Asian Stocks Climb on Optimism Over Greece Aid; Sony Advances

May 31, 2011, 7:03 AM EDT By Jonathan Burgos

May 31 (Bloomberg) -- Asian stocks rose, with the regional benchmark index paring the biggest monthly decline in a year, amid speculation European officials will pledge more financial aid to Greece.

Cosco Pacific Ltd., the Hong Kong-based operator of container facilities in Greece, climbed 3.8 percent. Sony Corp., the maker of PlayStation gaming consoles that counts Europe as its biggest market outside of Japan, gained 1.9 percent in Tokyo. Hyundai Heavy Industries Co., the world’s biggest shipbuilder, surged 11 percent in Seoul after winning an order for two liquefied natural gas tankers.

The MSCI Asia Pacific Index gained 1.4 percent to 136.11 as of 7:24 p.m. in Tokyo, the highest close since May 13. More than six stocks advanced for each that fell in the gauge, which last week completed its longest string of weekly losses in two years as concern deepened over Europe’s debt crisis and amid speculation a slowing global recovery will crimp earnings.

“Talk of additional aid for Greece has given investors some relief for now,” said Andrew Pease, Sydney-based senior investment strategist for the Asia-Pacific region at Russell Investment Group. “These are just temporary solutions. That’s not a sustainable solution. Asian markets, particularly China, look genuinely cheap.”

Japan’s Nikkei 225 Stock Average climbed 2 percent, the steepest gain since March 30. Stocks extended gains today after a report showed Japan’s industrial production, disrupted by the March disaster, may rebound to near pre-earthquake levels by next month. The data also showed output grew less than economists expected last month.

India Economic Growth

“On the level of individual firms we’ve had a lot of anecdotal evidence that supply chains were recovering, but today’s figures are significant because they confirm that production is coming back,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $104 billion.

India’s Sensitive Index advanced 1.5 percent. The nation’s economic growth eased to 7.8 percent in the three months to March 31 as manufacturing and services moderated, a slowdown that has yet to curb pressure for more increases in interest rates to damp inflation.

South Korea’s Kospi Index advanced 2.3 percent. Australia’s S&P/ASX 20 Index gained 0.9 percent. Hong Kong’s Hang Seng Index increased 2.2 percent, while China’s Shanghai Composite Index added 1.4 percent, its first increase in nine days.

European Union leaders will decide on additional aid for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt, said Jean-Claude Juncker, head of the euro-area finance ministers’ group. Greek Prime Minister George Papandreou said on May 27 he’ll press ahead with new austerity measures after failing to win backing from the main opposition parties.

‘Relief to Exporters’

Cosco Pacific advanced 3.8 percent to HK$15.42 in Hong Kong. Samsung Electronics Co., the world’s largest maker of televisions that gets one-fifth of its sales from Europe, climbed 2 percent to 902,000 won in Seoul. Sony, Japan’s biggest exporter of consumer electronics, rose 1.9 percent to 2,163 yen in Tokyo.

Japanese exporters also advanced as the euro rose against the yen, boosting the value of repatriated sales from Europe. Toyota Motor Co., the world’s biggest carmaker, gained 2.1 percent to 3,400 yen. Mazda Motor Corp., the Japanese carmaker most dependent on European sales, jumped 1.5 percent to 205 yen. Canon Inc., the camera maker whose largest source of revenue is Europe, advanced 2.1 percent to 3,905 yen.

Debt Crisis

“Even though the euro has weakened in the midst of Greece’s debt crisis, the currency is having a little comeback and that’s given some relief to exporter shares,” said Daiwa’s Nagano.

The MSCI Asia Pacific Index lost 2.5 percent this year through yesterday, compared with gains of 5.8 percent by the S&P 500 and 1.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 13.4 times estimated earnings on average, the same as for the S&P 500, and compared with 11.1 times for the Stoxx 600.

Hyundai Heavy surged 11 percent to 505,000 won in Seoul, the biggest advance on the MSCI Asia Pacific Index. The company won an order for two liquefied natural gas tankers from Dynagas Ltd. of Greece.

Hyundai Engineering & Construction Co., a South Korean builder, increased 2.1 percent to 84,000 won. The company said it received orders worth $230 million from Singapore and Iraq.

Hanwha Chemical Corp., South Korea’s fourth-largest maker of plastic resins by sales, jumped 9.6 percent to 48,950 won after Samsung Securities raised its share-price forecast to 59,500 won from 41,000 won and maintained its “buy” rating.

‘Stock Valuations’

“While stock valuations are looking attractive, we’re still cautious as global growth is slowing,” said Diane Lin, a Sydney-based fund manager at Pengana Capital Ltd., which has about $1 billion of assets. “Europe’s situation is still very difficult.”

Futures on the Standard & Poor’s 500 Index rose 1 percent today. U.S. markets were closed yesterday for a public holiday.

U.S. economic data to be released this week are expected to show further evidence that growth in the world’s biggest economy is slowing. Nonfarm payrolls are expected to rise by 185,000 workers in May, less than the 244,000 increase in April, according to the median forecast in a Bloomberg News survey before Labor Department figures to be released on June 3. Another report may show factory orders grew at the slowest pace in seven months.

Renewable Energy

Renewable-energy companies rallied after German Chancellor Angela Merkel’s coalition endorsed yesterday a plan to close all of Germany’s atomic-power plants by 2022. The country will double energy output from renewable sources by 2020, Merkel said yesterday at a press conference in Berlin.

Taewoong Co., a South Korean maker of parts for wind power plants, surged 8.3 percent to 44,400 won in Seoul. OCI Co., the nation’s biggest maker of polysilicon that’s used in solar panels, jumped 9 percent to 493,000 won. GCL-Poly Energy Holdings Ltd., China’s largest maker of the same material, climbed 5.3 percent to HK$4.17 in Hong Kong.

--Editor: Reinie Booysen

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

View the original article here

CIMB, Maybank to Start Rival Merger Talks With RHB Capital

May 31, 2011, 7:19 AM EDT By Chan Tien Hin and Elffie Chew

(Updates with relative value of respective possible mergers in second paragraph.)

May 31 (Bloomberg) -- CIMB Group Holdings Bhd. and Malayan Banking Bhd. have won separate Malaysian central bank approval to begin competing merger negotiations with RHB Capital Bhd. that may create Southeast Asia’s biggest bank by market value.

The combined capitalization of CIMB and RHB would be $27.3 billion, based on today’s closing prices. Maybank could boost its market worth to $28.8 billion, which would exceed the $27.7 billion value for Singapore’s DBS Group Holdings Ltd., the region’s biggest lender.

The two biggest Malaysian banks are seeking the merger to expand amid rising competition following the central bank’s decision to grant more licenses to international players including Bank of China Ltd. Hong Leong Bank Bhd. this month bought EON Capital Bhd., while ECM Libra Financial Group Bhd. is said to have appointed an adviser to find a buyer.

“RHB will consider all proposals that are beneficial to shareholders,” Azlan Zainol, RHB’s chairman said in an interview today. “As far as I am concerned, I have not being officially notified on the proposals.”

--With assistance from Chong Pooi Koon in Kuala Lumpur. Editors: Barry Porter, Linus Chua.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net; Elffie Chew in Kuala Lumpur at echew16@bloomberg.net;

To contact the editors responsible for this story: Barry Porter at bporter10@bloomberg.net; Chitra Somayaji in Hong Kong at csomayaji@bloomberg.net.

View the original article here

Rising Rents Risk U.S. Inflation

May 30, 2011, 7:23 PM EDT By Joshua Zumbrun

May 31 (Bloomberg) -- For all the attention given to almost $4-a-gallon gas, the biggest threat to containing U.S. inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation’s 38 million rented residences.

Shelter represents about 40 percent of the consumer price index excluding food and energy and accounted for almost one quarter of the 1.3 percentage point rise in April. That share has grown as falling home prices shake Americans’ confidence in housing as an investment.

Federal Reserve Chairman Ben S. Bernanke and his colleagues say they will hold interest rates at record lows for an “extended period,” based on an assessment that slack in the economy from 9 percent unemployment will help subdue core inflation and any threat of accelerating prices likely will be “transitory.” Not everyone agrees with that judgment.

“They should have looked at rents,” said Maury Harris, chief U.S. economist in New York at UBS Securities LLC, whose team at UBS was the most accurate inflation forecaster over 2009 and 2010, according to Bloomberg calculations. “They’re putting too much weight on the ‘slack is all that matters’ theory. It matters but, for heaven’s sake, it’s not all that matters.”

Housing has become “a contributor to inflation, and it continues to rise,” agreed Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, with $22 billion in assets under management. That’s partly why he’s advising clients to look at “specifically, a heavier mix of equities, and maybe the use of TIPS to mitigate the effects inflation could have over 10 years or longer.”

Investor Expectations

Investor expectations of rising prices in the next decade, as measured by the spread between Treasury Inflation Protected Securities and nominal bonds, have fallen to 2.28 percent from 2.66 percent on April 11, the year-to-date high.

“When you look at the longer-term portion of a bond portfolio, consider pretty carefully the ravaging effects that inflation could have,” McCain said in an interview. He estimates that rents have accounted for about 1 percentage point of the last decade’s 2.4 percentage point rise in prices and soon may revert to or overshoot this trend.

