By Ian Sherr and Clare Baldwin
SAN FRANCISCO (Reuters) – Intel Corp (INTC.O) should handily beat forecasts when it kicks off a busy earnings season for the chip sector next week, but investors worry that corporate spending will not rebound until mid-2010.
Investors have bet on a stellar third-quarter for the world’s top chip maker, pushing its stock up nearly 25 percent in three months based on resurgent demand in Asia and other recovering economies.
But while consumer spending has lifted hopes for a broad recovery in the $250 billion global semiconductor market, some analysts do not foresee a sustained rebound in crucial enterprise IT spending until well into 2010, despite Microsoft’s (MSFT.O) release of Windows 7 later this month.
“When you’ve got 60 percent of IT technology demand coming from enterprises, a key to the market rebounding is them starting to invest again,” said Ragen MacKenzie analyst Taunya Sell. “With the whole Windows 7 thing, that’s not going to be as soon as it comes out that enterprises are going to upgrade everything.”
Analysts expect chip companies, whose semiconductors and microprocessors are found in everything from PCs, cars and smartphones like Apple Inc’s (AAPL.O) iPhone, to report slightly better quarterly earnings this time round, with an eye toward retailers stocking up for the holiday buying season.
Intel, whose microprocessors are found in three-quarters of the world’s PCs is considered a bellwether for the tech industry.
It is expected to report earnings of 27 cents a share, excluding items, down from 35 cents a year earlier, according to Thomson Reuters I/B/E/S. Arch-foe Advanced Micro Devices (AMD.N) is expected to post a loss of 42 cents a share excluding items, down from a year-ago 13 cent gain.
In August, Intel raised its forecast for third-quarter revenue to $8.8 billion-$9.2 billion, spurring a rally in tech shares.
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Treasury Prices Fall on Slow Bond Auction
By Cordell Eddings and Susanne Walker
Oct. 8 (Bloomberg) — Treasuries declined after the government’s $12 billion auction of 30-year bonds drew weaker- than-forecast demand.
The securities drew a yield of 4.009 percent, more than the 3.994 forecast by six of the Federal Reserve’s 18 primary dealers in a Bloomberg News survey. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.37, compared with 2.92 at the September auction and an average of 2.42 at the last 10 auctions.
“The auction was very tepid,” said Tom di Galoma, head of fixed-income rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “The auction shows that the market can sell off when levels are overpriced. This can be a disappointment in these reopened issues.”
The 30-year bond yield rose five basis points to 4.05 percent at 1:51 p.m. in New York, according to BGCantor Market Data. The 4.5 percent security due August 2039 fell 30/32, or $9.38, to 107 20/32. The yield touched 3.89 percent on Oct. 2, the lowest level since April.
The previous sale of 30-year debt on Sept. 10 drew a yield of 4.238 percent. Its bid-to-cover was the highest since November 2007.
Stocks Versus Bonds
An investor class that includes foreign central banks bought 34.5 percent of the notes, compared with 46.5 percent at the last auction and an average of 45.36 percent at the past five auctions.
“We continue to see a lot of cash that was on the sidelines during the volatility in the markets being redeployed,” said Richard Bryant, senior vice president in fixed income at in New York at MF Global Inc. “Given the relative returns of other asset classes, Treasuries at these yield levels are not unattractive.”
The U.S. sold $7 billion in 10-year Treasury Inflation Protected Securities on Oct. 5, $39 billion in three-year notes the following day and $20 billion in 10-year notes yesterday as President Barack Obama borrows record amounts to spur economic growth.
“The bond market is telling you the recovery is weak and it will take a long time,” said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., one of 18 primary dealers that trade directly with the Federal Reserve. “It is concerned about the jobless picture. Stocks are saying earnings are in good shape. I don’t know which will win.”……
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Dems Push To Extend Home tax Credit
WASHINGTON — Democratic Congressional leaders are working with the White House to extend an expiring $8,000 tax credit for first-time home buyers, and aides said Wednesday that they were considering making it available to current homeowners who purchase a new residence.
Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader.
The Democratic leaders met with the president to discuss a broad range of options to combat persistent high unemployment, officials say. The existing credit for first-time home buyers will expire at the end of next month if not extended, and two other components of the economic safety net — unemployment compensation and health care benefits for those who have been out of work for long periods — will expire at the end of the year……
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This is Really Not News or Funny, But Makes For Funny News
Children at an Irish primary school have been asked to bring their own lavatory roll in order to help save money.
The Devils of Debasement Command You Must Spend More @ Least For Main Streets Sake
Posted on Oct 7, 2009
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| White House / Pete Souza |
By Joe Conason
The latest signals from the White House suggest that President Barack Obama now realizes he must do more—and quickly—to ease the economic suffering of working families. He knows that most Americans believe his administration and Congress have so far provided more help to major banks and Wall Street investment firms than to workers and small companies, as a survey released by pollster Peter Hart reported recently.
If voters still feel the same way a year from now, the midterm consequences for the Democrats will be severe, and deservedly so. Yet that same poll, conducted for the Economic Policy Institute, showed that most Americans would support the only action that might relieve the lingering pain of recession: more and faster spending.
