Scrolling Headlines From Yahoo in Play

SNE

TOKYO (AP) – Sony Corp., maker of the hit PlayStation game console, ran up less red ink than expected last quarter but maintained its forecast for full year losses, underscoring the risk consumer spending will remain slack even as other parts of the global economy recover.

Sony said Thursday its net loss for the fiscal first quarter was 37.1 billion yen ($391 million) compared with a 35 billion yen ($368 million) profit in the April-June period a year earlier. Quarterly sales dropped 19.2 percent to 1.56 trillion yen ($16.4 billion).

The results were better-than-expected because of cost cuts, an easing of the yen’s appreciation and gains on the Tokyo stock market, according to Sony, which has music and movie divisions as well as making the Walkman portable music player and flat panel TVs. Analysts surveyed by Thomson Reuters were forecasting a 109 billion yen loss.

Results from other Japanese electronics makers including Nintendo Co., Sharp Corp., NEC Corp. and Fujitsu Ltd. were also dreary and their outlooks were mixed. Consumer spending on goods like video games and other consumer electronics could lag the tentative recovery shown by other indicators. In Japan, the world’s second-biggest economy, factory output has been recovering but retail sales have continued to slump amid rising unemployment.

Nintendo, whose popular Wii home console competes against Sony’s PlayStation 3, stayed in the black. But the Kyoto-based maker of Pokemon and Super Mario games saw its quarterly profit tumble 61 percent to 42.3 billion yen ($445 million). It blamed a strong yen and fewer hit games. Quarterly sales declined 40 percent to 253.5 billion yen.

Tokyo-based Sony remained cautious and kept its forecast for the fiscal year through March 2010 unchanged at a 120 billion yen ($1.26 billion) loss, citing too many uncertainties about the future.

Ryosuke Katsura, analyst with Mizuho Securities Co. in Tokyo, warned TV panel prices were starting to rise, while price competition for TV sets was intensifying and likely to further erode Sony’s profitability in coming months.

Plus if Sony decides to slash PlayStation 3 prices, as analysts widely expect, the move may draw gaming fans but will hit the bottomline, he said.

“It is still too early to assess the second half of the year,” said Katsura.

In a plus for the future, Sony said Thursday it had finalized a deal with Japanese rival Sharp Corp. on a joint venture to produce and sell large-size liquid crystal display panels for TVs.

Sony, which has fallen behind in LCD TVs, doesn’t make its own LCD panels and now has a joint venture with Samsung Electronics Co. of South Korea.

Sony said it will make an initial investment of 10 billion yen into the new venture with Sharp in Sakai city, central Japan, which will produce 72,000 panels a month. Sony said it will make additional investments later.

The global economic slump continued to batter Sony’s sales in the last quarter. Quarterly sales in consumer electronics, such as Bravia TVs, Cyber-shot digital cameras and Handycam camcorders, plunged 27.3 percent from a year earlier.

Sales of the PlayStation 3 fell to 1.1 million from 1.6 million the same period the previous year, while PlayStation Portable sales declined to 1.3 million from 3.7 million.

Gadget prices have been dropping amid intense competition, making it tough for Sony to eke out profits.

In contrast to its money-losing electronics and gaming units, Sony’s entertainment divisions were profitable.

Sales were up 6.5 percent at Sony Pictures Entertainment, which swung into the black from losses the previous year on the success of Hollywood releases such as “Angels & Demons” and “Terminator Salvation.”

Sales doubled at its music division after Sony Music Entertainment became a wholly owned Sony subsidiary in October, offsetting the damage from a sluggish global music industry.

Best-selling albums during the quarter were Bob Dylan’s “Together Through Life,” Dave Matthews Band’s “Big Whiskey and the GrooGrux King,” and King of Leon’s “Only by the Night,” according to Sony.

NEC, meanwhile, racked up a 33.8 billion yen ($356 million) quarterly loss as sales dropped 22.3 percent to 778.5 billion yen ($8.19 billion). But NEC said the downturn appeared to be easing.

Sharp, the maker of Aquos flat-panel TVs, sank to a 25.2 billion yen ($265 million) loss for the April-June period, as a companywide effort to cut costs failed to offset plunging demand.

Fujitsu reported a 29.1 billion yen ($306 million) loss for the fiscal first quarter, as quarterly sales dipped 11.3 percent to 1.044 trillion yen ($10.99 billion).

Still, it raised its forecast for the full year through March 2010, citing rebounding demand for electronic components. Fujitsu now expects 25 billion yen ($263 million) in profit.

Sony shares rose 6.8 percent to 2,505 yen ($26) in Tokyo. Nintendo jumped 2.6 percent to 26,820 yen ($282), while NEC gained 2.8 percent to close at 327 yen ($3.4), Sharp rose 3.9 percent to 1,029 yen ($10.8) and Fujitsu edged up 3.1 percent to 594 yen ($6.2). Earnings were released after trading ended on the Tokyo Stock Exchange.

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RDS-B

AMSTERDAM (AP) – Royal Dutch Shell PLC said Thursday its net profit fell 67 percent in the second quarter to $3.82 billion, reflecting a sharp decline in oil prices and worse refining margins.

In the same period a year earlier, Shell had profit of $11.6 billion. Sales at Europe’s largest oil company were $63.9 billion, down from $131.4 billion.

“Energy demand is weak,” said Chief Executive Peter Voser in a statement. “There is excess capacity in the market and industry costs remain high.”

He added the company is “not banking on a quick recovery” in the global economy.

At Shell’s exploration and production arm, earnings fell 77 percent to $1.33 billion. Production was down 6 percent to 2.9 million barrels of oil and equivalents per day, while prices realized by the company were $52.62 per barrel, from $111.92 a year ago.

“The industry outlook remains a challenging one, despite the rally in oil prices” from their winter lows, Voser said. In the first quarter of 2009, the company’s average selling price was $42.16 per barrel.

At Shell’s refining arm, earnings were down 74 percent to $1.16 billion, due mostly to the lower value of inventories. Stripping out the impact of price changes in both years, the arm would have posted a loss of $255 million, versus profit of $1.08 billion, due to lower refinery intake, worse margins, and higher pension charges.

Shell said it would reduce capital spending in 2010 to $28 billion, from an expected $31 billion in the current year. It said it would keep its dividend per share at $0.42, an increase of 5 percent from a year ago and the same as in the first quarter of 2009.

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XOM

NEW YORK (MarketWatch) — Exxon Mobil Corp. /quotes/comstock/13*!xom/quotes/nls/xom (XOM 71.00, -0.43, -0.60%) said Thursday second-quarter net income fell 66% to $3.95 billion, or 81 cents a share, from $11.68 billion, or $2.22 a share in the year-ago period. Excluding items, earnings fell to 84 cents a share from $2.27 a share. Capital spending fell 6% to $6.56 billion. Earnings for the second quarter of 2009 included a special charge of $140 million for interest related to the Valdez punitive damages award. Analysts expected earnings of $1.01 a share, according to a survey by FactSet Research.

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MA

• Second-quarter net income of $349 million, or $2.67 per diluted share
  • Net income growth of 26.4%, excluding the special item from last year
• Second-quarter net revenue growth of 2.7%, to $1.3 billion
• Second-quarter gross dollar volume down slightly by 0.6%, and purchase volume down slightly by 0.7%
• Second-quarter total operating expenses declined 13%, excluding the special item from last year

MasterCard Incorporated (NYSE: MA – News) today announced financial results for the second quarter of 2009. The company reported net income of $349 million, or $2.67 per diluted share. Net income grew 26.4%, excluding the special item from last year. The company’s total operating expenses, other income, effective tax rate, net income and earnings per share, excluding special items, are non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying GAAP reconciliations.

(Logo: http://www.newscom.com/cgi-bin/prnh/20061031/MCLOGO )

Net revenue for the second quarter of 2009 was $1.3 billion, a 2.7% increase versus the same period in 2008. On a constant currency basis (excluding the movement of the euro and the Brazilian real relative to the U.S. dollar), net revenue increased 7.0% compared to the same period in 2008. The higher net revenue in the second quarter this year was fueled by:

• Pricing changes, which contributed approximately 8 percentage points of the net revenue growth;
• A 7.9% increase in the number of transactions processed to 5.6 billion; and
• A 5.8% decrease in rebates and incentives.

These contributing factors were partially offset by the impact of lower gross dollar volumes on second-quarter 2009 revenue.

MasterCard’s gross dollar volume was down by 0.6% on a local currency basis, versus the second quarter of 2008, to $595 billion. Worldwide purchase volume during the quarter was down by 0.7% on a local currency basis, versus the second quarter of 2008, to $450 billion. As of June 30, 2009, the company’s financial-institution customers had issued 959 million MasterCard cards, an increase of 1.2% over the cards issued at June 30, 2008.

“We are very pleased with our second-quarter financial performance and are adapting well to the challenging economic environment,” said Robert W. Selander, MasterCard president and chief executive officer. “The thoughtful actions we’ve taken to realign our resources and priorities to match customer and local market needs, as well as our sharp focus on expense management, have enabled us to deliver strong operating margin and net income improvements.

“At the same time, we continue to invest in the future so that we are solidly positioned once the economic tide begins to turn,” said Selander. “We operate a global, flexible and resilient business that will continue to benefit from the ongoing shift toward electronic payments, which consumers, businesses and governments find more efficient, secure and easier to manage.”

The special item for the second quarter of 2009 represented a $0.5 million litigation settlement charge. The special item for the second quarter of 2008 represented a $1.65 billion charge related to a litigation settlement.

Excluding special items, total operating expenses decreased 13.0%, to $722 million, during the second quarter of 2009 compared to the same period in 2008. Currency fluctuations contributed 3.2 percentage points to the rate of decline. The decrease in total operating expenses was driven by:

• A 2.9% decrease in general and administrative expenses, primarily resulting from decreases in professional fees and travel expenses, versus the comparable period in 2008. These decreases were partially offset by increased personnel costs due to severance of $51 million in the second quarter of 2009. Excluding the impact of severance costs in both periods, general and administrative expenses declined 10.7% for the second quarter of 2009. A favorable foreign currency impact represented 2.9 percentage points of both rates of decline; and
• A 35.8% decrease in advertising and marketing expenses versus the year-ago period, primarily related to continued cost containment initiatives in response to market realities. Favorable currency fluctuations representing approximately 3.5 percentage points contributed to the rate of decline.

Including special items, total operating expenses decreased 70.9%, to $723 million, primarily due to the litigation settlement that occurred in the second quarter of 2008.

Operating margin was 43.6% for the second quarter of 2009, up 10.2 percentage points over the year-ago period, excluding special items.

Total other expense was $21 million in the second quarter of 2009 versus total other income of $10 million in the second quarter of 2008. Interest expense versus the year-ago period increased $16 million, primarily due to the interest accretion associated with the litigation settlement that occurred in the second quarter of 2008.

Excluding special items in both periods, MasterCard’s effective tax rate was 35.0% in the second quarter of 2009, versus 35.3% in the comparable period in 2008. Including the special items, the effective tax rate was 35.0% for the second quarter of 2009, versus 39.0% in the comparable period in 2008. The difference in the effective tax rate was primarily due to the charge for the litigation settlement recorded in the second quarter of 2008.

Year-to-Date 2009 Results

For the six months ended June 30, 2009, MasterCard reported net income of $717 million excluding the special item and $716 million including the special item, or $5.47 per diluted share in both cases.

Net revenue for the six months ended June 30, 2009, was $2.4 billion, or essentially flat versus the same period in 2008. On a constant currency basis, net revenue increased 4.5%. Increased processed transactions of 6.9% and pricing changes of approximately 6 percentage points contributed to the revenue growth in the year-to-date period. These contributing factors were partially offset by the impact of lower gross dollar volumes on revenue for the six months ended June 30, 2009.