“The worse it gets for apartment rentals, the more you’re going to see that number adding to the overall inflation rate,” he said.

Harris calculates that prices excluding food and energy have risen at an annual rate of 2.1 percent so far this year based on the consumer price index. The Fed’s preferred gauge, the Department of Commerce personal-consumption expenditure index, rose 1 percent in April from a year earlier. Including all items, it increased 2.2 percent.

‘That’s Ridiculous’

Policy makers are “misreading the inflation, period,” Harris said in an interview. “If you have a healthy rate of core inflation, you don’t have any business having the federal funds rate under 25 basis points. That’s ridiculous.” The Fed cut the target rate for overnight loans among banks to near zero in December 2008.

Confidence in homeownership has been battered in the wake of the subprime-mortgage crisis, which pushed housing prices down 33 percent since July 2006, based on the S&P/Case-Shiller index of property values in 20 cities. More than 3 million homes have been seized in foreclosure since the start of 2008, according to RealtyTrac Inc., and the rate of homeownership has fallen to 66.4 percent, the lowest since 1998, data from the Census Bureau show.

About two-thirds of Americans now think buying a home is a safe investment, down from 83 percent in 2003, said government- supported mortgage financier Fannie Mae in a national survey released May 11.

‘Lowest Level’

The percentage of AvalonBay Communities Inc. residents moving out to purchase a residence fell to 12 percent in the first quarter, down from 15 percent in the last quarter of 2010 -- “the lowest level since we began tracking this data,” Chairman and Chief Executive Officer Bryce Blair said in a April 28 analysts’ call.

AvalonBay is the second-biggest publicly traded U.S. apartment owner with more than 50,000 units in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest and Northern and Southern California. First-quarter funds from operations climbed 18 percent to $93.5 million from a year ago as rising demand helped it increase rents, the Arlington, Virginia-based company said in an April 27 statement.

“Job growth, particularly among young workers, is driving higher rental demand, while new supply remains muted,” Blair said in the statement. “We expect fundamentals will continue to accelerate during the year.” AvalonBay stock has risen 16 percent this year.

Biggest Increase

U.S. apartment rents climbed 5 percent in the 12 months through April, according to research company Axiometrics Inc. Effective rents in the first quarter, or what tenants actually paid, rose in 75 of the 82 markets tracked by data provider Reis Inc., which said the average was up 2.5 percent from a year earlier to $991 a month.

“Landlords have a couple years of runway to have pricing power over their tenants,” said Anthony Paolone, an analyst at JPMorgan Chase & Co. in New York. He recommends that investors looking to profit financially from the increases should consider a trio of real-estate investment trusts: Palo Alto, California- based Essex Property Trust Inc., UDR Inc. in Highlands Ranch, Colorado, and Equity Residential in Chicago.

UDR has risen 8.8 percent since January, Equity Residential climbed 17 percent and Essex jumped 18 percent. The Standard & Poor’s 500 Index increased 5.8 percent in the same period.

Boon, Burden

The boon for landlords is a burden for residents like Alexander Shevlyagin, a 25-year-old Seattle computer-software manager, who said he was shocked to learn his rent is rising to $1,305 a month from $935 and his free parking space will cost $100.

“My building manager told me, ‘Hey, we’re almost at full occupancy,’” Shevlyagin said. “He said he signed the same place I have on a different floor for the new rates, so someone thinks that this is reasonable. Knowing what I’m paying right now, I don’t consider it reasonable.”

From January until October 2010, rents helped hold down overall inflation as the year-over-year change in shelter -- mainly rents and what owners would receive if they rented their homes -- was negative, according to data from the Bureau of Labor Statistics. Then the component turned positive in November. Rental yields, or rents relative to home prices, will climb this year to the highest level in more than 20 years and remain elevated for as many as four years, predicts Paul Dales, senior U.S. economist in Toronto for Capital Economics Ltd.

‘May Be Surprised’

“I’m sure it’s something the Fed is watching, but I wouldn’t be too surprised if they haven’t factored in such a rise,” Dales said. “It’s possible the Fed may be surprised there.”

At their April meeting, Fed officials projected core inflation for 2011 between 1.3 percent and 1.6 percent; their estimate for 2012 was 1.3 percent to 1.8 percent.

“With resource slack likely to diminish only gradually over the next few years, it seems reasonable to anticipate that underlying inflation will remain subdued for some time, provided that longer-term inflation expectations remain well contained,” Fed Vice Chairman Janet Yellen said in a April 11 speech in New York.

While rents weren’t mentioned in the minutes of the April meeting, the Fed’s April 13 Beige Book report, an anecdotal survey of economic conditions, was peppered with stories of rising costs.

Manhattan, Boston, Chicago

In Manhattan, studio-apartment leases “continued to climb and were up more than 10 percent from a year ago.” In Boston, apartment “rental-rate increases persist,” and contacts in Chicago reported “developing strength in the rental market and a corresponding pick-up in conversions of condominiums into apartments.”

The Fed may be falling behind the curve, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. Rising rents are “a risk to the core, which is the important number if you’re looking at Fed policy,” he said, estimating the rate could top 2 percent by the end of this year.

“It’s clearly a cost-of-living issue, especially as people who were in the homeownership market are winding up in the rental market,” he said.

--With assistance from Oshrat Carmiel in New York. Editors: Melinda Grenier, Kenneth Fireman

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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

View the original article here

Beginners Guide To Stock Market Investing

If your new to stock market investing and want to learn the basics of stocks, how to buy stocks, and invest for profits this book is for you.

Price: $0.99

Click here to buy from Amazon

European Stocks Climb on Greek Aid Speculation; Alpha Bank Jumps

May 31, 2011, 7:16 AM EDT By Sarah Jones

May 31 (Bloomberg) -- European stocks climbed after the euro rallied to a three-week high as investors speculated that European officials will sanction additional financial assistance for Greece. U.S. futures and Asian shares advanced.

Alpha Bank SA and EFG Eurobank Ergasias SA led a rally in Greek banks, climbing more than 5 percent in Athens trading. Vestas Wind Systems A/S led alternative-energy stocks higher for a second day. Steelmakers also advanced after Voestalpine AG posted higher full-year profit.

The Stoxx Europe 600 Index rose 0.9 percent to 281.43 at 11:51 a.m. in London, paring this month’s loss to 0.9 percent. The gauge has fallen for four straight weeks amid speculation that Greece will restructure its debt. Since reaching this year’s high on Feb. 17, the Stoxx 600 has retreated 3.3 percent.

“We have gone through a period in which a lot more pessimism surrounding this topic has come into the market and we are seeing something of a rebound off the back of that,” said Valentijn Van Nieuwenhuijzen, head of strategy at ING Investment Management, in a Bloomberg Television interview. “The likelihood of an explosion of the Greek situation over the next couple of months seems to have come down.”

The euro rallied against the dollar after Luxembourg Prime Minister Jean-Claude Juncker said European leaders will decide on a new aid package for Greece by the end of next month, while also ruling out a “total restructuring” of the nation’s debt. Junker spoke yesterday in Paris.

Inspectors from the European Union, the International Monetary Fund and the European Central Bank plan to conclude their review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($158 billion) bailout in the coming days. The EU will then formulate its plan for additional aid.

German Demands

The Wall Street Journal said Germany may stop demanding that Greece reschedules its bonds so that the Mediterranean nation can get a new package of loans. The newspaper cited unidentified people.

European stocks were little changed yesterday in reduced trading after U.K. and U.S. markets were closed for public holidays. Futures on the Standard & Poor’s 500 Index expiring next month advanced 1 percent today, while the benchmark MSCI Asia Pacific Index climbed 1.4 percent.

A U.S. report today may show that home prices in the world’s largest economy slumped in March by the most in 16 months, according to economists. The Case-Shiller report is due at 9 a.m. New York time. Separate figures may show manufacturing slowed in May, while consumer confidence improved.

German Retail Sales

In Europe, German retail sales rose in April as unemployment fell below 3 million for the first time in almost 19 years. Separate figures from the European Union’s statistic office showed that inflation in the euro area slowed in May to 2.7 percent from 2.8 percent in April, giving the ECB room to keep borrowing costs on hold next month.

Alpha Bank, Greece’s third-biggest lender, rallied 5.8 percent to 3.08 euros in Athens, while Eurobank, the country’s second-largest bank, surged 8 percent to 3.10 euros. Both stocks tumbled more than 6 percent yesterday as the IMF reviewed Greece’s efforts toward meeting fiscal targets.

Standard Chartered Plc rose 1.8 percent to 1,634.5 pence after Nomura Holdings Inc. raised its recommendation for the U.K. bank that makes the majority of its profit in Asia to “buy” from “neutral,” saying the firm remains “well positioned’ for the long term.

Analysts also raised their price estimate for the shares to 1,800 pence from 1,770 pence. The revised projection is 12 percent higher than last week’s closing price.

Vestas, Solarworld, Q-Cells

Vestas rallied 5.5 percent to 159.30 kroner in Copenhagen, while Germany’s Solarworld AG advanced 2.5 percent to 9.86 euros and Q-Cells SE surged percent 7.8 percent to 2.07 euros.

