Fifth Third's Wirtz on Investment Strategy, Stocks

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

Perils and Rewards of Online Investment Programs - Research - Part Two

Sumitomo Mitsui Eyes European Banks’ $90 Billion in Asset

December 30, 2011, 9:18 PM EST By Shigeru Sato and Takako Taniguchi

(Updates with closing share price in seventh paragraph.)

Dec. 30 (Bloomberg) -- Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank by market value, plans to buy “several hundred billion yen” of assets being sold by European lenders building capital to weather the region’s debt crisis.

The Tokyo-based bank has received 7 trillion yen ($90 billion) in offers from European banks including infrastructure project loans, Koichi Miyata, Sumitomo Mitsui’s president, said in an interview on Dec. 21. Sellers of European banking assets currently outnumber buyers, he said.

“We’ll take time and go for it once we find what we want” Miyata said. “Loans for projects in North America and Asia are the areas we are interested in.”

The euro area’s debt crisis has increased the risk of government and bank defaults, raising credit costs and pushing the region’s biggest lenders, including Spain’s Banco Santander SA and Royal Bank of Scotland Group Plc, to sell assets and boost liquidity. Miyata aims to add 6 trillion yen worth of overseas assets to his bank in next three years to help offset sluggish Japanese loan demand.

Japan’s so-called megabanks, the three biggest lenders led by Mitsubishi UFJ Financial Group Inc., have accelerated overseas lending in the past two years, as the country’s total lending shrank by 1.2 percent in 2009 and 2.1 percent in 2010.

Sumitomo Mitsui’s banking unit increased lending abroad by 16.3 percent to 9.37 trillion yen as of Sept. 30 from a year earlier, it said last month. That compares with the bank’s overall lending balance of 57 trillion yen, a 0.6 percent decline from a year earlier.

European Sales

Shares of the bank rose 0.9 percent to close at 2,144 yen on the Tokyo Stock Exchange today, the last trading day of the year. The stock declined 26 percent in 2011.

Bank of Ireland agreed to sell part of its project finance loans to Sumitomo Mitsui for 590 million euro ($764 million), the Irish lender said in a statement on Nov. 28. The loans relate to a portfolio of infrastructure and energy assets across North America and Europe, according to the statement.

Sumitomo Mitsui’s overseas assets, mostly loans, totaled $122 billion, as of Sept. 30.

France’s BNP Paribas SA and Societe Generale SA, Belgium- based Dexia SA and KBC Groep NV, and Italy’s Intesa Sanpaolo SpA and UniCredit SpA are among lenders seeking buyers for project finance and corporate loans in the Middle East, five bankers who were approached with deals said, declining to be identified because the information is private. The offers were made over the past six months, they said.

Brokerage Expansion

Mitsubishi UFJ last month agreed to buy Royal Bank of Scotland Group Plc’s Australia-based infrastructure advisory business, following the Japanese lender’s 3.9 billion-pound ($6.1 billion) acquisition in 2010 of RBS’s project financing assets.

Sumitomo Mitsui would also consider buying an entire business unit from a European bank, said Miyata. While he didn’t elaborate on specific targets, the bank’s brokerage unit offers expansion opportunities as Japanese companies tap the strong yen to buy operations abroad, Miyata said. He predicts the yen will trade around 78 yen to the dollar next year.

The currency has risen 4.6 percent against the dollar this year to 77.6 yen today in Tokyo.

The bank’s SMBC Nikko unit started merger and acquisition advisory operations in Shanghai in January to win business from Japanese companies moving to faster-growing overseas markets, he said.

Japanese acquisitions abroad have climbed to about $88 billion this year, the most in any of the 12 years for which Bloomberg data is available, and more than double last year’s. Cross-border deals this year include Takeda Pharmaceutical Co.’s $13.7 billion acquisition of Swiss drugmaker Nycomed.

--With assistance from Arif Sharif in Dubai. Editors: James Gunsalus, Nathaniel Espino

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

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

View the original article here

'Show Me the Money': Cash Flow Generators

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

Congress Adds to Federal Mortgage Role

December 30, 2011, 10:11 AM EST By Clea Benson and Lorraine Woellert

(Updates with FHFA directing an increase of fees starting in fifth paragraph.)

Dec. 29 (Bloomberg) -- Washington lawmakers, who began 2011 with sweeping plans to shrink the U.S. government’s role in mortgage finance, are heading into 2012 after enacting policies that expand it.

An 11th-hour payroll tax cut extension signed into law last week will for the first time divert funds directly from Fannie Mae and Freddie Mac, the two mortgage-finance companies under U.S. conservatorship, to pay for general government expenses.

That move came after two others that also could increase government involvement: Lawmakers allowed a tax break on private mortgage insurance to expire and raised loan limits for mortgages insured by the Federal Housing Administration. Advocates of private mortgage finance say they are concerned that using fees from Fannie Mae and Freddie Mac is setting a precedent that will keep the government in the mortgage business for a decade or more.

“The goal was, at the beginning of the year, how do we wind these down?” said Edward Pinto, a resident fellow at the American Enterprise Institute, a Washington-based research organization that favors limited government. “And at the end of the year we have further entrenched them and made it more difficult to wind them down, which is classic Washington.”

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, today directed the companies to increase fees on new mortgages by an average of 10 basis points, or .1 percentage point, effective April 1, to comply with the law.

10 Basis Points

“The average guarantee fees charged in 2012 need to be at least 10 basis points greater than the average guarantee fees charged in 2011,” with the additional revenue remitted to the U.S. Treasury Department, FHFA Acting Director Edward J. DeMarco said in a written statement.

Fannie Mae, Freddie Mac and the FHA currently back more than 90 percent of loan originations, about double what they did during the subprime lending boom, according to Inside Mortgage Finance, a trade publication.

Earlier in the year, the Obama administration and members of Congress outlined plans to reverse that trend. In February, U.S. Treasury Secretary Timothy F. Geithner released three options for reducing government’s role in housing finance. Shortly afterward, Republicans introduced bills to wind down Fannie Mae and Freddie Mac, which have cost taxpayers about $153 billion since 2008 because of defaults on loans they guaranteed. The legislation never advanced because there was no agreement even within the Republican caucus on the best way to proceed.

Decade-Long Increase

In December, in a search to find about $36 billion to finance a two-month payroll tax cut, Congress ordered a decade- long increase in the premiums that Fannie Mae and Freddie Mac charge lenders to guarantee principal and interest on home loans. Lenders typically pass on the cost of the premiums, known as guarantee fees or g fees, to borrowers as higher interest rates.

The move is drawing criticism: It relies on long-term revenues from entities that Democrats and Republicans want to shrink, and the money won’t be spent to offset the risk of loan defaults.

“In effect, this is a tax on Fannie and Freddie mortgages,” said Bert Ely, a banking consultant in Alexandria, Virginia. “When you go to privatize or take any action to wind them down, you have a budget effect that you didn’t have before.”

‘Inherent Contradiction’

“It seems to be an inherent contradiction counting on revenue from a 10-year increase in guarantee fees from agencies that might not be around in 10 years,” said Joe Pigg, vice president of mortgage finance at the American Bankers Association, an industry trade group in Washington.

Housing analysts say they are concerned that lawmakers will now start looking to the government-sponsored enterprises as sources of funds for purposes unrelated to housing.

“Using the g fees as a funding source for general revenues sets a bad precedent for how you’re going to raise revenues,” said Ethan Handelman, vice president for policy and advocacy at the National Housing Conference, which advocates for government policies that support affordable housing.

The controversy over g fees comes on top of other policy changes that housing analysts say could keep the government entrenched in the mortgage market.

In November, House and Senate lawmakers increased the maximum size of FHA-insured loans to $729,750 from $625,500, a move opposed by Republican leaders including Representative Jeb Hensarling of Texas.

Insurance Tax Break

Congress also failed to extend a tax break on private mortgage insurance for low-downpayment borrowers that expires Dec. 31. Private mortgage insurers indemnify lenders against loan defaults, with the cost of premiums passed to homeowners. Eliminating the tax deduction raises the cost of private insurance and makes FHA insurance a more attractive alternative.

Congress’s rush to solve fiscal problems at the end of the year allows decisions to be made without going through the normal deliberative channels that might have produced outcomes more in line with the goal of reducing the government footprint in housing, Pinto said.

“You have these policies being made that aren’t really going through the regular order, and they’re not being discussed and hearings held and testimony taken,” he said. “They’re just being done as an expedient.”

Fannie Mae and Freddie Mac are also implementing plans of their own to raise guarantee fees even higher. DeMarco said the companies would gradually increase their rates as a way to reduce losses at the companies and limit their cost to taxpayers.

Those fee increases, which have already begun, are intended to better reflect the degree of risk that the GSEs are assuming when they guarantee mortgages, DeMarco said.

--Editors: Maura Reynolds, William Ahearn

To contact the reporters on this story: Clea Benson in Washington at Cbenson20@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

View the original article here

Contraction in China’s Manufacturing Boosts Easing Case: Economy

December 30, 2011, 10:45 PM EST By Bloomberg News

Dec. 30 (Bloomberg) -- China’s manufacturing contracted for a second month in December as Europe’s debt crisis cut export demand, fueling speculation that the central bank may cut lenders’ reserve requirements within days.

