Economic Calendar

Wednesday, December 14, 2011

Asia Stocks Fall as Fed Forgoes More Stimulus on Moderate Growth

By Jonathan Burgos - Dec 14, 2011 10:44 AM GMT+0700

Asian stocks (MXAP) fell for a second day as the Federal Reserve refrained from taking new measures to spur growth and U.S. retail sales rose at the slowest pace in five months, clouding the earnings outlook for Asian exporters.

Samsung Electronics Co., South Korea’s biggest exporter of consumer electronics, declined 1.6 percent in Seoul. Sony Corp., which generates 20 percent of its sales in the U.S., fell 1 percent in Tokyo. Evergrande Real Estate Group Ltd. (3333) sank 3.6 percent in Hong Kong after the homebuilder’s revenue slumped. PT Astra International, Toyota Motor Corp.’s Indonesian distributor lost 1.2 percent as nationwide auto sales dropped.

The MSCI Asia Pacific Index fell 0.6 percent to 113.73 as of 12:20 p.m. in Tokyo, with about three shares falling for every two that rose. The gauge, which has tumbled 16 percent since June 30, extended losses this week after Moody’s Investors Service and Fitch Ratings warned that Europe faces lower credit ratings as it struggles to contain its debt crisis.

“There’s a potential for further downside in this market,” said Lee King Fuei, a Singapore-based fund manager at Schroders Plc, which oversees about $326 billion of assets globally. “The magnitude of this crisis compared to the one in 2008 is bigger as it includes sovereign risks as well. Policy makers have probably exhausted their fiscal and monetary policy options and they are running out of bullets.”

Japan’s Nikkei 225 Stock Average (NKY) lost 0.6 percent, while South Korea’s Kospi Index slipped 0.4 percent. Hong Kong’s Hang Seng Index slipped 0.2 percent, falling for fifth day. Australia’s S&P/ASX 200 index gained 0.1 percent, erasing losses of as much as 0.6 percent.

U.S. Retail

Futures on the Standard & Poor’s 500 Index (SPXL1) added 0.3 percent today. The index dropped 0.9 percent in New York yesterday after the Fed stopped short of offering another round of large-scale asset purchases to boost the economy.

Shares of Asian exporters fell as a report showed U.S. retail sales gained 0.2 percent last month, the slowest pace since June. It was short of the median estimated 0.6 percent gain from economists surveyed by Bloomberg.

Samsung Electronics dropped 1.6 percent to 1.033 million won in Seoul. Sony Corp. (6758) fell 1 percent to 1,372 yen in Tokyo. Honda Motor Co. (7267), a Japanese carmaker that gets about 44 percent of sales from North America, declined 2.4 percent to 2,326 yen.

The Fed said yesterday that the U.S. economy continues to expand even as global growth slows. The Fed reiterated a warning from its two previous meetings that “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

Chinese Developers

Chinese property developers dropped after Evergrande Real Estate reported its home sales plunged 86 percent in November from a month earlier.

Evergrande sank 3.6 percent to HK$2.94 in Hong Kong. China Overseas Land & Investment Ltd. (688), the biggest mainland developer listed in Hong Kong, lost 1.2 percent HK$13.40.

Astra slipped 1.3 percent to 74,000 rupiah in Jakarta as a report from the Indonesian automotive industry association showed domestic vehicle sales declined 22 percent in November from a month earlier. Jardine Cycle & Carriage Ltd. (JCNC), which holds a 50 percent stake in Astra, fell 1.2 percent to S$48.72 in Singapore.

The MSCI Asia Pacific Index declined 17 percent this year through yesterday, compared with a 2.5 percent drop by the S&P 500 and a 14 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.7 times estimated earnings on average, compared with 12.4 times for the S&P 500 and 10.3 times for the Stoxx 600.

To contact the reporters on this story: Jonathan Burgos in Singapore at

To contact the editor responsible for this story: Nick Gentle at


Year-End Spending Measure ‘Hostage’ in Payroll-Tax Dispute

By Brian Faler and James Rowley - Dec 14, 2011 7:19 AM GMT+0700

A $1 trillion measure to fund the U.S. government has become a bargaining chip in Congress’s debate over how to extend an expiring payroll-tax cut.

Democratic leaders said they are holding up the spending bill to force Republicans to compromise on a separate measure that would continue the payroll-tax cut, set to expire at year’s end.

Passing the spending bill now would let House Republicans approve their version of the payroll-tax cut and adjourn for the year, leaving Senate Democrats and the Obama administration with no choice but to accept it, said Representative Steny Hoyer of Maryland, the House’s second-ranking Democrat.

The budget measure is “98 percent done,” and the payroll tax dispute is “what’s really holding this up,” said Hoyer.

Senator Dick Durbin of Illinois, the chamber’s deputy Democratic leader, said the issues became “twinned” because his party wants “to be done here and leave -- we don’t want to just take a piece of it and have people race for home.”

Congress is pushing to finish its work for the year, including the spending measure that combines nine bills to fund federal agencies for the fiscal year that began Oct. 1. A stopgap plan expires Dec. 16, and without action by Congress a partial government shutdown will occur.

Pipeline Issue

Lawmakers disagree over how to pay for the payroll-tax cut, with Democrats seeking a tax surcharge on the wealthy and Republicans proposing to continue a pay freeze for federal workers. Republicans also want to use the measure to expedite construction of an oil pipeline from Canada to Texas.

Hoyer said inclusion of the Keystone XL pipeline provision by House Republican leaders is “a clear politically motivated effort to make this a controversial bill” to win votes of “their most conservative members, who don’t care one whit about compromise.”

The House voted 234-193 to approve the Republican payroll- tax plan, forwarding it on to the Senate where Majority Leader Harry Reid has said it will die.

“They’re wasting time catering to the Tea Party folks over there when they should be working with us on a bipartisan package that can pass both houses,” Reid, of Nevada, said today. He said lawmakers won’t adjourn for their holiday break until they reach a compromise on the payroll tax.


Senator Jon Kyl of Arizona, the chamber’s second-ranking Republican, called it “troubling” the spending bill had been taken “hostage” in the payroll-tax debate. Democrats would “rather shut down the government than allow this job-creating legislation to become law,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican.

Many agencies are likely to face tight budgets under the still-unreleased spending bill. Though lawmakers couldn’t agree this year on tax increases or reductions in entitlement programs to reduce the federal deficit, they did decide in August to pare the approximately 40 percent of the budget that must be approved each year by Congress.

They set a discretionary spending limit of $1.043 trillion, or $7 billion lower than the 2011 fiscal year total, making it the second consecutive year appropriations have declined.

Defense Funding

Many programs are likely to see cuts to accommodate a $5 billion increase for the Pentagon, whose $518 billion budget makes up about half of the measure.

That boost of about 1 percent would be a fraction of the annual increases the Defense Department has received in recent years. Over the past decade, the agency’s “base” budget has grown by 75 percent, not including $1 trillion for the wars in Iraq and Afghanistan.

Reid said lawmakers have “six or seven” issues to resolve in the spending measure, including disputes over Republican provisions targeting Obama administration policies energy- efficient light bulbs and travel and money transfers to Cuba.

Lawmakers also are debating changes in the Commodity Futures Trading Commission’s budget, as well as restrictions on public funding of abortion in Washington, D.C., and needle- exchange programs in the capital, said Durbin.

Senate Budget Committee Chairman Kent Conrad said he hoped his colleagues wouldn’t have to pass another stopgap spending bill to buy more time for negotiations.

“That would be a bad mistake because the way this place operates, work expands to fill the time,” said Conrad, a North Dakota Democrat. “If you take the pressure off, there will just be more delay. We know how this place is.”

To contact the editor responsible for this story: Mark Silva at


Euro Trades Near 11-Month Low Before Italy, Germany, Spain Auction Bonds

By Monami Yui and Masaki Kondo - Dec 14, 2011 10:01 AM GMT+0700

Dec. 14 (Bloomberg) -- Jason Brady, a managing director at Thornburg Investment Management Inc. in Santa Fe, New Mexico, talks about Europe's sovereign debt crisis, and its implications for global financial markets and Federal Reserve monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The euro traded 0.1 percent from an 11-month low as European nations prepare to sell bonds amid concern the region’s debt crisis is far from resolution.

