Wednesday, September 30, 2009

Today's Headlines


- Mutual-fund investors are mostly sitting out the stock-market rally that lifted share prices 57 percent since March, helping bond manager Pacific Investment Management Co. increase sales while American Funds loses assets. Bond funds attracted net deposits of $209.1 billion in the first eight months of the year while stock funds drew $15.2 billion, according to Morningstar Inc., the Chicago-based research firm that tracks the $10.6 trillion industry. Nine of this year’s 10 best-selling funds buy bonds and only one, Vanguard Total Stock Market Index Fund, focuses on equities. By putting money into bond funds in 2009, investors missed an opportunity to increase their stock fund holdings during a rally that added $3.5 trillion in market value to the Standard & Poor’s 500 Index since it reached a 12-year low on March 9. Michael Kim, an analyst who follows asset-management firms for Sandler O’Neill & Partners LP in New York, said investors are likely to shift money into stocks as they become more comfortable taking on risk. “They will come back into equities in a much bigger way,” he said in a telephone interview. Investors pulled $173.9 billion from stock funds in 2008, Morningstar data show.

- New York Senator Charles Schumer and fellow Democrats vowed to keep fighting for a government- run health-insurance program on the U.S. Senate floor after the finance committee defeated the proposal yesterday. The panel rejected amendments offered by Schumer and West Virginia Senator Jay Rockefeller to create a “public option” that would compete with private insurers such as Indianapolis- based WellPoint Inc. Panel chairman Max Baucus and two other Democrats joined with all of the committee’s Republicans to vote against both amendments. While Baucus said he was voting against the program because it couldn’t pass the Senate “at this point,” Schumer said he sees growing support.

- When it comes to paying for takeovers, stock is the new cash. Some 36 percent of this year’s acquisitions involved at least some stock, the highest proportion in eight years, data compiled by Bloomberg show. Kraft Foods Inc. and Xerox Corp. are using their shares for proposed takeovers. Inc. and Marvel Entertainment Inc. demanded equity instead of cash when they sold themselves.

- A New York man pleaded guilty to facilitating the transfer of $152,000 with the understanding the money would be used to buy night vision goggles and other equipment for a terrorist training camp in Afghanistan. Abdul Tawala Ibn Ali Alishtari, 56, of Ardsley, New York, pleaded guilty yesterday to charges of terrorism financing and conspiracy to commit wire fraud, U.S. Attorney Preet Bharara in New York said in a statement.

- Chicagoans are angry about Mayor Richard M. Daley’s deal to lease the city’s parking meters to Morgan Stanley investment funds. So angry that Daley’s popularity is at a record low, according to a Chicago Tribune/WGN poll. So angry that the 20- year mayor may not have taxpayer support to lease or sell more assets and bolster the city’s budget. That means Daley is under even more pressure to abide by his pledge that residents won’t pay anything for staging the 2016 Summer Olympics, which organizers say will cost $4.8 billion. The winning site is to be announced Oct. 2 in Copenhagen. “When they see the city get it so wrong, voters rightfully get very skeptical,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability, a nonprofit public policy group in Chicago.

- Wyndham Worldwide Corp(WYN), the franchiser of Days Inn hotels and Super 8 motels, plans to buy more brands or acquire the operations of struggling competitors, Chairman and Chief Executive Officer Stephen Holmes said. “There’s quite a bit of distressed real estate,” said Holmes, 52, in a Sept. 28 interview at Wyndham’s Parsippany, New Jersey, headquarters. “It’s an opportunity to add new brands or convert underperforming hotels” to a Wyndham brand.

- Ameriprise Financial Inc.(AMP) agreed to buy the Columbia stock and bond funds from Bank of America Corp. for as much as $1.2 billion in cash, the biggest purchase by the investment and insurance company since its spinoff from American Express Co.

- Companies in the U.S. cut 254,000 jobs this month, more than forecast, a private report based on payroll data showed today. The estimated drop, which was the smallest since July 2008, compares with a revised 277,000 decline the prior month, figures from ADP Employer Services showed. The ADP report was forecast to show a decline of 200,000 jobs, according to the median estimate of 33 economists in a Bloomberg survey. Projections ranged from decreases of 300,000 to 133,000.

