BMW Seen Widening Lead to Audi as 3-Series Hits Sweet Spot: Cars

By Chris Reiter - Oct 14, 2011 9:00 PM GMT+0700
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The updated 3-Series, which was originally introduced in 1975, will be 9.3 centimeters larger than its predecessor and be available in Sport, seen here, Modern and Luxury packages to increase customization options.. Source: BMW AG via Bloomberg

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Oct. 14 (Bloomberg) -- Adrian van Hooydonk, chief designer at Bayerische Motoren Werke AG, talks about the company's revamped 3-Series sedan. The sixth generation of BMW's best-selling model debuted today and will hit showrooms on February 11. Van Hooydonk speaks with Bloomberg's Chris Reiter in Munich. (Source: Bloomberg)

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The updated 3-Series will be available in Sport, Modern and Luxury packages, seen here, to increase customization options. Source: BMW AG via Bloomberg

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The renewed 3-Series, BMW’s entry-level sedan, will adopt parts and technology from the 1-Series and full-size 5-Series to lower production and development costs. Photographer: Guenter Schiffmann/Bloomberg

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Bayerische Motoren Werke AG is rolling out a revamped version of the 3-Series sedan as rival models such as the Audi A4 age, thwarting efforts by the Volkswagen AG unit to grab the luxury-car lead. Photographer: Guenter Schiffmann/Bloomberg

Bayerische Motoren Werke AG (BMW) is rolling out a revamped 3-Series sedan to widen the automaker’s luxury sales lead over Volkswagen AG (VOW)’s Audi and its aging A4.

The sixth generation of BMW’s best-selling model, which debuted today in Munich, will hit showrooms February 11, about two years before Audi overhauls the $32,500 A4. That head start may help BMW’s lead over Audi surge 43 percent in 2012, according to an IHS Automotive forecast.

Backed by the overhauled 3-Series and recently revamped 1- Series compact, which together accounted for 49 percent of BMW’s sales last year, “2012 will be the sweet spot for BMW,” said Stefan Bauknecht, a DWS Investment fund manager in Frankfurt. “The 3-Series renewal improves sales volumes and pricing power, creating an immense margin advantage.”

The renewed 3-Series, BMW’s entry-level sedan, will adopt parts and technology from the 1-Series and full-size 5-Series to lower production and development costs. Higher profit from the car may help the manufacturer weather a looming economic slowdown. European Central Bank President Jean-Claude Trichet said this week that the region’s debt crisis has reached “a systemic dimension,” while China warned of “severe challenges” to the global economy.

Profit ‘Apex’

“The model cycle is arguably more important for upscale carmakers than the economic cycle,” said Juergen Meyer, who manages about 700 million euros ($960 million) for SEB Asset Management in Frankfurt. BMW’s profitability lead “could reach its apex in 2012 on the 3-Series.”

BMW’s auto unit reported earnings before interest and taxes equivalent to 14.4 percent of sales in the second quarter, outpacing 11.8 percent at Audi and 10.7 percent at Daimler AG (DAI)’s Mercedes-Benz. The Munich-based manufacturer has been the second-best performer in the Euro Stoxx autos and parts index over the past three months after tiremaker Pirelli & C. SpA, falling 22 percent compared with VW’s 24 percent drop and Daimler’s 29 percent slump.

The updated 3-Series, which was originally introduced in 1975, will be 9.3 centimeters (3.7 inches) larger than its predecessor and be available in Sport, Modern and Luxury packages to increase customization options. It will also be available with a head-up display, which projects speed limit and other data onto the windshield, and collision-warning systems. The 320d version, which can get as much as 57 miles per gallon, will start at 35,350 euros, 1,050 euros more than the current version. A hybrid will be available in the fall 2012.

Nabbing Customers

The larger size and new customization options could help BMW win over customers from other manufacturers, according to Werner Entenmann, head of Autohaus Entenmann in Esslingen near Stuttgart.

“The new 3-Series has potential to capture customers” from the likes of Mercedes, Audi, Ford Motor Co. (F) and General Motors Co. (GM)’s Opel, said Entenmann, who counts on the model to generate more than 35 percent of his dealership’s sales of about 1,400 BMW cars a year. He plans to hold an event for 4,000 customers when the model goes on sale Feb. 11. “It’s decisive for us,” he said.

Sales of the 3-Series are projected to jump 22 percent to 448,600 cars next year, boosting the BMW brand’s deliveries 9.3 percent to 1.47 million, according to IHS. Audi, which aims to grab the number-one position by 2015, will likely see the gap to BMW widen to 139,700 autos from 97,400 in 2011.

Automotive Challenges

Mercedes, which likewise covets the luxury-car crown, may get closer to BMW, buoyed by a new line of compacts. IHS forecasts Mercedes trailing BMW by 108,700 vehicles in 2012, closer than the 110,500 this year.

“Renewing the 3-Series is like renewing the company,” said Christoph Stuermer, an IHS analyst in Frankfurt. “The 3- Series has to be BMW’s response to the automotive challenges of the next decade,” and therefore needs to address the demand for cleaner vehicles, while generating the profit needed to pay for further development.

BMW is investing more than 1 billion euros in German factories in Munich and Regensburg, and at a plant in Rosslyn, South Africa, to produce the model. BMW has sold more than 12 million of the vehicle since its introduction.

“The new BMW 3-Series has excellent prospects for expanding its leading global market position,” Chief Executive Officer Norbert Reithofer said today.

Rivals Respond

Mercedes and Audi aren’t sitting still. Audi plans to roll out a face-lifted version of the current A4, which was introduced in 2007, in the first half of 2012 with cleaner engines and other improvements, said Moritz Drechsel, a spokesman for the Ingolstadt, Germany-based carmaker.

Mercedes upgraded the C-Class in 2011 with new engines and a restyled front end and interior. Next year, the Stuttgart, Germany-based carmaker plans to show the CLC four-door coupe, which will include high-performance AMG versions, to target sportier 3-Series customers, said a person familiar with the matter, who declined to be identified discussing internal planning. The next-generation C-Class is due in 2014.

Those responses may not be enough to overcome BMW’s early start. IHS predicts the manufacturer will further expand its lead in 2015 to 219,100 vehicles over Audi and 141,500 over Mercedes.

“They have two to three years where they can absolutely nail it,” said Arndt Ellinghorst, a London-based analyst with Credit Suisse who has an “outperform” rating on BMW stock.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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G-20 Set to Push European Leaders to Deliver Crisis Solution

By Rainer Buergin and Arnaldo Galvao - Oct 15, 2011 5:32 PM GMT+0700

Group of 20 finance chiefs are pressing Europe’s leaders to deliver within the next few days a comprehensive plan that stamps out the region’s sovereign debt turmoil, according to an official from a G-20 nation.

G-20 finance ministers and central bankers will say in a statement to be released after talks in Paris today that an Oct. 23 Brussels summit of leaders must quell the threat of contagion, the official said on condition of anonymity because the communique isn’t finished. They will also urge the euro-area to maximise the firepower of its 440 billion-euro ($611 billion) bailout fund, the person said.

European governments are concentrating on a plan which would include writing down Greek bonds by as much as 50 percent and establishing a backstop for banks, people familiar with the discussions said yesterday. Worldwide stocks rose and the euro rallied the most against the dollar in more than two years this week on optimism officials are ramping up their crisis-fighting.

“The world is waiting for solutions to the European problems that have now become the world’s problems,” Brazilian Finance Minister Guido Mantega told reporters yesterday in Paris. “I am more optimistic. They are advancing.”

There was some discord among G-20 officials as those from rich nations such as the U.S., Germany and Canada questioned proposals to expand the resources of the International Monetary Fund to help it contain Europe’s woes.

‘Sufficient Funds’

“From the point of view of the Bundesbank, the IMF is currently endowed with sufficient funds,” Andreas Dombret, a member of the German central bank’s Executive Board, said in an interview today. Canadian Finance Minister Jim Flaherty told Bloomberg Television yesterday that he didn’t “think we ought to be asking the IMF to do a great deal more.”

The G-20 policy makers are preparing for a Nov. 3-4 summit of leaders in Cannes, France. Today’s talks will end with the statement’s release and press conferences at about 4:15 p.m.

The group will reiterate its aversion to excess volatility and disorderly movements in exchange rates as well as suggest emerging markets allow greater currency flexibility, officials said. The statement will also commit authorities to ensuring banks are capitalized and to preserving stability in financial markets.

Greek Unrest

Almost two years since Greece’s government announced it had underestimated its budget deficit, Europe’s latest strategy hinges on putting the Mediterranean nation on a viable path, as two years of austerity plunge it deeper into recession and provoke civil unrest that threatens political stability. Failure to curb the crisis has investors targeting larger debt-strapped nations such as Italy and is rattling global markets.