A purchasing managers’ index was at 48.7 in December from 47.7 in November, HSBC Holdings Plc and Markit Economics said today. A reading below 50 indicates a contraction.

Export orders fell in December for the first time in three months and domestic demand was “sluggish,” today’s report said. Demand for cash ahead of the week-long Chinese Lunar New Year holiday starting Jan. 23 may give officials an additional reason to cut banks’ reserve ratios after a reduction last month that was the first since 2008.

“A reserve ratio cut is likely to happen by Jan. 3, before markets resume trading,” said Li Wei, a Shanghai-based economist with Standard Chartered Bank. China’s exports are under threat because “the euro area is slipping into a recession and the U.S. is also expected to slow down in early 2012,” Li said.

A deeper slowdown in China, the world’s second-biggest economy, would impair a global expansion that is already faltering because of Europe’s austerity measures. Asian stocks rose today, paring the regional index’s first annual decline in three years, on signs of strength in the U.S. economy, where a report yesterday showed stronger-than-forecast home sales.

‘Starting to Bite’

The MSCI Asia Pacific Index added 0.2 percent at 12:42 p.m. in Tokyo, heading for an 18 percent drop this year.

In China, “weakening external demand is starting to bite,” said Qu Hongbin, a Hong Kong-based economist for HSBC. Policy easing may enable China’s economy to avoid a “hard landing,” he said.

Elsewhere in Asia, data from South Korea showed the government wrestling with elevated inflation even as threats to growth mount. The leadership handover in North Korea as Kim Jong Un takes control after the death of Kim Jong Il may undermine confidence in the South by adding to the risk of instability on the Korean peninsula.

South Korea’s inflation exceeded the central bank’s target and all forecasts in a Bloomberg News survey, limiting the scope for an interest-rate cut in January to support growth. Consumer prices rose 4.2 percent from a year earlier, matching November’s gain, Statistics Korea said. The median estimate of 12 analysts was 4 percent, and the central bank targets inflation of 2 percent to 4 percent.

Australian Lending

In Australia earlier, a central bank report showed private lending by banks and other financial companies rose 0.3 percent in November from the prior month, matching the median of nine economists’ forecasts.

In Europe today, reports may show house prices in the U.K. were unchanged in December from a month ago and German retail sales rose 0.2 percent in November from the prior month, according to the median estimates of economists surveyed by Bloomberg.

In Spain, a report may show consumer prices advanced 2.5 percent in December from a year ago, while figures on Italian producer prices may show a 0.1 percent gain in November from the month before, surveys showed.

The Chinese manufacturing index released today is based on answers to questionnaires sent to purchasing executives at over 400 manufacturing companies. The statistics bureau and the China Federation of Logistics and Purchasing will release a separate manufacturing index on Jan. 1. Last month, that gauge showed the first contraction since February 2009.

In November, China’s export growth was the weakest since 2009, excluding seasonal distortions at the start of each year.

Hitachi Construction Machinery Co., Japan’s second-largest heavy-equipment maker, said this month that Chinese demand for excavators will decline in the first half of next year, as the government prolongs a crackdown on property speculation.

Developer China Vanke Co.’s contract sales dropped 36 percent last month from a year earlier, while new home prices in Shanghai, Beijing, Shenzhen and Guangzhou slid from the previous month.

China’s inflation slowed to 4.2 percent in November, the slowest pace in 14 months. Third-quarter economic growth of 9.1 percent was the least in two years.

--Victoria Ruan with assistance from Ailing Tan in Singapore. Editors: Paul Panckhurst, Brendan Murray

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

View the original article here

Global M&A at Lowest Level Since Mid-2010

December 30, 2011, 11:03 AM EST By Serena Saitto

(Updates year-to-date figures starting in second paragraph.)

Dec. 29 (Bloomberg) -- The value of global takeovers dropped to the lowest level in more than a year this quarter, and dealmakers say Europe’s debt crisis may hamper a recovery in 2012 as cash-rich companies hold off on major purchases.

Mergers and acquisitions have slumped 15 percent from the previous three months to $464 billion, making the fourth quarter the slowest since mid-2010, according to data compiled by Bloomberg. For the year to date, announced takeover volume has risen just 3.2 percent to $2.26 trillion after regulatory hurdles scuttled AT&T Inc.’s bid for T-Mobile USA, which would have been 2011’s biggest deal.

Tightening credit markets, the risk of a euro-zone collapse and stock-market swings have deterred companies from pursuing transformational deals that would spur sales growth, M&A bankers said. Earlier in 2011, more favorable conditions emboldened acquirers to part with stockpiled cash, such as Johnson & Johnson’s $21.3 billion bid for Synthes Inc. and Express Scripts Inc.’s $29.1 billion offer for Medco Health Solutions Inc.

“There’s definitely pent-up demand for M&A as well- capitalized companies continue to focus on opportunities for strategic acquisitions,” said Yoel Zaoui, co-head of global M&A at Goldman Sachs Group Inc. “The key driver for M&A, however, is confidence, and in Europe, at the moment, that is lacking.”

Seven of the year’s 10 biggest deals were announced before August, when European markets fell the most since October 2008 amid a global stock rout and Standard & Poor’s cut the U.S. credit rating. Goldman Sachs is the top adviser on global takeovers for 2011, with $537 billion of deals this year, followed by JPMorgan Chase & Co. and Morgan Stanley, Bloomberg data show. This year’s growth in M&A volume compares with a 24 percent jump in 2010.

‘Wait and See’

Europe’s financial crisis will stifle lending, push the region into recession and weigh on the U.S. economy through early 2012, Jan Hatzius, Goldman Sachs’s chief economist, said on a Nov. 30 conference call. The euro zone’s unemployment rose to 10.3 percent in October, the highest since the currency began in 1999.

As the European crisis deepened, “dealmakers entered a wait-and-see mode, and that’s where we are now,” said Paul Parker, global head of M&A at Barclays Plc in New York. “Offsetting forces such as companies’ cash piles and low valuations should drive the recovery of M&A activity in the second half of the year.”

The MSCI World Index of about 1,600 companies trades for 12.6 times reported earnings, showing equities in developed economies are cheaper than they’ve been more than 95 percent of the time since 1995, according to data compiled by Bloomberg. Those companies are also sitting on $5.3 trillion in cash, the data show.

Antitrust Hurdles

Companies that did tap funds this year may not be able to complete their purchases as regulatory scrutiny threatens to derail more takeovers. Express Scripts’s offer for Medco, which would create the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, has prompted state inquiries over whether the combination would command too much market power.

AT&T abandoned efforts to buy T-Mobile USA from Deutsche Telekom AG this month after the U.S. Justice Department sued the companies in August, saying a combination would substantially reduce competition. Companies contemplating similar deals may hold off until the next presidential election in the hope that a Republican White House would make it easier to win approval for big transactions, said Jeffrey Silva, a Washington-based policy analyst with Medley Global Advisors.

European Deals

Deutsche Boerse AG and NYSE Euronext this week delayed the deadline for completing their merger until March 31 as the exchange operators try to persuade European Union regulators to approve the deal. While the U.S. cleared the combination, the EU has told the companies that concessions they offered to allay antitrust concerns don’t go far enough, two people familiar with the talks said this month.

Dealmaking involving European companies rose 2.6 percent this year, bolstered by the first half. For the fourth quarter, announced volume sank 13 percent from the previous three months to $162.6 billion. Valuations have also dropped, making the MSCI Europe Index even cheaper than the MSCI World Index at 10.8 times earnings. That may create opportunities for buyers from nations such as China.

“Chinese companies have been very successful at buying natural resources in emerging markets, and they are now very supportive of buying industrial assets in Europe,” said Thierry d’Argent, global head of M&A at Societe Generale SA in Paris.

Asia Pacific

French dairy-product maker Yoplait and the aviation unit of Royal Bank of Scotland Group Plc both attracted interest from Chinese bidders this year, according to people with knowledge of those negotiations.

The value of acquisitions involving Asia Pacific companies rose 4.2 percent to $701 billion this year, according to Bloomberg data. The biggest deal was Nippon Steel Corp.’s proposed takeover of Sumitomo Metal Industries for about $22 billion, including debt. That was followed by BHP Billiton Ltd.’s purchase of Houston-based oil and gas explorer Petrohawk Energy Corp.

Foreign buyers also spent more on Asia Pacific in 2011 than any year since 2007, according to the data. The largest overseas bid was SABMiller Plc’s $10 billion takeover of Australian beer maker Fosters Group Ltd., the data show. Among Asian countries, Japan overtook China as the biggest acquirer of foreign assets for the first time since 2008 after the March 11 earthquake spurred companies to retrench.

Japan’s Takeovers

“Japanese industries had been shrinking, and companies needed growth drivers,” said Kenji Fujita, head of M&A advisory at Mitsubishi UFJ Morgan Stanley Securities Co., the Tokyo-based investment banking venture of Morgan Stanley and Mitsubishi UFJ Financial Group Inc. “The earthquake raised the urgency for that.”

