Miami Condo Market Shows a Way to Solve Inventory Glut

Don’t look now, America, but Miami might actually be setting a positive example for the rest us.

Never mind how my hometown’s biodiversity features corruption, gaping income inequality, and octagenarians who floor their 30-foot sedans to make early-bird dinner specials. More recently, South Florida was a hotbed of subprime excess that gave rise to an absurd number of half-financed, quarter-occupied condo towers. That overdependence on glass, concrete, and teaser mortgages left the local economy devastated once housing collapsed.

A cautionary tale for the ages … or for all of five years.

No less an authority than the Federal Reserve Bank of Atlanta has issued a report (PDF) that highlights how Miami is successfully shedding its inventory overhang, so much so that the local real estate market is suddenly hungry for new condos. It brings to mind this recorded interview Mitt Romney gave to a newspaper in Nevada, which sits right beside Florida in terms of pain felt from the housing crisis. The lessons: allow investors—all walks of them—to buy distressed properties; fix them up and fill them with renters; let increasing rents and the natural push of demography drive increased property prices.

“The presence and health of birds,” the report begins, with a flourish of taxpayer-funded metaphorical license, “often signal the health of an environment. An abundance of waterfowl, for example, can signal that the surrounding wetlands are healthy. An unhealthy canary in a coal mine indicates the presence of toxic gases. One ‘bird’ that indicates the health of the real estate development industry is the construction crane, and it appears to be making a comeback [in Miami].”

Florida, like the bottoming national market for new homes, is benefitting from a growth in population. A headcount of nearly 20 million Floridians has the state on track to become the nation’s third-largest by 2013, when it’s expected to surpass New York. Next year is also when nearly all of the area condos developed during the bubble are on pace to sell out; as of the second quarter of 2012, just 3,400 units out of 49,000 condos created were unsold in South Florida’s seven largest coastal markets, according to Peter Zalewski, principal of Condo Vultures, a local brokerage and research firm that was quoted by the Atlanta Fed.

“South Florida’s newest condo boom-and-bust cycle is just getting started,” he says. “Developers are already rushing into the market to secure their sites.” Zalewski says he has tallied 70 proposed towers in South Florida, with nearly 10,500 condo units planned—18 percent of them already sold. “The only thing they’re waiting for,” he says, “is the return of condo construction financing, which is still elusive in South Florida.”

Zalewski says South Americans with strong currencies are prodding developers to overcome their financing hurdles by offering cash installments of 30 percent to 80 percent of a new condo’s contracted purchase price. And so nearly 20 construction cranes have been ordered to return to South Florida in short order.

As for all that inventory from the Great Miami Overbuild of 2005? The Atlanta Fed report notes how a re-prioritization of renting—by both new renters and condo owners who were previously fixated on flipping for gains—has helped fill a skyline full of empty boxes: “The past several years’ distressed housing market—including the limited access to financing—may have forced many residents (and visitors) into renting. The now-flourishing rental market may be helping to bolster condo development, as the sharp growth in rents may be causing some consumers to reconsider alternatives such as trading down to rent a cheaper multifamily unit or trading out to rent a single-family home or to pursue homeownership.”

Yes, much of this rebound is idiosyncratic to Miami, which is already one of the nation’s more idiosyncratic cities. “While it would be nice if the anticipation being felt in Miami could be translated to a rosier picture for the broader economy,” concedes the report, “factors such as international demand make the South Florida condo market not necessarily representative of the rest of the country.”

Still, the mere fact that a sense of fundamentals-driven investment can take hold in a market never quite known for sober capital allocation should give some a reason for hope.

Farzad is a Bloomberg Businessweek contributor.

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The Gold Rally Shows Its Age

By Nicholas Larkin, Maria Kolesnikova and Debarati Roy

Gold is sending investors a mixed message. The metal gained 10 percent in 2011, marking its 11th consecutive annual gain, its longest winning streak in at least nine decades. Yet after closing at a record $1,900.23 an ounce on Sept. 5, it plunged, finishing the year at $1,563.70 an ounce, down 18 percent from the high.

Professionals are taking widely divergent stances on the gold rally, which has seen prices rise sixfold since 2001. George Soros, the billionaire who two years ago called gold the “ultimate asset bubble,” cut 99 percent of his holdings in the first quarter of last year, Securities and Exchange Commission data show. Hedge fund manager John Paulson also sold gold last year. The median estimate in a Bloomberg survey of 44 traders and analysts is for prices to rally as much as 37 percent, to $2,140 an ounce this year. “Gold is going to go higher, but it’s not going to go in a straight line,” says Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth, which manages Dynamic Mutual Funds. “Gold has given positive returns, but it doesn’t necessarily do it in the way that gives comfort, and that makes people nervous.”