“I think they will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the euro zone crisis,” U.K. Chancellor of the Exchequer George Osborne told reporters today. “The Oct. 23 European Council is the moment people are expecting something quite impressive.”

In the works is a five-point plan foreseeing a solution for Greece, bolstering of the European Financial Stability Facility rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management.

Bond Losses

The Greek bond losses now envisaged in the plan may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people yesterday.

The crisis raged yesterday through France, the 17-nation euro area’s second-largest economy and co-anchor with Germany of the European Union. French bonds slumped, pushing the 10-year yield up 17 basis points to 3.13 percent. The week’s rise of 38 basis points was the most since the euro’s debut in 1999.

Options include tweaking a July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, the people said.

Under a more aggressive proposal, investors would exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate option is a restructuring involving writedowns without collateral, they said.

Bank Aid

The bank-aid model under discussion is to set up a European-level backstop capitalized by the rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.

Such ideas are controversial in Germany, Europe’s dominant economy, which so far has called for bank recapitalization on a country-by-country basis.

What role the IMF can play in defusing the turmoil has split G-20 officials. While nations from China to Brazil are considering increasing the IMF’s lending power, policy makers from richer countries indicated reluctance to boost the lender’s coffers. U.S. Treasury Secretary Timothy F. Geithner said yesterday that the IMF currently has uncommitted resources.

Officials are considering seven ways of getting more firepower out of Europe’s temporary rescue fund. The options break down into two broad categories: enabling it to borrow from the European Central Bank or using it to provide bond insurance. The ECB has all but ruled out the first method, making bond insurance more likely, the people said.

Bond Insurance

Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, the people said.

A consensus is also emerging to accelerate the setup of a permanent aid fund planned for July 2013, the European Stability Mechanism. Next week’s discussions will focus on creating it a year earlier, in July 2012, and easing unanimity rules that permit solitary countries to block bailouts.

One proposal is to enable aid to proceed when backed by countries representing 95 percent of the fund’s capital on the basis of an assessment by the EU and ECB, the people said. Another proposal would set an 85 percent threshold.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Arnaldo Galvao in Paris at agalvao1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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G-20 Tells Europe to Deal ‘Decisively’ With Debt Crisis at Oct. 23 Summit

By Gonzalo Vina and Theophilos Argitis - Oct 15, 2011 9:45 PM GMT+0700

Global finance chiefs urged Europe’s leaders to “decisively” deal with the region’s sovereign debt turmoil, setting an Oct. 23 summit as the deadline for a plan.

Europe’s woes, which leave Greece teetering on the edge of default, dominated talks today in Paris of Group of 20 finance ministers and central bankers. Their statement also called for the euro area to quell the threat of contagion by maximising the firepower of their 440 billion-euro ($611 billion) bailout fund.

European officials “will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the euro-zone crisis,” U.K. Chancellor of the Exchequer George Osborne told reporters. Next weekend’s meeting in Brussels “is the moment people are expecting something quite impressive.”

Optimism that policy makers may resolve a crisis that is rattling financial markets and threatening global growth spurred stocks higher around the world this week, and pushed the euro to its biggest gain against the dollar in more than two years. Europe’s governments are crafting a plan which would include writing down Greek banks by as much as 50 percent and establishing a backstop for banks, people familiar with the discussions said yesterday.

G-20 Statement

“We look forward to further work to maximize the impact of the” European Financial Stability Facility “in order to avoid contagion, and to the outcome of the European Council on Oct. 23 to decisively address the current challenges through a comprehensive plan,” the G-20 statement said.

The G-20 policy makers -- who met to prepare for a Nov. 3-4 gathering of leaders in Cannes, France -- reiterated their aversion to excess volatility and disorderly movements in exchange rates as well as encouraging emerging markets to allow greater currency flexibility. They also committed to ensuring banks are capitalized and financial markets are stable.

Officials split over whether Europe’s travails meant the International Monetary Fund should be handed more cash, beyond agreeing it must have “adequate resources to fulfil its systemic responsibilities.” Emerging markets such as China are considering giving the lender more, while officials from the U.S., Germany and Canada were among those to say either that the euro-area must deliver a fix first or that the IMF already has plentiful and untapped resources.

Greek Crisis

Almost two years to the day since Greece set the crisis in motion by announcing it had underestimated its budget deficit, Europe’s latest strategy hinges on putting it on a viable path. Austerity has plunged it deeper into recession and provoked civil unrest that threatens political stability.

Failure to curb the pain has led to Portugal and Ireland requiring bailouts and markets now targeting larger debt- strapped nations such as Italy. Investors are concerned that if it is allowed to fester the world economy could face a repeat of the chaos that followed the 2008 collapse of Lehman Brothers Holdings Inc.

In the works is a five-point plan foreseeing a solution for Greece, bolstering of the European Financial Stability Facility rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management.

The Greek bond losses now envisaged in the plan may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people yesterday.

Debt Writedowns

Options include tweaking a July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, the people said.

Under a more aggressive proposal, investors would exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate option is a restructuring involving writedowns without collateral, they said.

The bank-aid model under discussion is to set up a European-level backstop capitalized by the rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.

Officials are considering seven ways of multiplying the strength of Europe’s temporary rescue fund. The options break down into two broad categories: enabling it to borrow from the European Central Bank or using it to partly insure new bonds issued by distressed governments. The ECB has all but ruled out the first method, making bond insurance more likely, the people said.

Bond Insurance

Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, the people said. EFSF guarantees of the new bonds might range from 20 percent to 30 percent, a person familiar with those deliberations said.

A consensus is also emerging to accelerate the setup of a permanent aid fund planned for July 2013, the European Stability Mechanism. Next week’s discussions will focus on creating it a year earlier, in July 2012, and easing unanimity rules that permit solitary countries to block bailouts.

To contact the reporters on this story: Gonzalo Vina in Paris at gvina@bloomberg.net Theophilos Argitis in Paris at targitis@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Cain Draws Big Crowds Promoting ‘9-9-9’

By David Mildenberg - Oct 15, 2011 11:01 AM GMT+0700

Herman Cain, taking his economic plan to suburban Memphis, said his proposed 9-9-9 tax overhaul distinguishes him from the conventional options favored by his rivals for the Republican presidential nomination.

“All the other Republican candidates, God bless them all, start with the current tax code,” said Cain, the new leader in some Republican primary presidential polls, at a city park in Bartlett, Tennessee, yesterday. “It’s been a mess for decades.”

Criticisms that Congress could eventually increase his proposed 9 percent taxes on personal and business income, along with a new 9 percent federal sales tax, don’t worry Cain, he said, because of a likely public outcry against higher levies. The plan showed his business-oriented, problem-solving approach, he said.

“We made it simple and transparent for a reason,” he said. “Common sense -- that’s what the American people are hungry for.”

Cain’s comments drew repeated applause from an anti-tax, Tea Party-supported event that campaign aides said attracted more than 1,200 people. Organizers expected no more than 50 people to attend when they sought a city permit for a Cain appearance in early September, said Jim Tomasik, a member of the Mid-South Tea Party.

While supporters of Cain set up a tent to seek donations and volunteers, the Atlanta businessman’s campaign staff didn’t control the event. The former chief executive of Godfather’s Pizza arrived at the park about 45 minutes late, bounding out of a Cadillac Denali van wearing a black Stetson hat.

Why They Came

As crowd members waited for Cain, attendees were asked by a Mid-South Tea Party official walking through the crowd with a microphone why they were there.

Most said they were inspired by Cain or wanted to learn more about his plans, while one man said that he didn’t believe President Barack Obama is a U.S. citizen. Another called for the abolition of the Federal Reserve, noting that Cain had previously served as a board member of the Kansas City Fed bank.

During the wait, Tomasik asked from the speaker’s stage if there was a CNN representative at the event. No one responded or seemed to know, including Cain’s campaign staff, who were scattered around the grounds.

Why He Came

Cain, who said he raised $2.8 million in the third quarter, told reporters he is campaigning in Tennessee because “the whole primary schedule has been tossed aside” with states moving up their election dates. “It makes other states much more important,” he said after speaking to about 1,000 people in the parking lot of a strip shopping center in Jackson, Tennessee.

Referring to the two states that traditionally kick off the nomination process, Cain said he is already been to Iowa “two or three times,” and made numerous trips to New Hampshire.

Tennessee’s primary is scheduled for March 6, almost two months after the expected Iowa caucuses on Jan. 3, and more than a month after Florida will hold what may be a decisive primary on Jan. 31.