The conventional viewpoint—repeated incessantly on talk radio and cable television and in newspaper columns, as well by politicians of both parties—is that the country cannot afford to further increase the public deficit. According to those savants, the stimulus package passed last winter spent too much and achieved too little; the deficit and debt are just too high; and there is simply nothing more that can be done except to wait for jobs to return sometime next year—or the year after that, or maybe someday in the distant future.
Among the respondents to the Hart poll, however, 53 percent named unemployment as the nation’s most serious economic problem, with only 27 percent saying that the most serious problem is the federal budget deficit. The poll found that support for a continuing policy of public investment in job creation, energy independence and improved education is even more emphatic. Fully 73 percent believe that investment should be the first priority, and only 24 percent said that cutting government spending should take precedence.
In short, public spending in bad times is good politics. But is it good policy?……
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ConocoPhillips, the third biggest oil company in the US, yesterday announced plans to sell $10bn worth of assets over the next two years and cut its 2010 capital spending by $1.5bn as it seeks to rebuild investor confidence.
Conoco said the asset sales may include oil and natural gas properties, as well as refineries. It plans to use the proceeds to cut its debt, accelerating a return to its stated target debt-to-capital ratio of 20-25 per cent.
It also announced a quarterly dividend of 50 cents per share, up 6 per cent.
Investors have pulled back from the company since the start of the year, when Conoco said falling commodity prices had forced it to take a $34bn writedown on the reduction in its asset values.
At the time, the company also announced 1,300 job cuts and that it would scale back capital expenditures to $12.5bn this year from $15.3bn in 2008.
Conoco’s shares rose $1.29, or 2.7 per cent, to $49.70.
Jim Mulva, chairman and chief executive, said the company would replace reserves and increase production from a “reduced, but more strategic, base”.
“These actions are consistent with our objectives of creating shareholder value and improving financial flexibility while pursuing our long-term strategic initiatives,” Mr Mulva said.
“This plan capitalises on our large resource base and our strong portfolio of projects, while providing flexibility for potential changes in business conditions.”
Conoco is eager to convince investors that its days of rapid growth through sometimes expensive acquisition are over, and that it is now focusing on organic growth.
Conoco had spent the least of any of the big oil companies on exploration or development as a percentage of total capital expenditure over the past six years, according to Bernstein Research. But it has spent the most on acquisitions – $80bn over eight years.
The company said yesterday that it planned to replace reserves through organic growth, with upstream production growing from a reduced base as a result of the asset sales.
Some analysts see as positive that Conoco has become more daring. Whereas, historically, about 80 per cent of its exploration wells drilled have been relatively low risk, Bernstein Research notes that this year Conoco is planning to spend 45 per cent of its exploration budget on wildcats.
It recently announced a successful wildcat in the Browse basin with the Poseidon-1 well in Australia.
Analysts look hopefully to more success on the Browse project, noting that if Conoco’s exploration success is sustained, it will be less likely to acquire.
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FRANKFURT (Reuters) – The European Central Bank kept its main refinancing rate unchanged at a record low of 1.0 percent on Thursday, as expected by economists.
Markets are now turning their attention to President Jean-Claude Trichet’s news conference at 1230 GMT (8:30 a.m. EDT), when he will explain the decision and give the ECB’s latest assessment of the economy. This month ECB members are meeting in Venice.
The ECB also kept its overnight deposit rate, which acts as a floor for money markets, at 0.25 percent and left its marginal lending rate at 1.75 percent.
The decision came as no surprise. All 82 economists in a Reuters poll expected the ECB to leave rates on hold.
The ECB began cutting rates in October as the financial crisis wreaked havoc in the euro zone economy, taking them from 4.25 percent to their current record low of 1.0 percent in May.
Since the ECB’s September meeting, data has broadly supported hopes that the eurozone is beginning to pull itself out of the recession. The euro has risen around 3 percent against the dollar and more than 6 percent against sterling.
The Bank of England also keep rates on hold earlier on Thursday, leaving them at a record low of 0.5 percent.
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Apparel retailers Zumiez and Hot Topic posted better-than-expected September sales in stores open at least a year.
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shares were up 7 percent at $8.25 in trading after the bell. They had closed at $7.70 Wednesday on Nasdaq. Shares of Everett, Washington-based Zumiez cnbc_comboQuoteMove(‘popup_zumz_ID0EXCAC15839609’);[ZUMZ 15.94 
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were up 2 cents at $15.96.
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Kirsty Wigglesworth / AP
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Zumiez, which sells clothing and equipment for skaters, snowboarders and the like, posted a 0.8 percent fall in September same-store sales, marginally better than the 1 percent decline expected by analysts, according to Thomson Reuters data.
September same-store sales were positively impacted by a shift in the Labor Day weekend into the second week of the month and therefore later back-to-school shopping, Chief Financial Officer Trevor Lang said in a pre-recorded call.
In the second week of September, the company’s same-store sales were up 29.1 percent, before falling 13.7 percent in the third week, Lang said on the call. In the fourth week they were down 13 percent, before recovering slightly to fall 8.3 percent in the fifth week.
“If you were to look at the weekly sales trends, week five sales trends actually saw a slight bounce which is quite encouraging heading into October,” Wedbush analyst Betty Chen told Reuters.
However, Roth Capital Partners analyst Elizabeth Pierce said a sequential improvement was unlikely.
