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A Podcast From Christopher Whalen on a Q4 Bloodbath… Plus Earnings From PBG* & YUM*



SOMERS. N.Y. (TheStreet) — Pepsi’s(PEP Quote) purchase of Pepsi Bottling Group(PBG Quote) is looking like a better idea by the day.

The bottler posted a 10% jump in its third quarter, earning $254 million, or $1.14 a share. This compares with a profit of $231 million, or $1.06 a share, in the year-ago period.

The quarter included $17 million, or 8 cents per share, for a favorable tax audit settlement and some other items.

Analysts expected the company to earn $1.05 a share.

Sales slipped 5% to $3.63 billion from $3.81 billion.

Looking ahead, Pepsi Bottling forecasts full-year earnings at the high end of its projected range of $2.30 to $2.40 per share.

On Monday, Pepsi announced the creation of a new bottling unit called PepsiCo Bottling North America, which will merge Pepsi Bottling Group and PepsiAmericas(PAS Quote). The new division will be led by Eric J. Foss, chairman and CEO of Pepsi Bottling.

In August the soft-drink maker said it would finally buy the two bottlers in a deal worth $7.8 billion.

— Reported by Jeanine Poggi in New York


LOUISVILLE, Ky.–(BUSINESS WIRE)–Yum! Brands Inc. (NYSE: YUMNews) today reported Earnings Per Share (EPS) of $0.69, or $0.70 excluding special items, for the third quarter ended September 5, 2009.

  • nternational development continued at a strong pace with 267 new restaurants including 88 new units in mainland China and 165 new units in Yum! Restaurants International (YRI).
  • System sales growth of +11% in mainland China and +4% in YRI was offset by a 5% decline in the U.S. resulting in flat worldwide system sales in local currency terms; worldwide system sales declined 4% after foreign currency translation.
  • Worldwide restaurant margin improved over 3 percentage points driven by significant gains in both the U.S. and China.
  • Worldwide operating profit growth of 15% was driven by China, +32%, and the U.S., +18%. YRI profit declined 13% due to negative foreign currency translation. Worldwide operating profit growth was 19% prior to foreign currency translation.
  • Foreign currency translation negatively impacted EPS by $0.02 per share.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

Third Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
EPS Excluding Special Items $0.70 $0.58 21% $1.67 $1.45 16%
Special Items Gain/(Loss)1 ($0.01 ) $0.00 NM $0.10 $0.08 NM
EPS $0.69 $0.58 19% $1.77 $1.53 16%

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the 2009 and 2008 Special Items.


The Company raised its full-year 2009 EPS forecast from $2.10 to $2.14 per share or 12% growth prior to special items, driven by stronger-than-expected full year performance in China and a lower-than-expected full year effective tax rate.

David C. Novak, Chairman and CEO, said, “I’m pleased to report we are raising our full year 2009 EPS growth forecast to 12% based on our strong year-to-date profit performance. Our global portfolio delivered an impressive 15% operating profit growth this quarter, driven by 32% growth in China and 18% growth in our U.S. business. China and Yum! Restaurants International are on track to open over 1,400 international new units this year. We are confident our industry leading international new unit development will continue to be a key factor in our ability to drive future sales and profit growth.

“Our China business generated extraordinary operating profit growth of 32% in the third quarter. We leveraged our high-return, new unit development and increased restaurant margin over two points. We are especially pleased that our China team achieved margins near record levels with high average unit volumes. We are on track to open over 475 new units in mainland China. Importantly, KFC is the only Western QSR brand in the vast majority of the 600 cities in which we have a presence. Our U.S. business achieved strong operating profit growth of 18%. This can be attributed to substantial improvement to restaurant margin and significant G&A savings which offset a 6% same-store-sales decline. There’s no question the overall worldwide environment continues to be challenging. However, we are more confident than ever in the consistent earnings power of our global portfolio. We also continue to make major progress developing our significant, new sales layers which will better leverage our assets and drive future growth.

“Looking to 2010, we expect to deliver 10% EPS growth. This would be the ninth consecutive year we meet or exceed our annual target of at least 10% EPS growth. Our fundamental opportunities remain intact. We continue to have the unique ability to generate unparalleled international growth, increase sales in our existing assets and drive significant free cash flow while continuing to be an industry leader in return on invested capital.”


Third Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
System Sales Growth +11 +10 +11 +9
Restaurant Margin (%) 23.2 20.9 2.3 2.3 21.5 19.7 1.8 1.7
Operating Profit ($MM) 217 165 +32 +31 453 360 +26 +23
  • China Division system sales growth of 10% excluding foreign currency translation was driven by strong new unit development in mainland China while same-store-sales were flat.
    • We opened 88 new restaurants in mainland China for the third quarter for a total of 304 year to date.
Mainland China Units Q3 2009 % Change
Traditional Restaurants 3,281 +16
KFC 2,729 +16
Pizza Hut Casual Dining 442 +11
Pizza Hut Home Service 87 +24
  • Restaurant margin increased 2.3 percentage points driven primarily by significant commodity deflation of $21 million in the third quarter. A similar benefit is expected in the fourth quarter.
  • Foreign currency conversion benefited operating profit by $1 million.
  • Operating profit growth of 32% overlapped growth of 22% in the third quarter of 2008.


Third Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
Traditional Restaurants 12,895 12,489 +3 NA 12,895 12,489 +3 NA
System Sales Growth (7 ) +4 (7 ) +7
Franchise & License Fees 156 165 (5 ) +5 442 467 (5 ) +8
Operating Profit ($MM) 119 137 (13 ) Flat 342 393 (13 ) +3
Operating Margin (%) 18.0 18.1 (0.1 ) (0.6 ) 18.7 18.0 +0.7 (0.2 )
  • System sales growth of 4%, excluding foreign currency translation, was driven by new unit development and same-store sales were flat. The table below provides further insight into key YRI markets.
  • YRI opened 165 new restaurants with 93% coming from our franchise partners.
  • Operating profit growth was negatively impacted by poor performance in two company markets, Mexico and South Korea, and timing related to overhead expenses.
  • Foreign currency translation negatively impacted operating profit by $17 million.
Key YRI Markets System Sales Growth
Ex F/X (%)
Third Quarter Year-to-Date
Franchise Only Markets
Asia (ex China Division) +4 +7
Continental Europe Flat +3
Middle East +6 +8
Latin America +4 +6
Company/Franchise Markets
Australia +3 +6
UK +9 +10
New Growth Markets +20 +18

Note: The markets listed above generate approximately 80% of YRI operating profit. New
Growth Markets include France, Russia and India.


Third Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
Same-Store-Sales Growth (%) (6 ) +3 NM (3 ) +3 NM
Restaurant Margin (%) 14.1 10.8 +3.3 14.0 11.9 +2.1
Operating Profit ($MM) 171 146 +18 497 447 +11
Operating Margin (%) 16.2 12.0 +4.2 15.5 12.3 +3.2
  • Same-store-sales declined 6% which included a 13% decline at Pizza Hut.
  • Restaurant margin improved by 3.3 points due largely to commodity cost deflation of $16 million this quarter. Year-to-date commodity cost deflation has totaled $11 million. The full year benefit from commodity cost deflation is expected to be about $20 million.
  • Third quarter operating profit growth of 18% and operating margin improvement of 4.2 points were driven by a $16 million decline in our U.S. G&A cost structure from actions initiated in the fourth quarter of 2008. For the full year, we continue to expect G&A cost savings of at least $60 million.


In the third quarter, 98 company-owned U.S. restaurants were sold to franchisees. Year to date, we have refranchised a total of 286 units, including 210 Pizza Huts, 50 KFCs and 26 Taco Bells. We continue to expect to refranchise 500 units in 2009. Full year proceeds from U.S. refranchising are expected to be about $175 million.


Yum! Brands Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. ET Wednesday, October 7, 2009.

The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at noon Eastern Time Wednesday, October 7, through midnight October 21, 2009. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 29944595.

The webcast and the playback can be accessed via the Internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q3 2009 Earnings Call”.

For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors.

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Business Headlines For October 6, 2009

NY Fed Prez Says No V Shaped Recovery @ Hand

Not everyone is enthusiastic about the recovery. New York Fed President Bill Dudley is concerned about several things, including commercial real estate.

Yes, financial markets are performing better, but on the negative side, unemployment is way too high.

Dudley, who spoke last night at Fordham University said that the recovery will turn out to be “moderate by historical standards,” an outcome he calls “disappointing” and which will not to bring the unemployment rate—currently 9.8% —down quickly.

He said three restraining factors are into play: The shock to household net worth seems likely to have several important implications for household behavior; the fiscal outlook, as the stimulus is a temporary fix; and banks’ still-in-the-dumps’ balance sheets, which makes them capital constrained and hesitant to expand their lending.

While Dudley addressed the 800-pound gorilla – commercial real estate — which is “under particular pressure,” and laid out the reasons of the sector’s sorry state, he falls short from offering any solutions or saying that banks might want to start cleaning up their balance sheets. (Thanks!)