Demand for gold had strengthened most of last year as Europe’s debt crisis widened and the U.S. Federal Reserve pledged to keep interest rates near zero until at least mid-2013. Low interest rates increase the appeal of bullion because they generally reduce the prospect of returns on bonds. “The longer-term trends, mainly government fiscal and monetary policies, haven’t changed,” says Tom Winmill, president of Midas Funds.

Paulson, the billionaire fund manager mired in the worst slump of his career, sold 36 percent of his stake in the SPDR Gold Trust in the third quarter, an SEC filing showed. Paulson & Co. remains the biggest investor in the largest gold-backed exchange-traded fund, with a stake valued at $3.08 billion. Stefan Prelog, a spokesman for Paulson, declined to comment. Soros Fund Management sold almost all its shares in the SPDR Gold Trust and the iSharesGoldTrust in the first quarter of 2011, SEC data show. Its 81-year-old founder said in January 2010 that buying at the start of a bubble was “rational.” It bought more SPDR Gold Trust shares in the third quarter and added options, SEC data show. Michael Vachon, a spokesman, declined to comment.

“Gold has been all over the place,” says Michael Cuggino, 48, who helps manage about $15 billion of assets, including $3 billion in gold, at Permanent Portfolio Funds in San Francisco. “If you bought gold at $1,800, then you aren’t too happy. Some people will get out of gold, but the longer-term investors will remain.”

The bottom line: Even after falling 18 percent from its Sept. 5 close, gold finished 2011 with a 10 percent gain, outperforming stocks, bonds, and the dollar.

Larkin is a reporter for Bloomberg News. Kolesnikova is a reporter for Bloomberg News. Roy is a reporter for Bloomberg News.

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HSBC’s Sale of Thai Unit Shows Priority Is Scale, Not Geography

December 29, 2011, 11:39 PM EST By Stephanie Tong and Joyce Koh

Dec. 30 (Bloomberg) -- HSBC Holdings Plc’s effort to sell its retail bank in Thailand, a market it entered more than a century ago, marks a shift toward larger-scale operations as the bank sells assets to bolster its capital base.

Bank of Ayudhya Pcl, the Thai lender partly owned by General Electric Co., is expected to complete an acquisition of HSBC’s credit card and personal loans valued at 30 billion baht ($945 million) to 40 billion baht early next year, the Bangkok Post reported on Dec. 27, citing a person in the banking industry it didn’t name.

HSBC, which was trying to buy a bank in Thailand as recently as 2010, would loosen ties to the country just as new rules next year let foreign-owned banks open as many as 20 branches. Stuart Gulliver, chief executive officer of the London-based bank, is reversing two decades of expansion, selling assets and cutting jobs as Europe’s debt crisis saps profit and regulators boost capital requirements.

“HSBC used to look at their business portfolio geographically, but they now look at it by size,” Masahiko Ejiri, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $41 billion, said by phone yesterday. “HSBC’s disposal of assets in Asia may make it less attractive to investors.”

The bank in December announced the sale of its Japanese private banking business, with assets under management of $2.7 billion as of Oct. 31. HSBC, with total assets of $2.7 trillion, will be more disciplined about where it deploys capital, focusing investment on faster growing markets, as it faces “regulatory and inflationary headwinds,” Gulliver said in May.

’Disciplined Management’

HSBC failed in its 2010 bid to buy Siam City Bank Pcl, the country’s seventh-biggest lender by assets at the time, which was eventually sold for about $2.14 billion. The bank aims to cut as much as $3.5 billion of expenses by 2013 to tackle wage inflation in faster-growing economies and prepare for new capital rules, it said in May.

The lender announced 14 transactions from January through Nov. 9, including the sale of a U.S. credit card business valued around $32.7 billion, a Chilean retail bank and a Hungarian consumer-finance portfolio, the lender said. It’s also selling operations in Georgia, Iraq and Poland.

“There has been a disciplined management at HSBC that is going ahead without hesitation to trim businesses they don’t wish to commit more capital in,” Chong Yoon-Chou, Singapore- based investment director at Aberdeen Asset Management Asia Ltd., whose holdings include HSBC shares. “For a lot of investors, this could be a symbolic action to continue to restructure its businesses.”

First Banknotes

HSBC issued the first banknotes in Thailand, in 1889, and made the first foreign loan to the Thai government, for a railroad project, according to its website. In addition to the retail operation it is reported to be selling, the lender offers corporate and investment banking services in the country.

