdaq-100 Index futures added 3.75 to 1,800.
Futures fell earlier on speculation government reports will show inflation accelerated and manufacturing contracted.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
Last Updated: April 15, 2008 07:46 EDT
Only a 15% chance of a magnitude 7.5 hitting northern California, combined with the fact that I'm out of California for 7-8 months out of the year, and I'm looking at a measly ~6% chance of getting hit with a big earthquake in the next 30 years! Woo hoo!
Just thought I'd mention that I love their ice cream sandwiches!
SA: The Credit Crisis and the U.S. Dollar
by: Howard Sun posted on: April 13, 2008 | about stocks: UDN / UUP
This article has charts, actual article here: http://seekingalpha.com/article/72125-the-credit-crisis-and-the-u-s-dollar
First it was the Japanese financial crisis in 1991, and then came the Asian financial crisis in 1997 and the Russian crisis in 1998; now it’s Wall Street’s turn. The financial debacle in the US is no longer only a subprime mortgage issue; instead, the drying liquidity has spread the problem to many corners of the financial world including auction rate securities, bond insurers, and collateralized debt obligations.
On March 13, 2008 Standard & Poor’s reported that write-downs on subprime debt have likely hit the halfway mark and that the end was in sight. Yet, Bear Stearns (BSC) announced the following day that it had turned to J.P. Morgan Chase and the Federal Reserve for an emergency bailout sending the stock down by 47 percentage points. Exactly when the credit freeze will end is a question that no economist or financial analyst can answer at this point. A few analysts have reported the notion that this is the worst set of macroeconomic conditions since the Great Depression.
As a long-short trend trader, I invest where the market moves. It is important to realize that the market is not static; reversals can occur very quickly and an astute trader must be alert at all times and always be ready to get in or cash out. My trading style is based on a fundamental first, technical second philosophy. I fist analyze the fundamentals of the industry I’m interested in order to understand where the industry is headed, its performance versus the overall economy and a general understanding of its strengths and weaknesses. I then conduct technical analysis on companies within the sector to determine when to trade, based on my trading plan.
In this paper, I will discuss some of my trading ideas for the next few quarters in 2008, specifically taking a macroeconomic viewpoint. The discussion will aim to dissect the major trends with the economy, and a discussion of where I think some of the cyclical plays are within these sectors.
The markets for discussion include the US dollar, Precious Metals, Financial Services, Retail & Consumer Packaged Goods and Real Estate.
Weakness In The US Dollar
The US Dollar has been in a secular bear market for several years - it has depreciated by over 35% versus the Euro over the last five years. The government controlled media is finally beginning to raise voices over the economic problems that alternative media have been talking about for years. The United States is facing an inflationary depression, and this trend will likely not ease any time soon. Independent studies have shown that the M3 money supply – the entire money within an economy, has been seeing annual increases of around 16-17%. The Fed stopped publishing M3 numbers in March 2006, around the time when the numbers began skyrocketing.
The increase in money supply is one of the underlying reasons for the devalued currency. The US dollar index – a benchmark of the USD to a basket of foreign currencies, has decreased from the 80’s to the low 70’s over the past year.
Global Confidence In the USD Eroding
It is becoming increasingly clear that the world’s reserve currency is shifting from the USD to the Euro and commodities. The question on the minds of most investors is if the US dollar will continue to decline and if so for how long. Weakness in the US Dollar has been accelerated due to poor economic data. According to recent data released by the Federal Reserve and the US government, home owner equity is at its lowest levels since 1945, consumer debt has grown to $2.52 trillion and unemployment levels are at its highest levels since 2003. Furthermore, it is rather disturbing to know generally that statistics published by the Federal Reserve and the US government understates economic problems; so the recent economic data may indeed be worse than what was published by these two parties.
This economic data has created much fear in the economy, which has sent many investors seeking safe havens in other currencies and commodities such as the Euro, oil and gold. The Consumer Sentiment Index from Michigan University and a leading indicator of economic recessions has been declining since early 2007. As consumer and investor confidence in the United States continue to weaken, more investment will pour out of the country, causing the dollar to slide even more.
In addition, as the value of the real estate asset base that was used as collateral to support the massive issuance of credit over the past few years becomes further destroyed, the lack of credit will continue to cause the Federal Reserve to cut interest rates and print more money which will send the economy into a hyper-inflationary state. It is scary to think that it was only 15 years ago, that Japan underwent a very similar real estate bubble, financial crisis and economic recession that the United States is going through now.