Dollar Demise

Tags: General, , , ,

– Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own –

LONDON (Reuters) – An article in Britain’s Independent newspaper on Tuesday rightly attracted a lot of market attention with its provocative heading “The demise of the dollar.” While subsequent and almost co-ordinated denials from numerous capitals have taken the steam out of the story, the dollar’s role is again under scrutiny.

While the geopolitical realities of the Middle East would arguably rule out the re-pricing of oil in non-dollar currencies at this time, that may change in the future.

Alarmist conclusions that the dollar is on a swift road to ruin are wide of the mark. The road will be long and at its end the dollar will not be ruined, but it will be less important.

The dollar remains, however, on the back foot as the story resonated with a market that was already looking for an excuse to unload the greenback. Sovereign reserve managers, working for future generations, will have taken note. These stories add to the uncertainty of holding vast sums of dollars in trust.

It has long been the fate of reserve currencies to depreciate and be displaced. Global reserve currency status has always encouraged the beneficiary nation or empire to live beyond its means, safe in the knowledge that the rest of the world must hold its currency to pay for goods and commodities. The Roman dinar, the Spanish reale and most recently the British pound are all examples of currencies that have gradually lost their reserve status in this manner.

The key point is that the process is gradual. Displacement occurs in baby steps, small incremental developments which eventually create an unstoppable momentum. When the European Community first posited the idea of the single currency, the markets (particularly in London) sneered. Yet the euro was born and has prospered.

The dollar is entering a process of critical examination. This will take years, probably decades. Sterling retained significant world reserve status throughout the first half of the 20th century, despite clear signs economic primacy had shifted to the United States and despite the crushing financial weight of participation in two world wars.

One newspaper article is not a game-changer, but it is a reminder that the dollar’s position is under the microscope.

The market remembers only too well the suggestions of China’s Central Bank Governor Zhou Xiaochuan in March 2009. He said then that the world should consider adopting the Special Drawing Right, a basket of dollars, euros, sterling and yen, as a super-sovereign reserve currency.

The Chinese suggestion was a baby step toward change but the U.S. reaction was telling. Treasury Secretary Timothy Geithner said he had not read the proposal but added, “As I understand it, it’s a proposal designed to increase the use of the IMF’s Special Drawing Rights. I am actually quite open to that suggestion.” A masterful piece of political deflection but the market recognized the Chinese intent.

Even more recently, in September, the United Nations Conference on Trade and Development issued a report calling for a new global reserve currency.

It’s like the dripping of a tap. Across the world, institutions, governments and the media are wearing away at the dollar’s dominance. Central banks managing billions of dollars of reserves are not immune to these incremental developments.

In the past, Japanese officials characterized the best moment for intervention to be when they could “go with the wind.” In the current debate, reserve managers will consider that a light breeze is blowing against the dollar. They will make a measured and appropriate response. Marginal adjustments in reserves would increase the non-dollar component.

The Independent story may have been denied but it chimed with the market. It wasn’t the first such story and it won’t be the last. With the United States perceived to be living beyond its means and facing the challenges of rapidly rising economic and political rivals, the debate will continue. But it will be a long, long debate, and the effects on the value of the dollar will be incremental, not precipitate. To paraphrase Mark Twain, rumors of the dollar’s sudden death have been greatly exaggerated.

(Editing by Nigel Stephenson)

Reverse Mortgages May Be Taking Advantage of Seniors

By Alexis Leondis

Oct. 6 (Bloomberg) — Reverse mortgages may be the next subprime crisis, according to the National Consumer Law Center.

Some of the same U.S. lenders that helped drive the real estate boom with loans to home buyers who couldn’t afford the payments are now targeting seniors, the center said. Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report titled “Subprime Revisited,’’ that was released today by the Boston-based NCLC.

“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the National Consumer Law Center, who contributed to the report.

Reverse mortgages enable people aged 62 and over who are looking for extra cash to use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit, or a combination of the three. Lenders are repaid from the sale of the home when the borrowers die or move.

The former maximum payout for reverse mortgages backed by the Federal Housing Administration was $417,000. That limit was increased temporarily to $625,500 in February. Origination fees are capped at $6,000. In 2008, more than 100,000 seniors used reverse mortgages to tap over $17 billion in home equity, according to the Housing and Urban Development Department.

Consumer Protections

“These can be good things for certain people, but there are many pitfalls and we need transparency and consumer protections,” said Senator Herb Kohl, a Wisconsin Democrat, and chairman of the Senate Special Committee on Aging, in an e- mailed statement.


Today’s Up & Downgrades

Stocks laughed all the way to the big banks as Goldman’s upgrade of the sector saw a four-day slide end in emphatic fashion. Innerwear outfit Hanesbrands (HBI) (+12.05%) and Victoria’s Secret owner Limited Brands (LTD) (7.75%) were each indicative of a market which had nothing to hide. Dow Chemical (DOW) jumped 5.25% after saying it sees ample opportunity in solar shingles, a performance put in the shade by DepoMed’s (DEPO) 27.21% surge on successful trials for its shingles related pain product. Foodies fretted — diet darling NutriSystem (NTRI) was worth the weight with a 23.26% after hours increase on the day Gourmet magazine called it quits — but with both Yum Brands (YUM) and Rocky Mountain Chocolate Factory (RMCF) reporting results today, gluttons everywhere are out to emphasize revenge is best served cold.

The Supreme Court reconvened after vacation and Bank of America (BAC) announced a full court press to bring Merrill’s iconic bull back from hibernation, assuaging investors who had spotted its doppelganger in the doghouse. And if Sunday night was all about Mad Men’s Don Draper, Monday morning debuted dapper Don, with Imus in the Morning starting its 6:00AM simulcast on Fox Business channel.


American International Group (AIG): UBS assumes coverage of American International Group with a Neutral.

Research In Motion (RIMM): The tech giant is initiated at Sanford Bernstein with an Underperform $60 price objective since it sees consensus estimates as too optimistic.

Tiffany (TIF): The retailer may shine after Citigroup picked it up with a with a Buy.

Marriott International (MAR): Collins Stewart makes room for Marriott with a Hold amid softness in timeshare and luxury residential markets.

Allergan (AGN): Beauty is only skin deep at Allergan, with the Botox maker frozen at Neutral by JP Morgan as its valuation already reflects its diverse growth opportunities.

Gap Inc. (GPS): The Gap gets initiated with a Buy and $25 target at Jesup & Lamont. See yesterday’s article Stick With Winners in Retail.


General Mills (GIS): The food packager starts the day with an Overweight-from-Equal Weight increase at Morgan Stanley on increased conviction following a stellar first quarter. The target price is taken to $72 from $64. For more see General Mills: The Company of Champions.

Family Dollar (FDO): Discounter Family Dollar is upgraded to Outperform from Market Perform by BMO Capital Markets ahead of earnings.

Corning (GLW): The company gets a Buy-from-Neutral boost at UBS.

Select Comfort (SCSS): Sleep specialist Select Comfort can take comfort in an upgrade at Raymond James (Outperform from Market Perform).

AFLAC (AFL): UBS upgrades AFLAC to Neutral from Sell.


Energy Stocks: Chesapeake Energy (CHK) and Devon Energy (DVN) are each downgraded to Underperform from Neutral at Credit Suisse.

International Game Technology (IGT): The stock gets cut to Buy from Conviction Buy at Goldman Sachs.

Zimmer Holding (ZMH): UBS lowers Zimmer Holdings (Neutral from Buy).

PepsiCo (PEP): The beverage firm is removed from the US Focus List at Credit Suisse, which sees shares rangebound after recent strength.

Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.


Gold Hits New Highs on Weak Dollar

Gold hit a record high of $1,035.95 an ounce in Europe on Tuesday, with buying fueled by dollar weakness.

Spot gold cnbc_comboQuoteMove(‘[email protected]_ID0EMF15839609’);[[email protected] 1030.7 12.90 (+1.27%)]
cnbc_quoteComponent_init_getData(“[email protected]″,”WSODQ_COMPONENT_US%40GC.1_ID0EMF15839609″,”WSODQ”,”false”,”ID0EMF15839609″,”off”,”false”,”inLineQuote”);
was bid at $1,034.75 an ounce at against $1,016.65 late in New York on Monday…….


BA to Take a Charge & Delay 747 Freighter

Boeing said it would take a charge of $1 billion in the third quarter because of higher production costs and tough market conditions for its 747-8 program.

Boeing Headquarters

The world’s second-largest plane-maker also said it would delay the first flight of the jumbo 747-8 Freighter to 2010 from the fourth quarter of 2009.

Boeing cnbc_comboQuoteMove(‘popup_ba_ID0EHH15839609’);[BA 52.28 UNCH (0) ]
said $640 million of the charge reflects higher estimated costs to produce the 747-8. The company said “late maturity of engineering designs” disrupted manufacturing in the third quarter.

The remaining $360 million of the charge is linked to tough market conditions and the company’s decision to maintain the 747-8 production rate at 1.5 airplanes per month nearly two years longer than previously planned…..


Apartment Vacancies Rise

By Hui-yong Yu

Oct. 6 (Bloomberg) — U.S. apartment vacancies rose to 7.8 percent in the third quarter, the highest since 1986, as rising unemployment reduced rental demand, Reis Inc. said.