The dollar gained against most of its 16 major counterparts after the Federal Reserve said the U.S. economy is maintaining its expansion and refrained from taking new action to lower borrowing costs, easing concern policy makers are devaluing the world’s reserve currency. The yen was near the highest level in more than two months versus the 17-nation euro as Asian equities dropped, boosting demand for safer assets.

“It’s hard to see a positive scenario for the euro,” said Kumiko Gervaise, an analyst in Tokyo at Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. “A bad result at debt auctions will be a selling catalyst for the euro.”

The euro dipped 0.1 percent to $1.3026 as of 11:22 a.m. in Tokyo from yesterday in New York, when it touched $1.3009, the lowest since Jan. 12. The yen fetched 101.63 per euro from 101.68, after rising to 101.47 yesterday, the strongest since Oct. 4. The dollar was little changed at 78.02 yen.

The MSCI Asia Pacific Index (MXAP) of shares fell for a second day, sliding 0.6 percent. The Standard & Poor’s 500 Index lost 0.9 percent in New York yesterday after German Chancellor Angela Merkel rejected raising the upper limit of funding for Europe’s permanent bailout mechanism.

Merkel told coalition lawmakers that the 500 billion-euro ($651 billion) cap on Europe’s planned permanent fund will stay in place, two officials with knowledge of the discussion said.

Italy is scheduled to auction as much as 3 billion euros of debt maturing in 2016 today, while Germany plans to sell 5 billion euros of two-year notes. Spain will offer debt maturing in 2016, 2020, and 2021 tomorrow.

Fed Policy

“The economy has been expanding moderately, notwithstanding some apparent slowing in global growth,” the Federal Open Market Committee said in a statement at the conclusion of its meeting yesterday in Washington. “While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated.”

Policy makers left unchanged their statement that economic conditions are likely to warrant “exceptionally low” interest rates “at least through mid-2013.” The central bank lowered its target overnight interest rate to a range of zero to 0.25 percent in December 2008.

‘Bright Signs’

Industrial production probably increased 0.1 percent last month, following a 0.7 percent gain in October, according to the median estimate of economists in a Bloomberg News survey before the data tomorrow. Gauges of manufacturing from the Fed Banks of Philadelphia and New York may also point to expansion within those regions, economists said before the figures are released this week.

“I’m bullish on the dollar,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “We can see some bright signs for the U.S. economy.”

The dollar has appreciated 3.3 percent in the past month, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.8 percent and the yen has advanced 1.9 percent.

The Australian dollar was near a two-week low versus its U.S. counterpart after Reserve Bank Deputy Governor Ric Battellino said a European slowdown may weigh on the local economy.

“If the European economy were to slow markedly over the next year or so, Australia would be affected,” Battellino said in Sydney today. “It is also likely, however, that if that were to eventuate, the exchange rate of the Australian dollar would fall, as it has when global growth has weakened in the past.”

The so-called Aussie dropped 0.2 percent to $1.0002 after yesterday touching 99.80 U.S. cents, the lowest since Nov. 30.

To contact the reporters on this story: Monami Yui in Tokyo at; Masaki Kondo in Singapore at;

To contact the editor responsible for this story: Rocky Swift at


Treasuries Decline as U.S. Prepares Third Day of Debt Sales

By Wes Goodman - Dec 14, 2011 10:08 AM GMT+0700

Treasuries fell for the first time in three days on speculation demand will wane at a $13 billion auction of 30-year bonds today after investors loaded up on three- and 10-year notes earlier this week.

Thirty-year yields of about 3 percent don’t offer much value, said Martin Hegarty, co-head of global inflation-linked portfolios at BlackRock Inc., the world’s largest money manager. Rates declined this week as investors sought the relative safety of Treasuries on concern Europe’s debt crisis will spread.

“The current level is not attractive, but Treasuries are the safest investment,” said Tsutomu Komiya, a bond investor at Daiwa Asset Management Co. in Tokyo, which oversees the equivalent of $118.82 billion and is a unit of Japan’s second- biggest brokerage. “As long as the trouble in Europe continues, Treasury yields will remain low.”

Benchmark 10-year rates rose two basis points to 1.98 percent as of 12:07 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 slid 5/32, or $1.56 per $1,000 face amount, to 100 5/32. The record low was 1.67 percent set Sept. 23.

Thirty-year yields increased two basis points, or 0.02 percentage point, to 3.03 percent. Investors should replace these bonds in their portfolios with 30-year Treasury Inflation Protected Securities, or so-called real rates, Hegarty said in an interview yesterday on Bloomberg Television’s “Street Smart” with Adam Johnson.

“We tend to be underweight nominal Treasuries and overweight real rates,” said Hegarty, who helps oversees $3.35 trillion for BlackRock in New York. “I wouldn’t say that 30- year Treasuries at 3 percent are reflective of their risks.”

Auction Demand

Investors bid for 2.40 times the amount of debt offered at the previous 30-year sale on Nov. 10, versus the average of 2.65 for the past 10 of the monthly auctions.

Indirect bidders, the investor group that includes foreign central banks, purchased 28.4 percent of the securities, less than the average of 34.9 percent in sales since February.

Bids at yesterday’s 10-year auction amounted to 3.53 times the amount offered, the highest level in 20 months.

The figure was 3.62 at three-year sale on Dec. 12, the most since 1993 when the government began releasing the data.

To contact the reporter on this story: Wes Goodman in Singapore at

To contact the editor responsible for this story: Rocky Swift at


Gold Extends Slump to Seven-Week Low as Fed Refrains From More Stimulus

By Debarati Roy - Dec 14, 2011 3:28 AM GMT+0700

Gold futures slumped to a seven-week low after the Federal Reserve refrained from taking new actions to boost growth.

Most U.S. stocks fell and the dollar extended gains against the euro after the Fed took no additional monetary policy steps to stimulate the U.S. economy. The central bank said the U.S. is “expanding moderately, notwithstanding some apparent slowing in global growth.”

“There were no substantial changes to the policies and, hence, nothing to boost gold,” William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. “The cautious statements from Fed will continue to push investors towards risk-off trade.”

Gold futures for February delivery dropped 2 percent to $1,635.50 an ounce at 3:24 p.m. in electronic trading on the Comex in New York. At the close of floor trading, the price was down 0.3 percent to settle at $1,663.10. The metal touched $1,634 today, the lowest since Oct. 21.

Imports by India, the world’s largest gold consumer, may decline as much as 16 percent from a record as the rupee’s plunge to an all-time low boosts local prices, according to the Bombay Bullion Association. Purchases may fall as low as 800 tons this year from 958 tons in 2010, Prithviraj Kothari, the group’s president, said yesterday.

Silver dropped after the Fed statement, erasing earlier gains. Futures for March delivery lost 1.2 percent to $30.62 an ounce. At the close of floor trading, the metal rose 0.8 percent to settle at $31.26 an ounce.

To contact the reporter on this story: Debarati Roy in Mumbai at

To contact the editor responsible for this story: Patrick McKiernan at


Euro Tumult Shows Netherlands Converging With Germany at Expense of France

By Jurjen van de Pol - Dec 14, 2011 6:01 AM GMT+0700

When it comes to fighting the European crisis, the Netherlands may as well be a part of Germany.

“The Dutch are often a mainstay for the Germans, and as such, play a bigger role then justified by their economy,” said Sylvester Eijffinger, a professor of financial economics at Tilburg University, 69 miles south of Amsterdam. It’s good for Germany because “it never wants to be accused of going it alone,” he said.

As European leaders have struggled for more than two years to tame their financial crisis, the Dutch government has sided with neighboring Germany in pushing austerity and central bank independence, underscoring differences between northern and southern Europe in seeking solutions.

In February 2010, then acting Dutch acting Prime Minister Jan Peter Balkenende called German Chancellor Angela Merkel to say the International Monetary Fund should help Greece solve its funding needs. The plan was opposed by French President Nicolas Sarkozy, who said it would show the European Union couldn’t solve its own crises. A month later, EU leaders went to the Washington-based IMF for aid.

“The Netherlands was much more in favor for calling in the IMF than Germany was,” said Adriaan Schout, who heads the European Studies Programme at the Clingendael Institute of International Relations in The Hague. The Dutch government sought the involvement of the IMF and its strict rules to ensure Greece would live up to its end of the bargain.