However, what seems to be forming in the US economy is a vicious cycle, forcing the value of the US Dollar to decline:
1. US dollar declines
2. Investor confidence drops
3. Housing declines further
4. Investments are pulled out of the country
5. Banks go insolvent
6. Widespread job losses
7. Decreased consumer spending
8. Fed cuts interest rates
9. Monetary easing as the central reserve prints more money
10. Increase in inflation
11. Us dollar declines
As the economy continues to weaken, interest rates continue to decline, inflation continue to skyrocket and the money supply continue to increase, it seems inevitable that this perfect storm will continue to drive down the value of the US Dollar. What this means for investors is in the coming months, there will be plenty of opportunities to short the US dollar, long foreign currencies and long commodities such as oil and gold.
Disclosure: None
This article has 10 comments! Add yours below...
This article has 10 comments:
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locke
Apr 13 08:18 PM
Lots of bold claims and nearly no evidence or references. Try harder next time, shorty.
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richjoy
Apr 13 08:47 PM
Frankly, I stopped reading when I got the to reference to our "government controlled media"...
Sorry Mr. Sun, but if you have something of interest to me, you have to start with credibility.
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crowdofcheerleaders
Apr 13 09:03 PM
this was a great article. and bravo for mentioning the alternative media. imagine how much money people could have saved if they were listening to it. thumbs up dawg :)
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SIMPLE d
Apr 13 09:21 PM
rich, don't be naive. mainstream media isn't controlled? you honestly believe the US mainstream news is objective and propaganda free?
ha.
Sun, expect to get burned when you come with some truth.
But what are you proposing? What can be done?
Exposing the Fed and the complete lack of needing a fiat currency....is i guess in part what you're trying to do...you could satiate locke with some references.
Probably the best bet for anyone interested in maintaining wealth currently held in dollars and certain sectors is to get out of the USD and into essentials, yep. I agree.
...What would happen if we just burned 1/2 the money in print? Massive depression... although the economy can self-correct following this; we could carry it out over several years...?
We are being made into techno-serfs while simultaneously being told and believing everyday we somehow have more freedom. We are told we have capitalism when in fact we do not. Likewise for democracy.
If it wasn't for years of conditioning desperately clung to, i'd like to believe the other two prior commenters could read and digest what you wrote here.
Nice article.
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GaryD
Apr 13 10:04 PM
Hey richjoy, I've got a bridge for sale. Excellent location. Great opportunity to earn toll revenue.
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User 165546
Apr 13 10:07 PM
Nice article but I think your of the mark with a couple of your assumptions. Firstly the Japanese financial crisis was not about inflation but deflation. It was the fact that all assets, real estate stock market etc declined so quickly and were so highly geared that has led to the very high savings low consumer spending economy we see today. Japanese balance sheets are fat and unproductive but that is conditioning from years of slow growth and relentlessly paying down debt. The Fed is painfully aware of this and in fact it has been preaching to Japanese authorities for years to try and change policies. They are now staring down the barrel of the same problems. Yes the fed has cut rates and yes it is printing money but it probably isn't compensating for the monetary destruction brought about by the collapse in the fixed income derivative markets.
Secondly you are correct to point the fall in the value of the dollar as an important sympton of the monetary demise but rather than extrapolate an ever lower dollar think of it from a Euro/Gold investor's point of view. Atrractive US assets are becoming historically very cheap. Evidence of this is the willingness of foreign soverign wealth funds to buy into stricken US Investment Banks, high risk but historically very profitable trades. Sooner or later foreign capital is going to be attracted back into the US economy and the dollar slide will at least halt if not actually reverse.
So instead of being gloomy about the future look to the upside, improving terms of trade should make US exports comparatively cheap. Import substitution should be back on the table, look to bring some production back onshore. The Japanese are actually now building new car plants in Japan for the first time in 20 odd years! Higher food and commodity prices are much more of an issue for the developing world as they are a larger slice of input costs compared to wages. So don't knock inflation you do actually need some in order to continue to grow the economy. If the dollar does pause in it's decline the long commodities trade might not be so profitable for you for a bit.
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crowdofcheerleaders
Apr 13 10:16 PM
the dollar would not only have to halt, but then appreciate considerably if it were to catch up to the personal income destruction it has already caused. as for industry coming back to the U.S. due to weak currency, i'm all for industry coming back. but it's not going to pay like the industry of old. instead it's going to pay like industry does now in China and India, which is pretty depressing to say the least.
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Tracker
Apr 13 10:19 PM
Heresy! You should be burned at the stake! I have a Ph.D. in Economics and I've never heard such a load of B.S. We're just experiencing a... uh.... a slowdown. Yeah, that's it. Don't worry, the Fed and the IMF will bail us out, and we'll be back on our feet in no time.