Total operating expenses decreased 12.0%, to $1.3 billion, for the six-month period compared to the same period in 2008, excluding special items for both periods. Currency fluctuations contributed 3.2 percentage points of this decrease. Including special items, operating expenses decreased 58.1%, to $1.3 billion.

Total other expense was $32 million for the six-month period versus total other income of $183 million for the same period in 2008, including special items. The decrease was primarily driven by gains from the sale of Redecard securities and the termination of a customer business agreement in 2008.

MasterCard’s effective tax rate, excluding special items, was 34.1% in the six months ended June 30, 2009, versus a rate of 35.2% in the comparable period in 2008. The decrease in the effective tax rate was primarily due to an adjustment to deferred taxes reflected in the first quarter of 2009. Including the special items, the effective tax rate was 34.1% for the 2009 period, and 43.9% for the 2008 period. The difference in the effective tax rate was primarily due to the impact of the charge for the litigation settlement in 2008.

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MOT

LONDON (MarketWatch) — Motorola Inc. /quotes/comstock/13*!mot/quotes/nls/mot (MOT 6.57, -0.25, -3.67%) on Thursday reported a second-quarter net profit of $26 million, or 1 cent a share, compared to a profit of $4 million a year earlier. Net sales for the latest quarter dropped 32% to $5.5 billion from $8.08 billion. The group said its profit included net income of 2 cents a share from one-off items. Analysts polled by FactSet had been expecting a loss of 5 cents a share in the quarter on sales of $5.6 billion. Motorola said its mobile devices division shipped 14.8 million handsets in the quarter, with revenue in the unit dropping 45% to $1.8 billion. Sales in its home and networks mobility segment fell 27% to $2 billion. For the third quarter, Motorola said it expects to report a result from continuing operations between a loss of 1 cent a share and a profit of 1 cent a share.

IP

Q2 EPS ex-items 20 cents

* Sales flat at $5.8 billion

NEW YORK, July 30 (Reuters) – International Paper Co (IP.N) posted a 40 percent drop in second-quarter earnings on Thursday but said the worst of the economic downturn had passed and it was seeing improvements in some markets.

Net earnings for the quarter fell to $136 million, or 32 cents per shares, from $227 million, or 54 cents per share, a year ago.

Excluding items, earnings from continuing operations were 20 cents per share.

Net sales were flat at $5.8 billion.

CL

NEW YORK (AP) — Consumer products maker Colgate-Palmolive says its second-quarter profit fell 14 percent as sales fell, but it still beat analysts’ profit predictions as it held costs in check.

The New York-based maker of toothpaste, dish soap and Hill’s Science Diet pet food says it earned $561.6 million, or $1.07 per share, in the quarter that ended in June. That is up from $493.8 million, or 92 cents per share, a year earlier.

Analysts polled by Thomson Reuters expected $1.05 per share.

Revenue fell 5.5 percent to $3.75 billion from $3.96 billion. Analysts had expected $3.81 billion in revenue.

AZN

LONDON (AP) — Pharmaceutical company AstraZeneca PLC posted a 6 percent rise in second quarter net profit on Thursday as the company weathered the global recession better than feared and some of its key drugs benefited from a lack of generic competition.

The Anglo-Swedish drugmaker bolstered its positive outlook with a decision to lift full year earnings per share forecast to a range of $5.70 to $6 from $5.15-$5.45.

The company posted net profit of $1.72 billion for the three months to June 30, compared with $1.63 billion in the same period a year ago. Revenue was barely changed at $7.958 billion, compared with $7.956 billion, as exchange rate impacts all but wiped out a 9 percent gain on a constant currency basis.

AstraZeneca Chief Executive David Brennan said that the impact of the global economic downturn on the company’s business and markets “has been less severe than we thought.”

“Our efforts to build a sustainable pipeline are bearing fruit,” he added on a conference call with reporters, referring to the company’s attempts to beef out its previously thin cabinet of future drugs.

AstraZeneca also managed to trim costs throughout the business, from distribution to research and development and selling expenses.

However, it took a $430 million hit in the quarter, making a provision for the losses it expects to arise from U.S. legal proceedings relating to product liability, commercial disputes, infringement of intellectual property rights, the validity of patents and anti-trust law. The company declined to go into further detail about the charge.

Investors welcomed the earnings update, with AstraZeneca shares lifting 2.4 percent to 2,870 pence on the London Stock Exchange.

Cholesterol pill Crestor was the star performer, with sales increasing 33 percent, pushing quarterly sales past $1 billion — to $1.13 billion — for the first time.

The company received a boost from sales of its heart drug Toprol-XL in the United States where the company ramped up production to meet demand after two competitors withdrew generic versions. It also benefited from the six-month delay of the introduction of a generic competitor to cancer treatment Casodex.

The company forecast full-year sales growth of mid single digits at constant exchange rates, with roughly half the benefit from one-off items. It said the rise in the expected core earnings per share was due solely to operational performance, with no impact from currency movements.

Brennan said the company was on track for four new approval filings this year as it boosts its pipeline.

AstraZeneca and its partner Bristol-Myers Squibb are expecting to hear back from U.S. regulators on their new diabetes drug Onglyza on Thursday. Approval is expected after experts recommended the drug in April.

AstraZeneca’s MedImmune unit is working to deliver a nasal spray swine flu vaccine. The U.S. Department of Health and Human Services placed an initial $90 million order for the vaccine, intending to use it on high-risk populations in the event of a flu pandemic.

Brennan said that MedImmune may be able to produce a total of 200 million doses of bulk vaccine, of which 40 million doses can be filled and finished into nasal sprayers by March next year.

However, he added that the availability of sprayers is limited, so the company is both looking to increase the supply and alternative delivery devices — including drops.

KIM

Reports Q2 (Jun) funds from operations of $0.31 per share, excluding non-recurring items, $0.01 worse than the First Call consensus of $0.32; revenues rose 3.4% year/year to $189.3 mln vs the $189.3 mln consensus. Co issues in-line guidance for FY09, sees FFO of $1.33-1.38, excluding non-recurring items, vs. $1.36 consensus. Co sees FY09 Same-property NOI for the year between -3 to -1%. Co reported Q2 5.3% increase in same space leasing spreads in the U.S.: 17.5% for new leases and 1.2 percent for leases signed for renewals and options; co reported a 180 bps decline in U.S. same-property net operating income (NOI) from the second quarter of 2008; Posted quarter end occupancy of 92.1 percent in its total shopping center portfolio and 91.8 percent in the U.S. portfolio.

PCZ

CALGARY, ALBERTA–(Marketwire – 07/30/09) – Highlights

– Production in line with guidance due to reliable upstream operations

– Maintained strong liquidity through a difficult business environment

– Obtained shareholder, court and Competition Bureau approval for merger with Suncor Energy Inc. (Suncor) to create Canada’s premier energy company, effective August 1, 2009

Petro-Canada announced today second quarter operating earnings of $99 million ($0.20/share), down 91% from $1,151 million ($2.38/share) in the second quarter of 2008. Second quarter 2009 cash flow from operating activities before changes in non-cash working capital was $634 million ($1.31/share), down 68% from $1,979 million ($4.09/share) in the same quarter of last year.

Net earnings were $77 million ($0.16/share) in the second quarter of 2009, compared with $1,498 million ($3.10/share) in the same quarter of 2008.

“We continued to manage our business in a prudent manner during the second quarter, as the downturn persisted,” said Ron Brenneman, president and chief executive officer. “Staying the course we charted for ourselves at the beginning of this year has us in a strong position heading into our merger with Suncor.”

As a result of the merger between Petro-Canada and Suncor, Petro-Canada will not be declaring further dividends. Dividends will now be granted and paid by the new amalgamated Company, subject to the approval of its new Board of Directors…..

SI

Siemens on Thursday posted a sharp decline in operating profit in the third quarter, as the global economic recession struck a blow to Europe’s largest engineering group’s main industrial unit.

Siemens’ profit at its healthcare, energy and industrial sectors dropped by 21 per cent year-on-year to €1.7bn ($2.4bn), higher than most analysts had expected.

But as the recession took a hefty toll on the company’s industrial business, its order intake shrank by 27 per cent to €17.2bn, more than analysts had feared. The engineering group failed to achieve its aim to keep the volume of its order intake above or at the same level of revenues. The so-called book-to-bill ratio declined to 0.94 per cent – which is seen as an indicator of a future revenue contraction.

In the third quarter of Siemens’ current financial year, revenues fell by 4 per cent to €18.3bn.

The results marked the first quarterly drop of both revenues and profit amid the current recession. Up until now, Germany’s largest industrial group had showed resilience to the crisis, mainly thanks to a booming energy sector.

Peter Löscher, Siemens’ chief executive, said the group was on track to achieve its targets for the current financial year.

After a profit warning this spring, the group now expects operating profit in its three sectors – energy, industry and healthcare – to exceed last year’s €6.6bn.

“In comparison with our main rivals, we have once again held up well,” Mr Löscher said.

General Electric almost halved its net income in the last quarter, as the global downturn crimped demand for industrial equipment and lifted loan losses at its finance arm.

In its industrial business, Siemens felt the pinch from a hefty drop in demand. Profits in the sector – by far the groups largest – shrank by 54 per cent to €534m, as customers drastically reduced their production.

Profit in the healthcare sector dropped by a more moderate 17 per cent, while Siemens’ booming energy sector received a 40 per cent boost in its operating profit.

The conglomerate has said in the past it expects the energy sector to start contracting in 2010, at a time when the industrial business could have reached a turning point.

Siemens hopes that the state-sponsored infrastructure programmes around the world could cushion partly the slump in demand from the private sector, as it expects to reap orders worth about €15bn in the next three years from those government measures.

But the main bulk of these orders will only translate into revenues from 2011 onwards, so that most analysts expect next year to be very tough for the conglomerate.

TSM

By JESSIE HO and PERRIS LEE CHOON SIONG

TAIPEI — Taiwan Semiconductor Manufacturing Co. posted Thursday its best quarterly result in nine months for the April-June period, adding continued recovery in demand for chips will lift the company and industry’s revenue.

In the three months ended June 30, Hsinchu, Taiwan-based TSMC, the world’s largest contract chip producer by revenue, had a net profit of 24.44 billion New Taiwan dollars (US$744 million), or NT$0.94 a share, down 15% from NT$28.77 billion, or NT$1.09 a share, a year earlier.

Still, that was TSMC’s highest quarterly earnings since the third quarter of 2008’s NT$30.57 billion, and was slightly above the average NT$23.14 billion forecast of eight analysts surveyed earlier by Dow Jones Newswires.

“As a result of an improved demand outlook, customers’ companies launching new products, and customers’ inventory restocking, second quarter saw a sharp rebound in the demand for semiconductors across all applications,” TSMC said in a statement.

TSMC’s second-quarter revenue fell 15.8% to NT$74.21 billion from NT$88.14 billion a year earlier.

At an investor conference in Taipei, TSMC Chairman Morris Chang said the global chip sector’s revenue will likely fall 17% in 2009, which marks his latest upward revision for the sector’s outlook.

Mr. Chang earlier expected global chip revenue to fall 20%. He also told investors the contract chip-making industry’s revenue will likely fall 19%-20% this year, a smaller fall than the 30% he previously estimated.

For TSMC, its third-quarter consolidated revenue will likely come in between NT$88 billion and NT$90 billion, up from NT$74.21 billion in the second quarter, while gross profit margin will likely widen to 46.5%-48.5%, from 46.2% in the second quarter, TSMC Chief Financial Officer Lora Ho said.

“The chip industry hit bottom in the first quarter, rebounded in second quarter and we expect momentum to continue into the third quarter,” Ms. Ho said.