Actual rents paid by tenants, known as effective rents, declined 2.7 percent from a year earlier, the New York-based property research firm said in a report today. Asking rents, or what landlords sought, fell 1.8 percent from a year earlier.

Job losses and falling wages are shrinking the pool of potential tenants. The U.S. unemployment rate rose to 9.8 percent in August, the highest since 1983, the Labor Department said Oct. 2.

Vacancies “continued to rise despite what has traditionally been a strong leasing period for apartment properties,” Victor Calanog, director of research at Reis, said in a statement. “Given the inherent seasonality of rental and lease-up patterns we expect fourth-quarter figures to be even weaker, implying that we may break historic vacancy levels by year-end 2009.”

The apartment vacancy rate was 7.7 percent in the second quarter and 6.2 percent in 2008’s third quarter, Reis said. Compared with the second quarter, asking rents fell 0.5 percent and effective rents fell 0.3 percent.

New York’s Rate Falls

New York’s vacancy rate fell to 2.9 percent in the third quarter from 3 percent in the second, as the end of summer brought an influx of tenants signing leases, Reis said. Effective rents dropped 0.9 percent from the prior quarter and were down 6.8 percent from a year earlier.

“With New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out” there, Calanog said. “We are on track for 2009 to register as the worst year in rent drops on record, far exceeding the historic 3.8 percent decline recorded in 2002.”

New Haven, Connecticut, replaced New York as the city with the lowest vacancy rate, at 2.5 percent, partly due to the start of the academic year, said Reis. Yale University is located in New Haven.



Emerson, the US engineering company, said on Tuesday it had agreed to acquire Avocent, which makes network equipment and software, in a $1.2bn deal intended to widen its services offerings.

The all-cash deal is expected to close next January and at $25 a share would give Avocent stock holders a 22 per cent premium from last Friday’s closing share price. Shares of Avocent surged in pre-market trading by 20.81 per cent to $24.79, while Emerson’s stock was flat.


Asian Markets Rise on U.S. ISM Data

By Jonathan Burgos and Shani Raja

Oct. 6 (Bloomberg) — Asian stocks rose for the first time in four days, led by companies reliant on overseas sales, after U.S. service industries returned to growth following 11 months of contraction.

Mazda Motor Corp., Japan’s No. 4 carmaker, rose 7.6 percent in Tokyo after narrowing a loss forecast and as a private report on services, which account for almost 90 percent of the U.S. economy, fueled optimism growth will pick up. Jiangxi Copper Co. climbed 4.1 percent in Hong Kong after commodity prices gained. Sumitomo Mitsui Financial Group Inc. added 3.6 percent after Japan’s financial services minister said lenders won’t have to boost provisions for bad loans should borrowers delay repayments.

The MSCI Asia Pacific Index added 1.4 percent to 115.29 as of 5:44 p.m. in Tokyo, following a three-day, 3.6 percent drop. The gauge has rallied 63 percent from a five-year low on March 9 amid better-than-estimated economic data and earnings reports. Shares on the gauge trade at an average 22 times estimated profit, more than the MSCI World Index’s 17 times.

“Asian markets are at higher valuations than most other markets, but the expectation is that you’ll get a lot more growth,” said Philip Schwartz, who manages $1.2 billion as head of international investing at ING Investment Management in New York. “Unless the numbers are really disappointing, I don’t think there’s a lot of risk to the markets.”

Japan’s Nikkei 225 Stock Average added 0.2 percent. Hong Kong’s Hang Seng Index rose 0.8 percent, as Alibaba.com Ltd., operator of China’s biggest trading Web site, surged 4.4 percent after Deutsche Bank AG upgraded the stock. China’s markets are closed for a holiday……

European Markets Enjoy a Broad Based Rally

By Adria Cimino

Oct. 6 (Bloomberg) — European and Asian stocks gained as higher commodities lifted metal producers, while financial shares advanced after BofA Merrill Lynch Global Research recommended European banks.

BHP Billiton Ltd., the world’s biggest mining company, climbed for a second day as copper increased. Credit Agricole SA, France’s third-largest bank by market value, advanced 4.2 percent after BofA Merrill advised buying the stock. Societe Generale SA, the country’s second-biggest lender, fell for a fifth day after saying it aims to raise 4.8 billion euros ($7.1 billion) and is in talks to purchase Dexia SA’s 20 percent stake in Credit du Nord. Dexia added 2.8 percent.

Europe’s Dow Jones Stoxx 600 Index gained 1.4 percent to 239.37 at 10:59 a.m. in London, while futures on the Standard & Poor’s 500 Index rose 0.8 percent. The benchmark gauges for Europe and the U.S. rebounded yesterday as a report showed American service industries returned to growth after 11 months of contraction.

“If banks are doing well, that’s good news for the rest of the market,” said Kilian de Kertanguy, a fund manager at Cholet-Dupont Gestion SA in Paris, which oversees about $2.3 billion. “There are signs that the market is ready to return to its highs. Each time there is a decline, we see that there are buyers and liquidity out there ready to enter.”….

Oil Rises Above $71pb

By ALEX KENNEDY p {margin:12px 0px 0px 0px;}

SINGAPORE (AP) – Oil prices rose above $71 a barrel Tuesday in Asia as a jump in global stock markets boosted investor confidence.

Benchmark crude for November delivery was up 60 cents at $71.01 by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract gained 46 cents to settle at $70.41 Monday.

Oil has loitered near the $70 a barrel level for months as traders struggle to gauge how strongly the U.S. economy will recover.

Last week, poor jobs and manufacturing data undermined optimism, but on Monday the Institute for Supply Management said its service index showed that sector grew in September for the first time since August of last year.

Crude traders often look to stock markets for a sense of overall investor confidence. The Dow Jones industrial average rose 1.2 percent Monday, and most Asian indexes gained in early trading Tuesday.

A weakening dollar also helped oil prices. The euro rose to $1.4717 on Tuesday from $1.4647 the previous day, and the dollar slipped to 89.22 yen from 89.53.

In other Nymex trading, heating oil gained 1.10 cents to $1.80 a gallon. Gasoline for November delivery jumped 1.18 cents to $1.77 a gallon. Natural gas for November delivery fell 2.5 cents to $4.96 per 1,000 cubic feet.

In London, Brent crude rose 60 cents to $68.64 on the ICE Futures exchange.

Dollar Falls Against The Euro, Yen, & Sterling

….The euro, which closed yesterday’s trading at 1.4650 against the dollar jumped to a 12-day high of 1.4750 in early deals on Tuesday. The next upside target level for the euro-dollar pair is seen at 1.484.

During early trading on Tuesday, the euro climbed to an 8-day high of 0.9247 against the pound. If the European currency advances further, it may target the 0.930 level. At yesterday’s close, the euro-pound pair was quoted at 0.9194.

An unexpected fall in U.K. industrial production weakened the pound today. The Office for National Statistics report showed that British industrial production declined 2.5% in August from July, while economists were looking for 0.2% rise. Annually, production was down 11.2%, larger than the 8.7% decrease expected by economists.

The euro recouped its Asian session’s loss against the Japanese yen in early European deals on Tuesday. The euro-yen pair thus moved from 130.73 to 131.58. On the upside, 132.1 is seen as the next target level for the euro. The pair was worth 131.22 at yesterday’s close.

In early deals on Tuesday, the euro fell to 1.5098 against the Swiss franc. This may be compared to yesterday’s closing value of 1.5122. The near term support for the euro-franc pair is seen around the 1.508 level.

Switzerland’s consumer price index or CPI fell 0.9% year-on-year in September after falling 0.8% in August, the Federal Statistical Office said today. Economists had forecast consumer prices to decline 0.8%. On a monthly basis, the CPI was flat in September, while it was expected to rise 0.1% after an increase of 0.1% in August.

by RTT Staff Writer

By Jacob Greber

Oct. 6 (Bloomberg) — Australia’s central bank unexpectedly raised its benchmark interest rate from a 49-year low and signaled further increases in coming months amid signs the economy is strengthening.

Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.25 percent from 3 percent in Sydney today. Only one of 20 economists surveyed by Bloomberg News forecast today’s move. The rest predicted no change.

The local currency jumped to the highest level in 14 months as Australia became the first Group of 20 nation to boost borrowing costs since the start of the global financial crisis more than a year ago. Rising job vacancies, retail sales and house prices, plus surging business and consumer confidence support Stevens’ view that the “basis for such a low interest rate setting has now passed.”

“It’s quite a pre-emptive move,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “They’re very comfortable the globe is returning to firmer growth, particularly Australia’s key trading partners in Asia.

“There are a few more hikes ahead.”

The Australian dollar rose to 88.53 U.S. cents at 5:47 p.m. in Sydney from 87.62 cents just before the decision was announced. The two-year government bond yield gained 4 basis points to 4.39 percent. A basis point is 0.01 percentage point.

Governor Stevens, who cut the benchmark lending rate by a record 4.25 percentage points between September 2008 and April to cushion Australia against fallout from the global credit squeeze, said today that the economy is likely to expand “close to trend over the year ahead,” and inflation will remain near the bank’s target range of between 2 percent and 3 percent.