Exports to Germany

The Netherlands, the fifth-largest economy in the euro region, exported 90 billion euros ($119 billion) of goods to Germany in 2010, making up almost a quarter of total exports, compared with 32 billion euros to France, according to Dutch statistics agency CBS. Germany has the EU’s biggest economy and ranks as the world’s second-largest exporter after China.

“Trade between Germany and the Netherlands isn’t only extensive, it is enormous,” Dutch Finance Minister Jan Kees de Jager said at Berlin’s Humboldt University on May 24. “It is flourishing today thanks to the internal market and the euro. If there are two EMU countries that should logically stand together, they are Germany and the Netherlands.”

A breakup of the euro bloc would cut exports of Dutch products by 25 percent next year, ING Groep NV (INGA) economists Teunis Brosens and Dimitry Fleming said in a Dec. 6 note to clients. “As a trading nation with large pension funds and an international financial sector, we’re closely tied to the euro zone” and may be the country with the biggest interest in maintaining the currency, they wrote.

EU Summit

Moody’s Investors Service said Dec. 12 that it will review the ratings of all European Union nations after last week’s meeting of the region’s leaders failed to produce “decisive policy measures.” That followed Standard & Poor’s announcement that it may cut the ratings of 15 euro-region members because of a “reactive and insufficient” response to the crisis.

S&P’s warning of a possible rating downgrade of AAA rated Germany, France and the Netherlands comes as a “clear signal that solutions are needed,” De Jager told RTL television. German Finance Minister Wolfgang Schaeuble said S&P’s warning will spur politicians to bolster efforts to resolve the crisis.

“There are not so many differences” between the Dutch and German approach to solving the debt crisis, Dutch Prime Minister Mark Rutte told reporters in Stockholm after meeting his Swedish counterpart, Fredrik Reinfeldt, on Dec. 5. “I challenge you, you will find one or two, but it is difficult.”

The German and Dutch ideals on Europe trace their roots to the establishment of the European Coal and Steel Community in 1951. Germany and the Netherlands, along with four other European countries, agreed to bring resources used for weapons production under common control in the first move that led to today’s EU with 27 member states.

Budget Stance

“Germany and the Netherlands are on the same line when it comes to automatic sanctions for excessive budget deficits and preventing the European Central Bank from losing its independence,” said Schout, who served as an independent expert to the European Commission.

They weren’t always on the same page when it came to budget rigor. The Dutch defeated a proposed European constitution in a 2005 referendum amid public disagreements over a successful Franco-German bid to loosen deficit rules.

While the Germans and Dutch succeeded in drafting the IMF to shore up Greek state finances and bring France to pledge to semi-automatic budget sanctions, they gave in to Sarkozy’s demand to remove specific bondholder-loss provisions in the treaty for the European Stability Mechanism.

‘The Winner’

“Sarkozy came out as the winner and managed to get rid of private-sector involvement, something the Netherlands has supported,” Schout said. “That’s typical for the Dutch position. They are keenly involved in the preparations, but when the match starts, it’s between Germany and France.”

French Budget Minister Valerie Pecresse said France and Germany need to play a leadership role in the euro.

“Given the number of countries in the euro zone and given their different situations, it’s essential to begin with a French-German agreement,” Pecresse said Dec. 7 at a press conference in Paris.

While France also is among the six founders of the European Union, a visit to Berlin usually takes preference over a trip to Paris for newly inaugurated Dutch prime ministers.

“France is culturally further removed from the Netherlands than Germany so the Dutch influence there is bigger than among the French,” said Eijffinger, the Tilburg University professor who is also a member of the Monetary Experts Panel of the European Parliament.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam at

To contact the editor responsible for this story: James Ludden at


Asia Stocks Drop as Fed Refrains From Stimulus

By Jonathan Burgos and Yoshiaki Nohara - Dec 14, 2011 7:24 AM GMT+0700

Dec. 13 (Bloomberg) -- Bloomberg's Cali Carlin reports on the performance of the U.S. equity market today. Stocks fell, while the dollar and Treasuries rallied, as the Federal Reserve refrained from taking more steps to stimulate the economy and concern grew that European leaders won’t agree on ways to expand the region’s bailout capacities. Gold slumped to a seven-week low. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

Asian stocks (MXAP) dropped for a second day as the Federal Reserve refrained from taking new measures to spur growth and U.S. retail sales rose at the slowest pace in five months, clouding the earnings outlook for Asian exporters.

Sony Corp. (6758), which generates 20 percent of its sales in the U.S., fell 1.5 percent in Tokyo. Samsung Electronics Co., South Korea’s biggest exporter of consumer electronics, declined 1.9 percent in Seoul. BHP Billiton Ltd. (BHP), the world’s biggest mining company, dropped 1.3 percent in Sydney after metal prices fell.

“Nothing came out of the Fed meeting,” said Shintaro Takeuchi, portfolio investment group manager at Tokio Marine & Nichido Fire Insurance Co. that manages $111 billion in assets. “That’s negative for stocks.”

The MSCI Asia Pacific Index fell 0.6 percent to 113.64 as of 9:18 a.m. in Tokyo, with about three shares fell for each that rose in the measure. The gauge dropped 2.2 percent last week after Standard & Poor’s said it may cut credit ratings for Germany, France and 13 other euro-zone countries.

To contact the reporters on this story: Jonathan Burgos in Singapore at; Yoshiaki Nohara in Tokyo at

To contact the editor responsible for this story: Nick Gentle at


Zombie Game Creator Nexon Falls in Tokyo Debut

By Yuki Yamaguchi and Cliff Edwards - Dec 14, 2011 8:04 AM GMT+0700

Nexon Co., an online game creator that’s more profitable than Zynga Inc., fell on its first day of Tokyo trading after raising more from investors than any other company listing shares in Japan this year.

The developer of Internet-based games including “Zombie Misfits” and “MapleStory” dropped 3.9 percent to 1,249 yen from its IPO price of 1,300 yen as of 9:33 a.m., compared with a 0.5 percent decline in the benchmark Topix index. Like Zynga, set to sell shares tomorrow, Nexon earns revenue by letting consumers play free games and charging them for virtual goods, including costumes for characters.

For investors looking to tap global demand for virtual goods that’s forecast to reach $20 billion by 2014, Nexon’s main draw may be its presence in China, by then expected to be the world’s largest online-games market. The company got 31 percent of its revenue from gamers in China last year, compared with 35 percent from South Korea, where it was founded, and 18 percent from Japan, according to its prospectus.

“Nexon will be able to count on China even more as the company’s online games win new fans among its larger, faster- growing population,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “It started outside Japan and may be in a favorable position for global expansion.”

Japan’s IPO Recovery

A total of 35 companies have conducted IPOs in Japan this year, the most since 2008, Bloomberg data show, in a sign that the nation’s equity capital market is beginning to recover from the March earthquake.

Nexon’s IPO price of 1,300 yen a share values it at about 21 times this year’s estimated profit of $335 million, according to a calculation by Bloomberg based on a company forecast. The game maker had 77 million monthly active users as of September, according to Owen Mahoney, its chief financial officer.

“We’ve got pretty broad sales growth across the world,” Mahoney said in a phone interview. “We’re really excited about China.”

Zynga, the largest maker of games on Facebook Inc.’s social network site, with 54 million daily active users, plans to offer as much as $1 billion of stock, selling 100 million shares for $8.50 to $10 apiece tomorrow, according to a regulatory filing and Bloomberg data. At the top of the pricing range, the San Francisco-based company would be valued at 95 times its profit of $73.7 million in the 12 months ended Sept. 30, the data show.

Nexon’s Japanese rivals Gree Inc. (3632), DeNA Co. (2432), and GungHo Online Entertainment Inc. (3765) fetch an average of about 12 times estimated earnings, according to Bloomberg data.

Acquisition Plans

Nexon raised $1.17 billion in its initial share sale, making it the second-largest technology or Internet IPO globally this year, trailing Yandex NV’s $1.4 billion stock sale in May, according to data compiled by Bloomberg. Zynga’s offering may be the biggest for a U.S. Internet company since Google Inc. went public in 2004.

Nexon may use proceeds to make acquisitions, Mahoney said.

“We want to have currency and cash on hand to be able to move aggressively if and when opportunities come up,” he said. “We like to buy teams and properties early in their life.”