Ayudhya said in June it was in acquisition talks with consumer finance companies, after buying General Electric’s GE Money unit in Thailand in 2009. GE owns 33 percent of Bank of Ayudhya, the biggest stake and more than twice the second- largest holding, data compiled by Bloomberg show.

Ayudhya “welcomes opportunities to grow its business,” Philip Tan, head of the bank’s consumer-finance group, said by phone on Dec. 27, declining to comment on the Bangkok Post report. Varanandha Sutthapreeda, vice president of communications at HSBC in Thailand, also declined to comment. Penny Shone, a Singapore-based spokeswoman for GE, cited a policy of not commenting on “market speculation” in an e-mail today.

Bank of Ayudhya’s shares have fallen 14 percent this year, compared with a 0.9 percent decline in the benchmark SET Index. Bangkok Bank, Thailand’s biggest by assets, gained 4.1 percent in the period.

Bank of Ayudhya had $29.3 billion of assets as of the end of September, making it the nation’s fifth-biggest lender according to data compiled by Bloomberg. Bangkok Bank has $64.7 billion and Krung Thai has $61.6 billion, according to Bloomberg data.

--With assistance from Suttinee Yuvejwattana and Supunnabul Suwannakij in Bangkok and Nathaniel Espino in Hong Kong. Editors: Nathaniel Espino, Mohammed Hadi

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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Worker’s Career Shift Shows Demand for Young Employees

May 27, 2011, 10:32 AM EDT By Craig Torres

May 27 (Bloomberg) -- Chris Housand dumped his job as a forklift operator in January to seek skills that would make him valuable over a lifetime.

“Being 22 and with two kids and a wife I had a lot of weight on my shoulders,” said the Tarboro, North Carolina, resident. Warehouse work “was pretty much a dead-end job.”

He enrolled in electrical-lineman school at Nash Community College in nearby Rocky Mount. After graduation on May 6, he was hired into a four-month paid internship program that holds the promise of a permanent position, at a time when 16.1 percent of men in his age group are jobless.

Housand is catching a wave of demographic change that’s likely to benefit younger workers. A generational replacement cycle is taking hold as companies such as General Electric Co., Norfolk Southern Corp., Boeing Co., American Electric Power Co. Inc. and Dominion Resources Inc. all try to hire skilled younger staff to prepare for a wave of retiring workers.

“In the next five to 10 years well over 100,000 utility sector jobs will be available for refilling,” said Bob Powers, president of utilities at Columbus, Ohio-based American Electric Power, where the average workforce age is about 49. “It is an opportunity and a challenge.”

Unemployment for 20- to 24-year-olds peaked at 17.1 percent in April last year, almost 10 percentage points above the 7.2 percent low in May 2007 during the last expansion.

Saving Seniority

Despite the 9 percent national unemployment rate in April, labor scarcity may be the longer-term challenge for U.S. corporations, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

The question is whether it will be masked by overall jobless rates, which could remain high for years as companies absorb the skilled labor pool and leave the rest behind.

Companies could start to bid aggressively for a limited group of skilled workers, building inflation pressures with the unemployment rate as high as 7 percent, according to economists at Barclays Capital Inc. in New York. Fed officials currently estimate labor supply and demand are in balance around a 5.4 percent unemployment rate.

“The Federal Reserve needs to be very sensitive to this and vigilant,” said Zandi. “We may be bumping up against constraints in the labor market a lot faster than we think if these companies aren’t able to attract and train quickly enough.”

As demand collapsed in 2008 and 2009, corporations cut junior staff and tried to preserve senior personnel. Unwittingly, they “created a major problem as they try and plan for the next five to 10 years,” said Joe Carson, director of global economic research at AllianceBernstein LP in New York.

Growth Agenda

“U.S. companies not only have a growth agenda now as earnings and liquidity improve, they also have a human capital replacement cycle they haven’t seen in the past 20 to 30 years,” Carson said.

The number of workers 55 and older rose to 31 million in April 2011 from 19.2 million in April 2001. By contrast, people in the labor force between the ages of 20 to 24 grew less than 1 million to 15.2 million from 14.6 million in April 2001. The entire U.S. labor force stood at 153.4 million last month, up just 6.9 percent since 2001.

“When I sit down with a business, and ask, what are your biggest challenges over the next five years, almost without exception I hear that one of them is the demographics of the workforce,” said Thomas Schneider, founder of Restructuring Associates Inc., a Washington firm specializing in labor productivity. Still, he said, “We are under-investing in the highest skill, blue-collar and technical jobs.”