“I think October is going to be very wishy washy. The next catalyst, not only for Zumiez but for all of them, really becomes if it gets colder because that will prompt people to start thinking about outerwear and sweaters etc.”
Total sales in September rose 8.4 percent to $36.5 million, the company said. The company also said for the nine weeks ended Oct. 3, comparable sales in stores in the western half of the country were down in the low double digits.
It seems like same-store sales were stabilizing in a market which contributes about 55 percent of sales, Chen added.
‘Torrid’ Sales
Hot Topic, known for its Goth- and rock ‘n’ roll-inspired apparel and accessories, posted a 4 percent decline in comparable sales, narrower than analysts expectations for a decline of 6.3 percent.
Sales at the company’s Torrid division rose 4 percent driven by a mid-single digit percentage increase in the number of transactions, while the Hot Topic division posted a decline of 6 percent.
“Torrid was responsible for the beat, absolutely,” Roth’s Pierce said.
“Its tough because you don’t want to take the beat away from them but the beat was Torrid, not the main business,” Pierce added. Total sales at the company fell 2.5 percent to $59.3 million in September.
Other Reports Show Retail Sales Looking Down
NEW YORK (AP) – Early September reports from retailers show weak sales as shoppers cut back on fall clothing purchases amid worries about jobs and tight credit.
As stores announce their results, Thursday, teen retailers Wet Seal Inc. and Stage Stores Inc. and department store Stein Mart all are reporting declines in sales at stores open at least a year. The measure is considered a key indicator of a retailer’s health.
The comparison is to a rough September last year when business plummeted during the financial meltdown.
Limited Brands Inc., which runs Victoria’s Secret and Bath & Body Works, posted an increase, beating Wall Street expectations
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Asian Markets Rise on AA & Australian Jobs Report
By Shani Raja
Oct. 8 (Bloomberg) — Asian stocks advanced for a third day, driving the MSCI Asia Pacific Index to a two-week high, after Australian employers unexpectedly added workers last month and Alcoa Inc. earnings beat analyst estimates.
National Australia Bank Ltd. climbed 4.4 percent after the statistics bureau said the country’s jobless rate fell. Alumina Ltd., Alcoa’s joint-venture partner, climbed 4.6 percent in Sydney. Mitsui O.S.K. Lines Ltd., operator of the world’s largest merchant fleet, rose 5.8 percent on a Bank of America- Merrill Lynch upgrade. The dollar fell as optimism the global economy is picking up boosted demand for higher-yielding assets.
The MSCI Asia Pacific Index added 1.4 percent to 118.67 as of 6:02 p.m. in Tokyo, set to close at the highest level since Sept. 23. The gauge has climbed 68 percent from a five-year low on March 9 as better-than-estimated economic and earnings reports boosted speculation the global economy is recovering from the worst slowdown since World War II.
“Valuations are no longer particularly cheap in Asia, but they don’t appear to be overly excessive either,” said Robert Horrocks, who helps manage $9.9 billion including Asian stocks at Matthews International Capital Management LLC in San Francisco. “Markets now are going to be driven by the ability of companies to sustain a reasonable level of growth.”
Australia’s S&P/ASX 200 Index climbed 1.6 percent, the biggest advance in the region, as the statistics bureau said in Sydney today that the number of people employed rose 40,600 from August. The median estimate of economists surveyed by Bloomberg was for a decline of 10,000……
Europe Rises on Positive News Out of The U.S. & Asia
By Daniela Silberstein
Oct. 8 (Bloomberg) — European and Asian shares climbed and U.S. stock-index futures advanced as Alcoa Inc. posted a surprise quarterly profit and employment in Australia unexpectedly surged.
Alcoa, the largest U.S. aluminum producer and the first company in the Dow Jones Industrial Average to release third- quarter earnings, jumped 10 percent in Germany. Xstrata Plc, the world’s fourth-biggest copper producer, and Antofagasta Plc rose more than 3 percent. Vedanta Resource Plc rallied 4.2 percent after reporting increased production.
Europe’s Dow Jones Stoxx 600 Index climbed 1 percent to 242.61 at 11:06 a.m. in London, advancing for a third day this week. All four companies in the Standard & Poor’s 500 Index that announced results yesterday topped profit estimates, according to data compiled by Bloomberg.
“Analysts are looking for demand pickup and evidence of cost control” in company earnings, Michael Dicks, head of research and investment strategy at Barclays Wealth in London, which manages about $203 billion, said in a Bloomberg Television interview. “There’s a fair chance we’ll get both of those. We see a flattening and gradual pickup in overall demand.”
Today marks the one-year anniversary of coordinated interest-rate cuts by the Federal Reserve, European Central Bank and central banks in the U.K., Canada, Sweden and Switzerland in an unprecedented effort to ease the economic effects of the worst financial crisis since the Great Depression.
The ECB and the Bank of England will announce decisions on interest rates today and will probably leave their key rates unchanged, according to economists surveyed by Bloomberg……
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
Benchmark crude for November delivery was up 61 cents at $70.17 by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost $1.31 to settle at $69.57 on Wednesday.
A slide in the U.S. dollar has helped bolster oil prices, which are traded in the American currency. The euro rose to $1.4767 on Thursday from $1.4687 the previous day, and the dollar slipped to 88.23 yen from 88.60.