A growing number of U.S. companies are entering the free- to-play games market, which is increasing opportunities for Nexon in North America, Mahoney said.

‘Wonder Cruise’

“We can really bring a lot to the table,” he said. “We know how to tune a game so that people will play it for months on end.”

Nexon introduced its first Facebook social game in June and now offers three titles on the site, including “MapleStory,” “Zombie Misfits” and “Wonder Cruise,” according to a Dec. 12 report by Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia.

The game developer has boosted sales by at least 28 percent for each of the past two years and estimates a 22 percent increase this year to $1.09 billion, according to Nexon’s investor relations department. At its debut price, the company was valued at 6.5 times that revenue estimate.

Zynga, the creator of games including “Mafia Wars” and “FarmVille,” more than doubled sales to $1.02 billion in the nine months through Sept. 30. At the high end of its IPO price range, Zynga is asking 6.8 times revenue.

China Sales

Nexon has built a following in China, the world’s most populous nation with an estimated 485 million Internet users, by offering titles through Chinese companies including Tencent Holdings Ltd. (700) and Shanda Games Ltd. (GAME), according to an e-mailed statement from the company.

The Chinese market accounts for almost a third of Nexon’s group sales even though only about 20 percent of users have broadband access, Nexon said in the statement.

“Some people debate whether China’s got a lot of growth in it,” Nexon’s Mahoney said. “We think China is very early days.”

Online game sales in China may increase 18 percent to 41.4 billion yuan ($6.5 billion) this year from 35.1 billion yuan in 2010, according to research company iResearch. The market may expand to 51.2 billion yuan in 2013, iResearch said last month.

By 2014, the global market for virtual goods may more than double to $20 billion from $9.3 billion last year, according to ThinkEquity LLC, a San Francisco-based research firm.

Mobile ‘Laggard’

Nexon lists China’s regulation on games developed by foreign companies as one of the business risks in its prospectus. The company is trying to minimize the risk through its partnership with local companies, it says.

Nexon also lags behind domestic rivals in the mobile gaming market, said Tomoaki Kawasaki, a senior analyst at Cosmo Securities Co. in Tokyo. Gaming on mobile devices such as smartphones accounted for about 2 percent of Nexon’s revenue last year, compared with about 92 percent from online games played on personal computers, according to the prospectus.

“It may be difficult for Nexon to win in Japan,” Kawasaki said. “The Japan market is all about mobile, and Nexon is a bit of a laggard in that area.”

Nexon plans to boost its mobile business by developing mobile versions of popular titles and may invest in or acquire developers to expand in the segment, according to the prospectus.

‘May Go Double’

The company also faces intensifying domestic competition as companies including Konami Corp. and Square Enix Holdings Co. enter the social-games market, Kawasaki said.

“A user has only 24 hours a day,” Kawasaki said. “For a game company in general, what’s important is how much of that time they can capture.”

Takao Gotou, an analyst at SBI Securities Co. in Tokyo, said Nexon may be a defensive buy for Japanese investors amid economic uncertainty overseas and help attract individual investors to the whole gaming sector.

“It’s easier to buy amid the unclear overseas situation, such as in Europe,” Gotou said. “The stock price may go double the offer price.”

Tokyo-based Gree, which operates social networking sites in addition to games, has more than doubled on the Tokyo Stock Exchange this year. The company fetches the highest multiple of Nexon’s main three Japanese rivals, at 14.4 times expected earnings in the year ending June 2012.

DeNA has declined 21 percent and GungHo has fallen 17 percent in Tokyo trading this year, compared with an 18 percent drop in Japan’s benchmark Topix index.

“Investors might decrease the percentage of social game stocks such as DeNA and Gree in their game portfolio and buy Nexon,” said Akino at Ichiyoshi Investment.

To contact the reporters on this story: Yuki Yamaguchi in Tokyo at; Cliff Edwards in San Francisco at

To contact the editor responsible for this story: Michael Tighe at


Twitter, Gilt CEOs Fight SEC’s 500-Shareholder Limits on Private Startups

By Douglas MacMillan and Joshua Gallu - Dec 14, 2011 7:40 AM GMT+0700

Twitter Inc., Gilt Groupe Inc. and other Internet startups urged Congress to pass legislation easing financial-reporting rules for closely held companies.

Twitter Chief Executive Officer Dick Costolo and Gilt CEO Kevin Ryan, along with 36 other executives and investors, oppose a restriction that requires closely held companies to disclose financial data when they have 500 or more shareholders.

“The 500 shareholder rule is outdated, overly restrictive, and limits U.S. job creation and American global competitiveness,” the group wrote in a letter yesterday to members of Congress.

The startups are angling to generate support for legislation proposed earlier this year that would increase the limit to at least 1,000 shareholders. Because young companies hire rapidly and try to lure new employees with stock options, the current rules can force startups to go public too soon, said Gilt Groupe’s Ryan. Businesses in that situation may not be ready for public scrutiny, he said.

“The current legislation doesn’t reflect what is going in today’s economy and has unintended consequences,” Ryan, whose e-commerce company is based in New York, said in an interview. “Because companies don’t want to trigger the 500-shareholder rule, the solution they take right now is they stop giving out options.”

While companies with 500 or more shareholders aren’t required to file for an initial public offering, they have less incentive to stay private at that point, because they would have to disclose financial information to the U.S. Securities and Exchange Commission either way.

The new 1,000-shareholder legislation, introduced in June by Representative David Schweikert of Arizona, would exclude employees and accredited investors from the rules, giving startups even more flexibility.

Gilt, with almost 900 employees, expects to approach the 500-shareholder limit within two years, Ryan said.

Matt Graves, a spokesman for San Francisco-based Twitter, declined to elaborate on the letter.

To contact the reporters on this story: Douglas MacMillan in San Francisco at; Joshua Gallu in Washington at

To contact the editor responsible for this story: Tom Giles at


Olympus Faces Quarterly Earnings Deadline to Avoid an Automatic Delisting

By Mariko Yasu - Dec 14, 2011 8:13 AM GMT+0700

Olympus Corp. (7733) must file a quarterly financial report to regulators in Japan today to avoid being automatically delisted from the Tokyo Stock Exchange following its admission of a 13-year cover-up of investment losses.

The stock will be removed from the world’s second-biggest bourse if the 92-year-old camera maker fails to register its statement at the Financial Services Agency by 5:15 p.m. in Tokyo, according to TSE rules. Olympus last month delayed the filing pending the findings of an independent investigation into schemes that used inflated payments for acquisitions to hide about $1.5 billion in losses from the 1990s.

Olympus still needs to convince the TSE its problems were restricted to a “rotten” group of senior management, most of whom have left the company. While shareholders Southeastern Asset Management Inc. and Nippon Life Insurance Co. have signaled they want Olympus to stay listed, some investors say Japan should send a clear message that illegal behavior will be punished to restore confidence in corporate governance.

“It makes no sense unless Olympus gets delisted,” said Ichiro Takamatsu, who doesn’t hold the stock in the $2 billion of securities he helps oversee at Bayview Asset Management Co. in Tokyo. “Still, I get the feeling it’s more likely that the company will remain publicly traded.”

Olympus slumped as much as 81 percent, wiping $7.1 billion from its market value, since the Oct. 14 dismissal of Michael Woodford as chief executive officer after he challenged the company’s board over the takeover costs. The shares have recouped more than half that loss as investors bet the fallout from the scandal will be contained.

First Hurdle

Olympus rose as much as 3.3 percent in early Tokyo trading today, before giving up its gains to trade 1 percent down as of 10:11 a.m.

Clearing today’s reporting hurdle doesn’t make Olympus safe. The Tokyo-based company remains on the TSE’s watchlist for delisting pending a review by the bourse’s regulation unit. The exchange may still remove the stock if it considers the cover-up had a “significant” impact, though the rules are unclear about how that is defined.

Olympus said it will file amendments to its financial statements dating back to 2007, and needs the auditors it deceived on earlier earnings to sign off. A company found to have falsified a securities report, or which fails to win a clean approval by its auditor, will be put on review for delisting, according to TSE rules.

‘Yes Men’

Three former Olympus chairmen and at least three senior aides were “rotten to the core,” according to the Dec. 6 findings of the investigative panel. Others “involved in the fraudulent accounting one way or the other” should be “fully eliminated,” it said.