Risk Has Passed…..

AIG Close To Selling Taiwan Unit

By Cathy Chan

Oct. 6 (Bloomberg) — American International Group Inc., the insurer bailed out by the U.S. government, is near an agreement to sell its Taiwan life insurance unit to Primus Financial Holdings Ltd., people familiar with the matter said.

New York-based AIG is in advanced talks with Primus and the two companies may sign an agreement as early as next week, the three people said, asking not to be identified. Primus Financial, co-founded by former Citigroup Inc. Asia investment banking chief Robert Morse, offered more than $2 billion for AIG’s Taipei-based Nan Shan Life Insurance Co., two of the people said.

AIG, once the world’s biggest insurer, is divesting units to repay loans included in its $182.5 billion government bailout. The selection of Primus Financial would end a four-month battle for Nan Shan that pitted the Hong Kong-based company against Chinatrust Financial Holding Co. and Cathay Financial Holding Co.

Jennifer Chen, a spokeswoman for Primus, declined to comment. An outside spokeswoman for AIG, who declined to be identified citing company policy, had no comment.

Primus Financial and Chinatrust sweetened terms of their offers in September as they entered final talks with AIG, two people familiar with the matter said. Fubon Financial Holding Co. and Cathay Financial dropped out of bidding after AIG rejected their offers, they said.

Hong Kong Tycoons….

VALE Increases Iron Ore Output to 95% Capacity

By Diana Kinch

Oct. 5 (Bloomberg) — Vale SA, the world’s biggest iron-ore producer, has increased output to 95 percent of capacity at its Brazilian mines, sooner than previously expected following the financial crisis, Goldman Sachs said.

Vale iron-ore mines in southeastern Brazil are producing at full capacity, while its higher-cost mines in the country’s south are operating at 80 percent, Goldman Sachs’s analysts led by Marcelo Aguiar said today in an e-mailed note to clients, citing Vale managers. Goldman Sachs previously forecast Vale to operate at 84 percent capacity in the fourth quarter.

The Rio de Janeiro-based mining company cut output of the steelmaking raw material earlier this year as the global economic crisis pared global demand. Chief Executive Officer Roger Agnelli told reporters July 7 Vale was restarting mines and pellet plants as demand rebounded.

“Vale should operate close to full iron-ore and pellets capacity in 2010, which represents 330 million to 340 million tons of iron ore,” Aguiar said after meeting Agnelli last week. The Sao Paulo-based analyst had estimated output of 306 million tons in 2010.

Vale rose 1.5 percent to 37.14 reais in Sao Paulo trading. The stock has gained 55 percent this year, less than the 66 percent increase for Brazil’s benchmark Bovespa index.

U.K. Factory Manufacturing Unexpectedly Slips to ’92 Lows

By Svenja O’Donnell

Oct. 6 (Bloomberg) — U.K. manufacturing production unexpectedly slumped in August to the lowest level since 1992, a sign the economy is struggling to shake off the recession.

Factory output dropped 1.9 percent from the previous month, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 26 forecasts in a Bloomberg News survey. The index of manufacturing fell to 87.8, the lowest in 17 years.

Bank of England policy makers have cautioned that the credit squeeze and weak demand at home and overseas may hamper the economy’s escape from the worst recession in at least a generation. The central bank will keep up its 175 billion-pound ($280 billion) asset-purchase plan this week as officials gauge the strength of the recovery, economists say.

The data are “shockingly bad,” said Alan Clarke, an economist at BNP Paribas SA in London. “This starts to concern us that we’re losing momentum a bit earlier than we’d feared. We’re out of recession but it’s far from good growth yet.”

The pound dropped versus the euro and pared its advance against the dollar after the report. The British currency declined 0.3 percent to 92.24 pence per euro as of 9:50 a.m. in London. It was 0.2 percent higher at $1.5964, after earlier gaining as much as 0.7 percent.

Across the Board

The drop in manufacturing on the month was the biggest since January. All 13 categories fell, led by paper, printing, publishing, and then electrical and optical equipment, the statistics office said. From a year earlier, factory production declined 11.3 percent…..

RTP & Mongolia Sign A Monster Mining Deal

LONDON — Mongolia’s government Tuesday signed a long-awaited investment agreement for the multi-billion dollar Oyu Tolgoi copper-gold mine, owned by Canada-based Ivanhoe Mines Ltd. in which Rio Tinto PLC holds a significant stake.

The agreement establishes a clear framework for taxation and government involvement for Oyu Tolgoi, and marks a significant step forward for mining investment in the country. It is expected to pave the way for billions of dollars of future investment in Mongolia’s largely untapped coal, iron ore, zinc, gold and uranium riches.

“We believe Oyu Tolgoi will bring far reaching benefits for employees and communities directly linked to the mine, as well as for the people and industries indirectly connected to our operations,” Bret Clayton, chief executive of Rio Tinto’s copper and diamonds group, said in a statement.

Rio Tinto in 2006 purchased a 9.9% stake in Ivanhoe for $303 million. That holding is set to double with the signing of the investment agreement and an additional payment of $388 million. Rio Tinto may raise its stake in the company to up to 46.65%.

Bloomberg News

Ivanhoe is likely to have to raise money to fund its share of the mine, and last month said it’s in talks with several sovereign wealth funds for a stake of up to 9.9% in the company.

Mongolia’s government will own 34% of the Oyu Tolgoi project under investment agreement terms. The government will pay for the stake through an effective deferred payment arrangement with Ivanhoe as well as deferring fees for the management of the project.

Oyu Tolgoi is planned to produce 450,000 metric tons of copper, about 3% of global supply, and 330,000 troy ounces of gold, with a mine life of 45 years. Production is expected to start in 2013 and take five years to reach full output…..

Secret Meetings Being Held To Replace The Green Back

We’re not sure how much stock to put in this report, but UK’s the Independent offers a warning about swift plans to desert teh friendless US Dollar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy interests and security.”

There’s probably a lot of truth to this. It’s unfathomable that other countries aren’t talking about their curency exposure, and the future of the dollar. Whether the discussions are as concrete as the journalist, Robert Fisk, alleges is a bit more in doubt.

His ending is fittingly ominous

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

“These plans will change the face of international financial transactions,” one Chinese banker said. “America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

Read the whole thing >

Oil States Deny Rumors on Replacing Dollar

By Simon Rabinotvitch and Wayne Cole

ISTANBUL/SYDNEY (Reuters) – Big oil producing nations denied on Tuesday a British newspaper report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.

The U.S. dollar eased in response to the report, which was written by The Independent’s Middle East correspondent Robert Fisk and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.

It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.

But top officials of Saudia Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks.

Asked by reporters about the newspaper story, Saudi Arabia’s central bank chief Muhammad al-Jasser said: “Absolutely incorrect.” He repeated the same response when asked whether Saudi Arabia was in such talks.

Russia’s deputy finance minister Dmitry Pankin said: “We did not discuss this at all.”

Algerian Finance Minister Karim Djoudi told Reuters: “Oil producing countries need to stabilize revenues but…I don’t see a need for oil trade to be denominated differently.

“But we are at the IMF conference where all sorts of subjects are raised and discussed,” he added.


The U.S. dollar slipped in the wake of the newspaper story. The euro edged up as high as $1.4749 in European trade from $1.4662 before the story appeared……

Samsung Makes A Great Turn Around Looking @ Strong 3rd Quarter Profits

By Rhee So-eui and Marie-France Han

SEOUL (Reuters) – Samsung Electronics’ (005930.KS) stronger-than-expected quarterly earnings forecast on Tuesday failed to impress investors, who are worried a fast recovering won and competition are starting to cut into profits.

Analysts were looking ahead to the South Korean company’s fourth-quarter results, which could signal a slowdown linked to increased spending and heightened competition from the likes of Japan’s Sony (6758.T) and home rival LG Electronics (066570.KS).

Samsung, the world’s top maker of memory chips and flat screen TVs, made a spectacular turnaround this year, riding a sector recovery and wrestling market share from global rivals, sending its stock to a record high last month.

But analysts said the best might be over.

“Samsung seems to have reached a peak,” said Shinhan Investment analyst Sung Hye-jin. “Earnings will likely fall in the fourth quarter as LCD prices have turned lower, the handset division will spend more on marketing as usual, and its rivals have quickly caught up in the LED TV sector.”

The results forecast from Samsung is the first from a major consumer electronics maker for the quarter and could point to an improvement in consumer confidence.

Samsung shares ended with a small loss, wiping out early gains. They have fallen 10 percent from a record struck on September 22 versus a 7 percent fall in the broader market .

Of a total of 42 analysts surveyed by Thomson Reuters I/B/E/S, 24 had a buy rating and another 15 had strong buy…..