;)
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User 164659
Apr 13 10:24 PM
Good article, Howard. I don’t know exactly what you mean by "government controlled media" but intelligent people do understand that the US government isn’t being honest about inflation and plays this game of “core” inflation and “headline” inflation and tries to tell us that real inflation really isn’t too bad.
Yea, right, Uncle Sam. We all know the serious consequences of paying government retirees and SS recipients their real cost of living increases.
Batten down the hatches. It’s going to be rough for a while.
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User 142738
Apr 13 10:49 PM
There are so many weasel words and phrases (“government-controlled media,” for one — would love to see some proof of that) in this article that it’s hard to see what investment this author is promoting. The title itself is supported by about two paragraphs, and the investment strategy being promoted is only revealed in one short sentence at the end of the article.
He may as well be selling a position with some listing on Pink Sheets.
R: Paulson says food price controls won't work
Sun Apr 13, 2008 6:56pm EDT
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson warned on Sunday that governments should resist temptation to try to control soaring food costs through price controls, which he said would likely make the situation worse.
In remarks prepared for delivery to the World Bank's development committee, Paulson said such measures were "generally not effective and efficient" at protecting people likely to suffer the most.
"They tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," Paulson said.
World Bank President Robert Zoellick warned earlier this month that soaring food and energy prices were a serious concern that threatened to foster social unrest in an estimated 33 countries.
Zoellick called on rich countries including the United States, Japan and European Union to immediately fill a $500 million funding gap at the United Nations World Food Programme to offer food aid to the world's poorest.
Paulson said countries suffering "severe negative shifts in the terms of trade due to higher commodity prices including higher food prices" should focus on policies to control energy use and consider measures to boost agricultural production.
"Governments, however, need to resist the temptation of price controls and consumption subsidies that are methods of protecting vulnerable groups," he said.
The World Bank has similarly advised that, despite the fact that several countries are trying price controls to curb food costs, it is unlikely to be effective in the longer term.
"Income transfers or food assistance for poor people will work more efficiently and sustainably than more general steps at the national level," World Bank economist Don Mitchell said recently.
(Reporting by Glenn Somerville; Editing by Andrea Ricci)
Group of Seven officials, signaling concern over a sliding dollar for the first time in 13 years, may have to match talk with action before the currency stages a sustained rebound.
Ya think?
Very red...wonder if the U.S. will be similar tomorrow. Have good night stuffit.
BL: Japan Proves World Beater on Record Rate of Corporate Buybacks
By Michael Tsang and Alexis Xydias
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April 14 (Bloomberg) -- The good news about Japanese stocks is corporations are buying back more of their shares than ever before. The bad news is everyone outside of Japan is selling the same equity, spurring concern the market's world-beating rally may fizzle.
Companies from Toyota Motor Corp. to Nomura Holdings Inc. helped spark a 13 percent advance in Japan's Nikkei 225 Stock Average by repurchasing shares trading at the cheapest levels in more than two decades. The Nikkei's rebound since global equities fell to their lowest point this year March 17 is the best performance among benchmark indexes in the 10 largest economies.
International investors, the biggest traders of Japanese stocks, aren't swayed by the record $45.8 billion of share buybacks in the year ended March 31. They unloaded $12.6 billion in shares last month, the most since 1987, as sentiment among the largest manufacturers fell to a four-year low, the yen appreciated and consumer confidence dropped. Three Nikkei rallies of more than 8 percent in the past year have faltered.
``I have no illusion left,'' said Michael Neppert, 48, a Frankfurt-based fund manager at Allianz Global Investors' RCM unit, which oversees about $140 billion in equities and sold some Japanese stocks last month. ``We have all invested so often in the Japanese miracle and it never appeared.''
The last time that overseas investors sold more Japanese stocks on a net basis was in October 1987, when the Dow Jones Industrial Average's 23 percent one-day plunge precipitated a global market crash. The Nikkei lost 12 percent that month.
Corporate Buybacks
This time, stock purchases by more than 300 companies in March helped spur gains in Japanese stocks. Of the 925 companies that bought back stock in the past fiscal year, more than a third, including Toyota, the world's largest automaker by market value, and Nomura, Japan's biggest brokerage, purchased in March, just as the Nikkei climbed from a more than two-year low. No other month in the last fiscal year had more buybacks.
The purchases capped a record year for Japanese corporate buying, which rose 16 percent to 4.62 trillion yen, according to Nomura. Toyota, located in Toyota City, Japan, bought back 20.7 million shares in March and February for about $1.24 billion, more than a third of $3.14 billion in stock it purchased over the fiscal year, data compiled by Bloomberg and Nomura show.