Japan’s Kirin Holdings Co. bought Brazilian beermaker Schincariol Participacoes e Representacoes, and China Petrochemical Corp., or Sinopec, agreed to purchase a 30 percent stake in Galp Energia SGPS SA’s Brazilian unit.

Still, after a record-high volume of $161 billion in 2010, the volume of announced deals involving Brazilian companies tumbled to $99.6 billion this year as the Brazilian real strengthened while the country’s economy slowed.

“I’m glad to leave 2011 behind,” said Flavio Tavares Valadao, head of corporate finance at Banco Santander do Brasil SA, based in Sao Paulo. “Deals are difficult to make and companies are worried for the future.”

Brazilian Deals

Santander worked on Telefonica SA’s merger of its Brazilian fixed line unit, Telecomunicacoes de Sao Paulo SA’s with its mobile unit, Vivo Participacoes SA. The Spanish bank also advised Spain’s Iberdrola SA on the acquisition of Brazil’s Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.3 billion).

Dealmakers predict that technology, industrials, natural resources and health care will continue to be the sectors most actively consolidating, especially if European policy makers can prevent financial turmoil from spreading to more countries.

“Companies need to have more confidence that we aren’t going to have a break-up of the euro,” said Mark Shafir, global head of M&A at Citigroup Inc. “If you got that cleared up, then the first half of next year could be a lot better than the second half of 2011 has been.”

--With assistance from Aaron Kirchfeld in Frankfurt, Jeffrey McCracken in New York, Takahiko Hyuga in Tokyo, and Jacqueline Simmons and Matthew Campbell in Paris. Editors: Julie Alnwick, Jennifer Sondag

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

View the original article here

U.S. Stocks Erase Yearly Gain as S&P 500 Moves Least Since 1947

December 31, 2011, 12:23 AM EST By Ksenia Galouchko and Lu Wang

Dec. 30 (Bloomberg) -- U.S. stocks fell this week, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern Europe’s debt crisis will weigh on the economy halted a two-year rally in equities.

The benchmark gauge for U.S. equities lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. Financial shares slid 1.3 percent in the week and 18 percent this year, the worst drop among 10 industries, as Bank of America Corp. tumbled 58 percent. Commodity producers fell 12 percent as a group. First Solar Inc. had the biggest drop in the S&P 500, losing 74 percent, followed by coal producer Alpha Natural Resources Inc. with a 66 percent loss.

Gauges of health-care companies, utilities and makers of household products and other consumer staples climbed more than 10 percent this year as investors bought companies whose profits are least-tied to economic growth. Cabot Oil & Gas Corp. in Houston rose 101 percent in 2011 for the gauge’s biggest rally, followed by pipeline owner El Paso Corp. and Sunnyvale, California-based medical device maker Intuitive Surgical Inc.

“It’s the year I’d like to forget because of all the tumult in the markets,” Brian Jacobsen, who helps oversee $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The U.S. data has been looking better but it’s not just the matter of the U.S. data but what’s the outlook, and investors are still concerned about whether or not economic recovery is losing steam.”

European Concerns

The S&P 500 fell 0.6 percent this week as Spain’s widening budget deficit and a surge in the European Central Bank’s balance sheet stoked concern over the region’s debt crisis, offsetting better-than-expected U.S. consumer confidence and home sales data. The Dow Jones Industrial Average declined 76.44 points, or 0.6 percent, to 12,217.56, paring its 2011 gain to 5.5 percent.

The S&P 500 finished the year recording record price swings and correlations. The benchmark index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear- market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, leading S&P to strip the nation of its AAA rating in August, and concern grew that the euro-area’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Rising Correlations

Developments in Europe’s efforts to tame its debt crisis led to near-lockstep movement in equity prices. The 50-day correlation of S&P 500 stocks to gains or losses in the full index increased to a record 0.86 in October, according to data compiled by Westport, Connecticut-based Birinyi Associates Inc. A level of 1 would mean all 500 stocks moved together. Correlation was 0.78 on Dec. 30, 73 percent higher than its average since 1980.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average of 1.9 percent a day from May through the end of the year, compared with the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Fund Withdrawals

Investors have been pulling money from mutual funds that focus on U.S. stocks for a fifth year. Outflows totaled $116 billion in the first 11 months of this year, the highest since 2008, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

U.S. companies have beaten analyst profit estimates for 11 straight quarters as the country climbed out of the worst recession since the Great Depression. Earnings from S&P 500 companies are forecast to reach a record $98.79 a share this year, and climb 9.7 percent in 2012 and 12 percent in 2013, according to analysts’ estimates compiled by Bloomberg.

As stock prices failed to keep up pace with earnings, valuations reached levels cheaper than 72 percent of the time since 1954, according to data compiled by Bloomberg. The S&P 500 ended the year trading at 13.2 times reported earnings, 20 percent below the average multiple of 16.4, the data show.

‘Murky Outlook’

“If you look at balance sheets and cash flow statements, stocks are attractively valued, but they’re not incredibly cheap considering the murky outlook that we have from the political arena,” Jacobsen at Wells Fargo said. “People are clamoring for safer assets, the classic defensive sectors.”

The Morgan Stanley Consumer Index, which tracks drugmakers and food companies, added 0.7 percent this year, compared with a 16 percent loss in the firm’s cyclical measure of commodity producers and transportation providers.

The S&P 500 Dividend Aristocrats index, which follows companies that have raised payout for at least 25 consecutive years, returned 8.3 percent. The S&P 500 ended the year with a dividend yield of 2.1 percent, compared with a rate of 1.88 percent for 10-year Treasuries, and the index returned 2.1 percent in 2011 including reinvested dividends.

Bank of America plunged 58 percent to $5.56 in 2011, making it the worst performer in the Dow, as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender. The decline erased almost $80 billion of shareholder value, and was the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse.

Alcoa, First Solar

Alcoa Inc., largest U.S. aluminum producer, slumped 44 percent to $8.65 this year for the second-worst drop in the Dow as prices of the lightweight metal tumbled 18 percent.

First Solar tumbled 74 percent to $33.76. The biggest manufacturer of thin-film solar cells slashed its sales and profit forecasts for 2011 after ousting Rob Gillette as chief executive.

Alpha Natural declined 66 percent to $20.43 after acquiring Massey Energy Co. for $7.1 billion and announcing earnings that missed analysts’ estimates for the first two quarters of 2011.

Cabot Oil surged 101 percent to $75.90 this year. The company, which has fields in Pennsylvania, Texas and Oklahoma, projected output will rise as much as 55 percent next year. El Paso, based in Houston, rallied 93 percent to $26.57 in 2011 after agreeing to be bought by Kinder Morgan Inc. for $21 billion.

Intuitive Surgical jumped 80 percent to $463.01. The maker of a robotic system to perform surgery reported earnings that beat analyst estimates for the 10th straight quarter, according to data compiled by Bloomberg.

Netflix Inc. dropped 61 percent to $69.29. The video- streaming and DVD subscription service reduced its subscriber forecast and predicted losses in 2012.

--With assistance from Inyoung Hwang and Katia Porzecanski in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

View the original article here

Pending Home Sales Rose 7.3% in November

December 30, 2011, 3:31 PM EST By Timothy R. Homan

Dec. 29 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes rose more than forecast in November as falling prices and low borrowing costs boosted demand.

The index of pending home sales increased 7.3 percent to the highest level since April 2010 after climbing 10.4 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

The industry that triggered the 18-month recession that ended in June 2009 is showing signs of stabilizing as construction picks up, builder confidence improves and the number of houses on the market declines. Nonetheless, another wave of foreclosures may weigh on real-estate values next year.

“It looks like buyers are becoming more confident and are attracted to record-low mortgage rates,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. At the same time, he said, “activity still looks depressed by historical standards.”

Estimates for pending home sales ranged from a drop of 3 percent to an increase of 11 percent, according to the median of 30 forecasts in the Bloomberg survey.

Pending home sales were up 6.9 percent from November 2010.

All four regions showed an increase in contract signings from a month earlier, led by a 14.9 percent surge in the West and an 8.1 percent jump in the Northeast. Pending sales climbed 4.3 percent in the South and 3.3 percent in the Midwest.

Housing Affordability

“Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “Some of the increase in pending sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

Today’s report showed an index level for pending home sales of 100.1 on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.

Because they track contract signings, pending home sales are considered a leading indicator. Existing-home sales are tabulated when a contract closes, typically a month or two later.

Home Sales

Reports last week showed a pickup in demand for houses. Sales of previously owned homes, which make up about 94 percent of the market, rose 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said Dec. 21.

Purchases of new single-family properties advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. The increase pushed the number of new homes on the market to a record low.

“As the stabilization process moves forward, we are seeing inventory levels continuing to ease in many of our markets, which is a prerequisite for a housing recovery,” Jeffrey Mezger, chief executive officer of Los Angeles-based KB Home, said in a Dec. 21 conference call with analysts.

Even with the increase in sales, residential real estate prices continue to fall, showing a broad-based decline that indicates the market continues to be weighed down by foreclosures.

Home Values

The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said this week. The median forecast of economists in a Bloomberg survey projected a 3.2 percent decrease.