SocGen Joins The Band Wagon of Dilution

By Scheherazade Daneshkhu in Paris

Published: October 6 2009 07:38 | Last updated: October 6 2009 10:13

function floatContent(){var paraNum = “3”
paraNum = paraNum – 1;var tb = document.getElementById(‘floating-con’);var nl = document.getElementById(‘floating-target’);if(tb.getElementsByTagName(“div”).length> 0){if (nl.getElementsByTagName(“p”).length>= paraNum){nl.insertBefore(tb,nl.getElementsByTagName(“p”)[paraNum]);}else {if (nl.getElementsByTagName(“p”).length == 3){nl.insertBefore(tb,nl.getElementsByTagName(“p”)[2]);}else {nl.insertBefore(tb,nl.getElementsByTagName(“p”)[0]);}}}}Société Générale launched a €4.8bn rights issue on Tuesday to repay a government bail-out, following the lead set by BNP Paribas, France’s biggest bank, last week.

Société Générale, the country’s third biggest bank, said it would use the money to repay the government’s €3.4bn capital aid, of which half is in the form of preference shares and the rest a subordinated loan.

The bank also revealed it was in talks with Dexia to buy the remaining 20 per cent of Crédit Nord it did not own and hinted at further acquisitions. The capital increase would also permit the bank “to seize potential external growth opportunities”, it said.

The move comes a day after President Nicolas Sarkozy said he expected another big bank to repay state money this week.

Société Générale is the third French bank to start repaying government money and follows a slew of European and US banks, including Switzerland’s UBS, Goldman Sachs, JPMorgan and Morgan Stanley.

Like BNP, which last week announced a €4.3bn rights issue, Société Générale has taken advantage of the buoyancy in stock markets to launch a cash call. Crédit Mutuel, the private mutual bank, last week repaid €1.2bn ($1.75bn) of a subordinated loan, plus an undisclosed amount of interest.

Crédit Agricole, the second largest bank, has said it is in “no hurry” to repay its €3bn of subordinated loans, while BPCE, the large mutual bank, said it would only start considering repayment of its €7bn of state aid from next year…..

The Natinal Retail Federation Gives Bearish Forecasts

NEW YORK (AP) – After parents cut back on clothes and accessories for children this past fall, the retail industry suspects they won’t be any more generous by the holidays.

The National Retail Federation, usually bullish about holiday sales, predicts a 1 percent decline in total sales to $437.6 billion for November and December combined. The projection from the world’s largest retail trade group comes amid forecasts that U.S. retailers saw a key measure of sales drop in September for the 13th month in a row compared with a year earlier.

The NRF is less optimistic this year than several other groups offering holiday sales forecasts.

“We just don’t see a sharp turnaround in consumer sentiment and spending until employment and income look a lot better,” said Rosalind Wells, chief economist at the National Retail Federation. “Shoppers are going to remain very frugal.”

NRF’s figures exclude sales from restaurants, gasoline, autos and online business; they include low-price retailers, department stores, grocery stores and specialty stores.

Last year, the Washington-based NRF issued a 2.2 percent growth forecast in mid-September just as the financial meltdown ballooned. The trade group decided not to offer a reduced estimate because the spending climate was deteriorating so quickly that forecasters couldn’t be accurate. The industry ended up having the weakest holiday season – when compared with the previous year – since at least 1967, when the U.S. Commerce Department started collecting retail sales data.

So far, holiday 2009 forecasts range from as weak as a 3.5 percent decline from Wells Fargo senior economist Mark Vitner to predictions at the top end from Deloitte Research and TNS Retail Forward that sales will be the same as last year.

Job security is a key factor in consumers’ ability and willingness to spend, and the latest government jobs report, issued Friday, fueled more concerns about the holiday shopping season. The figures showed unemployment ticking up to 9.8 percent in September, a 26-year-high, and employers shedding 263,000 jobs, more than the 180,000 forecast by economists…..

Concerns Raised by HSBC of Japan 2.0

HSBC believes there are many similarities between the developed world’s fiscal crisis and that of the deflationary period that occurred in Japan in the early 90’s.   This is an argument I have been quick to point out in the past.  But like HSBC, I also understand that markets can and will have incredible rallies during this secular bear market.    After an incredible run HSBC believes the rally is beginning to run into resistance due to 3 primary reasons:

There are, we think, three worrying tactical signs and we’re chopping five points from our US and European equity holdings. Activity-surprise indices compiled by our currency strategists have turned down lately, government-bond yields have been falling and commodity prices have been weak. Yet world equity prices have climbed more than 50% from their low and have scarcely paused for breath of late. Developed equities are now up by 15.5% this year and emerging equities by 47%.  Equity investors might be right to be sanguine: perhaps none of the three is important or, even if they are, all three could turn up again. But given the gains that we have seen in all risky asset markets and the amount of risk that we are still carrying in credit, it seems prudent to take at least some risk out of the portfolio. Credit, we think, is still cheaper than equity and we can’t see spreads widening much unless and until equities take a real bath.

Consider our activity-surprise indices. These have been turning down everywhere. Charts 2 and 3
show the indices for the US and Asia. Clearly, these have been rolling over. And given how much equity markets have gone up and how much hope is built into equity prices, that’s a bit worrying.


They could, of course, turn up again, but there are two other reasons to think that equity markets might struggle for a while: bond yields and commodity prices.

Bond yields are excellent leading indicators of secular trends in a deflationary environment.  The long end of the curve is clearly forecasting low inflation, while the short end of the curve is clearly pointing to a very slow recovery.


HSBC elaborates:

Bond yields have been a really good lead indicator of activity and equity markets over the past few years. Chart 4 shows the US 10-year bond yield and the US activity-surprise index. Rising bond yields have generally been followed by rising activity and equity markets and falling bond yields the opposite. That falling bond yields are bad for equities may surprise older hands, weaned as they were on the notion that lower yields were good for equities. But this really hasn’t been true since the autumn of 1998, after the Russian and LTCM crisis. Ever since then, shorter-dated government-bond yields and equity markets have been positively correlated. In English, this means falling yields have generally meant falling equity prices and rising yields have meant rising equity markets.


In Japan in the 1990s, equities went up and equities went down, but government yields fell and fell and eventually so did the equity market. So the bond market was worth keeping an eye on because it was telling you something worrying about growth rates, and ultimately it was right.


In addition, HSBC is increasingly concerned with the weakness in the commodity space:

Now, commodity prices are still extraordinarily strong given the financial earthquake that has reverberated around the world, but there are unmistakeable signs of weakness. Brent crude prices are now 11% off their recent high in early June. But prices for December delivery of heating oil have fallen 8% since early August. US wholesale petrol prices for December are down by about 15% from early June. Having fallen by twothirds, the price of coal seems to have peaked (for now, at least) in mid-July. True, natural gas prices have been climbing of late, but then these had been – and despite their recent rise still are – at multi-year lows.

While I agree with much of what HSBC says I would be more inclined to put my money where their mouth is if I didn’t believe that the market is primed for another quarter of earnings that are going to be better than expected.  Being short over the next month could be a dangerous position as earnings unfold….

* Thanks to reader MS for contributing to this piece.

Source: HSBC

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

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Editorial: What Can We Make of The Recovery ?

Some say it is an illusion

War is Peace, Freedom is Slavery, Ignorance is Strength, and Debt is Recovery

In light of the ever-present and unyieldingly persistent exclamations of ‘an end’ to the recession, a ‘solution’ to the crisis, and a ‘recovery’ of the economy; we must remember that we are being told this by the very same people and institutions which told us, in years past, that there was ‘nothing to worry about,’ that ‘the fundamentals are fine,’ and that there was ‘no danger’ of an economic crisis.

Why do we continue to believe the same people that have, in both statements and choices, been nothing but wrong? Who should we believe and turn to for more accurate information and analysis? Perhaps a useful source would be those at the epicenter of the crisis, in the heart of the shadowy world of central banking, at the global banking regulator, and the “most prestigious financial institution in the world,” which accurately predicted the crisis thus far: The Bank for International Settlements (BIS). This would be a good place to start.

The economic crisis is anything but over, the “solutions” have been akin to putting a band-aid on an amputated arm. The Bank for International Settlements (BIS), the central bank to the world’s central banks, has warned and continues to warn against such misplaced hopes.

What is the Bank for International Settlements (BIS)?

The BIS emerged from the Young Committee set up in 1929, which was created to handle the settlements of German reparations payments outlined in the Versailles Treaty of 1919. The Committee was headed by Owen D. Young, President and CEO of General Electric, co-author of the 1924 Dawes Plan, member of the Board of Trustees of the Rockefeller Foundation and was Deputy Chairman of the Federal Reserve Bank of New York. As the main American delegate to the conference on German reparations, he was also accompanied by J.P. Morgan, Jr.[1] What emerged was the Young Plan for German reparations payments.