Alternative energy stocks rallied for a second day after Germany yesterday set 2022 as the final date to close its nuclear reactors, making it the largest nation to abandon atomic power.

Voestalpine advanced 2.8 percent to 34.25 euros after Austria’s largest steelmaker said fiscal full-year profit rose almost five-fold to 512.7 million euros as the global economy improved.

‘‘Further positive economic development in the second half of calendar year 2011 can be expected,” the company said. “Against this backdrop a further significant improvement of Voestalpine results should be possible in 2011/12.”

Kloeckner & Co. SE, the German steel trader operating in 15 countries in Europe and North America, gained 1.2 percent to 20.34 euros and ArcelorMittal, the world’s largest steelmaker, rose 1.5 percent to 23.24 euros. Salzgitter AG, Germany’s second-biggest steelmaker, jumped 3.1 percent to 51.62 euros.

Barratt, Britvic

Barratt Developments Plc, the U.K.’s biggest homebuilder by volume, climbed 2.5 percent to 115.3 pence after the Centre for Economics & Business Research forecast that U.K. house prices will rise 16 percent over the next four years after slipping 1.4 percent in 2011. Taylor Wimpey Plc rose 1.2 percent to 36.8 pence.

Britvic Plc increased 1.4 percent to 439.1 pence after Deutsche Bank AG raised its share price estimate for the maker of Robinsons’ fruit drinks by 5.6 percent to 475 pence.

Wolseley Plc jumped 4.1 percent to 2,072 pence after the Sunday Times reported that the supplier of heating and plumbing products will sell three of its U.K. business for 300 million pounds ($495 million). The newspaper did not say where it got the information.

--With assistance from Linzie Janis in London. Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

View the original article here

Euro-Area Inflation Slowed in May, Easing Pressure on ECB

May 31, 2011, 7:48 AM EDT By Simone Meier

(Updates with comment from economist starting in fourth paragraph.)

May 31 (Bloomberg) -- European inflation unexpectedly slowed in May, giving the European Central Bank room to keep borrowing costs on hold next month.

Inflation in the 17-nation euro region slowed to 2.7 percent from 2.8 percent in April, the European Union’s statistics office in Luxembourg said today in an initial estimate. Economists had forecast no change in the inflation rate, the median of 33 estimates in a Bloomberg News survey showed. Unemployment held at 9.9 percent in April from the previous month, a separate report showed.

ECB President Jean-Claude Trichet has signaled that the central bank may keep interest rates on hold in June after last month increasing the benchmark rate 25 basis points to 1.25 percent to fight price pressures. With the recovery losing momentum and governments cutting spending to plug budget gaps, the Organization for Economic Cooperation and Development said on May 25 that further rate increases “are not required immediately.”

“The decline was largely down to lower energy prices and the unwinding of the ‘late Easter effect,’ which led to a surge in inflation in the leisure and entertainment sector last month,” Martin van Vliet, an economist at ING Groep NV in Amsterdam, said in an e-mailed note to investors.

Energy, Food Prices

“Looking ahead, euro-zone headline inflation is set to stay well above 2% in the remainder of this year as energy and food prices continue to have an upward impact on consumer prices,” van Vliet said.

The euro extended gains after the data were released, trading at $1.4415 at 11:34 a.m. in Brussels, up 0.9 percent.

The OECD forecasts euro-region growth to accelerate to 2 percent this year from 1.7 percent in 2010, with unemployment averaging 9.7 percent and 9.3 percent this year and next. Harmonized consumer prices may rise 2.6 percent in 2011 and 1.6 percent in 2012, the Paris-based group said.

Crude oil prices have surged 38 percent in the past year, trading at $102.03 a barrel today. That’s putting pressure on companies to protect earnings and pass on higher costs. Euro- region producer-price inflation unexpectedly accelerated in March and a gauge measuring households’ confidence in their ability to purchase big-ticket items in the coming year dropped in May from the previous month.

‘Second-Round Effects’

“We have to avoid commodity-price increases becoming entrenched in longer-term inflation expectations, which could have second-round effects on wages and prices,” Trichet said on May 26. “We are carefully monitoring the situation and we stand ready to do whatever is necessary.”

With rising prices sapping consumers’ spending power and governments from Spain to Ireland toughening austerity measures, the euro-region economy may struggle to gather strength. European services and manufacturing growth weakened in May and German investor confidence dropped more than economists forecast. European economic confidence also declined.

About 15.5 million people were unemployed in April, down 115,000 from the previous month, today’s report showed. At 20.7 percent, Spain had the highest jobless rate within the euro region. The Netherlands and Austria reported the lowest rate at 4.2 percent.

Michael O’Leary, chief executive officer of Ryanair Holdings Plc, Europe’s largest discount airline, told Francine Lacqua on Bloomberg Television’s “Countdown” on May 23 that while he’s “quite concerned” about economies, he remains “cautiously optimistic” for the full year.

‘Under Control’

“We have the costs very well under control,” O’Leary said. “We do better in a downturn because everybody gets more price-sensitive. We see strong growth in the first half of the year, being the summer months. As oil prices rise, we are going to cut capacity during the winter months.”

The statistics office will release a breakdown of May consumer prices next month. Euro-region core inflation accelerated to 1.6 percent in April from 1.3 percent in the previous month. That’s the fastest pace since April 2009.

The ECB is scheduled to hold its next monetary assessment on June 9 in Frankfurt.

--With assistance from Jurjen van de Pol in Amsterdam, Kristian Siedenburg in Budapest and Francine Lacqua in London. Editors: Patrick Henry, Jennifer M. Freedman

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

View the original article here

No Love Lost for U.S. Debt as Dealers Sell Fewer Bonds to Fed

May 31, 2011, 12:17 AM EDT By Cordell Eddings and Liz Capo McCormick

(Updates with today’s 10-year yield in eighth paragraph.)

May 31 (Bloomberg) -- The world’s biggest bond dealers are finding fewer Treasuries to sell to the Federal Reserve as its $600 billion purchase program nears an end, a signal of rising demand even as the largest buyer steps away.

The two-week moving average of bond dealers’ submissions for sales to the Fed has fallen 37 percent to $17 billion a day from the $27.3 billion peak offered in November, according to Bloomberg data. Price swings have diminished to levels last seen before the financial crisis began in 2007, helping bonds outperform stocks this month by the most since July.

Demand for government debt is increasing even as the central bank prepares to conclude its purchases, the size of the market has doubled to $9.1 trillion and Republicans in Congress spar with President Barack Obama over the nation’s debt ceiling. By offering fewer bonds to the Fed, dealers are signaling that any rise in yields after the end of so-called quantitative easing will be limited and that Obama faces no impediment to funding the $1.5 trillion budget deficit.

“The Fed’s QE2 program finally appears to be exhausting the supply of Treasuries that can easily come out of investor portfolios, a bullish sign for the market,” said Terry Belton, the global head of fixed-income and foreign-exchange research at JPMorgan Chase & Co., one of the 20 primary dealers who trade debt with the central bank.

Submissions Drop

The Fed began the second round of asset purchases, known as QE2, on Nov. 10 after buying $1.7 trillion in securities through last year, increasing the amount of money in circulation to prevent deflation. The Fed’s purchases are due to end next month. Dealers have submitted more than $2.4 trillion in Treasuries to the Fed over the past six months.

While QE2 succeeded in avoiding deflation, investors remain concerned about the strength of the economy, which grew at a 1.8 percent annual pace in the first quarter, the slowest rate since the three months ended June 30.

U.S. government securities have returned 1.4 percent in May, including reinvested interest, following a 1.15 percent gain in April, Bank of America Merrill Lynch data show. The Standard & Poor’s 500 Index fell 2.4 percent this month and the Standard & Poor’s GSCI commodity index lost 7.9 percent.

Bonds rose last week, driving the yield on the benchmark 10-year note to as low as 3.05 percent, the least since Dec. 7. The price of the security due in May 2021 increased 19/32, or $5.94 per $1,000 face amount to 100 13/32. Ten-year yields fell seven basis points to 3.07 percent, according to Bloomberg Bond Trader prices. The rate was 3.08 percent today as of 12:31 p.m. in Tokyo.

When Yields Rise

Investors should buy Treasuries when yields rise, because the U.S. will grow an average of two percent to three percent for the next few years, said Rick Rieder, chief investment officer of fixed income at New York-based BlackRock Inc., the world’s largest money manager, overseeing $3.45 trillion.

“There is a need for fixed income given the atmosphere,” Rieder said. “Yields are at the low end of the range, but Treasury rates could stay in this low range for years as the economy grinds along.”

Yields on 10-year notes plunged from the high this year of 3.77 percent on Feb. 9 on signs that rising energy and food costs will restrain the recovery from the worst financial crisis since the Great Depression.

The decline should end at 3 percent as U.S. employment improves and QE2 ends, according to William Cunningham, the co- head of global active fixed income in Boston at State Street Global Advisors, which oversees $2.1 trillion.