The threat of continued declines could keep potential buyers waiting until they believe the market has bottomed, even as cheaper properties may make purchasing a home more affordable.

U.S. policy makers have initiated programs designed to revive the housing market. The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original plan helped less than a quarter of the people targeted to lock in lower mortgage rates.

At the Federal Reserve, officials this month reiterated that they will keep their benchmark interest rate near zero until at least mid-2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

--Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

View the original article here

Sequoia Cuts Buffett, Tops Value Funds

December 30, 2011, 3:35 PM EST By Charles Stein

Dec. 29 (Bloomberg) -- Sequoia Fund Inc., recommended by Warren Buffett when it opened, beat the U.S. stock market over the past four decades, in part because a large piece of the fund was invested in his company, Berkshire Hathaway Inc.

Heeding Buffett’s warning that Berkshire wouldn’t grow as fast as it once did, the managers of the $4.7 billion fund cut their reliance on the stock almost in half in 2010 and put the cash into companies such as Valeant Pharmaceuticals International Inc., a drug distributor. Sequoia is beating the pack again this year, gaining 14 percent through Dec. 27, better than 99 percent of value stock funds, according to data compiled by Bloomberg.

“They have the kind of portfolio Buffett might have if he ran a mutual fund,” Steven Roge, a portfolio manager with Bohemia, New York-based R.W. Roge & Co., said in a telephone interview. His firm, which oversees $200 million, holds shares in Sequoia.

Like Buffett, the managers of Sequoia look for high-quality companies with competitive advantages that the fund can hang onto for long periods. While the scale of Buffett’s $68 billion stock portfolio forces him to buy mainly the largest companies, Sequoia is small enough to benefit from investments in mid-sized businesses.

The fund beat 97 percent of peers over the past 10 and 15 years, according to Morningstar Inc. in Chicago. From 1970 to 2010 the fund returned 14 percent annually, compared with 11 percent for the Standard & Poor’s 500 Index. In its best year, 1976, the fund gained 72 percent, according to “The Warren Buffett Way” (John Wiley & Sons, 1994) by Robert Hagstrom. It lost 27 percent in its worst year, 2008.

Buffett’s Praise

Sequoia Fund was co-founded in 1970 by Richard Cunniff and William Ruane, a friend of Buffett since both studied under legendary value investor Benjamin Graham at Columbia University in 1951. When Buffett shut down his investment partnership in 1969 to concentrate on Berkshire Hathaway, he recommended that his clients invest with Ruane.

“Bill formed Sequoia Fund to take care of the smaller investor,” Buffett wrote in an e-mailed response to questions. “A significant percentage of my former partners went with him and many of those still living have their holdings of Sequoia.”

Ruane ran an unconventional fund, closing Sequoia to new investors in 1982 because he didn’t want its size to limit what the fund could buy. It opened again in 2008, three years after Ruane’s death.

Ruane also held a concentrated portfolio. In 2003, Sequoia had 75 percent of its money in its top six holdings, according to a regulatory filing.

‘Six Best Ideas’

Ruane believed that “your six best ideas in life are going to do the best,” David Poppe, who now runs the fund together with Robert Goldfarb, said at a May 2011 investor day for Ruane, Cunniff & Goldfarb Inc., the New York firm that advises Sequoia.

Poppe and Goldfarb didn’t respond to a request to be interviewed. The two were named domestic stock managers of the year for 2010 by Morningstar. They are finalists for the same award for 2011.

Since Ruane’s death, the firm has hired more analysts and added more holdings to the portfolio. At the end of 2010, Sequoia held 34 stocks, an all-time high, according to a letter to shareholders in the fund’s 2010 annual report. The same letter explained why Sequoia reduced its stake in Berkshire Hathaway.

Cutting Berkshire

“When Warren Buffett tells the public that Berkshire’s growth rate will slow in the future, it behooves one to listen,” the fund’s managers wrote. Buffett has said on a number of occasions that a company of Berkshire’s size can’t grow at the pace it did when it was smaller.

“We know we can’t do remotely as well in the future as we have in the past,” Buffett said on April 30 at Berkshire’s annual meeting in Omaha.

Berkshire represented 11 percent of Sequoia’s holdings as of Sept. 30, down from 20 percent at the end of 2009 and 35 percent in 2004, according to fund reports.

Sequoia’s Berkshire stake has been a drag on the fund’s returns in recent years, said Kevin McDevitt, an analyst for Morningstar. Over the past five years, Sequoia rose 4.3 percent a year compared with an annual gain of 1 percent for Berkshire. Over 20 years through November, Berkshire outperformed Sequoia by 2.6 percentage points a year.

“There was a time when you could have said they were riding Buffett’s coattails,” McDevitt said in a telephone interview. “That’s not the case anymore.”

Long-Term Investor

A reduced Berkshire stake hasn’t stopped the fund from investing in a style similar to Buffett’s. In 2011, Buffett bought shares of MasterCard Inc. and International Business Machines Corp., two companies Sequoia already owned.

Buffett’s portfolio contains stocks, such as Coca-Cola Co. and Wells Fargo & Co., that he has owned for more than 20 years. Sequoia has holdings, including TJX Cos. and Fastenal Co., that have been in the fund for at least 10 years, regulatory filings show.

TJX, a Framingham, Massachusetts-based discount retailer, has appreciated at a rate of 14 percent a year in the 10 years ended Nov. 30, compared with 2.9 percent for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. Fastenal, an industrial supplier based in Winona, Minnesota, gained 20 percent a year.

“As an investor, if you get the people and the business right, you can let a company do the hard work for you for a long time,” Thomas Russo, a partner at Lancaster, Pennsylvania-based Gardner Russo & Gardner, said in a telephone interview. Russo, who worked at Ruane’s firm from 1984 to 1989, manages $4 billion.

‘Good and Bad’

Sequoia’s patience hasn’t always paid off. Mohawk Industries Inc., a carpet maker based in Calhoun, Georgia, and a longtime Sequoia holding, lost 19 percent of its value in the past five years as the housing slump depressed carpet sales.

“In the short term, holding Mohawk has been a really poor decision,” Poppe said at the 2009 investor meeting.

Such self-criticism is common at the meetings. At one session, an investment in Porsche Automobil Holding SE, the German automaker, was described as a “disaster.” At another, a manager admitted the firm was too timid about buying MasterCard after it went public in 2006.

“They give you the good and the bad,” said Roge, who has attended several of the firm’s investor meetings.

Sequoia’s managers don’t buy many of the largest stocks because the companies are too well-known and too heavily followed on Wall Street. Their preference is to own businesses “where we believe, not always correctly, that we have an edge in information,” they wrote in their 2009 letter to shareholders.

Valeant Stake

Valeant Pharmaceuticals, the fund’s largest holding, had a market value of less than $7.5 billion when Sequoia purchased it in the third quarter of 2010, Bloomberg data show. The Mississauga, Ontario, drug company gained 62 percent this year.

At the 2011 investor meeting, the fund’s managers emphasized Valeant’s unusual business model, which focuses on acquiring drugs with a proven track record rather than spending money on research and development. They also praised the firm’s chief executive officer, J. Michael Pearson.

Goldfarb told investors that over time he has become convinced that the right executive is crucial to a business’s success. “We’re betting more on the jockey and a little less on the horse,” he said in May at the fund’s annual meeting.

Sequoia typically has far more cash than the 3.7 percent held by the average U.S. domestic stock fund. At the end of the third quarter, cash represented 27 percent of the fund’s assets, according to data compiled by Bloomberg.

Holding Cash

Other well-known value investors, such as Seth Klarman, founder of Baupost Group LLC, a Boston-based hedge fund, and Robert Rodriguez, the longtime manager of FPA Capital Fund and current CEO of Los Angeles-based First Pacific Advisors, let cash build up when they can’t find enough attractive investments.

“In good markets cash can be a drag, but we have not had many good markets lately,” Dan Teed, president of Wedgewood Investors Inc. in Erie, Pennsylvania, said in a telephone interview. Teed, whose firm manages more than $100 million, including shares of Sequoia, said the fund’s cash was a plus because it means they “aren’t afraid to take a defensive position.”

Debt Dangers

Klarman and Rodriguez have written about the dangers of the increase in U.S. government debt, warning that it could pose a threat to the economy and the stock market if it is not whittled down.

Goldfarb normally ducks questions about macroeconomic issues at annual meetings, saying he has no special insight into the future of the economy, interest rates or the prices of oil and gold.

At the 2011 annual meeting, in response to an investor question, he sounded a gloomy note about deficits.

“My own feeling is that we’re just repeating the housing bubble in a different form,” he said. “We’ve substituted an unsustainable buildup of government debt for what is an unsustainable buildup of consumer debt. This one really feels worse to me and more dangerous. I think we’re living in a time of false prosperity.”

--Editors: Christian Baumgaertel, Josh Friedman

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel in Boston at cbaumgaertel@bloomberg.net

View the original article here

7 Tips for Low Risk Investing in Real Estate

Last-Second Lurch in S&P 500 Ends Bid for Third Year of Gains

December 30, 2011, 10:13 PM EST By Nina Mehta

Dec. 30 (Bloomberg) -- A two-point decline completed in the last seconds of trading sent the Standard & Poor’s 500 Index to a 2011 loss of 4/100ths of a point, ending a two-year streak of gains for the benchmark gauge of American equities.