Cain wanted to keep commitments for Tennessee events that he made several weeks ago, said Michael Branch, a Nashville songwriter who is state manager for Cain’s campaign. Cain previously has attended campaign events in Nashville, he said.

With third quarter campaign financial disclosure reports due to be made public today, Cain told the crowd that he is lagging behind his more experienced rivals.

Lagging on Fundraising

His two main competitors have raised 10 times as much money as he has, he said, without naming Texas Governor Rick Perry or former Massachusetts Governor Mitt Romney. “It ain’t all about the money,” he said.

Romney reported that he raised $14.2 million in the period between from July 1 to Sept. 30. Perry’s campaign has said he raised about $17 million in the third quarter.

Cain attacked Obama for not showing more forceful leadership.

“We have a president who believes we can maintain our status in the world by singing Kumbaya,” he said, referring to a Christian hymn. “Singing Kumbaya is not a strategy.”

Obama also has weakened the U.S. military “by cost-cutting after cost-cutting after cost cutting,” Cain said. He pledged to avoid defense budget cuts.

Cain’s comments on his tax plan weren’t specific enough for Joyce Robinson, a retiree who said she has been active in the Mid-South Tea Party since 2009.

“It was good, but I’d like to learn more,” she said. “I’m a numbers person, a mathematician and I still need to understand it better. We already have a high state sales tax in Tennessee.”

Other crowd members praised Cain’s business background. “I’ve never been very involved in politics, but I’m going to get involved now because we are in such a crisis,” said Jim Stiles, an owner of an insurance and tax consulting firm in Germantown. “I like the fact that Cain isn’t a politician.”

To contact the reporter on this story: David Mildenberg in memphis at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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Wall Street Protesters Arrested as Park Occupation Continues in New York

By Chris Dolmetsch and Tiffany Kary - Oct 15, 2011 11:01 AM GMT+0700

Fourteen protesters in lower Manhattan were arrested after a decision to delay closing Zuccotti Park, the site of demonstrations against the financial industry, police said.

Protesters arrested included those who stood or sat down in the street, Paul Browne, a spokesman for the New York City Police Department, said in an e-mail. Others taken into custody included individuals who allegedly overturned trash baskets or hurled bottles, Browne said. At least one demonstrator was detained after he allegedly knocked over a police scooter.

The arrests took place near Broadway and Exchange Place. They came after a decision yesterday to keep Zuccotti Park, near Liberty Street and Broadway, open rather than close it for cleaning.

The postponement averted a confrontation between Occupy Wall Street demonstrators, who had gathered in greater numbers overnight, and police who threatened to remove tents and sleeping bags.

As protesters filed out of the park and marched on lower Manhattan streets, more than 30 police cruisers and 50 officers gathered near the federal courthouse at the eastern end of the Brooklyn Bridge.

An Oct. 1 march onto the bridge by protesters resulted in hundreds of arrests. Protesters arrested in the march sued New York City, Mayor Michael Bloomberg and Police Commissioner Raymond Kelly for allegedly violating their constitutional rights.

Civil Rights Lawsuit

Five of the protesters, seeking to represent about 700 people arrested, filed a civil rights complaint Oct. 4 in Manhattan federal court, claiming police officers lured them onto the bridge’s roadway to trap and arrest them.

The National Lawyers Guild, a nonprofit bar association, is representing at least 30 arrested protesters who have appeared in court already and is seeking to represent the more than 800 other demonstrators who have been charged since the protests began Sept. 17, said Martin R. Stolar, a member of the guild.

The guild is representing four people arrested on Oct. 12, including James Lafferty, 73, executive director of the guild’s Los Angeles chapter, and his 63-year old wife, who were charged with obstructing governmental administration, disorderly conduct, and resisting arrest, Stolar said.

Guy Fawkes

The other two people, aged 18 and 20, were arrested for wearing masks of Guy Fawkes, a conspirator in the 1605 plot to blow up English Parliament, who is memorialized in Britain’s Guy Fawkes Day, held on Nov. 5, Stolar said.

James Lafferty was arraigned Oct. 13, according to Manhattan District Attorney Cyrus Vance Jr.’s office.

Lafferty yelled loudly at a police lieutenant who was arresting two other protesters, causing a large crowd of people behind him to “grow agitated and express alarm,” according to an indictment. Lafferty flailed his arms and threw his weight into an officer when police tried to arrest him, causing the officer to fall, according to the complaint.

The mayor is founder and majority owner of Bloomberg LP, parent of Bloomberg News.

To contact the reporters on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Pimco’s Gross Tells Clients 2011 a ‘Stinker’ as Total Return Trails Rivals

By Sree Vidya Bhaktavatsalam - Oct 15, 2011 11:01 AM GMT+0700

Bill Gross, manager of the world’s biggest mutual fund, sought to reassure clients that he hasn’t lost his touch after he misjudged the extent of the economic slowdown, causing his Pimco Total Return Fund to trail rivals this year.

“This year is a stinker,” Gross wrote in an October letter to clients titled “Mea Culpa,” a copy of which was obtained yesterday by Bloomberg News. “There is no ‘quit’ in me or anyone else on the Pimco premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets.”

Gross’s $242.2 billion Total Return Fund returned 1.3 percent this year through Oct. 13, lagging behind 82 percent of peers, according to data compiled by Bloomberg. That’s his worst performance relative to rivals since at least 1995, the earliest year for which Bloomberg has rankings for Newport Beach, California-based Pimco’s flagship. Gross shunned Treasuries in the first half of the year, missing a rally as investors rushed to the safety of government-backed debt amid the European sovereign-debt crisis.

“As Europe’s crisis and the U.S. debt ceiling debacle turned developed economies towards a potential recession, the Total Return Fund had too little risk off and too much risk on,” Gross wrote.

Gross cut his holdings in U.S. Treasuries to zero in February, saying at the time the bonds didn’t adequately compensate investors for the risk of inflation. Gross also said the government’s attempts to stimulate the economy through bond purchases artificially “repressed” U.S. rates, leaving investors with negative real returns.

Rare ‘Mea Culpa’

He has since reversed course, lifting his fund’s holdings in Treasuries to 16 percent as of Sept. 30. He has increased investments in housing and mortgage-related bonds to 38 percent of assets, while cash equivalents and money-market securities fell to negative 19 percent, according to Pimco’s website.

“Pimco is not used to making ‘mea culpas’ so this is unusual for them,” said Kurt Brouwer, who oversees $1 billion as chairman of Tiburon, California-based financial adviser Brouwer & Janachowski LLC, including investments in the Pimco Total Return Fund. (PTTRX) “Shortening the duration of the fund and moving away from Treasuries definitely hurt results, but they’re not shy about saying what they did wrong.”

Gross, who is co-chief investment officer at Pacific Investment Management Co., wrote that Pimco’s economic growth forecast for developed markets, under a scenario it termed the “new normal,” was too optimistic.

Over the past five years, Pimco Total Return has returned an annual average of 7.8 percent, beating 97 percent of its rivals, Bloomberg data show. Gross’s letter was first posted yesterday on Dealbreaker.com.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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VIX Tumbles Most in 19 Years as Profits Calm Equities: Options

By Cecile Vannucci and Jeff Kearns - Oct 15, 2011 4:04 AM GMT+0700

Corporate profits are calming U.S. stocks more than any time in 19 years, reducing the cost of insurance against losses at the same time investors gain confidence in European efforts to solve the debt crisis.

The Chicago Board Options Exchange Volatility Index fell 28 percent in the six trading sessions before New York-based Alcoa Inc. (AA) posted results, a record drop before the start of earnings season, according to data since January 1993 compiled by Bloomberg. The VIX, as the benchmark measure of U.S. equity derivatives is known, has fallen 14 percent since Alcoa’s earnings trailed analyst estimates Oct. 11.

Prospects for the eighth straight quarter of earnings growth combined with a pledge by French and German leaders to present a plan by Nov. 3 have helped reduce the VIX from an 29- month high of 48 on Aug. 8. The Standard & Poor’s 500 Index has added 9.5 percent since the VIX climbed above 45 on Oct. 3.

“We were very nervous, and rightfully so, about Europe,” said John Farrall, director of derivatives strategy at PNC Wealth Management in Cleveland, said in a telephone interview yesterday. The firm oversees $109 billion. “Now earnings have taken the forefront of attention, and corporate profits are supposed to be good,” he said.

The VIX fell an eighth straight day yesterday, the longest streak since March 2010, even after JPMorgan Chase & Co. (JPM)’s quarterly report drove the S&P 500 down 0.3 percent. The VIX dropped 8 percent to 28.24 at 4:15 p.m. New York time, falling for a ninth straight day and extending its retreat since Aug. 8 to 41 percent.