Higher Rates

Payrolls expanded by 244,000 in April, the biggest gain since May 2010, after a revised 221,000 increase the prior month, the Labor Department said May 6. Employment rose by 185,000 jobs in May, according to a Bloomberg survey of economists before the June 3 report.

“If the employment picture keeps chugging along as it is, then it will drag rates higher,” Cunningham said in an interview in New York on May 25. “Yields will gradually go up this year.”

Cunningham expects the 10-year yield to end the year in the 3.5 percent to 3.75 percent range.

Demand for Treasuries has been boosted as regulators try to strengthen the global banking system by requiring financial institutions reduce risks and hold more of the safest assets after about $2.01 trillion in writedowns and losses since the start of 2007. Banks owned a record $1.69 trillion of U.S. government-related debt in the week ended May 4, Fed data show.

Repo Rates

Treasuries are in such short supply in the $4.9 trillion-a- day repurchase agreement market used by dealers to finance their holdings that investors are lending cash for next to nothing to obtain the bonds. The average level of overnight general collateral repo rates fell as low as 0.01 percent on May 5. About a third of government securities transactions in the repo market trade below zero percent, according to Barclays Plc data.

Repo rates may move further below the Federal funds rate when the central bank begins lifting borrowing costs. The Fed’s so-called effective rate, a weighted average of trades between major brokers, was 0.09 percent on May 26.

“Everybody wants more collateral and Treasuries are the best collateral in the world,” according to Stanford University professor Darrell Duffie, who serves as a member of the Federal Reserve Bank of New York’s financial advisory roundtable.

“You’d think that the world would be awash in Treasuries as the U.S. is issuing more than they ever have,” said Duffie, who studies credit risk, asset pricing and the over-the-counter derivatives as the Stanford Graduate School of Business’s Dean Witter Distinguished Professor of Finance. “But everybody wants them.”

Debt Ceiling

A congressional standoff on raising the country’s debt ceiling has increased demand for bills. Government authorities have curtailed short-term debt sales to conserve borrowing capacity and avoid breaching the Congressionally-mandated threshold of $14.3 trillion.

The reduction has left U.S. six-month bill rates hovering near record lows of 0.005 percent.

Senate Republican leader Mitch McConnell of Kentucky has said his party wants “significant” cuts in spending and no tax increases as a condition for raising the limit. House Speaker John Boehner, a Republican from Ohio, said Congress needs to pair an increase with spending cuts and changes to the nation’s “broken” budget process.

“At some point it’s clear to me that we have to increase the debt ceiling,” Boehner, an Ohio Republican, said May 15 on CBS’s “Face the Nation.” “And as we do, we’re going to do it in a way that addresses America’s long-term fiscal challenges.”

Auction Demand

Obama said in a segment for the show taped May 11 in Washington that failing to raise the ceiling may disrupt the global financial system. Treasury Secretary Timothy F. Geithner said he has taken steps to prevent a federal default until Aug. 2, using accounting measures that involve two retirement funds.

So far, there’s been no sign of waning demand for government debt that increased by about 50 percent as Obama boosted spending to pull the economy out of the recession that probably ended in the third quarter of 2009. The Treasury has received $3 in bids for every dollar auctioned this year, up from last year’s record $2.99, Treasury data show. The U.S. has sold $895 billion of notes and bonds this year, compared with $1.003 trillion at this time in 2010.

Treasuries have become more desirable as price swings declined. The Merrill Option Volatility Estimate, or MOVE, index fell to 74.80 basis points on April 25, within 0.7 of its lowest level since July 2007. The index is down from a 12-month high of 125.2 on Dec. 15.

Biggest Buyer

The Fed is responsible for some of the decline. QE2 made it the biggest owner of U.S. government debt, with holdings of $896.7 billion overtaking China’s $895.6 billion in November, according to Treasury and central bank data.

Under the program, the central bank has purchased $675 billion since Nov. 12, mostly from dealers. Fed Chairman Ben S. Bernanke has said he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit.

Inflation is barely eroding the value of fixed-income securities as the recovery slows. The Fed’s preferred measure of price increases, the so-called core inflation reading that excludes food and energy, was 1 percent for the 12 months ended April, the Commerce Department said on May 27.

The Washington-based International Monetary Fund lowered its forecast for U.S. growth this year, predicting the economy will expand 2.8 percent this year, down from the 3 percent projected in January.

“Yields are going to remain around these levels in a range for some time,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “The market is running with the slow growth story right now.”

--With assistance from Daniel Kruger and John Detrixhe in New York and Wes Goodman in Singapore. Editors: Philip Revzin, Dave Liedtka

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Liz McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

View the original article here

10 Best Investment Tips for 2007

Investments in 2007 will be your opportunity to make significant gains in your financial portfolio. Taking control early in your investment planning will maximize your returns and you'll create groundwork that will allow you to establish investing guidelines for all future investing as well.

Investing is all about placing your best researched intuitions where you feel comfortable about what will take place regardless of the expectations of others or the status of the nation's economy. Money is made daily and if you place your investments wisely, determines if you are in fact, master of your investments.

There are some misconceptions of what type of investments are the best to follow. If you do not have any real insights on the stock market, don't jump in with a large percentage of your investing capital. The keys to success are about learning as much as anything and never replaying a bad strategy.

History, self made history, is or should be your best friend for all your future investments. It's not a perfect world and neither are you, so put aside any thoughts that you can maximize every trade or other investment, make your moves slowly and consistent.

Let's say you are new to investing, you can take advantage of several courses or mini-trade routes, outlined by someone who's found consistent patterns that produce successful trades. Investing can be in a totally unexpected direction, such as applying yourself in online sales from an affiliate program. This is a very popular investment since it takes very little money to get started and you have a ready-made product already established. The commission split to you is very appealing. There are a number of programs that pay as much as 75% to you.

Investment Planning is really as simple as, where you think you can actively participate with your money and or time, that will yield you a positive return on your participation.

________________________________________________________________

1. - Know your talents, what are you good at, then think of ways to make it pay you for your efforts

2. - How much time can you devote to your investment, this is where you don't want to become sidetracked and lose sight of your goals

3. - Invest your time or money where you understand the risks and won't become shocked or surprised if it develops a slump or setback

4. - Choose an investment that you enjoy, this makes investing a pleasure and this will give you drive above all other distractions

5. - Make predictions or goals that can be obtained in the short term, don't set yourself up to finish the year before you've made your shorter range goals. Life is about living, not retiring.

6. - Read about the previous years wins and losses, in the field of your investment plans and see where to make small changes that could correct for the losses and avoid pitfalls that history provides

7. - Consider forming a team of investors, family, friends, or co-workers who are serious about taking control of their financial futures.

8. - Put all your financial plans in writing and keep them at arms reach at all times. It's very wise to make notes as you have certain thoughts from day to day and reflect, then decide if you need to make adjustments. Don't become overwhelmed with the " I should have done . . ." thinking process. This will make you miserable and you can loose focus very easily.

9. - Track your progress and determine if you should increase your investment of money, time, or both in order to see a positive return on your investment. This is not always easy to decide, but you are the controls of your investment, don't let yourself down.

10.- Find a mentor that can advise and encourage you to continue, seldom will you find a success story that didn't have contributors, regardless of their role in the success story. You may be pleasantly surprised how much others can actually affect your investments in a positive manner. ____________________________________________________________________

Investing for 2007 can be your new-found goldmine to becoming self-sufficient financially. Take the time to decide your personal plan of action and follow through with it. There are so many possibilities, it's not a question of if, but rather how you will succeed. For more investment tips:

http://wealthsmith.com/investment-tips-insights-2007.htm

Jim is an online writer and netpreneur that has a knack for current trends and topics that his readers enjoy absorbing for their personal enrichment. Today's topic is investments;

http://wealthsmith.com/investment-tips-insights-2007.htm

Foreclosure Deal May Give Banks Menu of Payment Options

May 28, 2011, 12:23 AM EDT By Dakin Campbell, David McLaughlin and Dawn Kopecki

May 28 (Bloomberg) -- U.S. banks, seeking to avoid $17 billion in court claims over faulty foreclosures, are discussing a settlement framework with state attorneys general that may let firms choose from a menu of options for helping borrowers, two people briefed on the talks said.

Under the proposal, Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. would pay penalties and pledge billions of dollars in relief to home buyers, one of the people said, asking not to be named because the talks are private. Firms may fulfill obligations to borrowers over time, choosing among options such as reducing loan principal, cutting fees or paying moving costs, the people said.

Stitching flexibility into settlements may help defuse opposition from a group of Republican attorneys general, who object to principal reductions sought by other states, one of the people said. The pace of talks is accelerating, with parties also nearing agreement on an industrywide overhaul of procedures for handling mortgages, that person said.

State and federal officials have been meeting with the largest U.S. loan servicers to resolve a nationwide probe into documentation lapses during home seizures. Earlier this week, attorneys general told the banks they will face an estimated $17 billion in claims if the inquiries result in civil lawsuits, according to a person with knowledge of the talks. The banks had previously offered to pay $5 billion.

Consent Decrees

Under the proposal, banks would pay the penalties to the states, which would determine how to use the funds, according to the people briefed on the talks. The separate relief funds, which lenders could decide how to provide, are expected to account for a majority of the companies’ costs, one of the people said.