The measure traded at an average price of 1,261.18 during the day and stood at 1,260 with 10 minutes left, up about 2 points from its Dec. 31, 2010, close of 1,257.64. It remained positive for the year with 15 seconds to go at 1,257.91 before slipping to 1,257.60 on the session’s last trades.

“There was a frenzy,” said Stephen Guilfoyle, who works on the floor of the New York Stock Exchange as U.S. economist for Meridian Equity Partners in New York. “You saw people breaking into a run, the old-school nervousness, some shouting. You see that nervousness when orders are coming in the last minute.”

The volatility was characteristic of a year in which stocks swung at a daily rate of twice the 50-year average after the S&P 500 reached a three-year high in April. From its peak of 1,263.61, the index plunged 19 percent through Oct. 3 and then climbed back to where it began the year.

This year’s move was the smallest since 1947 when the index closed exactly unchanged. Individual stocks were more volatile than in 2009 and 2010, with 55 losing more than 30 percent this year compared with a total of 13 in the prior two.

‘On a Rollercoaster’

“It’s almost like you’re getting on a rollercoaster, where you get on and it’s a wild ride, and you get off at the exact same point,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview.

About 4.1 billion shares changed hands on all U.S. exchanges today, the third-slowest full-day session of the year and 45 percent below the three-month average, according to data compiled by Bloomberg, as trading slowed before the New Year holiday.

The 2.6-point retreat between 3:50 p.m. and 4 p.m. was almost twice as big as the next largest decline for any 10- minute period during the day, data compiled by Bloomberg show. Volume during the period was at least 126 percent greater than in any other comparable interval before the close.

“It looks notable on a chart because the rest of the day was so lame and without any movement whatsoever,” Manoj Narang, founder and chief executive officer of Tradeworx Inc., an automated trading firm in Red Bank, New Jersey, said in a phone interview.

--With assistance from Ksenia Galouchko, Jeff Kearns, Chris Nagi and Inyoung Hwang in New York. Editors: Chris Nagi, Michael P. Regan

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

View the original article here

Fed Says Dealers Tighten Terms on Hedge-Fund Security Trades

December 29, 2011, 11:22 PM EST By Scott Lanman and Matthew Leising

(Updates with interest-rate swap spread in seventh paragraph.)

Dec. 29 (Bloomberg) -- Wall Street dealers made it tougher for hedge funds to finance trading of securities and derivatives in the three months through November, a Federal Reserve survey showed today.

Responses “indicated a broad but moderate tightening of credit terms applicable to important classes of counterparties,” especially hedge-fund clients, trading real estate investment trusts and nonfinancial corporations, according to the quarterly survey of senior credit officers at 20 dealers covering the period of September to November. The central bank released the report in Washington.

The report adds to evidence of stress in the financial system from Europe’s sovereign-debt crisis. Investor concern about the continent’s turmoil has helped drive the premium banks pay to borrow dollars to the highest in more than two years. The Fed survey didn’t discuss causes of the tighter financing terms.

Respondents reporting tougher borrowing terms for hedge funds “most frequently pointed to a worsening in general market liquidity and functioning and to reduced willingness to take on risk and, to a lesser extent, adoption of more-stringent market conventions and deterioration in the strength of counterparties as the reasons,” the Fed said.

Credit Limits

The Fed’s Senior Credit Officer Opinion Survey on Dealer Financing Terms was conducted from Nov. 15 to Nov. 28. Respondents, who aren’t identified, “account for almost all of the dealer financing of dollar-denominated securities for nondealers and are the most active intermediaries” in over-the- counter derivatives markets, the Fed said.

Measures of stress in credit markets soared during the three-month period surveyed to the worst levels in more than two years as Europe’s fiscal imbalances intensified, fueling concern that the region’s upheaval would taint bank balance sheets globally,

The U.S. 2-year swap spread rose 40 percent in the three- month period to 41.55 basis points as of Nov. 30 after peaking at 59.25 on Nov. 22, according to data compiled by Bloomberg. The difference between the two-year swap rate and the comparable-maturity U.S. Treasury note yield expanded to 48.63 basis points today.

Another signal of weakness in the banking system, the spread between the three-month London interbank offered rate, or Libor, and the overnight index swap rate, has more than doubled in four months to 0.49 percentage point today. That’s the widest since May 2009, as financial markets were still recovering from the collapse of Lehman Brothers Holdings Inc.

Interbank Lending Divergence

While the Fed said today that 80 percent of dealers reported lowering credit limits for some specific financial- institution counterparties, evidence grew that banks were growing more wary of lending to each other.

The gap between the highest and the lowest rates that banks say they can borrow from each other in dollars is close to a 2.5-year high.

The divergence from reported fixings by the 18 banks contributing to the three-month London interbank offered rate reached 28 basis points today, within two basis points of the widest since May 2009. Libor for three-month loans climbed to 0.581 percent, the most since July 2009, even as central banks injected cash into the market.

U.S. economic data released today may point to some easing of terms for bank customers as the world’s largest economy improves. Companies cranked out more goods in December and pending sales of existing homes jumped in November for a second month.

‘Signs of Life’

The Institute for Supply Management-Chicago Inc. said its business barometer was little changed at 62.5 from a seven-month high of 62.6 in November. The index of signed contracts to buy previously owned houses rose 7.3 percent after climbing 10.4 percent the prior month, the National Association of Realtors said. Both figures surpassed the median estimate of economists surveyed by Bloomberg News.

“2011 is ending on a solid note,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who forecast a reading of 63 for the Chicago index. “Manufacturing has some momentum,” he said, and “we’re starting to see some signs of life in housing.”

Combined with a drop in firings over the past month and improving consumer confidence, the data show the world’s largest economy may be strengthening enough to fend off major damage from the European debt crisis. Stocks rallied, buoyed by the stronger-than-projected readings and by a decline in Italian borrowing costs and a benchmark gauge of U.S. company credit risk dropped to a three-week low.

Corporate Credit Risk

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 2 basis points to a mid-price of 119.9 basis points at 4:52 p.m. in New York, according to data provider Markit Group Ltd.

The swaps index, which typically falls as investor confidence improves and rises as it deteriorates, has declined from 127.8 on Nov. 30. It rose from 114.5 at the end of August to 150.1 on Oct. 3, the highest level since May 2009.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The Standard & Poor’s 500 Index climbed 1 percent to 1,263.02 at 4:33 p.m. in New York. The yield on the benchmark 10-year Treasury note fell two basis points, or 0.02 percentage point, to 1.9 percent, according to Bloomberg Bond Trader prices.

Dealer Report

The Federal Reserve began querying dealers in 2010 as part of efforts to boost surveillance of financial markets following the panic of 2007-2008 that caused the worst economic downturn since the Great Depression.

The prior survey, covering June through August, showed that 86 percent of respondents reported that the number of dealers tightening financing rates outnumbered those easing.

The latest responses “reflect an apparent continuation and intensification of developments already in evidence in the September survey,” the Fed said today. About one-third of respondents tightened pricing terms, such as financing rates, to hedge funds, while one-fourth reported tightening nonprice terms including maximum maturity, the central bank said.

Hedge Fund Leverage

At the same time, more than half of dealers “indicated that hedge funds’ use of financial leverage, considering the entire range of transactions with such clients, had decreased somewhat over the past three months,” the Fed said.

The Fed survey also found that liquidity and functioning were little changed in the U.S. Treasury securities market since the second quarter, while one-fifth of respondents said equity- market functioning had “deteriorated somewhat.”

The European Central Bank’s balance sheet ballooned this month to a record 2.73 trillion euros ($3.53 trillion) on a surge in loans to financial institutions. The ECB last week awarded 523 banks three-year loans totaling 489 billion euros to encourage lending to companies and households and prevent a credit shortage.

The Fed’s balance sheet has also increased this month to a record, reaching $2.92 trillion last week, on dollar loans to European banks through currency-swap lines.

The ECB this month cut its benchmark interest rate to 1 percent, matching a record low, as the debt crisis threatened to engulf Italy and Spain, the euro area’s third- and fourth- largest economies. The Fed has been considering further measures to ease U.S. borrowing costs and protect the economy from the European turmoil.

--With assistance from Bob Willis in Washington and Anchalee Worrachate in London. Editors: Pierre Paulden, Alan Goldstein

To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net

To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net

View the original article here

Congress Adds to Federal Mortgage Role

December 30, 2011, 12:28 AM EST By Clea Benson and Lorraine Woellert

(Updates with FHFA directing an increase of fees starting in fifth paragraph.)

Dec. 29 (Bloomberg) -- Washington lawmakers, who began 2011 with sweeping plans to shrink the U.S. government’s role in mortgage finance, are heading into 2012 after enacting policies that expand it.

An 11th-hour payroll tax cut extension signed into law last week will for the first time divert funds directly from Fannie Mae and Freddie Mac, the two mortgage-finance companies under U.S. conservatorship, to pay for general government expenses.