- The U.S. Environmental Protection Agency is withholding 79 permits to mine coal by removing mountaintops in four Appalachian states, a move that delays projects and may reduce supply.

- Best Buy Co.(BBY), the world’s largest electronics retailer, plans to hire more seasonal holiday workers this year to help meet demand for Internet-connected flat-panel televisions and mobile phones. Best Buy expects to sell more merchandise this holiday season than last, Chief Executive Officer Brian Dunn said at a briefing in New York. The chain sold more flat-panel TVs in July than last December, he said.

- Federal Reserve Vice Chairman Donald Kohn said tight credit, low inflation and slack demand for labor and products mean the central bank can keep interest rates at around zero “for an extended period.” “Exceptionally low interest rates are likely to be warranted for an extended period,” Kohn said today in remarks at a conference sponsored by the Cato Institute and the Shadow Open Market Committee in Washington. “Resource utilization is quite low, inflation is subdued and continuing restraints on credit are likely to constrain the speed of recovery.”

- Crude oil futures topped $70 a barrel and gasoline surged after a U.S. government report showed an unexpected decline in supplies of the motor fuel.

- Steel prices in the U.S. rose 13 percent in September as inventories hit record lows after producers cut output, Purchasing Magazine said. The average price of hot-rolled steel sheet, the benchmark product used in cars and appliances, climbed to $535 a ton from $475 in August, Purchasing said today in a monthly update. Cold- rolled sheet increased 10 percent to $625 a ton from $568. Steel prices began to rebound in July after producers slashed output in response to falling demand from the auto and construction industries. Buyers may begin to resist higher prices by making fewer purchases in November and December, Purchasing said.

Wall Street Journal:

- Senators writing a health-care overhaul bill on Wednesday rejected a bid to strengthen anti-abortion provisions already in the legislation, in a vote that could erode support for the legislation among some Catholics who back its broad goal of expanding insurance coverage. Meanwhile, Senate Majority Leader Harry Reid said Wednesday that he expects the Senate will take up health-care legislation on the week of Oct. 12.

- No state's economy, with the exception of Michigan, has careened into a deeper ditch than California in this recession. The state now has the fourth-highest unemployment rate (12.2%), the third-highest rate of mortgage foreclosures, and for two years has had the biggest budget deficit in the history of the 50 states. So it is very good news that yesterday Governor Arnold Schwarzenegger's bipartisan tax commission recommended a road out of this mess. The heart of the new plan is to broaden the tax base and slash tax rates on personal income, business and sales. California currently ranks at or near the top in all three categories. This has, paradoxically, contributed to the state's inability to pay its bills by driving men and women from the state and leading to revenue boom and bust. We don't agree with everything in this report, but there's no question it would be a huge improvement over the current tax code in its economic incentives, simplicity, revenue stability and fairness.
- The Federal Reserve Bank of Minneapolis has named economics professor Narayana Kocherlakota as president of the bank, replacing Gary Stern, who retired a month ago after 24 years.


- The holiday season is prime time for HDTV bargain hunters. Retailers, looking to draw people into the stores on "Black Friday," regularly offer impossibly low prices—and the sale of those discounted sets is often a quick barometer of the overall mood of consumers. This year won’t be much different, but as buyers focus on the current models (which analysts say could fall as low as $300 at some stores) manufacturers are looking down the road to the next big thing.

- U.S. President Barack Obama announced a plan Wednesday to spend $5 billion on medical and scientific research, medical supplies and upgrading laboratory capacity, which he said would create tens of thousands of new jobs.

- SO, is this how Goldman Sachs(GS) does it? "It," of course, is making gobs of money even when nobody else on Wall Street can. And those profits then go into outrageous bonuses to employees, which cause rancor on Capitol Hill and on Main Street. You've heard the old saying, "it's not what you know, but who you know." Goldman Sachs knows lots of important people. That fact is indisputable, mainly because former Goldman employees are scattered around the country, and the globe, in important, decision-making financial positions. But I'd like to make an addendum to that old saying, which I'll explore for you today: Who you know is only important if you can get them on the phone anytime you want. Today's column is about Thursday, Sept. 18, 2008. It's also about the unparalleled access that Goldman Sachs had to Treasury Secretary Hank Paulson. No matter how you slice, dice or excuse it, Blankfein by 9 a.m. would have had information that was not available to anyone else who makes their money trading securities. And, as you can imagine, there is a whole lot of value in that kind of inside access.