The Plan went into effect in 1930, following the stock market crash. Part of the Plan entailed the creation of an international settlement organization, which was formed in 1930, and known as the Bank for International Settlements (BIS). It was purportedly designed to facilitate and coordinate the reparations payments of Weimar Germany to the Allied powers. However, its secondary function, which is much more secretive, and much more important, was to act as “a coordinator of the operations of central banks around the world.” Described as “a bank for central banks,” the BIS “is a private institution with shareholders but it does operations for public agencies. Such operations are kept strictly confidential so that the public is usually unaware of most of the BIS operations.”[2]

The BIS was founded by “the central banks of Belgium, France, Germany, Italy, the Netherlands, Japan, and the United Kingdom along with three leading commercial banks from the United States, including J.P. Morgan & Company, First National Bank of New York, and First National Bank of Chicago. Each central bank subscribed to 16,000 shares and the three U.S. banks also subscribed to this same number of shares.” However, “Only central banks have voting power.”[3]

Central bank members have bi-monthly meetings at the BIS where they discuss a variety of issues. It should be noted that most “of the transactions carried out by the BIS on behalf of central banks require the utmost secrecy,”[4] which is likely why most people have not even heard of it. The BIS can offer central banks “confidentiality and secrecy which is higher than a triple-A rated bank.”[5]

The BIS was established “to remedy the decline of London as the world’s financial center by providing a mechanism by which a world with three chief financial centers in London, New York, and Paris could still operate as one.”[6] As Carroll Quigley explained:

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able  to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.[7]

The BIS, is, without a doubt, the most important, powerful, and secretive financial institution in the world. It’s warnings should not be taken lightly, as it would be the one institution in the world that would be privy to such information more than any other.

Derivatives Crisis Ahead

In September of 2009, the BIS reported that, “The global market for derivatives rebounded to $426 trillion in the second quarter as risk appetite returned, but the system remains unstable and prone to crises.” The BIS quarterly report said that derivatives rose 16% “mostly due to a surge in futures and options contracts on three-month interest rates.” The Chief Economist of the BIS warned that the derivatives market poses “major systemic risks” in the international financial sector, and that, “The danger is that regulators will again fail to see that big institutions have taken far more exposure than they can handle in shock conditions.” The economist added that, “The use of derivatives by hedge funds and the like can create large, hidden exposures.”[8]

The day after the report by the BIS was published, the former Chief Economist of the BIS, William White, warned that, “The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession,” and he further “warned that government actions to help the economy in the short run may be sowing the seeds for future crises.” He was quoted as warning of entering a double-dip recession, “Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised.” He added, “The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

An article in the Financial Times explained that White’s comments are not to be taken lightly, as apart from heading the economic department at the BIS from 1995 to 2008, he had, “repeatedly warned of dangerous imbalances in the global financial system as far back as 2003 and – breaking a great taboo in central banking circles at the time – he dared to challenge Alan Greenspan, then chairman of the Federal Reserve, over his policy of persistent cheap money.”

The Financial Times continued:

Worldwide, central banks have pumped thousands of billions of dollars of new money into the financial system over the past two years in an effort to prevent a depression. Meanwhile, governments have gone to similar extremes, taking on vast sums of debt to prop up industries from banking to car making.

White warned that, “These measures may already be inflating a bubble in asset prices, from equities to commodities,” and that, “there was a small risk that inflation would get out of control over the medium term.” In a speech given in Hong Kong, White explained that, “the underlying problems in the global economy, such as unsustainable trade imbalances between the US, Europe and Asia, had not been resolved.”[9]

On September 20, 2009, the Financial Times reported that the BIS, “the head of the body that oversees global banking regulation,” while at the G20 meeting, “issued a stern warning that the world cannot afford to slip into a ‘complacent’ assumption that the financial sector has rebounded for good,” and that, “Jaime Caruana, general manager of the Bank for International Settlements and a former governor of Spain’s central bank, said the market rebound should not be misinterpreted.”[10]

This follows warnings from the BIS over the summer of 2009, regarding misplaced hope over the stimulus packages organized by various governments around the world. In late June, the BIS warned that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”

An article in the Australian reported that, “The only international body to correctly predict the financial crisis … has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”

Further, “At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses,” and explaining how fiscal packages posed significant risks, it said that, “There is a danger that fiscal policy-makers will exhaust their debt capacity before finishing the costly job of repairing the financial system,” and that, “There is the definite possibility that stimulus programs will drive up real interest rates and inflation expectations.” Inflation “would intensify as the downturn abated,” and the BIS “expressed doubt about the bank rescue package adopted in the US.”[11]

The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates.” That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.”[12] With the latest report on the derivatives bubble being created, it has become painfully clear that this is exactly what has happened: the creation of another asset-price bubble. The problem with bubbles is that they burst.

The Financial Times reported that William White, former Chief Economist at the BIS, also “argued that after two years of government support for the financial system, we now have a set of banks that are even bigger – and more dangerous – than ever before,” which also, “has been argued by Simon Johnson, former chief economist at the International Monetary Fund,” who “says that the finance industry has in effect captured the US government,” and pointedly stated: “recovery will fail unless we break the financial oligarchy that is blocking essential reform.”[13] [Emphasis added].

At the beginning of September 2009, central bankers met at the BIS, and it was reported that, “they had agreed on a package of measures to strengthen the regulation and supervision of the banking industry in the wake of the financial crisis,” and the chief of the European Central Bank was quoted as saying, “The agreements reached today among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level.”[14]

Among the agreed measures, “lenders should raise the quality of their capital by including more stock,” and “Banks will also have to raise the amount and quality of the assets they keep in reserve and curb leverage.” One of the key decisions made at the Basel conference, which is named after the Basel Committee on Banking Supervision, set up under the BIS, was that, “banks will need to raise the quality of their so-called Tier 1 capital base, which measures a bank’s ability to absorb sudden losses,” meaning that, “The majority of such reserves should be common shares and retained earnings and the holdings will be fully disclosed.”[15]

In mid-September, the BIS said that, “Central banks must coordinate global supervision of derivatives clearinghouses and consider offering them access to emergency funds to limit systemic risk.” In other words, “Regulators are pushing for much of the $592 trillion market in over-the-counter derivatives trades to be moved to clearinghouses which act as the buyer to every seller and seller to every buyer, reducing the risk to the financial system from defaults.” The report released by the BIS asked if clearing houses “should have access to central bank credit facilities and, if so, when?”[16]

A Coming Crisis

The derivatives market represents a massive threat to the stability of the global economy. However, it is one among many threats, all of which are related and intertwined; one will set off another. The big elephant in the room is the major financial bubble created from the bailouts and “stimulus” packages worldwide. This money has been used by major banks to consolidate the economy; buying up smaller banks and absorbing the real economy; productive industry. The money has also gone into speculation, feeding the derivatives bubble and leading to a rise in stock markets, a completely illusory and manufactured occurrence. The bailouts have, in effect, fed the derivatives bubble to dangerous new levels as well as inflating the stock market to an unsustainable position.

However, a massive threat looms in the cost of the bailouts and so-called “stimulus” packages. The economic crisis was created as a result of low interest rates and easy money: high-risk loans were being made, money was invested in anything and everything, the housing market inflated, the commercial real estate market inflated, derivatives trade soared to the hundreds of trillions per year, speculation ran rampant and dominated the global financial system. Hedge funds were the willing facilitators of the derivatives trade, and the large banks were the major participants and holders.

At the same time, governments spent money loosely, specifically the United States, paying for multi-trillion dollar wars and defense budgets, printing money out of thin air, courtesy of the global central banking system. All the money that was produced, in turn, produced debt. By 2007, the total debt – domestic, commercial and consumer debt – of the United States stood at a shocking $51 trillion.[17]

As if this debt burden was not enough, considering it would be impossible to ever pay back, the past two years has seen the most expansive and rapid debt expansion ever seen in world history – in the form of stimulus and bailout packages around the world. In July of 2009, it was reported that, “U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.”[18]

Bilderberg Plan in Action?

In May of 2009, I wrote an article covering the Bilderberg meeting of 2009, a highly secretive meeting of major elites from Europe and North America, who meet once a year behind closed doors. Bilderberg acts as an informal international think tank, and they do not release any information, so reports from the meetings are leaked and the sources cannot be verified. However, the information provided by Bilderberg trackers and journalists Daniel Estulin and Jim Tucker have proven surprisingly accurate in the past.

In May, the information that leaked from the meetings regarded the main topic of conversation being, unsurprisingly, the economic crisis. The big question was to undertake “Either a prolonged, agonizing depression that dooms the world to decades of stagnation, decline and poverty … or an intense-but-shorter depression that paves the way for a new sustainable economic world order, with less sovereignty but more efficiency.”

Important to note, was that one major point on the agenda was to “continue to deceive millions of savers and investors who believe the hype about the supposed up-turn in the economy. They are about to be set up for massive losses and searing financial pain in the months ahead.”

Estulin reported on a leaked report he claimed to have received following the meeting, which reported that there were large disagreements among the participants, as “The hardliners are for dramatic decline and a severe, short-term depression, but there are those who think that things have gone too far and that the fallout from the global economic cataclysm cannot be accurately calculated.” However, the consensus view was that the recession would get worse, and that recovery would be “relatively slow and protracted,” and to look for these terms in the press over the next weeks and months. Sure enough, these terms have appeared ad infinitum in the global media.

