Business Headlines For September 28, 2009

Zoellick Challenges U.S. Dollar as World Reserve Currency

The U.S. would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency, World Bank Group President Robert Zoellick warned. He noted that there will be other options to the dollar in the future. The World Bank chief’s warning comes as China, Russia, Brazil and India repeat calls for a replacement to the dollar as the global reserve currency.

In excerpts from a speech to be delivered on Monday at the Paul H. Nitze School of Advanced International Studies in Washington, DC, Zoellick said a new level of international cooperation and coordination will be required to form a new framework for strong, sustainable and balanced growth. He applauded the decision taken at last week’s G-20 Summit to initiate a new peer review system.

“As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers,” he said.

With regard to the current economic crisis, Zoellick said central banks failed to address risks building in the new economy. “They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy.”

According to him, central banks argued that damage to the “real economy” of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. But, they turned out to be wrong.

Moreover, he said in the U.S., it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. “My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators,” he said.

by RTT Staff Writer

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Swine Flu Ramps Up Fears

In Austin, so many parents are rushing their children to the Dell Children’s Medical Center of Central Texas with swine flu symptoms that the hospital had to set up tents in the parking lot to cope with the onslaught.

In Memphis, the Le Bonheur Children’s Medical Center emergency room got so crowded with feverish, miserable youngsters that it had to do the same thing.

And in Manning, S.C., a private school where an 11-year-old girl died shut down after the number of students who were out sick with similar symptoms reached nearly a third of the student body.

“It just kind of snowballed,” said Kim Jordan, a teacher at the Laurence Manning Academy, which closed Wednesday after Ashlie Pipkin died, and the number of ill students hit 287. “We had several teachers out also. That was the reason to close the school — so everyone could just be away from one another for a few days.”

After months of warnings and frantic preparations, the second wave of the swine flu pandemic is starting to be felt around the country, as doctors, health clinics, hospitals and schools are reporting rapidly increasing numbers of patients experiencing flu symptoms.

“H1N1 is spreading widely throughout the U.S.,” said Thomas R. Frieden, director of the federal Centers for Disease Control and Prevention in Atlanta during a briefing on Friday. At least 26 states, including Maryland and Virginia, are now reporting widespread flu activity, up from 21 a week earlier, the CDC reported. “H1N1 activity is now widespread,” Frieden said.

While so far most cases are mild, and the health-care system is handling the load, officials say the number of people seeking treatment for the flu is unprecedented for this time of year. Even though some parts of the Southeast that started seeing a surge of cases first now seem to be showing a decline in cases, that could be a temporary reprieve, Frieden said. And other parts of the country are likely just starting to feel the second wave.

Maryland health authorities on Friday said a Baltimore-area youth with an underlying health problem had died of swine flu, the state’s first such fatality involving a youth.

Despite new federal guidelines aimed at keeping schools open, the pandemic has already prompted scattered school closings around the country in recent weeks, including 42 schools that closed in eight states on Friday, affecting more than 16,000 students.

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Asian Markets Hit a 6 week Low

By Shani Raja and Jonathan Burgos

Sept. 28 (Bloomberg) — Asian stocks fell, dragging the MSCI Asia Pacific Index to its biggest loss in two weeks, as the yen surged and disappointing U.S. data raised concerns about the strength of the economic recovery.

Honda Motor Co., which gets 47 percent of its sales in North America, sank 5 percent in Tokyo as the yen strengthened to an eight-month high versus the dollar and U.S. durable goods orders missed economist estimates. Mitsui O.S.K. Lines Ltd., Japan’s No. 2 shipping company, lost 5.4 percent after widening its loss forecast. Henderson Land Development Co. dropped 3 percent in Hong Kong after new mortgages in the city fell.

The MSCI Asia Pacific Index sank 1.6 percent to 115.93 as of 7:19 p.m. in Tokyo, the biggest drop since Sept. 14. The gauge has climbed 64 percent from a five-year low on March 9 as stimulus measures worldwide dragged economies out of recession. It has fallen 2.5 percent from a one-year high on Sept. 17.

“We are setting the stage for a mild correction in the next month,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, told Bloomberg Television today. “Everybody is extremely undecided as to whether the next leg will be up or down. That leads us to question whether everything good that has happened in the past six months is really sustainable.”

Japan’s Nikkei 225 Stock Average slumped 2.5 percent to 10,009.52. Nomura Holdings Inc., which announced a record $5.7 billion share sale last week, sank 5.8 percent as Merrill Lynch & Co. recommended holding fewer shares of Japan’s brokerages.