TSMC’s operating margin in the third quarter will likely rise to 35%-37%, from 33.9% in the previous three months, Ms. Ho said.

TSMC raised its 2009 capital expenditure to US$2.3 billion from its previous projection of US$1.5 billion, according to a company statement.

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Will health insurnce companies disappear ?

Socialized Healthcare vs. The Laws of Economics

Mises Daily by Thomas J. DiLorenzo | Posted on 7/28/2009 12:00:00 AM

The government’s initial step in attempting to create a government-run healthcare monopoly has been to propose a law that would eventually drive the private health insurance industry out of existence. Additional taxes and mandated costs are to be imposed on health insurance companies, while a government-run “health insurance” bureaucracy will be created, ostensibly to “compete” with the private companies. The hoped-for end result is one big government monopoly which, like all government monopolies, will operate with all the efficiency of the post office and all the charm and compassion of the IRS.

Of course, it would be difficult to compete with a rival who has all of his capital and operating costs paid out of tax dollars. Whenever government “competes” with the private sector, it makes sure that the competition is grossly unfair, piling costly regulation after regulation, and tax after tax on the private companies while exempting itself from all of them. This is why the “government-sponsored enterprises” Fannie Mae and Freddie Mac were so profitable for so many years. It is also why so many abysmally performing “public” schools remain in existence for decades despite their utter failure at educating children.

America’s Healthcare Future?

Some years ago, the Nobel-laureate economist Milton Friedman studied the history of healthcare supply in America. In a 1992 study published by the Hoover Institution, entitled “Input and Output in Health Care,” Friedman noted that 56 percent of all hospitals in America were privately owned and for-profit in 1910. After 60 years of subsidies for government-run hospitals, the number had fallen to about 10 percent. It took decades, but by the early 1990s government had taken over almost the entire hospital industry. That small portion of the industry that remains for-profit is regulated in an extraordinarily heavy way by federal, state and local governments so that many (perhaps most) of the decisions made by hospital administrators have to do with regulatory compliance as opposed to patient/customer service in pursuit of profit. It is profit, of course, that is necessary for private-sector hospitals to have the wherewithal to pay for healthcare.

Friedman’s key conclusion was that, as with all governmental bureaucratic systems, government-owned or -controlled healthcare created a situation whereby increased “inputs,” such as expenditures on equipment, infrastructure, and the salaries of medical professionals, actually led to decreased “outputs” in terms of the quantity of medical care. For example, while medical expenditures rose by 224 percent from 1965–1989, the number of hospital beds per 1,000 population fell by 44 percent and the number of beds occupied declined by 15 percent. Also during this time of almost complete governmental domination of the hospital industry (1944–1989), costs per patient-day rose almost 24-fold after inflation is taken into account.

The more money that has been spent on government-run healthcare, the less healthcare we have gotten. This kind of result is generally true of all government bureaucracies because of the absence of any market feedback mechanism. Since there are no profits in an accounting sense, by definition, in government, there is no mechanism for rewarding good performance and penalizing bad performance. In fact, in all government enterprises, exactly the opposite is true: bad performance (failure to achieve ostensible goals, or satisfy “customers”) is typically rewarded with larger budgets. Failure to educate children leads to more money for government schools. Failure to reduce poverty leads to larger budgets for welfare state bureaucracies. This is guaranteed to happen with healthcare socialism as well.

Costs always explode whenever the government gets involved, and governments always lie about it. In 1970 the government forecast that the hospital insurance (HI) portion of Medicare would be “only” $2.9 billion annually. Since the actual expenditures were $5.3 billion, this was a 79 percent underestimate of cost. In 1980 the government forecast $5.5 billion in HI expenditures; actual expenditures were more than four times that amount — $25.6 billion. This bureaucratic cost explosion led the government to enact 23 new taxes in the first 30 years of Medicare. (See Ron Hamoway, “The Genesis and Development of Medicare,” in Roger Feldman, ed., American Health Care, Independent Institute, 2000, pp. 15-86). The Obama administration’s claim that a government takeover of healthcare will somehow magically reduce costs is not to be taken seriously. Government never, ever, reduces the cost of doing anything.

All government-run healthcare monopolies, whether they are in Canada, the UK, or Cuba, experience an explosion of both cost and demand — since healthcare is “free.” Socialized healthcare is not really free, of course; the true cost is merely hidden, since it is paid for by taxes.

Whenever anything has a zero explicit price associated with it, consumer demand will increase substantially, and healthcare is no exception. At the same time, bureaucratic bungling will guarantee gross inefficiencies that will get worse and worse each year. As costs get out of control and begin to embarrass those who have promised all Americans a free healthcare lunch, the politicians will do what all governments do and impose price controls, probably under some euphemism such as “global budget controls.”

Price controls, or laws that force prices down below market-clearing levels (where supply and demand are coordinated), artificially stimulate the amount demanded by consumers while reducing supply by making it unprofitable to supply as much as previously. The result of increased demand and reduced supply is shortages. Non-price rationing becomes necessary. This means that government bureaucrats, not individuals and their doctors, inevitably determine who will get medical treatment and who will not, what kind of medical technology will be available, how many doctors there will be, and so forth.

All countries that have adopted socialized healthcare have suffered from the disease of price-control-induced shortages. If a Canadian, for instance, suffers third-degree burns in an automobile crash and is in need of reconstructive plastic surgery, the average waiting time for treatment is more than 19 weeks, or nearly five months. The waiting time for orthopaedic surgery is also almost five months; for neurosurgery it’s three full months; and it is even more than a month for heart surgery (see The Fraser Institute publication, Waiting Your Turn: Hospital Waiting Lists in Canada). Think about that one: if your doctor discovers that your arteries are clogged, you must wait in line for more than a month, with death by heart attack an imminent possibility. That’s why so many Canadians travel to the United States for healthcare.

All the major American newspapers seem to have become nothing more than cheerleaders for the Obama administration, so it is difficult to find much in the way of current stories about the debacle of nationalized healthcare in Canada. But if one goes back a few years, the information is much more plentiful. A January 16, 2000, New York Times article entitled “Full Hospitals Make Canadians Wait and Look South,” by James Brooke, provided some good examples of how Canadian price controls have created serious shortage problems.

• A 58-year-old grandmother awaited open-heart surgery in a Montreal hospital hallway with 66 other patients as electric doors opened and closed all night long, bringing in drafts from sub-zero weather. She was on a five-year waiting list for her heart surgery.
• In Toronto, 23 of the city’s 25 hospitals turned away ambulances in a single day because of a shortage of doctors.
• In Vancouver, ambulances have been “stacked up” for hours while heart attack victims wait in them before being properly taken care of.
• At least 1,000 Canadian doctors and many thousands of Canadian nurses have migrated to the United States to avoid price controls on their salaries.

Wrote Mr. Brooke, “Few Canadians would recommend their system as a model for export.”

Canadian price-control-induced shortages also manifest themselves in scarce access to medical technology. Per capita, the United States has eight times more MRI machines, seven times more radiation therapy units for cancer treatment, six times more lithotripsy units, and three times more open-heart surgery units. There are more MRI scanners in Washington state, population five million, than in all of Canada, with a population of more than 30 million (See John Goodman and Gerald Musgrave, Patient Power).

In the UK as well — thanks to nationalization, price controls, and government rationing of healthcare — thousands of people die needlessly every year because of shortages of kidney dialysis machines, pediatric intensive care units, pacemakers, and even x-ray machines. This is America’s future, if “ObamaCare” becomes a reality.

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Marshall Gittler

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Beige Book States Most Districts See Slowing in the Pace of Decline

By Scott Lanman

July 29 (Bloomberg) — The Federal Reserve said most of its 12 regional banks detected a slower pace of economic decline in June and July, further signs the worst U.S. downturn in at least five decades is closer to an end.

“Economic activity continued to be weak” in June and July, the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. San Francisco, the district with the biggest economy, and three others “pointed to signs of stabilization,” while Chicago and St. Louis showed a “moderating” pace of decline.

The report backs up comments by Chairman Ben S. Bernanke, who told Congress last week the economy’s contraction “appears to have slowed significantly,” with demand and production showing “tentative signs of stabilization.” Other Fed policy makers said this week they expect a slow recovery to begin during the second half of this year.

The Beige Book provided few signs of outright growth. Retail demand was “sluggish” in most areas, with “mixed” auto sales. Non-financial services were “largely negative” with “a few bright spots,” and manufacturing was “subdued” yet “slightly more positive” than in the previous report, the Fed said.

Lending in most regions “was stable or weakened further” in most loan categories, and banks tightened credit standards in seven districts, the report said.

‘Less Upbeat’

“We are very close to the bottom,” said Lyle Gramley, senior economic adviser with New York-based Soleil Securities Corp. and a former central bank governor. “The Beige Book is a little less upbeat than the numbers that have been coming in.”

Gramley cited today’s report of orders for U.S. durable goods, excluding automobiles and aircraft, which unexpectedly rose in June. Excluding transportation equipment, demand for goods meant to last several years climbed 1.1 percent, the most in four months, the Commerce Department said today in Washington.

“The Fed is nowhere near in a position of changing its posture of monetary policy,” Gramley said.

The Fed report reflects information collected through July 20 and summarized by staffers at the Boston Fed. The Federal Open Market Committee next meets in Washington Aug. 11-12. At their last meeting in June, officials refrained from adding to their $1.75 trillion program to buy housing debt and Treasuries, saying they were “uncertain” of the impact of such a move.

GDP Shrank

Government figures on July 31 may show that U.S. gross domestic product shrank at a 1.5 percent annual pace in the second quarter, less than the 5.5 percent contraction in the previous three months, according to the median of 77 estimates in a Bloomberg News survey.

The previous Beige Book, released June 10, said “economic conditions remained weak or deteriorated further” from mid- April through May, while five districts “noted that the downward trend is showing signs of moderating.”

U.S. employers eliminated 467,000 jobs in June, bringing the total to 6.5 million since the recession began in December 2007, the most of any downturn since the Great Depression.

“All districts indicated that labor markets remain slack, with most sectors either reducing jobs or holding them steady and aggregate employment continuing to decline,” the Fed said today. That weakness “has virtually eliminated upward wage pressure,” the report said.

At the same time, the Fed said seven districts “noted selective hiring,” such as by some companies looking to snap up “experienced talent.”

Main Rate

Inflation, using the government’s personal consumption expenditures price index, slowed to a 0.1 percent annual pace in May from 2.6 percent in September 2007, when Bernanke and his colleagues began a series of 10 reductions in the main rate.

“Districts reported varied — but generally modest — price changes across sectors and products, with competitive pressures damping increases,” the Fed said.

Housing markets “stayed soft” in most areas, “although many noted some signs of improvement,” the report said. Lower- priced and entry-level homes “continued to perform relatively well” in part because of a first-time homebuyer tax credit.

A gauge of U.S. house prices posted its first monthly gain in three years, while purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, reports this week showed.

Commercial real estate has fared worse, with two-thirds of districts showing markets “weakened further” and others being “slow,” the Fed said. The outlook was “mixed,” and “tight credit” constrained construction, the report said.

About $2.2 trillion of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price, raising the threat of more foreclosures, according to Real Capital Analytics, a New York-based research firm.

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PAY CLOSE ATTENTION TO SOARING INSIDER SELLING !!!!!!

CDS MARKET STATS

IMF Warns Of Increased Risk To Financial Stability

Amid all the “pink shoots” and euphoria that is currently seizing the markets and pundits all across the board, some people are yelling that dangers are still ahead.

Like Cassandra (and our modern-day TA version of Market Cassandra, Chuck) these experts are calling out attention to the dangerous truths ahead both, in the market and the general state of the economy… But are apparently destined not to be believed until it is too late.

In some way, thank GS for washing the brains of the markets with an influx of multi-billion bonuses.