Nomura bought 2.08 million shares last month, part of a 25 million-share buyback announced in January. NTT DoCoMo Inc., Japan's largest mobile-phone operator and based in Tokyo, spent about 50 billion yen for 319,000 shares in March.
``Companies conduct buybacks when they think their shares are cheap,'' said Shuichiro Ichikoshi, a Tokyo-based spokesman for DoCoMo. ``This is a great time to buy.''
Cheap Shares
Companies in the Nikkei traded at 13.2 times estimated earnings last month, the cheapest since at least 1985, according to Tokyo-based Nikkei Inc., which compiles the average.
Equities in Japan are also fetching the lowest prices relative to the U.S. since 2002. Japanese stocks are trading at a 24 percent discount to the Standard & Poor's 500 Index, based on reported profit, Bloomberg data showed.
Japanese shares are languishing because of concern that the gains will evaporate as the global economy expands at the slowest annual pace since 2003, according to James Salter, London-based director of Japanese equities at Polar Capital Partners, which manages $3.6 billion globally.
The Nikkei would need to climb 37 percent more to reclaim the seven-year high of 18,261.98 that it set last July. The average has staged rallies of 14 percent, 8.1 percent and 12 percent since the peak, only to decline further each time.
Bear Market
The Nikkei entered a so-called bear market on Jan. 7, declining 20 percent from its high.
The latest advance may be difficult to sustain without overseas investors. They account for about 61 percent of daily trading on the Tokyo Stock Exchange, bourse data show.
``The Nikkei looks very much like a bear market,'' Salter said. ``There's a realization the Japanese economy is very much linked to the developed world. We'd be looking for a pullback.''
Economists at Goldman Sachs Group Inc. and Morgan Stanley say that Japan, the world's second-largest economy, will fall into a recession this year, if it isn't already in one.
The yen climbed to the highest since 1995 against the dollar last month, making Japanese exports more expensive abroad. The Bank of Japan's Tankan index of manufacturer sentiment slid to 11 points in March, the lowest since December 2003. Toyota said in March that it may miss its 2008 sales target because of the yen's gains.
Confidence among Japanese consumers also fell to the lowest since 2003 in February, a sign domestic demand may not be able to take up the slack as revenue from exports declines.
``Japan has promised everything but not delivered anything,'' said Michael Wood-Martin, London-based manager of Asian and global stocks at Henderson Global Investors, which oversees $53 billion in equities. ``Investors have decided to put their money elsewhere.''
To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.
Last Updated: April 13, 2008 13:29 EDT
BL: Rupiah Weakens With Peso as Rice Feeds Asia Inflation (Update1)
By Patricia Lui and Wes Goodman
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April 14 (Bloomberg) -- At the end of last year, rice was selling at $13.865 per 100 pounds, the Philippine central bank had met its inflation target for the first time since 2003 and the peso was the world's second best-performing currency.
By April 1, rice was surging toward a record $21.60, the inflation rate had almost doubled, and the peso suffered its biggest monthly decline in seven years.
Record prices for rice, wheat, milk and cooking oil are wreaking havoc with currencies in Southeast Asia, causing a slump in the peso and Indonesia's rupiah. Investors from Deutsche Asset Management to Fortis Investments are dumping their bondholdings on concern inflation will erode returns, putting further pressure on exchange rates. The region has come to depend on strong currencies to contain the rising cost of food and fuel imports.
``You can't just rely on currencies to fight inflation, as there comes a time when they have no potential to appreciate further,'' said Nicolas Schlotthauer, a money manager who helps oversee $5 billion at Deutsche Asset Management, part of Germany's largest bank, in Frankfurt. ``Everyone is so complacent about the fact that if there's inflationary pressure, they will let their currencies appreciate. No one thought of potential currency weakness.''
The Philippine peso tumbled 3.2 percent in March, the most since June 2001. It traded at 41.675 as of 9:45 a.m. local time, according to Tullet Prebon Plc. That's a reversal for a currency that gained 9 percent in the fourth quarter, second only to the Armenian dram. In Indonesia, the central bank probably bought more than $2 billion of rupiah, limiting its decline since March 1 to 1.1 percent, according to Oversea-Chinese Banking Corp., Singapore's third-biggest bank. The rupiah was at 9,197 per dollar in Jakarta, according to data compiled by Bloomberg.
Demand Waning
International investors cut their holdings of Indonesian government bonds 3.2 percent in March to 80.7 trillion rupiah ($8.8 billion), according to finance ministry data. Foreign funds sold a net $154 million of stocks in the Philippines this year, helping drive the Philippine Stock Exchange Index down 19.5 percent.