The company’s corporate culture created “yes men” who failed to stop or denounce senior managers, the panel said. The failure of Olympus’s corporate governance eroded all Japanese companies’ credibility and highlighted the need to break from a tradition of unthinking deference to superiors, it said.

Woodford return to Tokyo last night and appeared before opposition lawmakers considering changes to the country’s corporate governance laws today. He addresses a panel of the governing party this afternoon. The 51-year-old Briton has said he plans to propose a new slate of directors and that he would like to be reinstated.

Goodwill Hunting

Olympus President Shuichi Takayama has said he wants to win back investor confidence by revamping management and carrying out an internal inquiry to find other executives involved in the cover-up. Takayama last week said the entire board was prepared to stand down once a recovery plan was in place for the company and that shareholders would get to vote on new management by late February at the earliest.

The panel’s review traced a global network of mostly Japanese advisers who used overseas deposits and offshore paper companies to hide impaired financial assets.

Olympus, the world’s biggest maker of endoscopes, inflated fees for advisers and overpaid for companies it bought with the intention of increasing goodwill, the panel said. Hisashi Mori, fired as executive vice president, and Hideo Yamada, a former company auditor, planned to write down the goodwill over years to cancel out the hidden losses.

The exposure of the scheme may mean Olympus has to cancel some of its goodwill, the panel said. Goodwill, an intangible long-term asset on the balance sheet, was 168 billion yen ($2.16 billion), as of June 30, 2011.

Undisclosed Stake

There may also be further disclosures to come. Olympus held an 18 percent stake in Axes Asset Management, an affiliate of the advisory firm accused of aiding the cover-up, documents filed in 2007 with Japan’s Ministry of Finance show.

Olympus was the third-largest investor in the company, according to the March 19, 2007, document, obtained after a disclosure request made a month ago by Bloomberg News. While last week’s 185-page report from the outside panel traced links to Axes bankers back to the 1980s, it made no mention of a financial tie-up.

Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and its first “gastrocamera,” a predecessor to the modern-day endoscope, in 1950, according to its website.

Aggressive Investments

Olympus now controls 75 percent of the global market for endoscopes, instruments doctors use to look inside the body cavity to help detect disease and assess injuries.

In 1987, president Toshiro Shimoyama announced a strategy to strengthen the company’s investments after operating profit fell by half due to the yen’s gain, according to the panel led by former Supreme Court Judge Tatsuo Kainaka. Investment losses began to swell after the Japanese stock market crashed in 1989. They reached about 100 billion yen in 1998, when executives resorted to financial trickery to hide them, the report said.

Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.

Investigators in Japan, the U.S. and U.K. are still probing the transactions.

To contact the reporter on this story: Mariko Yasu in Tokyo at

To contact the editor responsible for this story: Ben Richardson at


Facebook Is Said to Ready Its First Foray Into Mobile Ads by End of March

By Brian Womack and Adam Satariano - Dec 14, 2011 12:35 AM GMT+0700

Facebook Inc. plans its first push into mobile advertising by the end of March, giving the company a fresh source of revenue ahead of a possible initial public offering, two people with knowledge of the matter said.

An idea being considered is putting Facebook’s Sponsored Stories ads, which feature friends’ interactions with brands, within the mobile News Feed, said the people, who declined to be identified because the plans aren’t public. The News Feed lets users view status updates, photos and other content.

Facebook, the world’s most popular social-networking service, would be playing catch-up in mobile advertising to Google Inc., Apple Inc. and Millennial Media Inc. Facebook’s potential advantage is that by gathering so much information about a person’s interests and associates, it can help advertisers target potential customers more directly than mobile Web browsers or applications.

Facebook, which boasts more than 800 million users, is increasing its focus on mobile technology, aiming to take advantage of the shift to smartphones and tablets. The company expects its next 1 billion users to come mainly from mobile devices, rather than desktop computers. More than 350 million users already access Facebook through their mobile devices, according to the site.

Later Than Expected?

The company had originally expected to roll out the new advertising service on mobile devices earlier this year, and the plan could be delayed again, one of the people said.

Brandon McCormick, a spokesman for Facebook, declined to comment. Facebook announced a mobile deals service last year that lets companies reach out to potential customers with discounts based on location.

The Palo Alto, California-based company is considering raising about $10 billion in an IPO that would value the company at more than $100 billion, a person with knowledge of the matter said last month. The company may file for the IPO before the end of the year, the person said.

Facebook’s revenue will climb to as high as $6.9 billion in 2012, up from $4.27 billion this year, according to research firm New York-based EMarketer Inc. Almost 90 percent of 2011 sales will come from advertising revenue, the firm estimates. Facebook also makes money from its Credits business, which takes a commission on transactions in certain applications, such as games.

To contact the reporters on this story: Brian Womack in San Francisco at; Adam Satariano in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Mortgage Bonds Rally as Fed Backstop Seen in QE3: Credit Markets

By Jody Shenn - Dec 14, 2011 3:00 AM GMT+0700

Relative yields on mortgage-backed securities that guide new loan rates fell to the lowest in five months as investors wager the Federal Reserve is on standby to expand its holdings if the U.S. economy or Europe’s sovereign debt crisis worsens.

Yields on Fannie Mae’s current-coupon, 30-year bonds ended last week at 94 basis points more than 10-year Treasuries, the narrowest since July 8, according to data compiled by Bloomberg. The spread widened to 105 basis points as of 2:53 p.m. in New York, after reaching 121 on Nov. 24.

The Fed is already bolstering the market, adding “dollar roll” trades this month that lower financing costs for investors, after starting in October to recycle proceeds from past investments in housing-related debt to help real estate escape its worst slump since the 1930s. While a smaller share of economists predict the central bank will add to its $1 trillion of holdings as the U.S. grows, bond buyers may benefit regardless, said Dwight Asset Management Co.’s Paul Norris.

“Let’s say that something bad happens in Europe,” said Norris, a senior money manager whose Burlington, Vermont-based firm oversees about $50 billion. “Initially mortgages may widen out a bit but what that would likely lead to is a really quick implementation of QE3,” he said, referring to what would be the third round of Fed asset purchases called quantitative easing.

If the situation is reversed and “Europe gets its act together,” benchmark interest rates would probably rise, benefiting mortgage-bonds spreads partly by reducing refinancing and the supply of new securities, Norris said.

Money managers are “overweight” on agency-mortgage bonds by the most in at least two years, JPMorgan Chase & Co. says.

Economists Forecast

While Federal Reserve Vice Chairman Janet Yellen, Governor Daniel Tarullo and Fed Bank of New York President William C. Dudley have signaled more mortgage-bond purchases are possible, economists say it’s growing less likely.

About 49 percent surveyed by Bloomberg News see the Fed announcing next year additional debt buying, down from more than two-thirds before the central bank’s November meeting. The Federal Open Market Committee said today the “economy has been expanding moderately,” at the conclusion of its meeting in Washington, and refrained from taking new actions to lower borrowing costs.

Elsewhere in credit markets, U.S. interest-rate swap spreads widened for a third day after a report that German Chancellor Angela Merkel is rejecting an increase in the upper limit of funding for Europe’s bailout mechanism. The cost to protect Morgan Stanley debt from losses tumbled after the bank reached a settlement with MBIA Inc. over credit-default swaps on commercial-mortgage bonds. Vivendi SA increased the interest margin on a planned 1 billion euro ($1.3 billion) credit line.

Credit Risk Measures

The difference between the two-year swap rate and the comparable-maturity Treasury note yield widened 2.46 basis points to 46.39 basis points as of 2:47 p.m. in New York, the most since Dec. 2.

The measure, which rises when investors favor government bonds, has expanded from 41.55 on Nov. 30, and gained as Reuters reported that Merkel has rejected raising the upper limit of funding for the European Stability Mechanism, the region’s permanent bailout fund.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 0.7 basis point to a mid- price of 126.2, according to data provider CMA. The gauge has climbed from 79 on Feb. 8.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 1.5 to 184.25, according to JPMorgan at 11 a.m. in London.