More Interns

Companies such as Chicago-based Boeing, where the average age is in the “high 40s,” according to senior vice president Rick Stephens, are trying to change that.

The world’s second-largest aircraft maker will hire 1,500 to 2,500 engineers this year, some right out of college, and is boosting its intern program to 1,100 from 900 in 2009. Around 2 percent of Boeing’s 164,495 workers retire each year, and that number is likely to increase, Stephens said.

“Firms will increasingly find that the outflows of retiring workers are bigger than the inflows of younger workers,” said Nicole Maestas, a labor economist at the RAND Corporation, a Santa Monica, California-based policy group. “Nobody is immune to these basic demographic facts.”

GE doubled its U.S. college hiring program to 1,278 in 2010. The world’s biggest maker of jet engines, gas turbines, and medical-imaging equipment scouts some 40 U.S. universities to replenish its pipeline of engineers and future managers and spends $300,000 per student in its two-year trainee program.

‘Big Swings’

“We can afford to take some big swings, and investing in people and growing talent is what we do best,” said Steven Canale, manager of global recruiting and staffing for Fairfield, Connecticut-based GE. “The workforce is getting older.”

The median age for the U.S. population climbed to a record 37.2 in 2010, according to the Census Bureau, and the workforce in several industries is even older.

The median age in aerospace manufacturing was 47.9 in 2010, meaning half the workforce in Boeing’s industry was older than that; in electrical power generation it was 45.4; and in rail transportation it was 46.5, according to Bureau of Labor Statistics data.

Norfolk Southern let its staff shrink through attrition and retirement during the recession that began in December 2007. The economy has since expanded for seven quarters, and demand for natural resources and exports has snapped back.

Coal Facility

The Norfolk, Virginia based railroad, which owns the largest coal-export facility in the northern hemisphere, hired 2,800 people last year and has plans to hire 4,000 this year, according to Cindy Earhart, vice president of human resources.

One goal is to rebuild the ranks of young managers. The company is seeking about 300 college graduates to replace the 6 percent of 4,800 managers who will retire this year.

Companies such as Dominion Resources in Richmond, Virginia, are also looking for young “gray-collar” workers for jobs that require both physical ability and technical knowledge. Matt Kellam, supervisor in charge of strategic staffing at Dominion, says finding a supply of linemen and engineers is a priority.

“A good number of our lineman are 45 years and older,” Kellam said, adding that community college graduates and military veterans can provide the company with the skilled technicians it needs.

The firm has about 48 people in its lineman training program. Starting salaries are about $33,000 in the industry, Kellam said, and can rise to $80,000 or more with overtime for a journeyman.

Dropout Rates

At Nash Community College, instructor Bob Schubauer says about 30 students enroll in his lineman classes each semester. Rigorous climbing in the rain, cold and heat, and demanding engineering math, usually cut that number by two-thirds by the time his 16-week certification program is over.

In an 8:30 a.m. class, Schubauer barks orders to his students after he asks them to diagram an electrical network on the white board.

“I don’t want any confusion, I don’t want any assumptions. I want these diagrams to speak for themselves,” he says. “I don’t want to see any inconsistencies.”

Housand approaches the board and begins to draw how he would configure a bank of three transformers to go from high to usable voltage. Some of the diagrams the students draw involve about two dozen calculations.

Schubauer wants the students to know the theory behind what they are handling even though most linemen head into the field with detailed plans. The cost of a mistake is blown transformer, a power outage, injury or death, he said.

Cold Climbing

An hour later, Housand and his classmates are cinching a BuckSqueeze, a climbing belt made by Buckingham Manufacturing Co. in Binghamton, New York, around 40-foot poles, then inchworming their way up. His internship at the City of Rocky Mount lasts for 16 weeks. Four other classmates also found work.

“It is very reasonable to expect, if we have an opening, for Chris Housand to be hired unless another applicant has a lot more experience,” said Darryl Strother, Rocky Mount’s electric superintendent.

Housand worked at a cotton gin right out of high school. Now, he calls himself a “linegineer,” his term for a job that requires physical stamina and engineering knowledge.

“We do not have a labor shortage in America, we have a skill shortage,” said Boeing’s Stephens. “The key is will there be enough people to meet our needs?”

--Editors: Anne Swardson, Christopher Wellisz

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomgerg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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LSE Equity Evaporates as TMX Deal Shows Scant Profit: Real M&A

May 24, 2011, 10:35 AM EDT By Nandini Sukumar and Rita Nazareth

May 24 (Bloomberg) -- No company’s stock is worth less as currency for takeovers than London Stock Exchange Group Plc, according to traders who profit from mergers and acquisitions.