More Bets

The S&P 500 added 1.7 percent today and completed the biggest weekly advance since July 2009. Google Inc. (GOOG) rallied 5.9 percent in its ninth straight gain after the most popular search engine reported sales and profit that beat estimates as businesses spent more to reach online consumers through advertisements.

Traders are placing more bets than any time since 2009 that the VIX will drop, a sign they expect concern about Europe’s credit crisis to recede and the S&P 500 to rally. There were 109 puts to sell the VIX for every 100 calls as of Oct. 12, according to data compiled by Bloomberg.

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.86 for all of 2011, according to analyst estimates compiled by Bloomberg. The S&P 500 is trading for 10.9 times forecast earnings for 2012, compared with its five-decade average of 16.4 times reported income, according to data compiled by Bloomberg.

First Day Rally

The gauge added 1 percent on Oct. 12 even after Alcoa’s earnings missed projections by 38 percent. When the S&P 500 rallies on the first day of earnings season, it advances the rest of the period 64 percent of the time, with gains averaging 1.2 percent, according to data since 2003 compiled by Harrison, New York-based Bespoke Investment Group LLC.

“People are not going to gamble on volatility and selling short if they expect positive earnings and good news,” Carlo Panaccione, co-founder of Navigation Group, which oversees $350 million in Redwood Shores, California, said in a phone interview yesterday. “Everybody is expecting a pretty decent earnings season, if not a great one. They’re expecting a rally.”

Analysts have cut projections for S&P 500 per-share profit in the third quarter by 0.9 percent since the start of October, according to data compiled by Bloomberg. Goldman Sachs Group Inc.’s David Kostin, a New York-based equity strategist, said in an Oct. 12 note that he expects a “modest upside surprise.”

The VIX closed at 32.86 on Oct. 11, the seventh-highest level at the start of an earnings season since January 1993, according to data compiled by Bloomberg.

More Than Usual

“Investors are going into earnings with more pessimism than usual, and if you have low expectations, it’s easier for executives to clear them,” Brian Jacobsen, who helps oversee about $400 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a phone interview yesterday. “Sometimes the lack of bad news can be good news.”

The economy isn’t growing fast enough for companies to achieve earnings forecasts, said Jim Strugger, a derivatives strategist at MKM Partners LP in Stamford, Connecticut. U.S. gross domestic product will expand by 2 percent in the third quarter, according to the median of 88 estimates compiled by Bloomberg. That’s down from a prediction of 3.2 percent in August and a peak of 3.5 percent in March.

“Those are significant downgrades to economic forecasts, yet earnings estimates have remained stable,” Strugger said in a telephone interview yesterday. Falling volatility doesn’t necessarily signal that investors believe earnings will exceed expectations, he said.

Finding a Solution

“If anything, it’s related to more constructive news about finding a potential solution to the sovereign debt crisis in Europe,” he said. “This is a shock that began in August that had nothing to do with earnings.”

Equities have rallied this week, driving the S&P 500 up 4.2 percent, after German Chancellor Angela Merkel said on Oct. 9 that European leaders will do “everything necessary” to ensure banks have enough capital.

Since earnings season began, seven of the nine S&P 500 companies that reported third-quarter results beat the average analyst profit projection, according to data compiled by Bloomberg.

“Despite all our consternation about how bad the economy is, I think earnings are going to be pretty good,” Bob Doll, chief equity strategist at BlackRock Inc., which manages $3.6 trillion, said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Guidance 90 days ago for this quarter was ‘I really don’t know,’ and they’ve come through with pretty good news. Relative to earnings, stocks are very cheap.”

To contact the reporters on this story: Cecile Vannucci in Amsterdam at cvannucci1@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net

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S&P 500 Caps Best Weekly Gain Since July 2009

By Rita Nazareth - Oct 15, 2011 4:14 AM GMT+0700

U.S. stocks advanced, giving the Standard & Poor’s 500 Index its biggest weekly gain since July 2009, as retail sales beat economists’ estimates and the Group of 20 nations began discussions on Europe’s debt crisis.

Google Inc. (GOOG), the world’s biggest Internet-search company, jumped 5.9 percent after sales topped projections. Apple Inc. (AAPL) gained 3.3 percent as the company is poised to sell as many as 4 million units of its new iPhone 4S this weekend after customers lined up to buy one of the last products developed under Steve Jobs. Amazon.com Inc. (AMZN) and Caterpillar Inc. (CAT) added at least 3.2 percent, pacing gains among companies most-tied to the economy.

The S&P 500 rose 1.7 percent to 1,224.58 at 4 p.m. New York time, extending its weekly gain to 6 percent. The Dow Jones Industrial Average added 166.36 points, or 1.5 percent, to 11,644.49, erasing its 2011 loss. The Nasdaq Composite Index rallied 1.8 percent, also wiping out this year’s decline. More than 6.7 billion shares changed hands on U.S. exchanges at 4:32 p.m., the slowest volume since Aug. 29.

“There’s a good a chance we’ve made a bottom in stocks,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “The economy is not as weak some people expected. You’re going to see some earnings estimates come down, but maybe not as much as feared.”

Today’s rally sent the benchmark gauge to the highest close since Aug. 3, two days before S&P stripped the U.S. of its AAA credit rating. It has surged 11 percent since Oct. 3, its lowest close in more than a year. The rebound brought the gauge close to the top of a price range where it’s traded for more than two months of between 1,074.77 and 1,230.71.

‘Next Stop’

“It would be pretty important to break that trading range,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “Even as we had this robust rally, it hasn’t drawn the technicians to have conviction in buying. If we crack through this 1,230 area, then they are going to say -- it’s clear that hurdle, we’re into the next stop.”

The Citigroup Economic Surprise Index for the U.S. turned positive for the first time since April 29, the day the S&P 500 peaked at an almost three-year high. It climbed to 2.2, up from minus 117.20 on June 3. The reading four months ago showed reports were missing the median economist projection in Bloomberg surveys by the most since January 2009.

U.S. equities gained as retail sales in the U.S. rose more than forecast in September, easing concern slumping confidence and scant hiring will derail the biggest part of the economy.

Group of 20

U.S. stocks also followed a rally in European shares as finance ministers and central bankers from the Group of 20 began talks in Paris. Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the European debt crisis, Group of 20 and IMF officials said. European officials are considering writedowns of as much as 50 percent on Greek bonds, according to people familiar with the discussion.

Google jumped 5.9 percent to $591.68. The shares rallied 19 percent in nine days, the biggest gain since February 2009. Chief Executive Officer Larry Page, who succeeded Eric Schmidt in April, is benefiting from Google’s leadership in search advertising, even as the company pushes into new markets such as mobile, display and social networking.

Earnings Season

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.77 for all of 2011, according to analyst estimates compiled by Bloomberg. The S&P 500 is trading for 11.1 times forecast earnings for 2012, compared with its five-decade average of 16.4 times reported income, according to data compiled by Bloomberg.

“Investor sentiment might be recalibrated,” Keith Wirtz, who oversees $16.7 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “We’re expecting this rally in stocks to be indicative of the whole quarter. There has been so much negative sentiment that the simple fact that we’re now in earnings season and we have a new type of information hitting the market, that might be a catalyst.”

Apple gained 3.3 percent to $422, a record. It added 14 percent in five days, the most since March 2009. The iPhone 4S, available today in the U.S., Australia, Canada, France, Germany, Japan and the U.K., is projected to outperform last year’s introduction of the iPhone 4, which topped 1.7 million units in its first weekend.

Most-Tied

The Morgan Stanley Cyclical Index of companies most-tied to economic growth, added 2.3 percent. Amazon.com, the world’s largest online retailer, increased 4.5 percent to $246.71. Caterpillar climbed 3.3 percent to $84.09.

The Dow Jones Transportation Average, a proxy for the economy, gained 2.2 percent. J.B. Hunt Transport Services Inc. jumped 8.7 percent to $42.28 after the trucking company reported third-quarter earnings of 57 cents a share, beating the average analyst estimate of 56 cents.

Energy and raw-material producers rose the most among 10 industry groups in the S&P 500, adding at least 2.5 percent. Exxon Mobil Corp. (XOM) climbed 2.3 percent to $78.11. Chevron Corp. (CVX) added 2.7 percent to $100.47.

Freeport-McMoRan Copper & Gold Inc. (FCX) gained 4.3 percent to $36.77. Stabilizing copper inventory worldwide and rising demand from China are “favorable” for the world’s largest publicly traded copper producer, Morgan Stanley said in a note.