The banks are reluctant to sign a deal with the states without a global settlement from federal agencies as well, said a person with direct knowledge of the banks’ position. U.S. lenders want the agreement to also cover current and future claims from Housing and Urban Development, which provides government insurance on mortgages through the Federal Housing Administration, this person said.

Federal Claims

The Department of Justice and HUD are suing Germany’s Deutsche Bank AG for more than $1 billion for allegedly lying “repeatedly” to obtain FHA insurance on risky loans. Federal prosecutors are suing under the False Claims Act, which allows the government to triple the amount of damages for fraudulent FHA claims. HUD General Counsel Helen Kanovsky said the U.S. may pursue similar cases against other banks.

“We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” Kanovsky said in a May 3 interview.

New York Attorney General Eric Schneiderman is concerned about a settlement that provides “broad amnesty” to servicers, his spokesman Danny Kanner said in an earlier statement. Any agreement should preserve the ability of attorneys general to “follow the facts where they lead and not be precluded from conducting comprehensive investigations,” Lauren Passalacqua, a Schneiderman spokeswoman, said in April.

State Negotiations

State officials and banks are negotiating the liability releases and haven’t yet reached an agreement, one of the people said.

Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, and Sean Kevelighan, a spokesman for New York- based Citigroup, declined to comment. Vickee Adams of San Francisco-based Wells Fargo and Gina Proia of Detroit-based Ally also declined to comment. A representative of New York-based JPMorgan didn’t respond to a request for comment.

Agreements with states would follow consent decrees that the 14 largest mortgage servicers reached last month with federal regulators including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. Firms pledged to pay back homeowners for losses from foreclosures or loans that were mishandled.

Iowa Attorney General Thomas J. Miller, a Democrat who is leading the talks on behalf of the states, said at the time that the federal accords wouldn’t halt efforts to extract financial penalties and overhaul procedures for home seizures.

--With assistance from Karen Freifeld in New York. Editors: David Scheer, Rick Green.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; John Pickering at jpickering@bloomberg.net

View the original article here

Starting Small with High Yield Investment Programs

"The key to making money in stocks is not to get scared out of them." - Peter Lynch

Are you interested in investments but the thought of actually doing it scares you to death? Do you wonder exactly how much money you need to start investing? To begin investing, new investors need to remember to start small and be educated.

You can start investing, today, for only $100 dollars. Most people can scrape together an extra hundred dollars and begin investing. The goal is to find the investment which will give you the highest return possible and really make that $100 dollars work for you.

After all you worked hard for it. Most people think that the only place to invest money is in stocks, bonds, real estate, and mutual funds. However, one of the best ways to invest small amounts of money or 'capital' is in high yield investment programs or HYIPs.

High yield investment programs are available online and anyone can invest in them. The individual can choose how much they want to invest, who to invest in, and when to stop investing. High yield investment programs are open to anyone who wants to participate in them unlike other investment vehicles which require a huge initial investment. Most high yield investments give a 20% to 40% rate of return per month. If you begin with a $100 dollars at the end of the month, you can see your money grow to $140 dollars. If you choose to keep reinvesting this money could quickly reach several thousands of dollars.

It is important to point out that all investments have risk, and high yield investment programs do.

They are a great way to raise capital quickly but they are not secure enough for establishing long term wealth. This type of investment takes the same level of research and money management as other investments doe. High yield investment programs can also be financial schemes. Make sure before you invest in anything that you fully research the company and investment guidelines.

You can start investing with just $100 dollars. Starting small, is the best way to get your feet wet in the stock market and know if it is right for you. By starting small you have very little to lose. In the worse case scenario, you lose your $100 dollars and move on. Do not miss out on making your money work for you because you are afraid. You should not fear investing, when done right, it can be extremely rewarding. Everyone, no matter how much money they have, has the right and the ability to invest and secure their financial future..

Visit the Global Investment Institute [http://www.global-investment-institute.com/glossary/terms.php] and signup for our free Investing For Beginners E-Course at www.Global-Investment-Institute.com Investment webmasters or publishers, please feel free to use this article provided this reference is included and all links remain active.

In Brazil, the Bikini Wax Is a Harbinger of Inflation

Thales Stadler/Agencia Estado/ZumaPress

By Iuri Dantas

If you're getting a bikini wax in Brazil, you'll likely find that the cost is rising. And if you're an economic policy maker, you'll likely see that as a problem, since the bikini wax is one of the items the Brazilians track to figure out inflation.

As with services ranging from car repair to dentistry, the price of waxing is going up in one of the world's most important emerging markets. Inflation is moving above the government's target and may force Alexandre Tombini, the central bank president, to prolong his policy of interest-rate hikes.

Price increases for services, which make up 24.1 percent of Brazil's benchmark inflation index, outpaced all other categories in the past two months, according to data released on May 11 by the central bank. They rose 8.57 percent in the year through April, the fastest pace in at least 15 years. "Services will continue to be the main villain of inflation," says Fernando Fix, chief economist at Votorantim Wealth Management in Sao Paulo. "Domestic demand is too strong."

That includes demand for bikini waxes, which are often considered a necessity, says Elzimar Siqueira, former owner of a beauty shop and now head of administrative affairs at the Syndicate of Women's Beauty and Hairdressing Institutes of Rio de Janeiro. "We have summer all year, we're always wearing bikinis and miniskirts," she says. At the Imaculada Hair and Makeup shop in Brasilia, owner Alessandra Rita de Arruda Lopes says she's raised the price to 35 reais ($21.63) from 30 reais. The average price of the depilation procedure rose 12.4 percent in the year through April, the national statistics agency says. A bikini wax at J. Sisters in Manhattan costs $75.

Consumer price increases in Latin America's biggest economy breached the government's 6.5 percent target ceiling in the year through April for the first time since June 2005. The benchmark interest rate has now reached 12 percent, and economists expect the central bank to boost it to 12.5 percent by year-end, a recent survey showed.

Gross domestic product per capita reached a record $10,813 last year, after the economy grew 7.5 percent, the fastest pace in more than two decades. Such growth boosts demand for services. Also contributing to higher prices is a tight labor market, which drives wages up. Wages may be bumped up again after collective bargaining late this year and next, says Constantin Jancso, an economic analyst at Sao Paulo-based HSBC Bank Brasil. "Negotiations with metalworkers and bankers begin in the third quarter," he says. "I wouldn't be surprised to see increases of 10 percent."

Prices of 20 of 41 services monitored by the central bank accelerated in April from March. Oil changes and car cleaning prices rose 18.25 percent in the year through April. Hotels increased prices by 14.03 percent.

Price hikes in Brazil are also spurred by indexation, in which past inflation is used as a benchmark for raising prices. The minimum wage, for example, is computed annually by adding the previous year's inflation to economic growth from two years back. In 2012 the minimum wage will likely go up more than 13 percent.

Higher wages are one reason beauty shop owner Lopes is raising prices. Meal vouchers, cosmetics, and the cost of "depi rolls," which are used to spread the wax for depilation, are also rising, she says. "Some clients are coming less frequently for haircuts because of the higher price," she says. "But not for waxing. Brazilian women will never stop getting waxed."

The bottom line: Services from bikini waxes to car repairs are getting pricier in Brazil, prompting fears of higher inflation and higher wages.

Dantas is a reporter for Bloomberg News.

View the original article here

State Budget Cuts, Reconsidered

From left to right: Jerry Brown, Scott Walker, and Chris Christie Ken James/Bloomberg; Scott Olson/Getty Images; Ramin Talaie/Bloomberg

By Margaret Newkirk

On May 11, when Wisconsin's State Budget Office announced that two-year tax revenue would be $636 million more than expected, school officials were heartened. They hoped the newfound money would be used to help restore an $834 million cut in school funding proposed by Governor Scott Walker. It wasn't to be. Within hours of the announcement, Walker said he wanted to use the money in other ways, including retiring the state's bond debt ahead of time. "Just like Wisconsin families," he said in a statement, "our first priority is to pay off past-due bills and debts."

A new chapter in the budget drama is playing out in statehouses across the country as the recovery begins to kick in. State revenue tumbled when the effects of the housing collapse rippled through the economy in late 2008. Governments reacted by increasing taxes and cutting services. In a handful of states, Republicans have called for reforms meant to shrink government and reduce the number of state employees. Now the rationale for those policies is beginning to weaken.

Evidence of a turnaround in state finances seemed to surface almost daily in May. California, Texas, Ohio, Connecticut, New Jersey, Michigan, and Colorado all reported higher-than-­anticipated tax revenues, setting off a scramble to rejigger budget projections. In nearly every state in the nation, revenue is up, year over year, for the fifth straight quarter, according to reports by Goldman Sachs (GS) and the Nelson A. Rockefeller Institute of Government. The Rockefeller report, released on May 24, pegged the overall increase in the first quarter of 2011 at 9.1 percent, the largest gain since 2006.

Tax hikes played a role in the improvement. Illinois raised its personal income tax rate from 3 percent to 5 percent in January, for instance. Yet most of the new revenue came from an increase in personal and corporate tax collections as the economy rebounded. The biggest bump in state revenue, 15 percent, was in the industrial Midwest. Goldman Sachs's analysis suggests the growth was even stronger in April.