Washington Post:

- Senate Democrats introduced legislation Wednesday establishing mandatory, nationwide limits on greenhouse gases, hoping to spur political momentum on the issue before negotiators meet in Copenhagen in December to try to forge a new international climate pact. The bill would cut the nation's greenhouse gas emissions 20 percent compared to 2005 levels by 2020 and cover roughly 7,500 coal-fired plants, oil refineries and other facilities across the country.

Vanity Fair:

- The government secretly tried to orchestrate a deal involving Goldman Sachs in the week following Lehman Brothers’ collapse and considered using the Federal Reserve to help support such a transaction, Andrew Ross Sorkin reports in the new issue of Vanity Fair. In an excerpt from his forthcoming book, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, Sorkin reports that the deal, which was nearly consummated, would have merged Goldman Sachs and Wachovia. Henry M. Paulson, the Treasury secretary and former C.E.O. of Goldman, was deeply involved in the process, contacting both Lloyd Blankfein, Goldman's current C.E.O., and a Wachovia board member, and strongly urged both to consider it. Wachovia’s C.E.O., Robert Steel, was a former vice-chairman at Goldman Sachs and Paulson’s former number two at the Treasury Department. Sorkin reports that Warren Buffett was also contacted about investing in the merged company, but told a banker at Goldman that it would never happen. “By tonight the government will realize they can’t provide capital to a deal that’s being done by the former firm of the Treasury secretary with the company of a former vice-chairman of Goldman Sachs and former deputy Treasury secretary,” Buffett said. “There is no way. They’ll all wake up and realize, even if it was the best deal in the world, they can’t do it.”


- Eighty-three percent (83%) of U.S. voters say legislation should be posted online in final form and available for everyone to read before Congress votes on it.

- The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-nine percent (39%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -11 (see trends).

- While majority Democrats in Congress struggle to put together a final health care reform plan, just 22% of U.S. voters believe that most members of Congress will understand what is in the plan before they vote on it.


- Congress is on the verge of giving itself a bump in its annual budget — even as local governments, families and businesses across the country are tightening their belts in the worst recession in decades. Under a House-Senate conference measure, approved by the House last week and poised for passage in the Senate on Wednesday, spending for the legislative branch will increase 5.8 percent this year, boosting Capitol Hill’s annual budget to $4.7 billion.

The Detroit News:

- Bob Kruse, who recently led a critical Chevrolet Volt team and devised the automaker's long-term electric vehicle strategy, has resigned months before the vehicle's debut, The Detroit News has learned. Kruse's resignation, effective today, comes at a crucial time for General Motors Co., which is banking on the Volt to change public perceptions of the company and also help meet stringent new fuel rules.

- House Majority Leader Steny Hoyer this afternoon kicked off a day-long series of meetings aimed at resolving the long-simmering controversy over plans to close more than 2,000 auto dealers. The Maryland Democrat is meeting with about 20 dealers and officials from four groups representing dealers, including the National Automobile Dealers Association and the top lobbyists for General Motors Co. and Chrysler Group LLC. He is seeking "an equitable solution" for both sides.

- OPEC's spare capacity would lessen the impact on oil prices of any disruption to Iran's oil supply if the dispute over Tehran's nuclear program escalates, a Kuwaiti OPEC delegate said in a newspaper column. The nuclear dispute is supporting oil prices [O/R]. The potential for escalation is among factors that could affect the market in the near future, Mohammed al-Shatti said in a column for Kuwait's al-Rai newspaper on Wednesday. "But the presence of OPEC spare capacity of above 5 million barrels per day (bpd) would lessen the negative effect on the prices if any cut happened to oil supplies from Iran," Shatti wrote. A combination of a sharp fall in demand due to recession and the completion by top OPEC exporter Saudi Arabia of crude capacity expansion has left the producer group with the largest supply cushion in years. Saudi Arabia alone has around 4 million barrels per day of capacity idle, more than enough to cover for any disruption of Iran's exports of around 2.1 million bpd.