But as reason always gains the upper hand, and I don’t mind being considered a “Cassandra” in such good company, let us consider the latest analysis of the IMF (International Monetary Fund). Far from considering that pink shoots and bonuses erased totally the risk for banks and States, the IMF nails it down in a single paragraph:

Risks to financial stability have intensified since October 2008. Macroeconomic risks have risen as global growth has fallen precipitously alongside a sharp slowdown of global trade. Credit risks have also risen as a deterioration of economic and financial conditions have resulted in rising loan losses. At the same time, the flight from risky assets and illiquid market conditions has increased funding costs, even as risk-free rates have declined with monetary easing. Emerging market countries are also feeling the effects of the advanced economies’ financial and economic difficulties, and there is the potential that the abrupt pullback from emerging market assets by investors and heightened financing costs will erase some of the economic gains these countries have made in recent years.

Absent a serious deleveraging on both the sovereign and the financial level, the risk is present that both the States and the banks will end up defaulting on their huge debts. In that respect, GS’ attitude to take just one has confined to utter irresponsibility, when paying its huge bonuses instead of using the money to deleverage itself significantly.

As to the US issue, the IMF tackles it too, indirectly:

Until now banks have managed to obtain sufficient capital to offset existing writedowns, but that is mainly due to the massive public sector injections of capital in the fourth quarter (Figure 2). The worsening credit conditions affecting a broader range of markets have raised our estimate of the potential deterioration in U.S.- originated credit assets held by banks and others from $1.4 trillion in the October 2008 GFSR to $2.2 trillion. Much of this deterioration has occurred in the mark-to-market portion of our estimates (mostly securities), especially in corporate and commercial real estate securities, but degradation is also occurring in the loan books of banks, reflecting the weakening outlook for the economy.

The IMF goes on to estimate that only to prevent the situation from deteriorating further, capital-wise, an injection of 500 Bn USD would be necessary in fresh capital during 2009 and 2010 for European and American banks together, only to avoid them failing. That means as much more money in bailouts. The intelligent reader will have noticed that there is no talk whatsoever of “profits” and unlike many who have just begun anticipating an era of renewed profitability for banks, the future looks bleak for obtaining any profit at all in that sector.

Considering the inefficiency of the current bailout strategy, the IMF recommends thus finally having the courage to slash into the banks too sick to live. It appears to be the first item of common sense and sensible recommendation in months since the inception of the crisis. Some of the recommendations such as the creation of a “bad bank” for the toxic assets look more questionable.

• Move expeditiously toward recapitalization and measures to deal with distressed assets. An assessment of bank’s business plans—and deciding which financial institutions will need public monies based on their viability—should be done proactively by supervisors, since history suggests that the longer one waits, the higher the fiscal costs. Banks with heavy distressed asset burdens, but solvent and viable, would be restructured and recapitalized, and those that are not viable could be taken over by the public sector and either restructured and resold, or wound down in an orderly fashion. Generally, increasingly stringent conditions would be applied as banks receive larger amounts of public funds. The restructuring process might involve the use of a publicly-owned “bad bank” to remove distressed assets from the balance sheets of institutions.

• Immediate, short-run policies and actions taken need to be consistent with the long-run vision for the structure of a viable financial system. Without this end-point, the credibility of the policies will come under question. In addition, it will be important to recognize that the adjustment will need to continue for some time and that the viable financial sector of the future will be less leveraged and therefore smaller relative to the rest of the economy. That said, reaching higher bank capital ratios needs to be done in a gradual manner in order to avoid any additional adverse feedback effects and to encourage lending to healthy borrowers. Experiences of previous crises show that credit growth will be slow to return and does not normalize until banks’ balance sheets are cleansed.

• Rules governing the process toward a more stable financial system need to be clear and consistent. To restore confidence, transparency and clarity are essential in both the private sector and public policy actions. Authorities should maintain transparency of policies, the use of public support, and any decisions taken as regards individual financial institutions. This applies in particular to the identification and valuation of assets, especially those of which the banks are to be relieved, to the conditions applied to their recapitalization, and to the level of capital buffers that the authorities consider adequate.

• International cooperation on a common framework for financial policies should receive high priority. The application of substantially different conditions when supporting financial institutions should be avoided in order to prevent unintended consequences that may arise from competitive distortions and regulatory arbitrage. International coordination is also needed to avoid excessive “national bias,” whereby domestic institutions are favored or local credit provision is encouraged, to the detriment of other countries. A more consistent insolvency framework for financial institutions would also help.

The interesting aspect of this report, in the end, is that it tells us in a clear manner that 1° the recession is not ended unlike some irresponsible persons have been clamoring around; 2° there is no way to end this crisis without tackling decisively the issue of the toxic balance sheets of the banks. And so far, as much the US as Europe have been reluctant to oblige the bankers to clean up their toxic assets and face their losses.

So, if you have been riding the tide of euphoria on the back of the financials, it is highly time to exit these. We are about to begin our second leg of the crisis and when it will begin, real despair will rear its ugly face on the markets. States and banks have both used up their bullets throwing money and debt into black holes. This time around, it will not be “too big to fail”, but “too rotten to stand” that will take the priority in handling banks.

Oil Slips Below $66 pb

By GEORGE JAHN p {margin:12px 0px 0px 0px;}

Asian Markets Tank With The Shanghai Composite Off 5%

By Patrick Rial

July 29 (Bloomberg) — Asian stocks dropped for the first time in 12 days as lower commodity prices and disappointing profit reports raised concern the rally had made equities expensive relative to earnings prospects.

China’s Shanghai Composite Index, valued at its priciest in 17 months, slumped 5 percent. Jiangxi Copper Co. slumped 9 percent in Shanghai as it forecast a drop in profit and prices of the metal slumped. China Petroleum & Chemical Corp. sank 5 percent in Hong Kong as the Chinese government cut gasoline prices. Weaker earnings dragged Shimano Inc., Japan’s No. 1 maker of bicycle components, and DeNA Co., which operates auction Web sites, lower in Tokyo down by more than 4 percent.

The MSCI Asia Pacific Index lost 1.1 percent to 109.35 as of 7:32 p.m. in Tokyo, with two stocks falling for each one that rose. The gauge had climbed 13 percent in the past 11 days, the longest winning streak since January 2004. The rally took average company valuations to the highest since March 30.

“Investors are getting more selective now since equities are no longer cheap,” said Manpreet Gill, Asian strategist at Barclays Wealth, which has $238 billion in assets. “A further correction is possible.”

Hong Kong’s Hang Seng Index slumped 2.4 percent. China Cosco Holdings Co., the world’s biggest operator of dry-bulk ships, sank 6.7 percent in Hong Kong after forecasting a loss.

Japan’s Nikkei 225 Stock Average added 0.3 percent. JFE Holdings Inc., Japan’s second-largest steelmaker, and Hitachi Ltd., the country’s biggest manufacturer, climbed more than 4 percent on brokerage upgrades. China State Construction Engineering Corp. jumped 56 percent on its first day of trading in Shanghai, while BBMG Corp., the biggest cement supplier in Beijing, surged the same amount in its Hong Kong debut.

Consumer Confidence

Futures on the Standard & Poor’s 500 Index lost 0.4 percent. The gauge fell 0.3 percent yesterday after the Conference Board’s index of U.S. consumer confidence slid to 46.6 in July, compared with the 49 projected by economists.

The report caused commodity prices to decline. A gauge of six metals in London sank 1.2 percent yesterday, the first decline in 12 days. Copper fell the most in two weeks, while crude oil retreated 1.7 percent to $67.23 a barrel in New York, the first drop in four days.

Jiangxi Copper, China’s largest producer of the metal, sank 9 percent to 42.62 yuan in Shanghai after saying first-half profit may fall between 57 percent and 64 percent from a year earlier. Rio Tinto Group, the world’s No. 3 mining company, lost 2.4 percent in Sydney to A$58.

Lower Prices

China Petroleum, Asia’s biggest oil refiner, fell 5 percent to HK$6.78. China’s government cut prices on gasoline and diesel by at least 3.3 percent, reversing a trend of rising ceilings. Lower prices reduce profit margins for refiners.

Shimano slumped 4.4 percent to 3,670 yen after profit fell 48 percent in the first half of the year. DeNA tumbled 9.1 percent, the MSCI Asia Pacific Index’s biggest decline, to 289,900 yen after first-quarter net income dropped by 26 percent. KBC Securities Japan downgraded the stock to “sell,” saying the company’s results had “disappointed.”

In Hong Kong, China Cosco sank 6.7 percent to HK$10.82 after saying it expects to post a net loss for the first half of 2009 because the global recession hurt international trade.

Analysts have boosted estimates since the beginning of April for companies in Asia outside Japan, according to data compiled by Bloomberg. Profit forecasts have actually declined within Japan, the data show.

Japanese Production

The MSCI Asia Pacific Index rallied 57 percent through yesterday from a more than five-year low on March 9 on rising confidence the worst of the global recession has passed. A government report tomorrow may show Japan’s manufacturers increased production for a fourth month in June, capping the largest quarterly output expansion in more than 50 years.

Federal Reserve Bank of San Francisco President Janet Yellen said yesterday the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

Companies in the MSCI Asia traded at an average 24.7 times estimated profit as of yesterday, the highest since March 30, as investors bet earnings will recover. The ratio compares with 16.3 times for the Standard & Poor’s 500 Index.

Stocks in the Shanghai Composite are valued at 24.7 times estimated earnings, the highest since February 2008. The gauge has climbed 79 percent this year amid record bank lending and stimulus measures from the government.

Expensive Valuations

The Chinese index drop today was the steepest since Nov. 18. Beijing’s Caijing magazine said yesterday China Construction Bank Corp.’s loan growth cap will limit new lending in the second half of the year to a third of the level in the first six months. Additionally, China may strictly enforce requirements on mortgages for second homes, the National Business Daily reported.

“Speculation the central bank may take steps to rein in liquidity worried the market,” said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7.2 billion in assets. “A lot of people were looking to take profit” after the market gains.

JFE, the steelmaker that yesterday forecast a return to profit, rose 4.2 percent to 3,700 yen. Takashi Enomoto, an analyst at Bank of America Corp.’s Merrill Lynch & Co. unit, boosted his target price on the stock as exports to China are rising and the shares look cheap based on estimated earnings.

Hyundai Steel Co., South Korea’s biggest maker of construction steel, advanced 4.9 percent to 67,000 won. The company reported second-quarter profit that beat analyst estimates on a stronger won and lower costs.

The “market environment may improve in the second half, helped by increasing demand from the public sector and seasonal demand,” the company said in an e-mailed statement.

Biggest IPO

Hitachi climbed 5.1 percent to 308 yen. The company reported a 50 billion yen ($529 million) operating loss yesterday, which Nomura Holdings Inc. analyst Masaya Yamasaki said was likely better than the company’s own projection. The shares were boosted to “overweight” at JPMorgan Chase & Co.

China State Construction, the nation’s biggest homebuilder, jumped 56 percent to 6.53 yuan on its first trading day in Shanghai. The 50.2 billion yuan ($7.3 billion) raised in the initial sale was the world’s largest initial public offering in 16 months.

BBMG rallied 56 percent to HK$9.97. It raised HK$5.95 billion ($768 million) in Hong Kong’s second-biggest public offering this year.

European Stocks Rise On better Than Expected Earnings

By Adria Cimino

July 29 (Bloomberg) — European stocks rose as earnings from Akzo Nobel NV and Bayer AG beat analysts’ projections, overshadowing declining commodity prices and a wider-than- estimated loss from ArcelorMittal SA. Asian shares and U.S. index futures fell.

