Business Headlines
Charge Your Batteries…Here Comes Some Stimulus
The President announced today $2.4 billion in stimulus spending on advanced battery technology spread across 48 different projects. The money will go to a variety of battery makers, tech companies, automakers and Universities.
General Motors appears to be the biggest winner, essentially receiving $392.8 million to advance development of its hybrid plug-in, the Volt. Of that sum, $151.4 million goes to Compact Power, a subsidiary of LG Chem, who is producing batteries for the Volt. The rest goes directly to General Motors.
The other U.S. automakers received considerably less money. Ford gets $40 million, and Chrysler is getting $70 million. Don’t feel too bad for Ford, the company is supposed to receive $5.9 billion in a low cost loan from the DOE.
Nissan’s plan to change the world gets a nice shot in the arm from this go round of government spending. Its partner, Electric Transportation Engineering Corporation is receiving $99.8 million to deploy charging stations in the nine markets–towns in Tennessee, Arizona, California, Washington, Oregon–where Nissan initially plans on selling its electric car at the end of 2010.
The program will help out Nissan, but it will also help turn those parts of the country in electric vehicle hubs. They should have plenty of charging stations and infrastructure in place by the end of next year.
Other notable recipients include A123 and Johnson Controls, who will receive $550 million between them. EnerDel is also going receive $118.5 million.
President Obama announced the funding in Elkhart, Indiana, where unemployment is 16.8%, highest in the country. The emphasis of this spending was on job creation and weaning America off the always hated “foreign” oil. Says Obama in the release, “”If we want to reduce our dependence on oil, put Americans back to work and reassert our manufacturing sector as one of the greatest in the world, we must produce the advanced, efficient vehicles of the future.”
Private matching funds will be spent by each company that receives stimulus money.
Here’s a map of where the money is going, and below that, a list of all the companies and projects.
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U.S. Private Sector Jobs # Raises Questions of Recovery
By Steven C. Johnson
NEW YORK (Reuters) – U.S. private employers cut more jobs than expected last month and the vast services sector contracted again, stoking concern about the strength of a U.S. recovery, data showed on Wednesday.
In addition, U.S. firms planned to increase layoffs in July for the first time in six months, another report showed, increasing investor anxiety about the government’s unemployment report for July due on Friday.
“We’re looking at a U-shaped recovery, which means getting off the bottom is going to be a lot more difficult than people are anticipating in the market,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
Wall Street stocks fell, snapping a four-day winning streak, while the dollar dipped against the Japanese yen but rose against the euro.
American private employers cut 371,000 jobs last month, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC.
That was less than 463,000 cuts in June but above the 345,000 job losses economists had expected for July.
Outplacement consultancy Challenger, Gray & Christmas, Inc. also reported that U.S. firms’ layoff plans in July surged 31 percent compared with June, which had marked a 15-month low.
Labor market strains were evident in the services sector, which comprises 80 percent of U.S. economic output. The Institute for Supply Management said its services index fell to 46.4 last month from 47.0 in June.
Economists had expected the number to rise to 48.0, closer to the dividing line between growth and contraction at 50. The last time the index was above 50 was August of 2008.
“This is not good news for the labor market, given the disappointing ADP reading,” said Richard DeKaser, president of Woodley Park Research in Washington. “These are not good numbers in the same day.”
A Reuters poll of economists predicted Friday’s payrolls report, which includes private and public employment, would show 320,000 job cuts in July, down from 467,000 in June.
The White House said the Labor Department report will show hundreds of thousands more lost jobs in July.
HOUSING HOPES
Recent data has painted a mixed picture of U.S. economic health, with the ISM’s manufacturing index earlier this week showing a slower-than-expected contraction in July.
Investors gleaned a glimmer of hope from a Commerce Department report showing new orders at U.S. factories unexpectedly rose in June, though DeKaser said that was driven by factories “eking out gains due to low inventories.” Continued…
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By Courtney Schlisserman and Shobhana Chandra
Aug. 5 (Bloomberg) — Service industries in the U.S. shrank more than forecast in July, and companies cut another 371,000 jobs, indicating rising unemployment will erode spending.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. ADP Employer Services said companies cut staff last month more than economists anticipated.
The reports signal most of the economy has yet to benefit from government programs, such as the cash-for-clunkers plan, aimed at reviving manufacturing. The highest jobless rate in 26- years, stagnating wages, falling home values and mounting bankruptcies mean consumer spending will be slow to recover.
“There are still plenty of problems out there,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “To declare everything is fine is premature at this stage.”
Stocks dropped after the reports and Treasury securities rose, recovering from earlier losses. The Standard & Poor’s 500 index fell 0.9 percent to 996.90 at 11:58 a.m. in New York. The yield on the benchmark 10-year note was 3.65 percent compared with 3.69 percent late yesterday.
Economists forecast the ISM index would rise to 48, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from 44 to 49.3.
Job Losses
The report from ADP, the world’s largest payroll processor, was projected to show a 350,000 drop in payrolls, according to the median estimate in a Bloomberg survey.
The Labor Department’s July jobs report is due Aug. 7. The U.S. has lost 6.5 million jobs since the recession began in December 2007, the biggest decrease of any economic slump since the Great Depression.
Today’s figures from the purchasing managers at service companies contrasted with a report two days ago from their factory counterparts. The ISM’s manufacturing index rose in July to the highest level in almost a year and its measure of new orders jumped to a two-year high. The gauge showed the factory slump easing over the last seven months.
A report from the Commerce Department today showed orders placed with factories rose 0.4 percent in June, a third consecutive gain, reflecting increases in the value of petroleum bookings and improving demand for goods such as metals and construction equipment.
Services ‘Lagging’
Services are “lagging manufacturing and housing in terms of generating upward momentum,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Demand is improving, but not very significantly. We’ll have to see employment stabilize” in order to sustain a rebound in growth beyond this quarter, he said.
Bruce Kasman at JPMorgan Chase & Co. in New York, and Joseph LaVorgna at Deutsche Securities Inc. have been among economists boosting growth forecasts for the second half of the year as lean inventories and increased car sales revive production.
The Obama administration’s cash-for-clunkers program, which offers as much as $4,500 for trading in older, less fuel- efficient cars, ran through its $1 billion fund in about a week, and Congress is considering adding $2 billion. Auto industry data this week showed sales jumped to an 11.3 million annual pace last month, the highest level since September.
Orders Slow
The ISM non-manufacturing industries employment index fell to 41.5 from 43.4 the prior month, and its gauge of new orders decreased to 48.1 from 48.6. The measure of new export orders slumped to 47.5 from 54.5.
Simon Property Group Inc., the biggest U.S. shopping-mall owner, reported a drop in second-quarter earnings excluding items and a decline in revenue as the recession hurt consumer spending. The Indianapolis-based company yesterday cut its forecast for the year.
“The economic and retail environments remain difficult,” Chief Executive Officer David Simon said on a conference call.
Even companies seeing better times are concerned a recovery will be slow to develop. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, reported last week that it beat second-quarter earnings estimates.
“People are taking shorter vacations and staying closer to home,” Chief Executive Officer Stephen Holmes said in an interview with Bloomberg News after the earnings release on July 29. “We see that shift continuing through the rest of the year. We don’t see this as being a quick rebound.”
Housing, a component of the ISM non-manufacturing index, is one area showing signs of improvement from its worst slump since the 1930s. Construction of single-family houses jumped in June by the most since 2004, figures from the Commerce Department showed last month.
Combined sales of new and existing houses climbed in June for a third consecutive month, reaching the highest since October, figures from Commerce and the National Association of Realtors also showed.
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European Markets Rise on Earnings
By Daniela Silberstein
Aug. 5 (Bloomberg) — European stocks rose as companies from Societe Generale SA to Axa SA posted earnings that beat analysts’ estimates. U.S. index futures fluctuated and Asian shares declined.