Estulin further reported, “that some leading European bankers faced with the specter of their own financial mortality are extremely concerned, calling this high wire act ‘unsustainable,’ and saying that US budget and trade deficits could result in the demise of the dollar.” One Bilderberger said that, “the banks themselves don’t know the answer to when (the bottom will be hit).” Everyone appeared to agree, “that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.” Further, “someone from the IMF pointed out that its own study on historical recessions suggests that the US is only a third of the way through this current one; therefore economies expecting to recover with resurgence in demand from the US will have a long wait.” One attendee stated that, “Equity losses in 2008 were worse than those of 1929,” and that, “The next phase of the economic decline will also be worse than the ’30s, mostly because the US economy carries about $20 trillion of excess debt. Until that debt is eliminated, the idea of a healthy boom is a mirage.”[19]

Could the general perception of an economy in recovery be the manifestation of the Bilderberg plan in action? Well, to provide insight into attempting to answer that question, we must review who some of the key participants at the conference were.

Central Bankers

Many central bankers were present, as per usual. Among them, were the Governor of the National Bank of Greece, Governor of the Bank of Italy, President of the European Investment Bank; James Wolfensohn, former President of the World Bank; Nout Wellink, President of the Central Bank of the Netherlands and is on the board of the Bank for International Settlements (BIS); Jean-Claude Trichet, the President of the European Central Bank was also present; the Vice Governor of the National Bank of Belgium; and a member of the Board of the Executive Directors of the Central Bank of Austria.

Finance Ministers and Media

Finance Ministers and officials also attended from many different countries. Among the countries with representatives present from the financial department were Finland, France, Great Britain, Italy, Greece, Portugal, and Spain. There were also many representatives present from major media enterprises around the world. These include the publisher and editor of Der Standard in Austria; the Chairman and CEO of the Washington Post Company; the Editor-in-Chief of the Economist; the Deputy Editor of Die Zeit in Germany; the CEO and Editor-in-Chief of Le Nouvel Observateur in France; the Associate Editor and Chief Economics Commentator of the Financial Times; as well as the Business Correspondent and the Business Editor of the Economist. So, these are some of the major financial publications in the world present at this meeting. Naturally, they have a large influence on public perceptions of the economy.


Also of importance to note is the attendance of private bankers at the meeting, for it is the major international banks that own the shares of the world’s central banks, which in turn, control the shares of the Bank for International Settlements (BIS). Among the banks and financial companies represented at the meeting were Deutsche Bank AG, ING, Lazard Freres & Co., Morgan Stanley International, Goldman Sachs, Royal Bank of Scotland, and of importance to note is David Rockefeller,[20] former Chairman and CEO of Chase Manhattan (now J.P. Morgan Chase), who can arguably be referred to as the current reigning ‘King of Capitalism.’

The Obama Administration

Heavy representation at the Bilderberg meeting also came from members of the Obama administration who are tasked with resolving the economic crisis. Among them were Timothy Geithner, the US Treasury Secretary and former President of the Federal Reserve Bank of New York; Lawrence Summers, Director of the White House’s National Economic Council, former Treasury Secretary in the Clinton administration, former President of Harvard University, and former Chief Economist of the World Bank; Paul Volcker, former Governor of the Federal Reserve System and Chair of Obama’s Economic Recovery Advisory Board; Robert Zoellick, former Chairman of Goldman Sachs and current President of the World Bank.[21]

Unconfirmed were reports of the Fed Chairman, Ben Bernanke being present. However, if the history and precedent of Bilderberg meetings is anything to go by, both the Chairman of the Federal Reserve and the President of the Federal Reserve Bank of New York are always present, so it would indeed be surprising if they were not present at the 2009 meeting. I contacted the New York Fed to ask if the President attended any organization or group meetings in Greece over the scheduled dates that Bilderberg met, and the response told me to ask the particular organization for a list of attendees. While not confirming his presence, they also did not deny it. However, it is still unverified.

Naturally, all of these key players to wield enough influence to alter public opinion and perception of the economic crisis. They also have the most to gain from it. However, whatever image they construct, it remains just that; an image. The illusion will tear apart soon enough, and the world will come to realize that the crisis we have gone through thus far is merely the introductory chapter to the economic crisis as it will be written in history books.


The warnings from the Bank for International Settlements (BIS) and its former Chief Economist, William White, must not be taken lightly. Both the warnings of the BIS and William White in the past have gone unheralded and have been proven accurate with time. Do not allow the media-driven hope of ‘economic recovery’ sideline the ‘economic reality.’ Though it can be depressing to acknowledge; it is a far greater thing to be aware of the ground on which you tread, even if it is strewn with dangers; than to be ignorant and run recklessly through a minefield. Ignorance is not bliss; ignorance is delayed catastrophe.

A doctor must first properly identify and diagnose the problem before he can offer any sort of prescription as a solution. If the diagnosis is inaccurate, the prescription won’t work, and could in fact, make things worse. The global economy has a large cancer in it: it has been properly diagnosed by some, yet the prescription it was given was to cure a cough. The economic tumor has been identified; the question is: do we accept this and try to address it, or do we pretend that the cough prescription will cure it? What do you think gives a stronger chance of survival? Now try accepting the idea that ‘ignorance is bliss.’

As Gandhi said, “There is no god higher than truth.”

For an overview of the coming financial crises, see: “Entering the Greatest Depression in History: More Bubbles Waiting to Burst,” Global Research, August 7, 2009.


[1] Time, HEROES: Man-of-the-Year. Time Magazine: Jan 6, 1930: http://www.time.com/time/magazine/article/0,9171,738364-1,00.html

[2] James Calvin Baker, The Bank for International Settlements: evolution and evaluation. Greenwood Publishing Group, 2002: page 2

[3] James Calvin Baker, The Bank for International Settlements: evolution and evaluation. Greenwood Publishing Group, 2002: page 6

[4] James Calvin Baker, The Bank for International Settlements: evolution and evaluation. Greenwood Publishing Group, 2002: page 148

[5] James Calvin Baker, The Bank for International Settlements: evolution and evaluation. Greenwood Publishing Group, 2002: page 149

[6] Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (New York: Macmillan Company, 1966), 324-325

[7] Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (New York: Macmillan Company, 1966), 324

[8] Ambrose Evans-Pritchard, Derivatives still pose huge risk, says BIS. The Telegraph: September 13, 2009: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6184496/Derivatives-still-pose-huge-risk-says-BIS.html

[9] Robert Cookson and Sundeep Tucker, Economist warns of double-dip recession. The Financial Times: September 14, 2009: http://www.ft.com/cms/s/0/e6dd31f0-a133-11de-a88d-00144feabdc0.html

[10] Patrick Jenkins, BIS head worried by complacency. The Financial Times: September 20, 2009: http://www.ft.com/cms/s/0/a7a04972-a60c-11de-8c92-00144feabdc0.html

[11] David Uren. Bank for International Settlements warning over stimulus benefits. The Australian: June 30, 2009:


[12] Simone Meier, BIS Sees Risk Central Banks Will Raise Interest Rates Too Late. Bloomberg: June 29, 2009:


[13] Robert Cookson and Victor Mallet, Societal soul-searching casts shadow over big banks. The Financial Times: September 18, 2009: http://www.ft.com/cms/s/0/7721033c-a3ea-11de-9fed-00144feabdc0.html

[14] AFP, Top central banks agree to tougher bank regulation: BIS. AFP: September 6, 2009: http://www.google.com/hostednews/afp/article/ALeqM5h8G0ShkY-AdH3TNzKJEetGuScPiQ

[15] Simon Kennedy, Basel Group Agrees on Bank Standards to Avoid Repeat of Crisis. Bloomberg: September 7, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=aETt8NZiLP38

[16] Abigail Moses, Central Banks Must Agree Global Clearing Supervision, BIS Says. Bloomberg: September 14, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5C6ARW_tSW0

[17] FIABIC, US home prices the most vital indicator for turnaround. FIABIC Asia Pacific: January 19, 2009: http://www.fiabci-asiapacific.com/index.php?option=com_content&task=view&id=133&Itemid=41

Alexander Green, The National Debt: The Biggest Threat to Your Financial Future. Investment U: August 25, 2008: http://www.investmentu.com/IUEL/2008/August/the-national-debt.html

John Bellamy Foster and Fred Magdoff, Financial Implosion and Stagnation. Global Research: May 20, 2009: http://www.globalresearch.ca/index.php?context=va&aid=13692

[18] Dawn Kopecki and Catherine Dodge, U.S. Rescue May Reach $23.7 Trillion, Barofsky Says (Update3). Bloomberg: July 20, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=aY0tX8UysIaM

[19] Andrew Gavin Marshall, The Bilderberg Plan for 2009: Remaking the Global Political Economy. Global Research: May 26, 2009: http://www.globalresearch.ca/index.php?aid=13738&context=va

[20] Maja Banck-Polderman, Official List of Participants for the 2009 Bilderberg Meeting. Public Intelligence: July 26, 2009: http://www.publicintelligence.net/official-list-of-participants-for-the-2009-bilderberg-meeting/

[21] Andrew Gavin Marshall, The Bilderberg Plan for 2009: Remaking the Global Political Economy. Global Research: May 26, 2009: http://www.globalresearch.ca/index.php?aid=13738&context=va

Andrew G. Marshall is a Research Associate of the Centre for Research on Globalization (CRG). He is currently studying  Political Economy and History at Simon Fraser University.