Investors were also mulling mixed signals in Wednesday’s crude supply numbers from the Energy Information Administration. Gasoline inventories grew by 2.9 million barrels last week and distillate fuel supplies grew by 700,000 barrels, both bigger increases than analysts expected.
But crude supplies dropped by 1 million barrels, while analysts had expected a gain of 1.9 million barrels.
Barclays Capital expects global crude consumption to fall 1.55 million barrels a day this year, less than it previously forecast, as the U.S. and Japan begin to show signs of higher demand. However, next year’s demand growth could be muted.
“We remain somewhat downbeat on the scale of oil demand growth in 2010,” Barclays said in a report.
In other Nymex trading, heating oil rose 2.13 cents to $1.80 a gallon. Gasoline for November delivery gained 1.89 cents to $1.74 a gallon. Natural gas for November delivery jumped 7.0 cents to $4.97 per 1,000 cubic feet.
In London, Brent crude rose 64 cents to $67.81 on the ICE Futures exchange.
By Christian Schmollinger and Kim KyoungwhaOct. 8 (Bloomberg) — Gold climbed to a record for a third day and crude oil, copper, wheat and rubber all advanced as the dollar’s slump prompted investors to buy commodities as a hedge against potential inflation.
Bullion is heading for a ninth annual gain as the Dollar Index, a six-currency gauge of the dollar’s value, has shed 6.4 percent this year. Oil has gained 58 percent since the start of the year on concern that record government spending to combat the global recession will devalue currencies, spurring inflation.
“The commodities trade is a weak dollar trade,” said Tim Condon, chief Asian economist with ING Groep NV in Singapore. “The huge expansion of the Federal Reserve’s monetary base argues for inflation accelerating.”
Gold for immediate delivery climbed as high as $1,055.60 an ounce, and was at $1,055.49 at 2:50 p.m. in Singapore. It has risen 16 percent over the past year. Gold for December delivery in New York gained to a record $1,056.70 an ounce.
“There is such a premium in crude right now that comes down to the inflation hedge,” said Jonathan Kornafel, a director at options traders Hudson Capital Energy in Singapore. “There has been more focus on the dollar this week.”
Crude oil for November delivery gained as much as 91 cents, or 1.3 percent, to $70.48 a barrel on the New York Mercantile Exchange. The contract was at $70.34 a barrel at 2:29 p.m. in Singapore…..
The dollar and the yen are viewed as safe-haven currencies and both currencies gain, when investors turn risk averse and fall when risk appetite improves….
The dollar thus plunged to a 2-week low against the European currency, 8-day low versus the British pound and a 2-day low against the Swiss franc.
Against the European currency, the US dollar traded down during early deals on Thursday. At 3:50 am ET, the dollar touched a 2-week low of 1.4789 against the euro, compared to 1.4693 hit late New York Wednesday. The next downside target level for the dollar is seen around 1.490.
The French trade balance showed a deficit of EUR 3.4 billion in August, much larger than the revised EUR 1.02 billion deficit recorded in July, the Customs Office announced today. The expected deficit was EUR 2.5 billion…..
Australia’s Unemployment Falls
By Jacob Greber
Oct. 8 (Bloomberg) — Australia’s jobless rate fell for the first time in five months as employment unexpectedly surged, driving the currency to a 14-month high as traders bet the central bank will raise interest rates again next month.
The number of people employed jumped 40,600 from August, the biggest gain in almost two years, cutting the jobless rate to 5.7 percent from 5.8 percent, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a decline of 10,000.
Governor Glenn Stevens’ unexpectedly raised interest rates this week, the first Group of 20 central banker to do so. He said economic growth in Australia, which skirted the global recession, will accelerate, driven by A$22 billion ($20 billion) in government infrastructure spending and demand for minerals from China, the nation’s second-largest export market.
“It really is quite surprising to see such strength so quickly,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney, one of only two analysts surveyed by Bloomberg to forecast a gain in employment. Today’s report “is supportive of a fairly quick tightening of monetary policy.”
The number of full-time jobs gained 35,400 in September and part-time employment increased 5,200, today’s report showed.
The Australian dollar rose to 90.21 U.S. cents at 4:16 p.m. in Sydney from 89.30 cents just before the report was released, taking its gain this week to 4.3 percent…..
Shell Deploys The Largest LNG Barge
By Ben Sharples
Oct. 8 (Bloomberg) — Royal Dutch Shell Plc plans to deploy a vessel “much larger than an aircraft carrier” off the coast of northwestern Australia to house the world’s first floating liquefied natural gas plant.
Shell will use the technique at the Prelude and Concerto gas discoveries, Malcolm Brinded, the company’s executive director for international upstream business, said on a conference call today. The untested method is a “game-changer,” allowing discoveries that are small and too far from the coast to justify onshore plants to be profitable, he said.
The Hague-based Shell’s plans to employ what will be the biggest ship in the world are backed by the largest exploration budget of any oil company, estimated at $31 billion this year and $28 billion in 2010, Brinded said. The project is among more than a dozen that may propel Australia to second among global suppliers of the fuel from fifth now.
“There are clearly some technical challenges, but I think the industry is confident that a company like Shell would be able to address them,” Tony Regan, a consultant at Singapore- based Tri-Zen International, said by telephone. Regan previously worked for Shell’s LNG business.