Akzo Nobel, the world’s largest maker of coatings and paints, and Bayer, which supplies plastics to the automotive industry, advanced more than 5 percent. PSA Peugeot Citroen and Daimler AG jumped at least 5 percent after posting narrower- than-estimated losses. Jiangxi Copper Co. slumped 9 percent in Shanghai after forecasting a decline in profit, leading Chinese stocks to the steepest drop in eight months. ArcelorMittal, the world’s biggest steelmaker, slid 3.7 percent.

The Dow Jones Stoxx 600 Index climbed 0.9 percent to 220.6 at 12:03 p.m. in London. The measure has surged 12 percent since July 10 after companies from Goldman Sachs Group Inc. to Roche Holding AG and Apple Inc. posted results that exceeded estimates and U.S. Federal Reserve Chairman Ben S. Bernanke said the world’s largest economy is showing “tentative signs of stabilization.”

Earnings “kicked off this rally,” said Lothar Mentel, chief investment officer at Octopus Investments Ltd. in London, which oversees $2.3 billion. “A lot of other factors are also improving the sentiment of investors. I see the market definitely going higher by the end of the year.”

Federal Reserve Bank of San Francisco President Janet Yellen said yesterday that the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

U.S. Stocks

U.S. stocks fell yesterday and the Standard & Poor’s 500 Index retreated from an eight-month high as consumer confidence trailed projections and companies from Office Depot Inc. to Coach Inc. posted worse-than-estimated results. S&P 500 futures slipped 0.4 percent today.

While the S&P 500 is up 11 percent since July 10 after companies from Intel Corp. to Mattel Inc. beat estimates, Bloomberg data shows per-share profits have dropped 28 percent on average for companies that reported since July 8.

Orders for durable goods in the U.S. probably dropped in June for the first time in three months, reflecting auto-plant shutdowns, economists said before a Commerce Department report at 8:30 a.m. in Washington.

Akzo Nobel

Akzo Nobel jumped 9.4 percent to 38.35 euros. Earnings before interest, taxes, amortization and depreciation fell 9 percent to 527 million euros ($746 million), beating a 414 million-euro prediction from an analyst survey.

Bayer soared 5.6 percent to 42.28 euros. The company said net income dropped to 532 million euros, beating the 393.1 million-euro median estimate of 11 analysts surveyed by Bloomberg.

More than half of per-share earnings at European companies that have reported results since July 8 beat analyst forecasts, according to Bloomberg data. Profits in the Stoxx 600 fell 30 percent on average in the period, while 58 out of 106 companies have reported better-than-estimated results, the data show.

The Stoxx 600’s valuation has climbed to 28.3 times the earnings of its companies, the highest level since January 2004, according to Bloomberg data.

Peugeot soared 8.9 percent to 20.06 euros. France’s biggest automaker reported a 962 million-euro net loss for the first half as it slashed production amid the global slump in auto sales. Analysts had expected a loss of 971.5 million euros, according to the median of estimates compiled by Bloomberg.

‘Gradual Improvement’

Daimler advanced 5.9 percent to 31.85 euros. The world’s second-largest maker of luxury cars and reported a 1.06 billion- euro second-quarter net loss, narrower than the 1.14 billion- euro median estimate in a Bloomberg News survey of analysts, and forecast a “gradual improvement” in operating profit

YHOO & MSFT Try to Tackle Web Search  Against GOOG

By Dina Bass and Brian Womack

July 29 (Bloomberg) — Microsoft Corp. and Yahoo! Inc. are getting closer to signing an Internet-search partnership to challenge market leader Google Inc., a person familiar with the matter said.

An agreement may be announced as soon as today, said the person, who declined to be identified because the talks are private. The partnership would involve the companies sharing revenue from Web-search ads, the person said.

Microsoft, the world’s largest software maker, is seeking more users for its Bing Internet search engine, which has about an eighth of Google Inc.’s market share in the U.S., according to research firm ComScore Inc. Yahoo, which has posted three straight quarters of sales declines, may be able to save at least $500 million by working with Microsoft, Yahoo Chief Executive Officer Carol Bartz said in June.

Google had about 65 percent of the U.S. Web-search market in June, according to Reston, Virginia-based ComScore. Yahoo and Microsoft had 28 percent combined.

Adam Sohn, a spokesman for Redmond, Washington-based Microsoft, declined to comment. Kim Rubey, a spokeswoman for Sunnyvale, California-based Yahoo, also wouldn’t comment.

Microsoft rose 36 cents to $23.47 yesterday in Nasdaq Stock Market trading. The shares have jumped 21 percent in 2009. Yahoo, up 41 percent this year, added 22 cents to $17.22.

Abandoned Bid…..

Mortgage Companies Warn of Foreclosures

By Al Yoon

NEW YORK (Reuters) – Companies that service risky residential mortgages are warning U.S. officials that a key program to slow foreclosures may push some financing costs higher and derail their efforts, said a leading subprime firm.

Companies forming the Independent Mortgage Servicers Coalition, service many of the riskiest mortgages made during the housing boom, making them key players in programs to rein in foreclosures. The group collects and distributes payments on more than $700 billion in loans, according to its leader, Carrington Mortgage Services of Santa Ana, California.

Their concerns about financing payments for defaulted homeowners comes as pressure mounts from Congress, regulators and state legislators for servicers to do more for the plan, which aims to slow foreclosures and modify loans. The U.S. Treasury wants the companies to spend more on its resources, including hiring staff and expanding training programs.

At least four servicers from the coalition were among the 25 meeting with the Treasury on Tuesday, where new commitments were forged to increase foreclosure prevention efforts under President Obama’s Home Affordable Modification Program.

But manpower isn’t the main worry for the independent servicers, which don’t include large banks such as Wells Fargo & Co. Implementing the program means giving delinquent homeowners more time fix their loans, which to servicers will the boost costs of extending payments to investors as contractually promised.

Matching costs of servicing to public policy is growing increasingly difficult, said Bruce Rose, chief executive officer and general partner of Greenwich, Connecticut-based Carrington Capital Management, LLC, which owns CMS. Rose attended the meeting with Treasury.

“We are in a position where it’s a very tough balance act, and that’s weighing heavily on us now,” said Rose, in an interview on Monday. “This is a classic case of an unfunded government mandate.”

The costs of borrowing to finance delinquent payments to bond investors far outweigh expected revenue from incentives paid by the government, Rose said. The government will pay servicers $1,000 for every loan modified, and another $1,000 a year for three years if the borrower stays current.

The group since September has approached the Treasury, the Federal Reserve and Congress for help in funding the temporary “advances” that are fully reimbursed when a loan is modified or foreclosed, Rose said. Help offered through the Fed’s Term Asset-Backed Securities Loan Facility (TALF,) which allows for the pooling of advances for sale to investors, has backfired, and is increasing financing costs, he said.

The coalition — which has included Ocwen Financial Corp (OCN.N), GMAC-RFC, and Fortress Investment Group’s (FIG.N) Nationstar Mortgage — also tried unsuccessfully to arrange liquidity via the Troubled Asset Relief Program in 2008. GMAC-RFC is no longer a member, a spokeswoman said.

Standard & Poor’s this month delivered a blow to Carrington and other potential issuers of TALF-eligible bonds backed by servicing advances, by sharply discounting the value of the assets that would go into the deals, Rose said. For Carrington, that would mean just 64 cents of every dollar in assets would garner a AAA rating, the blessing required for inclusion in a TALF deal……

Mortgage Applications Drop 6.3%

CHICAGO (MarketWatch) — Mortgage applications fell 6.3% last week from the prior week as refinancing demand ebbed, the Mortgage Bankers Association said Wednesday.

Applications for home-purchase mortgages held steady in the week ended July 24, the trade group said.

Seasonally adjusted refinancing applications fell nearly 11% as filings to refinance existing home loans accounted for 52.6% of total applications, down from 55.5% the week before. The seasonally adjusted purchase-mortgage index was unchanged from the week ended July 17.

On an unadjusted basis, mortgage applications are running 16.1% above their levels a year ago, the Washington-based MBA’s data showed. The weekly survey covers about half of all U.S. retail residential mortgage applications.

The average contract rate for a 30-year, fixed-rate loan increased to 5.36% in the latest survey from 5.31% in the prior week. See more on rates in MBA data for the July 17 week.

The mortgage-purchase trend is supported by other recent data showing home sales rising and home prices stabilizing. Read more on the latest figures for new-home sales. See how housing prices rose in May for the first time in 34 months.

AAPL Rejects GOOG Phone Apps

AAPL reportedly has rejected Google Voice as an iPhone application.

The Techcrunch blog said Monday that Apple (NASDAQ: AAPL) won’t let Google (NASDAQ: GOOG) offer its Internet phone service through the iPhone App Store.

Other bloggers are pointing at Apple’s exclusive iPhone carrier in the U.S., AT&T Inc. (NYSE: T), as the party responsible for the rejection.

That’s because Google Voice offers for free some features that compete with services that AT&T charges for.

Google Voice offers one number for all of a user’s phones, voice-activated features and free U.S. long distance. It’s available by invitation only at this time.

Techcrunch reported that a Google spokesperson offered this comment: “We work hard to bring Google applications to a number of mobile platforms, including the iPhone. Apple did not approve the Google Voice application we submitted six weeks ago to the Apple App Store. We will continue to work to bring our services to iPhone users — for example, by taking advantage of advances in mobile browsers.”

Apple previously rejected Google Latitude, the location-based tool that lets users see where their friends are, from the iPhone store.

But as it did in that situation, it is expected that iPhone owners will be able to download Google Voice from the Web. It won’t work as seamlessly and may not be able to use all of the features, however.

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Scrolling Headlines From Yahoo in Play

S

OVERLAND PARK, Kan. (TheStreet) — Sprint Nextel (S Quote) reported a second-quarter loss of $384 million, or 13 cents a share, wider than a year-earlier loss of $344 million, or 12 cents a share, as wireless revenue dipped by about 9%.

Total revenue for the third-largest wireless provider was $8.1 billion, down from $9.06 billion a year earlier. Wireless revenue was $7 billion vs. $7.74 billion in the same quarter of 2008. Sprint said total wireless customers declined by about 257,000 in the second quarter.

Analysts surveyed by Thomson Reuters estimated Sprint would post a loss of 2 cents a share on revenue of $8.12 billion.

Sprint announced Tuesday a plan to buy Virgin Mobile USA for $483 million in an effort to increase its prepaid cellphone services.

—Reported by Joseph Woelfel in New York.

TWX

NEW YORK (AP) — Media conglomerate Time Warner Inc. said Wednesday its second-quarter profit shrank 34 percent as revenue dropped in the company’s publishing, movie and online properties.

But the New York-based company affirmed its full-year adjusted earnings projection of roughly $1.98 per share, or flat year-over-year.

Time Warner, which owns the Warner Bros. movie studio, the HBO and Turner cable networks, Time Inc. magazines and the AOL Internet portal, earned $519 million, or 43 cents per share, in the three months ended in June. That’s down from $792 million, or 66 cents per share, a year earlier.

Last year’s results include earnings from its recently spun-off cable unit. Earning from continuing operations, which exclude results from Time Warner Cable, fell 8 percent.

Excluding items, the company said it would have earned 45 cents per share in the most recent quarter.

Revenue fell 9 percent to $6.81 billion.

Analysts, who typically exclude items, expected earnings of 37 cents per share on sales of $6.97 billion, according to a Thomson Reuters survey.

WLP

NEW YORK (Reuters) – Health insurer WellPoint Inc (WLP.N) posted a 7.6 percent drop in net income on Wednesday, but the results topped analysts’ forecasts as its programs for the elderly improved their performance.

Net income at the largest U.S. health insurer by membership fell to $693.5 million, or $1.43 per share, from $750.5 million, or $1.44 per share, a year earlier.

