U.S. Goods Orders Ex-Aircraft Rise by Most in Six Months

By Alex Kowalski - Oct 26, 2011 8:40 PM GMT+0700

Orders for U.S. durable goods excluding transportation equipment rose in September by the most in six months, showing manufacturing is supporting the expansion.

Demand for goods meant to last at least three years, outside of airplanes and automobiles, climbed 1.7 percent, exceeding the median forecast of economists surveyed by Bloomberg News that called for a 0.4 percent increase, figures from the Commerce Department showed today in Washington. Total bookings fell 0.8 percent, depressed by a 26 percent plunge in planes.

Expanding economies overseas and a 14 percent drop in the value of the dollar since June 2010 are propelling American exports to record levels, helping manufacturers like Caterpillar Inc. A government incentive may also be contributing to gains in business spending on equipment, like computers and machinery, giving the world’s largest economy an added boost.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who correctly forecast demand for non-transportation equipment. “We’ve got decent momentum going into the fourth quarter.”

Stocks gained after the report and as Germany’s lower house of parliament approved plans to boost the European bailout fund. The Standard & Poor’s 500 Index climbed 0.9 percent to 1,240.02 at 9:38 a.m. in New York. The yield on the benchmark 10-year note rose to 2.15 percent from 2.11 percent late yesterday.

Survey Results

The median forecast of 79 economists surveyed by Bloomberg News projected a 1 percent decrease in orders after a previously reported 0.1 percent decline in August. Estimates ranged from a drop of 2.5 percent to a gain of 1 percent.

Boeing Co., the largest U.S. aircraft maker, said it received 59 airplane orders in September, down from 127 the prior month. The drop last month followed a 25 percent gain in August.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, climbed 2.4 percent, the most since March, after rising 0.5 percent the prior month.

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, fell 0.9 percent after a 3.1 percent gain in August that was larger than previously estimated. For the third quarter, shipments jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, indicating business investment picked up.

Machinery, Computers

Demand for machinery increased 1.8 percent, and orders for computers and related products jumped 6 percent.

A Commerce Department report tomorrow is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the third quarter, up from a 1.3 percent rate in the previous three months, according to the median forecast in a Bloomberg survey. Societe Generale’s Jones said the gain in durable goods demand may bring GDP growth for last quarter closer to 3 percent.

Today’s report also showed companies were keeping a tight rein on inventories, which may limit last quarter’s projected gain in business spending. Durable-goods stockpiles climbed 0.1 percent in September, the smallest gain since a decline in December 2009.

Other indicators have shown manufacturing, which accounts for about 12 percent of the economy, continues to grow. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August. A level greater than 50 signals expansion. Industrial production advanced in September on growing demand for automobiles and computers, according to figures from the Federal Reserve.

Caterpillar Orders

While the European debt crisis and the sluggish U.S. expansion threaten to curb demand, the potential drags on growth don’t “signal the onset of recession,” Caterpillar said in an Oct. 24 statement. The world economy will expand 3 percent in 2011 and 3.5 percent in 2012, according to the Peoria, Illinois- based company.

“Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point,” Doug Oberhelman, chairman and chief executive officer, said in a statement. Caterpillar, the world’s largest construction and mining-equipment maker, posted third- quarter profit and sales that topped analysts’ estimates as demand for shovels and drills used to dig up metals rose.

A cheaper dollar, by making American goods more competitive overseas, is helping bolster demand. IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against those of six major trading partners including the euro, yen and pound, has dropped 14 percent since June 7, 2010. July and August were the best month for U.S. exports on record, according to figures from the Commerce Department.

A rush to qualify for a larger government credit may also be contributing to an increase in businesses investment. The Obama administration’s tax compromise allows companies to depreciate 100 percent of investment in capital outlays in 2011 and 50 percent in 2012.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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Europe Stocks Rise Before Debt-Crisis Summit; Merck KGaA Soars on Earnings

By Peter Levring - Oct 26, 2011 9:25 PM GMT+0700

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Oct. 26 (Bloomberg) -- Patrick Perret-Green, Singapore-based head of foreign-exchange and rates at Citigroup Inc., discusses the European sovereign debt crisis and the outlook for the euro. He speaks from Singapore with Linzie Janis and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks advanced as the region’s leaders prepared to gather in Brussels for the second summit in four days to address the debt crisis and U.S. durable- goods orders topped forecasts.

Merck KGaA, a German drugmaker, climbed the most in more than two years after reporting earnings that beat analysts’ estimates. Nyrstar NV slid 6.8 percent as the biggest producer of refined zinc lowered its mine-output forecast.

The benchmark Stoxx Europe 600 Index advanced 0.5 percent to 241.39 at 3:24 p.m. in London, paring gains as a European Union official said talks with banks on the bondholder losses to be taken as part of a second Greek rescue package are deadlocked. The measure has climbed 12 percent from this year’s low on Sept. 22.

“Markets know what may come from Brussels tonight will not be a full and final solution,” said Thomas Haerter, chief strategist at Swisscanto Asset Management AG in Zurich, who helps oversee about $67 billion. “The problem will only ultimately be solved when debt ratios are much lower in the problem countries than they are today.”

European leaders are traveling to Brussels for the 14th crisis summit in 21 months to discuss Greece’s second bailout, the recapitalization of banks and strengthening the 440 billion- euro ($612 billion) rescue fund into a more potent weapon.

Bailout Capacity

German lawmakers backed increasing the bailout fund’s capacity today, removing one hurdle in the path of a regional agreement. EU leaders may ask national finance ministers to determine the firepower of the expanded European Financial Stability Facility by the end of November, an EU official said.

National benchmark indexes climbed in all of the 18 western European markets, except Portugal and Austria. The U.K.’s FTSE 100 rose 0.5 percent, Germany’s DAX gained 1.1 percent and France’s CAC 40 advanced 1.5 percent.

The Stoxx 600 is trading at 10.3 times the estimated earnings of its companies, compared with the two-year low of 9.1 reached on Sept. 23, according to data compiled by Bloomberg. Of the 69 companies in the Stoxx 600 that have released earnings since Oct. 11, almost the same number have missed analyst profit estimates as beaten, Bloomberg data show.

Orders for U.S. durable goods excluding transportation equipment rose in September by the most in six months, showing manufacturing is supporting the expansion. Demand for goods meant to last at least three years, outside of airplanes and automobiles, climbed 1.7 percent, exceeding the median forecast of economists surveyed by Bloomberg News that called for a 0.4 percent increase, figures from the Commerce Department showed.

Merck Gains

Merck KGaA advanced 8.5 percent to 65.09 euros, the biggest gain since January 2009. The German maker of cancer drug Erbitux reported third-quarter profit that beat analysts’ estimates because of growth at the Merck Serono pharmaceutical and Millipore equipment businesses.

Pandora A/S, the Danish jewelry maker that plunged 65 percent on Aug. 2 after cutting its full-year forecast, advanced 18 percent to 50.30 kroner.

“There is an element of relief as markets feared another downgrade,” said Jens Houe Thomsen, an analyst at Silkeborg, Denmark-based Jyske Bank A/S. “We’re one month into the final quarter of the year and if they were to deliver another substantial downgrade it would have arrived by now.”

About 8.6 percent of Pandora shares are on loan, an indication of short-sellers’ interest, according to research firm Data Explorers.