China’s Shanghai Composite Index dropped 2.7 percent, while Hong Kong’s Hang Seng Index sank 2.1 percent. India is closed today for a public holiday….

European Markets Fall On Commodities, But Turn Green As of 7am EST

By Sarah Jones

Sept. 28 (Bloomberg) — European stocks declined for a third day, extending the Dow Jones Stoxx 600 Index’s biggest weekly drop since July, as a sell-off in mining companies overshadowed gains by German utilities after Chancellor Angela Merkel won re-election.

Rio Tinto Group and Antofagasta Plc dropped more than 1.8 percent as copper led declines on the London Metal Exchange. RWE AG and E.ON AG, Germany’s biggest utilities, rallied more than 2.8 percent after Merkel’s re-election yesterday fueled speculation that her desired coalition will scrap a nuclear phase-out law. Crucell NA led gains by drugmakers as Johnson & Johnson bought an 18 percent stake.

Europe’s Stoxx 600 lost 0.3 percent to 238.13 at 11:11 a.m. in London, extending last week’s 2.4 percent retreat. The measure has soared 51 percent since March 9, pushing its price- earnings ratio near to the highest level since 2003, according to Bloomberg data.

“Whilst valuations are not expensive there is no doubt that the rally that we have seen has got valuations very quickly to fair value,” said Henk Potts, a London-based fund manager at Barclays Stockbrokers Ltd. in London, which oversees about $45 billion. “Future direction really comes down to the third- quarter reporting season which gets underway next week. In the short term, we can expect to see an element of nervousness in the market or even consolidation.”

Alcoa Inc., the largest U.S. aluminum producer, is due to become the first member of the Dow Jones Industrial Average to post third-quarter results when it reports earnings on Oct. 7.

German Election

Germany’s DAX Index added 0.7 percent after Merkel’s Christian Democrats and the Free Democrats, her preferred allies, won enough votes to form the next government.

Standard & Poor’s 500 Index futures fluctuated after three straight days of losses for the benchmark gauge for U.S. equities. The MSCI Asia Pacific Index slid 1.6 percent as the yen rose to an eight-month high versus the dollar…..

Oil Falls Below $66pb

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By Justin Carrigan

Sept. 28 (Bloomberg) — The yen rose to the highest level in eight months against the dollar, and commodities and stocks fell, as policy makers signaled the global economy isn’t strong enough for governments to withdraw their stimulus measures.

The Japanese currency advanced against all 16 of its most- traded peers tracked by Bloomberg as of 9:23 a.m. in London. The MSCI World Index of 23 developed countries slipped for a fourth day, losing 0.5 percent. Copper and crude oil declined. The Shanghai Composite Index fell 2.4 percent to a four-week low. Germany’s DAX Index gained 0.6 percent after Chancellor Angela Merkel’s re-election.

International Monetary Fund Managing Director Dominique Strauss-Kahn told a conference in Ukraine that policy makers “need to secure the recovery before we address the problem” of inflation and how to end stimulus packages. Group of 20 leaders meeting at the weekend said they would “avoid any premature withdrawal of stimulus,” and acknowledged that the global recovery remains dependent on emergency government money.

“The leaders of G-20 didn’t really come out very convincingly in terms of the continuation of the stimulus and that leads us to this question about whether everything good that happened in the last six months is sustainable,” Arjuna Mahendran, the Singapore-based chief investment strategist for Asia at HSBC Private Bank, said in an interview with Bloomberg Television today. “We are heading toward some form of correction in October.”

Japanese Exporters

The yen’s gains drove it to stronger than 89 per dollar for the first time since Feb. 5 after Japanese Finance Minister Hirohisa Fujii said the currency’s moves aren’t excessive, signaling he won’t curb its gains to support exporters. He said later that people were mistakenly saying he supported a “strong yen.”….

Anglo American Seeing the First Signs of Recovery From Metals

By Rebecca Keenan

Sept. 28 (Bloomberg) — Anglo American Plc, owner of stakes in the world’s biggest diamond and platinum producers, is seeing signs of recovery in demand for metals, Chief Executive Officer Cynthia Carroll said.

“We have seen the worst of the downturn and we are starting to see the first signs of recovery,” Carroll said today at an industry presentation in Brisbane, Australia. Anglo is the target of a merger proposal by Xstrata Plc.