Deutsche Asset sold all its rupiah debt earlier this year and didn't buy peso bonds because of inflation, Schlotthauer said. Fortis Investments, a unit of Belgium's biggest financial group, expects the rupiah will weaken 3.2 percent to 9,500 per dollar within three months. The firm is ``short'' the rupiah, meaning it is betting the currency will depreciate.
``I'm really bearish on Indonesia,'' said Didier Lambert, a London-based money manager who helps oversee $4 billion in emerging-market debt at Fortis. ``You will see investor outflows that should weaken the currency.''
Unsustainable Subsidies
The last time Indonesia's rupiah depreciated due to rising commodity costs was in August 2005, when a jump in global oil prices increased the cost of a state fuel-subsidy program. The rupiah slumped to a four-year low of 10,875.
``Subsidies can be very disruptive and expensive for a government to maintain,'' billionaire investor George Soros said in a teleconference from Washington on April 9. Rising food prices may cause ``social and political disruptions,'' he said.
Philippine President Gloria Arroyo said on April 1 she may abandon plans to balance the budget. Two days later, Indonesia widened its 2008 deficit target to 2.1 percent of gross domestic product from an earlier 1.7 percent.
Food accounts for 49 percent of the consumer price index in the Philippines, the world's biggest importer of rice, and 38 percent in Indonesia, according to Mirza Baig, an economist at Deutsche Bank AG in Singapore. In the U.S., it's 14 percent.
Inflation Threat
Indonesian inflation surged to an 18-month high of 8.2 percent in March, breaching Bank Indonesia's target of 6.5 percent. It reached a 20-month high of 6.4 percent in the Philippines, above Bangko Sentral ng Pilipinas's 5 percent target.
Asian central banks may be able to curb inflation by raising interest rates and seeking stronger currencies because of ``robust'' growth, the Washington-based International Monetary Fund said on April 9. Excluding Japan, Asia will grow 7.5 percent in 2008, compared with 9.1 percent in 2007.
Currencies backed by balance of payments surpluses will keep appreciating even as inflation accelerates, said Sailesh Jha, a senior regional economist at Barclays Capital in Singapore. He recommended buying the Singapore dollar, which climbed 5.6 percent this year to S$1.3618.
Balance of Payments
In the Philippines, a widening trade deficit will cause the peso to fall beyond 42 per dollar within a month, said Wee Ming Ting, the head of Asian fixed income in Singapore for Pictet Asset Management, part of the largest privately held bank for the wealthy in Switzerland. The trade deficit was $756 million in January, compared with a surplus a year earlier.
``We are thinking of shorting the peso,'' said Ting, who helps oversee the equivalent of $136.1 billion. He also trimmed holdings of rupiah debt three weeks ago because of increased government borrowing and rising inflation.
A slowing global economy may also curb the amount of money sent home by Filipinos working overseas, said Daniel Moreno, one of the investors for Global Evolution, a hedge fund with $400 million in assets based in Kolding, Denmark.
``We have been reducing over the last three weeks,'' Moreno said. ``Currently we have close to zero. Now that prospects for growth worldwide are falling, it's difficult to anticipate that those flows will increase,'' said Moreno. The peso may fall 3.1 percent to 43 in six months, he said.
To contact the reporters on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
Last Updated: April 13, 2008 21:49 EDT
BL: G-7 May Have to Match Talk With Action Before Dollar Rebounds
By Simon Kennedy
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April 14 (Bloomberg) -- Group of Seven officials, signaling concern over a sliding dollar for the first time in 13 years, may have to match talk with action before the currency stages a sustained rebound.
U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and G-7 counterparts warned after talks in Washington on April 11 that recent ``sharp fluctuations'' in exchange rates risk hurting the global economy.
Sounding the alarm over the weakest dollar since the 1970s may still fail to buoy it so long as the ECB refuses to follow the Federal Reserve in cutting interest rates. Wariness of backing rhetoric with intervention may also limit the new language's effectiveness.
``Officials are clearly more concerned about the dollar, but are not yet ready to openly threaten the market because they know they would not be credible with the ECB's reluctance to lower interest rates,'' said Stephen Jen, head of currency research at Morgan Stanley in London.
The G-7 shifted its stance after the dollar's decline accelerated since the group met in February, slumping 8 percent to a record low against the euro and 6 percent versus the yen. Volatility on options for the dollar rose to 14.5 percent last month, the same as when the group last tried to prop up the U.S. currency in 1995.
Europe's Victory
The change represented a victory for European governments increasingly concerned that the dollar's slide threatens their exports. ``I hope this concerted wording on currencies will help,'' French Finance Minister Christine Lagarde said in an interview with Bloomberg Television.