Telenor ASA climbed 6.2 percent to 98.20 kroner as the largest phone company in the Nordic region raised its full-year sales and profitability outlook after third-quarter earnings increased.

Nyrstar declined 6.8 percent to 6.26 euros in Brussels. The zinc producer lowered its forecast for output from mines because of lower-than-expected deliveries from Talvivaara Mining Co.’s Finnish site, where it has an offtake agreement.

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer in London at arummer@bloomberg.net

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Rajat Gupta Surrenders to Federal Authorities

By Patricia Hurtado - Oct 26, 2011 8:04 PM GMT+0700

Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding tips to Galleon Group LLC hedge fund manager Raj Rajaratnam, surrendered to federal authorities to face insider trading charges, making him the highest-ranking executive to be arrested in the probe.

Gupta, 62, gave himself up today in Manhattan to face “various insider trading charges,” said J. Peter Donald, an FBI spokesman. After a four-year investigation by the agency of insider trading at hedge funds, Gupta will be prosecuted by the office of Manhattan U.S. Attorney Preet Bharara, who with the FBI has directed a nationwide investigation of illegal trading at hedge funds, technology firms, banks and consulting firms.

“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” his lawyer, Gary Naftalis, said in an e-mailed statement yesterday. “He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”

Westport Home

Gupta left his home in Westport, Connecticut, opposite Long Island Sound today at 6:15 a.m. The case against him comes seven months after federal prosecutors in court first called Gupta and Rajaratnam’s brother Rengan “unindicted co- conspirators.”

Gupta isn’t being charged based on evidence provided by Raj Rajaratnam, said a person familiar with the matter who declined to be identified because the matter isn’t public. The charges are based on evidence uncovered by the Federal Bureau of Investigation’s probe, the person said.

Ellen Davis, a spokeswoman for Bharara, declined to comment.

Rajaratnam, the central figure in what prosecutors have called the largest crackdown on insider trading at hedge funds in U.S. history, was arrested in October 2009. He was convicted of conspiracy and securities fraud by a Manhattan federal jury in May and sentenced to 11 years in prison on Oct. 13. More than 50 people have been charged in the probe.

Interview

In an interview in Newsweek this month, Rajaratnam said prosecutors pushed him to plead guilty to one criminal charge and inform against Gupta. Rajaratnam understood that he would be sentenced to as little as five years in prison, according to the Newsweek article.

Rajaratnam told Newsweek that he refused to inform on Gupta or wear a wire to record him for the FBI.

At Rajaratnam’s trial, Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that Gupta violated the New York-based bank’s policies by allegedly telling the defendant about the company’s results and plans.

The U.S. Securities and Exchange Commission in March filed an administrative action contending Gupta passed inside information to Rajaratnam about Goldman Sachs and Procter & Gamble Co. That action was dropped in August after Gupta, who denied the allegations, sued the SEC for violating his rights by not bringing its case in federal district court.

Administrative Proceeding

In the administrative proceeding, the SEC had claimed Gupta tipped Rajaratnam, 54, about Berkshire Hathaway Inc.’s $5 billion investment in New York-based Goldman Sachs. The agency also said Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Cincinnati-based P&G, the world’s largest consumer products company.

Gupta left the Goldman Sachs board in 2010 and stepped down from P&G’s board in March.

Aside from serving on those two boards, Gupta from 1994 to 2003 ran McKinsey & Co., the global consulting firm. He remained a senior partner there until 2007.

Northwestern, Harvard

He has been on advisory boards at Northwestern University’s Kellogg School of Management, University of Pennsylvania’s Wharton School, Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, his alma mater. In 2001, Kolkata-born Gupta founded the Indian School of Business in Hyderabad.

As of May 2010, Rajaratnam had a stake in a fund managed by New Silk Route NSR Partners LLC, co-founded by Gupta. At a January 2007 benefit honoring Rajaratnam called “A Night for India,” Gupta was the honorary chairman along with conductor Zubin Mehta, according to a program.

Blankfein said Gupta and other board members were told in October 2008 that Goldman Sachs was facing the possibility of a quarterly loss for the first time since it went public in 1999. Prosecutors said Gupta tipped Rajaratnam, who sold Galleon’s position in Goldman Sachs, warding off millions of dollars in losses.

Gupta Recording

At the Galleon co-founder’s trial, prosecutors also played a secret recording of a July 2008 phone call in which Gupta can be heard telling Rajaratnam that the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.

The SEC brought its action against Gupta in Washington on March 1. He sued in Manhattan federal court on March 18, claiming the SEC violated his rights by pursuing an administrative action rather than a lawsuit. Gupta would have more procedural protections in district court, including the right to a jury trial and the use of federal rules of evidence.

U.S. District Judge Jed Rakoff ruled in July that Gupta could argue that the agency intentionally singled him out for unfair treatment in retaliation for claiming his innocence. The judge said that all the SEC’s other lawsuits related to the Galleon insider-trading case were in federal court.

The agency dropped its administrative proceeding in August and agreed that it would bring any subsequent action against Gupta in district court. Gupta agreed to withdraw his lawsuit against the SEC.

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado@bloomberg.net

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

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Stocks Rise on Euro Optimism, Durable Goods

By Stephen Kirkland and Shiyin Chen - Oct 26, 2011 9:09 PM GMT+0700

Stocks rose as Germany’s lower house of parliament approved plans to boost the European bailout fund and U.S. durable-goods orders topped forecasts. Metals rallied as Chinese Premier Wen Jiabao stoked speculation he will ease monetary policy. Treasuries slid.

The Standard & Poor’s 500 Index added 0.5 percent to 1,235.11 at 10:08 a.m. in New York following yesterday’s 2 percent slide. The Stoxx Europe 600 Index increased 0.6 percent and shares in emerging markets gained for a fourth day. Equities trimmed gains and the euro reversed its advance as Europe’s negotiations with banks about the size of losses on Greek debt were suspended. Ten-year U.S. Treasury yields fell five basis points to 2.16 percent. Copper surged 4.9 percent.

European shares climbed to their highs of the session after German lawmakers backed an increase in the 440 billion-euro ($613 billion) rescue fund as leaders prepared to meet for the 14th crisis summit in 21 months to discuss Greece’s second bailout. Orders for U.S. durable goods excluding transportation equipment rose in September by the most in six months. Wen said China’s economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies.

“There is scope for great disappointment” from the European summit, Gary Jenkins, head of fixed income at Evolution Securities in London, said in a report. “Though if there seems to be general agreement on the bigger scheme and a tight timeframe for the details to be worked out markets may give them the benefit of the doubt.”

Beating Estimates

The S&P 500 rose for the fourth time in five days, erasing almost half of yesterday’s slump. The index has rebounded 13 percent from a 13-month low on Oct. 3 amid higher-than-forecast corporate earnings and growing confidence in European leaders to tame the region’s debt crisis.

Boeing Co. gained 4.7 percent after reporting earnings that topped estimates and raising its forecast. ConocoPhillips rose 1.3 percent after adjusted net income exceeded estimates. More than 50 companies in the S&P 500 are due to report earnings today. Per-share earnings topped estimates at about three- quarters of the companies in the index that released results since Oct. 11, according to data compiled by Bloomberg.