Brinded declined to give an estimate of spending on the floating LNG project. Prelude is about 475 kilometers (297 miles) north, north-west of Broome in Western Australia, and about 200 kilometers from the Kimberley coast, Shell spokeswoman Claire Wilkinson said by phone from Perth……
Japan’s Bankruptcies Fall @ Fastest Pace
By Aki Ito
Oct. 8 (Bloomberg) — Japanese corporate bankruptcies fell at the fastest pace in more than four years in September, signaling that an easing credit crunch is enabling smaller firms to stay in business.
Business failures dropped 18 percent from a year earlier to 1,155 cases, Tokyo Shoko Research Ltd. said in Tokyo today. It was the biggest decline since April 2005, when they fell 23.5 percent.
Bank of Japan policy makers may decide as soon as this month to end their emergency corporate-debt buying programs amid signs that larger firms are regaining access to private funding, people with direct knowledge of the discussions said last month. The benefits of the country’s recovery from its deepest postwar recession are also spreading to smaller businesses, thanks to government measures to spur demand and unfreeze credit.
Parts of the economy “are still supported by government measures, but the worst is over,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Things are starting to stabilize,” and funding conditions for small and medium-sized companies “are gradually improving,” he said.
The central bank’s Tankan survey showed last week that small enterprises saw an improvement in banks’ lending attitudes for a third consecutive quarter, though a majority of companies said banks were still reluctant to extend credit.
Lehman Collapse
Bankruptcies soared at the fastest pace in eight years in September 2008 as companies including Lehman Brothers Holdings Inc.’s Japan unit failed.
Since Lehman’s collapse spurred a global credit crisis, Japanese policy makers have taken steps to keep ailing businesses afloat. The government expanded the lending capacity of state-affiliated entities three times; set aside 30 trillion yen ($339 billion) to guarantee loans made to small and midsized businesses; and pledged 25 trillion yen in stimulus to spur consumer spending.
The measures helped pull Japan out of its worst postwar recession in the second quarter. A separate report today showed that confidence among merchants rose in September, rebounding from August’s slide that halted seven consecutive months of improvements……
Bank of England Holds Rates Steadfast
LONDON (Reuters) – The Bank of England left interest rates at a record low of 0.5 percent for the seventh month running on Thursday and said it would keep its 175 billion pound asset buying programme in place.
Focus will now switch to the November meeting when the Monetary Policy Committee will have new economic forecasts, though most analysts do not expect the BoE will change policy then either given Britain may now be emerging from recession.
But a sizeable minority still see a further expansion of the quantitative easing programme which pumps money into the economy because any recovery is likely to be fragile.
BoE Governor Mervyn King had actually wanted to raise the QE total to 200 billion pounds in August but, along with two other members, was outvoted by the rest of the MPC.
In either case, policy is likely to remain ultra-loose for months yet as policymakers around the world have been stressing now is not the time to withdraw the extraordinary support they have plowed into their economies over the last year.
British economic output in the second quarter of 2009 was 5.5 percent lower than a year ago and policymakers are worried it will take years for the level of GDP to get back to where it once was, entailing huge job losses in the interim.
And while most recent data have pointed to the worst being over for the economy, figures this week showing a shock 1.9 percent fall in August manufacturing output raised doubts over whether the economy started growing again in the third quarter.
Thursday marks the first anniversary of the major central banks’ surprise coordinated rate cut to bolster confidence after the collapse of Lehman Brothers.
The European Central Bank is also expected to hold interest rates at a record low of 1 percent when it announces its decision at 1145 GMT (7:45 a.m. EDT).
Lloyds of London Plans on Dilution
By Jon Menon and Kevin Crowley
Oct. 8 (Bloomberg) — Lloyds Banking Group Plc said it will keep its options open after the Financial Times said the lender is preparing to raise 15 billion pounds ($24 billion) in a share sale and leave the government’s asset insurance program.
Lloyds is canvassing investor appetite for a rights offering, which would be the U.K.’s biggest, surpassing HSBC Holdings Plc’s 12.5 billion-pound sale in April, the newspaper reported. The government, which owns 43 percent of Lloyds, supports the plan and may buy shares in the sale, the FT said.
The London-based lender said last month it was considering pulling out of the government’s asset protection program. To leave the plan, it would have to raise about 25 billion pounds, according to Simon Maughan, an analyst at MF Global Securities in London. Lloyds, Britain’s biggest mortgage lender, would have to sell shares and assets such as its Scottish Widows insurance and asset management unit to raise that amount, analysts said.
“We issued a stock exchange announcement two weeks ago and our position has not changed since then,” Lloyds spokesman Shane O’Riordain said in a telephone interview. “We have a number of options available and we continue to review them.”
Lloyds declined 3 percent, or 2.9 pence at 92.81 pence as of 10:44 a.m. in London. The U.K.’s benchmark FTSE 100 Index was up 0.6 percent…..
Ireland’s Banks May Need Another Cash Infusion
By Dara Doyle
Oct. 8 (Bloomberg) — Irish Finance Minister Brian Lenihan said the country’s biggest banks may need further money from the state even after selling real-estate loans to the government.
The proposed National Asset Management Agency will pay 54 billion euros ($79.4 billion) to buy loans with a book value of 77 billion euros from five lenders, including Bank of Ireland Plc and Allied Irish Banks Plc. Losses on those loans are likely to leave the companies needing more cash, Lenihan said.