The KBW Bank Index (BKX) rose 0.6 percent, reversing an earlier decline of 1.6 percent. Wells Fargo & Co. (WFC) rallied 2.1 percent to $26.67. JPMorgan Chase & Co. (JPM) advanced 0.9 percent to $31.89.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Deficit Increased to $1.3T in Fiscal 2011

By Vincent Del Giudice and Ian Katz - Oct 15, 2011 2:32 AM GMT+0700

The U.S. government posted its third consecutive annual budget deficit in excess of $1 trillion in the fiscal year ended Sept. 30.

The shortfall registered $1.3 trillion in fiscal 2011, up from $1.29 trillion in 2010 and the second-highest on record, according to Treasury Department data issued today in Washington. It reached $1.42 trillion in 2009, the highest ever. The September gap widened to $64.6 billion from $34.6 billion in the same month last year.

“This report confirms that we cannot waste any time in jump-starting economic growth and job creation to lay the foundation for a stronger economy and lower future deficits,” Jacob Lew, director of the White House Office of Management and Budget, said in a statement.

The budget deficit for fiscal 2011 was 8.7 percent of gross domestic product, down from 9 percent in 2010, according to the Treasury data. The gap reached 10 percent of GDP in 2009, the highest since 1945, according to the Congressional Budget Office.

“There is a lot of red ink on the government’s balance sheet and Congress appears clueless on how to make it disappear,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before today’s report.

Automatic Cuts

A special 12-member congressional committee has been ordered to find $1.5 trillion in savings over the next decade under the terms of the debt-ceiling deal reached in August. If Congress fails to act on the group’s recommendations by Dec. 23, the compromise will trigger automatic cuts.

The panel’s closed-door meetings for the past month have focused on spending cuts in areas accounting for 12 percent of the federal budget -- the same areas lawmakers discussed in previous unsuccessful talks led by Vice President Joe Biden, according to one Republican and one Democratic aide who weren’t authorized to speak publicly.

Today is the deadline for congressional committee leaders to submit recommendations to help identify the savings. The bipartisan committee is assigned to propose a plan by Nov. 23, and if Congress doesn’t pass it by the December deadline, spending cuts of $1.2 trillion would begin in fiscal 2013.

Ongoing Negotiations

House Democrats made their recommendations yesterday, focusing more on job creation than debt reduction. After a series of standoffs over spending cuts sought by House Republicans that almost shut down the government, Republican leaders of House committees overseeing taxes and entitlements aren’t offering formal proposals on how they would cut the government.

“It is going to be a long and painful process as the economy has slowed to the stall speed, and while you can’t grow your way out of your debts, it obviously helps speed up the timetable,” Rupkey said.

Spending rose 4.2 percent in fiscal 2011 from a year earlier to $3.6 trillion, according to the Treasury. Revenue climbed 6.5 percent to $2.3 trillion.

Before the release of the annual statistics, the OMB and the non-partisan CBO both estimated a fiscal 2011 budget of $1.3 trillion.

To contact the reporters on this story: Vincent Del Giudice in Washington at vdelgiudicebloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Bill Gross Tells Clients 2011 a ‘Stinker’

By Sree Vidya Bhaktavatsalam - Oct 15, 2011 3:54 AM GMT+0700

Bill Gross, manager of the world’s biggest mutual fund, told clients he misjudged the extent of the economic slowdown in developed economies, causing his Pimco Total Return Fund to trail rivals this year.

“This year is a stinker,” Gross wrote in a letter to clients entitled “mea culpa,” a copy of which was posted by Dealbreaker.com. “There is no ‘quit’ in me or anyone else on the PIMCO premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets.”

Gross’s $242.2 billion Total Return Fund has returned 1.3 percent this year, lagging behind 82 percent of peers, Bloomberg data show. That’s his worst performance relative to rivals since at least 1995, the earliest year for which Bloomberg has rankings for Pimco’s flagship. Gross shunned Treasuries in the first half of the year, missing a rally as investors rushed to the safety of government-backed debt amid the European sovereign-debt crisis.

“As Europe’s crisis and the U.S. debt ceiling debacle turned developed economies towards a potential recession, the Total Return Fund had too little risk off and too much risk on,” Gross wrote.

Gross, who is co-chief investment officer at Pacific Investment Management Co. in Newport Beach, California, wrote that Pimco’s economic growth forecast for developed markets, under a scenario it termed the “new normal,” was too optimistic. The firm has revised its forecast for developed economies to zero, according to Gross.

Over the past five years, Pimco Total Return has returned 7.8 percent, beating 97 percent of its rivals, Bloomberg data show.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Obama Sends Troops Against Uganda Rebels

By Tony Capaccio - Oct 15, 2011 5:35 AM GMT+0700

President Barack Obama authorized about 100 “combat-equipped U.S. forces,” including special operations personnel, to central Africa to help fight against Uganda’s renegade Lord’s Resistance Army and its leader, Joseph Kony.

The troops are to “provide assistance to regional forces that are working toward” Kony’s removal “from the battlefield,” Obama said today in a letter to House and Senate leaders released by the White House.

The White House was responding to 2010 legislation pushed by a group of lawmakers and human rights organizations that supported a comprehensive U.S. effort short of active military involvement to mitigate or eliminate the Lord’s Resistance Army threat.

The Lord’s Resistance Army for more than 20 years “has murdered, raped and kidnapped tens of thousands of men, woman and children in central Africa,” Obama’s letter said. The State Department has designated the group a terrorist organization, and in 2008 the Treasury Department added Kony to its list of Specially Designated Global Terrorists.

The U.S. has provided more than $40 million since 2008 for “critical logistical support, equipment and training” to forces fighting Kony, State Department spokeswoman Victoria Nuland said.

Previous assistance includes 17 U.S. military advisers on a training mission, U.S. Africa Command spokesman Kenneth Fidler said in an e-mail.

Removing Kony

“Even with some limited U.S. assistance, however, regional military efforts have thus far been unsuccessful in removing Kony or his top commanders,” Obama’s letter said.

The 100 troops, primarily U.S. special operations forces, will assist forces from Uganda, South Sudan, the Central African Republic and the Democratic Republic of the Congo with “information, advice, and assistance,” the letter said.

U.S. troops will not directly engage Kony’s forces “unless necessary for self-defense,” Obama said.

“We don’t know how long the duration” of the deployment will be, and “hope it will lasts until Kony and his commanders are brought to justice,” said Michael Poffenberger, executive director of Resolve, a Washington-based human rights groups pushing for action. Poffenberger said he was briefed by the National Security Council before release of the Obama letter.

‘Internal Defense’

The special operations forces will be performing “foreign internal defense” training that’s to “provide the right balance of strategic and tactical experience to supplement host nation military efforts,” Fidler said.

“Our forces are prepared to stay as long as necessary,” he said. The personnel will be commanded by Special Operations Command-Africa.

Besides the humanitarian grounds for sending troops cited by Obama, the U.S. has growing concern that the instability caused by the LRA will benefit militant Islamic groups in Somalia and northern Africa.

So far, said William M. Bellamy, a former U.S. ambassador to Kenya who heads the Africa Center for Strategic Studies at the National Defense University in Washington, there is no evidence that the LRA has links to any Islamist groups. “The LRA is kind of off on its own planet,” he said.

The U.S. does have a growing interest in helping Uganda battle the LRA, Bellamy said, in part because the country is preparing to send an additional 2,000 peacekeeping troops to battle the militant group al-Shabaab in Somalia.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Al-Qaeda Should Pay $9.4B for 9/11: Judge

By Bob Van Voris - Oct 15, 2011 3:41 AM GMT+0700

Chubb Corp. (CB) and four other insurers should be awarded $9.4 billion in damages in their suit against al-Qaeda over the Sept. 11 terrorist attacks, a U.S. judge recommended.

U.S. Magistrate Judge Frank Maas in Manhattan said today that the insurers, which sued for money they paid to policyholders to cover business and property losses, should recover triple damages under the U.S. Anti-Terrorism Act.

The insurers won a default judgment in 2006 against al- Qaeda, the radical Muslim terrorist organization behind the attacks, after the group didn’t contest the suit.

Maas gave the parties 10 days to file any objections to his report and recommendations to U.S. District Judge George Daniels. Daniels, who is presiding over the case, will then decide whether to award the money.

The case is Federal Insurance Co. v. Al Qaida, 03-CV-6978, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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U.S. Won’t Start Long-Term Care Insurance

By Alex Wayne and Drew Armstrong - Oct 15, 2011 5:12 AM GMT+0700

A long-term disability care program shepherded into the U.S. health overhaul by Senator Edward Kennedy before his death was canceled as financially unsustainable by health secretary Kathleen Sebelius.

Republicans opposed the so-called Class Act that created the program. It will be indefinitely suspended, Sebelius said today in a statement, because the program isn’t likely to generate enough revenue to pay for its benefits.