International Business Machines Corp. advanced 0.7 percent after naming Virginia Rometty to succeed Sam Palmisano as chief executive officer. Amazon.com Inc., the world’s largest Internet retailer, tumbled after posting lower-than-estimated earnings.

Housing Data

The Stoxx 600 advanced after fluctuating between gains and losses at least seven times. Banks rose 1.1 percent as a group, with BNP Paribas SA and Deutsche Bank AG up at least 1.9 percent to pace gains. The group of lenders trimmed its advance after an EU official said talks with banks on bondholder losses as part of a second Greek rescue package are deadlocked and have been suspended.

Merck KGaA jumped 8.6 percent as the German maker of the Erbitux cancer drug reported profit that beat analysts’ estimates.

Two-year and 30-year Treasuries also declined, sending yields up at least two basis points. The government plans to auction $35 billion of five-year notes, while the Federal Reserve sells between $8 billion and $9 billion of notes as part of its quantitative-easing program.

The dollar weakened against 10 of 16 major peers, with the Mexican peso, Canadian dollar and Brazilian real climbing at least 0.7 percent. The Australian dollar fell versus 13 of 16 peers after a report showed inflation slowed.

The yield on 10-year German bunds rose one basis points to 2.07 percent. Demand for 12-month loans from the ECB was weaker than analysts forecast, with banks borrowing 56.9 billion euros, less than the 70 billion euros forecast in a Bloomberg survey of analysts.

Italy Elections

Italian ten-year yields fell four basis points after the government sold 8.5 billion euros of 182-day notes and 2 billion euros of 2013 bonds. Prime Minister Silvio Berlusconi agreed with Umberto Bossi, leader of the Northern League, which holds the key to Berlusconi’s parliamentary majority, to bring elections forward to 2012 in exchange for reforms on pensions, liberalization and bureaucracy, la Repubblica reported.

The S&P GSCI index of 24 commodities slipped 0.2 percent, snapping a three-day rally. Crude oil fell 0.7 percent to $92.56 a barrel, retreating from the highest price since Aug. 2, after the American Petroleum Institute said U.S. supplies rose last week.

Gold futures were up 0.8 percent at $1,713.50 an ounce, trimming a gain of as much as 1.3 percent.

The MSCI Emerging Markets Index added 0.7 percent. The Shanghai Composite Index jumped 0.7 percent and Russia’s Micex Index increased 2.9 percent. Turkey’s ISE National 100 Index slipped 0.8 percent after the central bank halted daily lending at the one-week repo rate, while the lira strengthened 0.9 percent against the dollar as policy makers increased the amount of foreign-exchange reserves for lenders.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

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

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Argentina Orders Oil, Mining Exporters to Repatriate Funds to Stem Flight

By Rodrigo Orihuela, Camila Russo and Laura Price - Oct 26, 2011 9:32 PM GMT+0700

Argentina ordered oil, gas and mining exporters to repatriate all export revenue as the government struggles to stem accelerating capital flight from South America’s second-biggest economy.

President Cristina Fernandez de Kirchner, in her first move since winning re-election on Oct. 23, changed a 2002 decree requiring companies such as Repsol YPF SA and Pan American Energy LLC to keep at least 30 percent of their export revenue in the country. Today’s decree, published in the official gazette, applies to future sales.

The decision by Fernandez, who nationalized the $24 billion pension fund industry and called for a limit on purchases of farmland by foreigners, is part of an effort to slow capital flight estimated at $3 billion per month that is draining central banks reserves. The policy may make it harder to attract foreign direct investment to Argentina that the United Nations estimates fell 30 percent in the first half of the year.

“These types of controls only discourage investment and thus hurt exports,” said Juan Pablo Fuentes, a Latin America economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The oil sector is already hampered by controls and regulations. This will only add to those problems.”

Tumbling Investment

Foreign direct investment in Argentina fell to $2.4 billion from $3.5 billion in the first half, while increasing 54 percent to $83 billion for Latin America as a whole, according to a UN report published yesterday. Faced with inflation economists estimate at 24 percent, Argentines pulled $9.8 billion out of the economy in the first half of this year, compared with $11.4 billion in all of 2010.

Export sales from oil, gas, petrochemicals, gold and copper in Argentina totaled $10.7 billion in 2010, or 16 percent of total exports, according to the national statistics agency. Argentina places a 100 percent tax on oil exports above about $45 per barrel, compared with a global price that has ranged from $75 to $114 per barrel this year.

The move ensures “equal treatment to all production activities,” according to a statement in today’s official gazette. Mining companies had been exempt from the policy requiring that 30 percent of export revenue be repatriated since 2004.

Falling Reserves

Capital flight prompted the central bank to sell $2.7 billion of reserves in August and September to curb a depreciation in the peso, which has weakened 6.1 percent this year. Reserves have fallen to $47.8 billion this year from a record $52.6 billion while central banks in Brazil, Mexico and Chile build up savings.

"This shows the problems the government is having in trying to stop capital flight,’’ said Walter Molano, an emerging markets analyst with BCP Securities. "The government is willing to take strong measures to stop it."

The yield on Argentina’s peso bonds due in 2033 rose 4 basis points to 11.83 percent. The benchmark Merval index rose 0.3 percent to 2,857.89 at 10:32 a.m. New York time.

Kristian Rix, a spokesman for Repsol YPF, Spain’s biggest oil company, said in an e-mailed statement the company will “respect the law.”

Company Reaction

Jorge Palmes, chief executive officer of AngloGold Ashanti Ltd’s Argentine unit, said in an e-mailed response to questions the company wasn’t aware of the measure.

A Vale SA official in Rio de Janeiro, who declined to be named citing corporate policy, said the company didn’t have an immediate comment.

E-mails to Goldcorp Inc, Pan American Energy, Pan American Silver Corp. weren’t immediately returned today. Officials at YPF SA, Argentina’s biggest energy company, Xstrata Plc, Chile’s state-oil refiner Enap and Petroleo Brasileiro SA weren’t immediately able to comment.

Fernandez, 58, has tapped central bank reserves to pay debt and steady the peso, nationalized carrier Aerolineas Argentinas SA and fined economists who question official inflation reports since taking office in 2007. She has also kept caps on utility prices, causing Berkshire, U.K.-based BG Group Plc and France’s GDF Suez to leave the country. Metrogas SA, Argentina’s largest natural-gas distributor, filed for bankruptcy.

Capital flight prompted the central bank to sell $2.7 billion of reserves in August and September to curb a depreciation in the peso, which has weakened 6.1 percent this year. Reserves have fallen to $47.8 billion this year from a record $52.6 billion while central banks in Brazil, Mexico and Chile build up savings.

Delayed Deals

BP Plc, the U.K.’s second-biggest oil company, said yesterday it may delay completion of its sale of a $7.1 billion stake in Pan American Energy to Bridas Corp., co-owned by Cnooc Ltd, until next year as it doesn’t yet have the necessary Argentine antitrust and Chinese regulatory approvals.

Bridas, also owned by Argentina’s billionaire Bulgheroni family, agreed in November to buy BP’s 60 percent stake in Pan American that it doesn’t already own. The deal can be terminated by either party if the approvals aren’t received by Nov. 1, unless both sides agree to an extension.