That move came after two others that also could increase government involvement: Lawmakers allowed a tax break on private mortgage insurance to expire and raised loan limits for mortgages insured by the Federal Housing Administration. Advocates of private mortgage finance say they are concerned that using fees from Fannie Mae and Freddie Mac is setting a precedent that will keep the government in the mortgage business for a decade or more.

“The goal was, at the beginning of the year, how do we wind these down?” said Edward Pinto, a resident fellow at the American Enterprise Institute, a Washington-based research organization that favors limited government. “And at the end of the year we have further entrenched them and made it more difficult to wind them down, which is classic Washington.”

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, today directed the companies to increase fees on new mortgages by an average of 10 basis points, or .1 percentage point, effective April 1, to comply with the law.

10 Basis Points

“The average guarantee fees charged in 2012 need to be at least 10 basis points greater than the average guarantee fees charged in 2011,” with the additional revenue remitted to the U.S. Treasury Department, FHFA Acting Director Edward J. DeMarco said in a written statement.

Fannie Mae, Freddie Mac and the FHA currently back more than 90 percent of loan originations, about double what they did during the subprime lending boom, according to Inside Mortgage Finance, a trade publication.

Earlier in the year, the Obama administration and members of Congress outlined plans to reverse that trend. In February, U.S. Treasury Secretary Timothy F. Geithner released three options for reducing government’s role in housing finance. Shortly afterward, Republicans introduced bills to wind down Fannie Mae and Freddie Mac, which have cost taxpayers about $153 billion since 2008 because of defaults on loans they guaranteed. The legislation never advanced because there was no agreement even within the Republican caucus on the best way to proceed.

Decade-Long Increase

In December, in a search to find about $36 billion to finance a two-month payroll tax cut, Congress ordered a decade- long increase in the premiums that Fannie Mae and Freddie Mac charge lenders to guarantee principal and interest on home loans. Lenders typically pass on the cost of the premiums, known as guarantee fees or g fees, to borrowers as higher interest rates.

The move is drawing criticism: It relies on long-term revenues from entities that Democrats and Republicans want to shrink, and the money won’t be spent to offset the risk of loan defaults.

“In effect, this is a tax on Fannie and Freddie mortgages,” said Bert Ely, a banking consultant in Alexandria, Virginia. “When you go to privatize or take any action to wind them down, you have a budget effect that you didn’t have before.”

‘Inherent Contradiction’

“It seems to be an inherent contradiction counting on revenue from a 10-year increase in guarantee fees from agencies that might not be around in 10 years,” said Joe Pigg, vice president of mortgage finance at the American Bankers Association, an industry trade group in Washington.

Housing analysts say they are concerned that lawmakers will now start looking to the government-sponsored enterprises as sources of funds for purposes unrelated to housing.

“Using the g fees as a funding source for general revenues sets a bad precedent for how you’re going to raise revenues,” said Ethan Handelman, vice president for policy and advocacy at the National Housing Conference, which advocates for government policies that support affordable housing.

The controversy over g fees comes on top of other policy changes that housing analysts say could keep the government entrenched in the mortgage market.

In November, House and Senate lawmakers increased the maximum size of FHA-insured loans to $729,750 from $625,500, a move opposed by Republican leaders including Representative Jeb Hensarling of Texas.

Insurance Tax Break

Congress also failed to extend a tax break on private mortgage insurance for low-downpayment borrowers that expires Dec. 31. Private mortgage insurers indemnify lenders against loan defaults, with the cost of premiums passed to homeowners. Eliminating the tax deduction raises the cost of private insurance and makes FHA insurance a more attractive alternative.

Congress’s rush to solve fiscal problems at the end of the year allows decisions to be made without going through the normal deliberative channels that might have produced outcomes more in line with the goal of reducing the government footprint in housing, Pinto said.

“You have these policies being made that aren’t really going through the regular order, and they’re not being discussed and hearings held and testimony taken,” he said. “They’re just being done as an expedient.”

Fannie Mae and Freddie Mac are also implementing plans of their own to raise guarantee fees even higher. DeMarco said the companies would gradually increase their rates as a way to reduce losses at the companies and limit their cost to taxpayers.

Those fee increases, which have already begun, are intended to better reflect the degree of risk that the GSEs are assuming when they guarantee mortgages, DeMarco said.

--Editors: Maura Reynolds, William Ahearn

To contact the reporters on this story: Clea Benson in Washington at Cbenson20@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

View the original article here

Pending Home Sales Rose 7.3% in November

December 30, 2011, 12:14 AM EST By Timothy R. Homan

Dec. 29 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes rose more than forecast in November as falling prices and low borrowing costs boosted demand.

The index of pending home sales increased 7.3 percent to the highest level since April 2010 after climbing 10.4 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

The industry that triggered the 18-month recession that ended in June 2009 is showing signs of stabilizing as construction picks up, builder confidence improves and the number of houses on the market declines. Nonetheless, another wave of foreclosures may weigh on real-estate values next year.

“It looks like buyers are becoming more confident and are attracted to record-low mortgage rates,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. At the same time, he said, “activity still looks depressed by historical standards.”

Estimates for pending home sales ranged from a drop of 3 percent to an increase of 11 percent, according to the median of 30 forecasts in the Bloomberg survey.

Pending home sales were up 6.9 percent from November 2010.

All four regions showed an increase in contract signings from a month earlier, led by a 14.9 percent surge in the West and an 8.1 percent jump in the Northeast. Pending sales climbed 4.3 percent in the South and 3.3 percent in the Midwest.

Housing Affordability

“Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “Some of the increase in pending sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

Today’s report showed an index level for pending home sales of 100.1 on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.

Because they track contract signings, pending home sales are considered a leading indicator. Existing-home sales are tabulated when a contract closes, typically a month or two later.

Home Sales

Reports last week showed a pickup in demand for houses. Sales of previously owned homes, which make up about 94 percent of the market, rose 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said Dec. 21.

Purchases of new single-family properties advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. The increase pushed the number of new homes on the market to a record low.

“As the stabilization process moves forward, we are seeing inventory levels continuing to ease in many of our markets, which is a prerequisite for a housing recovery,” Jeffrey Mezger, chief executive officer of Los Angeles-based KB Home, said in a Dec. 21 conference call with analysts.

Even with the increase in sales, residential real estate prices continue to fall, showing a broad-based decline that indicates the market continues to be weighed down by foreclosures.

Home Values

The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said this week. The median forecast of economists in a Bloomberg survey projected a 3.2 percent decrease.

The threat of continued declines could keep potential buyers waiting until they believe the market has bottomed, even as cheaper properties may make purchasing a home more affordable.

U.S. policy makers have initiated programs designed to revive the housing market. The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original plan helped less than a quarter of the people targeted to lock in lower mortgage rates.

At the Federal Reserve, officials this month reiterated that they will keep their benchmark interest rate near zero until at least mid-2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

--Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

View the original article here

Global M&A at Lowest Level Since Mid-2010

December 29, 2011, 10:54 PM EST By Serena Saitto

(Updates year-to-date figures starting in second paragraph.)

Dec. 29 (Bloomberg) -- The value of global takeovers dropped to the lowest level in more than a year this quarter, and dealmakers say Europe’s debt crisis may hamper a recovery in 2012 as cash-rich companies hold off on major purchases.

Mergers and acquisitions have slumped 15 percent from the previous three months to $464 billion, making the fourth quarter the slowest since mid-2010, according to data compiled by Bloomberg. For the year to date, announced takeover volume has risen just 3.2 percent to $2.26 trillion after regulatory hurdles scuttled AT&T Inc.’s bid for T-Mobile USA, which would have been 2011’s biggest deal.

Tightening credit markets, the risk of a euro-zone collapse and stock-market swings have deterred companies from pursuing transformational deals that would spur sales growth, M&A bankers said. Earlier in 2011, more favorable conditions emboldened acquirers to part with stockpiled cash, such as Johnson & Johnson’s $21.3 billion bid for Synthes Inc. and Express Scripts Inc.’s $29.1 billion offer for Medco Health Solutions Inc.

“There’s definitely pent-up demand for M&A as well- capitalized companies continue to focus on opportunities for strategic acquisitions,” said Yoel Zaoui, co-head of global M&A at Goldman Sachs Group Inc. “The key driver for M&A, however, is confidence, and in Europe, at the moment, that is lacking.”

Seven of the year’s 10 biggest deals were announced before August, when European markets fell the most since October 2008 amid a global stock rout and Standard & Poor’s cut the U.S. credit rating. Goldman Sachs is the top adviser on global takeovers for 2011, with $537 billion of deals this year, followed by JPMorgan Chase & Co. and Morgan Stanley, Bloomberg data show. This year’s growth in M&A volume compares with a 24 percent jump in 2010.

‘Wait and See’

Europe’s financial crisis will stifle lending, push the region into recession and weigh on the U.S. economy through early 2012, Jan Hatzius, Goldman Sachs’s chief economist, said on a Nov. 30 conference call. The euro zone’s unemployment rose to 10.3 percent in October, the highest since the currency began in 1999.

As the European crisis deepened, “dealmakers entered a wait-and-see mode, and that’s where we are now,” said Paul Parker, global head of M&A at Barclays Plc in New York. “Offsetting forces such as companies’ cash piles and low valuations should drive the recovery of M&A activity in the second half of the year.”