MBIA Settlement

The indexes typically drop as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Contracts tied to Morgan Stanley debt fell 22.8 basis points to 402 as of 11:31 a.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

MBIA will make a $1.1 billion cash payment to Morgan Stanley as part of the settlement, according to a person familiar with the agreement who asked not to be named because the amount hasn’t been made public. Morgan Stanley will take a $1.2 billion loss this quarter related to the deal, the New York-based bank said today in a statement.

Vivendi Increases

Vivendi increased the interest margin to 85 basis points more than the euro interbank offered rate, according to two people with direct knowledge of the transaction. The Paris-based company agreed to lift the amount of interest and fees it pays after lenders rejected the 75 basis-point margin it initially proposed, the people said. The credit line will be for five years, with no extension options, the people said.

The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index fell 0.3 cent to 90.39 cents on the dollar, the lowest level since Nov. 29. The measure, which tracks the 100 largest dollar- denominated first-lien leveraged loans, has declined from 90.83 on Dec. 6.

Leveraged loans and high-yield bonds are rated below Baa3 by Moody’s and lower than BBB- by S&P.

In emerging markets, relative yields rose 3 basis points to 411, according to JPMorgan’s EMBI Global index. The measure has ranged this year from 259 on Jan. 5 to 496 on Oct. 4.

Anticipated Transactions

The Fed, which under QE1 bought $1.25 trillion of mortgage securities and $172 billion of other agency debt through March 2010, has purchased a net $56.1 billion since October to offset prepayments and maturities, Bloomberg data show. The acquisitions are focused on the $5.3 trillion market of home- loan bonds guaranteed by government-supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae.

Anticipation of more transactions may be boosting demand among private investors. About 64 percent of money managers surveyed by JPMorgan are “overweight” agency mortgage securities, or holding a greater percentage than found in benchmark indexes, the highest since at least mid-2009, according to a Dec. 9 report by the New York-based bank.

Because of the potential for QE3, government-backed mortgage securities “offer that rare beast: positive exposure to event risk,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, wrote in a Dec. 7 report. He recommended the bonds over other debt “within the interest rate sphere,” such as Treasuries, in his 2012 outlook.

Primary Dealer Forecast

Chairman Ben S. Bernanke and his fellow policy makers will start another QE program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last month. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

A majority of 51 percent of the 41 economists polled by Bloomberg from Dec. 7 through Dec. 9 said the central bank will refrain from QE3. That contrasts with a survey before the Fed’s November meeting that showed 69 percent forecasting the action. This month, 13 percent of the economists said they expect the move will be announced in January and 21 percent in March.

The likelihood has fallen after the unemployment rate declined to 8.6 percent from 9.1 percent, U.S. manufacturing expanded at the fastest pace in 5 months and vehicle sales climbed to their highest level in over 2 years.

‘Significant Downside Risks’

Today’s statement reiterated the warning at the Fed’s two previous meetings that “Strains in global financial markets continue to pose significant downside risks to the economic outlook.” Bernanke said last month that the sentence refers to the European debt crisis.

A program may include $700 billion of home-loan securities, Citigroup Inc. analysts said. That figure reflects how much would be needed to “tangibly influence” mortgage rates without disrupting functioning in the market, analysts Inger Daniels and Mayank Singhal wrote in the Dec. 9 report.

Tarullo, in an October speech, said additional mortgage- bond purchases should “move back up toward the top of the list of options” because “the aggregate-demand effect should be felt not just in new-home purchases, but also in the added purchasing power of existing homeowners who are able to refinance.”

Dollar Rolls

Yellen said in a Nov. 29 speech that she sees “see a strong case for additional policies to foster more-rapid recovery in the housing sector.” If the Fed opted to buy more bonds, “it might make sense” for much of those to consist of mortgage securities to boost the housing market, Dudley said Nov. 17.

During the week ended Dec. 7, the Fed engaged in $4.35 billion of paired purchases and sales of mortgage securities in different months for the first time since starting to reinvest in the market along with its “Operation Twist” for Treasuries.

Those so-called dollar rolls boosted mortgage bonds last week, JPMorgan analysts led by Matt Jozoff and Morgan Stanley analysts Vipul Jain, Janaki Rao and Zofia Koscielniak said. The implied cost of financing Fannie Mae 3.5 percent bonds, which had climbed in a few weeks from about 30 basis points to almost 50 basis points, retraced that advance, according to JPMorgan.

“Although funding markets in MBS have not shown significant signs of stress, financing rates have gone up in tandem with other funding rates, especially around year-end, and the Fed action helps alleviate some of those pressures,” the Morgan Stanley analysts wrote in a Dec. 9 report.

Financing Rates

With dollar rolls, an investor seeking to borrow money enters into contracts to sell mortgage securities in any month and then buy similar bonds the following month; a lender would undertake the opposite trades. Investors entering into transactions for other reasons may be on either side of the contracts.

The transactions will “facilitate the settlement of our outstanding MBS purchases,” Jonathan Freed, a New York Fed spokesman, said in a Dec. 6 e-mailed statement.

The Fed’s use of the trades underscored the central bank’s commitment to supporting the market, Dwight Asset’s Norris said. “All of their speeches that I’ve read and all of the anecdotal evidence points to them being fully involved,” he said.

While the central bank probably isn’t ready to announce additional mortgage-bond buying, it may provide new aid to the market if it details changes to its so-called communication strategy in a way that reduces expected interest-rate volatility, he added. Higher forecasted volatility damages investors by increasing doubt about when the debt will be repaid as projected homeowner refinancing fluctuates and by boosting hedging costs.

To contact the reporter on this story: Jody Shenn in New York at

To contact the editor responsible for this story: Alan Goldstein at


Retail Sales Climb Less Than Forecast

By Alex Kowalski - Dec 14, 2011 5:10 AM GMT+0700

Retail sales rose in November at the slowest pace in five months, indicating American consumers were trying to live within their means heading into the holiday shopping season as wages dropped.

The 0.2 percent gain in purchases fell short of the 0.6 percent median forecast of economists surveyed by Bloomberg News and followed increases in the prior two months that were larger than previously estimated, according to data from the Commerce Department today in Washington. Other reports showed inventories climbed in October and job openings fell.

Demand for autos, the latest fashions and electronics propelled the increase in spending last month, while households cut back on groceries and restaurant meals, showing how limited job and income gains are holding consumers back. Retailers like J.C. Penney Co. are pushing discounts to drum up business, a sign of a lack of inflation that allowed the Federal Reserve today to hold interest rates near zero.

“Sales are growing, but they just aren’t accelerating,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “There have been some real slight hints of improvement in the labor market, but until we get sustained growth in income, spending is going to be moderate.”

U.S. stocks fell after the Fed’s final policy meeting of the year. The Standard & Poor’s 500 Index decreased 0.9 percent to 1,225.73 at the close in New York after having been up as much as 1.1 percent. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.97 percent from 2.01 percent late yesterday.

Fed Meets

Fed policy makers led by Chairman Ben S. Bernanke refrained from taking new actions to lower borrowing costs, saying the economy is growing even as the global growth cools.

“The economy has been expanding moderately, notwithstanding some apparent slowing in global growth,” the Federal Open Market Committee said in a statement at the conclusion of its meeting today in Washington. “While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated.”

German investor confidence unexpectedly rose in December for the first time in 10 months, indicating Europe’s largest economy is weathering the region’s debt crisis, a report showed today. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased from a three-year low in November.

Growth in China

Fitch Ratings said in a report today that China faces slower growth in home sales and construction next year as the government controls lending to developers in a bid to stabilize property prices. China’s leaders, who began their annual meeting in Beijing yesterday to map economic policies, may decide to cut taxes to spur growth after already reducing banks’ reserve requirements, according to China International Capital Corp., Goldman Sachs Group Inc. and Barclays Capital.

The increase in U.S. retail sales matched the weakest estimate of 83 economists surveyed by Bloomberg, which ranged from gains of 0.2 percent to 1.1 percent. The Commerce Department revised the advance in October purchases up to 0.6 percent from a previously estimated 0.5 percent, and September was pushed up to 1.3 percent from 1.1 percent.

Seven of 13 major categories showed gains last month, led by a 2.1 percent jump at electronics and appliance stores and a 0.5 percent increase at clothing stores.

Purchases may have accelerated at the end of the month as spending jumped 9.1 percent per customer to $398.62 in the weekend after the Thanksgiving holiday from a year earlier, according to the National Retail Federation. Sales totaled a record $52.4 billion.