To contact the reporters on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net; Laura Price in Buenos Aires at lprice3@bloomberg.net; Camila Russo in Buenos Aires at crusso15@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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Apple Effort to Develop TV Is Said to Be Led by ITunes Creator Jeff Robbin

By Adam Satariano - Oct 26, 2011 3:07 AM GMT+0700

Apple Inc. (AAPL) is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project.

Jeff Robbin, who helped create the iPod in addition to the iTunes media store, is now guiding Apple’s internal development of the new TV effort, said the people, who declined to be identified because his role isn’t public.

Robbin’s involvement is a sign of Apple’s commitment to extending its leadership in smartphones and tablets into the living room. Before his Oct. 5 death, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had “finally cracked” how to build an integrated TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices.

“It will have the simplest user interface you could imagine,” Jobs told Isaacson in the biography “Steve Jobs,” released yesterday by CBS Corp. (CBS)’s Simon & Schuster.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment. Outside of Jobs’s remarks in the book, Apple hasn’t acknowledged that it’s developing a TV set. And according to one person, it’s not guaranteed that Apple will release a television.

Until now, the company’s TV efforts have been limited to Apple TV, a small $99 gadget that plugs in to a television and gives users access to content from iTunes, Netflix Inc. (NFLX)’s streaming service and YouTube. Jobs had called it Apple’s “hobby,” rather than something designed to be a serious moneymaker.

Prototype Model

That may be changing. Apple has a prototype TV in the works and may introduce a product for sale by late next year or 2013, according to Gene Munster, an analyst with Piper Jaffray Cos. He based that timing on meetings with contacts close to Apple’s suppliers in Asia, industry contacts and Apple’s patent portfolio. Munster said Apple also is investing in manufacturing facilities and securing supplies of LCD screens.

Apple’s introduction of the voice-command software Siri and Web-storage service iCloud also could be used for a future television, Munster said in a note to investors yesterday. Siri may help search for videos, while iCloud allows customers to store video, music, pictures and other content on the company’s servers instead of their own hard drives.

Searching for Shows

One of Apple’s goals for a new TV is to let users more seamlessly search for a show or movie, said one of the people. For example, instead of having to separately check to see if a movie or show is available through Netflix or a cable service, all the material could be integrated, this person said.

One challenge will be getting makers of movies and television shows to change how they make their content available. Apple has considered adopting new business models for delivering video, including a subscription TV service, media executives said last year. Those talks didn’t lead to a deal.

Building a full TV set would put Apple in closer competition with consumer-electronics companies such as Samsung Electronics Co. and Sony Corp. (SNE) Apple could sell 1.4 million TVs next year, out of about 220 million flat-panel sets for the total market, according to Munster. That could add $6 billion in revenue to the company’s top line by 2014, he said.

Google Inc. (GOOG), which competes with Apple in the smartphone market, also is attempting to attract customers to an operating system it has created for televisions. Unlike that approach, Apple would be building both the hardware and the software.

Apple fell 2 percent to $397.77 at the close in New York. The shares have climbed 23 percent this year.

SoundJam Player

Robbin, the software engineer helping lead the TV effort, was hired in 2000 to develop iTunes after Apple bought the SoundJam digital music player he developed. ITunes, introduced in January 2001, became Apple’s digital hub for synchronizing music, video and applications across Apple’s devices, including the iPod, iPhone and iPad.

According to the biography, Jobs considered Robbin such a valuable employee that he wouldn’t let a Time magazine reporter meet him without agreeing not to print his last name, for fear that he would be poached by a competitor.

Robbin was among the Apple executives who helped persuade Jobs to allow computers running Microsoft Corp. (MSFT)’s Windows software to use iTunes, according to the biography, a move that helped the company add millions of new customers. The iTunes digital store, with more than 225 million registered users, generated almost $1.5 billion last quarter.

Robbin also was closely involved with the development of the iPod, including participating in a crucial 2001 meeting when Apple decided on the spin-wheel design of the digital music player and charted its expansion beyond personal computers to mobile computing, according to the book.

To contact the reporters 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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Amazon’s Apple War Costs Investors $20B

By Danielle Kucera - Oct 26, 2011 9:02 PM GMT+0700
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Jeff Bezos, chairman, president and chief executive officer of Amazon.com Inc., speaks during a news conference in New York. Photographer: Jin Lee/Bloomberg

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Oct. 26 (Bloomberg) -- Gene Munster, analyst with Piper Jaffray Cos., talks about Amazon.com Inc.’s third-quarter profit and forecast for this quarter. The company said fourth-quarter operating results may range from a loss of $200 million to a profit of $250 million. Munster speaks with Erik Schatzker and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Amazon.com Inc.’s escalating pursuit of Apple Inc. squeezed its profit forecast for this quarter, prompting investors to erase as much as $11 billion from the company’s market value.

Amazon’s operations could lose $200 million in the fourth quarter as costs mount, the Seattle-based company said yesterday. The shares fell 11 percent to $203.30 at 9:44 a.m. New York time, the biggest intraday drop since July 23, 2010.

The company is taking on Apple in the market for tablet computers and sales of digital songs, books and movies. To gain an edge in tablets, Amazon is selling its new Kindle Fire device for as low as $199 -- less than half the price of Apple’s cheapest iPad. At that price, the company will lose $10 per device, research firm IHS Inc. estimates.

“Competing with Apple isn’t easy,” said Colin Sebastian, an analyst at Robert W. Baird & Co. “It comes at a cost, but the traditional media business they have would wilt on the vine without Amazon making this transition to digital.”

Last quarter’s profit also disappointed analysts, missing estimates by 42 percent -- the biggest negative surprise of any technology business in the Standard & Poor’s 500 Index

The stock had advanced 26 percent this year before today and set a record of $246.71 this month, raising pressure on Amazon to deliver stronger results.

Bezos’s Stake

Chief Executive Officer Jeff Bezos, Amazon’s founder and largest shareholder, saw his stake lose as much as $2.2 billion in value. He reported holding 88.1 million shares as of Aug. 18.

Amazon’s operating results may range from a loss of $200 million to a profit of $250 million this quarter, the company said yesterday. Analysts were projecting a gain of $512.7 million on average, according to Bloomberg data. Sales will be $16.5 billion to $18.7 billion, Amazon said.

The last time Amazon suffered an operating loss was in the third quarter of 2001, when it fell $68.9 million into the red.

Third-quarter net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier. That missed the 24 cents predicted by analysts.

Technology has fared worse than most industries this quarter in meeting investors’ earnings expectations, with about a third of companies missing estimates.

Amazon added 17 new fulfillment centers this year, and that overhead has weighed on margins, Chief Financial Officer Tom Szkutak said yesterday in a conference call. It’s also building out the infrastructure for its Web services offerings.

“We’ve added a lot of capacity to support those growth rates,” Szkutak said.

Startup Competition

In addition to competing with Apple in a range of markets, including digital music and movies, Amazon is vying with startups such as Spotify Ltd., which offer streaming songs. For now, Amazon’s growth plans aren’t doing enough to spur profit, even as sales climb, Sebastian said.

“If they don’t show a corresponding increase in earnings, investors start to scratch their heads,” the San Francisco- based analyst said.

Amazon doesn’t deserve a valuation that puts it ahead of Apple by some measures, said Colin Gillis, an analyst at BGC Partners LP. With an operating margin of 30.8 last quarter, Apple squeezes more profitability from sales, even with its own investment in new products, he said. Amazon traded at 119.5 times earnings, compared with Apple’s 14.4 times before today, according to data compiled by Bloomberg.