“You can see some element of state capital, but certainly an element of private participation would be most welcome,” Lenihan, 50, said in an interview in Dublin yesterday. “If they can raise funds on the private markets, well and good. The market analysis is that will be very difficult at this stage.”
The minister wants to purge the banks of toxic assets related to the slumping property market to revive lending and reignite what used to be Europe’s most-dynamic economy. Nobel Prize-winning economist Joseph Stiglitz said yesterday that the plan is “squandering” public money.
Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.
“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”
Allied Irish will transfer 24 billion euros of loans to NAMA, while Bank of Ireland will move 16 billion euros. The current market value of the 77 billion debt is about 47 billion euros, the government has estimated.
‘Massive Transfer’
“It’s a massive transfer of money from the public to bankers,” Stiglitz said at an event in Dublin. “There are consequences going forward.”
NAMA will complete its valuations of the bank loans by the middle of next year, Lenihan said. The government has said the agency, which can hold assets for up to 15 years, may break even or even show a profit. Tom O’Connell, chief economist at Ireland’s central bank, said earlier this week that there is a “fair chance” that it won’t lose money over its lifetime.
Bank of Ireland rose 2 percent, or 6 cents, to 3.06 cents at 8:18 a.m. in Dublin, while Allied Irish advanced 2 percent to 3.08 euros.
“The bigger valuations will be completed by the end of this year,” Lenihan said. “Clearly the government then will be in a position to look at the capital ratios, look at the extent of the writedowns, and come to a conclusion with Bank of Ireland and Allied Irish about their capital structures.”
New Regulator
The minister, who has already pumped 7 billion euros into Allied Irish and Bank of Ireland, said the proposals creating NAMA should pass into law by the end of the year.
Separately, Lenihan said the appointment of a new financial regulator is “close” and will probably be made “within a matter of weeks.”
The new regulator will join the recently appointed central bank governor, Patrick Honohan, on an international tour to help restore investor confidence in Ireland, Lenihan said.
The ISEF index of Irish financial stocks has plunged 76 percent over the past 18 months.
MS Raises Estimates For DB & CS
By Christine Harper
Oct. 8 (Bloomberg) — European banks including Credit Suisse AG and Deutsche Bank AG will probably report third- quarter earnings that exceed market expectations as favorable trading fuels profit, Morgan Stanley analysts said.
The analysts, led by London-based Huw van Steenis, raised earnings per-share estimates for the two banks as well as for Tullett Prebon Plc, according to an Oct. 7 note to investors. The team also raised share-price targets for Credit Suisse, Deutsche Bank and Tullett Prebon, the note said.
“We believe the market is missing the upside” from low interest rates, steep yield curves and high volume of trading and underwriting, the report said. “We are also more pragmatic on the impact of regulations on returns.”
Credit Suisse, the biggest Swiss bank by market value, will probably earn 7.19 Swiss francs ($6.95) a share for 2009 instead of 6.82 francs, the previous estimate, the note said. The 2010 estimate rose to 6.91 francs a share from 6.73 francs and the price target was raised to 73 francs from 70 francs. Credit Suisse stock has more than doubled this year to 58.8 francs.
Credit Suisse “has sufficient levers to exploit good openings in the market such as supportive trading conditions and asset outflows from competitors,” said the analysts, who have an “overweight” rating on the stock. “The performance of the private bank remains an important source of earnings strength.”
For Deutsche Bank, Germany’s biggest bank, the 2009 earnings per-share estimate rose to 6.75 euros ($9.91) from 6.13 euros and the 2010 estimate was lifted to 5.85 euros from 5.57 euros. The price target rose to 57 euros from 53 euros.
Deutsche Bank stock, which the Morgan Stanley analysts rate “equal-weight,” has climbed 89 percent this year to close yesterday at 52.54 euros.
UBS Cut…..
Profits Expected To Rise @ GS & JPM While C Flounders
By Bradley Keoun and Elizabeth Hester
Oct. 8 (Bloomberg) — JPMorgan Chase & Co. and Goldman Sachs Group Inc., the largest banks to repay U.S. bailout funds, will probably post the industry’s biggest third-quarter profit gains while Citigroup Inc., still gripping its government lifeline, reports another loss.
Earnings at JPMorgan may have almost quadrupled to $2.05 billion from the height of the financial crisis a year earlier, according to analysts’ average estimates in a survey by Bloomberg. Goldman Sachs’s profit probably almost tripled to $2.3 billion. Citigroup’s expected $2.58 billion loss would mark its sixth unprofitable quarter in the past eight.
“We’re seeing a bifurcation of the banking industry between the haves and the have-nots,” said Matt McCormick, a banking-industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.5 billion.
JPMorgan, based in New York, is benefiting from its No. 1 ranking among underwriters of stock and equity-linked securities for the year, as well as dollar-denominated debt sales. At Goldman Sachs, whose shares are the best-performing of the biggest U.S. banks in 2009, revenue from trading has surged to a record as competitors including Morgan Stanley scaled back their riskiest bets.