Societe Generale, France’s second-largest bank by market value, and Axa, Europe’s second-biggest insurer, climbed more than 4 percent after posting smaller-than-estimated declines in profit. Isuzu Motors Ltd. and Elpida Memory Inc. retreated more than 4 percent in Tokyo after reporting losses.
Europe’s Dow Jones Stoxx 600 Index added 0.9 percent to 229.78 at 12:32 p.m. in London. The gauge has climbed 45 percent since March 9 as companies from Goldman Sachs Group Inc. to GlaxoSmithKline Plc reported better-than-estimated earnings. The Stoxx 600 is valued at 37.5 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.
“There is a strong, synchronized, ‘V’-shaped recovery under way,” Trevor Greetham, director of asset allocation at Fidelity International Ltd., which has $261 billion under management, said in a Bloomberg Television interview. “This is an environment where banks start to look better. We’re going to see a tremendous recovery in profits.”
Standard & Poor’s 500 Index futures added 0.1 percent before reports on employment, service industries and factory orders. The benchmark gauge for U.S. equities yesterday rose for a fourth day as a bigger-than-estimated increase in pending sales of existing homes overshadowed speculation that the market’s five-month rally has made stocks too expensive.
The MSCI Asia Pacific Index fell 1.1 percent today, posting the first back-to-back drop in a month.
SocGen, Axa
Societe Generale climbed 6.1 percent to 49.14 euros. The bank reported second-quarter profit of 309 million euros ($445 million), exceeding the 68 million-euro median estimate of 16 analysts surveyed by Bloomberg.
Axa gained 4.6 percent to 16.01 euros. The insurer said first-half profit dropped 39 percent, less than analysts estimated, and as the company boosted its capital level.
Lloyds Banking Group Plc jumped 13 percent to 94.95 pence. The British lender that acquired HBOS Plc in January said provisions for bad loans will decline “significantly” after it posted a first-half loss of 3.1 billion pounds ($5.2 billion).
UniCredit SpA rose 6.1 percent to 2.36 euros after Italy’s biggest bank reported second-quarter profit that beat analysts’ estimates.
Carlsberg Gains
Carlsberg A/S added 5.2 percent to 388 kroner. The Danish maker of Tuborg and Baltika beer said second-quarter net income rose 37 percent on higher beer prices and improved profitability in Russia, its biggest market.
CSM NV soared 8.2 percent to 13.37 euros. The world’s biggest supplier of ingredients to bakeries posted first-half profit of 36.6 million euros, beating the 23.6 million-euro average estimate of three analyst estimates compiled by Bloomberg.
Henkel AG, the German maker of Loctite glues and Persil detergent, jumped 6.1 percent to 27.06 euros after second- quarter profit more than tripled to 143 million euros.
Adidas AG, the world’s second-largest sporting-goods maker, rose 6 percent to 32.24 euros after second-quarter earnings fell less than analysts had estimated and the company said the second half will show improved business.
Deutsche Boerse Slips
Deutsche Boerse AG declined 6.2 percent to 53.15 euros. Europe’s largest exchange by market value said second-quarter profit dropped as revenue from stock and derivative trading dropped.
Swiss Reinsurance Co. slid 1.9 percent to 42.6 Swiss francs. The world’s second-largest reinsurer reported an unexpected quarterly loss of 381 million francs ($359 million) because of writedowns on risky investments and the cost of hedging corporate bonds.
Isuzu sank 4.7 percent to 163 yen as Japan’s largest maker of light-duty trucks reported a net loss of 16.6 billion yen ($170 million) in the quarter ended June 30. Elpida slumped 5.1 percent to 1,115 yen after Japan’s biggest computer-memory chipmaker reported a 44.5 billion yen loss.
Service industries in the U.S. probably shrank at a slower pace in July, bringing the economy closer to emerging from the worst recession in eight decades, economists said before a report today.
U.S. Economy…..
Asian Markets Fall on Earnings
By Shani Raja and Jonathan Burgos
Aug. 5 (Bloomberg) — Asian stocks fell, sending the MSCI Asia Pacific Index to its first back-to-back drop in a month, after Isuzu Motors Ltd. and Elpida Memory Inc. reported losses.
Isuzu, Japan’s largest maker of light-duty trucks, sank 4.7 percent and Elpida, the country’s biggest computer-memory chipmaker, slumped 5.1 percent. Industrial Bank Co. slid 3.8 percent in Shanghai, contributing to the first decline in Chinese stocks in five days amid valuation concerns. Sun Hung Kai Properties Ltd., the world’s biggest developer by value, dropped 4.7 percent in Hong Kong as the city’s home sales fell.
The MSCI Asia Pacific Index fell 1.1 percent to 111.79 as of 7:22 p.m. in Tokyo, having swung between gains and losses at least seven times. Before today, the gauge had risen on all but two days since July 14 amid earnings reports that beat analyst estimates. The measure’s relative strength index rose to 75 yesterday, above the 70 level some traders use as a sell signal.
“Equities are pricing in a very strong recovery,” said Pearlyn Wong, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion. “Valuations are stretched. It’s hard to support a case for a continued rally.”
Japan’s Nikkei 225 Stock Average, which has gained 29 percent in the past six months, lost 1.2 percent. China’s Shanghai Composite Index fell 1.2 percent, while Hong Kong’s Hang Seng Index declined 1.5 percent.
David Jones Ltd., the country’s No. 2 department-store chain, dropped 8.4 percent after reporting a decline in same- store sales. Limiting declines in Australia, Axa Asia Pacific Holdings Ltd., a unit of France’s biggest insurer, climbed 2.3 percent as it returned to profitability. Westfield Group, the world’s biggest shopping center owner by value, rose 0.8 percent after UBS AG upgraded the stock.
U.S. Housing
Futures on the Standard & Poor’s 500 Index were little changed. The gauge added 0.3 percent yesterday after the National Association of Realtors said the number of contracts to purchase previously owned homes rose 3.6 percent last month from June. Economists had estimated a 0.7 percent advance.
MSCI’s Asian gauge has rallied 58 percent from a more than five-year low on March 9 amid growing speculation the global economy is recovering. Reports this week from China, Europe and the U.S. pointed to improving manufacturing industries in the three regions, while U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said.
Companies from Nissan Motor Co. to Samsung Electronics Co. have reported earnings in the past two weeks that exceeded analyst estimates, lifting the average valuation of companies in the MSCI Asia Pacific Index to 25 times estimated profit, the highest level since March 30.
Good Data
“There’s so much good data around that I’m losing track,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $95 billion. “Given the extent of the rally so far, I wouldn’t be surprised to see quite a significant pullback.”
Isuzu sank 4.7 percent to 163 yen as the company turned to a net loss of 16.6 billion yen in the quarter ended June 30, from a 17.7 billion yen profit a year earlier. Elpida slumped 5.1 percent to 1,115 yen after its first-quarter net loss widened on lower semiconductor prices.
Hallenstein Glasson Holdings Ltd., a New Zealand clothing retailer, dropped 1.1 percent in Wellington to NZ$2.82. Full- year profit fell 23 percent as the company cut prices to boost sales amid a recession.
Expensive Shares
Industrial Bank slid 3.8 percent to 39.91 yuan, as the Shanghai Composite Index snapped a four-day, 6.3 percent advance. Companies in the index trade at an average 37 times reported earnings, near an 18-month high and almost twice the level of the MSCI Emerging Market Index.
Jiangxi Copper Co., China’s largest producer of the metal, dropped 2.2 percent to 46.60 yuan. The company, whose shares have more than quadrupled this year, last week said first-half profit may decline by more than half.
“With shares so expensive, I doubt there will be much room for upside,” said Yan Ji, who helps oversee about $850 million at HSBC Jintrust Fund Management Co. in Shanghai.