The value of the bourse’s offer to buy TMX Group Inc. with equity fell 4.9 percent below the price of the Toronto stock exchange operator’s shares yesterday, according to data compiled by Bloomberg. The gap is the widest of any all-stock deal over $1 billion, indicating to arbitragers that LSE’s equity alone won’t be enough to fend off a higher bid from a group of Canadian banks and funds trying to keep TMX in local hands.

While TMX’s directors last week rejected the unsolicited cash-and-stock offer by Maple Group Acquisition Corp. in favor of LSE’s $3.1 billion all-share proposal, owners of the Toronto bourse stand to get equity in a company that’s 39 percent less profitable than the average market venue by selling to LSE, the data show. Without the deal, Europe’s oldest independent bourse risks being left out of the industry’s biggest round of consolidation. In the past decade, exchanges from Hong Kong to Singapore and Sao Paulo have eclipsed LSE by market value.

“There are two ways to look at this: Is TMX currently trading at a premium or is LSE trading at a discount?” said Frederic Ponzo, managing partner at London-based GreySpark Partners, which advises financial institutions. “The problem for LSE is the same for the last 10 years now. They are big, but not big enough. They are still in a difficult position.”

Long-Term Value

Carolyn Quick, a spokeswoman for TMX, didn’t immediately respond to voicemails left at her office or an e-mail requesting comment yesterday as Canadian financial markets were closed for a national holiday. A voicemail message left on her mobile phone seeking comment also went unanswered.

“The LSE-TMX merger is just that -- two strong, successful businesses with complementary assets and brands combining to create a leading international exchange group,” David Lester, LSE’s director of information services, said in an e-mailed response. “Anyone can deliver cash on day one through saddling a business with debt, but few deals can offer the long-term value for shareholders that LSE-TMX will create.”

Based on the terms of LSE’s takeover, each TMX shareholder will get 2.9963 LSE shares for every share they own in Canada’s largest exchange, according to data compiled by Bloomberg.

That valued the deal at about C$42.06 a share yesterday, about two Canadian dollars below TMX’s closing price last week.

Today, TMX declined 1.1 percent to C$43.58 as of 10 a.m. in Toronto. LSE rose 1.4 percent to 901 pence in London.

Maple Bid

LSE faces competition from Maple, a group of four Canadian banks and five pension funds that’s trying to block the largest foreign takeover of a financial services company in Canada.

While TMX Chief Executive Officer Thomas Kloet, 53, said in a telephone interview May 20 that the combination will create a bourse “whereby our shareholders continue to share in the growth of the company,” the C$3.6 billion ($3.7 billion) proposal from Maple this month values the Toronto exchange at a premium to LSE’s bid and will be paid mainly in cash.

“It’s pretty clear the domestic bid in Canada is real and it’s likely superior financially,” said Andrew Ross, partner and global equity trader at First New York Securities LLC, a New York-based proprietary trading firm that bets on stocks, commodities and derivatives. “I don’t think that shareholders at LSE would look very favorably upon LSE really aggressively attempting to outbid this Canadian group.”

LSE’s deal for TMX in February was part of more than $30 billion in takeover offers for exchanges in less than six months, as bourses try to cut costs and generate more revenue from trading in stocks, options and futures.

Exchange Acquisitions

The deals began in October, when Singapore Exchange Ltd. bid A$8.35 billion ($8.3 billion) for ASX Ltd. of Sydney. LSE followed with its own offer for TMX on Feb. 9.

Less than a week later, Frankfurt-based Deutsche Boerse AG announced its takeover of New York-based NYSE Euronext, which Nasdaq OMX Group Inc. of New York and IntercontinentalExchange Inc. of Atlanta countered in April.

Singapore Exchange’s acquisition of ASX was rejected by Australia’s government last month, while Nasdaq OMX and ICE dropped their bid for the New York Stock Exchange this month after U.S. regulators threatened to block the deal.

“They either need to salvage the TMX deal or find another deal quickly,” said Dirk Hoffmann-Becking, a London-based exchange analyst at Sanford C. Bernstein & Co. “Shareholders in the end look for money today.”

Xavier Rolet, LSE’s 51-year-old CEO, will cut 35 million pounds ($56 million) a year in costs as part of the deal and expand into businesses such as derivatives as competition increases.