The relative strength of the firms is reflected in the market for credit-default swaps, used to insure company bonds against default. Investors must pay about $67,000 a year to insure $10 million of JPMorgan bonds for five years, and $109,000 for Goldman Sachs’s bonds. That compares with $207,000 at Citigroup, $138,000 at New York-based Morgan Stanley and $115,000 at Bank of America Corp., based in Charlotte, North Carolina.
They cost $81,600 at San Francisco-based Wells Fargo & Co., the fourth-biggest U.S. bank by assets.
Dimon’s Forecast….
By KEITH J. WINSTEIN And WILLIAM M. BULKELEY
The Justice Department is investigating allegations that International Business Machines Corp. has monopolized the market for mainframe computers, broadening Washington’s search for anti-competitive behavior in the technology industry.
Members of the Computer & Communications Industry Association—a group with many IBM rivals among its members—recently received civil investigative demands from the Justice Department seeking information related to IBM, said the group’s chief executive, Edward Black .
The requests, a special kind of subpoena used in antitrust investigations, followed a complaint by the group to the Justice Department accusing IBM of harming businesses by abusing its dominance of the market for mainframes. IBM declined to comment on the CCIA’s allegations.
The Armonk, N.Y., giant has long held a near-monopoly position in mainframes, which are large computers that can cost $1 million or more and are designed to run accounting software anddatabases. For decades, the company operated under terms of a 1956 consent decree with the government that required it to license mainframe technology to competitors.
The final terms of that decree were phased out in 2001. After that, the CCIA alleges IBM began to tighten its grip on the market by not allowing its newest software to be used on competitors’ machines. Some analysts calculate that as much as a quarter of IBM’s $104 billion in annual revenue stems from mainframes, despite the company’s shift towards computer services and consulting.
The government’s investigation comes after IBM has successfully batted away civil litigation accusing it of anti-competitive behavior, by purchasing one complaining business and defeating another case in court last week…..
The Fed Enters Lawsuits To Fend Off Creditors or to Seize Property
The Federal Reserve’s ballooning balance sheet is turning into something of a legal morass.
Some of the $29 billion in troubled securities and loans the Fed took on from Bear Stearns as part of last year’s rescue is starting to give rise to lawsuits. These are cases where the Fed is either suing to collect on a multi-billion commercial real estate debt or is trying to fend off claims from rival creditors.
The lawsuits are a fee bonanza for the high-priced law firms that the Fed is paying to litigate these cases on behalf of Maiden Lane LLC — the entity set up by the New York Fed to hold the Bear assets.
But this mushrooming litigation is drawing the Fed into conflicts with commercial developers or into uneasy partnerships with some of the banks it regulates.
It even means that Fed Chairman Ben Bernanke has become a reluctant landlord — forced to rely on BlackRock, which manages Maiden Lane for the central bank, to collect the rent from some of its commercial tenants.
In February, for instance, lawyers for the Fed foreclosed on the Crossroads Mall in Oklahoma City, after the shopping center’s operators defaulted on a $76 million commercial mortgage. The Fed subsequently took title to the property after paying $11.2 million for the half-empty retail space.
The Fed has put the 941,745-square foot mall back on the market with an asking price of $24 million. Now the Fed is in federal court in New York, seeking to recoup its losses by going after three of the mall’s former owners who, the Fed contends, signed a personal guarantee on the loan with Bear. This is not what the Fed bargained for when it assumed some of Bear’s worst assets to induce JPMorgan Chase to buy the teetering Wall Street bank. But it’s the inevitable outcome of taking on a distressed portfolio that includes $8.5 billion in commercial mortgages — hotel chains and office complexes, assets that the Fed had marked down in value by about half last summer.
The litigation over the floundering mall in Oklahoma is nothing compared with the starring role the Fed is playing in the bankruptcy of Extended Stay Hotel. The South Carolina-based operator of more than 600 mid-priced hotels received $900 million in financing from Bear as part of a complex $4.1 billion loan package.
The Fed is now in the middle of two lawsuits arising from the Extended Stay bankruptcy. The Fed also stands to incur substantial losses as a result of the bankruptcy……
Dell To Launch A Smart Phone With T
By Gabriel Madway and Doug Young
SAN FRANCISCO/HONG KONG (Reuters) – Dell Inc plans to launch a smartphone with Google’s Android mobile software on carrier AT&T’s network, a source said, marking the PC maker’s first foray into a cut-throat U.S. cellphone arena.
Dell will become the latest tech manufacturer to try and establish a footprint in a fast-growing market dominated by Apple and Research in Motion. Its planned phone would also give a boost to Google’s fledgling mobile platform, which vies with Apple’s and Microsoft’s platforms.
A source with direct knowledge of the matter told Reuters Dell plans to introduce a U.S. version of its “oPhone” for China — which runs on Android — and that the device had been certified by AT&T for its domestic network.
The Wall Street Journal, which broke the news on Wednesday, cited people briefed on the matter as saying Dell’s phone could be launched as soon as early 2010.
Smartphones — or cellphones that come with an array of complex functions from email to multimedia — have exploded onto the corporate and consumer market as users increasingly access information and entertainment on the go.
Worldwide factory shipments of smart phones are expected to rise to 235.6 million units in 2010, up 27.9 percent from 184.2 million in 2009, according to iSuppli. That is a far cry from a 12.3 percent decline projected for cellphones overall in 2009.