The MSCI World Index of about 1,600 companies trades for 12.6 times reported earnings, showing equities in developed economies are cheaper than they’ve been more than 95 percent of the time since 1995, according to data compiled by Bloomberg. Those companies are also sitting on $5.3 trillion in cash, the data show.

Antitrust Hurdles

Companies that did tap funds this year may not be able to complete their purchases as regulatory scrutiny threatens to derail more takeovers. Express Scripts’s offer for Medco, which would create the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, has prompted state inquiries over whether the combination would command too much market power.

AT&T abandoned efforts to buy T-Mobile USA from Deutsche Telekom AG this month after the U.S. Justice Department sued the companies in August, saying a combination would substantially reduce competition. Companies contemplating similar deals may hold off until the next presidential election in the hope that a Republican White House would make it easier to win approval for big transactions, said Jeffrey Silva, a Washington-based policy analyst with Medley Global Advisors.

European Deals

Deutsche Boerse AG and NYSE Euronext this week delayed the deadline for completing their merger until March 31 as the exchange operators try to persuade European Union regulators to approve the deal. While the U.S. cleared the combination, the EU has told the companies that concessions they offered to allay antitrust concerns don’t go far enough, two people familiar with the talks said this month.

Dealmaking involving European companies rose 2.6 percent this year, bolstered by the first half. For the fourth quarter, announced volume sank 13 percent from the previous three months to $162.6 billion. Valuations have also dropped, making the MSCI Europe Index even cheaper than the MSCI World Index at 10.8 times earnings. That may create opportunities for buyers from nations such as China.

“Chinese companies have been very successful at buying natural resources in emerging markets, and they are now very supportive of buying industrial assets in Europe,” said Thierry d’Argent, global head of M&A at Societe Generale SA in Paris.

Asia Pacific

French dairy-product maker Yoplait and the aviation unit of Royal Bank of Scotland Group Plc both attracted interest from Chinese bidders this year, according to people with knowledge of those negotiations.

The value of acquisitions involving Asia Pacific companies rose 4.2 percent to $701 billion this year, according to Bloomberg data. The biggest deal was Nippon Steel Corp.’s proposed takeover of Sumitomo Metal Industries for about $22 billion, including debt. That was followed by BHP Billiton Ltd.’s purchase of Houston-based oil and gas explorer Petrohawk Energy Corp.

Foreign buyers also spent more on Asia Pacific in 2011 than any year since 2007, according to the data. The largest overseas bid was SABMiller Plc’s $10 billion takeover of Australian beer maker Fosters Group Ltd., the data show. Among Asian countries, Japan overtook China as the biggest acquirer of foreign assets for the first time since 2008 after the March 11 earthquake spurred companies to retrench.

Japan’s Takeovers

“Japanese industries had been shrinking, and companies needed growth drivers,” said Kenji Fujita, head of M&A advisory at Mitsubishi UFJ Morgan Stanley Securities Co., the Tokyo-based investment banking venture of Morgan Stanley and Mitsubishi UFJ Financial Group Inc. “The earthquake raised the urgency for that.”

Japan’s Kirin Holdings Co. bought Brazilian beermaker Schincariol Participacoes e Representacoes, and China Petrochemical Corp., or Sinopec, agreed to purchase a 30 percent stake in Galp Energia SGPS SA’s Brazilian unit.

Still, after a record-high volume of $161 billion in 2010, the volume of announced deals involving Brazilian companies tumbled to $99.6 billion this year as the Brazilian real strengthened while the country’s economy slowed.

“I’m glad to leave 2011 behind,” said Flavio Tavares Valadao, head of corporate finance at Banco Santander do Brasil SA, based in Sao Paulo. “Deals are difficult to make and companies are worried for the future.”

Brazilian Deals

Santander worked on Telefonica SA’s merger of its Brazilian fixed line unit, Telecomunicacoes de Sao Paulo SA’s with its mobile unit, Vivo Participacoes SA. The Spanish bank also advised Spain’s Iberdrola SA on the acquisition of Brazil’s Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.3 billion).

Dealmakers predict that technology, industrials, natural resources and health care will continue to be the sectors most actively consolidating, especially if European policy makers can prevent financial turmoil from spreading to more countries.

“Companies need to have more confidence that we aren’t going to have a break-up of the euro,” said Mark Shafir, global head of M&A at Citigroup Inc. “If you got that cleared up, then the first half of next year could be a lot better than the second half of 2011 has been.”

--With assistance from Aaron Kirchfeld in Frankfurt, Jeffrey McCracken in New York, Takahiko Hyuga in Tokyo, and Jacqueline Simmons and Matthew Campbell in Paris. Editors: Julie Alnwick, Jennifer Sondag

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

View the original article here

Johnson Sees U.S. Jobless Rate Above 8.5% in 2012

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

S&P's Young on Stock Market Outlook, Strategy

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

Asian Stocks Edge Higher on Signs U.S. Weathering Europe Crisis

December 30, 2011, 12:37 AM EST By Yoshiaki Nohara and Norie Kuboyama

Dec. 30 (Bloomberg) -- Asian stocks edged higher on the last trading day of 2011, with the region’s benchmark index set for its first yearly drop since 2008, as rising U.S. home sales signaled the world’s largest economy is weathering Europe’s debt crisis.

Sony Corp., Japan’s biggest exporter of consumer electronics, gained 1.6 percent. Techtronic Industries Company Ltd., a maker of industrial products that gets about 73 percent of its revenue in North America, added 1.5 percent in Hong Kong. Cnooc Ltd., China’s largest offshore energy explorer, rose 0.9 percent after oil gained. Chiyoda Corp. gained 2.7 percent after a report operating profit may top the Japanese engineering company’s forecast.

The MSCI Asia Pacific Index added 0.2 percent to 113.02 as of 11:23 a.m. in Tokyo. The measure has lost 0.5 percent this month and is set for an 18 percent drop this year. For the week, the gauge is down 0.6 percent.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

The Asia Pacific gauge has lost about $1.78 trillion this year amid concern Europe’s three-year debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark are valued at 12.6 times estimated earnings on average, compared with 12.6 times for Standard & Poor’s 500 Index and 10.5 times for the Stoxx Europe 600 Index.

Fukushima Dai-Ichi

Utilities have fallen 27 percent this year, dropping the most among the 10 industry groups on the Asian gauge. Japanese power producers tumbled amid a nuclear crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The utility has lost 91 percent this year, the biggest drop on the MSCI All Country World Index.

Japan’s Nikkei 225 Stock Average gained 0.3 percent today. Trading volume was about half the 100-day average ahead of a four-day weekend. Hong Kong’s Hang Seng Index rose 0.4 percent. Australia’s S&P/ASX 200 lost 0.3 percent. South Korea’s market is closed today for a holiday.

Futures on the S&P 500 Index slid 0.1 percent The gauge advanced 1.1 percent yesterday in New York after a report showed a jump in pending sales of existing homes that exceeded economist estimates by almost five times.

Sony, James Hardie

Exporters to the U.S rose. Sony added 1.6 percent to 1,376 yen in Tokyo, Techtronic Industries rose 1.5 percent to HK$8.04.

Gains in stocks may be limited after Italy yesterday fell short of its target in a debt auction. Prime Minister Mario Monti said his government won’t “rule out” more aggressive efforts to reduce debt.

“Markets will continue to be unstable for the first quarter of next year,” said Masaru Hamasaki, Tokyo-based chief strategist at Toyota Asset Management Co., which oversees the equivalent of $24 billion. “European nations will need to unite as they debate how to rehabilitate the region’s finances. The leadership will be tested.”

Cnooc rose 0.9 percent to HK$13.70. Crude oil for February delivery gained as much 0.2 percent on the New York Mercantile Exchange amid potential supply disruptions by Iran around the Strait of Hormuz and on optimism about the U.S. economy.

--Editors: Jason Clenfield, Jim Powell.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

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

View the original article here

Is Penny Stock Investing Worth it?

Asia Crisis Haunts Thailand With Clash Over $35 Billion Debt

December 30, 2011, 12:15 AM EST By Daniel Ten Kate and Suttinee Yuvejwattana

(Updates baht in fifth paragraph.)

Dec. 30 (Bloomberg) -- Thailand’s government will today press the central bank chief to take on $35 billion of legacy debt from bank bailouts as Prime Minister Yingluck Shinawatra looks for fiscal scope to finance flood defenses.

Bank of Thailand Governor Prasarn Trairatvorakul meets with cabinet members in Bangkok over the proposal to shift the debt to the BOT’s balance sheet. Deputy Prime Minister Kittiratt Na- Ranong said yesterday the step would save the government as much as 65 billion baht ($2 billion) in annual interest costs that could be used to fund anti-flood measures.

The push risks deepening concern that Yingluck’s administration is infringing on the central bank’s independence, after Kittiratt in October said the BOT should lower interest rates to help businesses cope with the country’s worst flooding since 1942. The government itself lacks unanimity on the move, with Finance Minister Thirachai Phuvanatnaranubala warning it could hurt investor confidence and stoke inflation.