In Hong Kong, Sun Hung Kai Properties dropped 4.7 percent to HK$113.80. New World Development Co., controlled by billionaire Cheng Yu-tung, lost 4.4 percent to HK$17.40. Henderson Land Development Co. sank 4.6 percent to HK$50.70.
The value of residential units changing hands in Hong Kong dropped 12.4 percent in July from a month before, to HK$43.6 billion ($5.6 billion), according to the city’s Land Registry.
Government Response…..
Oil prices slipped to near $71 a barrel Wednesday as mixed economic news from the U.S. stalled a weeklong rally.
By midday in Europe, benchmark crude for September delivery was down 35 cents to $71.07 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, the contract fell 16 cents to settle at $71.42.
Crude prices have jumped from below $63 a barrel last week on investor optimism the U.S. economy, the world’s biggest oil consumer, is recovering from a severe recession.
On Tuesday, the Commerce Department said consumer spending rose 0.4 percent in June. But personal incomes dropped by 1.3 percent, the steepest slide in four years.
“Consumer spending is still in the dog house,” said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. “We’re living off government stimulus, which is going to end not too long from now.”
U.S. crude inventories unexpected fell last week, a sign demand could be rebounding.
Inventories dropped 1.5 million barrels last week, the American Petroleum Institute said late Tuesday. Analysts expected the API numbers to gain 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
Gasoline supplies rose 2.1 million barrels.
Investors will be watching for inventory data from the Energy Department’s Energy Information Administration on Wednesday for more signs about crude demand.
The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.
Crude will likely trade between $65 a barrel and $85 the rest of the year, Kornafel said.
“I think all the optimism is somewhat misplaced,” Kornafel said. “People don’t understand that things can get bad and stay bad for more than two years.”
U.S energy consultancy Cameron Hanover used wrestling terms to illustrate the shift in oil markets away from fundamentals and toward external factors.
“After a quarter century of holding the belts, supply and demand have been giving up their titles regularly to equities and currencies, the current tag-team champs,” Cameron Hanover said.
In other Nymex trading, gasoline for August delivery fell 1.92 cents to $2.0375 a gallon and heating oil dropped 0.88 cent to $1.8926. Natural gas for August delivery slid 2.1 cents to $3.98 per 1,000 cubic feet.
In London, Brent prices fell 19 cents to $74.09 a barrel on the ICE Futures exchange.
China To Keep Monetary Policy Loose
By Bloomberg News
Aug. 5 (Bloomberg) — China’s central bank warned that its counterparts in developed nations face difficult choices as monetary easing threatens to cause “severe” inflation and exchange-rate volatility.
“Failure to manage the degree of easing may lead to concerns about mid- and long-term inflation and exchange-rate stability,” the People’s Bank of China said in a quarterly monetary policy report, posted on its Web site today.
China, the owner of $801.5 billion of Treasuries, pressed the U.S. at a summit in Washington last month for economic polices to protect the dollar’s value. The Bank of England is poised to end a five-month program of bond purchases, part of so-called “quantitative easing,” according to a Bloomberg News survey of firms bidding at government debt auctions.
“The discussion about quantitative easing and the reversal of it is going to capture the market’s attention for the rest of this year,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “The fact that China is talking about it, again, is reflecting its concern about its holdings of U.S. Treasuries.”
Quantitative easing is the creation of new money to purchase government or private assets, including bonds, to encourage new bank lending.
Exiting too quickly from such policies, which the Chinese central bank said helped to prevent a repeat of the Great Depression, may undermine an economic recovery, today’s report said. Waiting for too long may trigger “a new round of asset bubbles and severe inflation,” the central bank added.
“Central banks in major developed nations face a difficult choice between keeping government bond yields relatively low to promote economic recovery and maintaining currency stability” to protect national creditworthiness, the Chinese central bank said.
Indonesia Lowers Rates to 6.5%
By Aloysius Unditu
Aug. 5 (Bloomberg) — Indonesia’s central bank lowered interest rates for a ninth month and signaled that further cuts may be unwarranted as inflation is expected to accelerate.
Bank Indonesia reduced its reference rate by a quarter- point to 6.50 percent, according to a statement in Jakarta today. The decision was predicted by 26 of 29 economists in a Bloomberg News survey. The others expected no change.
Central banks elsewhere in Asia have stopped cutting rates and have indicated their next moves may be to increase them as the region’s economies begin to emerge from the global recession. President Susilo Bambang Yudhoyono said in his Aug. 3 budget speech that policy makers will “protect” Indonesia’s poor from inflation, which is expected to quicken to 5 percent next year.
“If the central bank is being conservative, then this month’s cut will be the last for this year,” said Purbaya Yudhi Sadewa, chief economist at PT Danareksa Sekuritas in Jakarta.
Bank Indonesia has been able to reduce its policy rate from 9.5 percent in December as inflation slows. Consumer prices rose 2.71 percent in July from a year earlier, the smallest gain since June 2000.
Quantitative Easing Will End in The U.K.
By Anchalee Worrachate and Anna Rascouet
Aug. 5 (Bloomberg) — The Bank of England will end a five- month program of bond purchases as Europe’s second-largest economy shows signs of emerging from a recession, said a majority of the firms that bid at government debt auctions.
Eight of 12 primary dealers surveyed by Bloomberg said the central bank will stop the program after announcing a pause at its monthly meeting tomorrow. Four — BNP Paribas SA, RBC Capital Markets, Merrill Lynch & Co. and UBS AG — predict policy makers will increase purchases.
The Bank of England has spent 125 billion pounds ($212 billion) of the 150 billion pounds authorized by the Treasury in March, equivalent to almost 10 percent of Britain’s gross domestic product, to help contain borrowing costs and pull the economy out of the recession. Central bank Governor Mervyn King’s policy of so-called quantitative easing helped spur a 23 percent increase in loans to small companies, British Bankers’ Association data show.
“The Bank of England may have done enough,” said Jamie Searle, a fixed-income strategist in London at Citigroup Inc. “They will probably announce a pause and reassure the market they can step in and resume the program quickly if need be. Our view is they won’t need to because the economy is beginning to recover.”
‘Watching’ Stance
The bank’s nine-member Monetary Policy Committee, which cut rates to a record low of 0.5 percent on March 5, voted against expanding the program on July 9 while it assessed whether the worst of the recession was over. The central bank may shift to a “watching” stance at their meeting tomorrow if officials decide the purchases worked, Andrew Sentance, a member of the committee, said in an interview in London on July 23.
An index of services recorded the biggest expansion in 1 1/2 years, Markit data showed today. Factory output unexpectedly climbed 0.4 percent in June, the Office for National Statistics said. Lloyds Banking Group Plc’s Halifax division said home values rose almost twice as much as economists forecast last month. The Bank of England said on July 29 mortgage approvals jumped to a 14-month high in June.
The U.K. inflation rate will be the fastest in the G-7 next year, the Paris-based Organization for Economic Cooperation and Development predicts.
“The bank is likely to pause given the upturn in leading indicators that suggests we’re through the trough,” said Francis Diamond, a fixed-income strategist in London at JPMorgan Chase & Co. “Policy makers might be cautious about continuing to provide further stimulus in this kind of environment. It’s not clear exactly what quantitative easing has done in terms of sparking growth for credit.”
Yield Increase…..
FHA Mortgages To Take a Hit As Taylor Been & Whitkaer Mortgage Corp Are Shut For Fraud
By David Mildenberg and Jody Shenn
Aug. 5 (Bloomberg) — Taylor, Bean and Whitaker Mortgage Corp.’s expulsion from the ranks of Federal Housing Administration lenders may make it harder and more expensive for cash-strapped consumers to finance home purchases.
The FHA, the government mortgage insurer, yesterday suspended Taylor Bean, its third-largest lender, citing possible fraud. It’s “distinctly possible this is going to be the end of Taylor Bean,” said David Lykken, managing partner at consultant Mortgage Banking Solutions in Austin, Texas.