“Ultimately, does this deserve an ultra-premium valuation? No,” said Gillis, who rates Amazon a “sell.”

Shipping Costs

The stock’s lofty value reflects investors’ belief that Amazon’s new products will pay off down the road, said Josh Stewart, a Salt Lake City-based analyst at Wasatch Advisors Inc., which oversees about $11 billion in assets, including Amazon shares. The online retailer has historically acted more like a private company, investing for the long term and ignoring quarterly earnings, he said.

“We’ve been selling some of our investment going into the quarter because it’s had a run, and it’s a really expensive stock,” Stewart said in an interview. “We own more Apple than we do Amazon.”

Still, Amazon has had unprofitable periods before, as they built up their distribution. And that paid off, he said. “They realized how important it would be to get the scale early on.”

The company’s soaring shipping expenses also are dragging on profit, Gillis said. More customers are using Amazon’s Prime program, which offers unlimited two-day shipping for $79 a year. The company’s shipping fees generated $360 million in the third quarter, dwarfed by $918 million in shipping expenses.

Sales Gains

Even as profit shrinks, revenue is benefiting from surging Kindle orders, propelled by customers ditching paper books in favor of electronic versions. Net sales climbed 44 percent last quarter to $10.9 billion, in line with estimates.

“They could invest less and add more to cash flow today, but that’s leaving room for someone else to take market share tomorrow,” Sebastian said. “As an investor, you have to share their long-term vision.”

The company upgraded its Kindle e-readers and introduced the Kindle Fire tablet to more directly challenge Apple -- something Hewlett-Packard Co. and Research In Motion Ltd. have struggled to do. The Fire tablet, due next month, has a 7-inch display, smaller than the iPad’s 9.7-inch screen. It will run on Google Inc.’s Android software and offer Wi-Fi connectivity.

Amazon is pricing its devices to spur sales, said Kerry Rice, an analyst at Needham & Co. in San Francisco.

“They don’t care that the operating margin is 1 percent or 2 percent,” he said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Amazon Profit Plunges; Shares Tumble

By Danielle Kucera - Oct 26, 2011 5:05 AM GMT+0700

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Oct. 25 (Bloomberg) -- Gene Munster, analyst with Piper Jaffray Cos., talks about third-quarter profit at Amazon.com Inc. Amazon.com Inc., the world’s largest Internet retailer, reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. Munster talks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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Operating margins are estimated to decline to 1.33 percent from 3.54 percent, and gross margins are projected to fall to 23.1 percent from 23.5 percent, the data show. Photographer: Chris Ratcliffe/Bloomberg

Amazon.com Inc., the world’s largest Internet retailer, reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. The shares tumbled 19 percent in late trading.

Net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier, the Seattle-based company said today in a statement. That missed the 24 cents predicted by analysts, according to Bloomberg data. Amazon also said it may post an operating loss this quarter.

The company is sacrificing profit margins in search of sales volume and market-share gains. Amazon will sell its Kindle Fire tablet for as low as $199, less than half the price of Apple Inc.’s cheapest iPad. Chief Executive Officer Jeff Bezos is counting on revenue from digital music, books and movies to make up for selling the product at a loss -- estimated by IHS Inc. to be about $10 per device.

“They missed investors’ expectations,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. The companies’ growth plans aren’t doing enough to spur profit, rather than just sales, he said. “If they don’t show a corresponding increase in earnings, investors start to scratch their heads.”

Shares Drop

The online retailer’s stock had gained 26 percent in 2011 and set a record of $246.71 this month, raising pressure on Amazon to deliver results. The shares plummeted to as low as $184.59 in late trading, following a decline of 4.4 percent at the close today in New York.

Bezos, Amazon’s founder and largest shareholder, saw his stake lose as much as $4.67 billion in value today -- including both regular and extended trading. He reported holding 88.1 million shares as of Aug. 18.

The company said fourth-quarter operating results may range from a loss of $200 million to a profit of $250 million. Analysts were projecting a gain of $512.7 million. Sales will be $16.5 billion to $18.7 billion, the company said.

Amazon’s doesn’t deserve a valuation that puts it ahead of Apple, said Colin Gillis, an analyst at BGC Partners LP. The company trades at 119.5 times earnings, compared with Apple’s 14.4 times, according to data compiled by Bloomberg.

“Ultimately, does this deserve an ultra-premium valuation? No,” said Gillis, who rates the stock a “sell.”

Shipping Costs

The company also is suffering from soaring shipping expenses, he said. One reason: a rise in customers using Amazon’s Prime program, which offers unlimited two-day shipping for $79 a year. The company’s shipping fees generated $360 million in the third quarter, dwarfed by $918 million in shipping expenses.

Amazon added 17 new fulfillment centers this year, and that new overhead has weighed on margins, Chief Financial Officer Tom Szkutak said today in a conference call. It’s also building out the infrastructure for its Web services offerings.

“We’ve added a lot of capacity to support those growth rates,” Szkutak said.

Even as profit shrinks, revenue is benefiting from surging Kindle orders, propelled by customers ditching paper books in favor of electronic versions. Net sales climbed 44 percent last quarter to $10.9 billion, in line with estimates.

New Kindles

The company upgraded its Kindle e-readers and introduced the Kindle Fire tablet to more directly challenge Apple -- something Hewlett-Packard Co. and Research In Motion Ltd. have struggled to do. The Fire tablet, due next month, has a 7-inch display, smaller than the iPad’s 9.7-inch screen. It will run on Google Inc.’s Android software and offer Wi-Fi connectivity.

The Kindle Fire’s $199 price will help Amazon sell 4.5 million of them in the fourth quarter, estimates Anthony DiClemente, an analyst at Barclays Plc.

Amazon is pricing its devices to spur sales, and “they don’t care that the operating margin is 1 percent or 2 percent,” said Kerry Rice, an analyst at Needham & Co. in San Francisco.

The company also is at risk from the drop in sales of traditional media, even as it benefits from the shift to digital, Gillis said.

“Amazon is neither the fastest growing, or most profitable, company in our coverage and given the disruption occurring in physical books, music and movies, it is hard to justify the premium valuation,” he said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Europe Struggles for Crisis Cure Ahead of Summit

By James G. Neuger - Oct 26, 2011 3:02 PM GMT+0700

European leaders “have risen to the challenge,” German Chancellor Angela Merkel said. French President Nicolas Sarkozy proclaimed their July 21 summit a “historic turning point” and Luxembourg Prime Minister Jean- Claude Juncker called it the “final package, of course,” to extinguish the debt inferno.

Then they went on vacation. Before they returned to work, the deal fizzled.

The euro’s stewards are back in Brussels today for an emergency summit struggling to heed the world’s calls to once and for all eradicate what U.S. Treasury Secretary Timothy F. Geithner called the “catastrophic risk” of the debt crisis. A potential Greek default threatens shockwaves that could engulf Italy and France, jolt the banking system and spell havoc for the global economy.

“Buck up, this crisis is going to be with us still for a while,” Barry Eichengreen, an economics professor at the University of California at Berkeley, said on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “I fear they’re not going to take the kind of steps to resolve it.”