Excluding net investment losses, earnings of $1.50 a share were 7 cents ahead of the analysts’ average forecast, according to Reuters Estimates.

WellPoint joins a string of U.S. health insurers that reported better-than-expected results this earnings season.

The company’s revenue slipped 1.4 percent to $15.27 billion, below the $15.41 billion expected by analysts.

Its enrollment stood at 34.2 million at the end of June, down 3 percent from a year earlier. Widespread job losses have pressured the employer-based enrollment of WellPoint and other health insurers.

Operating profit in WellPoint’s consumer business soared 67.7 percent, primarily stemming from operating improvements in its seniors business.

WellPoint spent 82.9 percent of its premium revenue on medical costs, down from 83.3 percent a year earlier. The company now expects medical costs to amount to about 82.9 percent of premium revenue for the year, up from its prior view of about 82.7 percent. The measure is closely watched by Wall Street as a gauge of profitability.

The company projected 2009 earnings of $5.06 to $5.12 per share, including net investment losses of 54 cents, which is equivalent with its prior outlook.

DAI

By Chris Reiter

July 29 (Bloomberg) — Daimler AG, the world’s second- largest maker of luxury cars, forecast a “gradual improvement” in operating profit after posting a third consecutive quarterly loss as the recession hurt sales of its Mercedes-Benz models.

The net loss was 1.06 billion euros ($1.5 billion), or 99 cents a share, compared with a profit of 1.4 billion euros, or 1.40 euros, a year earlier, the Stuttgart, Germany-based company said today in a statement. The loss was narrower than the 1.14 billion-euro median loss estimate of seven analysts surveyed by Bloomberg News. Revenue fell 25 percent to 19.6 billion euros.

Daimler rose as much as 5.6 percent in Frankfurt trading. Government-funded rebates in Germany, France and Italy have helped stem sales declines this year after industrywide deliveries in Europe dropped the most in 15 years in 2008. Mercedes-Benz’s share of the European auto market, its biggest, slipped to 4.1 percent in the first half of 2009 from 4.5 percent a year earlier as the incentives helped mass-market producers more than luxury manufacturers.

“We succeeded in improving earnings in the second quarter compared with the first” at the car and van operations and financial-services units, and Daimler “on the right track,” Chief Executive Officer Dieter Zetsche said in the statement. “However, a comparison with the very good second quarter of last year shows that there is still a lot of work to be done.”

The pace of the decline slowed to 5 percent in June, allowing Daimler to increase production rates. The company has 41,000 employees working at least 10 percent fewer hours, compared with 68,000 workers in April. Daimler said in April that the Mercedes-Benz Cars unit, which also makes the two-seat Smart, will return to profit in the second half after a new- version E-Class sedan went on sale late in the first quarter.

Chrysler Withdrawal…..

SNY

Sanofi-Aventis /quotes/comstock/13*!sny/quotes/nls/sny (SNY 33.44, +0.57, +1.73%) /quotes/comstock/23r!psan (FR:SAN 46.92, -0.05, -0.11%) said its profit rose 5% to 1.06 billion euros ($1.5 billion), with sales up 11% to 7.44 billion euros.

Excluding 590 million euros for restructuring items and for various charges relating to the company’s acquisition of Aventis, the company would have reported a 29% profit rose to 2.27 billion euros, or 1.74 euros a share.

Analysts polled by Dow Jones Newswires had expected a profit of 2.08 billion euros on sales of 7.29 billion euros.

Lantus sales grew 26% at constant exchange rates during the quarter to 792 million euros.

The drug has come under the fire after an article in Diabetologia in June said there was a potential link between Lantus and cancer. The company has hotly denied that accusation and said there were limitations to the study….

NSANY

TOKYO (MarketWatch) — Japan’s Nissan Motor Co. /quotes/comstock/!7201 (JP:7201 626.00, +10.00, +1.62%) /quotes/comstock/15*!nsany/quotes/nls/nsany (NSANY 13.19, +0.20, +1.54%) on Wednesday posted an operating profit of 11.6 billion yen ($122.9 million) for the April-June quarter, down from a profit of 80 billion yen in the year-ago period, but above a consensus estimate for a loss of 117 billion yen in a Thomson Reuters poll of analysts. Still, the nation’s third-largest car maker said it had a group net loss of 16.5 billion yen in the quarter, swinging from a year-ago profit of 52.8 billion yen. However, it maintained its full-year forecast for a net loss of 170 billion yen.

HMC

Honda’s consolidated net income attributable to Honda Motor Co., Ltd. for the fiscal first quarter ended June 30, 2009 totaled JPY 7.5 billion (USD 79 million), a decrease of 95.6% from the same period in 2008. Basic net income attributable to Honda Motor Co., Ltd. per common share for the quarter amounted to JPY 4.17 (USD 0.04), a decrease of JPY 91.39 from JPY 95.56 for the corresponding period last year. One Honda American Depository Share represents one common share.

Consolidated net sales and other operating revenue (herein referred to as “revenue”) for the quarter amounted to JPY 2,002.2 billion (USD 20,854 million), a decrease of 30.2% from the same period in 2008, primarily due to decreased revenue in the automobile business and unfavorable currency translation effects. Honda estimates that if calculated at the same exchange rate as the corresponding period in 2008, revenue for the quarter would have decreased by approximately 20.7%.

Consolidated operating income for the quarter totaled JPY 25.1 billion (USD 262 million), a decrease of 88.0%, due primarily to decreased profit attributable to decreased revenue, the increase in fixed costs per unit as a result of reduced production and the unfavorable impact of currency effects caused by the appreciation of the Japanese yen, despite decreased SG&A expenses and R&D expenses and continuing cost reduction efforts.

Consolidated income before income taxes and equity in income of affiliates for the quarter totaled JPY 5.4 billion (USD 57 million), a decrease of 97.6% from the same period in 2008.

Equity in income of affiliates amounted to JPY 14.2 billion (USD 148 million) for the quarter, a decrease of 62.7% from the corresponding period last year.

Financial Highlights….

LAZ

NEW YORK–(BUSINESS WIRE)–Lazard Ltd (NYSE:LAZ – News) today announced financial results for the second quarter and first half ended June 30, 2009. Net income^(c) on a fully exchanged basis was $43.1 million, or $0.34 per share (diluted), for the second quarter of 2009, compared to $64.6 million, or $0.54 per share (diluted), for the second quarter of 2008, and compared to a net loss of $(29.7) million, or $(0.26) per share (diluted), for the first quarter of 2009. Net income on a fully exchanged basis was $13.5 million, or $0.11 per share (diluted), for the first half of 2009, excluding a $62.6 million pre-tax charge during the first quarter of 2009, compared to $80.5 million, or $0.71 per share (diluted) for the first half of 2008.

On a U.S. GAAP basis, which is before exchange of exchangeable interests, net income was $28.2 million, or $0.34 per share, for the second quarter of 2009, compared to $34.3 million, or $0.54 per share, for the second quarter of 2008. Net loss was $(25.3) million, or $(0.36) per share (diluted), for the first half of 2009, including the first-quarter pre-tax charge, compared to net income of $42.1 million or $0.70 per share (diluted) for the first half of 2008.

Lazard believes that results assuming full exchange of outstanding exchangeable interests provide the most meaningful basis for comparison among present, historical and future periods.

Comments

MT

By ALEX MACDONALD

LONDON — ArcelorMittal, the world’s largest steelmaker by volume and revenue, Wednesday swung to a larger-than-expected second-quarter net loss, partly due to an exceptional pretax charge of $1.2 billion, but said it expects to deliver better profits in the third quarter as production increases and raw-material costs decrease.

The Luxembourg-based steelmaker posted a net loss of $792 million in the three months to June 30 after a net profit of $5.84 billion in the year-earlier period. This was wider than analysts’ expectations of a net loss of $385 million, according to a Dow Jones Newswires poll of seven analysts. The net loss was impacted by an exceptional charge related to inventory write-downs and work-force reductions.

Second-quarter earnings before interest, taxes, depreciation and amortization, or Ebitda, of $1.22 billion was 85% below $8.05 billion a year ago but 38% higher than $883 million in the first quarter. The figure was broadly in line with analysts’ expectations of $1.23 billion, according to a poll of 10 analysts.

The steelmaker said that in the third quarter, it expects its closely-watched Ebitda to rise to between $1.4 billion to $1.8 billion on increased steel output and stable to slightly lower average selling prices.

Second-quarter revenue fell 60% to $15.2 billion from $37.8 billion in the same period a year ago.

Lakshmi Mittal, chief executive and chairman of ArcelorMittal, said “In recent weeks we have started to see some initial signs of recovery, as a result of which we are now planning to re-start production at some facilities. Provided there are no further unexpected economic deteriorations, we should see continued gradual improvement throughout the second half of the year, with full recovery remaining slow and progressive.

ArcelorMittal’s shares fell 4.3% or 1.15 to €25.33 a share Tuesday in Amsterdam on profit-taking ahead of the results. They are up 49% since the beginning of the year as steel prices and production have picked up and the company has taken steps to strengthen its balance sheet amid the economic downturn.

MCO

NEW YORK (MarketWatch) — Moody’s Corp /quotes/comstock/13*!mco/quotes/nls/mco (MCO 27.62, +0.87, +3.25%) said Wednesday that its second quarter profit fell to $109.3 million, or 46 cents a share, compared to $135.2 million, or 54 cents a share a year ago. Revenue fell to $450.7 million, from $487.6 million a year ago. Analysts polled by Thomson Reuters had expected the company to earn 40 cents a share in the second quarter. Moody’s Chairman and Chief Executive Raymond McDaniel said in a press release Wednesday, “We are raising our full-year 2009 EPS guidance to $1.45 to $1.55 based on first half performance; however, we remain cautious about business conditions for the remainder of the year.”

WYN

NEW YORK (MarketWatch) — Wyndham Worldwide Corp. /quotes/comstock/13*!wyn/quotes/nls/wyn (WYN 12.70, +0.03, +0.24%) said Wednesday that its second-quarter profit was $71 million, or 39 cents a share, compared to $98 million, or 55 cents a share in the year-ago period. Net revenues were $920 million compared to $1.13 billion in the second quarter of 2008. On an adjusted basis, the hospitality company said earnings were 41 cents a share. Analysts surveyed by FactSet Research had expected, on average, earnings of 37 cents a share on revenue of $920 million. The latest quarter is the sixth in a row that Wyndam’s earnings have beaten consensus estimates.

Comments »

Where are we going ?

“The Fed’s credibility has been tarnished by the easy credit policies it pursued and the lax regulatory oversight that let institutions ratchet higher their balance sheet leverage and amass huge concentrations of risky, complex securitized products…”William Donaldson, Arthur Levitt, Investors’, Working Group Report on Systemic Risk Regulation

For excellent reasons, Messieurs Donaldson and Levitt, former Chairmen of the S.E.C. (and establishment figures par excellence), recently recommended that the private for-profit U.S. Federal Reserve NOT be The Systemic Risk Regulator, contrary to the unwise Obama administration proposal.

Indeed Investors world-wide have suffered greatly and continue to be at great Risk due precisely to reckless (or planned, as the evidence we set forth in “Coping with the Superpower-Cartel Threat!” 1/30/2009 in the ‘Articles by Deepcaster’ cache at www.deepcaster.com indicates) Fed-led Cartel* Policies and Actions.

Clearly The private for-profit Fed’s favored Mega-Banks (think Goldman Sachs and JP Morgan Chase) and, perhaps, its shareholders, have been the Main and virtually only substantial Beneficiaries of the U.S. Taxpayer-funded Bailouts.

This does not bode well for the Economy or The Markets.