Not everyone is convinced that public finances are on the mend. In a May 18 interview, analyst Meredith Whitney of the Meredith Whitney Advisory Group predicted a "waterfall" of credit-rating downgrades on public debt. Some public policy experts are also cautious, arguing that the recovery in states' finances remains fragile. "It's important to keep in mind that they're in a very, very deep hole," says Phil Oliff, a policy analyst with the Center on Budget and Policy Priorities in Washington. "They're just beginning to dig out."

State tax collections in the first quarter were still down $4.9 billion, or 3.1 percent, from the same quarter three years ago, according to Lucy Dadayan, an analyst at the Rockefeller Institute. In California, Governor Jerry Brown's May 16 announcement of a $6.6 billion upward revision to the state's revenue projections still left the state $10 billion short of its needs. Disappearing federal stimulus funding will also dampen state outlooks.

At least two states, Colorado and Michigan, have softened planned budget cuts. In California, the revenue bump is undermining Republican support for Brown's push to extend about $9 billion in taxes that are set to expire on June 30. Brown wants the issue on the ballot this fall. "States developed a really bad habit of living beyond their means when times were good and then relying on the federal government to bail them out," says Curtis Dubay, a senior policy analyst at the conservative Heritage Foundation.

Governors in Ohio, Wisconsin, and New Jersey want to use new revenue to retire debt or cut taxes instead of restoring funding to programs. "The party is over, and the adults have returned," New Jersey Governor Chris Christie, a first-term Republican, said on a May 19 radio show shortly after the state's legislative forecaster revealed that revenue through June 2012 would be $914 million higher than predicted. "It's time for us to pay our bills, cut the size of government, and cut taxes." Six days later the state Supreme Court rebuffed Christie's plans, ordering him to direct $500 million from next year's budget to the state's poorest school districts.

In Wisconsin, where Walker's battles with teachers and other public workers roiled the capital this winter, the governor's office said he intended to run the state conservatively, including paying down debt. School officials hope lawmakers overrule him. Walker "said these historic cuts were based on the fact that we were going broke," says Miles Turner, executive director of the Wisconsin Association of School District Administrators. "This should have been good news."

The bottom line: A faster-than-expected recovery in tax revenue has some states loosening their belts, while others stick to austerity plans.

With Michael Marois. Newkirk is a reporter for Bloomberg News.

View the original article here

UBS Has No Plan to Split Off Its Investment-Banking Division

May 26, 2011, 12:25 PM EDT By Elena Logutenkova

May 26 (Bloomberg) -- UBS AG, the biggest Swiss bank, said it has no plan to split off its investment-banking division and has not entered into talks with regulators about moving the headquarters of the company outside Switzerland.

UBS sent a note to employees today affirming a “commitment” to the investment bank and adding that “there is no basis for speculation about splitting off” the unit. Separately, Chief Executive Officer Oswald Gruebel said by phone that “there are no talks with regulators about reincorporating a holding company outside of Switzerland.”

Questions have swirled around Gruebel’s intentions since he said in February that UBS may change its structure in the face of Swiss capital requirements that are tougher than elsewhere. Moving its investment bank to another jurisdiction wouldn’t allow the Zurich-based bank to escape the reach of Swiss rules as long as its headquarters are still in the country, Mark Branson, head of banking supervision at the Swiss regulator, has said.

Gruebel said in February that UBS could move some of the more capital-intensive businesses outside of Switzerland. With rules and capital requirements still in flux, the bank will evaluate options for different businesses once it becomes clear what regulators in different countries will demand, he said then.

UBS rose 9 centimes, or 0.6 percent, to 16.09 francs in Swiss trading, bringing the gain this year to 4.8 percent and valuing the company at 61.6 billion francs ($71.2 billion).

Crying Into Beer

The Wall Street Journal said earlier today the bank is planning to separate the securities division and incorporate it outside of Switzerland, a report UBS said was “speculation.”

Turning UBS’s investment bank into a standalone entity would probably drive up funding costs for the unit, which is still rebuilding after record losses in 2008. While the division posted its first annual pretax profit since 2006 last year, of 2.2 billion francs, it had the lowest revenue from trading, underwriting stock and bond sales and advising clients on mergers and acquisitions among the nine biggest investment banks, according to data compiled by Bloomberg.

Branson, head of banking supervision at the Swiss Financial Market Supervisory Authority, said in March that trading business “has always moved from place to place and always will,” adding that it’s “not an unintended consequence” of Swiss regulation that banks reconsider the future of their securities units.

Capital Rules

The Swiss government this year proposed changes to banking laws to require UBS and Credit Suisse Group AG to hold almost twice the capital required under the international Basel III rules as of 2019.

“Gruebel is very concerned about the fact that Basel III and the stringent Swiss capital requirements are going to make it difficult to earn adequate returns in certain businesses,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “We are not convinced the Swiss regulators would be crying into their beer if some of UBS’s investment banking activities came off the Swiss balance sheet and effectively moved away from Swiss regulation.”

Switzerland had to invest 6 billion francs in October 2008 to help UBS spin off its risky assets into a central bank fund after the company amassed the biggest losses and writedowns from the credit crisis among European lenders at the time. The proposed new rules aim to make sure that the banks’ Swiss businesses survive in a future crisis, even if the rest is wound down, the government said.

‘Migrating’ Business

“We also hear a lot about business migrating across jurisdictions,” Branson told journalists at a press conference in Bern on March 22. “Our responsibility is to set appropriate conditions for banking activities in this country. The responsibility of business leaders is to assess their options, and take the big decisions in the best interests principally of their shareholders.”

Some Swiss shareholders at the bank’s annual meeting last month criticized Gruebel, 67, and Chairman Kaspar Villiger, 70, for voicing reservations about the government’s proposal for stricter capital requirements.

“In this difficult environment, we, as a global bank, 80 percent of whose shareholders are non-Swiss, must seek the optimum structure for our business,” Villiger told shareholders.

--Editors: Frank Connelly, Steve Bailey

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

View the original article here

Luxury Brands Take IPOs to Hong Kong

Prada's Hong Kong store: Luxury's future is in the East Alex Hofford/EPA

By Frederik Balfour

Prada, the Milan-based luxury goods house, is expected to list its shares in Hong Kong in a $2 billion initial public offering on June 24. Prada will follow on the success of organic cosmetics and skin-care maker L'Occitane Internationale, which raised $840 million in Hong Kong last year. Prada's choice of the Hong Kong stock exchange over bourses in Milan, London, and New York is more evidence that the globe's economic center of gravity is shifting to Asia. "Companies want to face their future, not their past," says Sam Kendall, head of equity capital markets for Asia-Pacific at UBS (UBS).

The flurry of international listings is helping Hong Kong boost its IPO tally. In 2010, companies raised $51.8 billion through 95 IPOs on Hong Kong's stock exchange, compared with a total of $48.22 billion in 196 deals on the New York Stock Exchange (NYX) and Nasdaq (NDAQ). So far this year, 25 IPOs in Hong Kong have raised $7.7 billion.

With Asians accounting for as much as 50 percent of luxury sales globally, a Hong Kong listing is a no-brainer, says Aaron Fischer, head of consumer and gaming research at brokerage CLSA Asia-Pacific Markets. The growth prospects for its business in Asia is the main reason Samsonite chose Hong Kong for its IPO, say people involved in the deal who asked not to be quoted prior to the June listing. The world's largest luggage brand, owned by London-based CVC Capital Partners and the Royal Bank of Scotland, projects Asia will account for half its profits by 2012. Coach (COH), the largest U.S. handbag maker, trading on the New York Stock Exchange, plans to list shares in Hong Kong, in the form of depositary receipts, before the end of the year to "raise awareness of the Coach brand among investors and consumers in the China market," said Chief Executive Officer Lew Frankfort in a statement.

Another attraction of Hong Kong is that it allows investment banks to make deals with wealthy investors to buy shares before marketing the IPO to the public—a practice not allowed in the U.S. Such "cornerstone" investors agree to hold their shares for six months after buying at the offering price. Their participation can make it easier to build enthusiasm for the offering. "The retail guys are very affected when they see some billionaire willing to lock himself in for six months," says George Lin, an investment banking executive at Credit Suisse (CS). MGM China (MGM), which is hoping to raise as much as $1.5 billion by listing its Macau operations in Hong Kong on June 3, signed Kirk Kerkorian and Hong Kong property magnate Walter Kwok, according to the prospectus.

It isn't just consumer brands heading to Hong Kong. The world's largest aluminum producer, United Company Rusal, raised $2.1 billion in 2010, and Swiss commodities trading group Glencore International allocated 2.7 percent of its $10 billion global IPO in May to Hong Kong retail investors. "A Hong Kong listing will raise the profile with all the suppliers and customers we deal with over there," says Glencore CEO Ivan Glasenberg. "We thought it was very important to be involved in this region."

The bottom line: Hong Kong is becoming a market of choice for global companies selling shares to the public, with 25 IPOs raising $7.7 billion this year.

Balfour is Asia correspondent for Bloomberg Businessweek in Hong Kong.