The world’s near-term outlook for metals has improved faster than expected, Carroll said. Commodities are poised for further gains heading into 2010 because supply constraints persist for many raw materials as the global economy recovers, Barclays Capital said in a report last week.

Carroll, who became CEO in 2007, has promised to extend job cuts to 19,000 this year, from 15,505 in the first half, to help save $2 billion of costs by 2011, while Zug, Switzerland-based Xstrata says a merger would save more than $1 billion annually by the third full year after a deal.

Xstrata, the largest exporter of power station coal, is seeking a “merger of equals” that would combine mines in Canada, Australia and South Africa with nearby sites operated by London-based Anglo, creating a mining group that could compete with BHP Billiton Ltd., the world’s biggest. Anglo rejected the proposal in June.

The index of the six metals traded on the London Metal Exchange has jumped 62 percent this year, outpacing a 21 percent gain in the MSCI World Index of stocks.

Anglo slipped 44 pence, or 2.1 percent, to 2,015 pence as of 9:47 a.m. on the London Stock Exchange, paring this year’s gain to 30 percent. The Bloomberg Europe Metals & Mining Index of 15 companies dropped 1.9 percent.

Anglo’s first-half profit dropped 31 percent to $2.97 billion, it said on July 31. So-called underlying earnings of 91 cents a share exceeded analyst forecasts.

China Unicom To Have A $1.3bln Stock Buy Back

By Mark Lee and Shinhye Kang

Sept. 28 (Bloomberg) — China Unicom (Hong Kong) Ltd. and South Korea’s SK Telecom Co. ended a three-year investment tie- up after the Chinese mobile-phone operator deepened its partnership with Spain’s Telefonica SA.

Unicom, China’s second-largest provider of mobile-phone service, plans to buy back 899.7 million shares for HK$10 billion ($1.3 billion) from SK Telecom, the Beijing-based carrier said in statement today. The company will pay HK$11.105 a share, 1.4 percent lower than the closing price in Hong Kong trading on Sept. 25.

Telefonica, which replaced SK Telecom as Unicom’s biggest overseas investor last year, said this month it would raise its shareholdings by 50 percent. For Unicom, the reorganization of the domestic telecommunications industry made the strategic alliance forged in 2006 with the South Korean carrier “no longer relevant,” according to Mirae Asset Management analyst Daniel Baker.

“As Unicom aligns itself more closely with Telefonica, this has made it more likely for SK Telecom to seek an exit,” said Baker, who rates Unicom shares “reduce.”

The SK Telecom holding, a 3.8 percent stake, will be canceled after the repurchase, according to the statement….

Xerox To Buy Affiliated Computer $6.4bln

By Katie Hoffmann

Sept. 28 (Bloomberg) — Xerox Corp., the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer Services Inc. for $6.4 billion, extending its reach in the services market.

Xerox is paying $63.11 in cash and stock for each Affiliated Computer share, 33.6 percent more than the closing price on Sept. 25 of $47.25, the Norwalk, Connecticut-based company said in a statement.

With the purchase, Xerox will have revenue of $22 billion, of which $17 billion is recurring, Chief Executive Officer Ursula Burns said in the statement. Burns, who took over as chief executive officer July 1, had been trying to boost revenue as customers delay purchases during the recession….

Abbott Labs Buys Solvay for $7.1bln

By Meg Tirrell, Albertina Torsoli and Jacqueline Simmons

Sept. 28 (Bloomberg) — Abbott Laboratories’ purchase of Solvay SA’s pharmaceutical unit, for about 4.8 billion euros ($7.1 billion), will give it full control of the TriCor cholesterol drug and a bigger presence in emerging markets.

Abbott will pay 4.5 billion euros in cash, with as much as 300 million euros in contingent payments between 2011 and 2013. The milestone payments relate to whether products perform well. The agreement also includes the assumption about 400 million euros of pension liabilities, Solvay said in a statement today.

The purchase will lower Abbott’s dependence on the arthritis drug Humira, said Larry Biegelsen, a Wells Fargo Securities LLC analyst, in a Sept. 25 report. The company’s biggest product with $4.5 billion in 2008 revenue, Humira risks losing sales as consumers cut spending. Solvay, which also makes chemicals and plastics, wasn’t big enough to compete in pharmaceuticals, Chief Executive Officer Christian Jourquin said.