Consider:

1. The financial health of the U.S. Consumer/Taxpayer and, often, mortgage holder (“Households”)  — who is 70% of U.S. GDP, is worsening, with no relief in sight.
2. Real U.S. Unemployment is at 20.6% and rising (shadowstats.com)
3. The Bailouts and Stimulus Bills help mainly the Mega-Financial Institutions, and not the aforementioned Households who are, we reiterate, 70% of GDP.
4. Trillions are being added to the U.S. Budget deficit, National Debt and downstream unfunded liabilities. The money is being borrowed under great duress by the U.S. Taxpayers at interest from the private for-profit U.S. Federal Reserve which prints it for free. Obviously, this Multi-Trillion Dollar debt (counting unfunded downstream liabilities, now approaching $70 Trillion) can never be repaid without degrading and ultimately likely destroying the U.S. Dollar.
5. Degradation of the U.S. Dollar over the next very few years entails degradation of the Purchasing Power of those who Invest, earn and save, and especially of retirees.
6. This Dollar destruction process is also resulting in the Stealthy (and recently not so stealthy) transfer of wealth to the Mega-Financial Institutions (Think Goldman Sachs and JP Morgan Chase), much to the detriment of nearly everyone else in the world including Regional, State and local bankers.
7. Hundreds of billions in Adjustable Rate Mortgages will reset in the U.S. in the next two years adding to credit woes.
8. We expect to be hit with a major Northern Hemisphere Swine Flu Epidemic this Coming Winter.
9. “One thing certain today is that the first wave of millions of unemployed people no longer entitled to (unemployment – ed.) insurance benefits will hit the U.S. between July and September, 2009 – other waves are following” Leap 2020.eu
10. The U.S. Government (Taxpayers) have already devoted $4.7 Trillion in Bailouts to help the Financial Sector and the U.S. A.’s maximum Bailout Exposure could hit $23.7 Trillion according to Special Inspector General Neil Barofsky.

…just to list a few Fundamental Realities.

Therefore, in our view there are thus only two reasonably likely scenarios for Equities through the rest of 2009, and beyond.

The least likely is that The Cartel* engineers a Flat or, more likely, a choppy Market phase for the next two to three years. The Cartel* would do this because the “political heat” was too intense, with the “Audit The Fed” and “Abolish the Fed, U.S. Treasury Instead”, movements becoming justifiably ever stronger. But Fundamental Realities militate against this scenario. Even The Cartel would have a hard time pulling this off.

But, the more likely scenario is that The Cartel* continues to implement its ‘End Game’ plans. This would provide The Cartel the opportunity to further consolidate its Power by (just to mention one component of this plan) instituting several Regional or a ‘One World’ Currency and in the process weakening or destroying the National Sovereignty of major nations. For more details about the ‘End Game’ and the implication for equities see “Coping with the Superpower-Cartel Threat!” (1/30/2009) at www.deepcaster.com in the ‘Articles by Deepcaster’ cache, and Deepcaster’s August, 2009 letter in the ‘Latest Letter’ cache for details.

It is important to consider the Prospects for Gold and Silver in light of implementation of The Cartel ‘End Game’ because Gold and Silver are legitimately the ‘Safe Haven’ assets in troubled times such as these.

In our view, were the Gold (and Silver) Markets truly free, Gold would already be at least $2,400/oz (the approximate inflation-adjusted 1980 high).

But the fact that Gold is not already at least $2,400/oz (given the foregoing disastrous Realities and Prospects) testifies to the fact that The Cartel still effectively controls Paper Gold and Silver prices, unfortunately.

Most readers are aware of clear and convincing evidence for Cartel* manipulation of the Precious Metals and other Markets, but those who are not should consider the following note:

*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2009 Letter entitled  “A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques – II” in the “Latest Letter” Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”

Those interested in what the Fundamentals, Technicals, Interventionals and Political Realities (the four great determinants of Precious Metals prices) tell us about the likely price performance for the Precious Metals for the rest of 2009 should read Deepcaster’s August, 2009 ‘Forecasts and Portfolio Strategy Letter’ which can be found in the ‘Latest Letter’ cache at www.deepcaster.com.

Unfortunately, as much as it aggravates us to say it, all indications are that The Cartel still exercises substantial control over the paper Gold and Silver Market Prices.

Moreover, in our view the only way to be sure one actually owns Gold and Silver is to buy physical Bullion and Coins and take possession yourself.

One reason to take physical possession yourself is because it is doubtful whether many Gold and Silver ETFs actually possess the Precious Metals they say they do, as Eric de Carbonnel points out:

“1) GLD does not allow redemptions of its gold bullion

GLD’s failure to allow redemptions in gold is suspicious. In fact, only two gold ETFs worldwide allow redemptions in gold, and both of them are located in Switzerland: Gold ETF from Zurich Kantonalbank (ZKB) and Julius Baer (JBGOUA).

Michael Pennington makes this point effectively in his article WHY I BELIEVE THE GOLD AND SILVER ETF’S ARE SCAMS:

‘The most important aspect of investing in gold and silver is to take possession of your physical metal. When these ETF’s were created, they made it impossible for any investor to take possession of their gold or silver. This should be a major red flag alone.’ ”

Risks in owning GLD
Eric deCarbonnel, Market Skeptics, February 22, 2009

Enough said!

Further Testimony to The Cartel’s Power is the fact that, as we have documented repeatedly, U.S. T-Note and T-Bond prices (and therefore interest rates) can be managed by some $418 Trillion (as of December, 2008) in OTC dark Interest Rate Derivatives Contracts as publically revealed by the Ultimate Official Source itself – The Central Banker’s Bank – The Bank for International Settlements in Basel, Switzerland (see www.bis.org, Path: Statistics > Derivatives > Table 19).

Clearly, the ten year U.S. Treasury Note and 30 year U.S. T-Bond are The Pride and Joy of the Fed-led Cartel.

Indeed, The Cartel can not afford to let long rates go too high (e.g. over 4% on the ten year) for fear of really wrecking the Mortgage Market and broader Economy as well.

Neither can they let long rates go too high (i.e. allow long Notes and Bonds to become too weak) for fear of further delegitimizing their paper Treasuries and thus further legitimizing Gold and Silver as the Ultimate Stores and Measures of value.

In sum, the U.S. Dollar is likely doomed (by the Dollar destructive policies of the private for-profit Fed) to collapse in the long-term.

But The Cartel can not afford to implement their ‘End Game’ scheme (one component of which apparently involves eventually destroying the U.S. Dollar) too quickly, lest they generate increased heat from the U.S. Congress (in the form of support for Audit The Fed and Abolish The Fed bills) – heat which might interrupt the ongoing implementation of their entire nefarious “End Game”. See “Coping with the Superpower-Cartel Threat!” (1/30/2009) at www.deepcaster.com in the ‘Articles by Deepcaster’ cache.

Indeed as Professor Antal Fekete points out, the very structure of the private for-profit Fed/Treasury Securities Regime (which involves the U.S. Taxpayer paying interest to the Fed on money the Fed prints for free) involves a Stealth-Wealth transfer from Investors and Nations to the Mega-Bankers of The Cartel.

Arguably a $13 Trillion transfer occurred in the six months from June, 2008 to December, 2008, while Investors were losing trillion in the Equities Markets Crash. During that six months period the Market Value of the Total OTC Derivatives Contracts increased by over $13 Trillion! See “Opportunities & Threats in Derivatives Shocker” (05/29/2009) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com. Follow the money!

Further, consider Professor Fekete’s brilliant observation on what is, in effect, financial and monetary Perfidy.

“Paying U.S. bonds at maturity in Federal Reserve notes (i.e. U.S. Dollars) does not establish redeemability. The latter is just evidence of debt secured by the former as collateral revealing that bonds are not really redeemable at all. An interest-bearing bond is replaced by a non-interest-bearing bond, that is, by an inferior instrument (i.e. the Federal Reserve Notes – ed.). All you do is shuffle various forms of irredeemable debt. When the world wakes up to this prestidigitation, the international monetary system will not be able to survive the shock-waves. The chaos that will engulf the world is appalling.

The solution is relatively simple. The world’s monetary gold should be remobilized. This can be accomplished by opening the U.S. Mint to the free and unlimited coinage of gold. There should be no attempt to fix, cap, or otherwise control the dollar price of gold.”

Open letter to Paul Volcker
Professor Antal Fekete, San Francisco School of Economics

So, how do nations, and Individual Investors cope with this Perfidy?

First, we must briefly describe how the Fed-led Cartel’s Interventional Regime apparently operates. Then we will provide guidelines to help overcome Cartel Advantages.

Considering Gold and Silver, it is becoming ever more widely known that, The Cartel* regularly intervenes to drive down prices of Gold and Silver in the market. These Precious Metals are the primary targets of The Cartel’s interventions because they legitimately compete with The Cartel’s Fiat Currencies and Treasury Securities as Measures and Stores of Value.

As well it is becoming increasingly apparent that The Cartel regularly intervenes in the Equities and Strategic Commodities Markets. Reflecting the acknowledgment of massive ongoing overt and covert intervention, no less an authority than the Dean of the Newsletter writers Richard Russell recently finally acknowledged:

“This government will stop at nothing, even including manipulation. What the Fed does not want is a swooning stock market, surging Gold, or sinking bonds.”

Richard Russell, 05/06/09
www.lemetropolecafe.com

Deepcaster entirely agrees with Richard Russell’s recent conclusion, (and, indeed has been writing about these Interventions for several years now), but we would add one addendum. The evidence is overwhelming that Covert (as well as Overt) manipulation in all aforementioned sectors has been ongoing for several years. It is not just a recent phenomenon. Confirming this view, the Secretary-Treasurer of the Gold Anti-trust Action Committee (www.gata.org), Chris Powell, has written an excellent comprehensive article “There are No Markets Anymore, Just Interventions.”

Fortunately, Deepcaster has developed a Strategy for Profiting from Gold and Silver despite Cartel Interventions. The highlights of that Strategy are laid out at the end of this article.

But before laying out The Strategy, it is important to identify key Cartel Advantages so we are in a better position to surmount them for Profit and Protection.

1. One considerable advantage of the Fed-led Cartel is that thus far it ultimately controls, de facto, the structure and regulation of the financial markets and the character and pace of economic activity. Allowing The Fed to be the Systemic Risk Regulator would only solidify their Control!

In recent years, The Private-For-Profit Fed’s policy of facilitating excessive borrowing, excessive Monetary Expansion, and the creation of hundreds of trillions of dollars in notional value of Over-The-Counter (dark) derivatives has been the Primary Cause of today’s Financial and Economic Crises.

Specifically, the Excessive Monetary and Credit expansion, and proliferation of Trillions of Dollars of unregulated (dark derivatives), were the Primary Cause of the financial market and economic Crises and the credit freeze-ups which first became evident in 2008.

In this regard, see Deepcaster’s article “Opportunities to Escape Paper ‘Wealth’ ” (11/07/2008) sets forth detailed Guidelines designed to help avoid the 401(k) devaluation or freeze up problems. It can be found in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.

2. A second major advantage which the accrues to The Cartel and its Favored Financial Institutions, is their access to Dark Pools of liquidity. These are de facto “Private Markets” which are opaque, and generally unregulated, and in which hundreds of billions in securities and derivatives are traded. These Dark Pools include “Project Turquoise” and “Baikal.”

According to the Bank for International Settlements (The Central Bankers’ Bank), the total notional value of OTC (i.e. Over-the-Counter, private, not exchange traded and thus “dark”) Derivatives of December, 2008 was 592 Trillion U.S. Dollars. (See www.dis.org — path > statistics > derivatives > table 19ff.) When one consider that The Fed has taken “only” about $2.2 Trillion of Toxic Derivatives onto its Balance Sheet one realizes that there is considerably more potential for system-threatening toxicity. Needless to say these Dark Markets allow all sorts of chicanery to exist, because there are few public records to scrutinize or any public reporting of trades in certain sectors.