Paulson may have acquiesced in part because the lower dollar is pushing up the price of oil, and could pose a danger to foreign investment in U.S. stocks and other assets, said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London.
The surge in energy costs is exacerbating the U.S. economic deterioration by reducing the amount households have to spend on other goods and services. Record gasoline prices contributed to a slide in American consumer confidence to the lowest level since 1982 this month, a report showed last week. Higher fuel prices are also fanning U.S. inflation.
Degree of Influence
With Europeans clamoring for a message on the dollar, Paulson, who has a stated preference for letting markets set exchange rates, may have realized he had more power to influence the statement now than at the next meeting in June, said a former U.S. official. The official, who helped draft G-7 statements, noted that Japan chairs the next gathering of finance ministers in June.
The new language was the most significant change to the G- 7's stance on exchange rates since a meeting in Boca Raton, Florida, in February 2004, when it cautioned against ``excess volatility.'' The last time it urged a stronger dollar was in October 1995. The group hasn't intervened to buy or sell currencies since purchasing euros in September 2000.
The G-7, which comprises the U.S., U.K., Canada, Japan, Germany, France and Italy, also said the world economic slowdown may worsen amid an ``entrenched'' credit squeeze.
``The market is still adjusting, the turmoil has not yet settled down,'' Fed Vice Chairman Donald Kohn told reporters. ``It's still a fragile situation out there.''
100-Day Plan
Policy makers laid out a 100-day plan to strengthen regulation of capital markets. They urged financial companies to ``fully'' disclose their investments at risk of loss and boost capital as needed. They chose not to outline new monetary or fiscal policies other than promising action ``as appropriate.''
While the G-7's currency warning may help temper the dollar's descent, central banks would have to realign their monetary policies to reverse its direction, analysts said.
Since August, the Fed has lowered its main rate 3 percentage points to 2.25 percent, aiming to forestall a recession. At the same time, the ECB has kept its benchmark at a six-year high of 4 percent amid the fastest inflation in almost 16 years.
The gap in rates makes it more profitable to hold euros than dollars. Investors predict the Fed will cut rates again this month, while ECB council members attending the Washington talks indicated no plans to follow soon.
``I don't see any room to cut rates given the current environment,'' said Bundesbank President Axel Weber. Belgium's Guy Quaden said in a Bloomberg Television interview that inflation is ``well above our definition of price stability.''
Wary of Market
Diverging economic interests mean the G-7 will also be wary of trying to buck the $3.2 trillion-a-day currency market by buying dollars, said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The statement reflects an attentive G-7, but not a G-7 that either carries a bigger stick or is prepared to use it,'' Ruskin said.
Though traders may be wary of selling the dollar as aggressively as they have been, they may ``test'' the G-7's appetite to defend it by pushing the currency toward $1.60 per euro, said Goldman's O'Neill, who correctly predicted the G-7 would toughen its language. The dollar closed at $1.5808 per euro on April 11.
To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Last Updated: April 13, 2008 20:19 EDT
BL: Delta, Northwest May Unveil Merger After Board Meets (Update1)
By Mary Jane Credeur
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April 13 (Bloomberg) -- Delta Air Lines Inc. and Northwest Airlines Corp. may announce a merger to create the world's largest carrier as early as April 15, following a meeting of Northwest's board tomorrow, people familiar with the talks said.
Delta Chief Executive Officer Richard Anderson met in Minneapolis today with Northwest CEO Doug Steenland to discuss the merger plans, said two of the people, who didn't want to be identified because the discussions are private.
Delta, the third-largest U.S. carrier by traffic, is betting that a combination with No. 5 Northwest will boost revenue and lower costs after jet-fuel prices surged 77 percent in the past year. The merged company would surpass AMR Corp.'s American Airlines as the world's biggest carrier.
``They're going to be, by far, the largest, most dominant force in the industry,'' Michael Derchin, an analyst with FTN Midwest Research Securities Corp. in New York, said in an interview last week. ``The cost cutting has to happen with oil at $110 per barrel, and on the margin this helps you do it a little better.''
Delta spokeswoman Betsy Talton, Northwest spokeswoman Tammy Lee and Northwest pilots spokesman Matt Coons declined to comment. Delta pilots spokeswoman Kelly Regus didn't return messages seeking comment.
Failed Plans
The airlines are forging ahead after earlier plans to get their pilots to draw up a combined seniority list on their own ahead of the merger failed.
Delta instead has focused on reaching an agreement with its 7,000 pilots. The airline and its pilot leaders came to a preliminary agreement on most issues last week and are ironing out differences on the size of pay increases, two people said. Northwest's 5,000 pilots will be asked to join under a single contract later.