“If the deal is completed, it would reduce Humira’s share of Abbott’s total sales to 15 percent from the current level of 18 percent,” Biegelsen wrote. Based in New York, he recommends holding Abbott shares.

The deal also suggests Abbott is comfortable with the landscape for TriCor and TriLipix, cholesterol drugs it co- promotes with Solvay. Both use the active ingredient fenofibrate, and account for about 20 percent of Brussels-based Solvay’s pharmaceutical sales, Biegelsen wrote…..

J&J Buys A 18% Piece of Crucell

AMSTERDAM — U.S. health care products maker Johnson & Johnson Inc. has bought an 18 percent stake in biotechnology company Crucell NV for euro301.8 million ($440 million), the Dutch company said in a statement Monday.

The companies will collaborate on the development and marketing of vaccines and hope to create a “universal” flu vaccine, among other goals, Crucell said.

Crucell said the shares it is selling to Johnson & Johnson are newly created.

Crucell’s shares were up 2.8 percent at euro16.395 in midday trading in Amsterdam.

Bernanke & Investors To Celebrate A Loss in Treasuries

By Daniel Kruger

Sept. 28 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke has some good news for investors: Treasury bondholders will lose money for the first time in 10 years amid an unprecedented decline in the gap between the interest rate on 30-year mortgages and government notes, signaling an end to the worst financial crisis since the Great Depression.

Yields on benchmark 10-year notes will end the year little changed at 3.36 percent before rising to 3.65 percent by mid- 2010 as bond prices fall, according to the average estimate in a Bloomberg News survey of JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest of the 18 primary dealers that trade Treasuries directly with the central bank.

The 2.65 percent loss posted so far this year, as measured by Merrill Lynch & Co.’s Treasury Master Index, shows investors no longer require the refuge of U.S. government debt that led to a gain of 14 percent last year. Borrowing rates have declined on everything from mortgages to corporate bonds after the Fed and the government lent, spent or guaranteed $11.6 trillion to shore up banks and end the recession.

“The safe bet from here is a gradual rise in yields,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. He expects 10-year yields in a range of 3.75 percent to 4.25 percent by the first half of 2010, compared with 3.25 percent to 3.75 percent now…..

Profits Poised To Beat Again

By E.S. BROWNING

The stock market’s strong rally is facing its next test as companies gear up to announce third-quarter earnings that, while still weak, will very possibly be better than investors expect.

Earnings in the first two quarters of the year that beat expectations helped propel the market’s recovery, and the prospect of a repeat has even some bears wondering if they have been too pessimistic.

Morgan Stanley investment strategist Jason Todd, one of the few remaining bears on Wall Street, told clients last week that the stock market is looking stronger than he thought and won’t tumble, as he has been predicting, at least through the end of the year. “We think equities will now trade above” his previous target for this year, Mr. Todd said in his report, “in large part because earnings will be higher than we previously anticipated.”

Until now, Mr. Todd had been predicting the market would fall 14% from today’s level by the end of the year. Now he is telling clients that the Standard & Poor’s 500-stock index — which is up 54% from its March 9 low — is likely to rise marginally between now and year’s end and could be up as much as 15% before it gets into trouble.

That, keep in mind, is the bearish view.

One big reason for the market’s continued strength is that expectations were so low for the economy and corporate earnings that the market was able to rise even on modestly good news.

“If you are expecting to lose a dime and you lost a nickel, you are a winner,” says senior analyst Howard Silverblatt at Standard & Poor’s.

Expectations remain low. Analysts forecast a 25% decline in third-quarter profits for companies in the S&P 500 compared with a year ago, not counting charges and special items, according to Thomson Reuters. When the quarter began, analysts had been forecasting a drop of 21%.

For makers of industrial materials, analysts now forecast a 68% third-quarter profit drop. The expected profit decline for energy companies is 64%, for industrial companies, 45%, and for technology companies, 15%, Thomson Reuters says.

The one area where expectations are bubbly is at financial companies, whose escape from death is forecast to result in a 60% year-on-year profit gain. The other bright spot is consumer-discretionary stocks, makers of appliances, cars and other things consumers can easily delay purchasing, whose profits are expected to rise 16% compared with a year ago…..

How Much Smart is in Your Portfolio?

By REBECCA SMITH and BEN WORTHEN

After struggling to sell cutting-edge products to utilities, technology companies are sensing better times ahead with the influx of $4.5 billion in federal stimulus funds for so-called smart-grid projects.