European stocks were little changed as U.S. index futures rose and Asian shares slipped. The benchmark Stoxx Europe 600 Index decreased less than 0.1 percent to 240.2 at 8:26 a.m. in London after declining 0.7 percent yesterday. The measure has tumbled 17 percent from this year’s peak on Feb. 17. The MSCI Asia Pacific Index declined 0.1 percent today, while Standard & Poor’s 500 Index futures advanced 0.5 percent.

Days of Haggling

The gathering marks the interim climax to six days of haggling among finance ministers, central and commercial bankers, chancellors, presidents and prime ministers over the shape of Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion-euro ($612 billion) rescue fund into a more potent weapon.

The 14th crisis summit in 21 months starts with a meeting of all 27 European Union leaders at 6 p.m. The real business gets under way at 7:15 p.m. when chiefs of the 10 non-euro nations depart, leaving the rest to hash out a strategy that they already say requires more work.

The cancellation of a finance ministers’ meeting to precede the summit underscored the holes in the plan. The finance chiefs will now meet at an as-yet undetermined time after the summit to complete its main elements, including safeguarding banks and writing down Greek debt, according to an EU official.

Global exasperation with Europe’s response is deepening, with politicians from Australia to North America prodding the euro area to get ahead of the crisis before it infects the world economy. A Group of 20 meeting in Cannes, France, on Nov. 3-4 is Europe’s self-imposed deadline.

‘Europe Must Deliver’

Europe must “deliver on the commitments they’ve made,” Geithner said yesterday in Wilmington, North Carolina. “They’re saying a lot of the right things and they’re clearly working on it and they’re moving with a greater sense of urgency. That’s all welcome, but until we see what they come together with, it’s a little hard to evaluate.”

Before arriving in Brussels, some leaders have unfinished business at home. Merkel, the biggest contributor to Europe’s bailouts, has to win parliamentary approval of her anti-crisis strategy, while Italian Prime Minister Silvio Berlusconi strains for more budget cuts.

Greece, recipient of 110 billion euros as the first crisis victim last year, is counting on bond investors to accept “voluntary” losses as high as 60 percent and on euro governments and the International Monetary Fund to lend at least 109 billion euros more to enable it to pay its bills.

Writedowns Up to 60%

“We’re currently debating 50 percent to 60 percent in Europe,” Luxembourg’s Juncker said in an interview in Zurich yesterday. “We’ll have parallel talks in Brussels with banks and we’ll need to see what’s the result of a voluntary participation.”

Strikes, tear gas and 120,000 tons of uncollected garbage on the streets of Athens accompanied the Greek parliament’s approval of more austerity measures, as Greek citizens’ tolerance of EU-mandated budget cuts was stretched to the breaking point.

Greece’s bond writedowns will determine the amount of damage to European banks, which need around 100 billion euros of extra capital, the EU estimated last week.

What started in Greece and spread to Ireland and Portugal now stalks Italy, the third-biggest euro economy. European officials expect Berlusconi to show up in Brussels with specifics on containing pension spending and a timeline for meeting deficit-reduction targets.

Italian Yields

Berlusconi has yet to complete an austerity package whipped together on an August weekend that led the European Central Bank to start buying Italian bonds. The gains from that support have evaporated. Ten-year Italian notes yield 389 basis points more than benchmark German bunds, the same as on Aug. 4.

The Frankfurt-based central bank has bought 169.5 billion euros in bonds so far, starting with Greece, Ireland and Portugal last year, then extending the coverage to Italy and Spain. The increasingly controversial policy contributed to decisions by both Germans on its council to quit this year.

Euro-area leaders are debating how to obtain an ECB commitment to maintain the purchases without appearing to give orders to the politically independent central bank, three people familiar with the deliberations said.

ECB involvement is crucial because mechanisms to scale up the government-financed rescue fund -- the European Financial Stability Facility -- won’t be ready immediately after the summit and may not deliver enough, the people said.

More Talks Needed

Talks on boosting the EFSF’s 440 billion-euro war chest have centered on two models -- using it to insure bond sales and to fund a special investment vehicle that would court outside money, including from the IMF. Discussions of the second option only began this week, the people said. Its effectiveness would hinge on negotiations with credit-rating companies and international investors, they said.

Debate is continuing over how to pair a planned 500 billion-euro permanent fund with the current pool, which is scheduled to be wound down even though its loans for Greece’s second bailout package will run for up to 30 years.

Leaders will consider amending or scrapping a clause in the statutes of the permanent fund, the European Stability Mechanism, that caps lending during the transition phase between the two funds at 500 billion euros. One proposal is to leave the EFSF’s commitments -- 150 billion euros and counting -- untouched by the cap.

Twin Funds

In case the EFSF is fully spent once the ESM takes over, getting rid of the limit would give Europe twin funds with combined clout of 940 billion euros. Also up for debate is whether to tone down the ESM’s provisions for bondholder burden- sharing, the people said.

“Europe is finally moving in the right direction but there is a sense that the remedies will fall short of the shock and awe response that is required to stabilize market expectations,” Domenico Lombardi, a former IMF official now at the Brookings Institution in Washington, said yesterday on Bloomberg Television.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Ex-Goldman Director Gupta May Face Charges

By Patricia Hurtado - Oct 26, 2011 6:31 PM GMT+0700

Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding inside information to Galleon Group LLC’s Raj Rajaratnam, will face federal charges, a person familiar with the matter said, making him the highest-ranking executive to be named in the probe.

Gupta, 62, will surrender to FBI agents in New York today, the person said. After a four-year securities-fraud investigation of insider trading at hedge funds, Gupta will be charged in a case prosecuted by Manhattan U.S. Attorney Preet Bharara, according to the person, who declined to be identified because the matter isn’t public.

“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” his lawyer, Gary Naftalis, said in an e-mailed statement after the charges were reported yesterday. “He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”

Gupta left his home in Westport, Connecticut, today at 6:15 a.m. accompanied by one person. The case against him comes seven months after federal prosecutors in court first called Gupta and Rajaratnam’s brother Rengan “unindicted co-conspirators.”

Gupta isn’t being charged based on evidence provided by Raj Rajaratnam, said the person familiar with the matter. The charges are based on evidence uncovered by the Federal Bureau of Investigation’s probe, the person said.

Ellen Davis, a spokeswoman for Bharara, declined to comment. Jim Margolin, an FBI spokesman, didn’t immediately return a call seeking comment yesterday.

The imminent charges against Gupta were reported earlier by the New York Times.

Central Figure

Rajaratnam, the central figure in what prosecutors have called the largest crackdown on insider trading at hedge funds in U.S. history, was arrested in October 2009. He was convicted of conspiracy and securities fraud by a Manhattan federal jury in May and sentenced to 11 years in prison on Oct. 13. More than 50 people have been charged in the probe.

In an interview in Newsweek this month, Rajaratnam said prosecutors pushed him to plead guilty to one criminal charge and inform against Gupta. Rajaratnam understood that he would be sentenced to as little as five years in prison, according to the Newsweek article.

Rajaratnam told Newsweek that he refused to inform on Gupta or wear a wire to record him for the FBI.

Blankfein’s Testimony

At Rajaratnam’s trial, Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that Gupta violated the New York-based bank’s policies by allegedly telling the defendant about the company’s results and plans.