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ISM Services: Prior 48.4 / Mkt Expects 50 / Actual 50.9 … Plus Earnings From MOS After the Bell


PLYMOUTH, Minn., Oct 5 /PRNewswire-FirstCall/ — The Mosaic Company (NYSE: MOSNews) announced today net earnings of $100.6 million, or $0.23 per diluted share, for the first quarter ended August 31, 2009. These results compare with net earnings of $1.2 billion, or $2.65 per share, for the first quarter ended August 31, 2008. The Company maintained a strong financial position, with cash and cash equivalents of $2.6 billion as of August 31, 2009.

  • The average diammonium phosphate (DAP) selling price was $276 per tonne and total phosphate sales volumes were 2.1 million tonnes
  • The average muriate of potash (MOP) selling price was $382 per tonne and total potash sales volumes were 0.8 million tonnes
  • Cash flow provided by operating activities was $172.4 million
  • Long-term agricultural fundamentals remain highly attractive

Mosaic had net sales in the first quarter of fiscal 2010 of $1.5 billion, a decrease of $2.9 billion, or 66%, compared to the same period a year ago.

Mosaic’s gross margin for the first quarter of fiscal 2010 was $222.2 million, or 15% of net sales, compared with $1.6 billion, or 38% of net sales, a year ago. First quarter operating earnings were $134.2 million compared with $1.5 billion a year ago. Mosaic’s first quarter results in fiscal 2010 were impacted by significant declines in market selling prices for phosphate and potash sales volumes combined with lower potash selling prices, compared with the prior year quarter. Phosphate sales volumes in the first quarter were comparable to levels a year ago. The decline in potash sales volumes and selling prices continues to be related to cautious purchasing by customers due to volatile grain and oilseed prices and the lack of normal contracting activity compared with a year ago.

“Phosphate fundamentals have improved. The potash market is evolving and we expect strong demand in calendar year 2010 for both nutrients,” said Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Our long-term outlook for crop nutrients remains positive and we continue to execute our strategic plans designed to drive strong cash flow and shareholder value.”


Net sales in the Phosphates segment were $814.4 million for the first quarter, a decline from $2.6 billion a year ago. Phosphates’ first quarter gross margin was $111.4 million, or 14% of net sales, compared with $1.0 billion, or 39% of net sales, for the same period a year ago. Operating earnings were $61.2 million, a decline from $950.8 million in the same period last year. The decline in operating earnings was primarily due to the effects of significantly lower selling prices partially offset by significantly lower raw material costs for sulfur and ammonia. Net unrealized mark-to-market derivative gains were $4.6 million in the first quarter of fiscal 2010 compared with net losses of $74.6 million for the same period a year ago.

The average first quarter DAP selling price, FOB plant, was $276 per tonne, compared to $1,013 a year ago and $345 per tonne in the fourth quarter of fiscal 2009. The market DAP selling price began to decline sharply toward the end of the second quarter of fiscal 2009 before appearing to bottom out in the first quarter of fiscal 2010.

Phosphates sales volumes were comparable with a year ago at 2.1 million tonnes. Mosaic’s phosphate inventory levels were down significantly as of August 31, 2009 due to increased demand and modestly reduced production levels. Phosphates production levels declined 13% to 1.8 million tonnes from year ago levels in response to a build-up of inventories and a decline in demand. Toward the end of the first quarter of fiscal 2010, production was increased to more normal levels due to increased sales orders and demand.

“Phosphate sales volumes are returning to near normal levels,” said Prokopanko. “Gross margin has improved from the fourth quarter of fiscal 2009 and we look for further modest improvement in fiscal 2010.”


Net sales in the Potash segment totaled $333.3 million for the first quarter, compared to net sales of $976.4 million a year ago. The Potash segment’s gross margin decreased to $124.6 million in the first quarter, or 37% of net sales, compared with $503.2 million a year ago, or 52% of net sales. Operating earnings were $99.3 million for the first quarter, compared to $477.8 million a year ago. Operating earnings were impacted by a sharp decline in sales volumes, the effects of significantly lower operating rates on fixed cost absorption and a decrease in the average MOP selling price. These factors were partly offset by lower net unrealized mark-to-market derivative losses and lower Canadian resource taxes and royalties. Net unrealized mark-to-market derivative losses were $1.6 million in the first quarter of fiscal 2010 compared with losses of $41.7 million a year ago.

The average first quarter MOP selling price, FOB plant, was $382 per tonne compared to $488 a year ago and $540 per tonne in the fourth quarter of fiscal 2009. The lower average MOP selling price was primarily the result of a decline in the average export price for MOP and a shift in sales volume mix. The shift in mix to a greater percentage of non-agricultural sales was primarily driven by lower sales volumes of crop nutrients. The average non-agricultural selling price is lower than crop nutrient selling prices but the gap is narrowing on pricing.

Reflecting the lower demand, the Potash segment’s total sales volume was 0.8 million tonnes for the first quarter which was lower compared with year-ago first quarter volume of 1.9 million tonnes, but up from 0.6 million tonnes for the fourth quarter of fiscal 2009. Potash production declined 59% to 0.8 million tonnes from year ago levels due to slow demand and in order to more effectively manage inventories. Mosaic continues to operate at lower production rates and will do so until demand improves.

“Even at current low selling volumes the Potash segment generated a healthy gross margin and is poised to generate substantially improved profits when demand fully returns,” stated Prokopanko.


The Offshore segment’s net sales totaled $468.1 million during the first quarter, compared to net sales of $1.0 billion a year ago. This decline in net sales was mainly due to lower selling prices. Gross margin decreased to $11.2 million in the first quarter, or 2% of net sales, compared to $180.6 million, or 17% of net sales, for the same period last year. Offshore had an operating loss in the first quarter of fiscal 2010 of $8.0 million, compared to operating earnings of $159.0 million a year ago. Strong Offshore results a year ago reflected the benefit of positioning lower cost inventories in a period of rising selling prices.


A foreign currency transaction gain of $13.1 million was recorded for the first quarter compared to a gain of $86.7 million for the same period a year ago. This non-cash gain is the result of the effect of a weakening Canadian dollar on significant U.S. dollar denominated intercompany receivables and cash held by Mosaic’s Canadian subsidiaries.

Income tax expense was $32.8 million in the first quarter resulting in an effective tax rate of 25% compared to $497.7 million, or an effective tax rate of 31% for the same period last year.

Total equity earnings in non-consolidated subsidiaries were $2.5 million in the first quarter, compared with $59.8 million for the same period a year ago. The reduction in equity earnings is primarily the result of the sale of Mosaic’s interest in Saskferco Products ULC in October 2008 along with weak results from Fertifos S.A. during the first quarter of fiscal 2010.

Mosaic ended the first quarter with $2.6 billion in cash and cash equivalents. Cash flow provided by operating activities in the first quarter of fiscal 2010 was $172.4 million compared with cash flow provided by operating activities of $561.5 million a year ago. The decline in cash flow from operations was primarily due to lower net earnings and significant working capital changes. Mosaic’s total debt as of August 31, 2009 was $1.4 billion compared to $1.5 billion as of August 31, 2008.

Market Outlook

Several important signs of a global economic recovery have emerged in recent months as an impetus to crop nutrient recovery, including gains in key Asian economies and improved outlooks in developed economies. Concurrently, grain and oilseed consumption is steadily increasing as the world’s appetite continues to swell due to steady population growth and increases in income in developing countries, inevitably leading to increased investments in agriculture, including a balance of crop nutrients.

Longer term, annual global real gross domestic product growth is estimated by a leading economic forecasting firm to trend upward from 2.5% in 2010 to 3.8% in 2012, and with it, more prosperity and the desire to improve diets.

Inventories for North American phosphate producers declined again in August 2009 and are at the lowest levels since May 2006. Inventories for North American potash producers are working down from elevated levels earlier this calendar year. The distribution pipeline has been largely emptied, although buyers remain cautious about re-stocking.

“Farmers around the world have reduced crop nutrient applications in their most recent growing season, drawing down the nutrient levels banked in their soils,” said Prokopanko. “We believe farmers will increase application rates in response to high 2010 new crop prices and the need to replenish the large amount of nutrients withdrawn by the record crop this year.”

Financial Guidance

Sales volumes for the Phosphates segment are expected to range from 1.8 to 2.2 million tonnes for the second quarter of fiscal 2010. Mosaic’s realized DAP price, FOB plant, for the second quarter of fiscal 2010 is estimated to be $265 to $305 per tonne.

Mosaic is not providing financial guidance on potash sales volumes or MOP selling price until market conditions normalize.

Capital spending for fiscal 2010 is expected to grow to a range of $1.0 billion to $1.2 billion. Mosaic is executing its multi-year potash expansion plan as well as investing substantial funds to further improve operating performance of its existing plants and mines.

SG&A is estimated to range from $350 million to $370 million in fiscal 2010 and the effective income tax rate is estimated in the high 20% range for the year.

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