- The Obama administration's pay czar joked Wednesday that he might have to move to Pluto to escape the fallout from his first batch of compensation decisions, which are expected in October. Feinberg, a Washington lawyer appointed by President Barack Obama in June to decide on pay for the highest-paid employees of companies that received extraordinary government assistance, told a Chicago Bar Association event that he does not expect his rulings to be universally applauded. "I'm not sure there will be any type of result here that is going to be praised ...," said Feinberg, who appeared via teleconference. "Likely, I'll be criticized from both ends."

- Environmental activists said on Wednesday they canoed into Suncor Energy Inc's (SU) Alberta oil sands operation, blocking equipment in a second protest action in as many weeks aimed at disrupting crude production. Greenpeace said 23 of its activists entered Canada's second-largest oil sands operation, stopping conveyor belts that carry bitumen from the mine to an upgrading plant that processes the tar-like crude into light oil.

Financial Times:
- The confidence of US finance chiefs in their companies' near-term fortunes surged this past quarter, even as many of them forecast that a full-scale economic recovery might not begin until 2010, a survey has shown. US companies were expected to show an 11 per cent increase in net earnings in the next 12 months, according to a poll of 262 chief financial officers conducted by Financial Executives International, a corporate finance lobby group, and Baruch College. Those surveyed also expected that revenue would increase 5.8 per cent in the next year. For the first time in more than a year, CFOs forecast that capital budgets would rise in the next 12 months, as would hiring.

- London’s position as the world’s number two city for hedge funds is beginning to slip after almost a decade of gaining ground. New York, meanwhile, is reasserting itself in spite of the Madoff scandal, the fall of Lehman Brothers and a series of high-profile fund liquidations. According to a report from International Financial Services London – a promotional body run in conjunction with the City of London and the UK government – London’s share of the world’s hedge fund assets fell by 2 percentage points in 2008, while New York’s portion grew by the same amount.

- The US and its allies are at odds over tactics for high-profile talks with Iran on Thursday, with Washington adopting a more cautious approach than London and Paris and Europeans expressing concern that the administration of President Barack Obama may be moving too slowly and asking too little. In particular, Washington has downplayed longstanding calls for Iran to suspend uranium enrichment – as Tehran is required to do by a series of United Nations resolutions – focusing instead on calls for the Islamic Republic to “come clean” about the secret nuclear facility revealed last week at a Revolutionary Guards base near the city of Qom.

Globe and Mail:

- A deal to exempt Canada from Washington's controversial “Buy American” stimulus package clause is imminent, as Canadian and American officials continue to negotiate the details, the CBC reported Tuesday evening. If an agreement is reached, it would come as a relief to Canadian manufacturers who have been shut out of lucrative American procurement contracts that are funded by American federal stimulus dollars and, as such, are restricted to American suppliers.

Les Echos:

- France’s budget, which will be presented today, predicts deficits of 8.2% of GDP this year and in 2010. The budget forecasts that debt will reach 84% of GDP next year.


- Worldwide semiconductor equipment sales are forecast to reach US$21 billion in 2010, up 50% from US$14.1 billion in 2009, according to SEMI speaking during the SEMICON Taiwan 2009 (September 30-October 2) pre-show press conference. The growth was previously estimated at 47%. Manufacturing capacity utilization has improved, paving the way for a market recovery in 2010, said SEMI. Industry-wide wafer fab capacity utilization climbed to 77% in the second quarter, up from 56% in the first. Citing continued improvement in equipment bookings, the association suggested that many indicators imply better conditions for both semiconductor and equipment companies. SEMI expects chip fab spending, which already hit bottom in the second quarter of 2009, will manage sequential growth over the next few quarters. In the fourth quarter of 2010, the spending is expected to surpass the level seen in third-quarter 2008. SEMI earlier this month revised upward its fab spending forecast to 64% for 2010, following a 50.7% decline this year.

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