The U.S. Securities and Exchange Commission in March filed an administrative action contending Gupta passed inside information to Rajaratnam about Goldman Sachs and Procter & Gamble Co. That action was dropped in August after Gupta, who denied the allegations, sued the SEC for violating his rights by not bringing its case in federal district court.

In the administrative proceeding, the SEC had claimed Gupta tipped Rajaratnam, 54, about Berkshire Hathaway Inc.’s $5 billion investment in New York-based Goldman Sachs. The agency also said Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Cincinnati-based P&G, the world’s largest consumer products company.

Gupta left the Goldman Sachs board in 2010 and stepped down from P&G’s board in March.

Aside from serving on those two boards, Gupta from 1994 to 2003 ran McKinsey & Co., the global consulting firm. He remained a senior partner there until 2007.

Northwestern, Harvard

He has been on advisory boards at Northwestern University’s Kellogg School of Management, University of Pennsylvania’s Wharton School, Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, his alma mater. In 2001, Kolkata-born Gupta founded the Indian School of Business in Hyderabad.

As of May 2010, Rajaratnam had a stake in a fund managed by New Silk Route NSR Partners LLC, co-founded by Gupta. At a January 2007 benefit honoring Rajaratnam called “A Night for India,” Gupta was the honorary chairman along with conductor Zubin Mehta, according to a program.

Blankfein said Gupta and other board members were told in October 2008 that Goldman Sachs was facing the possibility of a quarterly loss for the first time since it went public in 1999. Prosecutors said Gupta tipped Rajaratnam, who sold Galleon’s position in Goldman Sachs, warding off millions of dollars in losses.

Gupta Recording

At the Galleon co-founder’s trial, prosecutors also played a secret recording of a July 2008 phone call in which Gupta can be heard telling Rajaratnam that the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.

The SEC brought its action against Gupta in Washington on March 1. He sued in Manhattan federal court on March 18, claiming the SEC violated his rights by pursuing an administrative action rather than a lawsuit. Gupta would have more procedural protections in district court, including the right to a jury trial and the use of federal rules of evidence.

U.S. District Judge Jed Rakoff ruled in July that Gupta could argue that the agency intentionally singled him out for unfair treatment in retaliation for claiming his innocence. The judge said that all the SEC’s other lawsuits related to the Galleon insider-trading case were in federal court.

The agency dropped its administrative proceeding in August and agreed that it would bring any subsequent action against Gupta in district court. Gupta agreed to withdraw his lawsuit against the SEC.

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

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China Vows to ‘Strengthen Management’ of Internet After Social-Media Surge

By Bloomberg News - Oct 26, 2011 3:45 PM GMT+0700

China’s ruling Communist Party said it will strengthen management of online social media sites that have increasingly questioned government actions and exposed official graft.

Vowing to promote the development of what it called a healthy Internet culture, the Central Committee said it will supervise the world’s biggest online community more closely, promote “constructive” websites and punish the spread of “harmful information,” according to a communique from its Oct. 15-18 meeting released overnight by the official Xinhua News Agency.

China’s leaders are grappling with the best way to manage Twitter-like social-media sites such as Sina Corp.’s Weibo service that are hard for government censors to control. Those efforts are part of a wider push by the party to reassert its influence over Chinese culture and society, including in television and the arts.

“People would be making a mistake to be rolling their eyes and dismissing this as empty talk,” Bill Bishop, a Beijing- based independent Internet analyst, said in a phone interview. “Clearly the regulatory risk for Chinese Internet stocks is increasing and has been increasing for the last couple of months.”

Codifying language on Internet control in an official party document is significant because it means tens of millions of party members across the country will focus on the issue, Bishop said.

Language Codified

Members of the party’s Politburo visited web companies after a deadly train crash in July. Web users criticized the government’s handling of the crash and spread commentary and photos of the accident at odds with the official line.

The communique said the party will “strengthen guidance and management over social networks and instant messaging tools, regulate online information distribution, and cultivate a civilized, rational Internet environment.”

The danger for companies is that increased government oversight of content at sites such as Sina’s Weibo or Tencent Holdings Ltd.’s QQ instant-messaging service may lead to fewer outspoken people using the platforms over time, “basically deadening the community,” Bishop said.

Tencent Down

Tencent rose 0.1 percent to HK$1775.10 in Hong Kong today after falling as much as 3.5 percent. Sina Corp. fell 4 percent to $88.73 in New York trading yesterday, and is up 29 percent so far this year.

Three spokespersons for Sina didn’t return an e-mail request for comment on the Communist Party’s communique.

The Central Committee’s communique also focused on television, with the Communist Party vowing to “promote more fine literary and artistic works” in fields such as television, movies and photography.

That coincided with an announcement last night that new limits would be imposed on the number of “overly entertaining and vulgar” reality and talent shows aired on television.

Starting next year, the nation’s 34 satellite channels must limit themselves to two such programs every week, according to a statement yesterday on China’s State Administration of Radio, Film and Television’s website.

The new rules are meant to “prevent the trend of overly entertaining and vulgar programs, and satisfy mass audience demand for various multi-level and high standard programs,’” the statement said. Channels should “start an ideology and morals-building program to promote Chinese traditional virtue and socialist core values,” it said.

90 Minutes

The reality and talent shows may only run for 90 minutes during the prime-time hours of 7:30 p.m. to 10 p.m. Such shows must be replaced by culture and news-related programs, according to the statement. Channels controlled by state-run China Central Television will not face those limits.

“Having these statements in the plenum communique will secure a sense among officials that protecting Chinese culture from encroachment is now a directive to be implemented, especially in terms of containing criticism in the social media,” Russel Leigh Moses, dean of academics at the Beijing Center for Chinese Studies, said in an e-mail.

Microblogging Millions

China had 195 million microbloggers at the end of June, a 209 percent increase from the end of 2010, Xinhua reported last month, citing the China Internet Network Information Center.

The Central Committee includes leaders such as President and Communist Party General Secretary Hu Jintao, Premier Wen Jiabao and other members of the ruling Politburo as well as the heads of many government ministries, military leaders and the chairmen of China’s biggest state-run companies.

Documents from plenums are second only in importance to resolutions passed every five years by the Communist Party Congress, set to meet next year to pick a new generation of leaders, said Willy Wo-Lap Lam, an adjunct professor of Chinese history at the Chinese University of Hong Kong.

This resolution, which focuses on culture, gives the Communist Party a written record that can be used to justify its actions, Lam said in an e-mail.

“The CCP wants to be seen as a party that properly follows precedents, procedure and traditions,” Lam said. “So every time they detain a dissident or whack a website, they can quote from this Culture Resolution.”

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Europe Stocks Rise Before Debt-Crisis Summit; Merck KGaA Soars on Earnings

By Peter Levring - Oct 26, 2011 5:09 PM GMT+0700

European stocks fluctuated as the region’s leaders prepared to gather in Brussels for the second summit in four days to address the debt crisis. U.S. index futures rose and Asian shares were little changed.

Merck KGaA surged 6.3 percent as the German drugmaker reported profit that beat estimates. Svenska Handelsbanken AB gained 1.6 percent after reporting earnings that beat estimates. Nyrstar NV slid 4.3 percent as the biggest producer of refined zinc lowered its mine-output forecast.

The benchmark Stoxx Europe 600 Index advanced 0.2 percent to 240.69 at 11:08 a.m. in London after swinging between gains and losses at least 20 times. The measure has climbed 12 percent from this year’s low on Sept. 22 amid speculation policy makers will tackle the region’s sovereign debt woes.