FHA mortgages represent about half of all new loans for home purchases, up from about 10 percent at the start of 2008, as borrowers with low down payments or poor credit get turned down for other financing, according to a Bank of America Corp. report last month. Taylor Bean, based in Ocala, Florida, does business across the U.S. through loan brokers and other lenders. It ranked 12th among U.S. mortgage originators in the first half of this year with $17 billion of loans, or 1.7 percent of the total, according to industry newsletter Inside Mortgage Finance.
If closely held Taylor Bean goes out of business, mortgage rates may rise as lenders face less competition, said Michael Moskowitz, president of the New York-based home lender Equity Now Inc., which last sold a loan to Taylor Bean a year ago.
“It’s just a question of demand and supply,” he said in a telephone interview yesterday. “If Taylor Bean goes down, it’s a pretty big deal.”
Unresolved Issues
Taylor Bean didn’t submit a required annual financial report and “misrepresented that there were no unresolved issues with its independent auditor,” the FHA said in a statement. The auditor discovered “irregular transactions that raised concerns of fraud,” the FHA said. The agency’s decision follows a failed attempt by Taylor Bean to lead an investor group that would pay $300 million for a controlling stake in Colonial BancGroup Inc., one of its own lenders.
Agents bearing federal warrants searched Colonial’s Orlando offices, and the Ocala Star-Banner reported a similar search at Taylor Bean. A call to Taylor Bean spokeswoman Melissa Spata wasn’t returned, and Chairman Lee Farkas didn’t respond to messages.
Mortgage brokers and their clients with applications at Taylor Bean will be hard hit because “most of the quality shops have stopped dealing with brokers,” Moskowitz said. The number of contracts to buy previously owned homes in the U.S. rose in June for a fifth straight month, climbing 3.6 percent and exceeding economists’ forecasts, the National Association of Realtors said.
‘A Big Player’
“They’re a big player in Florida and this is bound to have a detrimental effect, especially the loans sitting in their pipeline that haven’t closed,” Valerie Saunders, president of the Tallahassee-based Florida Association of Mortgage Brokers, said in an interview.
Potential homebuyers who are unable to fund loans through Taylor Bean will have to try to switch lenders, potentially adding time and cost to their purchase, Saunders said. She doesn’t have any buyers seeking mortgages from the company.
The importance of FHA loans to the housing market after retreats by banks and private mortgage insurers is “Capital-H huge,” Lykken said. “It’s so huge it’s not even funny.”
In June, applications for loans backed by the FHA or Department of Veterans Affairs represented 35.9 percent of all submissions for refinancings or home purchases, the highest share since 1990, according to the Mortgage Bankers Association. The agency insures mortgages with down payments as low as 3.5 percent, and doesn’t have minimum credit-score requirements.
Less Strict….
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Scrolling Headlines From Yahoo in Play
Dairy company Dean Foods Co. saw its profit surge 31 percent in the second quarter of the 2009 fiscal year as the company reported lower interest expenses and growth in its Fresh Dairy Direct and WhiteWave-Morningstar business divisions.
Dallas-based Dean Foods (NYSE: DF) posted a profit of $64.1 million, or 43 cents per share, on revenue of $2.7 billion in the most recent quarter. That is up from the company’s profit of $48.9 million, or 33 cents per share, on revenue of $3.1 billion in the second quarter of 2008.
Harrald Kroeker, president of Dean’s Fresh Dairy Direct segment, said “competitive pressures continue,” but added that the company is benefiting from lower commodities costs in the dairy segment.
In the second quarter, Dean said it will purchase the Alpro division of Vandermoortele N.V, which is Europe’s leading soy-beverage company. Alpro’s purchase will not be recorded until the third quarter.
The company’s earnings for the quarter are in line with analyst estimates, which predicted earnings in the 43-cents-per-share range.
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CenterPoint Energy’s /quotes/comstock/13*!cnp/quotes/nls/cnp (CNP 12.10, +0.01, +0.07%) second-quarter net income fell to $86 million, or 24 cents a share from $101 million, or 30 cents a share in the year-ago period.
Analysts expected income of 23 cents a share in the latest period, according to a survey by FactSet Research.
Revenue fell to $1.64 billion from $2.67 billion.
Operating income at the Houston power generating firm fell to $253 million from $297 million.
CenterPoint Energy stuck to its 2009 earnings forecast of $1.05 to $1.15 a share.
Despite the weak economy and changing energy markets, our business units continued to perform well,” the company said. “Our regulated electric and gas utilities turned in solid operating performances as did our pipeline and field services core operations. However, revenues from ancillary services declined from 2008 when we benefited from unusually high commodity prices.”
Shares of CenterPoint Energy rose 2 cents to $12.11 on Wednesday.
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CLINTON, N.J (AP) — Engineering and construction company Foster Wheeler AG posted a steep drop in second-quarter profit Wednesday due to a fall in orders in two key businesses.
But company widely beat Wall Street estimates, sending shares up sharply in morning trading.
Net income of $122.2 million, or 96 cents per share, was down 24 percent from $160.8 million, or $1.11 per share, in the same quarter last year. Excluding an asbestos-related provision of 2 cents per share in the quarter and a gain of 13 cents per share related to asbestos claims in the second quarter of 2008, earnings would have been 98 cents per share in each quarter, Foster Wheeler said.
Analysts surveyed by Thomson Reuters expected earnings to be 62 cents per share on revenue of $1.36 billion.
Revenue of $1.31 billion for the quarter ended June 30 was down 23 percent from $1.7 billion in the year-earlier period.
The value of new orders booked in Foster Wheeler’s engineering and construction business during the quarter was $512 million, down from $538 million in the same quarter last year. And orders for its power group business fell to $83 million from $191 million due to weak demand for solid fuel boilers.
Raymond J. Milchovich, chairman and CEO, said the competitive pressure in the engineering and construction business is “somewhat more pronounced” than last year.
But Foster Wheeler, based in Zug, Switzerland, with operational headquarters in Clinton, N.J., has numerous clients who plan to move on projects, he said.
Jefferies and Co. analyst Michael S. Dudas said in a note to investors that Foster Wheeler “continues to face weak new awards” in its power group and a slower project release process in its engineering and construction business.
Shares rose $2.79, or 12 percent, to $26.88.
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CALGARY, ALBERTA–(Marketwire – 08/05/09) – ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX:AGU – News) (NYSE:AGU – News) announced today its second highest quarterly net earnings at $370-million ($2.35 diluted earnings per share) for the second quarter of 2009.
“Solid results from Retail, Advanced Technologies and our Wholesale nitrogen businesses resulted in Agrium achieving our second strongest quarterly net earnings in our history. We were able to do this despite the challenge of a short-term reduction in potash and phosphate application rates and Retail crop nutrient margins. The outlook for our businesses and products remains strong and we are starting to see signs of improving demand fundamentals as we approach the fall season. Our Retail crop protection and seed businesses in particular delivered excellent results and we ended the season with normal crop nutrient inventories in our Retail business. We continue to anticipate a recovery in potash demand later in the second half of 2009.” said Mike Wilson, Agrium President and CEO.
With respect to Agrium’s proposal to acquire CF Industries Holdings, Inc. (“CF”), Mr. Wilson stated “We remain fully committed to acquiring CF, with continued conviction that an Agrium and CF combination would create significant value for all stockholders and other stakeholders. We will continue to press CF to execute a mutually beneficial merger agreement despite the fact that CF has so far ignored a clear mandate from their stockholders’ to conclude a transaction with us. Our offer remains far superior to any alternative articulated by CF, including remaining independent or paying a premium for Terra.”
The 2009 second quarter results included gains of $15-million ($0.07 diluted earnings per share) on derivative financial instruments and a $4-million expense in stock-based compensation for the quarter. It also included an inventory write-down of $32-million (a $0.15 decrease in diluted earnings per share) primarily associated with our Wholesale purchase for resale business.