“The weakening of the baht in the last few days may come from this concern about inflation,” said Somprawin Manprasert, an economist at Tisco Securities in Bangkok. “It’s not a good thing to do at all and will hurt both fiscal and monetary discipline. People will start to think that if the government can do it one time, they can do it again when debts pile up.”

The baht yesterday fell the most in two months to 31.75 per dollar, the weakest level since Aug. 16, 2010, according to data compiled by Bloomberg. It was unchanged today as of 8:46 a.m. in Bangkok, set for its biggest annual loss since 2005. The benchmark SET Index has dropped 1.8 percent over the past six days, the worst performer in Asia after Vietnam in that time.

‘Quite Strange’

Thailand’s Cabinet resolved earlier this week to study moving 1.1 trillion baht in debt incurred bailing out financial institutions 14 years ago onto the central bank’s balance sheet. Prasarn said this week it was “quite strange” that the government didn’t discuss the debt transfer officially with the central bank before bringing the issue to the Cabinet.

“Our losses on the balance sheet will be higher and that may affect confidence,” Prasarn told reporters on Dec. 28.

The Financial Institutions Development Fund racked up a 1.4 trillion baht debt during the 1997 Asian financial crisis on loans aimed at rescuing struggling lenders. The government closed more than 60 non-bank financial companies and seized half of the nation’s 14 commercial banks that received help from the fund.

Under a repayment agreement in 2002, the finance ministry makes interest payments while the central bank pays down the principal whenever it earns a yearly profit. The Bank of Thailand has reported annual net income once since 2004 and last year reported a net loss of 117 billion baht, mostly due to losses on foreign exchange.

Proud to Repay

Since 1997, the principal on the debt has fallen by 300 billion baht, or about 21 billion baht per year. During that time the government has paid as much as 65 billion baht in interest annually, according to Kittiratt, who said yesterday the central bank would report a “record high profit” for 2011.

“The central bank should be proud that they can take care of part of the nation’s debts,” he told reporters in Bangkok yesterday. “If we transfer the debt to the Bank of Thailand, it will help reduce the government’s concerns.”

The move would reduce the public debt-to-gross domestic product ratio by 10 percentage points from 40 percent now, providing room for more government borrowing, Kittiratt said. Thailand’s Cabinet this week approved a proposal to borrow 350 billion baht to set up a fund for long-term water-management projects following the floods.

‘Amend the Bible’

The government’s move has more to do with sidestepping restrictions on budget deficits than its ability to borrow, said Sethaput Suthiwart-Narueput, managing partner of Advisor Co., a Bangkok-based corporate advisory, and former executive vice president of Siam Commercial Bank Pcl. Yingluck’s government could spend more by passing a stimulus bill as the previous administration did in 2009, he said.

Thailand’s Budget Procedures Act passed in 1959 prevents the government from borrowing more than 20 percent of approved annual budget expenditures plus 80 percent of expenses allocated to government debt payments.

The government is “trying to get more spending out without having to issue a new law,” he said. “They certainly don’t want to amend the budget law because to do that it would be seen as ‘Oh my God, they are undermining the fiscal discipline our forefathers put in place.’ It’s like trying to amend the Bible.”

Printing Money

Thirachai, the finance minister, suggested allowing the use of interest from the country’s $167 billion in foreign reserves, amounting to 25 billion baht this year, for debt payments. His predecessor under the previous government, Korn Chatikavanij, said such a move would “retain the prudency and accountability and transparency of the current structure.”

The debt “is a burden for sure, but what would be worse is trying to push it off the government balance sheet and pretend it doesn’t exist,” Korn said in a telephone interview. “It would also be detrimental to the central bank, which would have no way to repay the debt except printing fresh money.”

--Editors: Tony Jordan, Chris Anstey

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

View the original article here

2012 May Bring a Bear Market for Metals

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

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

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

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

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

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

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

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

’Disciplined Management’

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

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

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

First Banknotes

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

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

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

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

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

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

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

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

View the original article here

Young Investors Simple Stock Investment Strategy

Homebuilders Gain on Pending Sales Data

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

View the original article here

U.S. Population Saves By Moving Inland

December 28, 2011, 11:30 AM EST By Brian Chappatta

(For more stories on the census, TOP CENS .)

Dec. 20 (Bloomberg) -- New York, California and other high- cost U.S. states may lose residents as the economy recovers, continuing a trend during the past decade of Americans searching for more affordable regions to settle.

The U.S. population climbed 9.7 percent from 2000 to 2010, according to Census Bureau data. Five states -- Nevada, Arizona, Texas, Utah and Idaho -- grew at more than twice the national pace, as California, the most-populous, had its smallest increase ever, the data show.

The Northeast states of New York, New Jersey, Rhode Island and Massachusetts are among those that had population increases of less than half the average. Though migration has slowed, the effects of the economic downturn may rekindle movements away from high-priced areas, said Joel Kotkin, author of “The Next Hundred Million: America in 2050,” a book about demographics.

“If you move from New York to Houston, you just gave yourself a gigantic raise,” Kotkin said in a telephone interview. “As the country has become more stressed, people have to move to those places where they can achieve a middle- class lifestyle at a lower cost.”

Living With Parents

The average sale price of a single-family home in the area including New York City was $464,900 at the end of September, compared with $159,500 in the Houston region, according to National Association of Realtors data.

New York state has the fifth-highest income-tax rate in the U.S., while Texas is one of seven with no personal income tax. California is third-most, at 6.7 percent, trailing only Hawaii and Oregon.

About 1 in 9 people, or 11.6 percent, changed locations between 2010 and 2011, the lowest total since the government began tracking the figure in 1948, census data show. Men 25 to 34 years old, who are usually among the most frequent migrants, have increasingly opted to live with their parents during the past five years, according to government figures.

“A lot of people who would have been out-migrants have not yet left home,” said William Frey, a senior fellow at the Brookings Institution in Washington who has studied census data for more than three decades. “There is this pent-up demand for migration, and it could be that once things pick up, there will be an exodus again from these places.”

Californian Culture

Rich Karlgaard, publisher of Forbes Magazine, wrote in his 2004 book, “Life 2.0,” that Americans would leave cities such as New York, Boston, San Francisco and Los Angeles for smaller towns in Oregon, Missouri and North Dakota.

The population in Los Angeles, the second-largest U.S. city, grew 2.6 percent between 2000 and 2010, the census data show. The population in Santa Barbara, about 90 miles northwest of Los Angeles along the Pacific coast, fell 4.2 percent, while inland cities including Fresno and Sacramento experienced growth of 16 percent and 15 percent, respectively.

Overall, California’s population climbed 10 percent. The Census Bureau on Dec. 21 plans to release July 1, 2011, state population estimates.

Californians have made Oregon a top moving destination, behind Nevada, Arizona and Texas, according to Internal Revenue Service data compiled by Aaron Renn, who examines migration trends for his website Urbanophile.com. His data uses the number of exemptions claimed on tax returns for filers moving between states as a proxy for people.

Similar Culture

Moves deep into the interior U.S. from the coasts have been less frequent, according to the IRS data. California natives prefer destinations such as Phoenix, Salt Lake City and Seattle over areas in the Midwest because of similarities with the climate and demographics, Kotkin said.

“It’s not just going to where prices are the lowest,” he said. “It’s about the places that are the nicest, that are relatively cheaper, and that have similar culture.”

Wall Street may cut an additional 10,000 jobs by the end of 2012, New York Comptroller Thomas DiNapoli said in October. New York City weathered the recession that started in December 2007 better than other major cities because of its large banking industry, which was cushioned by the Troubled Asset Relief Program, Kotkin said.

New Yorkers affected by reductions in financial services may move to “safety valves” like eastern Pennsylvania or upstate New York, the Brookings Institution’s Frey said. Still, recent college graduates may opt to “ride things out” in the city to position themselves for an economic recovery, he said.

Cost of Living

Karlgaard’s book examined the difference between working where you live and living where you work. He argued in 2004 that because of real estate prices, traffic and higher costs of living, “a growing number of Americans are seeking a larger life in smaller places.”

For Wall Street traders and analysts, software developers and biochemists, location choices are much broader than “a guy with a B.A.,” Kotkin said. The unemployment rate in New York in October was 7.9 percent, compared with the national mark of 9 percent, according to the Bureau of Labor Statistics.

Nevada has the highest unemployment rate at 13.4 percent. Average home prices in the Las Vegas area plummeted to $138,000 in 2010 from $220,500 in 2008, the second-biggest decline behind Fort Meyers, Florida, according to NAR data.

“A lot of the jobs in Nevada, Arizona, and Florida were related to the growth itself -- construction and retail,” Frey said. “Once the economy stopped, the growth stopped.”

As housing prices continue to slide, future construction stagnates and unemployment remains elevated, would-be migrants may stay put against their will, Frey said. This will give places like New York and Los Angeles another chance to appeal to residents “stuck” with unsellable homes.

“When migration picks up, to what degree will there still be this gulf between where the middle class can afford to live and where they can’t?” Frey said. “Coastal California will likely still be out of a lot of middle-class homeowners’ reach, as will living in the more expensive parts of the Northeast.”

--Editors: Stacie Servetah, Flynn McRoberts

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

View the original article here