Democrats led by Kennedy created the plan to help people disabled by illness or accident. By paying premiums while employed, beneficiaries would be eligible after five years for at least $50 a day toward health and support services provided at home. The program was billed as paying for itself.

“I do not see a viable path forward for Class implementation at this time,” Sebelius said in a letter to congressional leaders.

Republicans celebrated the program’s demise, calling it misguided policy used as a financial gimmick to reduce cost estimates of the health law. At the time, the Congressional Budget Office subtracted $70 billion from the cost of the law thanks to Class -- which stands for Community Living Assistance Services and Supports -- contributing to $143 billion in total savings, because the program’s premiums would exceed benefits over its first decade.

The program “was destined to fail in the real world,” said Senator Mitch McConnell of Kentucky, the senior Republican in the chamber, in a statement.

Saving the Program

Advocates for the program said it can be salvaged.

“Where our position has been and continues to be is that they have the authority to move forward and twist this Rubik’s Cube until a solution pops up,” Connie Garner, executive director of AdvanceClass, said in a telephone interview before Sebelius’ announcement. Her group represents nursing homes, disability organizations and seniors’ lobby AARP in pushing for the program’s implementation.

Representative Frank Pallone of New Jersey, a Democrat who was one of the program’s leading proponents in the House, said the Obama administration was “wrong to abandon” it.

“Giving up on it is simply not an option,” he said in a statement. “If the program needs improving, then let’s find the way to do it.”

Needed Changes

The government could make 95 percent of the necessary changes to help fix the program without congressional action, Garner said.

Senator Kent Conrad, a North Dakota Democrat, described an early version of the program as a “Ponzi scheme.” He later supported the law that created it. Republicans, seizing on that statement, have derided Class as an unaffordable entitlement that would cost more than it took in from premiums.

The program’s demise was “sad but not surprising,” said Paul Van de Water, a Medicare and budget specialist at the Center on Budget and Policy Priorities, a nonprofit research group whose studies often support Democratic policies.

“The aim here was a good one,” he said in an interview. “But the program as written in law was over-constrained.”

The health law required Class to sustain itself on beneficiary premiums without taxpayer subsidies, Van de Water said, and Sebelius wasn’t allowed to begin it unless actuarial analysis showed it would be financially stable for 75 years.

The program didn’t meet that bar, said Kathy Greenlee, assistant secretary for aging in the Department of Health and Human Services, in a memo to the secretary.

Actuary’s Estimate

The chief actuary for the U.S. Centers for Medicare and Medicaid Services, Richard Foster, predicted in an April 2010 report that the program would cost the federal government more than it took in starting in 2025.

Because it is voluntary, Class faced a “problem of adverse selection,” in which only people who need the insurance, or think they will, would sign up, he said.

Sebelius telegraphed the program’s demise in February when she told a Senate Finance Committee hearing that Class “will not start unless we can be certain it will be solvent and self- sustaining into the future.”

A spokesman for her department, Richard Sorian, confirming last month that Class was on the ropes, said that “it is an open question whether the program will be implemented.”

Republican Reaction

Republicans in Congress plan to keep investigating the program that Democrats used to “inflate alleged savings and mask the true costs” of the health law, said Debbee Keller, a spokeswoman for the chairman of the House Energy and Commerce Committee, Republican Fred Upton of Michigan, whose panel has jurisdiction. “Everyone saw the writing on the wall that this program was not sustainable, yet the administration continued to stand behind the program right up until this announcement.”

Ending the program may add to the deficit. The Congressional Budget Office estimated in February that total savings from the health law will be $210 billion across 10 years, of which Class accounts for $86 billion.

The Senate Appropriations Committee passed a fiscal 2012 spending bill for the health department on Sept. 21 that eliminated funding to enact Class, saying it wasn’t clear whether it would proceed. Obama had asked for $120 million for the program.

Kennedy died in August 2009 before the health-care law was signed by Obama in March 2010.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net

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G-20 Focuses on Crisis as Europe Mulls Greek Writedown

By James G. Neuger and Svenja O’Donnell - Oct 15, 2011 5:00 AM GMT+0700

Global finance chiefs will focus today on ways to fix Europe’s sovereign debt crisis as the region’s officials consider writing down Greek bonds by as much as 50 percent and establishing a backstop for banks.

Finance ministers and central bankers from the Group of 20 will conclude talks in Paris, after people familiar with the matter said yesterday that euro-area governments are revamping their strategy to combat the debt turmoil which marks its second anniversary next week.

“The world is waiting for solutions to the European problems that have now become the world’s problems,” Brazilian Finance Minister Guido Mantega told reporters yesterday in Paris. “I am more optimistic. They are advancing.”

Worldwide stocks yesterday gained, extending the biggest weekly rally since July, on optimism officials are ramping up their crisis-fighting. There was some discord among G-20 officials as those from rich nations such as the U.S. and Germany questioned proposals to expand the resources of the International Monetary Fund to help it contain Europe’s woes.

“I don’t think we ought to be asking the IMF to do a great deal more,” Canadian Finance Minister Jim Flaherty said. U.S. Treasury Secretary Timothy F. Geithner told CNBC that the lender already has “very substantial resources that are uncommitted.”

Deadline Looms

The G-20 policy makers are meeting to prepare for a Nov. 3- 4 summit of leaders in Cannes, France. Today’s talks will end with the release of a statement and a press conference scheduled for 4:15 p.m.

The Greek bond losses may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people, who declined to be identified because the negotiations will run for another week.

In the works is a five-point plan foreseeing a solution for Greece, bolstering of the European Financial Stability Facility rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management.

Political, technical and legal constraints cloud the crisis-resolution strategy, due to be hammered out at an emergency Oct. 23 euro-area summit in Brussels under mounting pressure from markets and politicians around the world.

“We need to have at that point a plan,” Natacha Valla, an economist at Goldman Sachs Group Inc. in Paris, told Bloomberg Television. “We need to have something that is big enough to solve a systemic crisis.”

Crisis Rages

The crisis raged yesterday through France, the 17-nation euro area’s second-largest economy and co-anchor with Germany of the European Union. French bonds slumped, pushing the 10-year yield up 17 basis points to 3.13 percent. The week’s rise of 38 basis points was the most since the euro’s debut in 1999.

G-20 policy makers maintained pressure on European counterparts to deliver a remedy. While Europe is weighing a “much more forceful package,” Geithner said on CNBC that “the hard part is still ahead.” Australian Treasurer Wayne Swan told reporters that “the first priority” for the G-20 “is for Europe to put their own house in order.”

Europe’s strategy hinges on putting Greece on a viable path, as two years of austerity plunge it deeper into recession and provoke civil unrest that threatens political stability. Greece forecasts its debt to reach 172 percent of gross domestic product in 2012 as the economy shrinks for a fifth year.

Greek Debt

Options include tweaking a July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, the people said.

Under a more aggressive proposal, investors would exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate option is a restructuring involving writedowns without collateral, they said.

The constraint is how to cut Greece’s debt without leading rating companies to declare the country in default. Such a “credit event” triggered by a forced restructuring could unleash a cascade of losses through markets.

The bank-aid model under discussion is to set up a European-level backstop capitalized by the 440 billion-euro ($609 billion) EFSF rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.

Such ideas are controversial in Germany, Europe’s dominant economy, which so far has called for bank recapitalization on a country-by-country basis.

Capital Buffer

French Finance Minister Francois Baroin said on Europe 1 radio yesterday that it may be “good” to force banks to maintain a 9 percent capital buffer to absorb sovereign risks, up from the 5 percent core capital level used in July’s stress tests.

Nations from China to Brazil are considering increasing the IMF’s lending power, a month after Managing Director Christine Lagarde said her $390 billion war chest may not suffice to meet all loan requests should the global economy worsen. Additional funds could be used to help shelter Italy and Spain with precautionary lending, according to IMF and G-20 officials.

Talks are in preliminary stages as potential contributors wait to see what measures Europeans take first. Resistance from rich nations may also stymie them, with German Finance Minister Wolfgang Schaeuble echoing Geithner by saying the Fund has enough cash to meet its commitments.

Fund Firepower

Officials are considering seven ways of getting more firepower out of Europe’s temporary rescue fund. The options break down into two broad categories: enabling it to borrow from the European Central Bank or using it to provide bond insurance.

The ECB has all but ruled out the first method, making bond insurance more likely, the people said. EFSF guarantees of new bonds sold by distressed euro-area governments might range from 20 percent to 30 percent, a person familiar with those deliberations said.

Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, the people said. ECB President Jean-Claude Trichet, whose eight-year term ends Oct. 31, has expressed reluctance to maintain the policy with his institution having bought 163 billion euros of bonds.