Similar to previous years, we intend to provide earnings guidance for the second half of the year when we release our third quarter results.
KEY RESULTS AND DEVELOPMENTS…..
Wednesday that it swung to a first-half net loss of 829 million euros from a restated profit of 1.04 billion euros a year earlier. The group said operating income rose 14% to 2.78 billion euros, but provisions for loan impairments jumped to around 2.4 billion euros from 137 million euros a year earlier. The bank said 8.1% of customer loans were impaired. “We expect the operating environment to remain extremely difficult through the remainder of 2009,” the bank said. It added that recessionary economic conditions continue to prevail and there is “little compelling evidence of recovery.”
Q2 adj EPS $0.31 vs est $0.29
* Q2 rev $3.39 bln vs est $3.42 bln (Adds details from conference call, analysts comments)
By Mansi Dutta
BANGALORE, July 29 (Reuters) – Electronic-parts and computer-hardware distributor Arrow Electronics (ARW.N) posted an adjusted second-quarter profit that beat estimates, helped by lower operating expenses and higher orders in June.
While the quarter got off to a slow start in April and May, June closed relatively strong, the company said in a conference call with analysts.
“Both bookings and billings showed an increase for the quarter and our backlog is up for the first time in several quarters,” the company said.
Despite some positive indicators, Arrow “was not ready to call a bottom.”
“Gross margins continue to be negatively impacted by a change in our geographic mix of businesses as Asia becomes a larger portion of total component sales and competitive pressures also influence our performance,” the company said.
The company’s second-quarter profit fell to $21.1 million, or 18 cents a share, from $96.2 million, or 79 cents a share, a year earlier.
Excluding items, the company posted a profit of 31 cents per share.
Revenue fell 22 percent to $3.39 billion.
While sales in the components business in Europe and North America fell 41 percent and 27 percent, respectively, Asia-Pacific sales rose 10 percent.
Analysts were expecting a profit of 29 cents a share, excluding exceptional items, on revenue of $3.42 billion, according to Reuters Estimates.
Selling, general and administrative expenses fell about 25 percent to $315.0 million.
“We have an additional $100 million in annual cost reductions that are expected to be implemented in the second half of 2009, primarily in our European operations,” Chief Financial Officer Paul Reilly said in a statement. Continued…
LONDON (MarketWatch) — Engineering and construction contractor Foster Wheeler AG /quotes/comstock/15*!fwlt/quotes/nls/fwlt (FWLT 26.20, +2.11, +8.76%) on Wednesday posted a 24% drop in second-quarter net income to $122.2 million, or 96 cents a share, from $160.8 million, or $1.11 a share, earned in the year-earlier period. Excluding exceptional items, adjusted earnings in the latest period came in at 98 cents a share, flat from the year-earlier quarter. The consensus forecast called for earnings of 62 cents a share, according to a poll of 12 analysts conducted by FactSet Research. Operating revenue fell 23% to $1.31 billion.
CINCINNATI (AP) — The Procter & Gamble Co. says its fourth quarter profit fell 18 percent, as households around the globe kept tight reins on spending in the recession.
The Cincinnati-based maker of such consumer products as Pampers diapers, Tide detergent and Gillette shavers said Wednesday it earned nearly $2.5 billion, or 80 cents per share, in the three months ended June 30. That’s down from $3 billion, or 92 cents per share, a year ago.
Analysts expected 79 cents.
Revenue fell 11 percent, to $18.7 billion, as sales fell across the company’s broad portfolio. Analysts expected $19.4 billion.
The quarter ended A.G. Lafley’s nine-year run as CEO. Bob McDonald took over July 1, while Lafley stays as chairman.
Comments »Editorial: Peak Oil ?????
Some say were in for a bad ride; better go electric !
The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production, a leading energy economist has warned.
Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could blow any recovery off course, said Dr Fatih Birol, the chief economist at the respected International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies by OECD countries.
In an interview with The Independent, Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.
But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago. On top of this, there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an “oil crunch” within the next five years which will jeopardise any hope of a recovery from the present global economic recession, he said.
In a stark warning to Britain and the other Western powers, Dr Birol said that the market power of the very few oil-producing countries that hold substantial reserves of oil – mostly in the Middle East – would increase rapidly as the oil crisis begins to grip after 2010.
“One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day,” Dr Birol said. “The earlier we start, the better, because all of our economic and social system is based on oil, so to change from that will take a lot of time and a lot of money and we should take this issue very seriously,” he said.
“The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about 40 per cent share of the oil market and this will increase much more strongly in the future,” he said.
There is now a real risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build up new supplies of oil to compensate for the rapid decline in existing fields.
The IEA estimates that the decline in oil production in existing fields is now running at 6.7 per cent a year compared to the 3.7 per cent decline it had estimated in 2007, which it now acknowledges to be wrong.
“If we see a tightness of the markets, people in the street will see it in terms of higher prices, much higher than we see now. It will have an impact on the economy, definitely, especially if we see this tightness in the markets in the next few years,” Dr Birol said.
“It will be especially important because the global economy will still be very fragile, very vulnerable. Many people think there will be a recovery in a few years’ time but it will be a slow recovery and a fragile recovery and we will have the risk that the recovery will be strangled with higher oil prices,” he told The Independent.
In its first-ever assessment of the world’s major oil fields, the IEA concluded that the global energy system was at a crossroads and that consumption of oil was “patently unsustainable”, with expected demand far outstripping supply.
Oil production has already peaked in non-Opec countries and the era of cheap oil has come to an end, it warned.
In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.
Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.
“It’s a big challenge in terms of the geology, in terms of the investment and in terms of the geopolitics. So this is a big risk and it’s mainly because of the rates of the declining oil fields,” he said.
“Many governments now are more and more aware that at least the day of cheap and easy oil is over… [however] I’m not very optimistic about governments being aware of the difficulties we may face in the oil supply,” he said.
Environmentalists fear that as supplies of conventional oil run out, governments will be forced to exploit even dirtier alternatives, such as the massive reserves of tar sands in Alberta, Canada, which would be immensely damaging to the environment because of the amount of energy needed to recover a barrel of tar-sand oil compared to the energy needed to collect the same amount of crude oil.
“Just because oil is running out faster than we have collectively assumed, does not mean the pressure is off on climate change,” said Jeremy Leggett, a former oil-industry consultant and now a green entrepreneur with Solar Century.
“Shell and others want to turn to tar, and extract oil from coal. But these are very carbon-intensive processes, and will deepen the climate problem,” Dr Leggett said.
“What we need to do is accelerate the mobilisation of renewables, energy efficiency and alternative transport.
“We have to do this for global warming reasons anyway, but the imminent energy crisis redoubles the imperative,” he said.
Oil: An unclear future
*Why is oil so important as an energy source?
Crude oil has been critical for economic development and the smooth functioning of almost every aspect of society. Agriculture and food production is heavily dependent on oil for fuel and fertilisers. In the US, for instance, it takes the direct and indirect use of about six barrels of oil to raise one beef steer. It is the basis of most transport systems. Oil is also crucial to the drugs and chemicals industries and is a strategic asset for the military.
*How are oil reserves estimated?
The amount of oil recoverable is always going to be an assessment subject to the vagaries of economics – which determines the price of the oil and whether it is worth the costs of pumping it out –and technology, which determines how easy it is to discover and recover. Probable reserves have a better than 50 per cent chance of getting oil out. Possible reserves have less than 50 per cent chance.
*Why is there such disagreement over oil reserves?
All numbers tend to be informed estimates. Different experts make different assumptions so it is under- standable that they can come to different conclusions. Some countries see the size of their oilfields as a national security issue and do not want to provide accurate information. Another problem concerns how fast oil production is declining in fields that are past their peak production. The rate of decline can vary from field to field and this affects calculations on the size of the reserves. A further factor is the expected size of future demand for oil.
*What is “peak oil” and when will it be reached?