View the original article here

BofA, Morgan Stanley Settle Claims on Military Foreclosures

May 26, 2011, 5:45 PM EDT By Justin Blum

(Updates with banks’ comments in fifth to seventh paragraphs.)

May 26 (Bloomberg) -- Bank of America Corp. and Morgan Stanley units will pay $22.4 million to resolve U.S. allegations that they improperly foreclosed on active-duty soldiers, including some who suffered severe injuries, without first obtaining court orders.

The Bank of America unit will pay $20 million to settle a lawsuit alleging improper foreclosure on about 160 members of the military between 2006 and 2009, the Justice Department said in a statement today. Morgan Stanley’s Saxon Mortgage Services Inc. unit will pay $2.35 million to resolve a lawsuit alleging it improperly foreclosed on 17 service members from 2006 to 2009.

“The men and women who serve our nation in the armed forces deserve, at the very least, to know that they will not have their homes taken from them wrongfully while they are bravely putting their lives on the line on behalf of their country,” Thomas Perez, the assistant attorney general overseeing the Justice Department’s civil rights division, said in today’s statement.

The foreclosures violated the Servicemembers Civil Relief Act, which was enacted to shield deployed military personnel from financial stress, according to the Justice Department.

‘Not Acceptable’

“These errors are not acceptable, and we certainly regret them,” Terry Laughlin, head of Bank of America’s unit managing foreclosures and defaulted loans, said in an e-mail. “While most cases involve loans originated by Countrywide and the improper foreclosures were taken or started by Countrywide prior to our acquisition, it is our responsibility to make things right.”

Morgan Stanley apologizes to the military families affected by the mistakes, Mark Lake, a spokesman for the New York-based bank, said in an e-mailed statement.

“Our servicemen and women deserve the highest level of customer service,” Lake said. “Saxon has taken meaningful steps to ensure it has appropriate policies and procedures in place to comply fully with the Servicemembers Civil Relief Act.”

Last month, JPMorgan Chase & Co. agreed to pay $27 million in cash to about 6,000 active-duty military personnel who were overcharged on their mortgages, cut interest rates on soldiers’ home loans and return homes that were wrongfully foreclosed upon, according to settlement terms filed in federal court in Beaufort, South Carolina.

JPMorgan Chief Executive Officer Jamie Dimon apologized this month for improperly foreclosing on U.S. military personnel.

‘Deeply Apologize’

“We deeply apologize to the military, the veterans, anyone who’s ever served this country,” Dimon said during the New York-based bank’s annual shareholder meeting.

In many instances, the lenders knew or should have known about the military status of the service members, according to the Justice Department. Victims included people who served in Iraq and Afghanistan.

Some of those in the military foreclosed on by Saxon were severely injured in the line of duty or suffer from post- traumatic stress disorder, according to the Justice Department.

--With assistance from Hugh Son, Michael J. Moore and David McLaughlin in New York. Editors: Fred Strasser, Stephen Farr

To contact the reporter on this story: Justin Blum in Washington at jblum4@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

View the original article here

Wages Poised to Rise in U.S. as Paychecks for Temps Get Bigger

May 26, 2011, 12:16 AM EDT By Anna-Louise Jackson and Anthony Feld

May 26 (Bloomberg) -- Staffing agencies are charging companies more for temporary workers, a possible harbinger of a bump up in salaries for permanent employees later this year.

The bill rate at Calabasas, California-based On Assignment Inc., which places temporary staff primarily in the information technology and health-care fields, climbed 6.3 percent in the quarter ended March 31 from the same time last year, the largest 12-month gain since 2008.

The increase in the amount the company charged was “surprising,” said Tobey Sommer, a staffing analyst at SunTrust Robinson Humphrey Inc. in Nashville, Tennessee.

Agencies like On Assignment are the first to reflect shifts in wages because demand for their services is more immediate, prompting “real time” changes in fees, Sommer said. By contrast, he said, employers calibrate compensation for permanent workers less frequently, causing those adjustments to lag behind.

The temp labor market is a “canary in the coal mine” for broader gains in wages, Sommer said. “Bill-rate increases are starting in areas where demand is the strongest, like the IT sector. The logical next step is for bill rates to improve more broadly and ultimately be reflected in the wage gains of permanent employees.”

On Assignment had “robust” revenue growth in its information technology and engineering business during the first quarter, driven in part by higher contract rates, Chief Executive Officer Peter Dameris said on an April 28 conference call. “Exiting the quarter, demand for our services strengthened in all divisions,” he said.

Fees Climb

Companies specializing in placing health-care workers are also starting to command higher fees. San Diego-based AMN Healthcare Services Inc. increased its rates twice as many times in the first four months of the year than it did in the first six months of 2010, Susan Salka, president and chief executive officer, said in a May 5 conference call. Cross Country Healthcare Inc., based in Boca Raton, Florida, expects to increase rates in the second half of the year, CEO Joseph Boshart said in a call the same day.

Robert Half International Inc., which specializes in finance and legal work, is also seeing a pickup. The Menlo Park, California-based company increased pricing by 2.4 percent in the first quarter from the prior year, Chief Financial Officer Keith Waddell said on an April 21 conference call.

“We’re seeing higher pay rates in every single division sequentially,” Waddell said. This is one of the precursors of “good things to come in staffing,” he said.

Skilled Temps

Wage growth for temps is likely limited to workers whose skills are in relatively short supply, said Kathryn Kobe, director of price, wage, and productivity analysis at Economic Consulting Services LLC in Washington. Nonetheless, the employment situation has started to improve enough to expect a pickup in overall wage gains by year end, she said.

Recent increases in the Wage Trend Indicator, an index created by Kobe and economist Joel Popkin for the Bureau of National Affairs, a private provider of economic data, indicate pay will climb.

The gauge points to about a 2 percent increase in the Employment Cost Index by the end of the year, which would be the biggest gain since the first quarter of 2009, according to BNA. Through the first quarter, the ECI, a broad measure of compensation, posted a 1.6 percent year-over-year gain, according to Labor Department data.

“We’re seeing enough forward momentum in the economy that we’re expecting to see modest wage and salary gains,” Kobe said.

ADP’s Clients

In another sign wage gains are broadening, funds held by Roseland, New Jersey-based Automatic Data Processing Inc. for its clients are rising, according to Rod Bourgeois, an analyst at Sanford C. Bernstein & Co. in New York, who maintains an “outperform” rating on the provider of payroll services to about 550,000 companies.

Average client balances, or the money ADP receives to pay wages to customer employees, increased 12 percent in the quarter ending March 31, Chief Executive Officer Gary Butler said in a May 2 statement. Such funds climbed to a record in April, breaking the previous high reached in March 2008, Butler said on a conference call the same day.

This is “resounding evidence” that salary gains are improving, said Bourgeois. While some of that growth may be attributed to a larger client base or other non-wage reasons, these are not large enough to account for all the gain, he said.

Bourgeois estimated that gains in salaries accounted for about half of the 12 percent increase in ADP’s client funds.

Fed View

Federal Reserve policy makers at their April meeting were less optimistic on the outlook for wage increases as unemployment hovers around 9 percent.

“Wage increases continued to be restrained by the presence of a large margin of slack in the labor market,” central bankers said. “Signs of rising wage pressures were reportedly limited to a few skilled job categories for which workers are in short supply, while, in general, increases in wages have been subdued.”

Even moderate wage gains in some areas of the labor market are an encouraging sign that higher paychecks may be on the way for other temporary and permanent workers, according to Bourgeois.

“High unemployment is an ongoing economic problem, but ADP’s recent results show solid signs of wage gains across a quite diverse set of employers,” Bourgeois said. “Broader pay increases are feasible if economic expansion continues.”

--Editors: Carlos Torres, Vince Golle

To contact the reporters on this story: Anna-Louise Jackson in New York at ajackson36@bloomberg.net; Anthony Feld in New York at afeld2@bloomberg.net

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

View the original article here

Ralcorp's Stellar Dealmaker

By Matthew Boyle

Since March, William P. Stiritz, the chairman and chief dealmaker of Ralcorp Holdings (RAH), has spurned two unsolicited takeover offers from ConAgra Foods (CAG). If Stiritz, 76, squeezes a higher price from ConAgra and changes his mind—which analysts including BB&T's Heather Jones say is likely—the sale would cap three decades of dealmaking. "He's probably among the best moneymakers of the past 30 years," says John McMillin, a food industry analyst at Prudential Securities from 1985 to 2007. "He's right up there with [former Nabisco and Gillette (PG) Chief Executive] Jim Kilts and Colgate's (CL) Reuben Mark. He's a Warren Buffett-like character, but stays out of the limelight."

Stiritz, who declined to comment for this story, became chief executive of Ralcorp's predecessor in 1981. Back then, Ralston Purina was a mishmash of unrelated businesses, including the St. Louis Blues hockey team and a mushroom farm. Stiritz jettisoned every piece of Ralston Purina that did not fit his vision of a top-notch consumer products company, including the animal feed business that had been the company's core since its founding in 1894. "He's a focused, numbers-driven guy," says Jim Nichols, who worked for Stiritz for more than 25 years at Ralston and Ralcorp. "He has little emotional attachment to companies."