A consensus is also emerging to accelerate the setup of a permanent aid fund planned for July 2013, the European Stability Mechanism. Next week’s discussions will focus on creating it a year earlier, in July 2012, and easing unanimity rules that permit solitary countries to block bailouts.

Plan Proposals

One proposal is to enable aid to proceed when backed by countries representing 95 percent of the fund’s capital on the basis of an assessment by the EU and ECB, the people said. Another proposal would set an 85 percent threshold.

Revisions to the voting rules would prevent local politics in smaller countries from stopping measures deemed necessary by Germany and France. Slovakia, for example, stayed out of Greece’s first aid package. Finland spent three months negotiating a tailor-made collateral arrangement as its price for contributing to the next one.

Greece’s plight and dwindling investor confidence in the bonds of Italy, the world’s fourth-largest debtor, have triggered a reconsideration of bondholder loss-sharing provisions as part of the permanent fund, the people said.

Germany was the main driver behind the provisions for “private sector involvement.” The July accord on a second Greek bailout threw that into question by declaring Greece’s case “exceptional and unique.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Svenja O’Donnell in Paris at sodonnell@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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OmniVision Falls as Website Sees Sony Sensor in Apple IPhone

By Adam Satariano - Oct 15, 2011 4:02 AM GMT+0700

OmniVision Technologies Inc. (OVTI) tumbled 9.4 percent after an analysis of the new iPhone raised concern that one of the company’s key components may have been excluded from Apple Inc. (AAPL)’s best-selling device.

An iPhone 4S taken apart by Chipworks, which studies electronics components, sported an image sensor made by Sony Corp. (6758), rather than OmniVision, which had been used in at least one previous iteration of the device, according to the analysis. It’s possible that some units have sensors made by other manufacturers, Chipworks said.

Inclusion in Apple devices is a boon for component makers, while exclusion can mean lost sales. TriQuint Semiconductor Inc. (TQNT) rose the most in almost a decade yesterday after analysis by Ifixit showed its chips are included in iPhone 4S, which went on sale today. Qualcomm Inc. (QCOM) chips beat out those from Intel Corp. (INTC) for placement in the smartphone, IHS Inc. (IHS) said.

Chipworks plans to review additional iPhones to see whether OmniVision made it into some units. Scott Foster, a spokesman for OmniVision, didn’t return calls seeking comment.

OmniVision, based in Santa Clara, California, dropped $1.65 to $15.95 in New York. The stock had fallen 41 percent this year before today.

Image sensors are used in digital cameras to convert an optical image into electronic signals.

Apple may sell as many as 4 million iPhones on its debut weekend, according to Carl Howe, an analyst at Yankee Group. Customers lined up at stores in the U.S., Australia, Canada, France, Germany, Japan and U.K. to be the first with the device.

Next year, Apple may sell more than 100 million iPhones, according to Wayne Lam, an analyst at IHS in El Segundo, California.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Qualcomm Displaces Intel in IPhone Baseband Chips, IHS Says

By Adam Satariano and Ian King - Oct 15, 2011 3:40 AM GMT+0700

Qualcomm Inc. (QCOM), the world’s largest maker of mobile-phone chips, is displacing Intel Corp. (INTC) in the latest version of Apple Inc. (AAPL)’s iPhone, according to IHS Inc.

Apple is using Qualcomm’s MDM6610 chip in its new iPhone 4S, IHS said in a preliminary report. Apple had previously used baseband chips from Qualcomm and Infineon Technologies AG’s wireless unit, which is now owned by Intel.

Apple will sell more than 100 million iPhones next year, predicts Wayne Lam, an IHS analyst in El Segundo, California. Apple’s decision means that Qualcomm will be supplying the main radio for more than 80 percent of those devices, he estimates. Apple will continue to sell the older models at reduced prices, and some of those will contain the Infineon-Intel chips.

The move represents a setback for Intel, which has struggled to convert its personal-computer dominance into a bigger role in mobile devices and electronics. Earlier this week, Intel said it would be pulling back from an effort to get its chips into televisions.

Baseband processors, which convert radio signals into sound and data, are among the most expensive components. Qualcomm is supplying Apple with a chip capable of working with the world’s two dominant phone standards: the global system for mobile communications and code division multiple access.

Claudine Mangano, an Intel spokeswoman, and Qualcomm’s Emily Kilpatrick declined to calls seeking comment. Steve Dowling, a spokesman for Cupertino, California-based Apple, also didn’t immediately respond to a request for comment.

Intel Shares

Shares of Santa Clara, California-based Intel rose 11 cents to $23.50. They have gained 12 percent this year. Qualcomm, based in San Diego, climbed $1.67 to $54.98, bringing this year’s advance to 11 percent.

Intel bought Infineon’s wireless operations in January for about $1.4 billion, giving it a foothold in the mobile-phone business.

Apple is projected to sell as many as 4 million units of its new iPhone 4S this weekend as customers around the world clamor for the device. The phone has received mostly positive reviews for its voice-recognition software, speedier processor and improved camera.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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RIM Suffers ‘Awful’ Timing for Snag as IPhone 4S Makes Debut

By Hugo Miller - Oct 15, 2011 3:16 AM GMT+0700

Research In Motion Ltd. (RIMM), struggling to recover from one of its worst BlackBerry service disruptions, may see more defections as the snag gives users another reason to turn to Apple Inc. (AAPL)’s new iPhone, which hit stores today.

The disruptions will trigger some BlackBerry customers to switch to Apple, particularly as the Cupertino, California-based company begins cutting the price of older iPhone models, said Matt Thornton, an analyst at Avian Securities LLC in Boston.

“The timing is absolutely awful,” he said. “RIM is doing some of Apple’s work for them.”

The data failures come at an inopportune time for Waterloo, Ontario-based RIM. It is fending off investor demands for fresh management while trying to move the entire BlackBerry lineup onto a new operating system to stem market-share losses to Apple and devices that use Google Inc. (GOOG)’s Android software. RIM also said it will study compensation for the disruption after some wireless carriers offered refunds to BlackBerry users.

Three days after the smartphone’s data delivery first began failing in Europe and the Middle East, RIM co-Chief Executive Officer Mike Lazaridis apologized to customers in a video posted on the company’s website before joining co-CEO Jim Balsillie on a conference call to answer reporters’ questions.

“We’re very concerned,” Balsillie said when asked about the possible impact of the disruptions on phone sales and what RIM is doing to minimize it. “Nobody’s gone home since Monday.”

Credibility Lost

Apple and carriers AT&T Inc. (T), Verizon Wireless and Sprint Nextel Corp. started selling the iPhone in their stores today. Apple said this week that it received more than 1 million iPhone pre-orders on the first day, a record.

BlackBerry subscribers across most parts of the world, including U.S. and Canada, lost data services after a network failure in the U.K. halted messaging and Web browsing. Balsillie said yesterday service has been fully restored globally. Lazaridis apologized, saying the company has “let many people down.”

The disruptions resulted in an outrage by customers on online messaging boards and Twitter.

“When you hear people saying online they’re hating their BlackBerry device right now, that’s going to be top of mind to the consumer going into a store to buy a new phone,” said Neil Bearse, who teaches digital marketing at Queen’s School of Business in Kingston, Ontario.

Credibility

Patrick Spence, RIM’s head of global sales and regional marketing, said on a conference call that he understood customers were frustrated and that RIM needed to look at improving how it communicated the problem.

“We know we’ll have to work to do to build back that credibility,” he said.

RIM rose 1.5 percent to $23.97 at the close in New York. The stock has lost 59 percent this year.

RIM started selling new BlackBerry 7 phones in the U.S. last month, including a touch-screen version of the BlackBerry Bold, which costs $250 on a two-year contract. Balsillie said the phones had an “excellent reception” with consumers. William Power, an analyst at Robert W Baird & Co., suggested initial enthusiasm may have been limited to existing users looking to upgrade their phones, not new customers.

Apple Competition

The iPhone 4S went on sale in the U.S. for $199 for a 16- gigabyte model and $399 for a 64-gigabyte version with a two- year contract. The price on the iPhone 4 has been cut to $99. The new version also starts selling in Canada, Japan, Australia and parts of Europe.

The new iPhone has sold out for pre-order with Verizon, AT&T, and Sprint Nextel on the eve of its debut, those carriers said yesterday. The robust demand highlights how Apple is thriving while RIM is struggling, and threatens to hurt sales of RIM’s BlackBerry 7 phones, Thornton said.

“There’s going to be some defections,” said Thornton, who rates RIM “market perform.” “Their older phones are bleeding and they’re trying to get their new phones out there but the marketing is just starting.”