This is the point when the maximum rate at which oil is extracted reaches a peak because of technical and geological constraints, with global production going into decline from then on. The UK Government, along with many other governments, has believed that peak oil will not occur until well into the 21st Century, at least not until after 2030. The International Energy Agency believes peak oil will come perhaps by 2020. But it also believes that we are heading for an even earlier “oil crunch” because demand after 2010 is likely to exceed dwindling supplies.
*With global warming, why should we be worried about peak oil?
There are large reserves of non-conventional oil, such as the tar sands of Canada. But this oil is dirty and will produce vast amounts of carbon dioxide which will make a nonsense of any climate change agreement. Another problem concerns how fast oil production is declining in fields that are past their peak production. The rate of decline can vary from field to field and this affects calculations on the size of the reserves. If we are not adequately prepared for peak oil, global warming could become far worse than expected.
than Saudi Arabia’sWhile today’s mainstream media reports on Peak Oil, all of a sudden… the oil sands in Alberta, Canada have become a veritable “black gold” mine. And Big Oil’s heavy hitters are wishing they acted sooner…
Just three years ago, when the average price of crude was $29.63 a barrel, producers didn’t find the profits to be worth the costs of processing the oil sands.
But improvements in mining technology have dramatically reduced the cost of extraction, rocketing bottom lines skyward. According to the Oil Sands Discovery Centre in Alberta, it now costs an average of just $13.21 to process each of the 2.5 trillion barrels of oil embedded in the sands – a reserve 8 times bigger than Saudi Arabia’s… containing more oil than all OPEC nations combined.
Now, Big Oil companies that didn’t get in early can only sit by and watch as “savvy oil” laughs all the way to the bank. With crude selling for $60-plus, revenues at Albert’s premier oil sands producers are rocketing skyward.
On a sidenote, it is proved in the laboratory already a few years ago, that under enough pressure and heat, magma will produce a substantial amount of raw oil.
This means that the abiotic oil theory is a fact now.
Abiotic oil produced in the upper magma crust will seap through cracks up to the higher rocky crusts, and fill or refill existing spaces.
This was observed first in the undersea mountain cracks of the abandoned oilfield in the Gulf of Mexico, where researchers found new oil refilled in their supposedly exhausted oil wells.
The Russians have drilled already for years deep wells in the Siberian oil fields, and produced enough oil in economic amounts.
They first drilled for the Vietnamese government offshore in the “White Tiger” field, at a depth of more than 3 km, and produced a lot of oil in a subterranean region where all the mainstream oil experts said there could no oil exist.
It however did so.
Abiotic oil and the Alberta oil sands make the whole Peak Oil theory a farce.
Twice in the last week I’ve seen mention of a new “crisis” in energy markets. The crisis? We may have reached the peak in oil production, meaning that in future years, the amount of oil available will dwindle. This story is the lead story on today’s front page of USA Today. The headline:
Debate Brews: Has Oil Production Peaked?
The story begins:
Almost since the dawn of the oil age, people have worried about the
taps running dry. So far, the worrywarts have been wrong. Oil men from
John D. Rockefeller to T. Boone Pickens always manage to find new
gushers.But now, a vocal minority of experts says world oil production is at or
near its peak. Existing wells are tiring. New discoveries have
disappointed for a decade. And standard assessments of what remains in
the biggest reservoirs in the Middle East, they argue, are little more
than guesses.
The first expert is an investment banker:
“There isn’t a middle argument. It’s a finite resource. The only debate
should be over when we peak,” says Matthew Simmons, a Houston
investment banker and author of a new book that questions Saudi
Arabia’s oil reserves.
In case you think this is no big deal, think again:
If the “peak oil” advocates are correct,
however, today’s transient shortages and high prices will soon become a
permanent way of life. Just as individual oil fields inevitably reach a
point at which it gets harder and more expensive to extract the oil
before output declines, global oil production is about to crest, they
say. Since 2000, the cost of finding and developing new sources of oil
has risen about 15% annually, according to the John S. Herold
consulting firm.As global demand rises, American consumers will
find themselves in a bidding war with others around the world for
scarce oil supplies. That will send prices of gasoline, heating oil and
all petroleum-related products soaring.“The least-bad scenario is a hard landing,
global recession worse than the 1930s,” says Kenneth Deffeyes, a
Princeton University professor emeritus of geosciences. “The worst-case
borrows from the Four Horsemen of the Apocalypse: war, famine,
pestilence and death.”
The Four Horsemen of the Apocalypse? War, famine, pestilence and death? They ought to put this quote in the next OED under “hyperbole.” And I thought this guy was trying to really scare us (Ht: Alan Nemes) but it turns out he’s a moderate.
This fear that we’re running out of oil or some other key resource is a steady feature of the worrying class. The worriers have a bad track record. I understand that just because you’re paranoid it doesn’t mean people aren’t chasing you and just because the worriers have always been wrong doesn’t mean this won’t be the time they get it right. But I still sleep well.
There’s nothing inherently worrisome about a peak in oil production. Such imagery preys on a quick emotional response–before the peak, we’re going up. After the peak, it’s all downhill. But there’s nothing significant about a world where we produce and consume less oil next year than this year. If that’s because remaining oil stocks are increasingly costly to bring up from the ground, that increases the incentive to economize on oil usage and find cheaper ways to get it out of the ground. That mitigates the harm.
The worriers like to say that we’ve had cheap oil in the past and now we’re going to have expensive oil in the future. They make it sound like it’s a geophysical relationship between production and prices. As long as we’re finding more oil, oil is cheap. When we’re past the peak, it’ll be expensive. Cheap oil means the good life. Expensive oil means misery. But prices aren’t high or low. They move around. They are high or low relative to other prices. If oil becomes increasingly scarce, we’ll do a thousand, (more like a billion) things to find other ways of doing what oil does.
If it happened tomorrow, if tomorrow, there were no gas in the pumps and this persisted forever, it would be a very unpleasant adjustment. It isn’t going to happen tomorrow. If it happens gradually over the next 30 or 50 or 100 years, it will have little or no impact on our overall well-being.
And wasn’t it supposed to be good not to rely on fossil fuels? Why all this new worrying? I think the worriers are trying to exploit the recent spike in gasoline prices to push public policy in directions that won’t happen otherwise.
Meanwhile, read Julian Simon. Remember that human creativity is the ultimate resource. Remember that the geophysicists don’t understand prices. Sleep well, despite the worriers’ desire to keep you tossing and turning. And if you hear the sound of hoofbeats in the still small spaces of the night, it’s probably just a horse.
Personal Income: Prior +1.3% / Mkt Expects -1% / Actual -1.3%… Personal Spending: Prior .1% / Mkt Expects .3% / Actual .4%… A Podcast With Joseph Stiglitz on Raising Taxes To Pay For Healthcare
Business News
PEP Sweetens its Offer For Bottling Companies
PHILADELPHIA, Aug 4 (Reuters) – PepsiCo Inc (PEP.N) agreed to buy its two largest bottlers, Pepsi Bottling Group Inc (PBG.N) and PepsiAmericas Inc (PAS.N), for $7.8 billion in cash and stock, a source familiar with the situation said on Tuesday. (Reporting by Jessica Hall, editing by Gerald E. McCormick) (For more M&A news and our DealZone blog, go to here)
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Oil prices fell below $71 a barrel Tuesday, as investors booked profits after a big rally fueled by signs of economic recovery in the U.S.
By midday in Europe, benchmark crude for September delivery was down 92 cents to $70.66 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract fell as low as $70.28. On Monday, the contract rose $2.13 to settle at $71.58.
“Oil has rallied to levels seen in June, before the sharp decline of nearly 16 percent,” said analysts at Sucden Financial in London. “Given continuing poor oil fundamentals, current high prices seem difficult to sustain.”
A report Monday from the Institute for Supply Management, a trade group of purchasing executives, said U.S. manufacturing activity should increase next month for the first time since January 2008. Also, the Commerce Department said construction spending rose in June.