Raised by his grandparents in rural northwest Arkansas, Stiritz earned a master's degree in European history from St. Louis University in 1968. After working at a St. Louis ad agency, Stiritz joined Ralston Purina as a marketing executive and worked his way up the ranks. As CEO, he concentrated on strategy. "Was he charismatic? No. But he was brilliant," says Nichols. "He was three or four moves ahead of his peers."

Stiritz sold parts of Ralston and added others such as Eveready Battery, maker of Energizer, which he bought from Union Carbide in 1986. In 1989 he bought Beech-Nut, a baby food maker that lagged industry leader Gerber and had lost money for years. Stiritz cut costs, jazzed up marketing, and turned Beech-Nut around. Five years later, he spun off Ralston Purina's cereal, baby food, and other units into Ralcorp. Stiritz chaired Ralcorp's board and remained chairman and CEO of Ralston Purina. In 2000, he spun off Energizer Holdings (ENR), the battery business, and served as chairman until 2007.

In 2001, Stiritz sold Ralston Purina—by then just a pet-chow business—to Nestle and focused on building Ralcorp. He expanded into nuts, sauces, and frozen foods, then acquired Post, maker of Grape-Nuts, from Kraft Foods (KFT) in 2008. Last year Stiritz paid $1.2 billion for American Italian Pasta, which makes store-brand spaghetti for Wal-Mart Stores (WMT) and other grocers.

Today Ralcorp generates $4 billion in sales, three-quarters of it from private-label cereal, pasta, sauces, and other foods. Sales in the first half of its 2011 fiscal year rose 20 percent, and on May 2 the company forecast full-year profit that surpassed analysts' expectations, fueled by the performance of those acquisitions. Over the 10 years through Apr. 28, Ralcorp stock rose 356 percent, compared with 100 percent for the Standard & Poor's 400 MidCap stock index, of which Ralcorp is a component. That doesn't count the 23 percent surge to $87.79 from Apr. 29 to May 24 fueled by the ConAgra takeover talk. Those who have worked and invested with Stiritz say he'll sell Ralcorp to ConAgra eventually, once he gets the price he's after—somewhere between $92 and $100 per share. "There's a willingness to do a deal," says Jack Murphy, senior portfolio manager at Levin Capital Strategies, which owns Ralcorp shares. ConAgra declined to comment.

"This is his last hurrah, so he's pushing for everything he can get," says Nichols, the former Ralcorp executive. "Nobody would have looked at Ralcorp in 1994 and imagined that, 17 years later, it would be a $100-a-share business. Nobody."

The bottom line: If he gets the right price, dealmaker Stiritz may sell Ralcorp to ConAgra. The stock is up 23 percent since Apr. 29 on takeover chatter.

Boyle is a reporter for Bloomberg News.

View the original article here

Most European Stocks Fall on Concern IMF May Withhold Greek Aid

May 26, 2011, 12:27 PM EDT By Giles Broom

May 26 (Bloomberg) -- Most European stocks retreated after the head of the group of euro-area finance ministers said the International Monetary Fund may not release its portion of an aid payment to Greece next month.

UniCredit SpA, Italy’s biggest bank, and Banco Espirito Santo SA, Portugal’s largest by market value, both lost more than 2 percent. Burberry Group Plc, the U.K.’s biggest luxury retailer, tumbled 4.6 percent. Man Group Plc jumped 2.5 percent after the world’s biggest publicly traded hedge fund manager said profit fell less than it had previously forecast and client assets increased.

The Stoxx 600 declined 0.1 percent to 277.14 at the 4:30 p.m. close in London as three stocks fell for every two that climbed. The gauge has risen 5.7 percent from this year’s low on March 16 as investors speculated that company profits and government stimulus measures will keep the economic recovery on track.

“Should Greece default, it is a problematic scenario for risky assets and for the financial system,” said Thomas Steinemann, chief strategist at Vontobel Holding AG in Zurich, whose team helps oversee about $80 billion. “It’s a story killer.”

National benchmark indexes dropped in 16 out of 18 West European countries today. The U.K.’s FTSE 100 Index climbed 0.2 percent and France’s CAC 40 Index lost 0.3 percent. Germany’s DAX Index slumped 0.8 percent. The Euro Stoxx 50 Index for companies in the euro area fell 0.5 percent to 2,797.

Juncker Speaks

European stocks consolidated their losses as Jean-Claude Juncker, who leads the euro area’s group of finance ministers, said that the IMF may withhold its 3.3 billion-euro ($4.7 billion) contribution to the 12 billion-euro payment that Greece had expected to receive next month.

“There are specific IMF rules and one of those rules says that IMF can only take action when the refinancing guarantee is given over 12 months,” Juncker said at a conference in Luxembourg. “I don’t think that the troika will come to the conclusion that this is given,” he said.

UniCredit retreated 2.9 percent to 1.52 euros. Espirito Santo declined 2.3 percent to 2.72 euros. The cost to insure Greek sovereign debt rose 7 basis points to 1,424, according to CMA prices for credit-default swaps. That signals a 69 percent chance of default within five years.

U.S. Economic Growth

The U.S. economy grew at a 1.8 percent annual rate in the first quarter, less than economists had forecast, reflecting a smaller gain in consumer spending than previously calculated.

The revised increase in gross domestic product was the same as the U.S. Commerce Department estimated last month and compared with a 3.1 percent gain in the prior quarter. The median projection of economists surveyed by Bloomberg News called for a 2.2 percent increase.

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota yesterday trimmed his forecast for U.S. economic growth and slightly raised his outlook for unemployment, while reiterating his call for higher interest rates this year.

Kocherlakota predicted unemployment of “close to 8.5 percent” at year’s end, in a speech in Rochester, Minnesota, an estimate contrasting with “between 8 percent and 8.5 percent” in a May 11 speech. He estimated that the economy will grow “around 3 percent,” compared with “between 3 percent and 3.5 percent.”

Burberry Shares Slip

Burberry sank 4.6 percent to 1,260 pence as the company said that its operating margin will probably fall in the first six months of the fiscal year. Burberry, which is best known for its plaid-lined trench coats, also reported that full-year adjusted pretax profit rose 39 percent to 298 million pounds ($487 million). That beat the 292.8 million-pound average estimate of six analysts surveyed by Bloomberg.

“The level of investment is expected to weigh on first- half margins,” Katherine Wynne and David Jeary, analysts at Investec Plc, wrote in a note to clients today. “After a strong run, the shares may pause for breath, but we remain buyers for the sustainable growth story.” Burberry has soared 13 percent this year, while the FTSE 100 Index has failed to advance more than 0.1 percent.

Vestas Wind Systems A/S, the largest wind-turbine manufacturer, slumped 5.8 percent to 145.60 kroner. Jim Chanos, the short seller known for predicting Enron Corp.’s collapse, said investors should bet against the stock. The company “will be under financial strain and best avoided,” Chanos said yesterday at the Ira Sohn Conference in New York after European markets had closed.

SIG, Man Group

SIG Plc sank 2.2 percent to 148.1 pence after BofA Merrill Lynch cut its rating on the shares to “underperform” from “neutral.”

Bayer AG fell 1.9 percent to 54.71 euros after UBS AG cut its recommendation on the maker of aspirins to “neutral” from “buy,” citing valuation and “less positively skewed” near- term catalysts for the company’s Xarelto blood-thinner.

Man Group jumped 2.5 percent to 245 pence after saying full-year pretax profit from continuing operations dropped to $324 million from $541 million a year earlier. That beat Man’s March forecast for pretax profit of $280 million. Funds under management totaled $71 billion, up from $69.1 billion at the end of March, Man said.

Nobel Biocare rallied 6.3 percent to 18.65 Swiss francs, its biggest jump in 18 months, after Morgan Stanley raised the stock to “overweight” from “underweight.” The brokerage predicted that dental implant sales will accelerate.

Weir, Hellenic Telecommunications

Weir Group Plc, the Glasgow-based engineering company, rallied 5.3 percent to 1,984 pence, its highest price since at least 1989.

“We still remain positive in respect of Weir’s outlook,” Andrew Douglas, an analyst at Royal Bank of Scotland Group Plc in London, wrote in a note to clients late yesterday. “The shale story has a long way to go, in our view, both in North America and on a global scale, and we expect Weir to be a strong beneficiary of this future growth.”

Hellenic Telecommunications Organization SA climbed 4.8 percent to 7 euros after website Euro2day reported that Greece’s government will sell a 10 percent stake in the company to Deutsche Telekom AG within the next few days. Euro2day didn’t say how it got the information.

Elan Corp. gained 2.1 percent to 6.31 euros, its highest price since February 2009. The Irish drugmaker will probably do another licensing deal in the next six months, Chief Executive Officer Kelly Martin said after the close of trading yesterday.

Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, advanced 3.5 percent to 1,258 pence after saying first-quarter profit rose 30 percent as output grew and prices climbed to a record.

--With assistance from Alexis Xydias in London. Editors: Will Hadfield, Mark Gilbert

To contact the reporter on this story: Giles Broom in Zurich at gbroom@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

View the original article here

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

View the original article here