After Thanksgiving

“We were positive throughout the month going into Thanksgiving and it only got better from there,” Timothy Johnson, senior vice president of finance at retailer Big Lots Inc. (BIG), said during a Dec. 2 earnings call.

J.C. Penney and Sears Holdings Corp. (SHLD)’s Kmart chain proclaimed on the front pages of their websites on Dec. 5 that it was Cyber Monday, a week after the actual event occurred. On this Cyber Monday, a term invented by the Washington-based NRF in 2005, deals ranged from 40 percent off a DVD player from Samsung Electronics Co. to 80 percent off a children’s camcorder.

Sales rose 0.5 percent at automobile dealers, after a 0.8 percent increase the prior month, today’s report showed. The increase was smaller than the rise in demand reported by automakers, which are the figures used to calculate gross domestic product.

Car Sales

Car and light truck sales advanced 3 percent last month to a 13.6 million seasonally adjusted annualized rate, the best month since August 2009, according to researcher Autodata Corp.

Sales excluding autos, gasoline and building materials, which renders the figures used to calculate gross domestic product, climbed 0.2 percent after a 0.6 percent increase in the previous month.

Payrolls climbed by 120,000 workers in November, and the jobless rate fell to 8.6 percent, the lowest since March 2009, from 9 percent, Labor Department figures showed Dec. 2. The report also showed hourly earnings dropped 0.1 percent on average, the first decrease since August.

The number of positions waiting to be filled dropped in October, indicating a sustained rebound in the labor market may take time to develop. Openings fell by 110,000 to 3.27 million, the Labor Department said today in Washington. Hiring also slowed by 110,000 from the prior month to 4.04 million, and firings eased.

Inventories rose 0.8 percent in October, the biggest gain in five months, as companies replenished depleted stocks heading into the holidays, another report from the Commerce Department showed. Even with the increase businesses had enough goods on hand to last 1.27 months at October’s sales pace, close to its lowest level of the year.

To contact the reporter on this story: Alex Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz at


China-Based Hacking Shows Global Cyber War

By Michael Riley and John Walcott - Dec 14, 2011 2:23 AM GMT+0700

Google Inc. (GOOG) and Intel Corp. (INTC) were logical targets for China-based hackers, given the solid-gold intellectual property data stored in their computers. An attack by cyber spies on iBahn, a provider of Internet services to hotels, takes some explaining.

iBahn provides broadband business and entertainment access to guests of Marriott International Inc. and other hotel chains, including multinational companies that hold meetings on site. Breaking into iBahn’s networks, according to a senior U.S. intelligence official familiar with the matter, may have let hackers see millions of confidential e-mails, even encrypted ones, as executives from Dubai to New York reported back on everything from new product development to merger negotiations.

More worrisome, hackers might have used iBahn’s system as a launching pad into corporate networks that are connected to it, using traveling employees to create a backdoor to company secrets, said Nick Percoco, head of Trustwave Corp.’s SpiderLabs, a security firm.

The hackers’ interest in companies as small as Salt Lake City-based iBahn illustrates the breadth of China’s spying against firms in the U.S. and elsewhere. The networks of at least 760 companies, research universities, Internet service providers and government agencies were hit over the last decade by the same elite group of China-based cyber spies. The companies, including firms such as Research in Motion Ltd. (RIM) and Boston Scientific Corp., range from some of the largest corporations to niche innovators in sectors like aerospace, semiconductors, pharmaceuticals and biotechnology, according to intelligence data obtained by Bloomberg News.

‘Stealing Everything’

“They are stealing everything that isn’t bolted down, and it’s getting exponentially worse,” said Representative Mike Rogers, a Michigan Republican who is chairman of the Permanent Select Committee on Intelligence.

China has made industrial espionage an integral part of its economic policy, stealing company secrets to help it leapfrog over U.S. and other foreign competitors to further its goal of becoming the world’s largest economy, U.S. intelligence officials have concluded in a report released last month.

“What has been happening over the course of the last five years is that China -- let’s call it for what it is -- has been hacking its way into every corporation it can find listed in Dun & Bradstreet,” said Richard Clarke, former special adviser on cybersecurity to U.S. President George W. Bush, at an October conference on network security. “Every corporation in the U.S., every corporation in Asia, every corporation in Germany. And using a vacuum cleaner to suck data out in terabytes and petabytes. I don’t think you can overstate the damage to this country that has already been done.”

Foreign Governments

In contrast, U.S. cyberspies go after foreign governments and foreign military and terrorist groups, Clarke said.

“We are going after things to defend ourselves against future attacks,” he said.

Such accusations intensified when a Nov. 3 report by 14 U.S. intelligence agencies fingered China as the No. 1 hacker threat to U.S. firms. While the Obama administration took the unprecedented step of outing China by name, the White House, U.S. intelligence agencies and members of Congress are struggling to assess how much damage is being done during such attacks and what to do to stop them beyond public rebuke.

For now, the administration is concentrating on raising awareness among company executives and seeking a commitment to improve security against such attacks. Rogers has a bill pending in the House that would permit the government to share secret information that would help companies spot hacker intrusions, such as signatures of malicious Chinese software.

Consistently Denied Responsibility

China has consistently denied it has any responsibility for hacking that originated from servers on its soil. Geng Shuang, a spokesman for the Chinese embassy in Washington, didn’t respond to several e-mails and phone calls requesting comment. Wang Baodong, another Chinese government spokesman in Washington, also didn’t respond to requests for comment.

Based on what is known of attacks from China, Russia and other countries, a declassified estimate of the value of the blueprints, chemical formulas and other material stolen from U.S. corporate computers in the last year reached almost $500 billion, said Rogers, a former agent for the Federal Bureau of Investigation.

Stolen Information

U.S. officials are grappling with how stolen information is being used, said Scott Borg, an economist and director of the U.S. Cyber Consequences Unit, a non-profit research institute. Calculating the damage depends on hard-to-know variables, such as how effectively and quickly thieves can integrate stolen data into competing products, the senior intelligence official said.

While a precise dollar figure for damage is elusive, the overall magnitude of the attacks is not, Borg said.

“We’re talking about stealing entire industries,” he said. “This may be the biggest transfer of wealth in a short period of time that the world has ever seen.”

The public evidence against China now being rolled out by the Obama administration, Rogers and others in Congress has been collected by the intelligence community over several years. Many of the details remain classified.

The hackers who attacked iBahn are among the most skilled of at least 17 China-based spying operations the U.S. intelligence community has identified, according to a private security official briefed on the matter who asked not to be identified because of the subject’s sensitivity.

Massive Espionage Ring

The hackers are part of a massive espionage ring codenamed Byzantine Foothold by U.S. investigators, according to a person familiar with efforts to track the group. They specialize in infiltrating networks using phishing e-mails laden with spyware, often passing on the task of exfiltrating data to others.

Segmented tasking among various groups and sophisticated support infrastructure are among the tactics intelligence officials have revealed to Congress to show the hacking is centrally coordinated, the person said. U.S. investigators estimate Byzantine Foothold is made up of anywhere from several dozen hackers to more than one hundred, said the person, who declined to be identified because the matter is secret.

“The guys who get in first tend to be the best. If you can’t get in, the rest of the guys can’t do any work,” said Richard Bejtlich, chief security officer for Mandiant Corp., an Alexandria, Virginia-based security firm that specializes in cyber espionage. “We’ve seen some real skill problems with the people who are getting the data out. I guess they figure if they haven’t been caught by that point, they’ll have as many chances as they need to remove the data.”

Secretive Companies

U.S. and other companies have been secretive about the details of their computer security. When Google announced in 2010 that China-based hackers had raided its networks, it was a rare example of a U.S. company publicly revealing a cyberburglary aimed at its intellectual property -- in this case, its source code.

Mountain View, California-based Google, the world’s largest search-engine firm, said at the time that at least 34 other major companies were victims of the same attack. However, only two -- Intel and Adobe Systems Inc. (ADBE) -- stepped forward, and they provided few specifics.

Google vastly underestimated the scope of the spying. Intelligence documents obtained by Bloomberg News show that China-based hackers have hunted technology and information across dozens of economic sectors and in some of the most obscure corners of the economy, beginning in 2001 and accelerating over the last three years. Many of the victims have been hacked more than once.