The federal grants are expected to speed transformation of the power grid from a largely electromechanical system into a digital network that gives utilities more efficient ways to send electricity to customers. That could help cut pollution and electric bills.

Smart meters, one component of a smart grid, allow utilities to monitor usage almost in real time, letting them charge variable prices based on demand, for example. Corporate and residential customers would acquire tools to manage their energy use. Residential customers could be given an in-home meter to see how much power they are using and what it is costing them.

Utilities often take years to make technological change, in part because they must justify large expenditures to utility commissions to recoup costs through rates. Utilities also fear that new equipment could degrade transmission reliability if it doesn’t perform flawlessly.

But now, utilities are being encouraged by state utility regulators to seek the federal stimulus funds. California regulators this month voted to expedite their review of smart-grid proposals to fit the U.S. Department of Energy’s timetable for smart-grid grants.

That has opened up a sizeable sales opportunity for a host of tech companies, ranging from giant Cisco Systems Inc. to closely held Tendril Networks Inc. Some tech companies are beefing up staffs to pursue smart-grid projects, while others are helping utilities apply for the grants, the first of which could be doled out as early as next month.

North American utilities are expected to spend $10.75 billion on computer hardware, software and services related to the smart grid this year, up from $7.56 billion in 2008, according to research company IDC Energy Insights.

The smart-grid market “may be bigger than the whole Internet,” said John Chambers, chief executive of networking giant Cisco…..

A Calm B4 The Storm in Bankruptcies?

By Chelsea Emery

NEW YORK (Reuters) – Bankruptcy professionals have noted a curious calm in the pace of corporate Chapter 11 filings, But don’t relax yet, they say. A recent slowdown just marks a calm period before another storm of business collapses.

Things may be getting slightly better in the U.S. economy, and paradoxically, that makes it more likely companies will be pushed into bankruptcy in coming months. For one, the largest U.S. banks posted surprisingly strong profits during the first half of the year. That has made them more willing to foreclose on deadbeat debtors, pushing them into bankruptcy.

It is a marked change from the end of 2008, when lenders were so anxious to keep losses off their books that they extended loan deadlines for struggling companies.

“The calls (for restructuring advice) have slowed up,” said Lawrence Adelman, co-founder of restructuring advisory firm AEG Partners. “But it is a lull. Banks have had time to get their reserves in balance and they’re in a better position to take a writeoff.”

“The commercial real estate market is starting to fall apart now,” Adelman added.

In addition, media and auto-related companies are about four times more like to file for bankruptcy in the next year than companies in other industries, according to a study by Audit Integrity, which tracked liquidity, debt levels and other risk measures at more than 2,500 companies.

And most restructuring professionals say retailers, particularly those in the women’s apparel and jewelry sector, are at risk for collapse.

“There will be more Chapter 11s, more out-of-court workouts,” said Richard Mikels, a partner at law firm Mintz Levin. “The deleveraging that we need so badly, it’s starting to happen.”

Top restructuring experts, bankruptcy attorneys and distressed investors will address the outlook for struggling companies at the Reuters Restructuring Summit in New York and London next week. The specialists will also address which industries might be next in line and what steps can be taken to shore up weakened firms, as well as attractive investment opportunities.

WHAT’S NEXT…..

A New Reality For Social Security

WASHINGTON (AP) – Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that’s happened since the 1980s.

The deficits – $10 billion in 2010 and $9 billion in 2011 – won’t affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn’t expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security…..

Insider Selling Stays Relentless

The relentless selling by insiders continued in the most recent week.   According to data compiled by Finviz insiders sold $641MM worth of stock in the last two weeks while purchasing just $112MM worth of stock.   The data on insider buying is skewed by the large purchases in PALM which accounted for over $100MM worth of purchases. The buying and selling are slight improvements over last weeks data, but still represent an environment in which corporate insiders are hesitant to bet on the future price appreciation of their own stock.

As we’ve mentioned previously, insiders sell stock for a varying number of reasons, but generally only purchase stock for one reason – they believe the stock will rise in the future.  As of now, it’s safe to say that insiders aren’t confident enough to put their personal fortunes behind their own firms – a trend we’re also seeing in terms of corporate buybacks.  This has to make one wonder just how strong the recovery is in terms of corporate earnings.  While the stimulus based recovery may appear strong on the surface, the long-term sustainability is certainly being questioned by those on the inside….

Insider buying:

Insider selling:

Source: Finviz, insidercow.com

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

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