Earnings Growth

LSE earned 23 cents for every dollar of revenue in the past 12 months, versus an average of 37 cents for exchanges worldwide, data compiled by Bloomberg show. TMX had a profit margin of 34 percent. Analysts estimate LSE will increase per- share earnings by just 3 percent next year, while TMX may boost profit by 5 percent, data compiled by Bloomberg show.

Earnings at NYSE Euronext and Deutsche Boerse, which may save as much as 550 million euros ($772 million) by combining, will climb 16 percent and 12 percent, respectively, the projections show.

A takeover of TMX would create a $7.2 billion exchange, leapfrogging Nasdaq OMX, ASX and Singapore Exchange among the world’s biggest trading venues.

Losing out would leave LSE, which traces its roots back to the coffee houses of 17th century London and has a market value of $3.9 billion, further behind.

Standalone Value

Deutsche Boerse and NYSE Euronext are creating the world’s largest exchange with a market value of $24.2 billion. Hong Kong Exchanges & Clearing Ltd., currently the biggest bourse with a market value of $23.6 billion, is six times the size of LSE, data compiled by Bloomberg show.

Sao Paulo-based BM&FBovespa SA, the operator of Latin America’s biggest securities exchange, is three times as big.

“As a standalone company LSE faces pretty aggressive competitors,” said Adam Sussman, New York-based director of research at Tabb Group LLC. “So the stock is more difficult to use as a takeover currency.”

Sachin Shah, a merger arbitrage strategist at Capstone Global Markets LLC in New York, says that LSE can boost shareholder value more by putting itself up for sale instead.

Shares of LSE jumped 6.8 percent on May 16, the biggest advance in 17 months, on speculation that Nasdaq OMX would pursue LSE after dropping its bid for NYSE Euronext. Nasdaq OMX has previously tried to acquire the London exchange three times.

Nasdaq OMX’s Frank De Maria declined to comment.

‘Not Over’

“Nobody wants to own LSE as a standalone company,” Shah said. “The market is anticipating that a deal with TMX may not occur and a standalone value is not as attractive. The consolidation with exchanges is not over.”

Instead, “the market is sensing that LSE is not going to be around” because it will become a target, he said.

Overall, there have been 9,737 deals announced globally this year, totaling $957.2 billion, a 22 percent increase from the $786.7 billion in the same period in 2010, according to data compiled by Bloomberg.

--With assistance from Whitney Kisling, Justin Doom and Sarah Rabil in New York. Editors: Michael Tsang, Daniel Hauck.

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.

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Investors Shifting to Cash From Commodities, Poll Shows

May 12, 2011, 5:17 AM EDT By Rich Miller

(Updates with commodity index and oil in seventh paragraph. For more on the poll, {POLL })

May 12 (Bloomberg) -- Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found.

Almost 1 in 3 of those questioned say they will hold more cash, while 30 percent intend to reduce investments in commodities, according to a quarterly Bloomberg Global Poll of 1,263 investors, analysts and traders who are Bloomberg subscribers. Both results were the highest since the survey began asking the question last June.

A plurality -- 40 percent -- expects oil prices to fall in the next six months, the first time respondents felt that way since the inception of this poll in July 2009.

The “big stimulus game is over,” said Bill O’Connor, a poll participant and founder of Sagg Main Capital hedge fund in New York, in explaining why he’s moving money into cash as the Federal Reserve winds up its bond-buying program and U.S. lawmakers look to cut the budget.

Fewer than 4 in 10 of those surveyed described the U.S. and global economies as improving, down from about 50 percent who felt that way back in January. U.S. economic growth slowed to 1.8 percent in the first quarter of this year, down from 3.1 percent in the final three months of 2010. Home prices fell in more than three-quarters of U.S. cities in the first quarter of 2011, according to the National Association of Realtors.

Bearish on Stocks

The poll, conducted May 9-10, also found that investors’ ardor for stocks is cooling. Two in 5 intend to increase their exposure to equity markets over the next six months, down from almost 3 in 5 in the last poll in January. U.S. investors in particular have become less keen on stocks: Just 37 percent say they are increasing their exposure, down from 57 percent in the previous poll.

The survey was taken after a turbulent week in the markets that saw commodity prices suffer their biggest decline in more than two years. The Standard & Poor’s GSCI Total Return Index of 24 commodities dropped 11 percent last week, led by a 27 percent collapse in silver prices. The gauge fell 3.9 percent yesterday and another 0.9 percent by 9:29 a.m. in London today. Crude oil fell below $100 a barrel in New York trading yesterday.

More than half of those surveyed expect silver prices to fall further in the next six months. Sixteen percent identified commodities as one of the markets that will suffer the worst returns over the next year, more than double the proportion that said that in January.