Byzantine Foothold

One victim of Byzantine Foothold, Associated Computer Systems, a division of Xerox Corp. (XRX), provides back-office services such as accounting and human resources for thousands of multinational firms and government agencies in more than 100 countries. According to its website, ACS’s expertise includes digitizing and storing documents, a potential treasure-trove of information on the firm’s corporate clients, including carmakers and computer companies.

Other targets of the group include large companies such as Hewlett-Packard Co. (HPQ), Volkswagen AG (VOW) and Yahoo! Inc. (YHOO) Smaller firms in strategic sectors were also hit, such as iBahn and Innovative Solutions & Support Inc. (ISSC), which manufactures flight-information computers; as were Massachusetts Institute of Technology, the Italian Academic and Research Network and the California State University Network.

An informal working group of private-sector cybersecurity experts and government investigators identified the victims by tracing information sent from hacked company networks to spy group-operated command-and-control servers, according to a person familiar with the process. In some cases, the targets aren’t aware they were hacked.

People’s Liberation Army

Such tracing is sometimes possible because of sloppiness and mistakes made by the spies, said another senior intelligence official who asked not to be named because the matter is classified. In one instance, a ranking officer in China’s People’s Liberation Army, or PLA, employed the same server used in cyberspying operations to communicate with his mistress, the intelligence official said.

Many of the cyberattacks have been linked to specific China-related events, a pattern noted by secret diplomatic cables published by WikiLeaks, the anti-secrecy website. During the five-year period beginning in 2006, a second group of China- based hackers ransacked the networks of at least 71 companies, government entities, think-tanks and non-profit groups, said McAfee Inc. (MFE), which analyzed information from servers used in the attacks.

‘Operation Shady Rat’

Details of those intrusions were originally published in an August report by the cybersecurity firm dubbed “Operation Shady Rat.” The report didn’t name the country where the hackers were based or identify the private-sector victims. The report’s principal author, Dmitri Alperovitch, who now heads his own firm, Asymmetric Cyber Operations, confirmed the country was China.

In one of the earliest attacks on a company, cyberspies hacked into the computer networks of POSCO, the South Korean steel giant, in July 2006, Alperovitch said. The intrusion took place the same month that the steelmaker, the third largest in the world, initiated a takeover of a large steel mill in eastern China, according to the U.S.-based Epoch Times, founded by supporters of the dissident Falun Gong spiritual sect, which first noted a link between the two events.

Earthquakes and Satellites

Two years later, Chinese rescue workers were using satellite communications equipment made by the Danish technology firm Thrane & Thrane AS (THRAN) following a major earthquake in Sichuan province. China Daily, the quasi-official newspaper, had praised the Danish equipment’s performance. Alperovitch said the Danish firm was hacked by the Shady Rat crew three months later.

“With fans like those, who needs enemies?” he said.

John Alexandersen, a spokesman for the Lundtofte, Denmark- based Thrane & Thrane, said although he couldn’t “rule out” that hackers breached their networks, no confidential data was taken. POSCO (005490) said hackers didn’t access critical networks or intellectual property.

The approval of China’s most recent five-year economic plan provides another possible link between Chinese government policy and cyber-espionage. The plan, approved by the National People’s Congress in March, identifies seven priority industries that mirror the most prominent targets of China-based cyberspies, according to the two senior U.S. intelligence officials who have knowledge of the victims.

KPMG International, the auditing firm, said the five-year plan’s priorities include clean energy; biotechnology; advanced semiconductors; information technology; high-end manufacturing, such as aerospace and telecom equipment; and biotechnology, including drugs and medical devices.

Same Shopping List

In many cases, the iBahn hackers appear to be working off the same shopping list, according to intelligence documents.

In the biotechnology sector, their victims include Boston Scientific, (BSX) the medical device maker, as well as Abbott Laboratories (ABT) and Wyeth, the drug maker that is now part of Pfizer Inc. (PFE)

The hackers also rifled networks of the Parkland Computer Center in Rockville, Maryland, according to documents provided to Bloomberg News by a person involved in government tracking of the cyberspies, who declined to be identified because the matter isn’t public. Parkland is the computing center for the Food and Drug Administration, which has access to drug trial information, chemical formulas and other data for almost every important drug sold in the U.S.

Manufacturing Sector

In the manufacturing sector, San Jose, California-based Cypress Semiconductor Corp. (CY), which makes advanced chips for telecommunications equipment, was a victim, as were Aerospace Corp., which provides scientific research on national security- related space programs, and Environmental Systems Research Institute, a Redlands, California-based company that develops mapping software.

In China, those industries are developing rapidly. Chinese companies were involved in 10 of the 13 global technology initial public offerings in the third quarter of 2011, according to PricewaterhouseCoopers LLP, the global auditing firm. The Chinese firms specialized in information technology, semiconductors and clean energy, like solar power, the PwC report said.

Driving China’s spike in cyberspying is the reality that hacking is cheaper than product development, especially given China’s vast pool of hackers, said a fourth U.S. intelligence official. That pool includes members of its militia, who hack on commission, the official said. They target computing, high technology and pharmaceutical companies whose products take lots of time and money to develop, the official said.

Byzantine Hades

U.S. counterintelligence authorities have been tracking China’s cyberspies for years under the classified codename Byzantine Hades, which a March 27, 2009, secret State Department cable published by WikiLeaks calls “a group of associated computer network intrusions with an apparent nexus to China.”

Byzantine Foothold, Byzantine Candor and Byzantine Anchor represent subsets, or various groups, of the overall Chinese cyber espionage threat, the person familiar with the secret tracking effort said.

Many of the companies hacked by Byzantine Foothold are Internet service providers, which can be used as platforms to hack other victims and disguise spying activity. An Oct. 30, 2008, State Department cable described China-based hackers accessing several computer networks of a commercial Internet provider in the U.S. They used the company’s systems to extract “at least 50 megabytes of e-mail messages and attached documents, as well as a complete list of usernames and passwords from an unspecified” U.S. government agency, according to the cable.

PLA’s Third Department

The cable stated that the hackers were based in Shanghai and linked to the PLA’s Third Department, a unit of the Chinese military that, according to a 2009 report by the U.S.-China Economic and Security Review Commission, is responsible for cyber operations.

“Some notion that this isn’t nation-state driven is just false,” said Rogers, the House intelligence committee chairman.

Fifteen of the companies and universities identified as hit by the iBahn hackers and contacted by Bloomberg News either declined to comment, said they had no knowledge of the attack, or didn’t respond to requests for comment. Erik Fallis, a spokesman for the California State University Network, said that following an investigation, “no evidence was found to suggest that this event compromised CSU assets.”

Obama administration officials seeking to forge a robust policy and diplomatic response are facing few good options, said Clarke, the former White House cyber security official.

UN Security Council

China, a member of the UN Security Council, has the power to veto multilateral initiatives aimed at the country that pass through that body.

Sanctions on Chinese goods in sectors that have been heavily targeted by cyberspies -- green energy, semiconductors and pharmaceuticals -- would be a problematic solution, probably sparking a trade war, said James Lewis, a cyber security expert at the Center for Strategic and International Studies in Washington.

U.S. government officials considering whether major corporate networks should be protected as a national security asset face opposition even from some victims protective of the Internet’s laissez-fair culture, said Richard Falkenrath, a senior fellow for counterterrorism and national security studies at the Council on Foreign Relations.

“The situation we are in now is the consequence of three decades of hands-off approach by government in the development of the Internet,” Falkenrath said.

Lack the Leverage

For now, administration officials have correctly assessed that they lack the leverage to compel China to change its alleged criminal behavior, he said.

“The Cold War is a pretty good analogy,” Falkenrath said. “There was never any serious effort to change the internal character of Soviet state.”

At a minimum, the November intelligence agency report does throw down a marker in that conflict, said Estonian Defense Minister Mart Laar. Estonia, which suffered a massive cyber attack in 2007 it said originated from Russia -- is pushing for a NATO cyber defense alliance.

“I remember how the Cold War was changed, and you could for the first time feel the Soviet defeat coming when Ronald Reagan called the Evil Empire evil,” Laar said.

To contact the reporters on this story: Michael Riley in Washington at; John Walcott in Washington at

To contact the editor responsible for this story: Michael Hytha at