Delta will keep its name and Atlanta headquarters, and Anderson will run the combined carrier, people familiar with the matter have said previously.
The merged airline would benefit from Delta's trans- Atlantic routes to Europe and its Latin American network, plus Eagan, Minnesota-based Northwest's Pacific routes, including access to Tokyo's Narita Airport, where Northwest is the second- largest airline.
The merger was threatened last month after pilot leaders at Delta and Northwest failed to agree on how to combine their seniority lists. The two sides differed over how younger pilots at Delta would move up the list as older Northwest pilots retired.
Seniority is crucial because it determines pay, type of aircraft and routes flown.
Alternate Plan
Delta management now plans to ask the Northwest pilots to join under a single contract, the people said. Negotiations for a combined seniority list may take months to complete, they said.
All of the pilots belong to the Air Line Pilots Association. It's the only major unionized group at Delta.
Delta's pilot leaders met in a special session in Atlanta on April 11, according to a memo union leaders sent to members. Northwest pilot leaders are meeting today near Minneapolis, according to a memo on the union's Web site.
The merger accord may increase the pressure on other U.S. airlines to pursue their own tie-ups. Continental Airlines Inc., the fourth-largest U.S. carrier, has held talks with UAL Corp.'s United Airlines and American, a person with knowledge of the matter said on Feb. 15.
To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.
Last Updated: April 13, 2008 21:39 EDT
BL: Asia Stocks Post Biggest Loss in a Month on Earnings Outlook
By Chen Shiyin and Patrick Rial
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April 14 (Bloomberg) -- Asian stocks fell the most in a month, led by banks and consumer electronics makers, after Group of Seven finance ministers said global economic prospects have weakened, denting the outlook for earnings.
Commonwealth Bank of Australia and Japan's Sumitomo Mitsui Financial Group Inc. led declines on concern the eight-month rout in credit markets isn't over. Honda Motor Co. and Samsung Electronics Co. slumped after General Electric Co. said profit unexpectedly fell. Canon Inc. dropped to a two-week low after the Nikkei newspaper said profit this quarter may decrease 16 percent.
``There are a lot of earnings announcements coming out this week that the market is very focused on,'' Koichi Takatsuka, a fund manager at Tokyo-based United Investments Co., said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index lost 2.1 percent to 142.60 as of 10:11 a.m. in Tokyo, set for its biggest decline since March 17 and ending a two-day, 1.9 percent rally. All 10 of the benchmark's industry groups dropped.
Japan's Nikkei 225 Stock Average fell 2.9 percent to 12,938.28, heading for its largest loss since March 17. Australia's S&P/ASX 200 Index slumped 2 percent, led by Toll Holdings Ltd. after Australia's biggest freight company scrapped plans to sell its 62 percent stake in Virgin Blue Holdings Ltd.
U.S. stocks dropped the most in three weeks on April 11, led by GE, after the world's biggest maker of power-plant turbines, jet engines and locomotives said first-quarter earnings plunged 12 percent because of failed asset sales and losses at its finance businesses.
At the International Monetary Fund's semi-annual meetings in Washington yesterday, officials urged banks to take steps to relieve the credit squeeze, with Italian Finance Minister Tommaso Padoa-Schioppa saying there may be further ``bad news.''
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.
Last Updated: April 13, 2008 21:22 EDT
Yes, his agenda is to prevent others from losing money.
AirTran Holdings, Inc Drops 30% heading into the market close; no news - Reminder: a series of small airlines--Aloha, Frontier, and Mesa--have all gone bankrupt in the last few days. 3:53PM
Market Internals update at 10:30amET
- NYSE volume 265M shares, about 18% below its six-month average; decliners lead advancers by 4.9:1.
- NASDAQ volume 425M shares, about 8% below its six-month average; decliners lead advancers by 3.3:1.
Today 10:36am
S&P lowers 12 rating on six US CDO's of ABS, $685.5M affected
[NCC] Today 10:41am
National City Corp Price target cut to $12 from $14 at S&P, maintains Buy rating (timing uncertain)
Trade the News.com
SA: The Two Housing Crises
by: Kevin Price posted on: April 10, 2008
With the whole world watching, the U.S. housing market continues to weaken. Official Washington's insistence that the bottom was in sight many months ago seemed like Wonderland nonsense even then. Today it's simply laughable. Inevitably, the financial wreckage has been extensive: consumer spending, Wall Street's too-clever innovations, household and corporate balance sheets, employment... all have taken major hits. And the bludgeoning isn't over.