Still No. 1

Commodities have “become a bubble, with a lot of non- specialist investors,” said Ken Welby, a salesman at KNG Securities LLP in London and a poll participant. “Demand cannot cope with the price rises that we have seen.”

While the attractiveness of the U.S. is ebbing, it still comes out on top when survey participants are asked to name the best countries to invest in. Thirty-one percent cited the U.S. as among the markets that will offer the best returns over the next year, down from 37 percent in January.

U.S. investors are more enthusiastic about their country than those in either Europe or Asia. Almost 2 in 5 Americans picked the U.S. as a top market. Only one-third of Asians and less than a quarter of Europeans felt that way.

Brazil and China trailed the U.S. in the poll, with 1 in 4 investors citing those countries as good places to put money. Fifteen percent singled out Japan, almost double the amount that did so in January, before the country suffered a devastating earthquake and tsunami that left 24,837 dead or missing as of May 7 and cratered its stock market.

Nikkei Seen Rising

“We have confidence that the Japanese are addressing the issues, and that earnings will not disappoint the market,” Welby said. “I see it as a relative-value trade.”

More than 2 in 5 investors see Japan’s Nikkei 225 Stock Average rising over the next six months. That compares with about 1 in 4 who said that back in January.

The Nikkei average yesterday rose 45.50, or 0.5 percent, to 9,864.26. That’s down from 10,254.43 on March 11, the day of the earthquake. The gauge dropped 1.5 percent today.

Investors have turned less optimistic about other stock markets. Less than half see the Standard & Poor’s 500 Index rising during the next six months; in January, almost two-thirds forecast an advance. About one-quarter in the latest poll say they expect the stock gauge to fall. The S&P 500 fell 1.1 percent to 1,342.08 yesterday in New York.

Energy, Food

“U.S. stocks will have a 5 to 8 percent decline in the coming months,” said Joe Larizza, a director at Vining Sparks IBG in Memphis, Tennessee, and a poll participant. “I see energy and food prices causing a drag on the economy.”

Global investors still consider equities to be among the most lucrative places for their money, with more than 1 in 3 forecasting that stocks will provide superior returns over the next year.

Asian investors are the most confident in their regional economy, with 42 percent saying it is improving, compared with 31 percent of U.S. poll respondents and 26 percent of Europeans who feel that way about their areas.

Half of global investors forecast that the MSCI Asia Pacific Index will rise over the next six months, down from 58 percent in January. The index fell 1.6 percent to 136.23 today.

EU Returns

The European Union was seen by the most respondents as one of the markets offering the worst returns over the next year, with 38 percent singling it out, little changed from January. The turmoil-racked Middle East ranked second worst, with about 1 in 4 investors describing it that way, up from less than 1 in 10 in the previous poll.

About 1 in 3 investors see the Euro Stoxx 50 Index, a measure of shares in nations using the common currency, and the FTSE 100 Index rising in the next six months. That compares with more than 40 percent who forecast advances in January.

The Euro Stoxx 50 Index fell 1.3 percent to 2,903.39 today. The U.K.’s FTSE 100 Index dropped 1 percent to 5,916.64.

More than half of those surveyed forecast that the dollar will strengthen against the euro over the next three months. The euro was little changed at $1.4202 today.

The quarterly Bloomberg Global Poll of investors, traders and analysts was conducted by Selzer & Co., a Des Moines, Iowa- based firm. It has a margin of error of plus or minus 2.8 percentage points.

--Editors: Mark McQuillan, Robin Meszoly

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Goldman Sachs Viewed Unfavorably by 54% as Poll Shows No Damage

May 12, 2011, 12:22 AM EDT By Christine Harper

(For more on the poll, {POLL })

May 12 (Bloomberg) -- Wall Street conventional wisdom holds that a sterling reputation is crucial to winning business and keeping clients. Goldman Sachs Group Inc. may be the exception, according to a new Bloomberg survey.

Fifty-four percent of respondents to the global poll of traders, investors and analysts conducted May 9-10 have an unfavorable opinion of the New York-based bank, more than double the negative rating for JPMorgan Chase & Co. Yet a month after a U.S. Senate report said Goldman Sachs misled clients, 78 percent of those surveyed said the accusations will either have no effect on the firm or will harm its reputation without driving away customers.

“Investors will continue to put their money with capable institutions, regardless of their history or morality,” said poll participant Christian Contino, 27, who works as a consultant for the investment-management section of the United Nations’ International Fund for Agricultural Development. The bank has “very capable spin doctors who will be able to downplay any negativity.”