So much for the Fiction of the Markets providing a level playing field, fair and open to all participants, in which price is determined by public trading at prices known to all. More details regarding this topic can be found in “Protecting & Profiting From the Dark OTC Derivatives Contagion” (10/24/2008) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.

3.A third substantial Cartel advantage is the ability to manipulate and/or manufacture Key Statistics. Key Official Statistics are often far removed from the Realities of the economy and market place. For example, consider the latest Official Numbers versus the Real Numbers thanks to Shadow Government Statistics.

Official Numbers      vs.      Real Numbers

Annual Consumer Price Inflation
-1.4%                            6% (annualized June Rate)
Shadow Government Statistics report July 15th, 2009

U.S. Unemployment
9.5%                              20.5%
Shadow Government Statistics report July 13th, 2009

U.S. GDP Annual Growth/Decline
-2.5%                            -5%
Shadow Government Statistics report June 25th, 2009

All the above Real Numbers are calculated by Shadow Government Statistics the old-fashioned way i.e. with the methods used before the official gimmicking of these numbers, which began in the 1980’s and 1990’s. See www.shadowstats.com Alternate Data

4. The Fourth Advantage relates to the Favored (versus disfavored) Financial Institutions — the so-called Legacy Banks or Mega-Banks, which are well connected to The Fed-led Cartel. Because of their size and connections (some of them are The Fed’s Primary Dealers and, likely, some are also the private for-profit Fed’s own shareholders!) they are in a vastly superior position compared to medium size or small size institutions.

In addition, they have been “bailed out” by the US Taxpayers (with money, we reiterate, that the taxpayers borrow at interest from private for-profit The Fed which prints it for free out of thin air or with a few keystrokes). But given their dominant position, certain Major Financial Institutions can and are starving the medium and smaller ones of credit. This will allow the Mega Banks to acquire them and their performing assets(!) for just pennies on the dollar.

Indeed, this phenomenon bears an eerie resemblance to the Depression-era 1930’s, when assets were scarfed up ‘on the cheap’ by the major financial institutions.

The starvation of the credit is not limited to mid-sized and smaller Financial Institutions, but extends to investors and taxpayers as well.  They have increasing difficulty getting credit; or if they can get credit, find it provided at usurious rates.

There is thus increasing evidence that this is a conscious policy (which is a component of the Cartel “End Game” as we call it) – to acquire the assets of small investors and institutions cheaply and for the benefit of the big international institutions, some of which, we reiterate, are likely owners of the Private-For-Profit U.S. Federal Reserve. The reader is invited to examine the evidence in “Investor Advantage — Revisiting the Cartel’s ‘End Game’ ” (3/6/09) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com. Thus, we apparently have a replay of the 1930’s all over again. A very few get wealthier; the vast majority (including most investors and savers) are impoverished.

5. A Final Cartel Advantage essential to Note — the ability to create unlimited quantities of Fiat currencies. The vast amount of monetary creation by The Fed in recent years (ranging from above 8% to over 16% annualized since 2006, see Shadowstats.com’s Alternate Data) coupled with the multi-trillion dollar U.S. deficit and the downstream unfunded future liabilities of the U.S. government/Taxpayer (approaching $70 trillion plus and climbing), eventually spells doom for the U.S. dollar as well as hyperinflation for the consumer.

Indeed the debasement of the U.S. dollar has already begun – it has dropped over 30% in the last few years, basis the USDX.  This debasement is, in effect a Stealth Tax on the US consumer and U.S. Dollar Holders world-wide. To recapitulate the Money Supply facts, Shadow Government Statistics money supply (M3) growth at about 8% (at the beginning of 2006) contrary to official figures, which reported 4.5%. In March 2006, The Fed stopped releasing M3 figures and shortly thereafter M3 began to shoot up to 16% in 2008 and then back down to still-substantial 6.5% as we write. Whether an 8% or 16%, this staggering rate of monetary inflation necessarily entails substantial price inflation (because, inter alia, it greatly exceeds GDP growth). Indeed it eventually entails hyperinflation.

So how can average investors and taxpayers surmount these challenges? Deepcaster has developed A Strategy for Profit and Protection with Gold and Silver in spite of the Interventions. We lay out the Highlights of that strategy here (further details are available in the article “Defeating the Cartel… With Profit” (3/28/09) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com).

A Strategy for Profit and Protection

Normally, (that is to say, in a Genuine Free Market situation) the go-to “Safe Haven” Assets in times of Financial Crisis would be the Precious Monetary Metals Gold and Silver, as well as other assets such as Strategic Commodities.

We say “normally” because nearly every time yet another Financial Market Crisis has come prominently into the public eye in recent years The Cartel* of Central Bankers has successfully taken down the price of what would normally be The Safe Haven Assets – – the Precious Monetary Metals.  A prime example occurred during the much-publicized demise of Bear Stearns in March, 2008, which was accompanied by a vicious Takedown of Gold and Silver.  In a non-manipulated Market, given the fact that Bear Stearns reflected great and increasing weaknesses in the Financial System, Gold and Silver should have skyrocketed.  But instead they were dramatically taken down.

Yet, the late 2008 – early 2009 Crises appear to be different.  Gold launched from the mid $700s/oz. to around $900/oz. during September, 2008, fell back to the low $700s and then launched again toward $900 in December, 2008 and has actually exceeded $900 several times in 2009.

So the question now, at the end of July, 2009, is it different this time around?  Have Gold and Silver finally thrust off the shackles of Cartel Intervention?   Or will The Cartel be able once again to cap and take down the prices of these Precious Monetary Metals and Strategic Commodities?   Deepcaster has addressed this question in a Forecast he recently issued for the likely fate of Gold, Silver, Crude Oil & the U.S. Dollar in his August Letter in the ‘Latest Letter’ cache at www.deepcaster.com.

One thing is certain: The Cartel will certainly attempt again to take down Gold, Silver and Crude Oil at the earliest opportunity because the Strategic Commodities and Precious Monetary Metals are Competitors as Stores and Measures of Value with the Central Bankers’ Treasury Securities and Fiat Currencies.

Yet there is a Strategy which accommodates Cartel Interventional attempts and at the same time provides excellent Profit Opportunities, whether the Interventional attempts are successful or not.

A major premise of The Strategy is that one can certainly remain a Hard Assets Partisan (as Deepcaster is) while at the same time insulating oneself somewhat from future Takedowns.  The following points provide an outline of The Strategy (particularly as applied to the Gold and Silver Markets) and are designed to help avoid Portfolio unpleasantness, or even possible financial ruin, in the future, as well as to profit along the way:

1. Recognize that The Cartel is still Potent, as difficult as that may be psychologically for Deepcaster and other Hard Asset Partisans to acknowledge.  The Cartel is still the Biggest Player in many markets and, if the timing and market context are propitious, the Biggest Player makes Market Price.  In addition, The Cartel has the advantage of de facto controlling the structure and regulation of various marketplaces and that is a tremendous advantage; just as the Hunt Brothers years ago discovered much to their dismay and misfortune, when they tried to corner the Silver Market.
2. Accumulate Hard Assets near the Interim Bottoms of Cartel- induced Takedowns.
3. In order to know when one is likely near the bottom of a Cartel-generated takedown, it is essential to take account of the Interventionals as well as the Technicals and Fundamentals.  Monitoring to the Interventionals facilitated Deepcaster recommending five short equities positions as of early September (just before the Fall Crash) all of which we subsequentially recommended be liquidated quite profitably.
4. For example, regarding Gold & Silver, near such Interim Bottoms, accumulate a combination of the Physical Commodity (Deepcaster prefers “low premium to melt” bullion coins) and well-managed Juniors with large reserves.  (Deepcaster provides a list of such Junior Candidates in our December 20, 2007 Alert “A Strategy for Profiting from Cartel Intervention” available in the Alerts Cache at www.deepcaster.com.)  The “Physical” and “Juniors” are for holding for the long-term as a Core Position.
5. Then, to the extent one wishes to speculate on the next “long” move, one should buy the major producers or long-term call options on them.  These latter positions are for ultimate liquidation at the next Interim Top and are not for holding for the long-term.
6. However, there will be a time when The Cartel price capping is ineffective and Gold & Silver make record moves upward.  The benefit of this Strategy is that one will likely be long in one’s speculative positions when this happens.
7. Near the next Interim Top, liquidate the long options and majors.  Again, in order to know when we are close to the next Interim Top, it is essential to monitor the Interventionals, as well as Fundamentals and Technicals.
8. Near that Top, sell short or buy puts on Majors.  We re-emphasize the Majors as preferred vehicles for trading positions because such positions are more liquid and tend to be quite responsive to Cartel moves.
9. Near the next Interim Bottom, cover your shorts and liquidate your puts and go long again to begin the process all over again.  We emphasize that it is essential to consider the Interventionals as well as the Fundamentals and Technicals in order to determine the approximate Interim Tops and Bottoms.
10. Finally, Hard Assets Partisans have the opportunity to become involved in Political Action to diminish the power of The Cartel.  It is truly outrageous that the average unsuspecting citizen, and prospective retiree, can and does put his hard won assets in Tangible Assets and/or Retirement Accounts only to have those assets effectively de-valued by Cartel Takedowns and other Cartel actions. This is extremely injurious to many average citizens in many countries who are saving for the rainy day or retirement and have their retirement and/or reserves effectively taken from them.  In order to help prevent this and similar outrages, we recommend taking three steps:

a. Become involved in the movement to Audit and then abolish the private-for-profit U.S. Federal Reserve as Deepcaster, ex-Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all have advocated. The ‘Audit The Fed’ Bill is H.R. 1207 (and has over 280 co-sponsors!); and The Abolish The Fed Bill is H.R. 2755. www.carryingcapacity.org is a nonprofit which strongly supports these bills via its “Abolish The Fed/U.S. Treasury Instead!” Campaign.

b. Join the Gold AntiTrust Action Committee, which works to eliminate the manipulation of the Gold and Silver markets (www.gata.org).  GATA is a non-profit organization, which makes a great contribution by gathering evidence regarding the suppression of prices of Gold, Silver and other commodities.

c. Work to defeat The Cartel ‘End Game.’  Deepcaster has laid out the evidence regarding the Ominous Cartel “End Game.”  Clearly The Cartel is sacrificing the U.S. Dollar to prop up Favored International Financial Institutions and to maintain its power.  But this sacrifice cannot continue forever. See Deepcaster’s July 2008 Letter in the ‘Latest Letter’ Archives at www.deepcaster.com.
If this aforementioned Strategy is employed effectively, it can result both in an increasing Core Position in Gold and Silver, and in considerable profit along the way.

Additional insights and details regarding this Major Strategy, which are essential to profiting from the Fed’s Policies, are laid out in Deepcaster’s article of 3/06/09 entitled “Investor Advantage: Revisiting The Cartel’s ‘End Game’.”

Protection and profit require Proactivity and attention to the Interventionals, Fundamentals and Technicals, not “Buy and Hold.”  “Buy and Hold” rarely succeeds anymore as current market conditions attest.

Indeed, the Key Point of the Strategy for Protection and Profit is careful attention not only to the Fundamentals and Technicals but also to the Interventionals.  These Overt and Covert Cartel-generated Interventions have the power to move markets as those who study the matter can attest.

Thus, the Key to Profit and Protection is a Strategy:  Successful Investors must become Long-Term Position Traders, with their trading choices informed by the Interventionals, as well as the Fundamentals and Technicals. Moreover engaging in the Actions suggested above can help prevent The Cartel’s obtaining Superpower status and aid in achieving protection and profits as well.

“ ‘Perfidy’ – Deliberate beach of faith; calculated violation of Trust” The American Heritage Dictionary

Best regards,

By DEEPCASTER LLC

www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation         Wealth Enhancement

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