That's our acute housing crisis: The rapid, ongoing decline is residential real estate prices. But there's another, more chronic crisis out there: Our excessive allocation of resources to residential real estate in the first place. Partly a function of public policy (i.e., the home mortgage interest deduction, local governments' dependence on development fees, local officials' dependence on developers' campaign contributions) and partly (more importantly?) a function of our acquisitive culture, we've devoted far too much of our national wealth to our personal castles.
The consequences of this imbalance have been substantial. The arms race in residential real estate -- Bigger! Newer! Fancier! -- has driven prices beyond the reach of rank-and-file workers. In certain parts of the country, housing (even rental property in some cases) has become genuinely unaffordable. But people need places to live, of course, so they stretch their ex-housing budgets with leverage against their homes and, for renters and "owners" alike, the excessive use of credit card debt.
Taking a broader macro view, housing simply isn't a productive resource. In fact, it's a dead end and often (especially in the cases of far-flung exurbs) a terrible drain on public finances, to say nothing of the environmental costs of leapfrog development. Unlike investment in education, capital stock, research and development, and various kinds of commerce-related infrastructure, housing is pretty much a black hole in terms of long-term productivity growth.
And notwithstanding the realtors' absurd claims of long-term appreciation rates, housing, in most places at most times, isn't a compelling personal investment either. At times, no doubt, homeowners can and will earn a decent return on their residential assets. But most estimates wildly underestimate the true costs of ownership, and thus overestimate the financial returns to such ownership.
We understand the significant toll the recent downturn in residential real estate has taken on many millions of people here in the U.S. and around the world. But even as we try to muddle our way through the financial aftermath of yet another bursting bubble, it would be smart--no, it would be more than smart; it would be wise--to think about the true costs and benefits of our dysfunctional relationship to our real estate.
This episode calls out for wise leadership, for a kind of societal intervention. But who's willing and able to sit us down on the couch and help us think more clearly about our chronic housing crisis? Who's capable of shaking us out of our co-dependent relationship with our homes? Unfortunately, the narrow interests threatened by a rationalized real estate market are unlikely to stand idly by while we recalibrate. And, in a classic collective action problem, the broad interests that would be served by such a rationalization are too inchoate to effect real change.
In the absence of wise leadership on this issue, our process of muddling through will be more muddled than it needs to be.
Fixed Income: BoJ injects ¥400B (~$3.9B USD) into short-term money market
Today 8:33 PM
R: More hedge funds likely to collapse: BofA exec
Wed Apr 9, 2008 6:37pm EDT
By Svea Herbst-Bayliss
NEW YORK (Reuters) - There will be more hedge fund collapses this year as many managers struggle to borrow the new money they need to trade with and face investors disappointed by recent losses, a top industry executive said on Wednesday.
"The level of blowups will continue," said David Bailin, who heads Bank of America's (BAC.N: Quote, Profile, Research) alternative investment group, which invests in roughly 100 hedge funds.
"Some funds simply will not do well, particularly those specializing in fixed income markets," he said at the Reuters Hedge Fund and Private Equity Fund Summit in New York. "It will be rough trading for the rest of the year."
As a group, hedge funds recorded their worst-ever quarter in the first three months of 2008, and managers overseeing some $3.9 billion in assets have already shut down their businesses, according to data from trade magazine Absolute Return. Peloton Partners and the Sailfish Multistrategy Fixed Income Fund rank among the year's biggest casualties so far.
The industry has roughly 10,000 funds.
The pressure for hedge fund managers is two-pronged, Bailin said. Investors are hastily handing in redemption notices to get their money out. Meanwhile, bankers are getting stingier with loans after having written down billions of bad debt recently.
"If this condition (of stingy lending) lasts for a long time, then it can dampen returns," Bailin said, adding that the industry "does need leverage (or borrowed money from banks) for returns."
Bank of America, for example, last year fired roughly 15 percent of the hedge fund managers it uses. Bailin suspects other large investors are also scrutinizing their managers more closely than ever before, ready to act fast in case a manager stops performing the way he promised he would. This can hasten the pace of potential collapses.
"We are not big fans of quant funds," Bailin said, speaking about a group of once-popular and top-performing hedge funds that rely on computer models to make trades. These types of funds, including, for example AQR Capital Management, hit rough times last year and might find it tough to convince investors to stay on, Bailin and other guests at the summit have said.
"People are willing to trust black boxes only when they work," Bailin said.
Across the board, large investors like Bank of America are demanding more and better risk management at funds in which they invest. They also want to see track records of roughly five years and often as much as $1 billion in assets from other investors.
This makes is more difficult for bankers and traders at Wall Street firms or mutual funds to quit and launch their own hedge funds, guests at the summit agreed.
(For summit blog: here)
(Editing by Lisa Von Ahn)
Paulson: "Sees 'good number of positive signs' in market"
Such as?