Stephen Cohen, a spokesman for the company, declined to comment on the poll results.

Goldman Sachs, led by Chairman and Chief Executive Officer Lloyd C. Blankfein, survived the financial crisis, unlike some smaller rivals, and has been a target of criticism ever since. The bank, the fifth-biggest in the U.S. by assets, agreed to pay $550 million last year to settle a suit filed by the Securities and Exchange Commission that alleged Goldman Sachs misled buyers of a mortgage-linked investment the firm created in 2007.

Housing Bets

The Senate’s Permanent Subcommittee on Investigations, led by Michigan Democrat Carl M. Levin, used Goldman Sachs as a case study in its two-year examination of the financial crisis. When the subcommittee released its 640-page report last month, Levin said that Goldman Sachs misled clients and Congress about the firm’s bets on the housing market.

“The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Lucas van Praag, a Goldman Sachs spokesman, said at the time.

“It seems unlikely that Goldman Sachs has to expect further consequences,” said Daniel Horak, 26, a trader at Erste Sparinvest KAG in Vienna, Austria, who replied in the poll that he had a “mostly unfavorable” view of the firm and that he didn’t expect Goldman Sachs to lose customers.

Levin and Oklahoma Senator Thomas A. Coburn, the subcommittee’s ranking Republican, formally referred their report to the Department of Justice and the Securities and Exchange Commission, which are reviewing the findings.

JPMorgan’s Reputation

The company was viewed less favorably than other banks by the 1,263 poll respondents. While 54 percent said they had an unfavorable view of Goldman Sachs, 25 percent felt the same about JPMorgan, 49 percent for Citigroup Inc. and 48 percent for Bank of America Corp. Thirty-five percent had an unfavorable view of Frankfurt-based Deutsche Bank AG, which was also singled out in the U.S. Senate subcommittee report.

Blankfein, 56, has tried to burnish Goldman Sachs’s image. After the SEC filed its lawsuit last year, he established a committee to study the firm’s business standards. The committee’s report in January made 39 recommendations, including changing financial disclosures and providing simpler explanations to clients about conflicts of interest.

Goldman Sachs also began an advertising campaign in September that emphasizes the firm’s role in job creation and alternative energy.

‘Confidence Business’

“We have to regain the trust of the public, we have no choice,” Blankfein said in an interview with Fareed Zakaria that aired on CNN on May 2, 2010, according to a transcript. “We can’t survive without people thinking well of us,” he said, because “our business is a confidence business.”

Goldman Sachs’s stock price, which was $147.88 at the close on the New York Stock Exchange yesterday, remains below the $184.27 close on April 15, 2010, the day before the SEC filed its lawsuit.

Thirty-six percent of respondents said they were “generally bullish” on Goldman Sachs stock six months from now, while 32 percent were “generally bearish.” The rest had no opinion. That divided sentiment is about where it was in June 2010.

The company’s profit slid 38 percent last year as revenue tumbled. Goldman Sachs ranks third this year among advisers on global takeovers after coming in second during 2010, according to data compiled by Bloomberg.

‘Very Supportive’

“Our shareholders, our clients, have been very, very supportive,” Blankfein said in the CNN interview. “They know the essence of who we are, and frankly I think we still enjoy a reputation with those -- a good reputation with those key constituent groups.”

The UN fund’s Contino, who like 32 percent of poll respondents said he had a favorable view of Goldman Sachs, was also among the 42 percent who think that Blankfein will remain chairman a year from now. Twenty-seven percent didn’t think Blankfein would still have the job in a year and 31 percent had no opinion.

“Lloyd Blankfein has done a great job over the past 5 years,” Contino said. “If there has to be a fall guy, it won’t be him.”

Noah Shapiro, director of risk management at Optim Energy LLC in Irving, Texas, was one of the poll respondents who said Blankfein won’t be chairman in a year.

Main Street Ire

“Goldman has significantly drawn the ire of Main Street as being the poster child of the inexorable greed that fomented the credit crisis,” Shapiro, 34, said. “Blankfein will need to fall on his sword as not only the head of Goldman Sachs, but also as a chief luminary on the Street, to blot away the stain of manipulative financial engineering.”

The quarterly Bloomberg Global Poll of investors, traders and analysts who are Bloomberg subscribers was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 2.8 percentage points.

“Opinions on Goldman Sachs are the same the world around, with very little difference across the U.S., Europe or Asia,” said J. Ann Selzer, president of Selzer & Co.

--Editors: Steve Dickson, Rick Green

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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