But analysts warn that the world’s No. 2 PC maker would face a tough challenge in a market already crowded with competition. On Wednesday, South Korea’s Samsung said it would also begin selling an Android phone through Sprint Nextel’s network…….
Paul Krugman Still Flies The Warning Flag
Krugman’s depressing the hell out of the folks over at the World Business Forum. Kelly Evans, WSJ:
1 – Based on GDP, “the recession is over, we’re back to a world of growth”
2 – But, “the jobs picture is continuing to deteriorate. The recession may be over, but the bad times are nowhere near over.”
3 – “This could be bad. Financial crises tend to produce prolonged hits to growth…and this is the mother of all synchronized financial crises so we almost certainly have a long, long slog before we’re fully recovered.”
Then, he turned to the topic of world trade. And the picture he painted was not a pretty one.
“When it comes to international trade, actually it’s not the Great Depression, it’s worse,” he said, presenting charts showing the decline in global trade activity falling much more steeply in the current downturn than during the Depression.
“The scale of the collapse of world trade has been so large that it has produced a degree of international linkage that surpasses what even the pessimists imagined,” he said. “World trade acted as a transmission mechanism,” spreading economic distress “even to those countries that had relatively healthy financial systems,” such as Germany.
“We really are one world economy in a way that has never been true before,” he said.
We haven’t looked at the trade figures for a while, but here’s what world GDP trends looked like six months ago, before the rebound:
Foreclosures Show No Sign of Easing Up
Every 13 seconds in America, there is another foreclosure filing. That’s the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.
There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.
If anything, the country’s worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.
In congressional testimony last month Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.
“The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn,” Barr said.
A September report by a foreclosure task force appointed by Florida’s Supreme Court pointed to a shift in the root cause of foreclosures: “People are no longer defaulting simply because of a change in the payment structure of their loan.
They are defaulting because of lost jobs or reduced hours or pay.” Florida had the nation’s highest rate of homes — 23 percent — that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said “the latest news for Florida is horrifying.”
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A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.
But nearly half of recent sales have been attributed to foreclosures or “short sales” at bargain-basement prices…..
When individuals don’t pay their bills for 3 months creditors will put the screws to you in any way they can. When state and local governments don’t pay the bills for 3 months it just goes into a ‘this is the new normal’ and no punishment is given to the state and local governments. Besides, you can’t fight City Hall as the old saying goes.
You do realize that one day the “full faith of the United States Government” will no longer mean anything when it comes to making good on its debt.
(CBS News) The State of Illinois’ pile of unpaid bills has grown to a record-breaking $3 billion. Comptroller Dan Hynes said Tuesday it’s never before been this bad at this point in any previous fiscal year. CBS 2 Political Editor Mike Flannery reports that some social service agencies that rely heavily on state reimbursement warn they will soon be forced out of business.
Hynes said that things are likely to get worse before the state’s bleak revenue picture begins to improve.
The comptroller reported corporate income tax receipts down $77 million for July through September; sales tax receipts, down $244 million; personal income tax receipts, down $251 million.
One result: the typical creditor must now wait three months to be paid by the state, compared to a two-month wait at this time last year.
It’s all very discouraging to the physician who runs Family Home Service.
Dr. Norman James said he does not have enough cash to pay his 250 employees this Friday. He said he may have to close the doors, leaving more than 450 clients without the support they need to stay in their own homes and out of expensive nursing homes.
Dr. James said his bank had tripled the size of his line of credit, but that money is now all gone. Dr. James said Illinois owes his agency $900,000, about $700,000 of it past due by up to five months.
Evelyn Gonzalez, a Family Home Service supervisor, said she can’t afford to miss a pay check.
“It’s nerve-wracking. Because I have bills to pay just like everybody else,” Gonzalez said.
A Chicago Meals on Wheels and nutrition center can’t purchase food and is facing eviction,” Hynes said. “A large Lake County disabled program can’t make insurance or mortgage payments.”
Hynes said he’s now getting 2,600 calls a week from creditors desperate to be paid by the state.
While the General Assembly is scheduled to reconvene next week in Springfield, no one’s even pretending to offer a comprehensive solution to the unprecedented budget disaster. Democrats and Republicans, the governor and legislative leaders all insist that must wait until next year.
Late Tuesday, Mayor Daley described Chicago’s revenue situation as “very serious.”
The Divergence Between Bonds & Stocks, Which is Right ?
Stocks have surged 11% since June 10th. At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday. What is curious here is that the stock market is telling a very different story from the bond market. Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation. Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.
Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors. There have been 4 famous cases of such bond and stock divergences in the last 20 years. The most famous is the summer of 1987. We all know what occurred then. The other three cases were fall ‘94, summer ‘98 and winter 2000. All three preceded declines in the market. Of all 4 instances, three of them preceded 15% declines in the S&P 500.
The real crux of the issue here is not terribly complex. In order for corporations to tack on to the $80 in operating earnings that the equity market is currently pricing in for 2010, they will need pricing power. The cost cutting and resulting margin expansion we are seeing is great in the near-term, but we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation. The bond market, however, is pricing in little to no inflation. The bond market’s message is clear – we are in a deflationary world. That doesn’t bode well for the prospect of corporate earnings and that likely means stocks are getting a bit frothy here. Investors would be wise to take a step back and reconsider the risk/reward of owning equities once the euphoria surrounding Q3 earnings wears off….
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