RIM’s share of the U.S. smartphone market fell to 20 percent in the quarter ended August from 25 percent three months earlier, according to ComScore Inc. Apple rose 0.7 percentage points to 27.3 percent while Google’s Android platform climbed to 44 percent from 38 percent.

Defections

There could be more defections, said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco.

“This network outage and how long it lasted could not have come at a worse time,” said Wu, who rates RIM a “buy.” “It didn’t hit as hard in the U.S. but in high-growth areas, lasted for two or three days -- that’s unacceptable.”

The disruptions began in Europe, the Middle East, Africa and India, areas that RIM is counting on for sales growth as revenue in North America declines. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

“There is outrage on the BlackBerry outage,” said Kiran Mazumdar-Shaw, chairman of Biocon Ltd. (BIOS), India’s biggest biotechnology company. If the BlackBerry service continues to be problematic, she said she may be forced to give up her device. “This is terrible timing.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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IPhone 4S Sales May Hit 4M This Weekend

By Adam Satariano and Sarah Gill - Oct 15, 2011 3:26 AM GMT+0700
Enlarge image

The iPhone 4S has received mostly positive reviews for its voice-recognition software, speedier processor and improved camera. Photographer: Matthew Lloyd/Bloomberg

Apple Inc. (AAPL) is poised to sell as many as 4 million units of its new iPhone 4S this weekend after customers around the world lined up to buy one of the last products developed under Steve Jobs.

The device, available today in the U.S., Australia, Canada, France, Germany, Japan and the U.K., is projected to outperform last year’s introduction of the iPhone 4, which topped 1.7 million units in its first weekend. For the iPhone 4S, most estimates range from 2 million to 3 million, with Yankee Group analyst Carl Howe predicting sales of as much as 4 million.

In New York, London, Tokyo and Frankfurt, hundreds of people lined up overnight at the company’s stores. At London’s Covent Garden store, 20 Apple employees formed a human tunnel for shoppers entering the store, whooping, chanting and doling out high fives. The line outside New York’s iconic glass cube store on Fifth Avenue snaked back and forth across the plaza out front and stretched halfway down the block.

“I’m a diehard Apple fan and I’ve been using Apple products since I was 12,” said Cary Santos, 24, who lined up at the Fifth Avenue store at 11 p.m. yesterday and spent the night checking e-mail and news on his iPad 2. “This company has rocked American life.”

Biggest Debut

The release represents the end of Apple’s era under Jobs, who died this month after an eight-year battle with cancer. The iPhone 4S has received mostly positive reviews for its voice- recognition software, speedier processor and improved camera. The device also provides Apple with fresh ammunition in its fight against Google Inc. (GOOG)’s Android software, which will appear on a host of new smartphones in the year-end holiday season.

“It’s going to easily outpace any previous launch,” said Charlie Wolf, an analyst at Needham & Co. in New York. It helps that the iPhone is available on the three largest U.S. carriers for the first time, which will bring in new buyers, he said.

The phone costs $199, $299 or $399, depending on features. Apple also has released an update to its iOS mobile operating system, which customers can download to their existing devices. The software comes with 200 new features and a Web storage service for synchronizing photos, documents, music and other files across different Apple gadgets.

Android Showdown

While the iPhone is the best-selling single smartphone, all of the devices running Google’s Android operating system account for more of the industry’s sales. HTC Corp., Samsung Electronics Co., Motorola Mobility Holdings Inc. and other manufacturers have adopted the software. Google offers Android for free and then makes money on mobile advertising and services. That revenue now accounts for $2.5 billion a year, the company said yesterday when it released quarterly results.

Apple’s stock rose 3.3 percent to $422 in today’s trading, capping a gain of 14 percent this week. The company is the world’s most valuable business, with a market capitalization of $391.2 billion. That compares with $379.8 billion for the second-ranking Exxon Mobil Corp. (XOM)

High demand for the new iOS 5 software contributed to glitches at Apple even before the iPhone 4S went on sale. Customers downloading the operating system to their older phones overwhelmed the company’s servers, making it harder to upgrade.

Apple hasn’t said how many people were affected. The wait time to get a call back from an Apple support representative via the company’s Express Lane service is much longer than usual. Typically, an Apple rep will call back within a few hours. Now, the earliest appointments aren’t for days.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment.

Storefront Memorials

Jobs’s admirers turned storefronts into makeshift memorials, adding a solemn tone to the frenzy that accompanies the company’s product releases. Jobs co-founded Apple and returned to the company in 1997 after a 12-year absence, rescuing it from near-bankruptcy.

In Australia, the first country where the product went on sale, Jackie Guo, 25, and his girlfriend, both students at Macquarie University, said they lined up as a tribute to Jobs.

“It’s the iPhone for Steve, it’s for the memory of Steve,” Guo said. “It was the last product he worked on. He pushed this company to become a viable company. His ideas are better than others.”

‘A Mom’s Duty’

In San Francisco, a line stretched around the block at the Union Square store. Customers were given bagels, nutrition bars and energy drinks as they waited. Eva Nunez, 46, was in line to buy the new iPhone for herself and her 14-year-old son. “It’s a mom’s duty,” she said.

At a store in the city’s Marina district, the line started forming at 2 a.m., according to Douglas Johnson, who stayed up all night to make sure he was in front.

In Frankfurt, Grigory Stolyarov, a 27-year-old employee of DekaBank Deutsche Girozentrale, spent the night in front of the store on the city’s main shopping street. He had put on two pairs of socks, sweaters and jackets to weather the first near- freezing night of fall and be among the first 20 people in a line of more than 1,000.

In London, Harriet Sneddon, 20, a computer science student, waited in line outside a store run by Telefonica SA’s O2 mobile- phone operator.

“I’m an Apple freak,” Sneddon said. “I’m just hoping they’ve got one left or I’ll cry.”

Tokyo Shoppers

In Tokyo, about 80 people were lined up a day before the debut and there were more than 800 people by 8 a.m. at the Ginza district store.

In New York, Ousphea San, a 28-year-old warehouse manager, left his home in the Bronx at 3:30 a.m. and found 257 people ahead of him in line when he arrived at the Fifth Avenue store two hours later.

“I use my iPhone more than any other gadgets,” said San, who prefers the device to a computer for watching videos and sending e-mails. “The phone is better than anything else.”

The iPhone 4S will go on sale later this month in 22 additional countries, including Ireland, Italy, Mexico and Spain. Apple didn’t say when it will be available in China, a country Chief Executive Officer Tim Cook has said will be critical for the company’s future growth.

Apple said earlier this week that it had received more than 1 million preorders for the iPhone 4S. The three U.S. carriers selling the device -- AT&T Inc. (T), Verizon Wireless and Sprint Nextel Corp. (S) -- sold out of preorders as well. The demand puts Apple on pace to sell a record number of iPhones in the quarter ending in December, according to the analysts’ reports. Gene Munster, of Piper Jaffray Cos., estimates that Apple could sell more than 25 million iPhones this quarter.

App Cakes

At 7:30 a.m., 25 people were lined up outside a Verizon Wireless store on 34th Street in New York. The store had just received 10 unmarked cardboard boxes filled with 20 iPhones, which the staff was opening. Three doors down, 19 people gathered outside a Sprint store, waiting for it to open.

Terry Stenzel, vice president and general manager for AT&T in Northern California and Reno, Nevada, helped manage the crowds at one of the carrier’s stores in San Francisco. He expected to sell out of the iPhone 4S this weekend, even though the location had three times as much supply as it did during the last iPhone release. The store offered water and candy to the crowd. Some AT&T stores handed out Apple cider and cupcakes decorated with application icons.

Raised Expectations

“If you had asked me two weeks ago, this would have exceeded expectations,” Stenzel said. “But when we saw the amount of preorders, we adjusted them.”

The iPhone, first introduced in 2007, has become Apple’s top moneymaker, accounting for almost half its total revenue. Sales from the new model won’t be part of the fourth-quarter financial results Apple is due to release on Oct. 18. Even so, profit rose about 60 percent in the period to $6.9 billion on sales of $29.5 billion, according to the average of analysts’ estimates compiled by Bloomberg.

The release of the iPhone 4S, along with new Android models, should mean that smartphone users account for the majority of U.S. mobile-phone customers for the first time, said Roger Entner, an analyst at Recon Analytics LLC in Dedham, Massachusetts.

Apple controlled 19.1 percent of the smartphone market in the second quarter, according to research firm IDC, ahead of Samsung, Nokia Oyj and Research In Motion Ltd. (RIMM)

Few companies can build excitement around a new product the way Apple can, Yankee Group’s Howe said.

“This is what they are good at,” he said. “They know how to make a big launch weekend.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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