“Markets know what may come from Brussels tonight will not be a full and final solution,” said Thomas Haerter, chief strategist at Swisscanto Asset Management AG in Zurich, who helps oversee about $67 billion. “The problem will only ultimately be solved when debt ratios are much lower in the problem countries than they are today.”

The MSCI Asia Pacific Index rose less than 0.1 percent today, erasing losses as Chinese Premier Wen Jiabao said that economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies. Standard & Poor’s 500 Index futures advanced 0.6 percent.

Crisis Summit

European leaders are holding the 14th crisis summit in 21 months to discuss Greece’s second bailout, the recapitalization of banks and strengthening the 440 billion-euro ($612 billion) rescue fund into a more potent weapon.

German lawmakers are set to back a planned increase in the bailout fund’s capacity today, removing one hurdle in the path of a regional agreement. Chancellor Angela Merkel’s coalition ensured cross-party support after persuading the main opposition Social Democrats and Greens to sign up to a motion that includes a cap on German guarantees.

The Stoxx 600 is trading at 10.3 times the estimated earnings of its companies, compared with the two-year low of 9.1 reached on Sept. 23, according to data compiled by Bloomberg. Of the 69 companies in the Stoxx 600 that have released earnings since Oct. 11, almost the same number have missed analyst profit estimates as beaten, Bloomberg data show.

Merck Gains

Merck KGaA advanced 6.6 percent to 63.93 euros, the biggest gain since March 2009. The German maker of cancer drug Erbitux reported third-quarter profit that beat analysts’ estimates because of growth at the Merck Serono pharmaceutical and Millipore equipment businesses.

Handelsbanken rose 1.6 percent to 191.60 kronor. The second-largest Swedish lender reported lower loan losses and net profit that beat analysts’ estimates.

PSA Peugeot Citroen advanced 1.2 percent to 17.27 euros after spokeswoman Cecile Damide said the French automaker may cut as many as 5,000 jobs in Europe in response to weakening demand. The shares had earlier fallen as the company earlier lowered its annual profit forecast.

Telenor ASA climbed 3.6 percent to 95.80 kroner as the largest phone company in the Nordic region raised its full-year sales and profitability outlook after third-quarter earnings increased.

Nyrstar declined 4.3 percent to 6.42 euros in Brussels. The zinc producer lowered its forecast for output from mines because of lower-than-expected deliveries from Talvivaara Mining Co.’s Finnish site, where it has an offtake agreement.

Renewable Energy Corp. ASA, a Norwegian maker of solar components, fell 2.9 percent to 5.12 kroner after reporting a third-quarter net loss of 759 million kroner ($137 million) that was wider than estimated.

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net or

To contact the editor responsible for this story: Andrew Rummer in London at arummer@bloomberg.net;

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Yen Strengthens to Record Against Dollar as Stocks Fluctuate, Metals Gain

By Stephen Kirkland and Shiyin Chen - Oct 26, 2011 5:08 PM GMT+0700

The yen strengthened to a post-World War II high against the dollar while European stocks were little changed before the region’s leaders meet to discuss the debt crisis. Metals rallied after comments from Chinese Premier Wen Jiabao stoked speculation the nation will ease monetary policy.

The yen climbed as much as 0.5 percent to 75.72 per dollar, before trading at 75.81 at 6:05 a.m. in New York. The Stoxx Europe 600 Index increased 0.1 percent, while shares in emerging markets gained for a fourth day. Standard & Poor’s 500 futures added 0.6 percent following the U.S. gauge’s 2 percent drop yesterday and Treasuries declined. Copper climbed 2.9 percent and gold advanced to a one-month high.

European leaders are holding the 14th crisis summit in 21 months today to discuss Greece’s second bailout, shoring up banks and strengthening the 440 billion-euro ($613 billion) rescue fund. European Central Bank Executive Board member Juergen Stark said additional sovereign bond purchases by the ECB creates the wrong incentive to governments, Germany’s Stern magazine reported. Wen said China’s economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies.

“There is scope for great disappointment” from the European summit, Gary Jenkins, head of fixed income at Evolution Securities in London, said in a report. “Though if there seems to be general agreement on the bigger scheme and a tight timeframe for the details to be worked out markets may give them the benefit of the doubt.”

ECB Loan Demand

The euro gained against 11 of its 16 main counterparts, advancing 0.2 percent to $1.3940. The Australian dollar fell versus all 16 of its peers after a report showed inflation slowed.

The yield on 10-year German bunds rose four basis points to 2.10 percent. Demand for 12-month loans from the ECB was weaker than analysts forecast, with banks borrowing 56.9 billion euros, less than the 70 billion euros forecast in a Bloomberg survey of analysts.

Italian two-year yields were little changed at 4.52 percent after the government sold 8.5 billion euros of 182-day notes and 2 billion euros of 2013 bonds. Prime Minister Silvio Berlusconi agreed with Umberto Bossi, leader of the Northern League, which holds the key to Berlusconi’s parliamentary majority, to bring elections forward to 2012 in exchange for reforms on pensions, liberalization and bureaucracy, la Repubblica reported.

The Stoxx 600 fluctuated between gains and losses at least seven times today. Merck KGaA jumped 5.6 percent as the German maker of the Erbitux cancer drug reported profit that beat analysts’ estimates. Celesio AG, Europe’s largest drug wholesaler, slid 4.4 percent after reducing its 2011 earnings forecast for the second time this year.

IBM, Amazon

The increase in S&P 500 futures indicated the U.S. equities gauge will rise for the fourth time in five days. International Business Machines Corp. advanced 0.7 percent in German trading after naming Virginia Rometty to succeed Sam Palmisano as chief executive officer. Amazon.com Inc., the world’s largest Internet retailer, tumbled 11 percent in pre-market New York trading after posting lower-than-estimated earnings.

Boeing Co., ConocoPhillips and Lockheed Martin Corp. are among 51 companies in the S&P 500 due to report earnings today. Three-quarters of the 162 companies to have released results since Oct. 11 have topped analysts’ estimates, according to data compiled by Bloomberg.

U.S. economic reports today may show orders for durable goods excluding transportation equipment rose and new home sales increased, according to Bloomberg surveys of economists. Commerce Department data tomorrow is forecast to show gross domestic product expanded at a faster pace in the third quarter.

Debt Sales

Treasuries declined, with the 10-year yield rising four basis points to 2.15 percent. The government plans to auction $35 billion of five-year notes, while the Federal Reserve sells between $8 billion and $9 billion of notes as part of its quantitative-easing program.

The S&P GSCI index of 24 commodities rose 0.4 percent, the fourth increase and the longest streak of gains in two weeks. Gold jumped as much as 0.9 percent to $1,720.05 an ounce, the highest since Sept. 23. Oil in New York rose 0.5 percent to $93.66 a barrel, the fourth consecutive advance.

The MSCI Emerging Markets Index added 0.4 percent. The Shanghai Composite Index jumped 0.7 percent and Russia’s Micex Index increased 1.9 percent. Turkey’s ISE National 100 Index slipped 0.7 percent after the central bank halted daily lending at the one-week repo rate, while the lira strengthened 0.8 percent against the dollar as policy makers increased the amount of foreign-exchange reserves for lenders.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

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