The positive economic news has emboldened investors to bid up stocks and oil. The Dow Jones industrial average rose 1.3 percent Monday and most Asian indexes gained Tuesday.
“With the economy seemingly improving each week, oil has felt pressure to go higher,” said Michael Sander, an adviser at Sander Capital in Seattle. “As far as fundamentals go, oil still has very high inventory levels and weak consumer demand, but those just don’t seem to matter.”
A report last week showing U.S. crude inventories jumped the previous week suggested demand remains sluggish, and sent prices below $63 a barrel. Since then, oil has been on a tear as investors anticipate an improving economy will boost demand and whittle away supplies.
“Improving demand amid continued supply tightness should accelerate the pace of erosion of the inventory overhang, lending support to prices,” Barclays Capital said in a report.
Still, the uncertainties about global demand for oil – in parallel with concerns about supplies – continue to prompt some analysts to remain cautious.
“We think that oil prices should head back down towards $50 per barrel rather than remain close to OPEC’s informal target of $75-80,” said London’s Capital Economics. “The rally that we have seen since the spring has been driven mainly by hopes of a strong recovery and is likely to falter as these hopes fade. Final demand is set to remain weak for years.”
In other Nymex trading, gasoline for August delivery was down 2.33 cents to $2.0460 a gallon and heating oil lost 1.18 to $1.8595. Natural gas for August delivery fell 5.6 cents to $3.975 per 1,000 cubic feet.
In London, Brent prices fell 59 cents to $72.96 a barrel on the ICE Futures exchange.
By Jonathan Burgos
Aug. 4 (Bloomberg) — Asian stocks fluctuated as commodities producers climbed on higher oil and metal prices, while Japanese makers of cars and motorcycles fell after Yamaha Motor Co. and Suzuki Motor Corp. reported earnings.
BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group both rose more than 2 percent in Sydney. HSBC Holdings Plc, Europe’s biggest bank, gained 7 percent in Hong Kong after profit exceeded analysts’ estimates. Suzuki, Japan’s second-largest maker of minicars, fell 5 percent in Tokyo after earnings were almost wiped out, and Yamaha, the world’s No. 2 maker of motor bikes, sank 9.9 percent after forecasting a loss.
The MSCI Asia Pacific Index added 0.2 percent to 113.29 as of 7:32 p.m. in Tokyo, paring an increase of as much as 1.1 percent after Yamaha’s forecast. Almost as many stocks advanced as declined. The gauge rose in 15 of the last 16 days.
“There are early indications that the economy is bottoming out,” said Ivan Tham, Singapore-based head of fund management at state-backed Kuwait Finance House, which has about $24 billion in assets. “I’m a bit more cautious, as valuations have run ahead of fundamentals following the recent rally.”
The MSCI Asia Pacific advanced to the highest level since Sept. 26 today, swelling average prices to 24.6 times estimated earnings, compared with 18 times at the start of the year, according to data compiled by Bloomberg.
Manufacturing Outlook
The Nikkei 225 Stock Average rose 0.2 percent to 10,375.01 in Tokyo, and most Asian benchmarks advanced. Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, climbed the most in the Nikkei on speculation higher commodity prices and improving economic prospects will boost global trade. Hong Kong property developers retreated, led by China Overseas Land & Investment Ltd., on concern revenue from China will fall.
Futures on the Standard & Poor’s 500 Index fell 0.8 percent today. The gauge advanced 1.5 percent and closed above 1,000 for the first time since November in New York yesterday. The MSCI World Index added 2 percent yesterday, its steepest increase in almost three weeks, after reports from China, Europe and the U.S. showed an improved outlook for manufacturing.
BHP Billiton gained 2 percent to A$38.84. Rio Tinto Ltd., the world’s third-largest mining company, climbed 4.3 percent to A$62.88. Mitsubishi Corp., a Japanese trading house that gets about half its profit from commodities, advanced 2.1 percent to 1,956 yen.
A gauge of six metals in London gained 4.9 percent to a level not seen since Oct. 3. Crude oil rallied 3.1 percent to $71.58 a barrel in New York yesterday, the highest settlement since June 12.
Shipping Lines Gain
Shipping lines advanced the most of 33 industries in Japan’s Topix index. Mitsui O.S.K. Lines Ltd., the world’s largest operator of iron-ore vessels, added 1.4 percent to 597 yen. Kawasaki Kisen Kaisha rose 5.9 percent to 375 yen. China Shipping Container climbed 6 percent to HK$3.53 in Hong Kong.
“Government spending and looser monetary policies worldwide will bring the global economy and company earnings to a clear recovery in 2010,” said Masayuki Kubota, a senior fund manager at Daiwa SB Investments Ltd., which manages $37 billion in assets. “The recovery will be short-lived after authorities tighten budgets and monetary policies.”
The MSCI Asia Pacific Index has climbed 16 percent in the past three weeks as earnings from Apple Inc. and Lafarge SA to Nissan Motor Co. and Samsung Electronics Co. exceeded analysts’ estimates. Of the 969 companies in the gauge, 159 are scheduled to report earnings this week, according to Bloomberg data.
Asia Outpaces World
The gains have brought the MSCI Asia Pacific within 2.5 percent of its level before Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, while the MSCI World Index is down more than 15 percent.
Five of the world’s 10 biggest companies by market value — PetroChina Co., Industrial & Commercial Bank of China Ltd., China Mobile Ltd., China Construction Bank Corp. and China Petroleum & Chemical Corp. — are based in Asia, and a sixth — U.K.-based HSBC — gets the bulk of its earnings in the region.
Yamaha had the steepest drop today in the MSCI World, slumping 9.9 percent to 1,096 yen after forecasting a first-half net loss that’s four times wider than its previous projection.
Suzuki sank 5 percent to 2,300 yen after saying first- quarter net income dropped 92 percent. Transportation companies had the steepest decline of any industry group in the Topix.
Hong Kong developers retreated after the Shanghai Securities News said transactions in Shanghai declined for the first time in seven months in July, and purchases dropped in Guangzhou and Shenzhen for two consecutive months.
China Overseas Land & Investment slipped 4.6 percent to HK$18.52, the sharpest decline on the Hang Seng Index. Hang Lung Properties Ltd. slid 3 percent to HK$27.45…..
European Markets Fall Along With U.S. Futures
By Sarah Jones
Aug. 4 (Bloomberg) — European stocks slipped after the Dow Jones Stoxx 600 Index traded at its highest level relative to profits since 2003. U.S. index futures dropped, while Asian shares fluctuated.
Standard Chartered Plc fell 4.7 percent after the U.K. bank announced a plan to raise $1.7 billion in a share sale. Yamaha Motor Co., the world’s second-largest maker of motor bikes, sank 9.9 percent in Tokyo after forecasting a wider loss. UBS AG lost 6.1 percent after Switzerland’s largest bank by assets reported a third straight quarterly loss.
Europe’s Stoxx 600 slipped 0.9 percent to 226.5 at 12:05 p.m. in London. The measure has climbed 43 percent since March 9 as companies from Goldman Sachs Group Inc. to Roche Holding AG posted better-than-estimated earnings. The rally has left the Stoxx 600 valued at 35.6 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.
“Valuations have become a little more challenging,” said Adrian Darley, who helps oversee about $101 billion as head of European equities at Ignis Investment Services Ltd. in London. “It doesn’t mean that market can’t go higher from now into year end but we have moved very far, very fast so a small correction would be healthy.”
Futures on the Standard & Poor’s 500 Index declined 0.7 percent after the benchmark gauge for U.S. equities climbed above 1,000 for the first time since November yesterday.
‘Sell in May’
The MSCI Asia Pacific Index added 0.2 percent today, paring a gain of as much as 1.1 percent as Suzuki Motor Corp. said profit was almost wiped out.
Global equity investors who follow the Wall Street axiom to “sell in May and go away” are missing out on the biggest gains in at least four decades. The MSCI World Index climbed 19 percent from May 1 through yesterday, the steepest advance for that period in the 23-country measure’s history stretching back to 1970, according to data compiled by Bloomberg.
Standard Chartered fell 4.7 percent to 1,368 pence. The British bank that earns almost all of its income in emerging markets plans to raise 1 billion pounds ($1.7 billion) in a share sale to take advantage of “strategic opportunities.” The bank’s first-half profit rose to $1.88 billion, compared with $1.79 billion a year earlier. That beat the $1.82 billion median estimate of five analysts surveyed by Bloomberg…..
Big Banks Come Up Short on Mortgage Modifications
By Dawn Kopecki
Aug. 4 (Bloomberg) — The largest U.S. banks have found it more difficult to meet demand for loan modifications than their smaller rivals, a Treasury Department report will show today.
The inability of some mortgage servicers to keep up with demand has limited the pace and effectiveness of the government’s anti-foreclosure programs, a U.S. Treasury official said in An interview yesterday, without naming the companies.
Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. are likely to show the poorest levels of homeowner assistance among the 31 companies participating in President Barack Obama’s $75 billion loan modification program, said David Sisko, the head of default management services for Deloitte & Touche LLP. The government said it wants to create transparency about which companies are doing the most to help.
“No one wants to be on the bad side of that list just because of the public scrutiny that comes from it,” Sisko said.
Obama’s Making Home Affordable loan modification program was crafted this year to help as many as 4 million borrowers save their homes. So far, about 200,000 trial loan modifications have begun, and the Obama administration said last month that it’s setting a goal of starting at least 500,000 by Nov. 1.
“The biggest servicers certainly have the biggest ships to turn,” Seth Wheeler, a deputy assistant Treasury secretary for federal finance said in an interview. “Some of the strongest performers are smaller servicers, but it’s not a uniform correlation.”
Wheeler wouldn’t discuss specific data or names in the report.
Nimbler Companies
“Our intention once this data has been collected and processed is for there to be transparency so that people can see it in a numerical way, who’s been good and what performance has been,” Lawrence Summers, director of the National Economic Council, said in a July 20 interview with Bloomberg News.
Many banks don’t yet have the capacity to process the volume of loan modifications being demanded, according to Sisko. He said modification specialists have gone from processing an average of 50 to 100 loans a month to 200 to 300.
“The smaller banks and servicers are probably a little nimbler,” Sisko said.
Bank of America modified 150,000 loans through other programs in the first half “as we ramped up to make” Obama’s Making Home Affordable program operational, said Dan Frahm, a spokesman for the Charlotte, North Carolina-based company.
“Just as you can’t judge a student’s performance for the semester by looking at their grade for one class, Making Home Affordable is one component of a comprehensive program Bank of America has in place to support homeowners,” Frahm said.
Creating Transparency…..
Bank Regulators To Speak Out On Reform
By Patrick Rucker and Kevin Drawbaugh
WASHINGTON (Reuters) – Top U.S. bank regulators will speak out on Tuesday against some key elements of the Obama administration’s plan to reshape financial regulation, saying parts of it were unneeded or could be disruptive.
The officials’ defiance, in prepared congressional testimony obtained by Reuters, came despite a warning given to them on Friday by Treasury Secretary Timothy Geithner.
In private remarks punctuated with expletives, Geithner urged the regulators to end their turf battles and show support for President Barack Obama‘s plan, according to a person familiar with the situation on Monday.
But that seemed to have little impact on John Bowman, acting director of the Office of Thrift Supervision (OTS), an agency slated for closure under the Obama plan.
“We do not support the administration’s proposal to establish a new agency, the National Bank Supervisor (NBS), by eliminating the Office of the Comptroller of the Currency … and the OTS,” Bowman said in written remarks to be given to the Senate Banking Committee at a hearing.
In addition, he said, “The OTS does not support the provision in the administration’s proposal to eliminate the thrift charter and require all federal thrift institutions to change their charter.”
Such words marked a retrenching of regulators’ opposition to portions of Obama’s plans to tighten oversight of banks and capital markets amid the worst financial crisis in generations and with the economy mired in a stubborn recession.
“We do not see merit or wisdom in consolidating federal supervision of national and state banking charters into a single regulator,” FDIC chairman Sheila Bair said in her remarks ahead of the hearing on regulatory reform.
TENSE MEETING
At a tense, hour-long meeting on Friday, Geithner told Bair, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Mary Schapiro to end recent public criticism of the administration’s plan and stop airing concerns over their potential loss of authority.
The Wall Street Journal, which first reported the meeting, said Geithner vented frustration over the plan’s slow progress and told regulators that “enough is enough.”
Citing people familiar with the meeting, the newspaper also said Geithner used obscenities and took an aggressive stance in his dressing down of the regulators.
Treasury spokesman Andrew Williams said, “We planned this meeting as a venue to deliver a tough message to regulators that we should work together to get reform done – and focus less on protecting turf.”
Under the plan conceived by Treasury, banking supervision would be significantly consolidated.
But Bair, whose populist tone has won allies in Congress, in her prepared remarks for the banking committee hearing, said: “Prudent risk management argues strongly against putting all your regulatory and supervisory eggs in one basket.” Continued…
A Visual of Better Than Expected Earnings
Taking a big picture view of the current earnings environment shows just how much “better than expected” the current earnings have been. Despite having predicted the current rally, I am highly skeptical of the quality of the rally. The following graph shows the timeline of analyst’s Q2 estimate changes. As you can see, the estimates have been slashed by nearly 50%. Could the analysts have gotten it more wrong? And why is anyone now surprised that they were so far off again? All of this has to make you wonder just how important “better than expected” really is. Reader Robert in Chicago elaborates:
These numbers are for S&P 500 “operating earnings,” which exclude the allegedly one-time items; GAAP earnings, which can’t be gamed as much, are literally half as much this quarter, the largest divergence ever apart from 4Q08 — 44% below 2Q08 and 68% below 2Q07.
A Look @ Inflation & The Markets
So we have this monster debt overhang in the US, and the answer is to just print up more money, right?
Of course, nobody would ever admit to that. Ben Bernanke will insist that the Fed is devoted to sound money practices. Tim Geithner talks about getting spending and taxing and borrowing under control (eventually). But come on, you know the printing press is part of the plan.
Unfortunately it won’t work says UBS economist Paul Donovan, in a report picked up by FT Alphaville.
While most investors today acknowledge that deflation is likely to be a feature for the OECD economies during the second half of 2009, inflation pessimists cling resolutely to the belief that inflation will inevitably return. “Fiscal deficits are rising dramatically” goes the argument. “Governments will have to create inflation to reduce debt:GDP ratios, as they have done in the past.”
The problem with the idea of governments inflating their way out of a debt burden is that it does not work. Absent episodes of hyper-inflation, it is a strategy that has never worked. Government debt: GDP burdens tend to be positively correlated with inflation. Market mythology has created the idea that inflation will help reduce government debt ratios. The facts do not support the myth. OECD government debt rises as inflation rises. Meaningful reductions in government debt will require a low inflation future.
As this chart shows, instances of declining debt-to-GDP rarely coincide with periods of inflation. If it did If it did, we’d see more dots in the lower right-hand quadrant.
The bad news for central bankers is that creating currency isn’t like, say, diluting shareholders in a company. You’re always rolling your debt, and the market’s response to an inflationary strategy is (not surprisingly) higher interest rates. It’s a treadmill, and it’s extremely hard to get ahead.
So why do we have this mythology, as Donovan calls it, of inflating our way out of debt? It’s probably because on the surface there’s some simple logic to it, though more importantly it’s a myth borne out of necessity. The opposite idea, that we’d actually have to cut spending and raise taxes (which is to say, actually pay off our debts) is just too painful to contemplate.